INAP Reports First Quarter 2019 Financial Results
Successfully Amended Existing Credit Facility to Gain Operational Flexibility and Position for Growth
INAP’s Significant Product Portfolio Shift Resulted in Reported Revenue of $73.6 Million, Flat YoY
First Quarter Revenue Represents a New Baseline. Planned Data Center Exits are Now Completed, and Offset by Growth in Cloud Enabled by the Acquisition of SingleHop
The Revenue Decline Sequentially Includes Timing of Customer Installs and Colocation Resizing
GAAP Net Loss Attributable to INAP Shareholders $(19.6) Million was Flat Sequentially, or $(0.83) Per Share
Cash Flow from Operations was $2.3 million
Adjusted EBITDA of $23.6 Million, includes Approximately $1.0 Million of Cost Savings and Customer Installation Delays
One-Time EBITDA Decrease in the First Quarter was Offset by Conservative Capital Expenditures of $8.6 Million to Maintain Cash Flow Objectives
RESTON, VA – (May 9, 2019) Internap Corporation (NASDAQ:INAP, news, filings), a leading-edge provider of high-performance data center and cloud solutions with global network connectivity, announced today financial results for the first quarter of 2019.
“We have significant opportunities ahead to grow INAP and gain scale with our reconstructed portfolio. Year-over-year, management exited non-core data centers, and added a premier managed services platform through SingleHop to create a new baseline by the end of the first quarter of 2019. This portfolio right-sizing is now completed and establishes a new and improved INAP platform of colo, cloud and network services,” said Peter D. Aquino, President and Chief Executive Officer. “In addition, we are pleased to report the completed amendment to INAP’s credit facility as a follow-on to our recent equity raise. This operational flexibility positions the INAP platform for growth, partnerships and potential mergers. As we evaluate the opportunities to create shareholder value, we have retained Moelis & Company LLC and LionTree Advisors LLC as Financial Advisors.”
2018 results include SingleHop LLC (“SingleHop”) operations beginning March 1, 2018, and are therefore not comparable to prior periods.
Total company revenue was $73.6 million in the first quarter of 2019, a decrease sequentially of $4.7 million or 6.0% and a decrease of $0.6 million or nearly flat at 0.9% year-over-year. The sequential decrease was primarily due to planned data centers exits and resizing of certain customer footprints of $2.0 million, lower non-recurring revenues associated with installs and timing for $1.0 million, deferred revenue adjustments of $0.6 million and other decreases of $0.9 million. The sequential decreases are primarily related to the reshaping initiatives of the colocation product line.
INAP US revenue totaled $57.5 million in the first quarter of 2019, a decrease of 6.3% sequentially and an increase of 0.8% year-over-year. The sequential decrease was due primarily to all of the above.
INAP INTL revenue was $16.0 million in the first quarter of 2019, a decrease of 4.9% sequentially and 6.3% year-over-year. The decrease sequentially was primarily due to a decline in the Canada cloud business that targets smaller customers. The decrease year-over-year was partly offset by the addition of SingleHop.
First Quarter 2019 Financial Summary
Net Loss, Normalized Net Loss, Adjusted EBITDA and Business Unit Contribution
GAAP net loss attributable to INAP shareholders was $(19.6) million, or $(0.83) per share in the first quarter of 2019 compared with $(19.4) million, or $(0.82) per share in the fourth quarter of 2018. GAAP net loss in first quarter of 2018 was $(14.3) million. GAAP Net Loss Margin was (26.7)% compared to (24.8)% in the fourth quarter of 2018 and (19.3)% in the first quarter of 2018.
Normalized net loss2 was $(16.6) million in the first quarter of 2019 compared with $(16.0) million in the fourth quarter of 2018 and $(10.6) million in the first quarter of 2018.
Adjusted EBITDA1 totaled $23.6 million in the first quarter of 2019, a decrease of 15.4% compared with $27.9 million in the fourth quarter of 2018, and 9.4% decrease compared with $26.1 million in the first quarter of 2018. The decrease is primarily due to the decline in revenues and several non-recurring adjustments.
Business Unit Contribution3 – INAP US and INAP INTL business unit contribution for first quarter of 2019 is as follows:
INAP US, includes Colocation, Cloud, and Network Services. Cloud contains AgileCloud, Managed Hosting, and SingleHop businesses.
INAP US business unit contribution was $24.6 million in the first quarter, a 11.5% decrease compared to the fourth quarter of 2018 and a 8.7% decrease from the first quarter of 2018. The decrease sequentially and year-over-year was primarily due to the decrease in revenue.
As a percent of revenue, INAP US business unit contribution margin was at 42.8% in the first quarter of 2019, and down 250 basis points sequentially and 450 basis points year-over-year.
INAP INTL, includes Colocation, Cloud, and Network Services. Cloud contains AgileCloud, Managed Hosting, Ubersmith, iWeb, and SingleHop.
INAP INTL business unit contribution was $6.4 million in the first quarter of 2019, a 1.9% increase compared with the fourth quarter of 2018 and a 6.0% increase from the first quarter of 2018.
As a percent of revenue, INAP INTL business unit contribution margin was 39.6% in the first quarter of 2019, up 270 basis points sequentially and up 460 basis points year-over-year. INAP INTL business unit contribution increased sequentially due to lower network cost and was up year-over-year due to the SingleHop acquisition.
“In the first quarter, we experienced some timing delays associated with customer installs and larger wholesale deals in the pipeline. Coming out of the fourth quarter data center rationalizations, we experienced some continued revenue impact in the first quarter. We worked to maintain cash flow consistency, while we completed these portfolio initiatives,” said Jim Keeley, Executive Vice President, Chief Financial Officer. “We are focused on maintaining strict cost and capex control, while continuing to support new sales and installs.”
Balance Sheet and Cash Flow Statement
Cash and cash equivalents were $8.3 million at March 31, 2019. Total debt was $686.5 million, net of discount and prepaid costs, at the end of the first quarter of 2019 including $271.0 million in finance lease obligations. The Company has $31.2 million of availability on its revolver, net of $3.8 million of letters of credit.
Cash generated from operations for the three months ended March 31, 2019 was $2.3 million compared to $5.4 million in the fourth quarter of 2018, and $3.7 million in the first quarter of 2018. Cash provided by operations was about $3.2 million lower than expected due to the delay of a large customer remittance and in line with prior periods when included. Capital expenditures over the same periods were $8.6 million, compared to $12.4 million and $6.4 million, respectively. Adjusted EBITDA less CapEx1 was $15.0 million, compared to $15.5 million in the fourth quarter of 2018 and $19.7 million in the first quarter of 2018. Free cash flow4 over the same periods was $(6.4) million, compared to $(7.0) million and $(2.7) million, respectively. Unlevered free cash flow4 was $7.9 million for the first quarter of 2019, compared to $9.0 million in the fourth quarter of 2018 and $10.9 million in the first quarter of 2018.
INAP’s business outlook for 2019 is shown in the table below.
Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EBITDA less CapEx are non-GAAP financial measures which we define in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to Adjusted EBITDA and Adjusted EBITDA margin are contained in the table entitled “Reconciliation of GAAP Net Loss Attributable to INAP Shareholders to Adjusted EBITDA” and “Reconciliation of Forward Looking GAAP Net Loss Attributable to INAP Shareholders to Adjusted EBITDA.” Adjusted EBITDA margin is Adjusted EBITDA as a percentage of revenue. A reconciliation between GAAP information and non-GAAP information related to Adjusted EBITDA less CapEx is contained in the table entitled “Reconciliation of GAAP Net Cash Flows provided by Operating Activities to Adjusted EBITDA less CapEx.”
Normalized net loss is a non-GAAP financial measure which we define in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to normalized net loss are contained in the table entitled “Reconciliation of GAAP Net Loss Attributable to INAP Shareholders to Normalized Net Loss to INAP Shareholders.”
Business unit contribution and business unit contribution margin are non-GAAP financial measures which we define in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP and non-GAAP information related to business unit contribution and business unit contribution margin are contained in the table entitled “Business Unit Contribution and Business Unit Contribution Margin” in the attachment. Business unit contribution margin is business unit contribution as a percentage of revenue.
Free cash flow and unlevered free cash flow are non-GAAP financial measures which we define in the attachment to the press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP and non-GAAP information related to free cash flow and unlevered free cash flow are contained in the table entitled “Free Cash Flow and Unlevered Free Cash Flow.”
Conference Call Information
INAP’s first quarter 2019 conference call will be held today at 8:30 a.m. ET. Listeners may connect to a simultaneous webcast of the call, which will include accompanying presentation slides, on the Investor Relations section of INAP’s web site at http://ir.inap.com/events-and-presentations.
The call can be accessed by dialing 877-334-0775. International callers should dial 631-291-4567. An online archive of the webcast will be archived in the Investor Relations section of the Company’s website. An audio-only telephonic replay will be accessible from Thursday, May 9, 2019 at 11:30 a.m. ET through Tuesday, May 14, 2019 at 855-859-2056 using replay code 8878338. International callers can listen to the archived event at 404-537-3406 using replay code 8878338.
Internap Corporation (NASDAQ: INAP) is a leading-edge provider of high-performance data center and cloud solutions with over 100 network Points of Presence worldwide. INAP’s full-spectrum portfolio of high-density colocation, managed cloud hosting and network solutions supports evolving IT infrastructure requirements for customers ranging from the Fortune 500 to emerging startups. INAP operates in 21 metropolitan markets, primarily in North America, with data centers connected by a low-latency, high-capacity fiber network. INAP has over one million gross square feet in its portfolio, with approximately 600,000 square feet of sellable data center space. For more information, visit www.INAP.com.
Certain statements in this press release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding industry trends, our future financial position and performance, business strategy, revenues and expenses in future periods, projected levels of growth and other matters that do not relate strictly to historical facts. These statements are often identified by words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,” “continue,” “could” or “should,” that an “opportunity” exists, that we are “positioned” for a particular result, statements regarding our vision or similar expressions or variations. These statements are based on the beliefs and expectations of our management team based on information available at the time such statements are made. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. Therefore, actual future results and trends may differ materially from what is forecast in such forward-looking statements due to a variety of factors, including, without limitation: our ability to drive growth while reducing costs; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; the robustness of the IT infrastructure services market; our ability to achieve or sustain profitability; our ability to expand margins and drive higher returns on investment; our ability to sell into new and existing data center space; the actual performance of our IT infrastructure services and our ability to improve operations; our ability to correctly forecast capital needs, demand and space utilization; our ability to respond successfully to technological change and the resulting competition; the geographic concentration of our data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; our ability to identify any suitable strategic transactions; our ability to realize anticipated revenue, growth, synergies and cost savings from the acquisition of SingleHop LLC (“SingleHop”); our ability to successfully integrate SingleHop’s sales, operations, technology, and products generally; the availability of services from Internet network service providers or network service providers providing network access loops and local loops on favorable terms, or at all; the failure of third party suppliers to deliver their products and services on favorable terms, or at all; failures in our network operations centers, data centers, network access points or computer systems; our ability to provide or improve Internet infrastructure services to our customers; our ability to protect our intellectual property; our substantial amount of indebtedness, our ability to raise additional capital when needed, on attractive terms, or at all, and our ability to service existing debt or maintain compliance with financial and other covenants contained in our credit agreement; our compliance with and changes in complex laws and regulations in the U.S. and internationally; our ability to attract and retain qualified management and other personnel; and volatility in the trading price of INAP common stock.
These risks and other important factors discussed under the caption “Risk Factors” in our most recent Annual Report on Form 10-K filed with the SEC and our other reports filed with the SEC could cause actual results to differ materially from those expressed or implied by forward-looking statements made by INAP or on our behalf.
Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements attributable to INAP or persons acting on our behalf are expressly qualified in their entirety by the foregoing forward-looking statements. All such statements speak only as of the date made, and INAP undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Chief Communications Officer, INAP
Carolyn Capaccio/Jody Burfening
For more information, visit ir.inap.com