INAP Reports Second Quarter 2019 Financial Results
Second Quarter Revenue of $73.1 Million is Consistent with New 2019 Baseline as INAP Captures Sales Momentum and Records Lowest Churn Quarter in Recent Years
GAAP Net Loss Attributable to INAP Shareholders of $(18.6) Million, or $(0.78) Per Share
Cash Flow from Operations was $11.8 Million, up from $2.3 Million in the Prior Quarter
Adjusted EBITDA of $24.4 Million is Up 3.4%; Management Initiated Cost Savings for the Second Half of 2019
CapEx of $7.8 Million Remains Tightly Controlled, Focused on Success-Based Deals
INAP Closed on First Megawatt Deal of the Year as a Catalyst to Expand LA Flagship Facility
Strategic Initiatives Review Remains Active
RESTON, Va. – (Aug. 6, 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 second quarter of 2019.
“INAP’s solid second quarter results include positive sales progress across multiple fronts, including our first megawatt deal of 2019, advanced private cloud and bare metal growth, and the lowest churn rate in years. The other good news is that our backlog is again up over $20 million, with a growing pipeline primarily in North America with upside in Europe. We continue to improve operations and focus on growth opportunities in our INAP Data Center Flagships,” said Peter D. Aquino, President and Chief Executive Officer. “As we previously disclosed, we have retained Moelis and LionTree to assist INAP in evaluating strategic initiatives. Our advisors reached out to the most likely parties, including strategic and financial players. This activity is currently in progress, as we pursue the most actionable opportunity in the near term for the best interests of shareholders.”
2018 results include SingleHop LLC (“SingleHop”) operations beginning March 1, 2018, and are therefore not comparable to prior periods.
Total company revenue was $73.1 million in the second quarter of 2019, a decrease sequentially of $0.4 million or 0.6%, and a decrease of $8.8 million or 10.8% year-over-year. The sequential decrease was primarily due to churn from the last remaining customers in the exited data centers. The decrease year-over-year was primarily due to planned data centers exits and churn from several large customers in 2018.
INAP US revenue totaled $57.5 million in the second quarter of 2019, flat sequentially and a decrease of 10.3% year-over-year. The second quarter revenue included churn from the exited data centers offset by a global transfer pricing adjustment between segments. The decrease year-over-year was primarily due to all of the above.
INAP INTL revenue was $15.7 million in the second quarter of 2019, a decrease of 2.3% sequentially and 12.4% year-over-year. The sequential decrease was primarily due to a global transfer pricing adjustment between segments. The decrease year-over-year was primarily due to churn from iWeb legacy products.
Second Quarter 2019 Financial Summary
Q2 Chart 1
Net Loss, Normalized Net Loss, Adjusted EBITDA and Business Unit Contribution
GAAP net loss attributable to INAP shareholders was $(18.6) million, or $(0.78) per share in the second quarter of 2019 compared with $(19.6) million, or $(0.83) per share in the first quarter of 2019. GAAP net loss in second quarter of 2018 was $(14.3) million. GAAP Net Loss Margin was (25.4)% compared to (26.7)% in the first quarter of 2019 and (17.4)% in the second quarter of 2018.
Normalized net loss2 was $(16.7) million in the second quarter of 2019 compared with $(16.6) million in the first quarter of 2019 and $(10.5) million in the second quarter of 2018.
Adjusted EBITDA1 totaled $24.4 million in the second quarter of 2019, an increase of 3.4% compared with $23.6 million in the first quarter of 2019, and 15.9% decrease compared with $29.0 million in the second quarter of 2018. The increase sequentially is due to cost savings initiatives and the decline is due to lower revenues.
Business Unit Contribution3 – INAP US and INAP INTL business unit contribution for second 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 $25.5 million in the second quarter, a 3.5% increase compared to the first quarter of 2019 and a 14.6% decrease from the second quarter of 2018. The sequential increase was primarily due to cost savings initiatives implemented at the beginning of 2019 partially offset by seasonal power increases. The year-over-year decrease was due to planned data centers exits and churn from several large customers in 2018 partially offset by ongoing cost savings initiatives beginning in the first quarter of 2019.
As a percent of revenue, INAP US business unit contribution margin was at 44.4% in the second quarter of 2019; and up 160 basis points sequentially and down 220 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 $5.6 million in the second quarter of 2019, an 11.4% decrease compared with the first quarter of 2019 and 6.6% decrease from the second quarter of 2018. The sequential decrease was due to lower revenue from the global transfer pricing adjustment as well as higher seasonal power and rent related to the new Colt facility. The year-over-year decrease was due to the churn from iWeb legacy products offset by ongoing cost savings initiatives.
As a percent of revenue, INAP INTL business unit contribution margin was 35.9% in the second quarter of 2019; down 370 basis points sequentially and up 220 basis points year-over-year.
“Second quarter revenue performance of $73 million represents baseline stability as the Company focuses on organic growth in high demand products,” said Jim Keeley, Executive Vice President, Chief Financial Officer. “Normalized for minimal data center closure revenue still included in first quarter 2019, revenues were essentially flat sequentially, replacing churn and building a larger backlog from a growing pipeline of deals. We are encouraged by this consistency and are supporting our sales teams and channel partners to grow after over two years of reconstituting our product set.”
Balance Sheet and Cash Flow Statement
Cash and cash equivalents were $10.5 million at June 30, 2019. Total debt was $687.8 million, net of discount and prepaid costs, at the end of the second quarter of 2019 including $268.4 million in finance lease obligations. The Company has $25.2 million of availability on its revolver, net of $3.7 million of letters of credit.
Cash generated from operations for the three months ended June 30, 2019 was $11.8 million compared to $2.3 million in the first quarter of 2019, and $14.8 million in the second quarter of 2018. The significant increase in cash generated from operations in the second quarter versus the first quarter was primarily due to working capital timing and a higher non-cash adjustment for leases resulting from rent abatements. Capital expenditures over the same periods were $7.8 million, compared to $8.6 million and $11.1 million, respectively. Adjusted EBITDA less CapEx1 was $16.6 million, compared to $15.0 million in the first quarter of 2019 and $17.9 million in the second quarter of 2018. Free cash flow4 over the same periods was $4.0 million, compared to $(6.4) million and $3.8 million, respectively. Unlevered free cash flow4 was $19.6 million for the second quarter of 2019, compared to $7.9 million in the first quarter of 2019 and $20.1 million in the second quarter of 2018.
INAP’s business outlook for 2019 is shown in the table below.
Q2 Chart 2
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 second 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 Tuesday, August 6, 2019 at 11:30 a.m. ET through Saturday, August 10, 2019 at 855-859-2056 using replay code 7593511. International callers can listen to the archived event at 404-537-3406 using replay code 7593511.
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, availability of capital resources and liquidity 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; the uncertainty as to whether any strategic alternative will be pursued or, if pursued, closed; uncertainty as to the terms, value and timing of any such strategic alternative; the impact of the announcement of the evaluation of strategic alternatives on INAP’s common stock, its businesses, and its operating results; our ability to realize anticipated revenue, growth, synergies and cost savings from the acquisition of SingleHop LLC (“SingleHop”); 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