- Revenue of $74 million, churn down year-over-year and sequentially
- Including a $78.2 goodwill impairment, GAAP net loss was $(91.3) million, or $(1.75) per share, versus third quarter 2015 net loss of $(14.2) million or $(0.27) per share
- Adjusted EBITDA1 of $19.8 million flat versus the third quarter of 2015; Adjusted EBITDA margin1 of 26.8%, up 160 basis points year-over-year
- Company chooses a path forward post strategic process; planning in place to reduce cost structure, recapitalize and reorganize
ATLANTA– (November 3, 2016) Internap Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the third quarter of 2016.
“I am very excited about INAP’s presence in major U.S. and global markets with our impressive upper Tier colocation assets, high-capacity network capabilities and in-demand AgileCloud services led by our Montreal team,” said Peter D. Aquino, President and Chief Executive Officer of Internap. “I believe focusing on our core strengths, reorganizing, cutting costs and aligning into pure-play businesses will position us in early 2017 to leverage these great platforms to significantly increase our sales productivity. In addition, we are simultaneously exploring strategies to improve our capital structure so we have the flexibility and runway to grow organically, participate in accretive strategic transactions, and to capture growing demand for premier products and services in the expanding internet infrastructure market.”
Third Quarter 2016 Financial Summary
|3Q 2016||2Q 2016||3Q 2015||YoY
|Data center & network services||$49,767||$50,459||$52,440||-5%||-1%|
|Cloud & hosting services||$24,173||$23,856||$25,878||-7%||1%|
|GAAP Net Loss||$(91,297)||$(10,693)||$(14,197)||543%||754%|
|Normalized Net Loss2||$(7,681)||$(7,300)||$(9,990)||-23%||5%|
|Segment Profit Margin3||57.3%||57.8%||57.0%||30 BPS||-50 BPS|
|Adjusted EBITDA Margin1||26.8%||27.1%||25.2%||160 BPS||-30 BPS|
- Revenue totaled $73.9 million in the third quarter, a decrease of 6% year-over-year and 1% sequentially. Both decreases were attributable to lower IP connectivity revenue and negatively impacted by churn from a small number of large customers.
- Data Center and Network Services revenue totaled $49.8 million in the third quarter, a decrease of 5% year-over-year and 1% sequentially. Both decreases were primarily attributable to lower IP connectivity revenue related to the continued decline in pricing for new and renewing customers, the loss of legacy contracts and churn from one customer. The year-over-year results were also impacted by a decrease in partner colocation revenue offset by an increase in company-controlled colocation revenue.
- Cloud and Hosting Services revenue totaled $24.2 million in the third quarter, a decrease of 7% year-over-year and an increase of 1% sequentially. The year-over year decrease was driven by the continued negative impact of churn from a small number of large customers slightly offset by Agile bare metal server revenue growth. The sequential increase was driven by growth in Agile bare-metal server revenue.
Goodwill Impairment Charge
The company began its annual goodwill impairment test during the third quarter of 2016. Due to the complexity and the effort required to estimate the required fair values of certain reporting units, we recorded an impairment estimate of $78.2 million to adjust goodwill in our Data Center and Networks Services segment to an implied fair value of $1.9 million. We derived the fair value estimate based on preliminary assumptions and analysis that are subject to change. We will record any adjustment to the estimated impairment in the fourth quarter of 2016.
- GAAP net loss was $(91.3) million, or $(1.75) per share, compared with $(14.2) million, or $(0.27) per share, in the third quarter of 2015 and $(10.7) million, or $(0.21) per share, in the second quarter of 2016. The GAAP net loss for third quarter 2016 includes a $78.2 million goodwill impairment charge.
- Normalized net loss was $(7.7) million, or $(0.15) per share, compared with normalized net loss of $(10.0) million, or $(0.19) per share, in the third quarter of 2015, and normalized net loss of $(7.3) million, or $(0.14) per share, in the second quarter of 2016.
Segment Profit and Adjusted EBITDA
- Segment profit totaled $42.4 million in the third quarter, a 5% decrease compared with the third quarter of 2015 and a 1% decrease from the second quarter of 2016. Segment margin was 57.3%, an increase of 30 basis points year-over-year and a decrease of 50 basis points sequentially.
- Data Center and Network Services segment profit totaled $24.7 million in the third quarter, a 4% decrease compared with the third quarter of 2015 and a 4% decrease from the second quarter of 2016. Data Center and Network Services segment margin was 49.7% in the third quarter, up 70 basis points year-over-year and down 140 basis points sequentially. Lower IP connectivity revenue was the main contributor to lower segment profit.
- Cloud and Hosting Services segment profit totaled $17.7 million in the third quarter, a 7% decrease compared with the third quarter of 2015 and a 3% increase from the second quarter of 2016. Cloud and Hosting Services segment margin was 73.0% in the third quarter, down 20 basis points year-over-year and up 120 basis points sequentially. The year-over year decrease in Cloud and Hosting Services revenue resulted in declines in segment profit and segment margin. The sequential increase was driven by revenue growth and continued cost management.
- Adjusted EBITDA totaled $19.8 million in the third quarter, flat compared with the third quarter of 2015 and a 2% decrease from the second quarter of 2016. Adjusted EBITDA margin was 26.8% in the third quarter, up 160 basis points year-over-year and down 30 basis points sequentially. The year-over-year increase in adjusted EBITDA and adjusted EBITDA margin was attributable to lower cash operating expense (see attached reconciliation tables) primarily from optimizing our cost structure and improved marketing program efficiencies. Benefits included a decrease in cash-based compensation and a decrease in marketing expenses. Sequentially, lower segment profit weighed on adjusted EBITDA.
Balance Sheet and Cash Flow Statement
- Cash and cash equivalents totaled $9.6 million at September 30, 2016. Total debt was $375.1 million, net of discount and prepaid costs, at the end of the quarter, including $55.2 million in capital lease obligations.
- Cash generated from operations for the three months ended September 30, 2016 was $11.5 million. Capital expenditures over the same period were $12.9 million. Free cash flow4 was ($1.3) million and unlevered free cash flow4 was $6.2 million for the third quarter 2016.
Internap updated its financial outlook for full-year 2016:
|Revenue||$297 million – $300 million||$300 million – $305 million|
|Adjusted EBITDA||$81 million – $83 million||$83 million – $87 million|
|Capital Expenditures||$47 million – $50 million||$40 million – $50 million|
- Adjusted EBITDA, adjusted EBITDA 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 information and non-GAAP information related to adjusted EBITDA are contained in tables entitled “Reconciliation of Loss from Operations to Adjusted EBITDA”. Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenue.
- Normalized net loss and basic and diluted normalized net loss per share 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 normalized net loss and basic and diluted normalized net loss per share are contained in the table entitled “Reconciliation of Net Loss and Basic and Diluted Net Loss Per Share to Normalized Net Loss and Basic and Diluted Normalized Net Loss Per Share” in the attachment.
- Segment profit and segment 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 segment profit and segment margin are contained in the table entitled “Segment Profit and Segment Margin” in the attachment. Segment margin is segment profit 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” in the attachment.
Conference Call Information:
Internap’s third quarter 2016 conference call will be held today at 5:00 p.m. ET. Listeners may connect to a webcast of the call, which will include accompanying presentation slides, on the investor relations section of Internap’s web site at http://ir.internap.com/events.cfm. The call can be also accessed by dialing 877-334-0775. International callers should dial 631-291-4567. An online archive of the webcast presentation will be available for one month following the call. An audio-only replay will be accessible from Thursday, November 3, 2016 at 8:00 p.m. ET through Thursday, November 10, 2016 at 855-859-2056 using replay code 95010274. International callers can listen to the archived event at 404-537-3406 with the same code.
Internap is the high-performance Internet infrastructure provider that powers the applications shaping the way we live, work and play. Our hybrid infrastructure delivers performance without compromise – blending virtual and bare-metal cloud, hosting and colocation services across a global network of data centers, optimized from the application to the end user and backed by rock-solid customer support and a 100% uptime guarantee. Since 1996, the most innovative companies have relied on Internap to make their applications faster and more scalable. For more information, visit www.internap.com.
This press release contains forward-looking statements. These forward-looking statements include statements related to our planning to reduce cost structure, recapitalize and reorganize; our strategy to align into pure-play businesses and expected increases in sales productivity; our expectation of participating in accretive strategic transactions; our ability to capture growing demand in the internet infrastructure market; and our expectations for full-year 2016 revenue, adjusted EBITDA and capital expenditures. Our ability to achieve these forward-looking statements is based on certain assumptions, including our ability to execute on our business strategy, leveraging of multiple routes to market, expanded brand awareness for high-performance Internet infrastructure services and customer churn levels. These assumptions may prove to be inaccurate in the future. Because such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, there are important factors that could cause Internap’s actual results to differ materially from those in the forward-looking statements. These factors include our ability to execute on our business strategy and drive growth; 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; our ability to correctly forecast capital needs, demand planning and space utilization; our ability to respond successfully to technological change and the resulting competition; 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; 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; and our ability to protect our intellectual property, as well as other factors discussed in our filings with the Securities and Exchange Commission. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to update, amend or clarify any forward-looking statement for any reason.