UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 8-K



CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

March 14, 2019



Internap Corporation
(Exact Name of Registrant as Specified in Charter)



Delaware
(State or Other Jurisdiction of Incorporation)
001-31989
(Commission File Number)
91-2145721
(IRS Employer Identification Number

 One Ravinia Drive, Suite 1300, Atlanta, Georgia
(Address of Principal Executive Offices)
 
30346
(Zip Code)

Registrant’s telephone number, including area code: (404) 302-9700

Not applicable
(Former Name or Former Address, if Changed Since Last Report)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Securities Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Securities Act (17 CFR 240.13e-2(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐



 Item 2.02
Results of Operations and Financial Condition.

On March 14, 2019, Internap Corporation (the “Company”) issued a press release announcing its financial results for the quarter and year ended December 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1 hereto and is incorporated herein by reference.


On March 14, 2019, the Company will host a conference call to discuss its results for the quarter and year ended December 31, 2018. A copy of the presentation to be used during the conference call is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

Copies of the press release and the presentation were posted to the Company’s website at http://www.INAP.com on March 14, 2019.

The information contained herein and in the accompanying exhibits shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to this or such filing. The information in this report, including the exhibits hereto, shall be deemed to be “furnished” and therefore shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

Item 7.01
Regulation FD Disclosure.

The information in Item 2.02 is incorporated by reference herein.

The information contained herein and in the accompanying exhibits shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to this or such filing. The information in this report, including the exhibits hereto, shall be deemed to be “furnished” and therefore shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

Item 9.01
Financial Statements and Exhibits.

(d)
Exhibits

The following exhibits are furnished with this Current Report on Form 8-K:

Exhibit No.
 
Description
     
 
Press Release, dated March 14, 2019
     
 
Presentation, dated March 14, 2019


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
INTERNAP CORPORATION
   
Date: March 14, 2019
By:
/s/ James C. Keeley
   
James C. Keeley
   
EVP, Chief Financial Officer




Exhibit 99.1


INAP Reports Fourth Quarter 2018 Financial Results

-
Full Year 2018 Results

o
Revenue of $317.4 Million, Increased 13.1% Year-over-Year

o
INAP Completed Two Transactions in 2018: Acquisition of SingleHop to Upgrade Managed Services Offering; and a New Flagship Data Center in Phoenix

o
GAAP Net Loss Attributable to INAP Shareholders of $(62.5) Million, or $(3.01) Per Share

o
Adjusted EBITDA of $111.3 Million, Increased 20.7% Year-over-Year; Continued Adjusted EBITDA Margin Expansion of 220 basis points from 32.9% to 35.1% for the full year

o
Cash Flow from Operations of $34.6 Million, Capital Expenditures of $41.8 Million

o
INAP Completes Transformative 2-Year Data Center Portfolio Rationalization and Enhancement

-
Fourth Quarter 2018 Results

o
Revenue of $78.2 Million, Increased 11.7% Year-over-Year, Included Accelerating Planned Data Center Closures to Accomplish Completion by end of 2018

o
GAAP Net Loss Attributable to INAP Shareholders of $(19.4) Million, or $(0.82) Per Share

o
Adjusted EBITDA of $27.9 Million, up 14.6% Year-over-Year, Exiting Fourth Quarter at 35.7% Adjusted EBITDA Margin

o
Cash Flow from Operations of $5.4 Million, Capital Expenditures of $12.4 Million

-
Management Provides Updated 2019 Guidance

o
Revenue of $320 million to $330 million

o
Net Loss of $(37) Million to $(47) Million

o
Adjusted EBITDA of $120 Million to $130 Million

o
Capital Expenditures of $40 Million to $50 Million

RESTON, VA - (March 14, 2019) Internap  Corporation (NASDAQ: INAP), a leading-edge provider of high-performance data center and cloud solutions with global network connectivity, announced today financial results for the fourth quarter of 2018.

“We accomplished our priority objectives to create INAP 2.0 by year-end 2018. Revenue is stabilized with organic growth traction in key areas,” stated Peter D. Aquino, President and Chief Executive Officer. “We completed the majority of our infrastructure portfolio optimization, which improved our margins, and reshaped our data center footprint. Our sales team is focused on driving increased productivity in our best INAP flagship markets. We are beginning the next chapter by actively engaging in  strategic initiatives to gain scale and further transform INAP into one of the largest multi-service internet infrastructure providers. We are now positioned to compete over the long term in a broad addressable market where demand for our products and services is growing rapidly.”

Revenue

2018 results include SingleHop LLC (“SingleHop”) operations beginning March 1, 2018, and are therefore not comparable to prior periods.

·
Total company revenue was $78.2 million in the fourth quarter of 2018, a decrease of 5.7% sequentially, and an increase of 11.7% year-over-year. The sequential decrease was due to six planned data center closures in 2018 and whose impacts accelerated late in the third and beginning of the fourth quarter. The Company migrated numerous customers to INAP flagship facilities during the second half of 2018 and retaining approximately half of the revenue, while eliminating approximately $10.0 million annually in lease cash payments. The net result is a positive impact on future profitability. The decline was also due to the accumulated year-to-date effect of accounting adjustments resulting from year end true-ups, lower non-recurring revenue and slightly higher churn from the base of continuing assets. The increase year-over-year was partly due to the acquisition of SingleHop and the initiation of organic growth contributed by the new salesforce.


Beginning with the first quarter of 2018, INAP redefined its segment reporting by geography into INAP US and INAP INTL.


o
INAP US revenue totaled $61.4 million in the fourth quarter of 2018, a decrease of 6.6% sequentially and an increase of 15.3% year-over-year. The sequential decrease was due to six planned data center closures that accelerated into the fourth quarter, as discussed above. The decline was also due to the accumulated year-to-date effect of accounting adjustments resulting from year end true-ups, lower non-recurring revenue and slightly higher churn from the base of continuing assets. The increase year-over-year was partly due to the acquisition of SingleHop and the beginning of organic growth contributed by the new salesforce.


o
INAP INTL revenue was $16.9 million in the fourth quarter of 2018, a decrease of 2.4% sequentially and flat year-over-year. The decrease sequentially was primarily due to a slight decline in small business revenue.

Fourth Quarter 2018 Financial Summary

($ in thousands)
 
4Q 2018
   
3Q 2018
   
4Q 2017
   
QoQ
Growth
   
YoY
Growth
 
                               
Net Revenues
 
$
78,238
   
$
82,972
   
$
70,035
     
(5.7
)%
   
11.7
%
Operating Costs and Expenses
 
$
77,263
   
$
80,798
   
$
64,432
     
(4.4
)%
   
19.9
%
Depreciation and Amortization
 
$
23,579
   
$
23,431
   
$
17,397
     
0.6
%
   
35.5
%
Exit Activities, Restructuring and Impairments
 
$
2,266
   
$
2,347
   
$
(148
)
   
(3.5
)%
   
(1631.1
)%
All Other Operating Costs and Expenses
 
$
51,418
   
$
55,020
   
$
47,183
     
(6.5
)%
   
9.0
%
GAAP Net Loss Attributable to INAP Shareholders
 
$
(19,411
)
 
$
(15,106
)
 
$
(6,934
)
   
28.5
%
   
179.9
%
GAAP Net Loss Margin
   
(24.8
)%
   
(18.2
)%
   
(9.9
)%
               
                                         
Minus Stock-Based Compensation and Other Items
 
$
3,426
   
$
3,872
   
$
1,393
     
(11.5
)%
   
145.9
%
Normalized Net Loss2
 
$
(15,985
)
 
$
(11,234
)
 
$
(5,541
)
   
42.3
%
   
188.5
%
                                         
Adjusted EBITDA1
 
$
27,919
   
$
29,386
   
$
24,363
     
(5.0
)%
   
14.6
%
Adjusted EBITDA Margin1
   
35.7
%
   
35.4
%
   
34.8
%
               
                                         
Capital Expenditures (CapEx)
 
$
12,376
   
$
12,003
   
$
12,616
     
3.1
%
   
(1.9
)%
Adjusted EBITDA less CapEx1
 
$
15,543
   
$
17,383
   
$
11,747
     
(10.6
)%
   
32.3
%

2

Net Loss, Normalized Net Loss, Adjusted EBITDA and Business Unit Contribution

·
GAAP net loss attributable to INAP shareholders was $(19.4) million, or $(0.82) per share in the fourth quarter of 2018 compared with $(15.1) million, or $(0.75) per share in the third quarter of 2018. GAAP net loss in fourth quarter of 2017 was $(6.9) million.

·
Normalized net loss was $(16.0) million in the fourth quarter of 2018 compared with $(11.2) million in the third quarter of 2018 and $(5.5) million in the fourth quarter of 2017.

·
Adjusted EBITDA totaled $27.9 million in the fourth quarter of 2018, a decrease of 5.0% compared with $29.4 million in the third quarter of 2018, and a 14.6% increase compared with $24.4 million in the fourth quarter of 2017. Adjusted EBITDA margin was 35.7% in the fourth quarter, up 30 basis points compared to 35.4% in the third quarter, and up 90 basis points compared to 34.8% in fourth quarter of 2017. The sequential decline of $1.5 million in Adjusted EBITDA is primarily related to the accumulated year-to-date effect of accounting adjustments resulting from year end true-ups. The remaining modest decrease was due in part to the six planned data center closures whose financial impact was accelerated in the fourth quarter.

Business Unit Contribution3 - INAP US and INAP INTL business unit contribution for fourth quarter of 2018 is as follows:

INAP US, includes Colocation, Cloud, and Network Services. Cloud contains AgileCloud, Managed Hosting, and SingleHop businesses.


o
INAP US business unit contribution was $27.8 million in the fourth quarter, a 6.7% decrease compared to the third quarter of 2018 and a 21.0% increase from the fourth quarter of 2017. As a percent of revenue, INAP US business unit contribution margin was stable at 45.3% in the fourth quarter of 2018, and up 210 basis points year-over-year.

INAP INTL, includes Colocation, Cloud, and Network Services. Cloud contains AgileCloud, Managed Hosting, Ubersmith, iWeb, and SingleHop.


o
INAP INTL business unit contribution was $6.2 million in the fourth quarter of 2018, a 7.2% increase compared with the third quarter of 2018 and a 1.3% decrease from the fourth quarter of 2017. As a percent of revenue, INAP INTL business unit contribution margin was 36.9% in the fourth quarter of 2018, up 330 basis points sequentially and down 70 basis points year-over-year. INAP INTL business contribution increased sequentially due to lower network cost and was down slightly year-over-year due to lower iWeb contribution margins.

“Management has aggressively pursued initiatives that improve financial performance and our overall cost structure,” said Jim Keeley, Chief Financial Officer. “Our goal by the end of 2018 was to accelerate our projects to get to the new baseline with an integrated organization that can more quickly process sales orders from quote to cash. In addition, we have made investments in customer care and systems to upgrade the overall customer experience, and we expect our teams to leverage these investments into greater productivity in 2019.

Balance Sheet and Cash Flow Statement

·
Cash and cash equivalents were $17.8 million at December 31, 2018. Total debt was $687.1 million, net of discount and prepaid costs, at the end of the fourth quarter of 2018, including $271.5 million in capital lease obligations. The Company has $30.7 million availability on its revolver, net of $4.3 million of letters of credit, adding significant liquidity, primarily due to the Company’s recent equity raise in the fourth quarter. In October 2018, the Company closed a public offering of common stock and received net proceeds of approximately $37.1 million.

3

·
Cash generated from operations for the three months ended December 31, 2018 was $5.4 million compared to $10.3 million in third quarter of 2018, and $13.8 million in the fourth quarter of 2017. Capital expenditures over the same periods were $12.4 million, compared to $12.0 million and $12.6 million, respectively. Adjusted EBITDA less CapEx1 was $15.5 million, compared to $17.4 million in third quarter of 2018 and $11.7 million in fourth quarter of 2017. Free cash flow4 over the same periods was $(7.0) million, compared to $(1.7) million and $1.2 million, respectively. Unlevered free cash flow4 was $9.0 million for the fourth quarter of 2018, compared to $14.1 million in third quarter of 2018 and $13.0 million in fourth quarter of 2017.

Business Outlook

INAP's outlook for 2019, as noted above, includes projected full-year results for the acquired SingleHop operations. In addition, management is expecting that opportunistic/strategic tuck-ins, consistent with the 2018 addition of SingleHop and a new Tier III data center facility in Phoenix, will contribute to the Company’s results. INAP’s business outlook for 2019 is shown in the table below.

 
Full-Year 2019 Expected Range
 
Revenue
$320 million - $330 million
Adjusted EBITDA (non-GAAP)
$120 million - $130 million
Capital Expenditures
$40 million - $50 million




1.
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."


2.
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.”


3.
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.


4.
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.”

4

Conference Call Information

INAP's fourth quarter 2018 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, March 14, 2019 at 11:30 a.m. ET through Tuesday, March 19, 2019 at 11:30 a.m. by dialing 855-859-2056 using replay code 9587845. International callers can listen to the archived event at 404-537-3406 using the same code.

About INAP

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.

Forward-Looking Statements

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.

5

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.

###

Investor Contacts
 
Richard Ramlall
Carolyn Capaccio/Jody Burfening
Chief Communications Officer INAP
LHA
404-302-9982
212-838-3777
ir@inap.com
inap@lhai.com

6

INTERNAP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)

   
Three Months Ended
December 31,
   
Year Ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Net revenues
 
$
78,238
   
$
70,035
   
$
317,373
   
$
280,718
 
                                 
Operating costs and expenses:
                               
Cost of sales and services, exclusive of depreciation and amortization
   
25,382
     
25,798
     
107,262
     
106,217
 
Costs of customer support
   
8,305
     
6,122
     
32,517
     
25,757
 
Sales, general and administrative
   
17,731
     
15,263
     
75,356
     
62,728
 
Depreciation and amortization
   
23,579
     
17,397
     
90,676
     
74,993
 
Exit activities, restructuring and impairments
   
2,266
     
(148
)
   
5,406
     
6,249
 
Total operating costs and expenses
   
77,263
     
64,432
     
311,217
     
275,944
 
Income from operations
   
975
     
5,603
     
6,156
     
4,774
 
                                 
Interest expense
   
20,346
     
12,895
     
68,132
     
50,476
 
(Gain) loss on foreign currency, net
   
(263
)
   
40
     
(258
)
   
525
 
Total non-operating expenses
   
20,083
     
12,935
     
67,874
     
51,001
 
                                 
Loss before income taxes and equity in earnings of equity-method investment
   
(19,108
)
   
(7,332
)
   
(61,718
)
   
(46,227
)
Provision (benefit) for income taxes
   
253
     
(436
)
   
657
     
253
 
Equity in earnings of equity-method investment, net of taxes
   
-
     
-
     
-
     
(1,207
)
                                 
Net loss
   
(19,361
)
   
(6,896
)
   
(62,375
)
   
(45,273
)
Less net income attributable to non-controlling interest
   
50
     
38
     
125
     
70
 
Net loss attributable to INAP shareholders
   
(19,411
)
   
(6,934
)
   
(62,500
)
   
(45,343
)
                                 
Other comprehensive (loss) income:
                               
Foreign currency translation adjustment
   
235
     
9
     
259
     
23
 
Unrealized gain on foreign currency contracts
   
-
     
-
     
-
     
145
 
Total other comprehensive income
   
235
     
9
     
259
     
168
 
                                 
Comprehensive loss
 
$
(19,176
)
 
$
(6,925
)
 
$
(62,241
)
 
$
(45,175
)
                                 
Basic and diluted net loss per share
 
$
(0.82
)
 
$
(0.35
)
 
$
(3.01
)
 
$
(2.39
)
                                 
Weighted average shares outstanding used in computing basic and diluted net loss per share
   
23,606
     
20,025
     
20,732
     
18,993
 

7

INTERNAP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(Unaudited)

   
December 31,
2018
   
December 31,
2017
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
17,823
   
$
14,603
 
Accounts receivable, net of allowance for doubtful accounts of $1,547 and $1,487, respectively
   
20,054
     
17,794
 
Contract assets
   
8,844
     
-
 
Prepaid expenses and other assets
   
7,377
     
8,673
 
Total current assets
   
54,098
     
41,070
 
                 
Property and equipment, net
   
478,061
     
458,565
 
Intangible assets, net
   
73,042
     
25,666
 
Goodwill
   
116,217
     
50,209
 
Contract assets
   
16,104
     
-
 
Deposits and other assets
   
7,409
     
11,015
 
Total assets
 
$
744,931
   
$
586,525
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities:
               
Accounts payable
 
$
23,435
   
$
20,388
 
Accrued liabilities
   
15,540
     
15,908
 
Deferred revenues
   
8,022
     
4,861
 
Capital lease obligations
   
9,080
     
11,711
 
Revolving credit facility
   
-
     
5,000
 
Term loan, less discount and prepaid costs of $4,036 and $2,133, respectively
   
321
     
867
 
Exit activities and restructuring liability
   
2,526
     
4,152
 
Other current liabilities
   
1,063
     
1,707
 
Total current liabilities
   
59,987
     
64,594
 
                 
Deferred revenues
   
511
     
4,761
 
Capital lease obligations
   
262,382
     
223,749
 
Term loan, less discount and prepaid costs of $9,508 and $7,655, respectively
   
415,278
     
287,845
 
Exit activities and restructuring liability
   
75
     
664
 
Deferred rent
   
957
     
1,310
 
Deferred tax liability
   
2,211
     
1,651
 
Other long-term liabilities
   
3,473
     
2,983
 
Total liabilities
 
$
744,874
   
$
587,557
 

8

INTERNAP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(Unaudited)

   
December 31,
2018
   
December 31,
2017
 
Commitments and contingencies
           
Stockholders' deficit:
           
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding
 
$
-
   
$
-
 
Common stock, $0.001 par value; 50,000 shares authorized; 25,455 and 20,804 shares issued and outstanding, respectively
   
25
     
21
 
Additional paid-in capital
   
1,368,968
     
1,327,084
 
Treasury stock, at cost, 330 and 293, respectively
   
(7,646
)
   
(7,159
)
Accumulated deficit
   
(1,363,019
)
   
(1,323,723
)
Accumulated items of other comprehensive loss
   
(1,065
)
   
(1,324
)
Total INAP stockholders’ deficit
   
(2,737
)
   
(5,101
)
Non-controlling interest
   
2,794
     
4,069
 
Total stockholders' deficit
   
57
     
(1,032
)
Total liabilities and stockholders’ deficit
 
$
744,931
   
$
586,525
 

9

INTERNAP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

   
Year Ended
December 31,
 
   
2018
   
2017
 
Cash Flows from Operating Activities:
           
Net loss
 
$
(62,375
)
 
$
(45,273
)
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization
   
90,676
     
74,993
 
(Gain) loss on disposal of fixed asset
   
(115
)
   
(353
)
Impairments
   
-
     
503
 
Amortization of debt discount and issuance costs
   
3,874
     
2,519
 
Stock-based compensation expense, net of capitalized amount
   
4,678
     
3,040
 
Equity in earnings of equity-method investment
   
-
     
(1,207
)
Provision for doubtful accounts
   
882
     
1,049
 
Non-cash change in capital lease obligations
   
2,640
     
520
 
Non-cash change in exit activities and restructuring liability
   
4,751
     
6,291
 
Non-cash change in deferred rent
   
(979
)
   
(3,554
)
Deferred taxes
   
262
     
355
 
Loss on extinguishment and modification of debt
   
-
     
6,785
 
Other, net
   
(10
)
   
304
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(1,352
)
   
(207
)
Prepaid expenses, deposits and other assets
   
(1,232
)
   
2,051
 
Accounts payable
   
1,339
     
(1,167
)
Accrued and other liabilities
   
(1,583
)
   
3,359
 
Deferred revenues
   
435
     
(1,297
)
Exit activities and restructuring liability
   
(6,966
)
   
(6,178
)
Asset retirement obligation
   
(96
)
   
(825
)
Other liabilities
   
(257
)
   
40
 
Net cash provided by operating activities
   
34,572
     
41,748
 
                 
Cash Flows from Investing Activities:
               
Purchases of property and equipment
   
(38,298
)
   
(35,714
)
Proceeds from disposal of property and equipment
   
662
     
402
 
Business acquisition, net of cash acquired
   
(131,748
)
   
3,838
 
Acquisition of non-controlling interests
   
(1,130
)
   
-
 
Additions to acquired and developed technology
   
(3,523
)
   
(735
)
Net cash used in investing activities
 
$
(174,037
)
 
$
(32,209
)

10

INTERNAP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

   
Year Ended
December 31,
 
   
2018
    2017  
Cash Flows from Financing Activities:
           
Proceeds from credit agreements
 
$
148,500
   
$
316,900
 
Proceeds from stock issuance, net
   
37,151
     
40,195
 
Principal payments on credit agreements
   
(23,251
)
   
(339,900
)
Debt issuance costs
   
(7,302
)
   
(12,777
)
Payments on capital lease obligations
   
(12,040
)
   
(9,714
)
Proceeds from exercise of stock options
   
-
     
421
 
Acquisition of common stock for income tax withholdings
   
(488
)
   
(235
)
Other, net
   
110
     
(345
)
Net cash provided by (used in) financing activities
   
142,680
     
(5,455
)
Effect of exchange rates on cash and cash equivalents
   
5
     
130
 
Net increase in cash and cash equivalents
   
3,220
     
4,214
 
Cash and cash equivalents at beginning of period
   
14,603
     
10,389
 
Cash and cash equivalents at end of period
 
$
17,823
   
$
14,603
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid for interest
 
$
60,329
   
$
37,692
 
Non-cash acquisition of property and equipment under capital leases
   
43,909
     
189,679
 
Additions to property and equipment included in accounts payable
   
2,459
     
1,932
 

11

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES

In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings press release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less CapEx, normalized net loss, business unit contribution, business unit contribution margin, free cash flow and unlevered free cash flow. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below.

We define the following non-GAAP measures as follows:


Adjusted EBITDA is a non-GAAP measure and is GAAP net loss attributable to INAP shareholders plus depreciation and amortization, interest expense, provision (benefit) for income taxes, other (income) expense, (gain) loss on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, acquisition costs and claim settlement.


Adjusted EBITDA margin is Adjusted EBITDA as a percentage of revenues.


Adjusted EBITDA less CapEx is Adjusted EBITDA less capital expenditures with Adjusted EBITDA for this non-GAAP measure defined as net cash flow provided by operating activities plus cash paid for interest, cash paid for income taxes, cash paid for exit activities and restructuring, cash paid for strategic alternatives and related costs, cash paid for organizational realignment costs and other working capital changes less capital expenditures.


Normalized net loss is GAAP net loss attributable to INAP shareholders plus exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives, realignment and related costs and acquisition costs.


Business unit contribution is business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.


Business unit contribution margin is business unit contribution as a percentage of business unit revenue.


Free cash flow is net cash flows provided by operating activities minus capital expenditures.


Unlevered free cash flow is free cash flow plus cash interest expense.

We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations.

We believe that excluding depreciation and amortization and (gain) loss on disposals of property and equipment, as well as restructuring and impairments, to calculate Adjusted EBITDA provides supplemental information and an alternative presentation that is useful to investors’ understanding of our current ongoing operating results and trends. Not only are depreciation and amortization expenses based on historical costs of assets that may have little bearing on present or future replacement costs, but also they are based on management estimates of remaining useful lives. Loss on disposals of property and equipment is also based on historical costs of assets that may have little bearing on replacement costs. Impairments and restructuring expenses primarily reflect goodwill impairments and subsequent plan adjustments in sublease income assumptions for certain properties included in our previously disclosed restructuring plans.

We believe that excluding interest expense, provision (benefit) for income taxes and other (income) expense from non-GAAP financial measures provides supplemental information and an alternative presentation useful to investors’ understanding of our core operating results and trends. Investors have indicated that they consider financial measures of our results of operations excluding interest expense, provision (benefit) for income taxes and other (income) expense as important supplemental information useful to their understanding of our historical results and estimating our future results.

12

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

We also believe that, in excluding the effects of interest expense, provision (benefit) for income taxes and other (income) expense, our non-GAAP financial measures provide investors with transparency into what management uses to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods and to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.

We believe that exit activities, restructuring and impairment charges, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, acquisition costs and claim settlement costs are unique costs, and consequently, we do not consider these charges as a normal component of expenses related to current and ongoing operations.

Similarly, we believe that excluding the effects of stock-based compensation from non-GAAP financial measures provides supplemental information and an alternative presentation useful to investors’ understanding of our current ongoing operating results and trends. Management believes that investors consider financial measures of our results of operations excluding stock-based compensation as important supplemental information useful to their understanding of our historical results and estimating our future results.

We also believe that, in excluding the effects of stock-based compensation, our non-GAAP financial measures provide investors with transparency into what management uses to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods and to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.

Stock-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP net loss by providing normalized net loss, excluding the effect of exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, acquisition costs and claim settlement costs, in all periods, is useful to investors because it enables additional and more meaningful period-to-period comparisons.

Adjusted EBITDA is not a measure of financial performance calculated in accordance with GAAP, and should be viewed as a supplement to - not a substitute for - our results of operations presented on the basis of GAAP. Adjusted EBITDA does not purport to represent cash flow provided by operating activities as defined by GAAP. Our statements of cash flows present our cash flow activity in accordance with GAAP. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.

We believe Adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:


EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, income taxes, depreciation and amortization, which can vary substantially from company-to-company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and


investors commonly adjust EBITDA information to eliminate the effect of disposals of property and equipment, impairments, restructuring and stock-based compensation which vary widely from company-to-company and impair comparability.

13

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

Our management uses Adjusted EBITDA:


as a measure of operating performance to assist in comparing performance from period-to-period on a consistent basis;


as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and


in communications with the board of directors, analysts and investors concerning our financial performance.

Our presentation of business unit contribution and business unit contribution margin excludes depreciation and amortization in order to allow investors to see the business through the eyes of management.

We also have excluded depreciation and amortization from business unit contribution and business unit contribution margin because, as noted above, they are based on estimated useful lives of tangible and intangible assets. Further, depreciation and amortization are based on historical costs incurred to build out our deployed network and the historical costs of these assets may not be indicative of current or future capital expenditures.

Free cash flow and unlevered free cash flow are used in addition to and in conjunction with results presented in accordance with GAAP. Free cash flow and unlevered free cash flow should not be relied upon to the exclusion of GAAP financial measures. Free cash flow and unlevered free cash flow reflect an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.

We use free cash flow and unlevered free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a useful measure of cash flows since capital expenditures are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales of fixed assets exceed capital expenditures, free cash flow would exceed cash flow from operations. However, since we do not anticipate being a net seller of fixed assets, we expect free cash flow to be less than operating cash flows.

Free cash flow and unlevered free cash flow have limitations due to the fact that they do not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments made to service our debt or capital lease obligations. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

Adjusted EBITDA less CapEx is used in addition to and in conjunction with results presented in accordance with GAAP.  Adjusted EBITDA less CapEx should not be relied upon to the exclusion of GAAP financial measures. Adjusted EBITDA less CapEx reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.

We use Adjusted EBITDA less CapEx, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a useful measure of cash flows since capital expenditures are a necessary component of ongoing operations.

Adjusted EBITDA less CapEx has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. Adjusted EBITDA less CapEx does not incorporate payments made to service our debt or capital lease obligations. Therefore, we believe it is important to view Adjusted EBITDA less CapEx as a complement to our entire consolidated statements of cash flows.

Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented as we understand certain investors use it as one measure of our historical ability to service debt. Also Adjusted EBITDA is used in our debt covenants.

14

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

Although we believe, for the foregoing reasons, that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measures should only be considered in addition to, and not as a substitute for, or superior to, any measure of financial performance prepared in accordance with GAAP.

15

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF GAAP NET LOSS ATTRIBUTABLE TO INAP SHAREHOLDERS TO ADJUSTED EBITDA

A reconciliation of GAAP net loss attributable to INAP shareholders to Adjusted EBITDA (non-GAAP) for each of the periods indicated is as follows (in thousands):

   
Three Months Ended
 
   
December 31, 2018
   
September 30, 2018
   
December 31, 2017
 
Reconciliation of GAAP Net Loss Attributable to INAP Shareholders to Adjusted EBITDA:
 
Amount
   
Percent
   
Amount
   
Percent
   
Amount
   
Percent
 
                                     
Net revenues
 
$
78,238
     
100.0
%
 
$
82,972
     
100.0
%
 
$
70,035
     
100.0
%
                                                 
GAAP net loss attributable to INAP shareholders
 
$
(19,411
)
   
(24.8
)%
 
$
(15,106
)
   
(18.2
)%
 
$
(6,934
)
   
(9.9
)%
Add:
                                               
Depreciation and amortization
   
23,579
     
30.1
%
   
23,431
     
28.2
%
   
17,397
     
24.8
%
Interest expense
   
20,346
     
26.0
%
   
16,898
     
20.4
%
   
12,895
     
18.4
%
Provision (benefit) for income taxes
   
253
     
0.3
%
   
162
     
0.2
%
   
(436
)
   
(0.6
)%
Other (income) expense
   
(263
)
   
(0.3
)%
   
195
     
0.2
%
   
40
     
0.1
%
(Gain) loss on disposal of property and equipment, net
   
(13
)
   
(0.0
)%
   
(66
)
   
(0.1
)%
   
8
     
0.0
%
Exit activities, restructuring and impairments
   
2,266
     
2.9
%
   
2,347
     
2.8
%
   
(148
)
   
(0.2
)%
Stock-based compensation
   
1,104
     
1.4
%
   
1,341
     
1.6
%
   
979
     
1.4
%
Non-income tax contingency
   
6
     
0.0
%
   
36
     
0.0
%
   
-
     
0.0
%
Strategic alternatives and related costs
   
50
     
0.1
%
   
25
     
0.0
%
   
40
     
0.1
%
Organizational realignment costs
   
2
     
0.0
%
   
118
     
0.1
%
   
346
     
0.5
%
Acquisition costs
   
-
     
-
     
5
     
0.0
%
   
176
     
0.3
%
Adjusted EBITDA (non-GAAP)
 
$
27,919
     
35.7
%
 
$
29,386
     
35.4
%
 
$
24,363
     
34.8
%

   
Year Ended
 
   
December 31, 2018
   
December 31, 2017
 
Reconciliation of GAAP Net Loss Attributable to INAP Shareholders to Adjusted EBITDA:
 
Amount
   
Percent
   
Amount
   
Percent
 
                         
Net revenues
 
$
317,373
     
100.0
%
 
$
280,718
     
100.0
%
                                 
GAAP net loss attributable to INAP shareholders
 
$
(62,500
)
   
(19.7
)%
 
$
(45,343
)
   
(16.2
)%
Add:
                               
Depreciation and amortization
   
90,676
     
28.6
%
   
74,993
     
26.7
%
Interest expense
   
68,132
     
21.5
%
   
50,476
     
18.0
%
Provision for income taxes
   
657
     
0.2
%
   
253
     
0.1
%
Other (income) expense
   
(252
)
   
(0.1
)%
   
(682
)
   
(0.2
)%
(Gain) loss on disposal of property and equipment, net
   
(109
)
   
(0.0
)%
   
(353
)
   
(0.1
)%
Exit activities, restructuring and impairments
   
5,406
     
1.7
%
   
6,249
     
2.2
%
Stock-based compensation
   
4,678
     
1.5
%
   
3,040
     
1.1
%
Non-income tax contingency
   
842
     
0.3
%
   
1,500
     
0.5
%
Strategic alternatives and related costs
   
125
     
0.0
%
   
70
     
0.0
%
Claim settlement
   
-
     
-
     
713
     
0.3
%
Organizational realignment costs
   
791
     
0.2
%
   
957
     
0.3
%
Acquisition costs
   
2,869
     
0.9
%
   
373
     
0.1
%
Adjusted EBITDA (non-GAAP)
 
$
111,315
     
35.1
%
 
$
92,246
     
32.9
%

16

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF FORWARD LOOKING GAAP NET LOSS ATTRIBUTABLE TO INAP SHAREHOLDERS TO ADJUSTED EBITDA

A reconciliation of forward looking GAAP net loss attributable to INAP shareholders to Adjusted EBITDA (non-GAAP) for full-year 2019 is as follows (in millions):

   
2019 Guidance
 
   
Low
   
High
 
             
Net revenues
 
$
320
   
$
330
 
                 
GAAP net loss attributable to INAP shareholders
 
$
(47
)
 
$
(37
)
Add:
               
Depreciation and amortization
   
90
     
90
 
Interest expense
   
68
     
68
 
Exit activities, restructuring and impairments
   
2
     
2
 
Stock-based compensation
   
5
     
5
 
Non-income tax contingency and acquisition costs
   
2
     
2
 
Adjusted EBITDA (non-GAAP)
 
$
120
   
$
130
 

17

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF GAAP NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
TO ADJUSTED EBITDA LESS CAPEX

A reconciliation of GAAP Net Cash Flows Provided by Operating Activities to Adjusted EBITDA less CapEx for each of the periods indicated is as follows (in thousands):

   
Three Months Ended
 
Reconciliation of GAAP Net Cash Flows Provided by Operating Activities to Adjusted EBITDA less CapEx:
 
December 31,
2018
   
September 30,
2018
   
December 31,
2017
 
                   
Net Cash Flows provided by operating activites:
 
$
5,415
   
$
10,288
   
$
13,808
 
                         
Add :
                       
Cash paid for interest
   
16,005
     
15,815
     
11,794
 
Cash paid for income taxes
   
10
     
64
     
176
 
Cash paid for exit activities and restructuring
   
2,370
     
1,921
     
1,450
 
Cash paid for strategic alternatives and related costs
   
50
     
25
     
373
 
Cash paid for organizational realignment costs
   
2
     
118
     
282
 
Cash paid for acquisition costs
   
-
     
5
     
176
 
Other working capital changes
   
4,067
     
1,150
     
(3,696
)
Adjusted EBITDA (non-GAAP)
 
$
27,919
   
$
29,386
   
$
24,363
 
                         
Less:
                       
Capital Expenditures (CapEx)
   
12,376
     
12,003
     
12,616
 
Adjusted EBITDA less CapEx (non-GAAP)
 
$
15,543
   
$
17,383
   
$
11,747
 

18

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF GAAP NET LOSS ATTRIBUTABLE TO INAP SHAREHOLDERS TO
NORMALIZED NET LOSS TO INAP SHAREHOLDERS

Reconciliations of GAAP net loss attributable to INAP shareholders, the most directly comparable GAAP measure, to normalized net loss (non-GAAP) attributable to INAP shareholders (in thousands):

   
Three Months Ended
 
   
December 31,
2018
   
September 30,
2018
   
December 31,
2017
 
GAAP net loss attributable to INAP shareholders
 
$
(19,411
)
 
$
(15,106
)
 
$
(6,934
)
                         
Exit activities, restructuring and impairments
   
2,266
     
2,347
     
(148
)
Stock-based compensation
   
1,104
     
1,341
     
979
 
Strategic alternatives, realignment, and related costs
   
50
     
143
     
386
 
Acquisition costs
   
-
     
5
     
176
 
Non-income tax contingency
   
6
     
36
     
-
 
Normalized net loss (non-GAAP) attributable to INAP shareholders
 
$
(15,985
)
 
$
(11,234
)
 
$
(5,541
)

19

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

BUSINESS UNIT CONTRIBUTION AND BUSINESS UNIT CONTRIBUTION MARGIN

Business unit contribution and business unit contribution margin, which includes direct costs of sales and service, customer support and sales and marketing for each of the periods indicated is as follows (in thousands):

   
Three Months Ended
 
   
December 31,
2018
   
September 30,
2018
   
December 31,
2017
 
Revenues:
                 
INAP US
 
$
61,363
   
$
65,678
   
$
53,226
 
INAP INTL
   
16,875
     
17,294
     
16,809
 
Total
   
78,238
     
82,972
     
70,035
 
Direct costs of sales and services, customer support and sales and marketing:
                       
INAP US
   
33,540
     
35,842
     
30,230
 
INAP INTL
   
10,641
     
11,478
     
10,490
 
Total
   
44,181
     
47,320
     
40,720
 
Business Unit Contribution:
                       
INAP US
   
27,823
     
29,836
     
22,996
 
INAP INTL
   
6,234
     
5,816
     
6,319
 
Total
 
$
34,057
   
$
35,652
   
$
29,315
 
Business Unit Contribution Margin:
                       
INAP US
   
45.3
%
   
45.4
%
   
43.2
%
INAP INTL
   
36.9
%
   
33.6
%
   
37.6
%
Total
   
43.5
%
   
43.0
%
   
41.9
%

20

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

FREE CASH FLOW AND UNLEVERED FREE CASH FLOW

Free cash flow and unlevered free cash flow are non-GAAP measures. Free cash flow is net cash flows provided by operating activities minus capital expenditures. Unlevered free cash flow is free cash flow plus cash interest expense (in thousands):

   
Three Months Ended
 
   
December 31,
2018
   
September 30,
2018
   
December 31,
2017
 
Net cash flows provided by operating activities
 
$
5,415
   
$
10,288
   
$
13,808
 
Capital expenditures:
                       
Maintenance capital
   
(1,550
)
   
(3,597
)
   
(4,057
)
Growth capital
   
(10,826
)
   
(8,406
)
   
(8,559
)
Free cash flow (non-GAAP)
   
(6,961
)
   
(1,715
)
   
1,192
 
                         
Cash paid for interest
   
16,005
     
15,815
     
11,794
 
Unlevered free cash flow (non-GAAP)
 
$
9,044
   
$
14,100
   
$
12,986
 

21

DATA CENTER PORTFOLIO

The following table presents an overview of the portfolio of data center properties that INAP leases as of December 31, 2018:

Market
 
Gross Square
Feet (SF)1
   
Supporting
Infrastructure2
   
Office &
Other
   
Data Center
Footprint SF3
   
Current
Raised
Floor SF 4
   
Occupied
SF
   
Occupied
SF %
 
                                           
Phoenix
   
214,968
     
87,059
     
61,210
     
66,717
     
44,650
     
30,861
     
69
%
Atlanta
   
208,298
     
64,248
     
75,344
     
68,706
     
44,987
     
30,248
     
67
%
Montreal
   
126,965
     
34,572
     
46,833
     
45,560
     
28,050
     
23,890
     
85
%
New York/New Jersey5
   
114,920
     
16,405
     
28,468
     
70,047
     
47,507
     
25,919
     
55
%
Dallas
   
112,085
     
23,763
     
21,023
     
67,299
     
30,432
     
17,497
     
57
%
Los Angeles
   
109,181
     
9,623
     
12,366
     
87,192
     
18,020
     
13,318
     
74
%
Seattle
   
100,497
     
31,326
     
21,552
     
47,619
     
38,619
     
24,591
     
64
%
Santa Clara/San Jose
   
88,659
     
23,852
     
23,667
     
41,140
     
40,840
     
24,258
     
59
%
Boston
   
45,637
     
18,785
     
5,199
     
21,653
     
21,653
     
11,067
     
51
%
Houston
   
43,913
     
7,925
     
15,599
     
20,389
     
20,389
     
9,196
     
45
%
Chicago
   
14,002
     
1,551
     
-
     
12,451
     
12,076
     
10,009
     
83
%
Other6
   
26,163
     
-
     
981
     
25,165
     
20,755
     
15,968
     
77
%
Total
   
1,205,288
     
319,109
     
312,242
     
573,938
     
367,978
     
236,822
     
64
%

(1)
Represents total SF subject to our lease.
(2)
Represents total SF for mechanical and utility rooms.
(3)
Represents total SF that is currently leased or available for lease but excludes supporting infrastructure, office space, and common area.
(4)
Represents data center footprint SF less unbuilt SF.
(5)
Represents Bethel CT facility being pulled out of “New York/New Jersey” market and placed into “Other” market.
(6)
Represents Bethel CT, Miami, Northern Virginia, Oakland/San Francisco, London, Amsterdam, Frankfurt, Hong Kong, Singapore, Sydney, Tokyo, and Osaka.


22


Exhibit 99.2

     Peter D. Aquino – President and Chief Executive OfficerJames C. Keeley – Chief Financial Officer   Fourth Quarter 2018 Earnings ReportMarch 14, 2019   © 2019 Internap Corporation (INAP) 
 

 FORWARD-LOOKING STATEMENTS  Certain statements in this presentation 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.  © 2019 Internap Corporation (INAP)  2 
 

 NON-GAAP MEASURES  In addition to results presented in accordance with GAAP, this presentation includes non-GAAP financial measures. INAP believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand our underlying performance and trends. Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP financial measures as comparative tools, together with GAAP financial measures, to assist in the evaluation of our operating performance or financial condition. Our method of calculating these non-GAAP financial measures may differ from methods used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP.We have provided in this presentation reconciliations of the non-GAAP financial measures included in this presentation to the most directly comparable GAAP financial measures.   © 2019 Internap Corporation (INAP)  3 
 

 © 2019 Internap Corporation (INAP)  4   KEY MILESTONES achieved        September 2016Peter D. Aquino joined INAP as President and CEO   September 2017Internap rebrands as INAP  February 2018 Acquired SingleHop, a leading IaaS player  April 2017Closed $325mm senior secured debt refinancing            February 2017Raised $43mm in common equity private placement    November 2016Announced 3-prong strategy:   March 2018Completed debt repricing to lower interest rate on term loan  July 2018Added Phoenix DC Flagship with Bank of America as anchor tenant  August 2018Announced Colt relationship in London  November 2017Obtained control ofINAP Japan  October 2018Issued $40mm stock in public offering    2016  2017  2018  December 2018Accelerated 6 planned DC closures  Cost-cuttingRebuild the Sales TeamBalance Sheet improvement  INAP 2.0 WELL POSITIONED FOR 2019  December 2017Added second Flagship Atlanta DC with Coke as anchor tenant            INAP 2.0  INAP 2.0      INAP 2.0 
 

 © 2019 Internap Corporation (INAP)  5  3 YEAR FINANCIAL SUMMARY  Revenue  Net Loss Attributable to Shareholders  Adjusted EBITDA (non-GAAP)*  Adjusted EBITDA less Capex (non-GAAP)*  ($ in millions)   *Reconciliation to GAAP on pages 14-21 
 

 © 2019 Internap Corporation (INAP)  6  INAP’s Attributes AT-A-GLANCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    1.2MM+ GSF0.6MM SFTier III DesignProven Track Record for UptimeSupports Mission-Critical InfrastructureFortune 500 to Startups3 Routes to MarketDirect, Channel, and Online  ADTECH    SOFTWARE    TECHNOLOGYINFRASTRUCTURE    GAMING    HEALTHCARE    FINANCE        53DATA CENTERS  10COUNTRIES  21METRO MARKETS  102GLOBAL POPs  125+MW UTILITY POWER                                           
 

 © 2019 Internap Corporation (INAP)  7  INAP’s UPGRADED GLOBAL NETWORK  
 

 © 2019 Internap Corporation (INAP)  8  CONSOLIDATED EARNINGS SUMMARY   Reported Revenue and Adjusted EBITDA Increased YOY Increases are Partially Offset by Planned DC Closures in 2018   *Reconciliation to GAAP on pages 14-21 
 

 © 2019 Internap Corporation (INAP)  9  INAP US BUSINESS UNIT RESULTS  Revenue  Business Unit Contribution (non-GAAP)*   *Reconciliation to GAAP on pages 14-21  INAP US Revenue Up YoY, Contribution Margin Stable 4Q New Baseline Established (Plus SingleHop, Minus 6 DC Closures)   ($ in millions) 
 

 © 2019 Internap Corporation (INAP)  10  INAP INTL BUSINESS UNIT RESULTS  Revenue  Business Unit Contribution (non-GAAP)*  INAP INTL Revenue and Contribution Increasing SequentiallyPursuing Opportunities to Add More Colo Inventory at INAP INTL  ($ in millions)   *Reconciliation to GAAP on pages 14-21 
 

 © 2019 Internap Corporation (INAP)  11  CASH FLOW AND BALANCE SHEET   INAP Increases Growth Capital to Fund Installs   *Reconciliation to GAAP on pages 14-21 
 

   © 2019 Internap Corporation (INAP)  12  2019 guidance Ranges  Revenue  Adjusted EBITDA (non-GAAP)*  Capital Expenditures  $320-$330  $120-$130  $40-$50  ($ IN MILLIONS)  INAP 2.0 Positioned for Profitable Growth in 2019   *Reconciliation to GAAP on pages 14-21 
 

 INAP’s Robust Product set  © 2019 Internap Corporation (INAP)  13  Pursuing Strategic Initiatives in the Digital Economy 
 

 Appendix  Reconciliation of Non-GAAP Financial Measures  © 2019 Internap Corporation (INAP)  14 
 

 © 2019 Internap Corporation (INAP)  15  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Normalized Net Loss Attributable to INAP Shareholders is a non-GAAP measure. Normalized Net Loss is GAAP net loss attributable to INAP shareholders plus exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives, realignment, and related costs, and acquisition costs. 
 

 © 2019 Internap Corporation (INAP)  16  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Business Unit Contribution and Business Unit Contribution Margin are non-GAAP measures. Business Unit Contribution is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing. Business Unit Contribution Margin is Business Unit Contribution as a percentage of business unit revenues. 
 

 © 2019 Internap Corporation (INAP)  17  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Adjusted EBITDA is GAAP net loss attributable to INAP Shareholders plus depreciation and amortization, interest expense, provision (benefit) for income taxes, other (income) expense, (gain) loss on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, and acquisition costs. Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues. 
 

 © 2019 Internap Corporation (INAP)  18  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Adjusted EBITDA is GAAP net loss attributable to INAP shareholders plus depreciation and amortization, interest expense, provision for income taxes, other (income) expense, (gain) loss on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, and acquisition costs. Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues. 
 

 © 2019 Internap Corporation (INAP)  19  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Adjusted EBITDA less CapEx is a non-GAAP measure. Adjusted EBITDA less CapEx is Adjusted EBITDA less capital expenditures with Adjusted EBITDA for this non-GAAP measure defined as net cash flow provided by operating activities plus cash paid for interest, cash paid for taxes, cash paid for exit activities and restructuring, cash paid for strategic alternatives and related costs, cash paid for organizational realignment costs, cash paid for acquisition costs, and other working capital changes less capital expenditures. 
 

 © 2019 Internap Corporation (INAP)  20  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Free Cash Flow and Unlevered Free Cash Flow are non-GAAP measures. Free Cash Flow is net cash flows provided by operating activities minus capital expenditures. Unlevered Free Cash Flow is Free Cash Flow plus cash interest expense. 
 

 © 2019 Internap Corporation (INAP)  21  RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  Below is a reconciliation of forward looking GAAP Net Loss Attributable to INAP Shareholders to Adjusted EBITDA (non-GAAP) for full-year 2019 as follows: