Internap Reports Record High Annual and Quarterly Adjusted EBITDA and Adjusted EBITDA Margin
Accelerates Business Unit Realignment and Updates Strategic Review Process
- 2015 revenue of $318.3 million, fourth quarter revenue of $78.8 million
- 2015 segment margin1 of 58.7%, fourth quarter segment margin of 60.1%
- 2015 adjusted EBITDA2 of $79.6 million, fourth quarter adjusted EBITDA of $22.8 million
- 2015 adjusted EBITDA margin2 of 25.0%, fourth quarter adjusted EBITDA margin of 29.0%
PR Newswire
ATLANTA, Feb. 18, 2016
ATLANTA, Feb. 18, 2016 /PRNewswire/ -- Internap Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the fourth quarter and full-year of 2015.
"We returned to sequential revenue growth in the fourth quarter that resulted in our highest adjusted EBITDA quarter in 2015 as our company-wide growth initiatives continue to yield improvements. We gained positive operating momentum throughout the second-half of 2015 with fourth quarter bookings higher than third quarter bookings and fourth quarter churn rate the lowest level in six quarters. The improved execution of our strategy is reflected in record high adjusted EBITDA and adjusted EBITDA margin, both quarterly and full-year. With a disciplined approach to capital allocation, we are encouraged in our ability to generate positive levered free cash flow(3) for the full-year 2016. We remain confident that our compelling performance based value proposition should drive long-term profitable growth for the business," said Michael Ruffolo, President and Chief Executive Officer of Internap.
Business Realignment and Strategic Review Process
Internap today also announced steps to accelerate its transition into two distinct business units: Data Center and Network Services and Cloud and Hosting Services.
Mr. Ruffolo continued, "Our team remains focused on improving our business results and earning the trusted relationship of our customers. We believe the changes to our business unit structure announced today will enable us to respond faster to the needs of our customers, while also eliminating non-core functions and better aligning our costs with the opportunities we see in the current market for each business.
"The business unit realignment also reflects insight we have gained from our strategic review process. In addition to facilitating the company's growth and creating cost savings, we believe establishing two distinct business units will open doors to more value-creating alternatives for the Company and our shareholders," said Mr. Ruffolo.
As previously announced on September 1, 2015, the Internap Board of Directors formed a Strategy Committee of independent directors to explore strategic alternatives to maximize shareholder value. With the assistance of its financial and legal advisors, Internap contacted a wide range of financial and strategic parties to ascertain interest in a potential transaction, resulting in multiple parties signing confidentiality agreements and conducting due diligence. While Internap received several preliminary, non-binding indications of interest with respect to a potential acquisition of the Company, due to a variety of factors, including the inability to obtain financing and volatility in the credit markets, no agreement was reached.
The Internap Board remains open to all alternatives for the Company and its business that would maximize shareholder value. Having conducted a thorough review for the sale of the Company as a whole, the Board has determined that accelerating Internap's business unit realignment best positions the Company for value creation as a standalone entity and also best facilitates the possibility of other value creating combinations.
The business unit realignment is designed to create more effective and efficient business operations, to improve customer and product focus and increase long-term shareholder value. As part of the realignment, the Company is redirecting its management and cost structure towards product and market opportunities where Internap believes it can create the greatest value for both customers and shareholders. These changes are expected to result in approximately $4.0 million to $5.0 million of annualized cost savings beginning in the second quarter of 2016. Savings will be generated primarily by optimizing the Company's cost structure during the business realignment, as well as reduced discretionary spending and marketing program efficiencies. Internap expects to record a one-time, below the line, restructuring charge of approximately $2.5 million to $3.0 million associated with severance and other costs to implement the plan.
Fourth Quarter and Full-Year 2015 Financial Summary ------------------------------------------------------------------------------------------- (In thousands) Fourth Quarter Full Year 2015 2014 Growth 2015 2014 Growth Revenues: Data center services $ 59,012 $ 61,305 -4% $ 236,155 $ 242,623 -3% IP services 19,744 22,958 -14% 82,138 92,336 -11% Total Revenues $ 78,756 $ 84,263 -7% $ 318,293 $ 334,959 -5% Operating Expenses $ 85,509 $ 86,517 -1% $ 344,188 $ 349,298 -1% GAAP Net Loss $ (11,269) $ (8,257) -36% $ (48,443) $ (39,494) -23% Normalized Net Loss(2) $ (7,409) $ (5,232) -42% $ (36,251) $ (27,707) -31% Segment Profit(1) $ 47,322 $ 48,788 -3% $ 186,853 $ 190,013 -2% 220 Segment Profit Margin 60.1% 57.9% BPS 58.7% 56.7% 200 BPS Adjusted EBITDA $ 22,810 $ 22,712 0% $ 79,626 $ 78,729 1% 200 Adjusted EBITDA Margin 29.0% 27.0% BPS 25.0% 23.5% 150 BPS
Revenue
-- Revenue for the full-year 2015 decreased 5% to $318.3 million compared with $335.0 million in 2014. The decrease in annual revenue was due to the loss of revenue related to customer attrition following our migration out of the New York metro data center into our Secaucus facility, the decrease in partner colocation revenue and lower IP revenue, partially offset by organic growth in core data center services revenue. Revenue for the fourth quarter of 2015 was $78.8 million, a decrease of 7% year-over-year and an increase of 1% sequentially. -- Data center services revenue for the full-year 2015 decreased 3% to $236.2 million. Fourth quarter data center services revenue was $59.0 million, a decrease of 4% compared with the fourth quarter of 2014 and an increase of 1% from the third quarter of 2015. The year-over-year revenue decrease was primarily due to the loss of revenue from the New York metro data center migration. The sequential increase was attributable to increased sales of colocation in company-controlled data centers, hosting and cloud services. Partner colocation revenue declined due to our strategy to focus on selling into our company-controlled data centers. -- IP services revenue for the full-year 2015 decreased 11% to $82.1 million. Fourth quarter IP services revenue was $19.7 million, a decrease of 14% year-over-year and flat from the third quarter of 2015. The year-over-year revenue decrease was driven by a decline in IP pricing for new and renewing customers and the loss of legacy contracts, partially offset by an increase in overall traffic. Sequentially, increased sales of Managed Internet Route Optimizer (MIRO) Controller and traffic growth offset per unit price declines in IP.
Segment Profit and Adjusted EBITDA
-- Segment profit in 2015 was $186.9 million, a decrease of 2% year-over-year. Segment profit in the fourth quarter decreased 3% compared with the fourth quarter of 2014 and increased 6% sequentially to $47.3 million. Annual segment margin was 58.7% in 2015, an increase of 200 basis points over 2014. Fourth quarter segment margin was 60.1%, an increase of 220 basis points year-over-year and 310 basis points compared with the third quarter of 2015. We achieved the highest annual and quarterly segment margin levels in our history in 2015 and fourth quarter 2015. -- Annual data center services segment profit increased 2% to $138.8 million. Fourth quarter data center services segment profit was flat year-over-year and increased 5% sequentially to $35.3 million. Annual data center services segment margin was 58.8% in 2015, an increase of 260 basis points over 2014. Fourth quarter data center services segment margin was 59.9%, an increase of 230 basis points year-over-year and 270 basis points compared with the third quarter of 2015. We achieved the highest annual and quarterly data center services segment profit and margin in our history in 2015 and fourth quarter 2015. An increasing proportion of higher-margin services, specifically colocation sold in company-controlled data centers, hosting and cloud services drove data center services segment profit and margin higher. -- IP services segment profit for the full-year 2015 decreased 10% to $48.1 million. Fourth quarter IP services segment profit decreased 11% year-over-year and increased 8% sequentially to $12.0 million. Annual IP services segment margin was 58.5% in 2015, an increase of 50 basis points over 2014. Fourth quarter IP services segment margin was 60.7%, an increase of 200 basis points year-over-year and 420 basis points compared with the third quarter of 2015. Lower IP transit revenue and the loss of legacy contracts drove the year-over-year decrease in IP services segment profit. Sequentially, increased sales of higher margin MIRO Controller led to an increase in IP services segment profit and margin. -- Full-year 2015 adjusted EBITDA increased 1% year-over-year to $79.6 million. Fourth quarter 2015 adjusted EBITDA was flat year-over-year and increased 15% sequentially to $22.8 million. Adjusted EBITDA margin was 25.0% in 2015 and 29.0% in the fourth quarter of 2015, representing year-over-year increases of 150 basis points and 200 basis points, respectively. Sequentially, fourth quarter adjusted EBITDA margin increased 380 basis points. The year-over-year increase in adjusted EBITDA margin was attributable to an increasing proportion of higher-margin core data center services, as well as lower cash operating expenses4. The sequential adjusted EBITDA and adjusted EBITDA margin improvement was also driven by increased segment profit in both our data center services and IP services segments. We achieved the highest annual and quarterly adjusted EBITDA and adjusted EBITDA margin in our history in 2015 and fourth quarter 2015.
Net Loss
-- GAAP net loss was $(48.4) million, or $(0.93) per share for the full-year 2015, compared with $(39.5) million, or $(0.77) per share in 2014. GAAP net loss in the fourth quarter was $(11.3) million, or $(0.22) per share. -- Normalized net loss was $(36.3) million, or $(0.70) per share for the full-year 2015, compared with normalized net loss of $(27.7) million, or $(0.54) per share in 2014. Normalized net loss in the fourth quarter was $(7.4) million, or $(0.14) per share.
Balance Sheet and Cash Flow Statement
-- Cash and cash equivalents totaled $17.8 million at December 31, 2015. Total debt was $375.6 million, net of discount, at the end of the quarter, including $57.1 million in capital lease obligations. -- Cash generated from operations for the 12 and three months ended December 31, 2015 were $40.2 million and $17.8 million, respectively. Capital expenditures over the same period were $57.2 million and $14.7 million, respectively. Cash interest expense over the same period were $26.4 million and $6.7 million, respectively, resulting in $(3.9) million of levered free cash flow in full-year 2015 and $1.4 million of levered free cash flow in fourth quarter 2015.
Business Outlook
We are providing the following guidance for full-year 2016:
-- Revenue $310 million - $320 million -- Adjusted EBITDA $80 million - $90 million -- Capital Expenditures $40 million - $50 million
We expect our growth initiatives and improved salesforce productivity to fully offset unavoidable 2016 churn events caused by customer consolidation. Our continued focus on improving operating efficiency is expected to result in record adjusted EBITDA and adjusted EBITDA margin, despite the loss of revenue from those events. Our capital expenditure restraint reflects a disciplined approach to capital allocation as we leverage our available data center capacity and repurpose hardware to meet demand for our hosting and cloud services.
Recent Operational Highlights
Historical trends of key financial and operational metrics can be found in a supplementary data schedule on Internap's website at ir.internap.com.
-- Internap announced that the company's managed hosting and colocation services meet the compliance requirements for PCI DSS v.3.1, the latest security standard from the PCI Council. As one of the first infrastructure providers to meet PCI's updated standard, Internap is offering ecommerce and physical retail customers the most secure infrastructure environment possible for storing, processing or transmitting cardholder data. -- We had 10,579 customers at December 31, 2015. 1. Segment margin and segment profit 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. 2. Adjusted EBITDA, adjusted EBITDA margin and normalized net loss 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 normalized net loss are contained in the tables entitled "Reconciliation of Loss from Operations to Adjusted EBITDA," and "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. 3. Levered free cash flow is a non-GAAP measure 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 levered free cash flow is contained in the table entitled "Levered Free Cash Flow" in the attachment. 4. Cash operating expense is a non-GAAP measure 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 cash operating expense is contained in the table entitled "Cash Operating Expense" in the attachment.
Conference Call Information:
Internap's fourth quarter and full-year 2015 conference call will be held today at 4:30 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 ir.internap.com. The call can be also accessed by dialing 866-515-9839. International callers should dial 631-813-4875. 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, February 18, 2016 at 7:30 p.m. ET through Wednesday, February 24, 2016 at 855-859-2056 using replay code 27892356. International callers can listen to the archived event at 404-537-3406 with the same code.
About Internap
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.
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