Upgrade to SI Premium - Free Trial

Form 10-Q Internap Corp For: Mar 31

May 3, 2018 5:06 PM


    
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 

FORM 10-Q
 

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
 
Commission File Number: 001-31989
 
 
INTERNAP CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
91-2145721
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
 12120 Sunset Hills Road, Suite 330
Reston, VA 20190
(Address of Principal Executive Offices, Including Zip Code)
 
(404) 302-9700
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨
Smaller reporting company
¨
(Do not check if a smaller reporting company)
 
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. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

of May 3, 2018, 21,131,147 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.
 




INTERNAP CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2018
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i




ITEM 1. FINANCIAL STATMENTS
    
INTERNAP CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)  
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Revenues:
 
 

 
 

INAP US
 
$
57,076

 
$
55,461

INAP INTL
 
17,125

 
16,672

Total revenues
 
74,201

 
72,133

 
 
 
 
 
Operating costs and expenses:
 
 

 
 

Costs of sales and services, exclusive of depreciation and amortization, shown below:
 
 

 
 

INAP US
 
18,435

 
23,547

INAP INTL
 
6,602

 
5,498

Costs of customer support
 
7,387

 
7,264

Sales, general and administrative
 
19,854

 
16,564

Depreciation and amortization
 
21,077

 
17,745

Exit activities, restructuring and impairments
 
(33
)
 
1,023

Total operating costs and expenses
 
73,322

 
71,641

Income from operations
 
879

 
492

 
 
 
 
 
Non-operating expenses:
 
 

 
 

Interest expense
 
15,027

 
8,137

(Gain) loss on foreign currency, net
 
(215
)
 
97

Total non-operating expenses
 
14,812

 
8,234

 
 
 
 
 
Loss before income taxes, non-controlling interest and equity in earnings of equity-method investment
 
(13,933
)
 
(7,742
)
Provision for income taxes
 
100

 
518

Equity in earnings of equity-method investment, net of taxes
 

 
(30
)
 
 
 
 
 
Net loss
 
(14,033
)
 
(8,230
)
    Less net income attributable to non-controlling interest
 
27

 

Net loss attributable to INAP stockholders
 
(14,060
)
 
(8,230
)
 
 
 
 
 
Other comprehensive income:
 
 

 
 

Foreign currency translation adjustment
 
61

 
73

Unrealized gain on foreign currency contracts
 

 
85

Total other comprehensive income
 
61

 
158

 
 
 
 
 
Comprehensive loss
 
$
(13,999
)
 
$
(8,072
)
 
 
 
 
 
Basic and diluted net loss per share
 
$
(0.70
)

$
(0.50
)
 
 
 
 
 
Weighted average shares outstanding used in computing basic and diluted net loss per share
 
20,052

 
16,087

 The accompanying notes are an integral part of these condensed consolidated financial statements.

1



INTERNAP CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
 
 
March 31,
2018
 
December 31, 2017
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
16,159

 
$
14,603

Accounts receivable, net of allowance for doubtful accounts of $1,700 and $1,487, respectively
 
17,524

 
17,794

Contract assets
 
7,131

 

Prepaid expenses and other assets
 
8,690

 
8,673

Total current assets
 
49,504

 
41,070

 
 
 
 
 
Property and equipment, net
 
461,314

 
458,565

Intangible assets, net
 
79,185

 
25,666

Goodwill
 
118,077

 
50,209

Non-current contract assets
 
12,056

 

Deposits and other assets
 
11,784

 
11,015

Total assets
 
$
731,920

 
$
586,525

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
21,699

 
$
20,388

Accrued liabilities
 
14,279

 
15,908

Deferred revenues
 
5,871

 
4,861

Capital lease obligations
 
10,095

 
11,711

Revolving credit facility
 
16,000

 
5,000

Term loan, less discount and prepaid costs of $3,539 and $2,133, respectively
 
818

 
867

Exit activities and restructuring liability
 
3,391

 
4,152

Other current liabilities
 
4,197

 
1,707

Total current liabilities
 
76,350

 
64,594

 
 
 
 
 
 
 
 
 
 
Capital lease obligations
 
223,549

 
223,749

Term loan, less discount and prepaid costs of $11,286 and $7,655, respectively
 
416,766

 
287,845

Exit activities and restructuring liability
 
408

 
664

Deferred rent
 
1,138

 
1,310

Deferred tax liability
 
1,841

 
1,651

Other long-term liabilities
 
3,046

 
7,744

Total liabilities
 
723,098

 
587,557

Commitments and contingencies (note 10)
 


 


Stockholders’ deficit:
 
 

 
 

Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding
 

 

Common stock, $0.001 par value; 30,000 shares authorized; 21,131 and 20,804 shares outstanding, respectively
 
21

 
21

Additional paid-in capital
 
1,327,985

 
1,327,084

Treasury stock, at cost, 313 and 293 shares, respectively
 
(7,429
)
 
(7,159
)
Accumulated deficit
 
(1,313,598
)
 
(1,323,723
)
Accumulated items of other comprehensive loss
 
(1,263
)
 
(1,324
)
Total INAP stockholders’ deficit
 
5,716

 
(5,101
)
Non-controlling interests
 
3,106

 
4,069

Total stockholders’ deficit
 
8,822

 
(1,032
)
Total liabilities and stockholders’ deficit
 
$
731,920

 
$
586,525

 The accompanying notes are an integral part of these consolidated financial statements.

2



INTERNAP CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Cash Flows from Operating Activities:
 
 

 
 

Net loss
 
$
(14,033
)
 
$
(8,230
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
21,077

 
17,745

Loss on disposal of fixed asset
 
46

 

Amortization of debt discount and issuance costs
 
638

 
715

Stock-based compensation expense, net of capitalized amount
 
858

 
598

Equity in earnings of equity-method investment
 
2

 
(30
)
Provision for doubtful accounts
 
332

 
301

Non-cash change in capital lease obligations
 
(213
)
 
71

Non-cash change in exit activities and restructuring liability
 
372

 
980

Non-cash change in deferred rent
 
(252
)
 
(423
)
Deferred taxes
 
(30
)
 
254

Payment of debt lender fees
 
(300
)
 
(2,583
)
Other, net
 

 
(96
)
Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
864

 
2,096

Prepaid expenses, deposits and other assets
 
(467
)
 
123

Accounts payable
 
(636
)
 
(2,247
)
Accrued and other liabilities
 
(2,904
)
 
(180
)
Deferred revenues
 
(138
)
 
(510
)
Exit activities and restructuring liability
 
(1,389
)
 
(1,386
)
Asset retirement obligation
 
(248
)
 
52

Other liabilities
 
(52
)
 
14

Net cash flows provided by operating activities
 
3,527

 
7,264

 
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
 
Purchases of property and equipment
 
(6,082
)
 
(5,789
)
Proceeds from disposal of property and equipment
 
437

 

Business acquisition, net of cash acquired
 
(132,143
)
 

Acquisition of minority shares
 
(1,130
)
 

Additions to acquired and developed technology
 
(277
)
 
(200
)
Net cash flows used in investing activities
 
(139,195
)
 
(5,989
)
 
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from credit agreements
 
146,000

 

Proceeds from stock issuance
 

 
40,282

Principal payments on credit agreements
 
(1,089
)
 
(39,997
)
Debt issuance costs

(5,676
)
 

Payments on capital lease obligations
 
(2,027
)
 
(2,491
)
Proceeds from exercise of stock options
 
31

 
7

Acquisition of common stock for income tax withholdings
 
(270
)
 
(149
)
Other, net
 
235

 
(157
)
Net cash flows provided by (used in) in financing activities
 
137,204

 
(2,505
)
Effect of exchange rates on cash and cash equivalents
 
20

 
15

Net increase (decrease) in cash and cash equivalents
 
1,556

 
(1,215
)
Cash and cash equivalents at beginning of period
 
14,603

 
10,389

Cash and cash equivalents at end of period
 
$
16,159

 
$
9,174

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 

 
 

Cash paid for interest
 
$
13,000

 
$
7,336

Non-cash acquisition of property and equipment under capital leases
 

 
290

Additions to property and equipment included in accounts payable
 
2,287

 
1,247

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3



INTERNAP CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Internap Corporation (“we,” “us,” “our,” “INAP,” or “the Company”) provides high-performance data center services including colocation, managed hosting, cloud and network services. INAP partners with its customers, who range from the Fortune 500 to emerging start-ups, to create secure, scalable and reliable IT infrastructure solutions that meet the customer’s unique business requirements. INAP operates in 57 primarily Tier 3 data centers in 21 metropolitan markets and has 98 POPs around the world. INAP has over 1 million gross square feet under lease, with over 500,000 square feet of data center space. 

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements include all of our accounts and those of our wholly-owned subsidiaries. We have eliminated all intercompany transactions and balances in the accompanying financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the interim results have been reflected therein. All such adjustments were of a normal and recurring nature, with the exception of those related to the adoption of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”).  Prior year amounts have been reclassified in some cases to conform to the current year presentation.
 
We have condensed or omitted certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP. The accompanying financial statements reflect all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, necessary for a fair statement of our financial position as of March 31, 2018 and our operating results and cash flows for the interim periods presented. The balance sheet at December 31, 2017 was derived from our audited financial statements, but does not include all disclosures required by GAAP. You should read the accompanying financial statements and the related notes in conjunction with our financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (“SEC”).
 
The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ materially from these estimates. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the 2018 fiscal year or any future periods. 

2.    RECENT ACCOUNTING PRONOUNCEMENTS
 
Adoption of New Accounting Standards
 
On August 26, 2016, the Financial Accounting Standard Board (the "FASB") issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), a consensus of the FASB’s Emerging Issues Task Force. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. We adopted ASU 2016-15 in the first quarter of 2018 and it did not impact our consolidated financial statements.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), a consensus of the FASB’s Emerging Issues Task Force. The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. We adopted ASU 2016-18 in the first quarter of 2018 and it did not impact our consolidated financial statements.

On January 5, 2017, the FASB issued final guidance that revises the definition of a business, ASU No. 2017-01: Clarifying the Definition of a Business (Topic 805) ("ASU 2017-01"). The definition of a business affects many areas of accounting (e.g., acquisitions, disposals, goodwill impairment, consolidation). The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. We adopted ASU 2017-01 in the first quarter of 2018 and it did not impact our consolidated financial statements.


4



On May 10, 2017, the FASB issued guidance ASU No. 2017-09: Scope of Modification Accounting (Topic 718) ("ASU 2017-09"), to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. We adopted ASU 2017-9 in the first quarter of 2018 and it did not impact our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") to clarify the principles of recognizing revenue. Under this ASU, revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 on January 1, 2018, using the modified retrospective method. Following the adoption of ASU 2014-09, the revenue recognition for our sales arrangements remained materially consistent with our historical practice.

Together with the ASU No. 2014-09, we also adopted ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (Topic 606) ("ASU 2016-10"), that amended the above new revenue recognition guidance on accounting for licenses of intellectual property and identifying performance obligations. In addition, we adopted Accounting Standard Update 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ("ASU 2016-12"). The amendment clarified that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. It also clarified how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria.

Accounting Pronouncements Issued But Not Yet Effective
 
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"), which requires all leases in excess of 12 months to be recognized on the balance sheet as lease assets and lease liabilities. For operating leases, a lessee is required to recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payment; recognize a single lease cost over the lease term generally on a straight-line basis; and classify all cash payments within operating activities on the cash flow statement. The guidance is effective for annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted.

The Company has identified a project team and commenced an initial impact assessment process for ASU 2016-02.  We are continuing to work towards establishing policies, updating our processes and implementing necessary changes to data and processes to be able to comply with the new requirements. Based on the results of our assessment to date, we anticipate this standard will have an impact, which could be significant, on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to recognition of a right-of-use asset and lease liability. The lease liability will be initially measured at the present value of the lease payment; the asset will be based on the liability, subject to adjustment, such as for initial direct costs. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. For income statement purposes, operating leases will result in a straight line expense while finance leases will result in a front-loaded expense pattern.

The Company currently plans to adopt this standard using the modified retrospective transition approach with optional practical expedients. The Company is continuing to assess all potential impacts of the standard, the impact of the standard on current accounting policies, practices and system of internal controls, in order to identify material differences, if any, that would result from applying the new requirements.
 
3.    REVENUES

Upon adoption of ASC 606, the Company applied certain transition practical expedients available for modified retrospective adoption.

The Company adopted the practical expedient for the portfolio approach of contracts with similar characteristics in which the company reasonably expects that the effects on the financial statements of applying this practical expedient to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.

The Company also adopted the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which INAP recognizes revenue at the amount to which the

5



Company has the right to invoice for services performed, and (iii) the value for variable consideration that is applied to individual performance obligations in a series.

The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, and value added taxes).

Changes in Accounting Policies

The most significant impact of the adoption of the new standard is the requirement for incremental costs to obtain a customer, such as commissions, which previously were expensed as incurred, to be deferred and amortized over the period of contract performance or a longer period if renewals are expected and the renewal commission is not commensurate with the initial commission.

In addition, installation revenues are recognized over the initial contract life rather than over the estimated customer life, as they are not significant to the total contract and therefore do not represent a material right.

Most performance obligations, with the exception of certain sales of equipment or hardware, are satisfied over time as the customer consumes the benefits as we perform. For equipment and hardware sales, the performance obligation is satisfied when control transfers to the customer.

The Company exercised more judgment in deferring installation revenue as well as expense fulfillment and commission costs over the appropriate life. With the exception of the revenues noted above, revenue recognition remains materially consistent with historical practice. However, neither caused a material difference in the financial statement.

6



Adjustments to Reported Financial Statements from the Adoption

The following table presents the effect of the adoption of ASC 606 on the Company’s balance sheet as of January 1, 2018 (in thousands):
 
December 31, 2017, as reported
 
Adjustments
 
January 1, 2018, as adjusted
ASSETS
 
 
 

 
 

Current assets:
 
 
 

 
 

Cash and cash equivalents
$
14,603

 
$

 
$
14,603

Accounts receivable, net of allowance for doubtful accounts of $1,487
17,794

 

 
17,794

Prepaid expenses and other assets
8,673

 
6,814

 
15,487

Total current assets
41,070

 
6,814

 
47,884

 
 
 
 
 
 
Property and equipment, net
458,565

 

 
458,565

Intangible assets, net
25,666

 

 
25,666

Goodwill
50,209

 

 
50,209

Deposits and other assets
11,015

 
12,214

 
23,229

Total assets
$
586,525

 
$
19,028

 
$
605,553

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 

 
 

Current liabilities:
 
 
 

 
 

Accounts payable
$
20,388

 
$

 
$
20,388

Accrued liabilities
15,908

 

 
15,908

Deferred revenues
4,861

 
(749
)
 
4,112

Capital lease obligations
11,711

 

 
11,711

Revolving credit facility
5,000

 

 
5,000

Term loan, less discount and prepaid costs of $2,133
867

 

 
867

Exit activities and restructuring liability
4,152

 

 
4,152

Other current liabilities
1,707

 

 
1,707

Total current liabilities
64,594

 
(749
)
 
63,845

 
 
 
 
 
 
Capital lease obligations
223,749

 

 
223,749

Term loan, less discount and prepaid costs of $7,655
287,845

 

 
287,845

Exit activities and restructuring liability
664

 

 
664

Deferred rent
1,310

 

 
1,310

Deferred tax liability
1,651

 
209

 
1,860

Other long-term liabilities
7,744

 
(4,616
)
 
3,128

Total liabilities
587,557

 
(5,156
)
 
582,401

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; 30,000 shares authorized; 20,804 shares outstanding
21

 

 
21

Additional paid-in capital
1,327,084

 

 
1,327,084

Treasury stock, at cost, 293 shares
(7,159
)
 

 
(7,159
)
Accumulated deficit
(1,323,723
)
 
24,184

 
(1,299,539
)
Accumulated items of other comprehensive loss
(1,324
)
 

 
(1,324
)
Total INAP stockholders’ deficit
(5,101
)
 
24,184

 
19,083

Non-controlling interests
4,069

 

 
4,069

Total stockholders’ deficit
(1,032
)
 
24,184

 
23,152

Total liabilities and stockholders’ deficit
$
586,525

 
$
19,028

 
$
605,553






7



Current Impact from the Adoption

In accordance with the new revenue standard requirements, the disclosure of the current period impact of adoption on our
unaudited condensed consolidated statement of operations and comprehensive loss and balance sheet is as follows (in thousands, except for per share amounts):
 
For the Three Months Ended March 31, 2018
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change Higher/ (Lower)
Revenues:
 
 
 

 
 

INAP US
$
57,076

 
$
56,835

 
$
241

INAP INTL
17,125

 
17,125

 

Total revenues
74,201

 
73,960

 
241

 
 
 
 
 
 
Operating costs and expenses:


 
 
 


Costs of sales and services, exclusive of depreciation and amortization, shown below:
 
 
 
 
 
INAP US
18,435

 
18,435

 

INAP INTL
6,602

 
6,602

 

Costs of customer support
7,387

 
7,387

 

Sales, general and administrative
19,854

 
19,948

 
(94
)
Depreciation and amortization
21,077

 
21,077

 

Exit activities, restructuring and impairments
(33
)
 
(33
)
 

Total operating costs and expenses
73,322

 
73,416

 
(94
)
Income from operations
879

 
544

 
335

 


 
 
 


Non-operating expenses:
 
 
 
 
 
Interest expense
15,027

 
15,027

 

Gain on foreign currency, net
(215
)
 
(215
)
 

Total non-operating expenses
14,812

 
14,812

 

 
 
 
 
 


Loss before income taxes and non-controlling interest
(13,933
)
 
(14,268
)
 
335

Provision for income taxes
100

 
100

 

 
 
 
 
 
 
Net loss
(14,033
)
 
(14,368
)
 
335

   Less net income attributable to non-controlling interest
27

 
27

 

Net loss attributable to INAP stockholders
(14,060
)
 
(14,395
)
 
335

 
 
 
 
 


Other comprehensive income:
 
 
 
 


Foreign currency translation adjustment
61

 
61

 

 


 


 


Comprehensive loss
$
(13,999
)
 
$
(14,334
)
 
$
335

 


 
 
 


Basic and diluted net loss per share
$
(0.70
)
 
$
(0.72
)
 
$
0.02

 
 
 
 
 
 
Weighted average shares outstanding used in computing basic and diluted net loss per share
20,052

 
20,052

 








8



 
March 31, 2018
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change Higher/ (Lower)
ASSETS
 
 
 

 
 

Current assets:
 
 
 

 
 

Cash and cash equivalents
$
16,159

 
$
16,159

 
$

Accounts receivable, net of allowance for doubtful accounts of $1,700
17,524

 
17,524

 

Contract assets
7,131

 
6,872

 
259

Prepaid expenses and other assets
8,690

 
8,690

 

Total current assets
49,504

 
49,245

 
259

 
 
 
 
 
 
Property and equipment, net
461,314

 
461,314

 

Intangible assets, net
79,185

 
79,185

 

Goodwill
118,077

 
118,077

 

Non-current contract assets
12,056

 
12,027

 
29

Deposits and other assets
11,784

 
11,784

 

Total assets
$
731,920

 
$
731,632

 
$
288

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 

 
 

Current liabilities:
 
 
 

 
 

Accounts payable
$
21,699

 
$
21,699

 
$

Accrued liabilities
14,279

 
14,279

 

Deferred revenues
5,871

 
6,062

 
(191
)
Capital lease obligations
10,095

 
10,095

 

Revolving credit facility
16,000

 
16,000

 

Term loan, less discount and prepaid costs of $3,539
818

 
818

 

Exit activities and restructuring liability
3,391

 
3,391

 

Other current liabilities
4,197

 
4,197

 

Total current liabilities
76,350

 
76,541

 
(191
)
 
 
 
 
 
 
Capital lease obligations
223,549

 
223,549

 

Term loan, less discount and prepaid costs of $11,286
416,766

 
416,766

 

Exit activities and restructuring liability
408

 
408

 

Deferred rent
1,138

 
1,138

 

Deferred tax liability
1,841

 
1,841

 

Other long-term liabilities
3,046

 
2,902

 
144

Total liabilities
723,098

 
723,145

 
(47
)
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; 30,000 shares authorized; 21,131 shares outstanding
21

 
21

 

Additional paid-in capital
1,327,985

 
1,327,985

 

Treasury stock, at cost, 313 shares
(7,429
)
 
(7,429
)
 

Accumulated deficit
(1,313,598
)
 
(1,313,933
)
 
335

Accumulated items of other comprehensive loss
(1,263
)
 
(1,263
)
 

Total INAP stockholders’ deficit
5,716

 
5,381

 
335

Non-controlling interests
3,106

 
3,106

 

Total stockholders’ deficit
8,822

 
8,487

 
335

Total liabilities and stockholders’ deficit
$
731,920

 
$
731,632

 
$
288


ASC 606 did not have a significant impact on the Company's unaudited condensed consolidated statement of cash flows.



9



The Company accounts for revenue in accordance with ASC 606. Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

The Company’s contracts with customers often include performance obligations to transfer multiple products and services to a customer. Common performance obligations of the Company include delivery of services, which are discussed in more detail below. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together requires significant judgment by the Company.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Total transaction price is estimated for impact of variable consideration, such as INAP’s service level arrangements ("SLA"), additional usage and late fees, discounts and promotions, and customer care credits. The majority of our contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, we allocate the contracts transaction price to each performance obligation based on its relative standalone selling price.

The stand-alone selling price (“SSP”) is determined based on observable price. In instances where the SSP is not directly observable, such as when the Company does not sell the product or service separately, INAP determines the SSP using information that may include market conditions and other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the SSP.

Revenue by source, with sales and usage-based taxes excluded, is as follows (in thousands, unaudited):
 
 
Three Months Ended
March 31, 2018
 
 
INAP US
 
INAP INTL
Colocation
 
$
30,936

 
$
1,517

Network services
 
13,820

 
2,971

Cloud
 
12,320

 
12,637

 
 
$
57,076

 
$
17,125


Revenue by geography is as follows (in thousands, unaudited):
 
 
Three Months Ended
March 31, 2018
 
 
INAP US
 
INAP INTL
United States
 
$
57,076

 
$

Canada
 

 
9,291

Other countries
 

 
7,834

 
 
$
57,076

 
$
17,125


For the three months ended March 31, 2018, revenue recognized that was included in the contract liability balance at the beginning of each year was $0.5 million.

Management expects that fulfillment costs and commission fees paid to sales representative as a result of obtaining service contracts and contract renewals are recoverable and therefore the Company capitalized them as contract costs in the amount of $26.3 million at March 31, 2018. Capitalized fulfillment and commission fees are amortized on a straight-line basis over the determined life, which vary based on the customer segment. For the three months ended March 31, 2018, amortization recognized was $2.9 million. There was no impairment loss in relation to the costs capitalized.

Applying the practical expedient pertaining to contract costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses.

10




4.    CHANGE IN ORGANIZATIONAL STRUCTURE

During the three months ended March 31, 2018, we changed our organizational structure in an effort to create more effective and efficient operations and to improve customer and product focus. In that regard, we revised the information that our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our revised segment structure, described in more detail note 11 “Operating Segments.” We have reclassified prior period amounts to conform to the current presentation.
 
The prior year reclassifications, which did not affect total revenues, total costs of sales and services, operating loss or net loss, are summarized as follows (in thousands): 

 
 
Three Months Ended March 31, 2017
 
 
As Previously
Reported
 
Reclassification
 
As Reported
Revenues:
 
 

 
 

 
 

INAP COLO
 
$
53,339

 
$
(53,339
)
 
$

INAP CLOUD
 
18,794

 
(18,794
)
 

INAP US
 

 
55,461

 
55,461

INAP INTL
 

 
16,672

 
16,672

Costs of sales and services, exclusive of depreciation and amortization:
 
 

 
 

 
 

INAP COLO
 
24,806

 
(24,806
)
 

INAP CLOUD
 
4,239

 
(4,239
)
 

INAP US
 

 
23,547

 
23,547

INAP INTL
 

 
5,498

 
5,498


Our services, which are included within both our reportable segments, are described as follows:

Colocation
 
Colocation involves providing physical space within data centers and associated services such as power, interconnection, environmental controls, monitoring and security while allowing our customers to deploy and manage their servers, storage and other equipment in our secure data centers. We design the data center infrastructure, procure the capital equipment, deploy the infrastructure and are responsible for the operation and maintenance of the facility.

Cloud
 
Cloud services involve providing compute resources and storage services on demand via an integrated platform that includes our automated bare metal solutions. We offer our next generation cloud platforms in our high density colocation facilities and utilize the INAP performance IP for low latency connectivity. 

Network
 
Network services includes our patented Performance IP™ service, content delivery network services, IP routing hardware and software platform. By intelligently routing traffic with redundant, high-speed connections over multiple, major Internet backbones, our IP connectivity provides high-performance and highly-reliable delivery of content, applications and communications to end users globally. We deliver our IP connectivity through 97 POPs around the world.



11




5. ACQUISITION

On February 28, 2018, the Company acquired SingleHop LLC ("SingleHop"), a provider of high-performance data center services including colocation, managed hosting, cloud and network services for $132.0 million net of working capital adjustments, liabilities assumed, and net of cash acquired. The transaction was funded with an incremental term loan and cash from the balance sheet. As part of the financing, INAP obtained an amendment to its credit agreement to allow for the incremental term loan and to provide further operational flexibility under the credit agreement covenants. The amendments to the credit agreement are described in more detail in note 8, "Debt".

SingleHop is a recognized leader in the Managed Hosting and Infrastructure as a Service (IaaS) business segment, offering highly automated and on-demand IT infrastructure. This strategic combination allows INAP to immediately offer its customers advanced products and expertise. SingleHop’s enterprise and business customers will also benefit from INAP’s North America and global presence, providing a more expansive integrated footprint.

The Company determined the preliminary fair value of the net assets acquired as follows (in thousands):
 
Purchase price allocation
 
Cash
$
2,857

 
Prepaid expenses and other assets
1,683

 
Property, plant and equipment
14,885

 
Other long term assets
39

 
Intangible assets:
 
Weighted Average
Noncompete Agreements
4,000

4 years
Trade name
1,700

8 years
Technology
15,100

7 years
Customer relationship
34,100

10 years
Goodwill
67,868

 
Total assets acquired
142,232

 
Accounts payable and accrued liabilities
5,098

 
Deferred revenue
1,600

 
Long term liabilities
534

 
Net assets acquired
$
135,000

 

The goodwill recorded in connection with this acquisition was based on operating synergies and other benefits expected to result from the combined operations and the assembled workforce acquired. The goodwill acquired is deductible for tax purposes.
 
Acquisition-related costs recognized during the three months ended March 31, 2018 including transaction costs such as legal, accounting, valuation and other professional services, were $2.5 million and are included in "Sales, general and administrative" expenses on the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.


12



Pro-Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of INAP and SingleHop as if the acquisition had occurred on January 1, 2017. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the INAP and SingleHop acquisition been completed as of January 1, 2017, and should not be taken as indicative of our future consolidated results of operations.
 
Three months ended March 31, 2018 (in
thousands except per share amounts)
Three months ended March 31, 2017 (in
thousands except per share amounts)
 
Revenues
$
82,172

$
81,728

Net loss
$
(15,667
)
$
(17,739
)
Basic and diluted net loss per share
$
(0.78
)
$
(0.89
)
Weighted average shares outstanding used in computing basic and diluted net loss per share
20,052

19,877



6.    FAIR VALUE MEASUREMENTS
 
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
 
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2018
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
16,159

 
$

 
$

 
$
16,159

Asset retirement obligations(1)
 

 

 
1,729

 
1,729

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
14,603

 

 

 
14,603

Asset retirement obligations(1)
 

 

 
1,936

 
1,936

 
 
 
 
 
 
 
 
 
(1) 
We calculate the fair value of asset retirement obligations by discounting the estimated amount using the current Treasury bill rate adjusted for our credit risk. At March 31, 2018, the balance is included in “Other long-term liabilities,” in the accompanying unaudited consolidated balance sheets. At December 31, 2017, $0.2 million and $1.7 million were included in "Other current liabilities" and "Other long-term liabilities," respectively, in the accompanying unaudited consolidated balance sheets.

The following table provides a summary of changes in our Level 3 asset retirement obligations for the three months ended March 31, 2018 (in thousands): 
Balance, January 1, 2018
$
1,936

Accretion
41

Payments
(248
)
Balance, March 31, 2018
$
1,729


13



 
The fair values of our other Level 3 debt liabilities, estimated using a discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements, are as follows (in thousands):
 
 
 
March 31, 2018
 
December 31, 2017
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Term loan
 
$
432,409

 
$
435,934

 
$
298,500

 
$
301,485

Revolving credit facility
 
16,000

 
16,130

 
5,000

 
5,050

 
7.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

During the three months ended March 31, 2018, we changed our operating segments, as discussed in note 4 “Change in Organizational Structure,” and, subsequently, our reporting units. We now have seven reporting units: US Colocation, US Cloud, US Network, INT Colocation, INT Cloud, INT Network, and Ubersmith. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed.

During the three months ended March 31, 2018, our goodwill activity is as follows (in thousands):
 
 
 
December 31, 2017
 
Re-allocations
 
SingleHop Acquisition (note 5)
 
March 31, 2018
Operating segments:
 
 

 
 

 
 
 
 

INAP COLO
 
$
6,003

 
$
(6,003
)
 
$

 
$

INAP CLOUD
 
44,206

 
(44,206
)
 

 

INAP US
 

 
28,304

 
67,868

 
96,172

INAP INTL
 

 
21,905

 

 
21,905

Total
 
$
50,209

 
$

 
$
67,868

 
$
118,077

 
Other Intangible Assets

The components of our amortizing intangible assets, including capitalized software, are as follows (in thousands):

 
 
March 31, 2018
 
December 31, 2017
 
 
Gross Carrying Amount
 
AccumulatedAmortization
 
Gross Carrying Amount
 
AccumulatedAmortization
Acquired and developed technology
 
$
68,269

 
$
(48,766
)
 
$
52,825

 
$
(48,063
)
Customer relationships, trade names and noncompete
 
110,850

 
(51,168
)
 
71,116

 
(50,212
)
 
 
$
179,119

 
$
(99,934
)
 
$
123,941

 
$
(98,275
)

During the three months ended March 31, 2018 and 2017, amortization expense for intangible assets was $1.7 million and $1.1 million, respectively. As of March 31, 2018, remaining amortization expenses is as follows (in thousands):

14



Nine months remaining in 2018
$
8,636

2019
10,941

2020
10,031

2021
9,548

2022
7,839

Thereafter
32,190

 
$
79,185


8.    DEBT

Credit Agreement

On April 6, 2017, we entered into a new Credit Agreement (the “2017 Credit Agreement”), which provides for a $300 million term loan facility ("2017 term loan") and a $25 million revolving credit facility (the "2017 revolving credit facility"). The proceeds of the term loan were used to refinance the Company’s existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement.

Certain portions of refinancing transaction were considered an extinguishment of debt and certain portions were considered a modification. A total of $5.7 million was paid for debt issuance costs related to the 2017 Credit Agreement. Of the $5.7 million in costs paid, $1.9 million related to the exchange of debt and was expensed, $3.3 million related to term loan third party costs and will be amortized over the term of the loan and $0.4 million are prepaid debt issuance costs related to the revolving credit facility and will be amortized over the term of the revolving credit facility. In addition, $4.8 million of debt discount and debt issuance costs related to the previous credit facility were expensed due to the extinguishment of that credit facility. The maturity date of the term loan is April 6, 2022 and the maturity date of the 2017 revolving credit facility is October 6, 2021. As of March 31, 2018, the balance of the term loan and the revolver was $432.4 million and $16.0 million, respectively. As of March 31, 2018, the interest rate on the 2017 term loan and the revolver was 8.72% and 8.88%, respectively.

Borrowings under the amended credit agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, a base rate or an adjusted LIBOR rate. The applicable margin for loans under the revolving credit facility is 4.5% for loans bearing interest calculated using the base rate (“Base Rate Loans”) and 5.50% for loans bearing interest calculated using the adjusted LIBOR rate (“Adjusted LIBOR Loans”). The applicable margin for loans under the term loan is 5.00% for Base Rate Loans and 6.00% for Adjusted LIBOR Rate loans. The base rate is equal to the highest of (a) the adjusted U.S. Prime Lending Rate as published in the Wall Street Journal, (b) with respect to term loans issued on the closing date, 2.00%, (c) the federal funds effective rate from time to time, plus 0.50%, and (d) the adjusted LIBOR rate, as defined below, for a one-month interest period, plus 1.00%. The adjusted LIBOR rate is equal to the rate per annum (adjusted for statutory reserve requirements for Eurocurrency liabilities) at which Eurodollar deposits are offered in the interbank Eurodollar market for the applicable interest period (one, two, three or six months), as quoted on Reuters screen LIBOR (or any successor page or service). The financing commitments of the Lenders extending the revolving credit facility are subject to various conditions, as set forth in the credit agreement. 

First Amendment

On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement (“First Amendment”), by and among the Company, each of the lenders party thereto, and Jefferies Finance LLC, as Administrative Agent. The First Amendment clarified that for all purposes the Company’s liabilities pursuant to any lease that was treated as rental and lease expense, and not as a capital lease obligation or indebtedness on the closing date of the 2017 Credit Agreement, would continue to be treated as a rental and lease expense, and not as a capital lease obligations or indebtedness, for all purposes of the 2017 Credit Agreement, notwithstanding any amendment of the lease that results in the treatment of such lease as a capital lease obligation or indebtedness for financial reporting purposes.

Second Amendment

On February 6, 2018, the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent, entered into a Second Amendment to Credit Agreement (the “Second Amendment”) that amended the 2017 Credit Agreement.

The Second Amendment, among other things, amends the 2017 Credit Agreement (i) to permit the Company to incur incremental term loans under the 2017 Credit Agreement of up to $135 million to finance the Company’s acquisition of SingleHop and to pay

15



related fees, costs and expenses and (ii) to revise the maximum total net leverage ratio and minimum consolidated interest coverage ratio covenants.  The financial covenant amendments became effective upon the consummation of the SingleHop acquisition, while the other provisions of the 2018 Second Amendment became effective upon the execution and delivery of the Second Amendment.  At March 31, 2018, the Company has been in compliance with the covenants.

A total of $1.0 million was paid for debt issuance costs related to the Second Amendment. Of the $1.0 million in costs paid, $0.2 million related to the payment of legal and professional which were expensed, $0.8 million related to term loan lender fees and will be amortized over the term of the loan.

Third Amendment

On February 28, 2018, INAP entered into the Incremental and Third Amendment to the Credit Agreement among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the “Third Amendment”).  The Third Amendment provides for a new incremental term loan facility under the 2017 Credit Agreement of $135 million (the “Incremental Term Loan”). The Incremental Term Loan has terms and conditions identical to the existing loans under the 2017 Credit Agreement, as amended.  Proceeds of the Incremental Term Loan were used to complete the acquisition of SingleHop and to pay fees, costs and expenses related to the acquisition, the Third Amendment and the Incremental Term Loan. This transaction was considered a modification. 

A total of $5.0 million was paid for debt issuance costs related to the First Amendment. Of the $5.0 million in costs paid, $0.1 million related to the payment of legal and professional which were expensed, $4.9 million related to term loan lender fees and will be amortized over the term of the loan.

9.    EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES
 
During the three months ended March 31, 2018, we recorded initial exit activity charges due to ceasing use of office space. We include initial charges and plan adjustments in “Exit activities, restructuring and impairments” in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2018 and 2017.

The following table displays the transactions and balances for exit activities and restructuring charges during the three months ended March 31, 2018 and 2017 (in thousands). Our real estate and severance obligations are substantially related to our INAP US segment.
 
 
 
Balance December 31, 2017
 
Initial
Charges
 
Plan
Adjustments
 
Cash
Payments
 
Balance March 31, 2018
Activity for 2018 restructuring charge:
 
 
 
 
 
 
 
 
 
 
Real estate obligations
 
$

 
$
171

 
$
9

 
$
(23
)
 
$
157

Activity for 2017 restructuring charge:
 
 

 
 

 
 

 
 

 
 

Real estate obligations
 
3,380

 

 
72

 
(1,020
)
 
2,432

Activity for 2016 restructuring charge:
 


 


 


 


 


Severance
 
46

 

 
34

 
(34
)
 
46

Real estate obligations
 
247

 

 
7

 
(38
)
 
216

Activity for 2015 restructuring charge:
 
 

 


 


 


 
 

Real estate obligation
 
64

 

 
12

 
(22
)
 
54

Service contracts
 
388

 

 
8

 
(50
)
 
346

Activity for 2014 restructuring charge:
 
 

 


 


 


 
 

Real estate obligation
 
691

 

 
59

 
(202
)
 
548

 
 
$
4,816

 
$
171

 
$
201

 
$
(1,389
)
 
$
3,799

 

16



 
 
Balance December 31, 2016
 
Initial
Charges
 
Plan
Adjustments
 
Cash
Payments
 
Balance March 31, 2017
Activity for 2016 restructuring charge:
 
 

 
 

 
 

 
 

 
 

Real estate obligations
 
$
1,911

 
$

 
$
566

 
$
(993
)
 
$
1,484

Service contracts
 
933

 

 
378

 
(187
)
 
1,124

Activity for 2015 restructuring charge:
 
 

 
 
 
 
 
 

 
 

Real estate obligation
 
111

 

 
(4
)
 
(7
)
 
100

Service contracts
 
565

 

 
5

 
(49
)
 
521

Activity for 2014 restructuring charge:
 
 

 
 
 
 

 
 

 
 

Real estate obligations
 
1,183

 

 
34

 
(150
)
 
1,067

 
 
$
4,703

 
$

 
$
979

 
$
(1,386
)
 
$
4,296

 

17



10.    COMMITMENTS, CONTINGENCIES AND LITIGATION

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows.
 
11.    OPERATING SEGMENTS
 
The Company has two reportable segments: INAP US and INAP INTL. These segments are comprised of strategic businesses that are defined by the location of the service offerings. Our INAP US segment consists of US Colocation, US Cloud, and US Network services based in the United States. Our INAP INTL segment consists of these same services based in countries other than the United States, and Ubersmith.

Each segment is managed as an operation with well-established strategic directions and performance requirements. Each segment is led by a separate General Manager who reports directly to the Company’s CODM. The CODM evaluates segment performance using business unit contribution which is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.
  
Our services, which are included within both our reportable segments, are described as follows:

Colocation
 
Colocation involves providing physical space within data centers and associated services such as power, interconnection, environmental controls, monitoring and security while allowing our customers to deploy and manage their servers, storage and other equipment in our secure data centers. We design the data center infrastructure, procure the capital equipment, deploy the infrastructure and are responsible for the operation and maintenance of the facility.

Cloud
 
Cloud services involve providing compute resources and storage services on demand via an integrated platform that includes our automated bare metal solutions. We offer our next generation cloud platforms in our high density colocation facilities and utilize the INAP performance IP for low latency connectivity. 

Network
 
Network services includes our patented Performance IP™ service, content delivery network services, IP routing hardware and software platform. By intelligently routing traffic with redundant, high-speed connections over multiple, major Internet backbones, our IP connectivity provides high-performance and highly-reliable delivery of content, applications and communications to end users globally. We deliver our IP connectivity through 97 POPs around the world.






18



The following table provides segment results with prior period amounts reclassified to conform to the current presentation (in thousands):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenues:
 
 

 
 

INAP US
 
$
57,076

 
$
55,461

INAP INTL
 
17,125

 
16,672

Total revenues
 
74,201

 
72,133

 
 
 
 
 
Cost of sales and services, customer support and sales and marketing:
 
 

 
 

INAP US
 
30,537

 
35,457

INAP INTL
 
11,133

 
9,002

Total costs of sales and services, customer support and sales and marketing
 
41,670

 
44,459

 
 
 
 
 
Segment profit:
 
 

 
 

INAP US
 
26,539

 
20,004

INAP INTL
 
5,992

 
7,670

Total segment profit
 
32,531

 
27,674

 
 
 
 
 
Exit activities, restructuring and impairments
 
(33
)
 
1,023

Other operating expenses, including general and administrative and depreciation and amortization expenses
 
31,685

 
26,159

Income from operations
 
879

 
492

Non-operating expenses
 
14,812

 
8,234

Loss before income taxes and non-controlling interest
 
$
(13,933
)
 
$
(7,742
)

The CODM does not manage the operating segments based on asset allocations. Therefore, assets by operating segment have not been provided.


12. NET LOSS PER SHARE

We compute basic net loss per share by dividing net loss attributable to our common stockholders by the weighted average number of shares of common stock outstanding during the period. We exclude all outstanding options and unvested restricted stock as such securities are anti-dilutive for all periods presented.


19



Basic and diluted net loss per share is calculated as follows (in thousands, except per share amounts):
 
 
 
Three Months Ended
March 31,
 
 
 
2018
 
2017
 
Net loss
 
$
(14,033
)
 
$
(8,230
)
 
Less net income attributable to non-controlling stockholders
 
27

 

 
Net loss attributable to common stock
 
$
(14,060
)

$
(8,230
)
 
Weighted average shares outstanding, basic and diluted
 
20,052

 
16,087

 
 
 


 


 
Net loss per share, basic and diluted
 
$
(0.70
)
 
$
(0.50
)
 
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans
 
1,336

 
1,385

 

13. SUBSEQUENT EVENTS

On April 9, 2018, the Company entered into the Fourth Amendment to 2017 Credit Agreement, among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the “Fourth Amendment”).  The Fourth Amendment amends the 2017 Credit Agreement to lower the interest rate margins applicable to the outstanding term loans under the 2017 Credit Agreement by 1.25%.

In addition, the Fourth Amendment amends the 2017 Credit Agreement such that if the Company incurs a “Repricing Event” (as defined in the 2017 Credit Agreement), before October 9, 2018, then the Company will incur a 1.0% prepayment premium on any term loans that are subject to such Repricing Event. 


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
 
As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” “INAP.” or “the Company” refers to Internap Corporation and our subsidiaries.

Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements include statements related to sales, improved profitability, margin expansion, operations improvement, cost reductions, participation in strategic transactions, our expectations for 2018 revenue, Adjusted EBITDA, capital expenditures and Adjusted EBITDA less Capex. 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 inaccurate in the future. Because such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, there are important factors that could cause INAP’s actual results to differ materially from those expressed or implied in the forward-looking statements, due to a variety of important factors.

Such important factors include, without limitation: our ability to execute on our business strategy 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 improving operations; 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 geographic concentration of the Company’s data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; ability to identify any suitable strategic transactions; ability to realize anticipated revenue, growth, synergies and cost savings from the acquisition of SingleHop; INAP's 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; 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

20



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 possibility to raise additional capital when needed, on attractive terms, or at all, 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 Securities and Exchange Commission (“SEC”), and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release.

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 its 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.
 
Overview
 
INAP provides high-performance data center services including colocation, managed hosting, cloud and network services. INAP partners with its customers, who range from the Fortune 500 to emerging start-ups, to create secure, scalable and reliable IT infrastructure solutions that meet the customer’s unique business requirements. INAP operates in 57 primarily Tier 3 data centers in 21 metropolitan markets and has 98 POPs around the world. INAP has over 1 million gross square feet under lease, with over 500,000 square feet of data center space. 

Change in Organizational Structure
 
During the three months ended March 31, 2018, we changed our organizational structure in an effort to create more effective and efficient business operations and to improve customer and product focus. In that regard, we revised the information that our chief executive officer, who is also our chief operating decision maker, regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our two revised segments, INAP US and INAP INTL. The new operating segments are described in note 11 “Operating Segments” in the accompanying consolidated financial statements. We have reclassified prior period amounts to conform to the current presentation.
 
Recent Accounting Pronouncements
 
Recent accounting pronouncements are summarized in note 2 "Recent Accounting Pronouncements" in the accompanying consolidated financial statements.
 

21



Results of Operations
 
Three Months Ended March 31, 2018 and 2017
 
The following table sets forth selected consolidated statements of operations and comprehensive loss data during the periods presented, including comparative information between the periods (dollars in thousands):
 
 
 
Three Months Ended
March 31,
 
Increase (Decrease) from
2017 to 2018
 
 
2018
 
2017
 
Amount
 
Percent
Revenues:
 
 

 
 

 
 

 
 

INAP US
 
$
57,076

 
$
55,461

 
$
1,615

 
3
 %
INAP INTL
 
17,125

 
16,672

 
453

 
3
 %
Total revenues
 
74,201

 
72,133

 
2,068

 
3
 %
 
 
 
 
 
 
 
 
 
Operating costs and expenses:
 
 

 
 

 
 

 
 

Costs of sales and services, exclusive of depreciation and amortization, shown below:
 
 

 
 

 
 

 
 

INAP US
 
18,435

 
23,547

 
(5,112
)
 
(22
)%
INAP INTL
 
6,602

 
5,498

 
1,104

 
20
 %
Costs of customer support
 
7,387

 
7,264

 
123

 
2
 %
Sales, general and administrative
 
19,854

 
16,564

 
3,290

 
20
 %
Depreciation and amortization
 
21,077

 
17,745

 
3,332

 
19
 %
Exit activities, restructuring and impairments
 
(33
)
 
1,023

 
(1,056
)
 
(103
)%
Total operating costs and expenses
 
73,322

 
71,641

 
1,681

 
2
 %
Income from operations
 
$
879

 
$
492

 
$
387

 
79
 %
 
 
 
 
 
 
 
 
 
Interest expense
 
$
15,027

 
$
8,137

 
$
6,890

 
85
 %
 
INAP US
 
Revenues for our INAP US segment increased 3% to $57.1 million for the three months ended March 31, 2018, compared to $55.5 million for the same period in 2017. The increase was primarily due to $3.9 million of revenue from SingleHop, acquired in February 2018, and $2.0 million of revenue from our Atlanta data center, partially offset by the repricing of certain customers of $4.3 million.

Direct costs of our INAP US segment, exclusive of depreciation and amortization, decreased 22%, to $18.4 million for the three
months ended March 31, 2018, compared to $23.5 million for the same period in 2017. The decrease was primarily due to $5.0
million of costs related to conversion of operating leases to capital leases, $0.7 million from lower sales volume and $0.4 million of costs savings initiatives, partially offset by $1.2 million of costs from SingleHop.
 
INAP INTL
 
Revenues for our INAP INTL segment increased 3% to $17.1 million for the three months ended March 31, 2018, compared to
$16.7 million for the same period in 2017. The increase was primarily due to $2.0 million of revenue from the INAP Japan consolidation and $0.3 million from SingleHop, partially offset by the repricing of certain customers of $1.9 million.

Direct costs of our INAP INTL segment, exclusive of depreciation and amortization, increased 20%, to $6.6 million for the three months ended March 31, 2018, compared to $5.5 million for the same period in 2017. The increase was primarily due to $1.1 million of costs from INAP Japan.

Other Operating Costs and Expenses
 
Compensation. Total compensation and benefits, including stock-based compensation, was $16.5 million for the three months ended March 31, 2018, compared to $14.8 million for the same period in 2017. The change was primarily due to a $0.9 million

22



increase in cash-based compensation, a $0.5 million increase in bonus accrual and a $0.3 million increase in stock-based compensation.
 
Stock-based compensation, net of amount capitalized, increased to $0.9 million during the three months ended March 31, 2018, from $0.6 million during the same period in 2017. The increase is primarily due to increases in awards granted. The following table summarizes stock-based compensation included in the accompanying consolidated statements of operations and comprehensive loss (in thousands): 
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Costs of customer support
 
$
46

 
$
62

Sales, general and administrative
 
812

 
536

 
 
$
858

 
$
598


Costs of Customer Support. Costs of customer support increased to $7.4 million during the three months ended March 31, 2018 compared to $7.3 million during the same period in 2017. The increase was primarily due to higher cash-based compensation.
 
Sales, General and Administrative. Sales, general and administrative costs increased to $19.9 million during the three months ended March 31, 2018 compared to $16.6 million during the same period in 2017. The increase was primarily due to $2.5 million in acquisition costs, $0.6 million in increased facility costs, $0.5 million in higher cash-based compensation, a $0.3 million increase in stock-based compensation, a $0.3 million decrease in software costs that were capitalized (resulting in increased compensation costs in SG&A), offset by a $0.4 million decrease in tax and license fees.
 
Depreciation and Amortization. Depreciation and amortization increased to $21.1 million during the three months ended March 31, 2018, compared to $17.7 million during the same period in 2017. The increase is primarily due to the depreciation on the capital leased assets obtained during the last half of 2017.
 
Exit activities, Restructuring and Impairments. Exit activities, restructuring and impairments decreased to less than $0.1 million income during the three months ended March 31, 2018 compared to $1.0 million expense during the same period in 2017. The decrease is primarily due to severance costs and plan adjustments to sublease income assumptions during the prior period.
 
Interest Expense. Interest expense increased to $15.0 million during the three months ended March 31, 2018 from $8.1 million during the same period in 2017. The increase is primarily due to increased borrowings, a higher interest rate and additional interest expenses related to capital leases.
 
Non-GAAP Financial Measure
 
We report our consolidated financial statements in accordance with GAAP. We present the non-GAAP performance measure of Adjusted EBITDA to assist us in explaining underlying performance trends in our business, which we believe will enhance investors’ ability to analyze trends in our business and evaluate our performance relative to other companies. We define Adjusted EBITDA as GAAP net loss plus depreciation and amortization, interest expense, provision (benefit) for income taxes, other expense (income), (gain) loss on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, strategic alternatives and related costs, organizational realignment costs, pre-acquisition costs, non-income tax contingency and claim settlement.
 
As a non-GAAP financial measure, Adjusted EBITDA should not be considered in isolation of, or as a substitute for, net loss, income from operations or other GAAP measures as an indicator of operating performance. Our calculation of Adjusted EBITDA may differ from others in our industry and is not necessarily comparable with similar titles used by other companies.
 

23



The following table reconciles Adjusted EBITDA to net loss as presented in our consolidated statements of operations and comprehensive loss: 
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Revenues
 
$
74,201

 
$
72,133

 
 
 
 
 
Net loss attributable to INAP stockholders
 
$
(14,060
)
 
$
(8,230
)
Non-GAAP revenue
 
40

 

Depreciation and amortization
 
21,077

 
17,745

Interest expense
 
15,027

 
8,137

Provision for income taxes
 
100

 
518

Other (income) expense
 
(215
)
 
67

Loss (gain) on disposal of property and equipment, net
 
46

 
(97
)
Exit activities, restructuring and impairments
 
(33
)
 
1,023

Stock-based compensation
 
858

 
598

Acquisition costs
 
2,558

 

Strategic alternatives and related costs(1)
 
27

 
6

Organizational realignment costs(2)
 
240

 
287

Non-income tax contingency
 

 
1,500

Adjusted EBITDA
 
$
25,665

 
$
21,554

 
 
 
 
 
(1) 
Primarily legal and other professional fees incurred in connection with the evaluation by our board of directors of strategic alternatives and related shareholder communications. We include these costs in sales, general and administrative ("SG&A") in the accompanying consolidated statements of operations and comprehensive loss for the three months ended March 31, 2018 and 2017.
(2) 
Primarily professional fees, employee retention bonus and severance and executive search costs incurred related to our organization realignment. We include these costs in SG&A in the accompanying consolidated statements of operations and comprehensive loss for the three months ended March 31, 2018 and 2017.

Liquidity and Capital Resources
 
Liquidity
 
On an ongoing basis, we require capital to fund our current operations, expand our IT infrastructure services, upgrade existing facilities or establish new facilities, products, services or capabilities and to fund customer support initiatives, as well as various advertising and marketing programs to facilitate sales. As of March 31, 2018, we had $3.6 million of borrowing capacity under our 2017 revolving credit facility. Together with our cash and cash equivalents, the Company’s liquidity as of March 31, 2018, was $19.7 million.

As of March 31, 2018, we had a deficit of $26.8 million in working capital, which represented an excess of current liabilities over current assets. We believe that cash flows from operations, together with our cash and cash equivalents and borrowing capacity under our 2017 revolving credit facility, will be sufficient to meet our cash requirements for the next 12 months and for the foreseeable future. If our cash requirements vary materially from our expectations or if we fail to generate sufficient cash flows from our operations or if we fail to implement our cost reduction strategies, we may require additional financing sooner than anticipated. We can offer no assurance that we will be able to obtain additional financing on commercially favorable terms, or at all, and provisions in our 2017 Credit Agreement limit our ability to incur additional indebtedness. Our anticipated uses of cash include capital expenditures in the range of $40.0 to $45.0 million in 2018, working capital needs and required payments on our credit agreement and other commitments. We intend to reduce expenses through implementing cost reductions through such strategies as reorganizing our business units, right-sizing headcounts and streamlining other operational aspects of our business. However, there can be no guarantee that we will achieve any of our cost reduction goals. 

We have a history of quarterly and annual period net losses. During the three months ended March 31, 2018, we had a net loss attributable to INAP stockholders of $14.1 million. As of March 31, 2018, our accumulated deficit was $1.3 billion. We may not

24



be able to achieve profitability on a quarterly basis, and our failure to do so may adversely affect our business, including our ability to raise additional funds.

Our sources of capital include, but are not limited to, funds derived from selling our services and results of our operations, sales of assets, borrowings under our credit arrangement, the issuance of debt or equity securities or other possible recapitalization transactions. Our short term and long term liquidity depend primarily upon the funds derived from selling our services, working capital management (cash, accounts receivable, accounts payable and other liabilities), bank borrowings, reducing costs and bookings net of churn. In an effort to increase liquidity and generate cash, we may pursue sales of non-strategic assets, reduce our expenses, amend our credit facility, pursue sales of debt or equity securities or other recapitalization transactions, or seek other external sources of funds. 

Capital Resources
 
Credit Agreement

On April 6, 2017, we entered into a new Credit Agreement (the "2017 Credit Agreement"), which provides for a $300 million term loan facility ("2017 term loan") and a $25 million revolving credit facility (the " 2017 revolving credit facility"). The proceeds of the term loan were used to refinance the Company’s existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement.

Certain portions of refinancing transaction were considered an extinguishment of debt and certain portions were considered a modification. A total of $5.7 million was paid for debt issuance costs related to the 2017 Credit Agreement. Of the $5.7 million in costs paid, $1.9 million related to the exchange of debt and was expensed, $3.3 million related to term loan third party costs and will be amortized over the term of the loan and $0.4 million are prepaid debt issuance costs related to the revolving credit facility and will be amortized over the term of the revolving credit facility. In addition, $4.8 million of debt discount and debt issuance costs related to the previous credit facility were expensed due to the extinguishment of that credit facility. The maturity date of the term loan is April 6, 2022 and the maturity date of the 2017 revolving credit facility is October 6, 2021.

As of March 31, 2018, the term loan had an outstanding principal balance of $432.4 million, which we repay in $750,000 quarterly installments on the last business day of each fiscal quarter with the remaining unpaid balance due April 6, 2022. As of March 31, 2018, the 2017 revolving credit facility had an outstanding balance of $16.0 million. We have issued $5.4 million in letters of credit resulting in $3.6 million in borrowing capacity. As of March 31, 2018, the interest rate on the 2017 term loan and 2017 revolving credit facility was 8.72% and 8.88%, respectively.

The 2017 Credit Agreement contains customary financial maintenance and operating covenants, including without limitation covenants restricting the incurrence or existence of debt or liens, the making of investments, the payment of dividends and affiliate transactions. As of March 31, 2018, we were in compliance with these covenants.

Second Amendment

On February 6, 2018, the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent, entered into a Second Amendment to Credit Agreement (the "Second Amendment") that amended the 2017 Credit Agreement.

The Second Amendment, among other things, amends the 2017 Credit Agreement (i) to permit the Company to incur incremental term loans under the 2017 Credit Agreement of up to $135 million to finance the Company’s acquisition of SingleHop and to pay related fees, costs and expenses and (ii) to revise the maximum total net leverage ratio and minimum consolidated interest coverage ratio covenants.  The financial covenant amendments became effective upon the consummation of the SingleHop acquisition, while the other provisions of the Second Amendment became effective upon the execution and delivery of the Second Amendment.  

A total of $1.0 million was paid for debt issuance costs related to the Second Amendment. Of the $1.0 million in costs paid, $0.2 million related to the payment of legal and professional which were expensed, $0.8 million related to term loan lender fees and will be amortized over the term of the loan.

Third Amendment

On February 28, 2018, INAP entered into the Incremental and Third Amendment to the Credit Agreement among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the "Third Amendment").  The Third Amendment provides for a new incremental term loan facility under the 2017 Credit Agreement of $135 million (the "Incremental Term Loan"). The Incremental Term Loan has terms and conditions identical to the existing loans under the 2017 Credit Agreement, as amended. 

25



Proceeds of the Incremental Term Loan were used to complete the acquisition of SingleHop and to pay fees, costs and expenses related to the acquisition, the Third Amendment and the Incremental Term Loan. 

A total of $5.0 million was paid for debt issuance costs related to the First Amendment. Of the $5.0 million in costs paid, $0.1 million related to the payment of legal and professional which were expensed, $4.9 million related to term loan lender fees and will be amortized over the term of the loan.

Cash Flows
 
Operating Activities
 
During the three months ended March 31, 2018, net cash provided by operating activities was $3.5 million. We generated cash from operations of $8.5 million, while changes in operating assets and liabilities used cash of $5.0 million. We expect to use cash flows from operating activities to fund a portion of our capital expenditures and other requirements and to meet our other commitments and obligations, including outstanding debt.
 
During the three months ended March 31, 2017, net cash provided by operating activities was $7.3 million. We generated cash from operations of $9.3 million, while changes in operating assets and liabilities used cash of $2.0 million.
 
Investing Activities
 
During the three months ended March 31, 2018, net cash used in investing activities was $139.2 million, primarily due to the SingleHop acquisition, capital expenditures related to the continued expansion and upgrade of our data centers and network infrastructure.

During the three months ended March 31, 2017, net cash used in investing activities was $6.0 million primarily due to capital expenditures related to the continued expansion and upgrade of our company-controlled data centers and network infrastructure.

Financing Activities
 
During the three months ended March 31, 2018, net cash provided by financing activities was $137.2 million, primarily due to principal payments of $3.1 million on the credit facilities and capital lease obligations, partially offset by $146 million of proceeds from the 2017 Credit Agreement.

During the three months ended March 31, 2017, net cash used in financing activities was $2.5 million, primarily due to principal payments of $42.5 million on the term loan and capital lease obligations, partially offset by $40.3 million of proceeds from the sale of common stock pursuant to the Securities Purchase Agreement.
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Interest Rate Risk
 
Our objective in managing interest rate risk is to maintain favorable long-term fixed rate or a balance of fixed and variable rate debt within reasonable risk parameters. As of March 31, 2018, the balance of our long-term debt was $432.4 million on the 2017 term loan and $16.0 million on the 2017 revolving credit facility.

At March 31, 2018, the interest rate on the term loan and the revolver was 8.72% and 8.88%, respectively. We summarize the 2017 Credit Agreement in “Liquidity and Capital Resources—New Credit Agreement”. We are required to pay a commitment fee at a rate of 0.50% per annum on the average daily unused portion of the revolving credit facility, payable quarterly in arrears. In addition, we are required to pay certain participation fees and fronting fees in connection with standby letters of credit issued under the revolving credit facility. 

We estimate that a change in the interest rate of 100 basis points would change our interest expense and payments by $4.5 million per year, assuming we do not increase our amount outstanding.


26



Foreign Currency Risk

As of March 31, 2018, the majority of our revenue was in U.S. dollars. However, our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. During the three months ended March 31, 2018, we realized foreign currency gains of $0.2 million, respectively, which we included in “Non-operating expenses,” and we recorded unrealized foreign currency translation gains of less than $0.1 million, which we included in “Other comprehensive income,” both in the accompanying consolidated statements of operations and comprehensive loss. As we grow our international operations, our exposure to foreign currency risk will become more significant.

ITEM 4. CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Based on our management’s evaluation (with the participation of our chief executive officer and chief financial officer), as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that, due to a material weakness in internal control over financial reporting described in Part II, Item 9A of our 2017 Form 10-K, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective as of March 31, 2018.
 
Changes in Internal Control over Financial Reporting
 
Effective January 1, 2018, we adopted the new revenue guidance under ASC 606, Revenue from Contracts with Customers, using the modified retrospective method of adoption. The adoption of this guidance required the implementation of new accounting policies and processes which changed the Company’s internal controls over financial reporting for revenue and cost recognition, processes for calculating the cumulative effect adjustment as well as related disclosure requirements under the new guidance.

Remediation Plan
 
During 2017, management identified a material weakness in our internal controls over financial reporting related to the review of property and equipment, depreciation and amortization schedules. The Company has been actively engaged in remediation efforts and will continue initiatives to implement, document, and communicate appropriate policies, procedures, and internal controls regarding this material weakness. The Company’s remediation of the identified material weakness and strengthening of its internal control environment will require continued efforts in 2018.

As the Company continues to evaluate and work to improve internal control over financial reporting, the Company may determine to take additional measures to address the material weakness or determine to modify the remediation efforts described above. Until the remediation efforts discussed above, including any additional remediation efforts that the Company identifies as necessary, are implemented, tested and deemed to be operating effectively, the material weakness described above will continue to exist.

 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows.
 
ITEM 1A. RISK FACTORS
 
We believe that there have been no material changes from the Risk Factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 15, 2018.

27




ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table sets forth information regarding our repurchases of securities for each calendar month in the three months ended March 31, 2018:
 
ISSUER PURCHASES OF EQUITY SECURITIES

Period
 
Total Number of Shares Purchased(1)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
January 1 to 31, 2018
 

 
$

 

 

February 1 to 28, 2018
 
11,681

 
13.01

 

 

March 1 to 31, 2018
 
8,011

 
13.22

 

 

Total
 
19,692

 
$
13.10

 

 

 
 
 
 
 
 
 
 
 
(1)
These shares were surrendered to us to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock and restricted stock units previously issued to employees and directors.


28



ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:
Exhibit
Number
 
Description
 
 
 
 
 
2.1
 
10.1
 
10.2
 
10.3
 
10.4
 
10.5
 
10.6
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1*
 
 
 
 
32.2*
 
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
 
 
 
 
 
 

^    Schedules and exhibits to the Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.

29




#    Management contract and compensatory plan and arrangement.

*      This exhibit is furnished and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of
1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

30



SIGNATURE
 
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 thereunto duly authorized.
 
 
INTERNAP CORPORATION
 
 
 
 
By:
/s/ Robert Dennerlein
 
 
Robert Dennerlein
 
 
(Chief Financial Officer)
 
 
 
 
 
Date: May 3, 2018
 



31

Peter D. Aquino
President & CEO
Internap Corporation



November 7, 2016
Mr. R. P. Diegnan, Jr.
Rich,

I am pleased to offer for to you, on behalf of Internap Corporation, the position of SVP - General Counsel & Corporate Secretary. The scope of responsibility is to include all legal, regulatory, and compliance aspects of the company. I will also ask you to team with me on Employee Relations matters, but HR will report to me as CEO in the near term.

As discussed, this corporate position requires good communication with our Board of Directors, as I know you will meet or exceed their expectations. Your primary location will be at one of our flagship Datacenter facility in Secaucus, NJ, with travel as required, including my location in Virginia, and the corporate headquarters in Atlanta.

This offer has the support of our Compensation Committee, and is subject to a background check that we will initiate. Your start date is Monday, November 21, 2016.

A summary of the offer is as follows:

Reporting to the President & CEO
Base Salary of $225K
Target Annual Cash Bonus of 50% subject to performance
Potential for additional cash bonus up to 75% subject to Compensation Committee discretion
Annual Equity Grant at a value of your base salary, or $225K, at the discretion of the Compensation Committee. The contemplated structure under development with the Comp. Com is an RSU grant, whereby the value will be determined by your then Base Salary, divided by a stock price (TBD), deriving the number of shares granted. The Restricted Stock will be subject to a 3 year vest; 50% of the grant will be subject to time, and 50% will be subject to performance as part of the Compensation Committee's approve metrics - TBD
12 months severance (lX Base Salary) for involuntary termination, assuming no legal or performance issues. This protection will begin after you completed your first 90 days successfully. The Company will pay COBRA for the period under severance, and your severance payment will be paid over 12 months in the normal payroll cycle
Participation in Company benefit plans, including medical, dental, 401K, etc.
4 weeks vacation
If these terms are acceptable to you, please sign below.
I, hereby agree and accept this offer:

/s/ Richard P. Diegnan, Jr. Date: November 7, 2016
Richard P. Diegnan, Jr.

Company Representative:

/s/ Peter D. Aquino
Peter D. Aquino




CC:     Chairman of the Compensation Committee - Charles B. Coe
And the Board of Directors




EMPLOYMENT AGREEMENT


BETWEEN:    TECHNOLOGIES    IWEB    INC.,    a    legally
constituted corporate entity with its head office and primary place of business at 20 place du Commerce in Montreal, Quebec, H3E 1Z6, on behalf of itself, and its parent company, INTERNAP CORPORATION, its affiliates and subsidiaries

(Hereinafter collectively referred to as the Employer)

AND:
Andy Day, domiciled and residing at 196 Gloucester Avenue, in Oakville, Ontario, L6J 3W6,

(Hereinafter referred to as “the Employee”)

SECTION 1 - SUBJECT

1.1
This agreement is taken jointly to facilitate good will and specify the functions and working conditions of the Employee. This offer is contingent upon successful completion of a background check.

1.2
The Employer hereby retains the Employees services as GM & SVP of the Cloud Business Unit beginning on April 1, 2017. In this capacity, he or she is responsible for the functional leadership of Cloud Services, Ubersmith and Funio and for any related task. Regarding all Short-Term Incentive Plan and Stock Award programs in 2017, your starting point is considered January 1, 2017, so that you will be eligible for cash and stock bonus awards based on being employed for the entire year.

SECTION 2 - RESPONSIBILITIES

2.1
The Employee reports directly to Peter Aquino, President & CEO.

2.2
The Employee shall faithfully and loyally perform his or her duties toward the Employer. The Employee shall respect all guidelines, policies and/or rules established verbally or in writing by the Employer.

2.3
The Employee acknowledges having been informed of all of the Employer’s policies and/or rules currently in effect.

2.4
For the entire duration of employment, the Employee shall devote all his or her time, energy, drive, and competence to the performance of his or her functions. The Employee may not hold another position without having previously obtained his or her immediate supervisor’s written authorization, which can be revoked.

2.5
It is understood and agreed that Employee may continue his current advisory or Board of Director positions provided that such positions do not become competitive, create any business conflict and/or interfere with the duties and responsibilities as the GM & SVP of the Cloud Business Unit, as discussed with the CEO prior to April 1, 2017. Any future advisory positions or Board of Director positions must be discussed and pre-approved by the CEO before Employee accepts such positions with third parties.

SECTION 3 - DURATION AND TERMINATION

3.1
The Employer has the right, at any time and without notice, to terminate the Employee’s employment under this agreement for Cause. For the purposes of this agreement, “Causeshall mean any act or omission on the Employee’s part which would at law permit an employer to, without notice or payment in lieu of notice, terminate the employment of an employee including but not limited to, a material breach of this agreement.

3.2
In the event that the Employee wishes to end his or her employment, a written notice must be provided to the Employer at least four (4) weeks prior to the end of employment. However, the Employer may waive the right to this notice without having to pay any compensation whatsoever to the Employee.

3.3
The Employer can also terminate the Employee’s employment for reasons other than those stated in section 3.1, in which case the Employer’s obligation shall be limited solely to providing the Employee with the following:
(i)
Should your employment be terminated due to reasons other than cause and provided you satisfy the conditions of the Release Agreement, you will be eligible for twelve months of Severance Pay
(ii)
Continuation of the Employee’s benefits for such minimum period as is required pursuant to the ESA.

SECTION 4 - REMUNERATION

4.1
For the duration of this Employment Agreement, the Employer pays the Employee $335,000 CAD in gross annual remuneration, payable every two (2) weeks, by bank transfers. This salary will be revised as per the Employer’s policies.

4.2
The Employee will be eligible to participate in the INAP 2017 Short Term Incentive Plan (“Incentive Plan”) Any payments that may be made to you will be based on INAP’s achievement of goals approved by the Board of Directors. Your target bonus opportunity under the Incentive Plan will be 50% of your 2017 base salary, subject to the terms of the Incentive Plan. Your eligibility for the 2017 Short Term Incentive Plan will be for the entire year (there will be no proration based on months of service in 2017).

For any bonus referred to in this section 4.2 of this agreement, the Employee must be actively employed by the Employer on the date the bonus is paid in order to be eligible to receive a bonus. The Employee acknowledges that the payment of a bonus in one year does not obligate the Employer to provide the Employee with a bonus payment in any subsequent year. The Employer may unilaterally discontinue or amend any bonus or incentive plan in its sole discretion.

4.3
The Employee will be eligible for an annual Stock Award at the discretion of the Compensation Committee. Please note that this award will be a USD denominated award, and not subject to FX translation, i.e., you will be pegged to the USD amount of $250,000, and award values based on USD only. The Restricted Stock will be subject to a three-year vest; 50% of the grant will be subject to time, and 50% will be subject to performance as part of the Compensation Committee’s approval metrics.

All vesting is subject to you being an employee in good standing on each date of vesting. All shares are governed by the language in our inventive stock plan (a copy of which will be mailed to you separately) as well as the actual grant document which define the specific terms of your grant. You will be subject to INAPs Insider Trading Policy, and be a Named Executive Officer.

4.4
The Employee consents to having three dollars ($3) deducted from every pay by the Employer as contribution to the social club.

SECTION 5 - VACATION

5.1
The Employee is entitled to four (4) weeks of annual paid vacation, effective April 1, 2017, as per the ESA. Vacation can be taken during periods agreed upon with the Employer. It is agreed that vacation time is to be taken during the vacation entitlement year immediately following the one during which this time was accumulated. The vacation entitlement year is the recurring 12-month period beginning on the date of hire.

5.2
The Employee is also entitled to five (5) floating holidays that may be taken as per the Employer’s policies.

SECTION 6 - BENEFITS

6.1
The Employee is entitled to all benefits offered by the Employer as per existing or future policies.

SECTION 7 -EXPENSES

7.1
Your principle office location will be in our Montreal, Quebec facility, however it is understood your residence location is Oakville, Ontario. As per the Employer’s policies, upon presentation of a detailed description of expenses along with receipts or other supporting documents, the Employer will reimburse any representation expenses, travel expenses and mileage reasonably incurred by the Employee in performing his or her functions, as previously approved by the Employer, within thirty (30) days following the request for reimbursement.

SECTION 8 - CONFIDENTIALITY

8.1
The Employee acknowledges having received, or that he or she will receive, during the period of employment or while performing his or her functions, confidential information concerning the Employer and its previous, current or future activities, as well as confidential information concerning third parties to which the Employer is bound by secrecy.

8.2
Therefore, the Employee agrees to respect the confidential nature of this information and not to disclose such information or discuss it with any other person, and shall not use such information, except to perform his or her functions for the Employer, without having previously obtained express written consent from the Employer.

This agreement to respect the confidential nature of this information and not to disclose, discuss or use such information remains in full force and effect notwithstanding termination of employment with the Employer.

8.3
For the purpose of this Agreement, the term “confidential information includes all information, knowledge or data belonging to the Employer or to any third party to which the Employer is bound by secrecy, including without limiting the generality of the foregoing any information relating to costs, prices, profits, markets, sales, client lists, procedures followed, business partners, marketing and sales, memoranda, ideas, notes, documents and specifications, technical reports, program source codes, industry secrets, research and development, as well as any information concerning finished products or products under consideration.


SECTION 9 -DISCOVERIES. CREATIONS AND INVENTIONS

9.1
Any discovery, invention or improvement made or implemented by the Employee, as well as any privileged information discovered or obtained by the Employee while performing his or her functions and that relates to research or to official or unofficial works undertaken for the Employer, or to issues of past, present or future interest to the Employer, is the exclusive property of the Employer.

9.2
The Employee hereby agrees to periodically disclose and provide to his or her immediate supervisor or designate any discovery, invention, improvement or privileged information that may have been created, put in place or obtained by the Employee while performing his or her functions, individually or in collaboration with other employees, and that relates to any of the Employer’s products, tasks or activities, be they current or projected.

9.3
The Employee agrees to sign, at the Employer’s request, any document, request, or transfer necessary or useful for requesting and obtaining patents, trademarks, industrial designs and/or copyright in Canada and in any other country for such invent ions, discoveries, improvements and privileged information.

9.4
Furthermore, the Employee agrees to sign any document, request and/or transfer necessary or useful for the transfer or transmission, to the Employer alone, of every right, title and interest pertaining to such patents, trademarks, industrial designs, copyright, inventions, discoveries, improvements and privileged information.

SECTION 10 - NON-COMPETITION

10.1
At all times while this Employment Agreement is in effect, and for a period of six (6) months following the date of termination of employment with the Employer, the Employee shall not directly or indirectly, in any capacity, including but not limited to as principal, proxy, shareholder (except if all shares held are publicly traded and the total amount does not exceed three percent (3%) of the share total of the company), investor, employer, employee, agent, independent contractor, franchisor, franchisee, distributor, advisor or consultant, perform functions or activities identical or substantially similar to the ones he or she will have performed, in business areas identical or substantially similar to those of the Employer and that are in competition with the Employer, i.e. dedicated colocation servers, web hosting, domain names reservation, Cloud and Ubersmith in the province of Ontario.


SECTION 11 - NON-SOLICITATION

11.1
For a period of twelve (12) months as of the date on which he or she ceases to be employed by the Employer, the Employee agrees, whether for his or her own benefit or that of another party, directly or indirectly, in any capacity whatsoever, not to:

(a)
Solicit or provide services to the Employer’s clients or potential clients who have been solicited or provided services by the Employer over the course of the year preceding the date on which the Employee ceased to be employed by the Employer; and/or

(b)
Offer employment, solicit with the intent to hire, hire or otherwise encourage to leave his or her job any person employed by the Employer at any time during the twelve (12) month period immediately preceding the end of employment of the Employee with the Employer

SECTION 12 -TERMINATION OF PREVIOUS CONTRACTS

12.1
The Employee hereby confirms that he or she is not bound by any contractual provision or agreement limiting his or her liberty to work for the Employer.

12.2
The conditions expressed in this Employment Agreement revoke and cancel any previous agreement, written or verbal, concerning the Employee’s employment with the Employer, each party releasing the other finally and completely from any and all actions, causes of actions, claims and demands of any nature, based on the provisions of any such agreement.

12.3
The parties acknowledge that this Employment Agreement contains each and every condition governing the Employee’s employment.

12.4
Should your employment be terminated due to reasons other than cause and provided you satisfy the conditions of the Release Agreement, you will be eligible for twelve months of Severance Pay.

SECTION 13 - MODIFICATION OF THIS AGREEMENT
13.1
To be valid, any modification to this Employment Agreement must be approved by the Employer and confirmed in writing by both parties.
SECTION 14 - INTERPRETATION
14.1
This Employment Agreement Is governed by the laws of the province of Ontario and its Interpretation is subject to these same laws.





IN WITNESS WHEREOF the parties hereto have executed this Employment Agreement in two (2) copies, in Montreal, on March 30, 2017.


THE EMPLOYER

By:

/s/ Peter D. Aquino /s/ Andrew Day
President & CEO     Andy Day

1


Peter D. Aquino
President & CEO
Internap Corporation



PERSONAL AND CONFIDENTIAL
Re: Offer of Employment
January 3, 2017
Mr. Needles;
Corey,                            

I am pleased to extend this offer to you to join Internap Corporation (INAP) as our GM & SVP of the Colo Business Unit (Colocation, Network, and Managed Services BU) beginning on a January 23, 2017. This position will report to me.

We are excited that you have chosen to become part of our highly motivated team and believe you will become a key player in INAP’s success.

You will receive a starting base salary of $9,615.38 ($250,000 on an annualized basis) per pay-period less payroll deductions and all required withholdings. You will also be subject to review through our performance evaluation process.

You will be eligible to participate in the INAP 2017 Short Term Incentive Plan (“Incentive Plan”). Any payments that may be made to you will be based on INAP’s achievement of goals approved by the Board of Directors. Your target bonus opportunity under the Incentive Plan will be 50% of your 2017 actual earned base salary, subject to the terms of the Incentive Plan.

You will be eligible for an annual Stock Award at the discretion of the Compensation Committee. The Restricted Stock will be subject to a three-year vest; 50% of the grant will be subject to time, and 50% will be subject to performance as part of the Compensation Committee’s approve metrics.

All vesting is subject to you being an employee in good standing on each date of vesting. All shares are governed by the language in our incentive stock plan (a copy of which will be mailed to you separately) as well as the actual grant documents which define the specific terms of your grant. You will be subject to INAP’s Insider Trading Policy, and be a Named Executive Officer.

You will initially be based in our Atlanta, GA office, and will be required to travel from time-to-time as part of your duties. INAP will reimburse you for all reasonable travel, lodging and meals, according to the terms of INAP’s travel and expense policy.

Should your employment with INAP be terminated due to reasons other than cause and provided that you satisfy the conditions of the Release Agreement, you will be eligible for twelve months of Severance Pay after you work for the Company at least 6 months.

You will be eligible to participate in the benefits we offer generally to our employees. A benefit summary is included in your new hire packet.

Although we hope that your relationship with INAP will be a long and productive one, we are not requiring a commitment from you for a particular length of time. Your employment with INAP will be “at will” meaning that you may choose to resign at any time for any reason, and INAP may choose to end your employment at any time for any reason. This offer should not be construed as creating a contract of employment for a specific period of time and the at will nature of your employment can only be changed by a written agreement signed by you and INAP’s Chief Executive Officer.

INAP is required to verify the identity and employment authorization of all new hires. To comply with this legal obligation, we must complete an Employment Eligibility Verification Form 1-9 within three days of your start date. Information about what you will need to bring to work with you to complete this form will be provided to you once you sign and return this offer letter. This offer is also contingent upon successful completion of a background check.

You must also sign the attached Employment Covenants Agreement and certify you have read and agree to be bound by the INAP Code of Conduct included in your new hire packet.

We look forward to working with you as part of the INAP team. Please sign and date this letter, and return it to the Human Resources Department before your start date.


Sincerely,

/s/ Peter D. Aquino
Peter D. Aquino

I accept the offer of employment contained in this letter and hereby agree that I have read and understand the statements contained in this letter including all attachments.

/s/ Corey Needles                        Date: 1/4/2017
Corey Needles





 
Exhibit 31.1
CERTIFICATION
 
I, Peter D. Aquino, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Internap Corporation (the “registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2018
/s/ Peter D. Aquino
 
Peter D. Aquino
 
President and Chief Executive Officer
 
 





-
 
Exhibit 31.2
CERTIFICATION
 
I, Robert Dennerlein, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Internap Corporation (the “registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2018
/s/ Robert Dennerlein
 
Robert Dennerlein
 
Chief Financial Officer
 
 




 
Exhibit 32.1
 
STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
This certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code and shall not be relied on by any other person for any other purpose.
 
In connection with the Quarterly Report on Form 10-Q of Internap Corporation (the “Company”) for the three months ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Peter D. Aquino, President and Chief Executive Officer of the Company, certifies that
 
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 3, 2018
 
 
 
 
/s/ Peter D. Aquino
 
Peter D. Aquino
 
President and Chief Executive Officer
 




 
Exhibit 32.2
 
STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
This certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code and shall not be relied on by any other person for any other purpose.
 
In connection with the Quarterly Report on Form 10-Q of Internap Corporation (the “Company”) for the three months ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Robert Dennerlein, Chief Financial Officer of the Company, certifies that
 
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 3, 2018
 
 
 
 
/s/ Robert Dennerlein
 
Robert Dennerlein
 
Chief Financial Officer



Categories

SEC Filings