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~~2019



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	¨ý
~~(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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.001 par value	INAP	Nasdaq Global Market

As of May ~~3, 2018, 21,131,147~~6, 2019, 26,733,291 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

INTERNAP CORPORATION

FORM 10-Q

FOR THE ~~QUARTER~~QUARTERLY PERIOD ENDED MARCH 31, ~~2018~~2019

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

	~~Unaudited~~ Condensed Consolidated Statements of Operations and Comprehensive Loss	1

	~~Unaudited~~ Condensed Consolidated Balance Sheets	2

	~~Unaudited~~ Condensed Consolidated Statements of ~~Cash Flows~~Stockholders' (Deficit) Equity	3

	~~Unaudited~~ Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	45

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2021

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2629

ITEM 4.	CONTROLS AND PROCEDURES	2730

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	2731

ITEM 1A.	RISK FACTORS	2731

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2831

ITEM 6.	EXHIBITS	2932

SIGNATURES

ITEM 1. FINANCIAL ~~STATMENTS~~STATEMENTS

INTERNAP CORPORATION AND SUBSIDIARIES

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

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



	Three Months Ended March 31,
	2019			2018
Net revenues	$	73,564		$	74,201

Operating costs and expenses:
Costs of sales and services, exclusive of depreciation and amortization	25,733			24,607
Costs of customer support	8,790			7,387
Sales, general and administrative	17,521			19,854
Depreciation and amortization	22,178			21,158
Exit activities, restructuring and impairments	1,416			(33		)
Total operating costs and expenses	75,638			72,973
(Loss) income from operations	(2,074		)	1,228

Interest expense	17,447			15,604
Loss (gain) on foreign currency, net	204			(215		)
Total non-operating expenses	17,651			15,389

Loss before income taxes and equity in earnings of equity-method investment	(19,725		)	(14,161		)
(Benefit) provision for income taxes	(103		)	100

Net loss	(19,622		)	(14,261		)
Less net income attributable to non-controlling interests	22			27
Net loss attributable to INAP shareholders	(19,644		)	(14,288		)
Other comprehensive income:
Foreign currency translation adjustment	197			61
Total other comprehensive income	197			61

Comprehensive loss	$	(19,447	)	$	(14,227	)

Basic and diluted net loss per share	$	(0.83	)	$	(0.70	)

Weighted average shares outstanding used in computing basic and diluted net loss per share	23,652			20,052

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~See Notes to Condensed Consolidated Financial Statements.

INTERNAP CORPORATION AND SUBSIDIARIES

~~UNAUDITED~~ CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)


	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	16,159		$	14,603		$	8,266		$	17,823
Accounts receivable, net of allowance for doubtful accounts of $1,700 and $1,487, respectively	17,524			17,794
Accounts receivable, net of allowance for doubtful accounts of $1,171 and $1,547, respectively							21,452			20,054
Contract assets	7,131			—			9,006			8,844
Prepaid expenses and other assets	8,690			8,673			7,890			7,377
Total current assets	49,504			41,070			46,614			54,098

Property and equipment, net	461,314			458,565			229,185			478,061
Operating lease right-of-use assets							27,056			—
Finance lease right-of-use assets							236,077			—
Intangible assets, net	79,185			25,666			70,441			73,042
Goodwill	118,077			50,209			116,216			116,217
Non-current contract assets	12,056			—
Contract assets							15,502			16,104
Deposits and other assets	11,784			11,015			7,251			7,409
Total assets	$	731,920		$	586,525		$	748,342		$	744,931

LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	21,699		$	20,388		$	22,368		$	23,435
Accrued liabilities	14,279			15,908			14,178			15,540
Deferred revenues	5,871			4,861			7,881			8,022
Capital lease obligations	10,095			11,711			—			9,080
Revolving credit facility	16,000			5,000
Term loan, less discount and prepaid costs of $3,539 and $2,133, respectively	818			867
Term loan, less discount and prepaid costs of $4,058 and $4,036, respectively							299			321
Exit activities and restructuring liability	3,391			4,152			1,883			2,526
Short-term operating lease liabilities							5,400			—
Short-term finance lease liabilities							8,328			—
Other current liabilities	4,197			1,707			33			1,063
Total current liabilities	76,350			64,594			60,370			59,987


Deferred revenues							341			511
Operating lease liabilities							24,149			—
Finance lease liabilities							262,632			—
Capital lease obligations	223,549			223,749			—			262,382
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
Term loan, less discount and prepaid costs of $8,472 and $9,508, respectively							415,226			415,278
Deferred tax liability	1,841			1,651			1,969			2,211
Other long-term liabilities	3,046			7,744			3,627			4,505
Total liabilities	723,098			587,557			768,314			744,874
Commitments and contingencies (note 10)
Stockholders’ deficit:
Commitments and contingencies (Refer to Note 10)
Stockholders’ (deficit) equity:
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
Common stock, $0.001 par value; 50,000 shares authorized; 26,746 and 25,455 shares outstanding, respectively							27			25
Additional paid-in capital	1,327,985			1,327,084			1,369,815			1,368,968
Treasury stock, at cost, 313 and 293 shares, respectively	(7,429		)	(7,159		)
Treasury stock, at cost, 378 and 330, respectively							(7,914		)	(7,646		)
Accumulated deficit	(1,313,598		)	(1,323,723		)	(1,382,715		)	(1,363,019		)
Accumulated items of other comprehensive loss	(1,263		)	(1,324		)	(868		)	(1,065		)
Total INAP stockholders’ deficit	5,716			(5,101		)	(21,655		)	(2,737		)
Non-controlling interests	3,106			4,069			1,683			2,794
Total stockholders’ deficit	8,822			(1,032		)
Total liabilities and stockholders’ deficit	$	731,920		$	586,525
Total stockholders’ (deficit) equity							(19,972		)	57
Total liabilities and stockholders’ (deficit) equity							$	748,342		$	744,931

~~The accompanying notes are an integral part of these consolidated financial statements.~~See Notes to Condensed Consolidated Financial Statements.

INTERNAP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

For the Three Months Ended March 31, 2019

(In thousands)

(Unaudited)



	Common Stock
	Shares		Par Value		Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Items of Other Comprehensive Loss			Non-Controlling Interest			Total Stockholders' (Deficit) Equity
Balance, December 31, 2017	20,804		$	21	$	1,327,084		$	(7,159	)	$	(1,323,723	)	$	(1,324	)	$	4,069		$	(1,032	)
Adoption of ASC 606	—		—		—			—			24,185			—			—			24,185
Net loss	—		—		—			—			(14,261		)	—			—			(14,261		)
Net income attributable to non-controlling interest	—		—		—			—			(27		)	—			27			—
Foreign currency translation	—		—		—			—			—			61			—			61
INAP Japan	—		—		—			—			—			—			(990		)	(990		)
Common stock issuance	343		—		—			—			—			—			—			—
Employee taxes paid on withholding shares	(20	)	—		—			(270		)	—			—			—			(270		)
Stock-based compensation	—		—		869			—			—			—			—			869
Proceeds from exercise of stock options, net	4		—		32			—			—			—			—			32
Balance, March 31, 2018	21,131		21		1,327,985			(7,429		)	(1,313,826		)	(1,263		)	3,106			8,594


Balance, December 31, 2018	25,455		25		1,368,968			(7,646		)	(1,363,019		)	(1,065		)	2,794			57
Adoption of ASC 842	—		—		—			—			(52		)	—			—			(52		)
Net loss	—		—		—			—			(19,622		)	—			—			(19,622		)
Net income attributable to non-controlling interest	—		—		—			—			(22		)	—			22			—
Foreign currency translation	—		—		—			—			—			197			—			197
INAP Japan	—		—		—			—			—			—			(1,133		)	(1,133		)
Common stock issuance	1,339		2		(43		)	—			—			—			—			(41		)
Employee taxes paid on withholding shares	(48	)	—		—			(268		)	—			—			—			(268		)
Stock-based compensation	—		—		890			—			—			—			—			890
Balance, March 31, 2019	26,746		$	27	$	1,369,815		$	(7,914	)	$	(1,382,715	)	$	(868	)	$	1,683		$	(19,972	)

INTERNAP CORPORATION AND SUBSIDIARIES

~~UNAUDITED~~ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash Flows from Operating Activities:
Net loss	$	(14,033	)	$	(8,230	)	$	(19,622	)	$	(14,261	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	21,077			17,745			22,178			21,158
Loss on disposal of fixed asset	46			—			528			46
Amortization of debt discount and issuance costs	638			715			1,097			638
Stock-based compensation expense, net of capitalized amount	858			598			890			858
Equity in earnings of equity-method investment	2			(30		)
Provision for doubtful accounts	332			301			248			332
Non-cash change in capital lease obligations	(213		)	71
Non-cash change in finance lease liabilities							148			(213		)
Non-cash change in exit activities and restructuring liability	372			980			1,226			372
Non-cash change in deferred rent	(252		)	(423		)
Deferred taxes	(30		)	254			(261		)	(30		)
Payment of debt lender fees	(300		)	(2,583		)
Other, net	—			(96		)	(66		)	(233		)
Changes in operating assets and liabilities:
Accounts receivable	864			2,096			(1,617		)	864
Prepaid expenses, deposits and other assets	(467		)	123			1,043			(467		)
Accounts payable	(636		)	(2,247		)	763			(636		)
Accrued and other liabilities	(2,904		)	(180		)	(2,238		)	(2,904		)
Deferred revenues	(138		)	(510		)	(262		)	(138		)
Exit activities and restructuring liability	(1,389		)	(1,386		)	(1,903		)	(1,389		)
Asset retirement obligation	(248		)	52			85			(248		)
Other liabilities	(52		)	14			25			(52		)
Net cash flows provided by operating activities	3,527			7,264
Net cash provided by operating activities							2,262			3,697

Cash Flows from Investing Activities:
Purchases of property and equipment	(6,082		)	(5,789		)	(8,094		)	(6,082		)
Proceeds from disposal of property and equipment	437			—			56			437
Business acquisition, net of cash acquired	(132,143		)	—			—			(132,143		)
Acquisition of minority shares	(1,130		)	—
Additions to acquired and developed technology	(277		)	(200		)	(530		)	(277		)
Net cash flows used in investing activities	(139,195		)	(5,989		)
Net cash used in investing activities							(8,568		)	(138,065		)

Cash Flows from Financing Activities:
Proceeds from credit agreements	146,000			—			—			146,000
Proceeds from stock issuance	—			40,282
Principal payments on credit agreements	(1,089		)	(39,997		)	(1,089		)	(1,089		)
Debt issuance costs	(5,676		)	—			—			(5,976		)
Payments on capital lease obligations	(2,027		)	(2,491		)
Payments on finance lease liabilities							(907		)	(1,897		)
Acquisition of non-controlling interests							(973		)	(1,130		)
Proceeds from exercise of stock options	31			7			—			31
Acquisition of common stock for income tax withholdings	(270		)	(149		)	(268		)	(270		)
Other, net	235			(157		)	(60		)	235
Net cash flows provided by (used in) in financing activities	137,204			(2,505		)
Net cash (used in) provided by in financing activities							(3,297		)	135,904
Effect of exchange rates on cash and cash equivalents	20			15			46			20
Net increase (decrease) in cash and cash equivalents	1,556			(1,215		)
Net (decrease) increase in cash and cash equivalents							(9,557		)	1,556
Cash and cash equivalents at beginning of period	14,603			10,389			17,823			14,603
Cash and cash equivalents at end of period	$	16,159		$	9,174		$	8,266		$	16,159

Supplemental disclosure of cash flow information:
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	13,000		$	7,336		$	14,260		$	13,577
Non-cash acquisition of property and equipment under capital leases	—			290
Additions to property and equipment included in accounts payable	2,287			1,247			1,850			2,287

See Notes to Condensed Consolidated Financial Statements.

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

INTERNAP CORPORATION AND SUBSIDIARIES

~~UNAUDITED CONDENSED~~ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Internap Corporation (“we,” “us,” “our,” “INAP,” or “the Company”) ~~provides~~is a leading-edge provider of high-performance data center ~~services including~~and cloud solutions with over 100 network Points of Presence ("POPs") worldwide. INAP's full-spectrum portfolio of high-density colocation, managed cloud hosting ~~cloud~~ and network ~~services. INAP partners with its~~solutions supports evolving IT infrastructure requirements for customers ~~who range~~ranging 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.~~start-ups. INAP operates ~~in 57 primarily Tier 3 data centers in~~ 21 metropolitan markets, ~~and has 98 POPs around the world.~~primarily in North America, with data centers connected by a low-latency, high-capacity fiber network. INAP has over 1one million gross square feet ~~under lease,~~in its portfolio, with ~~over 500,000~~approximately 600,000 square feet of sellable 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 new accounting standards as discussed in Note 2, "Recent 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.~~Pronouncements" and Note 4, "Leases."

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~~2019 and our operating results and cash flows for the interim periods presented. The balance sheet at December 31, ~~2017~~2018 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~~2018 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~~2019 are not necessarily indicative of the results that may be expected for the ~~2018~~2019 fiscal year or any future periods.

Out of Period Adjustment

In connection with the preparation, review and audit of the Company's consolidated financial statements required to be included in the Annual Report on Form 10-K for the year ended December 31, 2018, management identified certain errors in the Company's historical financial statements, resulting in a conclusion that certain corrections need to be made to the Company's unaudited quarters during 2018. The Company has revised its prior period consolidated financial statements accordingly and included such revisions herein. Based on an analysis of quantitative and qualitative factors, the Company concluded that these errors were not material to the consolidated financial position, results of operations or cash flows as presented in the Company’s quarterly financial statements that have been previously filed in the Company’s Quarterly Reports on Form 10-Q. As a result, amendment of such reports was not required. The revisions to correct errors relate to the correction of accounting for an amendment to a capital lease executed in February 2018.

The adjustments to the Company’s previously issued quarterly financial statements for the three months ended March 31, 2018 are as follows (in thousands):



	For the quarter ended March 31, 2018
	As reported			Adjustments			As adjusted

Costs of sales and services, exclusive of depreciation and amortization - QTD	$	25,037		$	(430	)	$	24,607
Costs of sales and services, exclusive of depreciation and amortization - YTD	25,037			(430		)	24,607
Depreciation and amortization - QTD	21,077			81			21,158
Depreciation and amortization - YTD	21,077			81			21,158
Interest expense - QTD	15,027			577			15,604
Interest expense - YTD	15,027			577			15,604
Net loss attributable to INAP shareholders - QTD	(14,060		)	(228		)	(14,288		)
Net loss attributable to INAP shareholders - YTD	(14,060		)	(228		)	(14,288		)
Property and equipment, net	461,314			10,438			471,752
Total assets	731,920			10,438			742,358
Capital lease obligations - non-current	223,549			10,650			234,199
Total liabilities	723,098			10,650			733,748
Accumulated deficit	(1,313,598		)	(228		)	(1,313,826		)
Total stockholders' (deficit) equity	$	8,822		$	(228	)	$	8,594

2. RECENT ACCOUNTING PRONOUNCEMENTS

~~Adoption of New Accounting Standards~~

~~On August 26,~~In February 2016, the Financial Accounting ~~Standard~~Standards Board ~~(the "FASB"~~("FASB") issued ~~ASU No. 2016-15,~~ ~~Statement of Cash Flows~~ ~~(Topic 230): Classification of Certain Cash Receipts and Cash Payments~~Accounting Standards Update ("~~ASU 2016-15"~~ASU"), 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.

~~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")~~ (Topic 842), which ~~requires all leases in excess of 12 months to be recognized on~~states that a lessee should recognize the ~~balance sheet as lease~~ assets and liabilities that arise from leases. The standard has since been modified with several ASUs (collectively, the "new lease ~~liabilities. For operating leases, a lessee is required to recognize a right-of-use asset and~~standard"). The new 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 guidancestandard is effective for annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. The Company adopted the new lease standard on January 1, 2019, the beginning of fiscal 2019. Prior periods presented in our condensed consolidated financial statements continue to be in accordance with the former lease standard, Topic 840, Leases.

The ~~Company has identified a project team and commenced an initial impact assessment process~~new lease standard provides entities two options for ~~ASU 2016-02. We are continuing~~applying the modified retrospective approach (1) retrospectively to ~~work towards establishing policies, updating our processes and implementing necessary changes to data and processes to be able to comply~~each prior reporting period presented in the financial statements with the ~~new requirements. Based on~~cumulative-effect adjustment recognized at 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 impactsbeginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption (January 1, 2019) through a cumulative-effect adjustment recognized then. The Company adopted the new lease standard ~~we currently believe~~by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application. The most significant impact relates to the recognition on the Company's balance sheet of a right-of-use ~~asset~~("ROU") assets 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~~liabilities for ~~initial direct costs.~~all operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily ~~will depend~~depends on its classification. For income statement purposes, operating leases will result in a ~~straight line~~straight-line expense while finance leases will result in a front-loaded expense pattern.

The Company ~~currently plans~~elected the package of practical expedients to ~~adopt this~~not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company did not separately record lease components from non-lease components, and accounts for them together as a single lease component. INAP made an accounting policy election to not record leases with an initial term of 12 months or less on the balance sheet. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term in the consolidated statements of operations and comprehensive loss. The Company has elected to not record a ROU asset or ROU liability for leases with an asset or liability balance that would be less than one thousand dollars ($1,000) on the adoption date on the basis of materiality. This threshold continues to be consistent with the Company’s Property and Equipment capitalization threshold.

In preparation for adoption of the new lease standard, ~~using~~INAP implemented internal controls and key system functionality to enable the ~~modified retrospective~~preparation of financial information.

The Company primarily has capital leases which have been recorded on the consolidated balance sheets and as of the January 1, 2019 transition ~~approach with optional practical expedients.~~date, the capital leases became finance leases establishing the ROU asset and liability. The ROU assets and liabilities

for operating leases were $28.5 million and $31.0 million of total Company assets and liabilities, respectively, as of January 1, 2019.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables, loans and held-to-maturity debt securities held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This will result in the earlier recognition of credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. If expected cash flows improve, an entity will reduce the allowance and reverse the expense through income. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Entities will have to make more disclosures, including disclosures by year of origination for certain financing receivables. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is ~~continuing to assess all potential impacts of~~evaluating 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~~this pronouncement will have on its condensed consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard was effective for interim and annual reporting periods beginning after December 15, 2018. We did not exercise the option to make this reclassification.

In June 2018, the FASB issued ASU 2018-07, Improvements to Non-employee Share-Based Payment Accounting broadens the scope of FASB ASC Topic 718, Compensation — Stock Compensation, which currently covers only share-based payments to employees. The change substantially aligns the accounting for share-based payments for both employees and non-employees. The ASU supersedes Subtopic 505-50, Equity — Equity-Based Payments to Non-Employees. The measurement of equity-classified non-employee awards will be fixed at the grant date, and entities will measure the cost of awards subject to a performance condition using the outcome that is probable at the balance sheet date. Entities may use the expected term to measure non-employee options or elect to use the contractual term as the expected term, on an award-by-award basis. Entities will recognize a cumulative-effect adjustment to retained earnings for equity classified non-employee awards for which a measurement date has not been established and liability-classified non-employee awards that have not been settled. The guidance is effective for calendar-year public business entities in annual periods beginning after December 15, 2018, and interim periods within those years. The Company adopted this pronouncement in the first quarter of 2019 and it did not have a material impact on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (i.e., a service contract). Under the new ~~requirements.~~

guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date this guidance is first applied, or (2) retrospectively. The Company is evaluating the impact, if any, that this pronouncement will have on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. The Company will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the valuation processes of Level 3 fair value measurements. However, the Company will be required to additionally disclose the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments relating to additional disclosure requirements will be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments will be applied retrospectively to all periods presented upon their effective date. The Company is permitted to early adopt either the entire ASU or only the provisions that eliminate or modify the requirements. The Company is evaluating the impact, if any, that this pronouncement will have on its condensed consolidated financial statements.

3. REVENUES

~~Upon adoption~~We generate revenues primarily from the sale 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~~data center services, including colocation, hosting and cloud, and IP services. Our revenues typically consist of monthly recurring revenues from 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~~terms of one year or ~~less, (ii) contracts for which INAP recognizes~~more and we typically recognize the monthly minimum as revenue ateach month. We recorded installation fees as deferred revenue and recognized the ~~amount to which the~~

~~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~~revenue ratably over the estimated customer ~~life, as they are not significant to the total contract and therefore do not represent a material right.~~life.

~~Most performance obligations,~~For our data center service revenues, we determine colocation revenues by occupied square feet and both allocated and variable-based usage, which includes both physical space for hosting customers' network and other equipment plus associated services such as power and network connectivity, environmental controls and security. We determine hosting revenues by the number of servers utilized (physical or virtual) and cloud revenues by the amount of processing and storage consumed. We recognize IP services revenues on fixed-commitment or usage-based pricing. IP service contracts usually have fixed minimum commitments based on a certain level of bandwidth usage with additional charges for any usage over a specified limit. If a customer's usage of our services exceeds the ~~exception~~monthly minimum, we recognize revenue for such excess in the period of ~~certain~~the usage. We use contracts and sales or purchase orders as evidence of ~~equipment~~an arrangement. We test for availability 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~~connectivity to ~~the customer.~~verify delivery of our services.

We assess whether:


a.	the parties to the contract have an approved contract;


b.	the Company can identify each party's rights regarding the goods and services to be transferred;


c.	the Company can identify the payment terms for the goods or services to be transferred;


d.	the contract has commercial substance; and


e.	it is probable that the Company will collect substantially all of the consideration to which it will be entitled in exchange for the goods and services that will be transferred to the customer.

The transaction price reflects INAP’s expectations about the consideration it will be entitled to receive from the customer. The Company ~~exercised more judgment in deferring installation revenue as well as expense fulfillment and commission costs over~~considers the ~~appropriate life. With the exception~~terms of the ~~revenues noted above, revenue recognition remains materially consistent~~contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with ~~historical practice. However, neither caused~~ a ~~material difference~~customer may include fixed amounts, variable amounts, or both. After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which INAP expects to be entitled in exchange for the promised goods or services. Once the separate performance obligations are identified and the transaction price has been determined, the Company allocates the transaction price to the performance obligations in proportion to their standalone selling prices. When allocating on a relative standalone selling price basis, any discount within the contract generally is allocated proportionately to all of the performance obligations in the ~~financial statement.~~contract.

~~Adjustments to Reported Financial Statements from~~To allocate the ~~Adoption~~

~~The following table presents~~transaction price on a relative standalone selling price basis, the ~~effect~~Company first determines the standalone selling price of the ~~adoption~~distinct good or service underlying each performance obligation. It is the price at which the Company would sell a good or service on a standalone (or separate) basis at contract inception. The observable price of ~~ASC 606 on~~a good or service sold separately provides the ~~Company’s balance sheet as~~best evidence 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

~~Current Impact from~~standalone selling price. If a standalone selling price is not directly observable, the ~~Adoption~~

~~In accordance with~~Company would estimate 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

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.~~

standalone selling price. The Company ~~accounts~~will be able to consider its facts and circumstances in order to determine how frequently it will need to update the estimates. If the information used to estimate the standalone selling price for ~~revenue in accordance with ASC 606.~~ similar transactions has not changed, the Company can determine that it is reasonable to use the previously determined standalone selling price.

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~~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.~~services. 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~~contract's 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~~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~~Company allocates the contract's transaction price to each performance obligation based on its relative ~~standalone~~stand-alone selling price.

The stand-alone selling price ~~(“SSP”~~("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,~~The most significant impact of the adoption of the new standard was 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 does not equal 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
the initial commission.

~~Revenue by geography is~~In addition, installation revenues are recognized over the initial contract life rather than over the estimated customer life, 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
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 ~~three months ended March 31, 2018, revenue recognized that was included in~~performance obligation is satisfied when control transfers to the ~~contract liability balance at the beginning of each year was $0.5 million.~~customer.

In evaluating the treatment of certain contracts, the Company exercised heightened 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.

The Company routinely reviews the collectability of its accounts receivable and payment status of customers. If INAP determines that collection of revenue is uncertain, it does not recognize revenue until collection is reasonably assured. Additionally, the Company maintains an allowance for doubtful accounts resulting from the inability of the Company's customers to make required payments on accounts receivable. The allowance for doubtful accounts is based on historical write-offs as a percentage of revenues. INAP assesses the payment status of customers by reference to the terms under which it provides services or goods, with any payments not made on or before their due date considered past-due. Once all collection efforts have been exhausted, the uncollectible balance is written off against the allowance for doubtful accounts. The Company routinely performs credit checks for new and existing customers and requires deposits or prepayments for customers that are perceived as being a credit risk. In addition, INAP records a reserve amount for potential credits to be issued under service level agreements and other sales adjustments.

Management expects that ~~fulfillment costs and~~ commission fees paid to sales ~~representative~~representatives 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 $26.6 million and $26.3 million at March 31, ~~2018.~~2019 and March 31, 2018, respectively. 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, 2019 and March 31, 2018, amortization recognized was $2.7 million and $2.9 ~~million.~~million, respectively. There was no impairment loss ~~in relation to~~recorded on capitalized contract costs for the ~~costs capitalized.~~three months ended March 31, 2019 and March 31, 2018.

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,~~"Sales, general and ~~administrative expenses.~~administrative" expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

The Company includes only those incremental costs that would not have been incurred if the contracts had not been entered into as follows (in thousands):



	Current			Non-current
Balance at December 31, 2018	$	8,844		$	16,104
Deferred customer acquisition costs incurred in the period	405			1,583
Amounts recognized as expense in the period	(2,428		)	—
Reclassification between short-term and long-term	2,185			(2,185		)
Balance at March 31, 2019	$	9,006		$	15,502

~~4. CHANGE IN ORGANIZATIONAL STRUCTURE~~The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, the Company recognizes a receivable for revenues related to its time and materials and transaction or volume-based contracts. The Company presents such receivables in "Accounts receivable, net" it its condensed consolidated balance sheets at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected. The allowance is based upon assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other applicable factors.

~~During~~Amounts collected in advance of services being provided are accounted for as contract liabilities, which are presented as "Deferred revenues" on the accompanying condensed consolidated balance sheets and are realized with the associated revenue recognized under the contract. Nearly all of the Company's contract liabilities balance is related to service revenue.

Significant changes in the deferred revenues balance (current and noncurrent) during the period are as follows (in thousands):



Balance - December 31, 2018	$	8,533
Revenue recognized that was included in the deferred revenue balance at December 31, 2018	(4,564		)
Increases due to cash received, excluding amounts recognized as revenue during the period	4,253
Balance - March 31, 2019	$	8,222

Revenues recognized during the three months ended March 31, ~~2018, we changed our organizational structure~~2019 for performance obligations satisfied or partially satisfied in ~~an effort to create more effective and efficient operations and to improve customer and product focus.~~ previous periods were immaterial.

In ~~that regard, we revised the information that our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”~~accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), ~~regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance~~the Company disaggregates revenue from contracts with customers based on ~~our revised segment structure, described~~the timing of revenue recognition. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. As discussed in ~~more detail~~this note, ~~11 “Operating Segments.” We have reclassified prior period amounts to conform to~~ the ~~current presentation.~~

Company business consists of INAP US and INAP INTL colocation, cloud and network services. The ~~prior year reclassifications, which did not affect total~~following table presents disaggregated revenues ~~total costs of sales and services, operating loss or net loss, are summarized~~by category 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



	Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
	INAP US		INAP INTL		INAP US		INAP INTL
Colocation	$	27,354	$	1,435	$	30,936	$	1,517
Network services	11,742		2,774		13,820		2,971
Cloud	18,424		11,835		12,320		12,637
	$	57,520	$	16,044	$	57,076	$	17,125

~~Our services, which are included within both our reportable segments, are described~~Revenue by geography is as ~~follows:~~follows (in thousands):



	Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
	INAP US		INAP INTL		INAP US		INAP INTL
United States	$	58,564	$	—	$	57,076	$	—
Canada	—		7,943		—		9,291
Other countries	—		7,057		—		7,834
	$	58,564	$	15,000	$	57,076	$	17,125

~~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.4. LEASES

We have commitments under leases arrangements for data centers, office space, partner sites and equipment. Our leases have initial lease terms ranging from 2 years to 34 years, most of which includes options to extend or renew the leases for 5 to 15 years, and some of which may include options to terminate the leases within 4 to 120 months.

At contract inception, we evaluate whether an arrangement is or contains a lease for which we are the lessee (that is, arrangements which provide us with the right to control a physical asset for a period of time). Operating leases are accounted for on the condensed consolidated balance sheets with ROU assets being recognized in "Operating lease right-of-use assets" and lease liabilities recognized in "Short-term operating lease liabilities" and "Operating lease liabilities." Finance leases are accounted for on the condensed consolidated balance sheets with ROU assets being recognized in "Finance lease right-of-use assets" and lease liabilities recognized in "Short-term finance lease liabilities" and "Finance lease liabilities."

All lease liabilities are measured at the present value of the unpaid lease payments, discounted using our incremental borrowing rate based on the information available at commencement date of the lease. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid rent, and lease incentives received. The operating lease ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for initial direct costs, prepaid or accrued lease payments and lease incentives. The finance lease ROU assets are subsequently amortized using the straight-line method.

Operating lease expenses are recognized on a straight-line basis over the lease term. With respect to finance leases, amortization of the ROU asset is presented separately from interest expense related to the finance lease liability.

We have elected to combine lease and non-lease components for all lease contracts where we are the lessee. Additionally, for arrangements with lease terms of 12 months or less, we do not recognize ROU assets and lease liabilities and lease payments are recognized on a straight-line basis over the lease term with variable lease payments recognized in the period in which the obligation is incurred.

Lease related costs for the quarter ended March 31, 2019 are as follows (in thousands):



	Three Months Ended March 31, 2019
Finance lease cost
Amortization of right-of-use assets		$	4,392
Interest on lease liabilities		7,250
Finance lease cost		$	11,642

Operating lease cost		$	1,765
Short-term lease cost		1,489
Total lease cost		$	14,896

Other information related to leases as of the quarter ended March 31, 2019 are as follows (in thousands, except lease term and rate):



	Operating Leases			Finance Leases
Right-of-use assets	$	27,056		$	236,077
Lease liabilities	29,549			270,960

Weighted-average remaining lease term	5.48			19.23
Weighted-average discount rate	7.2		%	13.8		%

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows	1,745			7,250
Financing cash flows	1,252			2,664

Right-of-use assets obtained in exchange for lease liabilities	921			—

Future minimum lease payments under non-cancellable leases as of the quarter ended March 31, 2019 are as follows (in thousands):



	Operating Leases			Finance Leases
2019 (excluding the three months ended March 31, 2019)		$	7,244		$	33,666
2020		7,340			34,193
2021		7,304			35,187
2022		6,683			33,932
2023		5,455			33,194
Thereafter		5,905			634,511
Total undiscounted lease payments		$	39,931		$	804,683
Less: Imputed interest		10,382			533,723
Total lease liabilities		$	29,549		$	270,960

As of the quarter ended March 31, 2019, we did not have additional operating and finance leases that have not yet commenced.

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 of approximately $0.4 million, 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~~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."Debt."

The ~~Company determined~~following table summarizes the ~~preliminary~~final fair ~~value~~values of the ~~net~~ assets acquired ~~as follows~~and liabilities assumed at the acquisition date and includes purchase accounting adjustments subsequent to the acquisition date (in thousands):


	Purchase price allocation			Final Valuation as of December 31, 2018
Cash	$	2,857		$	2,823
Prepaid expenses and other assets	1,683			2,227
Property, plant and equipment	14,885			14,253
Other long term assets	39			576
Intangible assets:			Weighted Average
Noncompete Agreements	4,000		4 years
Trade name	1,700		8 years
Noncompete agreements				4,000
Trade names				1,700
Technology	15,100		7 years	15,100
Customer relationship	34,100		10 years
Customer relationships				34,100
Goodwill	67,868			66,008
Total assets acquired	142,232			140,787
Accounts payable and accrued liabilities	5,098			2,819
Deferred revenue	1,600			2,434
Long term liabilities	534			534
Net assets acquired	$	135,000		$	135,000

The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized. The customer relationships are being amortized on an accelerated basis over an estimated useful life of ten years and the noncompete agreements, trade names, and technology are being amortized on a straight-line basis over four, eight, and seven years, respectively.

Goodwill represents the excess of the consideration transferred over the aggregate fair values of assets acquired and liabilities assumed. 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.

~~Pro-Forma~~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. The pro forma results are as follows (in thousands, except for per share amounts):


	Three months ended March 31, 2018 (in thousands except per share amounts)			Three months ended March 31, 2017 (in thousands except per share amounts)			Three Months Ended March 31,
							2018
Revenues	$	82,172		$	81,728		$	82,172
Net loss	$	(15,667	)	$	(17,739	)	(15,895		)
Basic and diluted net loss per share	$	(0.78	)	$	(0.89	)	(0.79		)
Weighted average shares outstanding used in computing basic and diluted net loss per share	20,052			19,877			20,052

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



	Level 1		Level 2		Level 3		Total
March 31, 2019
Available-for-sale securities	$	—	$	2,341	$	—	$	2,341
Asset retirement obligations⁽¹⁾	—		—		2,175		2,175

December 31, 2018
Available-for-sale securities	—		2,309		—		2,309
Asset retirement obligations⁽¹⁾	$	—	$	—	$	2,090	$	2,090

⁽¹⁾

We ~~calculate~~calculated 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, 2019 and December 31, 2018, the ~~balance is~~balances are 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 unauditedcondensed 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~~2019 (in thousands):


Balance, January 1, 2018	$	1,936
				2019
Balance, January 1, 2019				$	2,090
Accretion	41			85
Payments	(248		)	—
Balance, March 31, 2018	$	1,729
Balance, March 31, 2019				$	2,175

As of March 31, 2019, the Company held $2.3 million of available-for-sale debt securities which are reported at fair value on the Company's condensed consolidated balance sheets in "Deposits and other assets." Unrealized holding gains and losses are reported within accumulated other comprehensive loss in the condensed consolidated statements of operations and comprehensive loss. A decline in the fair value of a marketable security below the Company's cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and maturity management.

The fair values of our ~~other~~ Level 32 available-for-sale debt securities, based upon quoted prices for similar items in active markets, are as follows (in thousands):



	March 31, 2019
	Cost		Unrealized Gain		Unrealized Loss			Fair Value
Japanese Corporate Bonds	$	2,221	$	69	$	(38	)	$	2,252
Japanese Government Bonds	88		2		(1		)	89
Total Bonds	$	2,309	$	71	$	(39	)	$	2,341

	December 31, 2018
	Cost		Unrealized Gain		Unrealized Loss			Fair Value
Japanese Corporate Bonds	$	2,184	$	144	$	(107	)	$	2,221
Japanese Government Bonds	87		5		(4		)	88
Total Bonds	$	2,271	$	149	$	(111	)	$	2,309

The fair values of our Level 2 debt liabilities, ~~estimated using a discounted cash flow analysis~~ based ~~on incremental borrowing rates~~upon quoted prices for similar ~~types of borrowing arrangements,~~items in active markets, 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



	March 31, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	428,055	$	415,235	$	429,143	$	428,071

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

~~During~~The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the ~~three months ended March 31, 2018, we changed our operating segments,~~third quarter 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 relativeof August 1. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value ~~approach. In addition, we completed~~of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of ~~any potential goodwill impairment~~factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative assessment for some or all of its 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~~and perform a quantitative test.

~~The components~~Goodwill is considered impaired if the carrying amount of ~~our amortizing intangible~~the net 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~~exceeds the ~~three months ended March 31, 2018~~fair value of the reporting unit. Impairment, if any, would be recorded in operating income / (loss) and ~~2017, amortization expense for intangible assets was $1.7 million~~this could result in a material impact to net income / (loss) and ~~$1.1 million, respectively. As of March 31, 2018, remaining amortization expenses is as follows (in thousands):~~

Nine months remaining in 2018 $ 8,636
2019 10,941
2020 10,031
2021 9,548
2022 7,839
Thereafter 32,190
$ 79,185
income / (loss) per share.

8. DEBT

Credit Agreement

On April 6, 2017, we entered into a new Credit Agreement (the “2017 Credit Agreement”), which provides for a ~~$300~~$300.0 million term loan facility ("2017 term loan") and a ~~$25~~$25.0 million ~~revolving credit facility~~Revolving Credit Facility (the "2017 ~~revolving credit facility"~~Revolving Credit Facility"). The proceeds of the 2017 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 2017 term loan third party costs and will be amortized over the 2017 term ~~of the~~ loan and $0.4 million ~~are~~ prepaid debt issuance costs related to the ~~revolving credit facility~~2017 Revolving Credit Facility and will be amortized over the term of the ~~revolving credit facility.~~2017 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 2017 term loan is April 6, 2022 and the maturity date of the 2017 ~~revolving credit facility~~Revolving Credit Facility is October 6, 2021. As of March 31, ~~2018,~~2019, the outstanding 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 onof the 2017 term loan were $415.5 million and ~~the revolver was 8.72% and 8.88%~~8.24%, respectively. The 2017 Revolving Credit Facility had no balance outstanding at March 31, 2019.

Borrowings under the ~~amended credit agreement~~2017 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~~2017 Revolving Credit Facility is ~~4.5%~~6.0% for loans bearing interest calculated using the base rate (“Base Rate Loans”) and ~~5.50%~~7.0% for loans bearing interest calculated using the adjusted LIBOR ~~rate (“Adjusted LIBOR Loans”).~~rate. The applicable margin for loans under the 2017 term loan is ~~5.00%~~4.75% for Base Rate Loans and ~~6.00%~~5.75% for ~~Adjusted~~adjusted LIBOR ~~Rate~~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~~lenders extending the ~~revolving credit facility~~2017 Revolving Credit Facility are subject to various conditions, as set forth in the ~~credit agreement.~~2017 Credit Agreement. As of March 31, 2019, the Company has been in compliance with all covenants.

First Amendment

On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement (“("First ~~Amendment”~~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~~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”~~"Second Amendment") that amended the 2017 Credit Agreement.

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.~~This transaction was considered a modification.

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 fees which were expensed, $0.8 million related to term loan lender fees and will be amortized over the term of the ~~loan.~~2017 Credit Agreement.

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”~~"Third Amendment"). The Third Amendment provides for a funding of the new incremental term loan facility under the 2017 Credit Agreement of ~~$135~~$135.0 million (the ~~“Incremental~~"Incremental Term ~~Loan”~~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~~Third Amendment. Of the $5.0 million in costs paid, $0.1 million related to the payment of legal and professional fees which were expensed, $4.9 million related to term loan lender fees and will be amortized over the term of the ~~loan.~~2017 Credit Agreement.

Fourth Amendment

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%. This transaction was considered a modification.

A total of $1.7 million was paid for debt issuance costs related to the Fourth Amendment. Of the $1.7 million in costs paid, $0.1 million related to the payment of legal and professional fees which were expensed, $1.6 million related to term loan lender fees and will be amortized over the term of the 2017 Credit Agreement.

Fifth Amendment

On August 28, 2018, the Company entered into the Fifth Amendment to 2017 Credit Agreement, among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the “Fifth Amendment”). The Fifth Amendment amended the 2017 Credit Agreement by increasing the aggregate revolving commitment capacity by $10.0 million to $35.0 million.

9. EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES

During ~~the three months ended March 31,~~2019 and 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~~2019 and ~~2017.~~2018.

The following table displays the transactions and balances for exit activities and restructuring charges during the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (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


	Balance December 31, 2016		Initial Charges		Plan Adjustments			Cash Payments			Balance March 31, 2017		Balance										Balance
													December 31, 2018		Initial Charges		Plan Adjustments			Cash Payments			March 31, 2019
Activity for 2019 restructuring charge:
Real estate obligations													$	—	$	1,252	$	(158	)	$	(461	)	$	633
Activity for 2018 restructuring charge:
Real estate obligations													1,922		$	—	$	42		$	(1,092	)	872
Activity for 2017 restructuring charge:
Real estate obligations													100		—		—			(90		)	10
Activity for 2016 restructuring charge:
Real estate obligations	$	1,911	$	—	$	566		$	(993	)	$	1,484	125		—		10			(40		)	95
Service contracts	933		—		378			(187		)	1,124
Activity for 2015 restructuring charge:
Real estate obligation	111		—		(4		)	(7		)	100		27		—		15			(21		)	21
Service contracts	565		—		5			(49		)	521		221		—		9			(49		)	181
Activity for 2014 restructuring charge:
Real estate obligations	1,183		—		34			(150		)	1,067
Real estate obligation													206		—		55			(150		)	111
	$	4,703	$	—	$	979		$	(1,386	)	$	4,296	$	2,601	$	1,252	$	(27	)	$	(1,903	)	$	1,923



	Balance									Balance
	December 31, 2017		Initial Charges		Plan Adjustments		Cash Payments			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

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. Effective January 1, 2019, both segments are led by the Chief Operating Officer, 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 conditioned power with back-up capacity and physical space within data centers ~~and~~along with associated services such as ~~power,~~ interconnection, remote hands, 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

Network

The following table provides segment results ~~with prior period amounts reclassified to conform to the current presentation~~ (in thousands):


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Revenues:
INAP US	$	57,076		$	55,461		$	57,520		$	57,076
INAP INTL	17,125			16,672			16,044			17,125
Total revenues	74,201			72,133
Net revenues							73,564			74,201

Cost of sales and services, customer support and sales and marketing:
INAP US	30,537			35,457			32,884			30,107
INAP INTL	11,133			9,002			9,695			11,133
Total costs of sales and services, customer support and sales and marketing	41,670			44,459			42,579			41,240

Segment profit:
INAP US	26,539			20,004			24,635			26,969
INAP INTL	5,992			7,670			6,349			5,992
Total segment profit	32,531			27,674			30,984			32,961

Exit activities, restructuring and impairments	(33		)	1,023			1,416			(33		)
Other operating expenses, including general and administrative and depreciation and amortization expenses	31,685			26,159
Income from operations	879			492
Other operating expenses, including sales, general and administrative and depreciation and amortization expenses							31,642			31,766
(Loss) income from operations							(2,074		)	1,228
Non-operating expenses	14,812			8,234			17,651			15,389
Loss before income taxes and non-controlling interest	$	(13,933	)	$	(7,742	)
Loss before income taxes and equity in earnings of equity-method investment							$	(19,725	)	$	(14,161	)

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.

Basic and diluted net loss per share is calculated as follows (in thousands, except per share amounts):


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
Net loss	$	(14,033	)	$	(8,230	)	$	(19,622	)	$	(14,261	)
Less net income attributable to non-controlling stockholders	27			—
Less net income attributable to non-controlling interests							22			27
Net loss attributable to common stock	$	(14,060	)	$	(8,230	)	$	(19,644	)	$	(14,288	)
Weighted average shares outstanding, basic and diluted	20,052			16,087			23,652			20,052

Net loss per share, basic and diluted	$	(0.70	)	$	(0.50	)	$	(0.83	)	$	(0.70	)
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans	1,336			1,385			2,296			1,336

13. INVESTMENT IN AFFLIATES AND OTHER ENTITIES

In the normal course of business, INAP enters into various types of investment arrangements, each having unique terms and conditions.

In previous years, INAP invested $4.1 million in Internap Japan Co., Ltd., our joint venture with NTT-ME Corporation ("NTT-ME") and Nippon Telegraph and Telephone Corporation. Through August 15, 2017, we qualified and accounted for this investment using the equity method. We recorded our proportional share of the income and losses of INAP Japan one month in arrears on the accompanying consolidated balance sheets as a long-term investment and our share of INAP Japan's income and losses, net of taxes, as a separate caption in our accompanying consolidated statements of operations and comprehensive loss.

On August 15, 2017, INAP exercised certain rights to obtain a controlling interest in Internap Japan Co., Ltd. Upon obtaining control of the venture, we recognized INAP Japan's assets and liabilities at fair value resulting in a gain of $1.1 million. Once INAP obtained control of the Internap Japan Co., Ltd. venture, the investment was consolidated with INAP using the voting model.

On January 15, 2019, NTT-ME exercised its first put option that resulted in NTT-ME having an ownership of 15% and INAP of 85%. The put option was exercised at $1.0 million which represents the fair market value of the shares purchased.

14. SUBSEQUENT EVENTS

On ~~April 9, 2018, the Company~~May 8, 2019, INAP entered into the ~~Fourth~~Sixth Amendment to the 2017 Credit Agreement among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the ~~“Fourth~~“Sixth Amendment”). The ~~Fourth~~Sixth Amendment ~~amends~~(i) adjusts the ~~2017~~applicable interest rates under the Company’s Credit Agreement, ~~to lower~~dated as of April 6, 2017, (ii) modifies the ~~interest rate margins applicable~~maximum Total Net Leverage Ratio requirements and the minimum Consolidated Interest Coverage Ratio requirements and (iii) modifies certain other covenants.

Pursuant to the ~~outstanding~~Sixth Amendment, the applicable margin for adjusted base rate terms loans shall be increased from 4.75% per annum to 5.25% per annum and for Eurodollar term loans shall be increased from 5.75% per annum to 6.25% per annum, with such interest payable in cash, and in addition such term loans shall bear interest payable in kind at the rate of 0.75% per annum.

The Sixth Amendment also makes the following modifications:

An additional basket of $500,000 for finance lease obligations has been established.

The maximum amount of permitted asset dispositions has been decreased from $150,000,000 to $50,000,000.

The amount of net cash proceeds from asset sales that may be reinvested is limited to $2,500,000 in any fiscal year of the Company, with net cash proceeds that are not so reinvested used to prepay loans under the ~~2017~~ Credit ~~Agreement by 1.25%.~~Agreement.

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 subjectThe restricted payment basket has been decreased from $5,000,000 to ~~such Repricing Event.~~ $1,000,000.

The maximum total leverage ratio increases to 6.80 to 1 as of June 30, 2019, 6.90 to 1 as of September 30, 2019 - December 31, 2019, decreases to 6.75 to 1 as of March 31, 2020, 6.25 to 1 as of June 30, 2020, 6.00 to 1 as of September 30, 2020, 5.75 to 1 as of December 31, 2020, 5.50 to 1 as of March 2021, 5.00 to 1 as of June 30, 2021 and 4.50 to 1 as of September 30, 2021 and thereafter.

The minimum consolidated interest coverage ratio decreases to 1.75 to 1 as of June 30, 2019, 1.70 to 1 as of September 30, 2019 - March 31, 2020, increases to 1.80 to 1 as of June 30, 2020, 1.85 to 1 as of September 2020 and 2.00 to 1 as of December 31, 2020 and thereafter.

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~~Forward-looking statements include statements ~~related~~regarding industry trends, our future financial position and performance, business strategy, revenues and expenses in future periods, projected levels of growth and other matters that do not relate strictly to ~~sales, improved profitability, margin expansion, operations improvement, cost reductions, participation in strategic transactions,~~historical facts. These statements are often identified by words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,” “continue,” “could” or “should,” that an “opportunity” exists, that we are “positioned” for a particular result, statements regarding our ~~expectations for 2018 revenue, Adjusted EBITDA, capital expenditures and Adjusted EBITDA less Capex. Our ability to achieve these forward-looking~~vision or similar expressions or variations. These statements isare based on ~~certain assumptions, including~~the beliefs and expectations of our ~~ability to execute~~management team based 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 ininformation available at the ~~future. Because~~time such statements are made. Such forward-looking statements are not guarantees of future performance ~~or results~~ and ~~involve~~are subject to risks and uncertainties ~~there are important factors~~ that could cause ~~INAP’s~~ actual results to differ materially from those ~~expressed or implied~~contemplated by such forward-looking statements.

Therefore, actual future results and trends may differ materially from what is forecast in ~~the~~such forward-looking statements due to a variety of ~~important factors.~~

~~Such important~~ factors, ~~include,~~including, 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~~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; INAP's 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

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”),~~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.~~Form 10-Q.

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~~is a leading-edge provider of high-performance data center ~~services including~~and cloud solutions with over 100 network Points of Presence ("POPs") worldwide. INAP's full-spectrum portfolio of high-density colocation, managed cloud hosting ~~cloud~~ and network ~~services. INAP partners with its~~solutions supports evolving IT infrastructure requirements for customers ~~who range~~ranging 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.~~startups. INAP operates ~~in 57 primarily Tier 3 data centers~~ in 21 metropolitan markets, ~~and has 98 POPs around the world.~~primarily in North America, with data centers connected by a low-latency, high-capacity fiber network. INAP has over 1one million gross square feet ~~under lease,~~in its portfolio, with ~~over 500,000~~approximately 600,000 square feet of sellable 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~~Note 2, "Recent Accounting ~~Pronouncements"~~Pronouncements," in the accompanying condensed consolidated financial statements.

Results of Operations

Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018

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 %



	Three Months Ended March 31,						Increase (Decrease) from 2018 to 2019
	2019			2018			Amount			Percent
Net revenues	$	73,564		$	74,201		$	(637	)	(1	)%

Operating costs and expenses:
Costs of sales and services, exclusive of depreciation and amortization	25,733			24,607			1,126			5	%
Costs of customer support	8,790			7,387			1,403			19	%
Sales, general and administrative	17,521			19,854			(2,333		)	(12	)%
Depreciation and amortization	22,178			21,158			1,020			5	%
Exit activities, restructuring and impairments	1,416			(33		)	1,449			4,391	%
Total operating costs and expenses	75,638			72,973			2,665			4	%
(Loss) income from operations	$	(2,074	)	$	1,228		$	(3,302	)	(269	)%

Interest expense	$	17,447		$	15,604		$	1,843		12	%

Supplemental Schedule



	Three Months Ended March 31,				Increase (Decrease) from 2018 to 2019
	2019		2018		Amount			Percent
Revenues:
INAP US	$	57,520	$	57,076	$	444		1	%
INAP INTL	16,044		17,125		(1,081		)	(6	)%
Net revenues	73,564		74,201		(637		)	(1	)%

Cost of sales and services:
INAP US	19,558		18,005		1,553			9	%
INAP INTL	6,175		6,602		(427		)	(6	)%
Total costs of sales and services, exclusive of depreciation and amortization	$	25,733	$	24,607	$	1,126		5	%

INAP US

Revenues for our INAP US segment increased 3%approximately 1% to ~~$57.1~~$57.5 million for the three months ended March 31, ~~2018,~~2019, compared to ~~$55.5~~$57.1 million for the same period in ~~2017.~~2018. The increase was primarily due to ~~$3.9 million of~~additional revenue from the 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.~~acquisition.

Direct costs of our INAP US segment, exclusive of depreciation and amortization, ~~decreased 22%~~increased 9%, to ~~$18.4~~$19.6 million for the three

months ended March 31, ~~2018,~~2019, compared to ~~$23.5~~$18.0 million for the same period in ~~2017.~~2018. The ~~decrease~~increase was primarily due to ~~$5.0~~

~~million of~~SingleHop 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~~lower space and power costs from ~~SingleHop.~~planned data center exits and network cost savings initiatives.

INAP INTL

Revenues for our INAP INTL segment ~~increased 3%~~decreased 6% to ~~$17.1~~$16.0 million for the three months ended March 31, ~~2018,~~2019, compared to

~~$16.7~~ $17.1 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~$2.0 million of revenue from~~a decline in the ~~INAP Japan consolidation and $0.3 million from SingleHop, partially~~Canada cloud business that targets smaller customers offset by the ~~repricing~~addition of ~~certain customers of $1.9 million.~~SingleHop.

Direct costs of our INAP INTL segment, exclusive of depreciation and amortization, ~~increased 20%~~decreased 6%, to ~~$6.6~~$6.2 million for the three months ended March 31, ~~2018,~~2019, compared to ~~$5.5~~$6.6 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~$1.1 million of costs from INAP Japan.~~cost savings initiatives.

Other Operating Costs and Expenses

Compensation. Total compensation and benefits, including stock-based compensation, was ~~$16.5~~$17.4 million for the three months ended March 31, ~~2018,~~2019, compared to ~~$14.8~~$16.5 million for the same period in ~~2017.~~2018. The ~~change~~increase was ~~primarily~~ due predominantly to ~~a $0.9 million~~

an increase in cash-based compensation as a ~~$0.5 million increase in bonus accrual and a $0.3 million increase in stock-based compensation.~~result of the SingleHop acquisition.

Stock-based compensation, net of amount capitalized, ~~increased to~~was $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 operations2019 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
2018.

Costs of Customer Support. Costs of customer support increased to ~~$7.4~~$8.8 million during the three months ended March 31, ~~2018~~2019 compared to ~~$7.3~~$7.4 million during the same period in ~~2017.~~2018. The increase was primarily due to ~~higher cash-based compensation.~~the SingleHop acquisition.

Sales, General and Administrative. Sales, general and administrative costs ~~increased~~decreased to ~~$19.9~~$17.5 million during the three months ended March 31, ~~2018~~2019 compared to ~~$16.6~~$19.9 million during the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~$2.5~~$2.6 million inof the SingleHop 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~~incurred in ~~increased compensation costs in SG&A), offset by a $0.4 million decrease in tax and license fees.~~the first quarter of 2018.

Depreciation and Amortization. Depreciation and amortization increased to ~~$21.1~~$22.2 million during the three months ended March 31, ~~2018,~~2019 compared to ~~$17.7~~$21.1 million during the same period in ~~2017.~~2018. The increase is primarily due to the ~~depreciation on the capital~~amortization of finance leased assets obtained during the ~~last half of 2017.~~prior year.

Exit activities ~~Restructuring~~ and ~~Impairments.~~Restructuring. Exit activities and restructuring ~~and impairments decreased~~increased to ~~less than $0.1~~$1.4 million ~~income~~ during the three months ended March 31, ~~2018~~2019 compared to ~~$1.0~~a benefit less than $0.1 million ~~expense~~ during the same period in ~~2017.~~2018. The ~~decrease~~increase is primarily due to ~~severance costs and plan adjustments to sublease income assumptions during the prior period.~~planned data center exits.

Interest Expense. Interest expense increased to ~~$15.0~~$17.4 million during the three months ended March 31, ~~2018~~2019 from ~~$8.1~~$15.6 million during the same period in ~~2017.~~2018. The increase is primarily due to increased borrowings ~~a higher interest rate~~ and additional interest ~~expenses~~expense related to ~~capital~~finance leases.

Non-GAAP Financial Measure

We report our consolidated financial statements in accordance with GAAP. WeIn addition, we present ~~the non-GAAP performance measure of~~ Adjusted EBITDA, an additional financial measure that is not prepared in accordance with GAAP (“non-GAAP”). A reconciliation of this non-GAAP financial measure 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. the most directly comparable GAAP financial measure can be found below.

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

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

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

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

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

Our management uses Adjusted EBITDA:

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

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

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

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

Although we believe, for the foregoing reasons, that our presentation of the non-GAAP financial measure ~~Adjusted EBITDA~~provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measure should ~~not~~only be considered in ~~isolation of, or~~addition to, and not as a substitute for, ~~net loss, income from operations~~ or ~~other GAAP measures as an indicator~~superior to, any measure of ~~operating performance. Our calculation of Adjusted EBITDA may differ from others~~financial performance prepared in ~~our industry and is not necessarily comparable~~accordance with ~~similar titles used by other companies.~~

GAAP.

The following table reconciles ~~Adjusted EBITDA~~net loss attributable to ~~net loss~~INAP shareholders as presented in our condensed consolidated statements of operations and comprehensive ~~loss:~~loss to Adjusted EBITDA (non-GAAP) (in thousands):

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



	Three Months Ended March 31,
	2019			2018
Net revenues	$	73,564		$	74,201

Net loss attributable to INAP shareholders	$	(19,644	)	$	(14,288	)
Depreciation and amortization	22,178			21,158
Interest expense	17,447			15,604
(Benefit) provision for income taxes	(103		)	100
Other expense (income)	204			(215		)
Loss on disposal of property and equipment, net	528			46
Exit activities, restructuring and impairments	1,416			(33		)
Stock-based compensation	890			858
Acquisition costs⁽¹⁾	141			2,558
Strategic alternatives and related costs⁽²⁾	22			27
Organizational realignment costs⁽³⁾	386			240
Non-income tax contingency	150			—
Adjusted EBITDA	$	23,615		$	26,055

⁽¹⁾On February 28, 2018, we acquired SingleHop LLC which resulted in higher acquisition costs.

⁽¹⁾⁽²⁾

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 condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2019 and 2018, ~~and 2017.~~respectively.


⁽²⁾⁽³⁾	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.~~

organization realignment. We include these costs in SG&A in the accompanying condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2019 and 2018, respectively.

Liquidity and Capital Resources

Liquidity

On an ongoing basis, we require capital to fund our current operations, make acquisitions, 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,~~2019, we had ~~$3.6~~$31.2 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,~~2019 was ~~$19.7~~$39.5 million.

As of March 31, ~~2018,~~2019, we had a deficit of ~~$26.8~~$13.8 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,~~Revolving Credit Facility (as defined below), 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~~$50.0 million in ~~2018,~~2019, working capital needs and required payments on our ~~credit agreement~~2017 Credit Agreement and other commitments. We ~~intend~~continue to ~~reduce expenses~~optimize our cost structure 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,~~2019, we had a net loss attributable to INAP stockholders of ~~$14.1~~$19.6 million. As of March 31, ~~2018,~~2019, our accumulated deficit was ~~$1.3~~$1.4 billion. We may not

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~~$300.0 million term loan facility ("2017 term loan") and a ~~$25~~$25.0 million revolving credit facility (the ~~" 2017 revolving credit facility"~~"2017 Revolving Credit Facility"). The proceeds of the 2017 term loan were used to refinance the ~~Company’s~~Company's existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement.

Certain portions of the 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 2017 term loan third party costs and will be amortized over the 2017 term ~~of the~~ loan and $0.4 million ~~are~~ prepaid debt issuance costs related to the ~~revolving credit facility~~2017 Revolving Credit Facility and will be amortized over the term of the ~~revolving credit facility.~~2017 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 2017 term loan is April 6, 2022 and the maturity date of the 2017 ~~revolving credit facility~~Revolving Credit Facility is October 6, 2021.

As of March 31, ~~2018,~~2019, the balance and interest rate of the 2017 term loan were $415.5 million and 8.24%, respectively. The 2017 Revolving Credit Facility had anno balance 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~~at March 31, ~~2018,~~2019.

Borrowings under the 2017 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 2017 revolving credit facility ~~had an outstanding balance~~is 6.0% for loans bearing interest calculated using the base rate ("Base Rate Loans") and 7.0% for loans bearing interest calculated using the adjusted LIBOR rate. The applicable margin for loans under the 2017 term loan is 4.75% for Base Rate Loans and 5.75% for adjusted LIBOR rate loans. The base rate is equal to the highest of ~~$16.0 million. We have~~(a) the adjusted U.S. Prime Lending Rate as published in the Wall Street

Journal, (b) with respect to term loans issued ~~$5.4 million~~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 ~~letters~~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 ~~credit resulting~~the lenders extending the 2017 Revolving Credit Facility are subject to various conditions, as set forth in ~~$3.6 million in borrowing capacity.~~the 2017 Credit Agreement. As of March 31, ~~2018,~~2019, the ~~interest rate on the 2017 term loan and 2017 revolving credit facility was 8.72% and 8.88%, respectively.~~Company has been in compliance with all covenants.

~~The~~First Amendment

On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement ~~contains customary~~("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 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.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 to (i) to permit the Company to incur incremental term loans under the 2017 Credit Agreement of up to ~~$135~~$135.0 million to finance the ~~Company’s~~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. This transaction was considered a modification.

Third Amendment

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.

Fourth Amendment

Fifth Amendment

On August 28, 2018, the Company entered into the Fifth Amendment to 2017 Credit Agreement, among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the "Fifth Amendment"). The Fifth Amendment amended the 2017 Credit Agreement by increasing the aggregate revolving commitment capacity by $10.0 million to $35.0 million.

Cash Flows

Operating Activities

During the three months ended March 31, ~~2018,~~2019, net cash provided by operating activities ~~was $3.5 million. We generated cash from operations of $8.5~~decreased $1.4 million ~~while~~to $2.3 million primarily due to the changes in operating assets and ~~liabilities used cash of $5.0 million.~~liabilities. Net loss adjusted for non-cash items was $6.4 million and $8.7 million for the three months ended March 30, 2019 and 2018, respectively. We expect to use cash flows from operating activities together with our 2017 Revolving Credit Facility 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,~~2019, net cash used in investing activities was ~~$139.2~~$8.6 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,~~2019, net cash ~~provided~~used by financing activities was ~~$137.2~~$3.3 million, primarily due to principal payments of ~~$3.1~~$2.0 million on the credit facilities and ~~capital~~finance lease ~~obligations, partially offset by $146 million of proceeds from the 2017 Credit Agreement.~~obligations.

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,~~2019, the outstanding balance of our long-term debt was ~~$432.4~~$415.5 million on the 2017 term ~~loan and $16.0 million on the 2017 revolving credit facility.~~loan.

At March 31, ~~2018,~~2019, the interest rate on the 2017 term loan ~~and the revolver~~ was ~~8.72% and 8.88%, respectively.~~8.24%. We summarize the 2017 Credit Agreement in “Liquidity and Capital Resources—~~New~~ Capital Resources—Credit ~~Agreement”.~~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,~~2017 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.~~2017 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~~approximately $4.3 million per year, assuming we do not increase our ~~amount outstanding.~~

borrowings.

Foreign Currency Risk

As of March 31, ~~2018,~~2019, 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,~~2019, we realized a foreign currency ~~gains~~loss 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,~~“Loss (gain) on foreign currency, net,” and we recorded an unrealized foreign currency translation gain of $0.2 million which we included in “Foreign currency translation adjustment,” both in the accompanying condensed 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~~Our management, with the participation of our ~~chief~~principal executive officer and ~~chief~~principal financial ~~officer),~~officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). Disclosure controls are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in SEC rules and forms. Based on their evaluation, our principal executive officer and principal financial officer concluded that, 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.~~effective.

Changes in Internal Control over Financial Reporting

Effective January 1, ~~2018,~~2019, we adopted the new ~~revenue guidance under ASC 606,~~ ~~Revenue from Contracts with Customers, using~~lease standard as discussed in Note 2, "Recent Accounting Pronouncements" and Note 4, "Leases" to the ~~modified retrospective method~~notes to condensed consolidated financial statements. As a result of ~~adoption. The~~our adoption of ~~this guidance required~~ the ~~implementation of~~ new lease standard, we have implemented a new lease accounting system, accounting policies and processes which changed the ~~Company’s~~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.~~lease accounting.

~~Remediation Plan~~

~~During 2017, management identified a material weakness~~There were no other changes 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 during the ~~Company may determine~~quarter ended March 31, 2019, that have materially affected, or are reasonably likely 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.materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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~~2018 filed with the SEC on March ~~15, 2018.~~

18, 2019.

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:~~2019:

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
—
—



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, 2019	—	$	—	—	—
February 1 to 28, 2019	23,287	5.80		—	—
March 1 to 31, 2019	25,551	5.12		—	—
Total	48,838	$	5.44	—	—


(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.~~employees.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:



Exhibit Number			Description

~~2.1~~			Purchase and Sale Agreement, dated as of January 27, 2018, by and among Internap Corporation, SingleHop LLC, the members of SingleHop LLC set forth therein and Shareholder Representative Services LLC (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed January 29, 2018)^
~~10.1~~			Second Amendment to Credit Agreement entered into as of February 6, 2018 among Internap Corporation, each of the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed February 7, 2018)
~~10.2~~			Incremental and Third Amendment to Credit Agreement, dated as of February 28, 2018, among Internap Corporation, each of the Lenders thereto and Jefferies Finance LLC as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 1, 2018)
~~10.3~~			Amendment No. 2 to Employment Agreement, dated March 16, 2018, by and between Peter D. Aquino and Internap Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 21, 2018)#
~~10.4~~			~~Offer Letter, by and between Internap Corporation and Richard Diegnan, Jr., dated November 7, 2016#~~
~~10.5~~			~~Offer Letter, by and between Internap Corporation and Corey Needles, dated January 3, 2017#~~
~~10.6~~			~~Employment Agreement, by and between Technologies IWeb Inc. and Andy Day, dated March 30, 2017#~~
31.1			Rule 13a-14(a)/15d-14(a) Certification, executed by Peter D. Aquino, President and Chief Executive Officer.

31.2			Rule 13a-14(a)/15d-14(a) Certification, executed by ~~Robert Dennerlein,~~James C. Keeley, Chief Financial Officer.

32.1*			Section 1350 Certification, executed by Peter D. Aquino, President and Chief Executive Officer.

32.2*			Section 1350 Certification, executed by ~~Robert Dennerlein,~~James C. Keeley, Chief Financial Officer.

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.~~

~~# 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, as amended (15 U.S.C. 78r) ("Exchange Act"), 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 of 1933, as amended, or ~~Securities~~ Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

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~~James C. Keeley
		~~Robert Dennerlein~~James C. Keeley
		(Executive Vice President, Chief Financial Officer)

		Date: May ~~3, 2018~~9, 2019



	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



	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



	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



	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



	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



	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	)



Nine months remaining in 2018	$	8,636
2019	10,941
2020	10,031
2021	9,548
2022	7,839
Thereafter	32,190
	$	79,185



	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



	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	%