10-Q

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 September 30, 2017

OR

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

For the transition period from _______ to ______

Commission File Number: 001-31989

INTERNAP CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	91-2145721
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

One Ravinia Drive, Suite 1300

Atlanta, Georgia 30346

(Address of Principal Executive Offices, Including Zip Code)

(404) 302-9700

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨	Smaller reporting company	¨
(Do not check if a smaller reporting company)		Emerging growth company	¨

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

As of October 19, 2017, 83,383,287 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

INTERNAP CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	1
	Unaudited Condensed Consolidated Balance Sheets	2
	Unaudited Condensed Consolidated Statements of Cash Flows	3
	Unaudited Condensed Notes to Consolidated Financial Statements	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 4.	CONTROLS AND PROCEDURES	22
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	22
ITEM 1A.	RISK FACTORS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
ITEM 6.	EXHIBITS	24
SIGNATURES

i

ITEM 1. FINANCIAL STATMENTS

INTERNAP CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
INAP COLO	$	51,344		$	54,998		$	156,727		$	166,707
INAP CLOUD	17,563			18,942			53,955			57,473
Total revenues	68,907			73,940			210,682			224,180
Operating costs and expenses:
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:
INAP COLO	20,785			26,676			67,661			79,745
INAP CLOUD	4,160			4,886			12,758			14,264
Direct costs of customer support	6,237			7,985			19,634			24,709
Sales, general and administrative	15,331			18,355			47,466			55,416
Depreciation and amortization	20,917			19,597			57,596			57,927
Goodwill impairment	—			78,169			—			78,169
Exit activities, restructuring and impairments	745			1,670			6,396			2,023
Total operating costs and expenses	68,175			157,338			211,511			312,253
Income (loss) from operations	732			(83,398		)	(829		)	(88,073		)
Non-operating expenses:
Interest expense	12,299			7,878			37,581			22,945
Loss on foreign currency, net	197			—			485
Other, net	—			(30		)	—			442
Total non-operating expenses	12,496			7,848			38,066			23,387
Loss before income taxes and equity in earnings of equity-method investment	(11,764		)	(91,246		)	(38,895		)	(111,460		)
Provision for income taxes	221			95			689			294
Equity in earnings of equity-method investment, net of taxes	(1,122		)	(44		)	(1,207		)	(121		)
Net loss	(10,863		)	(91,297		)	(38,377		)	(111,633		)
Less net income attributable to non-controlling interests	32			—			32			—
Net loss attributable to INAP stockholders	(10,895		)	(91,297		)	(38,409		)	(111,633		)
Other comprehensive income:
Foreign currency translation adjustment	(91		)	122			14			239
Unrealized gain on foreign currency contracts	—			(93		)	145			620
Unrealized gain on interest rate swap	—			198			—			534
Total other comprehensive income	(91		)	227			159			1,393
Comprehensive loss	$	(10,986	)	$	(91,070	)	$	(38,250	)	$	(110,240	)
Basic and diluted net loss per share	$	(0.14	)	$	(1.75	)	$	(0.51	)	$	(2.14	)
Weighted average shares outstanding used in computing basic and diluted net loss per share	79,715			52,096			74,581			52,245

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

1

INTERNAP CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	11,968		$	10,389
Accounts receivable, net of allowance for doubtful accounts of $1,285 and $1,246, respectively	17,586			18,044
Prepaid expenses and other assets	9,036			10,055
Total current assets	38,590			38,488
Property and equipment, net	441,239			302,680
Investment in joint venture	—			3,002
Intangible assets, net	26,661			27,978
Goodwill	50,209			50,209
Deposits and other assets	10,733			8,258
Total assets	$	567,432		$	430,615
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,732		$	20,875
Accrued liabilities	13,513			10,603
Deferred revenues	5,054			5,746
Capital lease obligations	11,729			10,030
Term loan, less discount and prepaid costs of $2,119 and $2,243, respectively	881			757
Exit activities and restructuring liability	4,263			3,177
Other current liabilities	3,400			3,171
Total current liabilities	55,572			54,359
Deferred revenues	4,661			5,144
Capital lease obligations	206,927			43,876
Revolving credit facility	—			35,500
Term loan, less discount and prepaid costs of $8,216 and $4,579, respectively	288,034			283,421
Exit activities and restructuring liability	1,537			1,526
Deferred rent	1,581			4,642
Deferred tax liability	1,484			1,513
Other long-term liabilities	3,026			4,358
Total liabilities	562,822			434,339
Commitments and contingencies (note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.001 par value; 200,000 shares authorized; 83,305 and 57,799 shares outstanding, respectively	84			58
Additional paid-in capital	1,325,755			1,283,332
Treasury stock, at cost, 1,164 and 1,073 shares, respectively	(7,145		)	(6,923		)
Accumulated deficit	(1,316,788		)	(1,278,699		)
Accumulated items of other comprehensive loss	(1,334		)	(1,492		)
Total INAP stockholders’ equity	572			(3,724		)
Non-controlling interests	4,038			—
Total stockholders’ equity	4,610			(3,724		)
Total liabilities and stockholders’ equity	$	567,432		$	430,615

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

2

INTERNAP CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2017			2016
Cash Flows from Operating Activities:
Net loss	$	(38,377	)	$	(111,633	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	57,596			57,927
Impairments	503			79,798
Amortization of debt discount and issuance costs	1,890			1,881
Stock-based compensation expense, net of capitalized amount	2,061			4,717
Equity in earnings of equity-method investment	(1,207		)	(121		)
Provision for doubtful accounts	808			902
Non-cash change in capital lease obligations	564			405
Non-cash change in exit activities and restructuring liability	5,824			865
Non-cash change in deferred rent	(3,335		)	(1,490		)
Deferred taxes	209			158
Payment of debt lender fees	(2,583		)	(1,716		)
Loss on extinguishment and modification of debt	6,785			—
Other, net	(49		)	212
Changes in operating assets and liabilities:
Accounts receivable	243			1,894
Prepaid expenses, deposits and other assets	1,979			1,108
Accounts payable	(3,498		)	4,853
Accrued and other liabilities	1,691			(629		)
Deferred revenues	(1,233		)	(304		)
Exit activities and restructuring liability	(4,727		)	(2,355		)
Asset retirement obligation	191			(174		)
Other liabilities	22			(33		)
Net cash flows provided by operating activities	25,357			36,265
Cash Flows from Investing Activities:
Proceeds from sale of building	—			542
Purchases of property and equipment	(23,198		)	(38,732		)
Proceeds from disposal of property and equipment	206			—
Net cash from acquisition	3,838			—
Additions to acquired and developed technology	(635		)	(1,211		)
Net cash flows used in investing activities	(19,789		)	(39,401		)
Cash Flows from Financing Activities:
Proceeds from credit agreements	295,500			4,500
Proceeds from stock issuance	40,165			—
Principal payments on credit agreements	(327,250		)	(2,250		)
Debt issuance costs	(5,694		)	—
Payments on capital lease obligations	(6,562		)	(7,211		)
Proceeds from exercise of stock options	159			675
Acquisition of common stock for income tax withholdings	(222		)	(473		)
Other, net	(302		)	(250		)
Net cash flows used in financing activities	(4,206		)	(5,009		)
Effect of exchange rates on cash and cash equivalents	217			13
Net increase (decrease) in cash and cash equivalents	1,579			(8,132		)
Cash and cash equivalents at beginning of period	10,389			17,772
Cash and cash equivalents at end of period	$	11,968		$	9,640
Supplemental disclosure of cash flow information:
Cash paid for interest	$	25,898		$	21,957
Non-cash acquisition of property and equipment under capital leases	169,679			4,921
Additions to property and equipment included in accounts payable	701			3,606

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

3

INTERNAP CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Internap Corporation (“we,” “us,” “our,” “INAP,” or “the Company”) provides Internet infrastructure through both Colocation Business and Enterprise Services (including colocation, network connectivity, IP, bandwidth, and managed services and hosting), and Cloud Services (including enterprise-grade AgileCLOUD, bare-metal servers, and SMB iWeb platforms). INAP operates in Tier 3-type data centers in 21 metropolitan markets, primarily in North America, with 50 datacenters and 89 POPs around the world. Currently, INAP has approximately one million gross square feet under lease, with 500,000 square feet of data center space. INAP operates a premium business model that provides high-power density colocation, low-latency bandwidth, and public and private cloud platforms in an expanding Internet infrastructure industry.

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.

We have condensed or omitted certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP. In the opinion of management, 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 September 30, 2017 and our operating results and cash flows for the interim periods presented. The balance sheet at December 31, 2016 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, 2016 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 and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the 2017 fiscal year or any future periods.

2. CHANGE IN ORGANIZATIONAL STRUCTURE

During the three months ended March 31, 2017, we changed our organizational structure in an effort to create more effective and efficient operations and to improve customer and product focus. In that regard, we revised the information that our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our revised segment structure, described in more detail in note 10 “Operating Segments.” We have reclassified prior period amounts to conform to the current presentation.

4

The prior year reclassifications, which did not affect total revenues, total direct costs of sales and services, operating loss or net loss, are summarized as follows (in thousands):

	Three Months Ended September 30, 2016
	As Previously Reported		Reclassification			As Reported
Revenues:
Data center and network services	$	49,767	$	(49,767	)	$	—
Cloud and hosting services	24,173		(24,173		)	—
INAP COLO	—		54,998			54,998
INAP CLOUD	—		18,942			18,942
Direct costs of sales and services, exclusive of depreciation and amortization:
Data center and network services	25,042		(25,042		)	—
Cloud and hosting services	6,520		(6,520		)	—
INAP COLO	—		26,676			26,676
INAP CLOUD	—		4,886			4,886

	Nine Months Ended September 30, 2016
	As Previously Reported		Reclassification			As Reported
Revenues:
Data center and network services	$	151,099	$	(151,099	)	$	—
Cloud and hosting services	73,081		(73,081		)	—
INAP COLO	—		166,707			166,707
INAP CLOUD	—		57,473			57,473
Direct costs of sales and services, exclusive of depreciation and amortization:
Data center and network services	74,065		(74,065		)	—
Cloud and hosting services	19,944		(19,944		)	—
INAP COLO	$	—	79,745			79,745
INAP CLOUD	$	—	14,264			14,264

3. 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.

5

Assets and liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):

	Level 1		Level 2		Level 3		Total
September 30, 2017
Foreign currency contracts (note 8)	$	—	$	—	$	—	$	—
Asset retirement obligations(1)	—		—		3,157		3,157
December 31, 2016
Foreign currency contracts (note 8)	—		195		—		195
Asset retirement obligations(1)	—		—		2,810		2,810

(1) We calculate the fair value of asset retirement obligations by discounting the estimated amount using the current Treasury bill rate adjusted for our credit risk. The balance is included in “Other long-term liabilities,” in the accompanying unaudited consolidated balance sheets.

The following table provides a summary of changes in our Level 3 asset retirement obligations for the nine months ended September 30, 2017 (in thousands):

Balance, January 1, 2017	$	2,810
Accretion	155
Subsequent revision of estimated obligation	449
Payments	(415		)
Aquisition of Internap Japan	158
Balance, September 30, 2017	$	3,157

The fair values of our other Level 3 debt liabilities, estimated using a discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements, are as follows (in thousands):

	September 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	299,250	$	302,242	$	291,000	$	267,700
Revolving credit facility	—		—		35,500		32,600

4. GOODWILL

During the three months ended March 31, 2017, we changed our operating segments, as discussed in note 10 “Operating Segments,” and, subsequently, our reporting units. We now have six reporting units: IP services, IP products, data center services, managed hosting, cloud and Ubersmith. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed.

6

During the nine months ended September 30, 2017, we re-allocated goodwill as follows (in thousands):

	December 31, 2016		Re-allocations			September 30, 2017
Operating segments:
Data center and network services	$	—	$	—		$	—
Cloud and hosting services	50,209		(50,209		)	—
INAP COLO	—		6,003			6,003
INAP CLOUD	—		44,206			44,206
Total	$	50,209	$	—		$	50,209

5. DEBT

Third Amendment

During the three months ended March 31, 2017, we entered into an amendment to our Credit Agreement (the “Third Amendment”), which, among other things, amended the credit agreement (i) to make each of the interest coverage ratio and leverage ratio covenants less restrictive and (ii) to decrease the maximum level of permitted capital expenditures. We paid a one-time aggregate fee of $2.6 million to the lenders for the Third Amendment, which we recorded as a debt discount of $2.2 million related to the term loan and prepaid debt issuance costs of $0.4 million related to the revolving credit facility. In addition, we paid $0.3 million in third-party fees, which we recorded as expense of $0.3 million related to the term loan and as prepaid debt issuance costs of less than $0.1 million related to the revolving credit facility.

The Third Amendment was effective on February 28, 2017, upon the closing of the equity sale, which is described in note 6 "Equity" below. The effectiveness of the covenant amendments was conditioned on the Company completing one or more equity offerings on or before June 30, 2017 for gross cash proceeds of not less than $40 million, and net cash proceeds of not less than $37 million and the application of the net cash proceeds to the repayment of indebtedness under the Credit Agreement. The Company paid a fee of approximately $0.9 million to the lenders on January 26, 2017 and paid an additional fee of $1.6 million on February 28, 2017. Absent the Third Amendment, we may not have been able to comply with our covenants in the Credit Agreement.

Credit Agreement

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

A total of $5.7 million was paid for debt issuance costs related to the 2017 Credit Agreement. Of the $5.7 million in costs paid, $1.9 million related to the exchange of debt and was expensed, $3.3 million related to term loan third party costs and will be amortized over the term of the loan and $0.4 million are prepaid debt issuance costs related to the revolving credit facility and will be amortized over the term of the revolving credit facility. In addition, $4.8 million of debt discount and debt issuance costs related to the previous credit facility were expensed due to the extinguishment of that credit facility.

The maturity date of the term loan is April 6, 2022 and the maturity date of the revolving credit facility is October 6, 2021. As of September 30, 2017, the interest rate on the term loan was 8.24%.

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

7

6. EQUITY

Securities Purchase Agreement

On February 22, 2017, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers (the “Purchasers”), pursuant to which the Company issued to the Purchasers an aggregate of 23,802,850 shares of the Company’s common stock at a price of $1.81 per share, for the aggregate purchase price of $43.1 million, which closed on February 27, 2017. Conditions for the Securities Purchase Agreement included the following: (i) a requirement for the Company to use the funds of the sale of such common stock to repay indebtedness under the Credit Agreement, (ii) a 90-day “lock-up” period whereby the Company is restricted from certain sales of equity securities and (iii) a requirement for the Company to pay certain transaction expenses of the Purchasers up to $100,000. The Company used $39.2 million of the proceeds to pay down our debt, as described in note 5, "Debt" above.

Registration Rights Agreement

On February 22, 2017, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, which provides the Purchasers under the Securities Purchase Agreement the ability to request registration of such securities. Pursuant to the Registration Rights Agreement, the Company filed a registration statement in March 2017 that was declared effective during April 2017.

7. EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES

During the nine months ended September 30, 2017, we recorded initial exit activity charges due to ceasing use of data center space. We include initial charges and plan adjustments in “Exit activities, restructuring and impairments” in the accompanying statements of operations and comprehensive loss for the three and nine months ended September 30, 2017 and 2016.

The following table displays the transactions and balances for exit activities and restructuring charges during the nine months ended September 30, 2017 and 2016 (in thousands). Our real estate obligations are substantially related to our INAP COLO segment. Severance is spread across both reportable segments.

	Balance December 31, 2016		Initial Charges		Plan Adjustments		Cash Payments			Balance September 30, 2017
Activity for 2017 restructuring charge:
Real estate obligations	$	—	$	4,024	$	654	$	(881	)	$	3,797
Activity for 2016 restructuring charge:
Severance	1,911		—		958		(2,467		)	402
Real estate obligations	933		—		76		(730		)	279
Activity for 2015 restructuring charge:
Real estate obligation	111		—		2		(38		)	75
Service contracts	565		—		15		(148		)	432
Activity for 2014 restructuring charge:
Real estate obligation	1,183		—		95		(463		)	815
	$	4,703	$	4,024	$	1,800	$	(4,727	)	$	5,800

8

	Balance December 31, 2015		Initial Charges		Plan Adjustments			Cash Payments			Balance September 30, 2016
Activity for 2016 restructuring charge:
Real estate obligations	$	—	$	197	$	12		$	(149	)	$	60
Service contracts	—		42		(21		)	(21		)	—
Activity for 2015 restructuring charge:
Real estate obligation	164		—		(10		)	(37		)	117
Service contracts	843		—		5			(238		)	610
Activity for 2014 restructuring charge:
Real estate obligations	1,701		—		85			(474		)	1,312
Activity for 2007 restructuring charge:
Real estate obligation	1,170		—		555			(1,436		)	289
	$	3,878	$	239	$	626		$	(2,355	)	$	2,388

8. DERIVATIVES

Foreign Currency Contracts

In a prior year we entered into foreign currency contracts to mitigate the risk of a portion of our Canadian compensation expense. These contracts hedged foreign exchange variations between the United States and Canadian dollar and committed us to purchase a total of $12.0 million Canadian dollars at an exchange rate of 1.2855 through June 2017. The contract expired on June 30, 2017. As of September 30, 2017, and December 31, 2016, the fair value of our foreign currency contracts was $0.0 million and $0.2 million, respectively, included in “Other current liabilities” in the accompanying consolidated balance sheets.

The activity of the foreign currency contracts was as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Unrealized gain, net of less than $0.1 million income tax, included in “Accumulated items of other comprehensive loss” in the accompanying consolidated balance sheets	$	—	$	75		$	145		$	713
Realized loss on effective portion, included as compensation expense in “Direct costs of customer support” and “Sales, general and administrative” in the accompanying consolidated statements of operations and comprehensive loss	—		(20		)	(171		)	(199		)

9. COMMITMENTS, CONTINGENCIES AND LITIGATION

Capital Leases

During the nine months ended September 30, 2017, we entered into amended agreements for data center space. The lease extensions triggered new lease agreements, with new terms resulting in capital lease treatment for accounting purposes. We recorded property of $169.4 million, net of the deferred rent balance on the previous operating leases, included in "Property and equipment, net" in the accompanying consolidated balance sheets and capital lease obligations of $172.0 million.

9

As of September 30, 2017, future minimum capital lease payments and the present value of the minimum lease payments for all capital leases are as follows (in thousands):

2017	$7,530
2018	31,062
2019	28,546
2020	24,432
2021	23,970
Thereafter	365,284
Remaining capital lease payments	480,824
Less: amounts representing imputed interest	(262,168	)
Present value of minimum lease payments	218,656
Less: current portion	(11,729	)
	$206,927

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.

10. OPERATING SEGMENTS

The Company has two reportable segments: INAP COLO and INAP CLOUD. These segments are comprised of strategic businesses that are defined by the service offerings they provide. Each segment is managed as an operation with well-established strategic directions and performance requirements. Each segment is led by a separate General Manager who reports directly to the Company’s CODM.

The CODM evaluates segment performance using business unit contribution which is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.

We report our financial performance based on our two reportable segments, INAP COLO and INAP CLOUD, as follows:

INAP COLO

Our Colocation segment consists of colocation, managed services and hosting, and network services.

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.

Managed Services and Hosting

Managed Services and Hosting consists of leasing dedicated servers as well as storage and network equipment along with other associated hardware to our customers.  We configure and administer the hardware and operating system, provide technical support, patch management, monitoring and updates.  We offer managed hosting around the globe, including North America, Europe and the Asia-Pacific region.

Network Services

Network services includes our patented Performance IP™ service, content delivery network services, IP routing hardware and software platform and Managed Internet Route Optimizer™ Controller. By intelligently routing traffic with redundant, high-speed

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connections over multiple, major Internet backbones, our network services provides high-performance and highly-reliable delivery of content, applications and communications to end users globally.

INAP CLOUD

Cloud services involve providing compute and storage services via an integrated platform that includes servers, storage and network. We built our next generation cloud platform with our high-density colocation, Performance IP service and OpenStack, a leading open source technology for cloud services.

In conjunction with our change in segments we changed the measure for determining the results of our segments to business unit contribution which includes the direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization. In addition, during the three months ended June 30, 2017, management changed its measure of profitability to exclude corporate facilities allocation cost which are now reflected in "Sales, general and administrative," in the accompanying consolidated income statements.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
INAP COLO	$	51,344		$	54,998		$	156,727		$	166,707
INAP CLOUD	17,563			18,942			53,955			57,473
Total revenues	68,907			73,940			210,682			224,180
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
INAP COLO	29,048			35,893			92,524			108,219
INAP CLOUD	9,094			10,329			27,969			31,673
Total direct costs of sales and services, customer support and sales and marketing	38,142			46,222			120,493			139,892
Business unit contribution:
INAP COLO	22,296			19,105			64,203			58,488
INAP CLOUD	8,469			8,613			25,986			25,800
Total business unit contribution	30,765			27,718			90,189			84,288
Exit activities, restructuring and impairments	745			1,670			6,396			2,023
Other operating expenses, including depreciation and amortization	29,288			109,446			84,622			170,338
Loss from operations	732			(83,398		)	(829		)	(88,073		)
Non-operating expenses	12,496			7,848			38,066			23,387
Loss before income taxes and equity in (earnings) of equity-method investment	$	(11,764	)	$	(91,246	)	$	(38,895	)	$	(111,460	)

11. 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.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net loss	$	(10,863	)	$	(91,297	)	$	(38,377	)	$	(111,633	)
Less net income attributable to non-controlling stockholders	$	32		$	—		$	32		$	—
Net loss attributable to common stock	$	(10,895	)	$	(91,297	)	$	(38,409	)	$	(111,633	)
Weighted average shares outstanding, basic and diluted	79,715			52,096			74,581			52,245
Net loss per share, basic and diluted	$	(0.14	)	$	(1.75	)	$	(0.51	)	$	(2.14	)
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans	5,840			7,238			5,840			7,238

12. ACQUISITION

In previous years, INAP invested $4.1 million in Internap Japan Co., Ltd. ("Interap Japan"), our joint venture with NTT-ME Corporation and Nippon Telegraph and Telephone Corporation. We accounted for this investment using the equity method. On August 15, 2017, INAP exercised certain rights to obtain a controlling interest in Internap Japan. Upon obtaining control of the venture, we recognized Internap Japan's assets and liabilities at fair value resulting in a gain of $1.1 million which is reflected in "Equity in earnings of equity-method investment, net of taxes" in the accompanying consolidated statements of operations and comprehensive loss.

Pro-Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of INAP and Internap Japan as if the acquisition had occurred on January 1, 2016. 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 Internap Japan acquisition been completed as of January 1, 2016, and should not be taken as indicative of our future consolidated results of operations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	70,029		$	76,124		$	215,741		$	230,132
Net loss	(10,849		)	(91,269		)	(38,317		)	(111,572		)

13. RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" ("ASU 2017-04"), which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. The guidance is effective for public companies’ annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 in the first quarter of 2017 and it did not impact our consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which allows the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. There are no new disclosure requirements. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, and the Company adopted the provisions of ASU 2016-16 as of January 1, 2017. In connection with

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the adoption of the standard, the Company recorded a $2.2 million deferred tax asset and corresponding $1.9 million valuation allowance with the net difference going to retained earnings.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting, and was effective for us at January 1, 2017. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. In connection with the adoption of the standard, the Company recorded a $10.8 million deferred tax asset and a corresponding $10.8 million valuation allowance.

Accounting Pronouncements Issued But Not Yet Effective

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments" which amends Accounting Standards Codification 230, to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows ("ASU 2016-15"). The FASB issued ASU 2016-15 with the intent of reducing diversity in practice with respect to eight types of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact that adoption will have on the presentation of our consolidated statements of cash flow.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, delaying the effective date of ASU 2014-09. Three other amendments were issued during 2016 modifying the original ASU. As amended, the new standard is effective for the Company on January 1, 2018, using either a retrospective basis or a modified retrospective basis with early adoption permitted. We currently plan to adopt the standard effective January 1, 2018.

We are continuing to work towards establishing policies, updating our processes and implementing necessary changes to data and processes to be able to comply with the new requirements. Based on the results of our assessment to date, we do not expect that the new standard will result in significant changes in our units of accounting  or the amounts of revenue allocated between units of accounting.  Further, our initial evaluation is that monthly recurring charges from colocation and cloud services, which is a majority of our revenues, would not be materially impacted by the adoption of this standard.  We are currently evaluating the impact to certain non-recurring charges including installation as well as the impact of contract acquisition and fulfillment costs.  Our initial conclusion may change when we complete our evaluation which is proceeding as planned.

While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to additional disclosures related to qualitative and quantitative information concerning the nature, amount, timing, and any uncertainty of revenue and cash flows from contracts with customers, the capitalization of costs of commissions, upfront contract costs, and other contract acquisition-based and contract fulfillment costs on the consolidated balance sheets.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which requires all leases in excess of 12 months to be recognized on the balance sheet as lease assets and lease liabilities. For operating leases, a lessee is required to recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payment; recognize a single lease cost over the lease term generally on a straight-line basis; and classify all cash payments within operating activities on the cash flow statement. The guidance is effective for annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. We are currently evaluating the impact that adoption will have on our consolidated financial statements and related disclosures.

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

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” “INAP.” or “the Company” refers to Internap Corporation and our subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements include statements related to our cash requirements, cost reduction strategies, the availability of financing, our working capital needs and our expectations for full-year 2017 capital expenditures. Our ability to achieve these forward-looking statements is based on certain assumptions, including our ability to execute on our business strategy, leveraging of multiple routes to market, expanded brand

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awareness for high-performance Internet infrastructure services and customer churn levels. These assumptions may prove inaccurate in the future. Because such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, there are important factors that could cause Internap’s actual results to differ materially from those expressed or implied in the forward-looking statements, due to a variety of important factors.

Such important factors include, without limitation: our ability to execute on our business strategy into a pure-play business and drive growth while reducing costs; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; increased competition in the IT infrastructure services market; our ability to achieve or sustain profitability; our ability to expand margins and drive higher returns on investment; our ability to sell into new and existing data center space;

the actual performance of our IT infrastructure services and improving operations; our ability to correctly forecast capital needs, demand planning and space utilization; our ability to respond successfully to technological change and the resulting competition; the geographic concentration of the Company’s data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; our ability to identify any suitable strategic transactions; the availability of services from Internet network service providers or network service providers providing network access loops and local loops on favorable terms, or at all; the failure of third party suppliers to deliver their products and services on favorable terms, or at all; failures in our network operations centers, data centers, network access points or computer systems; our ability to provide or improve Internet infrastructure services to our customers; our ability to protect our intellectual property; our substantial amount of indebtedness, our 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 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 Quarterly Report on Form 10-Q.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. All forward-looking statements attributable to INAP or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary 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 Internet infrastructure through both Colocation Business and Enterprise Services (including colocation, network connectivity, IP, bandwidth, and managed services and hosting), and Cloud Services (including enterprise-grade AgileCLOUD, bare-metal servers, and SMB iWeb platforms). INAP operates in Tier 3-type data centers in 21 metropolitan markets, primarily in North America, with 50 datacenters and 89 POPs around the world. Currently, INAP has 1 million gross square feet under lease, with 500,000 square feet of data center space. INAP operates a premium business model that provides high-power density colocation, low-latency bandwidth, and public and private cloud platforms in an expanding Internet infrastructure industry.

Change in Organizational Structure

During the three months ended March 31, 2017, 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 COLO and INAP CLOUD. The new operating segments are further described in note 10 “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 12 "Recent Accounting Pronouncements" in the accompanying consolidated financial statements.

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Results of Operations

Three Months Ended September 30, 2017 and 2016

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 September 30,					Increase (Decrease) from 2016 to 2017
	2017		2016			Amount			Percent
Revenues:
INAP COLO	$	51,344	$	54,998		$	(3,654	)	(7	)%
INAP CLOUD	17,563		18,942			(1,379		)	(7	)
Total revenues	68,907		73,940			(5,033		)	(7	)
Operating costs and expenses:
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:
INAP COLO	20,785		26,676			(5,891		)	(22	)
INAP CLOUD	4,160		4,886			(726		)	(15	)
Direct costs of customer support	6,237		7,985			(1,748		)	(22	)
Sales, general and administrative	15,331		18,355			(3,024		)	(16	)
Depreciation and amortization	20,917		19,597			1,320			7
Goodwill impairment	—		78,169			(78,169		)	(100	)
Exit activities, restructuring and impairments	745		1,670			(925		)	(55	)
Total operating costs and expenses	68,175		157,338			(89,163		)	(57	)
Income (loss) from operations	$	732	$	(83,398	)	$	84,130		(101	)
Interest expense	$	12,299	$	7,878		$	4,421		56	%

INAP COLO

Revenues for our Colocation segment decreased 7% to $51.3 million for the three months ended September 30, 2017, compared to $55.0 million for the same period in 2016. The decrease was primarily due to $1.1 million of lower network services revenue related to the continued downward pricing pressures and a $3.5 million decrease in colocation and managed hosting revenue due to negative impact of churn from a small number of large customers and exiting a data center. The declines were partially offset from the consolidation of INAP Japan.

Direct costs of our Colocation segment, exclusive of depreciation and amortization, decreased 22%, to $20.8 million for the three months ended September 30, 2017, compared to $26.7 million for the same period in 2016. The decrease was primarily due to $4 million of operating lease expenses capitalized in our capital lease conversion and $2.5 million of lower variable costs related to a decline in revenue and cost reductions offset by $0.6 million of INAP Japan costs.

INAP CLOUD

Revenues for our Cloud segment decreased 7% to $17.6 million for the three months ended September 30, 2017, compared to $18.9 million for the same period in 2016. Approximately $0.3 million of the decrease was attributable to the planned closure of our 75 Broad Street, New York facility.

Direct costs of our Cloud segment, exclusive of depreciation and amortization, decreased 15%, to $4.2 million for the three months ended September 30, 2017, compared to $4.9 million for the same period in 2016. The decrease was primarily due to the planned closure of our 75 Broad Street, New York facility.

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Geographic Information

Revenues are allocated to countries based on location of services. Revenues, by country with revenues over 10% of total revenues, are as follows (in thousands):

	Three Months Ended September 30,
	2017		2016
United States	$	54,006	$	57,916
Canada	9,421		11,016
Other countries	5,480		5,008
	$	68,907	$	73,940

Other Operating Costs and Expenses

Compensation. Total compensation and benefits, including stock-based compensation, was $14.4 million for the three months ended September 30, 2017, compared to $16.2 million for the same period in 2016. The decrease was primarily due to a $1.9 million decrease in cash-based compensation and payroll taxes, partially offset by a $0.6 million increase in bonus accrual.

Stock-based compensation, net of amount capitalized, decreased to $0.9 million during the three months ended September 30, 2017, from $1.3 million during the same period in 2016. The decrease is primarily due to lower stock-based compensation due to prior year terminations. The following table summarizes stock-based compensation included in the accompanying consolidated statements of operations and comprehensive loss (in thousands):

	Three Months Ended September 30,
	2017		2016
Direct costs of customer support	$	38	$	277
Sales, general and administrative	891		976
	$	929	$	1,253

Direct Costs of Customer Support. Direct costs of customer support decreased to $6.2 million during the three months ended September 30, 2017 compared to $8.0 million during the same period in 2016. The decrease was primarily due to a decrease in cash-based compensation from reduced headcount.

Sales, General and Administrative. Sales, general and administrative costs decreased to $15.3 million during the three months ended September 30, 2017 compared to $18.4 million during the same period in 2016. The decrease was primarily due to a $2.5 million decrease in organizational realignment costs and a $0.6 million decrease in cash-based compensation from reduced headcount.

Depreciation and Amortization. Depreciation and amortization increased to $20.9 million during the three months ended September 30, 2017 compared to $19.6 million during the same period in 2016. The increase is primarily related to additional depreciation expense related to new capital leases.

Exit activities, Restructuring and Impairments. Exit activities, restructuring and impairments decreased to $0.7 million during the three months ended September 30, 2017 compared to $1.7 million during the same period in 2016. The decrease is primarily due to the prior year impairment of internally-developed software.

Interest Expense. Interest expense increased to $12.3 million during the three months ended September 30, 2017 from $7.9 million during the same period in 2016. The increase is primarily due to additional expense related to extinguishment of discount and debt issuance costs of the previous term loan plus costs related to the new term loan and additional interest expense related to new capital leases.

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Nine Months Ended September 30, 2017 and 2016

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):

	Nine Months Ended September 30,						Increase (Decrease) from 2016 to 2017
	2017			2016			Amount			Percent
Revenues:
INAP COLO	$	156,727		$	166,707		$	(9,980	)	(6	)%
INAP CLOUD	53,955			57,473			(3,518		)	(6	)
Total revenues	210,682			224,180			(13,498		)	(6	)
Operating costs and expenses:
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:
INAP COLO	67,661			79,745			(12,084		)	(15	)
INAP CLOUD	12,758			14,264			(1,506		)	(11	)
Direct costs of customer support	19,634			24,709			(5,075		)	(21	)
Sales, general and administrative	47,466			55,416			(7,950		)	(14	)
Depreciation and amortization	57,596			57,927			(331		)	(1	)
Goodwill impairment	—			78,169			(78,169		)	(100	)
Exit activities, restructuring and impairments	6,396			2,023			4,373			216
Total operating costs and expenses	211,511			312,253			(100,742		)	(32	)
Income (loss) from operations	$	(829	)	$	(88,073	)	$	87,244		(99	)
Interest expense	$	37,581		$	22,945		$	14,636		64	%

INAP COLO

Revenues for our Colocation segment decreased 6% to $156.7 million for the nine months ended September 30, 2017, compared to $166.7 million for the same period in 2016. The decrease was partially due to $3.4 million of lower network services revenue related to continued downward pricing pressure and a $7.6 million decrease in colocation and managed hosting revenue due to the negative impact of churn from a small number of large customers. These declines were partially offset by the consolidation of INAP Japan.

Direct costs of our Colocation segment, exclusive of depreciation and amortization, decreased 15%, to $67.7 million for the nine months ended September 30, 2017, compared to $79.7 million for the same period in 2016. The decrease was primarily due to $6 million of operating lease expenses capitalized in our capital lease conversion and $6 million of lower variable costs related to a decline in revenue and cost reductions.

INAP CLOUD

Revenues for our Cloud segment decreased 6% to $54.0 million for the nine months ended September 30, 2017, compared to $57.5 million for the same period in 2016. The decline is primarily due to the negative impact of churn from a small number of large customers.

Direct costs of our Cloud segment, exclusive of depreciation and amortization, decreased 11%, to $12.8 million for the nine months ended September 30, 2017, compared to $14.3 million for the same period in 2016. The decrease was primarily due to lower variable costs related to a decline in revenue and cost reductions.

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Geographic Information

Revenues are allocated to countries based on location of services. Revenues, by country with revenues over 10% of total revenues, are as follows (in thousands):

	Nine Months Ended September 30,
	2017		2016
United States	$	165,757	$	174,800
Canada	29,320		33,159
Other countries	15,605		16,221
	$	210,682	$	224,180

Other Operating Costs and Expenses

Compensation. Total compensation and benefits, including stock-based compensation, was $43.2 million for the nine months ended September 30, 2017, compared to $51.7 million for the same period in 2016. The decrease was primarily due to a $7.0 million decrease in cash-based compensation and payroll taxes, a $2.7 million decrease in stock-based compensation, partially offset by a $1.2 million increase in bonus accrual.

Stock-based compensation, net of amount capitalized, decreased to $2.1 million during the nine months ended September 30, 2017, from $4.7 million during the same period in 2016. The decrease is primarily due to lower stock-based compensation due to prior year terminations. The following table summarizes stock-based compensation included in the accompanying consolidated statements of operations and comprehensive loss (in thousands):

	Nine Months Ended September 30,
	2017		2016
Direct costs of customer support	$	136	$	958
Sales, general and administrative	1,925		3,759
	$	2,061	$	4,717

Direct Costs of Customer Support. Direct costs of customer support decreased to $19.6 million during the nine months ended September 30, 2017 compared to $24.7 million during the same period in 2016. The decrease was primarily due to a $3.9 million decrease in cash-based compensation from reduced headcount and a $0.8 million decrease in stock-based compensation.

Sales, General and Administrative. Sales, general and administrative costs decreased to $47.5 million during the nine months ended September 30, 2017 compared to $55.4 million during the same period in 2016. The decrease was primarily due to a $4.9 decrease in organizational realignment costs, a $3.1 million decrease in cash-based compensation from reduced headcount, a $1.8 million decrease in stock-based compensation, partially offset by a $0.9 million increase in professional services.

Depreciation and Amortization. Depreciation and amortization decreased to $57.6 million during the nine months ended September 30, 2017 compared to $57.9 million during the same period in 2016. The decrease was primarily due to lower capital purchases and older assets becoming fully depreciated.

Exit activities, Restructuring and Impairments. Exit activities, restructuring and impairments increased to $6.4 million during the nine months ended September 30, 2017 compared to $2.0 million during the same period in 2016. The increase is primarily due to ceasing use of data center space and severance costs.

Interest Expense. Interest expense increased to $37.6 million during the nine months ended September 30, 2017 from $22.9 million during the same period in 2016. The increase is primarily due to additional expense related to extinguishment of discount and debt issuance costs of the previous term loan plus costs related to the new term loan and additional interest expense related to capital leases.

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Non-GAAP Financial Measure

We report our consolidated financial statements in accordance with GAAP. We present the non-GAAP performance measure of Adjusted EBITDA to assist us in explaining underlying performance trends in our business, which we believe will enhance investors’ ability to analyze trends in our business and evaluate our performance relative to other companies and across periods. We define Adjusted EBITDA as net loss plus depreciation and amortization, interest expense, provision (benefit) for income taxes, other expense (income), (gain) loss on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, pre-acquisition costs and claim settlement.

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

The following table reconciles Adjusted EBITDA to net loss as presented in our consolidated statements of operations and comprehensive loss:

	Three Months Ended September 30,
	2017			2016
Net Loss	$	(10,863	)	$	(91,297	)
Depreciation and amortization	20,917			19,597
Interest expense	12,299			7,878
Provision for income taxes	221			95
Other income	(925		)	(74		)
(Gain) loss on disposal of property and equipment, net	(162		)	25
Exit activities, restructuring and impairments, including goodwill impairment	745			79,839
Stock-based compensation	929			1,253
Strategic alternatives and related costs(1)	—			1,121
Organizational realignment costs(2)	14			1,403
Pre-acquisition costs	102			—
Adjusted EBITDA	$	23,277		$	19,840

(1) Primarily legal and other professional fees incurred in connection with the evaluation by our board of directors of strategic alternatives and related shareholder communications. We include these costs in sales, general and administrative ("SG&A") in the accompanying consolidated statements of operations and comprehensive loss for the three months ended September 30, 2017 and 2016.

(2) Primarily professional fees, employee retention bonus and severance and executive search costs incurred related to our organization realignment. We include these costs in SG&A in the accompanying consolidated statements of operations and comprehensive loss for the three months ended September 30, 2017 and 2016.

Liquidity and Capital Resources

Liquidity

As of September 30, 2017, we had a deficit of $17.0 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 revolving credit facility, will be sufficient to meet our cash requirements for the next 12 months and for the foreseeable future. If our cash requirements vary materially from our expectations or if we fail to generate sufficient cash flows from our operations or if we fail to implement our cost reduction strategies, we may require additional financing sooner than anticipated. We can offer no assurance that we will be able to obtain additional financing on commercially favorable terms, or at all, and

19

provisions in our 2017 Credit Agreement limit our ability to incur additional indebtedness. Our anticipated uses of cash include capital expenditures of approximately $32.0 million to $37.0 million in 2017, working capital needs and required payments on our credit agreement and other commitments. We intend to reduce expenses through continued cost reductions, including an ongoing review of our organizational structure and headcount needs and the streamlining of 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 and nine months ended September 30, 2017, we had a net loss of $10.9 million and $38.4 million, respectively. As of September 30, 2017, our accumulated deficit was $1.3 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.

Capital Resources

Credit Agreement. During the three months ended June 30, 2017, we entered into a new credit agreement (the “2017 Credit Agreement”) which provides for a $300 million term loan facility and a $25 million revolving credit facility, which includes a $15 million letter of credit facility. In addition, the Company may request incremental term loans and/or incremental revolving loan commitments in an aggregate amount not to exceed $50 million.

The proceeds of the term loan facility were used to refinance the Company’s then existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement. The maturity date of the term loan is April 6, 2022 and the maturity date of the revolving credit facility is October 6, 2021.

As of September 30, 2017, the term loan had an outstanding principal balance of $299.3 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. The revolving credit facility does not have an outstanding balance. We have issued $4.9 million in letters of credit resulting in $20.1 million in borrowing capacity. As of September 30, 2017, the interest rate on the term loan was 8.24%.

The 2017 Credit Agreement contains customary financial maintenance and operating covenants, including without limitation covenants restricting the incurrence or existence of debt or liens, the making of investments, the payment of dividends and affiliate transactions. As of September 30, 2017, we were in compliance with these covenants.

Amended Credit Agreement. On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement that clarified that the Company’s liabilities pursuant to any lease that was treated as rental and lease expense, and not as a capital lease obligation or indebtedness, on the closing date of the 2017 Credit Agreement would continue to be treated as a rental and lease expense, and not as a capital lease obligations or indebtedness, for all purposes of the 2017 Credit Agreement, notwithstanding any amendment of the lease that results in the treatment of such lease as a capital lease obligation or indebtedness for financial reporting purposes.

Cash Flows

Operating Activities

During the nine months ended September 30, 2017, net cash provided by operating activities was $25.4 million. We generated cash from operations of $30.7 million, while changes in operating assets and liabilities used cash of $5.3 million. We expect to use cash flows from operating activities to fund a portion of our capital expenditures and other requirements and to meet our other commitments and obligations, including outstanding debt.

During the nine months ended September 30, 2016, net cash provided by operating activities was $36.3 million. We generated cash from operations of $31.9 million, while changes in operating assets and liabilities provided cash of $4.4 million.

Investing Activities

During the nine months ended September 30, 2017, net cash used in investing activities was $19.8 million, primarily due to capital expenditures related to the continued expansion and upgrade of our data centers and network infrastructure.

During the nine months ended September 30, 2016, net cash used in investing activities was $39.4 million primarily due to capital expenditures related to the continued expansion and upgrade of our company-controlled data centers and network infrastructure.

20

Financing Activities

During the nine months ended September 30, 2017, net cash used by financing activities was $4.2 million, primarily due to principal payments of $333.8 million on the credit facilities and capital lease obligations, partially offset by $295.5 million of proceeds from the 2017 Credit Agreement and $40.2 million of proceeds from the sale of common stock pursuant to the Securities Purchase Agreement.

During the nine months ended September 30, 2016, net cash used by financing activities was $5.0 million, primarily due to principal payments of $9.5 million on the term loan and capital lease obligations, partially offset by $4.5 million of proceeds from the revolving credit facility.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other Investments

In previous years, we invested $4.1 million in Internap Japan Co., Ltd., our joint venture with NTT-ME Corporation and Nippon Telegraph and Telephone Corporation. We previously accounted for this investment using the equity method prior to obtaining control of the venture on August 15, 2017. The equity method investment is subject to foreign currency exchange rate 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 September 30, 2017, the balance of our long-term debt was $299.3 million on the term loan. At September 30, 2017, the interest rate on the term loan was 8.24%. We summarize the 2017 Credit Agreement in “Liquidity and Capital Resources—Capital Resources—Credit Agreement.”

We are required to pay a commitment fee at a rate of 0.50% per annum on the average daily unused portion of the revolving credit facility, payable quarterly in arrears. In addition, we are required to pay certain participation fees and fronting fees in connection with standby letters of credit issued under the revolving credit facility.

We estimate that a change in the interest rate of 100 basis points would change our interest expense and payments by $3.0 million per year, assuming we do not increase our amount outstanding.

Foreign Currency Risk

As of September 30, 2017, 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 and nine months ended September 30, 2017, we realized foreign currency losses of $0.2 and $0.5 million, respectively, which we included in “Non-operating expenses,” and we recorded unrealized foreign currency translation gains of $0 million and $0.1 million respectively which we included in “Other comprehensive loss,” both in the accompanying consolidated statement of operations and comprehensive loss. If we grow our international operations, our exposure to foreign currency risk will become more significant.

We had foreign currency contracts to mitigate the risk of a portion of our Canadian employee benefit expense. These contracts hedged foreign exchange variations between the United States and Canadian dollar through June 30, 2017. The contract expired on June 30, 2017. During the nine months ended September 30, 2017, we recorded an unrealized gain of $0.1 million, respectively, which we included in “Other comprehensive income,” in the accompanying consolidated statement of operations and comprehensive loss.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our chief executive officer and chief financial officer), as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that, due to a material weakness in internal control over financial reporting described in Part II, Item 9A of our 2016 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 September 30, 2017.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2017 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting, other than as described below under the caption “Remediation Plan.”

Remediation Plan

We have taken actions to remediate the material weakness in our internal control over financial reporting and have implemented additional processes and controls designed to address the underlying causes associated with the above mentioned material weakness. We have reassessed the design of our review control over the forecasted cash flows utilized in the related impairment models and going concern assessment to add greater precision to detect and prevent material misstatements, including the establishment of processes and controls to evaluate adequate review and inquiry over data and assumptions for financial forecasts.

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

Our enhanced review procedures and documentation standards were in place and operating during the third quarter of 2017. We are in the process of testing the newly implemented internal controls and related procedures. The material weakness cannot be considered remediated until the control has operated for a sufficient period of time and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate this material weakness by the end of 2017.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

We believe that there have been no material changes from the Risk Factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 13, 2017.

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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 September 30, 2017:

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
July 1 to 31, 2017	205	$	4.14	—	—
August 1 to 31, 2017	1,075	3.98		—	—
September 1 to 30, 2017	1,484	4.35		—	—
Total	2,764	$	4.19	—	—

(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.

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ITEM 6. EXHIBITS

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

24

SIGNATURE

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

INTERNAP CORPORATION
By:	/s/ Robert Dennerlein
	Robert Dennerlein
	(Chief Financial Officer)
	Date: November 2, 2017

25

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Peter D. Aquino, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Internap Corporation (the “registrant”);

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

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

Date: November 2, 2017	/s/ Peter D. Aquino
	Peter D. Aquino
	President and Chief Executive Officer

EX-31.2

-

Exhibit 31.2

CERTIFICATION

I, Robert Dennerlein, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Internap Corporation (the “registrant”);

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

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

Date: November 2, 2017	/s/ Robert Dennerlein
	Robert Dennerlein
	Chief Financial Officer

EX-32.1

Exhibit 32.1

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

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code and shall not be relied on by any other person for any other purpose.

In connection with the Quarterly Report on Form 10-Q of Internap Corporation (the “Company”) for the three months ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Peter D. Aquino, President and Chief Executive Officer of the Company, certifies that

• the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 2, 2017
	/s/ Peter D. Aquino
	Peter D. Aquino
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

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

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code and shall not be relied on by any other person for any other purpose.

In connection with the Quarterly Report on Form 10-Q of Internap Corporation (the “Company”) for the three months ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Robert Dennerlein, Chief Financial Officer of the Company, certifies that

• the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 2, 2017
	/s/ Robert Dennerlein
	Robert Dennerlein
	Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 19, 2017
Document and Entity Information Abstract
Entity Registrant Name	Internap Corp
Entity Central Index Key	0001056386
Trading Symbol	inap
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		83,383,287

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues:
Total revenues	$ 68,907	$ 73,940	$ 210,682	$ 224,180
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:
Direct costs of customer support	6,237	7,985	19,634	24,709
Sales, general and administrative	15,331	18,355	47,466	55,416
Depreciation and amortization	20,917	19,597	57,596	57,927
Goodwill impairment	0	78,169	0	78,169
Exit activities, restructuring and impairments	745	1,670	6,396	2,023
Total operating costs and expenses	68,175	157,338	211,511	312,253
Income (loss) from operations	732	(83,398)	(829)	(88,073)
Non-operating expenses:
Interest expense	12,299	7,878	37,581	22,945
Loss on foreign currency, net	197	0	485
Other, net	0	(30)	0	442
Total non-operating expenses	12,496	7,848	38,066	23,387
Loss before income taxes and equity in earnings of equity-method investment	(11,764)	(91,246)	(38,895)	(111,460)
Provision for income taxes	221	95	689	294
Equity in earnings of equity-method investment, net of taxes	(1,122)	(44)	(1,207)	(121)
Net loss	(10,863)	(91,297)	(38,377)	(111,633)
Less net income attributable to non-controlling interests	32	0	32	0
Net loss attributable to INAP stockholders	(10,895)	(91,297)	(38,409)	(111,633)
Other comprehensive income:
Foreign currency translation adjustment	(91)	122	14	239
Unrealized gain on foreign currency contracts	0	(93)	145	620
Unrealized gain on interest rate swap	0	198	0	534
Total other comprehensive income	(91)	227	159	1,393
Comprehensive loss	$ (10,986)	$ (91,070)	$ (38,250)	$ (110,240)
Basic and diluted net loss per share (in dollars per share)	$ (0.14)	$ (1.75)	$ (0.51)	$ (2.14)
Weighted average shares outstanding used in computing basic and diluted net loss per share (in shares)	79,715	52,096	74,581	52,245
INAP COLO
Revenues:
Total revenues	$ 51,344	$ 54,998	$ 156,727	$ 166,707
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:
Direct costs of sales and services, exclusive of depreciation and amortization	20,785	26,676	67,661	79,745
INAP CLOUD
Revenues:
Total revenues	17,563	18,942	53,955	57,473
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:
Direct costs of sales and services, exclusive of depreciation and amortization	$ 4,160	$ 4,886	$ 12,758	$ 14,264

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 11,968	$ 10,389
Accounts receivable, net of allowance for doubtful accounts of $1,285 and $1,246, respectively	17,586	18,044
Prepaid expenses and other assets	9,036	10,055
Total current assets	38,590	38,488
Property and equipment, net	441,239	302,680
Investment in joint venture	0	3,002
Intangible assets, net	26,661	27,978
Goodwill	50,209	50,209
Deposits and other assets	10,733	8,258
Total assets	567,432	430,615
Current liabilities:
Accounts payable	16,732	20,875
Accrued liabilities	13,513	10,603
Deferred revenues	5,054	5,746
Capital lease obligations	11,729	10,030
Term loan, less discount and prepaid costs of $2,119 and $2,243, respectively	881	757
Exit activities and restructuring liability	4,263	3,177
Other current liabilities	3,400	3,171
Total current liabilities	55,572	54,359
Deferred revenues	4,661	5,144
Capital lease obligations	206,927	43,876
Revolving credit facility	0	35,500
Term loan, less discount and prepaid costs of $8,216 and $4,579, respectively	288,034	283,421
Exit activities and restructuring liability	1,537	1,526
Deferred rent	1,581	4,642
Deferred tax liability	1,484	1,513
Other long-term liabilities	3,026	4,358
Total liabilities	562,822	434,339
Commitments and contingencies (note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.001 par value; 200,000 shares authorized; 83,305 and 57,799 shares outstanding, respectively	84	58
Additional paid-in capital	1,325,755	1,283,332
Treasury stock, at cost, 1,164 and 1,073 shares, respectively	(7,145)	(6,923)
Accumulated deficit	(1,316,788)	(1,278,699)
Accumulated items of other comprehensive loss	(1,334)	(1,492)
Total INAP stockholders’ equity	572	(3,724)
Non-controlling interests	4,038	0
Total stockholders’ equity	4,610	(3,724)
Total liabilities and stockholders’ equity	$ 567,432	$ 430,615

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 1,285	$ 1,246
Term loan current, discount and prepaid costs	2,119	2,243
Term loan deferred, discount and prepaid costs	$ 8,216	$ 4,579
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares outstanding (in shares)	83,305,000	57,799,000
Treasury stock, shares (in shares)	1,164,000	1,073,000

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Statement of Cash Flows [Abstract]
Net loss	$ (38,377)	$ (111,633)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	57,596	57,927
Impairments	503	79,798
Amortization of debt discount and issuance costs	1,890	1,881
Stock-based compensation expense, net of capitalized amount	2,061	4,717
Equity in earnings of equity-method investment	(1,207)	(121)
Provision for doubtful accounts	808	902
Non-cash change in capital lease obligations	564	405
Non-cash change in exit activities and restructuring liability	5,824	865
Non-cash change in deferred rent	(3,335)	(1,490)
Deferred taxes	209	158
Payment of debt lender fees	(2,583)	(1,716)
Loss on extinguishment and modification of debt	6,785	0
Other, net	(49)	212
Changes in operating assets and liabilities:
Accounts receivable	243	1,894
Prepaid expenses, deposits and other assets	1,979	1,108
Accounts payable	(3,498)	4,853
Accrued and other liabilities	1,691	(629)
Deferred revenues	(1,233)	(304)
Exit activities and restructuring liability	(4,727)	(2,355)
Asset retirement obligation	191	(174)
Other liabilities	22	(33)
Net cash flows provided by operating activities	25,357	36,265
Cash Flows from Investing Activities:
Proceeds from sale of building	0	542
Purchases of property and equipment	(23,198)	(38,732)
Proceeds from disposal of property and equipment	206	0
Net cash from acquisition	3,838	0
Additions to acquired and developed technology	(635)	(1,211)
Net cash flows used in investing activities	(19,789)	(39,401)
Cash Flows from Financing Activities:
Proceeds from credit agreements	295,500	4,500
Proceeds from stock issuance	40,165	0
Principal payments on credit agreements	(327,250)	(2,250)
Debt issuance costs	(5,694)	0
Payments on capital lease obligations	(6,562)	(7,211)
Proceeds from exercise of stock options	159	675
Acquisition of common stock for income tax withholdings	(222)	(473)
Other, net	(302)	(250)
Net cash flows used in financing activities	(4,206)	(5,009)
Effect of exchange rates on cash and cash equivalents	217	13
Net increase (decrease) in cash and cash equivalents	1,579	(8,132)
Cash and cash equivalents at beginning of period	10,389	17,772
Cash and cash equivalents at end of period	11,968	9,640
Supplemental disclosure of cash flow information:
Cash paid for interest	25,898	21,957
Non-cash acquisition of property and equipment under capital leases	169,679	4,921
Additions to property and equipment included in accounts payable	$ 701	$ 3,606

XML

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Internap Corporation (“we,” “us,” “our,” “INAP,” or “the Company”) provides Internet infrastructure through both Colocation Business and Enterprise Services (including colocation, network connectivity, IP, bandwidth, and managed services and hosting), and Cloud Services (including enterprise-grade AgileCLOUD, bare-metal servers, and SMB iWeb platforms). INAP operates in Tier 3-type data centers in 21 metropolitan markets, primarily in North America, with 50 datacenters and 89 POPs around the world. Currently, INAP has approximately one million gross square feet under lease, with 500,000 square feet of data center space. INAP operates a premium business model that provides high-power density colocation, low-latency bandwidth, and public and private cloud platforms in an expanding Internet infrastructure industry.

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.

We have condensed or omitted certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP. In the opinion of management, 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 September 30, 2017 and our operating results and cash flows for the interim periods presented. The balance sheet at December 31, 2016 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, 2016 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 and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the 2017 fiscal year or any future periods.

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CHANGE IN ORGANIZATIONAL STRUCTURE

9 Months Ended

Sep. 30, 2017

Change In Organizational Structure And Realignment Of Expenses [Abstract]

CHANGE IN ORGANIZATIONAL STRUCTURE

CHANGE IN ORGANIZATIONAL STRUCTURE

During the three months ended March 31, 2017, we changed our organizational structure in an effort to create more effective and efficient operations and to improve customer and product focus. In that regard, we revised the information that our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our revised segment structure, described in more detail in note 10 “Operating Segments.” We have reclassified prior period amounts to conform to the current presentation.

The prior year reclassifications, which did not affect total revenues, total direct costs of sales and services, operating loss or net loss, are summarized as follows (in thousands):

	Three Months Ended September 30, 2016
	As Previously Reported		Reclassification			As Reported
Revenues:
Data center and network services	$	49,767	$	(49,767	)	$	—
Cloud and hosting services	24,173		(24,173		)	—
INAP COLO	—		54,998			54,998
INAP CLOUD	—		18,942			18,942
Direct costs of sales and services, exclusive of depreciation and amortization:
Data center and network services	25,042		(25,042		)	—
Cloud and hosting services	6,520		(6,520		)	—
INAP COLO	—		26,676			26,676
INAP CLOUD	—		4,886			4,886

	Nine Months Ended September 30, 2016
	As Previously Reported		Reclassification			As Reported
Revenues:
Data center and network services	$	151,099	$	(151,099	)	$	—
Cloud and hosting services	73,081		(73,081		)	—
INAP COLO	—		166,707			166,707
INAP CLOUD	—		57,473			57,473
Direct costs of sales and services, exclusive of depreciation and amortization:
Data center and network services	74,065		(74,065		)	—
Cloud and hosting services	19,944		(19,944		)	—
INAP COLO	$	—	79,745			79,745
INAP CLOUD	$	—	14,264			14,264

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

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
September 30, 2017
Foreign currency contracts (note 8)	$	—	$	—	$	—	$	—
Asset retirement obligations(1)	—		—		3,157		3,157
December 31, 2016
Foreign currency contracts (note 8)	—		195		—		195
Asset retirement obligations(1)	—		—		2,810		2,810

(1) We calculate the fair value of asset retirement obligations by discounting the estimated amount using the current Treasury bill rate adjusted for our credit risk. The balance is included in “Other long-term liabilities,” in the accompanying unaudited consolidated balance sheets.

The following table provides a summary of changes in our Level 3 asset retirement obligations for the nine months ended September 30, 2017 (in thousands):

Balance, January 1, 2017	$	2,810
Accretion	155
Subsequent revision of estimated obligation	449
Payments	(415		)
Aquisition of Internap Japan	158
Balance, September 30, 2017	$	3,157

The fair values of our other Level 3 debt liabilities, estimated using a discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements, are as follows (in thousands):

	September 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	299,250	$	302,242	$	291,000	$	267,700
Revolving credit facility	—		—		35,500		32,600

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GOODWILL

9 Months Ended

Sep. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL

GOODWILL

During the three months ended March 31, 2017, we changed our operating segments, as discussed in note 10 “Operating Segments,” and, subsequently, our reporting units. We now have six reporting units: IP services, IP products, data center services, managed hosting, cloud and Ubersmith. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed.

During the nine months ended September 30, 2017, we re-allocated goodwill as follows (in thousands):

	December 31, 2016		Re-allocations			September 30, 2017
Operating segments:
Data center and network services	$	—	$	—		$	—
Cloud and hosting services	50,209		(50,209		)	—
INAP COLO	—		6,003			6,003
INAP CLOUD	—		44,206			44,206
Total	$	50,209	$	—		$	50,209

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DEBT

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

DEBT

DEBT

Third Amendment

During the three months ended March 31, 2017, we entered into an amendment to our Credit Agreement (the “Third Amendment”), which, among other things, amended the credit agreement (i) to make each of the interest coverage ratio and leverage ratio covenants less restrictive and (ii) to decrease the maximum level of permitted capital expenditures. We paid a one-time aggregate fee of $2.6 million to the lenders for the Third Amendment, which we recorded as a debt discount of $2.2 million related to the term loan and prepaid debt issuance costs of $0.4 million related to the revolving credit facility. In addition, we paid $0.3 million in third-party fees, which we recorded as expense of $0.3 million related to the term loan and as prepaid debt issuance costs of less than $0.1 million related to the revolving credit facility.

The Third Amendment was effective on February 28, 2017, upon the closing of the equity sale, which is described in note 6 "Equity" below. The effectiveness of the covenant amendments was conditioned on the Company completing one or more equity offerings on or before June 30, 2017 for gross cash proceeds of not less than $40 million, and net cash proceeds of not less than $37 million and the application of the net cash proceeds to the repayment of indebtedness under the Credit Agreement. The Company paid a fee of approximately $0.9 million to the lenders on January 26, 2017 and paid an additional fee of $1.6 million on February 28, 2017. Absent the Third Amendment, we may not have been able to comply with our covenants in the Credit Agreement.

Credit Agreement

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

A total of $5.7 million was paid for debt issuance costs related to the 2017 Credit Agreement. Of the $5.7 million in costs paid, $1.9 million related to the exchange of debt and was expensed, $3.3 million related to term loan third party costs and will be amortized over the term of the loan and $0.4 million are prepaid debt issuance costs related to the revolving credit facility and will be amortized over the term of the revolving credit facility. In addition, $4.8 million of debt discount and debt issuance costs related to the previous credit facility were expensed due to the extinguishment of that credit facility.

The maturity date of the term loan is April 6, 2022 and the maturity date of the revolving credit facility is October 6, 2021. As of September 30, 2017, the interest rate on the term loan was 8.24%.

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

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EQUITY

9 Months Ended

Sep. 30, 2017

Stockholders' Equity Note [Abstract]

EQUITY

EQUITY

Securities Purchase Agreement

On February 22, 2017, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers (the “Purchasers”), pursuant to which the Company issued to the Purchasers an aggregate of 23,802,850 shares of the Company’s common stock at a price of $1.81 per share, for the aggregate purchase price of $43.1 million, which closed on February 27, 2017. Conditions for the Securities Purchase Agreement included the following: (i) a requirement for the Company to use the funds of the sale of such common stock to repay indebtedness under the Credit Agreement, (ii) a 90-day “lock-up” period whereby the Company is restricted from certain sales of equity securities and (iii) a requirement for the Company to pay certain transaction expenses of the Purchasers up to $100,000. The Company used $39.2 million of the proceeds to pay down our debt, as described in note 5, "Debt" above.

Registration Rights Agreement

On February 22, 2017, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, which provides the Purchasers under the Securities Purchase Agreement the ability to request registration of such securities. Pursuant to the Registration Rights Agreement, the Company filed a registration statement in March 2017 that was declared effective during April 2017.

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EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES

9 Months Ended

Sep. 30, 2017

Restructuring and Related Activities [Abstract]

EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES

EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES

During the nine months ended September 30, 2017, we recorded initial exit activity charges due to ceasing use of data center space. We include initial charges and plan adjustments in “Exit activities, restructuring and impairments” in the accompanying statements of operations and comprehensive loss for the three and nine months ended September 30, 2017 and 2016.

The following table displays the transactions and balances for exit activities and restructuring charges during the nine months ended September 30, 2017 and 2016 (in thousands). Our real estate obligations are substantially related to our INAP COLO segment. Severance is spread across both reportable segments.

	Balance December 31, 2016		Initial Charges		Plan Adjustments		Cash Payments			Balance September 30, 2017
Activity for 2017 restructuring charge:
Real estate obligations	$	—	$	4,024	$	654	$	(881	)	$	3,797
Activity for 2016 restructuring charge:
Severance	1,911		—		958		(2,467		)	402
Real estate obligations	933		—		76		(730		)	279
Activity for 2015 restructuring charge:
Real estate obligation	111		—		2		(38		)	75
Service contracts	565		—		15		(148		)	432
Activity for 2014 restructuring charge:
Real estate obligation	1,183		—		95		(463		)	815
	$	4,703	$	4,024	$	1,800	$	(4,727	)	$	5,800

	Balance December 31, 2015		Initial Charges		Plan Adjustments			Cash Payments			Balance September 30, 2016
Activity for 2016 restructuring charge:
Real estate obligations	$	—	$	197	$	12		$	(149	)	$	60
Service contracts	—		42		(21		)	(21		)	—
Activity for 2015 restructuring charge:
Real estate obligation	164		—		(10		)	(37		)	117
Service contracts	843		—		5			(238		)	610
Activity for 2014 restructuring charge:
Real estate obligations	1,701		—		85			(474		)	1,312
Activity for 2007 restructuring charge:
Real estate obligation	1,170		—		555			(1,436		)	289
	$	3,878	$	239	$	626		$	(2,355	)	$	2,388

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DERIVATIVES

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

DERIVATIVES

Foreign Currency Contracts

In a prior year we entered into foreign currency contracts to mitigate the risk of a portion of our Canadian compensation expense. These contracts hedged foreign exchange variations between the United States and Canadian dollar and committed us to purchase a total of $12.0 million Canadian dollars at an exchange rate of 1.2855 through June 2017. The contract expired on June 30, 2017. As of September 30, 2017, and December 31, 2016, the fair value of our foreign currency contracts was $0.0 million and $0.2 million, respectively, included in “Other current liabilities” in the accompanying consolidated balance sheets.

The activity of the foreign currency contracts was as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Unrealized gain, net of less than $0.1 million income tax, included in “Accumulated items of other comprehensive loss” in the accompanying consolidated balance sheets	$	—	$	75		$	145		$	713
Realized loss on effective portion, included as compensation expense in “Direct costs of customer support” and “Sales, general and administrative” in the accompanying consolidated statements of operations and comprehensive loss	—		(20		)	(171		)	(199		)

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COMMITMENTS, CONTINGENCIES AND LITIGATION

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS, CONTINGENCIES AND LITIGATION

COMMITMENTS, CONTINGENCIES AND LITIGATION

Capital Leases

During the nine months ended September 30, 2017, we entered into amended agreements for data center space. The lease extensions triggered new lease agreements, with new terms resulting in capital lease treatment for accounting purposes. We recorded property of $169.4 million, net of the deferred rent balance on the previous operating leases, included in "Property and equipment, net" in the accompanying consolidated balance sheets and capital lease obligations of $172.0 million.

As of September 30, 2017, future minimum capital lease payments and the present value of the minimum lease payments for all capital leases are as follows (in thousands):

2017	$7,530
2018	31,062
2019	28,546
2020	24,432
2021	23,970
Thereafter	365,284
Remaining capital lease payments	480,824
Less: amounts representing imputed interest	(262,168	)
Present value of minimum lease payments	218,656
Less: current portion	(11,729	)
	$206,927

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.

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OPERATING SEGMENTS

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company has two reportable segments: INAP COLO and INAP CLOUD. These segments are comprised of strategic businesses that are defined by the service offerings they provide. Each segment is managed as an operation with well-established strategic directions and performance requirements. Each segment is led by a separate General Manager who reports directly to the Company’s CODM.

The CODM evaluates segment performance using business unit contribution which is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.

We report our financial performance based on our two reportable segments, INAP COLO and INAP CLOUD, as follows:

INAP COLO

Our Colocation segment consists of colocation, managed services and hosting, and network services.

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.

Managed Services and Hosting

Managed Services and Hosting consists of leasing dedicated servers as well as storage and network equipment along with other associated hardware to our customers.  We configure and administer the hardware and operating system, provide technical support, patch management, monitoring and updates.  We offer managed hosting around the globe, including North America, Europe and the Asia-Pacific region.

Network Services

Network services includes our patented Performance IP™ service, content delivery network services, IP routing hardware and software platform and Managed Internet Route Optimizer™ Controller. By intelligently routing traffic with redundant, high-speed connections over multiple, major Internet backbones, our network services provides high-performance and highly-reliable delivery of content, applications and communications to end users globally.

INAP CLOUD

Cloud services involve providing compute and storage services via an integrated platform that includes servers, storage and network. We built our next generation cloud platform with our high-density colocation, Performance IP service and OpenStack, a leading open source technology for cloud services.

In conjunction with our change in segments we changed the measure for determining the results of our segments to business unit contribution which includes the direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization. In addition, during the three months ended June 30, 2017, management changed its measure of profitability to exclude corporate facilities allocation cost which are now reflected in "Sales, general and administrative," in the accompanying consolidated income statements.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
INAP COLO	$	51,344		$	54,998		$	156,727		$	166,707
INAP CLOUD	17,563			18,942			53,955			57,473
Total revenues	68,907			73,940			210,682			224,180
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
INAP COLO	29,048			35,893			92,524			108,219
INAP CLOUD	9,094			10,329			27,969			31,673
Total direct costs of sales and services, customer support and sales and marketing	38,142			46,222			120,493			139,892
Business unit contribution:
INAP COLO	22,296			19,105			64,203			58,488
INAP CLOUD	8,469			8,613			25,986			25,800
Total business unit contribution	30,765			27,718			90,189			84,288
Exit activities, restructuring and impairments	745			1,670			6,396			2,023
Other operating expenses, including depreciation and amortization	29,288			109,446			84,622			170,338
Loss from operations	732			(83,398		)	(829		)	(88,073		)
Non-operating expenses	12,496			7,848			38,066			23,387
Loss before income taxes and equity in (earnings) of equity-method investment	$	(11,764	)	$	(91,246	)	$	(38,895	)	$	(111,460	)

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NET LOSS PER SHARE

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

NET LOSS PER SHARE

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net loss	$	(10,863	)	$	(91,297	)	$	(38,377	)	$	(111,633	)
Less net income attributable to non-controlling stockholders	$	32		$	—		$	32		$	—
Net loss attributable to common stock	$	(10,895	)	$	(91,297	)	$	(38,409	)	$	(111,633	)
Weighted average shares outstanding, basic and diluted	79,715			52,096			74,581			52,245
Net loss per share, basic and diluted	$	(0.14	)	$	(1.75	)	$	(0.51	)	$	(2.14	)
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans	5,840			7,238			5,840			7,238

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ACQUISITION

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

ACQUISITION

ACQUISITION

In previous years, INAP invested $4.1 million in Internap Japan Co., Ltd. ("Interap Japan"), our joint venture with NTT-ME Corporation and Nippon Telegraph and Telephone Corporation. We accounted for this investment using the equity method. On August 15, 2017, INAP exercised certain rights to obtain a controlling interest in Internap Japan. Upon obtaining control of the venture, we recognized Internap Japan's assets and liabilities at fair value resulting in a gain of $1.1 million which is reflected in "Equity in earnings of equity-method investment, net of taxes" in the accompanying consolidated statements of operations and comprehensive loss.

Pro-Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of INAP and Internap Japan as if the acquisition had occurred on January 1, 2016. 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 Internap Japan acquisition been completed as of January 1, 2016, and should not be taken as indicative of our future consolidated results of operations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	70,029		$	76,124		$	215,741		$	230,132
Net loss	(10,849		)	(91,269		)	(38,317		)	(111,572		)

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RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" ("ASU 2017-04"), which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. The guidance is effective for public companies’ annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 in the first quarter of 2017 and it did not impact our consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which allows the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. There are no new disclosure requirements. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, and the Company adopted the provisions of ASU 2016-16 as of January 1, 2017. In connection with the adoption of the standard, the Company recorded a $2.2 million deferred tax asset and corresponding $1.9 million valuation allowance with the net difference going to retained earnings.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting, and was effective for us at January 1, 2017. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. In connection with the adoption of the standard, the Company recorded a $10.8 million deferred tax asset and a corresponding $10.8 million valuation allowance.

Accounting Pronouncements Issued But Not Yet Effective

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments" which amends Accounting Standards Codification 230, to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows ("ASU 2016-15"). The FASB issued ASU 2016-15 with the intent of reducing diversity in practice with respect to eight types of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact that adoption will have on the presentation of our consolidated statements of cash flow.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, delaying the effective date of ASU 2014-09. Three other amendments were issued during 2016 modifying the original ASU. As amended, the new standard is effective for the Company on January 1, 2018, using either a retrospective basis or a modified retrospective basis with early adoption permitted. We currently plan to adopt the standard effective January 1, 2018.

We are continuing to work towards establishing policies, updating our processes and implementing necessary changes to data and processes to be able to comply with the new requirements. Based on the results of our assessment to date, we do not expect that the new standard will result in significant changes in our units of accounting  or the amounts of revenue allocated between units of accounting.  Further, our initial evaluation is that monthly recurring charges from colocation and cloud services, which is a majority of our revenues, would not be materially impacted by the adoption of this standard.  We are currently evaluating the impact to certain non-recurring charges including installation as well as the impact of contract acquisition and fulfillment costs.  Our initial conclusion may change when we complete our evaluation which is proceeding as planned.

While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to additional disclosures related to qualitative and quantitative information concerning the nature, amount, timing, and any uncertainty of revenue and cash flows from contracts with customers, the capitalization of costs of commissions, upfront contract costs, and other contract acquisition-based and contract fulfillment costs on the consolidated balance sheets.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which requires all leases in excess of 12 months to be recognized on the balance sheet as lease assets and lease liabilities. For operating leases, a lessee is required to recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payment; recognize a single lease cost over the lease term generally on a straight-line basis; and classify all cash payments within operating activities on the cash flow statement. The guidance is effective for annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. We are currently evaluating the impact that adoption will have on our consolidated financial statements and related disclosures.

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RECENT ACCOUNTING PRONOUNCEMENTS (Policies)

9 Months Ended

Sep. 30, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Basis of Presentation

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.

We have condensed or omitted certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP. In the opinion of management, 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 September 30, 2017 and our operating results and cash flows for the interim periods presented. The balance sheet at December 31, 2016 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, 2016 filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates

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 and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the 2017 fiscal year or any future periods.

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.

Operating Segments

In conjunction with our change in segments we changed the measure for determining the results of our segments to business unit contribution which includes the direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization.

The Company has two reportable segments: INAP COLO and INAP CLOUD. These segments are comprised of strategic businesses that are defined by the service offerings they provide. Each segment is managed as an operation with well-established strategic directions and performance requirements. Each segment is led by a separate General Manager who reports directly to the Company’s CODM.

The CODM evaluates segment performance using business unit contribution which is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.

We report our financial performance based on our two reportable segments, INAP COLO and INAP CLOUD, as follows:

INAP COLO

Our Colocation segment consists of colocation, managed services and hosting, and network services.

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.

Recent Accounting Pronouncements

Adoption of New Accounting Standards

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" ("ASU 2017-04"), which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. The guidance is effective for public companies’ annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 in the first quarter of 2017 and it did not impact our consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16"), which allows the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. There are no new disclosure requirements. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted, and the Company adopted the provisions of ASU 2016-16 as of January 1, 2017. In connection with the adoption of the standard, the Company recorded a $2.2 million deferred tax asset and corresponding $1.9 million valuation allowance with the net difference going to retained earnings.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting, and was effective for us at January 1, 2017. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. In connection with the adoption of the standard, the Company recorded a $10.8 million deferred tax asset and a corresponding $10.8 million valuation allowance.

Accounting Pronouncements Issued But Not Yet Effective

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments" which amends Accounting Standards Codification 230, to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows ("ASU 2016-15"). The FASB issued ASU 2016-15 with the intent of reducing diversity in practice with respect to eight types of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact that adoption will have on the presentation of our consolidated statements of cash flow.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, delaying the effective date of ASU 2014-09. Three other amendments were issued during 2016 modifying the original ASU. As amended, the new standard is effective for the Company on January 1, 2018, using either a retrospective basis or a modified retrospective basis with early adoption permitted. We currently plan to adopt the standard effective January 1, 2018.

We are continuing to work towards establishing policies, updating our processes and implementing necessary changes to data and processes to be able to comply with the new requirements. Based on the results of our assessment to date, we do not expect that the new standard will result in significant changes in our units of accounting  or the amounts of revenue allocated between units of accounting.  Further, our initial evaluation is that monthly recurring charges from colocation and cloud services, which is a majority of our revenues, would not be materially impacted by the adoption of this standard.  We are currently evaluating the impact to certain non-recurring charges including installation as well as the impact of contract acquisition and fulfillment costs.  Our initial conclusion may change when we complete our evaluation which is proceeding as planned.

While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to additional disclosures related to qualitative and quantitative information concerning the nature, amount, timing, and any uncertainty of revenue and cash flows from contracts with customers, the capitalization of costs of commissions, upfront contract costs, and other contract acquisition-based and contract fulfillment costs on the consolidated balance sheets.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which requires all leases in excess of 12 months to be recognized on the balance sheet as lease assets and lease liabilities. For operating leases, a lessee is required to recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payment; recognize a single lease cost over the lease term generally on a straight-line basis; and classify all cash payments within operating activities on the cash flow statement. The guidance is effective for annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. We are currently evaluating the impact that adoption will have on our consolidated financial statements and related disclosures.

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CHANGE IN ORGANIZATIONAL STRUCTURE (Tables)

9 Months Ended

Sep. 30, 2017

Change In Organizational Structure And Realignment Of Expenses [Abstract]

Schedule of change in organizational structure

The prior year reclassifications, which did not affect total revenues, total direct costs of sales and services, operating loss or net loss, are summarized as follows (in thousands):

	Three Months Ended September 30, 2016
	As Previously Reported		Reclassification			As Reported
Revenues:
Data center and network services	$	49,767	$	(49,767	)	$	—
Cloud and hosting services	24,173		(24,173		)	—
INAP COLO	—		54,998			54,998
INAP CLOUD	—		18,942			18,942
Direct costs of sales and services, exclusive of depreciation and amortization:
Data center and network services	25,042		(25,042		)	—
Cloud and hosting services	6,520		(6,520		)	—
INAP COLO	—		26,676			26,676
INAP CLOUD	—		4,886			4,886

	Nine Months Ended September 30, 2016
	As Previously Reported		Reclassification			As Reported
Revenues:
Data center and network services	$	151,099	$	(151,099	)	$	—
Cloud and hosting services	73,081		(73,081		)	—
INAP COLO	—		166,707			166,707
INAP CLOUD	—		57,473			57,473
Direct costs of sales and services, exclusive of depreciation and amortization:
Data center and network services	74,065		(74,065		)	—
Cloud and hosting services	19,944		(19,944		)	—
INAP COLO	$	—	79,745			79,745
INAP CLOUD	$	—	14,264			14,264

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):

	Level 1		Level 2		Level 3		Total
September 30, 2017
Foreign currency contracts (note 8)	$	—	$	—	$	—	$	—
Asset retirement obligations(1)	—		—		3,157		3,157
December 31, 2016
Foreign currency contracts (note 8)	—		195		—		195
Asset retirement obligations(1)	—		—		2,810		2,810

(1) We calculate the fair value of asset retirement obligations by discounting the estimated amount using the current Treasury bill rate adjusted for our credit risk. The balance is included in “Other long-term liabilities,” in the accompanying unaudited consolidated balance sheets.

Schedule of changes in asset retirement obligations

The following table provides a summary of changes in our Level 3 asset retirement obligations for the nine months ended September 30, 2017 (in thousands):

Balance, January 1, 2017	$	2,810
Accretion	155
Subsequent revision of estimated obligation	449
Payments	(415		)
Aquisition of Internap Japan	158
Balance, September 30, 2017	$	3,157

Schedule of fair value of term loan and revolving credit facility

The fair values of our other Level 3 debt liabilities, estimated using a discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements, are as follows (in thousands):

	September 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	299,250	$	302,242	$	291,000	$	267,700
Revolving credit facility	—		—		35,500		32,600

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GOODWILL (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of re-allocated goodwill

During the nine months ended September 30, 2017, we re-allocated goodwill as follows (in thousands):

	December 31, 2016		Re-allocations			September 30, 2017
Operating segments:
Data center and network services	$	—	$	—		$	—
Cloud and hosting services	50,209		(50,209		)	—
INAP COLO	—		6,003			6,003
INAP CLOUD	—		44,206			44,206
Total	$	50,209	$	—		$	50,209

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EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2017

Restructuring and Related Activities [Abstract]

Schedule of transactions and balances for exit activities and restructuring charges

The following table displays the transactions and balances for exit activities and restructuring charges during the nine months ended September 30, 2017 and 2016 (in thousands). Our real estate obligations are substantially related to our INAP COLO segment. Severance is spread across both reportable segments.

	Balance December 31, 2016		Initial Charges		Plan Adjustments		Cash Payments			Balance September 30, 2017
Activity for 2017 restructuring charge:
Real estate obligations	$	—	$	4,024	$	654	$	(881	)	$	3,797
Activity for 2016 restructuring charge:
Severance	1,911		—		958		(2,467		)	402
Real estate obligations	933		—		76		(730		)	279
Activity for 2015 restructuring charge:
Real estate obligation	111		—		2		(38		)	75
Service contracts	565		—		15		(148		)	432
Activity for 2014 restructuring charge:
Real estate obligation	1,183		—		95		(463		)	815
	$	4,703	$	4,024	$	1,800	$	(4,727	)	$	5,800

	Balance December 31, 2015		Initial Charges		Plan Adjustments			Cash Payments			Balance September 30, 2016
Activity for 2016 restructuring charge:
Real estate obligations	$	—	$	197	$	12		$	(149	)	$	60
Service contracts	—		42		(21		)	(21		)	—
Activity for 2015 restructuring charge:
Real estate obligation	164		—		(10		)	(37		)	117
Service contracts	843		—		5			(238		)	610
Activity for 2014 restructuring charge:
Real estate obligations	1,701		—		85			(474		)	1,312
Activity for 2007 restructuring charge:
Real estate obligation	1,170		—		555			(1,436		)	289
	$	3,878	$	239	$	626		$	(2,355	)	$	2,388

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DERIVATIVES (Tables)

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of the activity of the foreign currency contracts

The activity of the foreign currency contracts was as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Unrealized gain, net of less than $0.1 million income tax, included in “Accumulated items of other comprehensive loss” in the accompanying consolidated balance sheets	$	—	$	75		$	145		$	713
Realized loss on effective portion, included as compensation expense in “Direct costs of customer support” and “Sales, general and administrative” in the accompanying consolidated statements of operations and comprehensive loss	—		(20		)	(171		)	(199		)

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COMMITMENTS, CONTINGENCIES AND LITIGATION (Tables)

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Summary of Future Minimum Capital Lease Payments

As of September 30, 2017, future minimum capital lease payments and the present value of the minimum lease payments for all capital leases are as follows (in thousands):

2017	$7,530
2018	31,062
2019	28,546
2020	24,432
2021	23,970
Thereafter	365,284
Remaining capital lease payments	480,824
Less: amounts representing imputed interest	(262,168	)
Present value of minimum lease payments	218,656
Less: current portion	(11,729	)
	$206,927

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OPERATING SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Schedule of operating results for business segments, along with reconciliation from segment profit to loss before income taxes and equity in (earnings) of equity-method investment

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
INAP COLO	$	51,344		$	54,998		$	156,727		$	166,707
INAP CLOUD	17,563			18,942			53,955			57,473
Total revenues	68,907			73,940			210,682			224,180
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
INAP COLO	29,048			35,893			92,524			108,219
INAP CLOUD	9,094			10,329			27,969			31,673
Total direct costs of sales and services, customer support and sales and marketing	38,142			46,222			120,493			139,892
Business unit contribution:
INAP COLO	22,296			19,105			64,203			58,488
INAP CLOUD	8,469			8,613			25,986			25,800
Total business unit contribution	30,765			27,718			90,189			84,288
Exit activities, restructuring and impairments	745			1,670			6,396			2,023
Other operating expenses, including depreciation and amortization	29,288			109,446			84,622			170,338
Loss from operations	732			(83,398		)	(829		)	(88,073		)
Non-operating expenses	12,496			7,848			38,066			23,387
Loss before income taxes and equity in (earnings) of equity-method investment	$	(11,764	)	$	(91,246	)	$	(38,895	)	$	(111,460	)

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NET LOSS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

Schedule of basic and diluted net loss per share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net loss	$	(10,863	)	$	(91,297	)	$	(38,377	)	$	(111,633	)
Less net income attributable to non-controlling stockholders	$	32		$	—		$	32		$	—
Net loss attributable to common stock	$	(10,895	)	$	(91,297	)	$	(38,409	)	$	(111,633	)
Weighted average shares outstanding, basic and diluted	79,715			52,096			74,581			52,245
Net loss per share, basic and diluted	$	(0.14	)	$	(1.75	)	$	(0.51	)	$	(2.14	)
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans	5,840			7,238			5,840			7,238

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ACQUISITION (Tables)

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Summary of unaudited pro forma financial information

The following unaudited pro forma financial information presents the combined results of operations of INAP and Internap Japan as if the acquisition had occurred on January 1, 2016. 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 Internap Japan acquisition been completed as of January 1, 2016, and should not be taken as indicative of our future consolidated results of operations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	70,029		$	76,124		$	215,741		$	230,132
Net loss	(10,849		)	(91,269		)	(38,317		)	(111,572		)

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NATURE OF OPERATIONS AND BASIS OF PRESENTATION - Narrative (Details) ft² in Millions	9 Months Ended
	Sep. 30, 2017 ft² datacenter market point_of_presence
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of metropolitan markets (market) | market	21
Number of datacenters (datacenter) | datacenter	50
Number of POPs (point of presence) | point_of_presence	89
Area under lease (sqft)	1.0
Area of data centers (sqft)	0.5

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CHANGE IN ORGANIZATIONAL STRUCTURE (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues	$ 68,907	$ 73,940	$ 210,682	$ 224,180
Data center and network services
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		0		0
Direct costs of sales and services, exclusive of depreciation and amortization		0		0
Cloud and hosting services
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		0		0
Direct costs of sales and services, exclusive of depreciation and amortization		0		0
INAP COLO
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues	51,344	54,998	156,727	166,707
Direct costs of sales and services, exclusive of depreciation and amortization	20,785	26,676	67,661	79,745
INAP CLOUD
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues	17,563	18,942	53,955	57,473
Direct costs of sales and services, exclusive of depreciation and amortization	$ 4,160	4,886	$ 12,758	14,264
As Previously Reported | Data center and network services
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		49,767		151,099
Direct costs of sales and services, exclusive of depreciation and amortization		25,042		74,065
As Previously Reported | Cloud and hosting services
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		24,173		73,081
Direct costs of sales and services, exclusive of depreciation and amortization		6,520		19,944
As Previously Reported | INAP COLO
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		0		0
Direct costs of sales and services, exclusive of depreciation and amortization		0		0
As Previously Reported | INAP CLOUD
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		0		0
Direct costs of sales and services, exclusive of depreciation and amortization		0		0
Reclassification | Data center and network services
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		(49,767)		(151,099)
Direct costs of sales and services, exclusive of depreciation and amortization		(25,042)		(74,065)
Reclassification | Cloud and hosting services
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		(24,173)		(73,081)
Direct costs of sales and services, exclusive of depreciation and amortization		(6,520)		(19,944)
Reclassification | INAP COLO
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		54,998		166,707
Direct costs of sales and services, exclusive of depreciation and amortization		26,676		79,745
Reclassification | INAP CLOUD
Change In Organizational Structure And Realignment Of Expenses [Line Items]
Total revenues		18,942		57,473
Direct costs of sales and services, exclusive of depreciation and amortization		$ 4,886		$ 14,264

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FAIR VALUE MEASUREMENTS - Summary of Assets and liabilities measured at fair value on recurring basis (Details) - Recurring basis - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Total | Foreign currency contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	$ 0	$ 195
Total | Asset retirement obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	3,157	2,810
Level 1 | Foreign currency contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	0	0
Level 1 | Asset retirement obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	0	0
Level 2 | Foreign currency contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	0	195
Level 2 | Asset retirement obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	0	0
Level 3 | Foreign currency contracts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	0	0
Level 3 | Asset retirement obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liabilities, fair value	$ 3,157	$ 2,810

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FAIR VALUE MEASUREMENTS - Summary of changes in Level 3 financial asset - Asset retirement obligation (Details) - Asset retirement obligations $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance, beginning of period	$ 2,810
Accretion	155
Subsequent revision of estimated obligation	449
Payments	(415)
Aquisition of Internap Japan	158
Balance, end of period	$ 3,157

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FAIR VALUE MEASUREMENTS - Summary of fair value Level 3 debt - Term loan (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Carrying Amount
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Term loan	$ 299,250	$ 291,000
Revolving credit facility	0	35,500
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Term loan	302,242	267,700
Revolving credit facility	$ 0	$ 32,600

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GOODWILL - Additional Information (Details)	9 Months Ended
	Sep. 30, 2017 reporting_unit
Goodwill and Intangible Assets Disclosure [Abstract]
Number of reportable units (reporting unit)	6

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GOODWILL - Summary of re-allocations of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Goodwill [Roll Forward]
Goodwill, beginning of period	$ 50,209
Re-allocations	0
Goodwill, end of period	50,209
Data center and network services
Goodwill [Roll Forward]
Goodwill, beginning of period	0
Re-allocations	0
Goodwill, end of period	0
Cloud and hosting services
Goodwill [Roll Forward]
Goodwill, beginning of period	50,209
Re-allocations	(50,209)
Goodwill, end of period	0
INAP COLO
Goodwill [Roll Forward]
Goodwill, beginning of period	0
Re-allocations	6,003
Goodwill, end of period	6,003
INAP CLOUD
Goodwill [Roll Forward]
Goodwill, beginning of period	0
Re-allocations	44,206
Goodwill, end of period	$ 44,206

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DEBT - Additional Information (Details) - USD ($)			3 Months Ended	9 Months Ended
	Apr. 06, 2017	Feb. 28, 2017	Mar. 31, 2017	Sep. 30, 2017	Sep. 30, 2016	Jan. 26, 2017
Short-term Debt [Line Items]
Prepaid debt issuance costs				$ 5,694,000	$ 0
Loss on extinguishment and modification of debt				$ 6,785,000	$ 0
Credit Agreement
Short-term Debt [Line Items]
Minimum gross cash proceeds from equity offering		$ 40,000,000
Minimum net cash proceeds from equity offering		37,000,000
Loss on extinguishment and modification of debt	$ 4,800,000
Credit Agreement | Term Loan
Short-term Debt [Line Items]
Fee paid			$ 2,600,000
Debt discount recorded			2,200,000
Third party fees			300,000
Expenses recorded related to term loan			300,000
Credit Agreement | Revolving credit facility
Short-term Debt [Line Items]
Fee paid		$ 1,600,000				$ 900,000
Prepaid debt issuance costs			400,000
Debt issuance costs			$ 100,000
2017 Credit Agreement | Line of Credit
Short-term Debt [Line Items]
Prepaid debt issuance costs	5,700,000
Interest rate at period end				8.24%
2017 Credit Agreement | Term Loan
Short-term Debt [Line Items]
Total amount available under Credit Agreement	300,000,000
Debt issuance costs	3,300,000
2017 Credit Agreement | Term Loan | Line of Credit
Short-term Debt [Line Items]
Loss on extinguishment and modification of debt	1,900,000
2017 Credit Agreement | Revolving credit facility
Short-term Debt [Line Items]
Total amount available under Credit Agreement	25,000,000
Debt issuance costs	$ 400,000

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EQUITY - Additional Information (Details) - Securities Purchase Agreement	Feb. 22, 2017 USD ($) $ / shares shares
Subsidiary, Sale of Stock [Line Items]
Aggregate shares issued (in shares) | shares	23,802,850
Sale of stock, price per share (in dollars per share) | $ / shares	$ 1.81
Value of aggregate shares issued	$ 43,100,000
Restricted period to sell certain equity securities	90 days
Issuance of stock, transaction expenses	$ 100,000
Proceeds used to pay down credit facility	$ 39,200,000

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EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES - Exit activities and restructuring charges for Real estate obligations (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Restructuring Reserve [Roll Forward]
Balance, beginning of period	$ 4,703	$ 3,878
Initial Charges	4,024	239
Plan Adjustments	1,800	626
Cash Payments	(4,727)	(2,355)
Balance, end of period	5,800	2,388
Activity for 2017 restructuring charge: | Real estate obligations
Restructuring Reserve [Roll Forward]
Balance, beginning of period	0
Initial Charges	4,024
Plan Adjustments	654
Cash Payments	(881)
Balance, end of period	3,797
Activity for 2016 restructuring charge: | Severance
Restructuring Reserve [Roll Forward]
Balance, beginning of period	1,911
Initial Charges	0
Plan Adjustments	958
Cash Payments	(2,467)
Balance, end of period	402
Activity for 2016 restructuring charge: | Real estate obligations
Restructuring Reserve [Roll Forward]
Balance, beginning of period	933	0
Initial Charges	0	197
Plan Adjustments	76	12
Cash Payments	(730)	(149)
Balance, end of period	279	60
Activity for 2016 restructuring charge: | Service contracts
Restructuring Reserve [Roll Forward]
Balance, beginning of period		0
Initial Charges		42
Plan Adjustments		(21)
Cash Payments		(21)
Balance, end of period		0
Activity for 2015 restructuring charge: | Real estate obligations
Restructuring Reserve [Roll Forward]
Balance, beginning of period	111	164
Initial Charges	0	0
Plan Adjustments	2	(10)
Cash Payments	(38)	(37)
Balance, end of period	75	117
Activity for 2015 restructuring charge: | Service contracts
Restructuring Reserve [Roll Forward]
Balance, beginning of period	565	843
Initial Charges	0	0
Plan Adjustments	15	5
Cash Payments	(148)	(238)
Balance, end of period	432	610
Activity for 2014 restructuring charge: | Real estate obligations
Restructuring Reserve [Roll Forward]
Balance, beginning of period	1,183	1,701
Initial Charges	0	0
Plan Adjustments	95	85
Cash Payments	(463)	(474)
Balance, end of period	$ 815	1,312
Activity for 2007 restructuring charge: | Real estate obligations
Restructuring Reserve [Roll Forward]
Balance, beginning of period		1,170
Initial Charges		0
Plan Adjustments		555
Cash Payments		(1,436)
Balance, end of period		$ 289

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DERIVATIVES - Additional Information (Details) - Designated as Hedging Instrument - Cash Flow Hedging - Foreign currency contracts $ in Millions	Sep. 30, 2017 USD ($)	Sep. 30, 2017 CAD	Dec. 31, 2016 USD ($)
Other current liabilities
Derivative [Line Items]
Fair value of derivatives | $	$ 0.0		$ 0.2
June 2017
Derivative [Line Items]
Notional amount of cash flow hedge instruments | CAD		CAD 12,000,000.0
Foreign currency contracts exchange rate	1.2855	1.2855

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DERIVATIVES - Schedule of the activity of the foreign currency contracts (Details) - Cash Flow Hedging - Designated as Hedging Instrument - Foreign currency contracts - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Derivative [Line Items]
Tax on unrealized losses arising from foreign currency contracts	$ 100	$ 100	$ 100	$ 100
Unrealized gain, net of less than $0.1 million and $0.1 million income tax, respectively, included in “Accumulated items of other comprehensive loss” in the accompanying consolidated balance sheets	0	75	145	713
Realized loss on effective portion, included as compensation expense in “Direct costs of customer support” and “Sales, general and administrative” in the accompanying consolidated statements of operations and comprehensive loss	$ 0	$ (20)	$ (171)	$ (199)

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COMMITMENTS, CONTINGENCIES AND LITIGATION - Narrative (Details) - Assets Held under Capital Leases $ in Millions	Sep. 30, 2017 USD ($)
Property, Plant and Equipment [Line Items]
Property held as capital leases	$ 169.4
Capital Lease Obligations
Property, Plant and Equipment [Line Items]
Capital lease obligations	$ 172.0

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COMMITMENTS, CONTINGENCIES AND LITIGATION - Future Minimum Capital Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
2017	$ 7,530
2018	31,062
2019	28,546
2020	24,432
2021	23,970
Thereafter	365,284
Remaining capital lease payments	480,824
Less: amounts representing imputed interest	(262,168)
Present value of minimum lease payments	218,656
Less: current portion	(11,729)	$ (10,030)
Capital lease obligations	$ 206,927	$ 43,876

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OPERATING SEGMENTS - Additional Information (Details)	9 Months Ended
	Sep. 30, 2017 segment
Segment Reporting [Abstract]
Number of reportable segments (segment)	2

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OPERATING SEGMENTS - Summary of operating results for business segments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues:
Total revenues	$ 68,907	$ 73,940	$ 210,682	$ 224,180
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
Total direct costs of sales and services, customer support and sales and marketing	38,142	46,222	120,493	139,892
Business unit contribution:
Total business unit contribution	30,765	27,718	90,189	84,288
Exit activities, restructuring and impairments	745	1,670	6,396	2,023
Other operating expenses, including depreciation and amortization	29,288	109,446	84,622	170,338
Income (loss) from operations	732	(83,398)	(829)	(88,073)
Non-operating expenses	12,496	7,848	38,066	23,387
Loss before income taxes and equity in earnings of equity-method investment	(11,764)	(91,246)	(38,895)	(111,460)
INAP COLO
Revenues:
Total revenues	51,344	54,998	156,727	166,707
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
Total direct costs of sales and services, customer support and sales and marketing	29,048	35,893	92,524	108,219
Business unit contribution:
Total business unit contribution	22,296	19,105	64,203	58,488
INAP CLOUD
Revenues:
Total revenues	17,563	18,942	53,955	57,473
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
Total direct costs of sales and services, customer support and sales and marketing	9,094	10,329	27,969	31,673
Business unit contribution:
Total business unit contribution	$ 8,469	$ 8,613	$ 25,986	$ 25,800

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NET LOSS PER SHARE - Schedule of basic and diluted net loss per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Earnings Per Share [Abstract]
Net loss	$ (10,863)	$ (91,297)	$ (38,377)	$ (111,633)
Less net income attributable to non-controlling interests	32	0	32	0
Net loss attributable to INAP stockholders	$ (10,895)	$ (91,297)	$ (38,409)	$ (111,633)
Weighted average shares outstanding, basic and diluted (in shares)	79,715	52,096	74,581	52,245
Net loss per share, basic and diluted (in dollars per share)	$ (0.14)	$ (1.75)	$ (0.51)	$ (2.14)
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans (in shares)	5,840	7,238	5,840	7,238

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ACQUISITION - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Internap Japan
Business Acquisition [Line Items]
Gain on recoding of fair value of assets and liabilities	$ 1.1
Internap Japan
Business Acquisition [Line Items]
Investment in joint ventures		$ 4.1

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ACQUISITION - Summary of Unaudited Proforma FInancial Information (Details) - Internap Japan - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Business Acquisition [Line Items]
Revenue	$ 70,029	$ 76,124	$ 215,741	$ 230,132
Net loss	$ (10,849)	$ (91,269)	$ (38,317)	$ (111,572)

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RECENT ACCOUNTING PRONOUNCEMENTS - Additional Information (Details) $ in Millions	Dec. 31, 2016 USD ($)
Accounting Standards Update 2016-16
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Deferred tax asset	$ 2.2
Deferred tax asset, valuation allowance	1.9
Accounting Standards Update 2016-09
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Deferred tax asset	10.8
Deferred tax asset, valuation allowance	$ 10.8