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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Accounting Principles and Basis of Presentation
 
We prepare our consolidated financial statements and accompanying notes in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. We have eliminated inter-company transactions and balances in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with GAAP, assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has experienced negative financial trends, such as operating losses, working capital deficiencies, negative cash flows and other adverse key financial ratios. The Company reported net losses attributable to shareholders of $138.3 million and $61.2 million for the years ended December 31, 2019 and 2018, respectively. The working capital deficit as of December 31, 2019 was $442.0 million compared to $6.5 million as of December 31, 2018. The increase was primarily due to the term loan of $413.3 million being classified as a current liability as of December 31, 2019. These trends, along with the resulting liquidity constraints and debt covenant compliance considerations, led to INAP’s Chapter 11 Cases, which raise substantial doubt about the Company’s ability to continue as a going concern.

As a result of this uncertainty and the substantial doubt about our ability to continue as a going concern as of December 31, 2019, the report of our independent registered public accounting firm in this Annual Report on Form 10-K for the years ended December 31, 2019 and 2018 includes a going concern explanatory paragraph.
 
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Estimates and Assumptions

The preparation of these financial statements with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, doubtful accounts, goodwill and intangible assets, accruals, stock-based compensation, income taxes, restructuring charges, leases, long-term service contracts, useful lives, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
 
Cash and Cash Equivalents
 
We consider all highly-liquid investments purchased with an original maturity of three months or less at the date of purchase and money market mutual funds to be cash equivalents. We maintain our cash and cash equivalents at major financial institutions and may at times exceed federally insured limits. We believe that the risk of loss is minimal. To date, we have not experienced any losses related to cash and cash equivalents. 

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts due to the Company from normal business activities. The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. The Company estimates uncollectible amounts based upon historical bad debts, current customer receivable balances, the age of customer receivable balances, the customer's financial condition and current economic trends.

Investment in Affiliates and Other Entities

In the normal course of business, INAP enters into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by INAP in business entities, including general or limited partnerships, contractual ventures, or other forms of equity participation. The Company determines whether such investments involve a variable interest entity ("VIE") based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if INAP is the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities of a VIE that most significantly affect the VIE's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE, in either case that could potentially be significant to the VIE. When INAP is deemed to be the primary beneficiary, the VIE is consolidated and the other party's equity interest in the VIE is accounted for as a noncontrolling interest.

If an entity fails to meet the characteristics of a VIE, the Company then evaluates such entity under the voting model. Under the voting model, the Company consolidates the entity if they determine that they, directly or indirectly, have greater than 50% of the voting shares, and determine that other equity holders do not have substantive participating rights.

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

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

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

INAP accelerated its second call option to purchase NTT - ME’s remaining shares in Internap Japan on December 25, 2019, completing the purchase of NTT - ME’s shares at a fair market value of approximately $0.5 million.

Noncontrolling Interest
 
Noncontrolling interests ("NCI") are evaluated by the Company and are shown as either a liability, temporary equity (shown between liabilities and equity) or as permanent equity depending on the nature of the redeemable features at amounts based on formulas specific to each entity. Generally, mandatorily redeemable NCIs are classified as liabilities and non-mandatorily redeemable NCIs are classified outside of stockholders' equity in the consolidated balance sheets as temporary equity under the caption, redeemable noncontrolling interests, and are measured at their redemption values at the end of each period. If the redemption value is greater than the carrying value, an adjustment is recorded in retained earnings to record the NCI at its redemption value. Redeemable NCIs that are mandatorily redeemable are classified as a liability in the consolidated balance sheets under either other current liabilities or other long-term liabilities, depending on the remaining duration until settlement, and are measured at the amount of cash that would be paid if settlement occurred at the balance sheet date with any change from the prior period recognized as interest expense.
 
If the NCI is not currently redeemable yet probable of becoming redeemable, we are required to either (1) accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date of the instrument using an appropriate methodology, usually the interest method, or (2) recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of each reporting period. We have elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the NCI to the greater of the estimated redemption value, which approximates fair value, at the end of each reporting period or the initial carrying amount. 
 
Net income attributable to NCIs reflects the portion of the net loss of consolidated entities applicable to the NCI stockholders in the accompanying consolidated statements of operations. The net income attributable to NCI is classified in the consolidated statements of operations as part of consolidated net loss and deducted from total consolidated net loss to arrive at the net loss attributable to the Company.

Fair Value of Financial Instruments
 
The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable and other current liabilities, approximate fair value due to the short-term nature of these assets and liabilities.

We measure and report certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents. The major categories of nonfinancial assets and liabilities that we measure at fair value include reporting units measured at fair value in step one of our goodwill and intangibles impairment test.
 
Financial Instrument Credit Risk
 
Financial instruments that potentially subject us to a concentration of credit risk principally consist of cash and cash equivalents, marketable securities, accounts receivable and accounts payable. Given the needs of our business, we may invest our cash and cash equivalents in money market funds.
 
Property and Equipment
 
We carry property and equipment at original acquisition cost less accumulated depreciation. We calculate depreciation on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives used for network equipment are generally five years; furniture, equipment and software are three to seven years; and leasehold improvements are the shorter of the lease term or their estimated useful lives. We capitalize additions and improvements that increase the value or extend the life of an asset. We expense maintenance and repairs as incurred. We charge gains or losses from disposals of property and equipment to operations.
 
Leases
 
We lease certain data centers, office space, partner sites and equipment. An arrangement is considered to be a lease if the agreement conveys the right to control the use of the identified asset in exchange for consideration. We record leases as either finance leases or operating leases. The duration of lease obligations and commitments ranges from two years to 34 years for facilities. Equipment leases are included in this range. See Note 2, "Recent Accounting Pronouncements," for information about the new lease standard and Note 14, "Leases," for further detail.

Revisions of Previously Issued Financial Statements
 
The Company corrected an error in the consolidated statements of cash flows for all periods in 2017, 2018, the three months ended March 31, 2019 and the six months ended June 30, 2019 during the quarter ended September 30, 2019 related to the overstatement of depreciation expense. The Company has evaluated this correction in accordance with Accounting Standards Codification ("ASC") 250-10-S99, Securities and Exchange Commission "SEC" Materials (formerly SEC Staff Accounting Bulletin 99, Materiality) and concluded that the correction was not material. In addition, the Company corrected certain other errors in the consolidated statements of operations and comprehensive loss and consolidated balance sheets for all periods in 2017, 2018, the three months ended March 31, 2019, the three and six months ended June 30, 2019, and the three and nine months ended September 30, 2019.

The adjustments to the Company’s previously issued consolidated statements of cash flows are as follows (in thousands):

 
Three Months Ended
March 31, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(8,230
)
$
184

$
(8,046
)
Depreciation and amortization
$
17,745

$
(184
)
$
17,561


 
Six Months Ended
June 30, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(27,513
)
$
573

$
(26,940
)
Depreciation and amortization
36,679

(363
)
36,316

Amortization of debt discount and issuance costs
$
1,292

$
(210
)
$
1,082


 
Nine Months Ended
September 30, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(38,377
)
$
821

$
(37,556
)
Depreciation and amortization
57,596

(960
)
56,636

Amortization of debt discount and issuance costs
1,890

(210
)
1,680

Non-cash change in finance lease liabilities
564

349

913

Prepaid expenses, deposits and other assets
1,979

(579
)
1,400

Accounts payable
$
(2,168
)
$
579

$
(1,589
)

 
Year Ended
December 31, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(45,273
)
$
1,107

$
(44,166
)
Depreciation and amortization
74,993

(1,564
)
73,429

Amortization of debt discount and issuance costs
2,519

(210
)
2,309

Non-cash change in finance lease liabilities
520

667

1,187

Accounts receivable
(207
)
(562
)
(769
)
Net cash provided by operating activities
41,966

(562
)
41,404

Net (decrease) increase in cash and cash equivalents
4,214

(562
)
3,652

Cash and cash equivalents at end of period
$
14,603

$
(562
)
$
14,041


 
Three Months Ended
March 31, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(14,261
)
$
610

$
(13,651
)
Depreciation and amortization
21,158

(635
)
20,523

Amortization of debt discount and issuance costs
638

420

1,058

Non-cash change in finance lease liabilities
(213
)
(1,212
)
(1,425
)
Accounts receivable
864

379

1,243

Prepaid expenses, deposits and other assets
(467
)
(544
)
(1,011
)
Accrued and other liabilities
(2,904
)
83

(2,821
)
Deferred revenues
(138
)
1,461

1,323

Net cash provided by operating activities
3,573

562

4,135

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

562

2,118

Cash and cash equivalents at beginning of period
$
14,603

$
(562
)
$
14,041


 
Six Months Ended
June 30, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(28,517
)
$
1,087

$
(27,430
)
Depreciation and amortization
43,870

(1,168
)
42,702

Amortization of debt discount and issuance costs
1,712

420

2,132

Stock-based compensation expense, net of capitalized amount
2,232

96

2,328

Non-cash change in finance lease liabilities
(371
)
(820
)
(1,191
)
Accounts receivable
(2,165
)
88

(2,077
)
Prepaid expenses, deposits and other assets
(4,073
)
(436
)
(4,509
)
Accrued and other liabilities
(585
)
(166
)
(751
)
Deferred revenues
1,249

1,461

2,710

Net cash provided by operating activities
14,935

562

15,497

Net (decrease) increase in cash and cash equivalents
136

562

698

Cash and cash equivalents at beginning of period
$
14,603

$
(562
)
$
14,041



 
Nine Months Ended
September 30, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(43,971
)
$
1,726

$
(42,245
)
Depreciation and amortization
67,422

(1,712
)
65,710

Amortization of debt discount and issuance costs
2,798

420

3,218

Stock-based compensation expense, net of capitalized amount
3,573

96

3,669

Non-cash change in finance lease liabilities
(241
)
(774
)
(1,015
)
Accounts receivable
(4,990
)
132

(4,858
)
Prepaid expenses, deposits and other assets
(3,531
)
(436
)
(3,967
)
Accrued and other liabilities
(601
)
(351
)
(952
)
Deferred revenues
617

1,461

2,078

Net cash provided by operating activities
24,381

562

24,943

Net (decrease) increase in cash and cash equivalents
(2,759
)
562

(2,197
)
Cash and cash equivalents at beginning of period
$
14,603

$
(562
)
$
14,041




 
Year Ended
December 31, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(62,375
)
$
1,300

$
(61,075
)
Depreciation and amortization
90,676

(2,260
)
88,416

Amortization of debt discount and issuance costs
3,874

210

4,084

Non-cash change in finance lease liabilities
2,640

(133
)
2,507

Accounts receivable
(1,352
)
993

(359
)
Accrued and other liabilities
(1,583
)
(333
)
(1,916
)
Deferred revenues
435

785

1,220

Net cash provided by operating activities
34,779

562

35,341

Net (decrease) increase in cash and cash equivalents
3,220

562

3,782

Cash and cash equivalents at beginning of period
$
14,603

$
(562
)
$
14,041


 
Three Months Ended
March 31, 2019
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(19,622
)
$
(363
)
$
(19,985
)
Depreciation and amortization
22,178

(2
)
22,176

Stock-based compensation expense, net of capitalized amount
890

(371
)
519

Non-cash change in finance lease liabilities
148

(276
)
(128
)
Accounts receivable
(1,617
)
431

(1,186
)
Accrued and other liabilities
(2,238
)
(325
)
(2,563
)
Deferred revenues
$
(262
)
$
906

$
644


 
Six Months Ended
June 30, 2019
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(38,157
)
$
210

$
(37,947
)
Depreciation and amortization
44,133

(812
)
43,321

Stock-based compensation expense, net of capitalized amount
1,901

(371
)
1,530

Non-cash change in finance lease liabilities
3,520

(150
)
3,370

Accounts receivable
1,210

1,135

2,345

Accrued and other liabilities
(3,146
)
(325
)
(3,471
)
Deferred revenues
$
(323
)
$
313

$
(10
)

 
Nine Months Ended
September 30, 2019
 
As reported
Adjustments
As revised
 
 
 
 
Net loss
$
(62,006
)
$
(3
)
$
(62,009
)
Depreciation and amortization
65,715

(1,395
)
64,320

Non-cash change in finance lease liabilities
4,863

(357
)
4,506

Accounts receivable
1,593

1,135

2,728

Accrued and other liabilities
(5,378
)
(325
)
(5,703
)
Deferred revenues
$
(804
)
$
231

$
(573
)

The Company corrected an error in the consolidated statements of operations and comprehensive loss and consolidated balance sheets for all periods in 2017, 2018, the three months ended March 31, 2019, the three and six months ended June 30, 2019, and the three and nine months ended September 30, 2019. The Company had previously overstated the amount of depreciation expense. The amount of the correction was $1.5 million, $2.0 million and $1.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. Additionally, the correction of this error resulted in the understatement of the property and equipment, net and accumulated deficit in the consolidated balance sheets of $1.5 million and $4.1 million as of December 31, 2019 and 2018, respectively. The amount of $4.1 million as of December 31, 2018 includes $2.1 million of a beginning retained earnings adjustment based on the cumulative impact of prior period corrections. The Company has evaluated this correction in accordance with ASC 250-10-S99, SEC Materials (formerly SEC Staff Accounting Bulletin 99, Materiality) and concluded that the correction was not material. In addition, the Company corrected certain other errors in the consolidated statements of operations and comprehensive loss and consolidated balance sheets for all periods in 2017, 2018, the three months ended March 31, 2019, the three and six months ended June 30, 2019, and the three and nine months ended September 30, 2019.

The adjustments to the Company’s annual and quarterly previously issued consolidated statements of operations and comprehensive loss and consolidated balance sheets are as follows (in thousands):

 
For the quarter ended
March 31, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Depreciation and amortization - QTD
$
17,745

$
(184
)
$
17,561

Depreciation and amortization - YTD
17,745

(184
)
17,561

Net loss attributable to shareholders - QTD
(8,230
)
184

(8,046
)
Net loss attributable to shareholders - YTD
(8,230
)
184

(8,046
)
 
 
 
 
Property and equipment, net
291,583

689

292,272

Total assets
415,108

689

415,797

Accumulated deficit
(1,286,579
)
689

(1,285,890
)
Total stockholders' equity (deficit)
$
29,302

$
689

$
29,991



 
For the quarter ended
June 30, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Depreciation and amortization - QTD
$
18,934

$
(179
)
$
18,755

Depreciation and amortization - YTD
36,679

(363
)
36,316

Interest expense - QTD
17,145

(210
)
16,935

Interest expense - YTD
25,282

(210
)
25,072

Net loss attributable to shareholders - QTD
(19,283
)
389

(18,894
)
Net loss attributable to shareholders - YTD
(27,513
)
573

(26,940
)
 
 
 
 
Property and equipment, net
427,873

868

428,741

Total assets
561,068

868

561,936

Term loan, less discount and issuance costs
288,254

(210
)
288,044

Total liabilities
550,561

(210
)
550,351

Accumulated deficit
(1,305,894
)
1,078

(1,304,816
)
Total stockholders' equity (deficit)
$
10,507

$
1,078

$
11,585




 
For the quarter ended
September 30, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Depreciation and amortization - QTD
$
20,917

$
(597
)
$
20,320

Depreciation and amortization - YTD
57,596

(960
)
56,636

Interest expense - QTD
12,299

349

12,648

Interest expense - YTD
37,581

139

37,720

Net loss attributable to shareholders - QTD
(10,895
)
248

(10,647
)
Net loss attributable to shareholders - YTD
(38,409
)
822

(37,587
)
 
 
 
 
Prepaid expenses and other assets
9,036

579

9,615

Property and equipment, net
441,239

1,465

442,704

Total assets
567,432

2,044

569,476

Accounts payable
16,732

579

17,311

Capital lease obligations - current
11,729

(1,445
)
10,284

Capital lease obligations - noncurrent
206,927

1,794

208,721

Term loan, less discount and issuance costs
288,034

(210
)
287,824

Total liabilities
562,822

928

563,750

Accumulated deficit
(1,316,788
)
1,326

(1,315,462
)
Total stockholders' equity (deficit)
$
4,610

$
1,326

$
5,936



 
For the quarter ended
December 31, 2017
 
As reported
Adjustments
As revised
 
 
 
 
Depreciation and amortization - QTD
$
17,397

$
(604
)
$
16,793

Depreciation and amortization - YTD
74,993

(1,564
)
73,429

Interest expense - QTD
12,895

318

13,213

Interest expense - YTD
50,476

457

50,933

Net loss attributable to shareholders - QTD
(6,934
)
285

(6,649
)
Net loss attributable to shareholders - YTD
(45,343
)
1,107

(44,236
)
 
 
 
 
Cash and cash equivalents
14,603

(562
)
14,041

Accounts receivable, net
17,794

562

18,356

Property and equipment, net
458,565

2,069

460,634

Total assets
586,525

2,069

588,594

Accrued liabilities
15,908

318

16,226

Capital lease obligations - current
11,711

(1,445
)
10,266

Capital lease obligations - noncurrent
223,749

1,794

225,543

Term loan, less discount and issuance costs
287,845

(210
)
287,635

Total liabilities
587,557

457

588,014

Accumulated deficit
(1,323,723
)
1,612

(1,322,111
)
Total stockholders' (deficit) equity
$
(1,032
)
$
1,612

$
580


 
For the quarter ended
March 31, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
74,201

$
(379
)
$
73,822

Net revenues - YTD
74,201

(379
)
73,822

Cost of sales and services, exclusive of depreciation and amortization - QTD
24,607

170

24,777

Cost of sales and services, exclusive of depreciation and amortization - YTD
24,607

170

24,777

Sales, general and administrative - QTD
19,854

(53
)
19,801

Sales, general and administrative - YTD
19,854

(53
)
19,801

Depreciation and amortization - QTD
21,158

(635
)
20,523

Depreciation and amortization - YTD
21,158

(635
)
20,523

Interest expense - QTD
15,604

(471
)
15,133

Interest expense - YTD
15,604

(471
)
15,133

Net loss attributable to shareholders - QTD
(14,288
)
610

(13,678
)
Net loss attributable to shareholders - YTD
(14,288
)
610

(13,678
)
 
 
 
 
Accounts receivable, net
17,524

(379
)
17,145

Contract assets - current
7,131

366

7,497

Property and equipment, net
471,752

4,687

476,439

Goodwill
118,077

(980
)
117,097

Contract assets - noncurrent
12,056

70

12,126

Total assets
742,358

3,764

746,122

Accrued liabilities
14,279

(83
)
14,196

Deferred revenues - current
5,871

660

6,531

Capital lease obligations - current
10,095

(67
)
10,028

Other long-term liabilities
3,046

801

3,847

Capital lease obligations - noncurrent
234,199

2,298

236,497

Total liabilities
733,748

3,609

737,357

Accumulated deficit
(1,313,826
)
3,217

(1,310,609
)
Total stockholders' (deficit) equity
$
8,594

$
3,217

$
11,811


 
For the quarter ended
June 30, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
81,962

$
291

$
82,253

Net revenues - YTD
156,163

(88
)
156,075

Cost of sales and services, exclusive of depreciation and amortization - QTD
27,331

307

27,638

Cost of sales and services, exclusive of depreciation and amortization - YTD
51,938

477

52,415

Sales, general and administrative - QTD
19,602

(11
)
19,591

Sales, general and administrative - YTD
39,456

(64
)
39,392

Depreciation and amortization - QTD
22,712

(533
)
22,179

Depreciation and amortization - YTD
43,870

(1,168
)
42,702

Interest expense - QTD
16,739

51

16,790

Interest expense - YTD
32,343

(420
)
31,923

Net loss attributable to shareholders - QTD
(14,279
)
477

(13,802
)
Net loss attributable to shareholders - YTD
(28,567
)
1,087

(27,480
)
 
 
 
 
Accounts receivable, net
20,251

(88
)
20,163

Property and equipment, net
463,273

5,155

468,428

Goodwill
735,022

5,067

740,089

Total assets
17,059

(166
)
16,893

Capital lease obligations - current
10,246

9

10,255

Capital lease obligations - noncurrent
231,576

2,420

233,996

Total liabilities
740,583

2,263

742,846

Additional paid-in-capital
1,329,368

(102
)
1,329,266

Accumulated deficit
(1,329,086
)
2,699

(1,326,387
)
Total stockholders' (deficit) equity
$
(5,605
)
$
2,597

$
(3,008
)





 
For the quarter ended
September 30, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
82,972

$
(44
)
$
82,928

Net revenues - YTD
239,135

(132
)
239,003

Cost of sales and services, exclusive of depreciation and amortization - QTD
28,221

(9
)
28,212

Cost of sales and services, exclusive of depreciation and amortization - YTD
80,160

468

80,628

Sales, general and administrative - QTD
18,170

(185
)
17,985

Sales, general and administrative - YTD
57,625

(249
)
57,376

Depreciation and amortization - QTD
23,553

(544
)
23,009

Depreciation and amortization - YTD
67,422

(1,712
)
65,710

Interest expense - QTD
17,794

55

17,849

Interest expense - YTD
50,138

(365
)
49,773

Net loss attributable to shareholders - QTD
(15,479
)
639

(14,840
)
Net loss attributable to shareholders - YTD
(44,046
)
1,726

(42,320
)
 
 
 
 
Accounts receivable, net
22,999

(132
)
22,867

Property and equipment, net
487,616

5,699

493,315

Total assets
756,231

5,567

761,798

Accrued liabilities
17,866

(249
)
17,617

Capital lease obligations - current
9,399

86

9,485

Capital lease obligations - noncurrent
263,676

2,391

266,067

Total liabilities
776,154

2,228

778,382

Accumulated deficit
(1,344,566
)
3,338

(1,341,228
)
Total stockholders' (deficit) equity
$
(19,923
)
$
3,338

$
(16,585
)
 
For the quarter ended
December 31, 2018
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
78,238

$
(1,083
)
$
77,155

Net revenues - YTD
317,373

(1,215
)
316,158

Cost of sales and services, exclusive of depreciation and amortization - QTD
27,102

(80
)
27,022

Cost of sales and services, exclusive of depreciation and amortization - YTD
107,262

387

107,649

Sales, general and administrative - QTD
17,731

(83
)
17,648

Sales, general and administrative - YTD
75,356

(333
)
75,023

Depreciation and amortization - QTD
23,254

(544
)
22,710

Depreciation and amortization - YTD
90,676

(2,260
)
88,416

Interest expense - QTD
17,994

55

18,049

Interest expense - YTD
68,132

(309
)
67,823

Net loss attributable to shareholders - QTD
(18,454
)
(426
)
(18,880
)
Net loss attributable to shareholders - YTD
(62,500
)
1,300

(61,200
)
 
 
 
 
Accounts receivable, net
20,054

(431
)
19,623

Property and equipment, net
478,061

6,245

484,306

Total assets
744,931

5,814

750,745

Accrued liabilities
15,540

(333
)
15,207

Deferred revenues - current
8,022

440

8,462

Capital lease obligations - current
9,080

91

9,171

Deferred revenues - noncurrent
511

345

856

Capital lease obligations - noncurrent
262,382

2,359

264,741

Total liabilities
744,874

2,902

747,776

Accumulated deficit
(1,363,019
)
2,912

(1,360,107
)
Total stockholders' (deficit) equity
$
57

$
2,912

$
2,969

 
For the quarter ended
March 31, 2019
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
73,564

$
309

$
73,873

Net revenues - YTD
73,564

309

73,873

Cost of sales and services, exclusive of depreciation and amortization - QTD
25,733

(84
)
25,649

Cost of sales and services, exclusive of depreciation and amortization - YTD
25,733

(84
)
25,649

Sales, general and administrative - QTD
17,521

704

18,225

Sales, general and administrative - YTD
17,521

704

18,225

Depreciation and amortization - QTD
22,178

(2
)
22,176

Depreciation and amortization - YTD
22,178

(2
)
22,176

Interest expense - QTD
17,447

54

17,501

Interest expense - YTD
17,447

54

17,501

Net loss attributable to shareholders - QTD
(19,644
)
(363
)
(20,007
)
Net loss attributable to shareholders - YTD
(19,644
)
(363
)
(20,007
)
 
 
 
 
Property and equipment, net
229,185

4,206

233,391

Finance lease right-of-use assets
236,077

2,042

238,119

Total assets
748,342

6,248

754,590

Deferred revenues - current
7,881

439

8,320

Short-term finance lease liabilities
8,328

93

8,421

Deferred revenues - noncurrent
341

467

808

Finance lease liabilities
262,632

2,327

264,959

Total liabilities
768,314

3,326

771,640

Additional paid-in-capital
1,369,815

371

1,370,186

Accumulated deficit
(1,382,715
)
2,549

(1,380,166
)
Total stockholders' (deficit) equity
$
(19,972
)
$
2,549

$
(17,423
)
 
For the quarter ended
June 30, 2019
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
73,134

$
(112
)
$
73,022

Net revenues - YTD
146,698

(30
)
146,668

Cost of sales and services, exclusive of depreciation and amortization - QTD
25,949

96

26,045

Cost of sales and services, exclusive of depreciation and amortization - YTD
51,682

12

51,694

Sales, general and administrative - QTD
15,683

(371
)
15,312

Sales, general and administrative - YTD
33,204

—

33,204

Depreciation and amortization - QTD
21,955

(450
)
21,505

Depreciation and amortization - YTD
44,133

(812
)
43,321

Interest expense - QTD
19,218

40

19,258

Interest expense - YTD
36,665

94

36,759

Net loss attributable to shareholders - QTD
(18,555
)
573

(17,982
)
Net loss attributable to shareholders - YTD
(38,199
)
210

(37,989
)
 
 
 
 
Accounts receivable, net
18,563

(704
)
17,859

Property and equipment, net
223,497

4,713

228,210

Finance lease right-of-use assets
229,228

1,895

231,123

Total assets
740,796

5,904

746,700

Deferred revenues - current
7,917

(71
)
7,846

Short-term finance lease liabilities
5,930

181

6,111

Deferred revenues - noncurrent
312

384

696

Finance lease liabilities
262,476

2,289

264,765

Total liabilities
778,329

2,783

781,112

Accumulated deficit
(1,401,270
)
3,122

(1,398,148
)
Total stockholders' (deficit) equity
$
(37,533
)
$
3,122

$
(34,411
)
 
For the quarter ended
September 30, 2019
 
As reported
Adjustments
As revised
 
 
 
 
Net revenues - QTD
$
72,878

$
82

$
72,960

Net revenues - YTD
219,576

52

219,628

Cost of sales and services, exclusive of depreciation and amortization - QTD
27,504

45

27,549

Cost of sales and services, exclusive of depreciation and amortization - YTD
79,186

57

79,243

Depreciation and amortization - QTD
21,582

(583
)
20,999

Depreciation and amortization - YTD
65,715

(1,395
)
64,320

Exit activities, restructuring and impairments - QTD
3,792

1,126

4,918

Exit activities, restructuring and impairments - YTD
5,439

1,126

6,565

Interest expense - QTD
19,913

(293
)
19,620

Interest expense - YTD
56,578

(199
)
56,379

Net loss attributable to shareholders - QTD
(23,870
)
(213
)
(24,083
)
Net loss attributable to shareholders - YTD
(62,069
)
(3
)
(62,072
)
 
 
 
 
Accounts receivable, net
17,948

(704
)
17,244

Property and equipment, net
216,548

4,097

220,645

Finance lease right-of-use assets
226,619

(196
)
226,423

Total assets
724,701

3,197

727,898

Deferred revenues - current
7,493

(71
)
7,422

Short-term finance lease liabilities
5,867

12

5,879

Deferred revenues - noncurrent
259

302

561

Finance lease liabilities
264,223

42

264,265

Total liabilities
784,913

285

785,198

Accumulated deficit
(1,425,140
)
2,909

(1,422,231
)
Total stockholders' (deficit) equity
$
(60,212
)
$
2,909

$
(57,303
)



Costs of Internal-Use Computer Software Development
 
We capitalize software development costs incurred during the application development stage. Depreciation begins once the software is ready for its intended use and is computed based on the straight-line method over the estimated useful life, which was 5 years for 2019, 2018 and 2017. Judgment is required in determining which software projects are capitalized and the resulting economic life. We capitalized$3.3 million, $3.5 million and $4.4 million in internal-use software costs during the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, the balance of undepreciated internal-use software costs was $11.0 million and $12.7 million, respectively. During the years ended December 31, 2019, 2018 and 2017, depreciation expense was $5.5 million, $7.6 million and $7.2 million, respectively.

We capitalize certain costs associated with software to be sold. Capitalized costs include all costs incurred to produce the software or the purchase price paid for a master copy of the software that will be sold. Internally incurred costs to develop software are expensed when incurred as research and development costs until technological feasibility is established.
 
Valuation of Long-Lived Assets
 
We periodically evaluate the carrying value of our long-lived assets, including, but not limited to, property and equipment when there is a triggering event. We consider the carrying value of a long-lived asset impaired when the undiscounted cash flows from such asset are separately identifiable and we estimate them to be less than its carrying value. In that event, we would recognize a loss based on the amount by which the carrying value exceeds the fair value of the long-lived asset. We determine fair value based on either market quotes, if available, or discounted cash flows using a discount rate commensurate with the risk inherent in our current business model for the specific asset being valued. We would determine losses on long-lived assets to be disposed of in a similar manner, except that we would reduce fair values by the cost of disposal. We charge losses due to impairment of long-lived assets to operations during the period in which we identify the impairment.

Goodwill and Other Intangible Assets
 
As of January 1, 2018, we changed our operating segments and subsequently, our reporting units. We have seven reporting units: US Colocation, US Cloud, US Network, INTL Colocation, INTL Cloud, INTL Network, and Ubersmith. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed.

The Company tests goodwill for impairment annually in the third quarter as of August 1, or when events occur or circumstances change that could potentially reduce the fair value of the reporting unit. If the fair value of a reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is necessary. If the carrying value of a reporting unit exceeds its fair value, we record the amount of impairment to goodwill, if any.
 
In order to determine the estimated fair value of our reporting units, the Company considers the discounted cash flow method. INAP has consistently considered this method in its goodwill impairment assessments. The discounted cash flow method is specific to the anticipated future results of the reporting unit. The Company determines the assumptions supporting the discounted cash flow method, including the discount rate, using estimates as of the date of the impairment review. To determine the reasonableness of these assumptions, the Company considered the past performance and empirical trending of results, looked to market and industry expectations used in the discounted cash flow method, such as forecasted revenues and discount rate. The Company used reasonable judgment in developing its estimates and assumptions. The assumptions, inputs and judgments used in performing the valuation analysis are inherently subjective and reflect estimates based on known facts and circumstances at the time we perform the valuation. These estimates and assumptions primarily include, but are not limited to, discount rates; terminal growth rates; projected revenues and costs; earnings before interest, taxes, depreciation and amortization for expected cash flows; market comparables and capital expenditure forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from our estimates and could result in additional non-cash impairment charges in the future.
 
Other intangible assets have finite lives and we record these assets at cost less accumulated amortization. We record amortization of acquired technologies using the greater of (a) the ratio of current revenues to total and anticipated future revenues for the applicable technology or (b) the straight-line method over the remaining estimated useful life. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized. We amortize the cost of the acquired technologies and noncompete agreements over their useful lives of 4 to 8 years and 8 to 15 years for trade names. Customer relationships are being amortized on an accelerated basis over their estimated useful life of 10 to 30 years. During the years ended December 31, 2019, 2018 and 2017, amortization expense for acquired and developed technologies was $4.5 million, $4.0 million and $2.1 million, respectively.
We assess other intangible assets and long-lived assets on a quarterly basis whenever any events have occurred or circumstances have changed that would indicate impairment could exist. Our assessment is based on estimated future cash flows directly associated with the asset or asset group. If we determine that the carrying value is not recoverable, we may record an impairment charge, reduce the estimated remaining useful life or both.

When the Company performed its impairment test as of August 1, 2019, 2018 and 2017, the fair value for all reporting units was higher than their respective carrying values, and no impairment was recorded. Due to the triggering events such as the significant decline in stock price in 2018 and the further decline in the stock price in 2019, interim goodwill and intangibles impairment tests were performed. An impairment charge of $45.0 million for goodwill and $14.1 million for intangible assets was recognized when the Company performed an impairment test as of December 1, 2019 for its seven reporting units. Goodwill impairment charges were recorded for the Cloud reporting unit within INAP US of $22.9 million and for the Cloud and Ubersmith reporting units within INAP INTL of $21.2 million and $0.9 million, respectively, due to the carrying amounts for the three reporting units exceeding their fair value. The goodwill impairment is primarily due to declines in projected revenues and operating results due to increased customer churn and reduced sales projections. The goodwill for INAP INTL was fully impaired as of December 31, 2019. For INAP US, approximately 25% of goodwill was impaired as of December 31, 2019. For the other reporting units in INAP US, Network and Colocation, the fair value exceeded the carrying values resulting in no impairment. In performing the impairment test as of December 1, 2019, the Company utilized discount rates ranging from 12.0% to 16.0% which increased compared to the annual testing as of August 1, 2019 where the discount rates ranged from 8.0% to 13.0%, to reflect changes in market conditions. The Company also reduced long-term growth rate assumptions from 2.0% to 1.0% for some reporting units.

The result of our intangibles assessment was that the projected undiscounted net cash flows for the Cloud and Ubersmith reporting units in INAP INTL were below the carrying value of the related assets. Therefore, we recorded an impairment of $12.9 million for Cloud customer relationships, and $1.2 million for Ubersmith of which $1.0 million related to acquired and developed technology and $0.2 million related to customer relationships. See Note 6, "Goodwill and Other Intangible Assets" for further detail.

Derivatives
 
We use derivatives only to reduce exposure to specific identified risks including managing the overall cost of capital and translational and transactional exposure arising from foreign transactions and ensuring the certainty of outcome as it relates to commodity pricing exposure. We do not use derivatives for any other purpose.
 
Exit Activities and Restructuring
 
When circumstances warrant, we may elect to exit certain business activities or change the manner in which we conduct ongoing operations. If we make such a change, we will estimate the costs to exit a business, location, service contract or restructure ongoing operations. The components of the estimates may include estimates and assumptions regarding the timing and costs of future events and activities that represent our best expectations based on known facts and circumstances at the time of estimation. If circumstances warrant, we will adjust our previous estimates to reflect what we then believe to be a more accurate representation of expected future costs. Because our estimates and assumptions regarding exit activities and restructuring charges include probabilities of future events, such as our ability to find a sublease tenant within a reasonable period of time or the rate at which a sublease tenant will pay for the available space, such estimates are inherently vulnerable to changes due to unforeseen circumstances that could materially and adversely affect our results of operations. We monitor market conditions at each period end reporting date and will continue to assess our key assumptions and estimates used in the calculation of our exit activities and restructuring accrual.
 
Taxes
 
The Company accounts for deferred income taxes using the asset and liability approach. Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that will more likely than not be realized. The Company regularly reviews its deferred tax assets by taxing jurisdiction for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. 

For uncertain tax positions, the Company applies the provisions of all relevant authoritative guidance, which requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require significant judgment and can increase or decrease the Company’s effective tax rate, as well as impact operating results. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in "Income tax (benefit) expense" in the consolidated statements of operations and comprehensive loss.

The Company’s effective tax rate differs from the statutory rate, primarily due to the tax impact of state taxes, foreign tax rates, valuation allowances and goodwill impairment. Significant judgment is required in evaluating uncertain tax positions, determining valuation allowances recorded against deferred tax assets, and ultimately, the income tax provision.

The Company elects to account for Global Intangible Low-Taxed Income (“GILTI”) in the period the tax is incurred.
 
Stock-Based Compensation
 
We measure stock-based compensation cost at the grant date based on the calculated fair value of the award. We recognize the expense over the employee's requisite service period, generally the vesting period of the award. The fair value of restricted stock is the market value on the date of grant. The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model with weighted average assumptions for the activity under our stock plans. Option pricing model input assumptions, such as expected term, expected volatility and risk-free interest rate, impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop.
 
The expected term represents the weighted average period of time that we expect granted options to be outstanding, considering the vesting schedules and our historical exercise patterns. Because our options are not publicly traded, we assume volatility based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected option term. We have also used historical data to estimate option exercises, employee termination and stock option forfeiture rates. Changes in any of these assumptions could materially impact our results of operations in the period the change is made.

We do not recognize a deferred tax asset for unrealized tax benefits associated with the tax deductions in excess of the compensation recorded (excess tax benefit). We apply the "with and without" approach for utilization of tax attributes upon realization of net operating losses in the future. This method allocates stock-based compensation benefits last among other tax benefits recognized. In addition, we apply the "direct only" method of calculating the amount of windfalls or shortfalls.
 
Treasury Stock
 
As permitted by our stock-based compensation plans, we acquire shares of treasury stock as payment of statutory minimum payroll taxes due from employees for stock-based compensation. However, we do not use shares of treasury stock acquired from employees in this manner to issue new equity awards under our stock-based compensation plans.

Revenue Recognition

In May 2014, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"). This standard update, along with related subsequently issued updates, clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP. The standard update also amends current guidance for the recognition of costs to obtain and fulfill contracts with customers such that incremental costs of obtaining and direct costs of fulfilling contracts with customers will be deferred and amortized consistent with the transfer of the related good or service. ASC 606 intends to provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and provide more useful information to users of financial statements through improved disclosure requirements. The Company adopted this guidance on January 1, 2018 using the modified retrospective method applying certain practical expedients. Following the adoption of this guidance, the revenue recognition for our sales arrangements remained materially consistent with our historical practice.

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

The Company also adopted the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which INAP recognizes revenue at the amount to which the Company has the right to invoice for services performed, and (iii) the value for variable consideration that is applied to individual performance obligations in a series.

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

We generate revenues primarily from the sale of data center services, including colocation, hosting and cloud, as well as network services. Our revenues typically consist of monthly recurring revenues from contracts with terms of one year or more and we typically recognize the monthly minimum as revenue each month as our performance obligations are fulfilled. We record installation fees as deferred revenue and recognize the revenue ratably over the estimated customer life.

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

We assess whether:

a.
the parties to the contract have an approved contract;
b.
the Company can identify each party's rights regarding the goods and services to be transferred;
c.
the Company can identify the payment terms for the goods or services to be transferred;
d.
the contract has commercial substance; and
e.
it is probable that the Company will collect substantially all of the consideration to which it will be entitled in exchange for the goods and services that will be transferred to the customer.

The transaction price reflects INAP’s expectations about the consideration it will be entitled to receive from the customer. The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which INAP expects to be entitled in exchange for the promised goods or services. Once the separate performance obligations are identified and the transaction price has been determined, the Company allocates the transaction price to the performance obligations in proportion to their standalone selling price ("SSP"). When allocating on a relative SSP basis, any discount within the contract generally is allocated proportionately to all of the performance obligations in the contract.

To allocate the transaction price on a relative SSP basis, the Company first determines the SSP of the distinct good or service underlying each performance obligation. It is the price at which the Company would sell a good or service on a standalone (or separate) basis at contract inception. The observable price of a good or service sold separately provides the best evidence of SSP. If a SSP is not directly observable, the Company will estimate the SSP. The Company will be able to consider its facts and circumstances in order to determine how frequently it will need to update the estimates. If the information used to estimate the SSP for similar transactions has not changed, the Company will determine that it is reasonable to use the previously determined SSP.

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

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

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

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

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

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

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

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

Management expects that commission fees paid to sales representatives as a result of obtaining service contracts and contract renewals are recoverable and therefore the Company deferred them as contract costs in the amount of $23.9 million and $24.9 million at December 31, 2019 and December 31, 2018, respectively. Capitalized commission fees are amortized on a straight-line basis over the determined life, which vary based on the customer segment. For the year ended December 31, 2019 and December 31, 2018, amortization recognized was $9.9 million and $9.6 million, respectively. There was no impairment loss recorded on capitalized contract costs for the year ended December 31, 2019 and December 31, 2018.

Applying the practical expedient pertaining to contract costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in "Sales, general and administrative" expenses in the accompanying condensed consolidated statements of operations and comprehensive loss. The Company includes only those incremental costs that would not have been incurred if the contracts had not been entered into as follows (in thousands):
 
 
Current
 
Non-current
Balance at December 31, 2018
 
$
8,844

 
$
16,104

Deferred customer acquisition costs incurred in the period
 
1,790

 
7,027

Amounts recognized as expense in the period
 
(9,899
)
 
—

Transition between short-term and long-term
 
8,304

 
(8,304
)
Balance at December 31, 2019
 
$
9,039

 
$
14,827



The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). For example, the Company recognizes a receivable for revenues related to its time and materials and transaction or volume-based contracts. The Company presents such receivables in "Accounts receivable, net" it its condensed consolidated balance sheets at their net estimated realizable value.

As of December 31, 2019, approximately $169.2 million of total revenues and deferred revenues are expected to be recognized in future periods with a weighted average life of 2.04 years for remaining performance obligations under the initial contract terms. The remaining performance obligations do not include variable consideration.

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

Significant changes in the deferred revenues balance (current and non-current) during the period are as follows (in thousands):
Balance at December 31, 2018
 
$
9,318

Revenue recognized that was included in the deferred revenue balance at December 31, 2018
 
(6,325
)
Increases due to cash received, excluding amounts recognized as revenue during the period
 
4,215

Balance at December 31, 2019
 
$
7,208



Research and Development Costs
 
We include research and development costs in general and administrative costs and we expense them as incurred. These costs primarily relate to our development and enhancement of IP routing technology, hosting and cloud technologies and network engineering costs associated with changes to the functionality of our services. Research and development costs were $2.1 million, $2.8 million and $1.5 million during the years ended December 31, 2019, 2018 and 2017, respectively. These costs do not include $4.2 million, $5.2 million and $5.2 million of internal-use and available for sale software costs capitalized during the years ended December 31, 2019, 2018 and 2017, respectively.
 
Advertising Costs
 
We expense all advertising costs as incurred. Advertising costs during the years ended December 31, 2019, 2018 and 2017 were $2.2 million, $2.6 million and $1.9 million, respectively.
 
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): 
 
 
Year Ended December 31,
 
 
2019
 
2018
 
2017
Net loss attributable to shareholders
 
$
(138,250
)
 
$
(61,200
)
 
$
(44,236
)
Weighted average shares outstanding, basic and diluted
 
23,790

 
20,732

 
18,993

 
 
 
 
 
 
 
Net loss per share, basic and diluted
 
$
(5.81
)
 
$
(2.95
)
 
$
(2.33
)


 Recent Accounting Pronouncements

New Accounting Pronouncements adopted in 2019

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASC 842"), which states that a lessee should recognize the assets and liabilities that arise from leases. The standard has since been modified with several ASUs (collectively, the "new lease standard"). The new lease standard is effective for annual and interim periods beginning after December 15, 2018. Earlier adoption is permitted. The Company adopted the new lease standard on January 1, 2019, the beginning of fiscal 2019. Prior periods presented in our consolidated financial statements continue to be presented in accordance with the former lease standard, Topic 840, Leases ("ASC 840").

The new lease standard provides entities two options for applying the modified retrospective approach (1) retrospectively to each prior reporting period presented in the financial statements with the cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption (January 1, 2019) through a cumulative-effect adjustment recognized then. The Company adopted the new lease standard by recognizing and measuring leases at the adoption date with a cumulative effect of initially applying the guidance recognized at the date of initial application. The most significant impact relates to the recognition on the Company's balance sheet of right-of-use ("ROU") assets and lease liabilities for all operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depends on its classification. For income statement purposes, operating leases will result in a straight-line expense while finance leases will result in a front-loaded expense pattern.

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

As a result of our adoption of the new lease standard, we have implemented a new lease accounting system, accounting policies and processes which changed the Company's internal controls over financial reporting for lease accounting.

The Company has capital leases which have been recorded on the consolidated balance sheets and as of the January 1, 2019 transition date, the capital leases became finance leases establishing the ROU asset and liability. The ROU assets and liabilities for operating leases were $28.5 million and $31.0 million of total Company assets and liabilities, respectively, as of January 1, 2019.

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

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

Accounting Pronouncements Issued But Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard update, along with related subsequently issued updates, is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables, loans and held-to-maturity debt securities held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This will result in the earlier recognition of credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. If expected cash flows improve, an entity will reduce the allowance and reverse the expense through income. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Entities will have to make more disclosures, including disclosures by year of origination for certain financing receivables. The ASU for SEC filers, excluding smaller reporting companies as defined by the SEC, is effective for fiscal years beginning after December 15, 2019. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2022. The Company is evaluating the impact, if any, that this pronouncement will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (i.e., a service contract). Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date this guidance is first applied, or (2) retrospectively. The Company is evaluating the impact, if any, that this pronouncement will have on its consolidated financial statements.
 
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. The Company will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the valuation processes of Level 3 fair value measurements. However, the Company will be required to additionally disclose the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of assumptions used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments relating to additional disclosure requirements will be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments will be applied retrospectively to all periods presented upon their effective date. The Company is permitted to early adopt either the entire ASU or only the provisions that eliminate or modify the requirements. The Company is evaluating the impact, if any, that this pronouncement will have on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes the exception to the general principles in ASC 740, Income Taxes, associated with the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments and interim-period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU improves the application of income tax related guidance and simplifies U.S. GAAP when accounting for franchise taxes that are partially based on income, transactions with government resulting in a step-up in tax basis goodwill, separate financial statements of legal entities not subject to tax, and enacted changes in tax laws in interim periods. Different transition approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision. The guidance is effective for calendar-year public business entities in 2021 and interim periods within that year, and early adoption is permitted. The Company is evaluating the impact, if any, that this pronouncement will have on its consolidated financial statements.