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, ~~2018~~2019



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

For the transition period from _______ to ______

Commission File Number: 001-31989

INTERNAP CORPORATION

(Exact Name of Registrant as Specified in Its Charter)



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

12120 Sunset Hills Road, Suite 330

Reston, VA 20190

(Address of Principal Executive Offices, Including Zip Code)

(404) 302-9700

(Registrant’s Telephone Number, Including Area Code)

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

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

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



Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨	Smaller reporting company	¨ý
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

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



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

As of November ~~1, 2018, 25,512,514~~8, 2019, 26,621,105 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.

INTERNAP CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2018~~2019

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

	Condensed Consolidated Statements of Operations and Comprehensive Loss	1

	Condensed Consolidated Balance Sheets	2

	Condensed Consolidated Statements of Stockholders' (Deficit) Equity	3

	Condensed Consolidated Statements of Cash Flows	3	7

	Notes to Condensed Consolidated Financial Statements	4	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19	29

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29	38

ITEM 4.	CONTROLS AND PROCEDURES	30	38

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	31	40

ITEM 1A.	RISK FACTORS	3240

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3240

~~ITEM 5.~~	~~OTHER INFORMATION~~	33

ITEM 6.	EXHIBITS	36	41

SIGNATURES

ITEM 1. FINANCIAL STATEMENTS

INTERNAP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net revenues	$	82,972		$	68,907		$	239,135		$	210,682		$	72,878		$	82,972		$	219,576		$	239,135

Operating costs and expenses:
Costs of sales and services, exclusive of depreciation and amortization	28,866			24,945			81,880			80,419			27,504			28,221			79,186			80,160
Costs of customer support	7,984			6,237			24,212			19,634			8,145			7,984			25,661			24,212
Sales, general and administrative	18,170			15,331			57,625			47,466			15,791			18,170			48,995			57,625
Depreciation and amortization	23,431			20,917			67,097			57,596			21,582			23,553			65,715			67,422
Exit activities, restructuring and impairments	2,347			745			3,140			6,396			3,792			2,347			5,439			3,140
Total operating costs and expenses	80,798			68,175			233,954			211,511			76,814			80,275			224,996			232,559
Income (loss) from operations	2,174			732			5,181			(829		)
(Loss) income from operations													(3,936		)	2,697			(5,420		)	6,576

Interest expense	16,898			12,299			47,786			37,581			19,913			17,794			56,578			50,138
Loss on foreign currency, net	195			197			5			485			6			195			328			5
Total non-operating expenses	17,093			12,496			47,791			38,066			19,919			17,989			56,906			50,143

Loss before income taxes and equity in earnings of equity-method investment	(14,919		)	(11,764		)	(42,610		)	(38,895		)	(23,855		)	(15,292		)	(62,326		)	(43,567		)
Provision for income taxes	162			221			404			689
Equity in earnings of equity-method investment, net of taxes	—			(1,122		)	—			(1,207		)
(Benefit) provision for income taxes													(6		)	162			(320		)	404

Net loss	(15,081		)	(10,863		)	(43,014		)	(38,377		)	(23,849		)	(15,454		)	(62,006		)	(43,971		)
Less net income attributable to non-controlling interests	25			32			75			32			21			25			63			75
Net loss attributable to INAP stockholders	(15,106		)	(10,895		)	(43,089		)	(38,409		)
Net loss attributable to shareholders													(23,870		)	(15,479		)	(62,069		)	(44,046		)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(98		)	(91		)	24			14			(18		)	(98		)	152			24
Unrealized gain on foreign currency contracts	—			—			—			145
Total other comprehensive (loss) income	(98		)	(91		)	24			159			(18		)	(98		)	152			24

Comprehensive loss	$	(15,204	)	$	(10,986	)	$	(43,065	)	$	(38,250	)	$	(23,888	)	$	(15,577	)	$	(61,917	)	$	(44,022	)

Basic and diluted net loss per share	$	(0.75	)	$	(0.56	)	$	(2.16	)	$	(2.04	)	$	(1.01	)	$	(0.77	)	$	(2.62	)	$	(2.21	)

Weighted average shares outstanding used in computing basic and diluted net loss per share	20,206			19,929			19,968			18,645			23,671			20,206			23,703			19,968

See Notes to Condensed Consolidated Financial Statements.

INTERNAP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

(Unaudited)


	September 30, 2018			December 31, 2017			September 30, 2019				December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	11,844		$	14,603		$	10,895			$	17,823
Accounts receivable, net of allowance for doubtful accounts of $1,418 and $1,487, respectively	22,999			17,794
Accounts receivable, net of allowance for doubtful accounts of $1,077 and $1,547, respectively							17,948				20,054
Contract assets	8,026			—			9,202				8,844
Term loan, less discount and issuance costs of $4,909							552				—
Prepaid expenses and other assets	9,497			8,673			7,572				7,377
Total current assets	52,366			41,070			46,169				54,098

Property and equipment, net	477,423			458,565			216,548				478,061
Operating lease right-of-use assets							33,723				—
Finance lease right-of-use assets							226,619				—
Intangible assets, net	74,738			25,666			64,215				73,042
Goodwill	116,705			50,209			116,217				116,217
Non-current contract assets	12,756			—
Contract assets							15,032				16,104
Deposits and other assets	12,050			11,015			6,178				7,409
Total assets	$	746,038		$	586,525		$	724,701			$	744,931

LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	32,243		$	20,388		$	25,287			$	23,435
Accrued liabilities	17,866			15,908			9,813				15,540
Deferred revenues	4,696			4,861			7,493				8,022
Capital lease obligations	9,399			11,711			—				9,080
Revolving credit facility	18,500			5,000			14,000				—
Term loan, less discount and prepaid costs of $3,912 and $2,133, respectively	444			867
Term loan, less discount and issuance costs of $4,036							—				321
Exit activities and restructuring liability	3,255			4,152			550				2,526
Short-term operating lease liabilities							6,686				—
Short-term finance lease liabilities							5,867				—
Other current liabilities	3,637			1,707			70				1,063
Total current liabilities	90,040			64,594			69,766				59,987


Deferred revenues							259				511
Operating lease liabilities							30,382				—
Finance lease liabilities							264,223				—
Capital lease obligations	252,599			223,749			—				262,382
Term loan, less discount and prepaid costs of $10,625 and $7,655, respectively	415,251			287,845
Exit activities and restructuring liability	162			664
Deferred rent	940			1,310
Term loan, less discount and issuance costs of $7,587 and $9,508, respectively							415,126				415,278
Deferred tax liability	1,952			1,651			1,443			��	2,211
Other long-term liabilities	4,060			7,744			3,714				4,505
Total liabilities	765,004			587,557			784,913				744,874
Commitments and contingencies (Refer to Note 9)
Stockholders’ deficit:
Commitments and contingencies (Refer to Note 10)
Stockholders’ (deficit) equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding	—			—			—				—
Common stock, $0.001 par value; 50,000 shares authorized; 21,302 and 20,804 shares issued and outstanding, respectively	21			21
Common stock, $0.001 par value; 50,000 shares authorized; 26,486 and 25,455 shares outstanding, respectively							26				25
Additional paid-in capital	1,330,751			1,327,084			1,372,016				1,368,968
Treasury stock, at cost, 329 and 293, respectively	(7,645		)	(7,159		)
Treasury stock, at cost, 388 and 330 shares, respectively							(7,958		)		(7,646		)
Accumulated deficit	(1,343,609		)	(1,323,723		)	(1,425,140		)		(1,363,019		)
Accumulated items of other comprehensive loss	(1,300		)	(1,324		)	(913		)		(1,065		)
Total INAP stockholders’ deficit	(21,782		)	(5,101		)	(61,969		)		(2,737		)
Non-controlling interests	2,816			4,069			1,757				2,794
Total stockholders’ deficit	(18,966		)	(1,032		)
Total liabilities and stockholders’ deficit	$	746,038		$	586,525
Total stockholders’ (deficit) equity							(60,212		)		57
Total liabilities and stockholders’ (deficit) equity							$	724,701			$	744,931

See Notes to Condensed Consolidated Financial Statements.

INTERNAP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

(In thousands)

(Unaudited)



	Common Stock
	Shares		Par Value		Additional Paid-In Capital		Treasury Stock			Accumulated Deficit			Accumulated Items of Other Comprehensive Loss			Non-Controlling Interest			Total Stockholders' (Deficit) Equity
Three and Nine Months Ended September 30, 2018
Balance, December 31, 2017	20,804		$	21	$	1,327,084	$	(7,159	)	$	(1,323,723	)	$	(1,324	)	$	4,069		$	(1,032	)
Adoption of ASC 606	—		—		—		—			24,185			—			—			24,185
Net loss	—		—		—		—			(14,261		)	—			—			(14,261		)
Net income attributable to non-controlling interest	—		—		—		—			(27		)	—			27			—
Foreign currency translation	—		—		—		—			—			61			—			61
Movement in non-controlling interest	—		—		—		—			—			—			(990		)	(990		)
Common stock issuance, net	343		—		—		—			—			—			—			—
Employee taxes paid on withholding shares	(20	)	—		—		(270		)	—			—			—			(270		)
Stock-based compensation	—		—		869		—			—			—			—			869
Proceeds from exercise of stock options, net	4		—		32		—			—			—			—			32
Balance, March 31, 2018	21,131		21		1,327,985		(7,429		)	(1,313,826		)	(1,263		)	3,106			8,594
Adoption of ASC 606	—		—		—		—			(981		)	—			—			(981		)
Net loss	—		—		—		—			(14,256		)	—			—			(14,256		)
Net income attributable to non-controlling interest	—		—		—		—			(23		)	—			23			—
Foreign currency translation	—		—		—		—			—			61			—			61
Movement in non-controlling interest	—		—		—		—			—			—			(205		)	(205		)
Common stock issuance, net	104		—		—		—			—			—			—			—
Employee taxes paid on withholding shares	(16	)	—		—		(201		)	—			—			—			(201		)
Stock-based compensation	—		—		1,382		—			—			—			—			1,382
Proceeds from exercise of stock options, net	—		—		1		—			—			—			—			1
Balance, June 30, 2018	21,219		$	21	$	1,329,368	$	(7,630	)	$	(1,329,086	)	$	(1,202	)	$	2,924		$	(5,605	)

See Notes to Condensed Consolidated Financial Statements.



INTERNAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
(In thousands)
(Unaudited)

	Common Stock
	Shares		Par Value		Additional Paid-In Capital		Treasury Stock			Accumulated Deficit			Accumulated Items of Other Comprehensive Loss			Non-Controlling Interest			Total Stockholders' (Deficit) Equity
Balance, June 30, 2018	21,219		$	21	$	1,329,368	$	(7,630	)	$	(1,329,086	)	$	(1,202	)	$	2,924		$	(5,605	)
Adoption of ASC 606	—		—		—		—			(1		)	—			—			(1		)
Net loss	—		—		—		—			(15,454		)	—			—			(15,454		)
Net income attributable to non-controlling interest	—		—		—		—			(25		)	—			25			—
Foreign currency translation	—		—		—		—			—			(98		)	—			(98		)
Movement in non-controlling interest	—		—		—		—			—			—			(133		)	(133		)
Common stock issuance, net	82		—		—		—			—			—			—			—
Employee taxes paid on withholding shares	(1	)	—		—		(15		)	—			—			—			(15		)
Stock-based compensation	—		—		1,320		—			—			—			—			1,320
Proceeds from exercise of stock options, net	2		—		63		—			—			—			—			63
Balance, September 30, 2018	21,302		$	21	$	1,330,751	$	(7,645	)	$	(1,344,566	)	$	(1,300	)	$	2,816		$	(19,923	)












See Notes to Condensed Consolidated Financial Statements.





INTERNAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
(In thousands)
(Unaudited)

	Common Stock
	Shares		Par Value		Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Accumulated Items of Other Comprehensive Loss			Non-Controlling Interest			Total Stockholders' (Deficit) Equity
Three and Nine Months Ended September 30, 2019
Balance, December 31, 2018	25,455		$	25	$	1,368,968		$	(7,646	)	$	(1,363,019	)	$	(1,065	)	$	2,794		$	57
Adoption of ASC 842	—		—		—			—			(52		)	—			—			(52		)
Net loss	—		—		—			—			(19,622		)	—			—			(19,622		)
Net income attributable to non-controlling interest	—		—		—			—			(22		)	—			22			—
Foreign currency translation	—		—		—			—			—			197			—			197
Movement in non-controlling interest	—		—		—			—			—			—			(1,133		)	(1,133		)
Common stock issuance, net	1,339		2		(43		)	—			—			—			—			(41		)
Employee taxes paid on withholding shares	(48	)	—		��			(268		)	—			—			—			(268		)
Stock-based compensation	—		—		890			—			—			—			—			890
Balance, March 31, 2019	26,746		27		1,369,815			(7,914		)	(1,382,715		)	(868		)	1,683			(19,972		)
Net loss	—		—		—			—			(18,535		)	—			—			(18,535		)
Net income attributable to non-controlling interest	—		—		—			—			(20		)	—			20			—
Foreign currency translation	—		—		—			—			—			(27		)	—			(27		)
Movement in non-controlling interest	—		—		—			—			—			—			23			23
Common stock issuance, net	33		—		—			—			—			—			—			—
Employee taxes paid on withholding shares	(9	)	—		—			(42		)	—			—			—			(42		)
Stock-based compensation	—		—		1,020			—			—			—			—			1,020
Balance, June 30, 2019	26,770		$	27	$	1,370,835		$	(7,956	)	$	(1,401,270	)	$	(895	)	$	1,726		$	(37,533	)


See Notes to Condensed Consolidated Financial Statements.





INTERNAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
(In thousands)
(Unaudited)
	Common Stock
	Shares		Par Value			Additional Paid-In Capital		Treasury Stock			Accumulated Deficit			Accumulated Items of Other Comprehensive Loss			Non-Controlling Interest		Total Stockholders' (Deficit) Equity
Balance, June 30, 2019	26,770		$	27		$	1,370,835	$	(7,956	)	$	(1,401,270	)	$	(895	)	$	1,726	$	(37,533	)
Net loss	—		—			—		—			(23,849		)	—			—		(23,849		)
Net income attributable to non-controlling interest	—		—			—		—			(21		)	—			21		—
Foreign currency translation	—		—			—		—			—			(18		)	—		(18		)
Movement in non-controlling interest	—		—			—		—			—			—			10		10
Common stock issuance, net	(283	)	(1		)	—		—			—			—			—		(1		)
Employee taxes paid on withholding shares	(1	)	—			—		(2		)	—			—			—		(2		)
Stock-based compensation	—		—			1,181		—			—			—			—		1,181
Balance, September 30, 2019	26,486		$	26		$	1,372,016	$	(7,958	)	$	(1,425,140	)	$	(913	)	$	1,757	$	(60,212	)









See Notes to Condensed Consolidated Financial Statements.

INTERNAP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Cash Flows from Operating Activities:
Net loss	$	(43,014	)	$	(38,377	)	$	(62,006	)	$	(43,971	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	67,097			57,596			65,715			67,422
(Gain) loss on disposal of fixed asset	(98		)	503
Loss (gain) on disposal of property and equipment							468			(98		)
Amortization of debt discount and issuance costs	2,798			1,890			4,109			2,798
Stock-based compensation expense, net of capitalized amount	3,573			2,061			3,074			3,573
Equity in earnings of equity-method investment	—			(1,207		)
Provision for doubtful accounts	706			808			629			706
Non-cash change in capital lease obligations	(241		)	564
Non-cash change in finance lease liabilities							4,863			(241		)
Non-cash change in exit activities and restructuring liability	3,198			5,824			5,164			3,198
Non-cash change in deferred rent	(851		)	(3,335		)	—			(778		)
Deferred taxes	65			209			(787		)	65
Loss on extinguishment and modification of debt	—			6,785
Accreted interest							1,194			—
Other, net	(6		)	(49		)	(78		)	(6		)
Changes in operating assets and liabilities:
Accounts receivable	(4,990		)	243			1,593			(4,990		)
Prepaid expenses, deposits and other assets	(3,531		)	1,979			1,355			(3,531		)
Operating lease right-of-use assets							(5,211		)	—
Accounts payable	9,372			(3,498		)	756			5,155
Accrued and other liabilities	(601		)	1,691			(5,378		)	(601		)
Deferred revenues	617			(1,233		)	(804		)	617
Exit activities and restructuring liability	(4,597		)	(4,727		)	(3,870		)	(4,597		)
Short and long-term operating lease liabilities							7,614			—
Asset retirement obligation	(141		)	191			202			(141		)
Other liabilities	(199		)	22			57			(199		)
Net cash provided by operating activities	29,157			27,940			18,659			24,381

Cash Flows from Investing Activities:
Purchases of property and equipment	(27,317		)	(23,198		)	(23,277		)	(23,100		)
Proceeds from disposal of property and equipment	570			206			272			570
Business acquisition, net of cash acquired	(131,748		)	3,838			—			(131,748		)
Acquisition of non-controlling interests	(1,130		)	—
Additions to acquired and developed technology	(2,128		)	(635		)	(881		)	(2,128		)
Net cash used in investing activities	(161,753		)	(19,789		)	(23,886		)	(156,406		)

Cash Flows from Financing Activities:
Proceeds from credit agreements	148,500			295,500			14,000			148,500
Proceeds from stock issuance	—			40,165
Principal payments on credit agreements	(3,267		)	(327,250		)	(3,268		)	(3,267		)
Debt issuance costs	(7,696		)	(8,277		)	(2,815		)	(7,696		)
Payments on capital lease obligations	(7,202		)	(6,562		)
Payments on finance lease liabilities							(8,212		)	(6,643		)
Acquisition of non-controlling interests							(973		)	(1,130		)
Proceeds from exercise of stock options	(210		)	159			—			(210		)
Acquisition of common stock for income tax withholdings	(487		)	(222		)	(311		)	(487		)
Other, net	175			(302		)	50			175
Net cash provided by (used in) in financing activities	129,813			(6,789		)
Net cash (used in) provided by financing activities							(1,529		)	129,242
Effect of exchange rates on cash and cash equivalents	24			217			(172		)	24
Net (decrease) increase in cash and cash equivalents	(2,759		)	1,579
Net decrease in cash and cash equivalents							(6,928		)	(2,759		)
Cash and cash equivalents at beginning of period	14,603			10,389			17,823			14,603
Cash and cash equivalents at end of period	$	11,844		$	11,968		$	10,895		$	11,844

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	44,324		$	25,898		$	46,540		$	46,676
Non-cash acquisition of property and equipment under capital leases	33,381			169,679
Additions to property and equipment included in accounts payable	4,004			701			5,153			10,235

See Notes to Condensed Consolidated Financial Statements.

INTERNAP CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Internap Corporation (“("we,~~” “us,” “our,” “INAP,”~~" "us," "our," "INAP," or ~~“the Company”~~"the Company") is a ~~global~~leading-edge provider of high-performance data center ~~services, including~~and cloud solutions with 100 network Points of Presence (“POP”) worldwide. INAP's full-spectrum portfolio of high-density colocation, managed cloud hosting and ~~network. INAP partners with its~~network solutions supports evolving IT infrastructure requirements for customers ~~who range~~ranging from the Fortune 500 to emerging ~~start-ups, to create secure, scalable and reliable IT infrastructure solutions that meet the customer’s unique business requirements.~~startups. INAP operates ~~in 53, primarily Tier 3, data centers~~ in 21 metropolitan markets, ~~and has 102 points of presence ("POPs") around the world.~~primarily in North America, with 14 INAP ~~has over 1 million gross square feet in its portfolio, and approximately 600,000 square feet of sellable data center space.~~Data Center Flagships connected by a low-latency, high-capacity network.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ~~(“GAAP”~~("GAAP") for interim financial information. These financial statements include all of our accounts and those of our wholly-owned subsidiaries. We have eliminated all intercompany transactions and balances in the accompanying financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the interim results have been reflected therein. All such adjustments were of a normal and recurring nature with the exception of those related to the adoption of new accounting standards as discussed in Note 2, "Recent Accounting Pronouncements" and Note ~~3, "Revenues.~~4, "Leases."

We have condensed or omitted certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP. The accompanying financial statements reflect all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, necessary for a fair statement of our financial position as of September 30, ~~2018~~2019 and our operating results and cash flows for the interim periods presented. The balance sheet at December 31, ~~2017~~2018 was derived from our audited financial statements, but does not include all disclosures required by GAAP. You should read the accompanying financial statements and the related notes in conjunction with our financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the Securities and Exchange Commission ~~(“SEC”~~("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, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the ~~2018~~2019 fiscal year or any future periods.

Correction of Immaterial Error

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. The Company had previously included only a portion of the additions to property and equipment that were outstanding in accounts payable in the supplemental disclosures of cash flow information, “Additions to property and equipment included in accounts payable,” and the related adjustments to "Accounts payable" and "Purchases of property and equipment" on the consolidated statements of cash flows. The correction had no impact on the consolidated statements of operations and comprehensive loss or the consolidated balance sheets. The Company has evaluated this correction in accordance with Accounting Standards Codification ("ASC") 250-10-S99, SEC Materials (formerly SEC Staff Accounting Bulletin 99, Materiality) and concluded that the correction was not material.

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 restated

Accounts payable	$	(2,247	)	$	(512	)	$	(2,759	)
Net cash provided by operating activities	7,264			(512		)	6,752

Purchases of property and equipment	(5,789		)	512			(5,277		)
Net cash used in investing activities	(5,989		)	512			(5,477		)

Additions to property and equipment included in accounts payable	$	1,247		$	2,744		$	3,991



	Six Months Ended June 30, 2017
	As reported			Adjustments			As restated

Accounts payable	$	477		$	(2,100	)	$	(1,623	)
Net cash provided by operating activities	24,634			(2,100		)	22,534

Purchases of property and equipment	(12,293		)	2,100			(10,193		)
Net cash used in investing activities	(12,737		)	2,100			(10,637		)

Additions to property and equipment included in accounts payable	$	1,269		$	4,331		$	5,600



	Nine Months Ended September 30, 2017
	As reported			Adjustments			As restated

Accounts payable	$	(3,498	)	$	1,330		$	(2,168	)
Net cash provided by operating activities	27,940			1,330			29,270

Purchases of property and equipment	(23,198		)	(1,330		)	(24,528		)
Net cash used in investing activities	(19,789		)	(1,330		)	(21,119		)

Additions to property and equipment included in accounts payable	$	701		$	901		$	1,602



	Year Ended December 31, 2017
	As reported			Adjustments			As restated

Accounts payable	$	(1,167	)	$	218		$	(949	)
Net cash provided by operating activities	41,748			218			41,966

Purchases of property and equipment	(35,714		)	(218		)	(35,932		)
Net cash used in investing activities	(32,209		)	(218		)	(32,427		)

Additions to property and equipment included in accounts payable	$	1,932		$	2,014		$	3,946



	Three Months Ended March 31, 2018
	As reported			Adjustments			As restated

Accounts payable	$	(636	)	$	(124	)	$	(760	)
Net cash provided by operating activities	3,697			(124		)	3,573

Purchases of property and equipment	(6,082		)	124			(5,958		)
Net cash used in investing activities	(138,065		)	124			(137,941		)

Additions to property and equipment included in accounts payable	$	2,287		$	2,138		$	4,425



	Six Months Ended June 30, 2018
	As reported			Adjustments			As restated

Accounts payable	$	6,939		$	(3,598	)	$	3,341
Net cash provided by operating activities	18,533			(3,598		)	14,935

Purchases of property and equipment	(16,102		)	3,598			(12,504		)
Net cash used in investing activities	(148,649		)	3,598			(145,051		)

Additions to property and equipment included in accounts payable	$	4,023		$	5,613		$	9,636



	Nine Months Ended September 30, 2018
	As reported			Adjustments			As restated

Accounts payable	$	9,372		$	(4,217	)	$	5,155
Net cash provided by operating activities	28,598			(4,217		)	24,381

Purchases of property and equipment	(27,317		)	4,217			(23,100		)
Net cash used in investing activities	(160,623		)	4,217			(156,406		)

Additions to property and equipment included in accounts payable	$	4,004		$	6,231		$	10,235



	Year Ended December 31, 2018
	As reported			Adjustments			As restated

Accounts payable	$	1,339		$	207		$	1,546
Net cash provided by operating activities	34,572			207			34,779

Purchases of property and equipment	(38,298		)	(207		)	(38,505		)
Net cash used in investing activities	(174,037		)	(207		)	(174,244		)

Additions to property and equipment included in accounts payable	$	2,459		$	1,807		$	4,266



	Three Months Ended March 31, 2019
	As reported			Adjustments			As restated

Accounts payable	$	763		$	(556	)	$	207
Net cash provided by operating activities	2,262			(556		)	1,706

Purchases of property and equipment	(8,094		)	556			(7,538		)
Net cash used in investing activities	(8,568		)	556			(8,012		)

Additions to property and equipment included in accounts payable	$	1,850		$	1,881		$	3,731



	Six Months Ended June 30, 2019
	As reported			Adjustments			As restated

Accounts payable	$	3,375		$	(944	)	$	2,431
Net cash provided by operating activities	14,081			(944		)	13,137

Purchases of property and equipment	(15,642		)	944			(14,698		)
Net cash used in investing activities	(16,359		)	944			(15,415		)

Additions to property and equipment included in accounts payable	$	1,268		$	2,751		$	4,019

Out of Period Adjustment

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

The adjustments to the Company’s previously issued quarterly financial statements for the three and nine months ended September 30, 2018 are as follows (in thousands):



	Three and Nine Months Ended September 30, 2018
	As reported			Adjustments			As adjusted

Costs of sales and services, exclusive of depreciation and amortization - QTD	$	28,866		$	(645	)	$	28,221
Costs of sales and services, exclusive of depreciation and amortization - YTD	81,880			(1,720		)	80,160
Depreciation and amortization - QTD	23,431			122			23,553
Depreciation and amortization - YTD	67,097			325			67,422
Interest expense - QTD	16,898			896			17,794
Interest expense - YTD	47,786			2,352			50,138
Net loss attributable to INAP shareholders - QTD	(15,106		)	(373		)	(15,479		)
Net loss attributable to INAP shareholders - YTD	(43,089		)	(957		)	(44,046		)
Property and equipment, net	477,423			10,193			487,616
Total assets	746,038			10,193			756,231
Capital lease obligations - non-current	252,599			11,077			263,676
Total liabilities	765,004			11,150			776,154
Accumulated deficit	(1,343,609		)	(957		)	(1,344,566		)
Total stockholders' (deficit) equity	$	(18,966	)	$	(957	)	$	(19,923	)

2. RECENT ACCOUNTING PRONOUNCEMENTS

In ~~May 2014,~~February 2016, the Financial Accounting ~~Standard~~Standards 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. Following the adoption of this guidance, the revenue recognition for our sales arrangements remained materially consistent with our historical practice. For more information, see Note 3, "Revenues."

~~In February 2016, the FASB issued ASU~~ No. 2016-02, Leases (Topic 842), which states that a lessee should recognize the assets and liabilities that arise from leases. The ~~guidance~~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. ~~We expect to adopt~~The Company adopted the new lease standard on January 1, 2019, the beginning of fiscal 2019.

~~The Company’s adoption process of the new standard is ongoing, including evaluating and quantifying the impact on its~~Prior periods presented in our condensed consolidated financial statements ~~identifying~~continue to be presented in accordance with the ~~population of leases (and embedded leases), implementing a selected technology solution and collecting and validating~~former lease data. Additionally, the Company is in the process of assessing any potential impacts on the internal controls and process related to both the implementation and ongoing compliance of the new guidance. While the Company is continuing to assess all potential impacts of the standard, it currently believes the most significant impact relates to the recognition on the Company’s balance sheet of right-of-use 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 will depend on its classification. For income statement purposes, operating leases will result in a straight-line expense while finance leases will result in a front-loaded expense pattern.

Topic 840, Leases.

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 ~~plans to adopt~~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 ~~is currently planning on electing~~elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct ~~costs~~costs. The Company did not separately record lease components from non-lease components, and ~~is evaluating~~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 ~~other practical expedients available under~~balance sheet. The Company recognizes lease expense for these short-term leases on a straight-line basis over the ~~guidance.~~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.

~~On August~~In June 2016, the FASB issued ASU No. ~~2016-15,~~ ~~Statement of Cash Flows~~2016-13, Financial Instruments - Credit Losses (Topic ~~230)~~326): ~~Classification~~Measurement of ~~Certain Cash Receipts and Cash Payments, a consensus of the FASB’s Emerging Issues Task Force.~~Credit Losses on Financial Instruments. The ~~new guidance~~ASU is intended to ~~reduce diversity in practice in how certain transactions are classified~~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 ~~statement~~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. We adopted~~flows improve, an entity will reduce the allowance and reverse the expense through income. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Entities will have to make more disclosures, including disclosures by year of origination for certain financing receivables. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating the impact, if any, that this ~~guidance in the first quarter of 2018 and it did not~~pronouncement will have ~~a significant impact~~ on ~~our~~its condensed consolidated financial statements.

~~On January 2017,~~In February 2018, the FASB issued ~~final guidance that revises the definition of a business,~~ ASU No. ~~2017-01:~~2018-02, ~~Clarifying~~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 ~~Definition~~U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard was effective for interim and annual reporting periods beginning after December 15, 2018. We did not exercise the option to make this reclassification.

In June 2018, the FASB issued ASU 2018-07, Improvements to Non-employee Share-Based Payment Accounting. This standardbroadens 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 ~~Business~~ ~~(Topic 805). The definition of~~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 ~~business affects many areas of accounting (e.g., acquisitions, disposals, goodwill impairment, or consolidation).~~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 ~~requires an entity to evaluate if substantially all of the fair value of the gross assets acquired~~ is ~~concentrated~~effective for calendar-year public business entities in ~~a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets~~annual periods beginning after December 15, 2018, and ~~activities is not a business.~~interim periods within those years. The ~~guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. We~~Company adopted this ~~guidance~~pronouncement in the first quarter of ~~2018~~2019 and it did not have a material impact ~~our~~on its condensed consolidated financial statements. ~~The guidance may have an impact on the Company as it pursues its strategy to develop its business.~~

~~On May 2017,~~In August 2018, the FASB issued ~~guidance~~ ASU No. ~~2017-09:~~ 2018-15,~~Scope of Modification Accounting~~ Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)~~(Topic 718)~~, relating to ~~clarify when to account~~a customer's accounting for implementation, set-up, and other upfront costs incurred in a ~~change to the terms or conditions of~~cloud computing arrangement that is hosted by a ~~share-based payment award as~~vendor (i.e., a ~~modification.~~service contract). Under the new guidance, ~~modification accounting~~a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date this guidance is first applied, or (2) retrospectively. The Company is evaluating the impact, if any, that this pronouncement will have on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which removes, adds and modifies certain disclosure requirements for fair value measurements in Topic 820. The Company will no longer be required ~~only if~~to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the ~~vesting conditions,~~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 ~~the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. We adopted this guidance~~annual period presented in the ~~first quarter~~initial year of ~~2018 and it did not~~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, ~~our~~if any, that this pronouncement will have on its condensed consolidated financial statements.

3. REVENUES

~~Upon adoption~~We generate revenues primarily from the sale of ~~ASC 606, the Company applied certain transition practical expedients available for modified retrospective adoption.~~

~~The Company adopted the practical expedient for the portfolio approach~~data center services, including colocation, hosting and cloud, and IP services. Our revenues typically consist of monthly recurring revenues from contracts with similar characteristics in which the Company reasonably expects that the effects on the financial statements of applying this practical expedient to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.

~~The Company also adopted the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length~~terms of one year or ~~less, (ii)~~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 recognized 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 IP services revenues on fixed-commitment or usage-based pricing. IP service contracts usually have fixed minimum commitments based on a certain level of bandwidth usage with additional charges for ~~which INAP recognizes~~any usage over a specified limit. If a customer's usage of our services exceeds the monthly minimum, we recognize revenue atfor 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 ~~right~~Company allocates the transaction price to ~~invoice for services performed, and (iii)~~ the ~~value for variable consideration that is applied to individual~~ performance obligations in proportion to their standalone selling price ("SSP"). When allocating on a ~~series.~~relative SSP basis, any discount within the contract generally is allocated proportionately to all of the performance obligations in the contract.

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

~~Changes in Accounting Policies~~

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

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

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

In evaluating the treatment of certain contracts, the Company exercised heightened judgment in deferring installation revenue as well as expense fulfillment and commission costs over the appropriate life. With the exception of the revenues noted above, revenue recognition remains materially consistent with historical practice. However, our approach did not result in any material differences to our condensed consolidated financial statements.

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

~~The following table presents the effect of the adoption of ASC 606 on the Company’s consolidated balance sheet as of January 1, 2018 (in thousands):~~

December 31, 2017, as reported Adjustments January 1, 2018, as adjusted
ASSETS

Prepaid expenses and other assets $ 8,673
$ 6,814
$ 15,487
Deposits and other assets 11,015
11,234
22,249

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Deferred revenues 4,861
(749 ) 4,112
Deferred tax liability 1,651
209
1,860
Other long-term liabilities 7,744
(4,616 ) 3,128
Accumulated deficit (1,323,723 ) 23,204
(1,300,519 )

~~Current Impact from the Adoption~~

~~In accordance with the new revenue standard requirements, the disclosure of the current period impact of adoption on our~~

~~condensed consolidated statement of operations and comprehensive loss and balance sheet is as follows (in thousands, except for per share amounts):~~

For the Three Months Ended September 30, 2018
As Reported Balances without Adoption of ASC 606 Effect of Change Higher/ (Lower)
Net revenues $ 82,972
$ 82,822
$ 150

Sales, general and administrative 18,170
18,100
70
Total operating costs and expenses 80,798
80,728
70
Income from operations 2,174
2,094
80

Loss before income taxes and equity in earnings of equity-method investment (14,919 ) (14,999 ) 80

Net loss (15,081 ) (15,161 ) 80
Less net income attributable to non-controlling interest 25
25
—
Net loss attributable to INAP stockholders (15,106 ) (15,186 ) 80

Comprehensive loss $ (15,204 ) $ (15,186 ) $ 80

For the Nine Months Ended September 30, 2018
As Reported Balances without Adoption of ASC 606 Effect of Change Higher/ (Lower)
Net revenues $ 239,135
$ 238,539
$ 596

Sales, general and administrative 57,625
57,671
(46 )
Total operating costs and expenses 233,954
234,000
(46 )
Income from operations 5,181
4,539
642

Loss before income taxes and equity in earnings of equity-method investment (42,610 ) (43,252 ) 642

Net loss (43,014 ) (43,656 ) 642
Less net income attributable to non-controlling interest 75
75
—
Net loss attributable to INAP stockholders (43,089 ) (43,731 ) 642

Comprehensive loss $ (43,065 ) $ (43,707 ) $ 642

September 30, 2018
As Reported Balances without Adoption of ASC 606 Effect of Change Higher/ (Lower)
ASSETS

Contract assets $ 8,026
$ 8,022
$ 4
Non-current contract assets 12,756
12,756
—

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Deferred revenues 4,696
4,771
(75 )
Other long-term liabilities 4,060
4,060
—
Accumulated deficit (1,343,609 ) (1,343,534 ) (75 )

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

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

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

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

from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, ~~we allocate~~the Company allocates the contract's transaction price to each performance obligation based on its relative ~~stand-alone selling price.~~SSP.

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

~~Revenue by source, with sales~~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 ~~usage-based taxes excluded, is as follows (in thousands):~~

Three Months Ended
September 30, 2018

Three Months Ended
September 30, 2017
INAP US INAP INTL INAP US INAP INTL
Colocation $ 32,946
$ 1,372
$ 29,114
$ 1,166
Network services 13,015
2,719
14,486
2,281
Cloud 19,717
13,203
9,370
12,490
$ 65,678
$ 17,294
$ 52,970
$ 15,937
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.

Nine Months Ended
September 30, 2018

Nine Months Ended
September 30, 2017
INAP US INAP INTL INAP US INAP INTL
Colocation $ 94,747
$ 4,349
$ 88,740
$ 3,745
Network services 40,398
8,482
45,108
5,329
Cloud 51,676
39,483
28,696
39,064
$ 186,821
$ 52,314
$ 162,544
$ 48,138
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.

~~Revenue by geography~~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 ~~as follows (in thousands):~~

Three Months Ended
September 30, 2018

Three Months Ended
September 30, 2017
INAP US INAP INTL INAP US INAP INTL
United States $ 66,825
$ —
$ 54,006
$ —
Canada —
9,187
—
9,421
Other countries —
6,960
—
5,480
$ 66,825
$ 16,147
$ 54,006
$ 14,901
satisfied when control transfers to the customer.

Nine Months Ended
September 30, 2018

Nine Months Ended
September 30, 2017
INAP US INAP INTL INAP US INAP INTL
United States $ 190,071
$ —
$ 165,757
$ —
Canada —
27,846
—
29,320
Other countries —
21,218
—
15,605
$ 190,071
$ 49,064
$ 165,757
$ 44,925
In evaluating the treatment of certain contracts, the Company exercised heightened judgment in deferring installation revenue as well as expense fulfillment and commission costs over the appropriate life. With the exception of the revenues noted above, revenue recognition remains materially consistent with historical practice.

~~For~~The Company routinely reviews the ~~nine months ended September 30, 2018,~~collectability of its accounts receivable and payment status of customers. If the Company determines that collection of revenue ~~recognized~~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 ~~was included in~~are perceived as being a credit risk. In addition, the ~~contract liability balance at the beginning of each year was $1.7 million.~~

Company records a reserve amount for potential credits to be issued under service level agreements and other sales adjustments.

Management expects that ~~fulfillment costs and~~ commission fees paid to sales representatives as a result of obtaining service contracts and contract renewals are recoverable and therefore the Company ~~capitalized~~deferred them as contract costs in the amount of ~~$28.6~~$24.2 million and $24.9 million at September 30, ~~2018.~~2019 and December 31, 2018, respectively. Capitalized ~~fulfillment and~~ commission fees are amortized on a straight-line basis over the determined life, which vary based on the customer segment. For the three ~~and nine~~ months ended September 30, 2019 and September 30, 2018, amortization recognized was ~~$3.1~~$2.5 million for both years. For the nine months ended September 30, 2019 and September 30, 2018, amortization recognized was $7.3 million and ~~$8.9~~$7.2 million, respectively. There was no impairment loss recorded on capitalized contract costs infor the three and nine months ended September 30, 2019 and September 30, 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~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss.~~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	1,345			5,274
Amounts recognized as expense in the period	(7,333		)	—
Transition between short-term and long-term	6,346			(6,346		)
Balance at September 30, 2019	$	9,202		$	15,032

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 September 30, 2019, approximately $198.0 million of total revenues and deferred revenues are expected to be recognized in future periods with a weighted average life of 2.13 years for remaining performance obligations under the initial contract terms. The remaining performance obligations do not include variable consideration related to unsatisfied performance obligations such as the level of bandwidth usage, physical space for hosting customers’ network, and associated services for power and network connectivity.

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	$	8,533
Revenue recognized that was included in the deferred revenue balance at December 31, 2018	(5,931		)
Increases due to cash received, excluding amounts recognized as revenue during the period	5,150
Balance at September 30, 2019	$	7,752

In accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), the Company disaggregates revenue from contracts with customers based on the timing of revenue recognition. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. As discussed in this note and Note 11, "Operating Segments," the Company business consists of INAP US and INAP INTL colocation, cloud and network services. The following table presents disaggregated revenues by category as follows (in thousands):



	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
	INAP US		INAP INTL		INAP US		INAP INTL
Colocation	$	27,334	$	1,452	$	32,946	$	1,372
Network services	11,225		2,772		13,015		2,719
Cloud	18,388		11,707		19,717		13,203
	$	56,947	$	15,931	$	65,678	$	17,294



	Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018
	INAP US		INAP INTL		INAP US		INAP INTL
Colocation	$	82,245	$	4,344	$	94,747	$	4,349
Network services	34,381		8,224		40,398		8,482
Cloud	55,302		35,080		51,676		39,483
	$	171,928	$	47,648	$	186,821	$	52,314

Revenue by geography is as follows (in thousands):



	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
	INAP US		INAP INTL		INAP US		INAP INTL
United States	$	57,939	$	—	$	66,752	$	—
Canada	—		8,181		—		9,187
Other countries	—		6,758		—		7,033
	$	57,939	$	14,939	$	66,752	$	16,220



	Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018
	INAP US		INAP INTL		INAP US		INAP INTL
United States	$	174,964	$	—	$	190,071	$	—
Canada	—		24,208		—		27,846
Other countries	—		20,404		—		21,218
	$	174,964	$	44,612	$	190,071	$	49,064

4. LEASES

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

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

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

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

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

Lease-related costs for the three and nine months ended September 30, 2019 are as follows (in thousands):



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Finance lease cost
Amortization of right-of-use assets		$	3,861	$	12,384
Interest on lease liabilities		7,445		22,124
Finance lease cost		$	11,306	$	34,508

Operating lease cost		$	2,269	$	5,964
Short-term lease cost		1,106		4,302
Total lease cost		$	14,681	$	44,774

Other information related to leases as of September 30, 2019 is as follows (in thousands, except lease term and rate):



	Operating Leases			Finance Leases
Right-of-use assets	$	33,723		$	226,619
Lease liabilities	37,068			270,090

Weighted-average remaining lease term (years)	5.26			19.05
Weighted-average discount rate	7.25		%	13.80		%

The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the nine months ended September 30, 2019 (in thousands):



Operating Leases
Operating cash paid to settle operating lease liabilities	$	5,913

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

Finance Leases
Operating cash paid for interest	$	17,577

Right-of-use assets obtained in exchange for lease liabilities	1,639

Future minimum lease payments under non-cancellable leases as of September 30, 2019 are as follows (in thousands):



	Operating Leases			Finance Leases
2019 (excluding the nine months ended September 30, 2019)		$	2,270		$	8,412
2020		9,073			33,406
2021		9,098			35,243
2022		8,519			33,995
2023		7,541			33,244
Thereafter		8,698			633,139
Total undiscounted lease payments		$	45,199		$	777,439
Less: Imputed interest		8,131			507,349
Total lease liabilities		$	37,068		$	270,090

As of September 30, 2019, we did not have additional operating and finance leases that have not yet commenced.

5. ACQUISITION

On February 28, 2018, the Company acquired SingleHop LLC ("SingleHop"), a provider of high-performance data center services including colocation, managed hosting, cloud and network services for $132.0 million net of working capital adjustments of approximately $0.4 million, liabilities assumed, and net of cash acquired. The transaction was funded with an incremental term loan and cash from the balance sheet. As part of the financing, INAP obtained ~~an amendment~~amendments to its credit agreement to allow for the incremental term loan and to provide further operational flexibility under the credit agreement covenants. The amendments to the credit agreement are described in more detail in Note 7,8, "Debt."

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


	Preliminary Valuation as of March 31, 2018		Measurement Period Adjustments			Preliminary Valuation as of September 30, 2018		Final Valuation as of December 31, 2018
Cash	$	2,857	$	(34	)	$	2,823	$	2,823
Prepaid expenses and other assets	1,683		544			2,227		2,227
Property, plant and equipment	14,885		—			14,885		14,253
Other long term assets	39		537			576
Other long-term assets								576
Intangible assets:
Noncompete agreements	4,000		—			4,000		4,000
Trade names	1,700		—			1,700		1,700
Technology	15,100		—			15,100		15,100
Customer relationships	34,100		—			34,100		34,100
Goodwill	67,868		(1,372		)	66,496		66,008
Total assets acquired	142,232		(325		)	141.907		140,787
Accounts payable and accrued liabilities	5,098		(224		)	4,874		2,819
Deferred revenue	1,600		(101		)	1,499		2,434
Long term liabilities	534		—			534		534
Net assets acquired	$	135,000	$	—		$	135,000	$	135,000

The above estimated fair values of consideration transferred, assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date. Measurement period adjustments reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period adjustments primarily related to working capital and ASC 606. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. Thus, the preliminary measurements of fair value set forth above maybe subject to change. The Company is in the process of finalizing the fair value adjustments. The Company expects to finalize the valuation as soon as practicable but no later than one year from the acquisition date.

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

Goodwill represents the excess of the consideration transferred over the aggregate fair values of assets acquired and liabilities assumed. The goodwill recorded in connection with this acquisition was based on operating synergies and other benefits expected to result from the combined operations and the assembled workforce acquired. The goodwill acquired is deductible for tax purposes.

Acquisition-related costs recognized during the nine months ended September 30, 2018 including transaction costs such as legal, accounting, valuation and other professional services, were $2.9 million and are included in "Sales, general and administrative" expenses on the accompanying Condensed 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 SingleHop as if the acquisition had occurred on January 1, 2017. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the INAP and SingleHop acquisition been completed as of January 1, 2017, and should not be taken as indicative of our future consolidated results of operations. The pro forma results are as follows (in thousands, except for per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017				2018
Revenues	$	82,972		$	80,622		$	247,260		$	246,622
Net revenues														$	247,260
Net loss	(15,081		)	(11,708		)	(44,216		)	(39,817		)		(45,173		)
Basic and diluted net loss per share	(0.75		)	(0.59		)	(2.22		)	(2.14		)		(2.27		)
Weighted average shares outstanding used in computing basic and diluted net loss per share	20,206			19,929			19,968			18,645				19,968

5.6. FAIR VALUE MEASUREMENTS

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1: Quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
September 30, 2018
September 30, 2019
Available-for-sale securities									$	—	$	2,386	$	—	$	2,386
Asset retirement obligations⁽¹⁾	$	—	$	—	$	1,813	$	1,813	—		—		2,292		2,292

December 31, 2017
December 31, 2018
Available-for-sale securities									$	—	$	2,309	$	—	$	2,309
Asset retirement obligations⁽¹⁾	—		—		1,936		1,936		—		—		2,090		2,090

⁽¹⁾

We calculated the fair value of asset retirement obligations by discounting the estimated amount using the ~~current~~ Treasury bill rate adjusted for our credit risk. At September 30, 2019 and December 31, 2018, the ~~balance is~~balances are included in ~~“Other~~"Other long-term liabilities,”" in the accompanying Condensed Consolidated Balance Sheets. At December 31, 2017, $0.2 million and $1.7 million were included in "Other current liabilities" and "Other long-term liabilities," respectively, in the accompanying Condensed Consolidated Balance Sheets.condensed 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, ~~2018~~2019 (in thousands):


Balance, January 1, 2018	$	1,936
				2019
Balance, January 1, 2019				$	2,090
Accretion	127			202
Payments	(250		)	—
Balance, September 30, 2018	$	1,813
Balance, September 30, 2019				$	2,292

As of September 30, 2019, the Company held $2.4 million of available-for-sale debt securities which are reported at fair value on the Company's condensed consolidated balance sheets in "Deposits and other assets." A decline in the fair value of a marketable security below the Company's cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipation of credit deterioration and maturity management.

The fair values of our Level 2 available-for-sale debt securities, based upon quoted prices for similar items in active markets, are as follows (in thousands):



	September 30, 2019
	Cost		Unrealized Gain		Unrealized Loss			Fair Value
Japanese Corporate Bonds	$	2,221	$	189	$	(114	)	$	2,296
Japanese Government Bonds	88		7		(5		)	90
Total Bonds	$	2,309	$	196	$	(119	)	$	2,386

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

The fair values of our Level 2 debt liabilities, based upon quoted prices for similar items in active markets, are as follows (in thousands):


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loan	$	430,232	$	433,998	$	298,500	$	301,485	$	427,070	$	330,979	$	429,143	$	428,071
Revolving credit facility	18,500		18,662		5,000		5,050		14,000		10,850		—		—

6.7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

~~General~~

The Company tests goodwill and intangible assets with indefinite lives for impairment annually ~~in the third quarter.~~as of August 1. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

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

Goodwill is considered impaired if the carrying amount of the net assets exceeds the fair value of the reporting unit. Impairment, if any, would be recorded in operating income / (loss) and this could result in a material impact to net income / (loss) and income / (loss) per share.

~~In 2017, the Company adopted the new guidance under ASU No. 2017-04:~~ ~~Intangibles - Goodwill and Other: Simplifying the Accounting for Goodwill Impairment~~ (Topic 350) which eliminated step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment loss as of January 1, 2018. A goodwill impairment loss under the new guidance is instead measured using a single step test based on the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Based on the Company’s impairment test, no impairments were noted.

Annual Testing

~~2018~~

During the nine months ended September 30, 2018, we changed our operating segments, as discussed in Note 10, “Operating Segments,” and, subsequently, our reporting units. We now 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.2019

We performed our annual impairment review as of August 1, ~~2018.~~2019. To determine the estimated fair value of our reporting units, we utilized the discounted cash flow and market methods. We have consistently utilized both methods in our goodwill impairment assessments and weighted both as appropriate based on relevant factors for each reporting unit. The discounted cash flow method is specific to our anticipated future results of the reporting unit, while the market method is based on our market sector including our competitors.

We determined the assumptions supporting the discounted cash flow method, including the discount rate, using our estimates as of the date of the impairment review. To determine the reasonableness of these assumptions, we considered our 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. We used reasonable judgment in developing our estimates and assumptions. The market

method estimates fair value based on market multiples of revenue and earnings derived from comparable companies with similar operating and investment characteristics as the reporting unit.

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. In performing this test as of August 1, 2019, the Company utilized a long-term growth rate for its reporting units of 2.0% in its estimation of fair value and discount rates ranging from 8.0% to 13.0% versus the prior year discount rates of 9.0% to 16.0% to reflect changes in market conditions. The assumptions used in evaluating goodwill for impairment are subject to change and are tracked against historical results by management. The use of different assumptions, inputs and judgments, or changes in circumstances, could materially affect the results of the valuation. Due to 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.

The Company determined, after performing the fair value analysis above, that all reporting units’ fair values were in excess of its carrying value. No impairment of goodwill has been identified for the nine months ended September 30, ~~2018.~~2019.

~~During the nine months ended September 30, 2018, our goodwill activity is as follows (in thousands):~~

December 31, 2017 Re-allocations SingleHop Acquisition (Note 4) September 30, 2018
Operating segments:

INAP COLO $ 6,003
$ (6,003 ) $ —
$ —
INAP CLOUD 44,206
(44,206 ) —
—
INAP US —
28,304
66,496
94,800
INAP INTL —
21,905
—
21,905
Total $ 50,209
$ —
$ 66,496
$ 116,705

~~Other Intangible Assets~~

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

September 30, 2018 December 31, 2017
Gross Carrying Amount AccumulatedAmortization Gross Carrying Amount AccumulatedAmortization
Acquired and developed technology $ 70,201
$ (50,997 ) $ 52,825
$ (48,063 )
Customer relationships, trade names and noncompete 110,774
(55,240 ) 71,116
(50,212 )
$ 180,975
$ (106,237 ) $ 123,941
$ (98,275 )

During the three months ended September 30, 2018 and 2017, amortization expense for intangible assets was approximately $3.2 million and $1.8 million, respectively. Amortization expense for intangible assets was approximately $8.0 million and $4.0 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, remaining amortization expense is as follows (in thousands):

Three months remaining in 2018 $ 3,598
2019 13,961
2020 13,394
2021 11,210
2022 8,251
2023 7,747
Thereafter 16,577
Total $ 74,738

7.8. DEBT

Credit Agreement

On April 6, 2017, we entered into a new ~~Credit Agreement~~credit agreement (the “2017 Credit Agreement”), which ~~provides~~provided for a $300.0 million term loan facility ("2017 ~~term loan"~~Term Loan") and a $25.0 million ~~revolving credit facility~~Revolving Credit Facility (the "2017 ~~revolving credit facility"~~Revolving Credit Facility"). The proceeds of the 2017 ~~term loan~~Term Loan were used to refinance the Company’s existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement.

Certain portions of refinancing transaction were considered an extinguishment of debt and certain portions were considered a modification. A total of $5.7 million was paid for debt issuance costs related to the 2017 Credit Agreement. Of the $5.7 million in costs paid, $1.9 million was related to the exchange of debt and was expensed, $3.3 million related to ~~term loan~~2017 Term Loan third party costs and will be amortized over the ~~term of the loan~~2017 Term Loan and $0.4 million prepaid debt issuance costs related to the 2017 ~~revolving credit facility~~Revolving Credit Facility and will be amortized over the term of the 2017 ~~revolving credit facility.~~Revolving Credit Facility. In addition, $4.8 million of debt discount and debt issuance costs related to the previous credit facility were expensed due to the extinguishment of that credit facility. The maturity date of the 2017 ~~term loan~~Term Loan is April 6, 2022 and the maturity date of the 2017 ~~revolving credit facility~~Revolving Credit Facility is October 6, 2021. As of September 30, ~~2018,~~2019, the outstanding balance of the 2017 ~~term loan~~Term Loan and the 2017 ~~revolving credit facility~~Revolving Credit Facility was ~~$430.2~~$414.6 million and ~~$18.5~~$14.0 million, respectively. ~~As of September 30, 2018, the~~The interest rate on the 2017 ~~term loan~~Term Loan and the 2017 ~~revolving credit facility was 7.90%~~Revolving Credit Facility as of September 30, 2019 were 8.31% and ~~9.25%~~11.00%, respectively.

Borrowings under the 2017 Credit Agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, a base rate or an adjusted LIBOR rate. The applicable margin for loans under the 2017 ~~revolving credit facility~~Revolving Credit Facility is ~~7.0%~~6.00% for loans bearing interest calculated using the base rate (“Base Rate Loans”) and ~~6.0%~~7.00% for loans bearing interest calculated using the adjusted LIBOR rate. The applicable margin for loans under the 2017 ~~term loan~~Term Loan is ~~5.75%~~4.75% for Base Rate Loans and ~~4.75%~~5.75% for adjusted LIBOR rate loans. The base rate is equal to the highest of (a) the adjusted U.S. Prime Lending Rate as published in the Wall Street Journal, (b) with respect to term loans issued on the closing date, 2.00%, (c) the federal funds effective rate from time to time, plus 0.50%, and (d) the adjusted LIBOR rate, as defined below, for a one-month interest period, plus 1.00%. The adjusted LIBOR rate is equal to the rate per annum (adjusted for statutory reserve requirements for Eurocurrency liabilities) at which Eurodollar deposits are offered in the interbank Eurodollar market for the applicable interest period (one, two, three or six months), as quoted on Reuters screen LIBOR (or any successor page or service). The financing commitments of the lenders extending the 2017 ~~revolving credit facility~~Revolving Credit Facility are subject to various conditions, as set forth in the 2017 Credit Agreement. As of September 30, ~~2018,~~2019, the Company has been in compliance with all covenants.

First Amendment

On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement (“("First ~~Amendment”~~Amendment"), by and among the Company, each of the ~~lenders~~Lenders party thereto, and Jefferies Finance LLC, as Administrative Agent. The First Amendment clarified

that for all purposes of the ~~Company’s~~2017 Credit Agreement 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~~obligation or indebtedness ~~for all purposes of the 2017 Credit Agreement,~~ notwithstanding any amendment of the lease that results in the treatment of such lease as a capital lease obligation or indebtedness for financial reporting purposes.

Second Amendment

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

The Second Amendment, among other things, amends the 2017 Credit Agreement to (i) permit the Company to incur incremental term loans under the 2017 Credit Agreement of up to $135.0 million to finance the ~~Company’s~~Company's acquisition of SingleHop and to pay related fees, costs and expenses, and (ii) ~~revise~~revises the maximum total net leverage ratio and minimum consolidated interest coverage ratio covenants. The financial covenant amendments became effective upon the consummation of the SingleHop acquisition, while the other provisions of the Second Amendment became effective upon the execution and delivery of the Second Amendment. This transaction was considered a modification.

A total of $1.0 million was paid for debt issuance costs related to the Second Amendment. Of the $1.0 million in costs paid, $0.2 million related to the payment of legal and professional fees which were expensed, $0.8 million related to term loan lender fees and will be amortized over the term of the 2017 Credit Agreement.

Third Amendment

On February 28, 2018, INAP entered into the Incremental and Third Amendment to the Credit Agreement among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the ~~“Third Amendment”~~"Third Amendment").�� The Third Amendment provides for a funding of the new incremental term loan facility under the 2017 Credit Agreement of $135.0 million (the ~~“Incremental~~"Incremental Term ~~Loan”~~Loan"). The Incremental Term Loan has terms and conditions identical to the existing loans under the 2017 Credit Agreement, as amended. Proceeds of the Incremental Term Loan were used to complete the acquisition of SingleHop and to pay fees, costs and expenses related to the acquisition, the Third Amendment and the Incremental Term Loan. This transaction was considered a modification.

A total of $5.0 million was paid for debt issuance costs related to the Third Amendment. Of the $5.0 million in costs paid, $0.1 million related to the payment of legal and professional fees which were expensed, $4.9 million related to term loan lender fees and will be amortized over the term of the 2017 Credit Agreement.

Fourth Amendment

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

In addition, the Fourth Amendment amends the 2017 Credit Agreement such that if the Company incurs a “Repricing Event” (as defined in the 2017 Credit Agreement), before October 9, 2018, then the Company will incur a 1.00% prepayment premium on any term loans that are subject to such Repricing Event. This transaction was considered a modification.

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

Fifth Amendment

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

Sixth Amendment

On May 8, 2019, the Company entered into the Sixth Amendment to the 2017 Credit Agreement, among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the “Sixth Amendment”). The Sixth Amendment (i) adjusted the applicable interest rates under the 2017 Credit Agreement, (ii) modified the maximum total net leverage ratio requirements and the minimum consolidated interest coverage ratio requirements and (iii) modified certain other covenants.

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

The Sixth Amendment also made the following modifications:

Added an additional basket of $500,000 for finance lease obligations.

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

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

The restricted payment basket was decreased from $5,000,000 to $1,000,000.

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

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

A total of $2.9 million was paid for debt issuance costs related to the Sixth Amendment. Of the $2.9 million in costs paid, $0.1 million related to the payment of legal and professional fees which were expensed, $2.8 million related to term loan lender fees and will be amortized over the term of the 2017 Credit Agreement.

8.9. EXIT ACTIVITIES AND RESTRUCTURING LIABILITIES

During ~~2017~~2019 and 2018, we recorded exit activity charges due to ceasing use of office and data center space. We include initial charges and plan adjustments in ~~“Exit~~"Exit activities, restructuring and ~~impairments”~~impairments" in the accompanying ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss~~comprehensive loss for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

The following table displays the transactions and balances for exit activities and restructuring charges during the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands). Our real estate and severance obligations are substantially related to our INAP US segment.



	Balance										Balance
	December 31, 2018		Initial Charges ⁽¹⁾		Plan Adjustments			Cash Payments			September 30, 2019
Activity for 2019 restructuring charge:
Real estate obligations	$	—	$	1,629	$	(115	)	$	(1,098	)	$	416
Activity for 2018 restructuring charge:
Real estate obligations	1,922		—		186			(2,108		)	—
Activity for 2017 restructuring charge:
Real estate obligations	100		—		(10		)	(90		)	—
Activity for 2016 restructuring charge:
Real estate obligations	125		—		16			(116		)	25
Activity for 2015 restructuring charge:
Real estate obligation	27		—		29			(49		)	7
Service contracts	221		—		30			(149		)	102
Activity for 2014 restructuring charge:
Real estate obligation	206		—		54			(260		)	—
	$	2,601	$	1,629	$	190		$	(3,870	)	$	550

^{(1) Additional expense related to the disposal of leasehold improvements of $3,345 was recorded for the three and nine months ended September 30, 2019 and not included in the table above.}



	Balance									Balance
	December 31, 2017		Initial Charges		Plan Adjustments		Cash Payments			September 30, 2018
Activity for 2018 restructuring charge:
Real estate obligations	$	—	$	1,821	$	902	$	(961	)	$	1,762
Activity for 2017 restructuring charge:
Real estate obligations	3,380		—		220		(2,747		)	853
Activity for 2016 restructuring charge:
Severance	46		—		35		(35		)	46
Real estate obligations	247		—		29		(122		)	154
Activity for 2015 restructuring charge:
Real estate obligation	64		—		8		(36		)	36
Service contracts	388		—		22		(148		)	262
Activity for 2014 restructuring charge:
Real estate obligation	691		—		161		(548		)	304
	$	4,816	$	1,821	$	1,377	$	(4,597	)	$	3,417

Balance Balance
December 31, 2016
Initial
Charges

Plan
Adjustments

Cash
Payments
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

9.10. COMMITMENTS, CONTINGENCIES AND LITIGATION

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

~~10.~~11. OPERATING SEGMENTS

The Company has two reportable segments: INAP US and INAP INTL. These segments are comprised of strategic businesses that are defined by the location of the service offerings. Our INAP US segment consists of US Colocation, US Cloud, and US Network services based in the United States. Our INAP INTL segment consists of these same services based in countries other than the United States, and Ubersmith.

During the three months ended March 31, 2018, we changed our organizational structure in an effort to create more effective and efficient operations and to improve customer and product focus. In that regard, we revised the information that our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our revised segment structure. We have reclassified prior period amounts to conform to the current presentation.

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

Three Months Ended September 30, 2017

As Previously
Reported
Reclassification As Reported
Revenues:

INAP COLO $ 51,344
$ (51,344 ) $ —
INAP CLOUD 17,563
(17,563 ) —
INAP US —
52,970
52,970
INAP INTL —
15,937
15,937
Costs of sales and services, exclusive of depreciation and amortization:

INAP COLO $ 20,785
$ (20,785 ) $ —
INAP CLOUD 4,160
(4,160 ) —
INAP US —
18,906
18,906
INAP INTL —
6,039
6,039

Nine Months Ended September 30, 2017

As Previously
Reported
Reclassification As Reported
Revenues:

INAP COLO $ 156,727
$ (156,727 ) $ —
INAP CLOUD 53,955
(53,955 ) —
INAP US —
162,544
162,544
INAP INTL —
48,138
48,138
Costs of sales and services, exclusive of depreciation and amortization:

INAP COLO $ 67,661
$ (67,661 ) $ —
INAP CLOUD 12,758
(12,758 ) —
INAP US —
63,589
63,589
INAP INTL —
16,830
16,830

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 to the Chief Operating Officer. The Chief Operating Officer reports directly to the ~~Company’s~~Company's CODM. The CODM evaluates segment performance using business unit contribution which is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.

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

Colocation

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

Cloud

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

Network

Network services includes our patented Performance IP™ service, content delivery network services, as well as our IP routing hardware and software platform. By intelligently routing traffic with redundant, high-speed connections over multiple, major Internet backbones, our IP connectivity provides high-performance and highly-reliable delivery of content, applications and communications to end users globally. We deliver our IP connectivity through ~~102~~100 network POPs around the world.

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,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
INAP US	$	65,678		$	52,970		$	186,821		$	162,544		$	56,947		$	65,678		$	171,928		$	186,821
INAP INTL	17,294			15,937			52,314			48,138			15,931			17,294			47,648			52,314
Net revenues	82,972			68,907			239,135			210,682			72,878			82,972			219,576			239,135

Cost of sales and services, customer support and sales and marketing:
INAP US	35,842			29,600			101,252			97,832			32,920			35,197			97,780			99,532
INAP INTL	11,478			9,874			34,483			27,339			10,148			11,478			29,892			34,483
Total costs of sales and services, customer support and sales and marketing	47,320			39,474			135,735			125,171			43,068			46,675			127,672			134,015
																						.
Segment profit:
INAP US	29,836			23,370			85,569			64,712			24,027			30,481			74,148			87,289
INAP INTL	5,816			6,063			17,831			20,799			5,783			5,816			17,756			17,831
Total segment profit	35,652			29,433			103,400			85,511			29,810			36,297			91,904			105,120

Exit activities, restructuring and impairments	2,347			745			3,140			6,396			3,792			2,347			5,439			3,140
Other operating expenses, including sales, general and administrative and depreciation and amortization expenses	31,131			27,956			95,079			79,944			29,954			31,253			91,885			95,404
Income (loss) from operations	2,174			732			5,181			(829		)
(Loss) income from operations													(3,936		)	2,697			(5,420		)	6,576
Non-operating expenses	17,093			12,496			47,791			38,066			19,919			17,989			56,906			50,143
Loss before income taxes and equity in earnings of equity-method investment	$	(14,919	)	$	(11,764	)	$	(42,610	)	$	(38,895	)	$	(23,855	)	$	(15,292	)	$	(62,326	)	$	(43,567	)

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

~~11.~~12. NET LOSS PER SHARE

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net loss	$	(15,081	)	$	(10,863	)	$	(43,014	)	$	(38,377	)	$	(23,849	)	$	(15,454	)	$	(62,006	)	$	(43,971	)
Less net income attributable to non-controlling interests	25			32			75			32			21			25			63			75
Net loss attributable to common stock	$	(15,106	)	$	(10,895	)	$	(43,089	)	$	(38,409	)
Net loss attributable to shareholders													$	(23,870	)	$	(15,479	)	$	(62,069	)	$	(44,046	)
Weighted average shares outstanding, basic and diluted	20,206			19,929			19,968			18,645			23,671			20,206			23,703			19,968
Net loss per share, basic and diluted	$	(0.75	)	$	(0.56	)	$	(2.16	)	$	(2.04	)	$	(1.01	)	$	(0.77	)	$	(2.62	)	$	(2.21	)
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans	1,065			1,460			1,065			1,460			1,920			1,065			1,920			1,065

~~12.~~13. INVESTMENT IN AFFLIATES AND OTHER ENTITIES

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

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

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

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

14. SUBSEQUENT EVENTS

On October ~~23, 2018,~~29, 2019, the Company ~~closed a public offering~~entered into the Seventh Amendment to 2017 Credit Agreement, among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the “Seventh Amendment”). The Seventh Amendment (i) modified the maximum total net leverage ratio requirements and the minimum consolidated interest coverage ratio requirements under the 2017 Credit Agreement and (ii) effected certain other modifications, including changes to certain baskets.

The maximum total leverage ratio increases to 7.25 to 1 as of ~~4,210,527 shares~~December 31, 2019 - December 31, 2020, 5.50 to 1 as of ~~common stock at $9.50 per share~~March 31, 2021, 5.00 to ~~the public~~1 as of June 30, 2021, 4.50 to 1 as of September 30, 2021 and received from the underwriter net proceeds of $36.6 million (net of underwriting discounts and commissions, and other offering expenses). We have granted the underwriters a 30-day option to purchase up to 631,579 additional shares of common stock on the same terms and conditions as the shares offered in the public offering.thereafter.

The minimum consolidated interest coverage ratio decreases to 1.60 to 1 as of December 31, 2019 - December 31, 2020, 2.00 to 1.00 as of March 31, 2021 and thereafter.

The Seventh Amendment also made the following modifications:

Reduced the disposition of property basket from $50.0 million to $25.0 million.

Reduced reinvestment of net cash proceeds from asset sales from $2.5 million to $1.0 million.

Reduced investment basket from greater of $25.0 million and 30% of EBITDA to greater of $12.5 million and 15% of EBITDA.

Reduced incremental facility from $50.0 million to $25.0 million.

Reduced foreign subsidiary debt basket from greater of $15.0 million and 18% of EBITDA to greater of $5.0 million and 6% of EBITDA.

Reduced general basket from greater of $50.0 million and 61% of EBITDA to greater of $25.0 million and 30% of EBITDA.

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.”~~"we," "us," "our," "INAP," or ~~“the Company”~~"the Company" refers to Internap Corporation and our subsidiaries.

Forward-Looking Statements

~~This~~Certain statements in this Form 10-Q ~~contains forward-looking statements.~~contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding industry trends, our future financial position and performance, business strategy, revenues and expenses in future periods, projected levels of growth, availability of capital resources and liquidity and other matters that do not relate strictly to historical facts. These statements are often identified by words such as ~~“may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,” “continue,” “could”~~"may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "projects," "forecasts," "plans," "intends," "continue," "could" or ~~“should,”~~"should," that an ~~“opportunity”~~"opportunity" exists, that we are ~~“positioned”~~"positioned" for a particular result, statements regarding our vision or similar expressions or variations. These statements are based on the beliefs and expectations of our management team based on information available at the time such statements are made. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements.

Therefore, actual future results and trends may differ materially from what is forecast in such forward-looking statements due to a variety of factors, including, without limitation: our ability to drive growth while reducing costs; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; the robustness of the IT infrastructure services market; our ability to achieve or sustain profitability; our ability to expand margins and drive higher returns on investment; our ability to sell into new and existing data center space; the actual performance of our IT infrastructure services and ~~improving~~our ability to improve 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~~our data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; ~~ability~~the uncertainty as to ~~identify~~whether any ~~suitable~~ strategic ~~transactions; INAP's ability~~alternative will be pursued or, if pursued, closed; uncertainty as to ~~realize anticipated revenue, growth, synergies~~the terms, value and ~~cost savings from~~timing of any such strategic alternative; the ~~acquisition~~impact of ~~SingleHop; INAP's ability to successfully integrate SingleHop’s sales, operations, technology,~~the announcement of the evaluation of strategic alternatives on INAP’s common stock, its businesses, and ~~products generally;~~its operating results; 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~~ability to raise additional capital when needed, on attractive terms, or at all, and 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”~~"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~~expressed or implied by ~~the~~ forward-looking statements made in this Form 10-Q.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements attributable to INAP or persons acting on ~~its~~our behalf are expressly qualified in their entirety by the foregoing forward-looking statements. All such statements speak only as of the date made, and INAP undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

INAP is a ~~global~~leading-edge provider of high-performance data center ~~services, including~~and cloud solutions with 100 network Points of Presence (“POP”) worldwide. INAP's full-spectrum portfolio of high-density colocation, managed cloud hosting and ~~network. INAP partners with its~~network solutions supports evolving IT infrastructure requirements for customers ~~who range~~ranging from the Fortune 500 to emerging ~~start-ups, to create secure, scalable and reliable IT infrastructure solutions that meet the customer’s unique business requirements.~~startups. INAP operates ~~in 53, primarily Tier 3, data centers~~ in 21 metropolitan markets, ~~and has 102 POPs around the world.~~primarily in North America, with 14 INAP ~~has over 1 million gross square feet in its portfolio, and approximately 600,000 square feet of sellable data center space.~~Data Center Flagships connected by a low-latency, high-capacity network.

~~Change in Organizational Structure~~

During the three months ended March 31, 2018, we changed our organizational structure in an effort to create more effective and efficient business operations and to improve customer and product focus. In that regard, we revised the information that our chief executive officer, who is also our chief operating decision maker, regularly reviews for purposes of allocating resources and assessing performance. As a result, we report our financial performance based on our two revised segments, INAP US and INAP INTL. The new operating segments are described in Note 10, “Operating Segments” in the accompanying condensed consolidated financial statements. We have reclassified prior period amounts to conform to the current presentation.

Recent Accounting Pronouncements

Recent accounting pronouncements are summarized in Note 2, "Recent Accounting Pronouncements," in the accompanying condensed consolidated financial statements.

Results of Operations

Three Months Ended September 30, ~~2018~~2019 and ~~2017~~2018

The following table sets forth selected consolidated statements of operations and comprehensive loss data during the periods presented, including comparative information between the periods (dollars in thousands):


	Three Months Ended September 30,				Increase (Decrease) from 2017 to 2018				Three Months Ended September 30,					Variance
	2018		2017		Amount		Percent		2019			2018		Amount			Percent
Net revenues	$	82,972	$	68,907	$	14,065	20	%	$	72,878		$	82,972	$	(10,094	)	(12	)%

Operating costs and expenses:
Costs of sales and services, exclusive of depreciation and amortization	28,866		24,945		3,921		16	%	27,504			28,221		(717		)	(3	)%
Costs of customer support	7,984		6,237		1,747		28	%	8,145			7,984		161			2	%
Sales, general and administrative	18,170		15,331		2,839		19	%	15,791			18,170		(2,379		)	(13	)%
Depreciation and amortization	23,431		20,917		2,514		12	%	21,582			23,553		(1,971		)	(8	)%
Exit activities, restructuring and impairments	2,347		745		1,602		215	%	3,792			2,347		1,445			62	%
Total operating costs and expenses	80,798		68,175		12,623		19	%	76,814			80,275		(3,461		)	(4	)%
Income (loss) from operations	$	2,174	$	732	$	1,442	(197	)%
(Loss) income from operations									$	(3,936	)	$	2,697	$	(6,633	)	(246	)%

Interest expense	$	16,898	$	12,299	$	4,599	37	%	$	19,913		$	17,794	$	2,119		12	%

Supplemental Schedule


	Three Months Ended September 30,				Increase (Decrease) from 2017 to 2018				Three Months Ended September 30,				Variance
	2018		2017		Amount		Percent		2019		2018		Amount			Percent
Revenues:
INAP US	$	65,678	$	52,970	$	12,708	24	%	$	56,947	$	65,678	$	(8,731	)	(13	)%
INAP INTL	17,294		15,937		1,357		9	%	15,931		17,294		(1,363		)	(8	)%
Net revenues	82,972		68,907		14,065		20	%	72,878		82,972		(10,094		)	(12	)%

Cost of sales and services:
Costs of sales and services, exclusive of depreciation and amortization:
INAP US	21,853		18,906		2,947		16	%	20,716		21,208		(492		)	(2	)%
INAP INTL	7,013		6,039		974		16	%	6,788		7,013		(225		)	(3	)%
Total costs of sales and services, exclusive of depreciation and amortization	$	28,866	$	24,945	$	3,921	16	%	$	27,504	$	28,221	$	(717	)	(3	)%

INAP US

Revenues for our INAP US segment ~~increased 24%~~decreased approximately 13% to ~~$65.7~~$56.9 million for the three months ended September 30, ~~2018,~~2019 compared to ~~$53.0~~$65.7 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~revenue~~planned data center exits and churn from ~~organic growth, and the addition of SingleHop.~~several large customers in 2018.

~~Direct costs~~

Costs of sales and services, exclusive of depreciation and amortization, of our INAP US segment ~~exclusive of depreciation and amortization, increased 16%,~~decreased 2% to ~~$21.9~~$20.7 million for the three

months ended September 30, ~~2018,~~2019, compared to ~~$18.9~~$21.2 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~SingleHop costs, partially~~exited facilities and cost savings initiatives beginning in the first quarter of 2019 offset by ~~lower space and power costs from planned data center exits and network cost savings initiatives.~~

net lease adjustments due to change in lease classification.

INAP INTL

Revenues for our INAP INTL segment ~~increased 9%~~decreased 8% to ~~$17.3~~$15.9 million for the three months ended September 30, ~~2018,~~2019 compared to ~~$15.9~~$17.3 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~revenue~~churn from ~~the INAP Japan consolidation, the addition of SingleHop and lower churn.~~large customers in 2018.

~~Direct costs~~Costs of sales and services, exclusive of depreciation and amortization, of our INAP INTL segment ~~exclusive of depreciation and amortization, increased 16%,~~decreased 3% to ~~$7.0~~$6.8 million for the three months ended September 30, ~~2018,~~2019, compared to ~~$6.0~~$7.0 million for the same period in ~~2017.~~2018. The ~~increase~~change was primarily due to ~~$0.9 million in costs from the INAP Japan consolidation and costs from SingleHop.~~cost savings initiatives.

Other Operating Costs and Expenses

Compensation. Total compensation and benefits, including stock-based compensation, was ~~$16.9~~$15.9 million for the three months ended September 30, ~~2018,~~2019 compared to ~~$14.4~~$16.9 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was due to ~~$2.8 million increase in cash-based compensation and $0.4 million increase in stock-based compensation, offset by $0.6 million decrease in commissions and $0.1 million decrease in bonus accrual.~~cost savings initiatives.

Stock-based compensation, net of amount capitalized, ~~increased~~decreased $0.1 million to ~~$1.3~~$1.2 million during the three months ended September 30, ~~2018, from $0.9~~2019 compared to $1.3 million during the same period in 2017. The increase is due to additional employees receiving equity grants, and directors receiving their fees in shares of common stock in lieu of cash. The following table summarizes stock-based compensation included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands):

Three Months Ended
June 30,
2018 2017
Costs of customer support $ 38
$ 38
Sales, general and administrative 1,303
891
$ 1,341
$ 929
2018.

Costs of Customer Support. Costs of customer support increased slightly to ~~$8.0~~$8.1 million ~~during~~for the three months ended September 30, ~~2018~~2019 compared to ~~$6.2~~$8.0 million during the same period in ~~2017. The increase was primarily due to higher cash-based compensation due to increased headcount from the SingleHop acquisition.~~2018.

Sales, General and Administrative. Sales, general and administrative costs ~~increased~~decreased to ~~$18.2~~$15.8 million during the three months ended September 30, ~~2018~~2019 compared to ~~$15.3~~$18.2 million during the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~$1.1 million increase~~reductions in ~~cash-based compensation, $0.8 million increase in commissions, $0.4 million increase in facility costs, $0.4 million increase in stock-based compensation~~commission expense due to ~~additional employees receiving equity grants~~lower revenues and ~~$0.1 million increase~~reductions in ~~other benefits.~~wages due to cost savings initiatives.

Depreciation and Amortization. Depreciation and amortization ~~increased~~decreased to ~~$23.4~~$21.6 million during the three months ended September 30, ~~2018,~~2019 compared to ~~$20.9~~$23.6 million during the same period in ~~2017.~~2018. The ~~increase~~decrease is primarily due to ~~the depreciation on the~~lower capital ~~leased assets obtained during the third quarter~~expenditures and continued use of ~~2018.~~depreciated assets.

Exit ~~activities, Restructuring~~Activities and ~~Impairments.~~Restructuring. Exit activities ~~restructuring~~ and ~~impairments~~restructuring increased to ~~$2.3~~$3.8 million during the three months ended September 30, ~~2018~~2019 compared to ~~$0.7~~$2.3 million during the same period in ~~2017.~~2018. The increase is primarily due to ~~planned data center exits.~~the disposal of leasehold improvements of $3.3 million for an exited facility.

Interest Expense. Interest expense increased to ~~$16.9~~$19.9 million during the three months ended September 30, ~~2018~~2019 from ~~$12.3~~$17.8 million during the same period in ~~2017.~~2018. The increase is primarily due to increased ~~borrowings~~interest on the 2017 Term Loan due to higher interest rates and additional interest expense related to ~~capital~~finance leases.

Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018


											Nine Months Ended September 30,					Variance
	Nine Months Ended September 30,					Increase (Decrease) from 2017 to 2018					2019			2018		Amount			Percent
	2018		2017			Amount			Percent
Net revenues	$	239,135	$	210,682		$	28,453		14	%	$	219,576		$	239,135	$	(19,559	)	(8	)%

Operating costs and expenses:
Costs of sales and services, exclusive of depreciation and amortization	81,880		80,419			1,461			2	%	79,186			80,160		(974		)	(1	)%
Costs of customer support	24,212		19,634			4,578			23	%	25,661			24,212		1,449			6	%
Sales, general and administrative	57,625		47,466			10,159			21	%	48,995			57,625		(8,630		)	(15	)%
Depreciation and amortization	67,097		57,596			9,501			16	%	65,715			67,422		(1,707		)	(3	)%
Exit activities, restructuring and impairments	3,140		6,396			(3,256		)	(51	)%	5,439			3,140		2,299			73	%
Total operating costs and expenses	233,954		211,511			22,443			11	%	224,996			232,559		(7,563		)	(3	)%
Income (loss) from operations	$	5,181	$	(829	)	$	6,010		725	%
(Loss) income from operations											$	(5,420	)	$	6,576	$	(11,996	)	(182	)%

Interest expense	$	47,786	$	37,581		$	10,205		27	%	$	56,578		$	50,138	$	6,440		13	%

Supplemental Schedule


	Nine Months Ended September 30,				Increase (Decrease) from 2017 to 2018					Nine Months Ended September 30,				Variance
	2018		2017		Amount			Percent		2019		2018		Amount			Percent
Revenues:
INAP US	$	186,821	$	162,544	$	24,277		15	%	$	171,928	$	186,821	$	(14,893	)	(8	)%
INAP INTL	52,314		48,138		4,176			9	%	47,648		52,314		(4,666		)	(9	)%
Net revenues	239,135		210,682		28,453			14	%	219,576		239,135		(19,559		)	(8	)%

Cost of sales and services:
Costs of sales and services, exclusive of depreciation and amortization:
INAP US	61,125		63,589		(2,464		)	(4	)%	59,713		59,405		308			1	%
INAP INTL	20,755		16,830		3,925			23	%	19,473		20,755		(1,282		)	(6	)%
Total costs of sales and services, exclusive of depreciation and amortization	$	81,880	$	80,419	$	1,461		2	%	$	79,186	$	80,160	$	(974	)	(1	)%

INAP US

Revenues for our INAP US segment ~~increased 15%~~decreased 8% to ~~$186.8~~$171.9 million for the nine months ended September 30, ~~2018,~~2019 compared to ~~$162.5~~$186.8 million for the same period in ~~2017.~~2018. The ~~increase~~decrease in revenue is primarily due to planned data center exits and churn from ~~the SingleHop acquisition,~~several larger customers in 2018, partially offset by ~~a decline in network revenues primarily due to customer churn, in~~the addition ~~to other typical customer churn.~~of SingleHop.

~~Direct costs~~Costs of sales and services, exclusive of depreciation and amortization, of our INAP US segment ~~exclusive of depreciation and amortization, decreased 4%,~~increased 1% to ~~$61.1~~$59.7 million for the nine months ended September 30, ~~2018,~~2019, compared to ~~$63.6~~$59.4 million for the same period in ~~2017.~~2018. The ~~decrease~~increase was primarily due to ~~$5.0 million of~~SingleHop costs ~~related to conversion of operating leases to capital leases, $5.5 million~~and a global transfer pricing adjustment between segments, partially offset by lower space and power costs from ~~lower power~~ongoing data center exits and cost savings ~~from planned data center exits, $4.0 million network savings from cost initiatives and lower volume, partially offset by costs from SingleHop, and $3.9 million of costs from our data center additions.~~initiatives.

INAP INTL

Revenues for our INAP INTL segment ~~increased~~decreased 9% to ~~$52.3~~$47.6 million for the nine months ended September 30, ~~2018,~~2019 compared to ~~$48.1~~$52.3 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~revenues~~churn from ~~the INAP Japan consolidation and addition of SingleHop.~~large customers in 2018.

~~Direct costs~~Costs of sales and services, exclusive of depreciation and amortization, of our INAP INTL segment ~~exclusive of depreciation and amortization, increased 23%,~~decreased 6% to ~~$20.8~~$19.5 million for the nine months ended September 30, ~~2018,~~2019, compared to ~~$16.8~~$20.8 million for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~$3.2 million of costs from INAP Japan consolidation, costs from SingleHop,~~ongoing cost savings initiatives and ~~$0.4 million from lower margin product mix.~~a global transfer pricing adjustment between segments.

Other Operating Costs and Expenses

Compensation. Total compensation and benefits, including stock-based compensation, was ~~$51.5~~$49.5 million for the nine months ended September 30, ~~2018,~~2019 compared to ~~$43.2~~$51.5 million for the same period in ~~2017.~~2018. The change was primarily due to ~~$6.9 million increase in cash-based compensation, $1.5 million increase in stock-based compensation, $0.3 million increase in bonus accrual, offset by $0.4 million decrease in commissions.~~ongoing cost savings initiatives.

Stock-based compensation, net of amount capitalized, ~~increased~~decreased to ~~$3.6~~$3.1 million during the nine months ended September 30, ~~2018,~~2019 from ~~$2.1~~$3.6 million during the same period in ~~2017.~~2018. The ~~increase~~decrease is due to ~~additional employees receiving equity grants, and directors receiving their fees in shares~~lower headcount as a result of common stock in lieu of cash. The following table summarizes stock-based compensation included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands):

Nine Months Ended
September 30,
2018 2017
Costs of customer support $ 133
$ 136
Sales, general and administrative 3,441
1,925
$ 3,574
$ 2,061
cost savings initiatives.

Costs of Customer Support. Costs of customer support increased to ~~$24.2~~$25.7 million during the nine months ended September 30, ~~2018~~2019 compared to ~~$19.6~~$24.2 million during the same period in ~~2017.~~2018. The increase was primarily due to ~~higher cash-based compensation due to increased headcount from SingleHop.~~the SingleHop acquisition.

Sales, General and Administrative. Sales, general and administrative costs ~~increased~~decreased to ~~$57.6~~$49.0 million during the nine months ended September 30, ~~2018~~2019 compared to ~~$47.5~~$57.6 million during the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~$2.7 million~~cost savings initiatives and certain costs from 2018 that did not recur in 2019, such as acquisition costs $2.6 million in higher cash-based compensation due to increased headcount, $1.6 million increase in stock-based compensation from more employees receiving stock compensation, $1.6 million increased in commissions, $0.9 million increase in facility costs and ~~$0.7 million decrease in internal software costs that were capitalized (resulting in increased compensation costs in "Sales, general and administrative" expenses).~~a non-income tax settlement.

Depreciation and Amortization. Depreciation and amortization ~~increased~~decreased to ~~$67.1~~$65.7 million during the nine months ended September 30, ~~2018~~2019 compared to ~~$57.6~~$67.4 million during the same period in ~~2017.~~2018. The ~~increase~~decrease is primarily due to ~~the depreciation on the~~lower capital ~~leased assets obtained during the third quarter~~expenditures and continued use of ~~2018.~~depreciated assets.

Exit ~~activities,~~Activities, Restructuring and Impairments. Exit activities, restructuring and impairments ~~decreased~~increased to ~~$3.1~~$5.4 million during the nine months ended September 30, ~~2018~~2019 compared to ~~$6.4~~$3.1 million of expense during the same period in ~~2017.~~2018. The ~~decrease~~increase is primarily due to ~~planned closures of~~ data ~~centers~~center exits in ~~the prior year period, which resulted in the higher restructuring expenses.~~2019.

Interest Expense. Interest expense increased to ~~$47.8~~$56.6 million during the nine months ended September 30, ~~2018~~2019 from ~~$37.6~~$50.1 million during the same period in ~~2017.~~2018. The increase is primarily due to increased borrowings and additional interest expense related to ~~capital~~finance leases.

Non-GAAP Financial Measure

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

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

costs.

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.

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

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

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

certain investors use EBITDA as a measure of our ability to service debt.

Our management uses Adjusted EBITDA:

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

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

as a key measure to calculate our debt covenants; and

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

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

Although we believe, for the foregoing reasons, that our presentation of the non-GAAP financial measure provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measure should only be considered in addition to, and not as a substitute for, or superior to, any measure of financial performance prepared in accordance with GAAP.

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net revenues	$	82,972		$	68,907		$	239,135		$	210,682		$	72,878		$	82,972		$	219,576		$	239,135

Net loss attributable to INAP stockholders	$	(15,106	)	$	(10,895	)	$	(43,089	)	$	(38,409	)
Net loss attributable to shareholders													$	(23,870	)	$	(15,479	)	$	(62,069	)	$	(44,046	)
Depreciation and amortization	23,431			20,917			67,097			57,596			21,582			23,553			65,715			67,422
Interest expense	16,898			12,299			47,786			37,581			19,913			17,794			56,578			50,138
Provision for income taxes	162			221			404			689
Other expense (income)	195			(925		)	11			(723		)
Gain on disposal of property and equipment, net	(66		)	(162		)	(96		)	(362		)
(Benefit) provision for income taxes													(6		)	162			(320		)	404
Other expense													6			195			328			11
(Gain) loss on disposal of property and equipment, net													(13		)	(66		)	515			(96		)
Exit activities, restructuring and impairments	2,347			745			3,140			6,396			3,792			2,347			5,439			3,140
Stock-based compensation	1,341			929			3,574			2,061			1,173			1,341			3,074			3,573
Acquisition costs(1)	5			102			2,869			198			273			5			577			2,869
Strategic alternatives and related costs⁽¹⁾⁽²⁾	25			32			75			46			21			25			63			75
Organizational realignment costs⁽²⁾⁽³⁾	118			14			789			596			119			118			975			789
Non-income tax contingency	36			—			836			1,500			—			36			150			836
Claim settlement	—			—			—			713
Adjusted EBITDA	$	29,386		$	23,277		$	83,396		$	67,882		$	22,990		$	30,031		$	71,025		$	85,115

⁽¹⁾On February 28, 2018, we acquired SingleHop which resulted in higher acquisition costs for the nine months ended September

30, 2018.

⁽¹⁾⁽²⁾

Primarily legal and other professional fees incurred in connection with the evaluation by our board of directors of strategic alternatives and related shareholder communications. We include these costs in sales, general and administrative ("SG&A") in the accompanying ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss~~comprehensive loss for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

⁽²⁾⁽³⁾

Primarily professional fees, employee retention bonus and severance and executive search costs incurred related to our organization realignment. We include these costs in SG&A in the accompanying ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss~~comprehensive loss for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Liquidity and Capital Resources

Liquidity

On an ongoing basis, we require capital to fund our current sales and operations, make acquisitions, expand our IT infrastructure services, upgrade existing facilities or establish new facilities, products, services or ~~capabilities and to fund customer support initiatives, as well as various advertising and marketing programs to facilitate sales.~~capabilities. As of September 30, ~~2018,~~2019, we had ~~$10.0~~$17.2 million of borrowing capacity under our 2017 ~~revolving credit facility.~~Revolving Credit Facility. Together with our cash and cash equivalents, the Company’s liquidity as of September 30, ~~2018~~2019 was ~~$21.9~~$28.1 million.

As of September 30, ~~2018,~~2019, we had a deficit of ~~$37.7~~$23.6 million in working capital, which represented an excess of current liabilities over current assets. We believe that cash flows from operations, together with our cash and cash equivalents and borrowing capacity under our 2017 ~~revolving credit facility,~~Revolving Credit Facility (as defined below), will be sufficient to meet our cash requirements for the next 12 ~~months and for the foreseeable future.~~months. If our cash requirements vary materially from our expectations or if we fail to generate sufficient cash flows from our operations or if we fail to implement our cost reduction strategies, we may require additional financing sooner than anticipated. We can offer no assurance that we will be able to obtain additional financing on commercially favorable terms, or at all, and provisions in our 2017 Credit Agreement limit our ability to incur additional indebtedness. Our anticipated uses of cash include capital expenditures in the range of ~~$40.0~~$30.0 to ~~$43.0~~$32.0 million in ~~2018,~~2019, working capital needs and required payments on our 2017 Credit Agreement and other commitments. We continue to optimize our cost structure through implementing cost reductions through such strategies as reorganizing our business units, right-sizing ~~headcounts~~headcount and streamlining other operational aspects of our business. However, there can be no guarantee that we will achieve any of our cost reduction goals.

We have a history of quarterly and annual period net losses. During the three and nine months ended September 30, 2018, we had a net loss attributable to INAP stockholders of $15.1 million and $43.1 million, respectively. As of September 30, 2018, 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.

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

Capital Resources

~~Common Stock Offering~~

On October 23, 2018, the Company closed a public offering of 4,210,527 shares of common stock at $9.50 per share to the public and received from the underwriter net proceeds of $36.6 million (net of underwriting discounts and commissions, and other offering expenses). We have granted the underwriters a 30-day option to purchase up to 631,579 additional shares of common stock on the same terms and conditions as the shares offered in the public offering.

Credit Agreement

On April 6, 2017, we entered into a new ~~Credit Agreement~~credit agreement (the "2017 Credit Agreement"), which ~~provides~~provided for a $300.0 million term loan facility ("2017 ~~term loan"~~Term Loan") and a $25.0 million ~~revolving credit facility~~Revolving Credit Facility (the ~~" 2017 revolving credit facility"~~"2017 Revolving Credit Facility"). The proceeds of the 2017 ~~term loan~~Term Loan were used to refinance the ~~Company’s~~Company's existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement.

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

As of September 30, ~~2018,~~2019, the 2017 term loan had an outstanding principal balance of $430.2 million, which we repay in $1.1 million quarterly installments on the last business day of each fiscal quarter with the remaining unpaid balance due April 6, 2022. As of September 30, 2018, the 2017 revolving credit facility had an outstanding balance of ~~$18.5 million. We have issued $5.7~~the 2017 Term Loan and the 2017 Revolving Credit Facility was $414.6 million ~~in letters of credit resulting in $4.3~~and $14.0 million, ~~in borrowing capacity. As of September 30, 2018, the~~respectively. The interest rate on the 2017 ~~term loan~~Term Loan and the 2017 ~~revolving credit facility was 7.90%~~Revolving Credit Facility as of September 30, 2019 were 8.31% and ~~9.25%~~11.00%, respectively.

~~The~~Borrowings under the 2017 Credit Agreement ~~contains customary financial maintenance~~bear interest at a rate per annum equal to an applicable margin plus, at our option, a base rate or an adjusted LIBOR rate. The applicable margin for loans under the 2017 Revolving Credit Facility is 6.0% for loans bearing interest calculated using the base rate ("Base Rate Loans") and ~~operating covenants, including without limitation covenants restricting~~7.0% for loans bearing interest calculated using the ~~incurrence~~adjusted LIBOR rate. The applicable margin for loans under the 2017 Term Loan is 4.75% for Base Rate Loans and 5.75% for adjusted LIBOR rate loans. The base rate is equal to the highest of (a) the adjusted U.S. Prime Lending Rate as published in the Wall Street Journal, (b) with respect to term loans issued on the closing date, 2.00%, (c) the federal funds effective rate from time to time, plus 0.50%, and (d) the adjusted LIBOR rate, as defined below, for a one-month interest period, plus 1.00%. The adjusted LIBOR rate is equal to the rate per annum (adjusted for statutory reserve requirements for Eurocurrency liabilities) at which Eurodollar deposits are offered in the interbank Eurodollar market for the applicable interest period (one, two, three or ~~existence~~six months), as quoted on Reuters screen LIBOR (or any successor page or service). The financing commitments of ~~debt or liens,~~ the ~~making of investments,~~lenders extending the ~~payment of dividends and affiliate transactions.~~2017 Revolving Credit Facility are subject to various conditions, as set forth in the 2017 Credit Agreement. As of September 30, ~~2018, we were~~2019, the Company has been in compliance with all covenants.

First Amendment

On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement ("First Amendment"), 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 of the 2017 Credit Agreement, 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 obligation or indebtedness, notwithstanding any amendment of the lease that results in the treatment of such lease as a capital lease obligation or indebtedness for financial reporting purposes.

Second Amendment

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

Third Amendment

On February 28, 2018, INAP entered into the Incremental and Third Amendment to the Credit Agreement among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the "Third Amendment"). The Third Amendment provides for a funding of the new incremental term loan facility under the 2017 Credit Agreement of $135.0 million (the "Incremental Term Loan"). The Incremental Term Loan has terms and conditions identical to the existing loans under the 2017 Credit Agreement, as amended. Proceeds of the Incremental Term Loan were used to complete the acquisition of SingleHop and to pay fees, costs and expenses related to the acquisition, the Third Amendment and the Incremental Term Loan. This transaction was considered a modification.

Fourth Amendment

Credit Agreement by 1.25%.

~~In addition, the Fourth Amendment amends the 2017 Credit Agreement such that if the Company incurs~~ This transaction was considered a “Repricing Event” (as defined in the 2017 Credit Agreement), before October 9, 2018, then the Company will incur a 1.00% prepayment premium on any term loans that are subject to such Repricing Event. modification.

Fifth Amendment

On August 28, 2018, the Company entered into the Fifth Amendment to the 2017 Credit Agreement, among the Company, the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent (the ~~“Fifth Amendment”~~"Fifth Amendment"). The Fifth Amendment

amended the 2017 Credit Agreement by increasing the aggregate revolving commitment capacity by $10.0 million to $35.0 million.

Sixth Amendment

The Sixth Amendment also made the following modifications:

Added an additional basket of $500,000 for finance lease obligations.

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

The restricted payment basket was decreased from $5,000,000 to $1,000,000.

Cash Flows

Operating Activities

During the nine months ended September 30, ~~2018,~~2019, net cash provided by operating activities ~~increased $1.2~~decreased $5.7 million to ~~$29.2~~$18.7 million primarily due to ~~the increase in~~ changes in operating assets and liabilities. Net income adjusted for non-cash items remained relatively flat ($33.2 million and $33.3 million for the nine months ended September 30, 2018 and 2017, respectively). 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.working capital.

Investing Activities

During the nine months ended September 30, ~~2018,~~2019, net cash used in investing activities ~~was $161.8~~decreased $132.5 million to $23.9 million primarily due to the acquisition of SingleHop ~~acquisition, capital expenditures related to the continued expansion and upgrade of our data centers and network infrastructure.~~in 2018.

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.

Financing Activities

During the nine months ended September 30, 2018, net cash provided by financing activities was $129.8 million, primarily due to principal payments of $10.5 million on the credit facilities and capital lease obligations, partially offset by $148.5 million of proceeds from the 2017 Credit Agreement.

~~During the nine months ended September 30, 2017,~~2019, net cash used in financing activities was ~~$6.8~~$1.5 million compared to $129.2 million of net cash provided by financing activities for the same period in 2018. The use of cash in 2019 was primarily due to principal payments of ~~$333.8~~$11.5 million on the credit facilities and ~~capital~~finance lease obligations, ~~partially~~ offset by ~~$295.5~~$14.0 million of proceeds from the ~~2017 Credit Agreement and $40.2~~revolving credit facility. In 2018, cash proceeds from financing activities was primarily due to $148.5 million of proceeds from the ~~sale~~credit agreement used to fund the acquisition of ~~common stock.~~SingleHop, offset by debt issuance costs of $7.7 million and principal payments of $9.9 million on the credit facilities and finance lease obligations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our objective in managing interest rate risk is to maintain favorable long-term fixed rate or a balance of fixed and variable rate debt within reasonable risk parameters. As of September 30, ~~2018,~~2019, the outstanding balance of our long-term debt was ~~$430.2~~$414.6 million net of loan costs and discounts on the 2017 Term Loan and $14.0 million on the 2017 ~~term loan and $18.5 million on the 2017 revolving credit facility.~~Revolving Credit Facility.

At September 30, ~~2018,~~2019, the interest rate on the 2017 ~~term loan~~Term Loan and ~~the~~ 2017 ~~revolving credit facility~~Revolving Credit Facility was ~~7.90%~~8.31% and ~~9.25%~~11.00%, respectively. 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,~~2017 Revolving Credit Facility, payable quarterly in arrears. In addition, we are required to pay certain participation fees and fronting fees in connection with standby letters of credit issued under the 2017 ~~revolving credit facility.~~Revolving Credit Facility.

The interest rate on the 2017 Term Loan does include a variable component. We estimate that a change in the interest rate of 100 basis points would change our interest expense and payments by ~~$4.5~~approximately $4.4 million per year, assuming we do not increase our ~~amount outstanding.~~borrowings.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee, or ARRC, has proposed that the Secured Overnight Financing Rate, or SOFR, is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. The ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. At September 30, 2019, the Company does have contracts that are indexed to LIBOR, including the 2017 Credit Agreement, and continues to monitor this activity and evaluate the related risks.

Foreign Currency Risk

As of September 30, ~~2018,~~2019, the majority of our revenue was in U.S. dollars. However, our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. During the three and nine months ended September 30, ~~2018,~~2019, we realized a foreign currency loss of ~~$0.2~~less than $0.1 million and ~~less than $0.1~~$0.3 million, respectively, which we included in ~~“Non-operating expenses,~~“Loss on foreign currency, net,” and we recorded an unrealized foreign currency translation loss of less than $0.1 million and ~~less than $0.1~~a gain of $0.2 million, respectively, which we included in ~~“Other comprehensive (loss) income,~~“Foreign currency translation adjustment,” both in the accompanying ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and ~~Comprehensive Loss.~~comprehensive loss. As we grow our international operations, our exposure to foreign currency risk will become more significant.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

~~Based on our management’s evaluation (with~~Our management, with the participation of our ~~chief~~principal executive officer and ~~chief~~principal financial ~~officer),~~officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). Disclosure controls are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in SEC rules and forms. Based on their evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that, due to a material weakness in internal control over financial reporting described in Part II, Item 9A of our 2017 Form 10-K, our disclosure controls and procedures ~~(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))~~ were ~~not effective as of September 30, 2018.~~effective.

Changes in Internal Control over Financial Reporting

Effective January 1, ~~2018,~~2019, we adopted the new ~~revenue guidance under ASC 606 using~~lease standard as discussed in Note 2, "Recent Accounting Pronouncements" and Note 4, "Leases" to the ~~modified retrospective method~~notes to condensed consolidated financial statements. As a result of ~~adoption. The~~our adoption of ~~this guidance required~~ the ~~implementation of~~ new lease standard, we have implemented a new lease accounting system, accounting policies and processes which changed the ~~Company’s~~Company's internal controls over financial reporting for ~~revenue and cost recognition, processes for calculating the cumulative effect adjustment as well as related disclosure requirements under the new guidance.~~lease accounting.

~~Remediation Plan~~

~~During 2017, management identified a material weakness~~There were no other changes in our internal controls over financial reporting related to the review of property and equipment, depreciation and amortization schedules. The Company has been actively engaged in remediation efforts and will continue initiatives to implement, document, and communicate appropriate policies, procedures, and internal controls regarding this material weakness. The Company’s remediation of the identified material weakness and strengthening of its internal control environment will require continued efforts in 2018.

~~As the Company continues to evaluate and work to improve~~ internal control over financial reporting during the ~~Company may determine~~quarter ended September 30, 2019, that have materially affected, or are reasonably likely to take additional measures to address the material weakness or determine to modify the remediation efforts described above. Until the remediation efforts discussed above, including any additional remediation efforts that the Company identifies as necessary, are implemented, tested and deemed to be operating effectively, the material weakness described above will continue to exist.materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

We believe that there have been no material changes from the Risk Factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC on March ~~15, 2018.~~18, 2019.

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

The following table sets forth information regarding our repurchases of securities for each calendar month in the three months ended September 30, ~~2018:~~2019:

ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total Number of Shares Purchased(1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
July 1 to 31, 2018 759
$ 11.46
—
—
August 1 to 31, 2018 206
13.33
—
—
September 1 to 30, 2018 310
12.63
—
—
Total 1,275
$ 12.04
—
—



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, 2019	176	$	3.17	—	$	5,000,000
August 1 to 31, 2019	213	2.35		—	5,000,000
September 1 to 30, 2019	133	2.28		—	5,000,000
Total	522	$	2.61	—


⁽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.

~~ITEM 5. OTHER INFORMATION~~

~~Disclosure Pursuant to Section 13(r) of the Exchange Act~~

Under the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Securities Exchange Act of 1934, as amended, the Company is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with entities or individuals designated pursuant to certain Executive Orders. Disclosure is required even where the activities are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and even if the activities are not covered or prohibited by U.S. law.

We determined that, between November 2012 and September 2018, our subsidiary iWeb provided information technology services to Pioneer Logistics Havacilik Turizm Yonetim Danismanlik Ithalat Ihracat San. Tic. Ltd. Sti, a Turkish company (“Pioneer Logistics”). On August 29, 2014, the Department of Commerce, Bureau of Industry and Security (“BIS”) determined that Pioneer Logistics was part of a procurement ring which directly supported the operation of Mahan Airlines, an Iranian airline and entity on BIS’s denied persons list.

From August 2014 to September 2018, iWeb received approximately $8,855 in fees from Pioneer Logistics. We are unable to accurately calculate the net profit attributable to these transactions. We promptly terminated Pioneer Logistics as a customer upon learning of its designation and do not plan to provide services to Pioneer Logistics in the future.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:



Exhibit Number			Description

~~10.1~~10.1+			~~Incremental and Fifth Amendment to Credit~~Employment Agreement, dated ~~as of~~ August ~~28, 2018, among Internap Corporation, each of~~26, 2019, by and between the ~~Lenders party thereto~~Company and ~~Jefferies Finance LLC, as Administrative Agent~~Michael T. Sicoli (incorporated herein by reference to Exhibit 10.1 to the ~~Company's~~Company’s Current Report on Form 8-K, filed on August ~~31, 2018)~~27, 2019).

10.2+			Restricted Stock Inducement Award Agreement, dated August 26, 2019, by and between the Company and Michael T. Sicoli (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed August 27, 2019).

10.3+			Notice of Grant of Restricted Stock, dated August 26, 2019, by and between the Company and Michael T. Sicoli (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed August 27, 2019).

10.4+			Indemnity Agreement, dated August 26, 2019, by and between the Company and Michael T. Sicoli (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed August 27, 2019).

10.5+			Employment Covenants Agreement, dated August 26, 2019, by and between the Company and Michael T. Sicoli (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed August 27, 2019).

10.6+#			Offer Letter, dated November 14, 2017, by and between the Company and Joseph DuFresne.

10.7+#			Amendment to Offer Letter, dated January 10, 2019, by and between the Company and Joseph DuFresne.

10.8+#			Letter of Understanding, dated July 12, 2019, by and between the Company and Joseph DuFresne.

10.9+#			Offer Letter, dated March 23, 2017, by and between the Company and Christine A. Herren.

10.10+#			Letter of Understanding, dated May 29, 2019, by and between the Company and Christine A. Herren.



31.1			Rule 13a-14(a)/15d-14(a) Certification, executed by Peter D. Aquino, ~~President and~~ Chief Executive ~~Officer.~~Officer

31.2			Rule 13a-14(a)/15d-14(a) Certification, executed by ~~James C. Keeley,~~Michael T. Sicoli, President, Chief Financial ~~Officer.~~Officer

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

32.2*			Section 1350 Certification, executed by ~~James C. Keeley,~~Michael T. Sicoli, President, Chief Financial ~~Officer.~~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, as amended (15 U.S.C. 78r) ("Exchange Act"), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

# Filed herewith.

+ Management contract and compensatory plan and arrangement.

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/ ~~James C. Keeley~~Peter D. Aquino
		~~James C. Keeley~~Peter D. Aquino
		Chief Executive Officer
		(Principal Executive Officer)

		/s/ Michael T. Sicoli
		Michael T. Sicoli
		President, Chief Financial Officer
		(Principal Financial Officer)

		/s/ Christine A. Herren
		Christine A. Herren
		VP, Accounting and Controller
		(Principal Accounting Officer)


		Date: November ~~1, 2018~~12, 2019



	December 31, 2017, as reported			Adjustments			January 1, 2018, as adjusted
ASSETS
Prepaid expenses and other assets	$	8,673		$	6,814		$	15,487
Deposits and other assets	11,015			11,234			22,249

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Deferred revenues	4,861			(749		)	4,112
Deferred tax liability	1,651			209			1,860
Other long-term liabilities	7,744			(4,616		)	3,128
Accumulated deficit	(1,323,723		)	23,204			(1,300,519		)



	For the Three Months Ended September 30, 2018
	As Reported			Balances without Adoption of ASC 606			Effect of Change Higher/ (Lower)
Net revenues	$	82,972		$	82,822		$	150

Sales, general and administrative	18,170			18,100			70
Total operating costs and expenses	80,798			80,728			70
Income from operations	2,174			2,094			80

Loss before income taxes and equity in earnings of equity-method investment	(14,919		)	(14,999		)	80

Net loss	(15,081		)	(15,161		)	80
Less net income attributable to non-controlling interest	25			25			—
Net loss attributable to INAP stockholders	(15,106		)	(15,186		)	80

Comprehensive loss	$	(15,204	)	$	(15,186	)	$	80



	Three Months Ended September 30, 2018				Three Months Ended September 30, 2017
	INAP US		INAP INTL		INAP US		INAP INTL
Colocation	$	32,946	$	1,372	$	29,114	$	1,166
Network services	13,015		2,719		14,486		2,281
Cloud	19,717		13,203		9,370		12,490
	$	65,678	$	17,294	$	52,970	$	15,937



	December 31, 2017		Re-allocations			SingleHop Acquisition (Note 4)		September 30, 2018
Operating segments:
INAP COLO	$	6,003	$	(6,003	)	$	—	$	—
INAP CLOUD	44,206		(44,206		)	—		—
INAP US	—		28,304			66,496		94,800
INAP INTL	—		21,905			—		21,905
Total	$	50,209	$	—		$	66,496	$	116,705



	September 30, 2018					December 31, 2017
	Gross Carrying Amount		AccumulatedAmortization			Gross Carrying Amount		AccumulatedAmortization
Acquired and developed technology	$	70,201	$	(50,997	)	$	52,825	$	(48,063	)
Customer relationships, trade names and noncompete	110,774		(55,240		)	71,116		(50,212		)
	$	180,975	$	(106,237	)	$	123,941	$	(98,275	)



Three months remaining in 2018	$	3,598
2019	13,961
2020	13,394
2021	11,210
2022	8,251
2023	7,747
Thereafter	16,577
Total	$	74,738



	Balance									Balance
	December 31, 2016		Initial Charges		Plan Adjustments		Cash Payments			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



	Three Months Ended September 30, 2017
	As Previously Reported		Reclassification			As Reported
Revenues:
INAP COLO	$	51,344	$	(51,344	)	$	—
INAP CLOUD	17,563		(17,563		)	—
INAP US	—		52,970			52,970
INAP INTL	—		15,937			15,937
Costs of sales and services, exclusive of depreciation and amortization:
INAP COLO	$	20,785	$	(20,785	)	$	—
INAP CLOUD	4,160		(4,160		)	—
INAP US	—		18,906			18,906
INAP INTL	—		6,039			6,039



	Nine Months Ended September 30, 2017
	As Previously Reported		Reclassification			As Reported
Revenues:
INAP COLO	$	156,727	$	(156,727	)	$	—
INAP CLOUD	53,955		(53,955		)	—
INAP US	—		162,544			162,544
INAP INTL	—		48,138			48,138
Costs of sales and services, exclusive of depreciation and amortization:
INAP COLO	$	67,661	$	(67,661	)	$	—
INAP CLOUD	12,758		(12,758		)	—
INAP US	—		63,589			63,589
INAP INTL	—		16,830			16,830



	Three Months Ended June 30,
	2018		2017
Costs of customer support	$	38	$	38
Sales, general and administrative	1,303		891
	$	1,341	$	929



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, 2018	759	$	11.46	—	—
August 1 to 31, 2018	206	13.33		—	—
September 1 to 30, 2018	310	12.63		—	—
Total	1,275	$	12.04	—	—