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Edited Transcript of INAP earnings conference call or presentation 14-Mar-19 12:30pm GMT

Q4 2018 Internap Corp Earnings Call

Atlanta Mar 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Internap Corp earnings conference call or presentation Thursday, March 14, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James C. Keeley

Internap Corporation - Executive VP & CFO

* Peter D. Aquino

Internap Corporation - President, CEO & Director

* Richard R. Ramlall

Internap Corporation - Chief Communications Officer

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Conference Call Participants

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* Daniel Louis Kurnos

The Benchmark Company, LLC, Research Division - MD

* Erik Peter Rasmussen

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Frank Garrett Louthan

Raymond James & Associates, Inc., Research Division - MD of Equity Research

* George Frederick Sutton

Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst

* Jonathan Michael Petersen

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the INAP Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Richard Ramlall, Chief Communications Officer. Sir, you may begin.

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Richard R. Ramlall, Internap Corporation - Chief Communications Officer [2]

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Good morning, and thank you for joining us today. I'm joined by Pete Aquino, our Chief Executive Officer; and Jim Keeley, our Chief Financial Officer. Following prepared remarks, we'll open up the call for your questions. The slides we'll reference in the call are available on our website in the Events and Presentations section of our IR page.

During this call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in today's earnings press release. Management believes that our presentation of non-GAAP financial measures provides useful supplemental information to the investors regarding our results of operations, and our non-GAAP financial measures 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 earnings press release is available under the financial information section of our Investor Relations page under the quarterly results link. Today's call contains forward-looking statements as described in Page 2 of the slide presentation we'll reference in this call, which we urge you to read. These statements are not guarantees of the future performance. Because these statements are based on certain assumptions and involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. We discuss these factors in our filings with the SEC, which are available on the SEC or on our IR website. We undertake no obligation to amend, update or clarify these statements made as of today, March 14, 2019.

Now let me turn the call over to Peter Aquino. Pete?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [3]

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Thank you, Richard, and good morning, everyone. Welcome to our 2018 wrap-up. We've just completed our second year as the new management team of INAP. I'm pleased to report that the end of '18 marks the completion of several key initiatives to reposition our company for profitable growth, partnerships and potentially transformative deals.

For the year, revenue is stable and beginning to grow once again as we proactively made changes to our portfolio. We're beginning to close larger deals and somewhat -- with somewhat longer lead times, but we're now in the game. The fourth quarter includes some end-of-year adjustments in deal timings, but we're still very optimistic.

In addition, EBITDA is up with expected upside yet to be captured, and our cash flow is also improving. All the performance drivers of INAP are pointing in the right direction. So let's turn to Slide 4 to briefly review the key milestones and accomplishments that got us to this point.

The timeline highlights an ambitious set of objectives, including cost savings, strategic investments, M&A and partnerships. During this period, we also rebuilt our sales, marketing and product teams and made great strides in our customer support teams and go-to-market strategies for the long-term. The primary objective was to refocus INAP on profitable growth and redirect investments into our flagship data centers.

Through acquisition and investments, we've also upgraded our managed cloud capabilities and network backbone. The goal is always to improve the overall customer experience and enable them to grow their businesses. In addition, while we subtracted 6 data centers that were noncore and less profitable, we also added 2 flagship data centers that we control in Atlanta and Phoenix, both high absorption markets that we can capitalize on.

The 2-year period also reflects financing activity to improve our balance sheet to gain flexibility and fuel revenue growth.

Let's turn to Slide 5 to review the financial results over the last 3 years. Our 3-year financial history demonstrates the rebirth of a solid track record of transformation towards profitability. The positive outlook for EBITDA remains upbeat, and our revenue composition has been rebalanced to better position our company for the future. Through a series of operational initiatives designed to rightsize our business, we made important decisions that reduced unproductive revenue by nearly $10 million, and our EBITDA will go up over time.

Simultaneously, we upgraded our value-added services in cloud and network to improve resiliency as customers are demanding more and more power, automation, connectivity and access.

Given our current business model, we expect 4% to 7% annual top line growth over normalized 2018 revenue, post closures. Our revenue outlook reflect a path via organic growth. However, we will be opportunistic with smart tuck ins that support our business plan.

As we look ahead, we're quoting projects to outside that go beyond pure retail services. In 2018, we got our first taste of selling more wholesale deals than ever before and gaining momentum. This is a great sign, and we're confident that we're just getting started.

Although long-term wholesale deals tend to require more success-based CapEx, we've been able to place larger customer footprint in high absorption markets where we already have space, including Santa Clara, Phoenix, Dallas, Montreal. This has kept our CapEx relatively modest as a percent of revenue in the near term and generates margin expansion and positive cash flow.

For the year of 2018, EBITDA was up significantly to 35%, up from 27% in 2016. From a run rate perspective, we exit fourth quarter at 36%, including all of the puts and takes for the fourth quarter. We still have our sights on 40% as the next milestone, and we're getting closer.

Regarding cash flow in 2018, we drove approximately $70 million EBITDA less CapEx, which is double of 2016. We aim to increase margins further by focusing on high return on investment in locations and reinvesting in colocations where we need capacity.

Today, our Tier 3 design data centers are very profitable and are primarily located in the U.S.

As we add more colo inventory to our international segment, we can gain more contribution margins.

Our net U.S. contribution margin is similar to peers at over 45%, while INAP international has an opportunity to expand beyond 35% as we add more colo inventory.

To drive international revenue margins higher, we're now planning an expansion in one of our 4 Montreal data centers and working with COLT to add customers in North London.

In addition, we have a good presence with (inaudible) in Amsterdam and looking to grow our business there.

Finally, given our network presence in Singapore and customer's feedback, we're considering adding a cloud pod there in the near future. We're also very proud of our INAP Japan team that are making great progress in expanding their business. Today, we now own 85% of INAP Japan with NPT as the minority partner.

So to better understand what makes INAP an emerging destination for new logos and customer experiences, let's turn to Slide 6. INAP's impressive footprint rivals the best-in-class data center operators in the markets that we compete in. We operate 53 data centers in 21 markets with over 125 megawatts of power. The top-400 enterprise customers at INAP produce the majority of our revenue. However, today, we manage approximately 9,000 business accounts from start-ups needing space and power to the Fortune 500 requiring a (inaudible) solution.

One of the most strategic advantages that we have is that our improving sales team can cross-sell against 3 critical infrastructure products: colo, cloud, and network. We are known for partnering with customers who need hybrid solutions that utilize colo, cloud, and network services to engineer complex IT projects. INAP can bundle where others cannot, to give customers the full spectrum of services they require all under one roof. We are engaging customers through multiple fronts and then putting direct right sales, channel agents and through our inside sales team. This go-to-market approach is getting stronger every day.

So at a glance, the key attributes of INAP are that we offered Tier 3 data centers for colocation, whether they're in our own INAP flagships or in turnkey Tier 3 facilities with our partners.

We have significant traction in gaming, Ad Tech, healthcare, fintech and software and other technology infrastructure sectors. They're all beginning to -- and we're beginning to talk to big customers about their edge requirements. We can enable those customers in short order in NFL cities.

Another key attribute and clearly a significant barrier to entry is that our facilities across North America are primarily in metropolitan markets, where enterprise demand for infrastructure is the greatest. They need 3x hyperscale. As workloads begin to lead company facilities, we're building numerous multi-cloud requests, whereby customers are accessing both public and private clouds to build platforms needed for their business.

Security and privacy requirements are also driving growth in private cloud services. For example, we just landed a healthcare deal with InSync, whose goal is to securely control their environment with a partner like INAP and maintain a high level to clients across their platform.

As part of our vision to be a leading full service provider, we're also very pleased with the integration of our advanced managed services platform through the acquisition of SingleHop in early 2018. We are now collectively known for advanced automation and flexibility across our bare-metal cloud platforms.

Our all-star team of experts provide our customers with a partner who they can work with hand in hand.

And finally, one of the well-known key attributes of our company is our global network. Let's turn to Slide 7 to review the upgrades made during 2018.

Over the last year or so, we've been busy scaling our bandwidth to handle ever-increasing IT traffic worldwide.

Our network team reevaluated all of our carrier contracts and architecture to reengineer our backlog across North America and to bring the majority of our data centers directly on net.

In addition, investments in dark fiber and electronics enable Metro E and SD-WAN and are now being tested and under discussion with anchor tenants.

This new and improved transport network not only benefits our uptime and reduces outages, but also allows our customers to monitor their services end-to-end.

Today, our data centers, cloud pods and over 100 network POPs globally are all interconnected via fiber or Blades.

This new infrastructure coupled with our performance IT, routing technology is attracting new customers by providing their businesses with seamless low-latency connectivity solutions.

We aim to leverage this strength as a closing tool where others cannot.

So at this point, let me turn it over to Jim, our CFO, to go through the fourth quarter results in more detail. Jim?

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James C. Keeley, Internap Corporation - Executive VP & CFO [4]

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Thanks, Pete, and good morning, everyone. As we close 2018, I am very pleased with the groundwork that has been laid in the year to position the company for future growth.

We have finished the planned closure to noncore less profitable data centers, we built the sales force over the year, expanded our product mix and technical talent with the acquisition of SingleHop, strengthened our balance sheet and equity raise and debt reprising. These proactive actions were designed to improve operational performance. And we are working to support our customers with a high quality of service that drove many businesses decisions over the years.

Now let's walk through the fourth quarter results to discuss the impacts of these strategic initiatives.

As previously disclosed, affected in the first quarter of 2018, we realigned our segments geographically into INAP U.S. and INAP international. We decided to make this change in conjunction with the SingleHop acquisition to better align and manage our COLT data center operations and assets. New reporting segments and historical comparisons are presented in the release we issued this morning.

Now let's turn to the consolidated earnings summary on Slide 8. Total revenue, as reported, was $78.2 million in the fourth quarter of 2018, a decrease of 5.7% sequentially and an increase of 11.7% year-over-year.

As Pete discussed earlier, the sequential decrease was partly due to the continuation of onetime proactive initiatives to improve our business, more specifically, to close underperforming data centers.

In order to exit the year with a clean baseline for 2019, we accelerated the completion of these planned exits in markets where we already had an INAP flagship data center.

In addition, the decrease was impacted by revenue accounting adjustments resulting comparing true-ups, lower nonrecurring revenue, slightly higher churn from our basic continuing assets.

The good news is that our adjusted EBITDA was fairly stable with only a slight (inaudible) drop sequentially.

As of today, we have completely exited of all 6 of the data centers planned and have begun to see the positive cash flow benefits as the lease terms on these properties end. The majority of the remaining leases terminate by the end of the second quarter of [2019].

And even though revenue was impacted by these closures, we were able to continue to increase adjusted EBITDA throughout the year.

As we look to the year ahead and account for the normalized fourth quarter results, we expect our revenue to be in line and the first quarter of 2019 to be around $77 million. The decrease in the fourth quarter is due primarily to recurring revenue loss at the end of the quarter for which the full impact will not be recognized until Q1. Also, given the nature of many of the onetime adjustments in the fourth quarter, we expect adjusted [and even] cash flow to remain relatively flat for -- I mean, in first quarter of '19, then increase as revenue growth, combined with continuous efforts to optimize our business and productivity trends towards our guidance.

Net loss at the end of the fourth quarter was $19.4 million, including $3.4 million of other expenses, such as $2.3 million from exit restructuring (inaudible) and $1.1 million in stock-based compensation. On a normalized non-GAAP basis, fourth quarter 2018 net loss increased by $4.8 million to $16 million from a net loss of $11.2 million in the prior quarter and increased $10.5 million versus $5.5 million in the prior year.

Sequentially, the increase is primarily due to lower revenues, offset by cost savings (inaudible) data centers and operating centers. The year-over-year increase was primarily due to higher depreciation and amortization and higher interest expense, both of which primarily resulted from SingleHop acquisition.

Adjusted EBITDA in the fourth quarter was $27.9 million with adjusted EBITDA margin of 35.7%. Adjusted EBITDA decreased by $1.5 million, including previously mentioned onetime adjustments versus the prior quarter, and increased [$3.5] million year-over-year, including the impact of proactive business improvement initiatives.

Adjusted EBITDA margin expanded 30 basis points sequentially and 90 basis points compared to (inaudible) '17. The sequential decrease in the EBITDA was driven primarily by the decline in revenue offset, in part by cost reduction associated with (inaudible) of data centers. In an OpEx to CapEx leasing (inaudible) fourth quarter, it was discovered as part of the implementation parts of process in the (inaudible). Capital expenditures in the fourth quarter were $12.4 million compared to $12 million last quarter, $12.7 million for the fourth quarter of 2017.

Fourth quarter spend was predominately for success-based credit cap. Installations for large deals in turn reducing our backlog to about $14 million as of today. Our sales pipeline remains strong, and we fully expect to replenish the backlog and close harder deals with longer lead times.

Fourth quarter 2018 adjusted EBITDA less CapEx was $15.5 million, a sequential decrease of $1.9 million due to the decrease in adjusted EBITDA. And an increase of $3.8 million versus the fourth quarter of 2017 resulting partly (inaudible).

Now let's turn to Slide 9 for our INAP business unit results. U.S. revenue totaled $61.3 million in the fourth quarter of 2018, a decrease of $6.6 million sequentially and an increase of 15.3% year-over-year. The sequential revenue decrease was primarily due to lower colocation and network revenues, resulting from planned data center closures, accounting adjustments resulting from year-end true-ups, lower nonrecurring revenue, slightly higher churn (inaudible). The year-over-year revenue increase was primarily due to the addition of SingleHop defined as cloud service and higher nonrecurring revenues offset, in part by slightly lower (inaudible) network revenues.

U.S. business units' fourth quarter contribution was $27.8 million, resulting in a 45.3% contribution margin, which remains flat compared to the third quarter, and increased 210 basis points over the prior year.

The year-over-year increase was primarily due to a combination of cost reductions [next to] the underperforming data centers.

Now let's go to Slide 10 to discuss our INAP international business unit results. International's fourth quarter revenue totaled $16.9 million, a slight decrease of $400,000 or 2.4% sequentially and relatively flat year-over-year.

The sequential decrease was primarily due to slightly lower revenue in the segment, dominated by cloud services mainly in Canada. Despite modest revenue declines sequentially, the international business unit contribution of $6.2 million slightly increased $400,000 sequentially and was relatively flat year-over-year.

The fourth quarter international contribution margin decreased 330 basis points sequentially to 36.9% and decreased 70 basis points year-over-year. The sequential increase is due mainly to the (inaudible) company adjustments related to potential pricing.

Let's make this Slide 11 (inaudible) cash flow and balance sheet. Free cash flow is defined as, net cash flows provided by operating activities, less capital expenditures, the negative $7 million in the fourth quarter of 2018, a decrease of $5.3 million from the prior quarter and a decrease of $8.2 million from the prior year. The sequential decrease is primarily due to working capital (inaudible) and the payment on [the accrued] taxes. As I previously mentioned, capital expenditures were mainly comprised of growth-related spend. Cash interest was $16 million in the fourth quarter. This brings the free cash flow to $9 million compared to $14.1 million in the previous quarter and $13 million last year.

On October 23, 2018, the company closed the public offering of approximately 4.2 million shares of common stock at $9.50 per share and received net proceeds of $37 million, data and underwriting discounts and commissions and other operating expenses. The proceeds were used to pay off $18.5 million of (inaudible), bringing the balance outstanding to 0, excluding letters of credit.

The remaining funds provided flexibility of (inaudible) which helped bring (inaudible). Total debt of $687.1 million includes $271.5 million in capital lease obligations. Capital lease obligations increased $9.5 million, primarily for the renewal and extension of our Santa Clara data centers. $168.8 million of our capital lease obligations are excluded debt for bank covenant purposes as they're [cooperating] leases (inaudible). Our covenant-based leverage ratio was 5.4 in the fourth quarter of '18, 5.5 in the third quarter of '18 and 4.5 in the fourth quarter of 2017.

Cash and cash equivalents were $17.8 million at the end of the fourth quarter versus $11.8 million in the prior quarter. The increase of $6 million was primarily driven by the proceeds received from the equity raise, offset in part by lower capital timing, the payment of accrued tax settlement and higher capital expenditures. First of the remaining lease commitments (inaudible) has ended. And the bulk of the remainder will grow up by the end of the second quarter of 2019, resulting in a nice increase of cash flow. We'll have an increase in the payable liquidity from the release of several letters of credit (inaudible).

Turning to Slide 12 2019 guidance.

Taking into consideration our newly established baseline entering the first quarter of 2019, assuming an expected 4% to 7% growth profile for 2019. We believe it's prudent to expect revenue to be in the range of $320 million to $330 million, adjusted EBITDA in the range of $120 million to $130 million and CapEx between $40 million and $50 million for the year.

As Pete mentioned earlier, there was about $10 million of revenue in 2018 related to the planned data center closures, now gone from our revenue stream. So if you (inaudible) '18 revenue of $317 million and apply a moderate growth rate of 4% to 7%, you end up around our revenue guidance.

In addition, and consistent with our actions for 2018, management constantly considers tuck ins and disposition/asset sales that could have a positive impact on our outlook.

Regardless of any corporate development and activities, we expect to produce meaningful cash flow and adjusted EBITDA lower to CapEx to be continue -- to drive cost efficiency.

Now let me turn the call back to Pete.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [5]

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Thanks, Jim. Let's turn to our last slide, 13, for our final prepared remarks.

INAP has emerged as a full-service infrastructure player in many of the top-15 markets in North America. Through our corporate development efforts, we are actively pursuing partnerships and larger transactions that could potentially transform INAP once again to the benefit of our customers and shareholders.

Our extensive portfolio of infrastructure assets can absorb and integrate other platforms into our environment to gain immediate scale. We can advance beyond multiservice resale and add wholesale beyond single-megawatt deals. We have the right assets in place, we have the capacity to sell in emerging partnerships that can help us gain more share. The macro trends are in our favor as customers build IT workloads off-prem. And consolidation activity in our industry continues almost out of necessity to gain speed and skill, we are excited about our assets that we bring to the table in Tier 1 market.

INAP is well diversified across many infrastructure platforms, and our execution strategies for 2019 are well on the way.

So this concludes our prepared remarks. At this point, we'd like to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Dan Kurnos with Benchmark Company.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD [2]

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Pete, so you've -- maybe we can get into kind of the backlog, and your commentary around elevated churn. You guys announced 2 deals recently, publicly announced. Maybe you can give us a little bit more granularity on sort of the size or thought process around those deals. And then kind of reconcile all of that and factoring in the accounting. And Jim, you kind of cut out a little bit when you were walking through some of the nuance there. Just trying to understand the new revenue guide and sort of the context of your prior expectations at the end of the year, the 3 wholesale wins embedded in the guide. What these new deals mean? And kind of what's going on with the underlying existing user base.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [3]

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Sure, Dan. Look, the end of year had typical fourth quarter seasonality in it. But for the most part, we're still on track. The sales team are still talking to big customer accounts. We've landed a few. Infrastructure deals sometimes take a little bit longer, there's some timing involved too. But for the most part, the 2018 end of year of $317 million is slightly off our original thought of $320 million, but not that far off relatively speaking from what we expected. The good news is, everything we've been doing is still creating the momentum we need. I think the fourth quarter volatility in the macro trends maybe put some things off that we thought we would score by the end of the year. That probably affected our backlog somewhat because everything that we could put on that or put into service, we did. So we pretty much moved the backlog from $20 million down to $14 million by installing what we could and getting the capital program working right through the end of the year. We're still very optimistic. A lot of these deals are kind of hard to track quarter-to-quarter, and they take a little bit more time. But as you swing for bigger deals, they do take a little bit longer. The healthcare sector, the gaming sector, Ad Tech are all in our sweet spots. We made a bunch of upgrades in '18 to get our network stronger. We fixed a lot of things in the cloud platform that SingleHop actually helped us to advance. So '18 was somewhat of a cleanup year. But at the same time, as you know, underneath what we're doing, the baseline and the traction is really good. So again, slightly off, not a big deal in my opinion. EBITDA is still strong, as strong as we predicted, and I think we can do even better on the EBITDA. As I pointed out on the call, I think by focusing a little bit on international and the colo inventory that we have working in Montréal and London, I think that's going to automatically help our upside. So that's pretty much the wrap up. I mean, again, one quarter doesn't make a year. But the whole year in its entirety was a very successful year with a lot of work to rebalance the whole portfolio. So hopefully that's an opening to help you take it through.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD [4]

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Got it. And then just on the other side of the equation, on the balance sheet. Obviously, I guess, your commentary around looking for tuck ins is consistent with what we've said historically. I don't know if it's a little bit more opportunistic or optimistic. Obviously, you guys had mentioned before looking for more flexibility through a refinancing, I don't know if you could update us on sort of your thoughts, Pete, on sort of the necessity or what you're doing to sort of address, I guess. Not that you have to refi, but certainly, the balance sheet and where it stands today, and your thoughts on sort of asset sale versus acquisition near term.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [5]

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Right. The equity rates definitely help buy some time. We don't have to do refinancing now, but the window's certainly opened. By the end of the year, it was closed, January was closed, February starting to open. So now what we'd like to do is look at our next set of things we have on our table and see if we can combine it with some activity that we're working on, on corporate development and make more sense of it. Straight up, we can do it in the A&E, we can gain some more flexibility on a phone call almost, but we want to see if we can combine it. So we're doing a couple of things that hopefully -- it's a 2 cushion shot as opposed to straight A&E. So that's the first step on that. The flexibility is really needed so that we can put capital to work. As you know, in the industry, there's a lot of capital going into the ground for hyperscale. We still have an advantage because some of the markets where we had excess capacity, we were very optimistic we can land some bigger deals. We have almost 15 megawatts of power in the new Bank of America building in Phoenix. That's a great asset to leverage. Our sales teams are all over that one. So again, other than timing and some of these things that take a little bit longer, we're certainly aiming higher. The tuck ins don't necessarily require an equity raise or refinancing to get those done. Some of them are quite easy in the line of maybe a smaller coke deal or something like that, where markets like Chicago, Ashburn, a couple of hot markets we could do better, even in Toronto. We don't need to do another equity raise just to get those things done necessarily. So we have our eyes on a short list of those things that we are engaging on and don't expect to be doing any type of major raise to do those.

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Operator [6]

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Our next question comes from George Sutton with Craig-Hallum.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [7]

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I just wanted to -- first, if you could walk through because we've talked in early December, sort of, the $10 million impact in the quarter sort of when that all came together. And I wondered if you could just give us an ROI dynamic from that move. So once we've sort of seen the full impact and you have redeployed, what kind of ROI would we expect from that?

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James C. Keeley, Internap Corporation - Executive VP & CFO [8]

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Well, we've been talking about those closures most of '18, George. And some of the feedback I got from the market itself was, be done with it, move on. And we looked at accelerating a lot of those closures. That impacted the fourth quarter by just moving everything up. And it was a big effort by our operations team. They didn't love that idea either. But for 2019, and given some of the discussions we're having with partners and customers, we wanted 2019 to be clean. So the acceleration -- which at the end of the day, you look at those 6 centers, we have a list of what revenue was in there from the beginning, what revenue is going to be, basically, lost as Jim said. That's $10 million of revenue that will disappear. But in some ways, we have opportunities. A lot of those customers came over to our flagships, and they can grow in our own body. What you end up doing is eliminating a bunch of real estate leases with partners that, frankly, we're happy to exit. We think we're going to save at least $10 million a year in recurring expense and lease costs. Most of that is flushing out by the middle of '19, but on its -- on a one-for-one, we pretty much lose $10 million of revenue and gain $10 million of cash back and that keeps coming. So it was a hard decision to make, we bit the bullet in '18. And what you're seeing in the fourth quarter is somewhat of a timing issue but also an initiative to pull it up. And as Jim said, as you pull it all up, the fourth quarter is somewhat penalized, but it's all cleaned up now. Even EBITDA is slightly down in the fourth quarter because of all of this work. So normalized EBITDA is probably up. And we get the whole company kind of back on track for 2019, exactly what we tried to do it inside of the 2-year period. So the return on investment's quite good. The -- half of the revenues probably, in time, will make it into our flagship. And again, $10 million tax savings is in the bank for 2019.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [9]

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Okay, that's helpful. There are 2 mega-hot markets in the U.S, Phoenix and Northern Virginia. And I give you great credit for the moves you've made in Phoenix. Could you give us an update on what -- I know you're trying to get more for presence, you mentioned Ashburn. But if you could just talk more specifically about that market opportunity.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [10]

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Ashburn, specifically?

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [11]

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If that's what you're pursuing most (inaudible).

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Peter D. Aquino, Internap Corporation - President, CEO & Director [12]

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Yes. Well, okay. So let's talk about Phoenix first. Our anchor tenant is Bank of America. They're an excellent customer. Hopefully, we could even do more with them. We also have a DRT facility virtually across the street that we sold up 3 times. So that's pretty much capped. We have large customers in their, who are touring the other facility. Again, long lead times, but they see that they can grow with us in the same hot Phoenix market, no pun intended. But -- so Phoenix -- well situated. When it comes to Ashburn, Ashburn is very interesting because it's sort of a hyperscale market. And a lot of new players entering Ashburn with -- like, I like to say, 2 guys, a lot of money in a truck and they're developing land in a turnkey facility for one of the big players. I think competition there is getting interesting if you're a one-trick pony for hyperscale. However, there are a lot of enterprises that are want to be in Ashburn too that I think, from a wholesale perspective, is a good fit for INAP. And we've been focusing on that sort of trying to burn the candle at both ends. We have access to 1 or 2 properties that are certainly 10 megawatts or better, with landlords that are already in our body and friendly to us. We're trying to, in essence, score a contract with the property in hand. We don't want to build spec in Ashburn that's a me-too strategy, and it's really not what we do for a living. But we have a beat on a couple of properties, couple of friendly landlords, we've already toured facilities that could make sense. And now we've just got to push with sales to land a deal. So again, in the spirit of -- infrastructure deals do take a little bit longer. We are talking to the right players who want that type of presence. As you know too, George, a lot of our customers are in multiple locations. So to the extent, we could leverage where they already are in Dallas or Phoenix instead of Clara and offer Ashburn on a contract for us to fill with a landlord second, we can do that almost automatically and quickly. So we're staying active in that and we're trying to thread the needle on contract first, sign a lease second. It's not always easy because customers, especially the larger ones may just go with the lease is already in place. But again, a lot of our large customers who are already in our buildings like working with us. So we might get lucky there. And I'm trying to push it beyond luck to an action. Chicago was another one. Chicago is another hot market for us. We don't have a lot of inventory there. We're in Cermak with Equinix. It's a great location. But we're also in a lot of discussions about tuck ins in Chicago. It makes total sense for our footprint. We have a lot of network connectivity in Chicago. So our customers are almost pulling us there. And a lot of feedback on Amsterdam, more in London. As I mentioned in the script, even Singapore is a push. So we're in the right conversations, I feel really good about that. And we're just playing for the future. And it just may not be quarter-to-quarter so much, but on an annual basis, I think we'll be scoring some bigger deals this year.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [13]

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One other quick questions, if I could. You mentioned 2018 was a clean-up year. I'm just wondering if you can give us a preview 2019 and 2020 if you were using very short descriptions of those years. What should we look for in the summary?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [14]

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I think, 2019 is a year of -- baseline growth of 4% to 7% off of a jumping point of say $310-ish million, $309 million, something like that, you considered the closures. That's blocking and tackling. We're going to do that. The way we get above that are things that really aren't in the guidance, which is scoring some of these wholesale deals as soon as possible in a year. Because you got to put them online, you got to build them and you got to book them. So the sooner we can get them online, the better. That will definitely help. So that may drag into '20, but of course, if we're going after these big deals -- again, more than 1 megawatt. We scored 3 and 1 megawatt deals in '18, and we haven't done that before. So if we can do that again and some, to start scoring 3s and 5s, that's where '20 starts to look even better. And why not really? It's really just a -- it's a capital play. We weren't known for that in the past, but we are now. We're pushing that really hard, and we have the capacity. I mean, to the extent we could land somebody in Phoenix with 15 megawatts ready to go, I mean, why not. So we're touring those buildings with that kind of mindset. And that's new, George, for the sake of this company. So I would say '18, clean up for sure. We had to take our medicine. We had to do it, '19, it's clean to go. Our properties are the ones we want. The North America footprint is a great platform. We show it to people, and they're frankly surprised. And I'm always surprised that we sound like we're new to them, but we're getting out there on The Street. We're helping the sales team. Our Head of Sales, Rich O'Dea is from Equinix, he knows all the biggest players. So we're in the game, we're in the discussion. But again, it's -- we're really turning the page from '17 to '18, which was really a turnaround story. That's why we went through the timeline this year to just recap what the 2 years were like here. But we did it to have a great '19 and '20. And the more resources, the help we give our sales teams from top to bottom, we'll get there with bigger deals.

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Operator [15]

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Our next question comes from Frank Louthan with Raymond James.

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Frank Garrett Louthan, Raymond James & Associates, Inc., Research Division - MD of Equity Research [16]

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I want to dig back into the top line. So Pete, you said that $309 million is just sort of the jumping off point. If you just kind of annualized Q4 that implies more like $313 million. And I think you said earlier in the call that, maybe I missed it, that Q1 would be close to $77 million. Can we get a -- just a couple of things. One, is all of this completely out as of January 1? So is there any more of these data centers to shut down are left? And then two, can we be clear on what sort of the base revenue in Q1 should look like in the EBITDA. You should have a pretty good idea I guess of what that's going to be at this point in the quarter. And then I got a couple of follow ups.

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James C. Keeley, Internap Corporation - Executive VP & CFO [17]

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Frank, this is Jim. So the base revenue going into the Q1, as I mentioned, is going to be around $77 million. Some of the migration churn that occurred in the fourth quarter happened late in the quarter. So you're just going to have a bigger impact going into Q1. That's why that's dropping a little bit. EBITDA will hold flat, around the $28 million mark at the start of the year. And from that point on, we'll grow to where by the end of the year, we'll be at that $320 million to $330 million mark based on the growth rate of a 4% to 7%. So that's kind of -- and the $10 million setback, as Pete mentioned, takes us from a starting point of around $307 million, $308 million. And if you apply those growth rates, that's where we're going to get to. And then, of course, any of the tuck in acquisitions or where we have additional space is going to help get it there if not exceeded.

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Frank Garrett Louthan, Raymond James & Associates, Inc., Research Division - MD of Equity Research [18]

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Okay. So when you say -- so if you say around $77 million, could that be like $76 million and could it be something closer to $27.5 million for EBITDA. I'm not trying to be too -- well I am trying to be a little bit more precise on it, just because it's something that I think investors want to have nailed down.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [19]

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I would say that from my perspective, $28 million EBITDA is kind of where I'm thinking, it's going to be that or better. We put a bunch of cost initiatives in place already for -- as part of the rightsizing last year. So we'll work our way through the first and second quarter. But the $28 million to $30 million is kind of table space for us that's how we get into our guidance, whether it's a little timing involved. But I don't want to say easy to do, but in our control, so to speak. The $77 million I think, in my mind, is -- Jim is just trying to be conservative, and I agree, to not be overly aggressive on the top line as we made so many adjustments. The 6 buildings that we closed were the 6 buildings I -- maybe 5 of the 6 I knew in 2017. So the fourth quarter represents moving them all in so that we can get them done. And to Jim's point, some of them -- we didn't get a full 3 months out of all of them, so you got a little left over and makes $77 million pretty much the number. But even if we sold some of these bigger deals now, as you know, look to build, takes a little bit longer. So we have to get out of the first quarter with normal rate and speed. And then we grow from there because the deals we have and the backlog we're pushing, we're all going to start getting positive in the second quarter and on. But I think $320 million is pretty reasonable for sure. EBITDA at $120 million minimum is very solid. We said that in December as well. So we're -- if that's all we're doing inside of our own suit, that's not a bad starting point. But as you know, we have 2 parts of our brand. One is organic and business as usual. We're pretty much out of the turnaround, cleanup mode. We're all on offense now. And corporate development is really -- beats up to try to get some deals going that really move the needle for us. As you know too, the activity in the market is really hot. A bunch of companies our size and trying to hit double to somehow, either get big or get out. There's a couple of properties coming on the market that pretty much look like us but are either private or carve-outs. So it's going to be a very interesting 2019 regarding corporate development and where we fit. Another reason we try to accelerate all this cleanup, just so that when we're talking to others in terms of partnerships or ways to gain scale, coming or going, is we have to be clean. We have passed diligence in a great way as opposed to maybe the past. Integration, for the most part, is business as usual. But we're trying to accelerate that because we have SingleHop, we have iWeb, we have our old manage services platform. All that's being integrated as we speak. Again to benefit any combination or frankly absorption of an [acid] into our bodies. So '18 was critical to get that work done. '19, we want to be clean and attractive for any type of partnership we could do.

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Frank Garrett Louthan, Raymond James & Associates, Inc., Research Division - MD of Equity Research [20]

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Okay, great. And so my follow-up on this is, you have the statement and your footnote with the guidance. So in addition, management is expecting that opportunities tuck ins etc will contribute to the company's results. How should we interpret that? Does that mean that you're anticipating getting to this guidance inclusive of some of tuck ins? Add if they don't materialize or don't materialize the way you're thinking about them, you can come in below? Or would tuck ins and so forth be added into the current guidance and -- as you go forward through the year?

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James C. Keeley, Internap Corporation - Executive VP & CFO [21]

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Well, it's really depending on the size. Small tuck ins are just helpful. They're -- we're adding new customers, and we're looking at a bunch -- a handful of small ones, which really don't matter that much, I would say, in the whole scheme of things. This guidance is designed, and we did it more conservative to just do it as a stand-alone organic path. We're in a position now where we can do 4% to 7% with our own team, with the assets we have, with the capacity that we have, we should be able to get there naturally. But our viewpoint is, we have to do both. So during the year, we'll be briefing the market as how we got there, what the changes are. But for the most part, small tuck ins are just part of normal traction. We're looking at one right now that I think is -- it's very modest, it doesn't contribute all that much, but it's a market we want. So we can get a footprint in a good market, and we're in those discussions right now. Do we need it to hit our guidance? Not necessarily. But anything we can do to bolster our platform for the long term is going to be helpful. So we designed it for an organic score, but we're going to do more. And so, depending on the size, we were not going to need to do any type of refinancing or equity raise to do these small tuck-ins anyway. But if something bigger comes along, and it's accretive and attractive to our shareholders, certainly we're going to look at those bigger deals too. That's a long way of saying, tuck ins don't really -- don't require a whole bunch of financing, so to speak, to get there. So refinancing down the road, potentially is going to be needed to gain more flexibility, do something bigger. So that's on the roadmap because we want to do both and be considered in both. Does that help?

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Frank Garrett Louthan, Raymond James & Associates, Inc., Research Division - MD of Equity Research [22]

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Yes. That's helpful. Is any other refinancing you're looking at? Anything opportunistic? Gets better rates? How should we think about that?

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James C. Keeley, Internap Corporation - Executive VP & CFO [23]

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Well, we do just do it straight up today. So given that rates sort of moved up. We're going to get flexibility, maybe more than rates. The flexibility is good, flexibility is helpful. But like I said before, we're not running to do that right now. We'd like to do it in combination with something else. But we'll keep our eyes open down the road and see what the advantages are either way. Flexibility for INAP is important, as you know. But we already took a repricing and took the rate down some. We need scales to really take it down. And so whether they're coming or going, down the road, that's what really drives the rate reduction. But in our current suit, you're probably not going to get that much rate change, we're going to go for flexibility in the short term. But again, I like to combine it with something else, and we're in the market looking.

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Frank Garrett Louthan, Raymond James & Associates, Inc., Research Division - MD of Equity Research [24]

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How much -- how comfortable are you -- what kind of range are you comfortable taking rates up to the get the flexibility?

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James C. Keeley, Internap Corporation - Executive VP & CFO [25]

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It's kind of hard to tell. We get a lot of advice from bankers. It's either flat or slightly up just to get an A&E. But A&E is kind of the last resort for us. But we'll do with if we need it. We're going to keep the company safe. We're going to look at ahead and make sure there's no covenant issues down the road or basket issues, and keep an eye on that. Because right now, we're pretty much capped out from the standpoint of what we -- the facility we have. So it's not a limiting factor in the sense that we can't do what we have to do to achieve our guidance, but it is a limiting factor if we want to do corporate development and make the company bigger. So we'll keep our eye on that, and we'll be smart about it just like every other company does. But sitting here today, I don't think the repricing goes down 150 basis points with the suit we have and the profile we have today, so we're obviously smart about that. But again, looking ahead, just for the sake of doing an A&E, I don't know how interesting that is, but we're trying to be more creative than that.

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Operator [26]

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Our next question comes from Erik Rasmussen with Stifel.

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Erik Peter Rasmussen, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [27]

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First, circling back on these larger deals, you've talked in the past about the businesses. That business obviously tends to be bulky. But just trying to understand the timeline from, say, bookings to commencements, what is the lag? And, obviously, if there's a larger deal, what is the timeframe to a full ramp? I think that'll be helpful for us to get that context.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [28]

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Yes. I'm thinking of the Blade gaming deal we just did. It's probably a 3-month build to start seeing the beginning of revenue. And probably by the fifth month, we get it all. And that's a one megawatt deal. It's kind of the timing. So obviously, we're very anxious to score early in the year because the sooner you get those built and booked, the more you can -- the faster you can recognize the whole revenue stream. Those colo deals and footprints are the ones that provide no long-term growth, have longer lead times, but we have 2 other products that are more simultaneous. The managed services platform and server deployment is very fast. Either we have the servers or we buy the servers and put them in. That's a fast book-to-bill situation, could be one or 2 months. So the diversity of INAP is really helpful for current ring speed because we have a big managed services platform that allows us to support that. But the bigger colocation deals, which I think are really our bread and butter for the future, can't be measured necessarily in a quarter. They have to be measured in 2 or 3 quarters. So as the press releases come out, we say we just scored X, Y or Z, depending on the flavor, some take longer than others, but that's the nature of the business of data centers and infrastructure. So I would look at it from that perspective. We're diversified, we probably can do both. The colo, which I love to put on that just takes longer, and we have to live with that time line. So a lot of these good deals basically will drag into '20. As I would say, when you think about colo, it's probably a 2-year profile as opposed to, certainly next quarter. But we're pushing for the bigger colo deals because we have the capacity to put them on. So that's the nature of our business. And I think we'll be expressing that, we'll be more logical when you see these things come on during '19 as to how that revenue's going to unfold.

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Erik Peter Rasmussen, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [29]

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Great. That's helpful. On CapEx and your capital intensity, what's the team's appetite and ability at this point to increase this, to go after more wholesale opportunities that you've been talking about and drive up your growth rates? Are those the type of discussions you are having at the board level?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [30]

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Exactly. I mean, it's not really at board level, it's the customer level. If we score 5 megawatts as opposed to one megawatt -- that's why our capital program says 40 to 50. But if we catch the bus, we're going to look like some of these other companies that are public, where their CapEx is a function of revenue that's closer to 75% or so. But that's kind of a good problem. We would report that and describe that contract in a way that others do as well. We don't want to do it spec though. I thinks that's the nuance, is we're not a hyperscale spec team with some of those bigger players already in and waiting for the next campus. It's not our model today but some hybrid of the 2 between retail and wholesale could be a better profile for us. And I know a lot of companies, I'm a big fan of interaction who, over time, probably over 20 years, has migrated into both. Even Equinix, in their size and scale now consider themselves retail, but they're not. I think a big hyperscale player but those who did wholesale deals. So some version -- and that's the evolution of INAP. I mean, we were -- we tend to be smaller retail providers. But we've been beefing up this company to do a hybrid of both. And so now, we're -- our sales team, our guys are motivated to go beyond a $50,000 MRR deal. And let's then see if we can get a $500,000 MRR deal because we have the space. And that would be fantastic. But we're -- we can do it. We're set up to do it, we have the same technology as everybody else who do it. We just have to now talk to customers, show them our footprint. Connectivity is a big selling point. These assets are all connected, it took us a whole year to do that well. And we'll get in the conversation. So -- but a lot of companies don't know when to do that. I mean, we'll even talk internally about, who do people think we are? And the answer always comes back, small retail. That's the history of the company. To change that profile, we have to land, we have to land these bigger deals. And we have to become a hybrid of both retail and wholesale. And that may take time, but we're going to push that way. And then the capital program will go with it. But you'll be able to look at those contracts like others and say, you're spending more CapEx because you're building 5 megawatts not one. And that's the -- and that's what you see others doing. I think my peer group, mostly private, are doing the exact same thing. Their conversations are no longer everyday folks on small retail, they're looking for big wins. Because the big wins mean the capital program's running 75% intensity or better and the growth rates are double digits. But you trade off spending a lot of CapEx over time and get that to happen. That's what's happening in the industry now, it's been evolving over the last 2 years. And I would say even hyperscale versus retail in general have been further apart in the past, now they're kind of morphing together. Everybody's trying to do both. Little bit of wholesale and retail is good because it gives diversity. To extend use of assets in the right market's even better. I mean, we have 53 data centers not 2. So if we could -- exactly could attract somebody at the edge, the company's formed just to do just that. I think we could benefit. So that's the strategy that's the vision. It's a little longer-term approach to things, it's a longer view but that's the nature of our business and industry. So we have to take a longer view of these things, but we have to push some bigger deals.

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Operator [31]

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Our next question comes from John Petersen with Jefferies.

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Jonathan Michael Petersen, Jefferies LLC, Research Division - Equity Analyst [32]

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So I know we keep talking about the top line revenue, but I just wanted to hopefully clarify one thing quickly. So base is $309 million, the midpoint's $325 million. So you've about $16 million to get to the midpoint from your run rate right now. I'm just curious, how much of that is already accounted for in the backlog? I know you have Blade that you're working out right now. But trying to understand what percentage or what dollar amount of that's already kind of spoken for, and then what still needs to be accomplished to blocking and tackling?

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James C. Keeley, Internap Corporation - Executive VP & CFO [33]

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Well, I think that's just the tip of the iceberg. That one deal is work in progress. Our churn rate for the year are pretty close to market conditions. So we have to outrun that and do a little bit better. So I would say we need a very similar track of deals that we had in '18, John. '18 was a pretty good booking year from where we came from. If we did the same thing a little bit more, we're right on to those numbers. For a few quarters, we were doing 1%, 1.5% organic growth. That was on the rate and speed of the deals we were doing. So I think we could assume that Blade-like deal, where the backlog of around $15 million to $20 million every quarter being replenished can produce that type of growth rate. But we have to do at least the production of 2018 and probably a little bit more, but that's momentum we have saved for timing.

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Jonathan Michael Petersen, Jefferies LLC, Research Division - Equity Analyst [34]

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Okay. And then I guess in terms of our expansion plans, your $40 million, $50 million of CapEx and just kind of expected growth throughout the year. I mean, do you expect leverage levels to increase throughout the year? And I guess, will you need to raise any sort of capital to kind of meet your business plan?

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James C. Keeley, Internap Corporation - Executive VP & CFO [35]

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Not [that the] current business as usual. The business is basically at a point where we're generating free cash flows from the suit they're in. So we don't really need to raise money just to do what we're doing. The leverage ratio right now at 5.4, slightly down given the equity raise. Again, this is bank measurements as opposed to adding all the cap leases. That puts us at about 6 from that perspective. It's a little rich, others are doing much more than that. Certainly the private guys are doing more in terms of leverage. But we would only raise money if we have a project or a deal that is worthy of financing. So we're trying to get the deal first and then talk about market -- capital market's second. That's the strategy for this year.

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Jonathan Michael Petersen, Jefferies LLC, Research Division - Equity Analyst [36]

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Okay. That make sense. And then just one more question. I know it's really small, but a few months ago, you announced a $5 million stock repurchase program. Just kind of curious, your thoughts around how and if you would use that authorization.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [37]

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Well that's, obviously in the fourth quarter, we didn't use it. We want to be cognizant of the growth profile. We need to have CapEx available to grow this company. So that's the trade-off. But the stock is so low in my opinion, in terms of underperforming. It's a buy opportunity as far as I'm concerned. So we'll keep our eye on that. The authorization was exactly what we were allowed to do. So it's not a lot but at this level, it's a buy in my opinion. So we'll look to trade off CapEx for stock repurchase and that's -- we have it available of the tools, if we need it.

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Operator [38]

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The next question comes from [Glenn Freemack] with [PDG] Capital.

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Unidentified Analyst, [39]

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Just trying to keep things like really simple. Phoenix, you have is like the hottest market. You have how many megawatts? I thought I heard you say 15 available?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [40]

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Yes, we have about 15 available. That's right.

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Unidentified Analyst, [41]

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Okay. And have you won any business there during the first quarter at all?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [42]

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We don't -- we didn't call out anything specifically by building, so to speak. But our anchor tenant there is Bank of America. So what the deal was -- when we picked up that triple-net lease was, BofA was going to resize their footprint, that was part of the deal. So with our eyes open, they wanted to remain in a certain section and release the footprint of another section. That's part of our -- it's in our forecast, so to speak. But BofA is an anchor tenant, they may do other stuff with us. We want to move SingleHop's platform from another facility in Phoenix with another partner. They would actually be -- we would actually be putting a cloud pod inside of that BofA building. That will attract flies. So we're in the middle of that work first. You have to build it and then they will come. But we're working on that right now. The tours through the Phoenix facility when we picked it up in triple-net lease, the first activity, which is in our '18 network story, is we have to put it on net. So we had to build them some network into BofA that we didn't have before. That took a little bit of time. And we're almost done with that, so to speak. So those were the moving parts that allow us to enable the BofA building and bring it on that into our body. But it hasn't stopped us from touring it and getting bigger customers to look at that building start -- and start digging and probably one of our best flagships in a portfolio. So it's an excellent building. We have an advantage in upmarket because it's a limited resource in Chandler. So we're very happy with it. But it takes a little bit of time, and we're on it right now.

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Unidentified Analyst, [43]

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It seems to make that if you held everything else kind of flattish, right. And you filled up Phoenix to the tune of, I don't know, 2 or 3 megawatts of improved utilization that that could get you to where you currently have your number set.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [44]

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You're exactly right. I mean, think of this -- I mean, if we did -- we held everything constant and added 3 or 5 megawatts in Phoenix in literally 1 or 2 deals. That's our number for the year. And so if I can have my way, that would be a great way to do it and one of our sales guys who pulls that off is going to take a lot of money this year. So yes, that is the -- you hit the nail on the head. We have properties that if we hit a bigger deal -- again, we weren't known for this in the past, we are now, we're pushing it. That is going to make us a game changer. And we're doubling all our efforts to top the larger players, to take bigger footprints down. It's a wholesale deal, not a retail deal for the most part. But that would give us a lot of momentum. And that's why our capital program reflected $10 million because some expansion in Phoenix for a 3 megawatt deal will probably cause that increment spend pretty easily to put it on. But that's what we're playing for, and you hit it right. I mean, that's the way we're trying to sell it this year.

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Unidentified Analyst, [45]

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Okay. Because like if these costs could be slightly painful, because The Street and everybody looks and sees, all right, optically revenues coming down and that's a mess and blah, blah, blah. And as I look at the story, the story to me is affecting for like have some productivity in Phoenix, in the hottest market in the country. I got the numbers and potentially then some. The timing and -- if it happens a little later, it gives you that much more look/see into 2020. And then my other question would be -- because in the other area I see potentially, that you could have a upside to your guidance is -- this COLT arrangement is still kind of new. But if there's any productivity out of the reselling between you and them, then that would be pretty cool as well. But to me, I just look at this as being kind of the Phoenix story holding all other stuff pretty much constant. And I got myself a stock then instead of being down 20% today, as soon as you can say, hey we added a megawatt here 2 megawatts there, that would get you a refi because your recurring predictability is going to be much higher.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [46]

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I mean, that's exactly right as...

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Unidentified Analyst, [47]

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I'm trying to help.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [48]

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Listen. I mean, the infrastructure business isn't a quarter-to-quarter business. I mean...

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Unidentified Analyst, [49]

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Sure. No, I understand that.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [50]

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As reporting is talking about the '19, '20 business plan. So we're the same company. We get punished potentially for being a little dislocated here. But we're not playing quarter-to-quarter, we're playing year-to-year. And these deals that are bigger, and those who we get compared to are playing year-to-year. So we have to make the transformation and prove to the market with these deals like you say -- that puts us in that category. But that's what we needed to do to get to this point. Every -- all the work we did to reformat the company, to get to a Phoenix-like opportunity is all the work we did in '18. We didn't have that building last year. And so we hit -- we got the right building in the right market. Dallas is hot too, Blade went right into Dallas. Atlanta is also hot. We're trying to get more production out of Atlanta. We have the COLT facility there now. So we like the market to look at us beyond the quarter, but we understand that we got to prove it. So we're working really hard to prove it.

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Unidentified Analyst, [51]

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Okay. And then just for my own knowledge. What's your typical one megawatt deal? What's that translate into? I'm guessing that, that's like 3- to 5-year type revenue? What [critical] if we see the revenue correspondent?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [52]

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Yes. 3-year deals, typically, the MRR is going to be 6 figures, depending on what they're buying with it because a lot of them by a network share [business] as well. So there are better deals. When you're hitting 6-figure MRRs on one Ad Tech or gaming company, those -- that's the fuel of our company for the future.

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Unidentified Analyst, [53]

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Wow. So $100,000 per month?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [54]

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Yes.

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Unidentified Analyst, [55]

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Okay. All right. And then the fiber backbone that's all lit, and you're using that as a selling tool as well, I take it, right?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [56]

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That's right. That's right. Well that's unique to us. We started off as a network company. So we just made it stronger, and we added fiber rings to the Metro. That's very attractive for customers too that are in multiple locations. So that was a big part of the '18 investment. You could set up (inaudible).

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Unidentified Analyst, [57]

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But no new wins yet in backlog due to your fiber rings?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [58]

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It's kind of built in to customer conversations right now. Technically, what we'll see is they won't come in and just buy transport, they'll buy colo or managed services, and then we give them that too as part of an on-net strategy. So that's how we're pitching it right now. So we had to build it first, and we kind of presold a lot of it. And our sales team are actually putting that to bag now.

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Operator [59]

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Thank you. This does end today's question-and-answer session. I would now like to turn it back over to Mr. Peter Aquino for any closing remarks.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [60]

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Well, thank you, operator. A lot of good things today. Certainly, INAP is playing for the long term, and we appreciate your thoughts and comments, feedback. And we'll answer to one-on-one calls now. Thank you.

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Operator [61]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.