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Edited Transcript of INAP earnings conference call or presentation 2-Aug-18 12:30pm GMT

Q2 2018 Internap Corp Earnings Call

Atlanta Oct 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Internap Corp earnings conference call or presentation Thursday, August 2, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James C. Keeley

Internap Corporation - CFO

* Peter D. Aquino

Internap Corporation - President, CEO & Director

* Richard R. Ramlall

Internap Corporation - VP of Investor & Public Relations

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Conference Call Participants

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* Daniel Louis Kurnos

The Benchmark Company, LLC, Research Division - MD

* Frank Garrett Louthan

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

* Jason Michael Kreyer

Craig-Hallum Capital Group LLC, Research Division - Senior Research 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 Internap Corporation Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Richard Ramlall, Vice President of Investor and Public Relations. Sir, you may begin.

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Richard R. Ramlall, Internap Corporation - VP of Investor & Public Relations [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 will open up the call for your questions. The slides we reference in the call are available on our website in the Events and Presentations section of our IR page.

During this call, we will 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 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 reference in this call, which we urge you to read. These statements are not guarantees of 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 from the SEC or on our IR website. We undertake no obligation to amend, update or clarify these statements made as of today, August 2, 2018.

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, Rich, and good morning, everyone. We had a solid quarter and officially turned the corner. Most of our effort is now shifting towards increasing market share and organic growth as we wind down and complete our real estate improvement work by year-end.

INAP 2.0 is a growth company with improving free cash flow. We are committed to increasing our share in the growing data center infrastructure and services industry. We are targeting a very large addressable business market in the metros that we serve. And INAP now has the capability to providing a full solution to customers requiring colocation, innovative cloud and managed hosting, high-performance and low-latency network services. Our model is to team with our customers to meet their needs, and we believe that the demand trends for what we offer are only going up.

So let's turn to Slide 4 and walk through the second quarter highlights. In this second quarter, we reported significantly higher revenue and EBITDA sequentially and year-over-year. The increase includes a full quarter of SingleHop plus favorable growth trends in our integrated managed services and cloud products and high-density colo. We're seeing a mix of installed and new logo customers expressing great interest in our new products and services, leveraging our Tier 3 flagship data centers. In addition, our backlog for colocation was replenished with new sales in wholesale and retail bookings in the second quarter and remains strong at approximately $23 million for just the largest project.

The other good news was that churn, especially in INAP International, was at its lowest levels in history. With revenue stabilized and beginning to grow, we are also capturing incremental cost benefits in the back office. We are focused on network cost savings and acquisition synergies. The initiatives that we have in place give us the confidence to project the strong second half performance in 2018.

Included in our revised outlook are the remaining cleanup items from prior years, and we're well on our way to exiting 4 noncore data centers in 2018. Including the 2 closures completed last year in San Francisco and New York City, this now brings the total to 6 noncore data center exits. In all cases, the closures were in noncore-rented sites in markets where we already operate our own data center flagships with much better economics and performance. This was the logical business decision that ultimately improves profitability.

If you count the company's former headquarters facility outside of Atlanta, we'll end up exiting 7 costly real estate leases totaling approximately $10 million a year. Any future facility rationalization will be part of normal course. But for now, we have accomplished our primary objectives. INAP's new smaller headquarters is officially in Reston, Virginia where strategy in capital allocations is -- are made. The majority of our operations teams is concentrated in Atlanta, Chicago and Montréal. We've been making the necessary changes in our business for sustainable performance. The second quarter is representative of the solid turnaround. The results, team and positive culture focused on customer service and pay for performance is aligned with shareholders. As a result of our work and overall team performance, I'm proud to announce that INAP was recently certified as a great place to work in the United States. We are thrilled that our employees are committed and motivated to work at INAP to build shareholder value. Congratulations to everyone on the team that help make INAP a great place to work.

So let's now turn to Slide 5. The INAP data center services portfolio is very expansive and getting stronger every day. Looking at a snapshot of our portfolio today, we announced 2 new deals that would give us Tier 3 colo inventory in opportunistic markets where our team has traction. First, we announced this week that we now control a new strategic data center facility in the Phoenix market, in Chandler. This state-of-the-art facility was formerly owned by Bank of America, who will remain as an anchor tenant. We wanted to secure this Tier 3 facility from the acquiring commercial real estate group to stay ahead of increasing demand and providing runway for our sales leaders. This greater Phoenix market is a high-absorption zone, and we were fortunate to find a great platform with at least 10 megawatts for the future. And second, we recently signed a cross-selling arrangement with COLT Data Centre Services in the U.K. This allows us to market Tier 3 data center inventory in London. We will reciprocate and offer our U.S. colo inventory to COLT to market as well. We are very bullish on this new sales opportunity. In addition, our SingleHop acquisition gives us some additional space with Digital Realty in Chicago. We'll continue to work well with the DRT team to optimize our portfolio.

As we net off the 4 noncore closures for this year and add the data centers of BofA in Phoenix and COLT in London, INAP now has 56 data centers in 21 markets worldwide. We're now up in 99 POPs and managing over 1 million gross square feet and over 100 megawatts of power. As we continue to improve our network facilities to strengthen our resiliency and offer on net services, our customers will greatly benefit from our consistent high-performance and low-latency standards. As we reflect on this global infrastructure footprint, we are confident that we can attract even more customers and partners and we'll continue to get up.

Referring to the data center metrics in our press release today, the combination of adds and deletions of properties across our footprint result in a net increase in occupancy from 61% to 65%. We're moving in the right direction in training out noncore assets to improve our profitability at the same time. So at this point, let me turn it over to our CFO, Jim Keeley.

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

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Thanks, Pete. Good morning, everyone.

First, let me say how excited I am to be part of the INAP team. I've been here for almost 2 months, and I'm looking forward to the opportunity to help the company continue its march to drive the top line growth, increase profits and ensure that our investments in CapEx and sales and marketing provide a solid return. That being said, let's move on to the quarterly results.

Please note as mentioned in our last report that effective in the first quarter of 2018, we realigned our segments geographically. We decided to make this change in conjunction with the SingleHop acquisition to better align and manage our global data center operations and assets. The new reporting segments and historical comparisons are presented in the release we issued this morning.

Now let's turn to the consolidated earnings summary, Slide 6. Total revenue as reported was $82 million in the second quarter of 2018, an increase of 10.5% sequentially and 17.7% year-over-year. The sequential increase was primarily due to a full quarter's impact of SingleHop and an increase in cloud revenues. On a pro forma basis for SingleHop and excluding [force churn] from data centers that we are exiting, recurring revenues increased around 1% as solid increases in cloud and high-density colocation revenues were offset by small declines in network.

Net loss in the second quarter was $13.9 million, including $3.8 million of other expenses such as $1.4 million stock-based compensation, $800,000 from exit restructuring activities, $800,000 for our reserve adjustment on non-income tax contingency, $800,000 for other nonrecurring costs. On a normalized non-GAAP basis, second quarter 2008 (sic) [2018] net loss decreased by just $3,000 to $10.1 million from a net loss of $10.4 million in the prior quarter and increased $4.2 million versus $5.9 million in the prior year. The year-over-year increase was primarily due to debt extinguishment/modification expenses, data center closures in the second quarter of 2017, offset in part by higher depreciation and amortization and higher interest expense.

Adjusted EBITDA in the second quarter was $28.5 million with adjusted EBITDA margin of 34.7%. Adjusted EBITDA increased by $2.8 million versus the prior quarter to $5.4 million year-over-year. The adjusted EBITDA margin was relatively flat sequentially and grew 160 basis points compared to the second quarter of 2017. Positive EBITDA performance was driven by revenue growth, including SingleHop's contribution and cost reductions.

In the second quarter, we realized the majority of the hard cost synergies that were expected from the SingleHop acquisition, approximately $2 million to $3 million annualized. Capital expenditures in the second quarter were $11.1 million compared to $6.4 million last quarter, $6.7 million in the second quarter of 2017. The second quarter spend was more in line with their plan than the first quarter spend. Similar to last year, we anticipate our second half CapEx investments to be somewhat higher than the first half of the year and full year capital expenditures to fall within our guidance range. Second quarter 2018 adjusted EBITDA less CapEx was $17.4 million, a decrease of $1.9 million sequentially and $1.1 million versus the second quarter of 2017.

Now let's turn to Slide 7. Our INAP U.S. business unit. U.S. revenue totaled $64.1 million in the second quarter of 2018, an increase of 12.2% sequentially and an increase of 18.4% year-over-year. The revenues increase was primarily due to the full quarter's contribution of SingleHop, offset in part by lower nonrecurring and network revenues. U.S. business unit second quarter 2018 contribution was $29.2 million, resulting in a 45.6% contribution margin, which is 90 basis points lower sequentially and 620 basis points higher than prior year. The sequential decline in margin is due to the decrease in nonrecurring and network revenue, both high-margin products. The year-over-year increase was primarily due to a combination of cost reductions, exits of underperforming data centers and operating to capital lease conversions. As we progress through the year, we will continue to look for opportunities to drive margin expansion in the business unit, both by increasing revenues and by reducing costs through additional network efficiencies.

Now let's go to Slide 8 to discuss our INAP international business unit. International second quarter revenue totaled $17.9 million, an increase of $800,000 or 4.5% sequentially and $2.4 million or 15.2% year-over-year. The sequential increase was primarily due to the full quarter of SingleHop and a 5.5% increase in iWeb revenues in Canada. The year-over-year increase was driven primarily by the financial consolidation of INAP Japan and the addition of SingleHop. International business unit contribution of $6 million was flat sequentially and decreased $1.1 million year-over-year. The second quarter international contribution margin of 33.7% declined from 35% sequentially and from 45.5% year-over-year. The sequential decrease in margin was primarily due to paying rent on our new facility in Montréal that's currently being built out and not yet generating revenue. This build-out is expected to be completed in the third quarter. The year-over-year decrease was largely due to the exclusion of INAP Japan last year to 2017 revenue declines in [churns].

Moving to Slide 9 entitled cash flow and balance sheet summary. Free cash flow, defined as cash generated from operations plus capital expenditures, was $4.3 million in the second quarter of 2018, an increase of $7.1 million in the prior quarter and a decrease of $3.7 million from the prior year. The sequential increase was primarily due to lower debt issuance fees and working capital timing offset in part by higher capital expenditures. I mentioned previously, capital expenditures were $11.1 million in the current quarter comprised of $6.9 million of growth-related spend and $4.2 million of maintenance. Maintenance capital includes approximately $2.6 million of data center upgrades, primarily in Atlanta. Cash interest was $15.5 million in the second quarter. As reported in April, we amended the company's credit agreement to lower the interest rate margin on our term loan by 125 basis points, saving the company approximately $5-point million in annual interest, all else equal.

This brings unlevered free cash flow to $19.8 million compared to $10.2 million in the previous quarter from $15.6 million last year. Cash and cash equivalents were $14.7 million at the end of the second quarter of 2018 versus $16.2 million in the prior quarter. The decrease of $1.5 million was primarily driven by a $2.5 million increase in interest expense, the debt issuance fees of $1.6 million related to the term loan repricing of people, offset in part by working capital timing. Total debt of $662.7 million includes $231 million in capital lease obligations. $158.3 million of our capital lease obligations are excluded from debt for bank covenant purposes as they -- for operating leases at the time of the refinancing. Our covenant-based leverage ratio was 5.2 in the second quarter of 2018, 5.1 in the first quarter and 4.2 in the second quarter of last year.

Turning to Slide 10. The second quarter 2018 financial guidance update. Given that our adjusted EBITDA performance is trending above our full year outlook as we continue to drive network cost down, control our operating costs and leverage revenues, we are raising our guidance ranges on adjusted EBITDA and adjusted EBITDA less CapEx. We expect adjusted EBITDA in the range of $110 million to $120 million this year, an increase from our previous guidance of $105 million to $115 million. Accordingly, our adjusted EBITDA less CapEx range increases to $70 million to $75 million. For revenue and capital expenditures, we are reaffirming our prior guidance for 2018. We are seeing positive growth from recurring revenues resulting from a solid backlog and a strengthening pipeline. However, we believe it prudent to hold on in our revenue guidance pending the completion of our closing of underperforming assets.

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 closing, Slide 11. As INAP 2.0 evolves, we're capable of delivering on a full spectrum of data center and cloud services, including colocation, network, private/public cloud, environmental and managed services. We will also coattail in trends of hyperscale public cloud growth. We can either overlay our managed services or on-ramp our customers to the public cloud via our global transport network. So as customers transform their IP organizations that consider different ways that they can go to market, INAP will be their trusted partner in every stage. We believe that there are very few companies like ours that can say that and deliver a quality bundled products and services to fill their needs. The other takeaway is that INAP is operating within a pretty large addressable market in major cities around the world. It is estimated that our addressable market maybe 3x larger than the wholesale market, primarily targeting hyperscalers. All of this leads us to believe that we have a great opportunity to rise with the trends and be successful over the long term. As we have demonstrated, we're poised to grow as a stand-alone group between partnerships which can be opportunistic in any market where we have a presence around the world and finding ways to grow without getting overextended in spec builds. Our model is to partner when mutually beneficial and aims to capture as much share as possible just in time. As we get larger and gain scale, INAP will continue to be a perfect match for sophisticated customers who require complicated IT and network solutions to help their businesses perform at their best. We're adding the right products and infrastructure to do just that and across several verticals, including software, social media, ad tech, gaming, entertainment, financial and health care services. We are committed to growing in lock-step as our customers succeed.

So looking ahead and finally with the turnaround virtually complete by the end of this year, we are uniquely positioned as a public company to jump off that and consolidate tuck-ins, work within partners and ultimately, accumulate accretive deals. We are in a path to transform INAP into a company with long-term sustainable growth, and our motivated team continues to execute our plan.

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) Our first question comes from Dan Kurnos with The Benchmark.

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

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Nice to hear kind of the progression here, Pete. Let me just -- I think I heard you guys talking about 1% increase in recurring revenues. So as you mentioned several times in the call, if you're turning the corner on organic growth here underlying -- just maybe give us the sense of -- with your opportunity, how -- maybe pace at play, how that accelerates -- understand that there's significant time from book-to-bill there. So where that kind of goes over the next 12, 24 months, how you see that improving? And on the customer side, you acquired SingleHop to kind of fill in a need in the text that -- or a hole in your portfolio. Can you talk about what you're seeing from -- now that you have the capability under your belt for a full quarter, order demand coming in or increasing wallet share, if you will, with existing customers after that acquisition?

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

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Thanks, Dan. That's basically the whole script. So let me start with the first level. We're really excited about the organic growth. If you net out the closures, we grew about 1%. And we knew we'd turn a corner soon. We were almost flat in the first quarter when you consider the nonrecurring items, but we're pretty much there. But to your point, 1%, where do you go from here? And the bigger the backlog gets and the faster we can install the backlog, the better the organic growth is going to be. As you can see, what we're doing at the same time is we're adding better products to the mix, so SingleHop brings that. And the innovative platform allows us to cross sell into the INAP customer base and the progress we're seeing is quite good. I'm very excited about the early progress that we've made. And I think what you do is so much more. And I think what you're also finding with this company is that when we talk to a customer, we're providing potentially a bundled solution that it includes not only private cloud or managed services, but high-density colo in the markets they want to be in, even on the edge and also a network that they can come to us in a one-stop-shop type of mentality. And I think that also attracts customers and partners. The deal that we did with COLT is pretty interesting because when -- our platform is great, and the markets we're in are phenomenal across the globe. And if they can get access into our footprint as we look to fill in space. In the case of international in London, it's a good win-win situation because you don't want to keep building these properties in spec and hope that they will come. The partnership is the way to go, and we're attracting really good partners. So if you add all that together from a revenue standpoint, we're looking at a bunch of things: adding new products, our sales team is getting stronger every day, we have really good markets and now that we partner, we can mix it up and just stay ahead of this curve. So once we turn the corner on organic growth, the question now is how much more can we do. And we're certainly throwing a lot of ideas on the table to try to gain scale naturally and with partners. And it's starting to come to fruition in our numbers. So that's really the story. The other good news today as a takeaway is we probably spent 1.5 years just cleaning up some, what I would call, noncore facilities and low hanging fruit on cost-cutting. That's pretty much done, too. And there's always room for improvement and we always find that opportunity to do so. But our increase in EBITDA guidance suggests by getting a lot of that done, we could grow naturally and expand our margins as well. And I hope you see today that our confidence in margin expansion is part of the story. And that's what we're up to at this point.

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

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That's helpful. And if I can just ask real quickly on the customer side. Obviously, the Bank of America win is pretty meaningful. And obviously, it was probably pretty difficult. I know you guys have had trouble in the past getting logos out there officially into the market, so I doubt we're going to get contract details. But now that you've gotten everything kind of rightsized, can you just talk about stickiness of -- from new customer profile versus sort of historic expectations on the churn rate and just some of the economics at all if you're willing to disclose around new contract, contract length or expansion capabilities?

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

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Yes. It's a good question. Obviously, when you have high-density colo and you perform well and you have Tier 3 data centers, we call them flagships, we have great facilities now. There's really no reason relative to the competition why somebody would leave. It's the same old story. Somebody can be consolidated or acquired and therefore, they're consolidating their footprint somewhere. You may have some folks naturally wanting to go to the cloud themselves and there are some churn related to that. But for the most part, Tier 3 high-density colo is very sticky. And the churn rates are quite low because they're making investments to enter your building probably with a lot of trust. So that's the good news. The cloud business on our side, when you think about managed services and the options, it's just a different animal when it comes to churn. And their satisfaction with the company almost has nothing to do with their term. It has to do more with the project they're working on. Think of a movie studio in Montréal, we had really good success in that vertical. And those movies start and finish 3 to 6 months in terms of cloud spin-up. So we report that as churn, but it's really not officially churn in the historical sense. It's a project. And that's in our body. The good news is, in international specifically, that's even getting better than it was. And so we don't report churn rate specifically. But the fact that we're growing organically now suggests that we're getting help on both sides. We're getting more deals on the table. They're bigger deals and the churn is improving. And colo is very stable. And managed services and cloud is the nature of the beast because, in many cases, it could be spontaneous; it could be spun up, spun down; there's a lot of options. And you don't typically sign a 3-year deal on a private cloud business necessarily because it's very, very flexible. So that's the nature of our company. And again, to the extent customers are satisfied of our services and buying more, that's upside for us.

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Operator [6]

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And 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 [7]

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I think you -- did you mention there's a $23 million in bookings in the quarter. Can you give us an idea of where that's been trending and the split between colo and hosting? And were there any dark fiber sales in the quarter? Or what's sort of the update on the fiber networking part of the business that you've been trying to launch?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [8]

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Sure. Thanks, Frank. Let me work backwards. The dark fiber that we have from -- for the most part, SEO in major markets. We have 5 markets earmarked for Metro E deployment. We have the fiber in place. We booked the [Zeanic] gear. We announced that. We're deploying it now. So by the fourth quarter, we should start seeing an opportunity where the sales guys can put Metro E in their bag. And we're rushing to do that. We're actually training a lot of the sales guys now on what we can offer. We might roll that out in stages. But the markets that we're in include Dallas, Santa Clara, Bay Area, New York City. We have a fiber ring in Montréal even. So we have really good markets that we can launch in. We're getting, actually, calls from other operators that want to use our metro rings, too. So it might be a B2B product at the end of the day, I'm not sure. But we really like that progress. The backlog of $23 million that we called out, it -- you may recall that I publicly released that number post the first quarter call, well into the second quarter. So I've seen that number for a while. It actually got reduced by 20%, 30% as we install some of the bigger customers, especially out of Santa Clara, Seattle and Phoenix. And then we basically sold to replace it. So $23 million to $25 million or maybe more could be our future where the wholesale deals come in, just layer on top. And as you know, they tend to take anywhere from 1 month to 3 months to install the whole phase. If you think about the $23 million backlog as I disclosed last time, that was only 6 orders. And that's the total contract value that would suggest these are bigger deals and yield 3-year deals longer term. They're colo. The backlog for cloud, honestly, in this count -- I didn't even count it, is not in that number for the most part. So we're only disclosing today, selective big, where I would say, more wholesale-like deals, not quite hyperscale, but big customers in that $23 million. And just to give you all a flavor that -- now this company hasn't sold big deals in a long time. And we have our sea legs down to do that. So we're very encouraged. The bigger the deals, the bigger the backlog. And we're now at a point where it's kind of a free game across all these metros. We have a lot of capacity, and then we have to balance where we have. And the other challenge is we may have capacity in one market or really hot in another market, so we end up doing what we did in Phoenix where we caught the bus. And you have 2 choices, either stop and say it's full 99% or keep your momentum going. And the BofA deal in Phoenix represents the 2 cushion shop. We got a great facility in a market that's somewhat short of power. So we have a facility that has a lot of power. It allows customers that are in our DRT site in Phoenix to now see where they can go next. So that's great. And it also allows us to take advantage with our team in a market we're good at. So if -- you can imagine a portfolio chart that we have in all the markets -- all the markets we're working in, it's a little bit of where is the customer demand at that point and then moves to that quickly so you can capture it. Certainly, we don't want to be in a position to turn business away. So we're really flexible. Capital allocation here out of Reston is getting more -- it's more challenging and fun. And then for the most part, the guys are telling us what's -- how to prioritize.

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Frank Garrett Louthan, Raymond James & Associates, Inc., Research Division - MD of Equity Research [9]

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Got it. And what was the SingleHop contribution in the quarter?

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

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This is a very good question and I'm glad you asked it. When we closed SingleHop on February 28, that next day, SingleHop was integrated. In other words, it was mixed into INAP cloud that moment. We don't really have the SingleHop second quarter clean number as a stand-alone because it's not. We merged it immediately. So we're not tracking SingleHop as a stand-alone in our body. It's in the cloud business. And it's rightfully so because day 1, the sales team starts selling into the INAP base. And day 2, our back office took over SingleHop's back office in synergy in terms of the finance department and the operation. The team has really morphed. So we're not tracking SingleHop because it doesn't exist as an entity in our body going forward. It makes it a little challenging because you can hear in Jim's script, we're trying to suggest that quarter-over-quarter improvements primarily due to SingleHop and the listeners are going to say, well, exactly what is SingleHop? And the answer is it's mushed. It's morphed into INAP. There is no SingleHop stand-alone number. So that's just to help you -- but for the most part, if you took -- and I do this all the time, if you take SingleHop clean in the pro forma of the first quarter, you can -- you could estimate, all else equal, if you impute that number into the second quarter dollar for dollar, the difference is the growth that came out of cloud SingleHop generated for the most part in terms of talent. But we have incremental growth because we did this deal. And that's showing up in our numbers, too. So that's a long way of saying I don't have a clean number for you, but you can impute that growth came out of that deal.

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Operator [11]

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And our next question comes from George Sutton with Craig-Hallum.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [12]

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It's Jason on for George. Pete, you have landed some pretty substantial deals over the last few quarters. Obviously, we can see that in the $23 million in bookings that you reported. And just wondering if you can give us a better feel for what are the factors that are driving these wins? As you get feedback from those customers, what differentiated you that caused them to choose you guys?

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Peter D. Aquino, Internap Corporation - President, CEO & Director [13]

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Hey, Jason. That's a good question. I mean, honestly, think about our traction in a DRT study in Phoenix, as an example. A customer can go to DRT or they can go to us in DRT. And the fact of the matter is, we are providing a full service solution. We have a lot of products that a customer would want, including nano services, including network connectivity, high performance, low latency. A lot of times they want a solution. And if you go to a Tier 3 data center and buy racks and power, you still got to figure it out from an IT perspective. And it's complicated. So we offer that complete bundle. That is our differentiator. The other thing that is clear is that when we have our own flagship where it's a -- all the critical power and the infrastructure is ours, we control a lot more. Our margins are better, our people are in the building. It's a great opportunity to walk a customer and tour them through, and you basically built soup to nuts. When they look at the Tier 3 data center and compare it to others, there's -- honestly, there's very little difference at whether you walk into an Equinix facility DRT, Syrus 1 or INAP. The Tier 3 facilities are built by engineers to a spec. We built them like that. That's the flagships we have. So when you're looking for service, you're really trying to figure out as a customer: is it a trusted supplier, can they do more than just colo and how fast can they move? As you know, one of the benefits we have and we inherited this since we have capacity now. So when customers walk through our Tier 3 centers, they can buy now. And that is the secret sauce. At some point -- and that's what we're doing in Phoenix, you just got to stay ahead of that demand so that when they walk through your Tier 3 facility and you're out of space, then you lose an opportunity. So it's really a balancing act. But our platform is really good. And we're really proud of it. And where we can spend money to make them even better, we make them better or we get out of them. And we've taken our medicine in the last 2 years of getting out of facilities that were not good. And so that -- the good news is that's behind us. And we'll rationalize the future of real estate from a proactive perspective. But they were 6 or 7 that include the headquarters facility that were just burning a hole in our pocket and improved the EBITDA. So that's a long way of saying it's a real estate management company to a certain extent. And customers really like the product that we put on the field.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [14]

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Got it. One more. Just -- so one component of your strategy has been to ramp up headcount, and the majority of that was on the sales front. Just wondering if you can give a snapshot of where that it is today versus maybe where it was a year ago and then how you see the productivity ramping.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [15]

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You're talking about the sales team specifically, Jason?

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [16]

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Yes.

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Peter D. Aquino, Internap Corporation - President, CEO & Director [17]

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Okay. We -- as you know, we started off with a very small sales team. We built it up to about 60 people. That was before SingleHop. SingleHop probably add another 15. That puts us about 75 people that are quota variance in some form or fashion. And that's a pretty good size for what we're doing. What we continue to do is try to improve that productivity. And we're doing more and more training, especially with the SingleHop products now available. That sales team is at full strength in terms of numbers. However, we're constantly looking for ways to improve that team and we are.

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Operator [18]

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Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Mr. Aquino for closing remarks.

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

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Thank you, operator. And thank you, everyone, for your attention today. We look forward to our next communication. Have a great day.

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Operator [20]

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