Interxion Reports Third Quarter 2016 Results

News

10% Constant Currency Revenue Growth
Coupled with Sustained Strong Demand

AMSTERDAM 2 November 2016Interxion Holding NV (NYSE: INXN), a leading European provider of carrier and cloud-neutral colocation data centre services, announced its results today for the three months ended 30 September 2016.

Financial Highlights

  • Revenue increased by 7% to €105.3 million (3Q 2015: €98.0 million).
  • Recurring revenue1 increased by 8% to €100.0 million (3Q 2015: €92.8 million).
  • Net income increased to €10.5 million (3Q 2015: €10.4 million).
  • Adjusted net income2 decreased by 1% to €8.6 million (3Q 2015: €8.7 million).
  • Earnings per diluted share were €0.15 (3Q 2015: €0.15).
  • Adjusted earnings per diluted share decreased by 2% to €0.12 (3Q 2015: €0.12).
  • Adjusted EBITDA2 increased by 11% to €48.3 million (3Q 2015: €43.7 million).
  • Adjusted EBITDA margin increased to 45.9% (3Q 2015: 44.6%).
  • Capital expenditures3, including intangible assets, were €64.5 million (3Q 2015: €35.3 million).

Operating Highlights

  • Equipped space increased by 3,600 square metres in the quarter to 107,800 square metres.
  • Revenue generating space increased by 2,500 square metres in the quarter to 84,100 square metres.
  • Utilisation rate at the end of the quarter was 78%.
  • During the third quarter, Interxion completed a 2,400 sqm expansion in FRA10 in Frankfurt, an 800 sqm expansion at MRS1 in Marseille, and a 300 sqm expansion at VIE2 in Vienna.
  • "Once again, Interxion had solid quarterly results with 10% constant currency revenue growth and 130 basis points of Adjusted EBITDA margin expansion year over year. The strong level of bookings that we experienced in the first half of 2016 continued through the third quarter, and our current sales pipeline remains robust,” said David Ruberg, Interxion's Chief Executive Officer. “We continue to experience strong demand across multiple industry segments and all deal sizes. We are experiencing this demand in multiple geographies, as evidenced by our order-driven capacity expansions in 9 of our 13 markets during 2016 and further expansions in 2017.”

Quarterly Review

Revenue in the third quarter of 2016 was €105.3 million, a 7% increase over the third quarter of 2015 and a 1% increase over the second quarter of 2016. Recurring revenue was €100.0 million, an 8% increase over the third quarter of 2015 and a 1% increase over the second quarter of 2016. Recurring revenue in the third quarter was 95% of total revenue. On a constant currency basis4, revenue and recurring revenue in the third quarter 2016 were both 10% higher than the third quarter of 2015.

Cost of sales in the third quarter of 2016 was €40.8 million, a 6% increase over the third quarter of 2015 and a 3% increase over the second quarter of 2016.

Gross profit was €64.5 million in the third quarter of 2016, an 8% increase over the third quarter of 2015 and a slight increase over the second quarter of 2016. Gross profit margin was 61.3% in the third quarter of 2016 compared with 60.7% in the third quarter of 2015 and 61.9% in the second quarter of 2016.

Sales and marketing costs in the third quarter of 2016 were €7.3 million, a 5% increase over the third quarter of 2015 and a slight increase from the second quarter of 2016.

Other general and administrative costs, which exclude depreciation, amortisation, impairments, share-based payments, M&A transaction costs and provision for onerous lease contracts, were €8.9 million in the third quarter of 2016, a 1% increase over the third quarter of 2015 and a 9% decrease from the second quarter of 2016.

Depreciation, amortisation, and impairments in the third quarter of 2016 was €22.1 million, an increase of 9% from the third quarter of 2015 and a slight increase from the second quarter of 2016.

Operating income in the third quarter of 2016 was €23.6 million, an increase of 10% from the third quarter of 2015 and a slight increase from the second quarter of 2016.

Net finance expense for the third quarter of 2016 was €8.6 million, a 35% increase over the third quarter of 2015 and a 15% decrease over the second quarter of 2016. Included in third quarter 2016 net finance expense was a €1.3 million positive adjustment on finance lease obligations, lowering net finance expense. A sale of a financial asset was completed in the third quarter 2016, resulting in a €0.3 million gain compared to €2.3 million gain in the third quarter 2015.

Income tax expense for the third quarter of 2016 was €4.5 million, a 5% decrease compared with the third quarter of 2015 and a 7% increase from the second quarter of 2016.

Net income was €10.5 million in the third quarter of 2016, a slight increase over the third quarter of 2015 and a 14% increase from the second quarter of 2016.

Adjusted net income was €8.6 million in the third quarter of 2016, a 1% decrease over the third quarter of 2015, and a 5% decrease from the second quarter of 2016.

Adjusted EBITDA for the third quarter of 2016 was €48.3 million, an 11% increase over the third quarter of 2015 and a 2% increase over the second quarter of 2016. Adjusted EBITDA margin was 45.9% in the third quarter of 2016 compared to 44.6% in the third quarter of 2015 and 45.5% in the second quarter of 2016.

Cash generated from operations, defined as cash generated from operating activities before interest and corporate income tax payments and receipts, was €41.5 million in the third quarter of 2016, compared to €43.0 million in the third quarter of 2015, and €39.3 million in the second quarter of 2016.
Capital expenditures, including intangible assets, were €64.5 million in the third quarter of 2016 compared to €35.3 million in the third quarter of 2015 and €62.6 million in the second quarter of 2016.

Cash and cash equivalents were €149.8 million at 30 September 2016, compared to €58.6 million at year end 2015. Total borrowings, net of deferred revolving facility financing fees, were €737.2 million at 30 September 2016 compared to €555.1 million at year end 2015. As of 30 September 2016, the Company’s revolving credit facility was undrawn.

Equipped space at the end of the third quarter of 2016 was 107,800 square metres compared to 100,200 square metres at the end of the third quarter of 2015 and 104,200 square metres at the end of the second quarter of 2016. Utilisation rate, the ratio of revenue-generating space to equipped space, was 78% at the end of the third quarter of 2016, compared with 78% at the end of the third quarter of 2015 and 78% at the end of the second quarter of 2016.

Business Outlook

Interxion today reaffirms guidance for its revenue, adjusted EBITDA and capital expenditures (including intangibles) for full year 2016:

Revenue €416 million – €431 million
Adjusted EBITDA €185 million – €195 million
Capital expenditures (including intangibles) €260 million – €280 million

Conference Call to Discuss Results

Interxion will host a conference call today at 8:30 a.m. ET (12:30 pm GMT, 1:30 pm CET) to discuss its Third Quarter 2016 results.

To participate on this call, U.S. callers may dial toll free 1-866-966-9439; callers outside the U.S. may dial direct +44 (0) 1452 555 566. The conference ID for this call is INXN. This event also will be webcast live over the Internet in listen-only mode at investors.interxion.com.

A replay of this call will be available shortly after the call concludes and will be available until 15 November 2016. To access the replay, U.S. callers may dial toll free 1-866-247-4222; callers outside the U.S. may dial direct +44 (0) 1452 550 000. The replay access number is 92466336.

Forward-looking Statements

This communication contains forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such forward-looking statements. Factors that could cause actual results and future events to differ materially from Interxion’s expectations include, but are not limited to, the difficulty of reducing operating expenses in the short term, the inability to utilise the capacity of newly planned data centres and data centre expansions, significant competition, the cost and supply of electrical power, data centre industry over-capacity, performance under service level agreements, certain other risks detailed herein and other risks described from time to time in Interxion’s filings with the United States Securities and Exchange Commission (the “SEC”).

Interxion does not assume any obligation to update the forward-looking information contained in this report.

Non-IFRS Financial Measures

Included in these materials are certain non-IFRS financial measures, which are measures of our financial performance that are not calculated and presented in accordance with IFRS, within the meaning of applicable SEC rules. These measures are as follows: (i) EBITDA; (ii) adjusted EBITDA; (iii) revenue on a constant currency basis, (iv) recurring revenue; (v) recurring revenue on a constant currency basis (vi) adjusted net income; (vii) adjusted basic earnings per share and (viii) adjusted diluted earnings per share.

Other companies may present EBITDA, adjusted EBITDA, revenue on a constant currency basis, recurring revenue, recurring revenue on a constant currenct basis, adjusted net income, adjusted basic earnings per share and adjusted diluted earnings per share differently than we do. Each of these measures are not measures of financial performance under IFRS and should not be considered as an alternative to operating income or as a measure of liquidity or an alternative to Profit for the period attributable to shareholders (“net income”) as indicators of our operating performance or any other measure of performance implemented in accordance with IFRS.

EBITDA, Adjusted EBITDA, revenue on a constant currency basis, recurring revenue and recurring revenue on a constant currency basis

We define EBITDA as net income plus income tax expense, net finance expense, depreciation, amortisation and impairment of assets.
We define adjusted EBITDA as EBITDA adjusted for the following items, which may occur in any period, and which management believes are not representative of our operating performance:

  • Share-based payments – primarily the fair value at the date of grant to employees of equity awards, is recognised as an employee expense over the vesting period. We believe that this expense does not represent our operating performance.
  • Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognised in the period incurred. We exclude these effects because we believe they are not reflective of our ongoing operating performance.
  • Adjustments related to terminated and unused datacentre sites – these gains and losses relate to historical leases entered into for certain brownfield sites, with the intention of developing datacentres, which were never developed and for which management has no intention of developing into data centres. We believe the impact of gains and losses related to unused datacentres are not reflective of our business activities and our ongoing operating performance.

In certain circumstances, we may also adjust for items that management believes are not representative of our current ongoing performance. Examples of this would include: adjusting for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

We believe EBITDA and adjusted EBITDA provide useful supplemental information to investors regarding our ongoing operational performance because it helps us and our investors evaluate the ongoing operating performance of the business after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortisation). Management believes that the presentation of adjusted EBITDA, when combined with the primary IFRS presentation of net income provides a more complete analysis of our operating performance. Management also believes the use of EBITDA and adjusted EBITDA facilitates comparisons between us and other data centre operators and other data centre operators that are REITs and other infrastructure based businesses. EBITDA and adjusted EBITDA are also relevant measures used in the financial covenants of our €100 million revolving facility and our 6.00% Senior Secured Notes due 2020.

A reconciliation from net income to EBITDA and EBITDA to adjusted EBITDA is provided in the tables attached to this press release.

Recurring revenue comprises revenue that is incurred monthly from colocation, connectivity and associated power charges, office space, amortized set-up fees and certain recurring managed services (but excluding any ad hoc managed services) provided by us directly or through third parties. Rents received for the sublease of unused sites are excluded. We present recurring revenue as we believe it assists investors understand our operating performance.

We present constant currency information for revenue and recurring revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than Euro are converted into Euro using the average exchange rates from the prior period rather than the actual exchange rates in effect during the current period.

We believe that revenue growth is a key indicator of how a company is progressing from period to period and presenting constant currency information for revenue and recurring revenue provides useful supplemental information to investors regarding our ongoing operational performance because it helps us and our investors evaluate the ongoing operating performance of the business after removing the impact of currency exchange rates.

Adjusted net income, adjusted basic earnings per share and adjusted diluted earnings per share

We define adjusted net income as net income adjusted for the following items and the related income tax effect, which may occur in any period, and which management believes are not reflective of our operating performance:

  • Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognised in the period incurred. We exclude these effects because we believe they are not reflective of our ongoing operating performance.
  • Adjustments related to provisions – these adjustments are made for adjustments in provisions that are not reflective of the ongoing operating performance of Interxion. These adjustments may include changes in provisions for onerous lease contracts.
  • Adjustments related to capitalised interest – Under IFRS we are required to calculate and capitalise interest allocated to the investment in data centres and exclude it from net income. We believe that reversing the impact of capitalised interest provides information about the impact of the total interest costs and facilitates comparisons with other data centre operators.

In certain circumstances, we may also adjust for items that management believes are not representative of our current ongoing performance. Examples of this would include: adjusting for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

Management believe that the exclusion of certain items listed above, provides useful supplemental information to net income to aid investors in evaluating the operating performance of our business and to aid investors compare our operating performance with other data centre operators and infrastructure companies. We believe the presentation of adjusted net income, when combined with net income (loss) prepared in accordance with IFRS is beneficial to a complete understanding of our performance.

Adjusted basic earnings per share and adjusted diluted earnings per share amounts are determined on adjusted net income.

Interxion does not provide forward-looking estimates of net income, operating income, depreciation, amortisation, and impairments, share-based payments, M&A transaction costs or increase/decrease in provision for onerous lease contracts, and income from sub-leases of unused data centre sites, which it uses to reconcile to adjusted EBITDA. The Company is, therefore, unable to provide forward-looking reconciling information for adjusted EBITDA.

A reconciliation from reported net income to adjusted net income is provided in the tables attached to this press release.

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This announcement contains inside information under Regulation (EU) 596/2014 (16 April 2014).

1 Recurring revenue is revenue that is incurred from colocation and associated power charges, office space, amortised set-up fees, cross-connects and certain recurring managed services (but excluding any ad hoc managed services) provided by us directly or through third parties. Rents received for the sublease of unused sites are excluded.

2 Adjusted net income and adjusted EBITDA are non-IFRS figures intended to adjust for certain items and are not measures of financial performance under IFRS. Full definitions can be found in the “Non-IFRS Financial Measures” section in this press release. Reconciliations of net income to adjusted EBITDA and net income to adjusted net income can be found in the financial tables later in this press release

3 Capital expenditures, including intangible assets, represent payments to acquire property, plant, and equipment and intangible assets, as recorded in the consolidated statement of cash flows as "Purchase of property, plant and equipment" and "Purchase of intangible assets", respectively.

4 We present constant currency information for revenue and recurring revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than Euro are converted into Euro using the average exchange rates from the prior period rather than the actual exchange rates in effect during the current period.

About Interxion

Interxion (NYSE: INXN) is a leading provider of carrier and cloud-neutral colocation data centre services in Europe, serving a wide range of customers through 42 data centres in 11 European countries. Interxion’s uniformly designed, energy efficient data centres offer customers extensive security and uptime for their mission-critical applications.

With over 600 connectivity providers, 21 European Internet exchanges, and most leading cloud and digital media platforms across its footprint, Interxion has created connectivity, cloud, content and finance hubs that foster growing customer communities of interest. For more information, please visit www.interxion.com.