Interxion Reports First Quarter 2019 Results

AMSTERDAM 9 May 2019 – Interxion Holding NV (NYSE: INXN), a leading European provider of carrier and cloud-neutral colocation data centre services, today announced its results for the three-month period ended 31 March 2019.

Financial Highlights

• Revenue increased by 13% to €151.5 million (1Q 2018: €133.8 million).
• Recurring revenue increased by 14% to €145.3 million (1Q 2018: €127.0 million).
• Net income decreased by 28% to €8.4 million (1Q 2018: €11.7 million).
• Adjusted net income decreased by 41% to €7.0 million (1Q 2018: €11.9 million).
• Diluted earnings per share decreased by 28% to €0.12 (1Q 2018: €0.16).
• Adjusted diluted earnings per share decreased by 41% to €0.10 (1Q 2018: €0.17).
• Adjusted EBITDA increased by 27% to €77.3 million (1Q 2018: €60.9 million).
• Adjusted EBITDA margin increased to 51.0% (1Q 2018: 45.5%).
• Adjusted EBITDA excluding the impact of IFRS 16 increased by 14% to €69.3 million (1Q 2018: €60.9 million) and Adjusted EBITDA margin excluding the impact of IFRS 16 increased to 45.7% (1Q 2018: 45.5%).
• Capital expenditures, including intangible assets, were €144.1 million (1Q 2018: €96.2 million).

Operating Highlights

• Equipped space increased by 3,500 square metres during the quarter to 148,300 square metres.
• Revenue generating space increased by 4,000 square metres during the quarter to 119,000 square metres.
• Utilisation rate at the end of the quarter was 80%.
• During the first quarter, Interxion completed the following capacity additions:
  • 2,600 sqm in Frankfurt;
  • 300 sqm in London; and
  • 300 sqm in Dusseldorf.
• In April, Interxion acquired a 40% equity interest in Icolo Ltd., a Kenyan data centre operator.

“Interxion continues to experience strong demand in Europe, with the cloud and content platforms continuing to expand across our pan-European footprint, driving 14% recurring revenue growth in the first quarter and providing support for our ongoing expansion program,” said David Ruberg, Interxion’s Chief Executive Officer.  “Interxion’s highly-connected data centres and value-enhancing communities of interest continue to attract mission-critical and latency sensitive applications, contributing to sustainable attractive returns for our shareholders.”

Quarterly Review

The implementation of International Financial Reporting Standard - Leases (“IFRS 16”) on January 1, 2019 had a significant impact on our reported numbers as at and for the three-month period ended 31 March 2019. While IFRS 16 had no impact on our underlying cash flows, the new accounting treatment applicable to operating leases resulted in a reduction in our reported rent expense, which had a positive impact on reported gross profit and Adjusted EBITDA. IFRS 16 also resulted in an increase in depreciation and interest charges, which had a negative impact on net income and earnings per share. In addition, the new accounting treatment under IFRS 16 impacted our balance sheet, resulting in an increase in reported liabilities, together with a corresponding increase in right of use assets, in each case, as a result of including both future lease liabilities and right of use assets on balance sheet.

Revenue in the first quarter of 2019 was €151.5 million, a 13% increase over the first quarter of 2018 and a 3% increase over the fourth quarter of 2018. Recurring revenue was €145.3 million, a 14% increase over the first quarter of 2018 and a 4% increase over the fourth quarter of 2018. Recurring revenue in the first quarter represented 96% of total revenue. On a constant currency4 basis, revenue in the first quarter of 2019 was 13% higher than in the first quarter of 2018. Neither foreign exchange movements nor the adoption of IFRS 16 had a meaningful impact on reported revenue in the first quarter of 2019.

Cost of sales in the first quarter of 2019 was €50.4 million, a 4% decrease over the first quarter of 2018 and a 12% decrease over the fourth quarter of 2018.

Gross profit was €101.1 million in the first quarter of 2019, a 25% increase over the first quarter of 2018 and a 13% increase over the fourth quarter of 2018. Gross profit margin was 66.7% in the first quarter of 2019, compared with 60.6% in the first quarter of 2018 and 61.1% in the fourth quarter of 2018.

Sales and marketing costs in the first quarter of 2019 were €9.2 million, a 5% increase over the first quarter of 2018 and a 3% decrease from the fourth quarter of 2018.

General and administrative costs, excluding the items we adjust for in the determination of Adjusted EBITDA, were €14.7 million in the first quarter of 2019, a 27% increase over the first quarter of 2018 and an 18% increase from the fourth quarter of 2018.

Depreciation and amortisation in the first quarter of 2019 were €41.7 million, an increase of 41% from the first quarter of 2018 and a 21% increase from the fourth quarter of 2018.

Operating income in the first quarter of 2019 was €29.8 million, an increase of 11% from the first quarter of 2018 and a 4% decrease from the fourth quarter of 2018.

Net finance expense for the first quarter of 2019 was €16.7 million, a 46% increase over the first quarter of 2018 and a 6% increase over the fourth quarter of 2018.

Income tax expense for the first quarter of 2019 was €4.8 million, a 25% increase compared with the first quarter of 2018 and a 34% decrease from the fourth quarter of 2018.

Net income was €8.4 million in the first quarter of 2019, a 28% decrease over the first quarter of 2018 and a 5% increase from the fourth quarter of 2018.

Adjusted net income was €7.0 million in the first quarter of 2019, a 41% decrease over the first quarter of 2018 and a 10% decrease from the fourth quarter of 2018.

Adjusted EBITDA for the first quarter of 2019 was €77.3 million, a 27% increase over the first quarter of 2018 and a 14% increase over the fourth quarter of 2018. Adjusted EBITDA margin was 51.0% in the first quarter of 2019 compared with 45.5% in the first quarter of 2018 and 46.1% in the fourth quarter of 2018.

Adjusted EBITDA excluding the effects of IFRS 16, was €69.3 million for the first quarter of 2019, a 14% increase over the first quarter of 2018 and a 2% increase over the fourth quarter of 2018. Adjusted EBITDA margin, excluding the effects of IFRS 16, was 45.7% in the first quarter of 2019, compared with 45.5% in the first quarter of 2018 and 46.1% in the fourth quarter of 2018.

Net cash flows from operating activities were €71.3 million in the first quarter of 2019, compared with €34.6 million in the first quarter of 2018 and €44.8 million in the fourth quarter of 2018.

Cash generated from operations was €79.9 million in the first quarter of 2019, compared with €58.1 million in the first quarter of 2018 and €76.9 million in the fourth quarter of 2018.

Capital expenditures, including intangible assets, were €144.1 million in the first quarter of 2019, compared with €96.2 million in the first quarter of 2018 and €131.3 million in the fourth quarter of 2018.

Cash and cash equivalents were €118.2 million at 31 March 2019, compared with €186.1 million at year end 2018.

Total borrowings (including lease liabilities) net of cash and cash equivalents were €1,593.9 million in aggregate at 31 March 2019, compared with €1,104.1 million at 31 December 2018. Excluding lease liabilities, total borrowings were €1,239.6 million at 31 March 2019, compared with €1,239.8 million at 31 December 2018.

During the first quarter of 2019, Interxion increased its unsecured revolving credit facility by €100 million for a total commitment of €300 million. As at 31 March 2019, no amounts had been drawn under this facility.

Equipped space at the end of the first quarter of 2019 was 148,300 square metres, compared to 128,900 square metres at the end of the first quarter of 2018 and 144,800 square metres at the end of the fourth quarter of 2018. Revenue generating space at the end of the first quarter of 2019 was 119,000 square metres, compared to 104,100 square metres at the end of the first quarter of 2018 and 115,000 square metres at the end of the fourth quarter of 2018. Utilisation rate, the ratio of revenue-generating space to equipped space, was 80% at the end of the first quarter of 2019, compared to 81% at the end of the first quarter of 2018 and 79% at the end of the fourth quarter of 2018.

Business Outlook

Interxion today is reaffirming guidance for Revenue, Adjusted EBITDA and Capital expenditures (including intangibles) for full year 2019:

Conference Call to Discuss Results

Interxion will host a conference call today at 8:30 a.m. ET (1:30 p.m. BST, 2:30 p.m. CET) to discuss the results.

To participate on this call, U.S. callers may dial toll free 1-866-966-1396; callers outside the U.S. may dial direct +44 (0) 2071 928 000. 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 23 May 2019. To access the replay, U.S. callers may dial toll free 1-866-331-1332; callers outside the U.S. may dial direct +44 (0) 3333 009 785. The replay access number is 7667705.

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, delays in remediating the material weakness in internal control over financial reporting and/or making disclosure controls and procedures effective, 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 press release.

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) Adjusted EBITDA; (ii) Adjusted EBITDA excluding the impact of IFRS 16; (iii) Recurring revenue; (iv) Revenue on a constant currency basis; (v) Adjusted net income; (vi) Adjusted basic earnings per share; (vii) Adjusted diluted earnings per share and (viii) Cash generated from operations.

Other companies may present Adjusted EBITDA, Adjusted EBITDA excluding the impact of IFRS 16, Recurring revenue, Revenue on a constant currency basis, Adjusted net income, Adjusted basic earnings per share, Adjusted diluted earnings per share and Cash generated from operations 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.

Adjusted EBITDA, Adjusted EBITDA excluding the impact of IFRS 16, Recurring revenue and Revenue on a constant currency basis

We define Adjusted EBITDA as Operating income adjusted for the following items, which may occur in any period, and which management believes are not representative of our operating performance:

• • Depreciation and amortisation – property, plant and equipment and intangible assets (except goodwill) are depreciated and amortised on a straight-line basis over the estimated useful life. We believe that these costs do not represent our operating performance.
  • Share-based payments – represents primarily the fair value at the date of grant of employee equity awards, which is recognized as an expense over the vesting period. In certain cases, the fair value is redetermined for market conditions at each reporting date, until the final date of grant is achieved. 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 in which such gains or losses are incurred. We exclude these effects because we believe they are not reflective of our ongoing operating performance.
  • Adjustments related to terminated and unused data centre sites – these gains and losses relate to historical leases entered into for certain brownfield sites, with the intention of developing data centres, 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 data centres are not reflective of our business activities and our ongoing operating performance.

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

In addition, we present Adjusted EBITDA excluding the impact of IFRS 16 for comparative purposes with regard to Adjusted EBITDA presented in periods prior to 1 January 2019, the effective date of IFRS 16.

We define Recurring revenue as revenue 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, excluding rents received for the sublease of unused sites.

We believe Adjusted EBITDA, Adjusted EBITDA excluding the impact of IFRS 16, Recurring revenue and Revenue on a constant currency basis provide useful supplemental information to investors regarding our ongoing operational performance. These measures help us and our investors evaluate the ongoing operating performance of the business after removing the impact of our capital structure (primarily interest expense), our asset base (primarily depreciation and amortisation) and the implementation of new accounting standards. Management believes that the presentation of Adjusted EBITDA and Adjusted EBITDA excluding the impact of IFRS 16, 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 Adjusted EBITDA and Adjusted EBITDA excluding the impact of IFRS 16 facilitates comparisons between us and other data centre operators (including other data centre operators that are REITs) and other infrastructure-based businesses. Adjusted EBITDA excluding the impact of IFRS 16 is also a relevant measure used in the financial covenants of our revolving credit facility and our 4.75% Senior Notes due 2025. Pursuant to the terms of our revolving credit facility and our 4.75% Senior Notes due 2025, the calculation of Adjusted EBITDA for the purposes of the financial covenants contained therein is determined in accordance with IFRS as of the date of the financing agreements related thereto (June 2018) and therefore does not include the impact of IFRS 16.

A reconciliation from net income to Adjusted EBITDA and from Adjusted EBITDA to Adjusted EBITDA excluding the impact of IFRS 16 is provided in the tables attached to this press release. Adjusted EBITDA, Adjusted EBITDA excluding the impact of IFRS 16 and other key performance indicators may not be indicative of our historical results of operations based on IFRS, nor are they meant to be predictive of future results under IFRS.

Management’s outlook for 2019 included in this press release includes a range for expected Adjusted EBITDA, a non-IFRS financial measure, which excludes items that management believes are not representative of our operating performance. These items include, but are not limited to, depreciation and amortisation, share-based payments, income or expense related to the evaluation and execution of potential mergers or acquisitions, adjustments related to terminated and unused data centre sites, and other significant items that currently cannot be predicted. The exact amount of these items is an estimate but may be significant. Accordingly, the company is unable to provide equivalent reconciliations from the corresponding forward-looking IFRS measures to expected Adjusted EBITDA.

We present constant currency information for 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 provides useful supplemental information to investors regarding our on-going operational performance because it helps us and our investors evaluate the on-going 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 in which such gains or losses are 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 other items that management believes are not representative of our current on-going performance. Examples include: adjustments for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

Management believes 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 comparing our operating performance with other data centre operators and infrastructure companies. We believe the presentation of Adjusted net income, when combined with net income prepared in accordance with IFRS, is beneficial to a complete understanding of our performance. A reconciliation from reported net income to Adjusted net income is provided in the tables attached to this press release.

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

Cash generated from operations

Cash generated from operations is defined as net cash flows from operating activities, excluding interest and corporate income tax payments and receipts. Management believes that the exclusion of these items, provides useful supplemental information to net cash flows from operating activities to aid investors in evaluating the cash generating performance of our business.

IFRS 16 – Leases

We adopted International Financial Reporting Standard 16 – Leases, from 1 January 2019. Under IFRS 16, operating leases are recognized as right of use assets and lease liabilities, and certain components of revenue are recognized as lease revenue.

The impact of IFRS 16 on revenue, gross profit, operating income, Adjusted EBITDA, depreciation and amortization, net finance expense, total assets and total liabilities as reported for the first quarter of 2019 is provided in the tables attached to this press release.