Thursday, 03 August 2017 23:26

GTT Reports Second Quarter 2017 Financial Results Featured

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Drives Continued Growth and Margin Expansion

Q2 Revenue Grew 44.4% Year-Over-Year to $186.2 Million; Up 2.1% Sequentially

Q2 Adjusted EBITDA Grew 77.7% Year-Over-Year to $53.8 Million; Up 6.0% Sequentially

 

McLean, VA, August 3, 2017 GTT Communications, Inc. (NYSE: GTT), the leading global cloud networking provider to multinational clients, announced today its financial results for the quarter ended June 30, 2017.

Second quarter highlights:

  • Revenue of $186.2 million grew 44.4% over 2Q16, and grew 2.1% over 1Q17.
  • Net income was $0.6 million, compared to net income of $0.1 million in 2Q16 and net loss of $13.1 million in 1Q17. 1Q17 net loss included $24.4 million in non-recurring costs related to the Hibernia Networks (“Hibernia”) acquisition and related debt refinancing.
  • Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) of $53.8 million grew 77.7% over 2Q16, and grew 6.0% over 1Q17. Adjusted EBITDA margin of 28.9% grew 540 basis points over 2Q16 and grew 110 basis points over 1Q17.
  • Capital expenditures were $9.3 million (5.0% of revenue), compared to $4.8 million in 2Q16 (3.7% of revenue) and $8.5 million in 1Q17 (4.6% of revenue).
  • Using constant currency (i) 2Q17 revenue and Adjusted EBITDA would have been higher than reported by $3.0 million and $1.3 million, respectively, compared to 2Q16, and (ii) 2Q17 revenue, and Adjusted EBITDA would have been lower than reported by $0.8 million and $0.1 million, respectively, compared to 1Q17.

On a pro forma basis, assuming (i) Hibernia’s historical results had been included for all periods presented, and (ii) constant currency:

  • 2Q17 revenue and Adjusted EBITDA grew 9.2% and 22.7%, respectively, over 2Q16.
  • 2Q17 revenue and Adjusted EBITDA grew 1.7% and 5.9%, respectively, over 1Q17.

See “Annex A: Non-GAAP Financial Information” for more information regarding the computation of Adjusted EBITDA, constant currency and pro forma calculations.

“GTT delivered another solid quarter of growth and margin expansion,” stated Rick Calder, GTT president and CEO. “We are executing our growth strategy both through selective acquisitions and the expansion of our new Divisions in Enterprise, Carrier and EMEA.”

“GTT continues to execute consistently,” stated Mike Sicoli, chief financial officer. “We are on track to achieve $30 million in annualized cost synergies from the Hibernia acquisition. We plan to close the acquisition of Global Capacity by the end of the third quarter and, after integration, we expect to achieve our next financial objectives of $1 billion in revenue and $250 million in Adjusted EBITDA.”

Conference Call Information
GTT will hold a conference call on Thursday, August 3, 2017, at 10:00 a.m. Eastern Time. To participate in the live conference call, interested parties may dial +1.844.875.6916 or +1.412.317.6714, enter passcode 10109686, and ask for the GTT Communications call, or view the webcast at GTT’s website.

A telephonic replay of the conference call will be available for one week and may be accessed by calling +1.877.344.7529 or +1.412.317.0088 and using the passcode 10109686. The webcast will be archived in the investor relations section of GTT's website.

Forward-Looking Statements
This earnings release includes certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including those regarding GTT Communications, Inc.’s, plans, objectives and strategies or future events or future financial performance. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors, including those described in the Company’s filings with the U.S. Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved. The business and operations of the Company are subject to substantial risks, which increase the uncertainty inherent in forward-looking statements. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements.

About GTT

GTT provides multinationals with a better way to reach the cloud through its suite of cloud networking services, including wide area networking, Internet, managed services and voice services. The company’s Tier 1 IP network, ranked in the top five worldwide, connects clients to any location in the world and any application in the cloud. GTT delivers an outstanding client experience by living its core values of simplicity, speed and agility. For more information on how GTT is redefining global communications, please visit www.gtt.net.

GTT Media Inquiries:

Gina Nomellini
Capaccio, LHA
+1.512.721.0338
This email address is being protected from spambots. You need JavaScript enabled to view it.

GTT Investor Relations:

Jody Burfening/Carolyn Capaccio, LHA
+1.212.838.3777
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GTT Communications, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in millions, except per share data)

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2016   2017   2016
               
Revenue:              
Telecommunications services $ 186.2     $ 128.9     $ 368.6     $ 253.4  
               
Operating expenses:              
Cost of telecommunications services 93.4     68.3     184.8     134.5  
Selling, general and administrative expenses 46.7     35.9     99.7     68.1  
Severance, restructuring and other exit costs 0.1         10.7     1.5  
Depreciation and amortization 31.5     15.7     61.8     31.3  
               
Total operating expenses 171.7     119.9     357.0     235.4  
               
Operating income 14.5     9.0     11.6     18.0  
               
Other expense:              
Interest expense, net (16.6 )   (7.1 )   (32.5 )   (14.5 )
Loss on debt extinguishment     (1.6 )   (5.7 )   (1.6 )
Other expense, net 0.1     (0.2 )       (0.5 )
               
Total other expense (16.5 )   (8.9 )   (38.2 )   (16.6 )
               
(Loss) income before income taxes (2.0 )   0.1     (26.5 )   1.4  
               
(Benefit from) provision for income taxes (2.6 )       (14.1 )   0.4  
               
Net income (loss) $ 0.6     $ 0.1     $ (12.5 )   $ 1.0  
               
Earnings (loss) per share:              
Basic $ 0.02     $     $ (0.31 )   $ 0.03  
Diluted $ 0.02     $     $ (0.31 )   $ 0.03  
               
Weighted average shares:              
Basic 41,244,595     37,065,651     40,849,453     37,016,720  
Diluted 41,819,377     37,678,120     40,849,453     37,575,397  

GTT Communications, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in millions, except per share data)

  June 30, 2017   December 31, 2016
ASSETS      
Current assets:      
Cash and cash equivalents $ 130.7     $ 29.7  
Accounts receivable, net of allowances of $3.7 and $2.7, respectively 100.0     76.3  
Deferred costs 3.2     3.4  
Prepaid expenses 20.5     5.8  
Other assets 5.5     3.6  
Total current assets 259.9     118.8  
Restricted cash and cash equivalents     304.3  
Property and equipment, net 470.3     43.4  
Intangible assets, net 395.5     193.9  
Goodwill 490.2     280.6  
Other long-term assets 33.7     12.3  
Total assets $ 1,649.6     $ 953.3  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 21.8     $ 11.3  
Accrued expenses and other current liabilities 54.6     36.9  
Acquisition earn-outs and holdbacks 17.8     24.4  
Current portion of capital lease obligations 1.6     1.0  
Current portion of long-term debt 7.0     4.3  
Deferred revenue 50.7     17.9  
Total current liabilities 153.5     95.8  
Capital lease obligations, long-term portion 0.8     0.1  
Long-term debt 1,108.8     725.2  
Deferred revenue, long-term portion 116.3     3.4  
Deferred tax liability 28.7      
Other long-term liabilities 19.9     1.0  
Total liabilities 1,428.0     825.5  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 41,272,319 and 37,228,144 shares issued and outstanding as of June 30, 2017, and December 31, 2016, respectively      
Additional paid-in capital 291.9     197.3  
Accumulated deficit (65.9 )   (64.6 )
Accumulated other comprehensive loss (4.4 )   (4.9 )
Total stockholders’ equity 221.6     127.8  
Total liabilities and stockholders’ equity $ 1,649.6     $ 953.3  

GTT Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in millions)

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2016   2017   2016
Cash flows from operating activities:              
Net income (loss) $ 0.6     $ 0.1     $ (12.5 )   $ 1.0  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Depreciation and amortization 31.5     15.7     61.8     31.3  
Share-based compensation 5.3     4.5     9.9     6.1  
Debt discount amortization 0.2         0.5     0.3  
Loss on debt extinguishment     1.6     5.7     1.6  
Amortization of debt issuance costs 0.9     0.4     1.6     0.9  
Excess tax benefit and deferred income taxes (0.5 )       (13.5 )    
Non-cash deferred revenue (9.6 )   (1.6 )   (21.3 )   (3.3 )
Non-cash deferred costs 2.9     0.6     3.8     1.3  
Changes in operating assets and liabilities, net of acquisitions: (7.3 )   (8.2 )   (9.9 )   (19.8 )
Net cash provided by operating activities 24.0     13.1     26.2     19.4  
               
Cash flows from investing activities:              
Acquisition of businesses, net of cash acquired (39.4 )       (552.5 )   (13.7 )
Purchase of customer contracts (11.0 )   (6.0 )   (14.9 )   (6.0 )
Change in restricted cash and cash equivalents         304.3      
Purchases of property and equipment (9.3 )   (4.8 )   (17.8 )   (12.3 )
Net cash used in investing activities (59.7 )   (10.8 )   (280.9 )   (32.0 )
               
Cash flows from financing activities:              
Proceeds from senior note 159.0         159.0      
Proceeds from revolving line of credit     16.0         30.0  
Repayment of revolving line of credit     (29.0 )   (20.0 )   (29.0 )
Proceeds from term loan     29.9     696.5     29.9  
Repayment of term loan (1.8 )   (1.1 )   (429.3 )   (2.1 )
Payment of earn-out and holdbacks (18.5 )   (9.9 )   (20.3 )   (10.9 )
Debt issuance costs (3.0 )   (0.9 )   (27.7 )   (0.9 )
Repayment of capital leases (0.3 )   (0.4 )   (0.6 )   (0.5 )
Proceeds from issuance of common stock under ESPP 0.2         0.3      
Tax withholding related to the vesting of restricted stock units (0.9 )   (1.1 )   (2.3 )   (1.6 )
Exercise of stock options (0.2 )   0.1     0.6     0.2  
Net cash provided by financing activities 134.5     3.6     356.2     15.1  
Effect of exchange rate changes on cash (1.1 )   (0.8 )   (0.5 )   (1.7 )
Net increase in cash and cash equivalents 97.7     5.1     101.0     0.8  
Cash and cash equivalents at beginning of period 33.0     14.6     29.7     14.6  
Cash and cash equivalents at end of period $ 130.7     $ 19.7     $ 130.7     $ 15.4  

ANNEX A: Non-GAAP Financial Information

In addition to financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), from time to time we may use or publicly disclose certain “non-GAAP financial measures” in the course of our financial presentations, earnings releases, earnings conference calls and otherwise. For these purposes, the U.S. Securities and Exchange Commission (“SEC”) defines a “non-GAAP financial measure” as a numerical measure of historical or future financial performance, financial positions or cash flows that (i) excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements, and (ii) includes amounts, or is subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure so calculated and presented.

Non-GAAP financial measures are provided as additional information to investors to provide an alternative method for assessing our financial condition and operating results. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better evaluate our performance and profitability. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. These measures should be used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.

Pursuant to the requirements of Regulation G, whenever we refer to a non-GAAP financial measure, we will also generally present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable GAAP financial measure.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)

Adjusted EBITDA is defined as net income/(loss) before interest, income taxes, depreciation and amortization (“EBITDA”) adjusted to exclude severance, restructuring and other exit costs, acquisition-related transaction and integration costs, losses on extinguishment of debt, stock-based compensation and, from time to time, other non-cash or non-recurring items.

We use Adjusted EBITDA to evaluate operating performance, and this financial measure is among the primary measures we use for planning and forecasting future periods. We further believe that the presentation of Adjusted EBITDA is relevant and useful for investors because it allows investors to view results in a manner similar to the method used by management and makes it easier to compare our results with the results of other companies that have different financing and capital structures. In addition, we have debt covenants that are based on a leverage ratio that utilizes a modified EBITDA calculation, as defined in our Credit Agreement. The modified EBITDA calculation is similar to our definition of Adjusted EBITDA; however, it includes the pro forma Adjusted EBITDA of and expected cost synergies from the companies acquired by us during the applicable reporting period. Finally, Adjusted EBITDA results, along with other quantitative and qualitative information, are utilized by management and our compensation committee for purposes of determining bonus payouts to our employees.

Adjusted EBITDA Less Capital Expenditures

Adjusted EBITDA less purchases of property and equipment, which we also refer to as capital expenditures, is a performance measure that is used to evaluate the appropriate level of capital expenditures needed to support our expected revenue and to provide a comparable view of our performance relative to other telecommunications companies that may utilize different strategies for providing access to fiber-based services and related infrastructure. We use a “capex light” strategy, which means we purchase fiber-based services and related infrastructure from other providers on an as-needed basis, pursuant to our customers’ requirements. Many other telecommunications companies spend significant amounts of capital expenditures to construct their own fiber networks and data centers, and attempt to purchase as little as possible from other providers. As a result of our strategy, we typically have lower Adjusted EBITDA margins compared to other providers but also spend much less on capital expenditures relative to our revenue. We believe it is important to take both of these factors into account when evaluating our performance.

The following is a reconciliation of Adjusted EBITDA and Adjusted EBITDA less capital expenditures from Net (Loss) Income (amounts in millions):

  Three Months Ended June 30,   Six Months Ended June 30,
  2017   2016   2017   2016
               
Adjusted EBITDA              
Net income (loss) $ 0.6     $ 0.1     $ (12.5 )   $ 1.0  
(Benefit from) provision for income taxes (2.6 )       (14.1 )   0.4  
Interest and other expense, net 16.5     7.3     32.5     15.0  
Loss on debt extinguishment     1.6     5.7     1.6  
Depreciation and amortization 31.5     15.7     61.8     31.3  
Severance, restructuring and other exit costs 0.1         10.7     1.5  
Transaction and integration costs 2.3     1.1     10.4     2.3  
Share-based compensation 5.3     4.5     9.9     6.1  
Adjusted EBITDA 53.7     30.3     104.4     59.2  
Purchases of property and equipment (9.3 )   (4.8 )   (17.7 )   (12.3 )
Adjusted EBITDA less capital expenditures $ 44.4     $ 25.5     $ 86.7     $ 46.9  

Constant Currency

We evaluate our results of operations both as reported and on a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information offers valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency results by converting our current-period local currency financial results using prior-period exchange rates and comparing these adjusted amounts to our prior-period reported results.

Pro Forma Financial Information

In addition to financial measures prepared in accordance with GAAP, from time to time we may use or publicly disclose certain “pro forma” financial measures in the course of our financial presentations, earnings releases, earnings conference calls and otherwise. We believe certain pro forma financial measures provide a more comparable view of our results relative to prior periods, particularly given the number of acquisitions we have completed in the past.

The following unaudited pro forma financial information and related notes present the historical information of GTT as if the acquisition of Hibernia Networks (“Hibernia”) had occurred on the first day of the period presented.

For the three months ended June 30, 2017, compared with the three months ended June 30, 2016, the following unaudited financial information presents historical GTT information as if the acquisition of Hibernia had occurred on the first day of the period presented, as reported and in constant currency:

($ in millions)

Three Months Ended

June 30

  2017   2016
Revenue      
GTT as reported $ 186.2     $ 128.9  
GTT pro forma adjustments      
Hibernia as reported     45.8  
Hibernia pro forma adjustments (1)     (1.5 )
Pro Forma Revenue $ 186.2     $ 173.2  
Pro Forma % Growth 7.5 %    
Pro Forma % Growth (Constant Currency) 9.2 %    
       
Adjusted EBITDA      
GTT as reported $ 53.8     $ 30.3  
GTT pro forma adjustments      
Hibernia as reported     15.8  
Hibernia pro forma adjustments (2)     (1.1 )
Pro Forma Adjusted EBITDA $ 53.8     $ 45.0  
Pro Forma Adjusted EBITDA Margin % 28.9 %   25.9 %
Pro Forma % Growth 19.8 %    
Pro Forma % Growth (Constant Currency) 22.7 %    
(1) Represents revenue recognized by acquired companies from GTT prior to their respective close dates and adjustments in deferred revenue from acquired companies.

(2) Represents adjustments in deferred revenue from acquired companies.

 

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