GTT Communications, Inc. (NYSE: GTT), a leading global cloud
networking provider to multinational clients, announced today its
financial results for the quarter ended September 30, 2019.
Third quarter highlights:
- Revenue of $420.0 million declined 6.4% compared to 3Q18, and
declined 3.2% compared to 2Q19. The sequential revenue decline of
3.2% was attributable to a 0.9% decline in monthly recurring cash
revenue, a 0.8% decline from foreign currency, a 0.7% decline in
non-recurring and other revenue, a 0.6% decline in the runoff of
non-cash deferred revenue, and a 0.2% increase in revenue
credits.
- Net install trends improved sequentially over the course of the
quarter and net installs were positive in October.
- Net loss was $26.2 million compared to net loss of $23.4
million in 3Q18 and net loss of $33.3 million in 2Q19. The net
losses in all periods include non-recurring costs, including exit,
transaction and integration costs of $4.3 million, $26.2 million
and $12.1 million in 3Q19, 3Q18 and 2Q19, respectively, and losses
due to the change in fair value of exchange rate and interest rate
hedges of $6.6 million and $19.9 million in 3Q19 and 2Q19,
respectively (the 3Q18 period included a gain due to the change in
fair value of exchange rate and interest rate hedges of $8.3
million).
- Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (“Adjusted EBITDA”) of $102.4 million declined 5.5%
compared to 3Q18 and declined 8.6% compared to 2Q19. Adjusted
EBITDA margin was 24.4% compared to 24.2% in 3Q18 and 25.8% in
2Q19. Adjusted EBITDA margins were negatively affected by an
elevated level of revenue credits, the continued runoff of non-cash
revenues and investments in support of organic growth.
- Free Cash Flow of $19.6 million compared to $(6.7) million in
3Q18 and $(4.1) million in 2Q19. Adjusted Unlevered Free Cash Flow
of $83.3 million compared to $56.0 million in 3Q18 and $42.9
million in 2Q19.
- Capital expenditures were $26.0 million (6.2% of revenue)
compared to $28.9 million in 3Q18 (6.4% of revenue) and $19.2
million in 2Q19 (4.4% of revenue).
- Significant progress in cash collections reducing past due
receivable balances in Europe from over $150 million to $90 million
through successful dispute resolutions and reorganized cash
collections team. European accounts receivable improved from 31%
current to 49% current.
- Using constant currency (i) 3Q19 revenue and Adjusted EBITDA
would have been higher than reported by $9.8 million and $2.7
million, respectively, compared to 3Q18, and (ii) 3Q19 revenue and
Adjusted EBITDA would have been higher than reported by $3.6
million and $0.6 million, compared to 2Q19.
GTT has expanded the scope of its non-strategic and non-core
asset divestiture exploratory process to include the Company’s
highly differentiated pan-European fiber assets, subsea
transatlantic fiber and data center infrastructure, which the
Company acquired as part of the Interoute and Hibernia
acquisitions.
See “Annex A: Non-GAAP Financial Information” for more
information regarding the computation of Adjusted EBITDA, Free Cash
Flow, Adjusted Free Cash Flow, Adjusted Unlevered Free Cash Flow,
constant currency and pro forma calculations.
Conference Call Information
GTT will hold a conference call on Tuesday, November 12, 2019,
at 8:30 a.m. Eastern Time. To participate in the live conference
call, interested parties may dial +1-844-875-6916 or
+1-412-317-6714 and ask for the GTT 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 10135783. The webcast will
be archived in the investor relations section of GTT’s website.
Forward-Looking Statements
This release contains forward-looking statements that are made
pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which reflect the
current view of GTT Communications, Inc. (“GTT,” “we” or “us”),
with respect to its plans, objectives and strategies or future
events or future financial performance. From time to time, GTT also
provides forward-looking statements in other materials GTT releases
to the public or files with the U.S. Securities and Exchange
Commission (“SEC”), as well as oral forward-looking statements. You
should consult any further disclosures on related subjects in our
annual reports on Form 10-K, our quarterly reports on Form 10-Q and
our current reports on Form 8-K filed with the SEC. Such
forward-looking statements are and will be subject to many risks,
uncertainties and factors relating to our operations and the
business environment that may cause our actual results to be
materially different from any future results, express or implied,
by such forward-looking statements. Factors that could cause GTT’s
actual results to differ materially from these forward-looking
statements include, but are not limited to, the following: the
effects on our business and customers of general economic and
financial market conditions; our ability to achieve the expected
benefits of certain transactions; our ability to develop and market
new products and services that meet customer demands and generate
acceptable margins; our reliance on several large customers; our
ability to negotiate and enter into acceptable contract terms with
our suppliers; our ability to attract and retain qualified
management and other personnel; competition in the industry in
which we do business; failure of the third-party communications
networks on which we depend; legislation or regulatory
environments, requirements or changes adversely affecting the
businesses in which we are engaged; our ability to maintain our
databases, management systems and other intellectual property; our
ability to prevent process and system failures or security breaches
that significantly disrupt the availability and quality of the
services that we provide; our ability to maintain adequate
liquidity and produce sufficient cash flow to fund acquisitions and
capital expenditures; our ability to meet all the terms and
conditions of our debt obligations; our ability to obtain capital
to grow our business; our ability to utilize our net operating
losses; expectations regarding the trading price of our common
stock; our ability to complete acquisitions or divestitures and
effectively integrate any business or operation acquired; foreign
exchange rate fluctuations; and fluctuations in our effective tax
rate. Additional information concerning these and other important
factors can be found under the heading “Risk Factors” in GTT’s
annual and quarterly reports filed with the SEC including, but not
limited to, its Annual Report on Form 10-K for the year ended
December 31, 2018. Statements in this release should be evaluated
in light of these important factors.
About GTT
GTT connects people across organizations, around the world and
to every application in the cloud. Our clients benefit from an
outstanding service experience built on our core values of
simplicity, speed and agility. GTT owns and operates a global Tier
1 internet network and provides a comprehensive suite of cloud
networking services. For more information on GTT (NYSE: GTT),
please visit www.gtt.net.
GTT Communications,
Inc.
Condensed Consolidated
Statements of Operations
(Unaudited)
(Amounts in millions, except per
share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenue:
Telecommunications services
$
420.0
$
448.6
$
1,304.0
$
1,036.0
Operating expenses:
Cost of telecommunications services
232.8
247.4
712.1
568.2
Selling, general and administrative
expenses
93.7
112.7
295.4
270.7
Severance, restructuring and other exit
costs
2.4
15.5
11.6
22.7
Depreciation and amortization
61.0
58.5
185.0
146.5
Total operating expenses
389.9
434.1
1,204.1
1,008.1
Operating income
30.1
14.5
99.9
27.9
Other expense:
Interest expense, net
(48.8
)
(47.6
)
(146.3
)
(98.7
)
Loss on debt extinguishment
—
—
—
(13.8
)
Other (expense) income, net
(8.0
)
8.1
(38.9
)
(106.9
)
Total other expense
(56.8
)
(39.5
)
(185.2
)
(219.4
)
Loss before income taxes
(26.7
)
(25.0
)
(85.3
)
(191.5
)
(Benefit from) provision for income
taxes
(0.5
)
(1.6
)
1.5
(1.1
)
Net loss
$
(26.2
)
$
(23.4
)
$
(86.8
)
$
(190.4
)
Loss per share:
Basic
$
(0.46
)
$
(0.43
)
$
(1.55
)
$
(3.87
)
Diluted
$
(0.46
)
$
(0.43
)
$
(1.55
)
$
(3.87
)
Weighted average shares:
Basic
56,370,178
54,671,787
56,154,427
49,210,929
Diluted
56,370,178
54,671,787
56,154,427
49,210,929
GTT Communications,
Inc.
Condensed Consolidated Balance
Sheets
(Unaudited)
(Amounts in millions, except per
share data)
September 30, 2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
40.6
$
55.3
Accounts receivable, net of allowances
184.6
174.5
Prepaid and other current assets
50.7
49.2
Total current assets
275.9
279.0
Property and equipment, net
1,760.9
1,870.4
Operating lease right of use assets
361.3
—
Intangible assets, net
479.1
552.4
Goodwill
1,729.6
1,738.0
Other long-term assets
82.9
97.8
Total assets
$
4,689.7
$
4,537.6
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities
$
324.3
$
316.0
Operating lease liabilities
73.4
—
Finance lease liabilities
5.0
6.7
Long-term debt
31.8
39.9
Deferred revenue
73.4
84.2
Total current liabilities
507.9
446.8
Operating lease liabilities, long-term
portion
279.0
—
Finance lease liabilities, long-term
portion
36.0
35.1
Long-term debt, long-term portion
3,118.2
3,151.6
Deferred revenue, long-term portion
263.6
287.0
Deferred tax liabilities
174.7
176.2
Other long-term liabilities
37.6
26.2
Total liabilities
4,417.0
4,122.9
Commitments and contingencies
Stockholders’ equity:
Total stockholders’ equity
272.7
414.7
Total liabilities and stockholders’
equity
$
4,689.7
$
4,537.6
GTT Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Cash flows from operating
activities:
Net loss
$
(26.2)
$
(26.4)
$
(86.8)
$
(190.4)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
61.0
58.5
185.0
146.5
Share-based compensation
7.0
9.3
23.2
23.9
Debt discount amortization
1.7
1.7
5.2
1.9
Loss on debt extinguishment
—
—
—
13.8
Amortization of debt issuance costs
1.2
1.0
3.5
3.4
Change in fair value of derivative
financial liability
6.6
(8.4
)
41.8
106.9
Excess tax benefit from share-based
compensation
—
(1.9
)
0.6
(6.6
)
Deferred income taxes
0.3
3.8
(2.1
)
8.0
Changes in operating assets and
liabilities, net of acquisitions
(6.0
)
(18.4
)
(93.6
)
(56.7
)
Net cash provided by operating
activities
45.6
22.2
76.8
50.7
Cash flows from investing
activities:
Acquisition of businesses, net of cash
acquired
—
—
(0.5
)
(2,207.4
)
Purchase of customer contracts
—
—
(0.2
)
—
Settlement of deal-contingent foreign
currency hedge
—
—
—
(105.8
)
Purchases of property and equipment
(26.0
)
(28.9
)
(77.3
)
(61.4
)
Net cash used in investing activities
(26.0
)
(28.9
)
(78.0
)
(2,374.6
)
Cash flows from financing
activities:
Proceeds from debt
—
7.5
26.0
2,641.2
Repayment of debt
(9.5
)
(11.2
)
(30.6
)
(705.5
)
Payment of holdbacks
—
(1.8
)
(6.5
)
(11.2
)
Debt issuance costs paid to third parties
and lenders
(0.9
)
(4.3
)
(1.1
)
(62.8
)
Proceeds from equity issuance, net of
issuance costs
—
—
—
424.5
Repayment of finance leases
(0.5
)
(0.4
)
(1.1
)
(2.1
)
Proceeds from issuance of common stock
under ESPP
0.4
0.3
1.2
0.7
Tax withholding related to the vesting of
restricted stock
0.1
(5.9
))
(0.3
)
(16.1
)
Exercise of stock options
0.1
0.4
0.9
1.6
Net cash (used in) provided by
financing activities
(10.3
)
(15.4
)
(11.5
)
2,270.3
Effect of exchange rate changes on
cash
(2.4
)
(3.9
)
(2.0
)
0.1
Net increase (decrease) in cash, cash
equivalents, and restricted cash
6.9
(26.0
)
(14.7
)
(53.5
)
Cash, cash equivalents, and restricted
cash at beginning of period
33.7
73.7
55.3
101.2
Cash, cash equivalents, and restricted
cash at end of period
$
40.6
$
47.7
$
40.6
$
47.7
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 supplemental
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 they 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 in this press release, 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.
The following is a reconciliation of Adjusted EBITDA from Net
Loss (amounts in millions):
Three Months Ended
September 30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net Loss
$
(26.2
)
$
(23.4
)
$
(86.8
)
$
(190.4
)
Provision for income taxes
(0.5
)
(1.6
)
1.5
(1.1
)
Interest and other expense, net
56.8
39.5
185.2
205.6
Loss on debt extinguishment
—
—
—
13.8
Depreciation and amortization
61.0
58.5
185.0
146.5
Severance, restructuring and other exit
costs
2.4
15.5
11.6
22.7
Transaction and integration costs
1.9
10.7
16.8
25.1
Share-based compensation
7.0
9.2
23.2
23.9
Adjusted EBITDA
$
102.4
$
108.4
$
336.5
$
246.1
Free Cash Flow, Adjusted Free Cash Flow and Adjusted
Unlevered Free Cash Flow
Free Cash Flow is defined as net cash provided by operating
activities less purchases of property and equipment. Adjusted Free
Cash Flow is defined as Free Cash Flow adjusted to exclude cash
paid for severance, restructuring and other exit costs, and
acquisition-related transaction and integration costs. Adjusted
Unlevered Free Cash Flow is defined as Adjusted Free Cash Flow
before interest. Adjusted Free Cash Flow and Adjusted Unlevered
Free Cash Flow are not measurements of our financial performance
under GAAP and should not be considered in isolation, or as
alternatives to net cash flows provided by operating activities,
total net cash flows, or any other performance measure derived in
accordance with GAAP.
We use Free Cash Flow and Adjusted Free Cash Flow as a measure
to evaluate cash generated through normal operating activities. We
believe that the presentation of Free Cash Flow and Adjusted Free
Cash Flow are relevant and useful to investors because they provide
measures of cash available to pay the principal on our debt and
pursue acquisitions of businesses or other strategic investments or
uses of capital. We use Adjusted Unlevered Free Cash Flow as a
measure to evaluate cash generated through normal operating
activities prior to debt service as our debt capital structure will
change over time. We believe that the presentation of Adjusted
Unlevered Free Cash Flow 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.
The following is a reconciliation of Free Cash Flow, Adjusted
Free Cash Flow and Adjusted Unlevered Free Cash Flow from Cash
provided by operating activities (amounts in millions):
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net cash provided by operating
activities
$
45.6
$
22.2
$
76.8
$
50.7
Purchases of property and equipment
(26.0)
(28.9)
(77.3)
(61.4)
Free Cash Flow
19.6
(6.7)
(0.5)
(10.7)
Severance, restructuring and other exit
costs
5.1
10.7
22.0
22.3
Transaction and integration costs
2.2
10.9
17.0
24.7
Adjusted Free Cash Flow
26.9
14.9
38.5
36.3
Cash paid for interest
56.4
41.1
121.8
102.4
Adjusted Unlevered Free Cash
Flow
$
83.3
$
56.0
$
160.3
$
138.7
The following is our Free Cash Flow guidance for FY20 (amounts
in millions):
FY20 Guidance Range
Low End
High End
Net cash provided by operating
activities
$
265.0
$
300.0
Purchases of property and equipment
(90.0
)
(100.0
)
Free Cash Flow
$
175.0
$
200.0
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 data 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191112005427/en/
GTT Media Inquiries: Marion
Janic, RooneyPartners +1-212-223-4017 mjanic@rooneyco.com
Bob Cavosi, RooneyPartners +1-646-638-9891
rcavosi@rooneyco.com
GTT Investor Relations: Jody
Burfening/Carolyn Capaccio, LHA +1-212-838-3777
ccapaccio@lhai.com
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