Q3 2019 Earnings Call
Good morning, and welcome to the G.P.T. Communications third quarter 2019 results conference call.
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I would now like to turn the conference over to Chris Mckee General Counsel and executive Vice President of corporate development. Please go ahead.
Thank you and good morning, I'm joined today by Rick Calder, Gtts, President and CEO , Dan Frazier <unk> principal accounting officer, an interim Chief Financial Officer, Brian Thompson Gtts Executive Chairman of the Board today's discussion is being made available via webcast through the company's website www Dot GTT dot net telephonic replay of this call will be available for one.
Dial in information for the replay that's wells access to a replay the webcast is available on our website before we begin I want to remind you that during today's call will be making forward looking statements regarding future events and financial performance made under the safe Harbor provision of the U.S. securities laws, including revenue and margin expectations projections and references to trends in the industry and <unk>.
We caution you that such statements reflect our best judgment as of today November 12 based on factors that are currently known to us and an actual future events or results could differ materially due to a number of factors many of which are beyond our control for a more detailed discussion at the risks and uncertainties affecting our future results. We refer you to our SEC filings GTT disclaims any.
Obligation to update or revise these forward looking statements to reflect future events or circumstances. During the call. We'll also discuss non-GAAP financial measures, including certain pro forma information, which were not prepared in accordance with GAAP. A reconciliation of our GAAP and non-GAAP results. It's provided in todays press release and its posted in the Investor Relations section of our website I'll now turn the call.
Over to Rick Calder right.
Thank you, Chris and good morning, everyone. The third quarter remain challenging for us as we did not yet to return to organic rep driven growth.
Well, we are disappointed in the sequential and year over year declines in revenue and EBITDA, we see promising trends underneath the headline numbers as Dan will discuss in more detail a much smaller portion of the declines came from negative net installs with the majority of the declines from a decrease in noncash deferred revenue.
Nonrecurring revenue and continued currency headwinds our billing credits also remain elevated in Threeq you, though we Rick expect them to decline in Fourq, you 19, and return to normal levels and first Q quarter 20, we've made good progress in resolving and reducing our outstanding build disputes, which led to a <unk>.
Significant increase in collections and reduction in our accounts receivable balances overall, we generated free cash flow of 20 million in third quarter upfront negative 16 million in first quarter and negative 4 million in second quarter, no that due to calendar effect third COVID-19.
It includes a semi annual bond coupon payment that was not present in the first half of 2019 accordingly, the improvements in underlying cash flow generation. We showed this quarter is better conveyed by our non-GAAP metric of adjusted Unlevered free cash flow, which was 83 million in Threeq you 19.
Up from 34 million, one Q and 43 million into Q.
We remain focused on returning to and then accelerating organic rep driven growth.
As I noted a smaller portion of our declines came from negative net installs as we have seen improving trends net installs through the month of third COVID-19 and into October we had positive net installs in both America's Division and Europe Division for the first time this year.
We've increased the size of our Salesforce with 382 wraps at the end of Threeq to 19 up from three to 320 at the end of two Q, we expect to finish 2019 with over 400, perhaps on the way to 500 or more reps by the end of 2020.
We have increased the number of full time recruiters in the Americas and you're up to support these goals with a significant increase in new reps. We saw the decrease in productivity per rep that we had forecasted last quarter as we increase the scope and scale of our salesforce to cover our existing client base and drive new client acquisition.
Yeah.
We are investing in sales enablement training turn analytics and ongoing rep education to ensure a newly hired reps achieved targeted levels of productivity within their first six to 12 months on the job.
In particular on Rep productivity, we're seeing great traction and performance with our software defined wide area network networking or SD Lan product.
Our industry moves through the early growth phase of a generational shift from legacy wide area networking technologies to next generation SP when services.
GTT is uniquely positioned to benefit and win from the shift to Internet based SD when services in the following ways.
First with our top ranked tier one global Internet network, we provide superior performance and throughput for client traffic between client locations to any public internet site into any private cloud service provider.
Second we provide multi level security and threat management services with SD when either premise based network based or both to secure all client traffic.
Third we provide the deepest selection of redundant last mile access options using all available technologies, including copper coaxial cable fiber and wireless for a unique fit for purpose and cost effective estee went option for each client location.
Fourth we have decades of experience and the lifecycle of managed services with hundreds of thousands of actively managed services delivered to any location in the world. We're particularly excited about the productivity improvement essential from this growing shift asti win as even today almost 40% of our total new sales backlog.
Comes from Ft win and related Internet services supporting US do end appointments, we expect this percentage to increase and drive rep productivity improvements over time.
Moreover, we have made good progress on our pace of installation, which has supported our improving that installed trend over the past three months, we're continuing to refine are installed process east to make them more efficient and effective for our clients.
That's the way it as a newer service offering for clients, we have seen delays in deployment of our early SD win wins, we've made significant progress and simplifying the initial design endpoint approach for new equity when sales to speed initial site installation for clients.
Post installation, we provide clients through our ether vision portal the ability to view their network performance at an application by application level and the agility to change their SD Wan application routing preferences and their security policies, both for the overall network and any specific client site.
As our estee when it related Internet sales continued to grow we expect to see increases in sales productivity and continued increases in our pace of installations.
I would like to take this opportunity to provide some additional detail to help understand the underlying trends, we're seeing in the business, which make us optimistic be we're closer today than at any point in the past six quarters to realizing sustained rep driven growth.
Much of the decline in recurring cash revenue was seen in third quarter was attributable to discrete churn events, including from surface losses that were noticed last year that were finally completed at the same time and early Threeq you 19, our churn rate year to date is approximately 1.6%, though we increased.
1.8% overall and Threeq you 19 with these churn events.
Through September and October our churn rate has normalize back to approximately 1.5% and more importantly, our remaining term black log is that the lowest level all year.
The disappointing turn performance in Threeq, you drove our negative net installs and total in Threeq you 19, though the positive momentum we saw in August and September has continued through to October when we achieved our first net install positive month in both Americas Division and Europe Division for the first time this year.
Well one month is not indicative of a trend. We are also very encouraged by the many operational improvements and leadership hires that Ernie Ortega has made since joining GTT in June and Division President Americas, Ernie joined GTT, where the tremendous track record of success, serving in similar roles at Ekso Cogent and cold.
We're already seeing tangible improvements in the underlying metrics for the Americas Division Ernie together with U.S. Bogarde, Our division President Europe have assembled the talent and resources to return GTT to organic growth and then accelerate our growth because we continue to expand our sales force.
Additionally, we are focused on delivering on our purpose of helping large multinational clients connect their people everywhere in the world and to any application in the cloud we're focused on a set of products and managed services that are in demand by these clients, leading with SD Lan and including internal.
Net Ethernet transport and IP voice, particularly Sip trunking. All these services are delivered over our top ranked tier one global Internet Internet network.
On our last earnings call, we announced that we engaged and advisor to explore divesting non strategic and noncore assets that we have acquired over the past several years.
Subsequently received significant inbound expressions of interest with respect to our network infrastructure assets, including our highly differentiated terrestrial pan European fiber assets subsea Trans Atlantic fiber and data centers, which we acquired as part of the intrude and Hibernia acquisitions, we have.
The mask some of the broadest and most unique infrastructure assets in the industry.
We are evaluating a divestiture of these non strategic infrastructure assets and we believe a potential sale will allow us to dramatically de leverage gtts balance sheet and reduce gtts capital expenditures as a percent of revenue from 5% to 6% to approximately 3%, which is consistent with our historic.
Capex light business model.
Moreover, divesting these non strategic assets in no way alters the execution of what has always been our core strategy, providing cloud networking services to large multinational clients and extending secure network connectivity to any location the world into every application in the cloud.
We would retain our global operating platform and tier one global Internet network to drive significant future organic growth combined with tuck in acquisitions within our stated long term leverage parameters, while we cannot offer more specifics at this time on the progress of these initiatives. We are working aggressively on this effort.
Yeah.
As noted on our last call, we expect to close the KPN International acquisition by year end and we have completed almost all of our pre CLO pre close integration planning.
With respect to our search for a permanent Chief Financial Officer, We've retained Russell Reynolds, leading national executive recruiting for.
Dan Frazier has served ably as Gtts principal accounting officer and controller for the past five and a half years and currently serves as our interim CFO now what would turn the call over to Dan to review the financials in more detail Dan.
Thank you Rick and good morning, everyone.
Third quarter revenue decreased 6% year over year and decreased 3% sequentially to $420 million.
Exchange rates had a negative impact on our reported results as approximately 50% of our revenue is denominated in non U.S. dollar currencies.
In constant currency revenue decreased 4% year over year and 2% sequentially.
There is no pro forma comparison this quarter as both year over year ends are kept sequential comparisons fully include all acquisitions.
The year over year revenue decline was driven by several factors, including.
Currency, which represented over $40 million of annualized revenue reduction compared to last year.
The increase in revenue credits issued or accrued for which represents approximately $37 million of annualized revenue compared to last year.
Negative net installs, which represents approximately $32 million of annualized revenue reduction compared to last year.
Approximately 4 million of annualized revenue reduction from the run off of noncash deferred revenue.
And approximately 5 million of annualized revenue reduction for nonrecurring and other revenue.
The sequential revenue decline was driven by several factors, including.
Hi, $4 million production from currency headwinds.
Hey, 4 million dollar reduction and nonrecurring revenue.
A 3 million dollar reduction in the run off of noncash deferred revenue.
And the remaining $3 million from negative net installs.
The 3 million dollar decline in revenue attributable to negative net installs compares to 4 million in Two Q1 9.
The decline of noncash deferred revenue has been significant over the past 12 months.
We expect this decline to be much more gradual over the next several years.
The deferred revenue footnote in our Form 10-Q .
Provides the outlook of this component of revenue.
In addition, billing credits remained elevated in Threeq you 19 at similar levels to Two Q1 9, and these effectively flow through to EBITDA at 100% margin.
We have now resolved the majority of disputed amounts, which includes miss disconnects double billing or integration input areas and expect to start to return to a more normal level of billing credits and for Q1 9 with folks further improvements through one Q2 0.
Over the course of Threeq, you, we reduced the number of outstanding billing disputes by 47%.
We have invested to drive this outcome by adding 40 dedicated fts to our billings and collections teams.
Third quarter, adjusted EBITDA decreased 6% year over year and decreased 9% sequentially to 102 million.
In constant currency, adjusted EBITDA decreased 3% year over year and 8% sequentially.
Excluding the impact of the run off in noncash deferred revenue the adjusted EBITDA decline would have been 6% sequentially.
Again, there is no pro forma comparison this quarter as both year over year and sequential comparisons fully include all acquisitions.
Adjusted EBITDA margin of 24.4% increased 20 basis points year over year and decreased by 140 basis points sequentially as declines in cost of revenue and as June a did not keep pace with a declines in revenue.
Part of this reflects the investments we are making to drive organic growth in future periods.
In Fourq, you and beyond we also expect to see margins benefit from a reduction in revenue credits and the realization of cost savings actions taken over the course of the third quarter.
Based on measures already taken we expect to see approximately 5 million of annualized other SGN a savings to show up in Fourq.
We may choose to reinvest some of these customers efficiencies back into the business to fund the hiring of additional sales reps or other rep driven growth related initiatives.
During the quarter, we entered $2 million of transaction and integration expenses, which are included in our reported as today, but excluded from our adjusted EBITDA.
These are related to our pre close work on KPN acquisition, and small amounts related to our previous acquisitions.
We also entered 2 million of severance restructuring and other exit costs, primarily related to the divisional alignment completed in the third quarter to move from four divisions to two divisions.
From a cash standpoint, we pay to.
Approximately 8 million of combined except an integration costs in the quarter down from approximately 14 million last quarter.
At quarter end, we had approximately $16 million in cash remaining to be paid up related to previously expensed exit costs.
Almost all of which will be paid through the end of 2020 , and we expect future exit and integration related expenses to be minimal.
Third quarter net loss was $26 million compared to a net loss of 23 million last year.
And a net loss of 33 million last quarter.
The net losses in each period were driven mainly by nonrecurring costs, including exit and integration costs.
Third quarter capital expenditures were $26 million or 6.2% of revenue compared to $29 million last year and $19 million last quarter.
The third quarter rate was slightly higher than the previous quarter due to the timing of cash payments.
Year to date, our Capex is 5.9% of revenue and we expect our capex to be between five and 6% of revenue driven mainly by success based investments.
Third quarter, ending cash balance was $40 million up from 34 million last quarter and net cash provided by operating activities was $46 million up from $15 million last quarter.
Free cash flow, which is defined as net cash provided by operating activities less capex.
As a source of cash of $20 million in the third quarter compared to the used to a use of cash or 4 million last quarter.
During the quarter, we made organizational changes to address our accounts receivable and made considerable progress and making collections and reducing our accounts receivable balances in Europe .
During the three months ended September Thirtyth, we've collected over $40 million and cash from past due accounts receivable.
At quarter end approximately half of the areas were collected upfront only 30% at the end of the second quarter.
We expect to further normalize our collections in the fourth quarter.
We continue to expect cash flow to increase sequentially and the remainder of the year as we normalize working capital and finished paying out exit and integration costs.
Listening GTT to deliver a free cash flow and 2020 of 175 million 200 million as discussed on our last call.
Our debt balance was approximately 3.2 billion at the end of the third quarter, including 2.6 billion of senior secured term loans maturing in May 2025 of which roughly one third is euro denominated.
And 575 million of senior unsecured notes maturing in December 2024.
Our revolver remains undrawn at $85 million consistent with the second quarter.
Our total senior net leverage ratio in the third quarter increased to approximately 5.4 times on a trailing 12 month basis, including acquisitions and unrealized cost synergies in prior periods.
We remain committed to reducing leverage over the next few years to our long term leverage target or four times are less through growth in adjusted EBITDA.
Cash flow generation potential non strategic asset sales and de levering acquisitions.
This concludes our prepared remarks, we will now open up the call for questions operator.
We will now begin the question answer session.
Good question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from John Charbonneau of Cowen and company. Please go ahead.
Great. Thanks for taking the questions is it reasonable to expect the positive net installs seen in October continue through November and December and then into 2020, and then I may have missed it but what was the level of bookings EMR backlog currently thank you.
Thanks for your questions John .
Absolutely I mean, our focus is of course on driving.
Organic growth, which is in its and is based on net installs. So we were very encouraged about the progress we're making that the overall company was positive for the first time in October and out while we don't forecast there or give guidance to a into future quarters. We're encouraged by that trend in it is the fund.
A mental focus of everyone in the firm to return ourselves to organic growth and as we continue to.
To drive and increasing scope and scale of the Salesforce that we see that trend continuing into fourth quarter and then into 2020. So that is our objective.
And we're encouraged by the progress we've made we did have a one time uptake in churn we've seen that moderate back down.
Through the months of August September October as well. So we think all the specific metrics are there too to continue to move us in the right direction on the net install component of growth.
To your question, we made some really nice progress on the install picking up steam on installs, who actually our backlog decreased from about 10 million to around 9 million in new installed backlog, we see that as a positive trend we see the ability to continue to grow that backlog with that with new sales, though as we've noted in pre.
There's one of the challenges we had over the past six months was getting our installed backlog.
Moving at a faster pace. So we saw some nice nice progress in that into the third quarter.
Great. Thank you.
Our next question comes from James Breen William Blair. Please go ahead.
Hi, Thanks for taking the questions a couple I.
I think David talked about the impact.
It's on the EBITDA new.
For the quantifying absolute dollars.
The impact this quarter.
No.
You know what level and then just screen.
Balance sheet perspective.
Yes is there any need to pay down the revolver at all discipline.
Capital next year, and just what gives you the confidence and the moving parts.
200.
Sure. Thanks, Jim as Dan a with respect to the revenue credits as the absolute dollars. It was up roughly 800000 daus compared to prior quarter. So.
Very consistent with what we had said last call that that we expected that elevated credits.
And slightly higher, but we expect that to start coming back down in the fourth quarter and into the first quarter 2020.
With respect to the revolver and paying that down near we are committed to to paying it down to a level, where the the covenant no longer applies by the end of the year.
And.
My teams in the accounts receivable area very focused on our on cash collections to allow us to do that as well as.
I would say responsible spending in the fourth quarter with some SGN a savings initiatives.
And then finally in terms of.
The.
The bullishness on the 175 to 200 million cash flow targets, we still feel very confident in those in that guidance.
The.
We do expect the networking capital to continue to normalize on the back sub accounts. The accounts receivable improvement and then also just finishing off paying the.
The exit and transition costs.
And then finally as I mentioned and we had mentioned in prior coal the issue in a savings initiatives.
Well certainly help.
Generate more positive.
Working capital and you should should lead us into that guidance.
And then.
Mr. But can you talk about what the total number of sales people was again in the quarter.
And then sort of whats your goal there you get to over the next.
Sure we finished the quarter Jim at a 382.
For a third quarter we.
We expect to be over 400 by the end of.
End of 2019 with the objective of growing to over 500 by the end of 2020 and as we noted on the last call. It probably reiterate here it is across all different levels within the organization inside sales representatives.
Teams of account managers and account representatives.
A select group of higher end account directors as well.
And so we have had really good pace in progress on on growing the quota bearing sales force across both.
Europe Division in America Division and we see that is one of the key drivers of accelerating our growth into 2020.
And any color on Salesforce productivity, obviously, that's something.
Yeah, I would have been progressing at the mercy.
Yeah. It did.
Overall productivity as we expected did decline quarter over quarter or we did see the magnitude of our sales grow but the over the overall productivity per rep did decline as expected and we've made some big investments in sales training Onboarding all of the efforts and we've seen good reason.
It's from the cohort analysis of the folks that have come on early we've also seen some really.
Nice progress from our sales development wrap initiative, which is up marketing initiative to bring on non quota bearing out we expect to be over 100 of those by the end of this year as well as our farm system to develop new inside sales reps and we've seen some very nice progress.
In the promotion ranks of those into inside sales reps and into account representatives.
And over time into account managers, so we see though both of those initiatives playing out and ER and we're encouraged by the ability to both grow and then continue to grow productivity over time.
Great. Thanks.
Our next question comes from Frank Loosen of Raymond James. Please go ahead.
Great. Thank you can you give us some metrics around your fiber assets that you're potentially for sales sort of on the on the terrestrial side, maybe a number of conduit average fiber town and what the mixes inner city in long haul and then.
Sort of the Routson fiber cotton distance on the on the undersea routes as well so we get to get a better idea, what's actually in that asset.
Well, we clearly acquired all of these assets to give you a sense of it from.
The both the inner route and Hibernia acquisitions, they came along with those acquisitions, which were predominantly about buying clients in revenue streams, which are where the strategic part of our business whether its wide area networking Ethernet transport services Internet services and the like.
We have integrated those into our business. They are some of the I think most unique assets in a in the world in terms of the Pan European nature of the terrestrial fiber assets and related datacenter and colocation centers as well as the very unique.
Trans Atlantic fiber assets that we do own.
They as we noted in our remarks, they are not core to our business are on our core to our strategy of providing cloud networking services to large multinational clients. If you recall historically, we had never owned any underlying.
Fiber or datacenter infrastructure historically with the exception of the last two or three years and so as a function of being able to separated and we've got significant unsolicited inbound indications of interest about those specific assets.
We've been pretty public about what they are in terms of ER in terms of our public disclosures, so rather than doing an advertisement today about what they are specifically.
They also where the majority of our increase in pp anyway. So you can see that as we have increased our our net FICC fixed assets in our business. There sizeable. So we believe that they are sizable in scope and size as we said in our prepared remarks that they we think are actually more valuable at the stays and when we originally acquired.
Our them. So we think it's a relatively straightforward transaction to separate those underlying layer one assets from our business.
And we think we were working very diligently on that process at this stage.
But you can't give us average fiber counter those kind of things are set to dig through some filings I guess, but they're all you have that I'd.
I don't have at handy right now, but all that information is public in terms of what what we have actually we have as an asset within GTT. Okay. And then on you think you mentioned the use of the target for the fiber to people in sales that's for the entire sales organization. What's your current.
I don't have quota bearing heads right now and as you get the to your next couple of 405 hundred people what will be the mix of quota bearing has within within those numbers going forwards on the actual quota bearing heads are you going to take on.
Well the quite adjusted Jim It asked a second ago, the quota bearing head count as of the end of third quarter was 382, when that's across the four major classes of quota bearing inside sales Representatives account representatives account managers and account directors so of our roughly 3000 head count so our goal.
There is to grow that number to at least 400 by the ended the year broadwell on pace to do that and to 500 by the end of by the end of 2020 , while retaining overall headcount roughly the same I think we'll see some overall increasing the overall headcount of the organization, but we see the opportunity to continue to grow.
Quota bearing as a percentage of the overall business within GTT and we as we said in previous calls we simply believe for the scope and scale of our business today that our Salesforce is too small that we both to cover adequately our existing account base and to drive as importantly, new client acquisition, particularly with the advent of software.
To find wide area networking, we think it's probably be most important initiative in front of us while we maintain productivity in churn rates at our historic levels.
Okay. So for the 500 will be actual quota bearing heads alright, alright, with and then within that can you give us in the three tests.
Can you give us some color on what are some of the things earnings doing differently.
And the productivity side that are that are improving that help helping you have better retention and productivity from the salesforce and what are some of the tactic seat using debt.
Doing differently.
Right, well and one of the things we're really excited about earning joining US is the fact that Oh. He has done this before three different firms. So he joined us with deep experience from firms that had similar scope and scale similar salesforce sizes, whether it was at Ekso, cogent or Ah or colt and effectively said.
As you looked at our business and as we were recruiting into Gtts is you have one of the best networks and assets and sales propositions that I've ever seen in the industry to be able to sell I have a proven playbook and formula that I can bring to GTT and ER and implemented and one of the things. He has done is bring a set.
As a key lieutenants and with him who understand this playbook everything from.
Ensuring that we have deep funnel management, and ER and understanding of a set sales funnel prospecting account reviews account management client experience initiatives. He is really rearchitected and very short period of time over the past three or four months.
The whole go to market approach for the Americas Division.
With a set of lieutenants that he's recruiter, Dan who have done this before with him.
And you hear shown remarkable results in the first several months to drive America Division, which we disclosed last quarter, which was the one that was most negative.
Two positive in a very short period of time. So we're encouraged it's early as I said in his prepared remarks were only in the you know and more than one month is not indicative of a trend, but we feel.
Really good about where we stand at moving forward.
Okay, great. Thank you very much.
Our next question comes from Brandon spell of Keybanc capital markets. Please go ahead.
Okay, great. Thanks for taking the questions. Rick a question for you you mentioned the financial profile the company changing.
With some of these asset sales specifically on the Capex side. So you can talk more about maybe the gross margin side doesn't become more Capex light then maybe for Dan do you guys expect the asset sales that you're targeting.
To get to your targeted leverage profile and then maybe just an update on the timeline could get there. Thanks.
Sure on the on the financial profile I mean, our historic business has always vanek Capex light business, we own site has in turn particularly in terms of or a tier one or it back on some of the net nicest assets in the industry. We had never owned historically the hard infrastructure assets of fiber.
Data centers, which are the most capital intensive and so we had seen our capital intensity grow from us roughly 3%, which was our historic average to all the way up to seven I think as we say today is probably about 5% to 6% moving forward.
Principally driven by the investment in Optronics, and fiber and datacenter investment and so as we sell those assets, we would as potentially sell those assets, we would see our capital intensity go down.
Back to our historic average of around 3%. So we would see gross margins declined somewhat although we have seen simply because we would be a lease or of the underlying layer one capacity, which we are part of that is now run on our own owned infrastructure.
That said the significant portion of the cost is still least both in carrier neutral data centers as well as other alternative fiber networks that we lease our long haul capacity on we have always least our last miles and using all available access technologies as we describe whether they be copper co acts fiber or wireless and we would continue to do.
To that so we would see we would expect to see some small reduction in overall gross margin as a you know as we think about that part of our business being a higher margin that said, we would expect the cash flow characteristics of the business to increase substantially given lower capex and of course, you never sell it.
Dan comment on on the debt, but we see this is being a significantly de leveraging transactions. So that Oh, we would see significantly lower interest expenses, we de lever our balance sheet at a much faster.
Way back to our long term target of four times or less.
Sure and Brian and from that perspective of the leverage goal here as stated in the than the prepared remarks, and our goal is to get to four times are less and certainly the illustrate of.
Examples that we're seeing as we pull us together would would get us into that range.
In terms of timing I think a lot of that as being worked on and aggressively being planned for now, but I think it'd be fair to say that it's our intent to have those done in 2020.
And if I could just follow up I don't think I heard anything about KPN. When do you is that acquisition closing maybe can you help us understand what you expected to contribute to revenues EBITDA in the fourth quarter. Thanks.
Sure.
We did say in our prepared remarks, as we said last quarter, we expect to close it.
This quarter and we're very much on that schedule.
Sided about that acquisition, we feel it is exactly in the and the opt a sweet spot of of GTT, providing networking services, we actually at a series of clients, we had scope and scale to our tier one internet backbone by consolidating and other tier one and we had a very large client inc. and KPN, who retains their clients in a and.
The Netherlands, but we'll use us as the there.
International scope partner to extend and diverse secure connectivity on behalf of their clients everywhere.
I think as we said last last quarter, we expect it to deliver.
As we have for our smaller tuck in acquisitions better than five times adjusted EBITDA on a roughly a 50 million.
Oh purchase price of four for the asset. So we see that are coming together and being part of our financials in the fourth quarter.
This concludes our question and answer session I would like to turn the conference back over to Mr. colder for any closing remarks.
All right I'll now turn.
To our executive Chairman, Brian Thompson.
Thanks, Rick I, just had some brief thoughts and comments I wanted to share with what you. All Unfortunately, having had 50 years the history in the industry I've seen lots of things come and go and I Hope I won't.
Well on them too long, but it became clear to me over the.
The past a 10 years that the old mantra of are requiring to your own infrastructure to be competitive in this industry is changing radically and it started with the advent of.
Of microwave, allowing bill Mcgowan MMC idle attack 18 team by using new technologies and the infrastructure.
And it was also felt that you had to have.
That that infrastructural.
Capability the differentiated you from from the incumbents, so you could be disruptive in the marketplace.
That one on through microwave it a it then went on through the digital transformation of and fiber optics that that brought us or both.
New technology to go into the backbones and economics that were uniquely different.
And I do recall major changes in the investment community going from the old utility of a TNT into the need to put lot of money into the ground in fiber optics during the nine days and on into the early part of 2000.
In fact, I remember at one time, when you analyst, where we're analyzing companies on the basis of capital invested in the ground rather than revenue streams that were coming in.
As we got into the business I felt that.
We started this company with a notion as Rick has underscored today of being asset light and the reason for that was that the newer technologies, whether it was wireless and then they use of spectrum and smart devices.
But more importantly in the infrastructure itself of the service.
Requirements.
Had gotten to the point, where technology was driving.
Unique capabilities to not own underlying assets, but to direct those by leasing and putting together networks.
That's started to show its face back in the early two thousands and then.
We went through the dot com bust and the whole bunch of other things from the standpoint of investment where people were trying to sort out where they should be going it was during that that we put together this company.
And the fundamental premise was if you can use technology platform that existed in this company. When we started to really interface with your customers and give them a client experience that you could take off the their shoulders, the burden of providing that network that no.
No matter, who own the network, whether it was an incumbent or a new a new fiber company or a new wireless company. It puts you into a position where the client really didnt care as long as they were getting their service.
This company was founded on that premise and when we started talking about asset light, we got beat about the head and shoulders in the marketplace by people say well you can get a reasonable return if you are asset light.
Fact, as a matter is that we proved over the first 35 to 40 acquisitions that we did that we could be asset light and we could give a client experience.
That was second to none and we felt that we had to expand our scope and scale worldwide. If we were going to compete not just in the U.S., but in the rest of the world with that same construct we did that.
And and got to the point, where Opportunistically, we were able to acquire Hibernia and more recently in a row.
Not for their bank basic asset, which was very expensive, but it was part of the equation, but to get that customer base that they were moving toward and both of those companies. We're moving in the direction that we were already yen.
Now what's happened is I'm seeing more and more public policy going full circle in the world not just here in the U.S., but in the rest of the world to where the fiber itself and the need to provide broadband access and rural and complete parts of the country have become public policy.
Those public policies have generated a great deal of interest in both subsidy as well as building and countries all over the world and what we're getting to once again is what I'm, calling us a fiber utility mentality.
Fiber utilities are going to be the backbone, whether it's to carry fiveg because it requires more fiber or whether it's to carry the general use that companies and countries need to communicate with that when we put these assets on our plate, we paid a lot of money for them we created an.
Awful lot of leverage in the company that you all have EV, let us be fully aware of and things have happened then that leveraged to bring to to our mind that.
We have straight a bit from our basic premise not only that but I think it's important to point out that more recently the ability to manage assets like infrastructure is very different from managing the customer interface and the services that we provide it takes a different person it takes a different.
Mentality takes a different asset utilization and asset employment.
Therefore, as we went through these acquisitions in the back of our heads was as long as we can maintain these infrastructure assets and make sure. They did not diminish in any way they would become increasingly beneficial for others to to mold and merge with what they're trying to do.
In the last three to four years, we have seen major increases and infrastructure funds starting to look at telecommunications as a very important asset base.
And indeed, where we are right now I think it's fair to say when people talk about infrastructure, whether it's the funds over the government's they are including telecommunications and really it's information technology infrastructure and they're talking about fiber, they're talking about subsidizing wireless assets Theres talking about subsidizing.
Local drops even to the extent that they're needed to bring broadband to everybody in the country well that in the background and where we are right. Now. We believe this is time for us to see if it's possible.
That we can divest of those things that are not fundamental to our fund our premise and we can create a de levering, which we've been talking about over the past couple of quarters.
To that end I think we're in the right place at the right time I continue to look to the future as really bright because we have put in place the ability to manage that customer experience with all of the new technologies that are out there and to master those technologies. It is networking thats important it's not infrastructure to.
Us.
With that I'm going to turn it back to you Rick and thank you.
Great. Thank you everyone and we look forward to reporting our next quarter.
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