Q4 2019 Earnings Call
Good morning, and welcome to the gtt communications fourth quarter 2019 results conference call. All participants will be in listen-only mode. Should you need assistance with only conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the Comfort to over to Tony Hensel senior vice president legal and Deputy general counsel, please go ahead.
Thank you and good morning. I'm joined today by Rick Calder gtt's president and CEO Chris McGee gtt general counsel and Executive Vice President corporate Development Office Dan Frazier GTS principal accounting officer and interim Chief Financial Officer. And Brian Thompson gtt's executive chairman of the board. Today's discussion is being made available webcast through the company's website www.net a telephonic replay of this call will be available for one week dial and information for the month as well as access to a replay of the webcast is also available on our website.
Before we begin I want to remind you that during today's call. We will be making forward-looking statements regarding future events and financial performance made under the Safe Harbor provision of the US Securities laws, including revenue and margin expectations projections and references to Trends in the industry and GTS business. We caution you that such statements reflect our best judgment as of today, March 2nd based on factors that are currently known to us and that actual 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 of the risks and uncertainties affecting our future results. We refer you to our SEC filings GT disclaims any obligation to update or revise these am looking statements to reflect future events or circumstances during the call. We will also discuss non-gaap Financial measures including including certain pro forma information wage.
you're not prepared in accordance with the
A Reconciliation of our gaap and non-gaap results is provided in today's press release and is posted in the investor relations section of our website. I will now turn the call over to Rick, Rick. Thank you, Tony and good morning. Everyone fourth quarter 2019 results demonstrated continued improvement in our underlying operational metrics off with revenue and adjusted ebitda growing on a sequential basis including the KP an acquisition that was completed on December 1st cash flow from operations and free cash flow positive is our collections of accounts receivable in arrears continue to improve and our net working capital continued to normalize. These results illustrate are incremental progress towards our objectives of sustained rep driven growth improved operations to drive both revenue and margins and better working Capital Management to drive free cash flow.
The trends underneath our headline.
Numbers remain promising aside from a sequential benefit from foreign currency and the inclusion of kpn our Americas and Europe divisions continue to stabilize both sales and installations. Both divisions closed the quarter with slightly positive net installs for four Q 19 and one Q 20 is trending in a similar Direction installs have improved sequentially as are more efficient processes, including our new template are proving effective during for q19 in order to strengthen our long-term revenue streams. We intentionally called non-paying SMB accounts which resulted in slightly negative overall net installs for four Q nineteen with this process easy to compete we expect SM being that installs to normalize to historical levels in 1 Q 20
As Dan will detail. We also made progress in reducing billing credits which impacted Revenue to a lesser degree than in the past two quarters billing disputes associated with the integration are now off nearly fully resolved and we expect further improvements in 1 Q 20 similarly impacts in 4q nineteen revenue from non-cash deferred revenue and non recurring Revenue were often lower than in Prior quarters. Turn for the quarter was 1.6% And the year was also 1.6% this slight elevation to our projected normal of 1.55% was largely related to the SMB turn I mentioned and we expect to operate it approximately 1.5% churn in the future.
Driver of rep driven growth is the overall size of our worldwide sales force to both expand our share of wallet with existing clients and drive new client logo Aqueduct. We are pleased to report that we ended the year with 436 quarter bearing reps ahead of our plan for $400 with the growth split fairly evenly between our two big divorce and a 45% increase year-over-year from the 300 quota bearing reps at the end of 2018. We focused our hiring on teams of account managers and account representatives to provide better coverage for our existing strategic accounts. And with more focus on attracting new client logos to the GT Banner. We have also filled out our internet sales team to provide good coverage for our smaller accounts.
With our rapid increase in Quota bearing rep count our sales productivity per rep is down in the fourth quarter given the large number of untenured reps to ramp are larger Salesforce. We have met investments in sales rep on boarding and ongoing Training Division marketing and lead generation programs, including our much larger sales development rap or SD our program and client and Catholics all with a focus toward accelerating the productivity of our entire sales force. We will continue to grow the scale of the GT Sales Force and and intend to finish 2026 E500 total quota bearing reps. We also continue to see very strong traction with our software-defined wide area networking or sdn product in both the direct and indirect sales channels GT is uniquely positioned to benefit in win from this multi-year shift to Inner internet-based Services, which still represents approximately 40% charge.
of our install backlog
As I mentioned we closed the kpn international acquisition on December 1st. Kpn strengthens GTS presence in Europe, deepening our Cloud networking Services portfolio page and our Global it Network adding more more than 400 strategic Enterprise and carrier clients and makes GT that preferred International Network supplier for several additional clients retained by kpn. We have begun our integration of people systems and network according to our template and are targeting a post energy multiple of ebitda of five times or bath. We welcome these new clients including kpn to GT.
In addition to the progress we made on in our operating metrics. We have also taken steps to strengthen our liquidity position. Dan will provide further details. However on Friday February 28th, 2020, we closed on a 140 million incremental immediate Term Loan facility that was used to retire substantially all of our revolving credit facility our ability to close on this leverage neutral liquidity enhancing transaction is further proof of the strength of our business and value proposition in the market.
our focus in
20/20 is firmly centred on driving rep driven growth improving margins and delivering free cash flow expansion as we discussed on our past two quarterly calls, am firmly committed to balance sheet delivering to that end during the fourth quarter. We engaged Credit Suisse and Goldman Sachs to to explore the sale of our infrastructure division in clubs are highly differentiated terrestrial pan-european fiber assets subsea, transatlantic fiber and data centers, which we acquired as part of the interlude and hi Bernie acquisition and who's if I'd customer base includes some of the largest blue-chip Enterprises globally. We have substantially completed the internal separation of the clients Revenue employees and related costs into our infrastructure Division and are preparing to launch the process with potential buyers in the coming weeks.
Should we successfully divest this division? We would apply the sale proceeds to debt reduction.
Our objective of four times total net leverage or better Daniel Dan will take you through the financial specifics of the division in his remarks more over the potential divestiture of the infrastructure division. What enabled GT to focus on our core strategy of providing Cloud networking services to large and Multinational clients as we deliver on our purpose connecting people to any location in the world and to every application in the cloud. We would retain our Global operating platform and our tier one Global Internet Network and our unique an extensive network of last-mile supplier relationships to deliver dual redundant client access anywhere in the world post-transaction. We expect GTS Capital expenditures as a percent of Revenue to be approximately 3% consistent with our historic capex light business model with a significantly lower interest burden on a delivered balance sheet leading to phone no,
Cash flow generation equal to or better than current levels. We also remain committed to our objective of delivering 175 to 200 million free cash flow and twenty twenty months after adjusting for non-recurring transaction and transmission fees. We expect to incur directly related to the sale process of our infrastructure division. We have worked hard in 2019 to complete the integration of a seamless Global operating platform with the scope and scale to address the growing Cloud networking demands of large and Multinational clients have a fantastic and talented team in 30 countries around the world that live our core values of Simplicity Speed and Agility for clients as we position GT as the disruptive or brand in our industry.
We continue to evaluate.
Wait a number of strong candidates for a permanent Chief Financial Officer with our advisor Russell n olds and in the meantime have had tremendous contributions from Dan Hazard interim CFO. Now it'll turn over to Dan to review the financials in more detail Dan. Thanks, Rick and good morning. Everyone fourth quarter Revenue increased 1% sequentially to 494 million and decreased 7% year-over-year as approximately 50% of our revenues denominated in non US dollar currencies exchange rates impact are reporting of results in constant currency Revenue increased 6% sequentially and decreased 6% year-over-year. There is no performer comparison this quarter off.
As Rick mentioned on December 1st. We close the kpn acquisition for cash consideration of $52 net of cash acquired similar to our small Acquisitions. The purchase price was approximately 1 times revenue and post integration. Ebitda. Multiple will be approximately five times or better.
Sequential Revenue increase was driven by several factors, including a 1.5 million dollar currency tailwind and approximate 1.5 million dollar Improvement in Revenue credits issue or a crude for which was less of an improvement than we had targeted, but it was moving in the right direction.
The additional revenue from kpn for the month of December and a slight increase in non recurring Revenue these improvements in Revenue were offset by a million dollar decrease in a non-cash deferred revenue with the remaining two and a half million dollar decline coming from negative net installs. This decline compares to a three million dollar decline in 3004 million dollar decline in 2 Q 19
As Rick mentioned the Improvement in installations that we are seeing in the Americas and Europe divisions were offset in the quarter by an increase in SMB turn as we called non-paying SMB customers.
Excluding kpn the year-over-year revenue decline was driven by several factors including currency headwinds which represents over 18 million of annualized Revenue reduction wage. The increase in Revenue credits issued or accrued for which represents approximately 34 million of annualized Revenue reduction compared to last year approximately 9 million of annualized Revenue agent action from the runoff of non-cash deferred revenue and negative net installs, which represented over eighty eight million of annualized Revenue reduction compared to last year. These declines were offset bought an eight million dollar annualized Revenue improvement from non-recurring and other Revenue.
As we noted on our last call the decline of non-cash deferred revenue has been significant over the past five quarters. And we expect us declined to be much more gradual over the next several years today. We took a healthy pipeline of new hire you and prepaid capacity sales which we expect to match or exceed the amortization of non-cash deferred revenue going forward.
the Deferred
Have you footnote in our form 10-K provides a schedule showing the Outlook of this component of revenue for the next five years for all Acquired and prepaid Revenue contracts.
With respect to billing credits we have now resolved the overwhelming majority of large and material material disputed amounts related to the integration of interviewed which includes disconnects off or integration import errors.
Billing credits while higher than our Target of year-end declined sharply as the number of billing disputes is now down by a further 50% from the improvements. We made in three Q 19 month. We expect to make substantial progress towards a more normal level of billing credits in 1 Q 20 as we work through smaller disputes with a heightened level of scrutiny.
As a reminder billing credits effectively flow through to ebitda at 100% margin.
Fourth quarter adjusted ebitda increased slightly sequentially to 103 million and decreased 12% year-over-year in constant currency adjusted ebitda increased slightly sequentially and decreased 7% year-over-year again. There is no performer comparison this quarter.
adjusted
Ebitda margin of 24.3% decreased by ten basis points sequentially as the accelerated pace of our investment in the quoting quarter bearing sales force outpaced our sg&a initiatives along with little to no offsetting Revenue.
The ebitda margin decreased by 150 basis points year-over-year driven primarily by the declines in revenue and the increased Investments. We have made in Quota bearing heads.
During the quarter we encourage six million dollars of transaction and integration expenses, which are included in our reported sg&a, but excluded from adjusted ebitda. These experiences related to our closing of the kpn acquisition amounts related to our previous smaller devices up process and the exploration of divesting the infrastructure division.
We also incurred 1 million dollars of exit costs primarily related to closing Legacy offices locations in North America.
From a cash standpoint. We paid out $7 of combined exit and integration costs in the quarter down from eight million dollars last quarter.
Quarter end we had approximately 13.9 million in cash remaining to be paid out related to previously explains exit costs almost all of which will be paid out through the end of 2020 and wage a future exit and integration related expenses including those from kpn to be minimum.
we do expect to incur some level of non-recurring transaction and exit cost related to the potential divestiture process of the infrastructure division that we had not previously expected to incur
fourth quarter net loss was Nineteen million compared to a net loss of 53 million last year and a net loss of $26 Million last quarter the net losses in each. Were driven mainly by non-recurring costs, including exit and integration costs.
The net loss in four Q 19 does include a non-cash gain due to the change in fair value of our interest rate swaps of approximately 10 million.
Fourth-quarter Capital expenditures were twenty-five million or 5.9% of Revenue compared to $60 Million last year and $26 billion last quarter or the year cap ex was approximately 5.9% of Revenue going forward. We expect our capex for GT as a whole to be on the lower end of our five to six percent of Revenue Target driven, May success based Investments.
Fourth quarter ending cash balance was $42 up from $40 million last quarter net cash provided by operating activities was 30 million down from 46 Million last month.
Free cash flow which is net cash provided by operating activities less capex was a source of five million in the fourth quarter compared to twenty Million last quarter.
During the three months ended December 31st. We collected over twenty million in cash from the past due accounts receivable.
We have now collected approximately 75% of the past due balance noted into q19.
Which is approximately 50% at the end of 3Q. Nineteen. We continue to refine the collections organization and the tools at our disposal as we target collecting the remaining $30,000 past due accounts receivable.
You know working capital was positive two million compared to -6 million in 319 and -8 million in four Q 18.
we expect
Working capital to continue to normalize as we collect the remaining past due accounts receivable and finish paying out exit and integration costs positioning GT to deliver our 2023 cash flow Target of $100,000 to two hundred million, excluding any expenses paid related to the potential divestiture of the infrastructure division.
I did balance at year-end was approximately 3.3 billion including two point six billion of senior secured loans maturing in May twenty twenty-five of which are roughly one-third is a euro denominated and $575 million of senior unsecured notes maturing in December 2024 during the quarter. We drew incrementally on our revolver found the kpn acquisition and at December 31st were drawn at a hundred and forty million a total secured net leverage ratio in the fourth quarter increased to approximately six times on a trailing 12-month basis, including Acquisitions and unrealized cost synergies in Prior periods.
We remained in compliance.
without debt covenants as of December 31st 2019
I am pleased to announce that on February 28th 2020. We closed and funded a hundred and forty million dollars of incremental term loon. We have used the net proceeds to pay down substantially all of our revolving credit facility. We took advantage of favorable market conditions and demand to complete this transaction that is leverage neutral and liquidity enhancing an additional benefit this transaction is that the financial maintenance Covenant is no longer in effect and leaves gtt in a stronger position with no Financial maintenance covenants at this time and the earliest maturity nearly five years from now in December 2024.
As Rick noted we remain committed to reducing leverage to our long-term total net leverage Target ratio or four times or less through growth and adjusted ebitda cash flow generation and potential non strategic asset sales.
Let's take a moment to discuss our infrastructure division financial highlights as Rick noted. We have worked towards separating the income statement and assets and liabilities of the infrastructure division. We anticipate the annual revenue range for the infrastructure to division to be approximately $370 to $390 million with an ebitda range of 160 to 180 million.
These assets are
Unique and provide a generational infrastructure platform with years of attractive returns and incremental investment opportunities ahead.
This concludes our prepared remarks. We will now open the call up for questions operator. We will now begin the question-and-answer session to ask a question. You may press Start than one on your touchtone phone. If you were using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press start at this time. We will pause momentarily to assemble our roster.
The first question comes from James Breen of William Blair, please go ahead. Thanks for taking the question. Can you just give us any more money on the m&a process if you've been initial indications of interest and how you think about splitting out maybe the sales force there you talk about 437 A year in Iraq. Well the majority of those remain with the Core Business, assuming a lot of the infrastructure customers are more carrier-based sort of wholesale agreements. Thanks, Jim. I'll take the second question and then turn it to Chris for the process itself. So we have largely completed the separation of the infrastructure division as a separate operating division together with America and Europe within GT with a separate sales force in separate sales leadership, and it's a relatively small town.
portion of our overall sales force
Of the 436 that we ended the year at but it is segmented and unique and focused on selling the infrastructure products of wavelength dark Fiber colocation service is to principally carrier in Ott light clients and let me turn it to Chris for the process. Yeah. So we we had I think as we mentioned in our last quarterly called we had received significant inbound interest regarding the separation that we're that we're now completing and so it says a response to that we engage Credit Suisse and Goldman Sachs to sort of officially kick off a process that would widen the scope of the buyers. We were talking that process is now under way. It is in sort of the early stages, but you know sort of an answer to your question, there's widespread interest beyond the initial the initial groups that a approached us about about buying these off and now with the formal process being kicked off. We're we're talking to interested counterparties.
And I guess just big picture and understand that the income statement and balance sheet could change significantly this year if you are able to sell those assets, you know.
With the business as it is now, how do you think about the income statement Trends this year, you know with productivity should improve after you've hired all these sales people in sequential increases this course, you know can Revenue be sort of flat this year and then think about growth and twenty Twenty-One as um, some of the seniors sales people get more attended. Yeah. I mean, you know, as we as we talked about a multiple calls, we feel actually great about the state of the platform. We have the right platform. We have a fantastic Network and the products and the and the team we actually for the first time have walked into the year with a scaled sales force that's large enough to drive growth, which is our number one objective rep driven growth. So while we don't forecast or give guidance on Thursday for quarters, we feel really optimistic about where we are walking into the year. We think that the the distraction of the infrastructure sale will be minimal given the fact that we have actually segmented into its separate wage.
Operating division at this stage. So we are very focused on driving that reprimand growth, you know in 2020.
Great. Thank you.
The next question comes from George Sutton of craig-hallum, please go ahead.
Thank you. I wanted to better understand your process of calling the smbs that you mentioned curious. What what are the drivers behind which smbs you're you're focused on and then off from that you mentioned you were filling out your inside Sales Group essentially to bring in new smbs. So just wanted to better understand that thought process. I sure that the SMB just to give you a sense of scale the SMB business represents under 3% of our overall business at this stage and it it truly is accounts that are in the average revenue per client of under $500. There is a group of them that are in the $500 to $1,500 range, but it is the very small tail that we deal that we actually handle in a completely separate and small operating division within GT. I think as Dan mentioned in his prepared remarks we had been focused on resolving the effectively almost all of the larger building.
dispute and transactions so when we turn
To the SMB we simply had to turn off a number of SMS clients who we were unable to either resolved or had not paid us in in a long period of time. So it is generally pretty non-material to our business move forward to your question about inside sales. Those are Representatives that are covering clients that are on average of two three four thousand dollars per month slightly off too small to have a dedicated account teams of account managers and account directors and account Representatives that are covering the much lower amounts that that we serve but still a part of that farm system of sales development rep to inside sales rep to account representative to account manager. So those are all in the larger the inside sales reps are all in the larger divisions Americas and Europe and are in country in region and form the basis of future account managers in the next several years.
Okay, I appreciate the the increase detail and one other detail question relative to your SD win template that you mentioned. Can you just give us a sense of the things you've been doing to speed up your implementation capability which obviously would include that template sure, you know a couple of things and then a we still believe just to give you some color that we're in the vein of early migration phase is still too. However, there's not an account a a client that is not thinking about the ultimate transition to a more effective networking technology as they move their applications to the internet and to cloud service providers providing dual redundant access to every location in the world for them using a dominantly internet-based Technologies. Although there are other access mechanisms or useful as well is absolutely what what they're thinking about. We have announced where we support three different software wage.
both of silver
Speak Bella VMware and Fortinet and we think each have different views cases in the marketplace. The primary template tips are I'll give you a to, you know, big things that we have done wrong. One is the the implementation of a standard design template given that it's new technology for most clients. We've implemented standard initial application designs for application routing security and firewall a capability that has significant ability and inability for clients to change and modify the design as they get a deep experience with the this new technology. We can provide them Professional Services to help with that post post install, but it's significantly increases the pace of initial installations the 2nd. We actually had actually internally to the entire GT team. We had our Field Services organization. Also, give a great tutorial wage.
Friday about the work we're doing with our Field Services team. Both our own internal employees plus third-party contractors that do in with one touch with a professional service installed with the complete test and turn up on client premise through the complete testing through our internal either vision and CMD based system so that we can get clients up and running with dual diverse acts up in with with one truck roll effectively for clients. So those are two of the things that have really helped accelerate the pace of our installs of SD win.
great stuff appreciate the
Okay, the next question comes from Colby's of Cowen and Company, please go ahead.
Great. Thank you to two topics. If I may first off on the asset-sale. I was wondering if you could provide any of the growth rates across those three different segments the the fiber which I guess is mostly terrestrial in Europe the data centers and then the the the subsea cable and if you're not able to give it so that you could at least give us some calling terms of how you think that those compared to Industry cops and then as part of that also those are all very unique businesses. I'm just curious what your convey knew that you'll be able to sell all them wrapped up in one in one transaction opposed to having to be having to be required to to break them up. And then the second topic is on free cash flow. I'm just curious with the key puts and takes our that we should be looking for to achieve that one $75 to $200 goal. It's obviously a significant step up from what we saw in 2019 wage.
And what's your conviction in?
Keeping that 175 to 200 maybe versus just a quarter ago. Thank you. Okay, so I think I'll handle the the first two questions. I'll take it to Dan. This is Chris in terms of the growth rate of the infrastructure business. It has been a grower. It's been a low single-digit grower, but it's been a you know, a steady grower. The churn is is is quite low in that in that division. There's long-term contracts that that that just don't come out of don't come out of service that that often. So it's been a low single-digit grower in terms of your sort of some of the parts analysis off. Our position has been we are creating a separate infrastructure company that that's going to going to be sold and it really is going to be a stand-alone platform. And so it has the ability to operate outside of TTT with its own back office systems with its own ability to exist as a stand-alone platform because of that, you know further separating That Into You know as you describe a data set or company name
versus address to a fiber company or
Putting out the subsea separately from that. We GT wouldn't contemplate that. I think that's that's part of the the underwriting case that that certain buyers may look at is that, you know, a few further further divestitures after the transaction completed, but that wouldn't be something that GT would be doing prior to completing the sale.
And with regards to the free cash flow, I think we are definitely very committed to hitting the $175 to $200 range. And in terms of the the key puts and takes off, you know and Colby I'm guessing you've done the analysis of just analyzing the fourth quarter of nineteen. I mean ultimately the Improvement in ebitda which are which would be driven by the continued Improvement in the revenue credits as well as kpn unrealized synergies and the full-year impact and then our focus on reducing turn certainly improved wage, um by fair amount over four hundred nineteen, we would also have slightly lower capex expenditure as I noted in my prepared remarks at the lower end of the five to six percent range and then you know, the the improvements in net working capital would would be another key driver which would include the pipeline of prepaid and wage.
prepaid prior you in capacity
And then finally, you know, I think the transaction and restructuring expenses if you take the annualized view, that's obviously well overstated, you know, when you exclude anything that we would have to pay for the infrastructure division, you know, it's a much lower number and when you when you tally all those improvements from 4:19 up, you know, we do end up in the range.
Great. Thank you.
The next question comes from Tim Herron of Oppenheimer, please go ahead. Thanks a lot Rick. Maybe. Can you just describe the environment for the underlying Legacy, you know business with the demand environment out there looked like what's the demand look like for you know higher speed and higher-quality networking and maybe you know a little bit on the competitive front any more color in any more color on the pricing not helpful then a quick follow-up and sell. Okay, you know again, I think the environment for our business is is phenomenal. We don't see it's probably every twenty years or so, you see a transition the technology transition that will occur over the next four or five six seven years that the last major banking technology transition to mpls, you know, took uh, eight to ten years to complete and we're still in the very early stages of movement of networking Technologies to help wage.
Prizes connect there are people that are ways. We're in the very early stages of that.
And and we believe we are uniquely positioned to assist in this it is deflation area to to the overall Market. We we would agree that but that the the main driver that we see is Big growth that it is deflation or it's a revenue over time, but it's a very large total addressable market for a firm the size of gtt and we can be the attacker in that in in that environment. So to speak as we help clients in this in these digital Transformations as they look about historically most of their Network traffic with private. Now the vast majority of our traffic is going to either the public internet or two more and more extensively private cloud service providers whether it's a w s as your Google Cloud platform or other unique SAS applications and the network technology that they have today is simply not fit for purpose. So we have that right platform as a large Tier 1 internet backbone.
with a huge private IP mpls core the ability with
Very deep set of relationships built over 20 years of understanding how to deliver diverse connectivity to any location in the world with a deep and experience team on how to help clients make this transformative technology technology transformation in in their business. And so we're we're very encouraged about it. We stork we didn't have the right size platform in terms of number of people addressing the market just even to take care of our existing accounts that said we still believe we're about 1% penetrated and so our ability to be disruptive over the next decade effectively is is in front of us not behind us. So, you know, very very excited about the environment right now Tim and that's a great color and the are poop how you thinking about like revenue for customer revenue for location is you is your revenue for location going to decline through this process here.
Well, it's the even the initial clients that we've had that have moved to SD women. Generally we've only had one connection. So that's one of the interesting Parts is we've actually generally held our Revenue because we've now been able to get the second location which or the second connection which we stork we haven't had and most of the jobs applications that were winning and clients like Captivate which we announced recently urged Greenfield to us. So even where we are our own cannibal so to speak by moving clients from Legacy Technologies to a new the ability to deliver the second access line helps us keep our Revenue per unit for location reasonably stable. We see some declines over time with we simply stable but it is a share shift opportunity for us to take clients that we don't have we have a very small number of birth.
Real clients at this stage and so our ability to penetrate new and that's one of the things we're really excited about this.
Open the scale of the sales force and that historically we had enough time and energy to talk to our existing clients. Now we have enough to not only do that but penetrate new logos and bring them gtt very helpful. Lastly on the can you give us a free cash or breakdown between the two businesses as possible?
Between when you say the two businesses, I know you gave all the ethon number for the potential asset sale. If there's any kind of free cash flow number related to that or way to think about the 9th, not yet. So we give given that we're early in the sale process. We felt it was appropriate to give everyone guidance on the scope and scale of Revenue and if it's within the ranges that the Dan talked about 370 or 390 in revenue and 160 to 180 and Ibiza, we do believe capex as we've said is a higher percentage of of revenue for this month business, but gross margins are generally higher as a function as the trade of capex to to op-ex and so but in terms of the marketing process at this stage where I am not providing any additional caller, but we felt we it was important to at least give you a sense of the scale relative to GT of the infrastructure division.
Thank you.
The next question comes from Frank Lawson of Raymond James, please. Go ahead great. Thank you. I apologize by miss this like what was the deferred revenue wage as a percentage of overall Revenue in nineteen and the expectation and twenty and can you give us an idea of how much of that is in the infrastructure business versus the rest of the business and then I wanted to talk about your your confidence looking to that in stock being that install positive and and 20/20 particularly with the the continued rapid rampant. The sales team walk us through what you're doing there. That'll give you confidence. You'll continue to get that as as those guys are getting more productive.
Great. Thanks Frank with respect to the deferred revenue. So, you know as we reported in the will report in the 10K. The revenue was approximately 53 million months had a recognized as revenue for contracts that are greater than a year old and that that's that's really the population of the the the prepaid higher use and and capacity deals long as you'll see in the 10K that is expected to drop to about forty forty-two forty-three million in 2020. And then in terms of effectively all of them had Revenue will go with the infrastructure sale because all the product lines underlying the deferred revenue are are being moved over.
yep, and in
Terms of the net install them back back to the point where before it is the single most important thing we focus on it's probably the key key performance indicator that that we took not only at the corporate level but the division level the region level and the team level and you know, it drives compensation mindset around the driving growth. We said as we walked into 2019 years ago, we didn't have a large enough sales force we do now, we we are around the zero range. So as we danced around zero it is one of those things that that we look at each day to say Thursday, we drive productivity improvements at this stage. We're looking at more modest increase in the size of the sales force in the in the long-term. We clearly have an opportunity to have a significantly larger sales force, but we're still thinking about a sales rep from 4:36 to about five hundred by the end of the year vs 300 to 4:36 by the from the end of 18 to the end of nineteen. So now it's more of a focus on wage.
productivity Improvement and uh
Taking the untenured Reps and 10 during them rapidly. We're seeing good progress on that and it gives us confidence that we can drive growth as I mentioned earlier in 1220 rep driven organic growth. It is a constant progress as we say internally Doggett incremental constant Improvement. We have now the time resource and attention to drive operational excellence in both our sale processes or Service delivery processes are Incident Management and trouble management processes our billing and Collections and making all of those available to our clients through our portal provision to really drive an outstanding client experience to burn more wallet share from existing clients. And as I mentioned a second ago to attract new logos to GT. So Thursday, we have the platform the scope and the scale at this stage to drive rep driven growth and that's what we're looking to deliver and report on and future orders.
Okay, great. Thank you very much. The next question comes from Brandon misspelled of keybanc capital markets, please. Go ahead.
Hey, thanks.
For taking the question along the lines of Colby's question, but could you give us the relative growth rates of what would be remain Co and potentially how it's uh trended over the years and I might have missed it. But could you provide the total backlog in Mr. Are not yet installed at the end of the fourth quarter Banks wage? So if we think about the nineteen specifically we think infrastructure division how much you know smaller Revenue stream, you know, the 373 ninety was a grower in nineteen and the remaining business as we as the overall business declined, uh was was a decline ER, you know, the negative made installs that that Dan talked about on a private remarks that said as as I just mentioned a Frank we expect that all the businesses moving into 20 and Beyond can be Growers at this stage. We're very focused wage.
the rationales to establish
These businesses is separate operating divisions within GT Americas and Europe really focused on driving the remaining Cloud networking business that is our core and infrastructure being a remaining a grower and and as we as we work through this process of infrastructure division, so we believe all of the businesses can be growing business is moving forward and I'll turn it in for the backlog question sure in terms of the backlog at the end of the quarter we ended at eight and a half million, which is down slightly from the night. We had talked about last quarter, but we view that as just a lot of the templates and the improvements that we made in the service delivery actually bearing fruit and Juice as the the sales reps stock to grow their productivity in 2020. We should see that that decline slow and and start to stabilize.
Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Rick called her for any closing remarks great and I'd like to turn the call over as we always do to our chairman and thanks Rick. I was driving in this morning and heard two things on the radio that kind of highlighted some thoughts that I wanted to pass along. The first was the great concern about Corona a virus and and what it's doing to the the world in terms of job of shutting down conferences and closing off shows and creating more and more requirements of business to continue using Communications rather than visits off and it it strike me it struck me that that this is a critically important thing in our industry and has been for many years and it will only continue
And this is just one of the stimulus but that caused us to do that efficiency and just operating your business is another one the second thing I heard was an ad from from birth and they called it and it was basically a round of 5G developments that are underway. And of course, they're playing a major role but beyond that they they tried to coin the expression that this was going to be an invention era going forward and and I I got to thinking well, it's not just invention. It's really application the 5G page, uh, bow wave that we're trying to deal with right now is something that's critically important and and Communications to be sure because it is it's a new access technology that gives us huge capacities wherever it's applied. But those huge capacities have to have a way of getting around the world the most important thing that's happening with 5G home.
It's going to be a significant.
Can Capital requirement and that Capital requirement is going to cause major financing sources to be allocated toward the development of the technology package and the implementation of it. As Rick said we are on a on the wave of s d when that followed up on on earlier waves of technology and the way we started this country was to assume that we could bring together the the finest thinking on what's happening in Technologies to be able to apply it to our clients and to give them the kind of network of them both complex sophisticated and secure so that they could feel comfortable and enhancing all their communication needs and providing data Communications around the world. When we started that our whole approach was to have an asset-light model and one that said we can lease and we can develop and we can provide to our club.
these networks worldwide
What we are doing right now gives me great great future interest in in and shows that this company has gotten to a point. Now that as we look ahead we are we found out with the Acquisitions of interest and and Hibernia that the development of capital-intensive infrastructure is not our real Forte. Our Forte still is using Technologies to connect people around the world. And therefore we came to the conclusion last fall that it was time to take those assets off put them into a division and see what what attractiveness there was four people who really do understand and want to be a financial source for the future of the development of technologies that we're on the Forefront of right now and I'm I'm excited about that because I think that's what's happening. I see it happening in countries and states and communities that have said
We need to develop.
Infrastructure, that is broadband that will allow our people to play a part in this whole Economic Development that's taking place the government of Ireland just agreed to support provide over three billion euros of support to the development of fiber to $500,000 Plus Homes in the underserved parts of their country money. We have states that are providing Broadband our Federal Communications Commission has finally gotten to the point along with our Department of Agriculture to recognize that huge amounts of capital going to be required and in deploying those amounts of capital. They need people that are really comfortable with and understand the long-term implications of that. That's not what we're about what we're about is making the connections. Therefore, I think our infrastructure division sale that we're talking about is ideal for two reasons. The first is that it will put off.
the development of those properties that we have
And the hands of people that really are going to take the long-term View and be able to provide the financing that's necessary. It will give us Financial, uh Freedom as we reduce our our our debt structure to allow us to expand what we're doing and what we did well and what we are hoping to do well in the future that's take the Technologies take the New Jersey needs of our clients, especially the complexity and the and the security that they're looking for in their networks and who allow us to to to Really provides a unique company that's looking at their needs worldwide and can bring that to their party. I'm excited about our future. I think the fact that we've been able to stay home after the the difficult year of of 2019 of integration that we're able to stabilize where we are to provide in our sales force the capability of doing what I was saying wage.
the minute ago for our clients puts a
In the in in a great position and with this divestiture, if it if it takes place the way I fully expect it will the reasonable amount of of value that we can generate from Thursday to reduce our debt and to create the opportunity for us to move forward. I think is is spectacular. I thank you for joining us and I'd like to turn it back over to Rick and thank you for being a part of our investment community that watches great. Thank you again for joining us and we look forward to reporting in future quarters. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
off