Q1 2020 Earnings Call
Okay and welcome to the T. P. P Communications first quarter 2020 results conference call all participants will be any listen only mode. So do you need assistance. Please secondly conference specialist by pressing star keep 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 turn the conference over to Chris <unk> General Counsel and Executive Vice President Corporate development. Please go ahead.
Thank you and good morning, I'm joined today by Rick Calder, Gtts, President and CEO, Steven Burns GTT CFO, Brian Thompson, Chief Executive Chairman of the Board today's discussion is being made available via webcast to the company's website www Dot GTT.
A telephonic replay of this call will be available for one week dial in information for the replay as well with access to the replaying. The webcast is also available on our website.
We began 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 <unk> business. We caution you that such statements reflect our best judgment as of today, maybe based on factors.
That are currently known to us, it's an actual future events or results could differ materially due to a number of factors many of which are beyond our control for more detailed discussion of the risks and uncertainties affecting our future results. We refer you to see see filings GTT disclaims any obligation to update or revise these forward looking statements to reflect future events or circumstances during the <unk>.
Paul will 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 provide in today's press release has posted to an investor Relations section of our website I'll now turn the call over to Rick Calder right.
Thank you, Chris and good morning, everyone. I Hope you and your families are keeping healthy unsafe. During these challenging times I want to first thank all of our employees clients and stakeholders for their efforts supporting competence and this unprecedented time due to covert 19, GDP has along with every business around.
The world adjusted to the pandemic, what the priority of keeping our workforce and our partners safe, while maintaining quality of service for the mission critical services, we provide.
Prior to the impacted the pandemic over 95% of the GTT team was remote work ready and we were able to transition successfully are over 3000 employees in 28 countries to effective remote work from home environment in March, including our network operation centers.
As an essential service provider, we do keep select employees in rotating chefs a critical locations, including data centers warehouses cable landing stations in our field operations to ensure we provide for the ongoing needs of our clients.
Our liquidity remains strong at the end of the first quarter, we had 106 million in cash an incremental availability under our revolving credit facility of 174 million, we continue to take actions to improve the strength of our balance sheet.
As it rolls as a result of the pandemic, we anticipated that installed would slow which is what we saw at the end of one Q 20 and into Twoq you 20, as many clients cannot provide access to certain premises moving into Twoq. You. We've also seen read you reduced churn orders as clients maintain their existing services for.
Longer periods.
We have seen increased demand and usage traffic for our Internet services, particularly high capacity dedicated Internet and IP Transit services, we have been upgrading bandwidth capacity remotely from many clients as they utilize the internet more intensively during this period.
The services the GDP provide are critical to our client ongoing operations not only does the underlying demand for our services remains strong, but we continue to win important pieces of new business and late March in through April we have signed a number of multiyear contracts with multinational hyperscalers and enterprises for additional bandwidth and did you.
Little transformations.
Despite the pandemic, we continue to have significant levels of new sales activity. It should generate results going forward, particularly once our installation pace returns to reasonable normal levels.
Through Fourq, you 19 and into one few 20, we made significant investments in our business to support future growth.
As a result of the uncertainty of the continuing impacts of Cobot 19, we're now taking specific actions to reduce our cost base to ensure we deliver a competitive level of profitability inline with our guarded outlook in the current environment.
Scrutinizing every line item and are looking to reduce costs, while minimizing the impact on all long term growth potential when the world returns to a more normal setting.
<unk> monthly recurring revenue and the strength of our client base positions us well in this uncertain environment, specifically M.R.R. monthly recurring revenue represents approximately 92% of our total revenue.
Our top 1000 clients represent over 80% of our business an average over $100000 in monthly recurring revenue.
Our exposure to small and medium business clients billing under a 1000 dollar EMR, it's small at approximately 2% of total revenue.
Well, we have important client and retail travel and hospitality in total these represent a small percentage of clients at less than 5% of total EMR.
In terms of first quarter 2020 results came in below our expectations revenue was essentially flat sequentially, including keep Yens results, which was acquired in December 2019.
Net installs for the quarter were negative in our Americas in Europe divisions, due to slightly higher churn in the quarter of approximately 1.6% <unk> as compared to our expectations as well as lower installs as previously mentioned.
Our infrastructure Division delivered positive net installs for the quarter driven in particular by large capacity sales just like clients.
Adjusted EBITDA was 89.3 million, which compared to the fourth quarter of 2019 was negatively impacted by the investments in growth as I noted as well as increased reserves for bad debt expense.
Stephen will review the financials in more detail, though I do want to highlight that we did generate free cash flow of 19.5 million for the quarter.
Further while we believe that we will generate improved cash flow in 2020, given the uncertainty created by the pandemic. We are withdrawing our 2020 guidance of 175 million to 200 million in free cash flow.
Our priorities remain delivering organic rep, driven revenue growth and improving profitability.
We ended the first quarter with more than 400 quota bearing reps worldwide a level of scale that with training and maturation is intended to expand our share of wallet with existing clients drive new client logo acquisition and reduce churn.
We have pause tiring of incremental wraps until such time as there is more certainty regarding the length in depth of you can economic impacts of the pandemic.
Our monetization of our infrastructure division is proceeding well and has garnered significant interest from potential buyers. As a reminder, infrastructure includes our highly differentiated terrestrial pan European fiber assets.
Sub sea Trans Atlantic fiber and data centers acquired as part of the into route and Hibernia acquisitions, we expect to use the proceeds the monetization to reduce a portion of our outstanding indebtedness.
We are focused on serving our clients every day as we deliver on our purpose of connecting people and supporting our clients mission critical needs, especially those that arise that Pandemics challenge, we're managing through the cobot 19 environment nimbly and aggressively with the aim to achieve at more flexible cost structure and operating model.
Finally, I'm very pleased to welcome Stephen Burns to GTT, as our new Executive Vice President and Chief Financial Officer, and we'll turn the call over to Steve and for the financial review Steven.
Thanks, Rick and good morning, everyone. It's great to be here at GTT, and I hope, you're all staying healthy and safe.
First quarter revenue increased 22% sequentially to $425 million and decreased 6% year over year.
Proximally, 52% of our revenue is denominated in non U.S. dollar currencies, so fluctuating exchange rate impact our reported results.
In constant currency revenue increased 0.4% sequentially and decreased 4% year over year.
The sequential improvement of revenue was due to a few factors first the inclusion of KPN for a full quarter versus only one month of inclusion in the fourth quarter of 2019.
Next I 5.5 million dollar reduction in billing credits issued which returned to us to a historically normal level.
These items were partially offset by negative net installs a $5 million, you're not favorable currency impact of $1 billion.
$1.3 million decline in government Passthrough charges.
A 1.9 billion dollar decline in noncash deferred revenue, which was consistent with our expectations any decline in nonrecurring revenue of $1.4 million due to a lower level of certain activities in the quarter.
The year over year decline in revenue was driven primarily by following factors make it a bit installs, which represented over $72 million about annualized revenue reduction compared to last year.
As well as unfavorable currency impact of over $22 million, an annualized revenue reduction.
Other reductions of morar of $7.6 million, including the issuance of them all our credits and changes in various surcharges, including future.
A decrease of approximately $25 million from the run off of noncash deferred revenue and finally, and finally, a decrease of $28 million in nonrecurring revenue.
The decline in noncash deferred revenue is expected to be more gradual over the next several years.
We did record $11 billion of new prepaid capacity cells in the first quarter of 2020.
We continue to expect our pipeline of new IR, you and prepaid capacity sales to approximate the amortization of noncash deferred revenue for the balance of 2020.
The deferred revenue footnote in our form 10-Q provides a schedule showing the outlook of this component of revenue for the next five years for all acquired and prepaid revenue contracts.
First quarter, adjusted EBITDA decreased 13% sequentially to $89 billion and decreased 27% year over year.
Currency fluctuations did not have an impact on adjusted EBITDA in the sequential quarter over quarter comparison.
But the year over year period currency had a 1% unfavorable impact.
Adjusted EBITDA margin of 21% decreased by 320 basis points sequentially due to the following factors.
First a contraction in gross margin of 170 basis points, primarily as a result, I'd be reduction and nonrecurring business.
And then increase in S.G., they primarily through the accelerated pace of our fourth quarter 2019 investment.
Our quota bearing sales force and other functions in support of the growth of our business as well as a higher provision for bad debt expense. That's we applied a more stringent methodology for estimating allowances for credit losses.
In the year over year period, adjusted EBITDA margin decreased by approximately 610 basis points by primarily due to a contraction in gross margin of 225 basis points, resulting from a reduction in nonrecurring business and an increase in SGN. They primarily related to the items I mentioned that were for this.
Sequential quarter as well.
As Rick noted earlier in light of the current environment. We're completing a line by line review of our costs and taking specific actions in both SGN eight and cost of revenue that would you expect will improve EBITDA margins in the second half of 2020.
During the quarter, we incurred $2 million of transaction and integration costs, which are included in our reported SGN eight but excluded from adjusted EBITDA.
These expenses related to our closing up the KPN acquisition and the exploration of monetizing the infrastructure Division.
In addition, we incurred $2 million, an exit costs, primarily to primarily related to <unk> closing legacy office locations in Europe.
From a cash standpoint, we paid out $4 million of combined exit and integration costs in the quarter.
Down from $7 million last quarter.
At quarter end, we had approximately $14 million and remaining future cash payments to be paid related to previously expensed exit costs, almost all of which will be paid out through the end of 2020.
First quarter net loss was $83 million compared to a net loss of $27 billion last year, and a net loss of $19 million last quarter.
Included in the first quarter 2020, net loss is a $33 million noncash mark to market loss accounted for and other expenses associated with the change in fair value of our interest rate swaps.
Comparable amounts in the first quarter 2019 was a loss of $15 million and the comparable comparable amounts in the fourth quarter of 2019 was a gain of $10 million.
First quarter 2020 capital expenditures were $22 million were 5.2% of revenue compared to $32 million and the first quarter of 2019 and $25 million in the fourth quarter last year.
Capex in the first quarter was at the lower end of our target of 5% to 6% driven primarily by success based investments.
Moving onto the liquidity, our first quarter, ending cash balance was $106 million up from $42 million last quarter.
During the quarter, we drew $55 million on our $250 million revolver.
Which brought us to a total draw of $65 million.
As a reminder, the senior leverage covenant threshold is only measured when there was more than $75 million drawn under the revolver.
As we have also use the revolver for approximately $10 million of letters of credit, we have a hovered and $74 million unused and available capacity under the revolver.
Net cash provided by operating activities was $42 million up from $30 million last quarter and reversing the first quarter 2019 use of cash.
Free cash flow, which is defined as net cash provided by operating activities less capex was $20 million in the first quarter compared to $5 million last quarter.
We're working diligently to improve collections of our accounts receivable and of course in light of the pressures caused by the covert 19 environment. We're working closely with our clients to assist with payment terms and alternative alternative payment methods in those situations, where it is warranted.
Throughout the World cloud networking services are viewed as essential and critical and therefore, we do expect the overwhelming majority of our clients to continue to work with GTT and pay timely for their surfaces.
Working capital was positive $13 million compared to positive $2 million in the fourth quarter of 2019, and the negative $48 million in the first quarter of 2019.
As we finish paying the exit and integration costs incurred in 2019, among other benefits, we expect overall improvement in working capital.
As always but especially during these uncertain times, we remain focused on closely managing both client and vendor components of working capital and as Rick stated, we are confident and our ability to generate improved levels of cash flow from operations and free cash flow in 2020.
Our net debt balance at quarter end was approximately $3.3 billion, including $2.7 billion, a senior secured term loans maturing in may 2025 of which roughly 35% is euro denominated and $575 million of senior unsecured notes maturing in December.
2024.
As a reminder in February of this year, we closed in funded a $140 million incremental U.S. dollar denominated me a term loan in a leveraged neutral transaction. The net proceeds of which were used to pay down substantially all of the draw on the revolving credit facility that was partially used to fund the Kate.
Again acquisition in December of last year.
Total secured.
At March 31, 2020 was approximately six and a half times on a trailing 12 month basis, including acquisitions and pro forma expected cost synergies.
The earliest maturity on our dad is December of 2024, and we believed that the critical nature of the services. We provide our clients are intensified focus on reducing costs, our $280 million liquidity as well as our ability to generate significant cash flow positions us well in these uncertain times caused by the coal good night.
Teen pandemic as always we are focused on optimizing our capital structure to further improve the strength of our balance sheet <unk>.
This concludes our prepared remarks I'd be we'll now open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before passing the keys to me.
Question. Please press Star then to you at this time, we will pause momentarily to assemble the roster.
The first question today comes from George Sutton of Craig Hallum. Please go ahead.
Hi, good morning, and welcome to Steven.
So you obviously you mentioned pausing your sales hiring process part of your strategy to get to an organic growth rate ER positive organic growth rate. Obviously has been driven by hiring can you just to discuss sort of the plans from here relative to trying to achieve that organic growth, but you know give.
And your pause.
Sure. Thank you for the question, George and I'll, Oh, probably given we're all in separate locations or take each question and then a hand it off tighter Stephen aircraft, but with respect to pausing once the impact of the pandemic started to appear at the beginning of March throughout most of Europe and that obviously.
Accelerating into the U.S. we.
We pause we had made aggressive increases in F G and aid to drive ever higher levels of growth in the fourth quarter and into January February and March. So we're pausing, we think it's prudent for us in this uncertain environment to pause, particularly for a new logo acquisition, we still retain a salesforce that.
Of the scope and scale with further maturation that can drive levels of organic growth. So were above 400 at this stage we were for 36 at the end of.
For Q, we're at four night, we were at for 19 at the end of one Q. So that the salesforce that east of the right scope and scale our productivity.
Our rep fourth quarter to first quarter did start to increase as our Salesforce has much word. We just think it's prudent not to bring on an onboard in a remote work environment, a new sales representatives will continue to evaluate that on a month over month basis as we see the impact of the pandemic. It has now.
Not for <unk> for existing sales representatives to.
Two new accounts or soon to existing accounts as well as to opportunities have been deepen our funnel today, we have seen good progress on closing those were just naturally cautious about building a funnel a brand new opportunities. When you cannot meet a new clients have enough face to face environment at this stage. So we're <unk>.
Not to say that we cannot drive sales activity at this stage with the within out of the scope and scale. The force that we have in place today.
Gotcha. One other question you mentioned, you're working with clients on their payment structures. You. Obviously are a big less sort of a lot of Oh, what you do.
Is there flexibility that you're being given on some of those payments that you asked for any of that flexibility.
Only on a case by case basis, we will go, particularly where were making accommodation for specific clients. We will likewise go to our suppliers for those clients and asked for specific.
Payment terms for those and that generally is in the specific industries. It dead I think that I had mentioned in the prepared remarks.
Retail travel hospitality so.
That said it is pretty selective at this stage with that but that is as we noted earlier, we provide mission critical services in general to our clients and it all kind of that we we expect that at the majority of them we'll pay.
Perfect I appreciate the no but thought.
Thanks George.
Our next question comes from Cobiz to Miss Your Oh. Please go ahead.
Great. Thank you one focused on the EBITDA. So obviously, a a pretty notable step down and you highlighted investments a and then a bad debt reserve I was wondering if you can get Scotland in more detail on both of those and how much of it is one time versus recurring and I guess airport.
Just the floor or pick actually go lower.
And then also you seem to be suggesting that the real slow down and net installs was a function of actually the installation that Sal.
As opposed to demand I, just wanted to make sure I understood that correctly and just get a little more color and actually what you are seeing what maybe you saw in the last two weeks of March as it relates to demand and what that looks like today. Thank you.
Sure. Thank you call. These why don't we do this I'll take the the second question first on slow down installations are all last even to start on the EBITDA and I can comment on it as well.
So let me start on the slowdown installations, we definitely while we were proceeding generally on pace through the month of a January and February you know right at the beginning of March in Europe, we saw a market slowdown in select countries, which accelerated through Europe through March and that then then affected us in a in the U.S. starting.
Around mid March, whereas most of the world transition to work from home access to prime as he's really slowed down our pace of installs that continued.
Into this quarter has not you know I think as I mentioned to George has not really slowed down our order pace again order pace generally has been fine. So you know the thing we are probably most cautious about in this environment is the ability to install a premise based services, particularly as clients.
Down insuring orders as well in that clients, who have existing services generally I think are taking the the approach to leave those services in place we have been able to upgrade many of our existing high capacity clients.
To sell them incremental capacity into their existing locations. We can generally do that remotely and upgrade their commitment on existing courts. We've also seen an uptick in our some of our security services, particularly for secure remote access enables clients to get into six.
<unk> to have remote workers come back into their corporate enterprise and so we see that as a as some upside as we continue to move forward, but we are we are naturally sort of cautious about our ability to keep pace with within installations in the short run as the pandemic runs its course.
Worse, So let me turn it to to Steven for discussion I need to though.
Yeah, good morning, Colby and and thanks for the question.
Relates to bad debt expense first what what I'll say is that certainly in a more normal worlds, we would not expect the first quarter bet that expense to recur. We're we're certainly not pleased with our either <unk> I'll talk about more about that and the second and we're taking concrete steps to.
To improve that obviously, we did adopt cecil the the accounting standard as of January 1st 2020.
And that had some impact, but we have taken aggressive actions to improve our process for collections and and expect that to bear fruit.
You go into the second as we are in the second quarter for the balance of 2020 and beyond.
It relates to overall performance and investments.
Clearly in in this uncertain environment as as Rick has mentioned you know we are very focused on serving our existing clients and very focused on what we can do as it relates to pursuing new clients were also practical about the ability of adding the new logos and so not only a we are we taking the.
Steps as Rick indicated on the pause in our head count for sales, we have taking steps to make sure that we are reducing R.S.G.N.A., we've made certain reductions in head count and and all of that in line with what we expect to be a an uncertain environment for some period of time and therefore.
Both protecting profitability as well as as maintaining a live or cash flow that's consistent with our expectations. We plan to as we go forward match, our continue to be nimble as it relates to the management of R.P.N.L.. So we can make sure that depending on how how the the <unk>.
World. If you would say evolves, we want to make sure that we are well positioned to be able to deliver consistency provocative service to our clients set ourselves up for future growth, but do so in a very practical and as brick indicated earlier guarded manner.
So just to kind of just you know double click on that a little bit so so the bad debt.
Was a material portion of the reduction or is it more function on the investments and then I guess again, how much of it is your occurring versus is is one times I mean, I I do think that the bit that was probably the biggest shock.
Probably and there's also this morning for people and I'm, just trying to get a sense. If it's gonna get worse before it gets better or you think that you know from this point to construct a stabilized.
I I think that for for beds at at this point. It's it's it's certainly a at a place where we feel that the first quarter was an exceptional a period for bad debt expense, but you know and we clearly as as Rick indicated in terms of our the percentage of our customers for which we have both.
Providing critical services, there well capitalised large multinational corporations, we feel good about our path forward and so you know I would not expect based on what we know today for the first quarter level to repeat and and we certainly are working hard to make sure that that doesn't happen by having aggressive.
But appropriate <unk> collections efforts on all receivables because we don't know of course, the sustainability of of every sector and this and this highly uncertain environment. So the way you manage that is you don't let any receivables go past do when you you collect a you know in a manner that would be consistent.
The good business practices.
Okay. Thank you.
Well next question kind of fun Frank Awesome.
James cheaper.
Great. Thank you looking out you know you look at across your your territory any particular markets that are more available for installs et cetera, and is the issue more with the custer customers themselves.
Not really allowing are interested in in in the the changes and ads and so forth or is it more of an issue with city state regulations that are you know keeping you from being able to get access.
Thank you for the question Frank I'll I'll I'll take that one generally you know as we noted impair Mark we operate now in with employees and 28 countries. We actually installed services in about 150 countries around the world at this age so.
First and foremost we do here to all country region state and local regulation relative to our ability to deploy it we have been deemed it and essential service provider. So we're able to maintain particularly for the core of our network.
Dedicated and and just another board of things to our field services team for the the word that they're doing right now to keep our existing an active services up and to add capacity for all of our clients. We saw as many players in the Internet World. So you know 20, plus percentage increase in our backbone traffic.
A period of a week and you know, we're able to absorb that where most of the install delay is not in backbone capacity and incremental capacity at all really driven at the premise level two things are going on there. So certainly in select regions in the world were unable to deploy anyone to location in countries like <unk>.
Paying for periods of time, they were 100 per cent completely shut down. So you know no no person other than to a critical infrastructure node, where we allowed to go to not to a client premise building. Some of that is starting to to change, but what we're also finding is that even if if if country.
Agents city regulation changes clients are simply not moving their employees back that quickly to customer location. So they're asking us to delay the deployment of new services until they return to a work environment that that they expect to be more permanent so I would say.
If you if I had to comment on it by region to be original question I would say it started much more aggressively in in early March as I said earlier in Europe, but it very quickly moved to to the U.S. as well. So you know I think at this stage is relatively equal worldwide for us if anything we would see some of our deployments in.
Asia <unk>, maybe come back a little sooner because it the pandemic probably hit that area earliest and so some of those installs may per earlier than we would see in your in Western Europe or North America.
Great. Thank you.
Yeah.
The next question comes from James Green <unk>. Please go ahead.
Thanks to take them question, just a couple the drawdown guess what motivated that if you were operating casualties report grieve cash flow positive on the operating side and.
Catholics, there just 22 million yeah, why drive down now it seems that you just restructured won't get well below where they covenant was and then you know we think about in on the cost side. Yeah. The reconciliation between your net loss 83 million this quarter in the 89 either.
Really the variance compared to recent quarters is bends or the other expenses like 43, just talk about what's the make up there that that drove a significant difference. Thanks.
Sure. Thank you Jim for the questions I'll I'll turn both to start to a Stephen bows draw down on on our existing credit facility as.
As well as the reconciliation of a of loss.
Sure. So it's really to draw down as as I think you you have seen in many other companies it was prudent to.
Preserve the use of where the revolver and certainly with 140 million dollar term loan at the same point in time it wasn't clear what what financial institutions might say is the pandemic continued whether or not they would which say there was a force for sure or how they would go about <unk>.
Money's as they went to to borrow and so as you saw with many well capitalised businesses and and across many sectors to draw down all or a portion of their of their revolver and so our action. We think was prudent inconsistent with a good financial management.
<unk> didn't have anything to do with a need or unexpected use of the capital, but certainly well we have good relationships with our lending group. We certainly recognize that there's there's sometimes a contagion effect that could occur. So I think that was the right move.
Weights to the the $43 million as as I said my prepared remarks, and I think you're referring to the portion that includes the interest rate swaps mark to market, which was a 33 million dollar loss in the period and once again with interest rates effectively at zero and the forward curve for the base rate.
Which is why bore being being effectively flat and it went from like over you know, 1% down to close to zero and so that results in a a a fairly high mark to market as they did indicate there was a slight gain of 10 million then the fourth quarter. So this will bounce around just by the nature of the accounting for these on <unk>.
<unk>.
Remind there are six floating.
About 40% of our.
Of our structure or cadet structure is fixed and we we thought the thinking still believes that the interest rate swaps, albeit rates have gone against us, but in terms of prudent management for overall business was a good choice to do and make sense. Despite the the fluctuation in the piano.
Great and then just one one question you know you talked about the process of selling those fiber assets.
Any sort of thoughts in terms of <unk> <unk> gets game when you know people can't meet.
Oh, Yeah, if you are <unk> yeah.
Folkston selling that asset.
Breaking it out you know not isn't necessarily just continued.
Right Yeah in some ways that people can get a better picture of the data that looks like relative to Eagle rock.
Yeah.
Christmas. He is is driving that process for us so when I turn it to him as we did last call just to give some color on on the process for the sale of our infrastructure division of monetization of those assets.
Yeah. So we've been proceeding with that with that that that process. You know as you said, it's yeah. The one change being that instead of having meetings with a potential buyers in person we've been doing it's online as as all the world has but we have Ah, but we have proceeded with the process.
Have you know as we said the prepared marks a number of of interested counterpartys.
On our previous call, we gave ranges of what the revenue when he but looks like for the the portion of the business that were to investing.
And the the business remains and you know in those in those ranges and as Rick said in the prepared marks the infrastructure portion of our business.
I'm not installed positive quarter. So other remains robust interest will remain committed to the to the process and the only real change in a is a is as you said doing doing meetings virtually rather than doing them in person.
Mm.
And then just said and some operating color. Jim. This was the first quarter that from an internal operations perspective, we did segment out in an operating.
Division, not a fully segmented and and completely separated financial operation, but certainly if I'm, an operating perspective separated out the majority of the people and the revenue streams into into an operating division as part of the process of separating and ultimately selling and monetizing the info.
Restructure division and showed if it was also the first quarter that we actually separately looked at our internal metrics a independently previously and the fourth quarter. Those metrics were part of the Europe and America has division. So as we know it in the paired remarks, New York and America's Division were negative in in the first quarter of the remaining ones and the infrastructure was.
Still slightly positive minutes has it has been for many years and so our focus now remains on monetizing successfully monetizing, which we're still optimistic about in terms of the process. The Christmas mentioned that that continues with a significant interest from multiple bidders.
At the same time, then we look over the next several quarters and into 21 to ensure that we have a streamlined go to market strategy, which will be our remaining business, which is consistent with our historical <unk> asset light managed services business. We think we have a real.
Opportunity to make and streamline that operation Stephen and the rest of the team or moving through the real planning process of what is that operation that can drive Ah continued margin expansion sales and install gross net install a positive organic revenue growth in those remaining to division.
In a in America's and and Europe.
Great. Thanks.
The next question comes from randomness keeping capital markets. Please go ahead.
Right. Thank you guys are saying the question.
Curious if you can talk a little bit more about the U.S. trends U.S. revenue with like it stepped down pretty significantly sequentially.
I'll just negative met installs.
Second I was hoping you could provide what you hook from like an incremental bad that perspective, I'm not sure I heard that yet.
And then lastly, I guess for her Rick.
Can you help us think about what would be left of the company from a financial standpoint, you know you guys provided some metrics on the infrastructure sale on the last call, but looks like the businesses deteriorating more than I think some would've expected. So can you help us understand.
What's the goal from a proceeds perspective on that that what type of evaluations are you looking for and then what's left Remainco standpoint. Thanks.
Yep. So let me I will take the all star commenting on the first one let's let's see even add let him talk about the bad that question and then I'll come back on on <unk> post a them on his Asian of a infrastructure division our strategy for G.P.T. in terms of.
The the trends if I think about it from the way.
<unk> separating out as I, just mentioned to to Jim separating out infrastructure division. The net installed trends of those Americans in Europe were slightly negative in in the first quarter or the in America. In particular, though continued improvement I would say quarter over a quarter and I think.
Ernie Ortega and his team have you have done a very nice job in terms of really changing the directory of the America's business and how we see that a moving forward they're caught up like like we are in general with the the pace of installation slowing down so and our churn rate what they noted is slightly higher than expectation.
At 1.6%, but generally we we expect our ability to bring it turned right back down to 1.5% and early indications and.
In second quarter, or we are seeing a slowdown ensuring orders or we can bring that down. So the thing we worry most about or just a piece of installation of a lot of these digital transformations that are going on in in America is and and in Europe as well. So it's really just that piece of how quickly can we get the backlog that we have now installed let me turn.
Even for about that and then I'll come back to Remainco.
Sure. Thanks, Fricking. Thanks to the question as it relates to our that expense our runrate in the in 2019 was in the three to 4 million dollar range, we were at a $4.8 million in the prior quarter. So that his queue for 19, the bad debt expense in.
The first quarter was $9 million.
And so substantially more than the so you know obviously about $5 million more $4 million more and so we we think that that is not you know a new runrate <unk> and certainly we expect that in addition to like I mentioned before the efforts we have on improved working capital improve collections.
Efforts that will continue to make make improvement.
Right and I think as we noted earlier brand in I mean, where we'd started this process in basically middle of March when we when we saw the what the impact of the pandemic would be worldwide to look through line item byline, Adam across all of our expenses both headcount related.
<unk> like bad debt and of course cost of revenue to look at things that we could remove to ensure that are even as added competitive level and we increase our margins moving forward. So that we've taken pretty substantial action across a whole number of different might items as I started as the beginning of.
April and so we expect to have that flow into our results in in the second quarter and into the second half of the year says Stephen mentioned earlier in terms of the Remainco business I mean, we remain as we think about.
<unk> again, the successful monetization of the infrastructure assets and truly allows us to refocus our business on being a cap X. light asset light managed service provider for clients and deliver on our purpose of helping clients connector people everywhere in the world with redundant dual conductivity delivered through a multiple act.
Test provide last mile access providers that are out there is a is one of the questionnaires and it was Colby ask before we have a very deep and long standing relationships with pretty much every owner of last mile access in the world and we become a trusted provider to a relatively small set of clients around the world and we think.
We have the ability.
To build on that past success with clients, who are looking to get more conductivity for last price and so we clearly have an opportunity to drive that we have the network infrastructure in place will continue to have a fantastic global tier one internet backbone that we can actually use as the <unk>.
Pangs of delivering and managed service offering generally driven by us offered to find wide area networking with that transformation continue. So we remain optimistic about the <unk> the real streamline ability of the remainco business to be very focus on delivering on that purpose for.
And ever expanding roster of clients and that's the business that we are in the process right now are putting together within what we what we term internally where the remaining G.P.T. that very much of the roots of the business. That's a that's been at our forefront we happened to own and controls some very attractive infrastructure assets there are not critical.
US to own as part of this process and we believe the monetization of that will help us on leash that that managed services company in a real new form and so to your direct question about our plans as we note and prepared marked we would simply use.
The proceeds to pay down debt in in the in the waterfall. According to the the terms of our dad agreement. So we think we would come out as a last levered and with a lot of financial flexibility to be one of the Premier managed service providers on a global scale too large multinational clients.
Thank you for taking the questions.
Just concluded that question and answer session I would like to come a conference back over to recall her frequent any cause remarks.
Right. Thank operator, I'd like to turn the call over to our executive Chairman, Brian Thompson for some remarks.
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Taking advantage of this period, where we're all kind of isolated to to do some look back and say why why did we put the company together in the first place where are we and where where do we seem to be going because I think that's important to share.
The first is you know 15 years ago, we we put this company together to build a unique company that was.
Character with three zillion with a good set of ethics and determination to provide.
For the demand that we felt was coming for broadband communication worldwide, you know and we put it together with when an acquisition strategy. We have proceeded at pace with that strategy and and in that objective was to serve all of our stakeholders with.
The purpose of of continually improving values for the customers in in what we're bringing to them to improve their performance.
Our employees would challenging and changing experiences to grow.
And and with our investors and hopefully improving value to their equity and securities as we went forward.
With the company and we really have those is underlying we continue to have those as underline objectives of the company as long as I'm around.
I am sure that's the case and.
The thing that's happened, though over the past year year, and a half has done a real testing of our ability to integrate the companies and and and do it in a in a an effective manner and I think.
We were achieving in a in the last part of last year in the first part of this year all of the improvements that we had to make to to to get all of our systems together and all of our all of our people marching in the same direction. It was a real task and.
I'm sure. Many of the investors are are concerned about why we were tested but we were we felt in that last part of last year and the first part of this year that we were showing the kind of capability that we expected we could generate to improve both our performance in the marketplace as well as on our.
On our values.
Then as Rick pointed out as we were doing quite well and the first couple of months of this of this quarter then along came the <unk>.
I have not in my 50 years in this industry been tested quite the same way as most companies will admit but especially.
It's a paradox to us in this industry because we wanted for a long time to show that that demand for in the need for that kind of communications that we are now.
Being demanded in this pandemic environment of getting to every person not just every location is going to be a very different business going forward.
He wanted to people to understand that we were trying to deal with that not quite this way, but that's the way we saw the future coming and it has to do with all of the applications and telecommunications that are coming around so in order to get there though to have to go through this uncharted territory of Cove AD is a very <unk>.
A little time, so that's the paradox.
That said, we believe especially as Stephen and and and Rick have pointed out through this process. We believe we have.
Done watch necessary, especially in the last month month, and a half to position the company to make certain that not only are we achieving that kind of performance that we hope we can going forward, but they we are prepared for whatever comes and we don't know how the customers are going to be buying in the future.
We're not sure how much flexibility, they're going to require how much security there are going to require but we are now prepared to do that.
I think with that I believe that once we get through this next quarter and into the into the summertime will begin to better understand what the requirements are of our business what the requirements are of our industry.
Our customers and of our employees in order to make sure that G.G.T. is irrelevant and an important factor in the communications world in the future.
Well that I'm quite positive about where we are frankly.
As a major investor I'm positive that we are doing the right things that I think should generate good outcomes for all of our stakeholders in the future. Thank you very much and I'll turn it back to you right.
Right. Thank you, Brian and you just once again, thank you to all of our employs and stakeholders for working with US through this through this pandemic environment and we look forward to recording our results in the future <unk>.
[noise] [noise] from now concluded. Thank you for attending can eighth grade occasion, you may now disconnect.