GTT Reports First Quarter 2019 Financial Results

Q1 Revenue Grew 73% Year-Over-Year to $450 Million

Q1 Net Loss of $27 Million

Q1 Adjusted EBITDA Grew 95% Year-Over-Year to $122 Million

MCLEAN, Va.–(BUSINESS WIRE)–GTT
Communications, Inc.
(NYSE:GTT), the leading global cloud networking
provider to multinational clients, announced today its financial results
for the quarter ended March 31, 2019.

First quarter highlights:

  • Revenue of $450.2 million grew 72.7% compared to 1Q18 and declined
    1.0% compared to 4Q18.
  • Net loss was $27.3 million compared to net loss of $30.7 million in
    1Q18 and net loss of $53.0 million in 4Q18. The net losses in all
    periods are primarily the result of non-recurring costs, including
    exit, transaction and integration costs of $12.0 million, $7.8 million
    and $29.9 million in 1Q19, 1Q18 and 4Q18, respectively, and change in
    fair value of exchange rate and interest rate hedges of $15.3 million,
    $17.2 million and $21.7 million in 1Q19, 1Q18 and 4Q18, respectively.
  • Adjusted Earnings Before Interest, Taxes, Depreciation and
    Amortization (“Adjusted EBITDA”) of $122.2 million grew 95.0% compared
    to 1Q18 and grew 4.3% compared to 4Q18. Adjusted EBITDA margin was
    27.2% compared to 24.1% in 1Q18 and 25.8% in 4Q18.
  • Capital expenditures were $32.1 million (7.1% of revenue) compared to
    $13.2 million in 1Q18 (5.1% of revenue) and $16.3 million in 4Q18
    (3.6% of revenue).
  • Using constant currency (i) 1Q19 revenue and Adjusted EBITDA would
    have been higher than reported by $18.1 million and $7.0 million,
    respectively, compared to 1Q18, and (ii) 1Q19 revenue and Adjusted
    EBITDA would have been higher than reported by $0.1 million and $0.3
    million compared to 4Q18.

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

  • 1Q19 revenue and Adjusted EBITDA declined 0.7% and grew 13.7%,
    respectively, compared to 1Q18.
  • 1Q19 revenue and Adjusted EBITDA declined 1.0% and grew 4.5%,
    respectively, compared to 4Q18.

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

Conference Call Information

GTT will hold a conference call on Wednesday, May 8, 2019 at 10 a.m.
Eastern Time. To participate in the live conference call, interested
parties may dial +1-844-875-6916 or +1-412-317-6714 and ask for the GTT
call, or view the webcast at GTT’s
website
.

A telephonic replay of the conference call will be available for one
week and may be accessed by calling +1-877-344-7529 or +1-412-317-0088
and using the passcode 10130620. The webcast will be archived in the
investor relations section of GTT’s
website
.

Forward-Looking Statements

This release contains forward-looking statements that are made pursuant
to the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, which reflect the current view of GTT Communications,
Inc., with respect to its plans, objectives and strategies or future
events or future financial performance. From time to time, GTT also
provides forward-looking statements in other materials GTT releases to
the public or files with the U.S. Securities and Exchange Commission
(“SEC”), as well as oral forward-looking statements. You should consult
any further disclosures on related subjects in our annual reports on
Form 10-K, our quarterly reports on Form 10-Q and our current reports on
Form 8-K filed with the SEC. Such forward-looking statements are and
will be subject to many risks, uncertainties and factors relating to our
operations and the business environment that may cause our actual
results to be materially different from any future results, express or
implied, by such forward-looking statements. Factors that could cause
GTT’s actual results to differ materially from these forward-looking
statements include, but are not limited to, the following: our ability
to obtain capital; our ability to develop and market new products and
services that meet customer demands and generate acceptable margins; our
reliance on several large customers; our ability to negotiate and enter
into acceptable contract terms with our suppliers; our ability to
attract and retain qualified management and other personnel; competition
in the industry in which we do business; failure of the third-party
communications networks on which we depend; legislation or regulatory
environments, requirements or changes adversely affecting the businesses
in which we are engaged; our ability to maintain our databases,
management systems and other intellectual property; our ability to
maintain adequate liquidity and produce sufficient cash flow to fund our
capital expenditures and debt service; technological developments and
changes in the industry; our ability to complete acquisitions or
divestitures and to integrate any business or operation acquired; our
ability to overcome significant operating losses; and general economic
conditions. Additional information concerning these and other important
factors can be found under the heading “Risk Factors” in GTT’s annual
and quarterly reports filed with the SEC including, but not limited to,
its Annual Report on Form 10-K. Statements in this release should be
evaluated in light of these important factors.

About GTT

GTT is redefining global communications to serve a cloud-based future,
connecting people across organizations, around the world and to every
application in the cloud. Our clients benefit from an outstanding
service experience built on our core values of simplicity, speed and
agility. A Fortune Future 50 company, GTT owns and operates a global
Tier 1 internet network and provides a comprehensive suite of cloud
networking services to any location in the world. For more information
on GTT, please visit www.gtt.net.

GTT Communications, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 
(Amounts in millions, except per share data) Three Months Ended March 31
2019   2018
Revenue:
Telecommunications services $ 450.2 $ 260.7
 
Operating expenses:
Cost of telecommunications services 241.8 141.5
Selling, general and administrative expenses 104.1 68.3
Severance, restructuring and other exit costs 2.8 1.9
Depreciation and amortization 62.8   39.8  
 
Total operating expenses 411.5   251.5  
 
Operating income 38.7   9.2  
 
Other expenses:
Interest expense, net (48.2 ) (20.9 )
Other expenses, net (16.0 ) (17.4 )
 
Total other expenses (64.2 ) (38.3 )
 
Loss before income taxes (25.5 ) (29.1 )
 
Provision for income taxes 1.8   1.6  
 
Net loss $ (27.3 ) $ (30.7 )
 
Loss per share:
Basic $ (0.49 ) $ (0.69 )
Diluted $ (0.49 ) $ (0.69 )
 
Weighted average shares:
Basic 55,839,212 44,632,365
Diluted 55,839,212 44,632,365

GTT Communications, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in millions, except per share data)

   
March 31, 2019 December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 50.7 $ 55.3
Accounts receivable, net of allowances 226.4 174.5
Prepaid and other current assets 48.7   49.2
Total current assets 325.8 279.0
Property and equipment, net 1,828.0 1,870.4
Operating lease right of use assets 419.9
Intangible assets, net 526.5 552.4
Goodwill 1,727.0 1,738.0
Other long-term assets 83.9   97.8
Total assets $ 4,911.1   $ 4,537.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued expenses and other current liabilities $ 340.5 $ 316.0
Current portion of operating lease liabilities 81.0
Current portion of finance lease liabilities 1.7 6.7
Current portion of long-term debt 36.8 39.9
Current portion of deferred revenue 87.4   84.2
Total current liabilities 547.4 446.8
Operating lease liabilities, long-term portion 331.2
Finance lease liabilities, long-term portion 36.0 35.1
Long-term debt 3,152.2 3,151.6
Deferred revenue, long-term portion 280.8 287.0
Deferred tax liabilities 172.7 176.2
Other long-term liabilities 30.7   26.2
Total liabilities 4,551.0   4,122.9
Commitments and contingencies
Stockholders’ equity:
Total stockholders’ equity 360.1   414.7
Total liabilities and stockholders’ equity $ 4,911.1   $ 4,537.6

GTT Communications, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

 
Three Months Ended March 31
2019   2018
Cash flows from operating activities:
Net loss $ (27.3 ) $ (30.7 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 62.8 39.8
Share-based compensation 8.7 5.9
Debt discount amortization 1.9 (0.2 )
Amortization of debt issuance costs 1.2 1.2
Change in fair value of derivative financial liability 15.3 17.2
Excess tax benefit and deferred income taxes 1.3 0.4
Change in fair value of acquisition earn-out 0.1
Deferred revenue 2.6 (5.1 )
Changes in operating assets and liabilities, net of acquisitions (50.4 ) (16.4 )
Net cash provided by operating activities 16.1   12.2  
 
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (0.5 ) (33.6 )
Purchases of property and equipment (32.1 ) (13.2 )
Net cash used in investing activities (32.6 ) (46.8 )
 
Cash flows from financing activities:
Proceeds from debt 26.0
Repayment of debt (11.6 ) (1.8 )
Payment of holdbacks (3.3 ) (5.7 )
Repayment of finance leases (0.6 ) (0.7 )
Proceeds from issuance of common stock under ESPP 0.1 0.1
Tax withholding related to the vesting of restricted stock (0.3 ) (5.2 )
Exercise of stock options 0.4   0.6  
Net cash provided by financing activities 10.7 (12.7 )
Effect of exchange rate changes on cash 1.2   0.5  
Net decrease in cash, cash equivalents and restricted cash (4.6 ) (46.8 )
Cash, cash equivalents and restricted cash at beginning of period 55.3   101.2  
Cash, cash equivalents and restricted cash at end of period $ 50.7   $ 54.4  

ANNEX A: Non-GAAP Financial Information

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

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

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

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

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

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

The following is a reconciliation of Adjusted EBITDA from Net Loss
(amounts in millions):

  Three Months Ended March 31
2019   2018
Adjusted EBITDA
Net loss $ (27.3 ) $ (30.7 )
Provision for income taxes 1.8 1.6
Interest and other expenses, net 64.2 38.3
Depreciation and amortization 62.8 39.8
Severance, restructuring and other exit costs 2.8 1.9
Transaction and integration costs 9.2 5.9
Share-based compensation 8.7   5.9  
Adjusted EBITDA $ 122.2   $ 62.7  

Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow

Adjusted Free Cash Flow is defined as net cash provided by operating
activities less purchases of property and equipment, adjusted to exclude
cash paid for severance, restructuring and other exit costs, and
acquisition-related transaction and integration costs. Adjusted
Unlevered Free Cash Flow is defined as Adjusted Free Cash Flow before
interest. Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow
are not measurements of our financial performance under GAAP and should
not be considered in isolation, or as alternatives to net cash flows
provided by operating activities, total net cash flows, or any other
performance measure derived in accordance with GAAP.

We use Adjusted Free Cash Flow as a measure to evaluate cash generated
through normal operating activities. We believe that the presentation of
Adjusted Free Cash Flow is relevant and useful to investors because it
provides a measure of cash available to pay the principal on our debt
and pursue acquisitions of businesses or other strategic investments or
uses of capital. We use Adjusted Unlevered Free Cash Flow as a measure
to evaluate cash generated through normal operating activities prior to
debt service as our debt capital structure will change over time. We
believe that the presentation of Adjusted Unlevered Free Cash Flow is
relevant and useful for investors because it allows investors to view
results in a manner similar to the method used by management and makes
it easier to compare our results with the results of other companies
that have different financing and capital structures.

The following is a reconciliation of Adjusted Free Cash Flow and
Adjusted Unlevered Free Cash Flow from Cash provided by operating
activities (amounts in millions):

  Three Months Ended March 31
2019   2018
Net cash provided by operating activities $ 16.1 $ 12.2
Purchases of property and equipment (32.1 ) (13.2 )
Severance, restructuring and other exit costs 8.4 4.7
Transaction and integration costs 9.7   3.9  
Adjusted Free Cash Flow 2.1 7.6
Cash paid for interest 32.0   31.3  
Adjusted Unlevered Free Cash Flow $ 34.1   $ 38.9  

Constant Currency

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

Pro Forma Financial Information

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

The following unaudited pro forma financial information and related
notes present the historical information of GTT as if the acquisition of
Interoute had occurred on the first day of the period presented. The pro
forma adjustments included herein reflect final accounting policy
convergence adjustments that may differ from the pro forma financial
information presented in any Form 8-K/As previously filed with the SEC.

For the three months ended March 31, 2019, compared with the three
months ended March 31, 2018, the following unaudited financial
information presents historical GTT information as if the acquisition of
Interoute had occurred on the first day of the period presented, as
reported and in constant currency:

($ in millions)   Three Months Ended March 31
2019   2018
Revenue
GTT as reported $ 450.2 $ 260.7
Interoute, net of pro forma adjustments (1)   210.7  
Pro Forma Revenue $ 450.2   $ 471.4  
Pro Forma % Growth (4.5

)%

Pro Forma % Growth (Constant Currency) (0.7 )%
 
Adjusted EBITDA
GTT as reported $ 122.2 $ 62.7
Interoute, net of pro forma adjustments (2)   50.9  
Pro Forma Adjusted EBITDA $ 122.2   $ 113.6  
Pro Forma Adjusted EBITDA Margin % 27.2 % 24.1 %
Pro Forma % Growth 7.6 %
Pro Forma % Growth (Constant Currency) 13.7 %
(1) Pro forma adjustments include (i) revenue recognized
by Interoute from GTT, net of revenue recognized by GTT from
Interoute prior to the close date; (ii) adjustments in deferred
revenue from Interoute and (iii) adjustments related to converting
operating results from International Financial Reporting Standard
(“IFRS”) to U.S. GAAP.
(2) Pro forma adjustments include (i) net adjustments in
deferred revenue and deferred costs from Interoute and (ii)
adjustments related to converting operating results from IFRS to
U.S. GAAP.

Contacts

GTT Media Inquiries:
Marion
Janic, RooneyPartners
+1-212-223-4017
mjanic@rooneyco.com

Bob Cavosi, RooneyPartners
+1-646-638-9891
rcavosi@rooneyco.com

GTT Investor Relations:
Jody
Burfening/Carolyn Capaccio, LHA
+1-212-838-3777
ccapaccio@lhai.com

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