GTT Communications, Inc.
Q3 2019 Earnings Call Transcript

Published: 12 Nov 2019

[Operator:]

Good morning, and welcome to the GTT Communications Third Quarter 2019 Results Conference Call. All participants will be in listen-only mode.[Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.I would now like to turn the conference over to Chris McKee, General Counsel and Executive Vice President of Corporate Development. Please go ahead.

[Chris McKee:]

Thank you, and good morning. I'm joined today by Rick Calder, GTT's President and CEO; Dan Frazier, GTT's, Principle Accounting Officer and Interim Chief Financial Officer; and Brian Thompson, GTT's Executive Chairman of the Board.Today's discussion is being made available via webcast through the company's website, www.gtt.net. A telephonic replay of this call will be available for one week. Dial-in information for the replay 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 U.S. securities laws, including revenue and margin expectations, projections and references to trends in the industry and GTT's business. We caution you that such statement reflects our best judgment as of today, November 12, based on factors that are currently known to us, and that 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. GTT disclaims any obligation to update or revise these forward-looking statements to reflect future events or circumstances. During the call, we'll also discuss non-GAAP financial measures, including certain pro forma information, which were not prepared in accordance with GAAP. A reconciliation of our GAAP and non-GAAP results 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 Calder. Rick?

[Richard Calder:]

Thank you, Chris, and good morning, everyone. The third quarter remain challenging for us as we did not yet return to organic rep-driven growth. While we are disappointed in the sequential and year-over-year declines in revenue and EBITDA, we see promising trends underneath the headline numbers. As Dan will discuss in more detail a much smaller portion of the declines came from negative net installs with the majority of the declines from a decrease in non-cash deferred revenue, non-recurring revenue and continued currency headwinds.Our billing credits also remain elevated in 3Q though we expect them to decline and 4Q 2019 and return to normal levels in first quarter 2020. We have made good progress in resolving and reducing our outstanding bill disputes, which led to a significant increase in collections and reduction in our accounts for receivable balances.Overall we generate free cash flow of $20 million in third quarter, up from negative $16 million in first quarter and negative $4 million in second quarter. Note that due to calendar effects, third quarter 2019 includes a semi-annual bond coupon payment that was not present in the first half of 2019. Accordingly, the improvements in underlying cash flow generation we’ve showed this quarter is better conveyed by our non-GAAP metric of adjusted unlevered free cash flow, which was $83 million in 3Q 2019, up from $34 million in 1Q and $43 million in 2Q.We remain focused on returning to and then accelerating organic rep-driven growth. As I noted, a smaller portion of our declines came from negative net installs. As we have seen improving trends in net installs through the months of third quarter 2019 and into October, where we had positive net installs in both Americas division and Europe division for the first time this year. We have increased the size of our sales force with 382 reps at the end of 3Q 2019, up from 320 at the end of 2Q. We expect to finish 2019 with over 400 reps on the way to 500 or more reps by the end of 2020.We've increased the number of full time recruiters in the Americas and Europe to support these goals. With a significant increase in new reps, we saw the decrease in productivity per rep that we had forecasted last quarter. As we increase the scope and scale of our sales force to cover our existing client base and drive new client acquisition. We're investing in sales enablement, training, churn analytics and ongoing rep education to ensure our newly hired reps achieve targeted levels of productivity within their first 6 to 12 months on the job.In particular, on rep productivity, we are seeing great traction and performance with our software defined wide area networking or SD-WAN product, as our industry moves through the early growth phase of a generational shift from legacy wide area networking technologies to next generation SD-WAN services.GTT is uniquely positioned to benefit and win from the shift to internet based SD-WAN services in the following ways. First, with our top ranked Tier 1 global internet network, we provide superior performance and throughput for client traffic between client locations to any public internet site and to any private cloud service provider.Second, we provide multi-level security and threat management services with SD-WAN, either premise based, network based or both to secure all client traffic. Third, we provide the deepest selection of redundant last mile access options using all available technologies including copper, coaxial cable, fiber and wireless for a unique fit for purpose and cost effective SD-WAN option for each client location.Fourth, we have decades of experience in the life cycle of managed services, with hundreds of thousands of actively managed services delivered to any location in the world. We are particularly excited about the productivity improvement potential from this growing shift to SD-WAN, as even today almost 40% of our total new sales backlog comes from SD-WAN and related internet services supporting SD-WAN deployments. We expect this percentage to increase and drive rep productivity improvements over time.Moreover, we have made good progress on our pace of installation, which has supported our improving net install trend over the past three months. We are continuing to refine our install processes to make them more efficient and effective for our clients. As SD-WAN is a newer service offering for clients, we have seen delays in deployment of our early SD-WAN wins. We have made significant progress in simplifying the initial design and deployment approach for new SD-WAN sales to speed initial site installation for clients.Post installation, we provide clients through our Ether Vision portal, the ability to view their network performance at an application-by-application level, and the agility to change their SD-WAN application routing preferences and the security policies, both for the overall network and at any specific client site.As our SD-WAN and related internet sales continue to grow, we expect to see increases in sales productivity, and continued increases in our pace of installations.I would like to take this opportunity to provide some additional detail to help understand the underlying trends we are seeing in the business, which make us optimistic we were closer today that at any point in the past six quarters to realizing sustained rep-driven growth. Much of the decline in recurring cash revenue seen in third quarter was attributable to discrete churn events, including from service losses that were noticed last year that were finally completed at the same time in early 3Q 2019.Our churn rate year-to-date is approximately 1.6%, though we increased to 1.8% overall in 3Q 2019 with these tournaments. Through September and October, our churn rate has normalized back to approximately 1.5% and more importantly, our remaining churn backlog is at the lowest level all year. The disappointing churn performance in 3Q drove our negative net installs in total in 3Q 2019, though the positive momentum we saw on August and September has continued through to October when we achieved our first net install positive month in both Americas division and Europe division for the first time this year.While one month is not indicative of a trend, we are also very encouraged by the many operational improvements and leadership hires that Ernie Ortega has made since joining GTT in June, as Division President Americas. Ernie joined GTT with a tremendous track record of success serving in similar roles at XO, Cogen and Colt.We're already seeing tangible improvements in the underlying metrics for the Americas division. Ernie, together with Jesper Aagaard, our Division President Europe have assembled the talent and resources to return GTT to organic growth, and then accelerate our growth as we continue to expand our sales force.Strategically, we are focused on delivering on our purpose of helping large and multinational clients connect their people everywhere in the world and to any application in the cloud. We are focused on a set of products and managed services that are in demand by these clients, leading with SD-WAN and including internet, Ethernet transport, and IP voice, particularly ship trucking. All of these services are delivered over our top ranked Tier 1 global internet network.On our last earnings call, we announced that we engaged an advisor to explore divesting non-strategic and non-core assets that we have acquired over the past several years. Subsequently we received significant inbound expressions of interest with respect to our network infrastructure assets, including our highly differentiated terrestrial pan-European fiber assets, subsea transatlantic fiber, and data centers, which we acquired as part of the Interoute and Hibernia acquisitions.We have amassed some of the broadest and most unique infrastructure assets in the industry. We are evaluating a divestiture of these non-strategic infrastructure assets. And we believe a potential sale will allow us to dramatically deleverage GTT’s balance sheet and reduce GTT’s capital expenditures as a percent of revenue from 5% to 6% to approximately 3%, which is consistent with our historic CapEx light business model.Moreover, divesting these non-strategic assets, in no way alters the execution of what has always been our core strategy of providing cloud networking services to large and multinational clients, and extending secure network connectivity to any location in the world into every application in the cloud. We would retain our global operating platform and Tier 1 global internet network to drive significant future organic growth combined with tuck-in acquisitions within our stated long-term leverage parameters. While we cannot offer more specifics at this time on the progress of these initiatives, we are working aggressively on this effort.As noted on our last call, we expect to close the KPN International acquisition by year end, and we have completed almost all of our pre-close integration planning. With respect to our search for a permanent Chief Financial Officer, we have retained Russell Reynolds, a leading national executive recruiting firm. Dan Frazier has served ably as GTT’s Principal Accounting Officer and Controller for the past five and half years and currently serves as our Interim CFO.Now, let me turn the call over to Dan to review the financials in more detail. Dan?

[Dan Fraser:]

Thank you, Rick, and good morning, everyone. Third quarter revenue decreased 6% year-over-year and decreased 3% sequentially to $420 million. Exchange rates had a negative impact on our reported results, as approximately 50% of our revenue is denominated in non-U.S. dollar currencies. In constant currency, revenue decreased 4% year-over-year, and 2% sequentially. There is no pro forma comparison this quarter, as both year-over-year and sequential comparisons fully include all acquisitions.The year-over-year, revenue decline was driven by several factors including currency which represented over $40 million of annualized revenue reduction compared to last year, the increase in revenue credits issued or accrued for which represents approximately $37 million of annualized revenue compared to last year.Negative net installs which represents approximately $32 million of annualized revenue reduction compared to last year, approximately $4 million of annualized revenue reduction from the run-off of non-cash deferred revenue, and approximately $5 million of annualized revenue reduction from non-recurring and other revenue.The sequential revenue decline was driven by several factors including, a $4 million reduction from currency headwinds, a $4 million reduction in non-recurring revenue, a $3 million reduction in the run-off of non-cash deferred revenue, and the remaining $3 million from negative net installs. The $3 million decline in revenue attributable to negative net installs compares to $4 million in 2Q 2019.The decline of non-cash deferred revenue has been significant over the past 12 months. We expect this decline to be much more gradual over the next several years. The deferred revenue footnote in our Form 10-Q provides the outlook of this component of revenue. In addition, billing credits remained elevated in 3Q 2019 at similar levels to 2Q 2019 and these effectively flow through to EBITDA at 100% margin.We have now resolved the majority of disputed amounts, which include missed disconnects, double billing or integration input errors, and expect to start to return to a more normal level of billing credits in 4Q 2019, with further improvements through 1Q 2020. Over the course of 3Q, we’ve reduced the number of outstanding billing disputes by 47% and we have invested to drive this outcome by adding 40 dedicated FTEs to our billings and collections teams.Third quarter adjusted EBITDA, decreased 6% year-over-year and decreased 9% sequentially to $102 million. In constant currency, adjusted EBITDA decreased 3% year-over-year and 8% sequentially. Excluding the impact of the run-off in non-cash deferred revenue, the adjusted EBITDA decline would have been 6% sequentially. Again, there is no pro forma comparison this quarter, as both year-over-year and sequential comparisons fully include all acquisitions.Adjusted EBITDA margin of 24.4% increased 20 basis points year-over-year and decreased by 140 basis points sequentially, as declines in cost of revenue and SG&A did not keep pace with the declines in revenue. Part of this reflects the investments we are making to drive organic growth in future periods.In 4Q and beyond, we also expect to see margins benefit from a reduction in revenue credits and the realization of cost savings actions taken over the course of the third quarter. Based on measures already taken we expect to see approximately $5 million of annualized other SG&A savings to show up in 4Q. We may choose to invest some of these cost efficiencies back into the business to fund the hiring of additional sales reps or other rep-driven growth related initiatives.During the quarter, we incurred $2 million of transaction and integration expenses, which are included in our reported SG&A, but excluded, from our adjusted EBITDA. These are related to our pre-close work on KPN acquisition and small amounts related to our previous acquisitions. We also incurred $2 million of severance, restructuring and other exit costs primarily related to the divisional alignment completed in the third quarter to move from four divisions to two divisions.From a cash standpoint, we paid out approximately $8 million of combined exit and integration cost in the quarter, down from approximately $14 million last quarter. At quarter end, we had approximately $16 million in cash remaining to be paid out related to previously expensed exit costs, almost all of which will be paid through the end of 2020 and we expect future exit and integration related expenses to be minimum.Third quarter net loss was $26 million, compared to a net loss of $23 million last year, and a net loss of $33 million last quarter. The net losses in each period were driven mainly by non-recurring costs, including exit and integration costs. Third quarter capital expenditures were $26 million, or 6.2% of revenue compared to $29 million last year and $19 million last quarter. The third quarter rate was slightly higher than the previous quarter, due to the timing of cash payments. Year-to-date our CapEx is 5.9% of revenue, and we expect our CapEx to be between 5% and 6% of revenue, driven mainly by success based investments.Third quarter ending cash balance was $40 million, up from $34 million last quarter, and net cash provided by operating activities was $46 million, up from $15 million last quarter. Free cash flow, which is defined as net cash provided by operating activities less CapEx was a source of cash of $20 million in the third quarter, compared to a use of cash of $4 million last quarter.During the quarter, we made organizational changes to address our accounts receivable and made considerable progress in making collections and reducing our accounts receivable balances in Europe. During the three months ended September 30th, we collected over $40 million in cash from past due accounts receivable.At quarter-end approximately half of the arrears were collected up from only 30% at the end of the second quarter. We expect to further normalize our collections in the fourth quarter. We continue to expect cash flow to increase sequentially in the remainder of the year as we normalize working capital and finish paying out exit and integration costs, positioning GTT to deliver free cash flow in 2020 of $175 million to $200 million, as discussed on our last call.Our debt balance was approximately $3.2 billion at the end of the third quarter, including $2.6 billion of senior security term loans, maturing in May 2025, of which roughly one third is euro denominated, and $575 million of senior unsecured notes maturing in December 2024. Our revolver remains drawn at $85 million consistent with the second quarter.Our total senior net leverage ratio in the third quarter increased to approximately 5.4 times on a trailing 12-month basis, including acquisitions and unrealized cost synergies in prior periods. We remain committed to reducing leverage over the next few years to our long-term leverage target of 4 times or less through growth in adjusted EBITDA, cash flow generation, potential non-strategic asset sales, and delevering acquisitions.This concludes our prepared remarks. We will now open up the call for questions. Operator?

[Operator:]

We will now begin the question and answer session. [Operator Instructions] And our first question comes from Jon Charbonneau of Cowen and Company. Please go ahead.

[Jon Charbonneau:]

Great. Thanks for taking the questions. Is it reasonable to expect the positive net install seen in October continue through November and December, and then into 2020? And then, I may have missed it, but what was the level of bookings MRR backlog currently? Thank you.

[Richard Calder:]

Thanks for the questions, Jon. Absolutely, I mean, our focus is of course on driving organic growth, which is in attend is based on net install. So we were very encouraged about the progress we're making that the overall company was positive for the first time in October. And while we don't forecast or gave guidance to future quarters, we're encouraged by that trend. And it is the fundamental focus of everyone in the firm to return ourselves to organic growth and as we continue to drive and increasing scope and scale of the sales force that we see that trend continuing into fourth quarter and then into 2020.So that is our objective. And we're encouraged by the progress we've made. We did have a onetime uptick in churn, we've seen that moderate back down through the months of August, September, October as well. So we think while the specific metrics are there to continue to move us in the right direction on the net install component of growth.To your question, we made some really nice progress on the install picking up steam on install. So actually, our backlog decreased from about $10 million to around $9 million in new install backlog. We see that as a positive trend, we see the ability to continue to grow that backlog with new sales though, as we've noted in previous quarters, one of the challenges we had over the past six months was getting our install backlog moving at a faster pace. So we saw some nice progress in that into the third quarter.

[Jon Charbonneau:]

Great, thank you.

[Operator:]

Our next question comes from James Breen of William Blair. Please go ahead.

[James Breen:]

Thanks for taking the question. So a couple, I think Dan had talked about the impact of the credits on the EBITDA. Can you sort of quantify in absolute dollars, the impact this quarter on the EBITDA sort of above and beyond what you view as normalized levels? And then just from a balance sheet perspective, is there any need to pay down the revolver at all at this point in time, you can wait to generate more capital next year. And just -- what gives you the confidence in terms of moving parts to get to that $175 million to $200 million in cash flow? Thanks.

[Dan Fraser:]

Sure. Thanks, James, it's Dan. With respect to the revenue credit so the absolute dollars, it was up roughly $800,000 compared to prior quarter. So very consistent with what we had said last call that that we expected that elevated credits slightly higher, but we expect that to start coming back down in the fourth quarter and into the first quarter of 2020.With respect to the revolver and paying that down, we are committed to paying it down to a level where the covenant no longer applies by the end of the year. And my teams in the accounts receivable area are very focused on cash collections to allow us to do that as well as I would say responsible spending in the fourth quarter with some SG&A savings initiatives.And then finally, in terms of the bullishness on the $175 million to $200 million cash flow targets, we still feel very confident in those -- in that guidance. The -- we do expect the net working capital to continue normalize on the backs of accounts receivable improvement. And then also just finishing off paying the exit and transition costs.And then finally, as I mentioned, and we have mentioned in a prior call the SG&A savings initiative will certainly help generate more positive net working capital, and should lead us into that guidance.

[James Breen:]

And then I may have missed it, but can you just talk about what the total number of sales people was at the end of the quarter? And then sort of what's your goal there to get to over the next 8 to 12 months?

[Richard Calder:]

Sure. We finished the quarter Jim at 382. For third quarter, we expect to be over 400 by the end of 2019 with the objective of growing to over 500 by the end of 2020. And as we noted on the last call I reiterate here, this is across all different levels within the organization, inside sales representatives, teams of account managers and account representatives, a select group of higher end account directors, as well. And so we have had a really good pace and progress on growing the quota-bearing sales force across both Europe division and Americas division. And we see that as one of the key drivers of accelerating our growth into 2020.

[James Breen:]

And any color on sales force productivity. Obviously you've added some, so it probably impacts productivity, but how has that been progressing with the [Technical Difficulty]?

[Richard Calder:]

Yes, it did. The overall productivity as we expected did decline quarter-over-quarter. We did see the magnitude of our sales grow, but the overall productivity per rep to decline as expected and we've made some big investments in sales training, on-boarding all of the efforts. And we've seen good results from the cohort analysis of the folks that have come on early. We've also seen some really nice progress from our sales development rep initiative, which is a marketing initiative to bring on non-quarter bearing.We expect to be over a 100 of those by the end of this year, as well as our farm system develop new inside sales reps and we've seen some very nice progress in the promotion ranks of those into inside sales reps and into account representatives, and overtime into account manager. So we see both of those initiatives playing out and we're encouraged by the ability to both grow and then continue to grow productivity overtime.

[James Breen:]

Thanks.

[Operator:]

Our next question comes from Frank Louthan of Raymond James. Please go ahead.

[Frank Louthan:]

Great, thank you. Can you give us some metrics around your fiber asset, that you're potentially for sales sort of on the terrestrial side maybe a number of conduits and average fiber count and what the mix is into inner city and long haul? And then sort of the routes in fiber counting distance on the undersea route as well, so we can get a get a better idea of what's actually in that asset.

[Richard Calder:]

Well, we clearly acquired all of these assets to give you a sense of it from both the Interoute and the Hibernia acquisitions. They came along with those acquisitions which were predominantly about buying clients and revenue streams, which are or were the strategic part of our business, whether it's wide area networking, Ethernet transport services, Internet services, and the like. We have integrated those into our business. They are some of the I think most unique assets in the world in terms of the pan-European nature of the terrestrial fiber assets and related data center and co-location centers, as well as the very unique transatlantic fiber assets that we do own.They -- as we noted in our remarks, they are not core to our business or core to our strategy of providing cloud networking services to large and multinational clients. If you recall, historically, we had never owned any underlying fiber or data center infrastructure historically, with the exception of the last two or three years. And so as a function of it, being able to separate it we got significant unsolicited inbound indications of interest about those specific assets.We've been pretty public about what they are in terms of our public disclosure. So rather than doing an advertisement today about what they are specifically, they also were the majority of our increase in PP&E. So you can see that as we have increased our net fixed assets in our business, they're sizable. So we believe that they are sizable in scope and size as we've said in our prepared remarks that they -- we think are actually more valuable at this stage than when we originally acquire them. So we think it's a relatively straightforward transaction to separate those underlying layer one assets from our business and we think we've -- we're working very diligently on that process at this stage.

[Frank Louthan:]

But you can’t give us average fiber counter those kind of things or I just have to dig this in filings, I guess, but do you have that handy?

[Richard Calder:]

I don't have it handy right now. But all that information is public in terms of what we have actually -- what we have as an asset within GTT.

[Frank Louthan:]

Okay. And then on -- I think you mentioned the use of the target for the 500 people in sales that's for the entire sales organization. What's your current count of quota-bearing heads right now? And as you get to your next couple of the 400 and 500 people, what will be the mix of quota-bearing heads within those numbers going forward. How many actual quota-bearing heads are you going to take on?

[Richard Calder:]

Well, that’s quite identical to Jim had asked a second ago, the quota-bearing headcount, as of the end of third quarter was 382 and that's across the four major classes of quota-bearing inside sales representatives, account representatives, account managers, and account directors. So of our roughly 3,000 headcount.So our goal is to grow that number to at least 400 by the end of the year we're well on pace to do that and to 500 by the end of 2020, while retaining overall headcount roughly the same, I think we'll see some overall increase in the overall headcount of the organization. But we see the opportunity to continue to grow quota-bearing as a percentage of the overall business within GTT.And as we said in previous calls, we simply believe for the scope and scale of our business today that our sales force is too small that we boast to cover adequately our existing account base and to drive as importantly, new client acquisition, particularly with the advent of software defined wide area networking, we think it's probably the most important initiative in front of us, while we maintain productivity and churn rates at our historic levels.

[Frank Louthan:]

Okay, so the 500 will be actual quota-bearing heads.

[Richard Calder:]

Right. Within the 3,000.

[Frank Louthan:]

Right, can you give us some color on what are some of the things that, Ernie, is doing differently that on the hiring of productivity side that are improving that helping you to have better retention and productivity from the sales force? What are some of the tactics he's using that that he's doing differently?

[Richard Calder:]

Right, well, one of the things we're really excited about Ernie joining us is the fact that he has done this before at three different firms. So he joined us with deep experience from firms that had similar scope and scale, similar sales force sizes, whether it was at XO, Cogent or Colt. And effectively as he said, as he looked at our business and as we were recruiting him to GTT he says you have one of the best networks in assets and sales propositions that I've ever seen in the industry to be able to sell. I have a proven playbook and formula that I can bring to GTT and implement it.And one of the things he has done is bring a set of key lieutenants in with him who understand this playbook. Everything from ensuring that we have deep funnel management and understanding of sales funnel prospecting, account reviews, account management, client experience initiatives, he has really re-architect it in a very short period of time over the past three or four months the whole go to market approach for the Americas division with a set of lieutenants that he has recruited in who have done this before with him.And he has shown remarkable results in the first several months to drive Americas division which we disclosed the last quarter, which was the one that was most negative to positive in a very short period of time. So we're encouraged it's early as I said in the prepared remarks, we're only in -- one month is not indicative of a trend, but we feel really good about where we stand moving forward.

[Frank Louthan:]

Okay, great. Thank you very much.

[Operator:]

Our next question comes from Brandon Nispel of KeyBanc Capital Markets. Please go ahead.

[Brandon Nispel:]

Okay, great. Thanks for taking the questions. Rick, question for you, you mentioned the financial profile of the company changing with some of these asset sales, specifically on the CapEx side. So if you could talk more about maybe the gross margin side as you become more CapEx light?So maybe for Dan, do you guys expect the asset sales that you're targeting to get to your targeted leverage profile and then maybe just an update on the timeline to get there? Thanks.

[Richard Calder:]

Sure, on the financial profile, I mean, our historic business has always been a CapEx light business. We own in terms of -- particularly in terms of our Tier 1 backbone, some of the nicest assets in the industry. We had never owned historically, the hard infrastructure assets of fiber and data centers, which are the most capital intensive. And so we had seen our capital intensity grow from roughly 3%, which was our historic average to all the way up to seven I think, as we say today it’s probably about 5% to 6% moving forward, principally driven by the investment in Optronics [ph] and fiber and data center investment.And so as we sell those assets, we would as we potentially sell those assets we would see our capital intensity go down back to our historic average of around 3%. So, we would see gross margins decline somewhat, although, we have seen simply because we would be leaser of the underlying layer one capacity, which means part of that is now run on our own infrastructure.That said, the significant portion of the cost is still leased both in carrier neutral data centers as well as other alternative fiber networks that we lease our long haul capacity on. We have always leased our last miles and using all available access technologies, as we described, whether they be copper coax, fiber or wireless, and we would continue to do that.So we would see -- we would expect to see some small reduction in overall gross margin, as we think about that part of our business being higher margin. That said, we would expect the cash flow characteristics of the business to increase substantially given lower CapEx and of course, it was all that Dan comment on the debt, but we see this as being a significantly de-leveraging transaction so that we would see significantly lower interest expense as we delever our balance sheet at a much faster way back to our long-term target of 4 times or less.

[Dan Fraser:]

Sure. And Brandon, from the perspective of the leverage goal, as stated in the prepared remarks, our goal is to get to 4 times or less, and certainly the illustrative examples that we're seeing, as we pull this together would get us into that range. And in terms of timing, I think a lot of that is being worked on and aggressively being planned for now, but I think it'd be fair to say that it’s our intent to have this done in 2020.

[Brandon Nispel:]

And if I could just follow up. I don't think I heard anything about KPN, is that acquisition closed and maybe could you help us understand what you expect it to contribute to revenue and EBITDA in the fourth quarter? Thanks.

[Richard Calder:]

Sure. We had said in our prepared remarks, as we said, last quarter, we expect to close it this quarter, and we're very much on that schedule. We're excited about that acquisition we feel it is exactly in the sweet spot of GTT of providing networking services, we actually add a series of clients, we add scope and scale to our Tier 1 internet backbone by consolidating another Tier 1 and we had a very large client in KPN who retains their clients in the Netherlands, but will use us as their international scope partner to extend, diverse, secure connectivity on behalf of their clients everywhere.I think as we said last quarter, we expect it to deliver as we have for our smaller tuck-in acquisitions better than 5 times adjusted EBITDA on roughly a €50 million purchase price for the asset. So we see that coming together and being part of our financials in the fourth quarter.

[Operator:]

This concludes our question-and-answer session, I would like to turn the conference back over to Mr. Calder for any closing remarks.

[Richard Calder:]

All right, I'm going to turn the call over to our Executive Chairman, Brian Thompson.

[Brian Thompson:]

Thanks, Rick. I just had some brief thoughts and comments I wanted to share with you all. Unfortunately, having had 50 years of history in the industry, I've seen lots of things come and go, and I hope I won't dwell on them too long. But it became clear to me over the past 10 years that the old mantra of requiring your own infrastructure to be competitive in this industry is changing radically. And it started with the advent of microwave allowing Bill McGowan, an MCI to attack AT&T and by using new technologies and the infrastructure.And it was also felt that you had to have that infrastructural capability that differentiated you from the incumbents so you could be disruptive in the marketplace that went on through microwave. It then went on through the digital transformation of -- and fiber optics that brought us both new technology to go into the backbones and economics that were uniquely different. And I do recall major changes in the investment community going from the old utility of AT&T into the need to put a lot of money into the ground in fiber optics during the 90s and on into the early parts of 2000.In fact, I remember at one time when new analysts were we're analyzing companies on the basis of capital invested in the ground, rather than revenue streams that were coming in. As we got into the business, I felt that we started this company with a notion as Rick has underscored today of being asset light and the reason for that was that the newer technologies, whether it was wireless and the use of spectrum and smart devices, but more importantly, in the infrastructure itself of the service requirements had gotten to the point where technology was driving unique capabilities to not own underlying assets, but to direct those by leasing and putting together networks.That started to show its face back in the early 2000s. And then we went through the dot com bust and a whole bunch of other things from the standpoint of investment, where people were trying to sort out where they should be going. It was during that that we put together this company.And the fundamental premise was, if you can use technology in a platform that existed in this company, when we started it, to really interface with your customers and give them a client experience that you could take off their shoulders, the burden of providing that network that no matter who own the network, whether it was an incumbent or a new fiber company or a new wireless company, it puts you into a position where the client really didn't care as long as they were getting their service. This company was founded on that premise.And when we started talking about asset light, we got beat about the head and shoulders in the marketplace by people saying, well, you can't get a reasonable return if you are asset light. The fact of the matter is that we proved over the first 35 to 40 acquisitions that we did, that we could be asset light, and we could give a client experience that was second to none. And we felt that we had to expand our scope and scale worldwide if we were going to compete not just in the U.S., but in the rest of the world with that same construct.We did that and got to the point where opportunistically we were able to acquire Hibernia and more recently Interoute, not for their basic asset, which was very expensive, but it was part of the equation, but to get that customer base that they were moving toward, and both of those companies were moving in the direction that we were already in.Now, what's happened is I'm seeing more and more public policy going full circle in the world, not just here in the U.S., but in the rest of the world, to where the fiber itself and the need to provide broadband access and rural and complete parts of the country have become public policies. Those public policies have generated a great deal of interest in both subsidy as well as building in countries all over the world. And what we're getting to once again is what I'm calling a fiber utility mentality.Fiber utilities are going to be the backbone whether it's to carry 5G because it requires more fiber or whether it's to carry the general us that companies and countries need to communicate. With that, when we put these assets on our plate, we paid a lot of money for them. We created an awful lot of leverage in the company that you all have let us be fully aware of and things have happened in that leverage to bring to our mind that we have strayed a bit from our basic premise.Not only that, but I think it's important to point out that more recently, the ability to manage assets like infrastructure is very different from managing the customer interface and the services that we provide. It takes a different person, it takes a different mentality, takes a different asset utilization and asset employment.Therefore, as we went through these acquisitions in the back of our heads was, as long as we can maintain these infrastructure assets and make sure that they do not diminish in anyway, they would become increasingly beneficial for others to mold and merge with what they're trying to do. In the last three to four years, we have seen major increases in infrastructure funds starting to look at telecommunications as a very important asset base.And indeed, where we are right now, I think it's fair to say when people talk about infrastructure, whether it's the funds or the governments, they are including telecommunications, and really, it's information technology infrastructure, and they're talking about fiber. They're talking about subsidizing wireless assets, there's talking about subsidizing local drops, even to the extent that they're needed to bring broadband to everybody in the country.With that in the background, and where we are right now, we believe this is time for us to see if it's possible, that we can divest to those things that are not fundamental to our premise, and we can create a de-levering, which we've been talking about over the past couple of quarters. To that end, I think we're in the right place at the right time. I continue to look to the future as really bright because we have put in place the ability to manage that customer experience with all of the new technologies that are out there, and to master those technologies. It is networking, that's important. It's not infrastructure to us.With that, I'm going to turn it back to you, Rick, and thank you.

[Richard Calder:]

Great. Thank you, everyone, and we look forward to reporting on our next quarter.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.