Frequent telco buyer GTT: It's all about networking, not infrastructureFrequent telco buyer GTT: It's all about networking, not infrastructure
After buying several telcos, GTT looks to offload 'non-strategic' assets as it aims to provide networking services to large and multinational clients.
November 12, 2019
GTT Communications execs say the company is still pursuing its "capex light" strategy of buying existing assets, integrating them under one software platform and maximizing their use through an efficient sales force.
The company may still feel it's a bit capex heavy and earnings light at the moment, though. GTT announced this morning it had missed earnings and revenue expectations for the company's third quarter. The global carrier reported a GAAP loss of 46 cents a share on revenue of $420 million. Specifically, the company's net loss was $26.2 million for the quarter, compared to net loss of $23.4 million a year ago. The revenue figure was $5.7 million short of Wall Street's expectations and the earnings number was off by a quarter.
The company's management said the overall industry trends that will lift GTT are stronger than the numbers currently suggest. GTT was cobbled together by several acquisitions over several years and part of a big plan to build a network that can run "every application in any location." GTT's network currently has more than 600 points of presence on six continents, offering service in more than 140 countries.
To continue to unlock the company's network potential, CEO Rick Calder said the business is investing in hiring more salespeople, training them on its homegrown CRM and client management database (CMD) and providing more analytics and other tools for them to more efficiently do their jobs. The company has 382 sales staff now; it expects to have 400 by the end of this year and to grow to more than 500 by the end of 2020.
GTT is also looking to put some stuff up for sale and clean things up. The company's founder, H. Brian Thompson, in his prepared remarks, said that GTT might have bought so many assets that it has started to stray from its premise. He added that the company believes "this is time for us to see if it's possible that we can divest of those things that are not fundamental to our funding our premise, and we can create a de-levering, which we've been talking about over the past couple of quarters."
Specifically, GTT wants to offload some of the pan-European fiber assets, subsea transatlantic fiber and data center infrastructure that the company bought as part of its Interoute and Hibernia acquisitions, the company said in its earnings press release. And, no, it didn't write down the value of any assets -- at least not yet.
$GTT "has expanded the scope of its non-strategic and non-core asset divestiture exploratory process" to include the assets the Company acquired in the Interoute and Hibernia acquisitions.— Wolfpack Research (@WolfpackReports) November 12, 2019
But no impairment of goodwill and intangibles? Must be waiting for the 10-K....
CEO Calder assured investors that selling some of those 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," Calder said on the call. "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." The asset sales will help GTT reduce its capex from about 5-6% of revenues to around 3%, Calder said.
Later on, Calder pointed out that GTT had never previously owned "any underlying fiber or data center infrastructure historically, with the exception of the last two or three years." So it certainly isn't out of character for GTT to focus on Internet access and software-defined networking vs. data center and long-haul connectivity.
Investors may be feeling confused by all the movement. For such a simple "big picture" plan, watching GTT sure does feel like a carnival game. By 10:25 a.m. ET, GTT shares had dropped $0.97 (11.47%) to $7.49. The company's market cap is about the same as its quarterly revenues.
After the Q&A, the company's founder and executive chairman H. Brian Thompson tried to put a bow on GTT's recent years of buying assets like mad and now, strategically, getting ready to let of go things that don't fit with its cloud networking plan. "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."
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