Investor Presentation. April 2017

Transcription

1 Investor Presentation April 2017

2 Disclaimer Forward-Looking Statements: This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by forward-looking words such as may, will, should, could, expect, plan, anticipate, believe, intend, estimate, predict, potential or continue, the negative of such terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forwardlooking statements. 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. You are also urged to carefully review and consider the various disclosures made by us that attempt to advise interested parties of the factors that affect our business, including without limitation the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2016 under the caption Risk Factors and in other reports and documents filed by us with the Securities and Exchange Commission from time to time. Factors that could cause actual results to differ from those contained in the forward-looking statements include, but are not limited to: our ability to achieve the expected benefits of our acquisition of Hibernia NGS Limited; 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; our ability to obtain capital to grow our business; technological developments and changes in the industry; our ability to complete acquisitions or divestures and to integrate any business or operation acquired; and general economic conditions. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements represent our estimates and assumptions only as of the date of this presentation regardless of any sale of our securities and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this presentation. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of Non-GAAP Information: This presentation includes certain non-gaap financial measures, including certain pro forma and constant currency information. Please refer to the appendix for the definitions and related reconciliations of these non-gaap measures. 2

3 GTT Overview GTT delivers cloud networking services to multinational clients Expansive Global Reach Comprehensive Cloud Networking Services Outstanding Client Experience Top five global Tier 1 IP network; 300+ PoPs worldwide Optical Transport, WAN, Internet, Managed Services, Voice and Video Differentiated service built on our core values of simplicity, speed and agility Strong Growth Profile LQA Revenue: $546M (38% 5-year CAGR) LQA Adj. EBITDA: $135M (54% 5-year CAGR) 3

4 Extensive Global Network Points of Presence 300+ (PoPs) 1 Top 5 Ranked global Internet backbone 2 100,000+ Client locations Sub 59ms Lowest latency New York to London 2 1,000+ Cloud services and applications available for seamless access 2,000 Regional partners for network extensions (1) Includes acquisition of Hibernia Networks in January, 2017; (2) Source: Dyn Independent Research firm 4

5 A Better Way to Reach the Cloud Connecting clients to any location in the world and any application in the cloud Security Services SIP Trunking Video Hosted PBX Tier 1 Global IP Network Cloud Service Providers Public Internet Internet Services EtherCloud Wide Area Networking Services Private Connection GTT PoP GTT PoP GTT PoP Secure Remote Access Client Headquarters Client Branch Office Client Data Center Remote Users Core Network Connectivity Points of Presence (PoPs) in most major carrier neutral data centers worldwide Leased wavelengths between PoPs; typically purchased on 1-yr terms to maintain flexibility and leverage Not specific to customer contracts; based on aggregate traffic demand Last Mile Access Leased Ethernet/MPLS/Broadband connections Typically purchased back-to-back with customer contracts ~80% of monthly network spend 5

6 Comprehensive Portfolio of Services Wide Area Networking Ethernet VPLS MPLS (IP VPN) Managed Services Managed Network Services Managed Security Services Managed Secure Access Internet IP Transit Dedicated Internet Access Broadband Internet SIP Trunking Hosted PBX Voice and UC Wavelengths Low latency Optical Transport 1 Dedicated Event Services Video 1 (1) Acquired with Hibernia Networks in January,

7 Diversified Revenue Mix Customer Type Service Offering Geography Note: Managed Services includes network connectivity as part of bundled service offering; data as of December 31,

8 Growth Strategy Drivers Differentiators Expand cloud networking services to multinational clients Extend secure network connectivity to any location in the world and any application in the cloud Deliver outstanding client experience by living our core values of simplicity, speed and agility Capex Light model allows for global reach and rapid deployment of bandwidth to meet client needs Global scale and top five Tier 1 IP backbone enable superior services and value Internally developed software platform (CMD) to handle all aspects of customer lifecycle and profitability Execute strategy through organic growth and accretive acquisitions Next Financial Objective: $1 Billion in Revenue, $250 Million in Adjusted EBITDA 8

9 Transformation through Strategic M&A Annualized Revenue ($ in millions) Adds enterprisegrade voice services Adds strategic transatlantic fiber network (1) Completes transformation to Tier 1 IP network Adds managed network services Proven Approach Strong strategic fit Expand services/reach Add clients/sales talent Rapid integration of organization, systems and networks Highly accretive based on multiple of post-synergy EBITDA (1) Transaction closed in January, 2017; see Hibernia section of presentation for more details 9

10 History of Balanced Organic & Strategic Growth Over the past 3+ years, GTT has delivered revenue growth of 5x and Adjusted EBITDA growth of 9x Revenue ($ in Millions) Adjusted EBITDA ($ in Millions) Note: All data presented on an annualized basis; 1Q13 Run Rate and Tinet are presented in constant currency using 4Q16 rates; acquisitions presented as of last full quarter prior to closing; Organic/Other includes immaterial acquisitions 10

11 Financial Highlights Revenue Gross Profit ($ in Millions) Adjusted EBITDA Adjusted EBITDA less Capex Note: Financial results are as reported, not including constant currency adjustments and only including acquisitions after their respective close dates 11

12 Pro Forma Financial Highlights Revenue As Reported (1) Pro Forma (2) ($ in Millions) Adjusted EBITDA As Reported (1) Pro Forma (2) (1) As reported results include acquisitions only after their respective close dates and do not include constant currency adjustments; (2) Pro forma results include only material acquisitions; (3) Growth rates calculated using constant currency 12

13 Liquidity & Leverage 12/31/2016 Actual 12/31/2016 Pro Forma (4) ($ in Millions) Cash 29.7 Available Revolver 29.5 Total Liquidity 59.3 Cash 28.3 Available Revolver 74.5 Total Liquidity Term Loan B (L+475bps) Drawn Revolver (L+425bps) 20.0 Capital Leases 1.1 Total Debt (1) Term Loan B (L+400bps) % Senior Notes Capital Leases (4) 1.1 Total Debt 1, Q16 Annualized Adjusted EBITDA Q16 Leverage (2) 3.3x 4Q16 Net Leverage (3) 3.1x 4Q16 Annualized PF Adjusted EBITDA Target Cost Synergies Q16 Annualized PF Adj. EBITDA + Synergies Pro Forma 4Q16 Leverage (2) 4.4x Pro Forma 4Q16 Net Leverage (3) 4.3x (1) Excludes $300mm of HY Notes issued into escrow; (2) Total Debt divided by annualized 4Q16 Adjusted EBITDA; (3) Total Debt less Cash divided by annualized 4Q16 Adjusted EBITDA; (4) Pro Forma for Hibernia transaction which closed in January,

14 Investment Highlights Significant Market Opportunity IP-based and cloud traffic forecasted to grow rapidly, at 22% CAGR and 191% CAGR (1), creating significant need for bandwidth and networking services Increasing complexity of IT and security requirements driving demand for managed services Higher propensity to purchase networking services from non-incumbent providers Compelling Business Strategy Global Tier 1 IP network with top five ranked internet backbone Targeting multinational clients underserved by global incumbents Trusted by clients to deliver mission-critical services with simplicity, speed and agility Proven Track Record Significant growth; 37% Revenue CAGR and 56% Adjusted EBITDA CAGR from Proven ability to identify, close and integrate accretive acquisitions Large, diversified, blue-chip customer base Superior Financial Profile Monthly recurring revenue model (90%+ of total revenue) with expanding margins Low capital expenditures (4-5% of revenue) delivering high unlevered free cash flow Strong balance sheet to fund growth Experienced Leadership Team Deep expertise managing high-growth communications businesses Long tenured and experienced board of directors Significant management and board ownership (1) Sources: Cisco Visual Networking Index, , Cisco Global Cloud Index, White Paper 14

15 Hibernia Networks Acquisition

16 Transaction Overview On November 9, 2016, GTT signed a definitive agreement to acquire Hibernia Networks, one of the leading providers of transatlantic fiber optic cable, high-bandwidth network infrastructure and global connectivity services, including Hibernia Express, the lowest latency connection between New York and London The transaction closed on January 9, 2017 The purchase price was comprised of $515 million in cash plus 3.3 million shares of GTT common stock issued to Hibernia shareholders (valued at $75 million at signing and $92 million at closing) Purchase price represents approximately 10x 2016 Pro Forma Adjusted EBITDA $30 million in annualized cost synergies expected to be achieved within three quarters post close, resulting in a post-synergy purchase multiple of <7x GTT raised $1 billion in debt to fund the acquisition of Hibernia, refinance existing GTT debt, and pay transaction fees and expenses, comprised of the following: $700 million Senior Secured Term Loan B Facility $300 million Senior Unsecured Notes 16

17 Acquisition Rationale Extensive Global Network Adds breadth, depth and scale to GTT s global Tier 1 IP network in the highest traffic areas Five subsea cables, eight landing stations, 224 PoPs; over $1.0B of cumulative capital invested Enhanced Product Portfolio Expands GTT s cloud networking portfolio with the addition of optical and low latency transport World class video transport platform serving content rights holders, broadcasters, cable companies and OTT providers Blue-Chip Client Base Grows GTT s client base, adding marquee clients with depth in the financial services, media & entertainment, web-centric and service provider segments Increased network affords GTT greater economies of scale Growth & Scale Adds a recurring revenue business with strong cash flow characteristics and high synergy potential 17

18 ($ in Millions) Hibernia Financial Highlights Revenue Adjusted EBITDA As Reported Pro Forma (1) As Reported Pro Forma (1) Capex (2) Adjusted EBITDA less Capex (2) As Reported Pro Forma (1) As Reported Pro Forma (1) (1) Includes pro forma adjustments for Hibernia revenue from GTT and certain accounting adjustments related to the treatment of deferred revenue; (2) Capex does not include Hibernia Express, which was $84mm in 2014, $140mm in 2015 and $2mm in

19 ($ in Millions) Pro Forma Combined Financial Highlights Revenue Adjusted EBITDA As Reported Pro Forma (1) As Reported Pro Forma (1) 30 (3) (3) (3) Capex (2) Adjusted EBITDA less Capex (2) As Reported Pro Forma (1) As Reported Pro Forma (1) (1) Includes pro forma adjustments for revenue between Hibernia and GTT and certain accounting adjustments related to the treatment of deferred revenue; (2) Capex does not include Hibernia Express, which was $84mm in 2014, $140mm in 2015 and $2mm in 2016; (3) Includes $30mm target cost synergies 19

20 Sources & Uses and Pro Forma Capitalization Sources & Uses Sources ($ in Millions) Uses Term Loan B $700.0 Cash to Seller $515.0 Senior Unsecured Notes Equity to Seller 91.9 GTT Common Stock 91.9 Refinance Existing Debt Cash 1.4 Fees & Expenses 40.6 Total Sources $1,093.3 Total Uses $1,093.3 Pro Forma Capitalization (as of 12/31/16) ($ in Millions) Current Multiple of EBITDA Adjustments Pro Forma Multiple of PF EBITDA Cash & Cash Equivalents $29.7 ($1.4) $28.3 Revolver x (20.0) - - Existing Term Loan B x (425.8) - - New Term Loan B x Capital Leases x x Total Senior Secured Debt $ x $254.2 $ x Senior Unsecured Notes x Total Debt $ x $554.2 $1, x Total Net Debt $ x $555.6 $ x Market Value of Equity (1) 1, x - 1, x New Equity x Total Market Capitalization $1, x $646.1 $2, x 4Q16 Annualized Adjusted EBITDA $135.1 $227.7 (2) (1) Based on 12/31/2016 closing price of $28.75 and million shares outstanding (2) Includes $30mm target cost synergies 20

21 Leverage & Capex Summary At closing, the ratio of total net debt to Adjusted EBITDA was approximately 4.3x, using pro forma combined fourth quarter 2016 annualized Adjusted EBITDA plus expected cost synergies Within one year after closing, the ratio of total net debt to Adjusted EBITDA is expected to be at or below 4.0x, reflecting continued Adjusted EBITDA growth and cash generation GTT s long-term target range for the ratio of debt to Adjusted EBITDA remains 3.0x 4.0x Continue GTT s strategy of capex-light network deployment post-close 6% - 7% of pro forma combined revenue per year Primarily success-based (network capacity, managed services CPE) 21

22 Non-GAAP Financial Information GTT GAAP to Non-GAAP Reconciliation In addition to financial measures prepared in accordance with accounting principles generally accepted in the United States ( GAAP ), from time to time GTT may use or publicly disclose certain "non-gaap financial measures" in the course of its 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) exclude 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) include 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 additional information to investors to provide an alternative method for assessing GTT s financial condition and operating results. GTT believes that these non-gaap measures, when taken together with its GAAP financial measures, allow the Company and its investors to better evaluate its performance and profitability. These measures are not in accordance with, or a substitute for, GAAP, and 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 GTT refers to a non-gaap financial measure it will also 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 GTT references with such comparable GAAP financial measure. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ( Adjusted EBITDA ) Adjusted EBITDA is defined by GTT as net income/(loss) before interest and other expense, net, income tax (benefit) expense and depreciation and amortization ("EBITDA") adjusted to exclude severance, restructuring and other exit costs, acquisition-related transaction and integration costs, losses on extinguishment of debt, share-based compensation, and from time to time, other non-cash or non-recurring items. Adjusted EBITDA is defined by Hibernia as net income (loss) before interest expense, (benefit from) / provisions for income taxes and depreciation and amortization adjusted to exclude losses on extinguishment of debt, other costs, net, including foreign currency translation gains and losses, and from time to time, other non-cash or non-recurring items. The Pro Forma EBITDA and Pro Forma Adjusted EBITDA in this presentation represent GTT s EBITDA and Adjusted EBITDA, respectively, after giving effect to the MegaPath and One Source Networks acquisitions as well as the Senior Notes offering, the Hibernia acquisition and the refinancing of GTT s and Hibernia s existing credit facilities (the Pro Forma Transactions ) as of the first day of the period presented and adding anticipated estimated cost savings synergies from the Hibernia acquisition and Adjusted EBITDA from individually immaterial acquisitions after giving effect to such acquisitions as if each had occurred on January 1, 2015 and adding anticipated estimated cost savings synergies from the Hibernia acquisition and Adjusted EBITDA from individually immaterial acquisitions after giving effect to such acquisitions as of the first day of the period presented. GTT uses Adjusted EBITDA to evaluate operating performance, and this financial measure is among the primary measures we use for planning and forecasting future periods. GTT further believes 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 GTT s results with the results of other companies that have different financing and capital structures. However other companies may define Adjusted EBITDA differently than GTT does, so its Adjusted EBITDA may not be fully comparable with those of other companies. In addition, the Company has debt covenants that are based on a leverage ratio which utilizes a modified EBITDA calculation, as defined in its credit agreement. The modified EBITDA calculation in GTT s credit agreement is similar to its definition of Adjusted EBITDA; however it includes the pro forma Adjusted EBITDA of and expected cost synergies from the companies acquired by GTT during the applicable reporting period. Finally, Adjusted EBITDA results, along with other quantitative and qualitative information, are utilized by management and GTT s compensation committee for purposes of determining bonus payouts to its employees. Adjusted EBITDA less capital expenditures Adjusted EBITDA less the cost of purchases of property and equipment during the indicated period, which GTT also refers to as capital expenditures, is a performance measure that is used to evaluate the appropriate level of capital expenditures needed to support its expected revenue, and to provide a comparable view of GTT s performance relative to other telecommunications companies who may utilize different strategies for providing access to fiber-based services and related infrastructure. The Company uses a capex light strategy, which means it purchases fiber-based services and related infrastructure from other providers on an as-needed basis, pursuant to its customers requirements. Many other telecommunications companies spend significant amounts of capital expenditures to construct their own fiber networks and data centers, and attempt to purchase as little as possible from other providers. As a result of GTT s strategy, it typically has lower Adjusted EBITDA margins compared to other providers, but also spends much less on capital expenditures relative to its revenue. GTT believes it is important to take both of these factors into account when evaluating its performance. 22

23 Non-GAAP Financial Information 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. We believe 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 financial information of GTT as if the acquisition of One Source Networks, Inc. ( OSN") had occurred on the first day of the applicable period presented, and do not include any add-backs for expected post-acquisition cost synergies in pre-acquisition periods. Note: pro forma information is only prepared for material acquisitions. 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 information provides 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. 23

24 GTT Non-GAAP Reconciliation ($ in Millions) Adjusted EBITDA Net (loss) income $ (1.6) $ (20.8) $ (23.0) $ 19.3 $ 5.3 Income tax expense (benefit) 0.7 (2.0) 2.1 (34.1) 3.9 Other expenses, net Loss on debt extinguishment Interest expense, net Depreciation and amortization Severance, restructuring and other exit costs Transaction and integration costs Non-cash compensation Adjusted EBITDA $ 13.5 $ 24.3 $ 36.1 $ 77.0 $ Capital expenditures (1.8) (4.1) (5.9) (14.1) (24.2) Adjusted EBITDA less Capex $ 11.7 $ 20.2 $ 30.2 $ 63.0 $

25 GTT Non-GAAP Reconciliation (Quarterly) ($ in Millions) Adjusted EBITDA 4Q15 1Q16 2Q16 3Q16 4Q16 Net Income (loss) $ 27.6 $ 0.9 $ 0.1 $ 5.1 $ (0.9) Income tax (benefit) expense (34.0) (0.1) 3.6 Other (income) loss, net (0.6) Loss on debt extinguishment Interest expense, net Depreciation and amortization Severance, restructuring and other exit costs (0.6) - Transaction and integration costs Non-cash compensation Adjusted EBITDA $ 25.5 $ 28.9 $ 30.3 $ 32.1 $ 33.8 Capital expenditures (4.2) (7.5) (4.8) (5.5) (6.4) Adjusted EBITDA less Capex $ 21.3 $ 21.3 $ 25.5 $ 26.6 $

26 Hibernia Non-GAAP Reconciliation ($ in Millions) Adjusted EBITDA Net (loss) income $ (5.0) $ (14.7) $ 18.3 Income tax (benefit) expense (0.2) Other (income) loss, net (1.6) (0.5) - Loss on debt extinguishment Interest expense, net Depreciation and amortization Transaction and integration costs - - (0.2) Non-Recurring project bonus Adjusted EBITDA $ 17.5 $ 34.2 $ 65.9 Capital expenditures (28.2) (21.9) (14.1) Adjusted EBITDA less Capex $ (10.7) $ 12.3 $ 51.8 Note: Capex does not include Hibernia Express, which was $84mm in 2014, $140mm in 2015 and $2mm in

27 Pro Forma Combined Non-GAAP Reconciliation ($ in Millions) Adjusted EBITDA Net (loss) income $ (49.6) $ (14.8) Income tax (benefit) expense (69.6) (18.6) Loss on debt extinguishment Interest and other expense, net Depreciation and amortization Severance, restructuring and other exit costs Transaction and integration costs Non-cash compensation Non-Recurring project bonus Adjusted EBITDA $ $ Capital expenditures (36.0) (38.3) Adjusted EBITDA less Capex $ 89.4 $ Notes: Includes adjustments for the acquisition of One Source Networks and MegaPath prior to their respective close dates; capex does not include Hibernia Express, which was $84mm in 2014, $140mm in 2015 and $2mm in

28 PF Combined Revenue & EBITDA Summary Revenue ($ in Millions) GTT as reported $369.3 $521.7 Hibernia as reported Combined Reported Revenue $518.1 $703.8 Pro Forma Adjustments MegaPath One Source Networks Hibernia PF Adjustments (6.2) (5.9) Other PF Adjustments (0.4) - PF Combined Revenue $606.2 $697.9 EBITDA GTT Reported Adjusted EBITDA $77.0 $125.0 Hibernia Reported Adjusted EBITDA Combined Reported Adjusted EBITDA $111.3 $190.9 Pro Forma Adjustments MegaPath One Source Networks Hibernia Deferred Revenue Reduction (4.5) (4.5) Other PF Adjustments PF Pre-Synergy Adjusted EBITDA $125.4 $186.4 Synergies PF Post-Synergy Adjusted EBITDA $155.4 $216.4 Note: Results exclude constant currency adjustments 28