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GTT Communications, Inc. (NYSE:GTT)

Q4 2013 Results Earnings Conference Call

March 18, 2014 10:00 AM ET

Executives

Chris McKee - General Counsel and Executive Vice President, Corporate Development

Rick Calder - President and CEO

Mike Bauer - Chief Financial Officer

Brian Thompson - Executive Chairman

Analysts

Mike Crawford - B. Riley

George Sutton - Craig-Hallum

James Breen - William Blair

Howard Rosencrans - VA

Ken Moss - Moss Management

Operator

Good day, everyone. Welcome to the GTT Fourth Quarter and Year End 2013 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Chris McKee, General Counsel and Executive Vice President of Corporate Development for opening remarks and introductions. You may begin.

Chris McKee

Thank you and good morning. I’m joined today by Rick Calder, GTT’s President and CEO; Mike Bauer, GTT’s 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 website www.gtt.net. A replay of this call will be available for one month. Dial-in information for the replay, as well as an access to a replay of the webcast is available on the website address I just mentioned.

Today’s comments will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depends upon or refer to future events or conditions or that involve the use of words such as anticipates, expects, intend, plan, believe, may, will and similar expressions are intended to identify forward-looking statements.

Forward-looking statements include by way of example, revenue and margin expectations or projections and various references trends in the industry and GTT’s business.

Such statements reflect current views with respect to the future events and are subject to risks, uncertainties and other factors some beyond our control, which could cause the company’s actual results to differ materially from those anticipated in these forward-looking statements.

There are many risks, uncertainties and other factors that can prevent the company from achieving its goals or cause the company’s actual results to differ materially from those expressed in or implied by the forward-looking statements contained in our comments.

These factors and others are more fully discussed under Risks Factors in GTT’s Form 10-K as filed with the SEC. Statements in this call should be evaluated in light of these important factors.

Also the discussion this morning will refer to adjusted EBITDA, which is a non-GAAP measure. The presentation of GAAP financial measures and a reconciliation of non-GAAP information to GAAP financial measures is included in the press release we issued this morning, which is also available on the GTT’s website.

I will now turn the call over to Rick Calder. Rick?

Rick Calder

Thanks, Chris. Good morning, everyone. I will begin the call with an overview of 2013 and our accomplishments, and discuss our growth strategy and financial objectives going forward. Then Mike will walk you through the financial results and we will then open the call for your questions.

2013 was the defining year for GTT. We completed the integration of a transformative acquisition, firmly establishing GTT's ability to deliver complex, integrated cloud networking solutions to multinational enterprising care clients.

We invested in our sales and marketing team to fuel our organic growth engine. We now have over 50 sales professionals around the world, organized to drive new sales, deep and existing client relationships and expand our share of the growing spend as bandwidth, security and connectivity needs rise.

We expanded our financial flexibility, lower our cost of capital and more than doubled our adjusted EBITDA run rate as we surpassed our previously stated run rate objective of $30 million in adjusted EBITDA. In short, we cemented the foundation required to scale the company.

We ended the year on a terrific note, Q4 showed nice sequential growth in revenue and EBITDA on the strength of our ramping sales force and significant new service installations. New sales and installs in 2013 had an average gross margin of just under 60%.

Our sales team is gaining traction with customers who value GTT for our reliable, scalable and secure network infrastructure and our unmatched levels of service, which is why we are winning business at increasing rates.

At the same time that we are driving higher margin organic sales, churn in the fourth quarter and for full year 2013 remained below 2% and continued to be concentrated in lower gross margin legacy off-net services.

Our business is now approximately 65% network-based which boosts our gross margin. We also simultaneously continued to increase the base profitability of the business through network cost reductions, enabling us to expand gross margin from 29.5% in 2012 to 34.7% in 2013 and *exited at 36.2% in the fourth quarter of ‘13.

Now, we are focused on executing our growth strategy to achieve our next financial objectives of $400 million in revenue and $100 million in adjusted EBITDA. We are powerful cloud networking value proposition and we focus on serving the expanding cloud networking needs of multinational enterprising *cadre of clients.

We are emerging as a go-to brand that multinational enterprises and carriers will turn to when they want complex solutions executed with simplicity, speed and agility, which are our significant competitive advantages over the large incumbent legacy providers.

Our strategy is centered on three things, extending our network ubiquitously around the world, expanding our portfolio of cloud networking services to existing and new multinational clients and delivering exceptional client service.

In terms of network ubiquity, GTT is unique in terms of asset composition, business model and customer focus. We are expanding our core network of over 200 points of presence in 55 major markets around the globe, with the proven capability to extend our network to client locations anywhere in the world using our 800 plus operating partners in over 100 countries worldwide.

With respect to expanding our portfolio of services, as adoption of cloud computing increases with our multinational clients, the composition of our service offerings and the criticality of our network are becoming more important. Every CIO in the world is looking for more, more bandwidth, more scalability, more security, more value and GTT is ready and able to deliver.

For example, we introduced in February, 100 gigabit optical speeds, this deployment of advanced network infrastructure on one of the most interconnected Ethernet service platforms increases our backbone capacity and client interconnect options, and enhances our support of our worldwide clients, particularly as they move into the cloud.

With respect to exceptional client service delivery, we are focused on driving organic growth through expansion of our business units in the Americas and EMEA and APAC, while continuing to differentiate our value proposition with simplicity, speed and agility.

In February, we opened a new office in Hong Kong to be closer to our growing client base in Asia and to pursue new clients. This brings our global presence to nine offices in six countries.

In January, we opened a new network operations center in Belfast, Northern Ireland. This location affords us access to excellent network infrastructure and a highly skilled workforce, and supports our delivery of cloud networking services to a growing base of European multi-national clients.

Our sales force numbered over 50 professionals as compared to 25 at the end of 2012 and continues to gain traction and productivity, supporting our expectation that organic growth will accelerate in 2014. Our business is characterized by monthly recurring revenue and as productivity rises with tenure, we plan to expand our sales team further.

We also expect to continue to grow through selective strategic acquisitions to further expand our network, increase our geographic footprint and enhance our service offerings. We have an excellent acquisition track record and a proven integration template and with the last integration complete, we are ready for our next acquisition. Our pipeline is robust and we are actively pursuing multiple opportunities.

In summary, GTT is very well positioned to win in the marketplace, with a focused strategy on serving multi-national carrier clients with portfolio of cloud networking services to address the exploding needs for bandwidth, virtualization and security and by providing unparallel service with simplicity, speed and agility.

Now, I will turn the call to Mike for a review of the financials.

Mike Bauer

Thanks, Rick. Revenue for the fourth quarter of $46.1 million grew 67% year-over-year, driven primarily by the Tinet acquisition in April 2013. Sequentially, Q4 revenue increased 2.2% from the third quarter of 2013, driven by new customer additions and new net installs of on-net Ethernet and IP transit services.

Fourth quarter gross margin of 36.2% expanded from 29.3% last year and 34.5% last quarter. Gross margin is expanding as we sell more higher-margin services, migrate customers on net, achieve incremental network synergies and as we turn lower margin revenue.

Q4 adjusted EBITDA of $8 million more than doubled year-over-year and was up 5.9% sequentially from the $7.6 million reported in Q3. Our adjusted EBITDA margin in the fourth quarter of 17.4% was up from 13.9% last year and 16.8% in Q3. Given our adjusted EBITDA growth and very low capital expenditure needs, unlevered free cash flow generation continues to be high.

In 2013, we spent $4 million on CapEx, less than 3% of revenue, yielding $20.3 million of unlevered free cash flow. In the fourth quarter, we also reported a $4.1 million non-cash mark-to-market adjustment for a warrant valuation, due mainly to the 36% growth in our stock price during the quarter.

For the full year, the change in the fair value of the warrant liability totaled $8.7 million. Additionally in Q4, we reported a $700,000 non-cash mark-to-market adjustment related to the earnout from the 2012 nLayer acquisition. For the full year, the change in fair value earnout liability totaled $2 million, again, due primarily to the significant growth in our stock price. Those charges are recorded in the other expense net line item on the income statement.

In the fourth quarter, we recorded a $2.4 million -- a $2.4 million income tax benefit. This was driven by a valuation allowance release based on expanding profitability in the U.K. due to the Tinet acquisition. We now expect to utilize our NOLs in the U.K. over the next few years. As we have previously announced, we made significant strides to increase our financial flexibility and lower our cost of debt in the fourth quarter.

We expanded the revolver on our senior credit facility from $7.5 million to $15 million. Also, we amended our mezzanine credit facility to allow for an additional $10 million of draw commitment while lowering our interest rate and eliminating the issuance of new warrants.

Our senior mezzanine banking groups have worked very closely with us, increasing their investment and in support of our growth strategy. This additional liquidity that we put in place gives us greater flexibility to pursue new growth opportunities. We are focused on driving organic growth and extending our proven track record of successful, selected acquisitions. We are poised for a great start to 2014.

With that, let me turn it back to the operator who will open the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we will take our first question from Mike Crawford with B. Riley.

Mike Crawford - B. Riley

Thank you very much. I’m glad to hear that the on-net business is up to 65% of the traffic. Do you have a target for on-net traffic?

Rick Calder

Hi, Mike. Thanks for the question. We don’t have a firm target. If you think about our business rolling back five, six years ago, 100% of our business was off the network. We went on a very specific strategy to do selective acquisitions to build a core network asset and as a function of that, core network asset as a percentage of our business that has been now, traverses our network has grown to 65%. We would expect that to continue to rise over the subsequent quarters and the years, particularly as we embark on this next growth phase with the financials, next financial objectives to get to a $100 million in revenues. So, we would absolutely expect to continue to rise though we do not have any specific goal in terms of beyond that component.

One of the things that, as we look to deliver exceptional service to our clients, we are very flexible to the degree that one of our clients needs something that does not and would not traverse our network, we are happy to provide it to them as a function of making sure that we have the agility to provide the solutions that they need. But we would expect to continue to rise as we continue to grow our business.

Mike Crawford - B. Riley

Thanks Rick. And then in the past, you’ve been able to acquire assets like nLayer and Tinet at four to five items post-synergy EBITDA. I know that can be very powerful for you. Are you still seeing that level, that valuation is possible out here in 2014?

Rick Calder

Yeah. Couple in this, as I said, second ago, as we look to and grow our business to $400 million revenue and $100 million in adjusted EBITDA. But with respect to acquisitions, as we noted in the prepared remarks, we have a significant robust pipeline of opportunities. We do believe that there are value opportunities.

We are very selective in terms of the auctions we participate in to ensure that the assets are consistent with our strategy, extending our equity around globe, expanding our portfolio of cloud networking services to multinational clients.

And so -- and the ones that we participated yet, we believe that we can continue to buy them at great value for our shareholders on a post synergy multiple basis. So we’d like to maintain the discipline and the integration prowess that we demonstrated in the past as we move forward in the future.

Mike Crawford - B. Riley

Okay. Thank you. One more, if I may, what’s the new sales coming in at gross margin of just under 60%. It sounds to me like it’s reasonable to expect your overall gross margins to get into the 40s, maybe even the mid 40s by the end of 2014. Is that reasonable?

Rick Calder

I don’t think that timeframe is probably reasonable for it is probably too -- little too accelerated. But we do believe if we think about our next stage of financial objectives to grow the business to $400 million, $100 million of that would represent 25% EBITDA margin business. And we believe that gross margins in the 40% to 45% range with SG&A in the 15% to 20% range is, sort of, appropriate way to think about our business over the coming years.

We expect to show our continued improvement in growth in gross margin as our -- as we sell higher margin services that are network based as we continue to see efficiencies in taking out cost out of the fixed operation of the network, particularly over the next 12 months.

And as the churn in our business well under now 2% as we noted continues to be more predominantly on the lower margin of net services. So all three of those factors should combine to have our gross margins increase sequentially quarter-over-quarter.

Mike Crawford - B. Riley

Great. Thank you very much.

Rick Calder

Thanks Mike.

Operator

Our next question comes from George Sutton with Craig-Hallum.

George Sutton - Craig-Hallum

Thank you. Hi guys. So Rick, in your prepared comments, you mentioned that you were quote winning business at increasing rates. And I wondered if you could just give us a look at what you meant by that. Is that a win rate discussion? Is that an absolute statement, just wanted a little more clarity if possible?

Rick Calder

Sure. Thanks George. I think it’s related to -- we've grown our sales force over 50 quota-bearing folks. And I think it’s a representation that our sales organization now as it ramps, it’s still not fully tenured, our sales organization, but as it ramps, it’s achieving a higher percentage of the individual quotas on a per salesperson basis.

So we’re seeing success in both the America’s organization. It’s run by Layne Levine and the APAC organization is run by AJ or Andy Johnson. And so we’re seeing a higher portion of our sales organization achieve and for many of them significantly exceed their quotas. And as -- as we noted, as we continue to see that success, we will continue to increase the scope and scale in the size of the organic sales force.

At 50 strong, it is probably the limiting factor and organic growth potential is continuing to actually grow and mature the organic growth engine. And that is significantly larger than it's ever been in the company's history. And as we see the success of the tenured-bearing folks achieving quota, we’ll continue to hire behind them.

George Sutton - Craig-Hallum

And you’ve mentioned previously that that number could potentially double from the 50 over time. Is there -- can you give us any sense of timing on what that might look like if you're seeing the success you would hope for?

Rick Calder

As we think about, it was -- we talked through the next phase of our growth strategy. This is the first time that we've said that we probably like to hold SG&A as a percentage of revenue reasonably flat probably closer to 20. Even though we expect efficiency in our business as we grow primarily because we like to backfill with more quarter-bearing sales force to actually address the ever expanding market opportunity and multinational enterprise and carrier clients.

While we don't have a specific measurable target for how many folks we would have, we doubled year-over-year. Could we see doubling again? Yes. Would we do it as quickly as in within one year, probably not but we clearly see the opportunity to invest more aggressively in quarter-bearing resource and the attendant sales support, sales quoting, sales engineering, service delivery resources that were required to deliver the outstanding experience that our clients have come to expect from us.

George Sutton - Craig-Hallum

Okay. Lastly, from me the 100 gig port move, can you give us a sense of when does that start to become apparent that the market is endorsing that? Have we seen that yet? Any clarity there will be helpful?

Rick Calder

Sure I mean, I think as a -- we have seen it clearly from a cost perspective in our backbone. So historically, we have built our backbone. If you go back probably six, seven years ago, it was built on 1 gigabit in our capacity than to 2.5, most recently to 10. Now we see the opportunity to deploy 100 gigabit bandwidth in the backbone to take advantage of improving economics from our suppliers.

Likewise, we've seen interest from select customers in interconnecting with us at 100 gigabit speed as well. So we clearly see that as a growing opportunity. And I think it's more than anything else in the indication of the exploding demand for bandwidth in our market and the opportunity for us to continue to address that bandwidth demand at great economy both in our backbone and for our clients.

George Sutton - Craig-Hallum

Perfect. Nice results. Thanks, guys.

Rick Calder

Thank you, George.

Operator

(Operator Instructions) We will take our next question from James Breen with William Blair.

James Breen - William Blair

Thanks for taking the question. Just around sort of the growth strategy, I’m just wondering, are there any particular types of assets that you’re looking at in terms of buying? And then additionally, any regions, and then, as that goes to your core business, is there certain areas where you’re seeing better growth relative to the overall business, whether it’d be the Europe or U.S. or Asia? Thanks.

Rick Calder

Okay, great. Thanks, Jim. See if I can deal with those questions in order. In terms of acquisition, the types of assets we’re looking at, we have a network that’s predominantly focused in North America, EMEA and select regions in Asia-Pac. So we continue to look for prospective expansion opportunities in I would say the Southern Hemisphere, whether that is in Middle East, Africa, Latin America, or Australia, New Zealand, Australasia. So I think there are some opportunities for us to expand the ubiquity of our network presence in the Southern Hemisphere. Not to say that we would not necessarily look at assets that would overlap the existing infrastructure we have that we have a fairly deep and expansive presence right now in Americas, EMEA and select locations in Asia-Pac. But we continue to look sort of for Southern Hemisphere potential as well as overlay on top of what we have today.

In terms of expansion into additional cloud networking services, we do get selective inquiry from our multinational clients, particularly multinational enterprise for unified communications, in addition to the broad portfolio of data networking services we have. So it is something we have selectively looked at. We do not offer it today, but it is something that we believe would be very consistent with our cloud networking portfolio, given the fact that traditional voice is a very easy data bit to put on the backbone of our global network. So that would be probably the second major area that will be looked at. And then Jim, the third question, did I answer, I answered two of the three, I think.

James Breen - William Blair

Yes. The third question is around, where are you seeing strength today? If you look at you had a good growth at rate year-over-year. Where are you seeing the best growth from a revenue perspective and maybe sort of the best improvements in your margins? Is it U.S., Asia, Europe, so forth?

Rick Calder

I would say we see good opportunities both and we have invested in growing both, the EMEA and the Americas region and so continue to invest in both of those. For example where we participated last week in a conference in Dubai, we are one of the largest Internet service backbones in the Middle East and continue to grow our presence in the Middle East. Likewise this week we’re participating in a conference in Latin America and continue to look to expand in the Americas, both North and Latin America. There are opportunities there.

If I had to single out an area that we believe is a tremendous growth opportunity for us, it would be Asia-Pac. So we announced recently that we opened a new office in Hong Kong. I mentioned it in our prepared remarks we’ve recently hired two new individuals in Asia-Pac and we would expect to continue to expand there, given the fact that we see we have historically not been as big in that region and we see probably disproportionate growth opportunities in Asia-Pac for us in the short term.

James Breen - William Blair

Terrific. Thank you.

Rick Calder

Thanks, Jim.

Operator

Our next question comes from Howard Rosencrans with VA.

Howard Rosencrans - VA

Yes. Hi, guys. Can you -- the depreciation and amortization you have, does that will go into the comps or how would you split that up just ballpark between the SG&A and the COGS?

Mike Bauer

Howard, depreciation and amortization is broken out in the P&L as a separate line item, so it’s in operating expenses.

Howard Rosencrans - VA

Okay.

Mike Bauer

Reported separately from SG&A.

Howard Rosencrans - VA

Okay. Your commentary -- I do see that. I apologize. And your commentary in terms of the SG&A, is that your -- you sort of expect the SG&A to stay in the 20 range or migrate to 15 over time?

Mike Bauer

As I mentioned a second ago, we would expect if we see ramping productivity in sales force which we expect, we will continue to invest behind more sales and maintain our SG&A as a percentage of revenue in the 20% range, so that will be our goal moving forward to help drive ever increasing levels of organic top line growth, top and bottom line growth.

Howard Rosencrans - VA

And that was exactly my follow-up question. What is your target in terms of organic growth for let’s say ’14 and ’15 respectively?

Mike Bauer

We haven’t given specific guidance. Though we have said that over the next phase of our growth strategy as we look to grow our business to $400 million of revenue and $100 of EBITDA that we would like to see over that timeframe that we grow the top line at a 10% rate and we grow the bottom line at a 15% to 20% rate organically and that we actually complement that with selective strategic acquisitions to achieve that next financial objective.

Howard Rosencrans - VA

And last question regarding the financing of potential acquisitions, I don’t see you as excessively levered, where do you think you would go to from a leverage standpoint in terms of your acquisitions or do you think it’s likely that you will do a equity raise-up in the near future?

Rick Calder

Howard, we generally have done -- if you look historically most of the acquisitions we have done, we have done almost exclusively through debt. We are a public company and one of the benefits as we have different avenues to financing, we would expect to continue to use debt financing to leverage and do acquisitions. In terms of the leverage rates, we are under three times levered right now. Historically, when we have done deals, we have gone up to roughly four times leverage and then as we pay down our principal, it continues to de-lever the business and position us to re-lever. So we would expect to continue to operate that same strategy going forward.

Howard Rosencrans - VA

Great. Keep up the great work. Thanks, guys.

Rick Calder

Thanks, Howard.

Operator

Our next question comes from Ken Moss with Moss Management.

Ken Moss - Moss Management

Hi, gentlemen. Excellent quarter, I really appreciate the hard work and the focus that you bring to the gain here. Would you consider to be “appended sales person”? How long do you think it takes for them to get up to total speed that you're happy with?

Rick Calder

I think, it's a great question, Ken, thank you. Interestingly, I think, after three months, we have a good sense of whether the sales -- whether the new sales professional will work within our structure. And generally, I would say, it's somewhere between six and 12 months that we find whether -- that we see whether or not they're going to be achieved full tenure. It takes a little longer in the enterprise segment versus the carrier segment. But it can be upwards of a year for us to really know whether that person is going to be fully successful for us.

Ken Moss - Moss Management

So, since the growth is driven in the sales force, you've been now three to five months more or less with most of these folks?

Rick Calder

Yes. We've been in, probably, in the order of that, probably, five, six months, in terms of where we are at right now in terms of tenure. So we are seeing and as we mentioned in our prepared remarks that we are seeing improving productivity on ramp quarters for many of our sales organization and we actually feel quite bullish about where we stand right now.

Ken Moss - Moss Management

Great. Brian, at the end of last conference call spoke of the potential of using equity. Does that imply that you folks might step out of your, let's say, what I might call, historic comfort zone or the size of the acquisition that you contemplating and can you integrate more than one in a year?

Rick Calder

You are right. Two comments on that, one and at the end I’ll let Brian add some comments as well as he joined us here. One, we have used in the past equity and we would disclosed it, but at a minor basis as we needed it to complement the debt financing. So as Mike noted, we first and foremost will make maximum use of leverage, which we believe is consistent for the interest of all of our stakeholders and so we believe that we have the ability to access debt at ever increasing and attractive rates, and so we will again maximize the use of leverage…

Ken Moss - Moss Management

Great.

Rick Calder

… as we continue to move forward. That said we are a public company. We have more attraction our currency to the degree that we believe equity financing as a way to help further the acquisition portion of our growth financing. It's an option for us that we can consider.

We want to be very prudent again in terms of your second question about number and size. We have increased overtime, if you walk back three or four years ago, when we talked on these public calls about our ideal target. It was sub $50 million.

The last acquisition we did was $70 million in scope. So I would say that we are comfortable doing larger acquisitions that are larger than our previous goal of $50 million and we have some in our funnel that are of larger size.

We want to ensure that we can very successfully within one to two quarters integrate any acquisition that we do and that we do want and we complete the integration before we would step on to something else. And so we want to be very disciplined about how we approach the acquisitions, make sure they are absolutely strategic that they further our strategy of extending ubiquitous network around the globe and focused on serving and expanding the portfolio of services to multinational clients.

But in that context, yes, we believe that there are an active number of opportunities out there. Some of them slightly larger than we have done in the past or of similar size to the last one that we did and that we have the potential, given the fact that we have access to, probably, more financing at better rates.

The potential to -- potentially being faster than we have in the past, though I think the process that we have done over the past three years are doing one good acquisition a year, that we integrate successfully and show the results and begin to de-lever before we do the next one is has been a very good playbook for us and one that we would expect to continue over this next growth phase for the company.

Ken Moss - Moss Management

Great. I think that acquisitions have been incredibly well planned and executed. So I think all the stockholders take their hats off to you in that department. Would you continue down with the same fabulous focus? In order to, let's say, move the dire road bigger, it sort of obviously becomes more required to swallow bigger pieces as it were. Do you find that more difficult that you are competing with larger entities or is it you find that in that middle market size that you're actually becoming one of the dominant or one of the more likely acquirers?

Rick Calder

A couple of comments on that. One, all of the options that we participated in the past have been competitive and we would expect all the options that we participate in the future to be somewhat competitive. We do see that particularly as we focus *on things less than a 100 million that the largest communication providers, the incumbents, so to speak, generally don't play in that realm. So we see ourselves as being one of the bigger players so to speak.

We have also -- to address the first part of your question has significantly strengthened and deepened leadership team to allow us to actually not only grow the business at 10% or so on the top line over the next coming years and 15% to 20% in the bottom line at the same time that we identify and selectively integrate acquisitions that are consistent with our strategy.

So we have two business unit leaders, we have a new Chief Marketing Officer, Corey Eng. We have a new head of Engineering & Operations, Geoff Hicks. We have a Chief Technical Officer Richard Steenbergen, that we’ve all brought in recently to expand the scope and scale of the business to allow us to execute both the organic plan as well as the selective inorganic plan through acquisition.

Ken Moss - Moss Management

Well, I think you’re doing just a wonderful job guys and I hope to be with you for many years into the future and keep your eye on the ball. I know it’s really focused. You’re doing just a terrific job, the whole team out there. Congratulations to you. I’m finished with my questions.

Rick Calder

Right. Thank you, Ken.

Operator

It appears there are no further questions at this time. I’d like to turn the conference back to management for any additional or closing remarks.

Rick Calder

Thank you, Operator. Travis, let me turn the call over to Brian Thompson, our Chairman.

Brian Thompson

Thanks, Rick and thank you all for being on the call and asking proactive and well intentioned questions. I just have several small comments to make and then I’ll turn it back to Rick. The first is that I think it’s most interesting that the dynamics of what we do are difficult to follow because as you look at even the normal measures of margins and results, they tend to be very dynamic as a result of the integration of the acquisitions that we do.

And therefore you are going to see things whether its SG&A move up or down or productivity of employee group move up or down on a quarter-to-quarter basis heavily as a result of acquisition as well and the integration. But I think Rick did a great job of focusing you on what our objectives are and we do manage within that.

And the beauty of managing within that is as Rick pointed out, we not only acquire but we integrate. And the integration is critically important because we’re building an enterprise here that is sustainable not only as it goes quarter-to-quarter but as it goes year-to-year.

The one thing that I think it's important, somebody asked the question of equity and I think it’s my comment at the end of the last discussion and I will add it again is equity has become a very important part because of the recognition of the value of the company.

Equity does become a part of any acquisition discussion that we had because indeed, many of the people that we are acquiring are interested, not only in selling their companies or in giving us the opportunity to manage them, but they're also interested in being a part of what they have grown to this level. So, I think that the good news is that the market has finally recognized the value of what Rick and his team are doing here and it gives us the opportunity to use equity.

We can use it both in terms of raising additional capital, should we need it for a larger acquisition but very importantly, we can use it in the acquisition discussions with whoever we’re acquiring. So, we are pleased that our equity is recognized as a valuable part of our balance sheet. The last couple of things I want to say are fairly quick. One of them is that whether anybody had the chance to notice yet or not, we’re not for the fact that our equity value has increased as it has over the past year.

We would've shown a positive bottom line at the end of the last quarter which is a very interesting comment, because something like $4.8 million on the income statement was taken out as, because of our accounting rules that required us to revalue the warrants and the options that we’re in existence. But all that shows is that the flexibility of our balance sheet and obviously, we added some tax benefits too to offset that.

But I think the point being that this company is being* managed very carefully around all of the aspects of what a public company ought to be. The last comment I wanted to make, which is a very important one. We don't use a lot in this company and perhaps we should going forward but a lot in our industry do. What Rick has been able to do with his team over the past three, four, five years is to change radically and importantly, largely the addressable market.

The market for which this company can truly compete, because if you go back three or four years ago, my guess is that the truly addressable market of our sales force was probably in the several hundred million dollar range. With the addition of IP transit capabilities, with our own backbone network, with Ethernet, with our cloud computing series of products that we’re bringing to the marketplace.

And importantly if we move toward unified communications, those of you who understand what the industry is we’re in, will recognize we move from several hundred million dollars of addressable market to many billion dollars of opportunity for this company to play in. That’s critically important for both shareholders, for investors, as well as for the company itself to attack.

So, I just wanted to say our addressable market now is significant. We are a good player, a significant player in IP transit to be sure. But we are also very importantly focused on this broader addressable marketplace.

With that, I'll turn it back to Rick. Thank you all very much for the call.

Rick Calder

Great. Thank you. Thank you, Brian. Thank you everyone for joining our call today. We’re executing very well and are carefully planned growth strategy and we are poised to generate very strong results and returns in 2014. And we look forward to reporting our progress on our first quarter call in May. Thank you very much again.

Operator

That concludes today’s presentation. Thank you for your participation.

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Source: GTT Communications' CEO Discusses Q4 2013 Results - Earnings Call Transcript

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