Global Telecom & Technology, Inc. (NYSE:GTT)
Q2 2014 Earnings Conference Call
August 7, 2014 10:00 a.m. ET
Rick Calder - President and CEO
Mike Bauer - Chief Financial Officer
Brian Thompson - Executive Chairman
Chris McKee - General Counsel and EVP, Corporate Development
Barry Sine - Drexel Hamilton
George Sutton - Craig-Hallum
James Breen - William Blair
Michael Bowen - Pacific Crest
Keith LaRose - Bradley, Foster & Sargent, Inc.
Good day, everyone. Welcome to the GTT Second Quarter 2014 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.
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 access to a replay of the webcast is available on the website.
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?
Thank you, Chris and good morning everyone. And thank you for joining us. In the second quarter, we continued to execute our strategic growth plan, delivering strong revenue growth of 21% and adjusted EBITDA growth of 67% from last year.
Some highlights from the quarter. In April, we expanded our presence in the US with a new office in the New York Metro region. We have a strong base of clients in the region already and our new office places us closer to them, enabling us to deliver outstanding service while actively pursuing new clients looking for global cloud networking solutions.
To support our continued growth and ensure we consistently provide superior service to our global clients, we opened a new network operation center at our new headquarters in Washington DC Metro region. In May, we completed a secondary equity offering raising net proceeds of $25 million.
In June, AJ, or Andy Johnson who leads our EMEA/APAC business unit, gave a keynote speech at the Cloud World Forum in London where he presented on the topic of CIOs key challenges and how to future proof the cloud in a network. CIOs in every line of business are demanding more and more bandwidth to satisfy the growing need to securely and reliably access cloud services. And as Mike will discuss in more detail, we just completed a debt refinancing that further strengthened our balance sheet, significantly reduced our cost of capital, and increased our flexibility to support our growth.
We added some great new clients in the second quarter and have continued to do so in Q3, including a new media and entertainment customer, several large multinational financial institutions and several carriers looking to extend their global reach.
New sales continued to come with very high gross margins and we’re maintaining our churn rate at under 2%. This strong performance, together with further network optimization, has helped drive continued gross margin improvements up to 38.7% in 2Q ’14.
Heading into the second half of 2014, we are very well-positioned for strong growth through the rest of the year as we execute our growth strategy. First, we will continue to expand ubiquity of our network, to serve multinational customers’ growing needs for cloud services. Today our network encompasses 55 major metropolitan markets in 26 countries and we deliver service in over 100 countries worldwide.
Second, we will further expand our cloud networking service portfolio. As we discussed last quarter, we launched managed router services, managed security services. Last month we announced our partnership with Equinix whereby our EtherCloud portfolio services will enable enterprises to seamlessly connect any location around the world with direct access to any cloud service on the Equinix Cloud Exchange. This provides the security, performance and reliability many organizations need to fully adopt cloud services.
Third, we will deliver outstanding client experience with simplicity, speed and agility. We continue to invest in our Americas, EMEA, APAC business units to deliver outstanding service to our clients. Within the business units, we plan to grow the sales force to 60 quota bearing by year-end and are at 54 right now, which we expect will help accelerate growth in the second half of 2014.
In the second quarter, we welcomed Bob Burris to our senior executive team. Bob is our new senior vice president of Global Engineering and Operations. He has deep experience in building communications organizations and global infrastructure and will focus on growing our worldwide GTT network and delivering outstanding client support.
Finally, we continue to evaluate selective strategic acquisitions that will extend our network scope and scale, expand our cloud networking service portfolio and add multinational clients. Through both organic growth and M&A, we're building a platform that will accelerate toward our next financial objective of $400 million in revenue and $100 million in adjusted EBITDA.
Now I will turn the call to Mike for a review of the financials and the debt refinancing.
Thanks, Rick. Second quarter revenue of $48.1 million grew 21% year-over-year compared to $39.7 million in Q2 2013, driven primarily by the acquisition of Tinet in April 2013.
Second quarter gross margin of 38.7% expanded 470 basis points from 34% last year and grew 170 basis points sequentially from 37% in Q1. Gross margin continued to expand as we sold and installed services with over 60% gross margins and achieved further network synergies.
Second quarter adjusted EBITDA of $8.6 million increased 67% from last year's $5.1 million. Adjusted EBITDA margin of 17.8% expanded 490 basis points from 12.9% last year. We generated unlevered free cash flow of $7.6 million in Q2.
Capital expenditures in the second quarter were $926,000 or 1.9% of revenue. Year-to-date CapEx was $2.6 million or 2.8% of revenue. Given our CapEx light model, we expect to continue to invest capital at approximately 3% of revenue, primarily to expand our core routing infrastructure to support increasing customer demand.
Turning to the debt refinancing. As you know we continued to improve our balance sheet in May with the completion of a follow-on offering of 3.45 million shares of common stock with net proceeds of $25 million. Just yesterday we completed a debt refinancing led by Webster Bank. This new $170 million facility consists of a $110 million term loan, a $15 million revolver, a $15 million delayed draw term loan and an incremental $30 million accordion. The new facility replaced our previously outstanding debt of just under $90 million, made up of $58.5 million in senior and $31 million in mezzanine debt.
As part of the refinancing, we eliminated all of the 2.3 million outstanding mezzanine lender warrants. We purchased half of the warrants and the other half were exercised by the mezzanine lenders into approximately 900,000 common shares of GTT stock.
As of today we now have 28.7 million shares outstanding and our fully diluted share count is 30 million, which includes 1.3 million employee stock options. Our weighted average cost of debt was approximately 8% under our prior debt facilities. We are now paying 4.5%, a reduction of 350 basis points.
Webster Bank who led our previous syndicate acted as lead arranger and administrative agent on the new facility. The banking syndicate includes Webster, East West, Fifth Third Bank, all existing lenders who increased their commitments and new to GTT are CoBank, CIT, Newstar Financial and CapitalSource. We do want to thank Webster and our lending group for their support in arranging this financing.
This new facility accomplishes many objectives. It simplifies our capital structure, eliminates a more expensive tranche of financing and significantly reduces our overall cost of debt, increases our financial flexibility and permits us to eliminate the quarterly mark to market associated with the mezzanine warrants. We are very pleased with the outcome of this process and our strengthened balance sheet.
With that, I will turn the call back to the operator who will open up the call to your questions. Operator?
(Operator Instructions) We will take our first question from Barry Sine with Drexel Hamilton.
Barry Sine - Drexel Hamilton
Good morning folks, congratulations. A good quarter and a lot going on on the balance sheet. I guess Mike, maybe I can start where you left off in terms of the debt financing. If you could give us a snapshot so we understand where the balance sheet stands today from a cash and debt standpoint, I jotted down your comments. It sounds like only the 110 million term is drawn and then the revolver, the delayed draw, the other items, nothing is drawn on those?
That's correct, Barry, thank you. We do have $110 million outstanding on our term loan, $15 revolver is available, the $15 million delayed draw term loan is available as well and then $30 million accordion feature is open as well. And currently we have approximately $25 million in cash.
Barry Sine - Drexel Hamilton
And is that going to kind of zero out that other income line is that we've just been a little bit pesky with the other -- the warrant P&L on there. Is that going to zero that out going forward to make the number a little more transparent?
Yes, that clearly was a confusing part, I think in the financials in the past few quarters as our stock prices increased significantly. We had to record mark to market expenses related to warrants. We will no longer see that moving forward.
Barry Sine - Drexel Hamilton
And then Rick, the question is for you. Could you talk about where the term rate was in the quarter? And obviously as you guys are getting larger, you have a bit more history with customers and some customers I guess coming off contracts, renewing contracts. What does the term rate look like now and how is it trending?
Yes, sure. Thank you very much Barry for the question. Our churn rate over the past six quarters now has maintained in a very narrow range between 1.5% and 2% of revenue. And as I noted in the prepared remarks we’re well under 2% this time probably on the lower end of that 1.5% to 2% range. It is one of the things we watch very carefully as a leadership team at GTT in terms of delivering an outstanding client experience with simplicity, speed, agility. So we feel good about where our churn rate has been and many of the reasons as I note to investors, many of the reasons for churn are what we call service churn versus client churn, where clients close offices, or move offices that we see individual service churn but not full client churn, we do -- we do certainly occasionally have full client churn as well but we see a much higher percentage of our churn being in service churn.
So given the fact that we’ve been able to maintain our churn rates at lower rates, we see a real positive ability to grow very aggressively into the second half of the year, maintaining low churn rates and continue to grow the scope and scale of our sales and service organization as we continue to grow the business.
Barry Sine - Drexel Hamilton
And my last question just on acquisition, typically by this time of the year, we've seen a pretty significant acquisition. I know you've been in the marketplace. Are you just not seeing the targets out there? Are you not seeing the price levels that you've historically been willing to pay? Are you looking at different opportunities -- I know you're not going to pre-announce a pending acquisition, but what is the general environment that you're seeing that's caused a little bit later announced with this year of a major acquisition that we've seen in the past?
No, I would say - I think the acquisition funnel remains very robust and very strong as we noted earlier in the call and so we spent a little bit more time this year focused on the significant balance sheet items both the follow-on equity offering as well as the debt refinancing that we just completed. But we see absolutely a very robust funnel of opportunities that are strategic to us. They expand the scope and scale of our global ubiquitous network. They help expand the cloud networking service portfolio that we have and they help add multinational clients to the roster of our client portfolio. So I would say absolutely we see it and we are I think better positioned now to execute and consummate a transaction than we’ve ever had -- than we've ever been with the strength of our balance sheet at this stage.
Barry Sine - Drexel Hamilton
I know I said that was the last question. I just thought of something else quickly. So we're now going to anniversary of Tinet going forward. What is the organic growth rate of the business that we don't have an acquisition factored in? How should we think about organic growth of the business looking ahead?
I mean if you think about – I think as we have been public about – if you think about our organic rate for first half of the year or the fourth quarter annualized, we’re growing at about little over 7% year to date which is sort of the organic trajectory of our business and about 12% on the bottom line. And we’ve told investors that our goal is to grow at over, as we achieve our next financial objective of $400 million revenue, and $100 million in adjusted EBITDA to grow at about a 10% rate on the top line and 15% to 20% rate on the bottom line and we feel very good about that. We see growth accelerating into the second half of the year. So we see the ability to be in that range over the next several years as we continue to grow.
We’ll go next to George Sutton with Craig-Hallum.
George Sutton - Craig-Hallum
Thank you and Mike, congratulations on that refinance. So as you talk about acceleration into the second half, Rick, and you're also separately talking about being very well positioned for growth, that begets the question around the pipeline and opportunities that you're seeing relative to what you might've expected a quarter ago.
Yes, certainly we see very robust pipeline demand in terms of the quoting activity that we have for multinational clients. So we see an environment where there is really threefold things happening in the enterprise world. Clearly the continued growth of the utilization of the Internet is driving tremendous demand across corporate locations worldwide. The need to continue to send ever larger amounts of traffic from company location to company location is driving increased demand for wide-area networking global data networks and lastly, the movement to cloud services and the ability to use private cloud networks from GTT to interconnect with say the Equinix Global Cloud Exchange is a third real trend driving corporations and CIOs to consider significant upgrades into their capacity. So we've seen a really good penetration on select enterprises across the globe and we see probably a brighter pipeline that we've seen in the past given the global proposition that we have. So we’re very bullish on our ability to grow the business moving forward and it’s one of the reasons we continue to invest in both quota bearing sales as well as sales engineering, service delivery, account management, procurement resources within our Americas and EMEA/APAC business units.
George Sutton - Craig-Hallum
Now on that note relative to quota-bearing quotas and the sales force itself, you gave some updates on that last quarter. I wonder if you could give us a further update in terms of -- I know your plans are to grow the sales force as you see the opportunity. I'm curious where that stands.
Sure, I think -- we entered the year to at 50, we’re at about 54 right now. We continue to look to grow to 60 by the end of the year. That is at least a 20% year-over-year growth in the pure quota bearing recognizing there are lots of other resources in the business unit to support our clients and the business units. But that is purely a next five month goal, we continue to see our ability to grow the sales force. We have a tremendous opportunity as I mentioned before with the value proposition that we have in the market, highly differentiated as a company to be able to have the depth of the ubiquitous worldwide reach that we have and the very the portfolio cloud networking services and the ability to deliver nimbly and simply for clients with the core cultural values of simplicity, speed, agility that really differentiate us from the global worldwide incumbent telcos. And so I think we have a tremendous opportunity. We’re still a relatively small company but with enormous opportunity to grow to our next financial objective. So we continue to want to invest in the sales and service support organization given the real growing demand for global bandwidth.
George Sutton - Craig-Hallum
Okay, great. One more from me, just a follow up on the acquisition question. You will now be positioned with cash versus needing to use stock or use a potential future piece of debt to complete a transaction. Will that help accelerate any of the opportunities you are looking at today?
Well, first, we believe as I mentioned in a question of Barry, George that we are well-positioned with a very strong balance sheet to be able to consummate a transaction. To be clear we’re very focused on ensuring that any acquisition we do is accretive within the first two quarters so that we can through post synergy by taking out both SG&A and network operation synergy do things that are highly strategic to us and that we can show and demonstrate our returns in the first couple of quarters .So we’ve been able to execute that overall of our previous major acquisitions and we expect to be able to continue that. We do see an active funnel of very interesting opportunities for us. So while we can't predict exactly when one would close that we do expect it to remain one of the key parts of our growth strategy as we look to grow our business to $400 million in revenue and $100 million in adjusted EBITDA.
We will go next to James Breen with William Blair.
James Breen - William Blair
And then just on the strategic side, obviously we had Level 3 and Time-Warner getting together now. Can you just talk what’s happening in the industry from that perspective, how you see that helping or hurting you guys over the long run? And then lastly, third question, Cogent just reported this morning and their interconnected business or net-centric business was kind of flattish quarter to quarter from a growth perspective in terms of traffic, was up about 50% year over year. I'm just wondering if you guys are seeing similar trends in your business.
Thanks for the question, I will start with your first question regarding the new debt facility, $110 million term loan outstanding, 4.5% interest rate would be about 1.23 million a quarter of interest expense. The 2.6 million of interest expense we did have in the quarter about 2.1 of that was cash interest expense, about $500,000 related to deferred financing cost amortization and debt discount amortization, that bleeds in as well. So going forward we will have that as well related to this facility.
In terms of the accordion, it's essentially a uncommitted facility with the banks. They essentially have first right of refusal as we find acquisitions that we want to pursue. They have agreed to a $30 million bucket that they would then have the opportunity to take first chance to get in on that lending.
And in terms of the two more strategic questions, one, in terms of commentary on mergers in the industry, we generally believe that mergers in the industry help our value proposition, that having fewer global competitors gives us a very unique position in the market. That there are not many firms that have the global scope and scale and the reach that we do. Frequently we also see that it generally destabilizes some of our competitors for a period of time as they consolidate the acquisitions. But we have some good strong competitors out in the market but very few -- as they get larger very few with the ability to deliver as we call it with simplicity, speed, agility companies are very easy to do business with, operate very quickly and have a culture of really responding to client demand with the extreme agility. And so we believe that will continue to differentiate us in the market and we have seen that as we mentioned in terms of the strength of our pipeline the ability to continue to grow our business.
To the point about the two parts of our business, our business is right now pretty equally divided between the Internet services business and the EtherCloud wide-area networking business for our enterprise clients and I would say that we see pretty equal growth -- we would say over time that given that we’re a larger player, we’re top five Internet backbone at this stage, that we would see even larger growth in the EtherCloud Ethernet services business and so the wide area networking business has an opportunity to grow even faster. And so over time we would expect that to be a bigger part of our business but we still see some good nice growth in the Internet services portion of our business as well.
We will take our next question from Michael Bowen with Pacific Crest.
Michael Bowen - Pacific Crest
A couple of things -- with regard to length of contracts, can you give us an update on length of contracts to your customers versus the contract lengths you're seeing from the incumbents? And can you talk a little bit about pricing from incumbents and the arbitrage there? Secondly with sales, I'm not sure if you've given this before, but I am curious with the sales force at 54, if you're able to tell us kind of how -- what were gross number of reps that came in and then how many reps churned off and related to that, are you finding some good sales reps coming out of Level 3 and Time-Warner Telecom, or is it just a little bit too early? And then lastly, probably for Rick here with regard to cloud connectivity, obviously we're seeing a lot of push by the data centers and the cloud providers with regard to direct connection to the cloud providers. And I was hoping Rick, if you could talk a little bit about how that would benefit your business going forward.
So let me say – I’d probably deal with all of these. First question length of contracts .We continue to see probably I would say across the two parts of our business, for sort of the high capacity and services clients. Generally those are done on one year recurring terms and they continued with very very high renewal rates where volume continues to rise and price per bit continues to decline. So on pricing trend there like in all of our services, price per bit trends have always been down, they will continue to be down but the volume trends in our industry are very very positive. So we see as that outweighing the price declines.
And in the EtherCloud ethernet services business we see trends of two, three-year deal, generally most of our enterprise clients will sign much longer-term contracts and we keep for as we noted we trade with over 800 carriers around the world to extend our global network to the locations of our clients. And we actually ensure that for the tail service that those are on the same terms and conditions. So if a client signs a three-year contract with us, we will sign a three-year contract for the last mile tail extension to get to the clients premise. And we see the similar trend there, volume trends are continuing to grow in the EtherCloud market with price per bit coming down, at a slightly lower rate in the EtherCloud market versus in the Internet services market. So we see very positive trends there and as I mentioned earlier we see really nice growth coming into the second half of the year.
In terms of reps, which is why we’re actually increasing the scope and scale of our reps. Interestingly we’re seeing the churn rate on our reps -- as I mentioned in the past in the sort of 50% range, we’ve been – we actually have been below that this year. So we actually have not – we’ve been well below 50% in churn rates in our sales reps, our additions have actually been doing nicely for us. We continue to churn on under- performances as any firm would do. We do look to recruit from the industry, we like at add folks who have experience in the industry and experience with selling to multinational clients. And so – and we think our value proposition is tremendous, so we've actually seen a huge receptivity of folks joining GTT given the opportunity we have in the differentiate strategy of being able to sell worldwide, having a deep portfolio and being able to provide a very differentiated value proposition to multinationals. So we’re excited about that value proposition, and I think to answer your last question Michael –
Michael Bowen - Pacific Crest
Well hey Rick, real quick before you get to cloud. Sorry to interrupt. With regard to the below 50% range, would be directly attributable to an increase of your rep, of more of your reps hitting 100% of their quota? We've heard some of that out of Cogent and I was curious if you're seeing the same trend.
Yeah, to me – it was very simple equation exactly Michael that we churn reps because they don't perform and so as reps perform they are the most valuable assets we have. So we've seen a significant productivity improvements and so our real tactical priority now is to hire more. And so we continue to grow -- not all and to be clear not only direct quota bearing resource but more procurement, service delivery, sales engineering, network operations support, engineering support, so we believe given the value proposition we have and the ability to deliver with simplicity, speed, agility that that now is a tremendous time to join GTTT and we’re seeing that resonate across our 10 offices around the world.
On to your question about cloud connectivity, we believe we’re very early mover in this, that the ability to connect enterprise clients to cloud services located in any number of global data centers around the world is one of our core strengths, not only can we interconnect the locations of the clients but on a seamless private EtherCloud backbone we can interconnect them to any global cloud services located in any major data center. We made a public press announcement with Equinix last month in terms of being able to facilitate that through the Equinix Global Cloud Exchange and we expect it to do with many other global cloud hosting companies to be able to interconnect into their ecosystems as well. We think one of the sure limiting factors for cloud adoption for multinational enterprises is secured direct reliable access in addition to using the public Internet to access cloud services. So we believe we are very well positioned to take advantage of that trend and facilitate the increasing adoption for multinationals of cloud services.
(Operator Instructions) We will go next to Keith LaRose with Bradley, Foster & Sargent.
Keith LaRose - Bradley, Foster & Sargent, Inc.
Hi, most of my questions were already answered. But is there a time of going out away as you reach your revenue goals that you'd become less cap or more capital intensive than you are today?
I think we've said -- thank you Keith for the question -- I think that we said is our next financial objective is to grow to $400 million and $100 million in EBITDA and I think through that next growth phase that we see our ability to maintain our capital expenditures at a 3% of revenue basis. So and most of that – as Mike had mentioned in the prepared remarks, most of that is growth capital that we continue to increase the scope and scale of the routing and switching infrastructure to connect clients to our network. And so I would say through that period we see that -- we have not -- the two most expensive Internet infrastructure assets, data centers and fiber, while we maintain ourselves in data centers around the globe, we lease those and we’ve seen very compelling economics to continue to lease those. So I would say in general over the next foreseeable growth horizon, we don't see any real need to make significant capital investments beyond – there will be the reasonable capital investments in growth capital to grow the routing and switching infrastructure and it’s a function of that, our model is very compelling that that if you look at our unlevered free cash flow EBITDA less CapEx which effectively is our cash flow, we have obviously interest that that we pay as well beyond that. It is a very very compelling business model relative to other players in the industry given our 3% CapEx to revenue ratio.
(Operator Instructions) We will go next to Jay Lee with Trafalgar Broker [ph].
Could you help me understand -- exactly what the price paid for retiring the warrants was?
The price paid for the retiring of warrants was approximately $9.5 million.
And then on the organic growth front, when you look at first quarter you had sequential growth of about 3% compared to the fourth quarter of 2013, this quarter it looked more like one -- a little over 1%. Was there anything in particular that drove a reduction in that rate?
No Jay, I would say that -- yes we grew probably about 2.8% 4Q to 2Q sequentially and about 1.2% 1Q to 2Q, so if you look at it first half of the year over fourth quarter annualized, we’re at about 7% annualized, year to date 7.2%. So I think there will always be a little bit of season – sort of the variation quarter over quarter, not seasonality. I don’t think our business is really subject to much seasonality, we see as we noted a straight up into the right performance on both revenue and EBITDA, over the 7 plus years that we’ve been -- and I've been here running the business. Though -- and I would expect that we would accelerate into the second half of the year -- that we basically said that we expect that over this next growth phase that we would to grow in the 10% range, we’ve said that in the early part of it, we might be a little bit short of that, but that we would accelerate beyond that as we look to achieve $400 million in revenue and $100 million in EBITDA and I expect going into the second half that we will achieve some very nice growth rates into the second half of the year.
And then lastly I noticed the incremental gross margin performance this quarter was very strong, little over 60%, was there any particular -- any onetime factors there or was that all just sort of strong organic performance?
I think really two things are going on that are driving that and we see those continuing. First we add incremental new sales and installs onto the business or into the business at north of 60% gross margins and we've had that pretty consistently over the past five or six quarters. And we disconnect that lower gross margins in that, so we've seen some nice trend -- upward trend in our net adds into the business or net installations in the business, and at the same time we continue to see cost of our GTT network improvements as we continue to integrate very tightly the network elements that we have. We've seen reductions in our fixed operating expense to run the network, and so we don't -- and that's a function of as I would call it incremental synergy from the acquisitions we have done in the past. We don't plan them because as I mentioned before we look to achieve generally all of our synergies within the first two quarters but we have seen incremental improvements in our network expense and that is helping also lift our gross margin.
So as we move forward, our target if we achieve a $400 million business at $100 million in EBITDA, to 25% EBITDA margins or seeing EBIT margin grow from just under 18% up to 25% and we probably see gross margin growing from 38.7% upwards of 45% when we get there. So it’s sort of a steady progression upwards and probably maintaining -- looking to maintain SG&A in that 20% range as we invest in more sales and service support organization to help grow even faster over time. So that is -- we see efficiency in general and administrative expenses and we will back fill that with a even deeper and broader selling and selling support resources.
And that does conclude our question-and-answer session. I’d now like to turn the conference back to Rick Calder for any closing remarks.
Great, I'd like to thank you very much for attending the call. I’d like to turn the call over for some closing remarks to our Chairman Brian Thompson, Brian?
Thanks, Rick. I hate to say the same things over and over again. So I will coin an expression that I call boring excitement to characterize how we are operating this company -- and boring because we continue to go on a steady pace and you take the long view about how we're going about growing. So there is nothing incredibly exciting about new technologies or new applications but there is a consistent continuing pattern of doing better and better every quarter in the business, and that’s something that to me is exciting frankly. And it proves that if you take the long view and you manage your affairs to that long view you're going to be successful in the long run.
What that’s done frankly is to put our team into a position of taking full advantage of the opportunities that to come along but more importantly what they've done in the last couple of months both in terms of new books of business in terms of doing the secondary offering, pulling that one into the company to get better equity and better performance in the marketplace of share trades. And very importantly this most recent financing puts the company into an incredibly strong position from a balance sheet point of view. With that incredibly strong position though, as Rick pointed out, and I think very very much implements the fact that we got a strong balance sheet will not affect the way in which we assess opportunities to grow through acquisition but it surely does create a much more interesting flow of opportunities. And the fact that we’ve got both a strong balance sheet with the debt that we just raised but also the quality of improvement in the equity of the company really gives us a double-barreled shotgun to do good deals and to do them well but to do them with the discipline that we've had over the past many years of making certain that those things are number one, the right thing to do for the company, and number two that they can be integrated to ensure that we have one company going forward.
It's a great -- great measure of success of the team that we’ve got in place and I congratulate them for everything they've done, and thank you all for listening.
Great, thank you very much Brian and thank you everyone for listening today. We’re very excited about reporting the second half to you over the next couple of quarters and we look forward to continued progress of GTT. Thank you.
Ladies and gentlemen this does conclude today's conference. We thank you for your participation.
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