This expertly managed mid-sized telco, who recently joined the billion-dollars-a-year in revenue club, is rapidly growing market share and acquiring global assets like Hibernia Networks. One emerging champion of the enterprise business is GTT. Other so-called “gurus” in the financial press also fell for GTT’s snake oil. ” Curiously, the market willfully ignored this critical point, latching on to a pipe dream that GTT was a disruptive force in a huge market, able to serve customers more effectively than the incumbent telco giants.
GTT BUYS INETWORK SERIES
Calder actually alludes to this later in the discussion, acknowledging that GTT “ bought a whole series of companies that aren’t growing. ” Impressive as it may have been, the problem with Calder’s growth statistic was that it was almost entirely attributable to inorganic growth from GTT’s acquisitions, not organic customer demand. On Mad Money, Rick Calder talked about how GTT had experienced tremendous growth “ over the past 5yrs of 50% per annum ,” and stated that GTT can grow “ even faster. ***Cue Narrator Voice: This is NOT what the Mad Money audience wanted.*** You keep buying to the space, which is what we want!” Jim Cramer raved about the business’ potential.Ĭramer: “We love growth on this show, because growth ultimately brings great profits. He pitched GTT as an “asset-light” telecom business competing against large incumbents in a $300-$400b market with less than 1% market share. In March 2018, right after announcing the Interoute transaction, GTT’s CEO Rick Calder went on Jim Cramer ’s Mad Money. GTT’s management did everything they could to make sure their investors were among the last to figure this out.
A possible explanation for why asset-lite telecom businesses don’t work is that controlling the asset footprint is critical to ensuring customers are receiving a consistent, high speed experience. In hindsight, GTT’s acquisition of Hibernia and Interoute could be viewed as a Band-Aid strategy for a business model that was never going to work.
Post-acquisition, the capital structure looked like this: Naturally GTT financed these acquisitions with a boatload of debt - roughly $3.2bn of debt, to be exact, which brought the company’s leverage above 7x. Interoute was GTT’s biggest acquisition yet, and the equity market cheered them on, sending the stock above $60/share. In May 2018, GTT doubled down on this new asset-heavy strategy, acquiring Interoute, the owner and operator of a large European fiber network, for $2.3bn. With this acquisition, GTT was no longer just owning capex-lite “cloud networking” services it was buying up capex-heavy undersea cables too! Hibernia was a leading provider of global, high-speed network connectivity solutions and owner of terrestrial and subsea fiber assets including Hibernia Express, the lowest latency transatlantic cable system ( PETITION Note: think of undersea cable for high frequency traders ). However, in January 2017, GTT made a drastic pivot in strategy. GTT acquired Hibernia Networks for $590mm. The equity market loved the thesis GTT’s stock rose ~28x between 20!
Management expressed this view through its acquisition strategy, buying up a mix of cloud networking and managed services providers. GTT’s management saw these legacy players as the ‘dinosaurs’ of a cloud-based, 5G-enabled future they believed that by leasing network assets rather than owning them outright, their nimble, “cloud-native” company could take market share from the incumbents. Legacy telcos were already spending billions in capex to maintain existing speeds of their networks, and would need to spend billions more to prepare these networks to handle increased workloads in the future. While these legacy players had huge asset footprints and tremendous scale, their assets were capital intensive. ($T), BT Group ($BTGOF), and Verizon Inc. GTT’s business strategy … if you want to call it that … was to position itself as an asset-lite and capex-lite telecommunications business which its management team believed would allow it to compete effectively against deeply entrenched, well-capitalized incumbents such as AT&T Inc.
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