UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q
þ☑Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017March 31, 2020
or
¨☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____

 


Commission File Number 001-35965
GTT Communications, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware20-2096338
(State or Other Jurisdiction of(I.R.S. Employer Identification No.)
Incorporation or Organization)
7900 Tysons One Place
Suite 1450
McLeanVirginia22102
(Address of principal executive offices)(Zip code)
7900 Tysons One Place
Suite 1450
McLean, Virginia 22102
(Address including zip code of principal executive offices)


(703) 442-5500
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $.0001 per shareGTTThe New York Stock Exchange
Series A Junior Participating Cumulative Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No ¨☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No ¨☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,”" "smaller reporting company," and “smaller reporting company” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Check one): 
Large Accelerated Filer☑Accelerated Filer☐
Non-Accelerated Filer☐Smaller reporting company☐
Large Accelerated Filer ¨
Accelerated Filer þ
Non-Accelerated Filer ¨
(Do not check if a smaller reporting company)
Smaller reporting company ¨
Emerging growth company¨

☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨☐




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
 
As of October 31, 2017, 43,455,120May 6, 2020, 58,819,538 shares of common stock, par value $.0001 per share, of the registrant were outstanding.
 
 





Page
34
34
Condensed Consolidated Balance Sheets
34
Condensed Consolidated Statements of Operations
45
Condensed Consolidated Statements of Comprehensive (Loss) IncomeLoss
56
Condensed Consolidated Statements of Stockholders’ Equity
7
Condensed Consolidated Statement of Stockholders’ Equity
6
Condensed Consolidated Statements of Cash Flows
78
Notes to Condensed Consolidated Financial Statements
810
28
39
40
4142
4142
4142
4142
4142
4143
4143
4244
4345


3

PART I – FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
GTT Communications, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands,millions, except for share and per share data) 
 March 31, 2020December 31, 2019
ASSETS  
Current assets:  
Cash and cash equivalents$106.4   $41.8  
Accounts receivable, net of allowances of $23.0 and $14.3, respectively149.9   162.1  
Prepaid expenses and other current assets82.1   50.4  
Total current assets338.4  254.3  
Property and equipment, net1,765.4   1,817.4  
Operating lease right of use assets335.9  357.5  
Intangible assets, net465.4  490.7  
Goodwill1,763.7    1,768.6  
Other long-term assets70.2  69.2  
Total assets$4,739.0  $4,757.7  
LIABILITIES AND STOCKHOLDERS’ EQUITY
  
Current liabilities:  
Accounts payable$101.4   $69.4  
Accrued expenses and other current liabilities273.4   240.8  
Operating lease liabilities72.6  74.9  
Finance lease liabilities5.4  4.6  
Long-term debt, current portion29.6   30.2  
Deferred revenue83.8   67.0  
Total current liabilities566.2  486.9  
Operating lease liabilities, long-term portion254.7  272.9  
Finance lease liabilities, long-term portion36.4  37.3  
Long-term debt, long-term portion3,228.4  3,192.6  
Deferred revenue, long-term portion255.2  266.5  
Deferred tax liabilities167.7  171.3  
Other long-term liabilities33.6  39.1  
Total liabilities4,542.2  4,466.6  
Commitments and contingencies
Stockholders’ equity:
  
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 58,451,083 and 56,686,459 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively—  —  
Additional paid-in capital850.4  842.4  
Accumulated deficit(566.6) (474.2) 
Accumulated other comprehensive loss(87.0) (77.1) 
Total stockholders’ equity
196.8  291.1  
Total liabilities and stockholders’ equity
$4,739.0  $4,757.7  
 September 30, 2017 December 31, 2016
ASSETS 
  
Current assets: 
  
Cash and cash equivalents$34,799
 $29,748
Accounts receivable, net of allowances of $3,831 and $2,656, respectively123,332
 76,292
Deferred costs2,865
 3,415
Prepaid expenses18,575
 5,765
Other assets6,527
 3,565
Total current assets186,098
 118,785
Restricted cash and cash equivalents—
 304,266
Property and equipment, net494,501
 43,369
Intangible assets, net412,964
 193,936
Goodwill593,106
  280,593
Other long-term assets46,273
 12,312
Total assets$1,732,942
 $953,261
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
  
Current liabilities: 
  
Accounts payable$23,063
 $11,334
Accrued expenses and other current liabilities92,889
 36,888
Acquisition earn-outs and holdbacks17,634
 24,379
Current portion of capital lease obligations1,648
 1,015
Current portion of long-term debt7,000
 4,300
Deferred revenue61,608
 17,875
Total current liabilities203,842
 95,791
Capital lease obligations, long-term portion412
 120
Long-term debt1,108,885
 725,208
Deferred revenue, long-term portion112,042
 3,416
Deferred tax liability27,667
 —
Other long-term liabilities8,129
 967
Total liabilities1,460,977
 825,502
Commitments and contingencies

 

Stockholders’ equity:
 
  
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 43,439,282 and 37,228,144 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively4
 3
Additional paid-in capital351,280
 197,326
Accumulated deficit(75,374) (64,641)
Accumulated other comprehensive loss(3,945) (4,929)
Total stockholders’ equity
271,965
 127,759
Total liabilities and stockholders’ equity
$1,732,942
 $953,261
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements


GTT Communications, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except for share and per share data)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
        
Revenue:       
Telecommunications services$198,858
 $131,851
 $567,439
 $385,201

       
Operating expenses:       
Cost of telecommunications services100,068
 68,184
 284,855
 202,653
Selling, general and administrative expenses51,966
 37,177
 151,595
 105,311
Severance, restructuring and other exit costs11,125
 (625) 21,848
 870
Depreciation and amortization32,847
 14,880
 94,670
 46,139

       
Total operating expenses196,006
 119,616
 552,968
 354,973

       
Operating income2,852
 12,235
 14,471
 30,228

       
Other expense:       
Interest expense, net(18,251) (7,123) (50,707) (21,620)
Loss on debt extinguishment(2,988) —
 (8,647) (1,632)
Other expense, net220
 (74) 184
 (542)

       
Total other expense(21,019) (7,197) (59,170) (23,794)

      
   
(Loss) income before income taxes(18,167) 5,038
 (44,699)
6,434

       
(Benefit from) provision for income taxes(8,648) (89) (22,719) 320

      
   
Net (loss) income$(9,519) $5,127
 $(21,980) $6,114

      
   
(Loss) earnings per share:       
Basic$(0.23) $0.14
 $(0.53) $0.17
Diluted$(0.23) $0.14
 $(0.53) $0.16

       
Weighted average shares:       
Basic41,762,693
 37,152,063
 41,160,317
 36,998,607
Diluted41,762,693
 37,785,921
 41,160,317
 37,481,414


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

4




GTT Communications, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in millions, except for share and per share data)
 Three Months Ended March 31,
 20202019
Revenue:
Telecommunications services$424.7  $450.2  
Operating expenses:
Cost of telecommunications services237.7  241.8  
Selling, general and administrative expenses108.2  104.1  
Severance, restructuring and other exit costs2.1  2.8  
Depreciation and amortization67.5  62.8  
Total operating expenses415.5  411.5  
Operating income9.2  38.7  
Other expenses:
Interest expense, net(48.8) (48.2) 
Loss on debt extinguishment(2.3) —  
Other expenses, net(43.3) (16.0) 
Total other expenses(94.4) (64.2) 
Loss before income taxes(85.2) (25.5) 
(Benefit from) provision for income taxes(1.9) 1.8  
Net loss$(83.3) $(27.3) 
Loss per share:
Basic$(1.45) $(0.49) 
Diluted$(1.45) $(0.49) 
Weighted average shares:
Basic57,259,699  55,839,212  
Diluted57,259,699  55,839,212  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

5


GTT Communications, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) IncomeLoss
(Unaudited)
(Amounts in thousands)millions)
 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
        
Net (loss) income$(9,519) $5,127
 $(21,980) $6,114

       
Other comprehensive income (loss): 
  
    
Foreign currency translation adjustment471
 (215) 984
 (2,126)
Comprehensive (loss) income$(9,048) $4,912
 $(20,996) $3,988
 Three Months Ended March 31,
 20202019
Net loss$(83.3) $(27.3) 
Other comprehensive loss:  
Foreign currency translation adjustment(9.9) (35.9) 
Comprehensive loss$(93.2) $(63.2) 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
 

6




GTT Communications, Inc.
Condensed Consolidated StatementStatements of Stockholders’ Equity
(Unaudited)
(Amounts in thousands,millions, except for share data)
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
SharesAmount
Balance, December 31, 201956,686,459  $—  $842.4  $(474.2) $(77.1) $291.1  
Adoption of ASU 2016-13—  —  —  (9.1) —  (9.1) 
Share-based compensation for restricted stock issued1,764,788  —  8.2  —  —  8.2  
Tax withholding related to the vesting of restricted stock(23,783) —  (0.3) —  —  (0.3) 
Stock issued in connection with employee stock purchase plan23,619  —  0.1  —  —  0.1  
Net loss—  —  —  (83.3) —  (83.3) 
Foreign currency translation—  —  —  —  (9.9) (9.9) 
Balance, March 31, 202058,451,083  $—  $850.4  $(566.6) $(87.0) $196.8  

  Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total
 
  Shares Amount
             
 Balance, December 31, 201637,228,144
 $3
 $197,326
 $(64,641) $(4,929) $127,759
             
 Share-based compensation for options issued—
 —
 1,029
 —
 —
 1,029
             
 Share-based compensation for restricted stock issued858,285
 —
 14,802
 —
 —
 14,802
             
 Tax withholding related to the vesting of restricted stock units(208,481) —
 (3,217) —
 —
 (3,217)
             
 Stock issued in connection with employee stock purchase plan21,018
 —
 582
 —
 —
 582
             
 Stock issued in connection with acquisition5,179,872
 1
 139,740
 —
 —
 139,741
             
 Stock options exercised360,444
 —
 1,018
 —
 —
 1,018
             
 Cumulative effect of adjustment for unrecognized windfall benefits—
 —
 —
 11,247
 —
 11,247
             
 Net loss—
 —
 —
 (21,980) —
 (21,980)
             
 Foreign currency translation—
 —
 —
 —
 984
 984
             
 Balance, September 30, 201743,439,282
 $4
 $351,280
 $(75,374) $(3,945) $271,965
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal
SharesAmount
Balance, December 31, 201855,625,149  $—  $809.9  $(368.3) $(26.9) $414.7  
Share-based compensation for options issued—  —  0.2  —  —  0.2  
Share-based compensation for restricted stock issued562,385  —  8.5  —  —  8.5  
Tax withholding related to the vesting of restricted stock(9,307) —  (0.3) —  —  (0.3) 
Stock issued in connection with employee stock purchase plan14,061  —  0.1  —  —  0.1  
Stock issued in connection with acquisitions(6,954) —  (0.3) —  —  (0.3) 
Stock options exercised41,704  —  0.4  —  —  0.4  
Net loss—  —  —  (27.3) —  (27.3) 
Foreign currency translation—  —  —  —  (35.9) (35.9) 
Balance, March 31, 201956,227,038  $—  $818.5  $(395.6) $(62.8) $360.1  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

7


GTT Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)millions)


Nine Months Ended September 30, Three Months Ended March 31,
2017 2016 20202019
Cash flows from operating activities: 
  
Cash flows from operating activities:  
Net (loss) income$(21,980) $6,114
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Net lossNet loss$(83.3) $(27.3) 
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization94,670
 46,139
Depreciation and amortization67.5  62.8  
Share-based compensation15,960
 10,896
Share-based compensation8.3  8.7  
Debt discount amortization498
 600
Debt discount amortization1.8  1.9  
Loss on debt extinguishment8,647
 1,632
Loss on debt extinguishment2.3  —  
Amortization of debt issuance costs2,638
 1,188
Amortization of debt issuance costs1.4  1.2  
Change in fair value of derivative financial liabilityChange in fair value of derivative financial liability33.5  15.3  
Excess tax benefit from stock-based compensation(5,365) —
Excess tax benefit from stock-based compensation1.0  0.3  
Deferred income taxes(18,347) —
Deferred income taxes(4.5) 1.0  
Non-cash deferred revenue(28,018) (4,964)
Non-cash deferred costs4,253
 1,999
Changes in operating assets and liabilities, net of acquisitions:   Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net(7,375) (19,887)Accounts receivable, net0.2  (53.7) 
Prepaid expenses and other current assets3,762
 (1,180)Prepaid expenses and other current assets(32.5) (5.4) 
Deferred costs and other assets(500) (4,358)
Other long-term assetsOther long-term assets9.7  1.8  
Accounts payable(15,680) (8,816)Accounts payable26.2  12.1  
Accrued expenses and other current liabilities24,093
 (3,605)Accrued expenses and other current liabilities3.0  (12.1) 
Deferred revenue and other liabilities(10,165) 7,009
Operating lease liabilitiesOperating lease liabilities2.1  —  
Deferred revenueDeferred revenue9.7  2.6  
Other long-term liabilitiesOther long-term liabilities(4.9) 6.9  
Net cash provided by operating activities47,091
 32,767
Net cash provided by operating activities41.5  16.1  
   
Cash flows from investing activities: 
  Cash flows from investing activities: 
Acquisition of businesses, net of cash acquired(652,776) (14,146)Acquisition of businesses, net of cash acquired—  (0.5) 
Purchase of customer contracts(14,943) (6,000)
Change in restricted cash and cash equivalents304,266
 —
Purchases of property and equipment(26,865) (17,813)Purchases of property and equipment(22.0) (32.1) 
Net cash used in investing activities(390,318) (37,959)Net cash used in investing activities(22.0) (32.6) 
   
Cash flows from financing activities: 
  Cash flows from financing activities: 
Proceeds from revolving line of credit—
 33,000
Proceeds from revolving line of credit55.0  26.0  
Repayment of revolving line of credit(20,000) (32,000)Repayment of revolving line of credit(130.0) —  
Proceeds from term loan696,500
 29,850
Repayment of term loan(431,025) (3,150)
Proceeds from senior note159,000
 —
Payment of earn-out and holdbacks(22,646) (15,563)
Debt issuance costs(29,881) (904)
Repayment of capital leases(981) (1,433)
Proceeds from term loans, net of original issuance discount and costs paid to lendersProceeds from term loans, net of original issuance discount and costs paid to lenders131.0  —  
Repayment of term loansRepayment of term loans(6.5) (6.5) 
Repayment of other secured borrowingsRepayment of other secured borrowings(2.3) (5.1) 
Payment of holdbacksPayment of holdbacks—  (3.3) 
Debt issuance costs paid to third partiesDebt issuance costs paid to third parties(2.3) —  
Repayment of finance leasesRepayment of finance leases(2.1) (0.6) 
Proceeds from issuance of common stock under employee stock purchase plan453
 1,045
Proceeds from issuance of common stock under employee stock purchase plan0.4  0.1  
Tax withholding related to the vesting of restricted stock units(3,217) (3,442)
Tax withholding related to the vesting of restricted stockTax withholding related to the vesting of restricted stock(0.3) (0.3) 
Exercise of stock options1,018
 468
Exercise of stock options—  0.4  
Net cash provided by financing activities349,221
 7,871
Net cash provided by financing activities42.9  10.7  
   
Effect of exchange rate changes on cash(943) (1,902)Effect of exchange rate changes on cash2.2  1.2  
   
Net increase in cash and cash equivalents5,051
 777
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash64.6  (4.6) 
   
Cash and cash equivalents at beginning of period29,748
 14,630
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period41.8  55.3  
   
Cash and cash equivalents at end of period$34,799
 $15,407
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$106.4  $50.7  
   
Supplemental disclosure of cash flow information: 
  
Supplemental disclosure of cash flow information:  
Cash paid for interest$38,984
 $19,894
Cash paid for interest$32.0  $32.0  
Cash paid for income taxes, net of refunds$587
 $408
Cash paid for income taxes, netCash paid for income taxes, net—  (0.1) 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
 

9


GTT Communications, Inc. 
Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 — ORGANIZATION AND BUSINESS
 
Organization and Business
 
GTT Communications, Inc. (“GTT”("GTT" or the "Company") is a providerserves large enterprise and carrier clients with complex national and global networking needs, and differentiates itself from the competition by providing an outstanding service experience built on its core values of cloud networking services to multinational clients.simplicity, speed and agility. The Company offersoperates a broad portfolio of global services including: private networking services, Internet services, optical transport, managed networking and security services, voice and unified communication services, and video transport services.

GTT's global Tier 1 IPinternet network delivers connectivity to clients aroundranked among the world.largest in the industry, and owns a fiber network that includes an expansive pan-European footprint and subsea cables. The Company's global network includes over 600 points of presence ("PoPs") spanning 6 continents, and the Company provides services to leading multinational enterprise, carrier, and government customers.in more than 140 countries.


Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the fiscal year ended December 31, 2016,2019, included in the Company’s Annual Report on Form 10-K filed on March 8, 2017.2, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to such rules and regulations.


The condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position and its results of operations. The operating results for the three and nine months ended September 30, 2017March 31, 2020 are not necessarily indicative of the results to be expected for the full fiscal year 20172020 or for any other interim period. The December 31, 20162019 consolidated balance sheet is condensed from the audited financial statements as of that date, but does not include all disclosures required by GAAP.date.
Reclassification Within Condensed Consolidated Statement of Cash Flows

As a result of policy alignments related to acquired businesses, certain prior period amounts in the condensed consolidated statements of cash flows, have been reclassified to conform with the current period presentation to better reflect the nature of these activities. The Company has reclassified $5.0 million from the "Deferred revenue and other liabilities" line to the "Non-cash deferred revenue" line and $2.0 million from the "Deferred costs and other assets" line to the "Non-cash deferred costs" line for the nine months ended September 30, 2016. These reclassifications had no impact on the net change in cash and cash equivalents or cash flows from operating, investing and financing activities for any periods presented.


Use of Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used when establishing allowances for doubtful accounts, and accruals for billing disputes and exit activities, determining useful lives for depreciation and amortization, and accruals for exit activities, assessing the need for impairment charges (including those related to intangible assets and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, assessing the fair value of derivative financial instruments, accounting for income taxes and related valuation allowances against deferred tax assets, and estimating the grant date fair values used to compute the share-based compensation expense. Management evaluates these estimates and judgments on an ongoing basis and makes estimates based on historical experience, current conditions, and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

Segment Reporting

The Company reports operating results and financial data in one operating and reporting segment. The Company's Chief Executive Officer is the chief operating decision maker and manages the Company as a single profit center in orderconditions, including but not limited to promote collaboration, provide comprehensive service offerings across its entire customer base, and provide incentivesassumptions or conditions due to employees based on the success


uncertainty of the organization as a whole. Although certain information regarding selected products or services are discussed for purposes of promoting an understandingmagnitude and duration of the Company's complex business,impacts of the chief operating decision maker managesCOVID-19 pandemic in the Company and allocates resources at the consolidated level.current economic environment.


Revenue Recognition

The Company delivers six primary services to its customers — optical transport, WAN connectivity services, high bandwidth Internet connectivity services, managed network and security services, global communication and collaboration services, and video transport services. Certain of its current commercial activities have features that may be considered multiple elements, specifically when the Company sells its connectivity services in addition to customer premise equipment ("CPE"). The Company believes that there is sufficient evidence to determine each element’s fair value and, as a result, in those arrangements where there are multiple elements, the service revenue is recorded ratably over the term of the agreement and the equipment is accounted for as a sale, at the time of sale as long as collectability is reasonably assured.

The Company's revenue is derived primarily from telecommunications services, which includes both revenue from contracts with customers and lease revenues. Lease revenue services include dark fiber, duct, and colocation services. All other services are considered revenue from contracts with customers. Revenue from contracts with customers is recognized when services are provided under contracts that typically include an installation charge along with payments of recurring charges on a monthly basis for use of the services over a committed term. Its contracts with customers specify the terms and conditions for providing such services, including installation date, recurring and non-recurring fees, payment terms, and length of term. These contracts call for the Company to provide the service in question (e.g., data transmission between point A and point Z), to manage the activation process, and to provide ongoing support (in the form of service maintenance and trouble-shooting) during the service term. The contracts do not typically provide the customer any rights to use specifically identifiable assets. Furthermore, the contracts generally provide the Company with discretion to engineer (or re-engineer) a particular network solution to satisfy each customer’s data transmission requirement, and typically prohibit physical access by the customer to the network infrastructure used by the Company and its suppliers to deliver the services.

The Company recognizes revenue as follows:
Recurring Revenue. Recurring revenue represents the substantial majority of the Company's revenue, and consists of fees charged for ongoing services that are generally fixed in price and billed on a recurring monthly basis (one month in advance) for a specified term. At the end of the term, most contracts provide for a continuation of services on the same terms, either for a specified renewal period (e.g., one year) or on a month-to-month basis. The Company records recurring revenue based on the fees agreed to in each contract, as long as the contract is in effect.

Usage Revenue. Usage revenue represents variable charges for certain services, based on specific usage of those services, or usage above a fixed threshold, billed monthly in arrears. The Company records usage revenue based on actual usage charges billed using the rates and/or thresholds specified in each contract.

Non-recurring Revenue. Non-recurring revenue consists of charges for installation in connection with the delivery of recurring communications services, late payments, cancellation fees, early termination fees, and equipment sales. Fees billed for installation services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service. Fees charged for late payments, cancellation (pre-installation) or early termination (post-installation) are typically fixed or determinable per the terms of the respective contract, and are recognized as revenue when billed. In addition, from time to time the Company sells communications and/or networking equipment to its customers in connection with its data networking services. The Company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer, (generally F.O.B. origin).

Prepaid Capacity Sales and Indefeasible Right to Use. From time to timein an amount that reflects the consideration the Company sells capacity on a long-term basis, where a certain portion of the contractedexpects to receive in exchange for those services. Lease revenue is prepaid upon acceptance of the service by the customer. This prepaid amount is initially recorded as deferred revenue and amortized ratably over the term of the contract. Certain of these prepaid capacity sales are in the form of Indefeasible Rights to Use ("IRUs"),represents an arrangement where the customer has the right to use the capacityan identified asset for the life of the fiber optic cable.  The Company records revenues from these prepaid leases of fiber optic cable IRUsa specified term and such revenue is recognized over the term that the customer is given exclusive access to the assets, generally 20 years, consistentasset.

Primary geographical market. The Company’s operations are located primarily in the United States and Europe. The nature and timing of revenue from contracts with our assumed useful life ofcustomers across geographic markets is similar. The following table presents the associated fiber optic cable.

10

The Company recordsCompany's revenue only when collectability is reasonably assured, irrespective of the type of revenue.from contracts with customers disaggregated by primary geographic market based on legal entities (in millions):

Three Months Ended March 31,
20202019
Primary geographic market:
United States$171.7  $204.2  
Europe205.3  196.5  
Other9.0  11.9  
Total revenue from contracts with customers386.0  412.6  
Lease revenue38.7  37.6  
Total telecommunications services revenue$424.7  $450.2  

Universal Service Fund ("USF"), Gross Receipts Taxes and Other Surcharges



The Company is liable in certain cases for collecting regulatorySurcharges.USF fees and/or certain sales taxes from itsand other surcharges billed to customers and remittingrecorded on a gross basis (as service telecommunications services revenue and cost of telecommunications services) were $5.6 million and $5.9 million for the feesthree months ended March 31, 2020 and taxes2019, respectively.

Contract balances. Contract assets consist of conditional or unconditional rights to the applicable governing authorities. Whereconsideration. Accounts receivable represent amounts billed to customers where the Company collects on behalf of a regulatory agency, thehas an enforceable right to payment for performance completed to date (i.e., unconditional rights to consideration). The Company does not record anyhave contract assets that represent conditional rights to consideration. The Company’s accounts receivable balance at March 31, 2020 and December 31, 2019 includes $134.4 million and $145.9 million, respectively, related to contracts with customers. There were no other contract assets as of March 31, 2020 or December 31, 2019.

Contract liabilities are generally limited to deferred revenue. The Company records applicable taxes onDeferred revenue is a net basis.

Cost of Telecommunications Services

Cost of telecommunications services includes direct costs incurred in accessing other telecommunications providers’ networks in order to maintain the Company's global Tier 1 IP network and provide telecommunication servicescontract liability, representing advance consideration received from customers primarily related to the pre-paid capacity sales, where transfer of control occurs over time, and therefore revenue is recognized over the related contractual service period. The Company's customers, including access, co-location,contract liabilities were $82.0 million and usage-based charges.$76.0 million as of March 31, 2020 and December 31, 2019, respectively. The change in contract liabilities during the three months ended March 31, 2020 included $3.8 million for revenue recognized that was included in the contract liability balance as of January 1, 2020 and $10.7 million for new contract liabilities net of amounts recognized as revenue during the three months ended March 31, 2020.

Share-Based Compensation

The Company issues three types of equity grants under its share-based compensation plan: time-based restricted stock, time-based stock options and performance-based restricted stock. The time-based restricted stock and stock options generally vest over a four-year period, contingent upon meeting the requisite service period requirement. Performance awards typically vest over a shorter period, e.g. one to two years, starting when the performance criteria established in the grant have been met.

The share price of the Company's common stock as reported on the NYSE MKT on the date of grant is used as the fair value for all restricted stock. The Company uses the Black-Scholes option-pricing model to determine thefollowing table includes estimated fair value for stock options. Critical inputs into the Black-Scholes option-pricing model include the following: option exercise price; fair value of the stock;revenue from contracts with customers expected life of the option; annualized volatility of the stock; annual rate of quarterly dividends on the stock; and risk-free interest rate.

Implied volatility is calculated as of each grant date based on our historical stock price volatility along with an assessment of a peer group. Other than the expected life of the option, volatility is the most sensitive input to our option grants. The risk-free interest rate used in the Black-Scholes option-pricing model is determined by referencing the U.S. Treasury yield curve rates with the remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on our historical analysis of attrition levels. Forfeiture estimates are updated quarterly for actual forfeitures.

The expense is recognized on a straight-line basis over the vesting period. The Company recognizes share-based compensation expense for performance awards when the Company considers the achievement of the performance criteria to be probable.

Income Taxes
Income taxes are accounted for under the asset and liability method pursuant to GAAP. Under this method, deferred tax assets and liabilities are recognized for the expected future consequences attributable to the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. Further, deferred tax assets are recognized for the expected realization of available net operating loss and tax credit carryforwards. A valuation allowance is recorded on gross deferred tax assets when it is “more likely than not” that such asset will not be realized. When evaluating the realizability of deferred tax assets, all evidence, both positive and negative, is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings. The Company reviews its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based upon these factors. Changes in the Company's assessment of the need for a valuation allowance could give rise to a change in such allowance, potentially resulting in additional expense or benefit in the period of change.

The Company's income tax provision includes U.S. federal, state, local and foreign income taxes and is based on pre-tax income or loss. In determining the annual effective income tax rate, the Company analyzes various factors, including its annual earnings and taxing jurisdictions in which the earnings were generated, the impact of state and local income taxes and its ability to use tax credits and net operating loss carryforwards.

Under GAAP for income taxes, the amount of tax benefit to be recognized isfor each of the amountyears subsequent to March 31, 2020 related to performance obligations that are unsatisfied (or partially unsatisfied) at March 31, 2020 and have an original expected duration of benefit that is “more likelygreater than not”one year (amounts in millions):

2020 remaining$13.7  
202115.2  
202214.4  
202312.8  
20248.0  
2025 and beyond17.9  
$82.0  

For a table of estimated revenue to be sustained upon examination. The Company analyzes its tax filing positions in allrecognized for consolidated deferred revenue for each of the U.S. federal, state, local and foreign tax jurisdictions where it is requiredyears subsequent to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist,March 31, 2020 refer to Note 6 - Deferred revenue.

Deferred costs to obtain a liability is established in the consolidated financial statements. The Company recognizes accrued interest and penalties related to unrecognized tax positions in the provision for income taxes.






Comprehensive (Loss) Income
In addition to net (loss) income, comprehensive (loss) income includes certain charges or credits to equity occurring other than as a result of transactions with stockholders. For the Company, this consists of foreign currency translation adjustments.

(Loss) Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of common shares outstanding. Diluted (loss) earnings per share reflect, in periods with earnings and in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options.

The table below details the calculations of (loss) earnings per share (in thousands, except for share and per share amounts):  
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Numerator for basic and diluted EPS – (loss) earnings available to common stockholders$(9,519) $5,127
 $(21,980) $6,114
Denominator for basic EPS – weighted average shares41,762,693
 37,152,063
 41,160,317
 36,998,607
Effect of dilutive securities—
 633,858
 —
 482,807
Denominator for diluted EPS – weighted average shares41,762,693
 37,785,921
 41,160,317
 37,481,414
        
(Loss) earnings per share: basic$(0.23) $0.14
 $(0.53) $0.17
(Loss) earnings per share: diluted$(0.23) $0.14
 $(0.53) $0.16
All of the stock optionscontract. Deferred sales commissions were anti-dilutive as of September 30, 2017 due to the net loss incurred during the period. There were approximately 4,000 anti-dilutive common shares that were excluded from the computation of earnings per share as of September 30, 2016. 

Cash and Cash Equivalents
Cash and cash equivalents may include deposits with financial institutions as well as short-term money market instruments, certificates of deposit and debt instruments with maturities of three months or less when purchased.

The Company invests its cash and cash equivalents and short-term investments in accordance with the terms and conditions of its Credit Agreement, which seeks to ensure both liquidity and safety of principal. The Company’s policy limits investments to instruments issued by the U.S. government and commercial institutions with strong investment grade credit ratings, and places restrictions on the length of maturity. As of September 30, 2017, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or non-government guaranteed mortgage-backed securities.

Restricted Cash and Cash Equivalents

Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents. In December 2016, the Company completed a private offering of $300.0 million aggregate principal amount of 7.875% senior unsecured notes due in 2024. The proceeds of the private offering plus 60 days of prepaid interest, were deposited into escrow, where the funds remained until the closing of the acquisition of Hibernia Networks ("Hibernia") that occurred in January 2017. The proceeds were released from escrow at closing to fund the Hibernia acquisition.

Accounts Receivable, Net


Accounts receivable balances are stated at amounts due from the customer net of an allowance for doubtful accounts. Credit extended is based on an evaluation of the customer’s financial condition and is granted to qualified customers on an unsecured basis.
The Company, pursuant to its standard service contracts, is entitled to impose a monthly finance charge of a certain percentage per month with respect to amounts that are past due. The Company’s standard terms require payment within 30 days of the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment date set forth in the applicable service contract.
The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade receivables are past due, the customer’s payment history and current ability to pay its obligation to the Company, and the condition of the general economy. Specific reserves are also established on a case-by-case basis by management. Credit losses have been within management's estimates. Actual bad debts, when determined, reduce the allowance, the adequacy of which management then reassesses. The Company writes off accounts after a determination by management that the amounts at issue are no longer likely to be collected, following the exercise of reasonable collection efforts, and upon management's determination that the costs of pursuing collection outweighs the likelihood of recovery. The allowance for doubtful accounts was $3.8$24.7 million and $2.7$23.0 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
Deferred Costs

Installation costs There were no other significant amounts of assets recorded related to provisioningcontract costs as of recurring communications services that the Company incurs from independent third party suppliers, directly attributable and necessary to fulfill a particular service contract, and which would not have been incurred but for the occurrence of that service contract, are recorded as deferred costs and expensed ratably over the contractual term of service in the same manner as the deferred revenue arising from that contract. Based on historical experience, the Company believes the initial contractual term is the best estimate for the period of earnings. If any installation costs exceed the amount of corresponding deferred revenue, the excess cost is recognized in the current period.March 31, 2020 or December 31, 2019.


Property and Equipment
 
Property
11

Depreciation expense associated with property and equipment, are stated at cost, netincluding amortization of accumulated depreciation.Depreciation on thesefinance lease assets, is computed on a straight-line basis overwas $46.4 million and $40.7 million for the estimated useful livesthree months ended March 31, 2020 and 2019, respectively.

The Company capitalized labor costs, including indirect and overhead costs, of $3.8 million and $4.2 million for the assets. Assets are recorded at acquired cost plus any internal labor to preparethree months ended March 31, 2020 and 2019, respectively. The Company capitalized software costs of $1.1 million and $1.1 million for the asset for installation to become functional. Assetsthree months ended March 31, 2020 and liabilities under capital leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. Leasehold improvements and assets under capital leases are amortized over the shorter of the term of the lease, excluding optional extensions, or the useful life. Expenditures for maintenance and repairs are expensed as incurred. Depreciable lives used by the Company for its classes of assets are as follows:2019, respectively.
Freehold Land and Buildings30 years
Furniture and Fixtures7 years
Fiber Optic Cable20 years
Fiber Optic Network Equipment5 - 15 years
Leasehold Improvementsup to 10 years
Computer Hardware and Software3-5 years


The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the carrying amount of an asset were to exceed its estimated future undiscounted cash flows, the asset would be considered to be impaired. Impairment losses would then be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of, if any, are reported at the lower of the carrying amount or fair value less costs to sell.

Software Capitalization
Software development costs include costs to develop software programs to be used solely to meet the Company's internal needs. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a function it previously did not perform. Software maintenance, data conversion and training costs are expensed in the period in which they are incurred. The Company capitalized software costs


of $0.4 million and $0.4 million for the three months ended September 30, 2017 and 2016, respectively, and $1.2 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is reviewed for impairment at least annually, in October, or more frequently if a triggering event occurs between impairment testing dates. There were no goodwill impairments identified for the nine months ended September 30, 2017.

Intangible assets arising from business combinations, such as acquired customer contracts and relationships, (collectively "customer relationships"), trade names, intellectual property or know-how, are initially recorded at fair value. The Company amortizes these intangible assets over the determined useful life which generally ranges from three to eight years. The Company reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were no intangible asset impairments recognized for the nine months ended September 30, 2017.

Business Combinations
The Company includes the results of operations of the businesses that it acquires commencing on the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Asset Purchases
Periodically the Company acquires customer contracts that it accounts for as an asset purchase and records a corresponding intangible asset that is amortized over its estimated useful life. No goodwill is recorded in an asset purchase. During the nine months ended September 30, 2017, the Company acquired customer contracts for an aggregate purchase price of $37.3 million, of which $14.9 million was paid during the nine months ended September 30, 2017 at the acquisitions' respective closing dates. Of the remaining $22.4 million, $2.9 million was paid during the nine months ended September 30, 2017 and the remaining $19.5 million is expected to be paid in the remainder of 2017 and 2018, subject to any indemnification claims made through the final payment date. During 2016, the Company acquired customer contracts for an aggregate purchase price of $41.3 million, of which $20.0 million was paid in 2016 at the respective closing dates, and $6.0 million was paid during the nine months ended September 30, 2016. Of the remaining $21.3 million, $18.0 million was paid during the nine months ended September 30, 2017 and the remaining $3.3 million is expected to be paid in the remainder of 2017, subject to any indemnification claims made through the final payment dates.

Accrued Supplier Expenses
The Company accrues estimated charges owed to its suppliers for services. The Company bases this accrual on the supplier contract, the individual service order executed with the supplier for that service, and the length of time the service has been active.

Disputed Supplier Expenses

In the normal course of business, the Company identifies errors by suppliers with respect to the billing of services. The Company performs bill verification procedures to ensure that errors in the Company's suppliers' billed invoices are identified and resolved. If the Company concludes that a vendor has billed inaccurately, the Company will record a liability only for the amount that it believes is owed. As of September 30, 2017,March 31, 2020 and December 31, 2019, the Company had open disputes not accrued for of $4.2 million. As of December 31, 2016, the Company had$28.8 million and $12.2 million, respectively, and open disputes not accrued for of $5.8 million.

Acquisition Earn-outs and Holdbacks

Acquisition earn-outs and holdbacks represent either contingent consideration subject to re-measurement to fair value, or fixed deferred consideration to be paid out at some pointdisputes in the future, typically on the one-year anniversaryform of an acquisition. Contingent consideration is remeasured to fair value at each reporting period. The portionreceivables from suppliers of the deferred consideration due within one year is recorded as a current liability until paid, and any consideration due beyond one year is recorded in other long-term liabilities.

As of September 30, 2017 and December 31, 2016, there was no contingent consideration subject to re-measurement outstanding.

Debt Issuance Costs



Debt issuance costs represent costs that qualify for deferral associated with the issuance of new debt or the modification of existing debt facilities. The unamortized balance of debt issuance costs is presented as a reduction to the carrying value of long-term debt. Debt issuance costs are amortized and recognized on the condensed consolidated statements of operations as interest expense. The unamortized debt issuance costs were $30.8$36.0 million and $9.3$10.7 million, as of September 30, 2017 and December 31, 2016, respectively.

Original Issuance Discounts and Premiums

Original issuance discounts and premiums ("OID") is the difference between the face value of debt and the amount of principal received when the loan was originated. When the debt reaches maturity, the face value of the debt is payable. The Company recognizes OID by accretion of the discount or premium as interest expense, net over the term of the debt. The unamortized portion of the OID was a $1.9 million net premium and a $7.0 million discount as of September 30, 2017 and December 31, 2016, respectively.

Translation of Foreign Currencies
For non-U.S. subsidiaries, the functional currency is evaluated at the time of the Company's acquisition of such subsidiaries and on a periodic basis for financial reporting purposes. These condensed consolidated financial statements have been reported in U.S. Dollars by translating asset and liability amounts of foreign subsidiaries at the closing currency exchange rate, equity amounts at historical rates, and the results of operations and cash flow at the average currency exchange rate prevailing during the periods reported. The net effect of such translation gains and losses are reflected in accumulated other comprehensive loss in the stockholders' equity section of the condensed consolidated balance sheets.

 Transactions denominated in foreign currencies other than a subsidiary's functional currency are recorded at the rates of exchange prevailing at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising upon settlement of a transaction are reported in the condensed consolidated statements of operations in other expense, net.

Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies certain assets and liabilities based on the following hierarchy of fair value:

Level 1:Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.

Level 2:Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument's valuation.

When determining the fair value measurements for assets and liabilities required to be recorded at fair value, management considers the principal or most advantageous market in which it would transact and considers risks, restrictions, or other assumptions that market participants would use when pricing the asset or liability.

As of September 30, 2017 and December 31, 2016, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, and acquisition earn-outs and holdbacks approximated fair value due to the short-term nature of these instruments.

The table below presents the fair values for the Company's long-term debt as well as the input level used to determine these fair values as of September 30, 2017 and December 31, 2016. The carrying amounts exclude any debt issuance costs or original issuance discount:



      Fair Value Measurement Using
  Total Carrying Value in Consolidated Balance Sheet 
Unadjusted Quoted Prices in Active Markets for Identical Assets or Liabilities (1)
(Level 1)
(amounts in thousands) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Liabilities not recorded at fair value in the Financial Statements:        
Long-term debt, including the current portion:        
Term loan $694,750
 $425,775
 $699,440
 $425,775
Senior notes 450,000
 300,000
 478,125
 300,000
Total long-term debt, including current portion $1,144,750
 $725,775
 $1,177,565
 $725,775
(1) Fair value based on the bid quoted price.

Assets measured at fair value on a non-recurring basis include goodwill, tangible assets, and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).
Concentrations of Credit Risk

Financial instruments potentially subject to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. At times during the periods presented, the Company had funds in excess of $250,000 insured by the U.S. Federal Deposit Insurance Corporation, or in excess of similar Deposit Insurance programs outside of the United States, on deposit at various financial institutions. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company's trade accounts receivable are generally unsecured and geographically dispersed. No single customer's trade accounts receivable balance as of September 30, 2017 or December 31, 2016 exceeded 10% of the Company's consolidated accounts receivable, net. No single customer accounted for more than 10% of revenue for the nine months ended September 30, 2017 and 2016.


Newly Adopted Accounting Principles


In MarchJune 2016, the FASB issued ASU 2016-13, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, ImprovementsInstruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendment to Employee Share-Based Payment Accounting, whichthe initial guidance, ASU 2018-19, in November 2018. The updated guidance introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The new guidance is intended to improve the accountingeffective for share-based payment transactions.interim and annual reporting periods beginning after December 15, 2019. The ASU changes five aspects of the accounting for share-based payment award transactions: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for taxes. The Company adopted ASU 2016-09 effective January 1, 2017. Excess tax benefits for share-based payments are now recognized against income tax expense rather than additional paid-in capital and are included in operating cash flows rather than financing cash flows. The recognition of excess tax benefits has been applied onstandard requires a modified retrospective basisapproach through a cumulative-effect adjustment to retained earnings as of the opening balancebeginning of retained earnings. Asthe first reporting period in which the guidance is effective. The Company adopted ASU 2016-13 as of January 1, 2017,2020 using the modified retrospective approach related to its accounts receivables, resulting in a cumulative effectadjustment to retained earnings of adopting ASU 2016-09 was an increase in deferred tax assets of $11.2 million and a decrease in accumulated deficit of $11.2 million as a result of recognizing $27.8 million previously unrecognized excess tax benefits from share-based compensation. The Company will continue to account for forfeitures as they occur. Cash paid by by the Company when directly withholding shares for tax withholding purposes will continue to be classified as a financing activity rather than an operating activity. Additionally, the Company has applied the provisions of ASU 2016-09 on a prospective basis in the condensed consolidated statements of cash flows and prior periods have not been adjusted.approximately $9.1 million.


Recent Accounting Pronouncements
In May 2014,August 2018, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amendsmodifies the existing accounting standardsdisclosure requirements for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts


with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09fair value measurements by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified goodremoving, modifying, or service before it is transferred to the customers.adding certain disclosures. The new revenue recognition standard will beguidance is effective for interim and annual reporting periods beginning after December 15, 2019. The removed and modified disclosures are adopted on a retrospective basis and the new disclosures are adopted on a prospective basis. The Company in the first quarter of 2018, with the option to early adopt it in the first quarter of 2017. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applyingadopted the guidance recognized at the date of initial application (the modified retrospective method). The Company will adopt this new standard as of January 1, 2018 and currently expects to apply the modified retrospective method, which will require a cumulative effect adjustment as of the date of adoption.2020. The Company has completed its initial assessment of the effect of adoption and is in the process of completing the assessment to quantify the impact to the Company’s results of operations, financial position, and cash flows. Based on this initial assessment, the Company does not expect the standard to materially impact the amount and timing of revenue recognition. The new standard will require certain costs, primarily internal sales commissions, to be deferred rather than expensed, as they are currently. The new standard will also require additional disclosures for the estimate of variable consideration to be included in the transaction price for certain of our usage based contracts and contracts with price concessions. Additional disclosures will also be required regarding the judgments and changes in judgments for these estimates of the assets to be recognized from costs incurred to obtain or fulfill a contract and variable consideration. Both the Company’s initial impact assessment and its selected transition method may change depending on the results of the Company’s final assessment of the impact to its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires most leases (with the exception of leases with terms of less than one year) to be recognized on the balance sheet as an asset and a lease liability. Leases will be classified as an operating lease or a financing lease. Operating leases are expensed using the straight-line method, whereas financing leases will be treated similarly to a capital lease under the current standard. The new standard will be effective for annual and interim periods, within those fiscal years, beginning after December 15, 2018, but early adoption is permitted. The new standard must be presented using the modified retrospective method beginning with the earliest comparative period presented. The Company is currently evaluating the effect of the new standard did not have a material impact on itsthe Company's condensed consolidated financial statements and related disclosures.statements.


In August 2016,Recent Accounting Pronouncements

Other recent accounting pronouncements issued by the FASB issued ASU 2016-15, Classification of Certain Cash Receiptsduring 2020 and Cash Payments, which is intended to reduce diversity in practice of how certain transactions are classifiedthrough the filing date did not and presented in the statement of cash flows in accordance with ASC 230. The ASU amends or clarifies guidance on eight specific cash flow issues, some of which include classification on debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the effect of the new standard on its condensed consolidated financial statements and related disclosures, but the Company does not expect the new guidance to have a material impact.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company does not expect this new guidancebelieved by management to have a material impact on its condensed consolidated financial statements.

In March 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (Step 2) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (as determined in Step 1). The guidance is effective prospectively for public business entities for fiscal years beginning after December 15, 2019. Early adoption is permitted for interimCompany's present or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the new guidance to have a material impact on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of share-based equity awards must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award are not the same immediately before and after the modification. The guidance is effective prospectively for public business entities


for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company does not expect this new guidance to have a material impact on its condensedhistorical consolidated financial statements.


NOTE 2 — BUSINESS ACQUISITIONS


Since its formation, the Company has consummated a number of transactions accounted for as business combinations as part of its growth strategy. The acquisitions of these businesses, which are in addition to periodic purchases of customerclient contracts, have allowed the Company to increase the scale at which it operates, which in turn affords the Company the ability to increase its operating leverage, extend its network, and broaden its customerclient base.


The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisitions is initially allocated to the acquired assets and liabilities based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.


In January 2017,
12

There were no acquisitions completed during the Company acquired Hibernia. The Company paid $529.6 million in cash consideration, of which $14.6 million was net cash acquired, and 3,329,872 unregistered shares of the Company's common stock, initially valued at $75.0 million on the date of announcement, and ultimately valued at $86.1 million at closing. The results of Hibernia have been included from January 1, 2017.

In June 2017, the Company acquired Perseus Telecom ("Perseus"). The Company paid $37.5 million in cash consideration and assumed $1.9 million in capital leases. $4.0 million of the initial cash consideration is held in escrow for one year, subject to reduction for any indemnification claims made by the Company prior to such date. The results of Perseus have been included from June 1, 2017.

In September 2017, the Company acquired Global Capacity. The Company paid $104.0 million in cash consideration, of which $4.0 million was net cash acquired, and 1,850,000 unregistered shares of the Company's common stock valued at $53.6 million at closing. $10.0 million of the initial cash consideration is held in escrow for one year, subject to reduction for any indemnification claims made by the Company prior to such date. The results of Global Capacity have been included from September 15, 2017.

The table below reflects the Company's provisional estimates of the acquisition date fair values of the assets acquired and liabilities assumed for its acquisitions over the ninethree months ended September 30, 2017 (amounts in thousands):March 31, 2020.


Purchase PriceHibernia Perseus Global Capacity
Cash paid at closing, including working capital estimate$529,600
 $37,500
 $104,000
Common stock (1)
86,092
 —
 53,649
Purchase consideration$615,692
 $37,500
 $157,649
      
Purchase Price Allocation     
Assets acquired:     
Current assets$49,119
 $1,792
 $25,838
Property, plant and equipment432,911
 5,255
 30,451
Other assets359
 —
 1,554
Intangible assets - customer lists166,740
 13,840
 43,800
Intangible assets - tradename720
 40
 200
Intangible assets - other—
 140
 5,600
Goodwill196,057
 31,536
 84,640
Total assets acquired845,906
 52,603
 192,083
      
Liabilities assumed:     
Current liabilities(40,749) (11,301) (17,911)
Capital leases, long-term portion—
 (1,906) —
Deferred revenue(163,300) —
 (16,108)
Deferred tax liability(26,165) (1,708) —
Other long-term liabilities—
 (188) (415)
Total liabilities assumed(230,214) (15,103) (34,434)
Net assets acquired$615,692
 $37,500
 $157,649
(1) Common stock fair value for Hibernia equals the closing share price of $27.80 less a discount for lack of marketability. Common stock fair value for Global Capacity equals the closing share price of $30.85 less a discount for lack of marketability.

Intangible assets acquired related to the Hibernia acquisition include customer relationships and the Hibernia tradename. Intangible assets related to customer relationships and tradename are subject to straight-line amortization. The customer relationships have a weighted-average useful life of 10 years and the tradenames have a useful life of 2 years.

Intangible assets acquired related to Perseus include customer relationships and are subject to straight-line amortization. The customer relationships have a weighted-average useful life of 8 years.

Intangible assets acquired related to Global Capacity include customer relationships and are subject to straight-line amortization. The customer relationships have a weighted average useful life of 8 years.

Amortization expense related to intangible assets created as a result of the Hibernia, Perseus, and Global Capacity acquisitions of $4.7 million and $13.8 million has been recorded for the three and nine months ended September 30, 2017, respectively. Estimated amortization expense related to these for each of the years subsequent to September 30, 2017 is as follows (amounts in thousands):
2017 remaining$7,297
201827,595
201924,176
202024,176
202124,176
2022 and beyond109,843
Total$217,263



Goodwill in the amount of $196.1 million, $31.5 million, and $84.6 million was recorded as a result of the acquisitions of Hibernia, Perseus, and Global Capacity, respectively. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is not expected to be deductible for tax purposes. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present.


For material acquisitions completed during 2016, 2015,2019, 2018, and 2014, please2017, refer to Note 3 - Business Acquisitions to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019. During the three months ended March 31, 2020, certain immaterial measurement period adjustments were recorded to adjust provisional amounts for acquisitions completed during 2019.


Acquisition Method Accounting Estimates


The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is a period of no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.


Transaction Costs


Transaction costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. There are two types of costs that the Company accounts for:


•Severance, restructuring and other exit costs
•Transaction and integration costs


Severance, restructuring and other exit costs include severance and other one-time benefits for terminated employees, termination charges for leases and supplier contracts, and other costs incurred associated with an exit activity. These costs are reported separately in the condensed consolidated statements of operations during the three and nine months ended September 30, 2017March 31, 2020 and 2016.2019. Refer to Note 912 - Severance, Restructuring, and Other Exit Costs of these condensed consolidated financial statements for further information on severance, restructuring, and other exit costs.information.


Transaction and integration costs include expenses associated with legal, accounting, regulatory, and other transition services rendered in connection with acquisition, travel expense, and other non-recurring direct expenses associated with acquisitions. Transaction and integration costs are expensed as incurred in support of the integration. The Company incurred transaction and integration costs of $3.4$2.2 million and $0.8$9.2 million during the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $13.8 million and $3.1 million during the nine months ended September 30, 2017 and 2016,2019, respectively. Transaction and integration costs have been included in selling, general and administrative expenses in the condensed consolidated statements of operations and in cash flows from operating activities in the condensed consolidated statements of cash flows.
        
Pro forma Financial Information (Unaudited)

The pro forma results presented below include the effects of the Company's acquisitions during 2016 and 2017 as if the acquisitions had occurred on January 1, 2016. The pro forma net income (loss) for the three and nine months ended September 30, 2017 and 2016, respectively, includes adjustments to revenue and cost of telecommunication services to eliminate inter-company activity, adjustments to deferred revenue and deferred cost from the acquired companies and the elimination of certain taxes presented as revenue by the acquired companies. The pro forma adjustments are based on historically reported transactions by the acquired companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions occurred on January 1, 2016.



 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
(Amounts in thousands, except per share and share data)       
Revenue$240,554
 $234,924
 $726,139
 $694,001
Net (loss) income$(13,482) $4,716
 $(35,017) $402
        
(Loss) earnings per share:       
Basic$(0.32) $0.11
 $(0.85) $0.01
Diluted$(0.32) $0.11
 $(0.85) $0.01
        
Denominator for basic EPS – weighted average shares41,762,693
 42,331,935
 41,160,317
 42,178,479
Denominator for diluted EPS – weighted average shares41,762,693
 42,965,793
 41,160,317
 42,661,286


NOTE 3 — GOODWILL AND INTANGIBLE ASSETS

The goodwill balance was $593.1$1,763.7 million and $280.6$1,768.6 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Additionally, the Company's intangible asset balance was $413.0$465.4 million and $193.9$490.7 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The additions to both goodwill and intangible assets during the nine months ended September 30, 2017 relate to the acquisitions of Hibernia, Perseus, and Global Capacity (refer to Note 2). The additions to intangible assets during the nine months ended September 30, 2017 also include the purchases of customer contracts.


The change in the carrying amount of goodwill for the ninethree months ended September 30, 2017March 31, 2020 was as follows (amounts in thousands)millions):
 
Goodwill - December 31, 2019$1,768.6 
Adjustments to 2019 business combinations(0.6)
Foreign currency translation adjustments(4.3)
Goodwill - March 31, 2020$1,763.7 

Goodwill is reviewed for impairment at least annually, in October, or more frequently if a triggering event occurs between impairment testing dates. There were 0 triggering events or goodwill impairments identified for the three months ended March 31, 2020 and 2019.


13
 Global Capacity Perseus Hibernia Prior Year Acquisitions Total
Balance, December 31, 2016$—
 $—
 $—
 $280,593
 $280,593
Initial goodwill associated with current year business combinations84,640
 23,375
 186,538
 —
 294,553
Adjustments to current year business combinations—
 8,161
 9,519
 —
 17,680
Adjustments to prior year business combinations—
 —
 —
 280
 280
Balance, September 30, 2017$84,640
 $31,536
 $196,057
 $280,873
 $593,106


The following table summarizes the Company’s intangible assets as of September 30, 2017March 31, 2020 and December 31, 20162019 (amounts in thousands)millions):
   September 30, 2017 December 31, 2016
 Amortization
Period		 Gross Asset Cost Accumulated Amortization Net Book Value Gross Asset Cost Accumulated Amortization Net Book Value
Customer contracts3-10 years $529,810
 $137,735
 $392,075
 $267,755
 $91,136
 $176,619
Non-compete agreements3-5 years 4,571
 4,491
 80
 4,572
 4,420
 152
Point-to-point FCC license fees3 years 1,697
 1,697
 —
 1,695
 1,268
 427
Intellectual property10 years 4,052
 2,658
 1,394
 17,379
 2,076
 15,303
Trade name3 years 22,979
 3,564
 19,415
 3,092
 1,657
 1,435
   $563,109
 $150,145
 $412,964
 $294,493
 $100,557
 $193,936
March 31, 2020December 31, 2019
Amortization
Period		Gross Asset CostAccumulated AmortizationNet Book ValueGross Asset CostAccumulated AmortizationNet Book Value
Customer lists3-20 years$775.2  $331.7  $443.5  $781.1  $313.7  $467.4  
Non-compete agreements3-5 years4.7  4.7  —  4.7  4.6  0.1  
Intellectual property10 years38.0  16.3  21.7  38.3  15.4  22.9  
Tradename1-3 years6.1  5.9  0.2  6.2  5.9  0.3  
 $824.0  $358.6  $465.4  $830.3  $339.6  $490.7  
  


Amortization expense was $17.0$21.1 million and $10.1$22.1 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $49.6 million and $29.5 million for the nine months ended September 30, 2017 and 2016,2019, respectively.


Estimated amortization expense related to intangible assets subject to amortization at September 30, 2017March 31, 2020 in each of the years subsequent to September 30, 2017March 31, 2020 is as follows (amounts in thousands)millions):


2017 remaining$19,429
201870,759
201962,485
202059,457
202157,912
2022 and beyond142,922
Total$412,964
2020 remaining$63.3  
202182.6  
202269.5  
202357.0  
202451.5  
2025 and beyond141.5  
Total$465.4  
 
The Company reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were 0 triggering events or intangible asset impairments recognized for the three months ended March 31, 2020 and 2019.

NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

The following table summarizes the Company’s prepaid expenses and other current assets as of March 31, 2020 and December 31, 2019 (amounts in millions):

March 31, 2020December 31, 2019
Receivables from suppliers$36.0  $10.7  
Prepaid cost of telecommunications services19.4  11.8  
Prepaid selling, general and administrative12.6  13.1  
Deferred commissions11.3  9.8  
Other2.8  5.0  
$82.1  $50.4  


14

NOTE 5 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES


The following table summarizes the Company’s accrued expenses and other current liabilities as of September 30, 2017March 31, 2020 and December 31, 20162019 (amounts in thousands)millions):


March 31, 2020December 31, 2019
Cost of telecommunications services$91.7  $105.3  
Interest rate swaps86.7  53.5  
Compensation and benefits25.6  24.4  
Taxes payable26.2  28.3  
Selling, general and administrative19.4  18.1  
Interest11.8  0.4  
Restructuring, current portion6.7  6.4  
Other5.3  4.4  
$273.4  $240.8  
 September 30, 2017 December 31, 2016
Compensation and benefits$12,657
 $10,035
Selling, general and administrative5,861
 4,492
Carrier costs14,680
 13,543
Restructuring15,670
 3,247
Interest9,494
 657
Fiber pair repurchase20,000
 —
Customer pass-through taxes6,607
 3,213
Other7,920
 1,701
 $92,889
 $36,888


NOTE 56 — DEFERRED REVENUE


The totalTotal deferred revenue as of September 30, 2017March 31, 2020 and December 31, 2019 was $173.7$339.0 million and $333.5 million, respectively, consisting of unamortized prepaid capacity sales,services, IRUs, and deferred non-recurring revenue, and unearned revenue for amounts billed in advance to customers.revenue. Deferred revenue is recognized as current and noncurrentlong-term deferred revenue on the condensed consolidated balance sheet.sheets.


Prepaid capacity sales and IRUs represent $126.7 million of the totalSignificant changes in deferred revenue balancebalances during the period are as of September 30, 2017 and remainingfollows (amounts in millions):

Three Months Ended March 31, 2020
Contract Term
Less than 1 YearGreater than 1 YearTotal
Balance, December 31, 2019  $22.5  $311.0  $333.5  
Revenue recognized from beginning balance  (17.9) (10.3) (28.2) 
Increase in deferred revenue (gross) 49.2  10.9  60.1  
Revenue recognized on increase in deferred revenue  (22.0) (0.2) (22.2) 
Foreign currency translation adjustments  (0.1) (4.1) (4.2) 
Balance, March 31, 2020  $31.7  $307.3  $339.0  

Remaining amortization at September 30, 2017March 31, 2020 and in each of the years subsequent to September 30, 2017March 31, 2020 is as follows (amounts in thousands)millions):

Contract Term
Less than 1 YearGreater than 1 YearTotal
2020 remaining$31.6  $32.7  $64.3  
20210.1  41.3  41.4  
2022—  37.8  37.8  
2023—  36.0  36.0  
2024—  28.2  28.2  
2025 and beyond—  131.3  131.3  
$31.7  $307.3  $339.0  




15
 Capacity Sales and IRUs
2017 remaining$5,430
201815,681
201911,249
202010,919
202110,049
2022 and beyond73,347
 $126,675


NOTE 67  — DEBT
  
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, long-term debt was as follows (amounts in thousands)millions):


March 31, 2020December 31, 2019
US Term loan due 2025$1,739.0  $1,743.5  
EMEA Term loan due 2025951.5  828.8  
7.875% Senior unsecured notes due 2024575.0  575.0  
Revolving line of credit due 202365.0  140.0  
Other secured loans2.1  4.3  
Total debt obligations3,332.6  3,291.6  
Unamortized debt issuance costs(26.6) (28.0) 
Unamortized original issuance discount, net(48.0) (40.8) 
Carrying value of debt3,258.0  3,222.8  
Less current portion(29.6) (30.2) 
Long-term debt less current portion$3,228.4  $3,192.6  
 September 30, 2017 December 31, 2016
    
Term loan$694,750
 $425,775
7.875% Senior unsecured notes450,000
 300,000
Revolving line of credit—
 20,000
Total debt obligations1,144,750
 745,775
Unamortized debt issuance costs(30,806) (9,310)
Unamortized original issuance premium (discount), net1,941
 (6,957)
Carrying value of debt1,115,885
 729,508
Less current portion(7,000) (4,300)
Long-term debt less current portion$1,108,885
 $725,208


20172018 Credit Agreement


On January 9, 2017,May 31, 2018, the Company entered into a credit agreement (the "2017"2018 Credit Agreement") that provides for (1) a $700.0$1,770.0 million term loan B facility (the "US Term Loan Facility"), (2) a €750.0 million term loan B facility (the "EMEA Term Loan Facility"), and (3) a $75.0$200.0 million revolving linecredit facility (the "Revolving Line of credit facilityCredit Facility") (which includes a $25.0$50.0 million letter of credit facility). In addition, the Company may request incremental term loan and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $150.0 million and an unlimited amount that is subject to pro forma compliance with certain net secured leverage ratio tests provided, however, that incremental revolving loan commitments may not exceed $25.0 million. The term loan facilityUS Term Loan Facility was issued at an original issuance discount of $3.5$8.9 million and the EMEA Term Loan Facility was issued at an original issuance discount of €3.8 million. The Company is the borrower under the U.S. Term Loan Facility and the Revolving Line of Credit Facility. The Company's wholly-owned subsidiary GTT Communications B.V. is the borrower under the EMEA Term Loan Facility (the "EMEA Borrower").


The maturity date of the term loan facilityUS Term Loan Facility and the EMEA Term Loan Facility (collectively the "Term Loan Facilities") is January 9, 2024May 31, 2025 and the maturity date of the revolving lineRevolving Line of credit facilityCredit Facility is January 9, 2022. May 31, 2023. Each maturity date may be extended per the terms of the 2018 Credit Agreement.

The principal amountamounts of the term loan facility isUS Term Loan Facility and EMEA Term Loan Facility are payable in equal quarterly installments of $1.8$4.425 million and €1.875 million, respectively, commencing on March 31, 2017September 30, 2018 and continuing thereafter until the maturity date when the remaining balancebalances of outstanding principal amount is payable in full. In addition to scheduled mandatory repayments, the Company is also required to repay an amount of up to 50% of Excess Cash Flow (as defined in the Credit Agreement). No such excess cash payments were made during the nine months ended September 30, 2017.


The Company may prepay loans under the 20172018 Credit Agreement at any time, subject to certain notice requirements, and LIBOR breakage costs.costs, and prepayment fees noted above.


At the Company'sCompany’s election, the loans under the 2017 Credit AgreementUS Term Loan Facility may be made as either Base Rate Loans or EurodollarEurocurrency Loans. The Eurodollar Loans are subject to a floor of 1.00%.

On July 10, 2017,EMEA Term Loan Facility will bear interest at the Company entered into Amendment No. 1 (the "Repricing Amendment") to the 2017 Credit Agreement. The Repricing Amendment, among other things, reducedEuropean Money Markets Institute EURIBOR plus the applicable margin. The applicable margin on Tranche Bfor the US Term Loans from 3.00% to 2.25%Loan Facility is 1.75% for Base Rate Loans and from 4.00%2.75% for Eurocurrency Loans, subject to a “LIBOR floor” of 0.00%.  The applicable margin for the EMEA Term Loan Facility is 3.25%, subject to a “EURIBOR floor” of 0.00%. The applicable margin for revolving loans under the Revolving Line of Credit Facility is 1.75% for Base Rate Loans, 2.75% for Eurocurrency Loans denominated in U.S. Dollars and certain other approved currencies other than Euros, and 3.25% for Eurodollar Loans,revolving loans denominated in Euros.

The proceeds from the US Term Loan Facility and reducedEMEA Term Loan Facility were used to finance the acquisition of Interoute Communications Holdings S.A., to repay amounts outstanding under the Company's prior term loan facility, and to pay costs associated with such transactions.
On June 5, 2019, the Company entered into an Incremental Revolving Credit Assumption Agreement ("Incremental Agreement") to the 2018 Credit Agreement. The Incremental Agreement establishes $50.0 million in new revolving credit commitments, bringing the total sum of revolving credit commitments under the 2018 Credit Agreement, as modified by the Incremental Agreement, to $250.0 million. The revolving credit commitments made pursuant to the Incremental Agreement have terms and conditions identical to the existing revolving credit commitments under the 2018 Credit Agreement.
16


On February 28, 2020, the Company entered into an amendment to the 2018 Credit Agreement (“Amendment No. 2”), which established incremental term loan commitments for $140 million of EMEA term loans (the “2020 EMEA Term Loan Facility”), bringing the total amounts of EMEA term loans outstanding under the 2018 Credit Agreement, as modified by Amendment No. 2, to €750 million in Euro-denominated loans and $140 million in US Dollar-denominated loans. The EMEA term loans under the 2020 EMEA Term Loan Facility were incurred with an original issue discount of $5.6 million.

The 2020 EMEA Term Loan Facility has terms substantially identical to the existing EMEA Term Loan Facility, except that: (1) each quarterly amortization payment on the 2020 EMEA Term Loan Facility will be $350,000; (2) the EMEA Term Loan Facility has a prepayment penalty of 2.0% for certain mandatory and voluntary prepayments occurring on or prior to the one year anniversary of the effective date of the EMEA Term Loan Facility and 1.0% for certain mandatory and voluntary prepayments occurring following the one year anniversary of the effective date of the EMEA Term Loan Facility and until the second year anniversary thereof; (3) Amendment No. 2 added, for the benefit of the lenders under the 2020 EMEA Term Loan Facility, the same covenant restrictions contained in Amendment No. 1, except that (a) the amount of secured debt that can be incurred on a pari passu basis with the 2020 EMEA Term Loan Facility and certain types of debt incurred by non-credit parties is limited to $50 million in the aggregate and (b) certain excess asset sale proceeds will be required to prepay outstanding EMEA term loans or reinvest in long-term assets useful in the business within 30 days following receipt of such proceeds, which covenant restrictions will remain in place for so long as the existing Revolving Line of Credit Facility and the 2020 EMEA Term Loan Facility remain in effect; and (4) the applicable margin on revolving loans from


2.50% to 2.00%for the 2020 EMEA Term Loan Facility is (a) 3.25% for Base Rate Loans and from 3.50%4.25% for Eurocurrency Loans for the first two years following the effective date of the 2020 EMEA Term Loan Facility and (b) 3.75% for Base Rate Loans and 4.75% for Eurocurrency Loans on and following the second anniversary of the effective date of the 2020 EMEA Term Loan Facility.
The proceeds of the 2020 EMEA Term Loan Facility were used to 3.00%repay amounts outstanding under the Revolving Line of Credit Facility and for Eurodollar Loans.  general corporate purposes.
The amendment also established a soft call protectionunused and available amount of 1.0% through January 10, 2018 for certain prepayments, refinancings, and amendments.the Revolving Line of Credit Facility at March 31, 2020 was as follows (amounts in millions):


The effective interest rates on the term loan at September 30, 2017 and December 31, 2016 was 4.6% and 5.8%, respectively.
Committed capacity$250.0 
Borrowings outstanding(65.0)
Letters of credit issued(10.9)
Unused and available$174.1 


The obligations of the Company under the 20172018 Credit Agreement are secured by the substantial majority of the tangible and intangible assets of the Company. The obligations of the Company under the U.S. Term Loan Facility and the Revolving Line of Credit Facility are guaranteed by certain of its domestic subsidiaries, but not by any of the Company’s foreign subsidiaries. The obligations of the EMEA Borrower under the EMEA Term Loan Facility are guaranteed by the Company and certain of its domestic and foreign subsidiaries. None of the guarantors.foreign subsidiary guarantors of the EMEA Term Loan Facility provide cross-guarantees of the guarantees of the EMEA Term Loan Facility provided by the Company and its domestic subsidiaries.

The 20172018 Credit Agreement does not contain a financial covenant for the term loan facility,US Term Loan Facility or the EMEA Term Loan Facility, but includesit does include a maximum consolidated net secured leverage ratioConsolidated Net Secured Leverage Ratio applicable to the revolving credit facilityRevolving Line of Credit Facility in the event that utilization exceeds 30% of the revolving loan facility commitment.

The unused and available amount At March 31, 2020, the Company's utilization (as defined) of the revolving lineRevolving Line of credit facility at September 30, 2017Credit Facility commitment was as follows:

Committed capacity$75,000
Borrowings outstanding—
Letters of credit issued(3,296)
Unused and available$71,704

approximately 26%. On October 12, 2017,August 8, 2019, the Company entered into Amendment No. 1 to the 2018 Credit Agreement, which amends the Consolidated Net Secured Leverage Ratio applicable to the Revolving Line of Credit Facility for each fiscal quarter ending September 30, 2019 through December 31, 2020. If triggered, the covenant, as amended, requires the Company to maintain a Consolidated Net Secured Leverage Ratio, on a Pro Forma Basis, below the maximum ratio specified as follows:

17

Fiscal Quarter EndingMaximum Ratio
March 31, 20206.50:1
June 30, 20206.50:1
September 30, 20206.25:1
December 31, 20206.25:1
March 31, 20215.50:1
June 30, 20215.00:1
September 30, 20215.00:1
December 31, 20214.50:1
March 31, 20224.50:1
June 30, 2022 and thereafter4.25:1

While the financial covenant was not required to be measured as a result of the utilization level of the Revolving Line of Credit Facility as of March 31, 2020, the Company's Consolidated Net Secured Leverage Ratio, as defined in the 2018 Credit Agreement, was approximately 6.53:1.

In addition, Amendment No. 1 to the 2018 Credit Agreement added certain restrictions, which remain in place from the effective date of the Amendment No. 1 until the delivery of the compliance certificate for the quarter ending March 31, 2021, demonstrating compliance with the Consolidated Net Secured Leverage Ratio for that quarter, including without limitation the following: the Company and its restricted subsidiaries (as defined in the 2018 Credit Agreement) may not make certain dividends, distributions and other restricted payments (as defined in the 2018 Credit Agreement), including that the Company may not pay dividends; the Company and its restricted subsidiaries may not designate any subsidiary an Incremental Revolving“Unrestricted Subsidiary” (which would effectively remove such subsidiary from the restrictions of the 2018 Credit Assumption Agreement to increaseAgreement); the Company and its restricted subsidiaries may not make “permitted acquisitions” (as defined in the 2018 Credit Agreement) or certain other investments, unless the Company and its restricted subsidiaries have liquidity (i.e., unrestricted cash and cash equivalents and availability under the revolving line of credit facility from $75.0under the 2018 Credit Agreement) of at least $250 million (other than the acquisition of KPN Eurorings B.V., a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of the Netherlands with respect to $100.0 million.which this liquidity requirement is not applicable); and the amount of incremental borrowings under the 2018 Credit Agreement that the Company and its subsidiaries may request when the Consolidated Net Secured Leverage Ratio is above 4.40 to 1.00 the Company and its subsidiaries was reduced to $300 million minus amounts previously requested (which amount is $50 million requested under the Incremental Agreement described above).


Interest Rate Swaps

In April and May 2018, the Company entered into the following interest rate swap arrangements to partially mitigate the variability of cash flows due to changes in the Eurodollar rate, specifically related to interest payments on our term loans under the 2018 Credit Agreement:

Trade dateApril 6, 2018May 17, 2018May 17, 2018May 17, 2018
Notional amount (in millions)$500.0  $200.0  $300.0  €317.0  
Term (years)5737
Effective date4/30/20186/29/20186/29/20186/29/2018
Termination date4/30/20235/31/20256/30/20215/31/2025
Fixed rate2.6430 %3.0370 %2.8235 %0.8900 %
Floating rate1-month LIBOR1-month LIBOR1-month LIBOR1-month EURIBOR

The interest rate swaps do not qualify for hedge accounting.


18

The fair value of the interest rate swaps at March 31, 2020 and December 31, 2019 was as follows (in millions):

Fair Value
March 31, 2020December 31, 2019
Derivative InstrumentAggregate Notional AmountEffective DateMaturity DateAsset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
Interest rate swap$500.0  4/30/20184/30/2023$—  $(36.1) $—  $(18.2) 
Interest rate swap$200.0  6/29/20185/31/2025—  (27.1) —  (15.3) 
Interest rate swap$300.0  6/29/20186/30/2021—  (9.5) —  (5.8) 
Interest rate swap€317.0  6/29/20185/31/2025—  (14.0) —  (14.2) 
$—  $(86.7) $—  $(53.5) 

The Company records the fair value of interest rate swaps in its condensed consolidated balance sheets within prepaid expenses and other current assets when in an asset position and within accrued expenses and other current liabilities when in a liability position. Due to the change in fair value of its interest rate swaps, the Company recognized a loss of $33.5 million and $15.3 million in other expense, net for the three months ended March 31, 2020 and 2019, respectively.

7.875% Senior Unsecured Notes


In DecemberDuring 2016 and 2017, the Company completed a3 private offering of $300.0offerings for $575.0 million aggregate principal amount of its 7.875% senior unsecured notes due in 2024 (the "Original Notes"(collectively the “7.875% Senior Unsecured Notes”). The proceeds from the Original Notes were deposited into escrow, where the funds remained until the closing of the acquisition of Hibernia in January 2017. The Company recognized the proceeds from the privateEach offering as restricted cash and cash equivalents in its consolidated financial statements as of December 31, 2016. The funds were subsequently released with the closing of Hibernia. In connection with the offering, the Company incurred debt issuance costs of $9.7 million, of which $0.5 million was incurred in 2016 and the remainder was incurred in 2017.

In June 2017, the Company completed a private offering of $150.0 million aggregate principal amount of its 7.875% senior unsecured notes due in 2024 (the "June 2017 Notes"). The June 2017 Notes will be treated as a single series of debt securities with the Company's Original Notes (together with the June 2017 Notes, the "Existing Notes").securities. The June 20177.875% Senior Unsecured Notes have identical terms as the Original Notes, other than the issueissuance date and offering price. The June 20177.875% Senior Unsecured Notes were issued at a combined premium of $9.0$16.5 million.

The 7.875% Senior Unsecured Notes are guaranteed by the Company’s domestic subsidiaries that guarantee the Company’s obligations under the U.S. Term Loan Facility and the Revolving Line of Credit Facility, but not by any of the Company’s foreign subsidiaries. We are in compliance with the subsidiary guarantee requirements for the 7.875% Senior Unsecured Notes.

Other Secured Loans

In connection with the offering,Interoute acquisition in May 2018, the Company incurredacquired other loans secured by certain network assets. The balance of other secured loans at March 31, 2020 and December 31, 2019 was $2.1 million and $4.3 million, respectively.

Effective Interest Rate

The effective interest rate on the Company's long-term debt issuance costsat March 31, 2020 and December 31, 2019 was5.2% and 5.2%, respectively. The effective interest rate considers the impact of $2.9 million.the interest rate swaps.


On October 10, 2017, the Company completed a private offering of $125.0 million aggregate principal amount of its 7.875% senior unsecured notes due in 2024 (the "October 2017 Notes"). The October 2017 Notes will be treated as a single series of debt securities with the Existing Notes.  The October 2017 Notes have identical terms as the Existing Notes, other than the issue date and offering price. The October 2017 Notes were issued at a premium of $7.5 million. In connection with the offering, the Company incurred debt issuance costs of $2.0 million.

Term Loan and 7.875% Senior Unsecured NotesLong-term Debt Contractual Maturities

The aggregate contractual maturities of long-term debt (excluding unamortized debt issuance costs and unamortized OID)original issuance discounts and premiums) were as follows as of September 30, 2017March 31, 2020 (amounts in thousands)millions):

 Total Debt
2020 remaining$22.9  
202127.3  
202227.5  
202392.5  
2024602.4  
2025 and beyond2,560.0  
 $3,332.6  





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 Total debt
2017 remaining$1,750
20187,000
20197,000
20207,000
20217,000
2022 and beyond1,115,000
 $1,144,750



Debt Issuance Costs and Original Issuance Discounts and Premiums


The following table summarizes the debt issuance costs activity for the ninethree months ended September 30, 2017March 31, 2020 (amounts in thousands)millions):


US Term LoanEMEA Term Loan7.875% Senior Unsecured NotesRevolving Line of CreditTotal
Balance, December 31, 2019$(9.9) $(2.7) $(12.3) $(3.1) $(28.0) 
Debt issuance costs incurred—  (2.3) —  —  (2.3) 
Amortization0.4  0.3  0.5  0.2  1.4  
Loss on debt extinguishment—  2.3  —  —  2.3  
Balance, March 31, 2020$(9.5) $(2.4) $(11.8) $(2.9) $(26.6) 
 Term Loan 7.875% Senior Unsecured Notes Revolving Line of Credit Total
Balance, December 31, 2016$(7,765) $(481) $(1,064) $(9,310)
Debt issuance costs incurred(14,467) (13,660) (1,754) (29,881)
Amortization1,622
 812
 204
 2,638
Loss on debt extinguishment5,397
 —
 350
 5,747
Balance, September 30, 2017$(15,213) $(13,329) $(2,264) $(30,806)


Debt issuance costs are presented in the condensed consolidated balance sheets as a reduction to "Long-termlong-term debt." Interest expense associated with the amortization of debt issuance costs was $1.0$1.4 million and $0.3$1.2 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $2.6 million and $1.2 million for the nine months ended September 30, 2017 and 2016,2019, respectively.


The following table summarizes the original issuance discount(discount) and premium activity for the ninethree months ended September 30, 2017March 31, 2020 (amounts in thousands)millions):


US Term LoanEMEA Term Loan7.875% Senior Unsecured NotesTotal
Balance, December 31, 2019$(34.2) $(18.7) $12.1  $(40.8) 
New Original Issuance Discount—  (5.6) —  (5.6) 
Fees paid to lenders—  (3.4) —  (3.4) 
Amortization1.4  0.9  (0.5) 1.8  
Balance, March 31, 2020$(32.8) $(26.8) $11.6  $(48.0) 
 Term Loan 7.875% Senior Unsecured Notes Total
Balance, December 31, 2016$(6,957) $—
 $(6,957)
New Original Issuance (Discount)/Premium(3,500) 9,000
 5,500
Amortization781
 (283) 498
Loss on debt extinguishment2,900
 —
 2,900
Balance, September 30, 2017$(6,776) $8,717
 $1,941


OID isOriginal issuance discounts and premiums are presented in the condensed consolidated balance sheets as a reduction to "Long-termlong-term debt." Interest expense, net associated with the amortization Amortization of OIDoriginal issuance discounts and premiums was $(27) thousand$1.8 million and $0.3$1.9 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $0.5 million and $0.6 million for the nine months ended September 30, 2017 and 2016,2019, respectively.


NOTE 8 — FAIR VALUE MEASUREMENTS

The Company expensed an aggregatemeasures certain financial assets and liabilities at fair value on a recurring basis. For additional information on the Company's fair value policies refer to Note 2 - Significant Accounting Policies to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Recurring Fair Value Measurements

The following table presents the Company's financial assets and liabilities that are required to be measured and recognized at fair value on a recurring basis classified under the appropriate level of $3.0 millionthe fair value hierarchy as of March 31, 2020 and $8.6 millionDecember 31, 2019. There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2020 and 2019.

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March 31, 2020
Quoted Prices in Active MarketsSignificant Other Observable InputsSignificant Unobservable Inputs
TotalLevel 1Level 2Level 3
Assets:
Interest rate swap agreements$—  $—  $—  $—  
Liabilities:
Interest rate swap agreements$(86.7) $—  $(86.7) $—  

December 31, 2019
Quoted Prices in Active MarketsSignificant Other Observable InputsSignificant Unobservable Inputs
TotalLevel 1Level 2Level 3
Assets:
Interest rate swap agreements$—  $—  $—  $—  
Liabilities:
Interest rate swap agreements$(53.5) $—  $(53.5) $—  

Non-recurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a non-recurring basis as required by GAAP.

Assets measured at fair value on a non-recurring basis include goodwill, tangible assets, and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).

Other Fair Value Measurements

As of March 31, 2020 and December 31, 2019, the carrying amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximated fair value due to the short-term nature of these instruments.

The table below presents the fair values for the Company's long-term debt as well as the input level used to determine these fair values as of March 31, 2020 and December 31, 2019. The carrying amounts exclude any debt issuance costs and OID that did not qualifyor original issuance discount (amounts in millions):

21

Fair Value Measurement Using
Total Carrying Value in Consolidated Balance Sheet
Unadjusted Quoted Prices in Active Markets for Identical Assets or Liabilities (1)
(Level 1)
March 31, 2020December 31, 2019March 31, 2020December 31, 2019
Liabilities not recorded at fair value in the Financial Statements:
Long-term debt, including the current portion:
US Term loan due 2025$1,739.0  $1,743.5  $1,208.6  $1,464.5  
EMEA Term loan due 2025951.5  828.8  777.9  787.9  
7.875% Senior unsecured notes due 2024575.0  575.0  370.9  435.6  
Revolving line of credit due 202365.0  140.0  65.0  140.0  
Other secured loans2.1  4.3  2.1  4.3  
Total long-term debt, including current portion$3,332.6  $3,291.6  $2,424.5  $2,832.3  
(1) Fair value based on the bid quoted price, except for deferral as a "Loss on debt extinguishment" in the condensed consolidated statements of operations for the three and nine months ended September 30, 2017, respectively.

Previous Debt Agreement - October 2015 Credit Agreement

On October 22, 2015, the Company entered into a credit agreement (the “October 2015 Credit Agreement”) that provided for a $400.0 million term loan facility and a $50.0 million revolving line of credit (which includes a $15.0 million letter of credit facility and a $10.0 million swingline facility). As of December 31, 2016, the Company had drawn $20.0 million under the revolving lineother secured loans for which carrying value approximates fair value.



of credit and had $29.5 million of borrowing capacity available. Amounts outstanding under October 2015 Credit agreement were paid in full at the closing of the 2017 Credit Agreement. The previous term loan was issued at an OID of $8.0 million.

NOTE 79 — SHARE-BASED COMPENSATION
  
Share-Based Compensation Plan
  
The Company grants share-based equity awards, including stock options and restricted stock, under the GTT Communications, Inc. 2018 Stock Plan.Option and Incentive Plan (the "GTT Stock Plan"). The GTT Stock Plan is limited to an aggregate 9,500,00014,250,000 shares of which 8,174,24012,622,117 have been issued and are outstanding as of September 30, 2017.March 31, 2020.


The GTT Stock Plan permits the granting of time-based stock options, time-based restricted stock, and performance-based restricted stock to employees and consultants of the Company, and non-employee directors of the Company.


Time-based options granted under the GTT Stock Plan have an exercise price of at least 100% of the fair market value of the underlying stock on the grant date and expire no later than 10 years from the grant date. The Company uses the Black-Scholes option-pricing model to determine the fair value of its stock option awards at the time of grant. The stock options generally vest over four years with 25% of the options becoming exercisable one year from the date of grant and the remaining vesting 75% annually or quarterly over the following three years.


Time-based restricted stock granted under the GTT Stock Plan is valued at the GTT closingshare price of our common stock priceas reported on the NYSE on the date of grant. Time-based restricted stock generally vests over four years with 25% of the shares becoming unrestricted one year from the date of grant and the remaining vesting 75% annually or quarterly over the following three years.


Performance-based restricted stock is granted under the GTT Stock Plan subject to the achievement of certain performance measures. Once achievement of these performance measures is considered probable, the Company starts to expense the fair value of the grant over the vesting period. The performance-based restricted stock is valued at the closingshare price of our common stock as reported on the NYSE on the date of grant. The performance grant vests quarterly over the vesting period once achievement of the performance measure has been met and approved by the Compensation Committee.Committee, typically one to two years.


The Compensation Committee of the Board of Directors, as administrator of the GTT Stock Plan, has the discretion to authorize a different vesting schedule for any awards.


In 2019, the Company implemented a sell-to-cover program for employees who elect to sell shares to cover any withholding taxes due upon vesting. Previously the Company netted shares upon vesting and paid the withholding taxes directly.

Share-Based Compensation Expense


The following tables summarize the share-based compensation expense recognized as a component of selling, general and administrative expenseexpenses in the condensed consolidated statements of operations (amounts in thousands)millions):
22

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2017 2016 2017 201620202019
Stock options$354
 $446
 $1,029
 $1,178
Stock options$—  $0.2  
Restricted stock5,666
 4,356
 14,802
 9,625
Restricted stock8.2  8.3  
ESPP38
 42
 129
 93
ESPP0.1  0.2  
Total$6,058
 $4,844
 $15,960
 $10,896
Total$8.3  $8.7  
        
As of September 30, 2017,March 31, 2020, there was $47.1$50.1 million of total unrecognized compensation cost related to unvested share-based compensation awards. The following table summarizes the unrecognized compensation cost and the weighted average period over which the cost is expected to be amortized (amounts in thousands)millions):



March 31, 2020
Unrecognized Compensation CostWeighted Average Remaining Period to be Recognized (Years)
Time-based stock options$—  0.25
Time-based restricted stock48.1  2.64
Performance-based restricted stock (1)
2.0  0.25
Total$50.1  2.54

(1)Excludes $8.1 million, $25.1 million,and$12.1 million of unrecognized compensation cost related to the 2020 Performance Awards, 2018 Performance Awards, and 2017 Performance Awards, respectively, where achievement of the performance criteria was not probable as of March 31, 2020.
 September 30, 2017
 Unrecognized Compensation Cost Weighted Average Remaining Period to be Recognized (Years)
Time-based stock options$2,229
 1.68
Time-based restricted stock33,511
 2.45
Performance-based restricted stock11,349
 1.39
Total$47,089
 2.16


The following tables summarizetable summarizes the stock options and restricted stock granted during the three and nine months ended September 30, 2017March 31, 2020 and 20162019 (amounts in thousands,millions, except shares data):

Three Months Ended March 31,
20202019
Time-based restricted stock granted1,183,525  598,141  
Fair value of time-based restricted stock granted$14.6  $19.3  
Performance-based restricted stock granted651,350  24,000  
Fair value of performance-based restricted stock granted$8.1  $0.8  

 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Time-based stock options granted—
 3,000
 —
 158,958
Fair value of stock options granted$—
 $30
 $—
 $971
        
Time-based restricted stock granted258,088
 100,059
 949,896
 629,362
Fair value of time-based restricted stock granted$8,076
 $1,846
 $28,066
 $9,170
No stock options were issued in any period presented.

Performance-based Restricted Stock

The Company granted $8.5 million of restricted stock during 2014 and early 2015 contingent upon the achievement of certain performance criteria (the "2014 Performance Awards"). The fair value of the 2014 Performance Awards was calculated using the value of GTT common stock on the grant date. The Company started recognizing share-based compensation expense for these grants when the achievement of the performance criteria became probable, which was in the third quarter of 2015. The 2014 Performance Awards started vesting in the fourth quarter of 2015 when the performance criteria were met and they will continue to vest ratably through the third quarter of 2017. As of September 30, 2017, the 2014 Performance Awards were fully vested.


The Company granted $17.4 million of restricted stock during 2015 and 2017 contingent upon the achievement of certain performance criteria (the "2015 Performance Awards"). The fair value of the 2015 Performance Awards was calculated using the value of GTT common stock on the respective grant dates. Upon announcement of the Hibernia acquisition in November 2016, the achievement of two of the four performance criteria became probable and the Company started recognizing share-based compensation expense for these grants. Expense recognition will continue throughconcluded during the first quarter of 2019. Additionally, upon announcement of the Global Capacity acquisition in June 2017, the achievement of the final two performance criteria became probable and the Company started recognizing share-based compensation expense for these grants. Expense recognition will continue throughThe Company did not recognize share-based compensation expense related to the fourth quarter of 2019.2015 Performance awards during the three months ended March 31, 2020 as the awards were fully vested. The Company recognized share-based compensation expense related to the 2015 Performance Awards of $1.5 million and $4.2$1.1 million for the three and nine months ended September 30, 2017, respectively. NoMarch 31, 2019. As of December 31, 2019, the 2015 Performance Awards were fully vested, and accordingly, the Company recognized no share-based compensation expense for the three months ended March 31, 2020.

The Company granted $32.6 million of restricted stock during 2017 and 2018 contingent upon the achievement of certain performance criteria (the "2017 Performance Awards"). The fair value of the 2017 Performance Awards was calculated using the value of GTT common stock on the grant date. Upon the closing of the Interoute acquisition in May 2018, the achievement of two
23

of the four performance criteria became probable and the Company started recognizing share-based compensation expense for these grants. Expense recognition is expected to continue through the second quarter of 2020. The Company recognized duringshare-based compensation expense related to the comparable 2016 period.2017 Performance Awards of $1.0 million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively. As of September 30,March 31, 2020, $5.4 million of unvested 2017 unamortizedPerformance Awards had been forfeited due to departures and remaining unrecognized compensation cost related to the unvested 20152017 Performance Awards was $11.3$13.8 million, inclusive of unrecognized compensation cost where achievement of the performance criteria was not probable as of March 31, 2020.

The Company granted $31.2 million of restricted stock during 2018 and 2019 contingent upon the achievement of certain performance criteria (the "2018 Performance Awards"). The fair value of the 2018 Performance Awards was calculated using the value of GTT common stock on the grant date. As of March 31, 2020, achievement of the performance criteria was not probable. Accordingly, the Company recognized 0 share-based compensation expense for the three months ended March 31, 2020. As of March 31, 2020, $6.1 million of unvested 2018 Performance Awards had been forfeited due to departures and remaining unrecognized compensation cost related to the unvested 2018 Performance Awards was $25.1 million.


The Company granted $8.1 million of restricted stock during the three months ended March 31, 2020 contingent upon the achievement of certain performance criteria ("the 2020 Performance Awards"). The fair value of the 2020 Performance Awards was calculated using the value of GTT common stock on the grant date. As of March 31, 2020, achievement of the performance criteria was not probable. Accordingly, the Company recognized no share-based compensation expense for the three months ended March 31, 2020.

Employee Stock Purchase Plan
        
The Company has an Employee Stock Purchase Plan ("ESPP") that permits eligible employees to purchase common stock through payroll deductions at the lessorlesser of the opening stock price or 85% of the closing stock price of the common stock during each of the three-month offering periods. The Company expenses the discount offered as additional share-based compensation expense. The offering periods generally commence on the first day and the last day of each quarter. At September 30, 2017, 444,994March 31, 2020, 241,902 shares were available for issuance under the ESPP.
         
NOTE 810 — LOSS PER SHARE

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share reflects, in periods with earnings and in which it has a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants.

The table below details the calculations of loss per share (in millions, except for share and per share amounts):  
Three Months Ended March 31,
20202019
Numerator for basic and diluted EPS – net loss available to common stockholders$(83.3) $(27.3) 
Denominator for basic EPS – weighted average shares57,259,699  55,839,212  
Effect of dilutive securities—  —  
Denominator for diluted EPS – weighted average shares57,259,699  55,839,212  
Loss per share:
Basic$(1.45) $(0.49) 
Diluted$(1.45) $(0.49) 
All outstanding stock options were anti-dilutive as of March 31, 2020 and 2019 due to the net loss incurred during the periods. There were approximately 376,960 and 474,880 outstanding stock options as of March 31, 2020 and 2019, respectively.

NOTE 11 — INCOME TAXES


The Company’s provision for income taxes is determined using an estimate of its annual effective tax rate, adjusted for the effect of discrete items arising in the quarter. Each quarter the Company updateupdates its estimate of the annual effective tax rate.

24




The quarterly tax provision and the quarterly estimate of the Company's annual effective tax rate is subject to significant variation due to several factors, including variability in accurately predicting pre-tax and taxable income (loss) and the mix of jurisdictions to which they relate, effects of acquisitions and integrations, audit-related developments, changes in the Company's stock price, foreign currency gains (losses), and tax law developments. Additionally, the Company's effective tax rate may be more or less volatile based on the amount of pre-tax income or loss and impact of discrete items.


For the nine months ended September 30, 2017, theThe Company recorded a (benefit from) provision for income taxes of $(1.9) million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the Company's existing deferred tax benefitassets. A significant piece of $22.7objective negative evidence identified during the Company's evaluation was the cumulative loss incurred over the three year period ended December 31, 2019. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's forecasts of future taxable income and tax planning strategies. On the basis of this evaluation as of March 31, 2020 and December 31, 2019, the Company recognized a valuation allowance against its net U.S. deferred tax assets under the criteria of ASC 740 of $100.7 million which included $5.4and $100.7 million, respectively, and the Company recognized a valuation allowance against its net foreign deferred tax assets under the criteria of ASC 740 of $111.3 million and $110.6 million, respectively. The amount of U.S. deferred tax asset considered realizable, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as forecasted taxable income. The Company will continue to evaluate the need to record valuation allowances against deferred tax assets and will make adjustments in accordance with ASC 740.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act provides numerous tax provisions and stimulus measures, including temporary changes regarding the prior and future utilization of net discreteoperating losses, temporary changes to the prior and future limitations on interest deductions, and technical corrections from prior tax benefits primarily attributablelegislation for tax depreciation of certain qualified improvement property. The Company has evaluated the provisions of the CARES Act relating to excessincome taxes which will result in adjustments to certain deferred tax benefits from share-based compensation.assets and liabilities. Due to the Company’s U.S. valuation allowance, the Company does not expect the provisions of the CARES Act to have a material impact on its consolidated financial statements.


NOTE 912 — SEVERANCE, RESTRUCTURING, AND OTHER EXIT COSTS


The Company incurred severance, restructuring and other exit costs associated with 2019 and 2018 acquisitions and in connection with the acquisitiontermination of Hibernia, Perseus, and Global Capacity.certain facility leases. These costs include employee severance costs, termination costs associated with facility leases and network agreements, and other exit costs related to the transactions. The Company records the current portion of severance, restructuring and other exit costs as a component of accrued expenses and other current liabilities and the long-term portion of severance, restructuring and other exit costs as a component of other long-term liabilities.


The total exit costs recorded and paid relating to the acquisitions mentioned above are summarized as follows for the ninethree months ended September 30, 2017March 31, 2020 (amounts in thousands)millions):


Balance, December 31, 2019ChargesPaymentsBalance, March 31, 2020
Employee termination benefits$2.7  $0.1  $(0.6) $2.2  
Lease terminations7.6  2.0  (0.8) 8.8  
Other contract terminations3.6  —  (0.4) 3.2  
$13.9  $2.1  $(1.8) $14.2  

During the three months ended March 31, 2019, the Company incurred severance, restructuring and other exit costs of $2.8 million and made payments of $8.4 million.

NOTE 13 — LEASES

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 Balance, December 31, 2016 Charges and Adjustments Payments Balance,
September 30, 2017
Employee Termination Benefits$42
 $16,132
 $(7,349) $8,825
Contract Terminations:       
  Lease terminations859
 3,491
 (744) 3,606
  Other contract terminations2,346
 2,225
 (1,332) 3,239
 $3,247
 $21,848
 $(9,425) $15,670


The total exit costs recordedCompany enters into contracts to lease real estate, equipment, and paid relatingvehicles, and has identified embedded leases within its colocation, dark fiber, and duct supplier contracts. The lease contracts have remaining lease terms up to prior year acquisitions are summarized31 years and certain leases include options to extend the lease term. The Company is not party to any lease contracts with related parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

The Company's lease expense is split between cost of telecommunications services and selling, general and administrative expenses in the condensed consolidated statement of operations based on the use of the asset for which lease expense is being paid. The components of lease expense for the period were as follows (amounts in millions):

Three Months Ended March 31,
20202019
Operating lease expense$23.8  $28.6  
Finance lease expense:
Amortization of right of use assets0.5  0.6  
Interest on lease liabilities1.3  1.1  
Total finance lease expense1.8  1.7  
Short-term lease expense5.0  6.2  
Variable lease expense5.6  7.7  
Total lease expense$36.2  $44.2  

Supplemental cash flow information related to leases for the nine months ended September 30, 2016period was as follows (amounts in thousands)millions):


Three Months Ended March 31,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$21.7  $34.0  
Operating cash flows from finance leases1.3  1.1  
Financing cash flows from finance leases2.1  0.6  
Right of use assets obtained in exchange for new operating lease liabilities2.4  8.0  
Right of use assets obtained in exchange for new finance lease liabilities1.0  —  

Supplemental balance sheet information related to leases for the period was as follows:

March 31, 2020
Weighted average remaining lease term (amounts in years)
Operating leases6.25
Finance leases22.82
Weighted average discount rate
Operating leases5.6 %
Finance leases13.0 %

Maturities of lease liabilities were as follows (amounts in millions):

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 Balance, December 31, 2015 Charges and Adjustments Payments Balance, September 30, 2016
Employee Termination Benefits$1,903
 $870
 $(2,728) $45
Contract Terminations:       
  Lease terminations1,503
 —
 (838) 665
  Other contract terminations3,427
 (102) (586) 2,739
 $6,833
 $768
 $(4,152) $3,449
Operating LeasesFinance Leases
2020 remaining$68.0  $5.1  
202181.5  5.1  
202263.5  5.2  
202348.0  5.2  
202434.3  5.3  
2025 and beyond95.3  111.2  
Total lease payments390.6  137.1  
Less: Present value discount(63.3) (95.3) 
Present value of lease obligations$327.3  $41.8  


NOTE 1014 — COMMITMENTS AND CONTINGENCIES


Estimated annual commitments under contractual obligations, excluding those related to long-term debt and operating and finance leases, are as follows at September 30, 2017March 31, 2020 (amounts in thousands)millions):
 Network SupplyOther
2020 remaining$369.1  $12.1  
2021367.1  6.6  
2022272.5  3.7  
202385.0  2.8  
202426.6  2.4  
2025 and beyond65.6  7.2  
 $1,185.9  $34.8  
 Network Supply Office Space Capital Leases Other
2017 remaining$40,310
 $1,726
  $560
 $796
2018115,656
 5,774
  1,277
 628
201962,454
 4,962
  223
 1,500
202021,314
 3,974
 —
 1,500
20217,008
 3,462
 —
 1,125
2022 and beyond44,100
 7,992
 —
 —
 $290,842
 $27,890
 $2,060
 $5,549


Refer to Note 7 - Debt for the aggregate contractual maturities of long-term debt (excluding unamortized debt issuance costs and unamortized original issuance discounts and premiums) at March 31, 2020 and refer to Note 13 - Leases for the aggregate contractual maturities of operating leases and finance leases at March 31, 2020.

Network Supply Agreements
 
As of September 30, 2017,March 31, 2020, the Company had purchase obligations of $290.8$1,185.9 million associated with the telecommunications services that the Company has contracted to purchase from its suppliers.suppliers that are not accounted for as operating leases. The Company’s supplier agreements fall into two2 key categories, the Company's core networkIP backbone and customerclient specific locations (also referred to as 'last mile'"last mile" locations). Supplier agreements associated with the Company's core networkIP backbone are typically contracted on a one-yearone year term and do not relate to any specific underlying customerclient commitments. The short-term duration allows the Company to take advantage of favorable pricing trends.


Supplier agreements associated with the Company's customerclient specific locations, which representsrepresent the substantial majority of the Company's network spending, are typically contracted so the terms and conditions in both the vendor and customerclient contracts are substantially the same in terms of duration and capacity. The back-to-back nature of the Company’s contracts means that its network supplier obligations are generally mirrored by its customers'clients' commitments to purchase the services associated with those obligations.

Office Space and Leases


The Company is currently headquartered in McLean, Virginia and has 17 other offices throughout North America, seven offices in Europe, one office in India, two offices in Hong Kong, and two offices in Brazil. The Company records rent expense using the straight-line method over the term of the respective lease agreement. Office facility rent expense was $1.1 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $3.2 million and $2.6 million for the nine months ended September 30, 2017 and 2016, respectively.


Legal Proceedings
 
From time to time, the Company is a party to legal proceedings arising in the normal course of its business. As of September 30, 2017,Except as disclosed below, the Company does not believe that it is a party to any current or pending legal action that could reasonably be expected to have a material adverse effect on its financial condition or results of operations and cash flows.flow. 

On July 30, 2019, a purported class action complaint was filed against the Company and certain of its current and former officers and directors in the U.S District Court for the Eastern District of Virginia (Case No. 1:19-cv-00982) on behalf of certain GTT stockholders. The complaint alleges that defendants made false or misleading statements and omissions of purportedly material
27

fact, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, in connection with disclosures relating to GTT's acquisition and integration of Interoute Communications Holdings S.A. The complaint seeks unspecified damages. The Company believes that the claims in this lawsuit are without merit and intends to defend against them vigorously. At this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as the consolidated financial statements and Management's Discussion and Analysis ("MD&A") ofin our Annual Report.Report on Form 10-K for the fiscal year ended December 31, 2019. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.
We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions.Our actual results, performance or achievements could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, those discussed below. but are not limited to:
•We are subject to risks associated with the actions of network providers and a concentrated number of vendors and clients.
•We could be subject to cyber-attacks and other security breaches.
•Our network could suffer serious disruption if certain locations experience damage or as we add features and update our network.
•We are subject to risks associated with purchase commitments to vendors for longer terms or in excess of the volumes committed by our underlying clients, or sales commitments to clients that extend beyond our commitments from our underlying suppliers.
•We may be unable to establish and maintain peering relationships with other providers or agreements with carrier neutral data center operators.
•Our business, results of operation and financial condition are subject to the impacts of the COVID-19 pandemic and related market and economic conditions.
•We may be affected by information systems that do not perform as expected or by consolidation, competition, regulation, or a downturn in our industry.
•We may be liable for the material that content providers distribute over our network.
•We have generated net losses historically and may continue to do so.
•We may fail to successfully integrate any future acquisitions or to efficiently manage our growth.
•We may be unable to retain or hire key employees.
•We are subject to risks relating to the international operations of our business.
•We may be affected by future increased levels of taxation.
•We have substantial indebtedness, which could prevent us from fulfilling our obligations under our debt agreements or subject us to interest rate risk.
For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Part I, Item 1A “Risk Factors”"Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, which we refer to as our Annual Report.Report and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “GTT,” or the “Company” mean GTT Communications, Inc. together with its consolidated subsidiaries.

Executive Summary


GTT Communications, Inc. isserves large enterprise and carrier clients with complex national and global networking needs, and differentiates itself from the competition by providing an outstanding service experience built on our core values of simplicity, speed and agility. We operate a providerTier 1 internet network ranked among the largest in the industry, and own a fiber network that includes an expansive pan-European footprint and subsea cables. Our global network includes over 600 unique points of presence (PoPs) spanning six continents, and we provide services in more than 140 countries. Our comprehensive portfolio of cloud networking services to multinational clients. We offer a broad portfolio of globalincludes:
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•Wide area networking, including software-defined wide area networking (“SD-WAN”), multiprotocol label switching ("MPLS"), and virtual private LAN service ("VPLS");
•Internet, including IP transit, dedicated internet access, and broadband internet;
•Transport, including dedicated Ethernet and video transport;
•Infrastructure, including wavelength, colocation, and dark fiber;
•Unified Communication ("UC"), including Session Initiation Protocol ("SIP") trunking, cloud unified communication service, and traditional analog voice (POTS);
•Managed network services, including: private networking services, Internet services, optical transport,including managed networkingequipment and managed security; and
•Advanced solutions, including premium security services, voicehybrid cloud services, database and unified communication services,application management.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to be spread throughout the U.S. and video transport services.

Our global Tier 1 IP network delivers connectivity forthe world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain. It has disrupted the business of our clients aroundand suppliers, will impact our business and consolidated results of operations and could impact our financial condition in the world.future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers and partners and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We provide servicesbelieve that our financial resources will allow us to leading multinational enterprise, carrier,manage the impact of COVID-19 on our business operations for the foreseeable future, but we are continuing to actively monitor the situation and government customersare developing plans should we begin to experience material impacts.

During the three months ended March 31, 2020, the pandemic did not have a material impact on our financial results.

With respect to the remainder of 2020, the negative impact COVID-19 may have on the broader global economy and the pace of the economic recovery is unknown.Given the unknown magnitude of the depth and duration of this crisis, we anticipate a more challenging macroeconomic environment in over 100 countries. We strivethe remainder of the year.

In March 2020, we directed our workforce to differentiate ourselveswork from home and severely limited all international and domestic travel.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors” of this Quarterly Report on Form 10-Q.However, based on our competition by delivering servicecurrent revenue outlook, we believe that existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our clients with simplicity, speed,operations and agility.meet our foreseeable cash requirements through at least the next 12 months from the date of this filing.


We deliver six primary service offerings to our customers:Wide Area Networking

Private Networking Services


We provide Layer 2 (Ethernet) and Layer 3 (MPLS and IP-VPN) privatea variety of wide area networking solutions to meet the growing needs of multinational enterprises, carriers, service providers,our clients, including SD-WAN, MPLS, and content delivery networks regardless of location. We designVPLS. Our wide area networking solutions are positioned to provide the highest network quality and implement custom private, public, and hybrid cloud network solutions for our customers,value with global reach, offering bandwidth speeds from 10 Mbps to 100 Gbps per port with burstable and aggregate bandwidth capabilities. All services are available onOur VPLS service provides an any-to-any Layer 2 Virtual Private Network ("VPN") service in a protected basisfully meshed configuration with multiple classes of service for prioritization of traffic types. Our MPLS service is an any-to-any Layer 3 IP VPN service with the abilityoption of full management in a meshed configuration, providing a private IP network based on the client’s routing plan.

SD-WAN is an enterprise networking technology in the stage of accelerated market adoption with projected high growth based on industry forecasts. The software-based network intelligence in SD-WAN enables more efficient delivery of traffic across a mix of access types, accelerates the speed of service deployments, and improves application visibility and performance. GTT’s SD-WAN delivers managed global connectivity, enhanced application performance and control, and secure access to specify pre-configured alternate routescloud-based services and applications. Our service leverages GTT’s global, Tier 1 IP network, securely connecting client locations to minimizeany destination on the impactinternet or to any cloud service provider. We offer the widest range of anyaccess options and use multiple network disruption.technologies, allowing us to provide tailored solutions to meet the specific requirements of our clients.


Through GTT's privatewide area networking services, clients can securely connect to cloud service providers in data centers and exchanges around the world. Our Cloud Connect feature provides private, secure, pre-established connectivity to leading cloud
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service providers. ClientsUsing GTT's global network, clients can connect to GTT in oneany office location and have access to a broad cloud service provider ecosystem from anywhere in the world.world and to any application in the cloud.

Internet Services


WeGTT operates one of the largest Tier 1 global IP networks. Utilizing that platform we offer domestic and multinational customersclients scalable, high-bandwidth global Internetinternet connectivity and IP transit with guaranteed availability and packet delivery. Over 60 percent of our clients' IP traffic is delivered on-net, utilizing our Tier 1 global IP network that is ranked among the largest in the industry for the breadth of connections to other autonomous systersm ("AS") numbers.*

Our Internetinternet services offer flexible connectivity with multiple port interfaces including Fast Ethernet, Gigabit Ethernet, 10 Gigabit Ethernet, andports available at up to 100 Gigabit Ethernet.Gbps. We also offer a wide range of broadband internet and wireless internet access services. We support a dual stack of IPv4 and IPv6 protocols, enabling the delivery of seamless IPv6 services alongside existing IPv4 services.



* Based on CAIDA's ranking of AS which approximately map to internet service providers and organizations (which are a collection of one or more ASes). This ranking is derived from topological data collected by CAIDA's Archipelago Measurement Infrastructure and Border Gateway Protocol (BGP) routing data collected by the Route Views Project and RIPE NCC.


Optical Transport


GTT offers transport services, including dedicated ethernet and video transport.

GTT’s ethernet service enables clients to design a network environment best suited to their needs, with point-to-point and point-to-multipoint topology options, and dynamic or fixed routing. GTT’s ethernet direct service provides enhanced performance capabilities for clients seeking guaranteed routes and latency Service-Level Agreement ("SLAs") between key data centers and carrier hotels over a service-specific platform.

We offer video transport for clients in the media and entertainment industry, designed to support broadcast quality transmission of live events, sports entertainment, and news. We can manage individual services, multicast distribution, and entire client networks, supporting all video formats required for today's media workflow.

Infrastructure

We provide a full suite of optical transportinfrastructure services over a coreour fiber network, enabling cloud-based applications and the transport of high volume data between data centers, large enterprise office locations, and media hubs. Our native wavelength product is designed to deliver scalable high performance optical connectivity over a state-of-the-art dense wave division multiplexing ("DWDM") platform. Our service is differentiated based on uniquean expansive pan-European fiber footprint and subsea cable infrastructure, network diversity, and low latency connections between major financial and commercial centers in North America and Europe. Our clients for these services include Internet-basedinternet-based technology companies and OTTs,Over-The-Tops, large banks, and other service providers requiring network infrastructure. All services are available on a protected basis with the ability to specify pre-configured alternate routes to minimize the impact of any network disruption.


Additionally, we provideGTT’s wavelength service is designed to deliver scalable high-performance optical connectivity over a state-of-the-art dense wave division multiplexing platform. We offer low latency services between the major financial centers and exchanges, tailored to meet the requirements of proprietary trading firms for the fastest connections. Our service provides theIn particular, GTT's Express transatlantic cable offers industry leading lowest latency performance of the Express transatlantic subsea cable connectingbetween North America and Europe. We also offer dark fiber and duct services across our fiber network.

We offer colocation services in over 100 facilities in Europe which is wholly owned and operated by GTT.North America. The turnkey service offering includes cabinets, racks, suites, and technical support services, providing clients with efficient and secure access to other carrier networks.


Unified Communication

We offer unified communications globally including local voice services in over 55 countries around the world, along with global long-distance and toll-free services. Our Session Initiation Protocol trunking service delivers worldwide Public Switched Telephone Network access to client telephony equipment over an integrated data connection, driving efficiency and productivity organization-wide while allowing clients to retain control of their core voice infrastructure. Our Cloud UC service allows clients to eliminate traditional voice infrastructure with communication services delivered through the cloud, based on a soft client, offering a wide array of features and customization choices for each site and user. In the US, we offer traditional analog voice services for clients with legacy or specialized telephony needs.

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Managed Network and Security Services


We offer fully managed network services, including managed equipment and security.

GTT's managed security services, and managed secure access, enabling customers to focus on their core business. These end-to-end services cover the design, procurement, implementation, monitoring, and maintenance of a customer’s network.

Managed CPE. Managed CPEequipment provides a turnkey solution for the end-to-end management of customer premise equipment, from premises through the core network.equipment. This includes the design, procurement, implementation, monitoring, and maintenance of equipment including routers, switches, servers, and Wi-Fi access points.


Security Services. OurGTT's managed security is available as a cloud-based andor premises-based security services provideservice and provides a comprehensive, multi-layered security solution that protects the network while meeting the most stringent security standards. Our Unified Threat Management (“UTM”)unified threat management services include advanced firewall, intrusion detection, anti-virus, web filtering, and anti-spam. UTM services also coverWe offer a broadfull range of compliance requirements, offering customers Security-as-a-Service versions of managed logging, vulnerability scanning,compliancy packages, which include developing, deploying, configuring, and monitoring network and security information management that meet numerousassets, and providing documentation to comply with audits.

Advanced Solutions

The advanced solutions portfolio comprises three areas - (i) advanced security, standards,(ii) hybrid cloud, and (iii) advanced and professional services.

GTT’s advanced security portfolio provides premium and standard security services including Payment Card Industry / Cardholdersecurity consulting, Security Information and Event Management/Security Program compliance.

Managed Secure Access. Our Managed Secure Access service provides clients of all sizes with secure remote access to their network applications from any device, anywhere, anytime from any authorized user. Managed Secure Access extends network reach, allowing trusted users to establishOperations Center event monitoring and response and other advanced security options on a secure data connection from any browser or device using Transport Layer Security to encrypt all traffic and protect the network from unauthorized users.

Managed Software Defined Wide Area Networking (“SD-WAN”). Leveraging our success to date in delivering hybrid WAN services, GTT’s Managed SD-WAN service provides our clients with optimized application performance and cost-effective network expansion,customized basis, as well as dynamic bandwidth management,firewalling, Distributed Denial-of-Service and the ability to integrate cost-effective network technologies into the corporate WAN.  With a Tier 1 IP network, extensive connectivity to leadingother services.

GTT’s hybrid cloud service providers across 300+provides cloud and compute infrastructure services underpinned by GTT's cloud networking capabilities. We provide managed hybrid compute capabilities utilizing our own global points of presence,compute platform, Virtual Data Center, as well as public cloud offerings from Amazon Web Services and Microsoft Azure.

GTT’s advanced services portfolio provides a broad portfolioarray of diverse last mile connectivity options to any location inmanaged services for our clients including tailored SLAs covering networking, compute, and application infrastructure. These services include consultancy and support for database systems - Oracle, Microsoft SQL, MySQL and others - as well as services further up the world, application stack.

GTT is well positioned to deliver managed SD-WAN services.
Voice and Unified Communication Services

Our SIP Trunking service isprovides an enterprise-built unified communications offering that integrates voice, video, and chat onto a single IP connection, driving efficiency and productivity organization-wide. Our Enterprise PBX service allows clients to eliminate traditional voice infrastructure with communicationarray of professional services delivered through the cloud. The offering includes fully hosted and hybrid models for maximum flexibility.

Video Transport Services

We provide a suite of fully-managed video transport services. Our services are designed to support our clients' requirementsclients and augment the standard portfolio services, providing service, technical, and project management, as well as consultancy for stringent broadcast quality, providing 100% quality of service for transmission of live events, sports entertainment, and news. Our service options include Dedicated, Occasional Use, and IP Video. We manage individual services, multicast distribution, and entire client networks, supporting all forms of signal management required for today's media workflow. GTT's video transport services are based onour clients across the core principle of "any signal, any format, anywhere." Our clients include many of the world's top broadcasters and cable programming providers.globe.




CustomerClient and Network Supplier Contracts


Our customerclient contracts generallyare most commonly two to three years for the initial term but can range from one to five years or more for the initial term.sometimes longer. Following the initial term, these agreements typically provide for automatic renewal for specified periods ranging from one month to one year. Our prices are fixed for the duration of the contract, and we typically bill monthly in advance for such services. If a customerclient terminates its agreement, the terms of our customerclient contracts typically require full recovery of any amounts due for the remainder of the term or, at a minimum, our liability to any underlying suppliers.


Our revenue is composed of three primary categories that include recurring revenue non-recurring revenue, and usagenon-recurring revenue. Recurring revenue relates to contracted ongoing service that is generally fixed in price and paid by the customerclient on a monthly basis for the contracted term. For the ninethree months ended September 30, 2017,March 31, 2020, recurring revenue was approximately 93%94% of our total revenue. Non-recurring revenue primarily includes the amortization of previously collected installation and equipment charges to customers, andclients, one-time termination charges for customersclients who cancel their services prior to the contract termination date. Usagedate, and usage revenue which represents variable revenue based on whether a customerclient exceeds its committed usage threshold as specified in the contract.


Our network supplier contracts do not have any market related net settlement provisions. We have not entered into, and do not plan to enter into, any supplier contracts which involve financial or derivative instruments. The supplier contracts are entered into solely for the direct purchase of telecommunications capacity, which is resold by us in the normal course of business.


Other than cost of telecommunication services provided, our most significant operating expenses are employment costs. As of September 30, 2017,March 31, 2020, we had 1,166approximately 3,100 full-time equivalent employees. For the ninethree months ended September 30, 2017,March 31, 2020, the total employee cash compensation and benefits represented approximately 12%14% of total revenue.


Recent Developments Affecting Our Results

31


Business Acquisitions


Since our formation, we have consummated a number of transactions accounted for as business combinations which were executed as part of our strategy of expanding through acquisitions. These acquisitions, which are in addition to our periodic purchases of customerclient contracts, have allowed us to increase the scale at which we operate which in turn affords us the ability to increase our operating leverage, extend our network, and broaden our customerclient base. The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates.


Hibernia

In January 2017, we acquired Hibernia Networks ("Hibernia") for $529.6 million in cash consideration, of which $14.6 million was net cash acquired, and 3,329,872 unregistered shares of our common stock. The results of Hibernia have been included from January 1, 2017.

Perseus

In June 2017, we acquired Perseus Telecom ("Perseus") for $37.5 million in cash consideration andThere were no acquisitions completed during the assumption of approximately $1.9 million in capital leases. The results of Perseus have been included from June 1, 2017.

Global Capacity

In September 2017, we acquired Global Capacity for $104.0 million in cash consideration, of which $4.0 million was net cash acquired, and 1,850,000 unregistered shares of our common stock. The results of Global Capacity have been included from September 15, 2017.

Asset Purchases

Periodically we acquire customer contracts that we account for as an asset purchase and record a corresponding intangible asset that is amortized over its assumed useful life. During the ninethree months ended September 30,March 31, 2020.

For material acquisitions completed during 2019, 2018, and 2017, we acquired customer contracts for an aggregate purchase price of $37.3 million, of which $14.9 million was paid duringrefer to Note 3 - Business Acquisitions to the nine months ended September 30, 2017 at the acquisitions' respective closing dates. Of the remaining $22.4 million, $2.9 million was paid during the nine months ended September 30, 2017 and the remaining $19.5 million is expected to be paidconsolidated financial statements contained in the remainder of 2017 and 2018, subject toCompany's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.


any indemnification claims made through the final payment date. During 2016, we acquired customer contracts for an aggregate purchase price of $41.3 million, of which $20.0 million was paid in 2016 at the respective closing dates, and $6.0 million was paid during the nine months ended September 30, 2016. Of the remaining $21.3 million, $18.0 million was paid during the nine months ended September 30, 2017 and the remaining $3.3 million is expected to be paid in the remainder of 2017, subject to any indemnification claims made through the final payment dates.


Indebtedness


The following summarizes our long-term debt at September 30, 2017As of March 31, 2020 and December 31, 20162019, long-term debt was as follows (amounts in thousands)millions):


March 31, 2020December 31, 2019
US Term loan due 2025$1,739.0  $1,743.5  
EMEA Term loan due 2025951.5  828.8  
7.875% Senior unsecured notes due 2024575.0  575.0  
Revolving line of credit due 202365.0  140.0  
Other secured loans2.1  4.3  
Total debt obligations3,332.6  3,291.6  
Unamortized debt issuance costs(26.6) (28.0) 
Unamortized original issuance discount, net(48.0) (40.8) 
Carrying value of debt3,258.0  3,222.8  
Less current portion(29.6) (30.2) 
Long-term debt less current portion$3,228.4  $3,192.6  
 September 30, 2017 December 31, 2016
    
Term loan$694,750
 $425,775
7.875% Senior unsecured notes450,000
 300,000
Revolving line of credit—
 20,000
Total debt obligations1,144,750
 745,775
Unamortized debt issuance costs(30,806) (9,310)
Unamortized original issuance premium (discount), net1,941
 (6,957)
Carrying value of debt1,115,885
 729,508
Less current portion(7,000) (4,300)
 $1,108,885
 $725,208


2017 Credit Agreement

In January 2017, weOn May 31, 2018, the Company entered into a credit agreement (the "2017"2018 Credit Agreement") that provides for (1) a $700.0$1,770.0 million term loan B facility (the "US Term Loan Facility"), (2) a €750.0 million term loan B facility (the "EMEA Term Loan Facility"), and (3) a $75.0$200.0 million revolving linecredit facility (the "Revolving Line of credit facilityCredit Facility") (which includes a $25.0$50.0 million letter of credit facility). In addition, we may request incremental term loan commitments and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $150.0$575.0 million and an unlimited amount that is subject to pro forma compliance with certaina net secured leverage ratio tests provided, however, that incremental revolving loan commitments may not exceed $25.0test. The US Term Loan Facility was issued at an original issuance discount of $8.9 million and the EMEA Term Loan Facility was issued at an original issuance discount of €3.8 million.


The maturity date of the term loan facility is January 2024 and the maturity date of the revolving loan facility is January 2022. The principal amount of the term loan facility is payable in equal quarterly installments of $1.8 million, commencing on March 31, 2017 and continuing thereafter until the maturity date, when the remaining balance of outstanding principal amount is payable in full. In addition to scheduled mandatory repayments, the Company is also required to repay an amount of up to 50% of Excess Cash Flow (as defined in the Credit Agreement). No such excess cash payments were made during the nine months ended September 30, 2017.

We may prepay loans under the 2017 Credit Agreement at any time, subject to certain notice requirements and LIBOR breakage costs.

At our election, the loans under the 2017 Credit Agreement may be made as either Base Rate Loans or Eurodollar Loans. The Eurodollar Loans are subject to a floor of 1.00%.

In July 2017, we entered into Amendment No. 1 (the "Repricing Amendment") to the 2017 Credit Agreement. The Repricing Amendment, among other things, reduced the applicable margin on Tranche B Term Loans from 3.00% to 2.25% for Base Rate Loans and from 4.00% to 3.25% for Eurodollar Loans, and reduced the applicable margin on Revolving Loans from 2.50% to 2.00% for Base Rate Loans and from 3.50% to 3.00% for Eurodollar Loans.  The amendment also established a soft call protection of 1.0% through January 10, 2018 for certain prepayments, refinancings, and amendments.

In October 2017,On June 5, 2019, we entered into an Incremental Revolving Credit Assumption Agreement ("Incremental Agreement") to increase ourthe 2018 Credit Agreement. The Incremental Agreement establishes $50.0 million in new revolving linecredit commitments, bringing the total sum of revolving credit facility from $75.0 millioncommitments under the 2018 Credit Agreement, as modified by the Incremental Agreement, to $100.0$250.0 million. The revolving credit commitments made pursuant to the Incremental Agreement have terms and conditions identical to the existing revolving credit commitments under the 2018 Credit Agreement.


The 2017obligations of the Company under the 2018 Credit Agreement are secured by the substantial majority of the tangible and intangible assets of the Company. The obligations of the Company under the U.S. Term Loan Facility and the Revolving Line of Credit Facility are guaranteed by certain of its domestic subsidiaries, but not by any of the Company’s foreign subsidiaries. The obligations of the EMEA Borrower under the EMEA Term Loan Facility are guaranteed by the Company and certain of its domestic and foreign subsidiaries. None of the foreign subsidiary guarantors of the EMEA Term Loan Facility provide cross-guarantees of the guarantees of the EMEA Term Loan Facility provided by the Company and its domestic subsidiaries.

The 2018 Credit Agreement does not contain a financial covenant for the term loan facility,US Term Loan Facility or the EMEA Term Loan Facility, but includesit does include a maximum consolidated net secured leverage ratioConsolidated Net Secured Leverage Ratio applicable to the revolving credit facilityRevolving Line of Credit Facility in the event that utilization exceeds 30% of the revolving loan facility commitment. At March 31, 2020, our utilization (as

32


defined) of the Revolving Line of Credit Facility commitment was approximately 26%. On August 8, 2019, we entered into Amendment No. 1 to the 2018 Credit Agreement, which amends the Consolidated Net Secured Leverage Ratio applicable to the Revolving Line of Credit Facility for each fiscal quarter ending September 30, 2019 through December 31, 2020. If triggered, the covenant, as amended, requires us to maintain a Consolidated Net Secured Leverage Ratio, on a Pro Forma Basis, below the maximum ratio specified as follows:


7.875% Senior Unsecured Notes
Fiscal Quarter EndingMaximum Ratio
March 31, 20206.50:1
June 30, 20206.50:1
September 30, 20206.25:1
December 31, 20206.25:1
March 31, 20215.50:1
June 30, 20215.00:1
September 30, 20215.00:1
December 31, 20214.50:1
March 31, 20224.50:1
June 30, 2022 and thereafter4.25:1


While the financial covenant was not required to be measured as a result of the utilization level of the Revolving Line of Credit Facility as of March 31, 2020, our Consolidated Net Secured Leverage Ratio, as defined in the 2018 Credit Agreement, was 6.53:1.

In December 2016 we completedaddition, Amendment No. 1 to the 2018 Credit Agreement added certain restrictions, which remain in place from the effective date of the Amendment No. 1 until the delivery of the compliance certificate for the quarter ending March 31, 2021, demonstrating compliance with the Consolidated Net Secured Leverage Ratio for that quarter, including without limitation the following: the Company and its restricted subsidiaries (as defined in the 2018 Credit Agreement) may not make certain dividends, distributions and other restricted payments (as defined in the 2018 Credit Agreement), including that the Company may not pay dividends; the Company and its restricted subsidiaries may not designate any subsidiary an “Unrestricted Subsidiary” (which would effectively remove such subsidiary from the restrictions of the 2018 Credit Agreement); the Company and its restricted subsidiaries may not make “permitted acquisitions” (as defined in the 2018 Credit Agreement) or certain other investments, unless the Company and its restricted subsidiaries have liquidity (i.e., unrestricted cash and cash equivalents and availability under the revolving credit facility under the 2018 Credit Agreement) of at least $250 million (other than the acquisition of KPN Eurorings B.V., a private offeringlimited liability company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of $300.0 million aggregate principalthe Netherlands with respect to which this liquidity requirement is not applicable); and the amount of 7.875% senior unsecured notes dueincremental borrowings under the 2018 Credit Agreement that the Company and its subsidiaries may request when the Consolidated Net Secured Leverage Ratio is above 4.40 to 1.00 the Company and its subsidiaries was reduced to $300 million minus amounts previously requested (which amount is $50 million requested under the Incremental Agreement described above).

On February 28, 2020, the Company entered into an amendment to the 2018 Credit Agreement (“Amendment No. 2”), which established incremental term loan commitments for $140 million of EMEA term loans (the “2020 EMEA Term Loan Facility”), bringing the total amounts of EMEA term loans outstanding under the 2018 Credit Agreement, as modified by Amendment No. 2, to €750 million in 2024 (the "Original Notes"). Euro-denominated loans and $140 million in US Dollar-denominated loans. The EMEA term loans under the 2020 EMEA Term Loan Facility were incurred with an original issue discount of $5.6 million.

The 2020 EMEA Term Loan Facility has terms substantially identical to the existing EMEA Term Loan Facility, except that: (1) each quarterly amortization payment on the 2020 EMEA Term Loan Facility will be $350,000; (2) the EMEA Term Loan Facility has a prepayment penalty of 2.0% for certain mandatory and voluntary prepayments occurring on or prior to the one year anniversary of the effective date of the EMEA Term Loan Facility and 1.0% for certain mandatory and voluntary prepayments occurring following the one year anniversary of the effective date of the EMEA Term Loan Facility and until the second year anniversary thereof; (3) Amendment No. 2 added, for the benefit of the lenders under the 2020 EMEA Term Loan Facility, the same covenant restrictions contained in Amendment No. 1, except that (a) the amount of secured debt that can be incurred on a pari passu basis with the 2020 EMEA Term Loan Facility and certain types of debt incurred by non-credit parties is limited to $50 million in the aggregate and (b) certain excess asset sale proceeds will be required to prepay outstanding EMEA term loans or reinvest in long-term assets useful in the business within 30 days following receipt of such proceeds, which covenant restrictions will remain in place for so long as the existing Revolving Line of Credit Facility and the 2020 EMEA Term Loan Facility remain
33

in effect; and (4) the applicable margin for the 2020 EMEA Term Loan Facility is (a) 3.25% for Base Rate Loans and 4.25% for Eurocurrency Loans for the first two years following the effective date of the 2020 EMEA Term Loan Facility and (b) 3.75% for Base Rate Loans and 4.75% for Eurocurrency Loans on and following the second anniversary of the effective date of the 2020 EMEA Term Loan Facility.
The proceeds of the Original Notes2020 EMEA Term Loan Facility were deposited into escrow, where the funds remained until the closing of the acquisition of Hibernia in January 2017. We recognized the proceeds from the private offering as restricted cash and cash equivalents in our consolidated financial statements as of December 31, 2016, which were subsequently released with the closing of Hibernia. In connection with the offering, we incurred debt issuance costs of $9.7 million, of which $0.5 million was incurred in 2016 and the remainder was incurred in 2017.

In June 2017, we completed a private offering of $150.0 million aggregate principal amount of 7.875% senior unsecured notes due in 2024 (the "June 2017 Notes"). The June 2017 Notes will be treated as a single series of debt securities with the Company's Original Notes (together with the Original Notes, the "Existing Notes").  The June 2017 Notes have identical terms as the Original Notes, other than the issue date and offering price. The June 2017 Notes were issued at a premium of $9.0 million. In connection with the offering, we incurred debt issuance costs of $2.9 million.

In October 2017, we completed a private offering of $125.0 million aggregate principal amount of 7.875% senior unsecured notes due in 2024 (the "October 2017 Notes"). The October 2017 Notes will be treated as a single series of debt securities with the Existing Notes. The October 2017 Notes have identical terms as the Existing Notes, other than the issue date and offering price. The October 2017 Notes were issued at a premium of $7.5 million. In connection with the offering, we incurred debt issuance costs of $2.0 million.

Previous Debt Agreement

In October 2015, we entered into the October 2015 Credit Agreement, which provided for a $400.0 million term loan facility and a $50.0 million revolving line of credit facility (which included a $15.0 million letter of credit facility and a $10.0 million swingline facility). As of December 31, 2016, we had drawn $20.0 million under the revolving line of credit and had $29.5 million of available borrowing capacity. Amountsused to repay amounts outstanding under the October 2015Revolving Line of Credit Agreement were repaid in full in connection with the 2017 Credit Agreement. The previous term loan was issued at an OID of $8.0 million.

Facility and for general corporate purposes.
Critical Accounting Policies and Estimates
 
Our consolidated financial statements have been prepared in accordance with GAAP. For information regarding our critical accounting policies and estimates, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 and Note 12 - Significant Accounting Policies to our consolidated financial statements contained therein. There have been no material changes to the critical accounting policies previously disclosed in that report.report, except as described in Note 1 - Organization and Business to our condensed consolidated financial statements contained herein.
 
Results of Operations


Three months ended September 30, 2017March 31, 2020 compared to three months ended September 30, 2016March 31, 2019
 
Overview. The financial information presented in the tables below is comprised of the unaudited condensed consolidated financial information for the three months ended September 30, 2017March 31, 2020 and 20162019 (amounts in thousands)millions):
 


Three Months Ended September 30, Three Months Ended March 31,
2017 2016 $ Variance% Change 20202019$ Variance% Change
      
Revenue:      Revenue:
Telecommunications services$198,858
 $131,851
 $67,007
50.8 %Telecommunications services$424.7  $450.2  $(25.5) (5.7)%
     

Operating expenses:      Operating expenses:
Cost of telecommunications services100,068
 68,184
 31,884
46.8 %Cost of telecommunications services237.7  241.8  (4.1) (1.7)%
Selling, general and administrative expenses51,966
 37,177
 14,789
39.8 %Selling, general and administrative expenses108.2  104.1  4.1  3.9 %
Severance, restructuring and other exit costs11,125
 (625) 11,750
(1,880.0)%Severance, restructuring and other exit costs2.1  2.8  (0.7) (25.0)%
Depreciation and amortization32,847
 14,880
 17,967
120.7 %Depreciation and amortization67.5  62.8  4.7  7.5 %
      
Total operating expenses196,006
 119,616
 76,390
63.9 %Total operating expenses415.5  411.5  4.0  1.0 %
      
Operating income2,852
 12,235
 (9,383)(76.7)%Operating income9.2  38.7  (29.5) (76.2)%
     

Other expense:      
Other expenses:Other expenses:
Interest expense, net(18,251) (7,123) (11,128)156.2 %Interest expense, net(48.8) (48.2) (0.6) 1.2 %
Loss on debt extinguishment(2,988) —
 (2,988)*
Loss on debt extinguishment(2.3) —  (2.3) *  
Other expense, net220
 (74) 294
(397.3)%
Other expenses, netOther expenses, net(43.3) (16.0) (27.3) 170.6 %
     

Total other expense(21,019) (7,197) (13,822)192.1 %
Total other expensesTotal other expenses(94.4) (64.2) (30.2) 47.0 %
     

(Loss) income before income taxes(18,167) 5,038
 (23,205)(460.6)%
Loss before income taxesLoss before income taxes(85.2) (25.5) (59.7) 234.1 %
     

(Benefit from) provision for income taxes(8,648) (89) (8,559)*
(Benefit from) provision for income taxes(1.9) 1.8  (3.7) (205.6)%
  
   
  

Net (loss) income$(9,519) $5,127
 $(14,646)(285.7)%
Net lossNet loss$(83.3) $(27.3) $(56.0) 205.1 %
* - Not meaningful* - Not meaningful* - Not meaningful
 
Revenue

Our revenue increaseddecreased by $67.0$25.5 million, or 50.8%5.7%, from $131.9$450.2 million for the three months ended September 30, 2016March 31, 2019 to $198.9$424.7 million for the three months ended September 30, 2017.March 31, 2020. Recurring revenue was approximately 94% and 93% of total revenue for the three months ended March 31, 2020 and 2019, respectively. The increasedecrease in revenue was primarily due to the acquisitions of Hibernia, Perseus, and Global Capacity, as well as rep-driven growthnegative net installs,
34

non-recurring revenue, and the purchaseeffects of certain customer contracts.fluctuating foreign currency exchange rates, partially offset by an increase in revenue from the 2019 acquisition of KPN International ("KPN").


On a constant currency basis using the average exchange rates in effect during the three months ended September 30, 2016,March 31, 2019, revenue would have been lowerhigher by $1.1$5.8 million for the three months ended September 30, 2017.March 31, 2020.
Cost of Telecommunications Services Provided

Cost of telecommunications services provided increaseddecreased by $31.9$4.1 million, or 46.8%1.7%, from $68.2$241.8 million for the three months ended September 30, 2016March 31, 2019 to $100.1$237.7 million for the three months ended September 30, 2017.March 31, 2020. Recurring cost of telecommunications services was approximately 92% and 94% of total cost of telecommunications services for the three months ended March 31, 2020 and 2019, respectively. Consistent with our increasedecrease in revenue, the increasedecrease in cost of telecommunications services provided was principally driven by the acquisitions of Hibernia, Perseus, and Global Capacity, as well as rep-driven growtha corresponding reduction in costs related to negative net installs, cost synergies realized in 2020, and the purchaseeffects of certain customer contracts.fluctuating foreign currency exchange rates, partially offset by an increase in cost of telecommunications services from KPN.


On a constant currency basis using the average exchange rates in effect during the three months ended September 30, 2016,March 31, 2019, cost of telecommunications services provided would have been lowerhigher by $0.4$3.1 million for the three months ended September 30, 2017.March 31, 2020.
 
Operating Expenses

Selling, General and Administrative Expenses. SG&A Selling, general and administrative expenses increased by $14.8$4.1 million, or 39.8%3.9%, from $37.2$104.1 million for the three months ended September 30, 2016March 31, 2019 to $52.0$108.2 million for the three months ended September 30, 2017.March 31, 2020. The following table


summarizes the major categories of selling, general and administrative expenses for the three months ended September 30, 2017March 31, 2020 and 20162019 (amounts in thousands)millions):


Three Months Ended March 31,
20202019$ Variance% Change
Employee related compensation (excluding share-based compensation)$59.6  $53.6  $6.0  11.2 %
Share-based compensation8.3  8.7  (0.4) (4.6)%
Transaction and integration expense2.2  9.2  (7.0) (76.1)%
Other SG&A(1)
38.1  32.6  5.5  16.9 %
Total$108.2  $104.1  $4.1  3.9 %
 Three Months Ended September 30,
 2017 2016 $ Variance % Change
Employee related compensation (excluding share-based compensation)$24,686
 $17,917
 $6,769
 37.8%
Share-based compensation6,058
 4,844
 1,214
 25.1%
Transaction and integration expense3,367
 801
 2,566
 320.3%
Other SG&A(1)
17,855
 13,615
 4,240
 31.1%
Total$51,966
 $37,177
 $14,789
 39.8%
(1) Includes bad debt expense, professional fees, marketing costs, facilities, and other general support costs.


Employee related compensation increased primarily due to the Hibernia acquisition.an increased investment in headcount. Share-based compensation expense increasesdecreases were primarily driven by the recognition of share-based compensation for2015 performance awards and an increasebecoming fully vested in the aggregate valuefirst quarter of employee equity awards.the prior year. Transaction and integration costs increases were driven by final integration costs relateddecreased as we have not made any acquisitions in 2020 and we continue to Hiberniamove away from the 2018 and transaction costs associated with the acquisitions of Perseus and Global Capacity.2019 Acquisitions. Other SG&A expense increases were principally driven by the acquisition of Hibernia.

Severance, Restructuring and Other Exit Costs. For the three months ended September 30, 2017, we incurred restructuring charges of $11.1 million relating to the Hibernia, Perseus, and Global Capacity acquisitions. During the three months ended September 30, 2016, we reversed restructuring charges of $0.6 million related to the February 2016 acquisition of Telnes Broadband ("Telnes").

Depreciation and Amortization. Amortization of intangible assets increased $6.9 million or 67.7%, from $10.1 million to $17.0 million for the three months ended September 30, 2017, primarily due to the additional definite-lived intangible assets recordedan increase in the Hibernia acquisition. Depreciation expense increased $11.1 million, or 233.9% from $4.8 million to $15.9 million for the three months ended September 30, 2017, primarily due to the assets acquired from the Hibernia acquisition.bad debt expense.

Other Expense. Other expense increased by $13.8 million to $21.0 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. This is primarily attributed to higher interest expense due to higher debt levels driven by the Hibernia, Perseus, and Global Capacity acquisitions as well as a loss on debt extinguishment of $3.0 million incurred in connection with the Repricing Amendment.

On a constant currency basis using the average exchange rates in effect during the three months ended September 30, 2016, operatingMarch 31, 2019, selling, general and administrative expenses would have been lowerhigher by $0.2$1.1 million for the three months ended September 30, 2017. Selling, general and administrative expenses are the only operating expenses that would have been impacted by the change in exchange rates.March 31, 2020.


Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Overview. The financial information presented in the tables below is comprised of the unaudited condensed consolidated financial information for the nine months ended September 30, 2017 and 2016 (amounts in thousands):


 Nine Months Ended September 30,
 2017 2016 $ Variance% Change
       
Revenue:      
Telecommunications services$567,439
 $385,201
 $182,238
47.3 %
       
Operating expenses:      
Cost of telecommunications services284,855
 202,653
 82,202
40.6 %
Selling, general and administrative expenses151,595
 105,311
 46,284
43.9 %
Severance, restructuring and other exit costs21,848
 870
 20,978
2,411.3 %
Depreciation and amortization94,670
 46,139
 48,531
105.2 %
       
Total operating expenses552,968
 354,973
 197,995
55.8 %
       
Operating income14,471
 30,228
 (15,757)(52.1)%
       
Other expense:      
Interest expense, net(50,707) (21,620) (29,087)134.5 %
Loss on debt extinguishment(8,647) (1,632) (7,015)*
Other expense, net184
 (542) 726
(133.9)%
       
Total other expense(59,170) (23,794) (35,376)148.7 %
   
   
   
(Loss) income before income taxes(44,699) 6,434
 (51,133)(794.7)%
       
(Benefit from) provision for income taxes(22,719) 320
 (23,039)*
   
   
   
Net (loss) income$(21,980) $6,114
 $(28,094)(459.5)%
* - Not meaningful

Revenue
Our revenue increased by $182.2 million, or 47.3%, from $385.2 million for the nine months ended September 30, 2016 to $567.4 million for the nine months ended September 30, 2017. The increase was primarily due to the acquisitions of Hibernia, Perseus, and Global Capacity, as well as rep-driven growth and the purchase of certain customer contracts.

On a constant currency basis using the average exchange rates in effect during the nine months ended September 30, 2016, revenue would have been higher by $6.9 million for the nine months ended September 30, 2017.
Cost of Telecommunications Services Provided
Cost of telecommunications services provided increased by $82.2 million, or 40.6%, from $202.7 million for the nine months ended September 30, 2016 to $284.9 million for the nine months ended September 30, 2017. Consistent with our increase in revenue, the increase in cost of telecommunications services provided was principally driven by the acquisitions of Hibernia, Perseus, and Global Capacity, as well as rep-driven growth and the purchase of certain customer contracts.

On a constant currency basis using the average exchange rates in effect during the nine months ended September 30, 2016, cost of telecommunications services provided would have been higher by $3.2 million for the nine months ended September 30, 2017.
Operating Expenses
Selling, General and Administrative Expenses. SG&A expenses increased by $46.3 million, or 43.9%, from $105.3 million for the nine months ended September 30, 2016 to $151.6 million for the nine months ended September 30, 2017. The following table


summarizes the major categories of selling, general and administrative expenses for the nine months ended September 30, 2017 and 2016 (amounts in thousands):
 Nine Months Ended September 30,
 2017 2016 $ Variance % Change
Employee related compensation (excluding share-based compensation)$70,438
 $51,838
 $18,600
 35.9%
Share-based compensation15,960
 10,896
 5,064
 46.5%
Transaction and integration expense13,794
 3,124
 10,670
 341.5%
Other SG&A(1)
51,403
 39,453
 11,950
 30.3%
Total$151,595
 $105,311
 $46,284
 43.9%
(1) Includes bad debt expense, professional fees, marketing costs, facilities, and other general support costs.

Employee related compensation increased primarily due to the Hibernia acquisition. Share-based compensation expense increases were driven by the recognition of share-based compensation for performance awards and an increase in the aggregate value of employee equity awards. Transaction and integration costs increases were driven by final integration costs related to Hibernia and transaction costs associated with the acquisition of Perseus and Global Capacity. Other SG&A expense increases were principally driven by the acquisition of Hibernia.

Severance, Restructuring and Other Exit Costs. For the ninethree months ended September 30, 2017,March 31, 2020, we incurred severance, restructuring and other exit costs of $2.1 million primarily costs associated with charges incurred in connection with the termination of $21.8certain lease facilities. For the three months ended March 31, 2019, we incurred exit costs of $2.8 million primarily relating to the Hibernia, Perseus, and Global Capacity acquisitions. We incurred $0.9 million related to the acquisition of Telnes for the nine months ended September 30, 2016.Interoute Communications Holdings S.A ("Interoute").


Depreciation and Amortization. Amortization of intangible assets increased $20.0decreased $1.0 million or 67.9%5%, from $29.5$22.1 million for the ninethree months ended September 30, 2016March 31, 2019 to $49.6$21.1 million for the ninethree months ended September 30, 2017,March 31, 2020, primarily due to intangibles from prior year acquisitions becoming fully amortized during the additional definite-lived intangible assets recorded incurrent and prior periods partially offset by the Hibernia acquisition.amortization of KPN intangibles. Depreciation expense increased $28.5$5.7 million or 171.5%14%, from $16.6 million to $45.1$40.7 million for the ninethree months ended September 30, 2017,March 31, 2019 to $46.4 million for the three months ended March 31, 2020, primarily due to the assets acquired from the Hibernia acquisition.depreciation on prior year and current year capital expenditures as well as depreciation of KPN assets.


35

Other Expense. Other expense increased by $35.4$30.2 million to $59.2$94.4 million for the ninethree months ended September 30, 2017March 31, 2020, compared to $64.2 million for the ninethree months ended September 30, 2016.March 31, 2019. This is primarily attributed to higher interest expense due to higher debt levels driven by the Hibernia, Perseus, and Global Capacity acquisitions as well asthree months ended March 31, 2020 including a non-cash mark-to-market loss on debt extinguishmentderivative financial instruments of $8.6$33.5 million incurred in connection withwhereas the 2017 Credit Agreement and Repricing Amendment.three months ended March 31, 2019 included a non-cash mark-to-market gain on derivative financial instruments of $15.3 million.
 
On a constant currency basis using the average exchange rates in effect during the nine months ended September 30, 2016, operating expenses would have been higher by $0.9 million for the nine months ended September 30, 2017. Selling, general and administrative expenses are the only operating expenses that would have been impacted by the change in exchange rates.


Liquidity and Capital Resources


In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic. COVID-19 has caused, and could continue to cause, significant disruptions to the U.S. and global economy. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain and ensuring adequate liquidity is critical. We believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, but we are continuing to actively monitor the situation and are developing plans should we begin to experience material impacts.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.However, based on our current revenue outlook, we believe that existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next 12 months from the date of this filing.

Our primary sources of liquidity have been cash provided by operations, equity offerings, and debt financings. Our principal uses of cash have been for acquisitions, working capital, capital expenditures, and debt service requirements. We anticipate that our principal uses of cash in the future will be for acquisitions, capital expenditures, working capital, and debt service.
 
Management monitors cash flow and liquidity requirements on a regular basis, including an analysis of the anticipated working capital requirements for the next 12 months.months from the date of this filing. This analysis assumes our ability to manage expenses, capital expenditures, indebtedness, and the anticipated growth of revenue.revenue trajectory. If our operating performance differs significantly from our forecasts, we may be required to reduce our operating expenses and curtail capital spending, and we may not remain in compliance with our debt covenants. In addition, if we are unable to fully fund our cash requirements through operations and current cash on hand, we may need to obtain additional financing through a combination of equity and debt financings and/or renegotiation of terms of our existing debt. If any such activities become necessary, there can be no assurance that we would be successful in obtaining additional financing or modifying our existing debt terms.

As of September 30, 2017, we had approximately $34.8 million in cash and cash equivalents, and our current liabilities were $203.8 million, including $17.6 million of earn-outs and holdback obligations, $15.7 million of accrued severance and exit costs,


$17.2 million of deferred revenue associated with prior period capacity sales we acquired from Hibernia, and $41.3 million of unearned revenue for amounts billed in advance to customers.


Our capital expenditures increaseddecreased by $9.1$10.1 million, or 50.8%31.5% from $17.8$32.1 million (7.1% of revenue) for the ninethree months ended September 30, 2016March 31, 2019 to $26.9$22.0 million (5.2% of revenue) for the ninethree months ended September 30, 2017. The increase in capital expenditures was due to our growth and the acquisition of Hibernia.March 31, 2020. We anticipate that we will incur capital expenditures in the range of 5% to 6%approximately 5-6% of revenue for 2017.going forward. We continue to expect that our capital expenditures will be primarily success-based, i.e., in support of specific revenue opportunities.


We believe that our cash flows from operating activities, in addition to cash on-hand and undrawn Revolving Line of Credit Facility, will be sufficient to fund our operating activities and capital expenditures for the foreseeable future, and in any event for at least the next 12 to 18 months.months from the date of this filing. However, no assurance can be given that this will be the case.


The Company may also, from time-to-time, seek to retire or purchase its outstanding debt obligations and/or equity in open market purchases, block trades, privately negotiated purchase transactions, exchange transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions. Any such retirement, purchase or exchange of debt and/or equity may be funded with operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material.

Cash Flows


The following table summarizes the components of our cash flows for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 (amounts in thousands)millions):
36

Condensed Consolidated Statements of Cash FlowsNine Months Ended September 30,
Condensed Consolidated Statements of Cash Flows DataCondensed Consolidated Statements of Cash Flows DataThree Months Ended March 31,
2017 2016 $ Variance20202019$ Variance
Net cash provided by operating activities$47,091
 $32,767
 $14,324
Net cash provided by operating activities$41.5  $16.1  $25.4  
Net cash used in investing activities(390,318) (37,959) (352,359)Net cash used in investing activities(22.0) (32.6) 10.6  
Net cash provided by financing activities349,221
 7,871
 341,350
Net cash provided by financing activities42.9  10.7  32.2  


Cash Provided by Operating Activities
 
Our largest source of cash provided by operating activities is monthly recurring revenue from our customers.clients. Our primary uses of cash are payments to network suppliers, compensation-related costs, interest expense, and third-party vendors such as agents, contractors, and professional service providers.


Net cash flows from operating activities increased by $14.3$25.4 million, from $32.8$16.1 million for the ninethree months ended September 30, 2016March 31, 2019 to $47.1$41.5 million for the ninethree months ended September 30, 2017.March 31, 2020. This increase was primarily due to the acquisitionthree months ended March 31, 2019 being negatively impacted by a use of Hibernia, Perseus,cash related to an increase in accounts receivable, due to the integration of Interoute's clients into GTT's billing system, which led to delays in invoice deliveries and Global Capacitycorresponding client payments, as well as rep-driven growth and the purchase of certain customer contracts partially offset bylower non-recurring cash payments for severance and exit costs, and for transaction and integration costs.costs during three months ended March 31, 2020.


Cash Used in Investing Activities


Our primary uses of cash include acquisitions, purchases of customerclient contracts, and capital expenditures.


Net cash flows used in investing activities increaseddecreased by $352.4$10.6 million, from $38.0$32.6 million for the ninethree months ended September 30, 2016March 31, 2019 to $390.3$22.0 million for the ninethree months ended September 30, 2017.March 31, 2020.


Cash used for the ninethree months ended September 30, 2017 primarilyMarch 31, 2020 consisted of $652.8 millioncapital expenditures of approximately $22.0 million. Cash used for the Hibernia, Perseus, and Global Capacity acquisitions as well as certain customer contract purchasesthree months ended March 31, 2019 consisted of $0.5 million of additional cash consideration paid for which we paid $14.9 million,API and capital expenditures of approximately $26.9$32.1 million.


Cash Provided by Financing Activities


Our primary source of cash forfrom financing activities isare proceeds from debt financing proceeds.and equity issuances. Our primary use of cash for financing activities is the refinancing of our debt and repayment of principal pursuant to the debt agreements.


Net cash flows fromprovided by financing activities increased by $341.4$32.2 million, from $7.9$10.7 million for the ninethree months ended September 30, 2016March 31, 2019 to $349.2$42.9 million for the ninethree months ended September 30, 2017, consistingMarch 31, 2020. Cash provided for the three months ended March 31, 2019 consisted primarily of proceeds from the Revolving Line of Credit Facility, partially offset by repayments of principal on term loans and other secured borrowings. Cash provided for the three months ended March 31, 2020 consisted primarily of net proceeds from the 2020 EMEA Term Loan Facility, partially offset by net repayments on the Revolving Line of Credit Facility, payment of debt issuance costs in connection with Amendment No. 2 to the 2018 Credit Agreement, and repayments of principal on term loanloans and issuance of senior notes to fund the Hibernia, Perseus, and Global Capacity acquisitions.other secured borrowings.



Off-Balance Sheet Arrangements, Contractual Obligations and Commitments
 


The following table summarizes our significant contractual obligations as of September 30, 2017March 31, 2020 (amounts in thousands)millions):
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 Total Less than 1 year 1-3 years 3-5 years More than 5 years
Term loan$694,750
 $7,000
 $14,000
 $14,000
 $659,750
7.875% Senior unsecured note450,000
 —
 —
 —
 450,000
Operating leases27,890
 6,115
 9,360
 6,768
 5,647
Capital leases2,060
 1,648
 412
 —
 —
Network supplier agreements290,842
 133,228
 104,241
 13,300
 40,073
Other5,549
 986
 3,063
 1,500
 —
 $1,471,091
 $148,977
 $131,076
 $35,568
 $1,155,470
 TotalLess than 1 year1-3 years3-5 years More than 5 years
Term loans$2,690.5  $27.6  $55.2  $55.2  $2,552.5  
7.875% senior note575.0  —  —  575.0  —  
Other secured loans2.1  2.1  —  —  —  
Revolving line of credit65.0  —  —  65.0  —  
Operating leases390.6  87.6  138.7  75.6  88.7  
Finance leases137.2  6.4  10.3  10.6  109.9  
Network supplier agreements (1)
1,185.9  369.1  639.6  111.6  65.6  
Other (2)
34.8  13.3  9.7  5.2  6.6  
 $5,081.1   $506.1   $853.5   $898.2   $2,823.3  

(1) Excludes contracts where the initial term has expired and we are currently in month-to-month status.
(2) "Other" consists of vendor contracts associated with network monitoring and maintenance services.

Off-Balance Sheet Arrangements

As of September 30, 2017,March 31, 2020, we did not have any off-balance sheet arrangements.arrangements, other than the contractual obligations disclosed in the table above, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
 

Non-GAAP Financial Measures


In addition to financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”("GAAP"), from time to time we may use or publicly disclose certain "non-GAAP financial measures" in the course of our financial presentations, earnings releases, earnings conference calls, and otherwise. For these purposes, the U.S. Securities and Exchange Commission (“SEC”("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 our financial condition and operating results. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better evaluate our 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 we refer to a non-GAAP financial measure we will also generally 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 we reference with such comparable GAAP financial measure.


Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“("Adjusted EBITDA”EBITDA")


Adjusted EBITDA is defined by us as income/(loss) before interest, income taxes, 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.


We use Adjusted EBITDA to evaluate operating performance, and this financial measure is among the primary measures we use for planning and forecasting future periods. We further believe 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 our results with the results of other companies that have different financing and capital structures. The 2017 Credit Agreement does not containIn addition, we have debt covenants that are based on a financial covenant for the term loan facility, but includes a maximum consolidated net secured leverage ratio that utilizes a modified EBITDA calculation.calculation, as defined by our Credit
38

Agreement. The modified EBITDA calculation is similar to our definition of Adjusted EBITDA; however, it includes the pro forma Adjusted EBITDA of and expected cost synergies from the companies acquired by us during the applicable reporting period. Finally, Adjusted EBITDA results, along with other quantitative and qualitative information, are utilized by management and our compensation committee for purposes of determining bonus payouts to our employees.

Adjusted EBITDA Less Capital Expenditures



Adjusted EBITDA less purchases of property and equipment, which we also refer to as capital expenditures or capex, is a performance measure that we use to evaluate the appropriate level of capital expenditures needed to support our expected revenue, and to provide a comparable view of our performance relative to other telecommunications companies who may utilize different strategies for providing access to fiber-based services and related infrastructure. We use a “capex light” strategy, which means we purchase fiber-based services and related infrastructure from other providers on an as-needed basis, pursuant to our 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 our strategy, we typically have lower Adjusted EBITDA margins compared to other providers, but also spend much less on capital expenditures relative to our revenue. We believe it is important to take both of these factors into account when evaluating our performance.
The following is a reconciliation of Adjusted EBITDA and Adjusted EBITDA less Capital Expenditures from Net (loss) income:loss (amounts in millions):


Three Months Ended March 31,
20202019
Net loss$(83.3) $(27.3) 
Provision for (benefit from) income taxes(1.9) 1.8  
Interest expense, net48.8  48.2  
Other expenses (income), net43.3  16.0  
Loss on debt extinguishment2.3  —  
Depreciation and amortization67.5  62.8  
Severance, restructuring and other exit costs2.1  2.8  
Transaction and integration costs2.2  9.2  
Share-based compensation8.3  8.7  
Adjusted EBITDA$89.3  $122.2  

Free Cash Flow

Free Cash Flow is defined by us as net cash provided by operating activities less purchases of property and equipment.

We use Free Cash Flow as a measure to evaluate cash generated through normal operating activities. We believe that the presentation of Free Cash Flow is relevant and useful to investors because it provides a measure of cash available to pay the principal on our debt and pursue acquisitions of businesses or other strategic investments or uses of capital.

The following is a reconciliation of Free Cash Flow from Cash provided by operating activities (amounts in millions):

Three Months Ended March 31,
20202019
Net cash provided by operating activities$41.5  $16.1  
Purchases of property and equipment(22.0) (32.1) 
Free Cash Flow$19.5  $(16.0) 


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 Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in thousands)2017 2016 2017 2016
        
Adjusted EBITDA       
Net (loss) income$(9,519) $5,127
 $(21,980) $6,114
(Benefit from) provision for income taxes(8,648) (89) (22,719) 320
Interest and other expense, net18,031
 7,197
 50,523
 22,162
Loss on debt extinguishment2,988
 —
 8,647
 1,632
Depreciation and amortization32,847
 14,880
 94,670
 46,139
Severance, restructuring and other exit costs11,125
 (625) 21,848
 870
Transaction and integration costs3,367
 801
 13,794
 3,124
Share-based compensation6,058
 4,844
 15,960
 10,896
Adjusted EBITDA56,249
 32,135
 160,743
 91,257
        
Purchases of property and equipment(9,113) (5,525) (26,865) (17,813)
Adjusted EBITDA less capital expenditures$47,136
 $26,610
 $133,878
 $73,444


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We are exposed to certain market risks. These risks, which include interest rate risk and foreign currency exchange risk, arise in the normal course of our business rather than from trading activities.


Interest Rate Sensitivity
 
Our exposure to market risk for changes in interest rates is primarily related to our outstanding term loans and revolving loans. As of September 30, 2017,March 31, 2020, we had $694.8$2,690.5 million in term loans and $65.0 million in revolving loans with variable interest rates and no revolving loans.rates. The interest expense associated with our term loan and revolving loan will vary with market rates.


For purposes of the following hypothetical calculations, we have used the 2017 Credit Agreement, whichThe US Term Loan Facility carries an interest rate equal to either Base Rate Loans with applicable margin at 2.25%1.75% or EurodollarEurocurrency Loans at 3.25%2.75%, subject to a floor of 1.0%0.00%. Based on current rates, a hypothetical 100 basis point increase in Eurodollar rate would increase annual interest expense by approximately $7.0$7.4 million, which would decrease our income and cash flows by the same amount. A hypothetical increaseThis sensitivity analysis takes into account the impact of the EurodollarLIBOR-based interest rate swaps entered into during 2018.

The EMEA Term Loan Facility carries an interest rate equal to 4%the European Money Markets Institute EURIBOR plus the applicable margin of 3.25%, the average historical three-monthsubject to a EURIBOR floor of 0.00%. Based on current rates, a hypothetical 100 basis point increase in EURIBOR rate would increase annual interest expense by approximately $19.2$4.0 million, which would decrease our income and cash flows by the same amount. This sensitivity analysis takes into account the impact of the EURIBOR-based interest rate swap entered into during 2018.


We do not currently usemay enter into additional derivative financial instruments and have not entered into any interest rate hedging transactions, but we may do so in the future.


Exchange Rate Sensitivity
 


Our exposure to market risk for changes in foreign currency rate relates to our global operations. Our condensed consolidated financial statements are denominated in U.S. Dollars, but a portion of our revenue cost of telecommunications services provided and selling, general and administrative expenses are recorded in the local currency of our foreign subsidiaries. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. Dollar will affect the translation of each foreign subsidiary’s financial results into U.S. Dollars for purposes of reporting consolidated financial results.


Approximately 23%The following is a summary of our revenues and expenses generated by non-US entities for the three months ended September 30, 2017 were generated by non-US entities, of which approximately 10% was recorded in GBP, approximately 10% was recorded in Euros and the remainder was recorded predominantly in Canadian dollars. Approximately 17% of our cost of telecommunications services provided and approximately 12% of our selling, general and administrative expenses for the three months ended September 30, 2017 were generated by the same non-US entities. Therefore, it is highly unlikely that changes in exchange rates would have a material impact on our financial condition or results of operations.March 31, 2020:


Three Months Ended March 31, 2020
RevenuesCost of Telecommunication ServicesSelling, general and administrative expensesDepreciation and amortizationInterest expense, net
EUR39 %32 %32 %39 %21 %
GBP12 %22 %7 %10 %1 %
Other2 %3 %1 %3 %— %
Total non-US53 %57 %40 %52 %22 %

We dodid not currently usehave any foreign currency derivatives as of March 31, 2020 but we may enter into derivative financial instruments and have not entered into any foreign currency hedging transactions, but we may do so in the future.


ITEM 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Our management carried out an evaluation required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision of and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”).

40

Based on our evaluation, our CEO and CFO concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Our evaluation excluded Hibernia which was acquired in January 2017. On a pro forma basis, as of and for the three months ended December 31, 2016, Hibernia represented approximately 38% of total assets and 23% of total revenue. These percentages did not differ significantly for the nine months post acquisition. In accordance with guidance issued by the SEC, companies are allowed to exclude acquisitions from their assessment of internal controls over financial reporting during the first year subsequent to the acquisition while integrating the acquired operations.

Our evaluation excluded Global Capacity which was acquired in September 2017. On a proforma basis, as of and for the three months ended December 31, 2016, Global Capacity represented approximately 17% of total assets and 24% of total revenue. These percentages did not differ significantly for the one month post acquisition. In accordance with guidance issued by the SEC, companies are allowed to exclude acquisitions from their assessment of internal controls over financial reporting during the first year subsequent to the acquisition while integrating the acquired operations.


The CEO and the CFO, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2017,March 31, 2020, and based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of September 30, 2017,March 31, 2020, that hashave materially affected, or isare reasonably likely to materially affect our internal control over financial reporting.



41



PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
From time to time, we are party to legal proceedings arising in the normal course of business. WeExcept as disclosed below, we do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations.operations and cash flow.


On July 30, 2019, a purported class action complaint was filed against the Company and certain of its current and former officers and directors in the U.S District Court for the Eastern District of Virginia (Case No. 1:19-cv-00982) on behalf of certain GTT stockholders. The complaint alleges that defendants made false or misleading statements and omissions of purportedly material fact, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, in connection with disclosures relating to GTT's acquisition and integration of Interoute Communications Holdings S.A. The complaint seeks unspecified damages. The Company believes that the claims in this lawsuit are without merit and intends to defend against them vigorously. At this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company.

ITEM 1A. RISK FACTORS
 
There have been no material changes toThe following risk factor supplements the risk factors disclosed indescribed under Part I, Item 1A, of1A. "Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed2019, and should be read in conjunction with the SECother risk factors presented in the Annual Report on Form 10-K.

The COVID-19 pandemic and the resulting macroeconomic disruption have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.

In March 8, 2017.2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic. COVID-19 has caused, and could continue to cause, significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is continually evolving. Certain states and cities, including those in which our offices are located, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on the types of business that may continue to operate.

As of the date of this Quarterly Report on Form 10-Q, we have temporarily closed our offices (including our corporate headquarters) in the United States and several other impacted locations and implemented certain travel restrictions, both of which have begun to disrupt how we operate our business. In addition, the conditions caused by the COVID-19 pandemic could adversely affect our clients' ability or willingness to purchase our service offerings, delay prospective clients' purchasing decisions, adversely impact our ability to provide or deliver services to our clients, delay the provisioning of our service offerings, or lengthen payment terms, all of which could adversely affect our future sales, operating results and overall financial performance.

While the potential economic impact brought by COVID-19 may be difficult to assess or predict, the pandemic has resulted in significant disruption of global financial markets, and a recession or long-term market correction resulting from the spread of COVID-19 could cause severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could make it difficult for us to access debt and equity capital on attractive terms, or at all, and impact our ability to fund business activities and repay debt on a timely basis.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


42

None.


ITEM 4. MINE SAFETY DISCLOSURES


None.


ITEM 5. OTHER INFORMATION


None.





43

ITEM 6. EXHIBITS
 
The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:
 
Exhibit Number
NumberDescription of Document
Second Amended and Restated Certificate of Incorporation, dated October 16, 2006 (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed October 19, 2006).
Certificate of Amendment to Second Amended and Restated Certificate of Incorporation, dated December 31, 2013 (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed January 6, 2014).
Certificate of Designations (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 8, 2019).
Amended and Restated By-laws, dated April 16, 2019 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed April 22, 2019).
Amendment No. 1 to Amended and Restated Bylaws of GTT Communications, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed February 25, 2020).
Amendment No. 2 to Credit Agreement, dated as of July 10, 2017,February 28, 2020, among GTT Communications, Inc., a Delaware corporation, as the borrower, the lenders party thereto, andGTT Communications B.V., KeyBank National Association, as the administrative agent, and as the Additional Tranche B Term Loan Lender (previously filed as an exhibitlenders party thereto.
Employment Agreement, dated April 6, 2020, between Steven Berns and GTT Communications, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed July 14, 2017, and incorporated herein by reference)April 6, 2020).
Incremental Revolving Credit AssumptionEmployment Agreement, dated as of October 12, 2017, among GTT Communications,March 10, 2014, by and between Global Telecom & Technology Americas, Inc., a Delaware corporation, as the borrower, KeyBank National Association, as the administrative agent, and the Incremental Revolving Credit Lenders party hereto.
Daniel M. Fraser,
Amendment No. 1 to the Employment Agreement, dated October 17, 2019, by and between GTT Americas, LLC (formerly Global Telecom & Technology Americas, Inc.) for Daniel M. Fraser.
Certification of Chief Executive Officer of the Registrant, pursuant to Rules 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Chief Financial Officer of the Registrant, pursuant to Rules 13a-14(a) of the Securities Exchange Act of 1934.
Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101*101.CAL*The following financial statements and footnotes from GTT Communications, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017, formattedInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited); (ii) Condensed Consolidated Statements of Operations (unaudited); (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income; (iv) Condensed Consolidated Statement of Stockholders' Equity (unaudited); (v) Condensed Consolidated Statements of Cash Flows (unaudited); and (v) Notes to Condensed Consolidated Financial Statements.Exhibits 101.*)
 
*Filed herewith
+**Furnished herewith
+Denotes a management or compensatory plan or arrangement
  




44

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
GTT Communications, Inc.
By:/s/ Richard D. Calder, Jr.
Richard D. Calder, Jr.
President, Chief Executive Officer and
Director (Principal Executive Officer)
GTT Communications, Inc.By:/s/ Steven Berns
Steven Berns
By:/s/ Richard D. Calder, Jr.
Richard D. Calder, Jr.
President, Chief Executive Officer and
Director (Principal Executive Officer)
By:/s/ Michael T. Sicoli
Michael T. Sicoli
Chief Financial Officer
(Principal Financial Officer)
By:/s/ Daniel M. Fraser
Daniel M. Fraser
Senior Vice President, Corporate Controller and Controller
Date:November 3, 2017(Principal (Principal Accounting Officer)
Date:May 8, 2020
 

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