| SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation of Consolidated Financial Statements and Use of Estimates The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("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, accruals for billing disputes, and accruals for exit activities, determining useful lives for depreciation and amortization, 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, accounting for income taxes and related valuation allowances against deferred tax assets and estimating the grant date fair values used to compute the stock-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 reportable segment. The chief operating decision maker manages the Company as a single profit center in order to promote collaboration, provide comprehensive service offerings across its entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding selected products or services are discussed for purposes of promoting an understanding of the Company's complex business, the chief operating decision maker manages the Company and allocates resources at the consolidated level of a single operating segment. Revenue Recognition The Company delivers four primary services to its customers—EtherCloud, flexible Ethernet-based connectivity service; Internet Services, high bandwidth internet connectivity services; Managed Services, provision of fully managed network services; and Voice and UC Services, global communication and collaboration services. Certain of its current revenue activities have features that may be considered multiple elements. Specifically, when the Company sells one of its subscription services with a Customer Premised 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 subscription revenue is recorded ratably over the term of the agreement and the equipment is accounted for a sale, at the time of sale. The Company's services are provided under contracts that typically provide for 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: Monthly Recurring Revenue. Monthly 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, and as long as collectability is reasonably assured. Burst Revenue. Burst 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 burst revenue based on actual usage charges billed using the rates and/or thresholds specified in each contract, as long as collectability is reasonably assured. Non-recurring Revenue. Non-recurring revenue consists of charges for installation in connection with the delivery of recurring communications services, late payments, cancellation, early termination, 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 if collectability is reasonably assured. 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 recognize 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) and when collectability is reasonably assured. Universal Service Fund (USF), Gross Receipts Taxes and Other Surcharges The Company is liable in certain cases for collecting regulatory fees and/or certain sales taxes from its customers and remitting the fees and taxes to the applicable governing authorities. Where the Company collects on behalf of a regulatory agency, the Company does not record any revenue. The Company records applicable taxes on a net basis. Cost of Telecommunications Services Cost of telecommunications services includes direct costs incurred in accessing other telecommunications providers’ networks in order to provide telecommunication services to the Company's customers, and expenses for connection to other carriers. The cost of the Company's core network is typically renewed on an annual basis with a respective provider. Connectivity from the Company's core network to a customer premise is contracted using matching terms to the customer. Cost of telecommunications services also includes co-location charges, usage-based access charges and other professional services fees incurred pursuant to a customer's service contract. Share-Based Compensation Share-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2015 , 2014 , and 2013 included compensation expense for share-based payment awards based on the grant date fair value with the expense recognized on a straight-line over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of its option awards at the time of grant. Other Expense, Net The Company recognized other expense, net, of $1.2 million , $8.6 million , and $11.7 million for the years ended December 31, 2015 , 2014 , and 2013 respectively. The following table presents other expense, net by type: 2015 2014 2013 Change in fair value of warrant liability $ — $ 6,857 $ 8,658 Change in fair value of acquisition earn-outs 880 1,554 1,978 Other 287 225 1,088 Total other expense, net $ 1,167 $ 8,636 $ 11,724 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 analyzed 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 is the amount of benefit that is “more likely than not” to be sustained upon examination. The Company analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required 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, 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 Income (Loss) In addition to net income (loss), comprehensive income (loss) includes 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. Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income or (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted 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 and warrants. The table below details the calculations of earnings (loss) per share (in thousands, except for share and per share amounts): Year Ended December 31, 2015 2014 2013 Numerator for basic and diluted EPS – income (loss) available to common stockholders $ 19,304 $ (22,979 ) $ (20,789 ) Denominator for basic EPS – weighted average shares 34,973,284 27,011,381 21,985,241 Effect of dilutive securities 828,111 — — Denominator for diluted EPS – weighted average shares 35,801,395 27,011,381 21,985,241 Earnings (loss) per share: basic $ 0.55 $ (0.85 ) $ (0.95 ) Earnings (loss) per share: diluted $ 0.54 $ (0.85 ) $ (0.95 ) The table below details the anti-dilutive common share items that were excluded in the computation of earnings (loss) per share (amounts in thousands): Year Ended December 31, 2015 2014 2013 BIA warrant — — 1,055 Plexus warrant — — 960 Alcentra warrant — — 329 Stock options 256 1,363 1,698 Totals 256 1,363 4,042 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 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 finance charge of a certain percentage per month with respect to all 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 current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. Specific reserves are also established on a case-by-case basis by management. Credit losses have historically been within management’s expectations. 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 outweigh the likelihood of recovery. The total allowance for doubtful accounts was $1.0 million and $0.9 million as of December 31, 2015 and 2014 , respectively. Deferred Costs Installation costs related to provisioning 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 costs would not have been incurred but for the occurrence of that service contract, are recorded as deferred contract 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. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation computed using the straight-line method. Depreciation on these assets is computed over the estimated useful lives of the assets. Assets 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. Depreciable lives used by the Company for its classes of assets are as follows: Furniture and Fixtures 7 years Network Equipment 5 years Leasehold Improvements up to 10 years Computer Hardware and Software 3-5 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 exceeds its estimated future undiscounted cash flows, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of 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 and the software will be used to perform the function intended. Costs capitalized for developing such software applications were not material for the periods presented. Goodwill and Intangible Assets The Company assesses goodwill for impairment on at least an annual basis on October 1 unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. The Company operates as a single operating segment and as a single reporting unit for the purpose of evaluating goodwill. As of October 1, 2015, the Company performed its annual impairment test of goodwill by comparing its fair value (primarily based on market capitalization) to the carrying value of equity, and concluded that the fair value of the reporting unit was greater than the carrying amount. During the years ended December 31, 2015, 2014, and 2013 the Company did not record any goodwill impairment. Intangible assets consist of customer relationships, restrictive covenants related to employment agreements, license fees, intellectual property and trade names. Customer relationships, restrictive covenants related to employment agreements and a tradename are amortized, on a straight-line basis, over periods of up to seven years. Point-to-point FCC Licenses are accounted for as definite lived intangibles and amortized over the average remaining useful life of such licenses which approximates three years. Intellectual property consisting of know-how related to the SIP trunking platform is amortized over the estimated useful life of ten years. One of the Company's trade names is not amortized, but is tested on at least an annual basis as of October 1 unless interim indicators of impairment exist. The trade name is considered to be impaired when the net book value exceeds its estimated fair value. As of October 1, 2015, 2014 and 2013 the Company performed its annual impairment test of the trade name, and concluded that the fair value of the trade name was greater than the carrying amount, respectively. The Company used the relief from royalty method for valuation. The fair value of the asset is the present value of the license fees avoided by owning the asset, or the royalty savings. At the end of the fourth quarter and subsequent to year-end, the Company evaluated whether any triggering events had occurred, including the decline in its stock price, that may require further testing. After assessing the totality of events and circumstances, the Company has determined that there were no indicators that the fair value of goodwill was below its carrying amounts and therefore an interim Step 1 goodwill impairment test was not required to be performed. Business Combinations The Company includes the results of operations of the businesses that it acquires as of 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. 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, the length of time the service has been active, and the overall supplier relationship. Disputed Supplier Expenses It is common in the telecommunications industry for customers and suppliers to engage in disputes over amounts billed (or not billed) in error or over interpretation of contract terms. Management estimates a liability for the amounts the Company believes are valid and that the Company owes to a supplier. This liability is reconciled with actual results as disputes are resolved, or as the appropriate statute of limitations with respect to a given dispute expires. As of December 31, 2015 , the Company had open disputes, not accrued for, of $6.9 million . As of December 31, 2014 , the Company had open disputes, not accrued for, of $4.8 million . Acquisition Earn-outs and Holdbacks Acquisition earn-outs and holdbacks represent either contingent consideration subject to fair value measurements, or fixed deferred consideration due to be paid out typically on the one-year anniversary of an acquisitions closing. Contingent consideration is remeasured to fair value at each reporting period, refer to Note 6. The portion 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. Translation of Foreign Currencies These consolidated financial statements have been reported in U.S. Dollars by translating asset and liability amounts of foreign subsidiaries at the closing exchange rate, equity amounts at historical rates, and the results of operations and cash flow at the average exchange rate prevailing during the years reported. A summary of exchange rates used is as follows: U.S. Dollar / British Pounds Sterling U.S. Dollar / Euro 2015 2014 2013 2015 2014 2013 Closing exchange rate at December 31 1.48 1.55 1.65 1.09 1.22 1.38 Average exchange rate during the period 1.53 1.65 1.56 1.11 1.33 1.33 Transactions denominated in foreign currencies 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 consolidated statements of operations in other expense, net. Fair Value Measurements Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements , defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable 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 instruments valuation. The carrying values reflected in the accompanying consolidated balance sheets for cash and cash equivalents, receivables, accounts payables, accrued expense and term debt approximates their fair values. C oncentrations 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 unsecured and geographically dispersed. No single customer's trade accounts receivable balance as of December 31, 2015 and 2014 exceeded 10% of the Company's consolidated accounts receivable, net. No single customer accounted for more than 10% of revenue for the years ended December 31, 2015 , 2014 , and 2013 . Related Party Transactions H. Brian Thompson, the executive chairman of the Company's Board of Directors, is an independent director of Sonus Networks, Inc., a provider of Session Initiation Protocol ("SIP") network solutions (“Sonus”). Howard Janzen, an independent member of the Company's Board of Directors also serves as the independent Chairman of Sonus. In October 2015, GTT completed the acquisition of One Source, who was a customer of Sonus. One Source had a well-established and ongoing business relationship with Sonus prior to its acquisition by GTT. The Company paid Sonus approximately $0.1 million in fees related to its SIP Trunking platform during the year ended December 31, 2015, pursuant to the terms of a contract between the parties. Nick Adamo, an independent member of the Company's Board of Directors (joined in February 2016), currently serves as senior vice president of the global service provider segment for Cisco Systems, Inc., a provider of products, services and integrated solutions to develop and connect networks around the world (”Cisco”). The Company purchases networking equipment and related software from Cisco and certain authorized Cisco resellers. The Company paid approximately $2.5 million to Cisco and its resellers for these products and services during the year ended December 31, 2015, pursuant to the terms of contracts between the parties. These contracts were in place before Mr. Adamo joined the Board of Directors. Michael Sicoli, the chief financial officer of the Company, serves as an independent director of Lumos Networks, Inc., a fiber-based bandwidth infrastructure and service provider in the Mid-Atlantic region (“Lumos”). The Company purchases last mile access services from Lumos, and Lumos purchases IP transit services from the Company. The Company paid Lumos approximately $0.4 million during the year ended December 31, 2015, and Lumos paid the Company a de minimus amount during the year ended December 31, 2015, pursuant to the terms of contracts between the parties. The majority of these contracts were in place before Mr. Sicoli joined the Company. As a matter of corporate governance policy and practice, related party transactions are presented and considered by the Audit Committee of the Company's Board of Directors in accordance with the Company's Code of Business Conduct and Ethics, Conflict of Interest Policy . Newly Adopted Accounting Principles On April 7, 2015, the FASB issued Accounting Standards Update ("ASU") 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The Company has early adopted the provision in ASU 2015-03 as of end of, fiscal 2015 and applied the provision retrospectively for fiscal 2014, refer to Note 5. The impact of adopting ASU 2015-03 on the Company's Consolidated Balance Sheet as of December 31, 2014 was a decrease to other assets by $2.8 million , and a decrease to long-term debt by $2.8 million . On November 20, 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes , which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. Prior to the issuance of ASU 2015-17, deferred tax assets and deferred tax liabilities had to be presented separately into a current amount and noncurrent amount based on the classification of the related asset or liability for financial reporting. For public entities, the ASU will be effective for annual periods beginning after December 15, 2016, and interim periods within those years. The Company early adopted ASU 2015-17 as of the end of fiscal 2015, and applied the provision prospectively. Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards 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 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company is still evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. On February 25, 2016, the FASB issued ASU 2016-02, Leases , which will require 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 on its consolidated financial statements and related disclosures. Other recent accounting pronouncements issued by the FASB during fiscal 2015 and through the filing date did not and are not believed by management to have a material impact on the Company's present or historical consolidated financial statements. Correction of Immaterial Error The Company corrected two errors in the consolidated statements of cash flows for the years ended December 31, 2014 and 2013 . The Company had erroneously presented payment of certain debt issuance costs as an operating activity; the correct presentation should have been a financing activity. The amount of the correction was $2.2 million and $3.1 million , for the years ended December 31, 2014 and 2013, respectively. In addition, the Company had erroneously presented the payment of an earn-out as an operating activity; the correct presentation should have been a financing activity. The amount of the correction was $1.2 million and $3.6 million for the years ended December 31, 2014 and 2013, respectively. These corrections had no impact on the final cash balances. Additionally, these corrections had no impact on the consolidated statements of operations or the consolidated balance sheets. The Company has evaluated these corrections in accordance with ASC 250-10-S99, SEC Materials (formerly SEC Staff Accounting Bulletin 99, Materiality ) and concluded that both quantitatively and qualitatively the corrections were not material. The correction of these errors was also evaluated by management in their assessment of internal controls over financial reporting. Reclassification o |
