UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 5, 2016
GTT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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001-35965 |
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20-2096338 |
(State or Other Jurisdiction of |
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(Commission File |
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(IRS Employer Identification |
7900 Tysons One Place |
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Suite 1450 |
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McLean, Virginia 22102 |
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(Address of Principal Executive Offices) (Zip Code) |
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Registrants Telephone Number, Including Area Code: (703) 442-5500 |
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N/A |
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(Former Name or Former Address, if Changed Since Last Report) |
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 8.01 Other Events.
On December 2, 2016, GTT Communications, Inc., a Delaware corporation (the Company), announced that it intends to offer $300 million aggregate principal amount of senior notes due 2024 (the Notes) in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act).
As previously disclosed in the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on December 2, 2016, the Company intends to use the net proceeds from the offering to partially finance its previously announced acquisition of Hibernia NGS Limited and its subsidiaries (the Acquisition), to repay certain existing indebtedness, to pay various fees and expenses incurred in connection with the Acquisition and related financing transactions, and for general corporate purposes.
The Notes will be offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. buyers in accordance with Regulation S under the Securities Act. The Notes have not been and are not expected to be registered under the Securities Act or under any state securities laws and, unless so registered, may not be offered or sold in the United States or to U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This 8-K does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall it constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.
A copy of the risk factors relating to the Acquisition is attached hereto as Exhibit 99.1 and incorporated herein by reference and a copy of the Managements Discussion and Analysis of Financial Condition and Results of Operations of Hibernia NGS Limited for the years ended December 31, 2013, 2014 and 2015 and for the nine months ended September 30, 2016 and 2015 is attached hereto as Exhibit 99.2 and incorporated herein by reference.
The disclosure above and the exhibits hereto contain certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including those regarding the proposed offering and the Acquisition, the anticipated use of proceeds of the offering and expectations regarding the size and timing of the offering. There can be no assurance that the offering or the Acquisition will be consummated. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors, including those described in the Companys filings with the Securities and Exchange Commission. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved. The business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in forward-looking statements. The Company undertakes no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. |
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Description |
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99.1 |
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Risk Factors Related to the Acquisition. |
99.2 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations of Hibernia NGS Limited for the years ended December 31, 2013, 2014 and 2015 and for the nine months ended September 30, 2016 and 2015. |
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 hereunto duly authorized.
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GTT COMMUNICATIONS, INC. | |
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By: |
/s/ Michael T. Sicoli |
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Michael T. Sicoli | |
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Chief Financial Officer | |
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Date: December 5, 2016 |
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EXHIBIT INDEX
Exhibit No. |
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Description |
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99.1 |
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Risk Factors Related to the Acquisition. |
99.2 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations of Hibernia NGS Limited for the years ended December 31, 2013, 2014 and 2015 and for the nine months ended September 30, 2016 and 2015. |
Exhibit 99.1
Risk Factors Related to the Acquisition
The Company is seeking to acquire Hibernia NGS Limited and its subsidiaries (Hibernia) in an effort to, among other things, add breadth and depth to its Global Tier 1 IP Network, expand its cloud networking portfolio, grow its multinational client base and enhance its profile. If the Company does not realize the expected benefits, including synergies, from the Acquisition, if consummated, the Companys business and results of operations will suffer.
On November 9, 2016, the Company entered into a Share Purchase Agreement (the Acquisition Agreement) to purchase all of the equity interests of Hibernia for an aggregate purchase price of $590.0 million, subject to an estimated adjustment at the closing of the Acquisition and a final adjustment after the closing of the Acquisition, in each case for cash, net working capital, transaction expenses, indebtedness, certain tax payments and certain prepaid customer contracts. The Company expects that the Acquisition will benefit it significantly, including by adding owned and leased dark fiber assets, including five owned subsea cables and eight cable landing stations, to its global Tier 1 IP network, adding optical and low latency transport, video and CDN services to its cloud networking portfolio, adding a world-class video transport platform servicing content rights holders, broadcasters, cable companies and OTT providers, adding marquee clients with depth in the financial services, media and entertainment, web-centric and service provider segments to its client base, and adding a substantial, highly complementary recurring revenue business with strong cash flow characteristics to its financial profile.
If the Acquisition is consummated, the Companys ability to realize these benefits will significantly depend upon its ability to manage its expanded enterprise, which will pose substantial challenges for management, including challenges related to the management and monitoring of new assets, services and clients, and the associated increased costs and complexity. In order to support this expanded enterprise, the Company will need to achieve revenues from the Hibernia business and synergies consistent with the Companys business expectations, which may prove more difficult than currently expected. For example, with the announcement of the Acquisition, the Company indicated that it believed it could achieve approximately $30.0 million of synergies related to the Acquisition, consisting primarily of selling, general and administrative expense savings and cost of revenue synergies, within three quarters post-closing. The anticipated cost savings described above are based on estimates and assumptions that the Company considers reasonable but that are inherently uncertain. The Companys expected cost savings, as well as any revenue or other synergies, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the Companys control. As a result, there can be no assurance that the Companys expected cost savings, as well as any potential revenue or other synergies, will be realized in the timeframe the Company currently anticipates or at all. Any failure to achieve the Companys expected benefits or synergies could affect its profitability and its ability to service the debt that the Company plans on taking on to partially fund the Acquisition.
The consummation of the Acquisition is subject to a number of closing conditions, some of which are out of the Companys control. Further, if the Acquisition is consummated, the Companys post-closing recourse is limited.
The Company expects the closing of the Acquisition to occur in the first quarter of 2017. However, completion of the Acquisition is subject to certain conditions contained in the Acquisition Agreement, some of which are beyond the Companys control, and the Company can make no assurances that the transaction will close in a timely manner or at all. Such conditions include, among other things, approval by the Federal Communications Commission for the transfer of control of certain Hibernia licenses, the accuracy of the representations and warranties made by Hibernia and the sellers of Hibernia (the Sellers), compliance in all respects by all of the parties with their respective obligations under the Acquisition Agreement and the absence of any injunction or order that prohibits or restrains the consummation of the Acquisition.
The Sellers obligation to indemnify the Company is limited to breaches of or inaccuracies in the representations and warranties of the Sellers included in the Acquisition Agreement, breaches of specified covenants and agreements of the Sellers, the representative of the Sellers and, only with respect to the pre-closing period, Hibernia included in the Acquisition Agreement and certain other transaction documents, certain pre-closing tax liabilities and indebtedness, certain claims related to transaction expenses and a particular litigation matter involving Hibernia, and the Company has agreed to indemnify the Sellers for breaches of or inaccuracies in the Companys representations and warranties included in the Acquisition Agreement and the Companys covenants and agreements included in the Acquisition Agreement and certain other transaction documents. The indemnification obligation with respect to many of the representations and warranties expires on the first anniversary of the closing under the Acquisition Agreement, and the maximum liability of the Sellers (as a group) and the Company for indemnification claims with respect to any breach of the representations and warranties, except those based on certain fundamental representations and warranties or fraud, is capped at $15.0 million, and for most other indemnification matters there is a cap equal to the purchase price. If any issues arise post-closing, the Company may not be entitled to sufficient, or any, indemnification or recourse from the Sellers, which could have a materially adverse impact on its business and results of operations.
The Acquisition, if consummated, will create numerous risks and uncertainties which could adversely affect the Companys financial condition and operating results.
Strategic transactions like the Acquisition create numerous uncertainties and risks. Upon consummation of the Acquisition, Hibernia will become a wholly owned subsidiary of the Company, which will significantly broaden the Companys operations. This addition to the Companys business will entail many changes, including the integration of Hibernia and its personnel, changes in systems and employee benefit plans and management of multiple geographic locations. These transition activities are complex and the Company may encounter unexpected difficulties, incur unexpected costs or experience business disruptions, including as a result of:
· increased commitments for the management team, including the need to divert managements attention to integration matters, particularly if the Company is unable to recruit and hire key personnel;
· difficulties realizing the revenue projections, financial benefits, synergies and other strategic opportunities anticipated in connection with the Acquisition;
· difficulties associated with maintaining international operations in the geographies in which Hibernia operates; and
· difficulties in the assimilation and retention of employees, including key personnel responsible for the success of Hibernias operations.
If any of these factors limits the Companys ability to integrate Hibernia into its operations successfully or on a timely basis, the expectations of future results of operations, including certain synergies expected to result from the Acquisition, might not be met. As a result, the Company may not be able to realize the expected benefits that the Company seeks to achieve from the Acquisition, which could also affect the Companys ability to service its debt obligations. In addition, the Company may be required to spend additional time or money on integration that otherwise would be spent on the development and expansion of its business, including efforts to further expand its product portfolio.
The Companys success with Hibernias business following consummation of the Acquisition will be subject to considerable risks and uncertainties, any of which could have a materially adverse impact on its revenues and results of operations.
Following consummation of the Acquisition, the Companys success with Hibernias business will be subject to certain risks and uncertainties, including:
· changes in market demand for Hibernia Express, Hibernias low-latency transatlantic cable, and for cloud networking, optical transport, Ethernet and carrier-grade IP transit services generally;
· the Companys inexperience with Hibernias customers and the Companys ability to meet or exceed such customers service level expectations and Hibernias contractual obligations with respect to such customers; and
· the Companys inexperience in operating undersea cable systems.
If the success of Hibernias business is negatively impacted by the foregoing risks and uncertainties, the Companys business could suffer as a result of a materially adverse impact on its revenues or results of operations. In addition, following the consummation of the Acquisition as the Company undertakes integration activities, the Company may identify additional risks and uncertainties not yet known to it.
The Company will be subject to business uncertainties while the Acquisition is pending, which could adversely affect its business.
In connection with the pendency of the Acquisition, it is possible that certain persons with whom the Company has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with the Company, as the case may be, as a result of the Acquisition, which could negatively affect the Companys revenues, earnings and cash flows, regardless of whether the Acquisition is completed.
Exhibit 99.2
Managements Discussion and Analysis of Financial Condition and Results of Operations
of
Hibernia NGS Limited
Overview
Hibernia NGS Limited (Hibernia) is one of the leading asset-based providers of transatlantic fiber optic cable and high-bandwidth network infrastructure and connectivity services with a global network spanning North America, Western Europe and Asia. Since acquiring its original transatlantic assets, Hibernia has strategically expanded its network reach through fiber builds, targeted acquisitions and long-term network arrangements. Today, Hibernias network includes five subsea cables comprised of three unique transatlantic cable routes (including the lowest latency route between North America and points in the United Kingdom and Europe), an expansive terrestrial fiber network, and 224 points of presence spanning North America, Europe, and Asia.
In September 2015, Hibernia began carrying live traffic over its new ultra-low latency cable, Hibernia Express, a $225 million investment that has enabled Hibernia to secure latency sensitive customers and provide diverse transatlantic capacity. This cable links Canada to the United Kingdom, with a branch to Ireland, and has enabled Hibernia to secure latency-sensitive customers and provide diverse transatlantic capacity. Hibernia Express provides transatlantic route between New York and London with sub-59ms latency service.
Hibernias differentiated transatlantic network assets, together with its comprehensive connectivity offerings in transport and enhanced services, has allowed it to attract marquee customers from its four targeted high growth industry sectors: (i) financial services, (ii) media and entertainment, (iii) web-centric, and (iv) service provider.
Critical Accounting Policies
Hibernia defines critical accounting policies as those that are important to the portrayal of its financial condition and results of operations and require estimates and assumptions based on Hibernias judgment of changing market conditions and the performance of its assets and liabilities at any given time. In determining which accounting policies meet this definition, Hibernia considered its policies with respect to the valuation of its assets and liabilities and estimates and assumptions used in determining those valuations. Hibernia believes the most critical accounting issues that require the most complex and difficult judgments and that are particularly susceptible to significant change to its financial condition and results of operations include the following:
· Consolidation
· Foreign Currency Translation
· Management Estimates
· Financial Instruments and Concentrations of Credit Risk
· Cash and Cash Equivalents
· Property, Plant and Equipment
· Fair Value Measurements
· Goodwill and Other Intangibles
· Other Assets
· Long-Lived Assets
· Income Taxes
· Leased Assets
· Revenue Recognition
· Concentrations of Credit Risk
· Exchange Rate Sensitivity
For more information about Hibernias critical accounting policies, see note 3 to Hibernias financial statements, which were filed by the Company on a Current Report on Form 8-K with the Securities and Exchange Commission on November 29, 2016.
Results of Operations
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
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Nine Months Ended September 30, |
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2016 |
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2015 |
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Variance % |
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(dollars in thousands) |
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Revenue: |
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Net sales |
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$ |
138,648 |
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$ |
104,324 |
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32.9 |
% |
Cost of sales |
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15,122 |
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16,626 |
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(9.1 |
)% | ||
Gross profit |
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123,526 |
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87,698 |
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40.9 |
% | ||
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Operating expenses: |
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Network operating expenses |
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52,157 |
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48,287 |
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8.0 |
% | ||
Sales and marketing |
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13,958 |
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11,931 |
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17.0 |
% | ||
General and administrative |
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8,318 |
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7,028 |
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18.4 |
| ||
Depreciation |
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22,853 |
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14,042 |
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62.7 |
% | ||
Amortisation |
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582 |
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622 |
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(6.5 |
)% | ||
Total operating expenses |
|
97,868 |
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81,910 |
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19.5 |
% | ||
Income from operations |
|
25,658 |
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5,788 |
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343.3 |
% | ||
Other expense: |
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|
|
|
|
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Currency translation gain, net |
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(8 |
) |
(230 |
) |
(96.5 |
)% | ||
Interest expense |
|
11,069 |
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7,129 |
|
55.3 |
% | ||
Gain on sale of fixed assets |
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(31 |
) |
|
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* |
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Profit (loss) before income taxes |
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14,628 |
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(1,111 |
) |
* |
| ||
Income tax (benefit)/charge |
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2,723 |
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3,979 |
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(31.6 |
)% | ||
Net profit (loss) |
|
$ |
11,905 |
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$ |
(5,090 |
) |
* |
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Revenue. For the nine months ended September 30, 2016, revenues increased $34.3 million, or 32.9%, to $138.6 million from $104.3 million for the nine months ended September 30, 2015. Revenues are generated primarily from Hibernias comprehensive suite of connectivity solutions. Revenues increased primarily due to revenues associated with Hibernia Express and the switching over of two large core customers from classic services to Hibernia Express.
Cost of Services. Cost of services decreased by $1.5 million, or 9.1%, to $15.1 million for the nine months ended September 30, 2016 from $16.6 million for the nine months ended September 30, 2015. Cost of services include purely variable costs directly tied to underlying customer contracts. Examples of these costs include tail circuit and cross connect expenses Hibernia incurs in order to provide service to its customers. The decrease in cost of services was primarily related to the low cost of services associated with Hibernia Express.
Total Operating Expenses. Total operating expenses increased $16.0 million, or 19.5%, to $97.9 million for the nine months ended September 30, 2016 from $81.9 million for the nine months ended September 30, 2015. Selling, general and administrative expenses primarily relate to network operating costs, sales and marketing, depreciation and amortization, facility related expenses, including utilities, and wages for personnel. The increase in selling, general and administrative expenses was primarily attributable to higher depreciation and amortization and costs related to increased headcount and network expansion.
Interest Expense. Interest expense increased $3.9 million, or 55.3%, during the nine months ended September 30, 2016 compared to the corresponding period in 2015. The increase in interest expense was primarily attributable to debt issuance costs on the refinancing and interest from a $40 million Hibernia Express loan capitalized from March 2015 to August 2015, leading to increased costs in 2016.
Liquidity and Capital Resources
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Nine Months Ended |
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2016 |
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2015 |
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(in millions) |
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Net cash (used by)/provided by operating activities |
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$ |
(3.7 |
) |
$ |
112.1 |
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Net cash used in investing activities |
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$ |
(12.7 |
) |
$ |
(137.9 |
) |
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Net cash provided by financing activities |
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$ |
18.9 |
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$ |
38.8 |
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Operating Activities. Cash used by operating activities is primarily influenced by the amount of cash Hibernia invests in personnel and infrastructure to support the anticipated growth of its business and the increase in its revenues. Cash provided by operating activities has historically been impacted by changes in Hibernias operating assets and liabilities, particularly accounts receivable, inventories, prepaid expenses, other current assets, accounts payable, deferred revenue, accrued liabilities and other liabilities, adjusted for non-cash expense items such as depreciation, amortization and deferred income taxes.
The net cash used by operating activities of ($3.7) million during the nine months ended September 30, 2016 reflected lower customer prepaid contracts compared to net cash provided by operating activities of $112.1 million during the nine months ended September 30, 2015.
Investing Activities. During the nine months ended September 30, 2016, net cash used in investing activities was $12.7 million, reflecting purchases of property and equipment. Purchases of property and equipment include building and leasehold improvements, furniture and equipment and telecom assets. During the nine months ended September 30, 2015, net cash used by investing activities was $137.9 million, reflecting purchases of property and equipment primarily related to the construction of Hibernia Express.
Financing Activities. During the nine months ended September 30, 2016, net cash provided in financing activities reflected $18.9 million primarily due to the May 2016 refinancing. During nine months ended September 30, 2015, net cash provided in financing activities reflected $38.8 million primarily due to the proceeds of a $40.0 million incremental senior secured loan in connection with the building of Hibernia Express.
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
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Year Ended December 31, |
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Year-over-Year |
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2015 |
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2014 |
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2013 |
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2015 to |
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2014 to |
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(dollars in thousands) |
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Revenue: |
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Net sales |
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$ |
148,871 |
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$ |
127,846 |
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$ |
112,961 |
|
16.4 |
% |
13.2 |
% |
Cost of sales |
|
22,022 |
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22,974 |
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19,760 |
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(4.1 |
)% |
16.3 |
% | |||
Gross profit |
|
126,849 |
|
104,872 |
|
93,201 |
|
21.0 |
% |
12.5 |
% | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating expenses: |
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|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Network operating expenses |
|
65,856 |
|
63,595 |
|
50,695 |
|
3.6 |
% |
25.4 |
% | |||
Sales and marketing |
|
16,783 |
|
14,952 |
|
14,803 |
|
12.2 |
% |
1.0 |
% | |||
General and administrative |
|
22,100 |
|
8,814 |
|
9,428 |
|
150.7 |
% |
(6.5 |
)% | |||
Depreciation |
|
21,387 |
|
16,226 |
|
13,533 |
|
31.8 |
% |
19.9 |
% | |||
Amortisation |
|
816 |
|
697 |
|
545 |
|
17.1 |
% |
27.9 |
% | |||
Total operating expenses |
|
126,942 |
|
104,284 |
|
89,004 |
|
21.7 |
% |
17.2 |
% | |||
(Loss)/income from operations |
|
(93 |
) |
588 |
|
4,197 |
|
* |
|
(86.0 |
)% | |||
Other expense: |
|
|
|
|
|
|
|
|
|
|
| |||
Currency translation (gain)/loss, net |
|
(461 |
) |
(2,151 |
) |
188 |
|
(78.6 |
)% |
* |
| |||
Interest expense |
|
10,598 |
|
7,369 |
|
6,856 |
|
43.8 |
% |
7.5 |
% | |||
Other non-operating expenses |
|
|
|
519 |
|
2,024 |
|
* |
|
(74.4 |
)% | |||
(Gain)/loss on sale of fixed assets |
|
(5 |
) |
34 |
|
(14 |
) |
* |
|
* |
| |||
Other expense, shares previously recorded as held by subsidiary |
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|
|
|
|
969 |
|
* |
|
* |
| |||
Loss before income taxes |
|
(10,225 |
) |
(5,185 |
) |
(5,826 |
) |
97.2 |
% |
(11.0 |
)% | |||
Income tax expense/(benefit) |
|
4,445 |
|
(192 |
) |
1,767 |
|
* |
|
* |
| |||
Net loss |
|
(14,670 |
) |
(4,993 |
) |
(7,593 |
) |
(193.8 |
)% |
(34.2 |
)% | |||
* Not meaningful.
Revenue. For the year ended December 31, 2015, revenues increased $21.1 million, or 16.5%, to $148.9 million from $127.8 million for the year ended December 31, 2014. Revenues increased primarily due to the launch of Hibernia Express in September 2015, when Hibernia began to recognize revenue on the new ultra-low latency cable system.
Cost of Services. Cost of services decreased by $1.0 million, or 4.1%, to $22.0 million for the year ended December 31, 2015 from $23.0 million for the year ended December 31, 2014. The decrease in cost of services was primarily the result of effective cost management by Hibernia.
Total Operating Expenses. Total operating expenses increased $22.6 million, or 21.7%, to $126.9 million for the year ended December 31, 2015 from $104.3 million for the year ended December 31, 2014. The increase in selling, general and administrative expenses was primarily attributable to the costs incurred in the additional sales activities associated with Hibernia Express and incremental expenses associated with managing the construction of the project.
Interest Expense. Interest expense increased $3.2 million, or 43.8%, during the year ended December 31, 2015 compared to the corresponding period in 2014. The increase in interest expense was primarily attributable to the additional indebtedness incurred by Hibernia relating to Hibernia Express.
Liquidity and Capital Resources
|
|
Year Ended |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
(in millions) |
| ||||
Net cash provided by operating activities |
|
$ |
122.1 |
|
$ |
71.3 |
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|
|
|
|
|
| ||
Net cash used in investing activities |
|
$ |
(161.5 |
) |
$ |
(112.3 |
) |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
$ |
35.3 |
|
$ |
51.8 |
|
Operating Activities. The net cash provided by operating activities of $122.1 million during the year ended December 31, 2015 reflected an increase from the inflow of cash receipts from customers who purchased services on Hibernia Express compared to net cash provided by operating activities of $71.3 million for the year ended December 31, 2014.
Investing Activities. During the year ended December 31, 2015, net cash used in investing activities was $161.5 million, reflecting purchases of property and equipment including those for the construction of Hibernia Express. During the year ended December 31, 2014, net cash used by investing activities was $112.3 million.
Financing Activities. During the year ended December 31, 2015, net cash provided in financing activities reflected $35.3 million primarily due to cash flow from a revolving loan facility. During the year ended December 31, 2014, net cash provided in financing activities reflected $51.8 million primarily attributed to the issuance of preferred stock.
Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
Revenue. For the year ended December 31, 2014, revenues increased $14.8 million, or 13.2%, to $127.8 million from $113.0 million for the year ended December 31, 2013. Revenues increased due to
strong growth in demand for optical services and the acquisition of Atrato IP Networks in September 2013.
Cost of Services. Cost of services increased by $3.2 million, or 16.3%, to $23.0 million for the year ended December 31, 2014 from $19.8 million for the year ended December 31, 2013. The increase in cost of services was primarily due to connection costs for new customers on Hibernias classic cable.
Total Operating Expenses. Total operating expenses increased $15.3 million, or 17.2%, to $104.3 million for the year ended December 31, 2014 from $89.0 million for the year ended December 31, 2013. The increase in selling, general and administrative expenses was primarily attributable to incremental network costs associated with the acquisition of Atrato IP Networks.
Interest Expense. Interest expense increased $0.5 million, or 7.5%, during for the year ended December 31, 2014 compared to the corresponding period in 2013.
Liquidity and Capital Resources
|
|
Year Ended |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
(in millions) |
| ||||
|
|
|
|
|
| ||
Net cash provided by operating activities |
|
$ |
71.3 |
|
$ |
13.4 |
|
|
|
|
|
|
| ||
Net cash used in investing activities |
|
$ |
(112.3 |
) |
$ |
(15.3 |
) |
|
|
|
|
|
| ||
Net cash provided by/(used in) financing activities |
|
$ |
51.8 |
|
$ |
(2.6 |
) |
Operating Activities. The net cash provided by operating activities of $71.3 million during the year ended December 31, 2014 reflected an increase from the inflow of cash receipts from customers who purchased services on Hibernia Express compared to net cash provided by operating activities of $13.4 million for the year ended December 31, 2013.
Investing Activities. During the year ended December 31, 2014, net cash used in investing activities was $112.3 million, reflecting purchases of property and equipment including those for the construction of Hibernia Express. During the year ended December 31, 2013, net cash used by investing activities was $15.3 million.
Financing Activities. During the year ended December 31, 2014, net cash provided in financing activities primarily reflected $56.7 million in net receipts from a preferred share issuance and $2.5 million from a revolving loan facility pay down. During the year ended December 31, 2013, net cash used by financing activities of $2.6 million primarily reflected the pay down on the revolving loan facility.
Off-Balance Sheet Arrangements
Hibernia does not have any off-balance sheet arrangements 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.
Commitments and Contingencies
Hibernias Irish subsidiary maintains a network entitled Project Kelvin which was financed for 29,500,000 by a consortium of government organizations. Under its contract with the government organizations, Hibernias subsidiary is obligated to provide service on the network until December 2018.
Hibernia has commitments under various non-cancellable operating leases for office and equipment space, network capacity and certain equipment rentals expiring through 2034. Estimated future payments with respect to these contractual obligations are as follows:
September 2017 |
|
$ |
12,045,167 |
|
|
|
|
| |
September 2018 |
|
9,273,544 |
| |
|
|
|
| |
September 2019 |
|
7,983,127 |
| |
|
|
|
| |
September 2020 |
|
5,735,300 |
| |
|
|
|
| |
September 2021 |
|
3,945,676 |
| |
|
|
|
| |
Thereafter |
|
40,170,145 |
| |
Total |
|
$ |
79,152,959 |
|
Hibernia has commitments for capital expenditures of $0.6 million at September 30, 2016 for ongoing projects.
On March 1, 2014, Hibernia Media (UK) Limited purchased customer contracts and related plant and equipment from TeliaSonera Network Sales AB. Consideration of 36 monthly installments of $67,645 commenced in January 2015. At September 30, 2016, the balance outstanding was $0.9 million.
Hibernia, in the regular course of business, is involved in various legal proceedings, investigations and claims by various regulatory agencies. Hibernias management does not believe that the ultimate resolution of these investigations, claims and legal proceedings will have a material impact on Hibernias financial condition or results of operations.
Subsequent Events
On November 9, 2016, Hibernia entered into the Acquisition Agreement with the Company to sell 100% of its equity interests to the Company. Pursuant to the Acquisition Agreement, at closing, the Company will pay $515 million in cash plus $75 million in newly issued common stock. The purchase price is subject to a final post-closing reconciliation for closing date cash, working capital, transaction expenses, indebtedness and certain tax payments. As a result of the acquisition, the Company will own 100% of Hibernia. The transaction is expected to close by the end of the first quarter of 2017.