GTT’s Calder: SD-WAN has become a big driver of activity in our business

GTT says that SD-WAN has become a table stakes requirement when it goes out to bid for an enterprise customer’s business, particularly as more companies want to forgo the high prices of MPLS circuits.

Rick Calder, CEO of GTT, told investors during its third-quarter earnings call that while the opportunity is still early, the service provider has many customers that are in the process of buying SD-WAN or are conducting trials.  

Rick Calder, GTT
Rick Calder

“Software-defined wide area networking, or SD-WAN, has become a big driver of activity in our business. Virtually every opportunity we participate in requires us to demonstrate our SD-WAN capabilities, and we have several orders in progress and live trials underway,” Calder said during the earnings call, according to a Seeking Alpha earnings transcript.

Calder added that “GTT is uniquely positioned to succeed with SD-WAN, given our Tier 1 Internet backbone, extensive field service workforce and deep experience offering diverse cost-effective access solutions and providing value-added managed equipment services.”

Early stage phenomenon

What helps position GTT to take advantage of the SD-WAN opportunity is the fact that unlike incumbent telcos AT&T and Verizon, it does not have to worry about cannibalizing higher priced TDM-based T-1 and IP/MPLS revenues.

“We expect SD-WAN to be a highly disruptive force in our industry in the coming years, and no provider is better positioned than GTT to benefit from this disruption and take share from the large inflexible and expensive telco incumbents,” Calder said. “With no legacy base to protect, we are completely focused on driving growth with SD-WAN.”

RELATED: GTT will accelerate organic growth in Q4 2017, Jefferies predicts

SD-WAN may be the new talk of the town in the business networking world, but GTT is being realistic about the opportunity.

Calder said that while GTT has several customers installed today, “it's a very early stage market phenomenon, but we think it will accelerate over the next two years.”

The timing for GTT could not be better to capitalize on SD-WAN. Many of the provider’s existing customers are looking at how to migrate away from MPLS circuits to higher speed SD-WAN connections, signaling new opportunities for growth.

“There's a significant amount of business that is on MPLS-based backbones over T1 networks where our clients are saying I need a significantly bigger, both secure and public Internet backbone network over diverse access options with more bandwidth at the same price or less,” Calder said. “We are uniquely positioned to be able to address that need.”

Calder added that the transitions from MPLS WANs and IP VPNs to SD-WAN “are done with IP sec technology and we think that transition is what we lead with. Once we own the wide area network, the ability to add high-capacity Internet, to add voice over IP services for very high-capacity locations, high-capacity Ethernet point-to-point or high-capacity optical wavelength services are natural add-ons, but our effective lead is the networking solution."

Third-quarter results exceed forecasts

GTT reported that while it saw a $9.5 million loss, the service provider’s third-quarter revenue surpassed Street forecasts.

Here’s a breakdown of GTT’s key third-quarter metrics:

Losses: In the third quarter, GTT reported a net loss of $9.5 million compared to net income of $5.1 million last year and $600,000 last quarter. The third quarter loss included $17.5 million in nonrecurring exit, financing, transaction and integration costs mainly driven by the Global Capacity acquisition.

Capex: Capital expenditures in the quarter were 9.1 million or 4.6% of revenue compared to 5.5 million last year and 9.3 million last quarter. Going forward, GTT said it expects capex to be in the range of 5% to 6% of revenue, including Global Capacity. The company added that its capex light strategy enables it to be agile in providing global solutions for complex client needs and to deliver compelling cash flow margins relative to the capex heavy players.

Revenues: Third quarter revenue of $198.9 million grew 51% year-over-year and 7% sequentially. This includes $6 million of deferred revenue amortization from prior prepaid capacity sales. Third quarter adjusted EBITDA of $56.2 million grew 75% year-over-year and 5% sequentially.