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GTT Communications Inc (GTT) Q1 2019 Earnings Call Transcript

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GTT Communications Inc (NYSE: GTT)
Q1 2019 Earnings Call
May. 8, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the GTT Communications First Quarter 2019 Results Conference Call. (Operator Instructions) I would now like to turn the conference over to Chris McKee, General Counsel and Executive Vice President of Corporate Development. Please go ahead.

Chris McKee -- General Counsel, and Executive Vice President of Corporate Development

Thank you and good morning. I'm joined today by Rick Calder, GTT's President and CEO; Mike Sicoli, GTT's Chief Financial Officer; and Brian Thompson, GTT's Executive Chairman of the Board. Today's discussion is being made available via webcast through the company's website www.gtt.net. A telephonic replay of this call will be available for one week.

Dial in information for the replay as well as access to a replay of the webcast is also available on our website. Before we begin, I want to remind you that during today's call, we'll be making forward-looking statements regarding future events and financial performance made under the Safe Harbor provision of the U.S. Securities Laws, including revenue and margin expectations, projections and references to trends in the industry and GTT's business.

We caution you that such statements reflect our best judgment, as of today May 8th, based on factors that are currently known to us, and that actual future events or results could differ materially due to a number of factors, many of which are beyond our control.

For a more detailed discussion of the risks and uncertainties affecting our future results, we refer you to our SEC filings. GTT disclaims any obligation to update or revise these forward-looking statements to reflect future events or circumstances.

During the call, we will also discuss non-GAAP financial measures including certain pro forma information, which were not prepared in accordance with GAAP. A reconciliation of our GAAP and non-GAAP results is provided in today's press release and is posted in the Investor Relations section of our website.

I will now turn the call over to Rick Calder. Rick?

Richard D. Calder Jr. -- President and Chief Executive Officer

Thank you, Chris and good morning everyone. GTT made good progress on a number of fronts during the first quarter, delivering significant margin expansion, growing our quota-bearing rep sales force and nearing completion of the integration.

Revenue and adjusted EBITDA grew 73% and 95% respectively from last year with adjusted EBITDA margin reaching 27%. Revenue declined 1% sequentially as our pace of installs was a little slower than expected due to some delays related to integration activities and training, as we migrated in routes legacy systems and processes into GTT's single client management database system or CMD.

Churn remained stable in the mid 1% range and our backlog of sold, but not yet installed monthly recurring revenue remain the same at approximately $10 million monthly recurring revenue.

As we've noted before, the key ingredients to driving rep-driven organic growth are one, adding quota-bearing reps. Two, maintaining or increasing rep productivity. And three, keeping churn stable. During the first quarter, we picked up the pace on adding sales reps, ending the quarter with approximately 320 quota-bearing reps on our way to our target of 350, by the end of the year.

Sales productivity was stable for the quarter, even as we increased reps and churn was also stable, so we remain well positioned to return to rep-driven growth this year, as we increase the pace of installing our significant backlog.

We were pleased to receive recognition recently for our efforts as the challenger brand in our industry in the Gartner Magic Quadrant for network services, global report, which provides IT decision makers with an objective evaluation of various suppliers in the market. Our position improved significantly over the past two years, reinforcing our emergence as the disruptor to the incumbent telcos.

SD-WAN sales, software-defined wide area networking sales, continue to grow, representing over 20% of our new install backlog. We continue to enhance GTT's unique value proposition in the SD-WAN market, building on our Tier 1 Internet backbone connecting to any location in the cloud. Deep experience offering two diverse cost effective local loops to any location in the world using our 3,000 plus last-mile suppliers, and our long track record of installing, managing, and maintaining over 200,000 managed equipment services worldwide.

We've recently developed the capability, to deliver Universal Client Premise Equipment or uCPE to leverage virtualized network functions such as SD-WAN and firewalls on a single device, lowering hardware costs and increasing agility and managing branch offices and rolling out new networking services.

We are in the final stages of the integration, on track with our original timeline of completing all remaining activities by the end of the second quarter and are on track with our expected $100 million in annualized cost synergies at completion.

We have also completed our integration of access point. Going forward, our funnel of acquisition opportunities remains robust, with plenty of prospective acquisitions that meet our thresholds for strategic fit and valuation. We expect to close several smaller acquisitions every year, including 2019, at accretive purchase prices that help us delever and our achieve our next financial objectives of $3 billion in annualized revenue, $900 million in annualized adjusted EBITDA, and at least $5 per share, an annualized adjusted free cash flow by the end of 2021.

We are incredibly proud of our accomplishments over the past year. We have successfully integrated the largest acquisition in GTT's history, on time and on target from a synergy standpoint. We are incredibly grateful for the remarkable hard work put in by all of our employees all over the world to make this happen.

Our rapid integration strategy is challenging for employees, clients, and suppliers, and Interoute was no exception, particularly given its transformative nature. The combined GTT is keenly focused on our strategy of selling cloud networking services to large multinational clients.

To refine this focus, we have de-emphasized non-strategic products that are tangential to our strategy, as we deliver on our purpose of helping companies connect their people across organizations to any location in the world, and to every application in the cloud.

We have a tremendous global platform and a team of 3,000 employees in 30 countries around the world dedicated to living our core values of simplicity, speed, and agility, disrupting the competition, and delivering superior service to our clients.

With that, I will turn the call over to Mike, to provide some details on the numbers. Mike?

Michael Sicoli -- Chief Financial Officer

Thanks, Rick. First quarter revenue grew 73% year-over-year and decreased 1% sequentially to $450 million. First quarter adjusted EBITDA grew 95% year-over-year and grew 4% sequentially to $122 million.

Our growth from last year was driven mainly by the Interoute acquisition. Exchange rates had an unfavorable impact on our reported results, as approximately 52% of our revenue is denominated in non-US dollar currencies. In constant currency, revenue grew 80% year-over-year, and decreased 1% sequentially, while adjusted EBITDA grew 106% year-over-year and 5% sequentially.

On a pro forma basis, including Interoute and prior period results, and in constant currency, revenue decreased 1% year-over-year and 1% sequentially, while adjusted EBITDA grew 14% year-over-year and 5% sequentially.

The pro forma revenue declines were due mainly to the pre-close trajectories of Interoute and global capacity as well as the timing of installations and de-emphasizing non-strategic products as Rick noted earlier. The pro forma EBITDA increases were due mainly to the realization of cost synergies.

Adjusted EBITDA margin of 27% increased by over 300 basis points year-over-year, and by 140 basis points sequentially. On the fourth quarter call, we said we expected to drive another 300 basis points of margin expansion throughout 2019. As we complete the Interoute integration and realize the associated cost synergies and we achieved almost half of that in the first quarter. We continue to expect to deliver adjusted EBITDA margins of approximately 29% in the second half of this year, as we fully realize the remaining Interoute synergies, moving us very close to our next financial objective of 30%.

During the quarter, we incurred $9 million of transaction and integration expenses, which are included in our reported SG&A, but excluded from adjusted EBITDA. We also incurred $3 million of severance, restructuring, and other exit costs.

From a cash standpoint, we paid out $18 million of exit and integration costs in the quarter, down slightly from $22 million last quarter. These exit and integration costs are mainly related to Interoute, also include access point. At quarter end, we had approximately $20 million remaining to be paid out related to exit costs, most of which should be paid out in 2019. And we expect to incur approximately $7 million of additional exit and integration costs related to these two deals over the remainder of 2019.

First quarter net loss was $27 million compared to net loss of $31 million last year, and net loss of $53 million last quarter. The net losses in each period were driven mainly by non-recurring costs including exit and integration costs, as well as of the non-cash change in fair value, related to our exchange rate and interest rate hedges.

First quarter capital expenditures were $32 million or 7% of revenue compared to $13 million last year and $16 million last quarter. As we noted on the last call, fourth quarter CapEx was a little lower than normal, due to the timing of payments, which we caught up on in the first quarter.

Going forward, we expect our CapEx to be between 6% and 7% of revenue, driven mainly by success based investments in support of specific revenue opportunities. First quarter ending cash balance was $51 million and net cash provided by operating activities was $16 million which was negatively impacted by a significant use of working capital related to Interoute accounts receivable as we transition billing and collections activity into our CMD system. This resulted in some invoice delivery delays and slower payments as our clients' review and validate the new billing format. This is typical during the integration process, albeit on a larger scale due to the size of Interoute, but we expect to return to normal days sales outstanding or DSO levels over the next quarter or two, as we work through clients' billing questions and any data migration issues.

Adjusted free cash flow, a measure that shows the recurring cash flow of our business without the impact of acquisition-related costs, was $2 million in the first quarter, much lower than last quarter due to the working capital issue I just highlighted, plus the catch up CapEx. On a normalized basis, adjusted free cash flow would have been higher by at least $50 million. We continue to expect cash flow to increase throughout the year, as we normalized DSO's and CapEx timing fully realized expected cost synergies and finished paying out exit and integration costs. The main priority for this cash flow will be to repay drawn revolver and help fund small acquisitions. Our debt balance was approximately $3.3 billion at the end of the first quarter, including $2.6 billion of senior secured term loans maturing in 2025, which roughly one-third is euro-denominated and $575 million of senior unsecured notes maturing in 2024. During the first quarter, we drew $26 million of additional revolver, which means the net secured leverage covenant applicable to the revolver is now in effect, given that we are above 30% drawn. The maximum permitted net secured leverage under that covenant, as defined in the credit agreement is currently 6.5 times and our calculated ratio for the first quarter was well below that level at approximately 5 times. So we have significant cushion at this time.

Our total net leverage ratio in the first quarter was similar to the fourth quarter at just above 6 times and we remain committed to reducing leverage over the next few years to our long-term target 4 times or less through growth in adjusted EBITDA, cash flow generation, and de-levering activities.

Finally, we completed the adoption of ASC 842 in the first quarter, which resulted in an increase to both assets and liabilities of over $400 million. There was no impact on the income statement or statement of cash flows. This concludes our prepared remarks and we'll now open up the call for questions. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Jon Charbonneau of Cowen and Company. Please go ahead.

Jonathan Charbonneau -- Cowen and Company -- Analyst

Great. Thanks for taking the questions. You noted the pacing of installs was a bit slower in the first quarter. I appreciate you don't provide guidance, but how should we be thinking about revenue growth in the second quarter and maybe in the second half of 2019? And then can you just talk a little bit more about the booking trends you saw in the quarter, any change in the contribution from Europe and maybe any particular verticals worth calling out? Thank you.

Richard D. Calder Jr. -- President and Chief Executive Officer

Okay. Thanks, John. Just to give you more color on, we generally have cut over to our client management database as we said in the prepared remarks and we did that in December of last year. So, first quarter of '19 was the real sort of cut over for all the employees. We've now formally retired, the major Client Relationship Management System that existed in Interoute and so we had all of our employees trained and up to speed, but it's a natural slowdown. We see it most or every acquisition that we do. Obviously, Interoute was larger so that slowdown was a little bit larger. We feel, as we said in the prepared remarks, well positioned to return to growth. We continue to grow the rep-driven sales force were at 320 on our target to get to 350.

We feel that churn has been very stable in that mid 1% range and even as we've increased the number of reps that productivity per rep has remained stable, and we feel very comfortable with it. And as we think we said on the last call, really it's a main game of adding productive reps to our equation. We've seen good traction in our bookings last quarter, it was again our highest bookings quarter of all time. And so our backlog has remained really stable, our real opportunity now is to install very rapidly that backlog, which represents a $120 million in annualized revenue, and that's really what we're focused on.

Jonathan Charbonneau -- Cowen and Company -- Analyst

Okay. Thank you.

Operator

The next question comes from Frank Louthan of Raymond James. Please go ahead.

Frank Louthan -- Raymond James -- Analyst

Great. Thank you. Can you walk us through some of the non-strategic products that you say you're de-emphasizing, and sort of the margin profile of those and how long will that take to work its way through, are you able to quantify that in any way?

Richard D. Calder Jr. -- President and Chief Executive Officer

Sure. Let me start Frank, with the products that are strategic to us. We're very focused on providing cloud networking services to large multinational clients. We lead with wide area networking, and of course the lead product for us there is software defined wide area networking. We are one of the largest Internet backbones, which is the second major category for us, selling high-capacity dedicated Internet access, IP trends. There is broadband Internet services two clients around the globe. We provide, we have deep core infrastructure to provide transport and infrastructure like Wavelengths, Dark Fiber, select colocation and a few colocation areas that we are in. So that's -- that tends to be a big part of our revenue stream.

And then finally, Unified Communications, relatively small part, but big growth potential for us. And so that's what we have our sales force focused on with the Interoute acquisition, we acquired a base of clients who are fantastic, and we provide cloud services, traditional hosting, and compute service to them. We are really focused on providing an outstanding experience for those clients. But we are not focused on selling new cloud services, new hosting, new compute services, and that has been a real shift with respect to legacy Interoute and the directory they have been on, as we really focus on our purpose of helping companies connect to their people to any location in the world and any application in the cloud, and not focus as much on providing those exact cloud services and being excellent in connecting to any cloud services in the world.

Michael Sicoli -- Chief Financial Officer

And in terms of the magnitude, as Rick said, we see this in just about every acquisition, the companies that we buy always have some piece of business that may be a little bit different than our core strategy, it's typically 5-ish percent of revenues. We're not talking big numbers, but in the case of Interoute that product that Rick was talking about was roughly 5% of revenue -- of their revenue. So it's less than 5% of our combined revenue today. But importantly, it was a much higher percentage of their sales in the year or two leading up to the acquisition because Interoute had made a strategic priority shift that we did not maintain. So there is a bit of sales momentum that you lose, when you shift strategy like we did and that's part of the equation in terms of why organic growth was sometimes challenging in the quarter, as our first year after you do an acquisition.

Frank Louthan -- Raymond James -- Analyst

Okay. And the margin profile on that hosting products relative to the rest of the business?

Michael Sicoli -- Chief Financial Officer

Yeah. It's -- it's consistent I would say. It might be slightly higher than the average from an EBITDA margin standpoint because it is more capital intensive, but it's not -- it's not significantly different than the overall margin.

Frank Louthan -- Raymond James -- Analyst

Is there a CapEx benefit to letting this go as well. And then I assume these customers are on contract. I mean should we watch this roll off over say the next two or three years or how long do you think that's going to be and are there any other non-strategic assets of any sort of material size that we should know about or non-strategic products?

Michael Sicoli -- Chief Financial Officer

Yeah, I think that -- these contracts are typically fairly long-term in nature and to be clear, we're not saying we're exiting the business. We're saying -- we're just not focused on selling new to the degree that the prior company was. So the clients we have today, we will continue to invest whatever is necessary to keep them happy and well served and I would expect that many of them would continue to renew over time. In terms of the -- are there other non-strategic products, there is nothing as big as the legacy sort of hosting in compute platform that Rick was talking about on the Interoute side, there is a small tail of things from other acquisitions that are still in the days, but that would probably be less than 1% of revenue at this point in time and again it's not a full on exit, it's just a de-emphasizing, meaning not focused on selling new, just focused on serving the base we have well.

Richard D. Calder Jr. -- President and Chief Executive Officer

And in the past year, we've had tremendous reterm and renewal activity from the base of clients that we acquired. So as I and Mike noted, it's really more of a focus on new. So we really don't want to be focused on growing the cloud services business outside of the base of clients, we have already.

Michael Sicoli -- Chief Financial Officer

And related to the CapEx point, if you just took the the pro forma Interoute capital intensity, plus legacy GTT, the number would have been north of 7% of revenue. Part of us guiding initially toward 7% of revenue, as the new target for CapEx was an acknowledgment that we don't intend to do as much of that spending going forward and you might also know, we've even lowered that range a little bit now, instead of just saying target of 7%, we're sort of back to that 6% to 7% as an acknowledgment again the capital intensity is coming down a little bit from the run rates that existed in 2018, as we shift our strategy more to just those core products, networking products that Rick talked about that are less capital intensive on average than cloud services products.

Frank Louthan -- Raymond James -- Analyst

Okay. Great. Thank you.

Operator

The next question comes from Walter Piecyk of BTIG. Please go ahead.

Walter Piecyk -- BTIG -- Analyst

Thanks. Rick, I think at the end of the year, you had mentioned quota-bearing reps are around 300, I may have missed this in the prepared comments. Did you say -- I know you said it grew, what is it up to at the end of the quarter and are you still on target to hit 350 by the end of the year?

Richard D. Calder Jr. -- President and Chief Executive Officer

Yes. Thanks for question, Walt. We grew to 320 quota-bearing reps from before the end of fourth quarter to end of first quarter and so we do believe we're on track to hit 350. Interestingly, there's a little color on that, as we noted on the last call we have made a big investment in sales development non-quota-bearing as a farm system effectively and we promoted our first class of folks to account representative, quota-bearing account representative out of that. They carry lower quotas, but they will be our account executives and account managers of the future, and we feel really comfortable with that program and have look now to expand it both in North America and in Europe moving forward.

Walter Piecyk -- BTIG -- Analyst

So the type of business that you're in, I assume these are not like a cogent low-end salesperson, these are people that are experienced in what they do right and bring probably existing relationships of the company when you hire them?

Richard D. Calder Jr. -- President and Chief Executive Officer

When we hire new reps from the outside absolutely. Our average productivity per rep is in the high single-digit monthly recurring revenue, that was on monthly recurring revenue range. So yes, where we have a significantly higher rep profile in terms of the number of reps we have and the sales productivity we expect for them.

That said, we see an opportunity to not only hire from the outside, but to grow the existing base from sales development reps, which are helping us to generate new appointments with our target market of large multinational clients, and then of course the other main way we acquire reps as we do acquisitions as we just did with with Interoute.

Michael Sicoli -- Chief Financial Officer

And maybe just to drive that point home a little bit further, I think we've talked about this on prior calls as well. Our prior model in terms of increasing sales headcount relied 100% on hiring from the outside, and as we get bigger and have more of a global presence, we recognize we have to be growing some of that talent from within as well and that is the FTR program that Rick was talking about that we -- it was little more than just a trial in 2018.

We made a significant investment in that but it's nice to see that vision become reality now in 2019. And as Rick said, now we are going to increase resource on that. So we have a more of a balanced mix going forward as we grow headcount from a quota-bearing standpoint, where we're promoting from within and also hiring from the outside.

Walter Piecyk -- BTIG -- Analyst

So you're hiring, experienced sales people that's up, let's just call it 5% sequentially. Obviously, they need to find the bathroom and that type of stuff and get their stuff ready to go. You're maturing some of these acquisitions that were declining in revenue, but organic still down 1% sequentially. So -- and you haven't acquired anything. You're five months into the year, there's been no acquisitions, so I'm just kind of looking forward trajectory -- and by the way, Rick also in your prepared comments you mentioned the highest bookings ever, you're really comfortable with trajectory, when is all this actually result and not seeing a decline in sequential revenue. I thought we were expecting that to happen this quarter. Obviously, you did OK last quarter after a horrible Q3, but when is this actually going to result in revenue not declining sequentially, because if you can't keep that flat or even grow a little bit and let's say you make a $100 million in acquisitions for the year, your revenue is going to basically hit a cliff. And then your -- and then now you're running out of synergies, right. You're going to realize your synergies by the third quarter, and your EBITDA is going to lap that and be at no -- 0% growth by what second quarter of next year. So what's the strategy here, given the leverage prevents you from making very large acquisitions right now?

Richard D. Calder Jr. -- President and Chief Executive Officer

Yeah. The strategy remains exactly the same, Walter, to grow organically through two dimensions, one rep driven and direct answer to your question, we expect to return to rep-driven growth this year. Exact quarter, not certain, but we certainly see all of the ingredients of returning to rep-driven growth after doing this very large integration and the trajectory being on the downslope. Two, we do see a great funnel of acquisition opportunities. We would expect to acquire multiple companies each year including in 2019, probably don't see a large acquisition or material acquisition in 2019, but the depth and breadth of our funnel is as good as it's ever been. We actually see the consolidation opportunity more ahead of us than it is behind us. So we certainly see that. We've been very focused over the past year on making sure that we executed extremely well in the Interoute acquisition. So I would say the strategy remains exactly the same, continue to focus on growth, both through small non-material acquisitions and rep-driven growth, turn that this year and continue to do non-material acquisitions, and then a material one along the way, we're 11 -- two quarters in, now the second quarter of the 12-quarter plan to go to $3 billion and $900 million in EBITDA, and we see that right in front of us.

Walter Piecyk -- BTIG -- Analyst

So, but with all the things that I just mentioned, shouldn't you at least be able to look out and say your sequential declines are at least going to moderate in the second quarter, because again you added 5% sales force, you just talked about having record bookings, so I get that you can't say here's the quarter that we're going to return to growth. But can -- I mean I would think in looking in the June quarter, you could at least give some indication whether you can moderate the declines?

Michael Sicoli -- Chief Financial Officer

Yes. We don't provide quarterly guidance our annual guidance. And so, I think that now the statements we've made are pretty clear, which is that we expect to return to growth in 2019. And there is three quarters left in 2019. So you can -- sort of predict if you like, which one of those quarters that will happen, but what we're doing here is on a pretty significant scale, we've just integrated the largest acquisition in the company's history. That's incredibly disruptive on many dimensions, and the pre-closed trajectory was negative, so predicting with precision the exact quarter, where all these things come together is pretty much impossible. So, I appreciate the desire to know the answer to that question, but that's just kind of not where we are right now.

Richard D. Calder Jr. -- President and Chief Executive Officer

Because we feel that the platform that we now have, particularly in North America and Europe to provide service to large multinational clients to take share from the incumbents is the best we've ever had in our corporate history. So the point end where we'll continue to achieve those synergy targets, but then to grow from there. We're clearly committed to growing this business to the next financial objectives that we've established and executed across all three dimensions of rep-driven, small non-material acquisitions as well as a periodic larger transaction like Interoute.

Walter Piecyk -- BTIG -- Analyst

Okay. Thanks.

Operator

The next question comes from George Sutton of Craig-Hallum. Please go ahead.

George Sutton -- Craig-Hallum -- Analyst

Thank you. You mentioned that the M&A funnel remains robust. You also mentioned you hope to delever through the process. I just wondered if you could walk through where you feel you are operationally relative to larger acquisitions at this point? And can you give us a sense of the de-levering process you envision?

Michael Sicoli -- Chief Financial Officer

Sure. In terms of operationally being ready, we're very close if not already there at this point with the overwhelming majority of Interoute integration being complete at this stage. That doesn't mean we're going to rush out and do another big acquisition anytime soon. I think, as Rick just mentioned it's probably unlikely that that would happen at least for the balance of this year. Our primary focus is on smaller acquisitions, which is the normal course for our strategy. The larger deals have been much more episodic and fewer and farther between and that's more likely to occur and that's really more part of the three-year vision of how we get to that $3 billion number by 2021, not so much part of the vision this year.

In terms of the de-levering associated with the smaller acquisitions, we typically are buying these companies at around 5 times EBITDA on a post synergy basis or less and the post synergy number being achieved typically within two quarters because we can integrate smaller acquisitions more rapidly. So the starting point for the purchase price itself is about 5 times EBITDA or lower. Our average actually for the smaller deals has been below five 5 overtime. But if you just take 5 times as an example relative to our current leverage that would be de-levering even if we did those acquisitions all debt. However, our history also shows that we typically issue some amount of seller equity associated with those acquisitions less from a corporate finance standpoint, more from an alignment of interest standpoint to make sure the sellers still have some skin in the game to make sure the transition goes successfully, typically 10% to 20% of the acquisition price, so just rough numbers, if you assume 20% then 5 times becomes 4 times, which is our long-term target leverage and the more deals we do at 4 times from a leverage standpoint, the faster we get back to the 4 times target from a long-term perspective, we have on the consolidated business.

Brian Thompson -- Executive Chairman

In terms of the -- in terms of the funnel itself, particularly on the non-material acquisitions, I think the mantra for GTT remains the same, which is to be involved in every relevant process and so, I think we're well known as a buyer, we're well known in this industry as a potential destination for owner operators that are ready to sell. And so we think we have good insight into the available opportunities and engage -- we're always engaged in those discussions in any given day sort of talking to a number of counterparties and as Rick said in the prepared remarks, we remain very happy with the state of the file of non-material acquisitions and we'll look to do several of those in what remains in 2019.

George Sutton -- Craig-Hallum -- Analyst

Got you. I wondered, lastly and I'll hang up and listen to the answer. Can you update us on your UC strategy, which I believe is reselling Cisco and Broadsoft. I'm just -- I'm curious. A, whats your pitch is in that area and how much growth can you envision there? Thanks.

Richard D. Calder Jr. -- President and Chief Executive Officer

Sure, George. I mean we -- as I've said in multiple calls and reiterated today, we see it as a great opportunity for us. We have not prosecuted on it as well as I think we can. We are actually establishing for the first time an overlay sales force to actually add it onto our WAN, particularly SD-WAN sales in installed base. We think it's a tremendous opportunity for clients, once they move to SD went to move their traditional in legacy voice services, most of which is still TDM to unified communications or SIP trunk. I mean obviously as you know, we use a Cisco based unified communications platform and we have a very deep SIP trunking platform for those who do retain IP PBXs around the world.

So we see it -- we clearly see it as a big part of our total addressable market and an area that we should be a share taker in the business as other players continue to attack the legacy TDM part of that market.

Operator

Was there any follow-up, Mr. Sutton?

Richard D. Calder Jr. -- President and Chief Executive Officer

I know that he said he was going to hang up after that. So.

Operator

Okay. Thank you very much. The next question comes from Tim Horan of Oppenheimer. Please go ahead.

Timothy K Horan -- Oppenheimer & Co.

Thanks guys and sorry if I missed this, did you say when the provisioning got back to normal levels maybe what month or are we there yet or yeah.

Richard D. Calder Jr. -- President and Chief Executive Officer

So the main cut over, as I said earlier, occurred in December and so most of the retraining of the organization was occurring November, December, and through the first quarter, as we repoint the entire service delivery organization, particularly in Europe, both the UK division and the Europe division too our client management database and formally retire all of the legacy systems, which is now complete.

And as a function of that where we took sort of slowdown ahead if you would take it and installed provisioning in the first quarter. I think that most of that is now in terms of training, most of that behind us, our backlog still remains quite large it at the $10 million in monthly recurring revenue. And so, we would expect that to come in over the next couple of quarters, as we work through that backlog, which is why we feel that we're well positioned to return to the rep-driven component of growth.

Timothy K Horan -- Oppenheimer & Co.

So it sounds like the ability to provision, is just returning right now. You know after kind of 4-5 months of some slower pace of provisioning. But I mean, that would kind of suggest that the second quarter should be weak also from a revenue perspective, given the compounding of the services businesses. Is that a fair way to think about it?

Richard D. Calder Jr. -- President and Chief Executive Officer

I think, as Mike said earlier, we don't generally predict as to which quarter we would return to growth on the rep-driven component of it, but we have all the ingredients as we said we think we'd like productivity, we like the product for us, we like the size of the sales force, we like where we stand in churn rate, particularly after this large acquisition. So it is first and foremost exactly that point get that backlog installed. It's hard to get it all installed at once. And so it's why I said it will take a couple of quarters to work through, but we do believe we are past that training effort and everyone is now fully aligned into one system, which is generally a huge victory for GTT.

We have retired well over 30 CRM and provisioning systems across the organization and everyone uses our one client management database.

Michael Sicoli -- Chief Financial Officer

Yeah. Maybe just take a minute to reiterate our integration strategy, which is a bit unique, which is to cut over all systems and processes to the GTT systems and processes as quickly as possible. That does create short-term pain for clients, employees, even suppliers. But we think it is significantly better for all of those constituents over the long-term. Others who don't have the rapid integration strategy that we do, just prolong that pain over years and years, and you have a gradual degradation of experience, and we feel like it's much better to take the pain right away, and be good at fixing whatever didn't cut over cleanly, quickly and move forward with one platform, one GTT, one way of doing business is much better for everybody over the long run. I would also say in terms of your question about the timing of when we get back to normal. It's not like for four or five straight months, it's at a significantly depressed level and then magically in month six, it snaps back. You take a few months there early, so I would say, December and January were sort of the low points of productivity perspective and as we progressed from there, we got better and better and I feel like in April certainly by sitting here in May, we're back to normal. What date was it exactly that happen, I couldn't tell you, but at some point over the last month or so I feel like we got there.

Timothy K Horan -- Oppenheimer & Co.

No. That's really helpful. And just to reiterate, I mean historically I think you used to grow organically with your sales force in the 5% plus range. With 350 salespeople in the numbers you're talking about in terms of churn and provisioning -- can you become a 5% grower, at some point again in the next one to two years with the sales strategy?

Richard D. Calder Jr. -- President and Chief Executive Officer

Yes. It's a great point. Just as a reminder for those who may not have been following us over a longer period of time, prior to the acquisitions of Hibernia, Global Capacity, and Interoute over the past two years, we were growing organically at a 1% to 2% per quarter cliff. Sort of that -- call it 4% to 8% organic and so we had a business that was producing at those levels, our expectation is we will once again be producing those levels in the future and absolutely at 350 reps with stable churn and stable productivity, we would be in at least that sort of low to mid single digits range with an expectation of growing from there as well in 2020 and beyond.

Timothy K Horan -- Oppenheimer & Co.

And lastly, sorry for the multiple questions, but the new universal box, could you talk about how important that is? How much lower is that -- that's the WAN box and can that help you up-sell other services pretty quickly?

Richard D. Calder Jr. -- President and Chief Executive Officer

Yeah. I mean the real opportunity with Universal CPE is to make the transition to SD-WAN really seamless, because it allows us to put the two most important virtual network network functions. The actual SD-WAN control software itself and the local firewall into one piece of CPE, today most clients actually use two and if they want significant diversity of their CPE, they buy four. And so we have a real opportunity to consolidate that and put their wide-area networking on a software platform that gives them then both security and deep visibility into the flow of their traffic throughout our core network. We also firewall it in the core of GTT's network as well. But the Universal CPE box is a significant ability to reduce cost for clients that are making a transition from hybrid networks where they have legacy MPLS networks and legacy bespoke and stand-alone internet connectivity and put them into one controller that provides diversity because we're in the business of providing two diverse Internet access lines to each location on one piece of CPE.

Timothy K Horan -- Oppenheimer & Co.

But -- I appreciate you're saving them a lot of money and it's a lot easier to do, but is this a higher sell to you and higher margin can you get more revenue per sale transaction?

Richard D. Calder Jr. -- President and Chief Executive Officer

Well, certainly most of what we're doing is getting new revenue. So we see it as a real growth engine for us given the fact that we're a very small share player in this overall market. And so, from the client -- from our perspective, it's new revenue at high margin, from the client perspective, it's cost savings, we clearly see an ability to reduce cost, and operational complexity and add incremental visibility in terms of their networking, and the connection of their people to cloud services around the world. So we really think it's a win-win and we see it accelerating now as we as we move into '19 into '20.

Brian Thompson -- Executive Chairman

Just to be clear. I don't think the box itself unlocks additional ARPU for us at least in the near term. It's much more about removing barriers and costs for clients to make the switch in this early phase of adoption. Over the long-term, having it all on one box that we own and control could enable us to add features or services that increase ARPU relative to the mode we're in today, where we're using sort of vendor-supported hardware.

Timothy K Horan -- Oppenheimer & Co.

Thank you.

Operator

The next question comes from James Breen of William Blair. Please go ahead.

James Breen -- William Blair -- Analyst

Thanks for taking the question. Just a couple, I know you gave constant to currency growth rates. Can you talk about the absolute impact sequentially, and year-over-year just from the currency impacts and just thoughts about that going forward given how much revenue you're getting out of Europe now? And then as we think about the split between U.S. and Europe, in terms of where the growth coming from, is it sort of a combination of the two, is one favoring the other? Thanks.

Michael Sicoli -- Chief Financial Officer

Sure. In terms of the absolute dollar impact. It's also listed in the press release in the bullets, but from a year-over-year perspective, which is the real headwind as it relates to currency, revenue would have been higher by $18.1 million, EBITDA would have been higher by $7 million, and sequentially not that big of an impact, there was a lot of volatility within the quarter, and we ended the quarter lower than we started the quarter. But actually during the quarter, there was actually step flat or even some of -- there was a period where it actually went up, but then it went down more significantly in March. But in terms of the specific impact, it is only $100,000 for revenue and about $300,000 for EBITDA sequentially.

Richard D. Calder Jr. -- President and Chief Executive Officer

And in terms of growth potential, I think it really points out why we felt, and we are so excited about this combination of platform we have, because we see equal potential in North America and Europe and our Europe broadly defined, including the United Kingdom and this platform that we have allows us to very effectively sell to those large and multinational clients who generally have the significant amount of super majority of their locations across those geographies and to basically buy networking Wide Area Networking -- software-defined Wide Area Networking services, we've seen incredible attraction and pickup from clients say, you're really relevant to us in our ability to move away from the incumbent and we think this has been a real linchpin in this strategy to ensure that we are the disruptor to those incumbents and we have the global scope and scale with 3,000 employees across 30 countries and 60 offices around the globe to be really relevant to all major large and multinational clients.

To your direct question, it's about equal. And we have -- I think we have four divisions, fifth is a very small one for a small medium businesses across the world, but the four divisions, two are in North America and two are in Europe and the plan that we put in place is very balanced between all of them to be able to grow on a balanced basis and we see both headcount, sales quota-bearing, continued investment across those organization is being very balanced between North America and Europe and clearly being able to deliver locations to any location in the world across those two geographies and anywhere else in Asia Pac, Latin America, Middle East, etc.

James Breen -- William Blair -- Analyst

Great. Thank you.

Operator

The next question comes from Brandon Nispel of KeyBanc Capital Markets. Please go ahead.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

All right. Great. Thanks for taking the question. I guess I'm going to keep harping on the provisioning this year. I guess the churn stayed relatively constant quarter-over-quarter, it's a gross install issue, but you also have a U.S. business, which I wouldn't have expected would have been impacted by this service provisioning change. So I guess maybe can you comment on why that impacted the U.S. business so much and from Mike, you mentioned the working capital headwind this quarter, can you maybe outline your target for DSOs going forward? So we can get our cash flow statement in line. Thanks.

Michael Sicoli -- Chief Financial Officer

Sure. I can start with the working capital point. As I mentioned in the prepared remarks, we had a delay in sending invoices out during the cut over of roughly a month and the impact from a cash flow perspective of widening out AR was roughly $50 million, which is about one month's worth of recurring revenue, monthly recurring revenue from Interoute and so we would expect to sort of get back to normal perhaps as early as Q2, but most likely across Q2 and Q3, in terms of getting caught up from a collection standpoint as clients not only receive their invoices on a timely basis, but digest those invoices, which are all in a new format than they were used to previously. And this is very typical for us, in terms of the rapid integration strategy that I talked about a minute ago and it's a short-term issue that will resolve itself soon. In terms of target DSOs, the Interoute client base does have typically a longer contractual payment timing in their contracts. So, the most common payment terms, you would see in the United States would be in that 30, although there are some clients that have a little bit longer to pay.

In Europe, it's closer to 45 to 60 days. So on a blended basis, probably 45 is the right target based on the contractual payment terms that clients have. However, obviously, our teams work very hard to get clients to pay even more timely and so it's possible you could see less than that, but I think the more likely scenario is the mid-40s based on the contractual timing of payments.

Richard D. Calder Jr. -- President and Chief Executive Officer

And on the provision issue, it definitely had a much bigger impact in Europe and less in the U.S. or North American divisions of Americas and carrier. We did given that many of our folks that came in Europe was Europe and UK due to us from Interoute. We actually used most of our experience folks in the U.S., so there was a minor effect in the North American divisions as we basically sent them to Europe, for that December, January and part of February to actually November-December part of January and February timeframe, more minor, but most of the impact was in Europe.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Great. Thank you, guys.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Rick Calder for any closing remarks.

Richard D. Calder Jr. -- President and Chief Executive Officer

Great. Thank you operator and I'd like to turn the call over to our Chairman, Brian Thompson, for some concluding remarks.

Brian Thompson -- Executive Chairman

Thanks Rick, and I appreciate the opportunity for everybody to be on the call. We -- this last week, we held a Board meeting in London, the Board had decided that based on the fact that the Interoute acquisition was going to have a huge impact on the company and wanting to have a better sense of both the integration activities, as well as the future activities being planned for a big chunk of the business we held our meeting last week, and I would like to refer to that meeting and saying that the Board came away, and I am confident that each member would say the same that we were both impressed with the fact that this was a significant shift in our company from the standpoint of going through a process of integrating. It was -- as the team has pointed out -- it was a major move that we had done in smaller acquisitions and the size of it just created a lot more discontinuities in the company.

We also came away feeling that it was clearly as Mike pointed out and Rick that this is behind us that we did indeed do what we have always pledged to do and that's the fully integrate companies. So that six months after an acquisition to nine months after an acquisition, it's very difficult to say this person is an Interoute person or this person is a Legacy GTT person and where we're going forward, we also try to call out of the organization those things that that are not strategic to us, both in terms of the way in which people are selling as well as the people as well as the customer base and therefore it's a process. The Board came away I think quite confident that the platform is solid, that the way in which we have done what we have done is once again very consistent. It was very time consuming and very difficult for the team of people and we are very proud of the way in which the people from both sides of the acquisition that are part of the new GTT going forward have acted in the greatest interest of coming into the organization to make it one.

The second thing is that I note that there is an awful lot of things going on in the industry with agreeing to being acquired and interestingly wanted to note that the Irish have just yesterday approved of building a fiber to the home network at great cost as a public policy in the public-private partnership, which will only accrue to value as we and our Hibernia acquisition had acquired a good deal of facilities in the North of Ireland and and our fibers are landing in the Irish areas. So we have really changing times and changing times that we're a part of, so I'm really interested in what's going to happen going forward in the business that we're providing.

Finally, I wanted to reiterate that as I have almost on every call that I view this not as short-term race, but as a really long-term one. And I think our whole team looks at it that way and very importantly this quarter, our friends who have invested in us from Spruce House, which is a very large piece of our company, now at some 22% ownership have agreed that Ben Stein will come on board. The Spruce House team is very much of the long-term focused organization. They believe in watching the people who are doing in that business and being committed to what they're doing and that the future is very important for them in the long term and they will be a great addition to our Board and understanding and providing additional input from the investor community to ensure that we are all aligned.

Therefore, we're really looking forward to Ben Stein, joining our board and moving forward. I think we will continue to do what we're doing and, as Rick said, our strategy is correct. We believe it's correct. We think the marketplace is beginning to believe that we are correct and the echo chamber is building. I look forward to our next call, and thank you all very much.

Richard D. Calder Jr. -- President and Chief Executive Officer

Great. Thank you very much and we look forward to reporting on our next call.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 55 minutes

Call participants:

Chris McKee -- General Counsel, and Executive Vice President of Corporate Development

Richard D. Calder Jr. -- President and Chief Executive Officer

Michael Sicoli -- Chief Financial Officer

Brian Thompson -- Executive Chairman

Jonathan Charbonneau -- Cowen and Company -- Analyst

Frank Louthan -- Raymond James -- Analyst

Walter Piecyk -- BTIG -- Analyst

George Sutton -- Craig-Hallum -- Analyst

Timothy K Horan -- Oppenheimer & Co.

James Breen -- William Blair -- Analyst

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

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