Logo of jester cap with thought bubble.

Image source: The Motley Fool.

GTT Communications, Inc. (NYSE:GTT)
Q1 2020 Earnings Call
May 8, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the GTT Communications First Quarter 2020 Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Chris McKee, General Counsel and Executive Vice President of Corporate Development. Please go ahead.

Christopher T. McKee -- Executive Vice President and General Counsel of Corporate Development

Thank you and good morning. I'm joined today by Rick Calder, GTT's President and CEO; Steven Berns GTT's CFO; 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 an 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 US securities laws, including revenue and margin expectations, projections and references to trends in the industry and GTT's business. We caution you that such statement reflects our best judgment as of today, May 8, 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'll 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 to the Investor Relations section of our website.

I'll now turn the call over to Rick Calder. Rick?

Richard D. Calder -- President and Chief Executive Officer

Thank you, Chris, and good morning, everyone. I hope you and your families are keeping healthy and safe during these challenging times. I want to first thank all of our employees, clients, and stakeholders for their efforts, support, and confidence in this unprecedented time due to COVID-19. GTT has, along with every business around the world, adjusted to the pandemic with the priority of keeping our workforce and our partners safe, while maintaining quality of service for the mission-critical services we provide. Prior to the impact of the pandemic, over 95% of the GTT team was remote work-ready and we were able to transition successfully our over 3,000 employees in 28 countries to effective remote work-from-home environments, in March, including our network operations centers. As an essential service provider, we do keep select employees in rotating shifts at critical locations, including data centers, warehouses, cable landing stations, and our field operations to ensure we provide for the ongoing needs of our clients.

Our liquidity remains strong. At the end of the first quarter, we had $106 million in cash and incremental availability under our revolving credit facility of $174 million. We continue to take actions to improve the strength of our balance sheet. As a result of the pandemic, we anticipated that installs would slow, which is what we saw at the end of 1Q '20 and into 2Q '20 as many clients cannot provide access to certain premises.

Moving into 2Q, we have also seen reduced churn orders as clients maintain their existing services for longer periods. We have seen increased demand and usage traffic for our Internet services, particularly high capacity dedicated Internet and IP transit services. We have been upgrading bandwidth capacity remotely for many clients as they utilize the Internet more intensively during this period.

The services that GTT provides are critical to our clients' ongoing operations. Not only does the underlying demand for our services remain strong, but we continue to win important pieces of new business. In late March and through April, we have signed a number of multi-year contracts with multi-national hyperscalers and enterprises for additional bandwidth and digital transformations. Despite the pandemic, we continue to have significant levels of new sales activity that should generate results going forward, particularly once our installation pace returns to reasonable normal levels.

Through 4Q '19 and into 1Q '20, we made significant investments in our business to support future growth. As a result of the uncertainty of the continuing impacts of COVID-19, we are now taking specific actions to reduce our cost base to ensure we deliver a competitive level of profitability in line with our guarded outlook in the current environment. We are scrutinizing every line item and are looking to reduce costs while minimizing the impact on our long-term growth potential when the world returns to a more normal setting.

GTT's monthly recurring revenue and the strength of our client base positions us well in this uncertain environment. Specifically, MRR, monthly recurring revenue, represents approximately 92% of our total revenue. Our top 1,000 clients represent over 80% of our business, and average over $100,000 in monthly recurring revenue. Our exposure to small and medium business, clients billing under $1,000 MRR is small, at approximately 2% of total revenue. While we have important clients in retail, travel, and hospitality, in total, these represent a small percentage of clients at less than 5% of total MRR.

In terms of first quarter 2020, results came in below our expectations. Revenue was essentially flat sequentially, including KPN's results, which was acquired in December 2019. Net installs for the quarter were negative in our Americas and Europe divisions due to slightly higher churn in the quarter of approximately 1.6% as compared to our expectations, as well as lower installs, as previously mentioned. Our Infrastructure division delivered positive net installs for the quarter, driven in particular by large capacity sales to select clients.

Adjusted EBITDA was $89.3 million, which compared to the fourth quarter of 2019 was negatively impacted by the investments in growth, as I noted, as well as increased reserves for bad debt expense. Steven will review the financials in more detail, though, I do want to highlight that we did generate free cash flow of $19.5 million for the quarter. Further, while we believe that we will generate improved cash flow in 2020, given the uncertainty created by the pandemic, we are withdrawing our 2020 guidance of $175 million to $200 million in free cash flow. Our priorities remain delivering organic rep-driven revenue growth and improving profitability. We ended the first quarter with more than 400 quota-bearing reps worldwide, a level of scale that with training and maturation is intended to expand our share of wallet with existing clients, drive new client logo acquisition, and reduce churn. We have paused hiring of incremental reps until such time as there is more certainty regarding the length and depth of the economic impacts of the pandemic.

Our modernization of our Infrastructure division is proceeding well, and has garnered significant interest from potential buyers. As a reminder, infrastructure includes our highly differentiated terrestrial pan-European fiber assets, subsea transatlantic fiber, and data centers acquired as part of the Interoute and Hibernia acquisitions. We expect to use the proceeds of monetization to reduce a portion of our outstanding indebtedness. We are focused on serving our clients every day as we deliver on our purpose of connecting people and supporting our client's mission-critical needs, especially those that arise in the pandemic's challenge. We are managing through the COVID-19 environment nimbly and aggressively with the aim to achieve a more flexible cost structure and operating model.

Finally, I'm very pleased to welcome Steven Berns to GTT as our new Executive Vice President and Chief Financial Officer, and we'll turn the call over to Steven for the financial review. Steven?

Steven Berns -- Executive Vice President and Chief Financial Officer

Thanks, Rick, and good morning, everyone. It's great to be here at GTT, and I hope you are all staying healthy and safe. First quarter revenue increased 0.2% sequentially to $425 million, and decreased 6% year-over-year. Approximately, 52% of our revenue is denominated in non-US dollar currencies, so fluctuating exchange rates impact our reported results.

In constant currency, revenue increased 0.4% sequentially and decreased 4% year-over-year. The sequential improvement of revenue was due to a few factors: first, the inclusion of KPN for a full quarter versus only one month of inclusion in the fourth quarter of 2019; next, a $5.5 million reduction in billing credits issued, which returns us a historically normal level, and these items were partially offset by negative net installs of $5 million, an unfavorable currency impact of $1 million, a $1.3 million decline in government pass-through charges, a $1.9 million decline in non-cash deferred revenue, which was consistent with our expectations, and a decline in non-recurring revenue of $1.4 million due a lower level of certain activities in the quarter.

The year-over-year decline in revenue was driven primarily by following factors: negative net installs, which represented over $72 million of annualized revenue reduction, compared to last year, as well as unfavorable currency impact of over $22 million in annualized revenue reduction. Other reductions of MRR of $7.6 million, including the issuance of MRR credits and changes in various surcharges, including FUSF, a decrease of approximately $25 million from the runoff of non-cash deferred revenue; and finally, a decrease of $28 million in non-recurring revenue. The decline in non-cash deferred revenue is expected to be more gradual over the next several years.

We did record $11 million of new prepaid capacity sales in the first quarter of 2020. We continue to expect our pipeline of new IRU and prepaid capacity sales to approximate the amortization of non-cash deferred revenue for the balance of 2020. The deferred revenue footnote in our form 10-Q provides a schedule showing the outlook of this component of revenue for the next five years for all acquired and prepaid revenue contracts.

First quarter adjusted EBITDA decreased 13% sequentially to $89 million and decreased 27% year-over-year. Currency fluctuations did not have an impact on adjusted EBITDA in the sequential quarter-over-quarter comparison. For the year-over-year period, currency had a 1% unfavorable impact. Adjusted EBITDA margin of 21% decreased by 320 basis points sequentially due to the following factors. First, a contraction in gross margin of 170 basis points, primarily as a result of a reduction in non-recurring business and an increase in SG&A, primarily through the accelerated pace of our fourth quarter 2019 investment in our quota-bearing sales force and other functions in support of the growth of our business, as well as a higher provision for bad debt expense as we applied a more stringent methodology for estimating allowances for credit losses.

In the year-over-year period, adjusted EBITDA margin decreased by approximately 610 basis points, but primarily due to a contraction in gross margin of 225 basis points, resulting from a reduction in non-recurring business and an increase in SG&A, primarily related to the items I mentioned, that were for the sequential quarter as well.

As Rick noted earlier, in light of the current environment, we are completing a line-by-line review of our costs and taking specific actions in both SG&A and cost of revenue that we expect will improve EBITDA margins in the second half of 2020. During the quarter, we incurred $2 million of transaction and integration costs, which are included in our reported SG&A, but excluded from adjusted EBITDA. These expenses are related to our closing of the KPN acquisition and the exploration of monetizing the Infrastructure division. In addition, we incurred $2 million of exit costs primarily related to closing legacy office locations in Europe.

From a cash standpoint, we paid off $4 million of combined exit and integration costs in the quarter, down from $7 million last quarter. At quarter-end, we had approximately $14 million in remaining future cash payments to be paid related to previously expensed exit costs, almost all of which will be paid out through the end of 2020.

First quarter net loss was $83 million, compared to a net loss of $27 million last year, and a net loss of $19 million last quarter. Included the first quarter of the 2020 net loss is a $33 million non-cash mark-to-market loss accounted for in other expenses associated with the change in fair value of our interest rate swaps. The comparable amount in the first quarter of 2019 was a loss of $15 million, and the comparable amounts in the fourth quarter of 2019 was a gain of $10 million.

First quarter 2020 capital expenditures were $22 million, or 5.2% of revenue, compared to $32 million in the first quarter of 2019 and $25 million in the fourth quarter last year. The capex in the first quarter was at the lower end of our target of 5% to 6%, driven primarily by success-based investments.

Moving on to liquidity, our first quarter ending cash balance was $106 million, up from $42 million last quarter. During the quarter, we drew $55 million on our $250 million revolver, which brought us to a total draw of $65 million. As a reminder, the senior leveraged covenants threshold is only measured when there is more than $75 million drawn under the revolver. As we have also used a revolver for approximately $10 million of letters of credit, we have $174 million of unused and available capacity under the revolver.

Net cash provided by operating activities was $42 million, up from $30 million last quarter, and reversing the first quarter 2019 use of cash. Free cash flow, which is defined as net cash provided by operating activities less capex was $20 million in the first quarter, compared to $5 million last quarter. We are working diligently to improve collections of our accounts receivable and, of course, in light of the pressures caused by the COVID-19 environment. We are working closely with our clients to assist with payment terms and alternative payment methods in those situations where it is warranted. Throughout the world, cloud networking services are viewed as the essential and critical, and therefore, we do expect the overwhelming majority of our clients to continue to work with GTT and pay timely for their services.

Working capital was positive $13 million, compared to positive $2 million in the fourth quarter of 2019, and a negative $48 million in the first quarter of 2019. As we finish paying the exit and integration costs incurred in 2019, among other benefits, we expect overall improvement in working capital. As always, but especially during these uncertain times, we remain focused on closely managing both client and vendor components of working capital. And as Rick stated, we are confident in our ability to generate improve levels of cash flow from operations and free cash flow in 2020.

Our net debt balance at quarter-end was approximately $3.3 billion, including $2.7 billion of senior secured term loans maturing in May 2025, of which, roughly 35% is Euro-denominated, and $575 million of senior unsecured notes maturing in December 2024. As a reminder, in February of this year, we closed and funded a $140 million incremental US dollar-denominated EMEA term loan in a leverage-neutral transaction. The net proceeds of which were used to pay down substantially all of the draw on the revolving credit facility that was partially used to fund the KPN acquisition in December of last year.

Total secured net leverage at March 31, 2020, was approximately 6.5 times on a trailing 12-month basis, including acquisitions and pro forma expected cost synergies. The earliest maturity on our debt in December of 2024, and we believe that the critical nature of the services we provide our clients, our intensified focus on reducing costs, our $280 million of liquidity, as well as our ability to generate significant cash flow positions us well in these uncertain times caused by the COVID-19 pandemic. As always, we are focused on optimizing our capital structure to further improve the strength of our balance sheet.

This concludes our prepared remarks, and we will now open up the call for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from George Sutton of Craig-Hallum. Please go ahead.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Good morning, and welcome to Steven. So, you obviously, you mentioned pausing your sales hiring process. Part of your strategy to get to an organic growth rate -- a positive organic growth rate, obviously, has been driven by hiring. Can you just discuss sort of the plans from here relative to trying to achieve that organic growth but given your pause?

Richard D. Calder -- President and Chief Executive Officer

Sure. Thank you for the question, George, and I'll probably, given we're all in separate locations, take each question and then hand it off to either Steven or Chris. But with respect to pausing, once the impact of the pandemic started to appear at the beginning of March throughout most of Europe, and then obviously accelerating into the US, we paused. We had made aggressive increases in SG&A to drive ever higher levels of growth in the fourth quarter and into January, February, and March. So we're pausing. We think it's prudent for us in this uncertain environment to pause, particularly for new logo acquisition. We still retain a sales force that's of the scope and scale with further maturation that can drive levels of organic growth. So, we're above 400 at this stage, we were 436 at the end of 4Q. We're at -- we were at 419 at the end of 1Q. So that's a sales force that is of the right scope and scale.

Our productivity per rep fourth quarter to first quarter did start to increase as our sales force has matured. We just think it's prudent not to bring on and onboard in a remote work environment new sales representatives. We'll continue to evaluate that on a month-over-month basis as we see the impact of the pandemic. It has not, for existing sales representatives to new accounts -- or excuse me, to existing accounts, as well as to opportunities have been deep in our funnel to date. We have seen good progress on closing those. We're just naturally cautious about building a funnel of brand new opportunities when you cannot meet the new clients in a face-to-face environment at this stage. So, we're paused, not to say that we cannot drive sales activity at this stage with the -- with now the scope and scale of the force that we have in place today.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Got you. One other question, you mentioned you're working with clients on their payment structures. You obviously are a big lessor of a lot of what you do. Is there flexibility that you're being given on some of those payments that you asked for any of that flexibility?

Richard D. Calder -- President and Chief Executive Officer

Certainly, on a case-by-case basis, we will go, particularly where we're making accommodation for specific clients. We will likewise go to our suppliers for those clients and ask for specific payment terms for those. And that generally is in the specific industries that -- I think that I had mentioned in the prepared remarks, retail, travel, hospitality. So, that said, it is pretty selective at this stage with the -- that as we noted earlier, we provide mission-critical services in general to our clients, and a function of that we expect that the majority of them will pay.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Perfect. I appreciate the help. Best of luck.

Richard D. Calder -- President and Chief Executive Officer

Thanks, George.

Operator

The next question comes from Colby Synesael of Cowen. Please go ahead.

Colby Synesael -- Cowen and Company -- Analyst

Great. Thank you. I want to focus on the EBITDA. So, obviously, a pretty notable step down, and you highlighted investments and then bad debt reserve. I was wondering if you can just give a little bit more detail on both of those. And how much of it is one-time versus recurring? And, I guess, therefore, is this the floor or could it actually go lower? And then also, you seem to be suggesting that the real slowdown in net installs was a function of actually the installations itself opposed to demand. Just wanted to make sure I understood that correctly, and just give a little bit more color on actually what you are seeing or what maybe you saw in the last two weeks of March as it relates to demand and what that looks like today? Thank you.

Richard D. Calder -- President and Chief Executive Officer

Sure. Thank you, Colby. Why don't we do this? I'll take the second question first on slowdown in installations. I'll ask Steven to start on the EBITDA, and I can comment on it as well. So let me start on the slowdown in installations. We definitely -- while we were proceeding generally on pace through the months of January and February, right at the beginning of March, in Europe, we saw a market slowdown in select countries which accelerated through Europe through March, and that then affected us in the US starting around mid-March, where as most of the world transitioned to work-from-home, access to premises really slowed down our pace of installs. That's continued into this quarter. It has not -- I think as I mentioned to George, has to really slowed down our order pace. As you know, our order pace generally has been fine. So, the thing we are probably most cautious about in this environment is the ability to install premise-based services, particularly as clients install new SD-WAN locations, install dedicated Internet access at their locations. We're just seeing a slowdown in the ability to accept those services. We expect it to return. We just don't know the pace at which that will return.

We, likewise coming into this quarter, have seen a slowdown in churn orders as well. And that clients who had existing services generally I think are taking the approach to leave those services in place. We have been able to upgrade many of our existing high capacity clients to sell them incremental capacity into their existing locations. We can generally do that remotely and upgrade their commitments on existing ports. We've also seen an uptick in our -- some of our security services, particularly for secure remote access to enable clients to get into a secure -- to have remote workers come back into their corporate enterprise. And so, we see that as some upside as we continue to move forward. But we are naturally sort of cautious about our ability to keep pace with installations in the short run as the pandemic runs its course.

So, let me turn it to Steven for a discussion on EBITDA.

Steven Berns -- Executive Vice President and Chief Financial Officer

Yeah. Good morning, Colby, and thanks for the question. As it relates to bad debt expense first, what I'll say is that, it certainly in a more normal world we would not expect the first quarter bad debt expense to recur. We're certainly not pleased with our EBITDA margin, I'll talk about -- more about that in a second. And we're taking concrete steps to improve that. Obviously, we did adopt, CECL, the accounting standard as of January 1, 2020, and that had some impact. But we have taken aggressive actions to improve our process for collections and expect that to bear fruit as we go into the -- as we are in the second quarter and for the balance of 2020 and beyond.

As it relates to overall EBITDA performance and investments, clearly, in this uncertain environment, as Rick has mentioned, we are very focused on serving our existing clients and very focused on what we can do as it relates to pursuing new clients. We're also practical about the ability of adding new logos. And so, not only are we taking the steps, as Rick indicated, on the pause in our headcount for sales, we have taken steps to make sure that we are reducing our SG&A. We've made certain reductions in headcount, and all of that in line with what we expect to be in uncertain environment for some period of time, and therefore, both protecting profitability as well as maintaining a level of cash flow that's consistent with our expectations.

We plan to, as we go forward, match our -- continue to be nimble as it relates to the management of our P&L, so we can make sure that depending on how the world, if you would say, evolves, we want to make sure that we are well-positioned to be able to deliver consistent, superlative [Phonetic] service to our clients, set ourselves up for future growth, but do so on a very practical and as Rick indicated earlier, guarded manner.

Colby Synesael -- Cowen and Company -- Analyst

So, just to kind of just double click on that a little bit. So, the bad debt was a material portion of the reduction or is it more a function of these investments? And, I guess, again how much of it is recurring versus is one-time? I mean, I do think that the EBITDA was probably the biggest shock probably in the result this morning for people. And I'm just trying to get a sense if it's going to get worse before it gets better, or you think that from this point if it starts to stabilize?

Steven Berns -- Executive Vice President and Chief Financial Officer

I think that for bad debt at this point, it's certainly at a place where we feel that the first quarter was an exceptional period for bad debt expense. But -- and we clearly, as Rick indicated, in terms of our -- the percentage of customers for which we have, both -- we are providing critical services, they are well-capitalized large multinational corporations, we feel good about our path forward. And so, I would not expect, based on what we know today, for the first quarter level to repeat. And we certainly are working hard to make sure that that doesn't happen by having aggressive but appropriate collections efforts on all receivables because we don't know, of course, the sustainability of every sector in this highly uncertain environment. So, the way you manage that is you don't let any receivables go pass due and you collect in the manner that would be consistent with what you would expect a good practice is.

Colby Synesael -- 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 Financial Services Inc -- Analyst

Great. Thank you. Looking -- if you look at across your territory, any particular markets that are more available for installs, etc? And is the issue more with the customers themselves not really allowing or interested in the changes and adds and so forth, or is it more of an issue with city state regulations that are keeping you from being able to get access?

Richard D. Calder -- President and Chief Executive Officer

Thank you for this question, Frank. I'll take that one. Generally, as we noted in prepared remarks, we operate now in -- with employees in 28 countries. We actually install services in about 150 countries around the world at this stage. So, first and foremost, we do adhere to all country, region, state, and local regulation relative to our ability to deploy. We have been deemed an essential service provider. So, we're able to maintain particularly for the core of our network, a dedicated and just another word of thanks to our field services team for the work that they're doing right now to keep our existing and active services up, and to add capacity for all of our clients. We saw as many players in the Internet world saw 20-plus percentage increase in our backbone traffic in a period of a week, and we are able to absorb that. Where most of the installed delay is not in backbone capacity and incremental capacity, it's all really driven at the premise level.

Two things are going on there. Certainly, in select regions of the world, we're unable to deploy anyone to location in countries like Italy and Spain for periods of time. They were 100% completely shutdown. So, no person other than to a critical infrastructure node will be allowed to go to, not to a client premise building. Some of that is starting to change, but what we're also finding is that, even if country, region, city regulation changes, clients are simply not moving their employees back that quickly to customer location. So, they are asking us to delay the deployment of new services until they return to a work environment that they expect to be more permanent.

So, I would say, if you -- if I had to comment on it by region to your original question, I would say, it started much more aggressively in early March as I said earlier in Europe, but it very quickly moved to the US as well. So, I think at this stage it's relatively equal worldwide for us. If anything, we would see some of our deployments in Asia-Pac maybe come back a little sooner because the pandemic probably hit that area earliest. And so, some of those installs may occur earlier than we would see in Western Europe and North America.

Frank Louthan -- Raymond James Financial Services Inc -- Analyst

All right. Great. Thank you.

Operator

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

James Breen -- William Blair & Company -- Analyst

Thanks for taking the question. Just a couple on the drawdown, I guess, what motivated that if you were operating cash flow -- free cash flow positive in the operating side and capex was just $22 million, why drawdown now? It seems like you just restructured that to get well below where the covenant was. And then as we think about again on the cost side, the reconciliation between your net loss of $83 million this quarter and the $89 million in EBITDA, really the variance compared to recent quarters has been, so the other expenses like $43 million. Could you just talk about what's the makeup there that drove the significant difference? Thanks.

Richard D. Calder -- President and Chief Executive Officer

Sure. Thank you, Jim, for the questions. I'll turn both to start to Steven, both the drawdown on our existing credit facility, as well as the reconciliation of loss.

Steven Berns -- Executive Vice President and Chief Financial Officer

Sure. So, as it relates to the drawdown, as I think you have seen in many other companies, it was prudent to preserve the use of the revolver and certainly with $140 million term loan. At the same point in time, it wasn't clear what financial institutions might say as the pandemic continued, whether or not they would say there was a force majeure or how they would go about companies as they went to borrow. And so, as you saw with many well capitalized businesses and across many sectors, to drawdown all or a portion of their revolver. And so, our action, we think was prudent and consistent with a good financial management. It didn't have anything to do with a need or an expected use of the capital. But certainly -- and while we have good relationships with our lending group, we certainly recognize that there's sometimes a contagion effect that could occur. So, I think that was the right move.

As it relates to the $43 million, as I said in my prepared remarks, and I think you're referring to the portion that includes the interest rate swap mark-to-market, which was a $33 million loss in the period. And once again, with interest rates effectively at zero and the forward curve for the base rate, which is LIBOR being effectively flat and it went from like over 1% down to close to zero. And so, that results in a fairly high mark-to-market. As I did indicated, there was a slight gain of $10 million in the fourth quarter. So this will bounce around just by the nature of the accounting for these mark-to-markets. As a reminder, our fixed floating -- about 40% of our structure -- our debt structure is fixed, and we thought -- think and still believe that the interest rate swap, albeit rates have gone against us, but in terms of prudent management for our overall business was a good choice to do and make sense despite the fluctuation in the P&L.

James Breen -- William Blair & Company -- Analyst

Great. And then just one question, you talked about the process of selling the fiber assets. Any sort of thoughts there in terms of timing, it's hard, I guess, given when people can't meet. And if you're sort of focused on selling that asset, breaking it out, not as necessarily discontinued op, but breaking out in some ways that people can get a better picture of what the bad asset looks like relative to the overall Company? Thanks.

Richard D. Calder -- President and Chief Executive Officer

Yeah. Why don't I -- Chris McKee is driving that process for us. So, why don't I turn it to him as we did last fall, just to give some color on the process for the sale of our Infrastructure division and monetization of those assets?

Christopher T. McKee -- Executive Vice President and General Counsel of Corporate Development

Yeah. So we've been proceeding with that process, as you've said, it's the one change being that instead of having meetings with potential buyers in person, we've been doing it online as all the world has. But we have proceeded with the process and have, as we said in the prepared remarks, a number of interested counterparties. On our previous call, we gave ranges of what the revenue and EBITDA looks like for the portion of the business that we're divesting and the business remains in those ranges. And as Rick said in the prepared remarks, the infrastructure portion of our business had a net installed positive quarter. So, there remains robust interest. We remain committed to the process, and the only real change is, as you said, doing meetings virtually rather than doing them in person.

James Breen -- William Blair & Company -- Analyst

Great. Thanks.

Richard D. Calder -- President and Chief Executive Officer

And then just as -- and some operating color, Jim. This was the first quarter that from an internal operations perspective, we did segment out in an operating division, not a fully segmented and completely separated financial operation, but certainly from an operating perspective, separated out the majority of the people and the revenue streams into an operating division as part of the process of separating and ultimately selling and monetizing the Infrastructure division. And so, this was also the first quarter that we actually separately looked at our internal metrics independently. Previously, in the fourth quarter those metrics were part of the Europe and the Americas division. So, as we noted in the prepared remarks, the Americas divisions were negative in the first quarter, the remaining ones and infrastructure was still slightly positive and it has been for many years.

And so, our focus now remains on monetizing, successfully monetizing, which we're still optimistic about in terms of the process that Chris just mentioned that continues with the significant interest from multiple bidders. At the same time, then we look over the next several quarters and into '21 to ensure that we have a streamlined go-to-market strategy, which will be our remaining business, which is consistent with our historical capex-light, asset-light managed services business. We think we have a real opportunity to make and streamline that operation. Steven and the rest of the team are moving through the real planning process of what is that operation that can drive continued margin expansion, sales and install growth, net install positive organic revenue growth in those remaining two divisions in Americas and Europe.

James Breen -- William Blair & Company -- Analyst

Great. Thanks.

Operator

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

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Great. Thank you, guys, for taking the question. I'm curious if you could talk a little bit more about the US trends. US revenue looked like it's step down pretty significantly, sequentially. Was that all just negative net installs?

Second, I was hoping you could provide what you took from like an incremental bad debt perspective. I'm not sure I heard that yet.

And then lastly, I guess, for Rick, can you help us think about what would be left of the Company from a financial standpoint? I know you guys provided some metrics on the infrastructure sale on the last call, but looks like the business is deteriorating more than, I think, some would have expected. So, can you help us understand, one, what is the goal from a proceeds perspective on the asset sale? What type of valuations are you looking for? And then, what's left from a RemainCo standpoint? Thanks.

Richard D. Calder -- President and Chief Executive Officer

Yeah. So, let me -- I will take the -- I'll start commenting on the first one, let Steven add, let him talk about the bad debt question, and then I'll come back on what post the monetization of Infrastructure division, our strategy for GTT. In terms of the trends, if I think about it from the way separating out, as I just mentioned to Jim, separating out Infrastructure division, the net install trends of both Americas and Europe were slightly negative in the first quarter. And the Americas, in particular, though, continued improvement, I would say, quarter-over-quarter, and I think Ernie Ortega and his team have done a very nice job in terms of really changing the trajectory of the Americas business and how we see that moving forward. They're caught up like we are in general with the pace of installation slowing down. So -- and our churn rate was, I noted is, slightly higher than expectation at 1.6%, but generally, we expect our ability to bring churn rate back down to 1.5%. And early indications in second quarter are, we are seeing a slowdown in churn order, so we can bring that down. So, the thing we worry most about are just the pace of installation of a lot of these digital transformations that are going on in Americas and in Europe as well. So, it's really just that pace of how quickly can we get the backlog that we have now installed.

Let me turn it to Steven for bad debt, and then I'll come back to RemainCo.

Steven Berns -- Executive Vice President and Chief Financial Officer

Sure. Thanks, Rick, and thanks for the question. As it relates to our bad debt expense, our run rate in the 2019 was in the $3 million to $4 million range. We were at a $4.8 million in the prior quarter. So that is Q4 '19. The bad debt expense in the first quarter was $9 million. And so, substantially more than -- so, obviously, about $5 million more -- $4 million more. And so, we think that that is not a new run rate for sure. And certainly, we expect that in addition to, like I mentioned before, the efforts we have on improved working capital, improved collections efforts that will continue to make improvement.

Richard D. Calder -- President and Chief Executive Officer

Right. And I think as we noted earlier, Brandon, I mean, we're -- we started this process in basically middle of March when we saw what the impact of the pandemic would be worldwide to look through line item by line item across all of our expenses, both headcount-related, other SG&A like bad debt and, of course, cost of revenue to look at things that we could remove to ensure that our EBITDA is at a competitive level and we increase our margins moving forward. So that we've taken a pretty substantial action across a whole number of different line items and started at the beginning of April. And so, we expect to have that flow into our results in the second quarter and into the second half of the year, as Steven mentioned earlier.

In terms of the RemainCo business, I mean, as we think about, again, the successful monetization of the infrastructure assets. It truly allows us to refocus our business on being a capex-light, asset-light managed service provider for clients and deliver on our purpose of helping clients connect their people everywhere in the world with redundant dual connectivity delivered through multiple access provider -- last mile access providers that are out there is one of the questions I think Colby asked before. We have very deep and long-standing relationships with pretty much every owner of last mile access in the world, and we've become a trusted provider to a relatively small set of clients around the world, and we think we have the ability to build on that past success with clients who are looking to get more connectivity for less price. And so, we clearly have an opportunity to drive that. We have the network infrastructure in place. We'll continue to have a fantastic global Tier 1 Internet backbone that we can actually use as the underpinnings of delivering a managed service offering, generally driven by software-defined wide area networking with that transformation continue.

So, we remain optimistic about the real streamline ability of the RemainCo business to be very focused on delivering on that purpose for an ever-expanding roster of clients. And that's the business that we are in the process right now of putting together within what we term internally were the remaining GTT, that's very much the roots of the business that's been at our forefront. We happen to own and control some very attractive infrastructure assets that are not critical for us to own as part of this process. And we believe the monetization of that will help us unleash that managed services company in a real new form. And so, to your direct question about our plans, as we noted in the prepared marks, we would simply use the proceeds to pay down debt in the waterfall according to the terms of our debt agreement. So, we think we would come out as a less levered and with a lot of financial flexibility to be one of the premier managed service providers on a global scale to large and multinational clients.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Thank you for taking the questions.

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 -- President and Chief Executive Officer

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

H. Brian Thompson -- Founder & Executive Chairman

Thanks, Rick. I'm taking advantage of this period where we're all kind of isolated to do some look backs and say, why did we put the Company together in the first place? Where are we? And where do we seem to be going? Because I think that's important to share. The first thing is, 15 years ago, we put this Company together to build a unique company that was a company with character, with resilience, with a good set of ethics and determination to provide for the demand that we felt was coming for broadband communication worldwide, and we put it together with an acquisition strategy. We have proceeded at pace with that strategy. And in that, our objective was to serve all of our stakeholders with the purpose of continually improving values for the customers, and what we're bringing to them to improve their performance with our employees with challenging and changing experiences to grow. And with our investors and hopefully, improving value to their equity and securities as we went forward with the Company and we really have those as underlying. We continue to have those as underlying objectives of the Company as long as I'm around. I am sure that's the case.

And the thing that's happened, though, over the past year, year and a half has been a real testing of our ability to integrate the companies and do it in an effective manner, and I think we were achieving in the last part of last year and the first part of this year, all of the improvements that we had to make to get all of our systems together and all of our people marching in the same direction. It was a real test, and I'm sure many of the investors are concerned about why we were tested, but we were. We felt in the last part of last year and the first part of this year that we were showing the kind of capability that we expected we could generate to improve both our performance in the marketplace, as well as on our values.

Then, as Rick pointed out, as we were doing quite well in the first couple of months of this quarter, then along came the COVID. I have not, in my 50 years in this industry, have been tested quite the same way, as most companies will admit. But especially, it's a paradox to us in this industry, because we wanted for a long time to show that the demand for and the need for the kind of communications that we are now seeing demand in this pandemic environment of getting to every person, not just every location is going to be a very different business going forward. We wanted people to understand that we were trying to deal with that, not quite this way, but that's the way we saw the future coming. And it has to do with all of the applications and telecommunications that are coming around. So, in order to get there, though, to have to go through this uncharted territory of COVID is a very difficult time. So that's the paradox.

That said, we believe especially as Steven and Rick had pointed out, through this process we believe we have done what's necessary, especially in the last month, month and a half to position the Company to make certain that, not only are we achieving the kind of performance that we hope we can going forward, but we are prepared for whatever comes and we don't know how the customers are going to be buying in the future. We're not sure how much flexibility they're going to require, how much security they're going to require, but we are now prepared to do this. And I think with that, I believe that once we get through this next quarter and into the summertime, we'll begin to better understand what the requirements are of our business, what the requirements of our industry, of our customers and of our employees in order to make sure that GTT is relevant and an important factor in the communications world of the future.

With that, I'm quite positive about where we are, frankly. As a major investor, I'm positive that we're doing the right things that I think should generate good outcomes for all of our stakeholders in the future. Thank you very much, and I'll turn it back to you, Rick.

Richard D. Calder -- President and Chief Executive Officer

Great. Thank you, Brian. And just once again, thank you to all of our employees and stakeholders for working with us through this pandemic environment and we look forward to reporting our results in the future. Cheers.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Christopher T. McKee -- Executive Vice President and General Counsel of Corporate Development

Richard D. Calder -- President and Chief Executive Officer

Steven Berns -- Executive Vice President and Chief Financial Officer

H. Brian Thompson -- Founder & Executive Chairman

George Sutton -- Craig-Hallum Capital Group -- Analyst

Colby Synesael -- Cowen and Company -- Analyst

Frank Louthan -- Raymond James Financial Services Inc -- Analyst

James Breen -- William Blair & Company -- Analyst

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

More GTT analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.