GTT Communications, Inc. GTT
GTT Communications is a fundamentally broken telecom rollup using non-GAAP metrics and aggressive accounting to hide negative organic growth, unsustainable leverage, and an inevitable dilutive equity raise.
Thesis
Wolfpack Research is short GTT Communications, arguing the company is an over-levered, fundamentally broken rollup that uses non-GAAP metrics and accounting tricks to disguise negative organic growth of -8.7% and -7.7% in 2017 and 2018. By stretching depreciation periods on fiber to 40 years and remarking Interoute's PP&E up by $914M (175%) post-close while writing down customer lists by 70%, GTT inflated 2018 operating profit by ~$79M and avoided a major impairment charge. Net debt grew from $700M in 2016 to $3.2B by Q1 2019, pushing leverage to 10.9x EBITDA against a 6.5x covenant, while TTM cash conversion is only 5.1% versus peer median of 21.5%. Despite $314M in losses, top executives collected $37.6M in performance-based comp tied to acquisition-driven adjusted metrics.
SCQA
GTT Communications is a $1.3B market-cap multinational telecom that has scaled rapidly through debt-funded acquisitions, most recently the $2.2B Interoute deal, and reports adjusted EBITDA and adjusted free cash flow as its headline metrics.
Underneath the rollup, organic growth is deeply negative (-8.7%/-7.7%), and GTT manufactures reported profit through depreciation extensions to 40 years, PPA markups of 175%, and customer-list write-downs that dodge impairment charges.
Investors should short GTT and demand transparent organic growth disclosure, an explanation for the D&A and PPA adjustments, and reform of a comp plan that pays executives record sums for value-destroying acquisitions.
With 10.9x leverage, 5.1% cash conversion versus 21.5% peer average, and an inevitable dilutive equity raise needed to service $200M of annual interest, the equity faces substantial downside from the $22.51 cover price.
The three reasons
- 1
Negative organic growth of -8.7% and -7.7% in 2017-2018 hidden by acquisitions
- 2
$78.7M operating profit inflated in 2018 via D&A extensions and PPA markups
- 3
Net debt to EBITDA of 10.9x with cash conversion of just 5.1% vs. peer 21.5%
Primary demands
- Sell or short GTT stock based on aggressive accounting and broken rollup model
- Demand GTT disclose its true organic growth rate to investors
- Scrutinize GTT's depreciation/amortization extensions and post-close PPA adjustments
- Reform executive compensation that rewards value-destroying acquisitions
KPIs cited
Pattern membership
Composition what's on the 33 slides
Slide gallery ·
Notes
Word-style short report (33 pages) with cover page using Wolfpack Research branding but body formatted as memo prose with embedded blue-headed tables and two annotated bar charts (D&A drop post-Interoute). No closing 'ask' slide in the deck-sense — ends with insider-trading appendix table then disclaimer. Quotes from CFO Sicoli, Executive Chairman Thompson, and CEO Calder used to expose contradiction on what counts as 'organic' growth. Anonymous competitor C-suite quote used as industry-standard contradiction on fiber depreciation. Stake/short size not disclosed.