10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2016
	or
¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from ____ to ____

Commission File Number 001-35965

GTT Communications, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-2096338
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

7900 Tysons One Place

Suite 1450

McLean, Virginia 22102

(Address including zip code of principal executive offices)

(703) 442-5500

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large Accelerated Filer ¨	Accelerated Filer þ
Non-Accelerated Filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of November 9, 2016, 37,198,778 shares of common stock, par value $.0001 per share, of the registrant were outstanding.

	Page
PART I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income (Loss)	5
Condensed Consolidated Statement of Stockholders’ Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures about Market Risk	31
Item 4. Controls and Procedures	31
PART II — OTHER INFORMATION	32
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	33
SIGNATURES	34
CERTIFICATIONS

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GTT Communications, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except for share and per share data) 

	September 30, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	15,407		$	14,630
Accounts receivable, net of allowances of $4,242 and $1,015, respectively	81,685			60,446
Deferred costs	4,030			4,159
Prepaid expenses and other current assets	15,313			13,663
Total current assets	116,435			92,898
Property and equipment, net	40,492			38,823
Intangible assets, net	177,067			182,184
Other assets	13,255			11,593
Goodwill	280,593			270,956
Total assets	$	627,842		$	596,454
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,664		$	22,725
Accrued expenses and other current liabilities	40,476			43,115
Acquisition earn-outs and holdbacks	7,129			12,842
Current portion of capital lease obligations	1,015			1,392
Current portion of long-term debt	4,300			4,000
Deferred revenue	16,647			15,469
Total current liabilities	82,231			99,543
Capital lease obligations, net of current portion	512			961
Long-term debt, net of current portion	412,159			382,243
Deferred revenue, less current portion	3,137			2,292
Other long-term liabilities	4,367			929
Total liabilities	502,406			485,968
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 37,226,966 and 36,533,634 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	3			3
Additional paid-in capital	193,759			182,797
Accumulated deficit	(63,787		)	(69,901		)
Accumulated other comprehensive loss	(4,539		)	(2,413		)
Total stockholders’ equity	125,436			110,486
Total liabilities and stockholders’ equity	$	627,842		$	596,454

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

3

GTT Communications, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except for share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenue:
Telecommunications services	$	131,851		$	96,996		$	385,201		$	254,425
Operating expenses:
Cost of telecommunications services	68,184			53,363			202,653			142,521
Selling, general and administrative expenses	37,177			25,553			105,311			69,410
Severance, restructuring and other exit costs	(625		)	—			870			7,747
Depreciation and amortization	14,880			12,631			46,139			32,472
Total operating expenses	119,616			91,547			354,973			252,150
Operating income	12,235			5,449			30,228			2,275
Other expense:
Interest expense, net	(7,123		)	(3,080		)	(21,620		)	(7,829		)
Loss on debt extinguishment	—			—			(1,632		)	(1,056		)
Other expense, net	(74		)	(706		)	(542		)	(1,798		)
Total other expense	(7,197		)	(3,786		)	(23,794		)	(10,683		)
Income (loss) before income taxes	5,038			1,663			6,434			(8,408		)
(Benefit from) provision for income taxes	(89		)	(99		)	320			(124		)
Net income (loss)	$	5,127		$	1,762		$	6,114		$	(8,284	)
Earnings (loss) per share:
Basic	$	0.14		$	0.05		$	0.17		$	(0.24	)
Diluted	$	0.14		$	0.05		$	0.16		$	(0.24	)
Weighted average shares:
Basic	37,152,063			34,981,104			36,998,607			34,603,144
Diluted	37,785,921			35,888,525			37,481,414			34,603,144

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

4

GTT Communications, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Amounts in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income (loss)	$	5,127		$	1,762		$	6,114		$	(8,284	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(215		)	(212		)	(2,126		)	(1,182		)
Comprehensive income (loss)	$	4,912		$	1,550		$	3,988		$	(9,466	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

5

GTT Communications, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except for share data)

											Accumulated
	Common Stock				Additional Paid -In			Accumulated			Other Comprehensive
	Shares		Amount		Capital			Deficit			Loss			Total
Balance, December 31, 2015	36,533,634		$	3	$	182,797		$	(69,901	)	$	(2,413	)	$	110,486
Share-based compensation for options issued	—		—		1,178			—			—			1,178
Share-based compensation for restricted stock issued	446,455		—		9,718			—			—			9,718
Tax withholding related to the vesting of restricted stock units	(226,328	)	—		(3,442		)	—			—			(3,442		)
Stock issued in connection with employee stock purchase plan	69,671		—		1,045			—			—			1,045
Stock issued in connection with acquisition	178,202		—		1,995			—			—			1,995
Stock options exercised	225,332		—		468			—			—			468
Net income	—		—		—			6,114			—			6,114
Foreign currency translation	—		—		—			—			(2,126		)	(2,126		)
Balance, September 30, 2016	37,226,966		$	3	$	193,759		$	(63,787	)	$	(4,539	)	$	125,436

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

6

GTT Communications, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	6,114		$	(8,284	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	46,139			32,472
Share-based compensation	10,896			5,417
Debt discount amortization	600			—
Loss on debt extinguishment	1,632			1,056
Amortization of debt issuance costs	1,188			697
Change in fair value of acquisition earn-out	—			880
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(19,887		)	(3,838		)
Deferred costs	(32		)	(2,578		)
Prepaid expenses and other current assets	(1,180		)	496
Other assets	(2,327		)	(68		)
Accounts payable	(8,816		)	(12,347		)
Accrued expenses and other current liabilities	(3,605		)	4,419
Deferred revenue and other liabilities	2,045			1,561
Net cash provided by operating activities	32,767			19,883
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	(14,146		)	(131,397		)
Purchases of property and equipment	(17,813		)	(9,842		)
Purchase of customer contracts	(6,000		)	—
Net cash used in investing activities	(37,959		)	(141,239		)
Cash flows from financing activities:
Proceeds from revolving line of credit	33,000			—
Repayment of revolving line of credit	(32,000		)	—
Proceeds from term loan	29,850			230,000
Repayment of term loan	(3,150		)	(129,376		)
Payment of earn-out and holdbacks	(15,563		)	(3,239		)
Debt issuance costs	(904		)	(4,801		)
Repayment of capital leases	(1,433		)	(610		)
Proceeds from issuance of common stock under employee stock purchase plan	1,045			—
Tax withholding related to the vesting of restricted stock units	(3,442		)	(2,017		)
Exercise of stock options	468			633
Net cash provided by financing activities	$	7,871		$	90,590
Effect of exchange rate changes on cash	(1,902		)	1,223
Net increase (decrease) in cash and cash equivalents	777			(29,543		)
Cash and cash equivalents at beginning of period	14,630			49,256
Cash and cash equivalents at end of period	$	15,407		$	19,713
Supplemental disclosure of cash flow information:
Cash paid for interest	$	19,894		$	7,421
Cash paid for income taxes	$	408		$	233

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

7

GTT Communications, Inc. 

Notes to Condensed Consolidated Financial Statements

NOTE 1 — ORGANIZATION AND BUSINESS

Organization and Business

GTT Communications, Inc. (“GTT” or the "Company") is a provider of cloud networking services. The Company offers multinational clients a broad portfolio of global communications services including: EtherCloud® wide area network services; Internet services; managed network and security services; and voice and unified communication services.

GTT's global Tier 1 IP network delivers connectivity to clients around the world. The Company provides services to leading multinational enterprises, carriers and government customers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed on March 9, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to such rules and regulations.

The condensed consolidated financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position and its results of operations. The operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year 2016 or for any other interim period. The December 31, 2015 consolidated balance sheet is condensed from the audited financial statements as of that date, but does not include all disclosures required by GAAP.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used when establishing allowances for doubtful accounts and accruals for billing disputes, determining useful lives for depreciation and amortization and accruals for exit activities, assessing the need for impairment charges (including those related to intangible assets and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income taxes and related valuation allowances against deferred tax assets and estimating the grant date fair values used to compute the share-based compensation expense. Management evaluates these estimates and judgments on an ongoing basis and makes estimates based on historical experience, current conditions, and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

Segment Reporting

The Company reports operating results and financial data in one operating and reporting segment. The chief operating decision maker manages the Company as a single profit center in order to promote collaboration, provide comprehensive service offerings across its entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding selected products or services are discussed for purposes of promoting an understanding of the Company's complex business, the chief operating decision maker manages the Company and allocates resources at the consolidated level.

Revenue Recognition

The Company delivers four primary services to its customers — flexible Ethernet-based wide area connectivity services; high bandwidth internet connectivity services; managed network services and security services; and global communication and collaboration services. Certain of its revenue activities have features that may be considered multiple elements, specifically when the Company sells its subscription services in addition to customer premise equipment ("CPE"). The Company believes that there

8

is sufficient evidence to determine each element’s fair value and, as a result, in those arrangements where there are multiple elements, the subscription revenue is recorded ratably over the term of the agreement and the equipment is accounted for as a sale, at the time of sale.

The Company's services are provided under contracts that typically include an installation charge along with payments of recurring charges on a monthly basis for use of the services over a committed term. Its contracts with customers specify the terms and conditions for providing such services, including installation date, recurring and non-recurring fees, payment terms, and contract length. These contracts call for the Company to provide the service in question (e.g., data transmission between point A and point Z), to manage the activation process, and to provide ongoing support (in the form of service maintenance and trouble-shooting) during the service term. The contracts do not typically provide the customer any rights to use specifically identifiable assets. Furthermore, the contracts generally provide the Company with discretion to engineer (or re-engineer) a particular network solution to satisfy each customer’s data transmission requirement, and typically prohibit physical access by the customer to the network infrastructure used by the Company and its suppliers to deliver the services.

The Company recognizes revenue as follows:

Monthly Recurring Revenue. Monthly recurring revenue represents the substantial majority of the Company's revenue, and consists of fees charged for ongoing services that are generally fixed in price and billed on a recurring monthly basis over the specified term of the commitment. At the end of the term, most contracts provide for a continuation of services on the same terms, either for a specified renewal period (e.g., one year) or on a month-to-month basis. The Company records recurring revenue based on the fees agreed to in each contract, as long as the contract is in effect, and as long as collectability is reasonably assured.

Burst Revenue. Burst revenue represents variable charges for certain services, based on specific usage of those services, or usage above a fixed threshold, billed monthly in arrears. The Company records burst revenue based on actual usage charges billed using the rates and/or thresholds specified in each contract, as long as collectability is reasonably assured.

Non-recurring Revenue. Non-recurring revenue consists of charges for installation in connection with the delivery of recurring communications services, late payments, cancellation fees, early termination fees, and equipment sales. Fees billed for installation services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service. Fees charged for late payments, cancellation (pre-installation) or early termination (post-installation) are typically fixed or determinable per the terms of the respective contract, and are recognized as revenue when billed if collectability is reasonably assured. In addition, from time to time the Company sells communications and/or networking equipment to its customers in connection with its data networking services. The Company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer (generally F.O.B. origin) and when collectability is reasonably assured.

Universal Service Fund (USF), Gross Receipts Taxes and Other Surcharges

The Company is liable in certain cases for collecting regulatory fees and/or certain sales taxes from its customers and remitting the fees and taxes to the applicable governing authorities. Where the Company collects on behalf of a regulatory agency, the Company does not record any revenue. The Company records applicable taxes on a net basis.

Cost of Telecommunications Services

Cost of telecommunications services includes direct costs incurred in accessing other telecommunications providers’ networks in order to provide telecommunication services to the Company's customers, and expenses for connection to other carriers. The cost of the Company's core network is usually renewed on an annual basis. Connectivity from the Company's core network to a customer premise is typically contracted using matching terms to the customer. Cost of telecommunications services also includes co-location charges, usage-based access charges and professional services fees incurred pursuant to a customer's service contract.

Share-Based Compensation

The Company recognizes share-based compensation expense for share-based payment awards based on the grant date fair value.

The fair value of stock options is determined on the date of grant using the Black-Scholes option-pricing model. The expense is recognized on a straight-line basis over the requisite service period. Share-based compensation expense also includes restricted stock grants for performance awards. The Company recognizes share-based compensation expense for these grants when the achievement of the performance criteria is considered probable.

9

Income Taxes

Income taxes are accounted for under the asset and liability method pursuant to GAAP. Under this method, deferred tax assets and liabilities are recognized for the expected future results attributable to the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. Further, deferred tax assets are recognized for the expected realization of available net operating loss and tax credit carryforwards. A valuation allowance is recorded on gross deferred tax assets when it is “more likely than not” that such asset will not be realized. When evaluating the realizability of deferred tax assets, all evidence, both positive and negative is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings. The Company reviews its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based upon these factors. Changes in the Company's assessment of the need for a valuation allowance could give rise to a change in such allowance, potentially resulting in additional expense or benefit in the period of change.

The Company's income tax provision includes U.S. federal, state, local and foreign income taxes and is based on pre-tax income or loss. In determining the annual effective income tax rate, the Company analyzes various factors, including its annual earnings and taxing jurisdictions in which the earnings were generated, the impact of state and local income taxes and its ability to use tax credits and net operating loss carryforwards.

Under GAAP for income taxes, the amount of tax benefit to be recognized is the amount of benefit that is “more likely than not” to be sustained upon examination. The Company analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established in the consolidated financial statements. The Company recognizes accrued interest and penalties related to unrecognized tax positions in the provision for income taxes.

Comprehensive Income (Loss)

In addition to net income (loss), comprehensive loss includes certain charges or credits to equity occurring other than as a result of transactions with stockholders. For the Company, this consists of foreign currency translation adjustments.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income or (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect, in periods with earnings and in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options.

The table below details the calculations of earnings (loss) per share (in thousands, except for share and per share amounts):  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Numerator for basic and diluted EPS – earnings (loss) available to common stockholders	$	5,127	$	1,762	$	6,114	$	(8,284	)
Denominator for basic EPS – weighted average shares	37,152,063		34,981,104		36,998,607		34,603,144
Effect of dilutive securities	633,858		907,421		482,807		—
Denominator for diluted EPS – weighted average shares	37,785,921		35,888,525		37,481,414		34,603,144
Earnings (loss) per share: basic	$	0.14	$	0.05	$	0.17	$	(0.24	)
Earnings (loss) per share: diluted	$	0.14	$	0.05	$	0.16	$	(0.24	)

The anti-dilutive common share items that were excluded in the computation of earnings per share were approximately 4,000 shares as of September 30, 2016. There were approximately 5,000 anti-dilutive common shares as of September 30, 2015. 

10

Cash and Cash Equivalents

Cash and cash equivalents may include deposits with financial institutions as well as short-term money market instruments, certificates of deposit and debt instruments with maturities of three months or less when purchased.

Accounts Receivable, Net

Accounts receivable balances are stated at amounts due from the customer net of an allowance for doubtful accounts. Credit extended is based on an evaluation of the customer’s financial condition and is granted to qualified customers on an unsecured basis.

The Company, pursuant to its standard service contracts, is entitled to impose a monthly finance charge with respect to amounts that are past due. The Company’s standard terms require payment within 30 days of the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment date set forth in the applicable service contract.

The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade receivables are past due, the customer’s payment history, current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Specific reserves are also established on a case-by-case basis by management. Actual bad debts, when determined, reduce the allowance. The Company periodically evaluates the collectability of accounts receivable and writes off accounts after a determination is made that the amounts at issue are no longer likely to be collected, following the exercise of reasonable collection efforts.

Deferred Costs

Installation costs related to provisioning of recurring communications services that the Company incurs from independent third party suppliers, directly attributable and necessary to fulfill a particular service contract, and which would not have been incurred but for the occurrence of that service contract, are recorded as deferred costs and expensed ratably over the contractual term of service in the same manner as the deferred revenue arising from that contract. Based on historical experience, the Company believes the initial contractual term is the best estimate for the period of earnings. If any installation costs exceed the amount of corresponding deferred revenue, the excess cost is recognized in the current period.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation, computed using the straight-line method.Depreciation on these assets is computed over the estimated useful lives of the assets. Assets and liabilities under capital leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. Leasehold improvements and assets under capital leases are amortized over the shorter of the term of the lease, excluding optional extensions, or the useful life. Depreciable lives used by the Company for its classes of assets are as follows:

Furniture and Fixtures	7 years
Network Equipment	5 years
Leasehold Improvements	up to 10 years
Computer Hardware and Software	3-5 years

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell or dispose.

Software Capitalization

Software development costs include costs to develop software programs to be used solely to meet the Company's internal needs. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. The Company capitalized approximately $0.4 million and $1.2 million for developing such software applications during the three and nine months ended September 30, 2016. The capitalized costs were not material in 2015.

11

Goodwill and Intangible Assets

The Company records as goodwill, the excess of purchase price over the fair value of the identifiable net assets acquired. The goodwill is assessed for impairment on at least an annual basis on October 1 unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. The Company operates as a single operating segment and as a single reporting unit for the purpose of evaluating goodwill. Accounting guidance prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives. The guidance also allows preparers to qualitatively assess goodwill impairment through a screening process, referred to as "Step 0", which would permit companies to forgo Step 1 of their annual goodwill impairment process. The Company has elected to perform Step 0 for its annual impairment assessment of goodwill on October 1, 2016. The Step 0 analysis focused on a number of events and circumstances that may be considered when making this qualitative assessment. Upon careful consideration of these events and circumstances the Company concluded that its fair value (primarily based on market capitalization) of the reporting unit was greater than the carrying amount. During the nine months ended September 30, 2016 and during 2015, the Company did not record any goodwill impairment.

The Company's definite-lived intangible assets are acquired in business combinations and recorded at their fair value. The Company reviews its recorded definite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. The Company's definite-lived intangible assets, consisting of customer relationships, restrictive covenants related to employment agreements, license fees, and intellectual property are amortized on a straight-line basis, over their estimated useful lives of periods up to seven years. FCC Licenses are accounted for as a definite-lived intangible asset and amortized over the average remaining useful life of such licenses which approximates three years. Intellectual property consisting of know-how related to the SIP trunking platform is amortized over the estimated useful life of ten years.

The Company's indefinite-lived intangible asset consists of a trade name that is not amortized, but is tested on at least an annual basis as of October 1 unless interim indicators of impairment exist. As of October 1, 2016, the Company performed its annual impairment test of the trade name, using the royalty relief method for valuation, and concluded that the fair value of the trade name was greater than the carrying amount. However, due to the re-branding of certain network operations associated to the acquired trade name, the Company concluded that the trade name should be deemed a definite-lived intangible asset with an estimated useful life of three years, to be amortized prospectively as of October 1, 2016.

Business Combinations

The Company includes the results of operations of the businesses that it acquires commencing on the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Accrued Supplier Expenses

The Company accrues estimated charges owed to its suppliers for services. The Company bases this accrual on the supplier contract, the individual service order executed with the supplier for that service, and the length of time the service has been active.

Disputed Supplier Expenses

It is common in the telecommunications industry for customers and suppliers to engage in disputes over amounts billed (or not billed) in error or over interpretation of contract terms. Management estimates a liability for the amounts the Company believes are valid and that the Company owes to a supplier. This liability is reconciled with actual results as disputes are resolved, or as the appropriate statute of limitations with respect to a given dispute expires. As of September 30, 2016, the Company had open disputes, not accrued for, of $8.3 million. As of December 31, 2015, the Company had open disputes, not accrued for, of $6.9 million.

Acquisition Earn-outs and Holdbacks

Acquisition earn-outs and holdbacks represent either contingent consideration subject to re-measurement to fair value, or fixed deferred consideration due to be paid out typically on the one-year anniversary of an acquisition's closing.  Contingent consideration is remeasured to fair value at each reporting period. The portion of the deferred consideration due within one year is recorded as a current liability until paid, and any consideration due beyond one year is recorded in other long-term liabilities.

12

Debt Issuance Costs

Debt issuance costs represent costs that qualify for deferral associated with the issuance of new debt or the modification of existing debt facilities. The unamortized balance of debt issuance costs is presented as a reduction to the carrying value of long-term debt. Debt issuance costs are amortized and recognized on the condensed consolidated statements of operations as interest expense. The unamortized debt issuance costs were $9.2 million and $10.9 million as of September 30, 2016 and December 31, 2015, respectively.

Original Issue Discount

Original issue discount ("OID") is the difference between the face value of debt and the amount of principle received when the loan was originated. When the debt reaches maturity, the face value of the debt is payable. The Company recognizes OID by accretion of the discount as interest expense over the term of the debt. For periods ended September 30, 2016 and December 31, 2015, the unamortized portion of the OID was $7.2 million and $7.8 million, respectively.

Translation of Foreign Currencies

For operations of subsidiaries located outside the U.S., the local currency is the functional currency for financial reporting purposes. These consolidated financial statements have been reported in U.S. Dollars by translating asset and liability amounts of foreign subsidiaries at the closing currency exchange rate, equity amounts at historical rates, and the results of operations and cash flow at the average currency exchange rate prevailing during the periods reported. The net effect of such translation gains and losses are reflected in accumulated other comprehensive loss in the stockholders' equity section of the condensed consolidated balance sheets.

Transactions denominated in foreign currencies other than a subsidiary's functional currency are recorded at the rates of exchange prevailing at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising upon settlement of a transaction are reported in the condensed consolidated statements of operations in other expense, net.

Fair Value Measurements

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:

Level 1:    Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.

Level 2:    Inputs other than quoted prices included in level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:    Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

As of September 30, 2016 and December 31, 2015, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and other liabilities approximated fair value due to the short-term nature of these instruments.

The carrying value of the Company's long-term debt, net of unamortized debt issuance costs and unamortized original issuance discount was $416.5 million and $386.2 million, as of September 30, 2016 and December 31, 2015, respectively. Based on trading activity of the Company's specific debt, the fair value of the Company's long-term debt as of September 30, 2016 and December 31, 2015 was estimated to approximate its carrying value. The Company's fair value estimates of the long-term debt were based on level 2 inputs; quoted prices for similar instruments in active markets.

13

The Company recorded an earn-out for an acquisition consummated in 2014 at fair value. The earn-out was fully settled in the second quarter of 2016 at the fair value as of December 31, 2015. The fair value of the earn-out was $0.5 million as of December 31, 2015, which was estimated to be the same as its carrying value, based on level 3 inputs.

Assets measured at fair value on a non-recurring basis include goodwill, tangible assets, and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (level 3).

Concentrations of Credit Risk

Financial instruments potentially subject to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. At times during the periods presented, the Company had funds in excess of $250,000 insured by the U.S. Federal Deposit Insurance Corporation, or in excess of similar Deposit Insurance programs outside of the United States, on deposit at various financial institutions. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company's trade accounts receivable are generally unsecured and geographically dispersed. No single customer's trade accounts receivable balance as of September 30, 2016 and December 31, 2015 exceeded 10% of the Company's consolidated accounts receivable, net. No single customer accounted for more than 10% of revenue for the nine months ended September 30, 2016 and 2015.

Related Party Transactions

From time to time and in the ordinary course of business, the Company engages in contracts with various vendors for certain networking services and equipment, to support the Company's broad range of communication services it provides to its clients. Several members of the Company's Board of Directors have relationships with these vendors that meet the definition of a related party transaction, as described in the SEC, Item 404 of Regulation S-K. The majority of these contracts were in place before the Board member joined the Company's Board of Directors, or the contracts were assumed as part of the Company's business acquisitions. The related party relationships and the contractual obligations paid and received by the Company for the nine months ended September 30, 2016 have not materially changed from fiscal 2015, as disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

As a matter of corporate governance policy and practice, related party transactions are presented and considered by the Audit Committee of the Company's Board of Directors in accordance with the Company's Code of Business Conduct and Ethics, Conflict of Interest Policy.

Newly Adopted Accounting Principles

For information regarding newly adopted accounting principles, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Note 2 to our consolidated financial statements contained therein. The Company has not adopted any new accounting principles for the third quarter of 2016.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company is still evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases, which will require most leases (with the exception of leases with terms of less than one year) to be recognized on the balance sheet as an asset and a lease liability. Leases will be classified as an operating lease or a financing lease. Operating leases are expensed using the straight-line method whereas financing leases will be treated similarly to a capital lease under the current standard. The new standard will be effective for annual and interim periods, within those fiscal years, beginning after December 15, 2018 but early adoption is permitted. The new standard must be presented

14

using the modified retrospective method beginning with the earliest comparative period presented. The Company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which was issued as part of the FASB’s simplification initiative and cover such areas as (i) the recognition of excess tax benefits and deficiencies and the classification of those excess tax benefits on the statement of cash flows, (ii) an accounting policy election for forfeitures to be estimated or account for when incurred, (iii) the amount an employer can withhold to cover income taxes and still qualify for equity classification; and (iv) the classification of those taxes paid on the statement of cash flows. This update is effective for annual and interim periods beginning after December 15, 2016, which will require the Company to adopt these provisions in the first quarter of fiscal 2017. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. The Company is still evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice of how certain transactions are classified and presented in the statement of cash flows in accordance with ASC 230. The ASU amends or clarifies guidance on eight specific cash flow issues, some of which include classification on debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB during fiscal 2015 and through the period ended September 30, 2016 are not believed by management to have a material impact on the Company's present or historical consolidated financial statements.

NOTE 2 — BUSINESS ACQUISITIONS

Since its formation, the Company has consummated a number of transactions accounted for as business combinations. The acquisitions were executed as part of the Company’s business strategy of expanding through acquisitions. The acquisitions of these businesses have allowed the Company to increase the scale at which it operates, which in turn affords the Company the ability to increase its operating leverage, extend its network, and broaden its customer base.

The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisitions is initially allocated to the respective assets and liabilities based upon their estimated fair values as of the date of completion of the acquisition. The recorded amounts for acquired assets and liabilities assumed are provisional and subject to change during the measurement period, which is 12 months from the date of acquisition.

On February 4, 2016, the Company completed the acquisition of Telnes Broadband ("Telnes"), an internet and managed services provider. The Company paid $18.2 million, composed of approximately $15.5 million in cash and $2.7 million in the Company's common stock, valued at the variable weighted average market price per share. Approximately $1.8 million of the cash consideration is deferred for one year to cover undisclosed liabilities or other indemnification claims per the purchase agreement. For the purpose of purchase price allocation, the Company's common stock was valued at $2.0 million due to the lack of marketability. Therefore, the purchase consideration for accounting purposes was valued at $17.5 million. The purchase price allocation has been finalized as of September 30, 2016.

On April 1, 2015, the Company acquired MegaPath Corporation ("MegaPath"). During the three months ended June 30, 2016, the Company and MegaPath settled a dispute related to the closing date net working capital balance, as defined in the purchase agreement. The settlement resulted in the Company paying an additional $4.1 million to the sellers in July 2016. The Company has recorded the $4.1 million as additional goodwill as of June 30, 2016.

For material acquisitions completed during fiscal 2015, 2014, and 2013, please refer to the Note 3 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

15

Acquisition Method Accounting Estimates

The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.

Acquisition Related Costs

Acquisition related costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. There are two types of costs that the Company accounts for:

•Severance, restructuring and other exit costs

•Transaction and integration costs

Severance, restructuring and other exit costs are costs the Company incurs related to non-recurring benefits the Company pays to severed employees, termination charges for leases and supplier contracts, and other costs incurred associated with an exit activity. These costs are reported separately in the condensed consolidated statements of operations during the three and nine months ended September 30, 2016. Refer to Note 8 of these Condensed Consolidated Financial Statements for further information on severance, restructuring and other exit costs.

Transaction and integration costs include expenses associated with professional services (i.e., legal, accounting, regulatory, etc.) rendered in connection with signed and/or closed acquisitions, travel expense, and other non-recurring direct expenses incurred that are associated with such acquisitions. Transaction and integration costs are expensed as incurred, included in selling, general and administrative expenses, and may be incurred up to six months after the closing date of acquisition in support of the integration. The Company incurred transaction and integration costs of $0.8 million and $3.1 million during the three and nine months ended September 30, 2016 and 2015, respectively.

Pro forma Financial Information (Unaudited)

The pro forma results presented below include the effects of the Company's acquisition of MegaPath and One Source Networks ("OSN") that closed on October 22, 2015, as if the acquisitions occurred on January 1, 2015. The pro forma net income (loss) for the three and nine months ended September 30, 2016 and 2015, respectively, includes the additional depreciation and amortization resulting from the adjustments to the value of property, plant and equipment and intangible assets resulting from acquisition accounting and adjustment to amortized revenue during first, second, and third quarters of fiscal 2016 and 2015, respectively, as a result of the acquisition date valuation of assumed deferred revenue. The pro forma results also include interest expense associated with debt used to fund the acquisitions. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2015.

16

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
(Amounts in thousands, except per share and share data)
Revenue	$	131,851	$	117,192		$	385,201	$	344,653
Net income (loss)	$	5,127	$	(164	)	$	6,114	$	(16,870	)
Earnings (loss) per share:
Basic	$	0.14	$	—		$	0.17	$	(0.47	)
Diluted	$	0.14	$	—		$	0.16	$	(0.47	)
Basic	37,152,063		35,456,105			36,998,607		35,688,988
Diluted	37,785,921		35,456,105			37,481,414		35,688,988

NOTE 3 — GOODWILL AND INTANGIBLE ASSETS

At the end of the third quarter of 2016, the Company completed its annual goodwill impairment testing on its measurement date of October 1, 2016. The Company performed the Step 0 qualitative analysis and determined that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount; therefore, the first and second steps of the goodwill impairment test were unnecessary since no indicators of impairment exist. In addition, the Company completed its annual impairment test of the indefinite-lived intangible asset consisting of the trade name, using a form of the discounted cash flow model called the royalty relief method for valuation, and have concluded that the fair value of the trade name was greater than the carrying amount. However, due to the re-branding of certain network operations associated to the acquired trade name, the Company concluded that the trade name should be deemed a definite-lived intangible asset with an estimated useful life of three years. Its amortization commenced on October 1, 2016 on a straight-line basis over its estimated useful life.

The goodwill balance was $280.6 million and $271.0 million as of September 30, 2016 and December 31, 2015, respectively. Additionally, the Company's intangible asset balance was $177.1 million and $182.2 million as of September 30, 2016 and December 31, 2015, respectively. The additions to both goodwill and intangible assets during the nine months ended September 30, 2016 relate to the asset purchase of customer contracts, the acquisition and purchase price allocation refinement of Telnes and OSN, as well as the asset valuation settlement of MegaPath (see Note 2 - Business Acquisitions).

The changes in the carrying amount of goodwill for the period ended September 30, 2016 and December 31, 2015 are as follows (amounts in thousands):

Balance, December 31, 2015	$	270,956
Adjustments to prior year's business combination	4,518
Goodwill associated with Telnes acquisition	5,119
Balance, September 30, 2016	$	280,593

The following table summarizes the Company’s intangible assets as of September 30, 2016 and December 31, 2015 (amounts in thousands):

17

		September 30, 2016						December 31, 2015
	Amortization Period	Gross Asset Cost		Accumulated Amortization		Net Book Value		Gross Asset Cost		Accumulated Amortization		Net Book Value
Customer contracts	3-7 years	$	239,763	$	81,183	$	158,580	$	215,802	$	54,041	$	161,761
Non-compete agreements	3-5 years	4,572		4,395		177		4,331		4,305		26
Point-to-point FCC license fees	3 years	1,695		1,127		568		1,695		701		994
Intellectual property	10 years	17,379		1,642		15,737		17,379		336		17,043
Trade name	3 years	2,292		1,087		1,205		2,079		519		1,560
Trade name (indefinite-lived)	N/A	800		—		800		800		—		800
		$	266,501	$	89,434	$	177,067	$	242,086	$	59,902	$	182,184

Amortization expense was $10.1 million and $29.5 million for the three and nine months ended September 30, 2016, respectively. Amortization expense was $6.1 million and $16.4 million for the three and nine months ended September 30, 2015, respectively.

Estimated amortization expense related to intangible assets subject to amortization at September 30, 2016 in each of the years subsequent to September 30, 2016 is as follows (amounts in thousands):

2016 remaining	$	10,084
2017	39,049
2018	32,732
2019	27,901
2020	24,989
2021 and beyond	41,512
Total	$	176,267

NOTE 4 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The following table summarizes the Company’s accrued expenses and other current liabilities as of September 30, 2016 and December 31, 2015 (amounts in thousands):

	September 30, 2016		December 31, 2015
Accrued compensation and benefits	$	7,463	$	9,465
Accrued selling, general and administrative	2,951		3,118
Accrued carrier costs	20,209		20,376
Accrued restructuring	3,449		6,833
Accrued other	6,404		3,323
	$	40,476	$	43,115

18

NOTE 5     — DEBT

As of September 30, 2016 and December 31, 2015, long-term debt was as follows (amounts in thousands):

	September 30, 2016			December 31, 2015
Term loan	$	426,850		$	400,000
Revolving line of credit	6,000			5,000
Total debt obligations	432,850			405,000
Unamortized debt issuance costs	(9,172		)	(10,938		)
Unamortized original issuance discount	(7,219		)	(7,819		)
Carrying value of debt	416,459			386,243
Less current portion	(4,300		)	(4,000		)
Long-term debt less current portion	$	412,159		$	382,243

October 2015 Credit Agreement

On October 22, 2015, the Company entered into a credit agreement (the “October 2015 Credit Agreement”) that provided for a $400.0 million term loan facility and a $50.0 million revolving line of credit (which includes a $15.0 million letter of credit facility and a $10.0 million swingline facility). In addition, the Company may request incremental term loan and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $75.0 million and an unlimited amount that is subject to pro forma compliance with certain net secured leverage ratio tests, provided, however, that incremental revolving loan commitments may not exceed $25.0 million.

The term loan facility was issued at a discount of $8 million. The applicable rate for term loans was LIBOR plus 5.25% subject to a LIBOR floor of 1.00%. The applicable rate for revolving loans was LIBOR plus 4.75% with no floor. The maturity date of the term loan facility is October 22, 2022 and the maturity date of the revolving line of credit is October 22, 2020. The Company may prepay loans under the October 2015 Credit Agreement at any time, subject to the “soft call” provision noted below, and subject to certain notice requirements and LIBOR breakage costs.

On May 3, 2016, the Company entered into an incremental term loan agreement which increased outstanding term loans by$30.0 million, the proceeds of which were used to repay the outstanding revolving loans.

On June 28, 2016, the Company entered into Amendment No. 1 (the “Repricing Amendment”) to the October 2015 Credit Agreement. The Repricing Amendment, among other things, reduced the applicable rate for term loans to LIBOR plus4.75% (subject to a LIBOR floor of 1.00%) and reduced the applicable rate for revolving loans to LIBOR plus4.25% (with no LIBOR floor). The Repricing Amendment also includes a “soft call” prepayment penalty of 1.0% through December 28, 2016 for certain prepayments, refinancings, and amendments where the primary purpose is to further reduce the applicable rate.

The Company accounted for the Repricing Amendment as a modification of debt. $1.6 million of prior deferred debt issuance cost was accelerated and recorded as a Loss on Debt Extinguishment in the condensed consolidated statements of operations, attributable to prior syndicate lenders who reduced or eliminated their positions during the amendment process. The Company also incurred $0.8 million of additional debt issuance cost in connection with the Repricing Amendment, which was recorded as an offset to Long-Term Debt in the condensed consolidated balance sheets.

As of September 30, 2016, the Company had outstanding revolving loans of $6.0 million and had $43.5 million of borrowing capacity available under its revolving line of credit. Approximately $0.5 million of the revolving line of credit is currently utilized for outstanding letters of credit relating to the Company’s real estate lease obligations.

The effective interest rate on outstanding debt at September 30, 2016 and December 31, 2015 was5.74%and6.24%, respectively. The aggregate contractual maturities of long-term debt (excluding unamortized discounts and unamortized debt issuance costs) were as follows at September 30, 2016 (amounts in thousands):

19

	Total Debt
2016 remaining	$	1,075
2017	4,300
2018	4,300
2019	4,300
2020	10,300
2021	4,300
2022	404,275
Total	$	432,850

Debt covenants

The October 2015 Credit Agreement contains customary financial and operating covenants, including among others a consolidated net secured leverage ratio and covenants restricting the incurrence of debt, imposition of liens, the payment of dividends and entering into affiliate transactions. The October 2015 Credit Agreement also contains customary events of default, including nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants. If an event of default occurs and is continuing under the October 2015 Credit Agreement, the entire outstanding balance may become immediately due and payable.

In addition, the Company is restricted from permitting the Consolidated Net Secured Leverage Ratio to be greater than the maximum ratio specified below during the period opposite such maximum ratio:

Fiscal Quarter Ending	Maximum Ratio
September 30, 2016	4.75:1.00
December 31, 2016	4.75:1.00
March 31, 2017	4.50:1.00
June 30, 2017	4.50:1.00
September 30, 2017	4.25:1.00
December 31, 2017	4.25:1.00
March 31, 2018	4.00:1.00
June 30, 2018	4.00:1.00
September 30, 2018	3.75:1.00
December 31, 2018	3.75:1.00
March 31, 2019 and thereafter	3.50:1.00

The Company was in compliance with all financial covenants under the October 2015 Credit Agreement as of September 30, 2016.

Guarantees

The Company's obligations under the October 2015 Credit Agreement are guaranteed by certain of its subsidiaries and secured by substantially all of its tangible and intangible assets.

NOTE 6 — SHARE-BASED COMPENSATION

Share-Based Compensation Plan

The Company grants share-based equity awards, including stock options and restricted stock, pursuant to three plans in effect as of September 30, 2016; the 2006 Plan adopted in October 2006, the 2011 Plan adopted in June 2011, and the 2015 Plan adopted in June 2015 (collectively referred to as the "GTT Stock Plan"). The GTT Stock Plan is limited to an aggregate 9,500,000 shares of which 7,680,310 have been issued and are outstanding as of September 30, 2016.

The GTT Stock Plan permits the granting of stock options, restricted stock and performance awards to employees (including employee directors and officers) and consultants of the Company, and non-employee directors of the Company.

20

Options granted under the GTT Stock Plan have an exercise price of at least 100% of the fair market value of the underlying stock on the grant date and expire no later than 10 years from the grant date. The stock options generally vest over four years with 25% of the options becoming exercisable one year from the date of grant and the remaining 75% annually or quarterly over the following three years.

Restricted stock granted under the GTT Stock Plan is valued at the closing stock price on the day of grant. Restricted stock generally vests over four years with 25% of the shares becoming unrestricted one year from the date of grant and the remaining 75% annually or quarterly over the following three years.

The Company uses the Black-Scholes option-pricing model to determine the fair value of its option awards at the time of grant. The fair value of the restricted stock awards was calculated using the value of GTT common stock on the grant date and is being amortized over the vesting periods in which the restrictions lapse.

Performance awards are restricted shares granted under the GTT Stock Plan subject to the achievement of certain performance measures. Once achievement of these performance measures is considered probable, the Company starts to expense the fair value of the grant over the requisite service period. The performance award is valued at the closing stock price on the day of grant. The performance grant will vest annually or quarterly over the requisite service period once achievement of the performance measure has been met and approved by the Compensation Committee.

The Compensation Committee of the Board of Directors, as administrator of the Plan, has the discretion to authorize a different vesting schedule for any awards.

The following tables summarize the share-based compensation expense recognized as a selling, general and administrative expense in the condensed consolidated statements of operations (amounts in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Stock options	$	446	$	378	$	1,178	$	1,194
Restricted stock (including performance awards)1	4,398		1,345		9,718		4,223
Total	$	4,844	$	1,723	$	10,896	$	5,417

¹Compensation expense includes $0.6 million and $1.6 million for the three and nine months ended September 30, 2016, respectively, related to the shares issued to the former employees of OSN, which was acquired in 2015, for continued employment. In addition, the expense also includes $0.3 million for the three and nine months ended September 30, 2016 related to the Company's Employee Stock Purchase Plan ("ESPP"). Both topics are discussed in more detail below. No such expense was recorded in 2015 for shares issued to OSN as well as expense related to ESPP.

As of September 30, 2016, there was $25.6 million of total unrecognized compensation cost related to unvested share-based compensation agreements. The following table summarizes the unrecognized compensation cost and the weighted average period over which the cost is expected to be amortized (amounts in thousands):

	September 30, 2016
	Unrecognized Compensation Cost		Weighted Average Remaining Period to be Recognized (Yrs)
Stock options	$	4,127	2.5
Restricted stock (including performance awards)	21,432		2.4
Total	$	25,559	2.4

The following tables summarize the stock options and restricted stock granted during the three and nine months ended September 30, 2016 and 2015, respectively (amounts in thousands, except shares data):

21

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Stock options granted	3,000		33,750		158,958		284,117
Fair value of stock options granted	$	30	$	349	$	971	$	2,425
Restricted stock granted (including performance awards)	100,059		68,970		629,362		431,279
Fair value of restricted stock granted	$	1,846	$	1,616	$	9,170	$	7,770

Performance Awards

In 2014, the Company granted $7.8 million of restricted stock contingent upon the achievement of certain performance criteria (the "2014 Performance Awards"). The fair value of the 2014 Performance Awards was calculated using the value of GTT common stock on the grant date. The Company started recognizing stock-based compensation expense for these grants once the achievement of the performance criteria was considered probable, which was in the third quarter of 2015. The 2014 Performance Awards started vesting in the fourth quarter of 2015 when the performance criteria were met and they will continue to vest ratably over the subsequent two years. As of September 30, 2016, unamortized compensation cost related to the unvested 2014 Performance Awards was $1.8 million.

In 2015, the Company granted $17.2 million of restricted stock contingent upon the achievement of certain performance criteria (the "2015 Performance Awards"). The fair value of the 2015 Performance Awards was calculated using the value of GTT common stock on the grant date. As the achievement of the performance criteria is not yet considered probable, the full $17.2 million remains unamortized as of September 30, 2016 and has been excluded from the tables above.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan ("ESPP") that permits eligible employees to purchase common stock through payroll deductions at the lessor of the opening stock price or 85% of the closing stock price of the common stock during each of the three-month offering periods. The offering periods generally commence on the first day and the last day of each quarter. At September 30, 2016, 422,721 shares were available for issuance under the ESPP. As of September 30, 2016, the company has recognized $0.3 million of compensation expense related to the ESPP.

Shares Issued in Acquisition

In conjunction with the acquisition of OSN, the Company issued $3.6 million, or 289,055 unregistered shares, of common stock to the selling shareholders of OSN subject to a continuing employment period of 18 months. The fair value of this issuance was calculated using the value of GTT common stock on the acquisition date less a discount for lack of marketability. The $3.6 million is being expensed over the 18 month service period. As of September 30, 2016, unamortized compensation expense was $1.4 million and will be recognized over the remaining six months.

NOTE 7 — INCOME TAXES

The Company’s provision for income taxes is determined using an estimate of its annual effective tax rate, adjusted for certain items. The quarterly tax provision and estimate of the Company's annual effective tax rate are subject to volatility due to several factors, including the Company's ability to accurately project its income (loss) before provision for income taxes in multiple jurisdictions and the effects of acquisitions and integrations.

For the three months ended September 30, 2016, the Company earned income before taxes of $5.0 million and incurred a tax benefit of $0.1 million, which resulted in an effective tax rate of (1.8)%, as compared to an effective tax rate of 6.0% for the three months ended September 30, 2015. The effective tax rate for the three months ended September 30, 2016 differs from the statutory U.S. federal income tax rate of 35.0% primarily due to changes in the amount of income before income taxes between the U.S. and foreign countries. The change in the current quarter effective tax rate compared to prior year was primarily due to the tax impact of U.S. losses in the prior year that did not produce a tax benefit.

For the nine months ended September 30, 2016, the Company earned income before taxes of $6.4 million and incurred tax expense of $0.3 million, which resulted in an effective tax rate of 5.0% as compared to an effective tax rate of 1.5% for the nine

22

months ended September 30, 2015. The effective tax rate for the nine months ended September 30, 2016 differs from the statutory U.S. federal income tax rate of 35.0% primarily due to state tax expense, foreign tax rate differences and a discrete benefit related to foreign provision-to-return adjustments. The change in the current quarter effective tax rate compared to prior year was primarily due to the tax impact of US losses in the prior year that did not produce a tax benefit.

Realization of deferred tax assets in any jurisdictions depends on various factors, including the expectation of generating sufficient taxable income in that jurisdiction. Although realization is not assured, management believes it is more-likely-than-not that the results of operations will generate sufficient taxable income to support the realization of existing deferred tax assets in the U.S. The Company maintains a valuation allowance against certain foreign deferred tax assets.

NOTE 8 — SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS

The Company incurred severance, restructuring and other exit costs associated with the acquisitions of MegaPath, OSN and Telnes. These costs include employee severance costs, termination costs associated with facility leases and network agreements, and other exit costs related to the transactions.

During the nine months ended September 30, 2016, the Company incurred $1.5 million in charges associated with the acquisition of Telnes offset by $0.1 million in finalization of prior acquisitions. The Company paid $2.7 million in employee termination benefits consisting of $0.8 million, $1.0 million, and $0.9 million related to the acquisitions of MegaPath, OSN, and Telnes, respectively. The Company paid $0.8 million in lease terminations cost consisting of $0.6 million related to the MegaPath acquisition and $0.2 related to the OSN acquisition. Payments made for other contract terminations cost was primarily related to the acquisition of MegaPath for $0.5 million.

The Company released an accrual for $0.6 million related to the finalization of the Telnes purchase price allocation during the third quarter of fiscal 2016. The total exit costs recorded and paid relating to the acquisitions mentioned above are summarized as follows for the nine months ended September 30, 2016 (amounts in thousands):

	Balance, December 31, 2015		Charges and Adjustments			Payments			Balance, September 30, 2016
Employee Termination Benefits	$	1,903	$	870		$	(2,728	)	$	45
Contract Terminations:
Lease terminations	3,035		—			(838		)	2,197
Other contract terminations	1,895		(102		)	(586		)	1,207
	$	6,833	$	768		$	(4,152	)	$	3,449

NOTE 9 — COMMITMENTS AND CONTINGENCIES

The annual commitments, contractual obligations, and non-cancelable leases as of September 30, 2016 have not materially changed from the year ended December 31, 2015. For details on the Company's commitments and obligations, please refer to Note 13 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Legal Proceedings

From time to time, the Company is a party to legal proceedings arising in the normal course of its business. As of September 30, 2016, the Company does not believe that it is a party to any current or pending legal action that could reasonably be expected to have a material adverse effect on its financial condition or results of operations and cash flows. 

NOTE 10 — SUBSEQUENT EVENTS

On November 8, 2016, the Company executed a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Hibernia NGS Limited, a private company (“Hibernia”).  Pursuant to the Purchase Agreement, at closing the Company will pay $515 million in cash plus $75 million in newly issued common stock.  The purchase price is subject to a final post-closing reconciliation for closing date cash, working capital, transaction expenses, indebtedness and certain tax payments.  The transaction is expected to close by the end of the first quarter of 2017.

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report, as well as the consolidated financial statements and Management's Discussion and Analysis ("MD&A") of our Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below. For a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations, please see Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which we refer to as our Annual Report. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. The following overview provides a summary of the sections included in our MD&A.

• Executive Summary - a general description of our business and key highlights of the three and nine months ended September 30, 2016.

• Recent Developments Affecting Our Results - a discussion of recent developments that may impact our business in the future.

• Critical Accounting Policies and Estimates - a discussion of critical accounting policies requiring critical judgments and estimates.

• Results of Operations - an analysis of our results of operations in our condensed consolidated financial statements.

• Liquidity and Capital Resources - an analysis of cash flows, sources and uses of cash, commitments and contingencies, and quantitative and qualitative disclosures about market risk.

Executive Summary

GTT Communications, Inc. is a provider of cloud networking services. We offer multinational clients a broad portfolio of global communications services including: EtherCloud® wide area network services; Internet services; managed network and security services; and voice and unified communication services.

Our global Tier 1 IP network delivers connectivity for our clients around the world. We provide services to leading multinational enterprises, carriers and government customers in over 100 countries. We strive to differentiate ourselves from our competition by delivering service to our clients with simplicity, speed and agility.

We deliver four primary service offerings to our customers:

• EtherCloud Services. We provide Layer 2 (Ethernet) and Layer 3 (MPLS) solutions to meet the growing needs of multinational enterprises, carriers, service providers and content delivery networks regardless of location. We design and implement custom private, public and hybrid cloud network solutions for our customers, offering bandwidth speeds from 10 Mbps to 100 Gbps per port with burstable and aggregate bandwidth capabilities. All services are available on a protected basis with the ability to specify pre-configured alternate routes to minimize the impact of any network disruption.

• Internet Services. We offer domestic and multinational customers scalable, high-bandwidth global Internet connectivity and IP transit with guaranteed availability and packet delivery. Our Internet services offer flexible connectivity with multiple port interfaces including Fast Ethernet, Gigabit Ethernet, 10 Gigabit Ethernet and 100 Gigabit Ethernet. We also offer broadband and wireless access services. We support a dual stack of IPv4 and IPv6 protocols, enabling the delivery of seamless IPv6 services alongside existing IPv4 services.

• Managed Services. We offer fully managed network services, including managed equipment, managed security services and managed secure access, enabling customers to focus on their core business. These end-to-end services cover the design, procurement, implementation, monitoring and maintenance of a customer’s network.

• Voice and Unified Communication Services. Our SIP Trunking service is an enterprise-built unified communications offering that integrates voice, video and chat onto a single IP connection, driving efficiency and productivity organization-wide. Our Enterprise PBX service allows clients to eliminate traditional voice infrastructure with communication services delivered through the cloud. The offering includes fully hosted and hybrid models for maximum flexibility.

24

Our customer contracts are generally for initial terms of three years, with some contracts at one year, and others at five years or more. Following the initial terms, these agreements typically provide for automatic renewal for specified periods ranging from one month to one year. Our prices are fixed for the duration of the contract, and we typically bill monthly in advance for such services. If a customer terminates its agreement, the terms of our customer contracts typically require full recovery of any amounts due for the remainder of the term or, at a minimum, our liability to any underlying suppliers.

Our total revenue is comprised of three primary categories that include monthly recurring revenue (or "MRR"), non-recurring revenue, and burst revenue. MRR relates to contracted ongoing service that is generally fixed in price and paid by the customer on a monthly basis for the contracted term. For the three months ended September 30, 2016, MRR was approximately 92% of our total revenue. Non-recurring revenue primarily includes the amortization of previously collected installation and equipment charges to customers; and one-time termination charges for customers who cancel their services prior to the contract termination date. Burst revenue represents variable revenue based on whether a customer exceeds its committed usage threshold as specified in its contract.

Our network supplier contracts do not have any market related net settlement provisions. We have not entered into, and do not plan to enter into, any network supplier contracts which involve financial or derivative instruments. The network supplier contracts are entered into solely for the direct purchase of telecommunications capacity, which is resold by us in the normal course of business. 

Other than cost of telecommunication services provided, our most significant operating expenses are employment costs. As of September 30, 2016, we had 650 full-time equivalent employees. For the three months ended September 30, 2016, the total employee cash compensation and benefits represented approximately 14% of total revenue.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), from time to time we may use or publicly disclose certain "non-GAAP financial measures" in the course of our financial presentations, earnings releases, earnings conference calls, and otherwise. For these purposes, the U.S. Securities and Exchange Commission (“SEC”) defines a "non-GAAP financial measure" as a numerical measure of historical or future financial performance, financial positions, or cash flows that (i) exclude amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements, and (ii) include amounts, or is subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure so calculated and presented.

Non-GAAP financial measures are provided as additional information to investors to provide an alternative method for assessing our financial condition and operating results. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better evaluate our performance and profitability. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. These measures should be used in addition to and in conjunction with results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures.

Pursuant to the requirements of Regulation G, whenever we refer to a non-GAAP financial measure we will also present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference with such comparable GAAP financial measure.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)

Adjusted EBITDA is defined by us as income/(loss) before interest, income taxes, depreciation and amortization ("EBITDA") adjusted to exclude severance, restructuring and other exit costs, acquisition-related transaction and integration costs, losses on extinguishment of debt, share-based compensation, and from time to time, other non-cash or non-recurring items. We use Adjusted EBITDA to evaluate operating performance, and this financial measure is among the primary measures we use for planning and forecasting future periods. We further believe that the presentation of Adjusted EBITDA is relevant and useful for investors because it allows investors to view results in a manner similar to the method used by management and makes it easier to compare our results with the results of other companies that have different financing and capital structures. In addition, we have debt covenants that are based on a leverage ratio which utilizes a modified EBITDA calculation, as defined in our credit agreement. The modified EBITDA calculation is similar to our definition of Adjusted EBITDA; however it includes the pro forma Adjusted EBITDA of and expected cost synergies from the companies acquired by us during the applicable reporting period. Finally, Adjusted EBITDA results, along with other quantitative and qualitative information, are utilized by management and our compensation committee for purposes of determining bonus payouts to our employees.

25

Adjusted EBITDA Less Capital Expenditures

Adjusted EBITDA less purchases of property and equipment, which we also refer to as capital expenditures or capex, is a performance measure that we use to evaluate the appropriate level of capital expenditures needed to support our expected revenue, and to provide a comparable view of our performance relative to other telecommunications companies who may utilize different strategies for providing access to fiber-based services and related infrastructure. We use a “capex light” strategy, which means we purchase fiber-based services and related infrastructure from other providers on an as-needed basis, pursuant to our customers’ requirements. Many other telecommunications companies spend significant amounts of capital expenditures to construct their own fiber networks and data centers, and attempt to purchase as little as possible from other providers. As a result of our strategy, we typically have lower Adjusted EBITDA margins compared to other providers, but also spend much less on capital expenditures relative to our revenue. We believe it is important to take both of these factors into account when evaluating our performance.

The following is a reconciliation of Adjusted EBITDA and Adjusted EBITDA less Capital Expenditures from Net Income (Loss):

	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in thousands, except share and per share data)	2016			2015			2016			2015
Adjusted EBITDA
Net income (loss)	$	5,127		$	1,762		$	6,114		$	(8,284	)
Provision for (benefit from) income taxes	(89		)	(99		)	320			(124		)
Interest and other expense, net	7,197			3,786			22,162			9,627
Loss on debt extinguishment	—			—			1,632			1,056
Depreciation and amortization	14,880			12,631			46,139			32,472
Severance, restructuring and other exit costs	(625		)	—			870			7,747
Transaction and integration costs	801			1,044			3,124			3,595
Share-based compensation	4,844			1,723			10,896			5,417
Adjusted EBITDA	32,135			20,847			91,257			51,506
Purchases of property and equipment	(5,525		)	(3,532		)	(17,813		)	(9,842		)
Adjusted EBITDA less capital expenditures	$	26,610		$	17,315		$	73,444		$	41,664

Recent Developments Affecting Our Results

On May 3, 2016, we entered into an incremental term loan agreement which increased outstanding term loans by $30.0 million, the proceeds of which were used to repay our then outstanding revolving loans. 

On June 28, 2016, we amended the October 2015 Credit Agreement to reduce the applicable rate for term loans and revolving loans by 0.50%.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. For information regarding our critical accounting policies and estimates, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Note 1 to our consolidated financial statements contained therein. There have been no material changes to the critical accounting policies previously disclosed in that report.

26

Results of Operations

Our consolidated results of operations are heavily influenced by acquisitions. The acquisitions that affect the three and nine months ended September 30, 2016 and 2015, respectively, include: MegaPath Corporation ("MegaPath) acquired on April 1, 2015, One Source Networks ("OSN") acquired on October 1, 2015, and Telnes Broadband ("Telnes") acquired on February 4, 2016.

Three months ended September 30, 2016 compared to three months ended September 30, 2015

Overview. The financial information presented in the tables below is comprised of the unaudited condensed consolidated financial information for the three months ended September 30, 2016 and 2015 (amounts in thousands):

	Three Months Ended September 30,
	2016			2015			$ Variance			%
Revenue:
Telecommunications services	$	131,851		$	96,996		$	34,855		35.9	%
Operating expenses:
Cost of telecommunications services	68,184			53,363			14,821			27.8	%
Selling, general and administrative expenses	37,177			25,553			11,624			45.5	%
Severance, restructuring and other exit costs	(625		)	—			(625		)	*
Depreciation and amortization	14,880			12,631			2,249			17.8	%
Total operating expenses	119,616			91,547			28,069			30.7	%
Operating income	12,235			5,449			6,786			124.5	%
Other expense:
Interest expense, net	(7,123		)	(3,080		)	(4,043		)	131.3	%
Other expense, net	(74		)	(706		)	632			(89.5	)%
Total other expense	(7,197		)	(3,786		)	(3,411		)	90.1	%
Income (loss) before income taxes	5,038			1,663			3,375			202.9	%
(Benefit from) provision for income taxes	(89		)	(99		)	10			(10.1	)%
Net income (loss)	$	5,127		$	1,762		$	3,365		191.0	%
* - Not meaningful

Revenue

Our revenue increased by $34.9 million, or 35.9%, from $97.0 million for the three months ended September 30, 2015 to $131.9 million for the three months ended September 30, 2016. The increase was primarily due to the acquisitions of OSN and Telnes, as well as organic growth.

On a constant currency basis using the average exchange rates in effect during the three months ended September 30, 2015 revenue would have been higher by $1.3 million for the three months ended September 30, 2016.

27

Cost of Telecommunications Services Provided

Cost of telecommunications services provided increased by $14.8 million, or 27.8%, from $53.4 million for the three months ended September 30, 2015 to $68.2 million for the three months ended September 30, 2016. Consistent with our increase in revenue, the increase in cost of telecommunications services provided was principally driven by the acquisitions of OSN and Telnes, as well as organic growth.

On a constant currency basis using the average exchange rates in effect during the three months ended September 30, 2015, cost of telecommunications services provided would have been higher by $0.5 million for the three months ended September 30, 2016.

Operating Expenses

Selling, General and Administrative Expenses. SG&A expenses increased by $11.6 million to $37.2 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. The increase was due primarily to the acquisitions of OSN and Telnes, resulting in increased payroll and commission expense. Additionally, non-cash compensation increased by $3.1 million or 181.1% for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the recognition of share-based compensation on performance awards where the performance criteria have been met, certain shares issued in the OSN acquisition and an overall increase in employee equity awards. We incurred $4.8 million and $1.7 million of non-cash compensation expense for the three months ended September 30, 2016 and 2015, respectively.

Severance, Restructuring and Other Exit Costs. For the three months ended September 30, 2016, we released restructuring charges of $0.6 million relating to the Telnes acquisition. There were no charges incurred for the three months ended September 30, 2015.

Depreciation and Amortization. Amortization of intangible assets increased $4.1 million or 68.3%, from $6.0 million to $10.1 million for the three months ended September 30, 2016, due to the additional definite-lived intangible assets recorded in the OSN and Telnes acquisitions. Depreciation expense decreased $1.8 million, or 28.2%from $6.6 million to $4.8 million for the three months ended September 30, 2016, primarily due to various assets related to the Tinet acquisition, completed in 2013, becoming fully depreciated during the third quarter of fiscal 2016.

Other Expense. Other expense increased by $3.4 million to $7.2 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015. This is primarily attributed to higher interest expense due to higher debt levels driven by the acquisitions in fiscal 2015.

On a constant currency basis using the average exchange rates in effect during the three months ended September 30, 2015, operating expenses would have been higher by $0.3 million for the three months ended September 30, 2016. Selling, general and administrative expenses are the only operating expenses that would have been impacted by the change in exchange rates.

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

Overview. The financial information presented in the tables below is comprised of the unaudited condensed consolidated financial information for the nine months ended September 30, 2016 and 2015 (amounts in thousands):

28

	Nine Months Ended September 30,
	2016			2015			$ Variance			%
Revenue:
Telecommunications services	$	385,201		$	254,425		$	130,776		51.4	%
Operating expenses:
Cost of telecommunications services	202,653			142,521			60,132			42.2	%
Selling, general and administrative expenses	105,311			69,410			35,901			51.7	%
Severance, restructuring and other exit costs	870			7,747			(6,877		)	*
Depreciation and amortization	46,139			32,472			13,667			42.1	%
Total operating expenses	354,973			252,150			102,823			40.8	%
Operating income	30,228			2,275			27,953			1,228.7	%
Other expense:
Interest expense, net	(21,620		)	(7,829		)	(13,791		)	176.2	%
Loss on debt extinguishment	(1,632		)	(1,056		)	(576		)	54.5	%
Other expense, net	(542		)	(1,798		)	1,256			(69.9	)%
Total other expense	(23,794		)	(10,683		)	(13,111		)	122.7	%
Income (loss) before income taxes	6,434			(8,408		)	14,842			(176.5	)%
Provision for (benefit from) income taxes	320			(124		)	444			(358.1	)%
Net income (loss)	$	6,114		$	(8,284	)	$	14,398		(173.8	)%
* - Not meaningful

Revenue

Our revenue increased by $130.8 million or 51.4%, from $254.4 million for the nine months ended September 30, 2015 to $385.2 million for the nine months ended September 30, 2016. The increase was primarily due to the acquisitions of MegaPath, OSN and Telnes, as well as organic growth.

On a constant currency basis using the average exchange rates in effect during the nine months ended September 30, 2015 revenue would have been higher by $2.2 million for the nine months ended September 30, 2016.

Cost of Telecommunications Services Provided

Cost of telecommunications services provided increased by $60.1 million, or 42.2%, from $142.5 million for the nine months ended September 30, 2015 to $202.7 million for the nine months ended September 30, 2016. Consistent with our increase in revenue, the increase in cost of telecommunications services provided was principally driven by the acquisitions of MegaPath, OSN, Telnes, as well as organic growth.

On a constant currency basis using the average exchange rates in effect during the nine months ended September 30, 2015, cost of telecommunications services provided would have been higher by $0.8 million for the nine months ended September 30, 2016.

Operating Expenses

Selling, General and Administrative Expenses. SG&A expenses increased by $35.9 million to $105.3 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The increase was due primarily to the acquisitions of MegaPath, OSN, and Telnes. Non-cash compensation increased by $5.5 million for the nine months ended September 30, 2016

29

compared to the nine months ended September 30, 2015 due to the recognition of share-based compensation on performance awards where the performance criteria have been met and certain shares issued in the OSN acquisition.

Severance, Restructuring and Other Exit Costs. Restructuring cost was $0.9 million for the nine months ended September 30, 2016, associated with the acquisition of Telnes, and $7.7 million for the nine months ended September 30, 2015, related to the acquisition of MegaPath.

Depreciation and Amortization. Amortization of intangible assets increased $13.1 million or 80.4%, from $16.4 million to $29.5 million for the nine months ended September 30, 2016, due to the additional definite-lived intangible assets recorded in the acquisitions of MegaPath and OSN. Depreciation expense increased slightly by $0.5 million, or 3.2%, from $16.1 million to $16.6 million for the nine months ended September 30, 2016. The was primarily due to various assets related to the Tinet acquisition, completed in 2013, becoming fully depreciated during the third quarter of fiscal 2016.

Other Expense. Other expense increased by $13.1 million to $23.8 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. This is primarily attributed to higher interest expense due to higher debt levels driven by the acquisitions in fiscal 2015 and 2016.

On a constant currency basis using the average exchange rates in effect during the nine months ended September 30, 2015, operating expenses would have been higher by $0.5 million for the nine months ended September 30, 2016. Selling, general and administrative expenses are the only operating expenses that would have been impacted by the change in exchange rates.

Liquidity and Capital Resources

Our primary sources of liquidity have been cash provided by operations, equity offerings and debt financing. Our principal uses of cash have been for acquisitions, working capital, capital expenditures, and debt service requirements. We anticipate that our principal uses of cash in the future will be for acquisitions, capital expenditures, working capital, and debt service.

Management monitors cash flow and liquidity requirements on a regular basis, including an analysis of the anticipated working capital requirements for the next 12 months. This analysis assumes our ability to manage expenses, capital expenditures and the anticipated growth of revenue. Should the expected cash flows not be available, management believes it would have the ability to revise its operating plan and make reductions in expenditures.

Our operations or expansion efforts may require substantial additional financial, operational and managerial resources. As of September 30, 2016, we had approximately $15.4 million in cash and cash equivalents, and our current assets were $34.2 million greater than current liabilities. Our current liabilities include $7.1 million of holdback obligations, of which $1.3 million is payable in 2016. In addition, a substantial portion of accrued severance and exit costs totaling $3.4 million is expected to be paid in 2016. We believe that cash currently on hand, expected cash flows from future operations and existing borrowing capacity are sufficient to fund operations for at least the next 12 months, including the scheduled principal repayments of the October 2015 Credit Agreement and the associated interest cost. If our operating performance differs significantly from our forecasts, we may be required to reduce our operating expenses and curtail capital spending, and we may not remain in compliance with our debt covenants. In addition, if we are unable to fully fund our cash requirements through operations and current cash on hand, we may need to obtain additional financing through a combination of equity and debt financings and/or renegotiation of terms of our existing debt. If any such activities become necessary, there can be no assurance that we would be successful in obtaining additional financing or modifying our existing debt terms.

During the nine months ended September 30, 2016 and 2015, we made cash payments for interest totaling $19.9 million and $7.4 million, respectively. The increase in interest payments was a result of the October 2015 Credit Agreement as discussed further in Note 5 of Notes to Condensed Consolidated Financial Statements.

The following table summarizes the net cash activities for the nine months ended September 30, 2016 and 2015 (amounts in thousands):

Consolidated Statements of Cash Flows Data	Nine Months Ended September 30,
	2016			2015
Net cash provided by operating activities	$	32,767		$	19,883
Net cash used in investing activities	(37,959		)	(141,239		)
Net cash provided by financing activities	7,871			90,590

30

Cash Provided by Operating Activities

Cash provided by operating activities for the nine months ended September 30, 2016 and 2015 was $32.8 million and $19.9 million, respectively. Our largest source of cash provided by operating activities is generated by monthly recurring revenue. Our primary uses of cash are payments to network suppliers, compensation related costs and other third party vendors, such as agents, contractors, and professional service providers. Cash provided by operating activities during the nine months ended September 30, 2016 included $19.9 million in interest; $3.1 million in transaction and integration costs relating to the acquisitions of Megapath, OSN, and Telnes, and an overall working capital use of approximately $33.8 million. The working capital use was driven by an effort to improve the timeliness of payments to our key vendors, and slower payment timing by some of our larger customers.  We do not expect this level of cash use from working capital to continue going forward. Cash provided by operating activities during the nine months ended September 30, 2015 included $7.4 million in interest, and an overall working capital use of $12.4 million.

Cash Used in Investing Activities

Cash used in investing activities was $37.9 million for the nine months ended September 30, 2016, consisting primarily of $14.1 million for the Telnes acquisition, $6.0 million of cash used for the purchase of customer contracts, and $17.8 million for capital expenditures. Cash used in investing activities was approximately $141.2 million for the nine months ended September 30, 2015, primarily for the acquisition of MegaPath.

We expect to continue to incur annual capital expenditures in the range of 4% - 5% of revenue.

Cash Provided by Financing Activities

Net cash provided by financing activities was $7.9 million for the nine months ended September 30, 2016, consisting primarily of $25.8 million in net proceeds from debt issuance under the October 2015 Credit Agreement offset by the payment of holdbacks ($15.6 million), primarily related to the acquisition of MegaPath, and a final earn-out ($0.5 million) from a previous acquisition. Net cash provided by financing activities for the nine months ended September 30, 2015 was $90.6 million, consisting primarily of net proceeds from debt issuance related to the MegaPath acquisition.

Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

As of September 30, 2016, the estimated annual commitments for contractual agreements and non-cancelable operating and capital leases have not materially changed from the year ended December 31, 2015, as disclosed in the Company's Annual Report on Form 10-K.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks. These risks, which include interest rate risk and foreign currency exchange risk, arise in the normal course of business rather than from trading activities.

Interest Rate Sensitivity

Our exposure to market risk for changes in interest rates is primarily related to our outstanding term loans and revolving loans. As of September 30, 2016, we had $426.9 million and $6.0 million in term loans and revolving loans, respectively. The interest expense associated with our credit facility will vary with market rates, specifically LIBOR.

For purposes of the following hypothetical calculations, we have used the October 2015 Credit Agreement, which carries an interest rate equal to LIBOR plus 4.75%, with a LIBOR floor of 1.0%. Current LIBOR rates are below 1.0%, which means there would not be any impact to our income or cash flows from an increase in LIBOR until LIBOR exceeds 1.0%.  Based on current rates, a hypothetical 100 basis point increase in LIBOR would increase annual interest expense by approximately $3.8 million, which would decrease our income and cash flows by the same amount. A hypothetical increase of LIBOR to 4%, the average historical three-month LIBOR, would increase annual interest expense by approximately $13.2 million, which would decrease our income and cash flows by the same amount.

We do not currently use derivative financial instruments and have not entered into any interest rate hedging transactions, but we may do so in the future.

Exchange Rate Sensitivity

Our exposure to market risk for changes in foreign currency rate relates to our global operations. Our consolidated financial statements are denominated in U.S. Dollars, but a portion of our revenue, cost of telecommunications services provided and selling, general and administrative expenses are recorded in the local currency of our foreign subsidiaries. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. Dollar will affect the translation of each foreign subsidiary’s financial results into U.S. Dollars for purposes of reporting consolidated financial results.

Approximately 13% of our revenues for the three months ended September 30, 2016 are generated by non-US entities, of which 53% is recorded in Euros and the remainder is recorded in GBP. Approximately 10% of our cost of telecommunications services provided and approximately 8% of our selling, general and administrative expenses for the three months ended September 30, 2016 are generated by the same non-US entities. Therefore, it is highly unlikely that changes in exchange rates would have a material impact on our financial condition or results of operations.

We do not currently use derivative financial instruments and have not entered into any foreign currency hedging transactions, but we may do so in the future.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management carried out an evaluation required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision of and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”).

Based on our evaluation, our CEO and CFO concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

The CEO and the CFO, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2016, and based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of September 30, 2016, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

31

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are party to legal proceedings arising in the normal course of business. We do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the SEC on March 9, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

32

ITEM 6. EXHIBITS

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:

Exhibit
Number	Description of Document
31.1*	Certification of Chief Executive Officer of the Registrant, pursuant to Rules 13a-14(a) of the Securities Exchange Act of 1934.
31.2*	Certification of Chief Financial Officer of the Registrant, pursuant to Rules 13a-14(a) of the Securities Exchange Act of 1934.
32.1*	Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	GTT Communications, Inc. 2016 Employee Stock Purchase Plan (previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed March 30, 2016, and incorporated herein by reference).
101*	The following financial statements and footnotes from GTT Communications, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited); (ii) Condensed Consolidated Statements of Operations (unaudited); (iii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) Condensed Consolidated Statement of Stockholders' Equity (unaudited); (v) Condensed Consolidated Statements of Cash Flows (unaudited); and (v) Notes to Condensed Consolidated Financial Statements.

* Filed herewith

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		GTT Communications, Inc.
		By:	/s/ Richard D. Calder, Jr.
			Richard D. Calder, Jr.
			President, Chief Executive Officer and
			Director (Principal Executive Officer)
		By:	/s/ Michael T. Sicoli
			Michael T. Sicoli
			Chief Financial Officer
			(Principal Financial Officer)
		By:	/s/ Daniel M. Fraser
			Daniel M. Fraser
			Vice President and Controller
Date:	November 9, 2016		(Principal Accounting Officer)

34

EX-31.1

  Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Richard D. Calder, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of GTT Communications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 9, 2016	/s/ Richard D. Calder, Jr.
		Richard D. Calder, Jr.
		President, Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

     I, Michael T. Sicoli, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of GTT Communications, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 9, 2016	/s/ Michael T. Sicoli
		Michael T. Sicoli
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of GTT Communications, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard D. Calder, Jr., Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my best knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 9, 2016	/s/ Richard D. Calder, Jr.
		Richard D. Calder, Jr.
		President, Chief Executive Officer and Director

EX-32.2

Exhibit 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of GTT Communications, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael T. Sicoli, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my best knowledge:

     1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 9, 2016	/s/ Michael T. Sicoli
		Michael T. Sicoli
		Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 09, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	GTT Communications, Inc.
Entity Central Index Key	0001315255
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Trading Symbol	gtt
Entity Common Stock, Shares Outstanding (in shares)		37,198,778
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash and cash equivalents	$ 15,407	$ 14,630
Accounts receivable, net of allowances of $4,242 and $1,015, respectively	81,685	60,446
Deferred contract costs	4,030	4,159
Prepaid expenses and other current assets	15,313	13,663
Total current assets	116,435	92,898
Property and equipment, net	40,492	38,823
Intangible assets, net	177,067	182,184
Other assets	13,255	11,593
Goodwill	280,593	270,956
Total assets	627,842	596,454
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	12,664	22,725
Accrued expenses and other current liabilities	40,476	43,115
Acquisition earn-outs and holdbacks	7,129	12,842
Current portion of capital lease obligations	1,015	1,392
Short-term debt	4,300	4,000
Deferred revenue	16,647	15,469
Total current liabilities	82,231	99,543
Capital lease obligations, net of current portion	512	961
Long-term debt	412,159	382,243
Deferred revenue, less current portion	3,137	2,292
Other long-term liabilities	4,367	929
Total liabilities	502,406	485,968
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.0001 per share, 80,000,000 shares authorized, 37,226,966 and 36,533,634 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	3	3
Additional paid-in capital	193,759	182,797
Accumulated deficit	(63,787)	(69,901)
Accumulated other comprehensive loss	(4,539)	(2,413)
Total stockholders' equity	125,436	110,486
Total liabilities and stockholders' equity	$ 627,842	$ 596,454

XML

Condensed Consolidated Balance Sheets [Parenthetical] - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Allowance for doubtful accounts receivable, current (in dollars)	$ 4,242	$ 1,015
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	80,000,000	80,000,000
Common stock, shares, issued (in shares)	37,226,966	36,533,634
Common stock, shares, outstanding (in shares)	37,226,966	36,533,634

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenue:
Telecommunications services	$ 131,851	$ 96,996	$ 385,201	$ 254,425
Operating expenses:
Cost of telecommunications services	68,184	53,363	202,653	142,521
Selling, general and administrative expenses	37,177	25,553	105,311	69,410
Severance, restructuring and other exit costs	(625)	0	870	7,747
Depreciation and amortization	14,880	12,631	46,139	32,472
Total operating expenses	119,616	91,547	354,973	252,150
Operating income	12,235	5,449	30,228	2,275
Other expense:
Interest expense, net	(7,123)	(3,080)	(21,620)	(7,829)
Loss on debt extinguishment	0	0	(1,632)	(1,056)
Other expense, net	(74)	(706)	(542)	(1,798)
Total other expense	(7,197)	(3,786)	(23,794)	(10,683)
Income (loss) before income taxes	5,038	1,663	6,434	(8,408)
(Benefit from) provision for income taxes	(89)	(99)	320	(124)
Net income (loss)	$ 5,127	$ 1,762	$ 6,114	$ (8,284)
Earnings (loss) per share:
Basic (in dollars per share)	$ 0.14	$ 0.05	$ 0.17	$ (0.24)
Diluted (in dollars per share)	$ 0.14	$ 0.05	$ 0.16	$ (0.24)
Weighted average shares:
Basic (in shares)	37,152,063	34,981,104	36,998,607	34,603,144
Diluted (in shares)	37,785,921	35,888,525	37,481,414	34,603,144

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 5,127	$ 1,762	$ 6,114	$ (8,284)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(215)	(212)	(2,126)	(1,182)
Comprehensive income (loss)	$ 4,912	$ 1,550	$ 3,988	$ (9,466)

XML

Condensed Consolidated Statement of Stockholders' Equity - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss
Balance at Dec. 31, 2015	$ 110,486	$ 3	$ 182,797	$ (69,901)	$ (2,413)
Balance (in shares) at Dec. 31, 2015		36,533,634
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Share-based compensation for options issued	1,178		1,178
Share-based compensation for restricted stock issued	9,718		9,718
Share-based compensation for restricted stock issued (in shares)		446,455
Tax withholding related to the vesting of restricted stock units	(3,442)		(3,442)
Tax withholding related to the vesting of restricted stock units (in shares)		(226,328)
Stock issued in connection with employee stock purchase plan	1,045		1,045
Stock issued in connection with employee stock purchase plan (in shares)		69,671
Stock issued in connection with acquisition	1,995		1,995
Stock issued in connection with acquisition (in shares)		178,202
Stock options exercised	468		468
Stock options exercised (in shares)		225,332
Net income	6,114
Foreign currency translation	(2,126)		0		(2,126)
Balance at Sep. 30, 2016	$ 125,436	$ 3	$ 193,759	$ (63,787)	$ (4,539)
Balance (in shares) at Sep. 30, 2016		37,226,966

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income (loss)	$ 6,114	$ (8,284)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	46,139	32,472
Share-based compensation	10,896	5,417
Debt discount amortization	600	0
Loss on debt extinguishment	1,632	1,056
Amortization of debt issuance costs	1,188	697
Change in fair value of acquisition earn-out	0	880
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(19,887)	(3,838)
Deferred costs	(32)	(2,578)
Prepaid expenses and other current assets	(1,180)	496
Other assets	(2,327)	(68)
Accounts payable	(8,816)	(12,347)
Accrued expenses and other current liabilities	(3,605)	4,419
Deferred revenue and other liabilities	2,045	1,561
Net cash provided by operating activities	32,767	19,883
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	(14,146)	(131,397)
Purchases of property and equipment	(17,813)	(9,842)
Purchase of customer contracts	(6,000)	0
Net cash used in investing activities	(37,959)	(141,239)
Cash flows from financing activities:
Proceeds from revolving line of credit	33,000	0
Repayment of revolving line of credit	(32,000)	0
Proceeds from term loan	29,850	230,000
Repayment of term loan	(3,150)	(129,376)
Payment of earn-out and holdbacks	(15,563)	(3,239)
Debt issuance costs	(904)	(4,801)
Repayment of capital leases	(1,433)	(610)
Proceeds from issuance of common stock under employee stock purchase plan	1,045	0
Repayment of subordinate notes payable	(3,442)	(2,017)
Exercise of stock options	468	633
Net cash provided by financing activities	7,871	90,590
Effect of exchange rate changes on cash	(1,902)	1,223
Net increase (decrease) in cash and cash equivalents	777	(29,543)
Cash and cash equivalents at beginning of period	14,630	49,256
Cash and cash equivalents at end of period	15,407	19,713
Supplemental disclosure of cash flow information:
Cash paid for interest	19,894	7,421
Cash paid for income taxes	$ 408	$ 233

XML

ORGANIZATION AND BUSINESS

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BUSINESS

ORGANIZATION AND BUSINESS

Organization and Business

GTT Communications, Inc. (“GTT” or the "Company") is a provider of cloud networking services. The Company offers multinational clients a broad portfolio of global communications services including: EtherCloud® wide area network services; Internet services; managed network and security services; and voice and unified communication services.

GTT's global Tier 1 IP network delivers connectivity to clients around the world. The Company provides services to leading multinational enterprises, carriers and government customers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed on March 9, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to such rules and regulations.

The condensed consolidated financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position and its results of operations. The operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year 2016 or for any other interim period. The December 31, 2015 consolidated balance sheet is condensed from the audited financial statements as of that date, but does not include all disclosures required by GAAP.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used when establishing allowances for doubtful accounts and accruals for billing disputes, determining useful lives for depreciation and amortization and accruals for exit activities, assessing the need for impairment charges (including those related to intangible assets and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income taxes and related valuation allowances against deferred tax assets and estimating the grant date fair values used to compute the share-based compensation expense. Management evaluates these estimates and judgments on an ongoing basis and makes estimates based on historical experience, current conditions, and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

Segment Reporting

The Company reports operating results and financial data in one operating and reporting segment. The chief operating decision maker manages the Company as a single profit center in order to promote collaboration, provide comprehensive service offerings across its entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding selected products or services are discussed for purposes of promoting an understanding of the Company's complex business, the chief operating decision maker manages the Company and allocates resources at the consolidated level.

Revenue Recognition

The Company delivers four primary services to its customers — flexible Ethernet-based wide area connectivity services; high bandwidth internet connectivity services; managed network services and security services; and global communication and collaboration services. Certain of its revenue activities have features that may be considered multiple elements, specifically when the Company sells its subscription services in addition to customer premise equipment ("CPE"). The Company believes that there is sufficient evidence to determine each element’s fair value and, as a result, in those arrangements where there are multiple elements, the subscription revenue is recorded ratably over the term of the agreement and the equipment is accounted for as a sale, at the time of sale.

The Company's services are provided under contracts that typically include an installation charge along with payments of recurring charges on a monthly basis for use of the services over a committed term. Its contracts with customers specify the terms and conditions for providing such services, including installation date, recurring and non-recurring fees, payment terms, and contract length. These contracts call for the Company to provide the service in question (e.g., data transmission between point A and point Z), to manage the activation process, and to provide ongoing support (in the form of service maintenance and trouble-shooting) during the service term. The contracts do not typically provide the customer any rights to use specifically identifiable assets. Furthermore, the contracts generally provide the Company with discretion to engineer (or re-engineer) a particular network solution to satisfy each customer’s data transmission requirement, and typically prohibit physical access by the customer to the network infrastructure used by the Company and its suppliers to deliver the services.

The Company recognizes revenue as follows:

Monthly Recurring Revenue. Monthly recurring revenue represents the substantial majority of the Company's revenue, and consists of fees charged for ongoing services that are generally fixed in price and billed on a recurring monthly basis over the specified term of the commitment. At the end of the term, most contracts provide for a continuation of services on the same terms, either for a specified renewal period (e.g., one year) or on a month-to-month basis. The Company records recurring revenue based on the fees agreed to in each contract, as long as the contract is in effect, and as long as collectability is reasonably assured.

Burst Revenue. Burst revenue represents variable charges for certain services, based on specific usage of those services, or usage above a fixed threshold, billed monthly in arrears. The Company records burst revenue based on actual usage charges billed using the rates and/or thresholds specified in each contract, as long as collectability is reasonably assured.

Non-recurring Revenue. Non-recurring revenue consists of charges for installation in connection with the delivery of recurring communications services, late payments, cancellation fees, early termination fees, and equipment sales. Fees billed for installation services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service. Fees charged for late payments, cancellation (pre-installation) or early termination (post-installation) are typically fixed or determinable per the terms of the respective contract, and are recognized as revenue when billed if collectability is reasonably assured. In addition, from time to time the Company sells communications and/or networking equipment to its customers in connection with its data networking services. The Company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer (generally F.O.B. origin) and when collectability is reasonably assured.

Universal Service Fund (USF), Gross Receipts Taxes and Other Surcharges

The Company is liable in certain cases for collecting regulatory fees and/or certain sales taxes from its customers and remitting the fees and taxes to the applicable governing authorities. Where the Company collects on behalf of a regulatory agency, the Company does not record any revenue. The Company records applicable taxes on a net basis.

Cost of Telecommunications Services

Cost of telecommunications services includes direct costs incurred in accessing other telecommunications providers’ networks in order to provide telecommunication services to the Company's customers, and expenses for connection to other carriers. The cost of the Company's core network is usually renewed on an annual basis. Connectivity from the Company's core network to a customer premise is typically contracted using matching terms to the customer. Cost of telecommunications services also includes co-location charges, usage-based access charges and professional services fees incurred pursuant to a customer's service contract.

Share-Based Compensation

The Company recognizes share-based compensation expense for share-based payment awards based on the grant date fair value.

The fair value of stock options is determined on the date of grant using the Black-Scholes option-pricing model. The expense is recognized on a straight-line basis over the requisite service period. Share-based compensation expense also includes restricted stock grants for performance awards. The Company recognizes share-based compensation expense for these grants when the achievement of the performance criteria is considered probable.

Income Taxes

Income taxes are accounted for under the asset and liability method pursuant to GAAP. Under this method, deferred tax assets and liabilities are recognized for the expected future results attributable to the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. Further, deferred tax assets are recognized for the expected realization of available net operating loss and tax credit carryforwards. A valuation allowance is recorded on gross deferred tax assets when it is “more likely than not” that such asset will not be realized. When evaluating the realizability of deferred tax assets, all evidence, both positive and negative is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings. The Company reviews its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based upon these factors. Changes in the Company's assessment of the need for a valuation allowance could give rise to a change in such allowance, potentially resulting in additional expense or benefit in the period of change.

The Company's income tax provision includes U.S. federal, state, local and foreign income taxes and is based on pre-tax income or loss. In determining the annual effective income tax rate, the Company analyzes various factors, including its annual earnings and taxing jurisdictions in which the earnings were generated, the impact of state and local income taxes and its ability to use tax credits and net operating loss carryforwards.

Under GAAP for income taxes, the amount of tax benefit to be recognized is the amount of benefit that is “more likely than not” to be sustained upon examination. The Company analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established in the consolidated financial statements. The Company recognizes accrued interest and penalties related to unrecognized tax positions in the provision for income taxes.

Comprehensive Income (Loss)

In addition to net income (loss), comprehensive loss includes certain charges or credits to equity occurring other than as a result of transactions with stockholders. For the Company, this consists of foreign currency translation adjustments.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income or (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect, in periods with earnings and in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options.

The table below details the calculations of earnings (loss) per share (in thousands, except for share and per share amounts):  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Numerator for basic and diluted EPS – earnings (loss) available to common stockholders	$	5,127	$	1,762	$	6,114	$	(8,284	)
Denominator for basic EPS – weighted average shares	37,152,063		34,981,104		36,998,607		34,603,144
Effect of dilutive securities	633,858		907,421		482,807		—
Denominator for diluted EPS – weighted average shares	37,785,921		35,888,525		37,481,414		34,603,144
Earnings (loss) per share: basic	$	0.14	$	0.05	$	0.17	$	(0.24	)
Earnings (loss) per share: diluted	$	0.14	$	0.05	$	0.16	$	(0.24	)

The anti-dilutive common share items that were excluded in the computation of earnings per share were approximately 4,000 shares as of September 30, 2016. There were approximately 5,000 anti-dilutive common shares as of September 30, 2015. 

Cash and Cash Equivalents

Cash and cash equivalents may include deposits with financial institutions as well as short-term money market instruments, certificates of deposit and debt instruments with maturities of three months or less when purchased.

Accounts Receivable, Net

Accounts receivable balances are stated at amounts due from the customer net of an allowance for doubtful accounts. Credit extended is based on an evaluation of the customer’s financial condition and is granted to qualified customers on an unsecured basis.

The Company, pursuant to its standard service contracts, is entitled to impose a monthly finance charge with respect to amounts that are past due. The Company’s standard terms require payment within 30 days of the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment date set forth in the applicable service contract.

The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade receivables are past due, the customer’s payment history, current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Specific reserves are also established on a case-by-case basis by management. Actual bad debts, when determined, reduce the allowance. The Company periodically evaluates the collectability of accounts receivable and writes off accounts after a determination is made that the amounts at issue are no longer likely to be collected, following the exercise of reasonable collection efforts.

Deferred Costs

Installation costs related to provisioning of recurring communications services that the Company incurs from independent third party suppliers, directly attributable and necessary to fulfill a particular service contract, and which would not have been incurred but for the occurrence of that service contract, are recorded as deferred costs and expensed ratably over the contractual term of service in the same manner as the deferred revenue arising from that contract. Based on historical experience, the Company believes the initial contractual term is the best estimate for the period of earnings. If any installation costs exceed the amount of corresponding deferred revenue, the excess cost is recognized in the current period.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation, computed using the straight-line method.Depreciation on these assets is computed over the estimated useful lives of the assets. Assets and liabilities under capital leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. Leasehold improvements and assets under capital leases are amortized over the shorter of the term of the lease, excluding optional extensions, or the useful life. Depreciable lives used by the Company for its classes of assets are as follows:

Furniture and Fixtures	7 years
Network Equipment	5 years
Leasehold Improvements	up to 10 years
Computer Hardware and Software	3-5 years

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell or dispose.

Software Capitalization

Software development costs include costs to develop software programs to be used solely to meet the Company's internal needs. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. The Company capitalized approximately $0.4 million and $1.2 million for developing such software applications during the three and nine months ended September 30, 2016. The capitalized costs were not material in 2015.

Goodwill and Intangible Assets

The Company records as goodwill, the excess of purchase price over the fair value of the identifiable net assets acquired. The goodwill is assessed for impairment on at least an annual basis on October 1 unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. The Company operates as a single operating segment and as a single reporting unit for the purpose of evaluating goodwill. Accounting guidance prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives. The guidance also allows preparers to qualitatively assess goodwill impairment through a screening process, referred to as "Step 0", which would permit companies to forgo Step 1 of their annual goodwill impairment process. The Company has elected to perform Step 0 for its annual impairment assessment of goodwill on October 1, 2016. The Step 0 analysis focused on a number of events and circumstances that may be considered when making this qualitative assessment. Upon careful consideration of these events and circumstances the Company concluded that its fair value (primarily based on market capitalization) of the reporting unit was greater than the carrying amount. During the nine months ended September 30, 2016 and during 2015, the Company did not record any goodwill impairment.

The Company's definite-lived intangible assets are acquired in business combinations and recorded at their fair value. The Company reviews its recorded definite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. The Company's definite-lived intangible assets, consisting of customer relationships, restrictive covenants related to employment agreements, license fees, and intellectual property are amortized on a straight-line basis, over their estimated useful lives of periods up to seven years. FCC Licenses are accounted for as a definite-lived intangible asset and amortized over the average remaining useful life of such licenses which approximates three years. Intellectual property consisting of know-how related to the SIP trunking platform is amortized over the estimated useful life of ten years.

The Company's indefinite-lived intangible asset consists of a trade name that is not amortized, but is tested on at least an annual basis as of October 1 unless interim indicators of impairment exist. As of October 1, 2016, the Company performed its annual impairment test of the trade name, using the royalty relief method for valuation, and concluded that the fair value of the trade name was greater than the carrying amount. However, due to the re-branding of certain network operations associated to the acquired trade name, the Company concluded that the trade name should be deemed a definite-lived intangible asset with an estimated useful life of three years, to be amortized prospectively as of October 1, 2016.

Business Combinations

The Company includes the results of operations of the businesses that it acquires commencing on the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Accrued Supplier Expenses

The Company accrues estimated charges owed to its suppliers for services. The Company bases this accrual on the supplier contract, the individual service order executed with the supplier for that service, and the length of time the service has been active.

Disputed Supplier Expenses

It is common in the telecommunications industry for customers and suppliers to engage in disputes over amounts billed (or not billed) in error or over interpretation of contract terms. Management estimates a liability for the amounts the Company believes are valid and that the Company owes to a supplier. This liability is reconciled with actual results as disputes are resolved, or as the appropriate statute of limitations with respect to a given dispute expires. As of September 30, 2016, the Company had open disputes, not accrued for, of $8.3 million. As of December 31, 2015, the Company had open disputes, not accrued for, of $6.9 million.

Acquisition Earn-outs and Holdbacks

Acquisition earn-outs and holdbacks represent either contingent consideration subject to re-measurement to fair value, or fixed deferred consideration due to be paid out typically on the one-year anniversary of an acquisition's closing.  Contingent consideration is remeasured to fair value at each reporting period. The portion of the deferred consideration due within one year is recorded as a current liability until paid, and any consideration due beyond one year is recorded in other long-term liabilities.

Debt Issuance Costs

Debt issuance costs represent costs that qualify for deferral associated with the issuance of new debt or the modification of existing debt facilities. The unamortized balance of debt issuance costs is presented as a reduction to the carrying value of long-term debt. Debt issuance costs are amortized and recognized on the condensed consolidated statements of operations as interest expense. The unamortized debt issuance costs were $9.2 million and $10.9 million as of September 30, 2016 and December 31, 2015, respectively.

Original Issue Discount

Original issue discount ("OID") is the difference between the face value of debt and the amount of principle received when the loan was originated. When the debt reaches maturity, the face value of the debt is payable. The Company recognizes OID by accretion of the discount as interest expense over the term of the debt. For periods ended September 30, 2016 and December 31, 2015, the unamortized portion of the OID was $7.2 million and $7.8 million, respectively.

Translation of Foreign Currencies

For operations of subsidiaries located outside the U.S., the local currency is the functional currency for financial reporting purposes. These consolidated financial statements have been reported in U.S. Dollars by translating asset and liability amounts of foreign subsidiaries at the closing currency exchange rate, equity amounts at historical rates, and the results of operations and cash flow at the average currency exchange rate prevailing during the periods reported. The net effect of such translation gains and losses are reflected in accumulated other comprehensive loss in the stockholders' equity section of the condensed consolidated balance sheets.

Transactions denominated in foreign currencies other than a subsidiary's functional currency are recorded at the rates of exchange prevailing at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising upon settlement of a transaction are reported in the condensed consolidated statements of operations in other expense, net.

Fair Value Measurements

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:

Level 1:    Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.

Level 2:    Inputs other than quoted prices included in level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:    Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

As of September 30, 2016 and December 31, 2015, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and other liabilities approximated fair value due to the short-term nature of these instruments.

The carrying value of the Company's long-term debt, net of unamortized debt issuance costs and unamortized original issuance discount was $416.5 million and $386.2 million, as of September 30, 2016 and December 31, 2015, respectively. Based on trading activity of the Company's specific debt, the fair value of the Company's long-term debt as of September 30, 2016 and December 31, 2015 was estimated to approximate its carrying value. The Company's fair value estimates of the long-term debt were based on level 2 inputs; quoted prices for similar instruments in active markets.

The Company recorded an earn-out for an acquisition consummated in 2014 at fair value. The earn-out was fully settled in the second quarter of 2016 at the fair value as of December 31, 2015. The fair value of the earn-out was $0.5 million as of December 31, 2015, which was estimated to be the same as its carrying value, based on level 3 inputs.

Assets measured at fair value on a non-recurring basis include goodwill, tangible assets, and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (level 3).

Concentrations of Credit Risk

Financial instruments potentially subject to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. At times during the periods presented, the Company had funds in excess of $250,000 insured by the U.S. Federal Deposit Insurance Corporation, or in excess of similar Deposit Insurance programs outside of the United States, on deposit at various financial institutions. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company's trade accounts receivable are generally unsecured and geographically dispersed. No single customer's trade accounts receivable balance as of September 30, 2016 and December 31, 2015 exceeded 10% of the Company's consolidated accounts receivable, net. No single customer accounted for more than 10% of revenue for the nine months ended September 30, 2016 and 2015.

Related Party Transactions

From time to time and in the ordinary course of business, the Company engages in contracts with various vendors for certain networking services and equipment, to support the Company's broad range of communication services it provides to its clients. Several members of the Company's Board of Directors have relationships with these vendors that meet the definition of a related party transaction, as described in the SEC, Item 404 of Regulation S-K. The majority of these contracts were in place before the Board member joined the Company's Board of Directors, or the contracts were assumed as part of the Company's business acquisitions. The related party relationships and the contractual obligations paid and received by the Company for the nine months ended September 30, 2016 have not materially changed from fiscal 2015, as disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

As a matter of corporate governance policy and practice, related party transactions are presented and considered by the Audit Committee of the Company's Board of Directors in accordance with the Company's Code of Business Conduct and Ethics, Conflict of Interest Policy.

Newly Adopted Accounting Principles

For information regarding newly adopted accounting principles, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Note 2 to our consolidated financial statements contained therein. The Company has not adopted any new accounting principles for the third quarter of 2016.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company is still evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases, which will require most leases (with the exception of leases with terms of less than one year) to be recognized on the balance sheet as an asset and a lease liability. Leases will be classified as an operating lease or a financing lease. Operating leases are expensed using the straight-line method whereas financing leases will be treated similarly to a capital lease under the current standard. The new standard will be effective for annual and interim periods, within those fiscal years, beginning after December 15, 2018 but early adoption is permitted. The new standard must be presented using the modified retrospective method beginning with the earliest comparative period presented. The Company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which was issued as part of the FASB’s simplification initiative and cover such areas as (i) the recognition of excess tax benefits and deficiencies and the classification of those excess tax benefits on the statement of cash flows, (ii) an accounting policy election for forfeitures to be estimated or account for when incurred, (iii) the amount an employer can withhold to cover income taxes and still qualify for equity classification; and (iv) the classification of those taxes paid on the statement of cash flows. This update is effective for annual and interim periods beginning after December 15, 2016, which will require the Company to adopt these provisions in the first quarter of fiscal 2017. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. The Company is still evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice of how certain transactions are classified and presented in the statement of cash flows in accordance with ASC 230. The ASU amends or clarifies guidance on eight specific cash flow issues, some of which include classification on debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB during fiscal 2015 and through the period ended September 30, 2016 are not believed by management to have a material impact on the Company's present or historical consolidated financial statements.

XML

BUSINESS ACQUISITIONS

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

BUSINESS ACQUISITIONS

BUSINESS ACQUISITIONS

Since its formation, the Company has consummated a number of transactions accounted for as business combinations. The acquisitions were executed as part of the Company’s business strategy of expanding through acquisitions. The acquisitions of these businesses have allowed the Company to increase the scale at which it operates, which in turn affords the Company the ability to increase its operating leverage, extend its network, and broaden its customer base.

The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisitions is initially allocated to the respective assets and liabilities based upon their estimated fair values as of the date of completion of the acquisition. The recorded amounts for acquired assets and liabilities assumed are provisional and subject to change during the measurement period, which is 12 months from the date of acquisition.

On February 4, 2016, the Company completed the acquisition of Telnes Broadband ("Telnes"), an internet and managed services provider. The Company paid $18.2 million, composed of approximately $15.5 million in cash and $2.7 million in the Company's common stock, valued at the variable weighted average market price per share. Approximately $1.8 million of the cash consideration is deferred for one year to cover undisclosed liabilities or other indemnification claims per the purchase agreement. For the purpose of purchase price allocation, the Company's common stock was valued at $2.0 million due to the lack of marketability. Therefore, the purchase consideration for accounting purposes was valued at $17.5 million. The purchase price allocation has been finalized as of September 30, 2016.

On April 1, 2015, the Company acquired MegaPath Corporation ("MegaPath"). During the three months ended June 30, 2016, the Company and MegaPath settled a dispute related to the closing date net working capital balance, as defined in the purchase agreement. The settlement resulted in the Company paying an additional $4.1 million to the sellers in July 2016. The Company has recorded the $4.1 million as additional goodwill as of June 30, 2016.

For material acquisitions completed during fiscal 2015, 2014, and 2013, please refer to the Note 3 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Acquisition Method Accounting Estimates

The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.

Acquisition Related Costs

Acquisition related costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. There are two types of costs that the Company accounts for:

•Severance, restructuring and other exit costs

•Transaction and integration costs

Severance, restructuring and other exit costs are costs the Company incurs related to non-recurring benefits the Company pays to severed employees, termination charges for leases and supplier contracts, and other costs incurred associated with an exit activity. These costs are reported separately in the condensed consolidated statements of operations during the three and nine months ended September 30, 2016. Refer to Note 8 of these Condensed Consolidated Financial Statements for further information on severance, restructuring and other exit costs.

Transaction and integration costs include expenses associated with professional services (i.e., legal, accounting, regulatory, etc.) rendered in connection with signed and/or closed acquisitions, travel expense, and other non-recurring direct expenses incurred that are associated with such acquisitions. Transaction and integration costs are expensed as incurred, included in selling, general and administrative expenses, and may be incurred up to six months after the closing date of acquisition in support of the integration. The Company incurred transaction and integration costs of $0.8 million and $3.1 million during the three and nine months ended September 30, 2016 and 2015, respectively.

Pro forma Financial Information (Unaudited)

The pro forma results presented below include the effects of the Company's acquisition of MegaPath and One Source Networks ("OSN") that closed on October 22, 2015, as if the acquisitions occurred on January 1, 2015. The pro forma net income (loss) for the three and nine months ended September 30, 2016 and 2015, respectively, includes the additional depreciation and amortization resulting from the adjustments to the value of property, plant and equipment and intangible assets resulting from acquisition accounting and adjustment to amortized revenue during first, second, and third quarters of fiscal 2016 and 2015, respectively, as a result of the acquisition date valuation of assumed deferred revenue. The pro forma results also include interest expense associated with debt used to fund the acquisitions. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2015.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
(Amounts in thousands, except per share and share data)
Revenue	$	131,851	$	117,192		$	385,201	$	344,653
Net income (loss)	$	5,127	$	(164	)	$	6,114	$	(16,870	)
Earnings (loss) per share:
Basic	$	0.14	$	—		$	0.17	$	(0.47	)
Diluted	$	0.14	$	—		$	0.16	$	(0.47	)
Basic	37,152,063		35,456,105			36,998,607		35,688,988
Diluted	37,785,921		35,456,105			37,481,414		35,688,988

XML

GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

At the end of the third quarter of 2016, the Company completed its annual goodwill impairment testing on its measurement date of October 1, 2016. The Company performed the Step 0 qualitative analysis and determined that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount; therefore, the first and second steps of the goodwill impairment test were unnecessary since no indicators of impairment exist. In addition, the Company completed its annual impairment test of the indefinite-lived intangible asset consisting of the trade name, using a form of the discounted cash flow model called the royalty relief method for valuation, and have concluded that the fair value of the trade name was greater than the carrying amount. However, due to the re-branding of certain network operations associated to the acquired trade name, the Company concluded that the trade name should be deemed a definite-lived intangible asset with an estimated useful life of three years. Its amortization commenced on October 1, 2016 on a straight-line basis over its estimated useful life.

The goodwill balance was $280.6 million and $271.0 million as of September 30, 2016 and December 31, 2015, respectively. Additionally, the Company's intangible asset balance was $177.1 million and $182.2 million as of September 30, 2016 and December 31, 2015, respectively. The additions to both goodwill and intangible assets during the nine months ended September 30, 2016 relate to the asset purchase of customer contracts, the acquisition and purchase price allocation refinement of Telnes and OSN, as well as the asset valuation settlement of MegaPath (see Note 2 - Business Acquisitions).

The changes in the carrying amount of goodwill for the period ended September 30, 2016 and December 31, 2015 are as follows (amounts in thousands):

Balance, December 31, 2015	$	270,956
Adjustments to prior year's business combination	4,518
Goodwill associated with Telnes acquisition	5,119
Balance, September 30, 2016	$	280,593

The following table summarizes the Company’s intangible assets as of September 30, 2016 and December 31, 2015 (amounts in thousands):

		September 30, 2016						December 31, 2015
	Amortization Period	Gross Asset Cost		Accumulated Amortization		Net Book Value		Gross Asset Cost		Accumulated Amortization		Net Book Value
Customer contracts	3-7 years	$	239,763	$	81,183	$	158,580	$	215,802	$	54,041	$	161,761
Non-compete agreements	3-5 years	4,572		4,395		177		4,331		4,305		26
Point-to-point FCC license fees	3 years	1,695		1,127		568		1,695		701		994
Intellectual property	10 years	17,379		1,642		15,737		17,379		336		17,043
Trade name	3 years	2,292		1,087		1,205		2,079		519		1,560
Trade name (indefinite-lived)	N/A	800		—		800		800		—		800
		$	266,501	$	89,434	$	177,067	$	242,086	$	59,902	$	182,184

Amortization expense was $10.1 million and $29.5 million for the three and nine months ended September 30, 2016, respectively. Amortization expense was $6.1 million and $16.4 million for the three and nine months ended September 30, 2015, respectively.

Estimated amortization expense related to intangible assets subject to amortization at September 30, 2016 in each of the years subsequent to September 30, 2016 is as follows (amounts in thousands):

2016 remaining	$	10,084
2017	39,049
2018	32,732
2019	27,901
2020	24,989
2021 and beyond	41,512
Total	$	176,267

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

9 Months Ended

Sep. 30, 2016

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The following table summarizes the Company’s accrued expenses and other current liabilities as of September 30, 2016 and December 31, 2015 (amounts in thousands):

	September 30, 2016		December 31, 2015
Accrued compensation and benefits	$	7,463	$	9,465
Accrued selling, general and administrative	2,951		3,118
Accrued carrier costs	20,209		20,376
Accrued restructuring	3,449		6,833
Accrued other	6,404		3,323
	$	40,476	$	43,115

XML

DEBT

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

DEBT

DEBT

As of September 30, 2016 and December 31, 2015, long-term debt was as follows (amounts in thousands):

	September 30, 2016			December 31, 2015
Term loan	$	426,850		$	400,000
Revolving line of credit	6,000			5,000
Total debt obligations	432,850			405,000
Unamortized debt issuance costs	(9,172		)	(10,938		)
Unamortized original issuance discount	(7,219		)	(7,819		)
Carrying value of debt	416,459			386,243
Less current portion	(4,300		)	(4,000		)
Long-term debt less current portion	$	412,159		$	382,243

October 2015 Credit Agreement

On October 22, 2015, the Company entered into a credit agreement (the “October 2015 Credit Agreement”) that provided for a $400.0 million term loan facility and a $50.0 million revolving line of credit (which includes a $15.0 million letter of credit facility and a $10.0 million swingline facility). In addition, the Company may request incremental term loan and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $75.0 million and an unlimited amount that is subject to pro forma compliance with certain net secured leverage ratio tests, provided, however, that incremental revolving loan commitments may not exceed $25.0 million.

The term loan facility was issued at a discount of $8 million. The applicable rate for term loans was LIBOR plus 5.25% subject to a LIBOR floor of 1.00%. The applicable rate for revolving loans was LIBOR plus 4.75% with no floor. The maturity date of the term loan facility is October 22, 2022 and the maturity date of the revolving line of credit is October 22, 2020. The Company may prepay loans under the October 2015 Credit Agreement at any time, subject to the “soft call” provision noted below, and subject to certain notice requirements and LIBOR breakage costs.

On May 3, 2016, the Company entered into an incremental term loan agreement which increased outstanding term loans by$30.0 million, the proceeds of which were used to repay the outstanding revolving loans.

On June 28, 2016, the Company entered into Amendment No. 1 (the “Repricing Amendment”) to the October 2015 Credit Agreement. The Repricing Amendment, among other things, reduced the applicable rate for term loans to LIBOR plus4.75% (subject to a LIBOR floor of 1.00%) and reduced the applicable rate for revolving loans to LIBOR plus4.25% (with no LIBOR floor). The Repricing Amendment also includes a “soft call” prepayment penalty of 1.0% through December 28, 2016 for certain prepayments, refinancings, and amendments where the primary purpose is to further reduce the applicable rate.

The Company accounted for the Repricing Amendment as a modification of debt. $1.6 million of prior deferred debt issuance cost was accelerated and recorded as a Loss on Debt Extinguishment in the condensed consolidated statements of operations, attributable to prior syndicate lenders who reduced or eliminated their positions during the amendment process. The Company also incurred $0.8 million of additional debt issuance cost in connection with the Repricing Amendment, which was recorded as an offset to Long-Term Debt in the condensed consolidated balance sheets.

As of September 30, 2016, the Company had outstanding revolving loans of $6.0 million and had $43.5 million of borrowing capacity available under its revolving line of credit. Approximately $0.5 million of the revolving line of credit is currently utilized for outstanding letters of credit relating to the Company’s real estate lease obligations.

The effective interest rate on outstanding debt at September 30, 2016 and December 31, 2015 was5.74%and6.24%, respectively. The aggregate contractual maturities of long-term debt (excluding unamortized discounts and unamortized debt issuance costs) were as follows at September 30, 2016 (amounts in thousands):

	Total Debt
2016 remaining	$	1,075
2017	4,300
2018	4,300
2019	4,300
2020	10,300
2021	4,300
2022	404,275
Total	$	432,850

Debt covenants

The October 2015 Credit Agreement contains customary financial and operating covenants, including among others a consolidated net secured leverage ratio and covenants restricting the incurrence of debt, imposition of liens, the payment of dividends and entering into affiliate transactions. The October 2015 Credit Agreement also contains customary events of default, including nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants. If an event of default occurs and is continuing under the October 2015 Credit Agreement, the entire outstanding balance may become immediately due and payable.

In addition, the Company is restricted from permitting the Consolidated Net Secured Leverage Ratio to be greater than the maximum ratio specified below during the period opposite such maximum ratio:

Fiscal Quarter Ending	Maximum Ratio
September 30, 2016	4.75:1.00
December 31, 2016	4.75:1.00
March 31, 2017	4.50:1.00
June 30, 2017	4.50:1.00
September 30, 2017	4.25:1.00
December 31, 2017	4.25:1.00
March 31, 2018	4.00:1.00
June 30, 2018	4.00:1.00
September 30, 2018	3.75:1.00
December 31, 2018	3.75:1.00
March 31, 2019 and thereafter	3.50:1.00

The Company was in compliance with all financial covenants under the October 2015 Credit Agreement as of September 30, 2016.

Guarantees

The Company's obligations under the October 2015 Credit Agreement are guaranteed by certain of its subsidiaries and secured by substantially all of its tangible and intangible assets.

XML

SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

Share-Based Compensation Plan

The Company grants share-based equity awards, including stock options and restricted stock, pursuant to three plans in effect as of September 30, 2016; the 2006 Plan adopted in October 2006, the 2011 Plan adopted in June 2011, and the 2015 Plan adopted in June 2015 (collectively referred to as the "GTT Stock Plan"). The GTT Stock Plan is limited to an aggregate 9,500,000 shares of which 7,680,310 have been issued and are outstanding as of September 30, 2016.

The GTT Stock Plan permits the granting of stock options, restricted stock and performance awards to employees (including employee directors and officers) and consultants of the Company, and non-employee directors of the Company.

Options granted under the GTT Stock Plan have an exercise price of at least 100% of the fair market value of the underlying stock on the grant date and expire no later than 10 years from the grant date. The stock options generally vest over four years with 25% of the options becoming exercisable one year from the date of grant and the remaining 75% annually or quarterly over the following three years.

Restricted stock granted under the GTT Stock Plan is valued at the closing stock price on the day of grant. Restricted stock generally vests over four years with 25% of the shares becoming unrestricted one year from the date of grant and the remaining 75% annually or quarterly over the following three years.

The Company uses the Black-Scholes option-pricing model to determine the fair value of its option awards at the time of grant. The fair value of the restricted stock awards was calculated using the value of GTT common stock on the grant date and is being amortized over the vesting periods in which the restrictions lapse.

Performance awards are restricted shares granted under the GTT Stock Plan subject to the achievement of certain performance measures. Once achievement of these performance measures is considered probable, the Company starts to expense the fair value of the grant over the requisite service period. The performance award is valued at the closing stock price on the day of grant. The performance grant will vest annually or quarterly over the requisite service period once achievement of the performance measure has been met and approved by the Compensation Committee.

The Compensation Committee of the Board of Directors, as administrator of the Plan, has the discretion to authorize a different vesting schedule for any awards.

The following tables summarize the share-based compensation expense recognized as a selling, general and administrative expense in the condensed consolidated statements of operations (amounts in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Stock options	$	446	$	378	$	1,178	$	1,194
Restricted stock (including performance awards)1	4,398		1,345		9,718		4,223
Total	$	4,844	$	1,723	$	10,896	$	5,417

¹Compensation expense includes $0.6 million and $1.6 million for the three and nine months ended September 30, 2016, respectively, related to the shares issued to the former employees of OSN, which was acquired in 2015, for continued employment. In addition, the expense also includes $0.3 million for the three and nine months ended September 30, 2016 related to the Company's Employee Stock Purchase Plan ("ESPP"). Both topics are discussed in more detail below. No such expense was recorded in 2015 for shares issued to OSN as well as expense related to ESPP.

As of September 30, 2016, there was $25.6 million of total unrecognized compensation cost related to unvested share-based compensation agreements. The following table summarizes the unrecognized compensation cost and the weighted average period over which the cost is expected to be amortized (amounts in thousands):

	September 30, 2016
	Unrecognized Compensation Cost		Weighted Average Remaining Period to be Recognized (Yrs)
Stock options	$	4,127	2.5
Restricted stock (including performance awards)	21,432		2.4
Total	$	25,559	2.4

The following tables summarize the stock options and restricted stock granted during the three and nine months ended September 30, 2016 and 2015, respectively (amounts in thousands, except shares data):

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Stock options granted	3,000		33,750		158,958		284,117
Fair value of stock options granted	$	30	$	349	$	971	$	2,425
Restricted stock granted (including performance awards)	100,059		68,970		629,362		431,279
Fair value of restricted stock granted	$	1,846	$	1,616	$	9,170	$	7,770

Performance Awards

In 2014, the Company granted $7.8 million of restricted stock contingent upon the achievement of certain performance criteria (the "2014 Performance Awards"). The fair value of the 2014 Performance Awards was calculated using the value of GTT common stock on the grant date. The Company started recognizing stock-based compensation expense for these grants once the achievement of the performance criteria was considered probable, which was in the third quarter of 2015. The 2014 Performance Awards started vesting in the fourth quarter of 2015 when the performance criteria were met and they will continue to vest ratably over the subsequent two years. As of September 30, 2016, unamortized compensation cost related to the unvested 2014 Performance Awards was $1.8 million.

In 2015, the Company granted $17.2 million of restricted stock contingent upon the achievement of certain performance criteria (the "2015 Performance Awards"). The fair value of the 2015 Performance Awards was calculated using the value of GTT common stock on the grant date. As the achievement of the performance criteria is not yet considered probable, the full $17.2 million remains unamortized as of September 30, 2016 and has been excluded from the tables above.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan ("ESPP") that permits eligible employees to purchase common stock through payroll deductions at the lessor of the opening stock price or 85% of the closing stock price of the common stock during each of the three-month offering periods. The offering periods generally commence on the first day and the last day of each quarter. At September 30, 2016, 422,721 shares were available for issuance under the ESPP. As of September 30, 2016, the company has recognized $0.3 million of compensation expense related to the ESPP.

Shares Issued in Acquisition

In conjunction with the acquisition of OSN, the Company issued $3.6 million, or 289,055 unregistered shares, of common stock to the selling shareholders of OSN subject to a continuing employment period of 18 months. The fair value of this issuance was calculated using the value of GTT common stock on the acquisition date less a discount for lack of marketability. The $3.6 million is being expensed over the 18 month service period. As of September 30, 2016, unamortized compensation expense was $1.4 million and will be recognized over the remaining six months.

XML

INCOME TAXES

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company’s provision for income taxes is determined using an estimate of its annual effective tax rate, adjusted for certain items. The quarterly tax provision and estimate of the Company's annual effective tax rate are subject to volatility due to several factors, including the Company's ability to accurately project its income (loss) before provision for income taxes in multiple jurisdictions and the effects of acquisitions and integrations.

For the three months ended September 30, 2016, the Company earned income before taxes of $5.0 million and incurred a tax benefit of $0.1 million, which resulted in an effective tax rate of (1.8)%, as compared to an effective tax rate of 6.0% for the three months ended September 30, 2015. The effective tax rate for the three months ended September 30, 2016 differs from the statutory U.S. federal income tax rate of 35.0% primarily due to changes in the amount of income before income taxes between the U.S. and foreign countries. The change in the current quarter effective tax rate compared to prior year was primarily due to the tax impact of U.S. losses in the prior year that did not produce a tax benefit.

For the nine months ended September 30, 2016, the Company earned income before taxes of $6.4 million and incurred tax expense of $0.3 million, which resulted in an effective tax rate of 5.0% as compared to an effective tax rate of 1.5% for the nine months ended September 30, 2015. The effective tax rate for the nine months ended September 30, 2016 differs from the statutory U.S. federal income tax rate of 35.0% primarily due to state tax expense, foreign tax rate differences and a discrete benefit related to foreign provision-to-return adjustments. The change in the current quarter effective tax rate compared to prior year was primarily due to the tax impact of US losses in the prior year that did not produce a tax benefit.

Realization of deferred tax assets in any jurisdictions depends on various factors, including the expectation of generating sufficient taxable income in that jurisdiction. Although realization is not assured, management believes it is more-likely-than-not that the results of operations will generate sufficient taxable income to support the realization of existing deferred tax assets in the U.S. The Company maintains a valuation allowance against certain foreign deferred tax assets.

XML

SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS

9 Months Ended

Sep. 30, 2016

Restructuring and Related Activities [Abstract]

SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS

SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS

The Company incurred severance, restructuring and other exit costs associated with the acquisitions of MegaPath, OSN and Telnes. These costs include employee severance costs, termination costs associated with facility leases and network agreements, and other exit costs related to the transactions.

During the nine months ended September 30, 2016, the Company incurred $1.5 million in charges associated with the acquisition of Telnes offset by $0.1 million in finalization of prior acquisitions. The Company paid $2.7 million in employee termination benefits consisting of $0.8 million, $1.0 million, and $0.9 million related to the acquisitions of MegaPath, OSN, and Telnes, respectively. The Company paid $0.8 million in lease terminations cost consisting of $0.6 million related to the MegaPath acquisition and $0.2 related to the OSN acquisition. Payments made for other contract terminations cost was primarily related to the acquisition of MegaPath for $0.5 million.

The Company released an accrual for $0.6 million related to the finalization of the Telnes purchase price allocation during the third quarter of fiscal 2016. The total exit costs recorded and paid relating to the acquisitions mentioned above are summarized as follows for the nine months ended September 30, 2016 (amounts in thousands):

	Balance, December 31, 2015		Charges and Adjustments			Payments			Balance, September 30, 2016
Employee Termination Benefits	$	1,903	$	870		$	(2,728	)	$	45
Contract Terminations:
Lease terminations	3,035		—			(838		)	2,197
Other contract terminations	1,895		(102		)	(586		)	1,207
	$	6,833	$	768		$	(4,152	)	$	3,449

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

The annual commitments, contractual obligations, and non-cancelable leases as of September 30, 2016 have not materially changed from the year ended December 31, 2015. For details on the Company's commitments and obligations, please refer to Note 13 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Legal Proceedings

From time to time, the Company is a party to legal proceedings arising in the normal course of its business. As of September 30, 2016, the Company does not believe that it is a party to any current or pending legal action that could reasonably be expected to have a material adverse effect on its financial condition or results of operations and cash flows.

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

On November 8, 2016, the Company executed a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Hibernia NGS Limited, a private company (“Hibernia”).  Pursuant to the Purchase Agreement, at closing the Company will pay $515 million in cash plus $75 million in newly issued common stock.  The purchase price is subject to a final post-closing reconciliation for closing date cash, working capital, transaction expenses, indebtedness and certain tax payments.  The transaction is expected to close by the end of the first quarter of 2017.

XML

ORGANIZATION AND BUSINESS (Policies)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the fiscal year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed on March 9, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to such rules and regulations.

The condensed consolidated financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position and its results of operations. The operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year 2016 or for any other interim period. The December 31, 2015 consolidated balance sheet is condensed from the audited financial statements as of that date, but does not include all disclosures required by GAAP.

Use of Estimates and Assumptions

Use of Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used when establishing allowances for doubtful accounts and accruals for billing disputes, determining useful lives for depreciation and amortization and accruals for exit activities, assessing the need for impairment charges (including those related to intangible assets and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income taxes and related valuation allowances against deferred tax assets and estimating the grant date fair values used to compute the share-based compensation expense. Management evaluates these estimates and judgments on an ongoing basis and makes estimates based on historical experience, current conditions, and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

Segment Reporting

Segment Reporting

The Company reports operating results and financial data in one operating and reporting segment. The chief operating decision maker manages the Company as a single profit center in order to promote collaboration, provide comprehensive service offerings across its entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding selected products or services are discussed for purposes of promoting an understanding of the Company's complex business, the chief operating decision maker manages the Company and allocates resources at the consolidated level.

Revenue Recognition

Revenue Recognition

The Company delivers four primary services to its customers — flexible Ethernet-based wide area connectivity services; high bandwidth internet connectivity services; managed network services and security services; and global communication and collaboration services. Certain of its revenue activities have features that may be considered multiple elements, specifically when the Company sells its subscription services in addition to customer premise equipment ("CPE"). The Company believes that there is sufficient evidence to determine each element’s fair value and, as a result, in those arrangements where there are multiple elements, the subscription revenue is recorded ratably over the term of the agreement and the equipment is accounted for as a sale, at the time of sale.

The Company's services are provided under contracts that typically include an installation charge along with payments of recurring charges on a monthly basis for use of the services over a committed term. Its contracts with customers specify the terms and conditions for providing such services, including installation date, recurring and non-recurring fees, payment terms, and contract length. These contracts call for the Company to provide the service in question (e.g., data transmission between point A and point Z), to manage the activation process, and to provide ongoing support (in the form of service maintenance and trouble-shooting) during the service term. The contracts do not typically provide the customer any rights to use specifically identifiable assets. Furthermore, the contracts generally provide the Company with discretion to engineer (or re-engineer) a particular network solution to satisfy each customer’s data transmission requirement, and typically prohibit physical access by the customer to the network infrastructure used by the Company and its suppliers to deliver the services.

The Company recognizes revenue as follows:

Monthly Recurring Revenue. Monthly recurring revenue represents the substantial majority of the Company's revenue, and consists of fees charged for ongoing services that are generally fixed in price and billed on a recurring monthly basis over the specified term of the commitment. At the end of the term, most contracts provide for a continuation of services on the same terms, either for a specified renewal period (e.g., one year) or on a month-to-month basis. The Company records recurring revenue based on the fees agreed to in each contract, as long as the contract is in effect, and as long as collectability is reasonably assured.

Burst Revenue. Burst revenue represents variable charges for certain services, based on specific usage of those services, or usage above a fixed threshold, billed monthly in arrears. The Company records burst revenue based on actual usage charges billed using the rates and/or thresholds specified in each contract, as long as collectability is reasonably assured.

Non-recurring Revenue. Non-recurring revenue consists of charges for installation in connection with the delivery of recurring communications services, late payments, cancellation fees, early termination fees, and equipment sales. Fees billed for installation services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service. Fees charged for late payments, cancellation (pre-installation) or early termination (post-installation) are typically fixed or determinable per the terms of the respective contract, and are recognized as revenue when billed if collectability is reasonably assured. In addition, from time to time the Company sells communications and/or networking equipment to its customers in connection with its data networking services. The Company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer (generally F.O.B. origin) and when collectability is reasonably assured.

Share-Based Compensation

Share-Based Compensation

The Company recognizes share-based compensation expense for share-based payment awards based on the grant date fair value.

The fair value of stock options is determined on the date of grant using the Black-Scholes option-pricing model. The expense is recognized on a straight-line basis over the requisite service period. Share-based compensation expense also includes restricted stock grants for performance awards. The Company recognizes share-based compensation expense for these grants when the achievement of the performance criteria is considered probable.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method pursuant to GAAP. Under this method, deferred tax assets and liabilities are recognized for the expected future results attributable to the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. Further, deferred tax assets are recognized for the expected realization of available net operating loss and tax credit carryforwards. A valuation allowance is recorded on gross deferred tax assets when it is “more likely than not” that such asset will not be realized. When evaluating the realizability of deferred tax assets, all evidence, both positive and negative is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings. The Company reviews its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based upon these factors. Changes in the Company's assessment of the need for a valuation allowance could give rise to a change in such allowance, potentially resulting in additional expense or benefit in the period of change.

The Company's income tax provision includes U.S. federal, state, local and foreign income taxes and is based on pre-tax income or loss. In determining the annual effective income tax rate, the Company analyzes various factors, including its annual earnings and taxing jurisdictions in which the earnings were generated, the impact of state and local income taxes and its ability to use tax credits and net operating loss carryforwards.

Under GAAP for income taxes, the amount of tax benefit to be recognized is the amount of benefit that is “more likely than not” to be sustained upon examination. The Company analyzes its tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established in the consolidated financial statements. The Company recognizes accrued interest and penalties related to unrecognized tax positions in the provision for income taxes.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

In addition to net income (loss), comprehensive loss includes certain charges or credits to equity occurring other than as a result of transactions with stockholders. For the Company, this consists of foreign currency translation adjustments.

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income or (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect, in periods with earnings and in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents may include deposits with financial institutions as well as short-term money market instruments, certificates of deposit and debt instruments with maturities of three months or less when purchased

Accounts Receivable, Net

Accounts Receivable, Net

Accounts receivable balances are stated at amounts due from the customer net of an allowance for doubtful accounts. Credit extended is based on an evaluation of the customer’s financial condition and is granted to qualified customers on an unsecured basis.

The Company, pursuant to its standard service contracts, is entitled to impose a monthly finance charge with respect to amounts that are past due. The Company’s standard terms require payment within 30 days of the date of the invoice. The Company treats invoices as past due when they remain unpaid, in whole or in part, beyond the payment date set forth in the applicable service contract.

The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade receivables are past due, the customer’s payment history, current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Specific reserves are also established on a case-by-case basis by management. Actual bad debts, when determined, reduce the allowance. The Company periodically evaluates the collectability of accounts receivable and writes off accounts after a determination is made that the amounts at issue are no longer likely to be collected, following the exercise of reasonable collection efforts.

Debt Issuance Costs and Original Issue Discount

Debt Issuance Costs

Debt issuance costs represent costs that qualify for deferral associated with the issuance of new debt or the modification of existing debt facilities. The unamortized balance of debt issuance costs is presented as a reduction to the carrying value of long-term debt. Debt issuance costs are amortized and recognized on the condensed consolidated statements of operations as interest expense.

Deferred Costs

Installation costs related to provisioning of recurring communications services that the Company incurs from independent third party suppliers, directly attributable and necessary to fulfill a particular service contract, and which would not have been incurred but for the occurrence of that service contract, are recorded as deferred costs and expensed ratably over the contractual term of service in the same manner as the deferred revenue arising from that contract. Based on historical experience, the Company believes the initial contractual term is the best estimate for the period of earnings. If any installation costs exceed the amount of corresponding deferred revenue, the excess cost is recognized in the current period.

Original Issue Discount

Original issue discount ("OID") is the difference between the face value of debt and the amount of principle received when the loan was originated. When the debt reaches maturity, the face value of the debt is payable. The Company recognizes OID by accretion of the discount as interest expense over the term of the debt.

Property and Equipment

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation, computed using the straight-line method.Depreciation on these assets is computed over the estimated useful lives of the assets. Assets and liabilities under capital leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. Leasehold improvements and assets under capital leases are amortized over the shorter of the term of the lease, excluding optional extensions, or the useful life. Depreciable lives used by the Company for its classes of assets are as follows:

Furniture and Fixtures	7 years
Network Equipment	5 years
Leasehold Improvements	up to 10 years
Computer Hardware and Software	3-5 years

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell or dispose.

Software Capitalization

Software Capitalization

Software development costs include costs to develop software programs to be used solely to meet the Company's internal needs. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended.

Goodwill

The Company records as goodwill, the excess of purchase price over the fair value of the identifiable net assets acquired. The goodwill is assessed for impairment on at least an annual basis on October 1 unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. The Company operates as a single operating segment and as a single reporting unit for the purpose of evaluating goodwill. Accounting guidance prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives. The guidance also allows preparers to qualitatively assess goodwill impairment through a screening process, referred to as "Step 0", which would permit companies to forgo Step 1 of their annual goodwill impairment process. The Company has elected to perform Step 0 for its annual impairment assessment of goodwill on October 1, 2016. The Step 0 analysis focused on a number of events and circumstances that may be considered when making this qualitative assessment. Upon careful consideration of these events and circumstances the Company concluded that its fair value (primarily based on market capitalization) of the reporting unit was greater than the carrying amount.

Intangible Assets

The Company's definite-lived intangible assets are acquired in business combinations and recorded at their fair value. The Company reviews its recorded definite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. The Company's definite-lived intangible assets, consisting of customer relationships, restrictive covenants related to employment agreements, license fees, and intellectual property are amortized on a straight-line basis, over their estimated useful lives of periods up to seven years. FCC Licenses are accounted for as a definite-lived intangible asset and amortized over the average remaining useful life of such licenses which approximates three years. Intellectual property consisting of know-how related to the SIP trunking platform is amortized over the estimated useful life of ten years.

The Company's indefinite-lived intangible asset consists of a trade name that is not amortized, but is tested on at least an annual basis as of October 1 unless interim indicators of impairment exist. As of October 1, 2016, the Company performed its annual impairment test of the trade name, using the royalty relief method for valuation, and concluded that the fair value of the trade name was greater than the carrying amount. However, due to the re-branding of certain network operations associated to the acquired trade name, the Company concluded that the trade name should be deemed a definite-lived intangible asset with an estimated useful life of three years, to be amortized prospectively as of October 1, 2016.

Business Combinations

Business Combinations

The Company includes the results of operations of the businesses that it acquires commencing on the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Accrued Supplier Expenses

Accrued Supplier Expenses

The Company accrues estimated charges owed to its suppliers for services. The Company bases this accrual on the supplier contract, the individual service order executed with the supplier for that service, and the length of time the service has been active.

Disputed Supplier Expenses

Disputed Supplier Expenses

It is common in the telecommunications industry for customers and suppliers to engage in disputes over amounts billed (or not billed) in error or over interpretation of contract terms. Management estimates a liability for the amounts the Company believes are valid and that the Company owes to a supplier. This liability is reconciled with actual results as disputes are resolved, or as the appropriate statute of limitations with respect to a given dispute expires.

Acquisition Earn-outs and Holdbacks

Acquisition Earn-outs and Holdbacks

Acquisition earn-outs and holdbacks represent either contingent consideration subject to re-measurement to fair value, or fixed deferred consideration due to be paid out typically on the one-year anniversary of an acquisition's closing.  Contingent consideration is remeasured to fair value at each reporting period. The portion of the deferred consideration due within one year is recorded as a current liability until paid, and any consideration due beyond one year is recorded in other long-term liabilities.

Translation of Foreign Currencies

Translation of Foreign Currencies

For operations of subsidiaries located outside the U.S., the local currency is the functional currency for financial reporting purposes. These consolidated financial statements have been reported in U.S. Dollars by translating asset and liability amounts of foreign subsidiaries at the closing currency exchange rate, equity amounts at historical rates, and the results of operations and cash flow at the average currency exchange rate prevailing during the periods reported. The net effect of such translation gains and losses are reflected in accumulated other comprehensive loss in the stockholders' equity section of the condensed consolidated balance sheets.

Transactions denominated in foreign currencies other than a subsidiary's functional currency are recorded at the rates of exchange prevailing at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising upon settlement of a transaction are reported in the condensed consolidated statements of operations in other expense, net.

Fair Value Measurements

Fair Value Measurements

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:

Level 1:    Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.

Level 2:    Inputs other than quoted prices included in level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:    Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

As of September 30, 2016 and December 31, 2015, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and other liabilities approximated fair value due to the short-term nature of these instruments.

The carrying value of the Company's long-term debt, net of unamortized debt issuance costs and unamortized original issuance discount was $416.5 million and $386.2 million, as of September 30, 2016 and December 31, 2015, respectively. Based on trading activity of the Company's specific debt, the fair value of the Company's long-term debt as of September 30, 2016 and December 31, 2015 was estimated to approximate its carrying value. The Company's fair value estimates of the long-term debt were based on level 2 inputs; quoted prices for similar instruments in active markets.

The Company recorded an earn-out for an acquisition consummated in 2014 at fair value. The earn-out was fully settled in the second quarter of 2016 at the fair value as of December 31, 2015. The fair value of the earn-out was $0.5 million as of December 31, 2015, which was estimated to be the same as its carrying value, based on level 3 inputs.

Assets measured at fair value on a non-recurring basis include goodwill, tangible assets, and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (level 3).

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments potentially subject to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. At times during the periods presented, the Company had funds in excess of $250,000 insured by the U.S. Federal Deposit Insurance Corporation, or in excess of similar Deposit Insurance programs outside of the United States, on deposit at various financial institutions. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company's trade accounts receivable are generally unsecured and geographically dispersed.

Newly Adopted Accounting Principles and Recent Accounting Pronouncements

Newly Adopted Accounting Principles

For information regarding newly adopted accounting principles, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Note 2 to our consolidated financial statements contained therein. The Company has not adopted any new accounting principles for the third quarter of 2016.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company is still evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases, which will require most leases (with the exception of leases with terms of less than one year) to be recognized on the balance sheet as an asset and a lease liability. Leases will be classified as an operating lease or a financing lease. Operating leases are expensed using the straight-line method whereas financing leases will be treated similarly to a capital lease under the current standard. The new standard will be effective for annual and interim periods, within those fiscal years, beginning after December 15, 2018 but early adoption is permitted. The new standard must be presented using the modified retrospective method beginning with the earliest comparative period presented. The Company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which was issued as part of the FASB’s simplification initiative and cover such areas as (i) the recognition of excess tax benefits and deficiencies and the classification of those excess tax benefits on the statement of cash flows, (ii) an accounting policy election for forfeitures to be estimated or account for when incurred, (iii) the amount an employer can withhold to cover income taxes and still qualify for equity classification; and (iv) the classification of those taxes paid on the statement of cash flows. This update is effective for annual and interim periods beginning after December 15, 2016, which will require the Company to adopt these provisions in the first quarter of fiscal 2017. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. The Company is still evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice of how certain transactions are classified and presented in the statement of cash flows in accordance with ASC 230. The ASU amends or clarifies guidance on eight specific cash flow issues, some of which include classification on debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company is currently evaluating the effect of the new standard on its consolidated financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB during fiscal 2015 and through the period ended September 30, 2016 are not believed by management to have a material impact on the Company's present or historical consolidated financial statements.

XML

ORGANIZATION AND BUSINESS (Tables)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The table below details the calculations of earnings (loss) per share (in thousands, except for share and per share amounts):  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Numerator for basic and diluted EPS – earnings (loss) available to common stockholders	$	5,127	$	1,762	$	6,114	$	(8,284	)
Denominator for basic EPS – weighted average shares	37,152,063		34,981,104		36,998,607		34,603,144
Effect of dilutive securities	633,858		907,421		482,807		—
Denominator for diluted EPS – weighted average shares	37,785,921		35,888,525		37,481,414		34,603,144
Earnings (loss) per share: basic	$	0.14	$	0.05	$	0.17	$	(0.24	)
Earnings (loss) per share: diluted	$	0.14	$	0.05	$	0.16	$	(0.24	)

Schedule Of Property Plan And Equipment Estimated Useful Life

Depreciable lives used by the Company for its classes of assets are as follows:

Furniture and Fixtures	7 years
Network Equipment	5 years
Leasehold Improvements	up to 10 years
Computer Hardware and Software	3-5 years

XML

BUSINESS ACQUISITIONS (Tables)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Summary of Pro Forma Financial Information

The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2015.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
(Amounts in thousands, except per share and share data)
Revenue	$	131,851	$	117,192		$	385,201	$	344,653
Net income (loss)	$	5,127	$	(164	)	$	6,114	$	(16,870	)
Earnings (loss) per share:
Basic	$	0.14	$	—		$	0.17	$	(0.47	)
Diluted	$	0.14	$	—		$	0.16	$	(0.47	)
Basic	37,152,063		35,456,105			36,998,607		35,688,988
Diluted	37,785,921		35,456,105			37,481,414		35,688,988

XML

GOODWILL AND INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The changes in the carrying amount of goodwill for the period ended September 30, 2016 and December 31, 2015 are as follows (amounts in thousands):

Balance, December 31, 2015	$	270,956
Adjustments to prior year's business combination	4,518
Goodwill associated with Telnes acquisition	5,119
Balance, September 30, 2016	$	280,593

Schedule of Finite-Lived Intangible Assets

The following table summarizes the Company’s intangible assets as of September 30, 2016 and December 31, 2015 (amounts in thousands):

		September 30, 2016						December 31, 2015
	Amortization Period	Gross Asset Cost		Accumulated Amortization		Net Book Value		Gross Asset Cost		Accumulated Amortization		Net Book Value
Customer contracts	3-7 years	$	239,763	$	81,183	$	158,580	$	215,802	$	54,041	$	161,761
Non-compete agreements	3-5 years	4,572		4,395		177		4,331		4,305		26
Point-to-point FCC license fees	3 years	1,695		1,127		568		1,695		701		994
Intellectual property	10 years	17,379		1,642		15,737		17,379		336		17,043
Trade name	3 years	2,292		1,087		1,205		2,079		519		1,560
Trade name (indefinite-lived)	N/A	800		—		800		800		—		800
		$	266,501	$	89,434	$	177,067	$	242,086	$	59,902	$	182,184

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Estimated amortization expense related to intangible assets subject to amortization at September 30, 2016 in each of the years subsequent to September 30, 2016 is as follows (amounts in thousands):

2016 remaining	$	10,084
2017	39,049
2018	32,732
2019	27,901
2020	24,989
2021 and beyond	41,512
Total	$	176,267

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2016

Payables and Accruals [Abstract]

Schedule of Accounts Payable and Accrued Liabilities

The following table summarizes the Company’s accrued expenses and other current liabilities as of September 30, 2016 and December 31, 2015 (amounts in thousands):

	September 30, 2016		December 31, 2015
Accrued compensation and benefits	$	7,463	$	9,465
Accrued selling, general and administrative	2,951		3,118
Accrued carrier costs	20,209		20,376
Accrued restructuring	3,449		6,833
Accrued other	6,404		3,323
	$	40,476	$	43,115

XML

DEBT (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of Debt

As of September 30, 2016 and December 31, 2015, long-term debt was as follows (amounts in thousands):

	September 30, 2016			December 31, 2015
Term loan	$	426,850		$	400,000
Revolving line of credit	6,000			5,000
Total debt obligations	432,850			405,000
Unamortized debt issuance costs	(9,172		)	(10,938		)
Unamortized original issuance discount	(7,219		)	(7,819		)
Carrying value of debt	416,459			386,243
Less current portion	(4,300		)	(4,000		)
Long-term debt less current portion	$	412,159		$	382,243

Schedule of Maturities of Long-term Debt

The aggregate contractual maturities of long-term debt (excluding unamortized discounts and unamortized debt issuance costs) were as follows at September 30, 2016 (amounts in thousands):

	Total Debt
2016 remaining	$	1,075
2017	4,300
2018	4,300
2019	4,300
2020	10,300
2021	4,300
2022	404,275
Total	$	432,850

Schedule of Debt Covenants

In addition, the Company is restricted from permitting the Consolidated Net Secured Leverage Ratio to be greater than the maximum ratio specified below during the period opposite such maximum ratio:

Fiscal Quarter Ending	Maximum Ratio
September 30, 2016	4.75:1.00
December 31, 2016	4.75:1.00
March 31, 2017	4.50:1.00
June 30, 2017	4.50:1.00
September 30, 2017	4.25:1.00
December 31, 2017	4.25:1.00
March 31, 2018	4.00:1.00
June 30, 2018	4.00:1.00
September 30, 2018	3.75:1.00
December 31, 2018	3.75:1.00
March 31, 2019 and thereafter	3.50:1.00

XML

SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The following tables summarize the share-based compensation expense recognized as a selling, general and administrative expense in the condensed consolidated statements of operations (amounts in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Stock options	$	446	$	378	$	1,178	$	1,194
Restricted stock (including performance awards)1	4,398		1,345		9,718		4,223
Total	$	4,844	$	1,723	$	10,896	$	5,417

¹Compensation expense includes $0.6 million and $1.6 million for the three and nine months ended September 30, 2016, respectively, related to the shares issued to the former employees of OSN, which was acquired in 2015, for continued employment. In addition, the expense also includes $0.3 million for the three and nine months ended September 30, 2016 related to the Company's Employee Stock Purchase Plan ("ESPP"). Both topics are discussed in more detail below. No such expense was recorded in 2015 for shares issued to OSN as well as expense related to ESPP.

Schedule of Unrecognized Compensation Cost, Nonvested Awards

The following table summarizes the unrecognized compensation cost and the weighted average period over which the cost is expected to be amortized (amounts in thousands):

	September 30, 2016
	Unrecognized Compensation Cost		Weighted Average Remaining Period to be Recognized (Yrs)
Stock options	$	4,127	2.5
Restricted stock (including performance awards)	21,432		2.4
Total	$	25,559	2.4

Schedule of Share-based Compensation, Activity

The following tables summarize the stock options and restricted stock granted during the three and nine months ended September 30, 2016 and 2015, respectively (amounts in thousands, except shares data):

	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Stock options granted	3,000		33,750		158,958		284,117
Fair value of stock options granted	$	30	$	349	$	971	$	2,425
Restricted stock granted (including performance awards)	100,059		68,970		629,362		431,279
Fair value of restricted stock granted	$	1,846	$	1,616	$	9,170	$	7,770

XML

SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS (Tables)

9 Months Ended

Sep. 30, 2016

Restructuring and Related Activities [Abstract]

Schedule of Restructuring and Related Costs

The total exit costs recorded and paid relating to the acquisitions mentioned above are summarized as follows for the nine months ended September 30, 2016 (amounts in thousands):

	Balance, December 31, 2015		Charges and Adjustments			Payments			Balance, September 30, 2016
Employee Termination Benefits	$	1,903	$	870		$	(2,728	)	$	45
Contract Terminations:
Lease terminations	3,035		—			(838		)	2,197
Other contract terminations	1,895		(102		)	(586		)	1,207
	$	6,833	$	768		$	(4,152	)	$	3,449

XML

ORGANIZATION AND BUSINESS (Details Textual)	3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($) service	Sep. 30, 2016 USD ($) service segment	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of operating segments (in segments) | segment		1
Number of reporting segments (in segments) | segment		1
Number of primary services (in services) | service	4	4
Capitalized software costs | $	$ 400,000	$ 1,200,000		$ 0
Goodwill impairment | $		$ 0	$ 0
Point-to-point FCC license fees
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life		3 years		3 years
Intellectual property
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life		10 years		10 years
Trade name
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life		3 years		3 years
Maximum | Customer Relationships
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life		7 years
Weighted Average | Point-to-point FCC license fees
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life		3 years

XML

ORGANIZATION AND BUSINESS (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Numerator for basic and diluted EPS – earnings (loss) available to common stockholders	$ 5,127	$ 1,762	$ 6,114	$ (8,284)
Denominator for basic EPS – weighted average shares (in shares)	37,152,063	34,981,104	36,998,607	34,603,144
Effect of dilutive securities (in shares)	633,858	907,421	482,807	0
Denominator for diluted EPS – weighted average shares (in shares)	37,785,921	35,888,525	37,481,414	34,603,144
Earnings per share: basic (in dollars per share)	$ 0.14	$ 0.05	$ 0.17	$ (0.24)
Earnings per share: diluted (in dollars per share)	$ 0.14	$ 0.05	$ 0.16	$ (0.24)
Anti-dilutive items (in shares)			4,000	5,000

XML

ORGANIZATION AND BUSINESS (Details 1)	9 Months Ended
	Sep. 30, 2016
Furniture and Fixtures
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	7 years
Network Equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Leasehold Improvements | Maximum
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years
Computer Hardware and Software | Maximum
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Computer Hardware and Software | Minimum
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years

XML

ORGANIZATION AND BUSINESS (Details Textual 1) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($) customer	Sep. 30, 2015 customer	Dec. 31, 2015 USD ($) customer
Concentration Risk [Line Items]
Disputed supplier expense	$ 8,300		$ 6,900
Unamortized debt issuance expense	9,172		10,938
Debt instrument, unamortized discount	7,219		7,819
Long-term debt	$ 416,459		$ 386,243
Customer Concentration Risk | Sales Revenue, Services, Net
Concentration Risk [Line Items]
Number of major customers (in customers) | customer	0	0
Customer Concentration Risk | Accounts Receivable
Concentration Risk [Line Items]
Number of major customers (in customers) | customer	0		0
Earn-out Liability
Concentration Risk [Line Items]
Financial and nonfinancial liabilities, fair value disclosure			$ 500

XML

BUSINESS ACQUISITIONS (Details) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended		9 Months Ended
	Feb. 04, 2016	Jul. 31, 2016	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Acquisition [Line Items]
Adjustments to prior year's business combination					$ 4,518
Business combination, integration related costs			$ 800	$ 800	3,100	$ 3,100
Revenue			131,851	117,192	385,201	344,653
Net income (loss)			$ 5,127	$ (164)	$ 6,114	$ (16,870)
Earnings (loss) per share: basic (in dollars per share)			$ 0.14	$ 0.00	$ 0.17	$ (0.47)
Earnings (loss) per share: diluted (in dollars per share)			$ 0.14	$ 0.00	$ 0.16	$ (0.47)
Denominator for basic EPS – weighted average shares (in shares)			37,152,063	35,456,105	36,998,607	35,688,988
Denominator for diluted EPS – weighted average shares (in shares)			37,785,921	35,456,105	37,481,414	35,688,988
Telnes Broadband
Business Acquisition [Line Items]
Total consideration to be allocated in acquisition accounting	$ 18,200
Cash paid at closing	15,500
Total common stock consideration	2,700
Payments to acquire businesses, delayed portion	$ 1,800
Payments to acquire businesses, delayed portion, term	1 year
Business combination, provisional information, initial accounting incomplete, adjustment, equity interests	$ 2,000
Business combination, provisional information, initial accounting incomplete, adjustment, consideration transferred	$ 17,500
MegaPath
Business Acquisition [Line Items]
Payments for previous acquisition		$ 4,100
Adjustments to prior year's business combination			$ 4,100

XML

GOODWILL AND INTANGIBLE ASSETS (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 280,593		$ 280,593		$ 270,956
Intangible assets, net	177,067		177,067		$ 182,184
Amortization of intangible assets	$ 10,100	$ 6,100	$ 29,500	$ 16,400
Trade name
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life			3 years		3 years

XML

GOODWILL AND INTANGIBLE ASSETS (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Goodwill [Roll Forward]
Goodwill	$ 270,956
Adjustments to prior year's business combination	4,518
Goodwill associated with Telnes acquisition	5,119
Goodwill	280,593	$ 270,956
Schedule of Intangible Assets [Line Items]
Total	176,267
Intangible Assets, Gross	266,501	242,086
Accumulated Amortization	89,434	59,902
Net Book Value	177,067	182,184
Trade name (indefinite-lived)
Schedule of Intangible Assets [Line Items]
Trade name (non-amortizing)	800	800
Customer contracts
Schedule of Intangible Assets [Line Items]
Gross Asset Cost	239,763	215,802
Total	158,580	161,761
Accumulated Amortization	$ 81,183	$ 54,041
Customer contracts | Minimum
Schedule of Intangible Assets [Line Items]
Amortization Period	3 years	3 years
Customer contracts | Maximum
Schedule of Intangible Assets [Line Items]
Amortization Period	7 years	7 years
Non-compete agreements
Schedule of Intangible Assets [Line Items]
Gross Asset Cost	$ 4,572	$ 4,331
Total	177	26
Accumulated Amortization	$ 4,395	$ 4,305
Non-compete agreements | Minimum
Schedule of Intangible Assets [Line Items]
Amortization Period	3 years	3 years
Non-compete agreements | Maximum
Schedule of Intangible Assets [Line Items]
Amortization Period	5 years	5 years
Point-to-point FCC license fees
Schedule of Intangible Assets [Line Items]
Amortization Period	3 years	3 years
Gross Asset Cost	$ 1,695	$ 1,695
Total	568	994
Accumulated Amortization	$ 1,127	$ 701
Intellectual property
Schedule of Intangible Assets [Line Items]
Amortization Period	10 years	10 years
Gross Asset Cost	$ 17,379	$ 17,379
Total	15,737	17,043
Accumulated Amortization	$ 1,642	$ 336
Trade name (indefinite-lived)
Schedule of Intangible Assets [Line Items]
Amortization Period	3 years	3 years
Gross Asset Cost	$ 2,292	$ 2,079
Total	1,205	1,560
Accumulated Amortization	$ 1,087	$ 519

XML

GOODWILL AND INTANGIBLE ASSETS (Details 1) $ in Thousands	Sep. 30, 2016 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2016 remaining	$ 10,084
2017	39,049
2018	32,732
2019	27,901
2020	24,989
2021 and beyond	41,512
Total	$ 176,267

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Payables and Accruals [Abstract]
Accrued compensation and benefits	$ 7,463	$ 9,465
Accrued selling, general and administrative	2,951	3,118
Accrued carrier costs	20,209	20,376
Accrued restructuring	3,449	6,833
Accrued other	6,404	3,323
Accrued expenses and other current liabilities	$ 40,476	$ 43,115

XML

DEBT (Details) $ in Thousands	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)	Oct. 31, 2015	Oct. 22, 2015 USD ($)
Debt Instrument [Line Items]
Total debt obligations	$ 432,850	$ 405,000
Unamortized debt issuance costs	(9,172)	(10,938)
Unamortized original issuance discount	(7,219)	(7,819)
Carrying value of debt	416,459	386,243
Less current portion	(4,300)	(4,000)
Long-term debt less current portion	412,159	382,243
2016 remaining	1,075
2017	4,300
2018	4,300
2019	4,300
2020	10,300
2021	4,300
2022	404,275
Total debt obligations	432,850	405,000
Credit Agreement, October 2015
Debt Instrument [Line Items]
Unamortized original issuance discount				$ (8,000)
Credit Agreement, October 2015 | Fiscal Quarter Ending September 30, 2016
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.75
Credit Agreement, October 2015 | Fiscal Quarter Ending December 31, 2016
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.75
Credit Agreement, October 2015 | Fiscal Quarter Ending March 31, 2017
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.50
Credit Agreement, October 2015 | Fiscal Quarter Ending June 30, 2017
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.50
Credit Agreement, October 2015 | Fiscal Quarter Ending September 30, 2017
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.25
Credit Agreement, October 2015 | Fiscal Quarter Ending December 31, 2017
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.25
Credit Agreement, October 2015 | Fiscal Quarter Ending March 31, 2018
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.00
Credit Agreement, October 2015 | Fiscal Quarter Ending June 30, 2018
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			4.00
Credit Agreement, October 2015 | Fiscal Quarter Ending September 30, 2018
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			3.75
Credit Agreement, October 2015 | Fiscal Quarter Ending December 31, 2018
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			3.75
Credit Agreement, October 2015 | Fiscal Quarter Ending March 31, 2019 and thereafter
Debt Instrument [Line Items]
Maximum consolidated net total leverage ratio			3.50
Term loan
Debt Instrument [Line Items]
Total debt obligations	426,850	400,000
Total debt obligations	426,850	400,000
Revolving line of credit
Debt Instrument [Line Items]
Total debt obligations	6,000	5,000
Total debt obligations	$ 6,000	$ 5,000

XML

DEBT (Details Textual) - USD ($)				3 Months Ended		9 Months Ended
	Jun. 28, 2016	May 03, 2016	Oct. 22, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Debt Instrument [Line Items]
Debt instrument, unamortized discount				$ 7,219,000		$ 7,219,000		$ 7,819,000
Loss on debt extinguishment				0	$ 0	1,632,000	$ 1,056,000
Long-term debt, gross				432,850,000		432,850,000		405,000,000
Revolving line of credit
Debt Instrument [Line Items]
Long-term debt, gross				6,000,000		6,000,000		$ 5,000,000
Line of credit facility, remaining borrowing capacity				43,500,000		43,500,000
Debt and capital lease obligations				$ 500,000		$ 500,000
Credit Agreement, October 2015
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity			$ 400,000,000.0
Debt instrument, unamortized discount			8,000,000
Increase in borrowing capacity		$ 30,000,000.0
Debt instrument, interest rate, effective percentage				5.74%		5.74%		6.24%
Credit Agreement, October 2015 | Revolving Credit Facility
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity			$ 50,000,000.0
Credit Agreement, October 2015 | Revolving Credit Facility | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate			4.75%
Debt instrument, interest rate, effective percentage rate range, minimum			0.00%
Credit Agreement, October 2015 | Letter of Credit
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity			$ 15,000,000.0
Credit Agreement, October 2015 | Swingline Loan
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity			10,000,000.0
Credit Agreement, October 2015 | Incremental Term Loan And Incremental Revolving Loan
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity			75,000,000.0
Credit Agreement, October 2015 | Incremental Revolver
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity			$ 25,000,000.0
Credit Agreement, October 2015 | Term Loan | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate			5.25%
Debt instrument, interest rate, effective percentage rate range, minimum			1.00%
Credit Agreement, Repricing Amendment
Debt Instrument [Line Items]
Debt instrument, prepayment penalty, percentage of principal amount outstanding	1.00%
Loss on debt extinguishment	$ 1,600,000
Debt issuance cost	$ 800,000
Credit Agreement, Repricing Amendment | Revolving Credit Facility | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	4.25%
Debt instrument, interest rate, effective percentage rate range, minimum	0.00%
Credit Agreement, Repricing Amendment | Term Loan | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	4.75%
Debt instrument, interest rate, effective percentage rate range, minimum	1.00%

XML

SHARE-BASED COMPENSATION (Details Textual) - USD ($) $ in Thousands		3 Months Ended			9 Months Ended		12 Months Ended
	Oct. 22, 2015	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)		9,500,000			9,500,000
Awards outstanding (in shares)		7,680,310			7,680,310
Unrecognized compensation cost		$ 25,559			$ 25,559
Allocated share-based compensation expense		4,844		$ 1,723	10,896	$ 5,417
Stock issued in connection with acquisition					$ 1,995
Weighted average remaining period to be recognized					2 years 4 months 24 days
One Source Networks Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost		$ 1,400			$ 1,400
Stock issued in connection with acquisition	$ 3,600
Stock issued in connection with acquisition (in shares)	289,055
Award requisite service period	18 months
Weighted average remaining period to be recognized					6 months
Employee Stock Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Purchase price of common stock, percent					85.00%
Number of shares available for grant (in shares)		422,721			422,721
Allocated share-based compensation expense		$ 300			$ 300
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost		$ 1,800			$ 1,800
Fair value of shares granted							$ 17,200	$ 7,800
Award vesting period			2 years
Stock Option 25
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, vested and expected to vest, outstanding, weighted average remaining contractual term					4 years
Stock Option 75
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, vested and expected to vest, outstanding, weighted average remaining contractual term					3 years
Percent of awards vesting after initial year					75.00%
Periodic Vesting
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Purchase price of common stock, percent					100.00%
Periodic Vesting | Employee Director Consultant Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of award					10 years
Periodic Vesting | Stock Option 25
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual vesting percentage					25.00%

XML

SHARE-BASED COMPENSATION (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	$ 4,844,000	$ 1,723,000	$ 10,896,000	$ 5,417,000
Unrecognized Compensation Cost	25,559,000		$ 25,559,000
Weighted Average Remaining Period to be Recognized			2 years 4 months 24 days
Employee Stock Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	300,000		$ 300,000
One Source Networks Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized Compensation Cost	1,400,000		$ 1,400,000
Weighted Average Remaining Period to be Recognized			6 months
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	446,000	$ 378,000	$ 1,178,000	$ 1,194,000
Unrecognized Compensation Cost	$ 4,127,000		$ 4,127,000
Weighted Average Remaining Period to be Recognized			2 years 6 months
Stock options granted (in shares)	3,000	33,750	158,958	284,117
Fair value of shares granted	$ 30,000	$ 349,000	$ 971,000	$ 2,425,000
Restricted stock (including performance awards)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	4,398,000	1,345,000	9,718,000	4,223,000
Unrecognized Compensation Cost	21,432,000		$ 21,432,000
Weighted Average Remaining Period to be Recognized			2 years 4 months 24 days
Fair value of shares granted	$ 1,846,000	$ 1,616,000	$ 9,170,000	$ 7,770,000
Restricted stock shares granted (in shares)	100,059	68,970	629,362	431,279
Restricted stock (including performance awards) | One Source Networks Inc.
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share-based compensation expense	$ 600,000		$ 1,600,000		$ 0

XML

INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Taxable earnings	$ 5,000
(Benefit from) provision for income taxes	$ (89)	$ (99)	$ 320	$ (124)
Effective income tax rate reconciliation, percent	(1.80%)	6.00%	5.00%	1.50%
Effective income tax rate reconciliation, at federal statutory income tax rate, percent	35.00%		35.00%
Income (loss) before income taxes	$ 5,038	$ 1,663	$ 6,434	$ (8,408)

XML

SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS (Details Textual) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016
Restructuring Cost and Reserve [Line Items]
Restructuring costs		$ 768
Paid		4,152
Other contract terminations
Restructuring Cost and Reserve [Line Items]
Restructuring costs		(102)
Paid		586
Employee Termination Benefits
Restructuring Cost and Reserve [Line Items]
Restructuring costs		870
Paid		2,728
Lease terminations
Restructuring Cost and Reserve [Line Items]
Restructuring costs		0
Paid		838
Telnes Broadband
Restructuring Cost and Reserve [Line Items]
Restructuring costs		1,500
Telnes Broadband | Other contract terminations
Restructuring Cost and Reserve [Line Items]
Restructuring costs	$ (600)
Telnes Broadband | Employee Termination Benefits
Restructuring Cost and Reserve [Line Items]
Paid		900
MegaPath | Other contract terminations
Restructuring Cost and Reserve [Line Items]
Paid		500
MegaPath | Employee Termination Benefits
Restructuring Cost and Reserve [Line Items]
Paid		800
MegaPath | Lease terminations
Restructuring Cost and Reserve [Line Items]
Paid		600
One Source Networks Inc. | Employee Termination Benefits
Restructuring Cost and Reserve [Line Items]
Paid		1,000
One Source Networks Inc. | Lease terminations
Restructuring Cost and Reserve [Line Items]
Paid		$ 200

XML

SEVERANCE, RESTRUCTURING AND OTHER EXIT COSTS (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Restructuring Reserve [Roll Forward]
Balance	$ 6,833
Charges and Adjustments	768
Payments	(4,152)
Balance	3,449
Employee Termination Benefits
Restructuring Reserve [Roll Forward]
Balance	1,903
Charges and Adjustments	870
Payments	(2,728)
Balance	45
Lease terminations
Restructuring Reserve [Roll Forward]
Balance	3,035
Charges and Adjustments	0
Payments	(838)
Balance	2,197
Other contract terminations
Restructuring Reserve [Roll Forward]
Balance	1,895
Charges and Adjustments	(102)
Payments	(586)
Balance	$ 1,207

XML

SUBSEQUENT EVENTS (Details) - Subsequent Event - Hibernia NGS Limited $ in Millions	Nov. 08, 2016 USD ($)
Subsequent Event [Line Items]
Percentage of voting interests expected to acquire	100.00%
Expected payments to acquire business	$ 515
Common stock consideration	$ 75