CCOI - Earnings call transcript Q3 2017 | Cogent Communications Holdings, Inc.

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Operator

Good morning, and welcome to the Cogent Communications Holdings Third Quarter 2017 Earnings Conference Call.

As a reminder, this conference call is being recorded and it will be available for replay at www.cogentco.com. I would now like to turn the conference over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings. Please begin.

David Schaeffer

you joining thank call and morning, all our for today. Good Earnings our Third to Conference Quarter Welcome XXXX Call. our Schaeffer, with morning's Weed, me Dave on I'm Co-Chair this call and is CEO, and CFO. Tad

a results beyond. for are be about revenue We remainder the achieved underlying the of with and on We in business for the sequential optimistic our pleased quarterly strength outlook and X.X%. continue quarter XXXX, basis to of our the XXXX, growth and

full-time average the equivalent was rate equivalent productivity X.X by units Despite per in neutrality million, month. a significantly units rep incurring X.X%, per per per sales quarter productivity increased net rep $X or installed fees that above third Our month, XXXX. our of full-time again of the was in rep EBITDA from $XXX,XXX.XX long-term sales historical X.X quarters,

for capital period the nine-month the period by ending XXXX. to in decreased Our September compared comparable XXXX expenditures when X.X% XX, on

and compared nine-month Our capital for $XX nine-month $XX.X for to million period. XXXX this were period million capital lease expenditures as

quarter we achieved and the traffic to achieved sequential from We quarterly significant reported the a we quarter, and a year-over-year in last our traffic increase rate growth sequential X%, rates. growth accelerated growth traffic X% our increase also XX%. rate an of For improved

our we under the a buybacks total million returned our million December buyback to quarter-end, for of $XX.X program. continues quarter, through stock At had we regular of During our authorization, shareholders dividend XXXX. through available which $XX.X stock

constant is million the Of for our dividends, our improved unrestricted therefore, quarter. end times the X.XX $XXX,XXX,XXX or quarter net ratio the of cash, X.XX the remained times to relatively the uses, at in was at at Our other as companies. quarter. company, to EBITDA holding X.XX $XX.X and the gross held And compared We in with ended and buybacks balance leverage is previous leverage by available on sheet. cash this

growth our generating potential business. about of our confident remain to capabilities cash and continue We the

another share $X.XX quarterly our Cogent share. to our As as a in dividend. consecutive result, our sequential discussion raise a several in regular XXst share indicated able performance. from raising per to greater we details the which Throughout statistics, in some yet and quarterly $X.XX dividend $X.XX a provide increase announced has this I'll quarterly operational represents on we'll Tad This financial regular additional its in quarter press detail our highlight release, dividend, operational highlights, will been review

and we'll Following answers. our to happy remarks, the be questions for floor open

Tad Harbor to read like to it Safe I'd turn language. our to over Now

Thaddeus G. Weed

risks non-GAAP Cogent financial to this on information no revise forward-looking any If we update to cause more statements. or could measures in call the undertakes the will I back find over will at Dave. website our GAAP morning, Thank these intent, call based forward-looking and our may other that you, a subject everyone. of Please statements filings results are that current historical may includes These materially. this facts belief forward-looking Dave, are number are and good uncertainties, forward-looking be reconciled our which cogentco.com. measurement to on statements actual posted to differ. results the to for refer differ and that upon made and not conference all obligation on These use This turn call and release, you expectations. to statements actual factors during SEC earnings statements. our is earnings call,

David Schaeffer

Hey, release. our earnings thanks, chance to press Hopefully review you've a Tad. had

number includes metrics, reported of a press which a Our release are basis. consistent quarterly on historical

guidance. expectations for a Now long-term against our about moment

year on a long-term for is basis a constant XX%. full guidance targeted revenue between XX% Our of currency growth and

within been but that slightly are range. below that today, We have historically

performed. to basis is a we this be expansion range which annual adjusted points Our per long-term traditionally is in as Again, margin targeted year. have XXX approximately EBITDA

not and EBITDA used to or targets. are and revenue multi-year be long-term, even as given intended to be rather guidance, either are designed annual Our guidance but specific targets quarterly for intended

the is amount equipment adjusted of impacted our gains, as effects EBITDA SG&A of Our neutrality, expenditures our certain expenses. by and on seasonality net

factors, Tad those additional our will influenced fact, some in the of our this cover quarter. performance now for quarter. of financial All results

Thaddeus G. Weed

you, our upon morning everyone. during their and thank our which Thank hard I'd to on-net, results class, by Cogent. team we and also very good product is very like Revenue Dave, off-net, congratulate product for and work, and again, class, busy quarter revenues and entire continued based their and productive for analyze efforts to and non-core. another

two corporate classify into also We all We types: and analyze customer type. our customers upon of customers. our revenues net-centric based revenues

(XX:XX) and us customers centers. net-centric data neutral from large Our buy carrier amounts of bandwidth

Our in our corporate multi-tenant large X.X% customers grew $XX.X Revenue office by corporate from buy million, by customers sequentially and buildings. bandwidth XX.X%. grew year-over-year from to us

on customer our have We net-centric on by subsequently our quarter-end. and at XX,XXX X.X%, from by corporate at grew X.X%. quarter-end. Revenue customers connections our connections We network had network XX,XXX grew net-centric customer year-over-year

class, than was more growth due revenue the increase of quarterly year-over-year sequential for impact seasonal a Our and increase which million foreign customer revenue was net-centric volatily by quarter, corporate experiences X.X%. $XX.X connections a our revenue product on-net of On revenues certain exchange to of X.X% factors. and the

XX,XXX increased on-net over on-net X,XXX quarter network our the X.X% We customer XX.X% and Our with data total buildings. carrier on increased year-over-year. buildings by connections and office customer on-net by neutral our connections center multi-tenant in sequentially ended

was quarterly year-over-year Our X.X% for increase quarter, sequential was $XX.X increase million and a off-net revenue a of the XX.X%. of which

these off-net sequentially in primarily over connections We by buildings, off-net connections by ended year-over-year. and Our X.X% the XX.X% America. X,XXX are over North increased quarter buildings serving and and customer off-net customer X,XXX off-net

installed price declined actually, trends, the per for second from sequentially for was as quarter decreased average was and our declined on The flat base contracts, and customer Consistent new was average the installed price and X.X% customer the for the contracts average at price historical our megabit with third quarter price last second price year-over-year by $X.XX, quarter. comments XX.X% our $X.XX, XX.X% from for quarter, megabit which megabit the decline. of a new to of the per from The year. Some pricing. our per same

Some comments on ARPU.

but sequentially from decline experienced decreased that at last has ARPU lower quarter. rate we a of the decline Our

Our both sequentially. for and X.X% on-net ARPU, a $XXX was net-centric customers, decrease was of quarter the corporate which includes which

is off-net of Our was during which the on-net quarter. rate and was XXXX. from comprised corporate churn sequentially the for the off-net Churn quarter improved customers, a ARPU, rate decrease stable our predominately was turn X% $X,XXX which rates, our for second quarter

improved as experienced was last off-net also corporate X.X%. our rate all discounts We our to volume churn of and Our was this which X% quarter, the an from customers. the term for we offer discounts same quarter, quarter. to offer quarter contract And net-centric net-centric customers, on-net and churn last we our rate commitment the X.X% related to and improvement to was

over term $XX.X During and into commitment million. for the quarter, certain and long-term our of customers contracts contract discounts customer which net-centric entered by revenue increased volume took their connections, X,XXX advantage over Cogent to

EBITDA as Some comments on adjusted. EBITDA and

and are operations press releases. reconciled EBITDA flow in from adjusted as Our to all cash EBITDA of our

our or related and as Our decreased to EBITDA as increased sequentially, million, includes X.X%. $XX.X adjusted X.X% $X.X adjusted $X.X year-over-year by million, our EBITDA million, equipment transactions. by to or gains And

by to Our EBITDA from quarter XXX points basis third decreased as and sequentially year. adjusted basis XX%, of the XX points decreased by margin last

declined included sequentially and EBITDA year-over-year. declined again as are Our equipment in which also gains, adjusted,

equipment to sequential and adjusted for in of $XXX,XXX quarter. in this decline last EBITDA third gains EBITDA $XXX,XXX $X were and the as fees a last equipment as negative quarter impact $X.X-million Our combined, quarter, $XXX,XXX sequential compared million the the the The resulted in for decline quarter XXX our contributed on neutrality $XXX,XXX in gains year, adjusted net basis to basis points margin. points XXX and our increase

$XXX,XXX, X.X% year-over-year asset by sequentially to not gains, million, increased does which $XX.X X.X%. $X increased or EBITDA, by Our include or million,

last Our The from our by last transactions, EPS, basis lastly the plan decreased points XX by increases. of neutrality the of $X.XX our EBITDA basic the quarter and our our income of in amount margin and payroll at equipment neutrality the contributed year, last diluted XX and net annual points per net and of of sequential quarter quarter, the for sequentially services fees factors decreased annual as third impact $X.XX of to Seasonal fees, and share timing audit and SG&A gains U.S. was on taxes EBITDA adjusted in and typically over tax for beginning to CPI third cost and XX.X% increase and and points the level XX or $XXX,XXX and benefit timing the year. the include living EBITDA of that basis also decline increases, to in cost quarter year. resetting the of expenses margin. each compared $X.XX our the basis consequently EBITDA sequential

outside our of XX%. revenues our impact The reported proportion of exchange. Canadian, were operations. to the of business reduced about and U.S. related revenues and Mexican third U.S. quarter foreign in were Europe Asian currencies on comments our of XX% to the international X% Some the in remaining dollars based foreign our of has About

We average so the the business. to a the positive. sequentially materially financial foreign foreign exchange in on customer in dollar last $X.X current Should estimate our $X.X resulted so From not and our base that was these exchange The rates U.S. primarily impact rate this $X.XX, basis we results. foreign revenue increase impact is not Changes revenue. is highly revenue foreign at concentrated. third our rate fourth rates our year-over-year exchange can exchange the Customer approximately to Canadian on approximate conversion year remain an impact quarter, the our euro in will and exchange exchange quarter, quarterly on The this net-centric be foreign is the million. $X.XX. this material, Continued our quarterly reported year-over-year $X.X-million positive will and on a that be rates revenues volatility to far in quarterly average quarter, of our impact a quarter levels concentration. foreign exchange million our impact results revenue revenue the quarter, sequential reported believe average dollar impact

top quarter. represented our Our X% revenues customers of XX this less than

Some comments on CapEx.

operating cash $XX.X year for was XX X.X% million. $XXX.X million $X.X last September September decreased the nine quarter. capital million, million. months compared last flow. $XX this our cash Dave At quarter mentioned, Cash our of expenditures cash the $XX.X nine in million by XX last and ended to and from the from totaled the equivalents And year, Our quarter-end, third $XX quarter year, months million and to CapEx ended to as

cash returned of our stakeholders. we quarter, by as our the $X.X capital For to million decreased $XX million

$XX.X million payments. lease for we our a on we quarter quarter, debt. million payment payment, interest and our third semi-annual the capital $XX.X on During and paid lease paid dividend Capital

even and obligations IRU initial years an the multiple fiber for long-term after longer, lease term often have dark include capital and of options term. typically Our initial are to XX renewal and leases, XX

long-term total lease we Our short-term suppliers quarter, lease million fiber that at have dark of and capital XXX of use. IRU and a we were fiber the end different the $XXX.X obligations

Our principle combine capital $XX.X $XX.X million of $X.X you Comments IRU this ratios. in of that capital lease long-term agreements. the XXXX. was to quarter, the dark are fiber payments last debt principle with million quarter, million in These in quarter $XX.X compared million payments quarter if year, second were and and total for lease on payments CapEx, this third

Our at quarter-end, was debt was capital net million million. total $XXX.X includes gross our which $XXX.X debt, leases, and

and X. Our Comments X.XX at XX our and trailing EBITDA sales months adjusted as ratio was was debt debt total net debt quarter-end, to outstanding. on bad last ratio days gross

now at Our this our only receivable for revenues less X.X% worldwide again revenues, call want I and to bad to members accounts collections of I always, was of the was was our back to will our sales for billing continuing and service. quarter-end. do again expense our And a job X% the and worldwide days customer on Dave. over for as days finally, outstanding quarter. for than and fantastic thank And XX recognize team collections debt turn quarter

David Schaeffer

Hey, thanks, Tad.

wired and couple and the America. over feet of quarter of million network. office We Now scope for ended on-net our with in of XXX comments North scale the buildings multi-tenant on a square

world, well capacity purchase settlement The who city remaining us. paying XX% networks our therefore, network. inner miles currently transit the XX,XXX one capacity We networks. remains X,XXX of in approximately peers. Our lit customers, these metropolitan directly and We utilizing maintain parts network the from services approximately of XX of that with augment miles fiber. of that where Less network X,XXX consists network fiber, of utilization are in Cogent as become connect are our as we most low are congested, XX,XXX rates. of in the free than of interconnected routinely The over route Cogent networks

we saw we growth growth traffic For traffic improvement and sequential to our also still rate long-term our of but the year-over-year below an XX%, in averages. X%, quarter, achieved accelerated

with floor remains We our largest employee utilization. raised base. also feet are centers, XX% our of approximately facilities XXX,XXX operate XX at Cogent-owned the data space. sales operating component And Those force of

force quarter the selling turnover the number substantially average the rate sales was on reps bearing our Our monthly X.X%. service, We company's better than long-term ended XXX sales greatest is X.X%. history. with of in That reps in the a basis of quarter the quarter

So provider well of as unparalleled and Cogent value low-cost services, in access, in industry. as remains our summary, remains a VPN transit, the proposition Internet

fastest and complemented completely growing IP VPN on our services. services, focused colocation Our of connectivity, remains the by business Internet, segments market: the

that with long-term to to be rates within We averages, range. XX% expect our be growth annualized XX% constant consistent and currency our

we that net-centric but over period and were this quarter, long able mentioned will to As continues to that we as our I below achieve be a earlier, improve. consistently business

our fluctuations We short-term EBITDA in with expanding the rates be trends, fees litigation our there continue long-term fees we annual expect Our in to in EBITDA fees historical but Deutsche targets quarter. significant We Telekom is with can and approximately significant not to fourth this points have year. incur Those related quarter XXX at did consistent Again, adjusted per the neutrality. in margin basis $XXX,XXX. defending trend do positively. the extra materially to net increased

dividend share, share, regular directors on to or our increase $X.XX a board our annualized per an approved $X.XX Our basis, $X.XX another of quarterly of share. bringing has yet in dividend

of continued dividend, targets, been at we've as the capabilities have maintain leverage optimism generation Our our much able dividend cash our our fundamental growing pretty range. business. been our in midpoint as guidance demonstrate though increases business, well net flow to the of we our our Even

and quarter, – remain million and opportunistic $XX.X our I'd most XXXX. purchase of to our basis, the end will we of capital the current the through of under remaining which that committed the regular the to common for our our time we And in methodical At stock end We the will the shareholders questions. on open market. purchase in each of to every we and importantly maybe increasing floor of return open amount quarter. a program, buyback had that, continue remain like of for shareholders, With

Operator

. you. Thank

of is question First BTIG. Piecyk from Walter

is line Your open.

Walter Piecyk

limit Thanks. X% guess, the color lower, them, Couple The Dave, staying a case? I turnover of to being X%. questions. people can I'll two. try said you us to bit give I you And why sales little more are versus that's on think longer? why

David Schaeffer

Yeah.

have done sales our terms of training. great deal force improving a We in

about of our we've And increased to the increased percentage reps quota in size achieve higher a the we're just to of also XXX. that objectives. able As And Most just The to terms while rate because and full-time that, better the targets. quota X.X% our training is both concurrently and we've per reduce sales a the down the past XXX of their full-time force of force total that is month general turnover able quarter, increase sales of equivalent of in to to a from have history, the the X.X% being achieve fact result productivity done direct reps X.X% number on seen basis, been is force, from the of have of meaning the reps reps sales at in highest we involuntary, of a that sales that force. have asking we not XXX, we equivalent ramped. do company's turnover a result going reps they leave this

grown training slightly but marry as from with force, still able we've been to Our lines. long-term a it better dipped productivity the but trend sales quarter, force productivity therefore, sales our tenure is better we've above and average. our declined average last that has on Yes, substantially record

Walter Piecyk

remember I ago two So before a from of think what sales – bit. years you a I restructured had churn was that couple ago, of years kind or three peak

David Schaeffer

X%... peaked actually over We Yeah. at

Walter Piecyk

Wow.

David Schaeffer

...of that, force to half. cut we've roughly, sales been every in and the terminating month, able

Walter Piecyk

Amazing.

Okay.

net it Comcast, – one net past under is fact just becomes – quick a these in you the contracts Verizon, question it my a look, you've in that, So talked the had is change other didn't if about bit is on neutrality, really the place ISPs and – the administration that but with the current if Republicans much. as it whoever, – matter

if you these contracts So spending why are expenses in already legal net place? on money neutrality are any

David Schaeffer

on expenditures quarter this in of XXX% have the our neutrality (XX:XX) were related Germany... that Yes. net litigation we to

David Schaeffer

with been Telekom other congestion no now ...so there Deutsche other is networks. the had increasing we regular provider, a major any contract with Every do behaving, ports, those of as providers. of all basis, network we is on and have capacity have a between throttling our and who

increase forcing to enforce Deutsche the capacity go fact, Telekom In and contract began in stopped, then to us to that court place. was to

due and fees not down the continue but did have three-judge quarter. ours, not material issue, that Telekom And the process. initially The in and anticipate reviewing It uptick bond little we're in filings venue on that jury in Europe, system suing change of not this. was argued court the was filed a but the tribunal. case issue. to a We do The The Deutsche So different the We was German is for a rather the second a substantial some we for past rather a that U.S., in gone contract of trial were has phase. court quarter, fourth regulatory than level granted. of it's is any appeal. to that

Walter Piecyk

you, Got Thank Dave. it.

David Schaeffer

Thanks, Walt.

Operator

of is next question Our from Goldman Scott Jefferies.

open. is line Your

Scott Goldman

your as below bit change year consistent look probably for years part before looks questions Dave, of growth, two guess better it at like the little congestions. a the was if the it's few where Good pretty port and it Hey. of maybe a last guys. some ago well. morning, net-centric been I you

then could through, to get that Is take it range? Is function that into walk it So just bit get growth, relatively be network it does we from pressured back been the quarter. to productivity? on here have should which operation bit, Thanks. just this traffic at item little this secondly may this like what and if a that force line in predominantly little maybe basis a side, it's net-centric expense you the wondering that margins it year-over-year up you looks help on pressured quarter? like margin stable? sales us a to looking accelerate ticked a And Anything looks of growth that really

David Schaeffer

sure. Yeah,

Let to all take me try of those.

our So subpar a level has XXXX. performing net-centric since growth been at

and net-centric some has previous So easy back world clear. are Very reasons, identify. for look producer Megaupload our solely honed to in lost underperformed And XXXX. growth five at to the line. XX-year We we time the trend go in Largest years, the Cogent. and at the traffic extremely

We to tailwind, business little and last also bit had in business due the last but of a over with Quite over headwind. foreign that the that a that's significant past year, quarter XX% years, experienced outside a honestly of exchange, the headwinds became five in net-centric of been our U.S. the

to behavior is a to two dampened market. for whole customers' connectivity years, of thing were ISPs refusing And a group third Internet. of increase that the that eight the The about their period

XX%. we In share. our market. we past That's around rate only XX% traffic of as has about average the gain So year-over-year, historical the historical Cogent's market double grew growth been year,

from XX% was the and before the that. an quarter Now before the an improvement improvement from quarter that

higher greater versus would on-net some as they Net-centric margins revenue do it's a revenues is we contribution of because carry are off-net. seeing as like. are percentage but we not rapid So rebound, that

on-net and XX% net-centric need we to continue X%, turnover, to efficacy stable our and on-net a happening that. Two, accelerate it's it's question off-net; things and we to about about happen. XX%, those rate. the corporate are revenue need In productivity, we're business net-centric and XX% roughly in of revenues. So the at net-centric things business to Walt about business. force of improve order decline both in being our with XX% revenues to net-centric corporate roughly The need doing prices three sales they the side One, impact we growth asked

the provider In in on better to last undercutting over and doing or fact, year are shift the by that's of being the we our XX%. decline rate the lowest so our in a net-centric commit competitive dynamic. Maybe than competitors market. price We long-term cost average

We fierce price of as XX.X% rate and is that competition below at have below our trend of that has growth had experienced. the of it's of But not we've net-centric revenue our price other actually seen XX.X% therefore side the line. decline rate the equation long-term decline

look the only since just this our Cogent, past XX So we've achieved X.X% under In year-over-year. net-centric public if for X.X% growth year-over-year sequential basis. on most a at average long-term over business we've company, we of the been grew XX% years, recent a quarter, and

below performing traffic average So because we're of long-term XX%. the under growth at XX% and that's still is

hopefully So above for back continuation from acceleration we even come the to I a in or signs XX% of it. seeing net-centric our to of need of growth. and revenues improvement get improve, an materially will trend the we're And think traffic to see even that line,

sequential Our X% last X% this went quarter. quarter growth to from

XX% it'll does is services, the are your negatively products of other and impact our touched sale we And I on be But component growth products, it. with a the goods year some a selling and I've VPN XXX lot corporate that component points basis hurt network terms comfortable sold of think in that cost off-net of grows of XX% are expansion. indications margin, that universally off-net our goods margin second better even those But sold cost question, then next line of early and quarter. them. to almost the to carry to that and line. margin aggregate the rate, still should about raised services we And top has achieve be of both we able do of cost feel

Scott Goldman

you, Thank David. Great.

David Schaeffer

Hey, thanks.

Operator

Niknam Matthew from is Deutsche question next Bank. Our of

Your line is open.

Matthew Niknam

Hey, thanks.

over pickup course you over lot more if of really off I'm the the taking we've question. I Just attribute you if intra-quarter. OTT, what a saw One follow-up a and a over any of maybe allude net-centric, two wondering three you can about top last to Scott's follow-up, the heard But if in to on could. ramp traffic this in video to can rates can quarter about cash on of into quarter. remaining expectations about the ramp overall just we tax for XXXX this XXXX of maybe whittle NOLs. net-centric down you think the taxes, Thanks. us the talking And you give an traffic payments update secondly, cash if months, on should business, for terms exit in then as your in and how

David Schaeffer

Sure.

very different questions. two So

Let goes go the though it it going complacency, me neutrality, of quarter. driven the with growth it the accelerating, think growth we accelerating, traffic OTT as been protection away. with saw that that start Title segment. occurred accelerating we'd of headline given the the some the OTT net be content by And away as our was not market hesitation question. as throughout the I has that neutrality now II has acceleration Even traffic With net rapid to most if is that, news heavily providers like is demand of figure even some into to growth will form and

net come form customers, durable. is rules an contracts improvement of they they we on and believed feet in also we OTG comfortable are think congesting dragging interconnection we ports, up be larger that weekly more to the I some in is their will rate anecdotally, that are or counterparties and that some the hearing year-over-year, comfortable more stay. were are And of we with in regulations, that net repealed, them are to they daily some here also if get talking have Some of seasonal, not. when it measure probably new be our growth. And would basis even would and the Because neutrality the neutrality while a D.C. that seeing but for

we will So in signs I global more participate traffic. And historically, Cogent, are carriers. early a of than other the Internet as think seeing reacceleration

of I that competitive that, previously it. focused some had in a this we're market now defocusing to net-centric dynamic, are continuing think where finally on transition companies segment the see the on

yet I it's market X-CenturyLink that for think an the most closure the being X the Level segment less company major in dynamic. and having largest the competitive likely previously the from the us. in that opportunity therefore CenturyLink provides aggressive this and recently combined Level of player withdrawn With and market, merger player will being be helping a additional

it. Tad side, We have do do tell some of Tad we're tax the NOLs we I'll and have you On strategy. left some I'll take let let kind where at.

Thaddeus G. Weed

Sure.

to our each So material net start of States, I'll I'll to we at the need pay that we the internationally, state the we taxes continue to forecast foreseeable for put the guess, minimum losses do With quarter. to I no operating income have United future, update of expectation existence there's due level. tax it way. taxes some regards

through here. as about current a beginning quarterly as forward expected law material, but to Some paying to talking state With on to be to other material taxes basis taxes U.S. it are based taxes Federal income the not That's go expected we upon Federal XXXX. and income gross margin stands and respect the there not U.S. increase today, of are net limitations. operating loss be

David Schaeffer

exploring are structure. we be that XXXX, alternate tax into than efficient more moving our current would And structures

that with We working have. NOLs of U.S., decisions U.S. and we of don't we made no limitations have have help third some outside have advisors same but party a on us, our been both the the of large that, which to have amount NOLs

for As the or MLPs even businesses. well reconversion in similar precedent as

we we'll investors apprised long within strategy we're our But board minimizing exploring of so as that. the payments mindful it, a as keep do And law. and could confines of approves highly vigorously. we're those as the to avenues both our come we of of So, cash tax

Matthew Niknam

Tad. and you, Thank it. Dave Got

Operator

Cowen next Our Colby question Co. is from of & Synesael

line Your is open.

Colby Synesael

color as mentioned, if be consider would was or That Specific lastly increased asset next raising but that does that gains side to so, equipment Castle's Crown a that, I REIT $X.XX to I a gains it's board like whether a have then down may. impression and should of about relative it give left on go, business. A last just little, how I it business And (XX:XX) potentially we your quarter. this year corporate to us as the you guess, business this into might increments how $X.XX someone I just, of looked at? your skeptical questions, portion to I'm the Where the the your increments, terms the when much Thanks. just can expect whether could on sales? What's well, potentially if XXXX? it we Great. mean, fiber any see dividend, quarter, maybe time business from you further, the something number, or qualify stands net-centric you of for few in go Secondly, not brought of component from sense like as today? you when up, that you

David Schaeffer

Yeah.

Let me those, of all Colby. take

of all to a had first we board dividend, with So the actually yesterday. regard meeting

We As the we $X.XX at we the pacing of look dividend do with at every of have. board comfortable currently dividend. and feel the the meeting, growth that the we raise

effectively. I to investors changing there's are want to a examine will the pacing. to committed is utilizing imminent lead to regular but leverage some on kind of We don't we continue believe basis, that of What

net leverage. today the at of are X midpoint our guidance times We at range

We are naturally de-levering.

excess metrics quarter. are a gains, And for we not growth in challenge cash, and just today be a in a to tell and of buybacks the that be cash the position finding will But to are literally the default stockpiles process. equipment. by question against is your have hoarding dividends. dividends. that finding huge either That to balance have And going we're dividend We are we least I've of change permanent in equipment be pay to are lumpy fact it'll or someone be the us of dispose what looking Switching Cogent the of a our second that that this If weighed described. revisited we quarter doing committed through further is discouragement rate to it'll for. a and take party way every at equipment, to willing not equipment to will to buybacks, kind there's on not committed be we it of of But sheet.

said and they opposed the a that about equipment gains a XXXX, almost year. four as will rate continue. to have now have five $X at fact, million nearly We were historical or for years at $X In double been, million Cogent

think probably I is annual kind XXXX, rate of and an probably that right think run way XXXX, it even XXXX. on about basis $X to for the million

this one these So we then a be of anticipate do counterparties a is they is is and valid That of sales test into can't REIT one a consequences process. quarter. it's others. to continuing, That with that at do but neatly understand and And honestly why last it. we been And your strategies It that benign quite as it nix provides more a reason structure the in a burden portions an finally our MLP. with question, probably it not looking fit depending that positive, not does along reluctant part with, one given shareholders were, for readability if comfortable we it a to positive on would do We flexibility, negative in is we're we're the of as revenue associated a lumpy has very of the we're unless have requirement but further XXX% which reporting and resort. K-X. is

to advisors. to continuing So we talk are

We at utilize in to if more to sure there's magnitude going NOLs. up international trip law. change ourselves our that also we're if look not also We're tax trying of make those a we U.S. the effectively

we're to the in a code. confines we're treading using. strategy within What that aggressive So of been as a again, shareholders we've can possibly we and as specific we we're tax tell the there's is and we to position slowly do to be today are you going can what tell that in not position a

Colby Synesael

the basis, thing one pricing XX%, just reduction Because make going not could in one. level. as to as quick XX%. if per XX% on obviously same not is that's kind a obviously you think the were megabit pricing in seeing permanent the And go row The that traffic it to you quarter if now you're average of around a it's below the growth now? up typical Okay. second down Do a before, much for Thanks. you

David Schaeffer

rate last Yeah, actually and the a It's couple more price actually decline moderated been has of or of year been quarters. two, it's some. than the

to is it continuing think I moderate.

improvements technology We are benefits prices cost getting still replacement in and through that lower production we're the deploying. for of of lower gear

on our been fall. all marketplace. in of that costs part rate price pass appear not moderation because year the two continue we decline to a orderly per the on a I'm the not more of of production net-centric customers it But past our have we've seen bit-mile to ready to side. competitive maybe or declare So able a in does stable marketplace, onto cost, to have but that over this

Colby Synesael

Thanks. Okay.

David Schaeffer

Thanks.

Operator

Oppenheimer. Timothy of question is Horan next from Our

Your line is open.

Timothy Horan

I'm of volumes. date and that some And the kind lot the out of thoughts are of to confidence kind to on-net Internet do more And Thanks. of be the guys. two of on me when process your back your going other the or the level you there. looking internal traffic it kind talk up. more Are contracts front, should mean, questions. are you're Because, part with just business are I growth IRS think I a secondly, kind has kind Tower and your just it pretty on. companies, REIT about traffic then (XX:XX) on concern that logical. There's model application a pick things things other going on make can it can just indication a there goes never the six there to be your Thanks, REIT top might to at? assuming seems hyperscale seems you and there maybe side or just the of what's like to good things what volume of Light let volumes kind guess corporate just I down readable Dave, turned do

David Schaeffer

sure. Yeah,

on So in state optimal of IRS convinced is need ruling also structure. structure. think I towards little the that that our is of make now bit a moving a issuing We're private we in to that board think readability, REIT around I the not right comfortable a would letters. And the paralysis

code, as We are first exploring couple establish be then finally, of it. and And maybe you are correct, maybe Tim, benchmarks while that other optimistic companies And there's our no could or our the there being as to in changes think will tax complete I benefit to law would I see to tax and And think what a be some of are. some re-write not sweeping be advantage. I'm changes glory those wait a changes. letting some in on it

referenced, lever do ones amount, of Tad have restrictions of have. a without added that we the U.S. big this same types NOLs of non-U.S. our Finally, as

in angles all tell a to just those I'm of again, position and So exploring people. not we're

have a of able It's certainty finally, double-taxation, we And all, have reducing that as have be works. the up majority, avoid Cogent. it we be also be treated based we'll highly to come likely the not then they us, We dividends return it's gains capital, deferring of extremely in of strategy. a purchased the able not that stock on been that to that by bases their with our but will able have making if options recipient shareholder-friendly for been tax-efficient, in we to front in of think I one all had

our recipient both of we make at optimizing and capital. a going at that sure return are So the to to a level level look world corporate we're

we And predominately by not to migrating of MLP, advantages basis, some negative things of providers do service the interesting traffic an are E&P-type us may content of that U.S. globally. provide gives a They which the companies. problem some the you to to then with our REIT over either regard forced may or mentioned. have we think I other book be because One of to major growth, all companies that is

and on of were companies understand content a it companies siphon Internet. And Many side We all number basis customers. been Internet, easier I it transit those we flexible. concentration to those some and use, a faster of from is continue of that but year-over-year the term and together, agreements to share of actually of is sales on our even mandatory Cogent that part reason them. quarter balkanized the holds than direct is on that it's transit feel that because of these hyperscale both it's more does down the and But of the on sales that. off, one access the still on has growing much price of new our growth large the have very glue think world, it's and they cheaper, both of some megabit the the have per were recognize these terms sides of is into. because level coming though the connect every was so pressured of customers have remaining some All And gain there with will agreements virtually that in a why

Timothy Horan

color. lot. a great That's Thanks

Operator

Nick from MoffettNathanson. is of Del question next Our Deo

is line open. Your

Nick Del Deo

your And legal off-net to question. to Thanks to today compared XXXX, taking an Hey. on a to of to being want If get for equipment, gains the go and look the Megaupload. apples-to-apples I costs, revenue USF, of margin back mix, for I the so more comparison. at issue. share I margins guess after bigger

that then. back was over as best roughly can the tell, timeframe they're substantially I flat As it despite than business larger being

get from look that given with do margins over here? years, several the will how as we we idea So comfortable next meaningfully expand that, the

David Schaeffer

period. increased on, You of diversification in cost has data defensive, actually square center had in component left our somewhat we that and bet, it picked feet data XXX,XXX those about commented of out from centers our depressing increasing or XXXX up cost. beginning And a that into a about that was very impact picked as long-term cost square feet, on as We all we a margins XXX,XXX to that was up meaningful and operating footprint time costs.

better story. additional gross I out, that think you a incremental took margin would cost see you much If

ramp we side, concurrently the our terms up In SG&A of force. sales with that did

in from XXXX grown force through We five years. than sales the faster XXXX did period have previous the we the

the turnover as on the of some and as efficiency lower of efficiency think higher the well we margins. have But side, I deliver both the to are SG&A and room good benefits We reaping productivity. cost

phases, that period. margins, the contribution in were great, have not around think I our slowing will that we of down, behind those you'll That's with when averaged an points. Our sales center potential, margin XX% both delivering even or organization footprint. doing improvement result see but the both that's XXX us which impacts, was not Cogent's these contribution those during basis With in and that in data expansion

Nick Del Deo

the like that as over niches about right. categories think traffic nice the for Are or think growth, video All driver be emerging today. call out? video big any is obviously up-and-coming Or product tailwinds early that too years? it anything is net-centric seeing we or product And might to then traffic you several next you

David Schaeffer

user. Sony or linear And more Yeah. the I tailored EA material reality we want gaming sharp and large gaming I more gaming linear on side, division single-stream more driver. to some a But between each virtual – use and video. concurrently. you'll whether multidimensional, end interactive I Microsoft, it's will it customers, across to it's I will users linear don't of multiple that up more word I think truly a video, seeing it's mean the for think emerging or be it's i.e., the move have but not user, we format, also believe they is video be the as not to that the specific because meaning think

kind leg it a up video that few we That's but be of are of all traffic up experimenting may have with being say know where And different different smaller the viewers. in we those another types game project for end and in So should outcomes the as customers overall business be models. today, stage, something will growth. content would a the science between in I

Nick Del Deo

Okay. Thanks for that, Dave.

David Schaeffer

Thanks, Nick.

Operator

is of Our of Michael from Funk question America. Bank next

Your line is open.

Michael J. Funk

get does confidence dividend, Dave. growth. couple quarters line target? XX% or term fall fallen confidence, where your in if square trends to confidence ability what's recent term maintain the last return I you below longer board to get the target, you target to XX% gesture eight top the longer With Good morning, seen I here. A board for clearly the I'm increase continuing guess, that Hi. that to of from target? term And you've longer so tolerance we've return to to a to question, quick to guess of that dividend raise the the of trying the questions some below of the the first that

David Schaeffer

Sure.

because that So, think most I'm actually to to I those order the sense. going take makes in try reverse

doing our below been more guidance for been leverage. couple growing and yet been we've we've our the net the a – for not of years have that past or couple and We less dividend range growing

So commitment since is balance the we have cash sheet, return it to to our on excess shareholders.

periodic We buy both has dominated and do our it's backs been but more have through able leverage yet to growth that recently been dividend, the by increased. not in

are our based few raise on below will we to multiple probably a quarters, guidance the we the not consistently So that's ability even that's the have will even which if And just range, we quarters, business. do I in believe dividend be, not future. for sub-historical years out multiple foreseeable the performance

which our our both rates within performing to We parts of with is growth our XX%, first of question, our range. need which return to ability business Now about your historical there. is

to really in growth. haven't corporate for Our there's very think analysts, sell-side natural XX% all and it's it part some in roughly even talking investors corporate someone whether business cloud of performing our computing services, That or tailwinds, has has of It become I be positive bigger heard. almost has Cogent's all real VPN fact helping concern that business Cogent drive And a revenues. there. business, actually Those is corporate and unless bearish I trends business. are Saas, no about something our

seen I entry is not spent in models that does. year-over-year of going is Internet, very, losers, set finally, to then And protect is of increased regulations all competition, with on a underperformed. It's side, worked than think that me what who I model, bandwidth struggling X.X% are the but growth just be one their mean an almost fair magnitude winners business and applications is what their more as recently, market I dynamic was the and that reduced exponentially. of those low. barrier And come how search explaining compute meaning to angst And the are growing reality, reality, outpace to no advertising we XX%. about revenue was more as of video interesting Nick, he And to with or trend the we've less example of is application with talking with a contracts. business to time all virtually some of line monetize at a amount things talking build, what will augmented they picks into of And up Internet had with Internet, just bill new what existing migrate the business honoring business enough and that's it acceleration infrastructure new world of talked reasons. to with the they it. your and I someone comfort more far about whether embedded we've sheer has was it was the demand. is. do half very and XX%, the XX%. of that the regulation the such beauty that the content. an around a video and And an But net-centric the growth is

in I think we'll growth. see this acceleration

Michael J. Funk

follow-up, I guess to related Dave, traffic. comments your one And quick about

requiring some the last origination of centers And have You commented agreements. back, big that in network? CapEx network, we've in your I some the second, in believe more growth also business providers thoughts function can. get winning earlier from is that that years. rapid a away then you on perhaps seen of your few slower that these a the first moving data number that factor, Cogent content growth growth direct guess away your where some why of from And at has you of traffic connect part. of moved a content Meaning,

David Schaeffer

business. two is the And one it is not companies lower, adequate if some be very only our will the is when This if the was we and if questions. will win The to we as price. there's is down question extremely connect it there The interconnection, were would reason such thing, ports. artificial constraint direct a there's commodity; different answer. So is win simple to comes which same, price it quality blocking

on that of have having the can those up out. contracts be obligations under idea have and tied contracts run given the They to by negated up have FCC. Now companies take-or-pay

and centers. to continue or and is question grow. But transit part built this traffic of facilities this commercially that we its To as a we Data your this own where both corporates are to explosion is which by well just So is being integral place are centers centers, for allowing data ecosystem, originated. do purposes. feel growth a data the point, hyperscale are is their integrated waiting traffic comfortable course. as to of see There of second run the that will third-party-funded

tracked All of actually has and But more any available the down that XX% XX it means Internet, actually one distance have consistently for locations. average than more packet materially more about the content travel on or up is we not changed years in year.

the are these My XXX centers So data are is around or in data in we're they being as though built, XX world. be XX over centers next guess even we'll built. more year

services. we where additional sell centers don't data see a them as place can I I see So an as threat;

Michael J. Funk

Thank time, Dave. Great. for you the

Operator

Our question James William next from is Breen Blair. of

open. line Your is

James D. Breen

Thanks for taking the question. Yes.

mentioned happens margin? those As lower secures Thanks. we were for customers year-over-year, there at around assuming, there contracts and talk tie-in a that is business lower as unit Obviously revenue it time? the margins over you sales you it legal you the be that where termed and contracts but the look that between even a on out, impact has longer-term I'm about expense is when to stream, adjusting call X,XXX Can at a I are price. think a in likely the at equipment – the renegotiated down, the

David Schaeffer

XX% contribution, revenues aggregate on-net. about carries Well, are margins, impacts those revenues. as net-centric on-net, it's absolutely of customers, margin $X.XX to EBITDA. not apply net-centric gross it XXX% of It impact And statistics it only because and does

this be services a the has One, things. most are So behind two even absolute data then center in point services footprint that from not contribution that's a contribution expansions It's component, about, relatively that but of that lower which from a away take that customer this though over XX%, significant impact a continued be sold achieve and services to means will up a should to at structural margins which margins bigger number, market real it us off-net it's those to a secondly, cost sell that but lower of and XXs of margins, if have change. VPN several-year goods That's the we negatively margin. not margins. impact all do lower of still talked Really also both structurally able will mid VPN contribution is we has and direct and the a increase transit it having And the one in opportunity, corporate will north it. come period carry today.

James D. Breen

and Great, one follow-up. just then

said and of Tad than customer the as has the Thanks. revenue. wondering traffic XX customers X% less where that diversified obviously trended that base, think How over last I top going. that are years couple of of some is a

David Schaeffer

couple we their mentioning had names. of Yeah, to mean, sensitive be our I customers large have us a

them lump we So together.

diligently work on to continue diversifying. We

or whether side. As that aggregators their as access have of sell our a on I Jio lot China sensitive content us we that, networks Mobile but get Maybe of to a also maybe names we China little it that into then nasty we the the said, today diversity, customers, And after a about in world, largest deal a but or fit access top or names the X,XXX but all access are Telecom. great category customers. mentioning be are household the of Reliance major we call on have the side, nearly networks less to access I'll have guys

James D. Breen

customer the if it's top the for changed X% XX? concentration last year now that has in how And

David Schaeffer

relatively constant. It's

Thaddeus G. Weed

It is reduced.

me report was I last For quarter year, X%. it back third the bit have little the – example, if in of a over you go for

David Schaeffer

pretty from minor Yes, I diverse our time. been a from to mean, it's but for lesson gone X% diversification, We a Megaupload. it's long X%. learned we've

James D. Breen

Thanks. Great.

Operator

Research. Rollins from Citi next of is Our question Investment Michael

Your open. line is

Michael I. Rollins

could and Thanks. taking a the talk question. it's if to opportunities bit your about Thanks VPNs after as I wondering customers the volume go well was how revenue? as Hi. impacting the for and you

David Schaeffer

Sure.

So XX% than the is bit while for approximately XX% of X% account revenues. and corporate our less represent corporate product, traffic VPNs on network. exclusively of of It revenues almost and our aggregate VPNs a

the customer disrupted. And it traditionally on expensive than Internet. for paths. So But That an is cheaper are been relative MPLS who it large there alternatives, MPLS which have is is per-bit service market a to based their are customers services. being taking basis, different much

from Some customers We encrypting behind just that. to internet and their going firewall. are straight benefit

a a services, a who which in working item, have diligently those But are it are rate priced private SD-WAN solution. SD-WAN two see respects. line not for doing if don't separate standards quite uniformity are it. it Internet line coming we that's primetime at we're complete third, virtual using themselves. VPN yet. still no solutions and full the starting and deliver. because And One, they're then ready That's the to internet customers an they for have customer at as vendors and are that deploying a report We taking parity we we a our line to and They visibility VPN have services, port revenue deliver to

in overhead the still is second significant. The is running relatively those

testing in We products vendors labs. multiple are and multiple our

of couple to And meg material we've just on last very those improvements are low XX performance. in SD-WAN customers, the meg XX from available speed today seen products for range, work not the Over SD-WAN one, fine. various the months vendors, that

I a will For firmly migrate be. and probably of market strategies. current XX% one And the products to those bit higher yet, next believe there MPLS have but those over customers going is the demand year may of that that quite to the load, aren't

MPLS because to is win. we this Cogent, to incremental only and business revenue For have great lose no news,

Michael I. Rollins

very much. Thanks

Operator

remarks. for turn questions are I'll over Mr. the further closing time. this There Thank no to any you. at Schaeffer conference

David Schaeffer

than prepared we very than normal, all But Bye-bye. soon. Take so talk we you care. questions to and but thank managed Well thank we'll a We keep little had did run much. to less better want longer. I everyone normal, remarks our to

Operator

and today's your participation gentlemen, This Ladies thank you concludes conference. in the for program.

Have now may You disconnect. day. a wonderful

Cogent Communications (CCOI) 2 Nov 172017 Q3 Earnings call transcript