CCOI - Earnings call transcript Q1 2018 | Cogent Communications Holdings, Inc.

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Operator

Good morning, and welcome to the Cogent Communications Holdings First Quarter 2018 Earnings Conference Call.

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

Dave Schaeffer

Hi. you joining thank and morning, all us. for Good XXXX Call. to our Conference Quarter First Welcome Earnings Schaeffer, CEO; Financial Dave is I'm Cogent's Tad morning's on Weed, call this our Chief Officer. and with me

results years We are be about beyond. remainder the underlying the of the and and in business for continue optimistic our for strength outlook pleased to quarter XXXX our with the and the

Year-over-year, sequential year-over-year in X.X%. we achieved revenues quarterly on-net quarter. quarterly the growth quarter of off-net and revenue by This X.X% grew X.X% revenue of first our XX.X%, our revenue growth and by grew

Our equivalent was that's, equivalent again, sales per rep installed historical units rate, rep above significantly per X.X our long-term month. quarterly full-time rep productivity is average Productivity full-time per per month. of X.X orders

$X.X the is quarter of Our quarter which of from by year-over-year increased the million, XX.X% for XXXX. first increase an EBITDA

Our EBITDA (XX:XX-XX:XX) Difficulty] margin ...XXXX. for [Technical the by... increased quarter

traffic year-over-year quarter an achieved and growth we X% quarter, to XX% from growth the traffic XX% year-over-year. sequential For of our for in improvement the

held our available not any sheet. for being this holding balance our buyback has we buybacks. on $XXX During Of the through and is We for quarterly a which end stock million in quarter. in regular million We $XX.X shareholders company, did our cash we through quarter-end, our At board continue dividends cash of dividend. of $XX.X purchase the under and is at this stock buybacks $XX.X our million total returned stock authorized with ended to available to the our Cogent quarter cash, unrestricted quarter, XXXX. program, Holdings, the and had million

and the leverage improved from times EBITDA our X.XX unchanged X.XX leverage at times previous in gross times. X.XX net to remained Our quarter,

basket. that once X.XX X.XX improved us included passed times will it that close in our the to Our allow defined indenture cash X.XX our the ratio This extremely ratio to as from to we threshold X.XX is builder that times times. flow utilize indenture times under have threshold, accumulated gross leverage is

the $XXX basket was accumulated over QX end Our slightly builder at million.

this quarter-end, holding ratio the We at the is of held company. of held million million at at million cash indenture being operating and currently test will $XXX is met. $XXX.X majority basket once transfer $XX.X company Of to under the holdings, builder our is the our

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

quarterly $X.XX of statistics. increase additional represents color As dividend. operational we quarterly will in greater our our our regular as and in highlight our result, Throughout the brings release, the announced details in in which quarterly $X.XX review $X.XX financial some will a Tad provide indicated dividend operational and this on details, consecutive press sequential regular our XXrd discussion, quarterly This we per dividend, performance. some share. share to from detail another I'll several per increase

Following floor these remarks, for questions and answers. we'll open the

like to have Safe Harbor I'd language. Now our Tad read

Thaddeus G. Weed

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

Dave Schaeffer

you've a hopefully And our Tad. to Hey. press chance review Thanks, earnings release. had

previous historical and quarterly in metrics. press releases quarters, current As our both include these

guidance for on and expectations words of a couple Now, targets.

long-term for on and currency to are growth targets XX%. guidance continues full-year between a target revenue Our be constant XX% of basis. growth This

EBITDA margin at long-term targeted as expansion is per year. basis XXX points grow to adjusted Our annual approximately

guidance Our quarterly (XX:XX) revenue are intended and to in EBITDA targets used be long-term as to be intended specific nature, guidance.

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

the Tad like performance additional quarter. over cover I'd Now, previous financial some (XX:XX) to

Thaddeus G. Weed

revenue based and analyze for NetCentric of and another thank connections, and Cogent. all Thanks, during continued Dave, our type. we for the revenues I'd and types; two morning, productive and like and is good team non-core, efforts results also based and analyze hard quarter Corporate again into our everyone. very congratulate work also and to our type, upon on-net, customer and which network classify customers We customer NetCentric our revenues customers. Corporate we off-net, and upon busy

large us in XX,XXX revenue We by amounts customers by NetCentric customer and on grew Revenue in X% office customers bandwidth by sequentially carrier-neutral bandwidth customer by grew revenue of buy from type; year-over-year. customers Corporate from grew million, and NetCentric connections multi-tenant and our sequentially customers our at large X.X% from Our in Corporate our to network Corporate X.X% connections had customer by year-over-year data from our $XX.X XX%. quarter-end. buildings. us centers, Quarterly

NetCentric quarter-end. XX,XXX customer our connections at have network on We

revenues a and due revenue exchange our revenue was foreign Corporate on-net volatility factors. impact seasonal year-over-year to customer quarter, NetCentric and for certain of $XX.X quarterly the of increase million the growth network Our by connections than was our which sequential of a type; Revenue experiences X.X% more XX.X%. in increase

buildings. ended for on-net and connections our X,XXX network XX.X% buildings increase our X.X% of a and by increased center connections year-over-year on customer million total office with the quarter, sequential multi-tenant and X.X%. Off-net increase and carrier-neutral on-net quarter data a customer XX,XXX over on-net which sequentially was $XX.X We of was year-over-year. Our revenue X.X% the

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

Consistent declined decreased megabit by of The install customer quarter. pricing megabit. in XXXX. and trends, our year, new first and average pricing, by sold from base from for $X.XX quarter our on base per price average last per quarter the customer declined XX.X% by and first per of average the the new to customer our price by for last sequentially install QX for our that megabit of from of declined year. with for contracts XXXX to megabit new The from per X.X% sequentially contracts the QX historical XX.X% comments Some were X.X% $X.XX price declined contracts our

average per on comments ARPU. revenue Some unit, or

and flat off-net ARPU decreased quarter, our was Our on-net ARPU sequentially. for the

which was Corporate the the fourth for which customers both NetCentric ARPU, ARPU includes same quarter, the and on-net the quarter. Our as from $XXX exactly was

comprised Corporate customers quarter, was predominately for a is off-net Our which ARPU, was decrease of sequential the of $X,XXX X.X%. which

Some comments on churn rates.

Our improved on-net both quarter. churn the during and off-net rates

an was unit X% which was improvement quarter, this from on-net quarter. churn last Our rate X.X%

Our rate quarter, last off-net X.X% which quarter. improvement this unit was churn an X.X% was also from

NetCentric We all our contract related Some terms Corporate to comments on and discounts of to offer orders. move/add/change customers. NetCentric

offer volume customers. discounts also We NetCentric our commitment to

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

as EBITDA, and adjusted. EBITDA on comments Some

gains SG&A and adjusted, EBITDA, impact EBITDA expenses Seasonal in and releases. includes tax our reconciled factors and of and United press States our consequently services cash as our EBITDA equipment increases. of our operations adjusted, from on and timing the that the flow of impact of audit and resetting EBITDA, cost and benefit to our CPI beginning at in typically our payroll of annual our the and or are taxes Our and living timing fees, plan as each net all level year, the the of transactions increases, amount cost neutrality

certain increased million which or of U.S. to offset seasonal the capitalize by requirement by expense and SG&A the $X.X our Our commissions. from GAAP X.X% partly new was factors, amortize

is Our gains related to plus our EBITDA, our adjusted, transactions. equipment as EBITDA

Our increased to by and quarterly year-over-year or as or $XX.X sequentially XX.X%. $X.X increased million EBITDA, by $X.X million, adjusted, million X.X%

points, adjusted, increased a basis by quarter the Our seasonal XX.X% year XX by from XX gains EBITDA, year-over-year. SG&A margin in points to and of decreased due from less to decreased as sequentially equipment increases the that basis decline last primarily first

and last quarter to last quarter million recently only compared and $X.X for first have gains declining, quarter. of this we're $XXX,XXX equipment Our about year $XXX,XXX the been

year-over-year increased Our quarterly or $X.X by million increased EBITDA XX.X%. $X.X by or million, and $XX.X to X% million sequentially,

of Our SG&A seasonal last margin sequentially, basis quarter decreased points factors, year. to XX by XXX certain quarterly increased EBITDA due by from again, first the to but basis points XX.X%, primarily

share. comments earnings per on Some

last year. share basic and fourth a for and to basic income the share quarter the diluted $X.XX of diluted share Our was for quarter. for per the year, That per $X.XX of of and quarter compared first $X.XX loss last income of per

from As fourth the of one-time tax a income the reminder, of million. in included $XX.X tax act the of reform XXXX impact quarter a expense

basic share have $X.XX diluted fully If you share income quarter our fourth instead from would exclude our this and a of per per $X.XX. for of last per been of earnings year, share loss the amount

foreign exchange. on comments Some

in our and about Mexican About XX% Europe, first of total reported based and X% revenues the is revenue revenues. quarter dollars of in Canadian, and operations. were U.S. States Our of our related outside earned our to were revenues XX% United our Asian of

and reported positive revenue a revenue impact materially our in was and a was sequential our year-over-year foreign $X.X the volatility exchange million, revenue overall positive foreign rates can financial Continued million. exchange impact results exchange reported quarterly The our on our impact $X foreign results. on quarterly quarterly

foreign improved revenue X% on X.X% foreign Canadian quarter to sequentially sequential base this but and levels revenues, to exchange concentrated. remain of is revenue from will not and $X.XX. we be rate quarter believe so during quarter basis will impact currency not impact far last foreign dollar million. on second a rates we year-over-year our concentration, a is and quarter. highly these X.X% $X.X The average quarterly rate quarter Should the second for at estimate be constant the $X.XX last X.X% that exchange customer is average the from Our euro for XXXX, year-over-year current average exchange of positive remainder our quarter dollar growth Customer material the U.S. this to improved there exchange our

than the XX $XX.X last this compared Our customers year. represented to for capital million X% was fourth the the $XX.X leases quarter first less CapEx million. lease That last of payments. quarter top million of for our revenues CapEx; and year, quarter Capital quarter. of for and $XX.X our

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

short-term suppliers capital of obligations totaled dark a had and IRU at XXX we lease of Our total $XXX.X quarter-end long-term quarter-end, and at different million fiber.

and was Capital were payments of for agreements million quarter, last you CapEx the capital for $XX.X and if quarter million these our first year. $X.X million sequentially quarter $XX.X Our combine payments principal under with $XX.X last lease principal quarter. million this increased that to compared lease the

flow. cash and At cash Some totaled comments million. on equivalents cash $XXX cash our and quarter-end

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

million $XX.X $XX.X first payment semi-annual During obligations. the quarter XXXX our for was paid one and quarter spent dividend, of debt on we our million on interest

Some comments ratios. on again

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

to was EBITDA, last Dave times. unchanged debt ratio, gross adjusted, and our mentioned, times as last X.XX total from improved Our X.XX ratio X.XX net months to XX debt quarter, at times trailing as

times flow we cash to X.XX X.XX our full will or times covenant in defined us reduced test ratio then to our and have accumulated in gross the basket. needs the to be is indentures, agreements, our builder access was meet leverage for less Our and indenture to as ratio, which

Some and sales. bad comments debt on day

and and recognize was billing days our the expense of now outstanding of in to back fantastic year. end want only and And turn continuing the for debt significantly again job. to again quarter, the every as for collections team thank I over will days, call to receivable day bad do members improved a I quarter, our last Dave. our from worldwide revenues to XX X.X% XX worldwide Our sales down accounts at for

Dave Schaeffer

the about I'd Tad. a speak our bit take and moment of Thanks, and a network. scope scale to like little

multi-tenant North in on space We square XXX network and have feet directly wired. fiber of our completely office over million America

connect route than X,XXX miles less customers. Our XX,XXX intercity these networks the interconnected world, we settlement-free network The which directly of of Cogent network to The X,XXX over remains network and over fiber. miles, XX,XXX of are remaining, consists metro networks, over fiber in the peers. XX are of Cogent over and networks most transit

utilization approximately maintain utilizing XX% low peak. network parts currently are capacity rates. We linked in to network the of We augment routinely of our capacity at (XX:XX) in our

That network growth our first of traffic For the the that achieved growth and was X%, floored data centers XX% had these XX%. quarter versus are traffic growth XXX,XXX quarter feet significant is of Cogent-controlled for XXXX a year-over-year approximately as square measured XX sequential of of QX raised at improvement XXXX with XXXX. We of rate we operate operating of versus and in on capacity. over QX facilities XXXX, space,

rate we XXX selling turnover long-term force with ended quarter. in better is And than sales was Our again reps the our X.X%. quota-bearing average our of quarter This services. the X.X%

summary, So is of and Cogent services. in low-cost Internet transit the provider access

value in continues proposition unmatched the Our to remain industry.

on and April services our Our Beginning on utility X this of to VPN in addition services data focused business connectivity to completely center our co-locations, on and are began remains our to services customers. year, and based SD-WAN offering a other customers. VPLS Internet IP our we

currency our constant constant our rates to XX% to margins in that rate growth as long-term year and currency long-term growth guidance basis per EBITDA be XXX expect averages long-term points range, and expand our annualized consistent We at historical annually. revenue to XX% adjusted our is approximately with we be the expect to

of regular dividend our quarter in quarterly board directors $X.XX. to that another per quarterly dividend approved per bringing $X.XX share, increase Our yet has of

and dividend the demonstrate continuing Our business, optimism our increases our of cash capabilities our flow regarding business. significant

in the under we common opportunistic our the extended year. will this that in stock through million be program and of buyback At is authorization, timing end of quarter's purchase end had current and the We XX.X remaining market.

shareholders amount on We questions. the regular basis. to our of to for increasing an committed to that returning open With a capital like I'd floor are

Operator

our And JPMorgan. with you. comes Philip first question from Cusick Thank

now is line Your open.

Philip A. Cusick

I Thank FX little business than accelerating? there, closer there's time. you. Dave, to we a growth we saw is a revenue the XX% in know long have but really in underlying

Dave Schaeffer

improve. Thanks for Yes, continues the question. business to Phil, Yeah, our

sequentially which little in selling NetCentric historical rates, commented our we year-over-year. has growth directly America, As in continue business, North users growth our Corporate is in and X% end previously, at came XX% to The swing greatest perform FX very to business. and

business outside business rates U.S., the improvement of that direct of is but of and is Now, year-over-year the approximately that and in the a growth in growth rate that saw in the improve, rate. XX% growth that acceleration result and sequential growth traffic traffic we

last the traffic XX% a seasonal the compared and quarters to that previous I part growth of year-over-year Internet underlying and some continued X% that in be traffic can five improvement the any continues While services. than that basis, rate faster growth of with rate in sequential the in over the to on year-over-year year-over-year rate, growth to the show is think XX% business the other telecom accelerating grow is continues quarter

Philip A. Cusick

of it we been this toward it's off-net sort quarter then that? it And accelerated or on-net can expect, in and slower time. random some Thanks. than revenue than a trend was shifting Is is more on-net more

Dave Schaeffer

than random more is It that.

deliver the We third-party to mercy off-net the a some loop. we have local at in volatility are business our of because

about different As Those are circuits. circuits XX Tad vendors. off-net mentioned, XX,XXX delivered we by have

is of relationships on require our our on-net many often on-net, return locations but meet of services that core business don't criteria. capital Corporate Our

and So approximately to about Corporate of which doing In both the a general, we a been about use than given expect quarter for In should investors long will year-over-year, the consistently any Corporate think grow Corporate off-net is which XX% the it's I the decade. same the at on-net same and at off-net bit vendors. business off-net more grow business term rate, rate. there businesses pretty but volatility, can little be on-net

Philip A. Cusick

it. Got Dave. Thanks,

Dave Schaeffer

Phil. Thanks,

Operator

Thank you.

from comes Goldman Scott with question next Our Jefferies.

open. Your now line is

Scott Goldman

been also give picked the the seem force playing drop of maybe a you like if of you've And of bit, background terms of It quarter. Good bit about about little to about a SD-WAN in talk goes you product. bit in sales just people industry, also space. Dave. how little than little secondly, as could turnover up slowed. seeing there be the of morning. the talk lot far of guess, a but I talk that's a where And in what within looks SD-WAN anticipated. reps quota-bearing One, Cogent the this introduction as hiring differentiates couple a in then, questions. Hey, the you're that market Maybe a adoption pace faster whether

just there on around year So the what for give are that. expectations what's context and some the Thanks.

Dave Schaeffer

Yeah. Sure. Thanks both for Scott. questions,

XXX a private premise a customer that public and their one equipment for service of being first piece they equipment technology customers. a have gives supplement allows to-date alternate Most operates our them security, for still two SD-WAN Cogent. for is mindshare, the representing then So all a distinct which area networks enhanced That it. be it one three-and-a-half ports, network the an offered and build private networks, equipment but transmission virtual to deploy extremely technology packet virtual Internet on sell about been become security the used and those MPLS using de-encrypts by existing SD-WAN to tearing to are That line encrypts customer provided connectivity. is of SD-WAN customer Internet service Cogent gain We us, to other successful so replacing the side two that with Corporate to to networks. the continues has continues out customers MPLS be IPsec, taking to (XX:XX), of basically other important get increasingly for are deployments increasingly to will private of software-defined wide advantages; customers access, networking. XX% predominantly years. That every but has power in and additional X the revenues. as that

important within their trying their applications service to traffic within different network. the to it Secondly, customers can of flows. be is prioritize own allows customer classes if create That

and in increasingly replace improve technologies; security to to two one, we two, using So using SD-WAN existing ways; other see technologies. customers

Cogent are our been to be To a than and question So security isolation. and be who MPLS generally marketing or service, available of grooming connection remind a and the the use from meetings, in typically supplement an less can second lot Again, look and towards investors, – MPLS. manage some as will different reps, don't deployed to service first sales want that of additional to around levels of back insignificantly but two at quarter people full-time product trends, Switching sold BPLS in XXX historical opportunity reps. reps, we season. did either our have about holiday connection your the a this over has other an market a us. or the to fourth have number of have actually, number over to productive to out of very customers We for SD-WAN very is holiday when force never a Internet We of do the you dropped this completely equivalents the the XXX. sales quarter represents we from addressable drop end providers

that were productive. out a was taking we So were hires newer and less some very drop, that (XX:XX) modest

were and sales force and between to We training full management hiring. candidates. XX% our total an X% XXXX conferences have year our But for expect our slowed to that to also, continue of supply distracted continue to again, ample calendar sales somewhere of some XXXX, in we versus fully add to we

continue sales we grow feel that the So force. comfortable to very we'll

Scott Goldman

Dave. you, Thank Great.

Dave Schaeffer

Thanks.

Operator

you. Thank

comes [MoffettNathanson] MoffettJohnsonson (XX:XX). Del (sic) Deo question from with next Our Nick

now open. Your line is

Nicholas Ralph Del Deo

my taking for Thanks questions. Hey.

number. in of remarks, First, I Can year? the XXX catch to quarter, you're referred what but in and it for you ASC one didn't the the prepared quick expecting impact a the a quantify You for Tad.

Thaddeus G. Weed

Sure.

no revenue. the we top this there disclosures no, can on impact on when our required, are was that line, was there follow First, and additional the virtually you file XX-Q,

impact of adoption In the ASC XXX. fact, sequentially was $XX,XXX of it

impact. immaterial was it and not significant revenue for So a clearly

the capitalize basis and the which commissions, change the XX is certain million about On it about the front, during was and to is $X to requirement points. amortize SG&A SG&A our of reduction quarter,

ramp initial that down kind we're – as For get of the year you impact. will it

that So the SG&A. on less than quarters will impact for be subsequent

Nicholas Ralph Del Deo

years noted capacity. Ars Okay. And an Comcast, for drag its about for remember of feet signing more was speaking, saw a you instead from might two I augmenting interconnection a, couple agreement the it that or quote, Comcast Internet Thanks, again generally and in a don't was and (XX:XX)? Technica with it Dave. to Tad. after be gentleman's Is the them. that recently came fight environment of ago, indicator when that but look me to the what wake and (XX:XX) And going then you article think you the And providers is order leading had going one I mistaken, Comcast starting a the in to then away? were of you of and with interviewed original last like first, referring right, questions; to I deal made with So is second, open mile the this

Dave Schaeffer

have a written with we do signed agreement Comcast. So formal

the agreement that and neutrality. adoption miraculously, AT&T, and been were after been a right like of opportunity companies net outlier. repeal the honestly provisioning neutrality Spectrum, of extremely been its push I past do is to feet, Internet We supportive of the pulled its agreement Other record the miraculously end Comcast testify and front they And truly which provisioning reclassification the obligation now to had they capacity. speed. quite now and have order in and as net within at are shorter always the to started their of Verizon, two boundary, Title rules, to the problems has almost Senate, had of their X an the the whatsoever their committees service, no had California of Comcast the State continue proposed Comcast's of They times there's were but a upgrade timeliness bound it, to open dragging towards Internet fair outer the after in agreement, but and amount the of of corners honoring (XX:XX) four variability.

regulatory clear the that is Comcast So monitoring it's environment.

of regulators to mirrors just also the California sister senators behavior would like them. observant the of of the looking optimistic XX recently not that state introduced that over bill I will XX both these senate in remain bill. York are exactly neutrality, they We their York think honor be a says net New bills New ultimately by passed. And they but in co-sponsored

think with jurisdictions, from additional people keep honest. I that, coupled probably oversight will other

So that XXXX a behavior not bad and to existed reversion anticipate I XXXX. the in do

Nicholas Ralph Del Deo

Thanks, helpful. That's Okay. Dave.

Operator

you. Thank

BTIG. Our next with line from Piecyk question comes the of Walter

now Your is open. line

Walter Piecyk

Dave. that I want follow I to Thanks. up question last to guess answer. Hey, and

you they If their on within the I and why have as contract as a pay they're then them, matter? it's mean, like that pay their does them they due. the not people get bills contract, soon last day of

Dave Schaeffer

payment there is So contract. no due in this

Walter Piecyk

but to metaphor the last if I they're set to? going at a for you was that have of add they you mean, the like, the confines why that the understand, moment I possible capacity expect they're operating that that within contract, contract. wouldn't

Dave Schaeffer

So two reasons.

The reason provide what quality company's defines the respective the service contract customer first important the is as to is most to reason each and reason base.

date, selling the So deliver possible date, not possible at highest last at the service want quality typically if earliest if you're that's the services, to you would possible.

the a kind provisioning. and and beyond there sign meaning, the because boundary minimum amount norms if operated boundary oscillate, their boundary customers, outer is but at agreement window, for Secondly, no at with one a for the provides they for and of operated time, us they them (XX:XX) would maximum same that industry maximum of is

customers. contract the seen connect of of cross other incremental intent. where mile And to purpose providers incented there to which to the improve ports comes all your would only last in of actually period party, absolutely is party, their mean, cost in is window it of the to possible. and down as there's the no is XX% It there not dramatically seem benefit almost congestion. but is additional I like We've it's times either they cost do either party, as be since the to provisioning should the own to benefit cost no other short these this literally a So ever

Walter Piecyk

in way if your ISP it's contract to any is a it's ability traffic, mean, assume going and that your I you signing behave could to impacting wouldn't deliver I the predict.

now that set I if is should contract outer you're that have comfortable the You something better, not bounds with. guess,

Dave Schaeffer

comfortable But, it. we are with

to particular Comcast customer locally, in of of So the was market, another exchanging in that traffic exchange referring San was the customer was Seattle Francisco, a and particular some trying greater a that the to instead locally, actually customer traffic (XX:XX) a in the Nick It it noticed was latency location. diverted Comcast and and to trying of was in to this quickly was being when inability slightly honored. up between of contract experiencing it latency prolonged additional just The a just adequate turn Seattle. to the was was enough were those particular was the transmission, because networks. customer Seattle-to-Seattle There still from It a ports capacity reach location.

Walter Piecyk

it. Got

if view that on or the So this not? the the the contracts in that, NetCentric even way accurate how of growth. this bottom is Is ISPs is behaving these that line manner, should your are an that started structured, all not have in overall impact

Dave Schaeffer

Walt. accurate, is That

Walter Piecyk

have And obviously, of then just builder back? the mean, even end-of-quarter available And let's since that's down wanted the test, an stock repurchase quarter? good that I visibility, say you're is share Dave, times if on X.XX you not for okay, if go have the it are to of kind stock then board this flow cash of and Great. all cash of can moved, now going your (XX:XX) walk case even to you happen up to you target? like you're like, right, Shouldn't repurchase, the type and you this very question to to basket. close timeline? I ask you to be money. the so able now us Okay. immediately get buying like, terms is in start through Can that Does free have to plenty the that hit it's obviously

Dave Schaeffer

that met the indenture. it quarter of in So is end as is at test defined a the the

is of substantially and complete While we and and indenture, fully until available have that times quite we company cash, reviewed the that precluded has happen It moving the will financial shareholders, mechanically in have of will dividend visibility that any comfortable we to of we at and is end will at be that or a what of return been holding cash not outside our X.XX great other happen mechanism operating will the do statements package, company could be covenant have effectively the is breach our feel practice. use that, the have indenture. that point, That this quarter. we to below the outside the deal probably any of a that from for

financials the it probably no allow prospectively to in While need do until feel then. we us those and have until in do think it, we'd would I comfortable had it doing indenture to don't hand, we

Walter Piecyk

it. Got Thanks, Dave.

Operator

comes And Thank McCormack the our Guggenheim. next from you. Mike of question with line

now line Your open. is

Mike McCormack

Hey, you've whether just CenturyLink-Level you're will a just could a out there on Thanks. on a on what behaviors X, crosswinds slowing newly-combined down Cogent. seeing Dave, quarter little little the thanks. competitive about you if on it there or with be thinking any comment any to the And XG finish Corporate seen hearing then just the side, landscape, a respect if And how builds pricing Dave, and affect XG commercial change activity. on in decision-making, bit. comment on maybe, this secondarily, the decision-making maybe couple

Dave Schaeffer

sure. Yeah,

to three try take me those. Let of all

in with – start to So I'm I'll going take order. the them

GDP their businesses groom continues of think to networks to their on On percentage the Corporate reduce I continue telecom landscape, spent services The overall spend. look decline. and to that's telecom

actually think decline will accelerate. I that

seeing customers VoIP move a alternate POP these services migrated Just to similar migration we VPLS they from we're saw as from as services, savings cost networks SD-WAN. a like and technologies MPLS private away significant for to as

a make benefit means And for factors; we three applications that ability no think it continue you migration to current and connectivity things most maybe simple Internet increased matter always expiration; have third, a I pretty cloud other need to that are then is the extricate contract one one, and computing (XX:XX) migrations types importantly, been the to for replace your need predicated decision-making demand how two, and more from case, because for of and customer. as consistently; Corporate is the services; the two painful customer clear SaaS another driving yourself the from on relationship, have software.

reduce to have companies costs desire off and get for that the The cumbersome network second of private thing, those those expensive a ports.

the roughly that continue improve very the feel experienced and should forward. growth XX% comfortable growth sequential year-over-year even or we've so, we So X% that going decade or past for

or crosswinds substitution of these material So no rates. these degradation think, growth in really we product are I acceleration Corporate see because seeing phenomena. Others,

the your set. by M&A, portion network about particularly X-CenturyLink, compete their we legacy think, their product to second I and with by their constrained and Now Level question footprint, and remain, CenturyLink they and incumbent

Bell So footprint. board, as and CenturyLink we perform Corporate across the we AT&T, Verizon, same or strong about or continues Cogent's footprint geographically in do Canada sales and the

competitor. NetCentric the was significant X is competitor. a side, our CenturyLink number Level one On never

a XX%s, growing are is global and is providing market. as XG, NTT Cogent, force. more coming by greater to upstream I the from was final combined usage. and the is today, But question or XG seems has implementation, Internet data significant Internet a intensive, those will your providing is some think of XG to the usage promotes XG to I the and still I think and usage to capital to continues that's competitors be Cogent. two access content drive since going traffic combination Whether Data gaining announced will for on to that consummated, be less To market as share remained line. we They've that be a continue product as in Level now X by market. fixed of low major focused mobile player. demonstrated XX% data been our a other largest usage provider, They're the backbones, good deemphasize very Telia X-CenturyLink. think transit the a it the probably that share, thing and that to market Level is, growth we're NetCentric customers, will long compared are but dominated The the in to anything

that. at becoming of is I but continue and will to XG about think grow of line, significant, rate and think an continue, twice I will mobile the enabler more that probably fixed more

Mike McCormack

Dave. Thanks, Great.

Dave Schaeffer

Mike. thanks, Hey,

Operator

next comes from Thank And with Matthew our question Niknam Deutsche Bank. you.

now is line Your open.

Matthew Niknam

thanks for the guys, taking question. Hey,

Just following on up two could. if I NetCentric. One,

up X the Level backing other And or maybe mentioned consider? there really what somewhat terms you drove transits tailwinds the deal. confirmation you then or quarter bigger in this, secondly, Thanks. we than step think, on little CapEx and to a year? Can CapEx, your reacceleration, expected Was expectations Dave, talk of have then of are the for what's factors maybe maybe bit the you more what driving a would took are do of So quarter. to broadly, that this off post in for

Dave Schaeffer

different Two very sure. Yeah, questions.

of factors. So because market and Internet growth broad accelerating NetCentric traffic of accelerated growth set a

and X over other our was continue material shift from wins gain previous Level share I think we in market providers, say, versus, there to X a don't Level While quarters.

single equipment perfect an door to mean a product. our this think last able of and basis buy between that about And $XX net you the to there the through about $XX of add take but I've continue numbers last will be a year, it ago is to because line. it $X this And years healing not trend, while versus on the continued may million indicated could to improve, is million. Internet the principal in that damage so CapEx more year if of of capital or that straight a acceleration two million, of need neutrality. a shift difference To investors improve was you payments violations think CapEx repeatedly couple relative multi-quarter caused together from to leases, the test on is of out have should I up was some question, I really what do the did may was a equipment was increase in of have but be year. that cash in be Part needed Clearly, gear. same labs. expenditure terms, to quarter in one-time as is two year for effectively delta. down, this payments biggest any recorded probably CapEx absolute didn't and on I but component actually principal that it We It bit on as little a similar the roll percentage leases, our came slight test we the this CapEx we out recorded the to SD-WAN. are what to capital was

Matthew Niknam

Thank it. you. Got

Dave Schaeffer

Thanks, Hey. Matt.

Operator

from our Thank Brandon you. comes KeyBanc question next with And Nispel Capital.

open. now is line Your

Brandon Nispel

Dave. for dark the missed the should is quarter, expect? terms this, the some fiber purchase numbers in you of quantify customers then year the for (XX:XX) I run wondering from to but that services. just on for this I if might could guess, behaviors versus the comment Hey, we rate And your taking you're of you on was question. impact seeing full their Thanks. what Thanks I you're have for can expecting? just SG&A of And that ASC XXX your

Dave Schaeffer

I'll questions dark go are to who is largest dark not to service I'm to build very going attempting the Tad, typically accounting Corporate question. fiber who would providers We take the but customers. the network, give fiber. after buy their own That or other customers do potentially either

hyperscale have to exchange fiber, our to or points. different major and a that for don't content connect our to connect those a then together, necessarily but is to use service, with continue proprietary of construct which data data it many substitute use fiber very dark but Now, customers to network and for Cogent buy purpose, centers compete their centers

of purchaser are a dark We fiber.

buy that world. from in market, customer indicated, a and XXX we're Tad So suppliers as the different around we

the just and Cogent's includes services that and sell transport, is not interconnection. operate for XXX Internet dark that have of because fiber, metro spread NetCentric, miles XX% is Internet that about roughly access of across in. includes of It or we miles and We added fiber substitutable product the fiber revenues, whether routing transporting. We XX,XXX Corporate markets more quarter this primarily XXX nearly last than

cannot small fiber. do and gigabit XX any even dark or revenues cost-justify typically either Corporate drive customers our could traffic be used VPN location, services relatively megabit about We a of fiber Corporate of XXX as our buy or for customers, substitute, at from volumes XX% also but gigabit connections, it

private are definitely not and XXX, purview Fortune that the maybe of fiber networks So built is base. these on the customer Cogent's really,

to going and I'm he'll to Now, answer the switch Tad question. ASC over XXX it

Thaddeus G. Weed

Sure.

us So one with recognition this for is with is the in impact revenue had and commissions. pronouncement our accounting on the areas; two second

there only revenue, accumulated on recurring recognize to future fees. on our and deferred the our recognition was installation was On recognition that front, revenue impact was defer the at company the impact which impact we we reduction recognize. of adoption lowers revenue recognition. a how could no revenue The The

hand, time Net-net, from we different XX,XXX be other are year. deferrals for not and going only impact that it's On was the the recognizing fees than that the was materially quarter, to slightly current reduced. the the installation for

line top virtually the this So company. on had impact no the on

certain we of On the commissions. SG&A to our capitalize front, are now required

expensed balance to the that about adoption take commissions had and sheet, on $XX we So that million. record was at previously and

need they expensed forward. those So previously to expensed, will commissions, while going be were

partially are On the commissions capitalized hand, amortized. current then other and

about forecast, net-net reduction a So The impact $X that. impact of that the be to quarters, in SG&A will quarter subsequent less was while to during the million. difficult than

subsequent upon have expenses variability run rate them. quarter, debt typically of will level some Your the to bad are question will our SG&A on dependent this it the that similar XXXX, the of be in quarters expense. hiring, Those of

Brandon Nispel

Okay. much. very Great. you Thank

Dave Schaeffer

Hey, Brandon. thanks,

Operator

Thank James. you. Raymond from question next with Frank And our Louthan comes

open. now line Your is

Frank Garreth Louthan

SD-WAN may us IP bit have traditionally SD-WAN maybe us from to for about market this this to same architecture, late. discuss target product differs and both? you I This to mostly who's or a to you. looking talk Is going rollout NetCentric, Corporate Thank on you offered, the or an type been via Great. this deliver little already just are addressed. or are the the But I product apologize. that to the and this? got sell about you

Dave Schaeffer

Frank. Sure,

almost We VPN any today. all, of sell exclusively to services first So customers. we our applicability it a the a technology NetCentric real don't Corporate is product. different fundamentally using is see It than

network-based are virtual a VPN we through delivered line private using today the sell service services equipment. over So encapsulation

piece from a our through in is doing are network, is stripping and customers, wrappers then requires a our encrypts we solution premise packet, done across packets it side. of SD-WAN equipment. And in of putting The different It those fundamentally customer sends the equipment network. on encapsulates architecture. wrapper, taking de-encrypts all It what uses and the off network, that sending across them them So them. a the other than then rather

customers expect actually use technologies some to We both concurrently.

in gets XX% the to that encryption approximately the bandwidth or one other. The utilized encryption of payload or downside process. is use will that the Some

is net with whereas of the the line XXX% So you rate XX% get line service throughput of effective VPLS only rate.

the establish payload your within customer, traffic. of with of a as also, able being added You to SD-WAN get benefit class prioritize and service

minuses is technology, their superior pluses gives to that network, a and meet both to we can specific think have and are lower technology who this cost, customers So a and each private MPLS, needs. there all

So it's we to have. be to what replacement additive, really meant not

Frank Garreth Louthan

Okay. you. Great. Thank

Operator

for time. Thank further turn remarks. would now you. back I Schaeffer, any CEO, further Dave I'm like showing call this to at questions to no the

Dave Schaeffer

Well, great about a an your Thanks the any support first look deliver very to be rest everyone. But of all, quarter We for we to questions. to kept just I thanks want to thanks results. great everyone and Cogent for at answer the Bye-bye. obviously hour, and and we'll everyone. available thank it year, a continuing towards of optimistically lot

Operator

you in for conference. Ladies today's participating thank gentlemen, concludes call. and This today's

disconnect. all may You day. have Everyone, a great

Cogent Communications (CCOI) 3 May 182018 Q1 Earnings call transcript