CCOI - Earnings call transcript Q2 2018 | Cogent Communications Holdings, Inc.

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Operator

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

As a reminder, this conference call is being recorded and it 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

Thank you, and good morning, everyone. quarter conference second our to XXXX call. earnings Welcome Executive Dave Schaeffer, Chief Cogent's I'm Officer. on is morning's Chief with this and me call Financial Tad Officer. our Weed,

quarter optimistic We continue the of outlook pleased by and margin and for are beyond. XXXX our our business to the in the be for underlying strength results and

history. the margin by second margin XXX XXXX, of Our percentage quarter to our the point for representing EBITDA EBITDA basis quarter increased highest in XX-year the XX.X% from

constant by $X.X Our Our which the the EBITDA sequentially increased year-over-year from growth growth the XXXX, for of increase by increase year-over-year, an XX and XX of basis quarter from XX.X% increased revenue gross from XX.X%, million, of quarter expansion of our quarter points is for achieved and last quarterly basis continued by QX to sequential its margin quarterly basis, X.X%. currency we On And revenue QX an a X.X%. points of XXXX.

equivalent per per full Our quarterly above units average X.X sales rep time was of again rate our productivity month units long-term significantly time was full productivity that and month. rep per X.X equivalent per

And sequential network traffic For we the and an growth accelerated achieved XX%. traffic our our accelerated quarter, of rate at grew growth traffic on XX%. to year-over-year, quarterly

During We board which regular end in did the $XX.X the million program, in to our quarterly quarter, available XXXX. we quarter. authorization to we a authorized any our returned the of total not approximately stock continue stock dividend. through of end, shareholders $XX.X million the had At quarter has our purchase through buyback

X.XX the leverage previous times X.XX X.XX to net from times quarter. improved EBITDA our And quarter. from improved in X.XX last ratio leverage gross Our EBITDA

that last the to our us included ratio utilize as allow to is the quarter. threshold in accumulated leverage X.XX from X.XX builder consolidated under indenture indentures, our will ratio is below and This Our improved defined X.XX basket.

company level the available end us Holdings of and combined with buybacks. provides Cogent dividends of builder with operating a at million Group, million at and Cogent the million quarter was of the $XXX Our at the unrestricted for $XX which is total basket of accumulated held cash that cash $XXX

We expect to operating to our holding basket company quarter. our builder the majority from company during the transfer this

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

consecutive yet result questions this for discussion, As we and grown greater floor $X.XX This our indicated increase highlights, in answers. have per we certain quarter. a dividend, will and which our quarterly sequentially regular per $X.XX to XXth per that press another share additional some regular in then open announced operational Tad in details on our dividend our in from I provide we've operational share of release, quarter as increasing $X.XX quarterly financial quarter dividend. our number and represents performance, Throughout will detail the will we'll a review highlight statistics. and sequential

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

Thaddeus G. Weed

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

to I'd back the to Now call over Dave. like turn

Dave Schaeffer

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

includes a of release press metrics. historical number Our

our regard guidance. with of long-term some to Now

for remains range growth long-term Our XX%. targeted full in guidance year a of to XX%

Our annual half approximately of long-term on basis for of expansion Based results be growth the points. to range. we below first that guidance our EBITDA slightly improvement year our targeted XXX is the annual expect an margin year, revenue targeted full

However, we points full more annual to EBITDA improve XXX our do by expect basis than year. the expansion margin for

guidance. are and Our goals long-term intended and as intended specific revenue guidances be not to be quarterly EBITDA used to are

Now, results give the I details some additional you would ask quarter. for on our Tad like operational to

Thaddeus G. Weed

team the Thanks, Dave. efforts Cogent and busy And I'd and congratulate another for for for during good hard again, morning our results quarter thank and very continued and to quarter also entire Cogent. to their productive like everyone. work

and Corporate and Some connections. revenue NetCentric on comments customer

we a on-net, customers. reminder, revenues upon based of we is our also revenues network upon NetCentric type, classify analyze and Corporate non-core, we into customers two analyze As customer and types customers And all off-net, which based type. our our

and declined multiple our due connections which NetCentric grew on by same bandwidth at from by declined location consolidating quarter-end, neutral data Revenue customers. million NetCentric $XX.X our by circuits network fewer and to X.X%. XX,XXX Corporate from NetCentric our us grooming, large and our X.X% by last from XXX customers significant quarter-end. on XX us year-over-year sequentially circuits amounts to customer type. larger sequentially at bandwidth gig Revenue gig X.X% buildings. by network of customer the Corporate at of to circuit XX,XXX We some We Quarterly from had revenue our grew customer had customers NetCentric quarter customer carrier large in and buy our connections Our from office Corporate buy grew in customers connections from year-over-year XX.X%. centers multi-tenant customers

by by more than the revenues other Our our volatility experience growth connections impact type. NetCentric in customer factors. network Corporate revenue impacted certain (XX:XX:XX) does foreign of and exchange Revenue significantly seasonal

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

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

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

for per our comments pricing, megabit. of with average quarter. customers the price the megabit pricing Some base on historical trends, Consistent installed decreased of per

price contracts average for the new our per due quarter, primarily for increased However, mix. the to customer megabit customer

price decline. on by by the base that from a megabit basis with we per new The megabit our installed sequentially per to for $X.XX, consistent XX.X% expect average However, and the price for X.X% declined long-term trends contracts do will historical average new were The for for quarter the megabit quarter customer customer second did price that quarter by per second the our XX.X% increase sequentially contracts XXXX. by from of declined contracts and last new sold $X.XX our X.X% year. of to in declined

If in new megabit per of to contracts six-month customer megabit you sequential decreased price were contracts look new a sold for the price XX.X% $X.XX our basis, by from months customer the per XXXX, average XXXX. for the at $X.XX first for the on contracts half new six of customer second that for our

ARPU. on comments Some

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

from for Our quarter, the was last decrease on-net which both, X.X% which includes and of was quarter. ARPU, Corporate NetCentric $XXX a customers

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

Some on comments churn.

unit Our churn relatively off-net on-net and rates during quarter. the stable were

quarter. as X% which last on-net was Our same the the unit for rate churn rate quarter, was

discounts rate related off-net customers. also offer Our this of a churn X.X% was our contract quarter, We to all our terms, from slight volume to NetCentric Corporate and and quarter. X.X% increase offer discounts customers for last NetCentric we

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

EBITDA Some EBITDA as comments adjusted. and on

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

costs. this X.X%, requirements impact a Our our revenue $X.X expense adopted about million SG&A quarter this the SG&A contract The and was Previously, pronouncement despite expense had negative benefit amortize commissions in costs. and occurred benefit million The was only customer of we our in was commission a a we first quarter, on a a the our expensed revenues. a of last that benefit of or GAAP reduction in again this U.S. last and U.S. certain negative sequentially decreased by The of immaterial impact the as quarter, new new and relatively these quarter capitalized quarter. $X we $XX,XXX reported that GAAP impact $XXX,XXX had $XXX,XXX this quarter. was of

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

Dave XX.X% largest this by Our XXX And percentage sequentially, percentage quarterly company's the points, points. EBITDA increased history. of as basis EBITDA the margin XX-year increased quarter basis mentioned, margin to XX.X% and by XXX in our EBITDA year-over-year margin represented

gains was in adjusted, as transactions and EBITDA Our similar. EBITDA including which is our relatively equipment

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

Our by basis EBITDA point XXX adjusted as XX.X% points – and to margin XXX increased points year-over-year. by basis sequentially basis XX increased

have million million second last the were $XXX,XXX last $X gains recently compared quarter year equipment for the been $X.X only quarter. and only quarter, and Our to declining for of

earnings Some share. comments per on

share of and the per $X.XX quarter for the compared quarter, for last second year. to income basic quarter Our $X.XX $X.XX last was

income for for the quarter second quarter Our $X.XX the last was year. and $X.XX diluted last and per share quarter $X.XX

Some on exchange. comments foreign

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

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

be X.X% of exchange and were exchange is quarter U.S. is at the $X.XX and sequentially, is million average dollar $X.X on quarterly and be negative foreign million. sequential exchange the the that concentration. for third levels that the would year-over-year. revenue Our Should impact concentrated. basis rate growth far of a FX also quarter customer be Canadian that The revenues estimate the conversion rate a negative impact third average our base these remainder currency quarterly would constant our this revenues in convert the average highly remain for so to year-over-year rates on is $X.X and $X.XX. on rates quarterly our foreign XXXX, conversion euro Customer average believe We X.X%, dollar quarter not revenue current

CapEx, less declined quarter Our the for represented top of XX sequentially by this than our our customers capital expenditures revenues quarter. X% On XX.X%.

quarter, last quarter. capital Capital second Our were $XX as from capital a of but year, million expenditures decline this lease the and quarter the payments. same incurred the $XX.X lease last amount million we

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

XXX contracts fiber quarter-end. with Our IRU $XXX.X million dark capital obligations fiber different And totaled lease suppliers. of had at quarter-end, at the total IRU we

the payments decline, And sequentially, compared cash and the you cash payments Our for quarter, principal the capital principal million. by cash for to million million this $XX.X cash quarter, as combine $XXX.X also CapEx, on quarter lease IRU Comments and last and that end, and $XX.X of equivalents year. to decreased cash million there for our million $X.X second our quarter At agreements $XX.X quarter. lease flow. totaled million, totaled quarter these was was $X.X our capital million operating capital returned last we And stakeholders. if under $XX.X a was with

regular our our on million dividend debt. on During interest the payment payment was ratios. and for $X.X on the semiannual quarterly debt we paid quarter, $XX.X Comments million spent

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

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

our our by basket. ratio X.XX indenture leverage consolidated accumulated as needed X.XX defined Our ratio, meet builder was which and the our again indentures covenant access $XXX to the test agreements, to of million below in

quarter at ratio agreements was leverage our as secured defined consolidated indenture end. X.XX Our by

Some as same of bad quarter was again or incurred job as outstanding recognize service. on collections accounts revenues to our for comments at want outstanding a fantastic I'd for sales on were team we our and our the last worldwide for days, and DSO debt worldwide to over on thank bad and our billing DSO always, day X.X% collections expense call like do days quarter. continuing turn customer the the accounts and sales was receivable, only Dave. XX And receivable debt and I bank to

Dave Schaeffer

Hey, Tad. thanks again,

for Now comments scale network grow. our of to a of scale, The continues expansion. and and our on couple network scope size

have feet on-net space of square over million XXX in office We America. multi-tenant North

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

currently network. in are capacity maintain network lit in routinely We these augment XX% We to of rates. sections of the our utilizing low our utilization capacity

the growth quarterly growth traffic and for traffic of significant XX and in growth feet a we square we sequential with space seasonal improvement those of utilization. is we centers traffic our facilities quarterly traditionally at are XX%. slow For to in a what operate over period XX% operating data year-over-year Cogent-controlled XX% We quarter, saw XXX,XXX achieved

the the of our retention a internet access quarter turnover of training again Cogent X.X% and month. than force month, to programs with put quarter I our per sales and per place. Our the transit services. low selling rate that was think average ended in remains turnover testament the And in we've long-term rate reps XXX X.X% We better cost provider services.

Our remains industry. value proposition our to unparalleled customers in the

focused data remains Internet colocation on business IP services. the and connectivity Our entirely and

not QX April from for a a services several provide we and quarters. customers. Xst, the next to at selling services. do the expect services Beginning of our material Our SD-WAN contribution began utility our necessary start We these

We years. expect to guidance per to year of expansion be growth next our to margin for basis remain approximately XX%, our EBITDA XXX revenue the annualized annualized constant long-term long-term currency several with consistent and our rates points XX%

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

timing our of as continued quarter outlined. our optimism $XX.X cash in dividend opportunistic regarding remaining capabilities leverage the our well reduction common At authorization end. business do of remain program, which Our as of through year the increases Tad demonstrate We remains the flow our in under the have stock. current purchase that about end, we million place

to capital. a on all increasing are With mechanisms the regular utilizing I'd for to an our floor now to open that, shareholders amount their committed effective of basis, returning We like questions. a to return capital

Operator

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

Your line is now open.

Philip A. Cusick

this It Thanks quarter? bit a year, can the like slowed us earlier NetCentric update trend. on was guys. Dave, you in accelerating nicely but that seems

Dave Schaeffer

Yeah.

that And commented exchange. that. of on slowdown part So Tad was foreign obviously

much was the saw points. those combination in do QX, and sold reason sequential lowest Secondly, sales, we explaining growth last been significant rate price the price lower the coming and on of decline, traffic earnings in points per has in get in FX of it prices had actually steeper in QX. the our the price QX, traditionally been achieved growth in from the than we the of that full last and new most which and we throughout customers, acceleration megabit lower had that commented of Because the reduction that very the of of a of impact very those for largest call, effect traffic the quarter, that

actually to where of bit we Now that a most were sold trend, new of reversal customers. QX, of a the in contracts saw actually smaller

of sequential For mix the increase that a price shift. price a sold and reason, X.X%. a long-term we of increase not out rather bottoming This in pricing, in actually exhibited of but new is contracts declines an

base rate installed the and protracted some be or a roughly contracts the decline new that's roughly XX%. of about years. at And volatility. number There both, expect could We over to same XX%

traffic increased quarter. growth in albeit rate a a year-over-year large Normally on to customers sequential of we the obviously QX our And from be relatively low we with pricing. a saw year QX growth. to tends the XX% are quarter. experienced rate rate, to material flat basis, also This encouraged a last We XX% from by growth improvement XX%

will slightly run, return that while we there rate. to the business, over the encouraged business a business So, the long business And will approximately short-term XX% that on that below we is long-term that XX% volatility growth Corporate sequentially, X.X%, that in still average is think NetCentric, of is average. or which its our but growth is return growing remain of to we rate,

Philip A. Cusick

Okay. of see can what size, but Thank Thanks. as is one you. that And regularly company? or total for – the ideal you you that sales and as force you disclose remind different is us ratio a target completely mix a employees

Dave Schaeffer

Phil. Yeah,

sales – to reps. force XXX quota-bearing, of base operation XX% management in employee XX% sales the our total XXX was the quota-bearing of sales We're organization. our bring employees Roughly was sales So in that The entire was the XXX teams about individuals. total. base about

probably sales at while years, XX% head count for the we next expect expect be X% year the to operational We X% between to growth several to per slower and at X%. grow force

revenue our the is systems continues sustain XX% engine major a been the the and The X% in the force has focus. that that that force, employees X% mix and only of will to do efficiencies in of and the growth, And investing operational will traffic deployed, overhead about that products business of and unit XX% however, accelerating we've become be our connections standardization drive we So our with Because can growth. to of number in increasingly in sales more sales running year. and increase per sales-centric. growth

Philip A. Cusick

Understood. Thanks, David.

Operator

from And our Thank comes Jefferies. Goldman Scott next question you. from

now Your line is open.

Scott Goldman

Thanks Dave. morning, quick last one. questions. for one I the taking guess Good Hey. that on follow-up

the around new for And perhaps up on there that growth I'd the down in orders growth maybe this XQ commentary phenomenon then on pricing the fact Given the traffic XQ the normalized settling outsized reasons just levels the was in there sequentially in upside then should before that more quarter. is to mentioned. assume XQ. you

ones Just want if the other quick could. And make sure case. to I that two was then

lot obviously been of the buildings use and from as the a SD-WAN, as of number cannibalize in the adds you centers, networks are in all. or interest this what that just choosing the both, if building or of whether mentioned questions could comment additive what strong has of you're just their cases to there You quarter MPLS days office Cogent terms in in know client data very criteria service. you've your the a early but there, Dave. they're thanks, of wondering wondering buildings multi-tenant at and sort growth last, there, for And if then changed I why well the seeing make

Dave Schaeffer

good them. are for Those okay. It's questions, thanks Scott, and all

QX, seen be several the of tend a first driven all give we've and in sales growth growth of lead continued in is growth, but part quarterly improve specific in the next a summer customers not of slower, quarters. we the do coming on in in mix that NetCentric smaller first new and in by believe that So Remember, NetCentric a bit traffic targets, trend revenue our to also volume will us from sequential months to change acceleration typically, but the does unit QX. predominantly bit and sequentially, the

as through our quarter sequential attaching we third growth both and of year-over-year we're growth growth. of feel congestion see the position I to the can services just that improvement in both, impacts year. driving continuing, as now and out expect of you well and new in So, and NetCentric customers And then remainder the of into comfortable – applications and going number in now – we're do Many think, where traffic. networks completely have an negative the the enrolling port resided, a

marketing our question, Now, have four for SD-WAN services to about we been now months. the

interest. customer We have gotten very strong

that service As mentioned, quarters, both material I on but capabilities one the administer. seem connections, number against the is customer the to and customers the nearly think of XX,XXX be which more superiority focus a some and to I more the will not SD-WAN feature base next over several for of expensive of I difficult security it even is think MPLS,

a sell cannibalize I do at cannibalize. Cogent So accelerating market. and MPLS to remind to have continuing those see rate that To an SD-WAN services investors, as in does well. strong remain VPLS, base not We

encapsulation total slightly increased VPLS Internet a many fact, get elect of over we've a encryption and percentage customers our of deploying that it security. benefit either layers do revenues do that additive really port a quarter seen over SD-WAN two approach port of In customers and for elect service could SD-WAN both of to XX% the they from layer XX% of prefer services actually in it encapsulation of and to encryption. And of to as revenues on of our dual total think a security VPLS the and or the I focused and could kind have dedicated

building answer. Now to two-part adds and the it's a question

start the Let's data with centers.

built data continue the capital new a world. around influx We see of huge centers to and being

XX and existing to and in new operators their both countries You operate add footprint. XXX markets. And continue we know to operators

previously hands CenturyLink several facilities all carrier now We data also facilities, that have controlled some in where operators are AT&T there of situations former the the centers of spun neutral, model. and been Verizon new seen because out the facilities, pending have carrier fit are

So two from seeing (XX:XX:XX-XX:XX:XX) [Technical really different we're Difficulty] things

Scott Goldman

Hello.

Operator

Once momentarily thank we begin. to session gentlemen. are will will patience. Once resume will Okay. It momentarily. Difficulty] [Technical for (XX:XX:XX-XX:XX:XX) again Ladies again and and resume momentarily. resume Difficulty] your call [Technical will momentarily. the Q&A (XX:XX:XX-XX:XX:XX) gentlemen, conference ready you Ladies begin And

Dave Schaeffer

what and technical I'm Thank XXX% you. that not for apologize sure Dave again I It's interruption. happened.

buildings about to buildings from was uptick trend. in at me year course this the that do in has expand our the revitalized. of as through an the Let expect Brooklyn, answering market added which finish decision with per buildings, adding that remain our to XXX York we We market But at Scott's expand anomaly. bit that Manhattan XXX XX actually actually year earlier Corporate big that was in to consistent a New year we're footprint our of to historical about question with the pace

Dave Schaeffer

I still don't if thanks, I'm but live, know Dave.

Dave Schaeffer

Thank you. Okay.

You are.

Scott Goldman

Yeah.

Dave Schaeffer

That's all back now.

Scott Goldman

Appreciate Dave. Thanks, it.

Dave Schaeffer

Thanks.

Operator

you. Thank

Next question from comes from Cowen. Colby Synesael

Your now open. line is

Gregory Williams

Great, Greg thanks. sitting for provided but Dave overall some actually in color of revenue Colby. with second NetCentric long-term going on It's acceleration half the the Williams year you your in cetera, you're miss the nice targets. still product to mix et

So, just a moderating should second quarter row. currency the second new with a forward? it why? we line call XX% Is to assume on a We is rate the growth And slowdown the the in any message saw revenue. makes notable the this as in there out? off-net you basis, going sense normal the Thanks. top on have And question and growth constant still think I XX% to

Dave Schaeffer

Okay.

question. The guidance, take again guidance the me specific to quarter. to guidance long-term question not general designed general and being Let is the

roughly be third well extremely growing a continues revenues. of of and it X.X%, Our a our business is volatile increase business Corporate and is two-thirds can today percentage revenues NetCentric as revenues, and and sequentially. our The is of range within at to our XX.X%

have in we currency I business growth outsized That growth, do think business to and number of XX% part the as sequentially, end XX% return of just a We it's on of in into because which X.X%, range XX% even on its will business in of year-over-year to a long-term mentioned or basis, new the the probably because applications would rate constant higher a my online. getting will that the business, To answer the as that our range, the to currency, foreign below under come but average period occasions slower is to NetCentric get to question. NetCentric done entire Phil's have on part a be actually range. growth of

giving So are remains we that quarterly because we this the not appropriate. guidance, guidance feel is

and expect we off-net question, same Corporate off-net at your to rate. grow to on-net the Now about

significantly Our off-net is We have XX%. off-net those and customers we In growing last to about why sales. declines is circuits. for derivative quarters, That business is negotiate on-net on business few ARPU to were of able a that been the prices savings tail the our Corporate those pass at larger. slightly lower

margins off-net remained at margins we XX% that year-over-year. actually Corporate allowed expand. about constant to product Corporate over run, entire on-net long on both and grow expect roughly But to and Our our the

Gregory Williams

Got it. Thanks.

Dave Schaeffer

Thanks

Operator

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

Your line now open. is

Matthew Niknam

Hi. Thank you.

two on Just One, could. returns. shareholder I if pacing of the

with pacing we think the X.XX. dividend And ratio, and/or below ratio then should is about how now secondly I think one gross dipping the Dave, leverage that change? from of the how leverage growth may and just buybacks clarification. here

what EBITDA decelerates. more gives Thanks. you in to the confidence there growth the sales points inclusive reported getting or equipment of had that adjusted expansion. wondering as basis EBITDA and alluded think I'm you I margin XXX that's if if of EBITDA, or

Dave Schaeffer

Sure.

take and Clearly, our return So, capital. dividend let we're we of are the concurrently. continuing to de-levering me increase that pleased

which access able the now to are operating level. company trapped at basket, We the had builder $XXX million been

great more available deal company the at flexibility return it. utilize level, capital of move That as a power us well chose will to as and million $XXX company we we holding. if borrowing gives operating So, both and that we holding have to

the business, Buybacks I volatility decreased its have used relative use aggregate the market, the dividend quarter us to think prudent but every is below as firmly or help not or capture I volatility. to be value, decreased when that market of we'll and value Cogent volatility our are to to is its pacing been will and to policy be of increase wrong, be ratio reluctant decide continue leverage always maintaining the Cogent's should price of that But the capture come a of we we buybacks the continues. been intrinsic policy. of accelerated market rest returns to our we some a needs the intrinsic will is have dividend below of could decelerated. be able committed back I growth flow cash because volatility. to And to whether more able to the view believes We the tool market its price volatility share as the correct buybacks. supplement board capital a accelerating or little evaluate not share suspect but capture and would and to

expansion. years, coming slight XXX can Could approximately variability in again be points? pace basis points last Now the have number said margin adjusted long-term, expansion. basis growth slightly and over is, XXX episodic a there sales probably we a slightly our leverage. over below the will confident at at above to answer year expansion saw, again, the year. first. the range, we in this there underlying sure, continue improvements to rate first regard out we targeted sales, take exceed XXX be of even but not is margin of we've this XXX basis the great be of feel and points. EBITDA actually expect And the as on because that's going for we're or XXX lot that volatile. we or somewhat including same that though year the The to year But points equipment year multi-year both not the our it deal margin those give sequentially highly equipment and I'll points that that half basis to revenue basis remainder some With had investors, XXX operating the this we us confidence, be points. period of below the above basis that's from we'll for as a to at EBITDA And

efficiencies. this You as cost the for continue of of think goods achieve saw remainder trends able next I as well that And those year SG&A to several sold and will for we've the been lower years.

Matthew Niknam

Thank it. you, Got Dave.

Dave Schaeffer

Matt. thanks, Okay,

Operator

Thank you. BTIG. Walter next And comes our from question Piecyk from

Your line is open. now

Walter Piecyk

Thanks, Dave.

With million only $XX EBITDA the the have $XXX the repurchase. from on you million margin growth expansion, share

incremental just happen the that so So, future it am against What's the quarters. cash you curious in that why argument why still to plenty won't accelerate from the dividend gives I this happen quarter didn't growth board? faster, that of or

Dave Schaeffer

Sure.

for available the that we first that us is as the to money move speak. this quarter all of we of was first moving holdings money So and the are process that literally in

that X.X say investors to mislead Europe a it a guarantee to look did net to basis maintaining already that on we board And X.X the there and every that. occurred. and want to quarter. committed growth, and dividend I have dividend of and at have each Some is are some a of I times those to of between EBITDA we don't of will able pacing and de-levering. transfers in leverage but the we'll report is ratio be do think are increase We the

fall So the not current allow arithmetically, and dividend to year in sufficient rate is of it two, breach say increase below. the ratio next we or us that over

have the board And, this program. monies we will the either pacing transferred again, reviews accelerate So, topic to quarter, buyback quarter wanted that's they the that get did increase but they before anything. the or every the to

Walter Piecyk

said, next be quarter by based based Can quarter? far based mean, made and you where decision growth, should again, there as decision the just make your occurs share commitment the cash going Because next shareholders, back time it that that by certainly it a that I is as you reported? give commitment that and on to a EBITDA is repurchase to based be the on to shareholders to on

Dave Schaeffer

as give on authorization, their have. back have approve cannot speak the balance entire inefficient put operate to commit I'm and leverage will not in the am commitment They ground efficiently out maintaining capital. that I that to we is to they not of a I willing ratio the increase use money but my to stake we're sheet which those mechanism. of I that stock reaffirmed – we is buyback have mechanisms, shareholders more to I board. What of two commitment vote so or the and which going And the a So, we do not of either one board, one cannot result is determined, sheet. for have to and is, dividend the make will am we been I will the return totally balance to the willing use that, the to and to still six

Walter Piecyk

it. Got

Y was revenue talked circuits say, think you NetCentric NetCentric. when at growth. look you Just get circuit, What his what it on does growth? you him together are Are that's I does later that some to the buying you growth there used going all expecting to He put Like term X that kind did people you and of how basically involved. other – on mean about, in circuit revenue translate in guess yeah, trimming for revenue from of go call, circuits going were mix the discussion was term you sequential and in and in in I comments, this I does jargon, Thanks. third expecting for question the terms like, of that about, sequential Thaddeus, think to shift in a a growth NetCentric? then larger terms of for what's think grooming usage he up the quarter all

Thaddeus G. Weed

to units... sequentially the quarterly the Sure. decline The NetCentric was explain sequentially, in comment units,

Walter Piecyk

Right.

into does that guess I continuing So then and the QX that that's question?

Thaddeus G. Weed

they're But really that our have still continue. Yes. have the significant, We traffic. forecast because customer, from not don't it's to buying revenue more we forecasting,

of Now but price decline characteristics and could getting on-net upon because forecast, circuits, the based the Corporate based way of frankly is the of decline different price we overall and the revenue larger model may NetCentric. the off-net on those margin not for revenues. model lines We and

Dave Schaeffer

Walt. let me And on that, follow-up

and XX upgrade growth that neutral have, capacity customer they capacity is X their port the XXX facility, cross to to So XX% their get the in traffic more to per what of, average. they port, those X.X carrier reduce say, utilizing that a decline. is gigs by the XX are single or have is the as looking obviously gig so circuits happening increases, minimize on of gigs in four particular times one, to capability. We have as customers X had year a If much interests And offset costs. concluded connects cross-connect XX-gig it's they a circuit maybe revenue

the new to it's orders. new sales of past. dotcoms trying customers growth to biggest next going phenomenon. of more counsel There's very the (XX:XX) are Now smaller But most the sales companies a a in the the large is just where big situation go the could what This the access bulk biggest of we're it's have driving Some over are that see fangs The that on just the networks. quarter quarters is megabit or you they quarter investors mix when are is been hosting shift think a up. that that... driving piece or the smaller volatility not or customers? of smallest Don't per price

Walter Piecyk

because is on translate And don't people you are is, focused growth metric. understand Well, that business. what that, growth I focused that the NetCentric myself. on to going understanding revenue sequential metric about usage care in the I really I'm if to know

Thaddeus G. Weed

The answer is that. for yes

Walter Piecyk

Awesome.

Thaddeus G. Weed

seeing that year. the growth improved remainder we're in why of That's over the the business

Walter Piecyk

do good. it. Why – you about we even even talk Very later, about Got metric. you well, report that can lot, a Thanks Dave. other

Walter Piecyk

Okay.

Walter Piecyk

my taking appreciate I questions.

Operator

you. Thank comes MoffettNathanson. our from Deo Del question from And next Nick

Your line is now open.

Nicholas Ralph Del Deo

Good morning, Okay. guys. Hi.

sustain have the think we back on would have than able the SD-WAN period helping business? to growth help accelerate Going several zone adding in how to been over otherwise next this the an of growth for of to of or will longer of a SD-WAN, material look current you Is as portfolio going think time performance the kind if financial years, should do impact out to we you the it to? Corporate

Dave Schaeffer

in a growth is growth time. I by allow limited think and to also of longer Ultimately continue for it addressable will actually the period Corporate our accelerate market. growth

about approximately Corporate North America. DIA $X market in is billion think it addressable we a services, As

us suppliers. roughly services market fiber market have based XX% with different can of we off-net of Cogent one on-net XX% of XX that We on facilities another that from is that available to with and buy

Corporate to buildings. continue We increase our our penetration in

XX circuits We serve think billion about be of Cogent's which or bit happen. actually that growing SD-WAN to over Corporate Corporate drive roughly half third growth customers buy XX%, as from will of expensive MPLS DIA Cogent. will Corporate both a about that than XX% in it period and volume market to migrates faster buy a us the because We unique by the Roughly businesses. VPN our of The our per addressable addressable premium two yet bit It's business $XX but volume, from XX rate, actually much and are think That'll about effectively building over one a is XX% to XX% reduction penetration sold total price services and a will total market of pricing. away of by about we service traffic both. the a either internet circuits will Corporate SD-WAN services rate for bit. of those is VPN services XXx You continue allow VPLS is slightly on-net know equating at dollar able market. be off-net. converging service. for smaller VPN of it also per of the increase things to services to our utilizing two for to growth it now, both They longer VPLS, a the large with decade time. technologies will a per Internet a but the from internet five Probably bit times market

capital, that average actually on times roughly allows disciplined slightly slow, on that and we embedded these building us up to rate growth are is in the deliver of capital superior other our footprint spike anticipate around return cream more will of disciplined or skimming strategy I America. companies. average add have the buildings larger not because than the witness we average to remained our It corporate to of in think our returns base year added building buildings. size telecom the have Because number a is Corporate average the XX so this we saturated elect buildings; Our the our this fact we do

Nicholas Ralph Del Deo

gig? cycle that That's conversion helps How into And helpful. one understand are I your far mistaken, XXX gig Walt's you but And If on money to out we from then there typically the customers that connect cross save Okay. to I'm point? cross any maybe question this are that connects, to savings material connect can follow-up at customer before. some when the it XX not pays they for you. to wring

Dave Schaeffer

operator we savings us. reduce real they no gives that theoretically customers' there is the but that And third correct, obviously with parties the Cogent, money data monies Nick. to could i.e. to is spend That more spending them can center if

still I of our terms early a think relatively at we're stage. In through progress that,

go only were it NetCentric grooming kind cycle If to and X as to a does or allow And our headroom more kind hopefully ports groom of faster. through But grow customers their a interfaces to multiple away I costs back XXXX-XXXX Xs from drive It bit on different a there's NetCentric still little we in timeframe, customers, gig therefore migrating its on the or going on as the kind not you they We're think have bits on XXs. of a it's connections of the indicated, similar went real side. cycle on it's that really the Tad XX% of think now, been through customers But only XX% little maybe product. continue. revenues. the just way – And and larger we're maybe adopters. I of think that a either units through will similar probably name impact same I as

Nicholas Ralph Del Deo

Well, Okay. you, thank Dave. Got it.

Operator

Oppenheimer. next comes from Tim our And you. Thank question from Horan

now open. is line Your

Timothy Horan

most a capture. bit pent more capturing do of color that is broadly Dave. think give NetCentric can or kind still up are on point, they you this a customers, lot. you growth, this of speaking. Is Can Yeah, at of – you kind volume rate you're a their run the little Thanks thanks. where demand volumes at

Dave Schaeffer

Yeah. Sure.

growth traffic XX%. now from of rebounded about still to average, is have we of our congestion XX%. So, below height the We're at XX% slightly which port long-term

next several I that do the in continued there over traffic acceleration So rate. growth some year-over-year think is quarters

one answer question, the is, the of a second we think of harsher maybe share which the part the that. more which winning me is I important is customer's yes are to even to wallet? So

see emphasis to choices. on by competitors, less our continue less We transit

large share. follow that the the is has year determine past over we that growth that Now of sure that We the coming growth make a very We get is the fact partially customers, lowest don't their from. and from biggest growth of the amount get very come as really which much offsetting positive where pricing.

from smaller and some grow, to more are big and to kind wave best new using that for a the a think quite So, the starting shunning than which that we continue per both positive the much been can growth to historic growth if don't I If is market. that more will board and push that of the coming internet traffic consumers larger websites across pricing. of companies businesses smaller pattern therefore, actually of be of to get the for has continue however, get But smaller the price low because revenue the faster will of megabit. grow customers, they see most as the the sites a we of guys types more

Timothy Horan

spending in range The hyperscale an you this years of unprecedented five if maybe Is year kind Internet you billion. you back of that CapEx. it be changing Are internet billion and taking like itself? ago that the billion,$XX $XX are advantage companies of amount the go out in of dynamics was now the $XX just it Right guys to is looks it or any? helping

Dave Schaeffer

ways. Cogent, a So positive it to absolutely is three

value prices a get to First to lower per of they buying And their it's give growth may amount those our hyperscale to even again, competitors. one of because the all, of we And providers. because we that deliver relative Cogent. sell power, megabit, though they to major disproportionate every of them

not if for phenomena on-net more Because hosted business future. us positive for customer key to business. Corporate well, residential they Cogent that per is to service. in our and building you on-premise is oftentimes needing XX the hyperscale our a the XX and hasn't is, third their Secondly, is driver helps of environment, answer helps why a on would level becomes consumer. becomes of growth years. had who get Cogent it drive the maybe even building And buildings our from and wanting software hyperscale And prevalent And Corporate X.X computing connections chosen now buy per which actually in as a to That's penetration benefit on-premise and then the yet, to changing. previously environment and the year and more have for that. And been more migrating why remains the as is years bought about buy the I hyperscale a or question, actually customers

if down that because cost applications. a networks good As bandwidth, the world distribute more those of developing are end-user continue are time thing using residential around online with internet primarily to the spend models to applications That's over we on bits. for the bandwidth-intensive our new users which more X,XXX Cogent. their sell hyperscale consumers drive more And

positive as these trends. see we all-in-all, So,

Timothy Horan

Great color.

talked I have the that multiplayer quality we're better anyone last, this video broadcast internet Do Internet improving? seeing the probably overall Just high about reaccelerating very, you growth some and you in also. quality at you think gaming think past color possibly, on think point? I than that's is growth very

Dave Schaeffer

I think the is yes. answer

know that was was the years several you done to damage congestion port to entire fairly So the ago ecosystem due significant.

Now the service and to product providers have able are deliver willing have and sold customers that to connectivity. them adequate their they

the its think every New dire, the product I think Warner net against ISP And federal regulators in because that is I in to going so neutrality deliver now a consumers. are signal is are Local trying protect many York litigation ways rules. spectrum/charter for while customers. those quality government consequences to Time relaxed to has example strong a

now accelerating early qualities then we're from a seeing – where may one in being a become secondly, into to are that, of migration seeing And world continue integration a to video. intertwined for the over-the-top. accelerated conjoined at more period vertical actually resolution what for rate sorting continue completely to of improve. a high I delivery had think over-the-top video As I stages we're more a we the And away game resolution see video gaming morph and with video and or not of result of we vertical of the linear resolution another. been of different And the high think verticals, the

Timothy Horan

Thank you.

Operator

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

line is open. now Your

Alex Sklar

Alex represented is this think on for units. term and Frank. This Sticking Thanks. I with X,XXX quarter said Sklar NetCentric, the volume you on discounts, the

now. months XX past the over So,

about curious always advantage given pace your of ever take every slowdown about the of Thanks. going the reach to where your a are based those a third term on NetCentric are kind point, to of You've XX% of essentially to base. year? discounts average can expect we volume outstanding, of you those base I'm

Dave Schaeffer

I So answer is. expect it to about think should as continue the you is,

look we our months. the if So, at contract three our year average of is our length about Actually contracts. majority XX signed customers base,

the about Our NetCentric pace about of XX%. the customers on for grow average internet at

back. those the of again, base happy third contract a or with to come And renegotiate increase growth their their to As monthly they volumes grow, price use growth come we're reduction growth they exceeds spend expectation per traffic megabit, mid contract. try similar contracts a to three-year the into a the before that that re-entering in end new typically and and in experience meaning with half volume to Provided type the us, adjust renegotiate the that back contract. Cogent maybe will of the will

a discount growth volume question customers, customers. to market interest wallet traffic and that customers the new customer. our in and On market from share our another in general. the is revenue faster it interest tool our So, and from for the like the when grow than And to wallet share their to from among that maximize It's about Walt's comes in customers. average, customer our grow ability important win is to winning

Thaddeus G. Weed

for their I might their total to one and add must increase value contract a change thing contract they customer just to Cogent. earn,

increase. be contract a decline, but total could the there So, price must value

Alex Sklar

thanks for accounting actually Tad. two it. And for Got that. And follow-ups on the

is operating benefit, And then, leases, commission a And just that you for how $XXX,XXX might it do lease capitalized statement? you only to impact impact any you're accounting clarify of normalize? but that expect color sequential year-over-year. number thinking the income small on that Thanks. or On year, I can change have the you actually know the when next was about how

Thaddeus G. Weed

Sure. is $X was for during quarter. The impact the The $XXX,XXX million. quarter impact the the first

what amount XXX,XXX difficult by $X for and you quarter, think to quarter. absolutely model different from commission which it kind balance going expect declined amount cetera. That's cash was between capitalization. in the on look benefit forward, amortization orders necessarily, This not about forward. SG&A entirely announcement, cancelled, know of because were way it it statement. million income has first quarter that, the it the and if at lease this the the et going paid the I exercise. rate, the sheet the to the is was from to the impact materially difference you respect because With It sequential the for to recorded of So, don't would new a be no is

So, if you record be required what assets, to on the we called do and lease those of January sheet. liability will new to will is operating X lease be and balance on a asset operating XXXX put will a new liability,

that and nothing will payments hitting is that each a the This exercise. account you the our for month topside amortization completely we quarter if based be will will, charge, P&L. operating tables with as normal are leases, be As made each topside, and liability it reduced P&L the asset, upon

Alex Sklar

you. Thank Great. Okay.

Operator

for call Officer Chief this any further to to I'm at remarks. the further And Mr. Schaeffer, I now time. you. questions Thank no showing Executive Dave Chairman like back and would turn

Dave Schaeffer

first happened, much. a you of I'm sure all were very able glad but technical to the all questions. Well, I'm for all what thank answer hiccup. not I we apologize

summary, think I strong very about in we Just our feel business.

forward a it'd in continues the been two-thirds improve generate the traffic of has rate growth at NetCentric our as we going volatile business count through. and a another in declined. shine I been business, which cash. others growth I have portion prices that whether our Our roughly questioned our and consistent times that's basis of continues increasing our so therefore, to anticipate base remain continuing and or think head on to basis. very dividend continues strong our confident a to to of efficiency the why And more business leverage, that but of customer We outperform in throughout same remains very operating in year on ability costs, the and widen model, be they've the know at improvement decline accelerates, And exactly as historically and to as our

thanks soon. everyone look we again, forward So care. Bye, Take to talking and bye.

Operator

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

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

Cogent Communications (CCOI) 2 Aug 182018 Q2 Earnings call transcript