CCOI - Earnings call transcript Q3 2018 | Cogent Communications Holdings, Inc.

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Operator

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

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

Dave Schaeffer

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

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

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

EBITDA year-over-year Our increase by million, which of for third XXXX. the annual XX.X% $X.X the quarter increased represents from quarter a

Our by X.X%. to a year-over-year constant gross third from increased XXX expansion basis sequential its currency basis, points quarter the XX.X%. of On we third the revenue and margin XXXX X.X% quarter achieved growth from of continued of revenue and the last quarterly for quarter the growth for quarter

measured Our improved as quarterly rate monthly units X.X our a again month, rep that sales equivalent X.X long-term per productivity was basis, full-time productivity per significantly rep to rep full-time units of average per month. above equivalent productivity, on historical a per installed

year-over-year growth quarter, XX%. traffic traffic and the sequential accelerated traffic our For on our achieved of we year-over-year and of XX% growth growth network

stock we of the we a XXXX, our of and had program XX, end, quarterly total XXXX. million end in returned At to $XX.X dividend. our million our During program so quarter quarter, extended through buyback that regular shareholders through board our $XX.X the further December available

in quarter. senior secured of million additional repurchase our we notes. any of quarter, not the During an value $XX issued We the did stock par

actually X.XX% ratio net leverage leverage X.XX%. decreased and our gross increased X.XX% Our to from to ratio

companies, we quarter, holding to the operating level, up basket During our our million Cogent builder Holdings. transferred company of from accumulated the $XXX

our payments the That available of cash business. be used million third is holdings the held capabilities end $XXX in for to cash-generating We of continued, the and buybacks. at cash remain Our and potential the unrestricted at our confident of business of dividends was and/or quarter XXXX. growth

sequential As per $X.XX a another release, $X.XX quarter will $X.XX result, increase provide highlights $X.XX our performance. statistics. operational highlight quarterly we our share I to, from detail as XXth Throughout review greater discussion, consecutive detail Tad and indicated our quarter. announced share in increase dividend. some in several we’ve financial trends per per yet our this our operational per in of dividend quarter will This will from per press per per some regular on share additional quarterly represents to the and share in

answers. Following the floor our questions and prepared we’ll open for remarks,

Tad Now harbor read language. I’d to solid like safe our

Tad Weed

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

Dave Schaeffer

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

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

full-year for guidance XX% XX%. range the to is in long-term of growth revenue targeted Our

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

will However, points. we to do expect our than and our improve target, be basis XXX more by margin EBITDA annual expansion above

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

I’d additional it over to to Now like on Tad turn quarter. the some for details

Tad Weed

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

revenues, comments analyze also type. classify off-net types, We based non-core, our we on our customers on-net, type, NetCentric analyze customer customers revenues into and is corporate upon and our NetCentric revenues we customers. connections. corporate of customer Some and upon X which all in based and network And

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

than and exchange, customer volatility revenue the seasonal quarter factors. foreign size other experiences Revenue certain, network customer NetCentric impact was other Our corporate growth for the which significantly in connections type. revenues, our of to negative by year-over-year, and more due

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

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

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

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

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

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

However, megabit XXXX. to XX.X% of base contracts by per for The average quarter price we increased and a contracts price sequentially to were on sold decreased our sequentially installed by $X.XX that by by for the that $X.XX do customer the will quarter X.X% customer new the XX.X% megabit declined The for for new and average per our for new long-term third price basis expect per third contracts quarter megabit the from XX.X% in decline. declined of XXXX. our

Some comments on ARPU.

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

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

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

Some comments on churn.

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

the was which rate quarter, off-net last Our on-net was quarter. rate rate the and churn churn as X.X% for was this our same for quarter last X% same and as unit also the rate the was quarter

comments Some customers, NetCentric move offer offer we customers. volume orders. of commitment discounts discounts also term NetCentric on corporate our contract We and to and related NetCentric to all and change our to

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

Some further adjusted. comments EBITDA on and as EBITDA

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

quarterly or points. increased EBITDA X.X% basis million EBITDA basis XX.X% XXX increased Our increased year-over-year and and by sequentially XX.X%. quarterly XX our million $X.X $XX.X or year-over-year margin increased to $X And million points to by by by sequentially by

margin our largest XX.X% in margin of the Dave represents company’s this percentage EBITDA the quarter, As mentioned, history. EBITDA percentage

than it Our gains and EBITDA, materially was related includes to EBITDA adjusted, equipment our as different transactions. not

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

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

gains EBITDA last adjusted equipment our is as quarter, the as for same have million which $X.X and were are as the year and included which of amount in same and last recently Our quarter. amount quarter been the declining third the

Some earnings share. per comments on

quarter the up per quarter, $X.XX last quarter $X.XX third $X.XX from year. Our of basic for and last the for share income was

income share up for Our for XXXX. $X.XX the from third of quarter quarter, quarter $X.XX the last per $X.XX diluted and was

foreign comments on Some currency impact.

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

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

is average rate our is less Customer Our revenues U.S. quarterly $XXX,XXX. primarily revenues. the year-over-year our Should impact the revenues remainder our be concentrated for to quarter average sequentially we estimated quarterly quarter X.X% on average X.X% concentration, revenue our an of the $X.XX. rates is on X% dollar revenue $XXX,XXX at quarter, we and conversion on fourth were customers rates basis is our impact foreign Top quarterly our that a foreign rate $X.XX than so The the negative base quarter. customer And revenues of remain highly currency on negative exchange fourth these the levels this current XX and represented a dollar not that exchange sequentially exchange and estimate growth constant and to that for of far year-over-year. impact foreign believe is a exchange NetCentric Canadian for be the leverage and our the impact will euro

CapEx. on comments Some

of the was quarter CapEx for comparable Our second quarter the XXXX. to

Our million to and compared were $XX.X of XXXX quarter for for quarter, million the $XX $XX.X million second capital this of expenditures the XXXX. quarter third

on comments payments. capital Some lease

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

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

XXXX. payments for was compared and $XX.X to of capital that payments our million by $XX.X sequentially lease our with million under the and IRU total third CapEx, X.X% for decrease capital $X.X million combine principal million agreements a quarter, and $XX.X if Our last this there was you lease were these in the quarter quarter quarter

during quarter our and end, cash we of Comments on quarter operating in our cash the from payment $XX August, equivalents and million to capital quarter. net paid by million, We totaled million the cash comments quarterly quarter $XX the interest our flow. cash Some debt $XX.X returned on $XXX.X We million million senior during increased on including regular and $XX.X semiannual our notes of the issuance during of secured dividend At $XX.X million. the debt, on the was for new proceeds and ratios. quarter of our for our notes. And spent cash $XX.X payment stakeholders our received million

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

adjusted trailing to debt was our as last X.XX. gross EBITDA, Our X.XX debt at was and net quarter XX total ratio end months

on and debt accounts receivable. bad Finally comments

again to debt our of to accounts receivable worldwide thank to revenues outstanding our serving over bad worldwide and call fantastic days sales XX members our want for the Dave. for our in our I’ll was and and customers and quarter collection I billing team And was only job collecting and days, customers. for X.X% continuing Our now only from expense do recognize turn the a back

Dave Schaeffer

Hey, thanks, Ted.

America, over directly end few of the a space square about of XXX office scale the feet we quarter, the At on network. had our in Now of network. for multi-tenant million our comments North and scope

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

utilization our capacity. We of in our augment are these XX% lit capacity lower to utilizing currently of We parts approximately network routinely maintain rates.

utilizing For approximately space XX%. raised growth centers network sequential growth currently the floor are XX% XX our year-over-year traffic traffic of feet of XX% achieved quarter, we and and We improved with we XXX,XXX capacity. our on Cogent-owned operate of to data that

rep our and was than sales turnover quarter rate force rate X.X%. the the long-term month, attrition Our of per better in X.X% again

is a was selling is our quarter, per X.X the in full-time measured productivity per per average reps ended units monthly on the rep installed substantially X.X which per units as sales month. long-term above We reps sales Our transit which the services. of quarter the XXX rep, rep quarter equivalent other a services, that significant basis, with access unmatched historical services our from we and Cogent end of second remains of Internet IP at XXXX. provider of XXX had in the industry. increase the We remain the low-cost

been began a focused our Internet which center our customers. services. in Beginning data and SD-WAN the are not year, on to of connectivity Our utility business selling for co-location IP have revenues. remains necessary contributor services, These this April materially we completely yet a

growth rates we long-term approximately with and constant-currency on basis, EBITDA long-term XX% points. our XXX expect to consistent between basis an XX% be multi-year annualized on basis We annualized constant-currency expect of historical be margin expansion and growth to our a our

Our has increase Directors per Board regular quarter. dividend, quarterly share per approved dividend of by a $X.XX increasing $X.XX yet to share in quarterly that our another

demonstrates our continued flow cash the the both our growth in Our dividend business. of capabilities in and business our increase optimism

and We that remaining has $XX.X buyback the be and purchase quarter At December XX, our through million will under board extended authorization current public timing our XXXX. opportunistic markets. our stock we end, common in had authorization the about of

on to committed to an shareholders are basis. increasing capital regular We amount returning of our a

open to I’d question. like floor for the Now

Operator

question Philip Cusick from first JP our And comes with Instructions] [Operator you. Morgan. Thank

Your line open. now is

Philip Cusick

smaller? well? Reps of How as think slowed size of about Productivity we’ve ‘XX. and the sales seen down now equivalents quarters the have numbers but returned of impact are should sales full-time hasn’t these year-over-year. as couple now to its the up, well a on in down and down as opportunity, we early Is highs

Dave Schaeffer

for Sure, question. the Philip. Thanks

year. are of between X% first and committed So per all, sales growing reps the total XX% to we number of

We will do year. that this year and next

some have Secondly, many reps criteria any turnover. while our and relaxed not that for and do we succeed, with do of not Cogent in continuing results reps

Our average about at are average here are here continuing year beginning the towards that meaning and rep the to where third quota-bearing actually at the months, continues longer. actually to end was the quarter, the XX.X of tenure for stay succeeding, longer reps those has XX.X increase, months, of that increased reps

continue training which We program, have revamped and us improved help keep our reps will I longer. think to

productivity experienced We that above also substantially long-term average. the is have

think XX% historic revenue price have. continue in number do our experience average did the quarter of X.X We at see You that very NetCentric that that We the addressable average. per is full-time to we above are we the in decline bit year revenues. greater as correct reps equivalent highs, we declines are remains per the the market, understaffed still and than not total all-time our but relative We feel the X.X slightly substantially we TAM for the about units average. actually are will large, to per

off-net, market technologies of on-net, XX% spend on sequential in all The off-net our a with and suppliers and market on buildings year. the XX.X% is growth performed connected. our about of we can have another corporate well XX% $X X,XXX,XXX a different business is quarter dedicated focused America. one is in that different that Our with Internet that VPN force growth of North quarters billion access of touched from billion X.X% of roughly revenues year-over-year year. three business fiber spend that The market, that buy about We about sales services primarily XX on $XX fiber quite

have The the quite on market revenue remains billion market well. in sales corporate really a That of and side. plenty feel for was performed our that ample shortfall they we we $X.X TAM. NetCentric addressable So

We double continue lowest market, largest the in rate prices. quarters to very our come take the the the has of nearly share the couple last most of who customers growing our of get growth traffic but from very

revenue. X% of term, in decline growth the a historical more therefore see in in the rates do resulted XX%. growth over return between and out NetCentric of think the NetCentric broadening to has that our So we’ll We long and

Philip Cusick

follow higher? because economy quality can overall I having harder of the and time to finding compensation you strong quickly, If hires, up go new are deem a

Dave Schaeffer

So for at very think saw We compensation the of Cogent our I remains number actually applicants competitive. increase. jobs

need lower we’ve almost X are months increased, applications, year, capable remain meaning about only so to people. for this I So little got the a very funnel the about to of selective over selective. the be potentially the XXXX process. same about year, Yet a has so first those screening Cogent we had the being about in X lot ultimately to over Last steepness applicants. for had of months, jobs we’re of extended same at a quality, applicants we we only offers sales. XXX so XX% little We more say getting applicants XX% period, actually that over to applicants, will we more in the X,XXX we hired more --

Operator

question with And BTIG. our next Walter comes from Piecyk

is line Your now open.

Walter Piecyk

Dave, didn’t a quarter, these on about currency a on some guess you customer I traffic back Last that’s solid seem right, impact, currency down. less this which for is sequential connections, wanted talked go Thanks. to quarter. the still of since I side. your NetCentric X% international and is I happen constant probably had guess than [indiscernible], X% to

abate price So was in way into prepared customers. you’re the contracts, If for don’t obviously pressure. some maybe but quarter price I your or remarks these opening multi-year you know, help that large multi-month are the volume next guess, you’re composition referencing going in The of quarter. new, I it comments, these these pressure discounts getting that apparently that should

declines see won’t third sequential of in NetCentric? we a So quarter

Dave Schaeffer

questions different Walt. X So

entirely on didn’t we impact of fluctuation. no of NetCentric. all, correct. Canada, It even not corporate impacting just virtually our on has So corporate, X% in It are We FX it’s a have about material first is have you material. though business

really in Secondly, different ways can X there decline. are which price

way annual consistently reduction first pretty around the the is an declined on NetCentric XX%, base. and of list has services The in that price XX%

the from prices networks. some way and has the other we traffic decline very of has providers biggest of hyperscale volume. companies, content largest can companies second The is and access is FAANG very what most and by growth come the and accelerated, that And of side seen the have the some on the

as So what It same shift XX%, further is for the base. over the our customers. declining the been quarters decline price through few then have The waves the at the has customers. compounded about very smaller not the growth customers, reductions but gone normal has within more Internet mix a of XX% largest has and come of consolidation those rate They’re last fragmentation. from

it experiencing on becomes as impact from to will fewer XX-gig given its concentration. large XXX-gig grooming seen XXX-gig really impact we’ve a It’s port customers connections that exercise But data widespread. continue multiple we of connections the from are its to the lot reduce customer costs. of center larger cross-connect just comfortable which a grooming our revenue, equipment terms And end most at business customers count. really return can We of the support feel the doesn’t return we to to away NetCentric an our groom a now see within is traffic in circuits, historic And revenue rate rate. growth growth growth historic of day, to that that have NetCentric these to

Walter Piecyk

are others talks not declines the of these declines growing there’s like bandwidth or price in declines commentary a costs normal normal the or overall just down, in whether and price about companies, for they’re costs. being they some to bandwidth Because just Akamai not because are as that that and their absolute fast when about is growing company been are bandwidth some Akamai the enough it’s market? offset So

Dave Schaeffer

that price bigger a continue purchase bandwidth So the their If the Akamai are customer. business costs their a megabit. a Cogent their is per XX%, you cost, Their from XX% per at to about they bigger total lower therefore decline declines. The year. referenced customer input grows become faster, Cogent and they CDN

are. because even actually than if market. growing they the faster So relative that they growing the If rapidly market, relative others will grow and costs at see can their as decline they their faster a then decline buy, not will slower the more to lower faster decline rate, are the your you are input costs prices

companies So content and access networks very largest the from lowest very largest Cogent. globally very the prices the get

Operator

next question comes from and And Synesael our Company. Cowen Colby of

Greg Williams

to It’s very talk actually for margin, Williams in Greg solid. sitting Colby. EBITDA your I want Dave, about it’s

longer Just wondering XXX onetime benefits in COGS, and if either there’s point other, basis your term SG&A target. any or

you line EBITDA or you business? back accelerate the to top your doesn’t top talk the confident acceleration goal? XXX the out of how the taking point assume you line XX% Let’s need are then Do basis about goal, in costs can

Dave Schaeffer

Sure. Greg. Thanks,

of onetime First expansion. margin this in all, a event the was not

in If back X, no quarters, at and consistent seeing you’ve you last are X, SG&A and look go margin gross both significant X onetimers. improvement efficiency. There

more On leverage out side, getting network. the COGS of operating the we’re

Our margin. than on-net which growth off-net is faster obviously growth, our helps

month to XX%, clearly versus margins XX% of down will that’s X result we’ve the comparable, and XXX out. average expansion. comfortable of EBITDA close we that as slowing X that footprint actually our We done year Our months months. the laid X basis this feel on do beat are versus points the We’ve a contribution long-term

a XX.X% year As continue our basis at range. or to we’ve XX.X% grown If per it’s actually for is the trend years. our the low probably but or within trend approximately at XX% That the line point long-term XXX X margins of grow which look got line We’ve expansion. in to X below state. guidance past we end, we to means, go so our forward, EBITDA years mature roughly from another at we today a X expect about growth,

deliver the targeted points. still over comfortable X long not expansion. being, are For X%. averaged the anticipate to Yet, to our the will that feel do closer margin we if We growth deliver XXX we basis been even able be to years, able our has below past run which the range, have we we

Operator

Partners. question McCormack next Guggenheim from comes Mike with our And

Your is open. now line

Mike McCormack

you’re in getting not guess that, evaluate opportunity the anything a providing there? competitive are change standpoint, a decision-making what process Thanks. you one buyback pricing And Level or of from couple. drivers on spectrum X/Century, just the I sort marketplace aggressive on second side. any that. the From whether more the the in like seeing or key the When them

Dave Schaeffer

both for questions. Mike, Thanks,

in we business see footprints. see CenturyLink corporate Bell So do see just we not ILEC. their and footprint, our significantly and of geographic their within the and respective footprint out Verizon AT&T Canada of them We as

those that are companies think, or I remain reluctant access just Internet services. committed to to high services on VPLS priced MPLS focus and cannibalize revenue

we So no are change they corporate if X on of revenues our revenue of side, business the you competitive in look the seen have while competitors, is all those all real growth behavior. corporate And XX%. negative, wireline at

our the is widening. market differential So to growth actually,

kind has you fourth and scale the number continue acquisition X going battle On global customers actually today from very are of rate why to Telia since and primary number less and deemphasized think mentioned. transit competitors. don’t global business largest in a rankings with market, is out absolutely side, NTT have see specialized though I X the X X, that X, the as to I for we double of is the been it’s aggressive NetCentric fallen that Level from one and with that’s I become that Level had those moving our and and growth to and Transit number in have be a of the at and lot in X remains They grow think our even of down to that it we’ve come sale to CenturyLink. ourselves has Telia Level the NTT able number rankings. X traffic need change.

regard we buyback, shown the Now of past that second capital your investors. to commitment and to capital the to our question and our particularly do have equity of of over return to are decade, with committed mechanisms we returning

have that Over the the primary years, become past means return. X dividends increasingly of

two-part it analysis. a we buyback, As think we is about think

discount in the our are measure the The first our stock intrinsic is business. value at discount trades versus our to DCF the And to of convinced of stock a a value business. that we

volatility. the market, to of period and volatility The been greater return of only Cogent’s month or than the past capture while less has average in low And market market been of to try seen of so. fallen volatility that volatility, have that market. second to a is in to we it the We’ve being had the

So, we being market of And a volatility period in seen volatility the month greater of market have or market. volatility. we Cogent’s return capture has to to so. market, than had to average the past in while low been been fallen We’ve and of that only want it volatility, the the less that of

So capture volatility. of that some we want to

a buyback have We authorization.

committed get conditions and We also will the met, growing those use are it when we we to X dividend.

we’re it the balance committed And dividend X.XX% the to the to shows we’ll with interact consistently net that leverage shareholders a rational with board not evaluate think sheet capital. to growth we I rate returning So of address and supplement either need buybacks. from and will more changing X.XX%, or going maintaining I whether think, minor reduction in people our leverage in and quarter, and the or

Operator

Thank comes with question Brett Feldman our from next Goldman Sachs. you. And

now is line open. Your

Brett Feldman

taking thanks the Hi, for question.

back historical back it growth you historical and since If you about last seeing like average. of don’t growth. talking to back the year growth you’re revenue average not acknowledged you doubled has beginning I made its It’s still mind, in nearly is NetCentric to, its guess, and traffic I actually go accelerated. at the I that mean, point --

most another customers what period, the the biggest need from the where to in would my to of see traffic to improve, that going growth be, get with the maybe better so And revenue you think actually for be there trajectory? else, something revenue your growth whether has in happen order of doubling trajectory do prices, for extended question lowest meaning, is another coming to if you’re something rate who to probable Internet, trends the a use back the Thanks. you could case that get traffic of come XG it’s get can it’s or you pricing do along to that historical or that else

Dave Schaeffer

Thanks for question, your Brett.

growth average rate. is ago from at XX% so a improvement normal long-term XX%, and huge year, just our a about we clearly and growth just where at So a half were is rate year

price has a installed year customers. Our this past base come where slightly it’s mix at the on over our half, declines of XX% growth are from our worse actually biggest and the most and

Now in has have to from honestly, and both growth the big increased will like don’t There to an be that return unit control of rate. acceleration to able that growth to to If traffic NetCentric Internet growth customers. we continues, see we concentration that. and we XX% X% on small further quite a been

We get know migration service, XG X.X online. ends that, the increasingly improved of to up whether be increasing the access users better DOCSIS people it from or set through broadening the deployment, be application wirelessly better XG, it through and that ADSL, time also spend whether amount as that

its and that not should we why rates traffic rollout, participate per minute, So accelerate belief give we a of a spend And customers basis. XG it’s are of have per committed the then collection, of applications be growth don’t business specific and NetCentric not in reality, sensor while the all of on data help that Applications in thesis. do visibility other the early better self-driving and it’s remain maturation more kind quarterly these should is better traffic better this we law don’t to whether remote technology, that But large cycle a improve. the has our in could of and/or that of just greater which just cars using of point, part i.e. that and we and users things growth. guidance. connectivity XG as numbers applications directly still or augmented virtuous kind the minutes the beneficiary at Things, Internet validates think, of I Internet data We wireline, hit are more of data stages day granular of of for growth virtual

Operator

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

Matthew Niknam

question. I’ve and one then follow-up broader one

around change, shareholder shareholder or on at First, international. just thinking the allocation broader about question’s capital rates more way strategy And all, question. return the returns? my then you’re the follow-up Do second rising

thought had what any considering company you the you Day, the Analyst the the updates markets been of process that decision? share corporate Can some business. there looking evaluate at you’re Thanks. the on think international for at factors kind I as talk and the

Dave Schaeffer

both for Matt, for thanks Hey, questions.

of of capital and think, reasonable debt has we our rates first We, rates capital a the of of risen cost look not borrowing capital. interest and evaluating at return interest I have our risen, cost So significantly. absolutely have structure have while all, to and

tack-on its a In premium interest sold at recent offering offering our price fact, lower to our a we in environment. rate bond initial to most

have access we at we reasonable will So the debt to believe a to continue markets cost. that

attractive a debt I Secondly, therefore, investor, to sufficiently cash through both assets have the they classified a for tax. it’s understand and higher alternatives at to been taking of riskier returning our to remind dividend dividend lot historically as possibly be absolutely our of the buy has we shareholders we think as being poised that and has capital, and shareholder high committed buybacks. has the mechanism, can. added yield yield hit to to to yields yield of of are we return markets use and lot XX tax continue Cogent. are will consecutive and not quarters us as know that pockets And immediately the we benefit that confidence compounded volatility efficiently that support to which gives growth of of investors producing just investors, we either will the that We to it remain But

us X% operate we about countries corporate of company XX not that correct XX NetCentric we business expansion, do Canada, the in. our have Now in Many significant other and U.S. than them other a with are international in your remains with the regard Outside to demographics. Canada for or of Canada Canada. of a corporate market really

Some of them do.

that regulations international dumb incent do have meaning, a Some not our pipe model. model, business or carrier

a to corporate point any Latin not just We of for Europe could continue the some think business market expand that have that to this demographics. into we We evaluate markets. with at NetCentric corporate ripe Latin broaden for because decisions we to us, the and markets any Asian do see initially American We or significant a those. of American Asian But not our of final as building expansion. made be corporate those do

Operator

from Del with next Nick our Deo question And MoffettNathanson. comes

Nick Del Deo

into that two tie that asked. were questions have actually I previously the

it’s have there but sorts can calling in you like gave SG&A wanted level? solid. because even estate though for real at onetime nature, commentary few get those I growth not of margin worth related? there you hold how I into these trends a sense if am regarding expense First rationalization on XXX ASC in ago, or trying the, pretty SG&A a long particular, to any the been Are moments drill drivers to out,

Dave Schaeffer

the to sure. give XXX Tad for going one I’m

Tad Weed

normal, in It’s up SG&A, a quarter material amounts Yes. the the first either was commission essentially tax was of year, and either onetime from out-of-normal We script, But about then are to benefit work the in primarily this quarter having $X audit this down. the material headcount in a the SG&A ones expense, there just SG&A the did adjustment increases those we timing expenses. of capitalize bad really of and the debt million. those as to but prepaid prepaid the mentioned that, the variability for lower from Absent quarter no level variable And expense and of first the I expense the and $X have the, or first year related about or commissions see which things. are driver was in sort in way, of of million the commission. only

Dave Schaeffer

data would came I every And bit The the some full-time Phil’s total a really not like slightly disciplined are and well. helps SG&A. look we had material able mean, facilities remaining has in earlier estate base softer hold help. reps no item higher in we and better say have there’s as centers, kind I remainder between sales real one a of equivalents that world, has I at co-located But Nick, that roughly resulted terms difference lower around some question, center the there of constantly up think, to SG&A costs little of rents, question market, a of sales rent flat turnover, in rationalization office. again on are also contributor, offices the us are sometimes but we XX the been And which our data And about has XX a about underperformers, and those managing out helps.

Nick Del Deo

was and tied into and a links Australia. at of so, route added international, it looking added kind I year looks including one your Asia, on Europe to you’ve I question guess, network second, sometime yesterday map Matt’s some then the you’ve like or between And transpacific over past the

not background Brazil. there? into a NetCentric, the into you’re this for background in You into added guess, foreseeable the moving interest route there? If I corporate What’s it ties future, some

Dave Schaeffer

to Asia-Pac. more the into did Yes, in NetCentric. it America is years, past probably the Latin today driven and past Australia in year and expand expansion entirely in by We X

X% world. So the XX the of we resident first at Cogent U.S. traffic that’s of got more the be Internet from come in XX%, of U.S. only below the down people because becoming ago, of Internet was all, global When is only point that realized in global. the Today, started some the XX% we’re and years to will Internet X%

experiencing not growth there other these We’re are yet, faster but markets rates.

customers. in number we’ve number American Australian, in to of a forced They Europe. the have or Asian U.S. us We Latin and were an, a of reach for years, had

you’ll in evaluate as we local lot by be the transoceanic able at transoceanic of the look that several smaller can As of into smaller cost and customers the a secondly, already companies. And content next over the markets and markets. who serve think afford to years, see layer ISPs markets, grew, to smaller downmarket can’t of the now their footprint or next cost go into those transport, I those capacity It’s one, expand us X evaluate we down, Russia eventually usually the and the of came to framework. years, customers But just to network to lack reach and expanding we to own secret on that to transport to, certainty. that market, climate customers decision extending for no example, regulatory the the made buy we based to gave political up down into to the continued the of regulatory their It’s for and continue had.

Operator

Timothy Our next question Horan OPCO. from comes with

Your now line is open.

Timothy Horan

little a the couldn’t XX%, guess, pricing transit just remind you about Dave, declines rate, corporate the range? And pricing in heard there. the Maybe I on-net you talk, the competition? on-net just competition ones. I’m and Are historical about improve on price less two from customer seeing just XX% if been And you’re on in the business, prices that me you little secondly, quick a confused pricing there, pressures can the IP XX% Can volumes historically environment. seeing bit why the trends I environment? growth talk the has the

Dave Schaeffer

Yes, so let me take all X questions.

driven even with to they has first customers bandwidth, in at from be contract XXX-meg customers that available for need been gig, offsetting footprint, longer-term take lengthening all, the seen contracts. to we the decline corporate on-net by about regard rate not So because year, discounts Partially X%, price when moving of some of X% it’s it. may connections relatively footprint, to some will consistent that though additional the have corporate per corporate just we primarily offered

connections, of offsets of feels on-net year-over-year corporate that customers corporate But contract partially which right. decline So kind about do buy X% that X%, gig about X% today lengthening. for

campus a loop prices facilities we to increasingly, down, those we corporate, X because cable lower alternatives cost, telco, allowed environments, fiber and see come us which lower based which off-net the and in continue in For us helps have prices. has

at about with X the and part to customers. we NetCentric prices. past to When have within market from of to Now, year look give revenue business, the lower prices bigger given greater Transit NetCentric the decline, growth struggling IP most entire biggest window over any so customers, XX% that see price and very of at regard come the per growth has the that of been quarters are from or declines rate you the time,

year put our were was buying actually further less all business. NetCentric are from the truth. lowest so do but more the prices are not transit, on they the big, They big it transit pressure revenue that in guys because X there growth which could a to So they get transit, does the away as kind to nothing going or be a going thesis maybe proposed ago, was of themselves, go

Timothy Horan

revenue a showing of the between you’re take disconnect Just can a offline decline now maybe. but versus it price and we a seems historically to XX% be the bit XX%

Dave Schaeffer

Okay, Tim. good, sounds

Timothy Horan

Thank you.

Operator

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

now is line open. Your

Brandon Nispel

the Thanks for you. Dave, question. for just one taking

think you share dominate to why you that has but the traffic traffic the spread things obviously your large -- of I platforms share out among think of I’m I largest aren’t and that forward. things you mentioned you base, -- one customers, going think of should the was, that one the mix went to the that curious going was that the some traffic said customer Thanks. these

Dave Schaeffer

lot decreased first history So succeed. is our customers of the XX-year seen Internet, we what dominance listen, to have of the their point. a and That’s evolve. But the want bottles of onetime over all I dominant players new

historical So just trends.

innovators the out Secondly, all The barriers continue of is not I’m an Internet to come innovation. engine for the sure players. and entry to decline innovation of of the will biggest

regulatory comes again, the platform which it reasonable this that that Today regulatory power high going may whether you EU big a the take of from. AOL, speculating. whole like Google you some parts this of But other and we’re a Third, world, power the was making domination they’ve Internet assumption. as years against at in of backlash wherever scrutiny a ago, regulators the fines companies, particularly platform from of and in a just to the environments UK that digital would just in people indicate laugh XX we’re companies the point, we’re comment. in in and Europe stepped to of it should seeing different if lot be and the We lot is mitigated me, software access traffic be a told regulators, of seeing seemed tax, proposed now reached of against networks others, and concentration the market and seeing their

Operator

America. comes question next Michael Bank of Our with from Funk

Michael Funk

for one One quick you.

I the from number not now, in but earlier noting -- used your X was X reemphasize of looking share where Jeff they And X’S they that who Storey, X, and growth about they in and that some you to said clearly interesting is shift comments is seems went that you have. falling share and X at certainly business, made former one emphasize specifically what CEO, think express given that X -- Level that the at did now growth number NetCentric transit to line You like revenue Level CEO projected curious CenturyLink. Level confidence about business, your point commentary that about of I that won’t commentary, at

do So there? come they confidence have try share why won’t you back and to regain

Dave Schaeffer

things. I So few a it’s think

market is compensation their combined doesn’t in a has that all negative CenturyLink/Level capture shrinking, business total in of fact is billion the business can sales that we’re their make needle Their scale company providers the only wireline top XX%. of belief out nearly but First growing $X.X market been Cogent line that, unique at the we and their market move witness deemphasized in around business that addressable they X, it larger, in sense. that smaller interviewing growth that program all, growth. the their which XX a of relatively XX transit. combined ability and today commentary probably addressable of understand reps, its because is Two, had lot of small for the the larger addressable enterprise to off that in is share of market, public

market other size a the obviously, for them were question the although share aggressive, market, sense. remember, lot So more observed bigger on that the be even share or tell that us guarantee And XX%. provider both to team, I think, behavior may the not results comp they to they mean, were just because the addressable in makes we’re it that to and to management them think they’re rationale through it’s aggressive. market, declining, be but in losing undercut completely when a go be schedule, focused Cogent gain the seeing we and any they their to ability of to needs addressed I of by

Michael Funk

XXXX model own point to commentary what’s you you for to impacting doing heard here SG&A check. more our what date think we margin, keep one we’re on increase and basis but I been are out the for well. about in quick SG&A numbers one XXX that as And as trying to in

growth the we’re hit that tight that U.S. you pressure labor XXXX across or What programs markets. on in given Given wage to are obviously record have very in seeing margin will increase have SG&A? place to potential today allow you

Dave Schaeffer

and it’s revenue growth and first in the So and on-net revenue of versus on-net from versus foremost, operating high off-net all. the leverage mix

S expense while really growth XX% you’re side, But XX%, salary our target. variable getting and piece, therefore great the clearly, about the it’s reality and at and variable is is, probably XX% at SG&A on XX% if all And And comp base, away, more base the you’re about are variable. XX% is paying Secondly, we’re target, revenue only by of investment. sales. far not more and our reps on a biggest it’s the

in other solid not you the right it’s salespeople very hygiene. Our and answering in but or services that products. cost here. know don’t than at is and just deploying and want, the market places costs putting I slight continues revenue been day, tracked efficient offices and not acquisition and doesn’t things, want to where selling mean, had good, service the magic hygiene, there’s just people and precisely end that good cost buy no of question, about providers some containing it’s It’s We’ve Xx products was to office more and of some be leases Nick’s that. rationalization the

Operator

call now Mr. over am to further time. questions any back at I I not to Schaeffer turn closing Thank remarks. like any you. showing this the for would

Dave Schaeffer

good it everyone. keeping questions. of of time, good Well, a on with thank first closed job I We list at pretty did all, a

feel our business look want the Bye, thank So Take Thanks soon. bye. and We everyone. and of I to the progress confident in talking you questions. to care. the forward to support for very

Operator

This you program, conclude wonderful all and for and have may in today’s conference. participating a Everyone Ladies does day. you thank today’s gentlemen, disconnect.

Cogent Communications (CCOI) 3 Nov 182018 Q3 Earnings call transcript