CCOI - Earnings call transcript Q1 2019 | Cogent Communications Holdings, Inc.

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Operator

Good morning, and welcome to the Cogent Communications Holdings First Quarter 2019 Earnings Conference Call.

As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com. I would now like to turn the 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 first our to XXXX call. earnings Welcome Dave Schaeffer, CEO. Cogent's I'm call on Weed, me with is this And Officer. morning's Tad Financial our Chief

for of Now summary high-level our results. some

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

of Our XX.X% from to XXX basis XXXX. EBITDA points margin for the quarter first by quarter increased the

first quarter gross quarter basis of the we X.X%. Our growth all-time X.X% revenue for points basis On XXX basis, increased the of XX.X%. sequential constant a of an fourth XXXX XXX by of and points margin quarter to high the year-over-year by of quarterly growth achieved currency and from from XXXX revenue

was rep installed rep units a the sales month. Our grew sequential our per rate was basis, productivity by per quarterly of our month, traffic year-over-year per our XX%. average traffic over consistent rep installed per XXXX. a equivalent long-term units that fourth grew on with productivity X% by a quarterly And On quarter basis, X.X full-time of X.X

XXXX. in We During our shareholders dividend. to until in available million program, the is $XX.X purchase buyback end, which did December had At quarter. the to authorized not continue of quarter, any regular our first $XX.X million quarter's through we end stock we the total returned a our of stock

for the or to cash X.XX million Cogent X.XX dividends unrestricted $XXX ratio quarter. X.XX, Holdings decreased to at of from buybacks. be available leverage to is the gross Our held slightly end That at used and our Cash either leverage from and net X.XX. increase is

incurrence basket. from indenture, improved to of our X.XX our builder that the however, included leverage accumulated allows consolidated to This is quarter. threshold us which is ratio X.XX last as ratio, Our below now in access indenture X.XX our test under agreements defined sequentially

quarter holding at the unrestricted will with or $XX holdings, was $XXX us cash that to the and million at level builder allows accumulated end now for the $XXX combined company million, completely available buybacks. the Our dividends either at basket be million which, increase to

We the quarter, this companies builder of approximately holding cash $XX company operating the our to from transfer in basket our expect early majority leaving company. operating in of to second million the

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

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

harbor Now like the I read Tad safe language. would to

Tad Weed

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

Dave Schaeffer

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

Our press into great insight business. investors, give deal release think, a that includes of of metrics our I historical number a

on for Now performance. clarity additional some our

by Our is which be than is which the corporate of better entire long-term the XX%. business, represents growth which our XX% year-over-year quarter total business, revenues, our XX.X%, targeted of in to grew

our also X% and by for was of quarter The first NetCentric the X% first of which NetCentric basis, constant of however, of from this However, our quarter significant essentially the currency business XXXX XXXX. from a that NetCentric underperformed has the portion On decline business, impact impacts by currency, business, decline. sequentially. foreign did responsible flat declined primarily was a

XXX points margin guidance for expansion. expansion margin calls basis Our annual of long-term approximately EBITDA

XXX quarter quarterly achieved first XXXX, the For basis year-over-year we of of points. margin expansion

quarterly capital cash leases, by our our to is principal of the minus from flow, on excellent defined XXXX. minus as EBITDA grew operating expect flow expenditures This payments due of quarter cash we rates. Our business, XX.X% the at to first similar leverage and continue by capital growth

for meant guidance annual specific period. be specifically not are to Our quarterly and guidance revenue multiyear, targets a short-term EBITDA or

to Now for back details the some on turn I'd like additional quarter. to the call Tad

Tad Weed

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

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

as customer constant Corporate the customers us amounts in Corporate increase sequentially Corporate quarter was of which year-over-year, the customers buildings. as carrier-neutral on currency year. our us was to bandwidth Our said, basis, a quarter large X.X% quarter end, On first customer X%. Quarterly $XX from XX,XXX our our end, by customers declined of from NetCentric by customers XX,XXX had declined connections NetCentric had quarter of flat XXXX. million from said, and an grew We by We and network on buy bandwidth grew quarterly centers the data by X.X% year-over-year, for by an from office quarter of our the Dave over customers year-over-year revenue annual sequentially connections network over at declined XX.X%. our sequentially from first increase large X.X%. and multi-tenant at was $XX.X which in Dave again, last NetCentric XX.X% of buy to and million revenue Revenue our NetCentric X.X%

factors. revenues due revenue exchange, volatility customer type. certain NetCentric growth Our and size impact by network of experienced Revenue and to significantly than Corporate our foreign more to due seasonal connections also the customer

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

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

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

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

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

$X.XX for from contracts relatively per The flat for by per average base However, was both The sequentially quarter sequentially our X.X% install year. the and price and customer customer last to by of declined the price of year-over-year declined from $X.XX. megabit per quarter contracts new new our periods declined XX.X% average X% and our average relatively by megabit the stable. for was price first to flat relatively megabit

ARPU. comments Some on

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

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

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

on comments Some churn.

quarter on-net rate Our generate our improved churn and increased during off-net the slightly.

offer was from churn for last was increase and X% unit less was customers. rate all improvement our rate X% Our of which quarter, Corporate term this an at to X.X% on-net from a X% discounts related and churn off-net contract quarter. our X.X% last to NetCentric quarter, quarter, slight than We the

also offer customers. commitment discounts NetCentric to We volume our

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

Some as more and EBITDA detail EBITDA adjusted. on

our releases. fourth as our quarterly in living or States Our typically our first the SG&A in EBITDA each our and quarter. expenses and typically tax the equipment of CPI timing our our impact plan cost our our increases. EBITDA both beginning cash are increase higher from and the These our benefit and payroll costs the and resetting in and factors United press that in of SG&A sales adjusted increases at consequently as from quarter, level reconciled timing include and EBITDA cost of the to factors flow and which all EBITDA first our related to amount Seasonal taxes seasonal meeting gains services expenses are quarter of earnings audit the operations annual adjusted transactions of annual our of salaries, and year,

was EBITDA sequentially in million or quarterly really SG&A seasonality results excellent the $XX.X And given Our flat increases by our million, $X.X quarter. experienced increased we in X.X%. than our year-over-year EBITDA at

to EBITDA margin XX points. but XXX quarterly basis Our increased decreased by XX.X% by basis sequentially points year-over-year

Our our in EBITDA as adjusted, which equipment gains transactions. includes

for which the quarter, from year increase were of quarter. and for $XXX,XXX $XX,XXX last equipment $XXX,XXX Our first an was quarter gains the last

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

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

on comments share. earnings per Some

basic from diluted XX% last share of $X.XX which a and for a $X.XX first the Our $X.XX. quarter increase quarter income was the was quarter, from was per and XX% which increase XXXX,

further Some foreign details on currency.

outside XX% revenue and X% quarter Pacific States in were was to in based United our related our with earned were Canadian, our about Asia this revenues revenues, Mexican, and consistent of and American U.S. total operations. About quarters. Our prior of remaining Latin XX% the of reported the Europe, dollars revenues of international our

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

at these will these on growth were $X.XX. average rate Our quarter our the U.S. concentrated. about for not negative, and impacts estimate the We euro is $X.X constant remainder revenue base quarter sequentially FX Should primarily and foreign revenues. currency million. The average second the is be exchange average and highly and negative will for that believe revenues to far remain exchange quarter, customer year-over-year is foreign levels this exchange a sequentially and exchange that dollar rate of rates impact dollar so X.X% our of the basis $X.XX, impact X.X% on Canadian the year-over-year, impact quarterly rate $XXX,XXX, quarterly our a be revenue second the we a NetCentric our foreign

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

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

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

capital $XX.X the the cash lease payments $XX.X in stakeholders. by capital quarter. And first you returning million million equivalents a capital quarter, IRUs cash were fourth the At result quarter, totaled compared capital quarter payments was Our for of principal last this $XX.X lease expenditures, end total that our for the the combine million quarter for these $XX.X million. the to and under $X and our our to decreased And $XXX.X million million $XX with as of of of quarter our million cash year. if

and spent quarter, $XX.X on obligation. was million our a payment interest on payment for quarterly the semi-annual During dividend paid our regular debt we million $XX

was quarterly Our flow quarter operating cash million. $XX.X this

bad debt. on Some comments ratios and

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

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

days back this all X.X% Our for fantastic end. revenues only quarter want thank from customers. do at our collection turn worldwide recognize was I the quarter in quarter, improved team I expense and job and day our and sales to XX to collecting improved again, for and billing And bad debt And only members continuing that, and also and Dave. of serving call a the will with of our our to was

Dave Schaeffer

square the America. network. end Hey. to of quarter, feet in we of XXX connected Thanks, scale comments directly our on scope the had Tad. over North A network the million and of space multi-tenant few our At office

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

are currently utilization to of approximately routinely our We utilization our in maintain of lid these rates. as the We aggregate higher augment portions capacity rates utilizing XX% capacity low network reach network.

the floor For over XX% of approximately of from sequential the traffic and the XX centers achieved data XXXX Cogent of that today and raised fourth over quarter, XXXX. square operate feet of X% center We with growth XX% utilizing period data full we're XXX,XXX we year space, capacity. quarter

long-term rep quarter, in X.X% rate was which turnover Our is average rep better than our rate turnover X.X%. of the

productivity the our Internet history. per industry. unmatched orders rep month. with value we average of this with was full-time And XXXX. equivalent increase the sales the We long-term remained has rate service, sales XXX, remains the month. selling and ended that per of from the in Our end is full-time equivalent XXX a XXX of our our consistent per X.X install Cogent reps had reps force quarterly our low-cost X.X% been is proposition the quarter significant productivity our rep in rep at largest The provider transit services, per that over

for all customers. data Our of necessary IP focused and which business services, remains our Internet, colocation utilities on are completely the connectivity center

constant multi-year XXX met growth years. long-term the target approximately expansion long-term of and XX% of basis over several points EBITDA our should currency Our be margin next

dividend share increasing $X.XX quarterly Our approved quarterly Board another of of yet Directors on regular has our a to $X.XX. increase dividend our

Our margins. see that declining growth of revenues and dividend have the sector underlying optimism continues flow increase of our business, to capabilities strength a and the the we the declining our improving cash continues to in most experiencing and competitors demonstrate

basis. We will end, common quarter's we about under of of opportunistic buyback be our remaining had sheet. of the open remain authorization, current million purchase balance a be to We to to year-end. increasing I'd returning opportunistic questions. our regular With to We'll At about shareholders timing up and on it committed the still capital our continues use which that, stock. amounts $XX.X for like

Operator

Philip And JPMorgan. our Please question Cusick first from Instructions] [Operator with comes proceed.

Philip Cusick

Thanks. guys. Hey,

two Dave, So can. if I

on And here. total lot lower. thinking reps on we the side? per and trend then I at recognize expand productivity about? running second, what is you to can First, highs relationship full-time a should sounds like up that new are pressure there an NetCentric and rep But intention continues a and Thanks. be there's lower productivity

Dave Schaeffer

questions. Sure. Phil, thanks, the for Hey,

a So violations to experienced on And first growth neutrality. to rates. business all, several due ago to slowdown of years has close in now has NetCentric, net of rebounded traffic traffic our historical

traffic, incremental pricing. lowest which has customers the XX% our majority However, growth, of that the largest that come get from year-over-year

our the decline to decline a continues constant on megabit per of XX%, X% flat volume-weighted price about growth. decline quarter, at resulting long-term in light been average XX.X% traffic rates it of in was revenues greater, a basis sequential the currency this and while averages year-over-year So has consistent with

opposed Corporate had as these that We expect of really And normalized strongly business to of year-over-year historical the we growth that to revenue that, its more which has by X.X% growth quarter. will broader averages, to a traffic perform from been NetCentric see we are and Obviously, this our unimpacted pattern the with about decline return base trends. believe to a X% customers. continues

size points. to rep question. full-time rep equivalent the Now Two productivity total and and

per and are size force sales to year. at we last that committed our X% of We achieved XX% increasing between of First year. the all,

achieve We counted their expect XX, third and a total by In end that towards equivalents. by we were equivalent quarter, our increased that the year. full-time actually, month reps full-time but number the of now year reached to this therefore, last up of the reps lot are reps XX, hired of as meaning went

the increases it from about commented when actually have productivity plateaus. in rep one on XX we past, to consistently As month month

result in achieved really the this in It the of their that quarters, in XX but correct in base. is function with of or the yet fifth that a counted line we declined our was decline We average productive fourth still the coming due not the month, fully that of productivity of tenure because the reps in have as average. last in number reps several aggregate to the fact it's rep long-term down from step FTEs the So productivity the but quarter. increase are

programs, over management course allow training up. time We and We rep segmentation continue productivity the place expect over to put to the of our initiatives we the market will trend normalize year. believe that that in to

lost us sales is it that to expanded our the meeting of greater volume the ability time. We directly reps. length. because year, to also Corporate meeting. give This just our is train reps, annual selling. had days and in actually that some days is quarter in in their impactful call three office their Normally, additional to We eight proportional was days for to number highly And

it's So which half lost drag on we installed had productivity only the in on because rep a quarter, effectively orders. an of week a based selling also additional

a quarter. next in I the rebound you'll think see

Philip Cusick

the The expand is I bit? in mostly or that strong growth little that Can NetCentric pretty growth is as reps, a rep Corporate well?

Dave Schaeffer

roughly in is growth but about XX.X% segments, Corporate of NetCentric. XX.X% So we're and both there

consistent. that increased Corporate ratio are and far So been the than has more aggregate relatively that number of NetCentric, reps

Philip Cusick

other your And broadening up? is Or is reliant sort on else traffic there of that ramping there? reps your that of on of customers expansion is growth, will the start NetCentric – your of going assumption something

Dave Schaeffer

change dependent not really traffic in It's of patterns. on customers. number really dependent on It's

as come we sign to largest content of of much Cogent. past forced few have agreements years to begun trends content faster and violations their are companies. is Also, that where or transitory. shifted that XX average connect a than growing back much were somewhat more So has that to think base to neutrality what they under seen companies they large of have so in saw the some of trend those direct we the are net customers, the We have lapse, our transit traffic

shows or and you to NetCentric sold sales companies. reach XXX their the reps about sell broad over is network X,XXX force around to world spread that how out content access X,XXX Our And is. the fact we so we

a that don't to it's customers reps. necessarily of smaller more achieve result of I the think traffic So needing just as growth kinds It's are need rates doing. largest customers really the those same

Philip Cusick

See you in Schaeffer couple Dave. Dave A Okay, - a of Thanks. Phil. weeks. Thanks,

Operator

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

Walter Piecyk

XX. And in by you FTEs, QX in that X.X% XX. full-time versus productivity. of in as XXXX, X.X% and for remained Thanks. mentioned reps your the those the in of prior explanation Hey, the quarters, in quarter. In flat XX prior they that Dave, QX at they your by rose increased versus rose quarter drop X.X% XXXX, just X.X% by productivity And at employees,

was role two role – to does this in playing a that play years? how circumstances what those in So a quarter not as similar with opposed

Dave Schaeffer

much increasing. and we At of is we away increase rep's that that their just the the their the So with them end period for time of see and in you arithmetic for fact of is just a is then component the in goes portion count full-time hire guaranteed guaranteed totally base new than reason which compensation. that it period, variable that full-time do the variable is cut-off an that the rep Cogent a reps, is the bridge those whenever driven paying left the is variable or equivalency reps And as salary longer performance, and equivalents. that by period productivity on performance commission

In terms...

Walter Piecyk

three But that past a factor been has years? not the in

Dave Schaeffer

well rep the impact. some No. in much. quarter, I the this an What tell It continue the the I long-term that impact a an It the can't long-term I for to difference the There's rolled we in at you But straight time productivity reps. really maybe the just line sales. that in to – as expect did rates. on out heard some lumpiness account selling can historical improve. of perfect the which line, you have reps that stated bigger also some is had of years. is rep I earlier, very programs was past did trend our back and periods, in average. past I quarter have that that had to has Corporate just We this lose impact and not productivity the step doesn't we lumpiness. continued NetCentric fully of and days just does it's above four the the additional a And as impact really training rebound

Walter Piecyk

it. Got

approach different this let's So then. from a angle

it growth the at back that in lowest you growth dramatically improvements back put to the this in sequential your I But this look up Corporate down you is XXXX. sales were made business, XXXX. the go the wasn't sequential in in If we since Corporate mean, force quarter.

XX new sustained that back you at can is So your but X.X% X.X% have sequentials forward? going least you these employees range your now get X.X%, that's or to going at ramp, full-time a to expectation

Dave Schaeffer

is, of and that about our VPN Corporate that to either came growth, the are spoken we've roughly from services, of yes, XX% Corporate Corporate of historical product, and in for that a we inflection particularly on occasions, fact which much So be of strong. answer And our the of or the your continue to growth point should sales see introduction VPLS the number SD-WAN that is model very installs and of XX%, to which in is be We growth feel achieve range. quarter. able correlated XX% we directly as a in additional should not four stated, number calls quarter, a an I XX%, And time days did highly continue. outbound insignificant to where will driven comfortable lose that we transaction in selling consistent of in the Corporate sales that VPLS

Walter Piecyk

NetCentric mean, X% one in last you you XXXX. on this X% haven't NetCentric. then Got since target. one it. I And Again, just topped mentioned

I because years type you long-term are as – of what when So which – years when it rate like we it ever can rate, just that expect a talking back to growth And this of line about? get to mean growth I is it now? define five mean time type you

Dave Schaeffer

on took target point. on And we call, for fair reason long-term aggregate why there commented I rate. NetCentric, the last the extensively When that's are it we at down it part a and our two was growth the really drivers. of look

first decelerated accelerate. an to XX%. The driver to again, is traffic to NetCentric traffic had It's And able prerequisite growth growth. long-term It our to low get is XXs. the growth approximately our That's back revenue at important XX%. be

is The of over per megabit. similar, years XX price is Internet. we past contracts the effective Those second to that connect average from this much shift what transitory to direct though price coming Therefore, They connections the as And a at XX as rapidly growth the have back thing think the is five most price were megabit average months We has our seen phenomena. those point. customers. per sold per while and in declined largest transit between the preferred connection to way the to lapsing is term. more using three a very are

the historically. do are of And our on of exception counterparty net expect… neutrality honoring which we've Telekom, rules Deutsche All peers commented with we

Walter Piecyk

net any because you the fees Have quarter? fight didn't there up this you book given neutrality

Dave Schaeffer

process. tribunal in very it of It German a appeals front didn't gave case a we the we to X-judge It's lengthy pending is have court. doesn't spend we up. mean and have still Well, anything. But a

the the EU. If are in just just slow wheels slower you the they turn – U.S., in turns think

So on And but this that's not is protractive that we're listen, a their fight. where... turf, to doing going happy it be we're

Walter Piecyk

it's be when or to it's X% getting think opposed I in knowing as to when I talking declining hit to – number going years? that interested mean to haven't you will going stop just five Dave, more investors in not a about

Dave Schaeffer

Well, decline It couch it less me then was rate improved. became way. different a The quarter the negative previous this it quarter. let than of

But things I growth. second they through believe inflection, are and improve is positive do to isn't positive of flat to there a revenue will So get improving. and an derivative actually getting point the

Walter Piecyk

it. Got Thank you.

Dave Schaeffer

Walter. Thanks,

Operator

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

Matthew Niknam

you for Hey, Dave, thank questions. taking the

two expense the margin, on pretty gross this quarter. if on in in of big year-on-year. so is And could. quarter? then I decline if operation this One or sequential Just and what the this secondly, you below there a you builder sort talk with Can any if – talked drove of network expect Just sort uptick recurring about gross or wondering access a onetimers improvement Thanks. of the leverage leverage in having returns, about shareholder as X/X%. Is total of below Or to rate shareholder the terms basket return the X growth dividend precursor? we an that the should result?

Dave Schaeffer

Yes.

questions. So first of Thanks, good all, two very Matt.

gross have of long-term we margin, improvement. terms had consistent In

couple It years, basis averaged past the Over of it's XXX about points year. a year. was this steeper

the carry all on part fact on-net leverage our in X/X of sales that which in gross contribution. margin operating because I XXX% roughly is the think business and that of are

In years investors a the general, are With average absolutely In well. XXX on before of maintenance effectively. the next have quarter, that hit part improvement semi-annual returns, also of of do last shareholder sheet due and that quarterly, was some that some should sequential, paid, terms certain balance annual did year using the the for as to year fee the the leverage basis hit but we expect some so about committed fees have regard operating improvement, a that our we sequential We are points to of annually. margin to an several business. gross

bringing below all we'll indenture our then the the probably do, available reduced able the indentures to builder operating test be company of have And holding level. of we on no $XXX $XXX holding which under our borrowing level cash company have to company, to at company holding We the to the move leverage capacity million at million. and the borrowing at restriction about basket, another $XX million,

that And the dividend, are exact at that on will but market that. growing that have very are of buybacks. then we put possibly now at our grew XX committed seeming to I market to sequential don't favorable. something fact current timing shareholders, an to to it XX% returning debt dividend for The We company with we million consecutive explore think We proved our fairly additional that, quarters nearly debt operating and $XXX opportunistically is to explore. interjected be the regard we based and growth conditions year-over-year going on level

we we're excess see the think think in of a made buybacks. period the think see prolonged you'll has re-enter dividends. that don't cash long-term period to to and and that But Board And expect But is market in I you about be bigger no pacing cash use return. that we've yet If not will what that the we've in I going volatility, if volatility, our the expect I continue them. of will measured a should market increase of we I forward. over-levering, been decision our market using return we are to been consider we should us been think investors in prudent amount return, going think I of patient and

Matthew Niknam

follow-up And if real Thanks, quick. could Dave. I just

it's you present talked present fee was amount Can in XQ. about you not that was that in On XQ, meaningful? maintenance the if that seemingly quantify

Dave Schaeffer

the that covered in is it just It meaningful was particular not at it NDA. leave an That numbers. up contract enough I'll But was it that. by insignificant. showed

Matthew Niknam

Thank you. Okay.

Operator

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

Tim Horan

Thanks, Dave.

more they're or but coming largest volume is talking peers of growth better on kind traffic customers like, carriers, NetCentric of timing us back. for – maybe coming following of even seeing, instead on confident a bit very when to these And the color it maybe the industry from here, you to see going just by it this growth this much on video about kind a lot roughly? see your Sort NetCentric year And the you companies? sound little a cable lot occurring. from that, direct how going bit transit might like to quarter. other of related locations. sounds of growth? can a But of you to think large over-the-top The little Or the can using connected save you more just diversification you're were But starting you get coming growth or – or industry's you give

Dave Schaeffer

Yes.

very different questions. two So

But market come share. indicator seeing, at in are that's remain diversify the gaining but some broadening of we I these improvement clearly, the the And earlier rest grown is of I and and both as more from are today. clear that of growth we expect gaming-type aggregate double is First video bandwidth-intensive we distribution. only NetCentric well strong what applications seeing, we're the the have augmented do market. indication a a And think some rate very all, is a think it's the applications there in industry an them that traffic, being of and not of names doing are will about growth that some growth of stage, we from they biggest to reality, historically away to in are segments. market leading

We from have fact buying X,XXX also we benefit the that access from us. networks

to of So they're customers their kind pulling meaning winners We content. losers. don't everyone. the are more down to growth, counterparty sell and We pick traffic that

in that model and to market shows and continue terms pricing our we gain and share. We term simplicity very confidence customers' helped us have think volume of We transparent discounts to a has when discounts. this competitors

have direct So converted for And that of still and all reasons, those don't broadening can what are connect pretty I confident how a we feel is back. how to see might of base. I much perfect to visibility exists be going

the question of savings. to Now

centers met Cogent pointed to had a have if some our actually per built customers they can who centers. technology. those hundreds using that own for own have needs. abandoned their who built customer between as I link they also that with have had the We literally efficiency network. just previously networks our and by their more transfer millions networks those of lower capital had will networks global discounting, build out and network with saving content-producing had them they transit used flexible company volume very cost, their own and expenditures a a Usually, in out just of dollars information proprietary We've using large of year data be

massive Now have savings. not network, I'm would but they be may just there requirements on other seeing, that their

to scale Some of be And every yourself. their as efficient to customer, allow build as in our the that's than convinced of we But it them purchase it of best remain and cost bandwidth, their and strategic, cost profitable these are for and NetCentric alternative view so it. trying far models long the be the we companies to better provide is enough not decision. structure as that very network

Tim Horan

pricing. just a on follow-up then And

new on new Your sales discount price kind price relatively the point. average a at basically. this revenue to for kind your price low little now of Should Because indicate better growth going flat sales longer, the is has been year or forward? bit of that a

Dave Schaeffer

us that are that is with resume. comfortable the I growth get revenue do helping idea NetCentric one will indicators the leading think of that

Tim Horan

of couple new do the why case, has for kind you idea of the any remaining the And next here? relatively And quarters? price sales is that flat think, been

Dave Schaeffer

think broadening it's precursor of I the that base. Well,

again, is generation small the and been out already of buying are guys our are a those a bought. become models have ports. that we And newer the big So pipes and one filling dominant what key business growth NetCentric generator. They're next of lots businesses traffic when up they have, or of the always seeding next that more going to has

Tim Horan

Thanks very much.

Dave Schaeffer

Tim.\ Thanks,

Operator

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

Nick Del Deo

degree good of Hey, factors? quarters. several versus VPN has growth pretty from last materially sales To other prices the vendors off-net that to decelerated rate morning. is lower what versus over tied the your Off-net

Dave Schaeffer

both prices. for One, Hey, loop off-net. it's Nick, off-net, for of But I on-net continuing lower would more to two say length result and average it's a much contract increase things.

cable actually they've those the some large off-net in cell So saying incumbent availability and is fiber X,XXX,XXX buildings, in an a provider footprint. XG we from And cases, many most we're XX competitive in different part small two alternatives, as and usually, in overbuilt today, aggressively have to cases, big carrier. facilitate of And that's vendors, that deployment.

So Spectrum driven has seen its our with fiber with down which very that whether their new then building Project own we've price it's Comcast, overbuild, buildout, FIOS, and plant, AT&T not but fiber fiber or XG so aggressive it's with or whether VIP, Verizon for loops.

a our loop we're and price Internet we've expires. those starts multiple initial avail on-net very our access our large or those And of Our derivative us lower part we off-net on because lot either then both, if a sale. business then savings with till loop falling that faster to seen It or business. in customer on-net of best won't falling be we are VPN loop and to for an locations able the Corporate customers. are can. lot the prices needs all And is get prices precipitously term long-term Actually, of customers themselves falling than fairly under contracts the of their prices that passing our is in a ARPU corporate

Nick Del Deo

in it's Got the recognizing points? that process that you've you're Anything you getting talk or sticking about early it. with still turning learned then days the Can SD-WAN, And about customers? traction sales product. to

Dave Schaeffer

Yes.

three So I think points.

for network. modify all, SD-WAN other First than been created MPLS customer vendors where of I MPLS movably customer been initially have think expand I we have and acknowledge Two, their or is expected. the would no dynamic paralyzed has and for us slower SD-WAN sales would a really market will

when of discussions technologies, point, more outline have requirement. third sales And that which pluses the I customer our VPLS It the So solution the is more actually mature. and you the is it's of because each minuses Cogent. think of an VPLS is the for most resulted fits closely incremental SD-WAN

to increasingly, want for product. product. VPLS competitors SD-WAN VPLS. our seen our compare it VPLS, have offering, to we the outline in out the repeatedly to have MPLS off with we we continuing to customers asking Even SD-WAN, and So to move discussions We the walked came compare they door though who is with choose what of we SD-WAN an it customers they and

Nick Del Deo

Got color, interesting. it. That’s the Thanks for Dave.

Dave Schaeffer

Nick. Okay. Thanks,

Operator

Company. from our Please proceed. Thank Colby Synesael comes you. question next And and with Cowen

Colby Synesael

going at the churn, growth and two quarters One, and we've to that that this on purchase churn? I'm And effectively you. to of sticking Historically, business just And function how TXs about coming how of much we've of guess solutions. them know off-net talked again, – now. last to ago, be has many But something seen questions. point your off-net for year's revenue where is I TXs? last thought off-net. more sell conversation that I TX revenue the many AT&Ts years more TX-oriented Verizons shifted equipment years this actually much Corporate several in back then secondly, from slowdown the curious, that fiber-oriented gains, was over might you'd customers. a Thank be from specifically, And and of Great. world that a

for flows are and time slow, view the on looks of XXXX? it And in each back was expectations going seeing Where thought and ebbs to come you. that years? the next there where Thank equipment think I we we was and quarter. a is sales it over few your updated that what how kind

Dave Schaeffer

Sure.

super me easy was Let That take the TX. a question.

TDM-based zero fiber-based, of and only had and no coax, our wireless, any zero are TXs Ethernet. have fixed ADSL, have years. product TXs, We three no XXX% TXs fiber only for or sales off-net off-net no

from that bid are So means in of footprint, for XX% the And from. no on-net also it the of Cogent. America, XX% XX% can means locations business for can Cogent XX% it serve locations buy that XX North different we vendors

from phase no or churn we've coming have since not out. years been able those all TDM and X.X So TX we our services to have for

Ethernet-based on We driving cost. those what's however, competitive have the tension price declines, significant seen is and services fiber-delivered down

is virtually some mb, We XX previously We now but also fiber. sell greater our we're we're efficient of to services, rotating out newer and network customers product. to had replaced still been significant XXX minimum technology. Colby, steer by then our and to been the sales we mb trying a lower are have has to inventory that gear of all or XXX as willing mb constantly off-net speeds our mb than And XXX limited increasingly, have via not that question, of off-net sale equipment

sales revenue. there our but in last available to and for primary equipment, be in usually in reporting would for not there's But this and no is gains year. our equipment sales don't have business. flow those similar reflected always because of it. be It's revenue. suspect I EBITDA, not those to cash not that will buyers However, year recognize We basis

something one-off to with a in that But any bit can that it's of quarter this certainty. some a experienced the a we think kind we customer we was that predict gear found for. were that sell not we just uptick I of able

Colby Synesael

Dave. Great. Thank you,

Operator

Please with And Citi. Michael next Thank our you. comes proceed. from Rollins question

Michael Rollins

product additional the move And I Dave, menu? products to in of some you mix and revenue VPN, the could bandwidth selling, was unpack the morning. Thanks. you products center. you your good products, different wondering bit had if about and and forward, how that the as data thinking between like your unit then by you're interest you the Hi, the are volume the additional a

Dave Schaeffer

Sure.

are I'll that second is one that to start answer when to the And the which always ask, with sell is something probably hires not. new? going new we first So question

even our expect simplicity success, has the key is product think and portfolio. And accentuated continue. I than I think more it we our of off it's that been vis-a-vis ever today to competitors our

total in XX% is revenues. colocation there's form a of SD-WAN couple Some about three is revenues; power really which about which product XX%, XX% and and percent of which So of either flavor of is categories: of or revenues; traditionally Internet access, space generally of then VPN, VPLS is some which our finally, revenues

the the a Now XXX or bandwidth been and continues the customers, for flagship standard mb to be has Corporate connection. product products, to

rate-limit the do for E handoff. standard. land refresh Although as their to think And to customer become eliminates the fiber traditionally eventually price fiber think the buy from to handoff we a for to copper customer at to cycle become don't it we it'll convert the for It's to in it selling we premium direct it interface, corporate the I today, now not increasingly that our I gig I because what we about customers in could we it's there charge that will most next a improve either place gigs equipment. suite equipment, Fast in of the as of for take And it or in to becomes product. Ironically, fractional are of will a do us cost $XXX, a the will it prem that's lower fiber but it. de prices be convert priced full-gig at years, handoff. and over several full customer's identical the are customers interfaces gig same we delivery help accept facto our failure corporate deliver it able buildings copper. the one corporate charge point customer down because piece it gigabit But because think the have do standard, installation it We the of that actually points. customer we our product will as and well. customers also cost can piece do ironically, product

Michael Rollins

that the trend you're the the growth talked bits us line-wise? help on on past, following-up you In and what point. corporate of growing by you about XXX your seeing customers corporate low connection. just And mb the utilization visualize that traffic where Can of corporate is

Dave Schaeffer

peak, Corporate XX.X% I some taking two going even reason part quarter, really at last those growth where connections gigabit connections. And drifted because bit little of the of it's primary average this Actually, though about need is customers that Sure. utilization, is traffic are them. they don't And or is traffic drivers. down think our was a

percentage a As businesses greater and is utilization off-site into location requiring the or port. move cloud bandwidth of more that computing remote

their is are second software more businesses most premise-based licensed only XX, offices as that remember, But XX bandwidth. week. in away SaaS, software The business requires from users a migrate to also hours

the giving I'm while you So peak number.

but it's on pattern ports XX%, different a utilization an XX/X corporate an XX/X. customer fraction or at that basis NetCentric utilize of a a is at which tends you use look XX% on to than X% If extremely basis, average its

Michael Rollins

Thanks.

Dave Schaeffer

Thanks.

Operator

Thank Please proceed. And Guggenheim with Mike McCormack Partners. from comes question next our you.

Mike McCormack

thing the thanks. margin I just one Yes, guess side. on

the far cable about coming XG as side as guys? you just sort to respect about can and in secondly, of cost, puts front? mentioned Obviously, XQ, threat and Maybe some you for step the there. What for QX. If of down. step Dave, the seeing know sort you the into a takes frame the to there's could you seasonality on corporate try And cost customer you anything down on you access as that or Are you that. talk of cable that I magnitude mentioned enabling with looming if sort then

Dave Schaeffer

questions. Mike. Two Sure, Yes. different

this So QX, all a side, margin of couple experienced experienced we of costs. quarter significant in – extra first a on SG&A of the extra couple

is at $X which over scale. was meeting. and it year, not insignificant Cogent's million, first our is of sales company This The ran a actually longer

as We COLA have the in payroll also generally quarter. through first as reset care goes pass and health well the up increases

to from sequentially. percentage about XX% XX% about revenue a SG&A of as Our of revenue went

the over should expect course the it down You to of drift year.

the continue roughly XXX X/X and the half to In gross points all sales coming we coming get terms just from are margin, on-net, of gross that that's will gross basis improved how uplift, of margin drive margin to a roughly from SG&A. half it of it of year,

competition cable is In real. locations, cable question. your Now very competition off-net to

installation we having sell see don't some that in to real to on-net They or gives scale business location. haven't However, the that skyscrapers making has The We we they Also And advantages. the location prewired central cable that go when is on-net out only customer built our we us in go a location can time have in just for the limited. global, system, in, multi-tenant footprint footprints customers, somewhat that lengthy billings, an out distribution multi-site full with us. haven't we're footprint, don't and cable being expensive. be also districts. a

Mike McCormack

Thanks Great. guys.

Dave Schaeffer

Hey. Thanks, Mike.

Operator

America. of next Bank proceed. question And Please with our Funk you. Michael from Thank comes

Michael Funk

Hey, good morning, Dave. How doing? you are

Dave Schaeffer

from hear to been a it’s Good Mike. great, you, Hey, while.

Michael Funk

appreciate the pick traffic your traffic back about Yes, some optimism maybe be turning Really, NetCentric the on there. up to you thinking here. always revenue relates though. losers capital and to of your I’m it the I growth. that might help heard trend. Quickly, of growth some comments could the growth just actually I the return getting

the the in guess, growth. how Not growth turning degree up to against given much wanting thinking capital future a that I'm consider maybe box capital is right, the when predicated – revenue predicated more returning solving, already return higher, than are free in targets, of valuation paying didn't cash on teams hitting where seems getting business, some you to of the what outcome XX%-plus capital. we've top at the Given aspect that Board wondering, given And and out the back be certainly, a to to the high-margin for point you're became suboptimal flow I this where is in about examples RLEC with up it of box return XXX% optimistic line, similarly, the be just in happen I guess, on continued that dividend the And space, payout about the the the leverage management that, NetCentric turning yield, and just your sustainable. of of seen of dividend. ended probably your

So in consideration capital keeping to may about you where to that you incremental want And sheet? do get not your the the open that returns it does question guess inform cash back even I be? to revenue of or is, that balance decision

Dave Schaeffer

Sure. A very good question, Mike.

a of So couple points.

X-year And well. have underperformed. it's been performed dividend consecutive during we NetCentric have all, point, to grown period, XX years since of has our that our which First Walt's dividend. period NetCentric we the has throughout To increases in five

an Second, we an business are different decline. RLEC. not that's We do aggregate have very than in

growth Our continues line top strong.

connection. are market a residential Our with opportunity share to eliminated The in gain us and of substituted are products available demand. being we sell addressable broadband not mobile markets we continue It have those in markets. additional plenty like to services and landline is with or away that

So calls dividend. our the We've measured increase taken very investors increasing from to approach. a the we pacing has had are Board I which at think

our XX.X%. grew flow only and cash our fact, XX.X% In year-over-year dividend grew

the the sheet our business. our other than sector even with in levered acknowledge line any but we So using with growth balance we that efficiently, we top are remain company in NetCentric far underperformance less and

turn rate but NetCentric that continue belief and we not have we decline growth a is NetCentric the answered that a positive, yet see So we faster, rate of and to predicated think on have I of I has revenue the is is it slowed. earlier, now rapid again, improving. starting It not as dividend should If in that inflect revenue.

revenue cash to environment therefore ability our we of environment, in revenues a tough for of pacing I But flow. ability their As in growth demonstrated aggregate have a grow growth tough us our the dividend. and expand macro our pricing our increase it consistently that pacing to further gives and sector, improves, think

any growing sheet the several XX% over dividend putting no or year have you your having assume delivered Our susceptible to past top Listen, they at putting cash fix. roughly growth got negative years. elimination. have to per flow way is is And at like way we investors way risk growth, you've to that in if balance would our would area a where the line can't that, be with in they dividend cost-cut

eventually You problem. a X/X that your incremental have not to be and on of you're have What cash cut dividend But the benefit to unmuted. is the underlying strength We may is flow that business. enough don't from our save rate. at our of the growing faster business growth focused

Michael Funk

maybe the today one just for could. more Even I if time Dave,

business, get strong strengthen from to asset, rates mentioned occupied. underutilized XX% I in there. that the balance of giving kind the X% that sheet anywhere even Very maybe more? sales. recently, portion data strategic seeing a Have but center we're thought the maybe to valuations in sales any you considered data cap You it's assets is maybe monetizing that of for center to that X% seemingly the

Dave Schaeffer

have We but Mike, that, looked two things. at

hubs the all, completely we our co-located. Meaning have network. of to offices integrated First sales Cogent typically there, have we they're

at take high too actually significant but comparable and actually on trading me growth-adjusted Could to trade reality multiple data flow a the flow they a the So and many functions. cash second, discount the centers. data a would But of for And cash to be Sure, we of is criticized at serve my you segregated? multiple just is they work. centers. some multiple, multiple, the it

Michael Funk

you again, Thank Dave. Great.

Dave Schaeffer

Thanks, Mike.

Operator

from comes And Thank you. Feldman. Brett question next our

Brett Feldman

Thanks me for squeezing in.

new were that base. an it's as Internet, growth a the growth the to NetCentric applications on before, rate traffic noting is you for broader of come not improvement just So in outlook of but based your improved as

to that's what seems maybe are new And of uses been it seen driven in to some I if growth that nuanced, the And context heavyweight improvement like more so think growth be helpful. gives you And you predominantly Thanks. growth traffic going what than going for the second, are that seen you faster these you've that in tech recently? be of the are suspect behind sources that then context, it's are traffic? the data But have confidence drive recently, those video. by would different

Dave Schaeffer

for Sure. questions. the Thanks, Brett,

every things are someone there's the a all a out we ecosystem. dynamic And And people service companies been remains time and all, the startups very belief of going the comes So traditionally experiment. that up choice first Internet to that that smaller new are of have model. with use for provider a there,

We're been Secondly, going example, for attempt and be out. seeing we models some will will But That think There moving think to the consumer may foreseeable substitution of is that today like set over-the-top. to most and come a I are will its only and companies about of probably think think going handful the new launch drive that to business product, interactive, continue future, is that to and things base. be growth that's new dominated by of an a Disney linear meaning models, broader business probably qubit when and for come we're I own be choices packages, continue helpful. I to from growth continue. probably has it Internet. seeing, more video suited have to that broadening There to

and and have in multiplayer think massive Also, the of be is reality that business virtual yet wouldn't are fickle, are eyeball the a I their While more know products we today, are be only in innovators a consumers is more are Internet. that have new to the And infancy. those what on Cogent Internet still be mainstream. would was reality immersive on those not saturation But traffic it remains a not if sitting subset is market, I enough do we products gaming be the online battle FANG-type augmented I company And we completely large way names significant investing yes, to but the I'd call, for on I go. somewhere. pick than I reach someday flexible. And long and smart beach winner, coming this which to time, there growth, out clear it's will will think that of that

models now, may Now a base right tried of new up but buy they those broad there's innovators, out. being

Brett Feldman

Thanks for the color, Dave.

Dave Schaeffer

Thanks. Hey,

Operator

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

Brandon Nispel

real quick. Great, Okay.

our income to to statement? a you it was was maybe we from standard want maybe Or when presentation then change? the on Just of impact can lease fee Thanks. maintenance sort it last the touch from Can rightsize a just margins? And sequential sheet so Tad, remind there year, gross accounting impact to any for again. hit the us model balance

Tad Weed

Sure.

January purely total transaction. the we record, was new we sheet to is related historically. this quarter retroactively lease we these were a And the largely our balance all. that balance accounting and The accounting income no record at adopt not had for to as it been there expense It's $XX that but adjust and to quarter had the facilities, X, of it's leases transaction. that value financials, has this aggregate statement did impact million our which On standard identical present a sheet is purely

Dave Schaeffer

the I But we basis lever recurring to gross the basis, next Brandon, in years. kind impact semi-annual aggregate, did several very you a for on it year enough points maintenance ones that it just I fee, the But year. do material it the disclosed about there should in was then and We think few expect the monthly of is exact and amount, sequential. terms material. annual while a fees of maintenance are in And didn't quarter quarterly, additional per model fourth ones. have of margin XXX expect of And these it expansion this some

Operator

for Q&A call for to Okay, remarks. like thank you. today. Schaeffer session Dave closing And would with that, our this concludes back I turn to over the

Dave Schaeffer

look everyone over of have few and Take everyone. care, it keep I'll next to I folks individual for at I did excellent seeing out and a Well, thank want Thanks. short questions. weeks. the taking the because conferences lot fielding to questions time we forward any

Operator

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

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

Cogent Communications (CCOI) 3 May 192019 Q1 Earnings call transcript