CCOI - Earnings call transcript Q4 2019 | Cogent Communications Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Cogent Communications Holdings Fourth Quarter and Full-Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

As a reminder, this conference is being recorded and will be available for replay at www.cogentco.com.

to conference like host, to now Mr. would turn over the your I and of Executive Schaeffer, Chief Dave Chairman Officer Cogent Holdings. Communications

Dave Schaeffer

and you good everyone. Thank morning

earnings Financial Dave Welcome call. morning's with call our fourth Weed, XXXX this full-year to our Tad Chief quarter me on I Cogent's Schaeffer, XXXX am is CEO, Officer. and and conference

XXXX underlying the and the to be continue We're the for results and and pleased business the about beyond. year strength the with outlook our for quarter and for of optimistic

quarterly basis by record fourth by points Our reached XX.X% of company the year. gross a points margin increasing sequentially quarter from XXX XX of last increased and basis

margin XXXX points full-year for by increased from gross to XXX full-year basis Our XX.X%. XXXX

points increased fourth XX.X% basis, quarterly full-year constant Our of XXXX to we XX of by XXXX X.X%. from a sequential the revenue growth XX.X% the EBITDA versus XXX margin for for and quarter currency of achieved points quarter X.X% quarterly basis to increased On the and year-over-year growth XXXX. basis revenue by

traffic growth X%. achieved traffic we sequential was and XX% of quarterly growth year-over-year Our

traffic XXXX, by XX%. our full-year For network on grew

During the returned to million shareholders our quarter, regular dividend. $XX.X through quarterly our we

XX% should $XXX.X be return of our total XXXX taxable million dividends dividends as treated As on capital, and posted income tax be purposes. website, a as should treated our of XX% for U.S.

stock quarter. will million quarter's XXXX. At authorization common the December end, a in and purchase our in available XX.X any stock total through have We of did buyback not continue that we authorization

million, held buybacks, used at Cogent and available $XXX,XXX,XXX Cash year-end. and giving our to also leverage was Holdings quarter-end at X.XX X.XX the previous $XXX.X Our a X.XX unrestricted held was quarter from both. at Cash Cogent decreased ratio is This quarter-end decreased be for cash consolidated of operating to company leverage at at $XXX,XXX,XXX. balance our cash in dividends, gross from X.XX. quarter net to or the

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

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

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

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

Tad Weed

good morning Thank everyone. you, to and Dave,

statements. refer may historical for materially. not intent this actual to statements based Cogent risks conference a other made Please number and differ more forward-looking earnings our may could facts to call all statements. statements and undertakes of the expectations. our subject to on results obligation are our are SEC filings be forward-looking forward-looking These or actual revise factors on statements current results call differ. update that our on no that forward-looking includes This beliefs information uncertainties to that and and These are cause

the measures our financial cogentco.com. at this will our website non-GAAP to which GAAP call, use release and If on during in posted you these earnings we is reconciled comparable find measurement

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

Dave Schaeffer

Tad. Hey, thanks,

review to Hopefully you've had a press chance our earnings release.

a press metrics. includes historical Our release of number

performance about our some for against and comments expectations Now targets.

XX.X% XX% fourth of our from guidance, corporate represents fourth targeted the has fact of total the grew and of range our growing long-term been quarter, Our corporate above quarter XX% revenues in business business, XXXX. for our which full-year

and XXXX. declined the by Our compared fourth NetCentric historical XX% which business, underperforming of from our quarter of to our revenues, represents has been X.X% averages

our from NetCentric business. by and one-tenth third by The of NetCentric On for X.X% primarily impact currency of on quarter. increased percent by year-over-year impacts Our previous foreign the X.X% exchange increased business corporate basis, compared a a the quarter our business sequentially of as the quarter grew a basis to fourth constant XXXX.

payments capital our Our quarterly CapEx leases. defined flow EBITDA cash as minus minus on by principal

XXXX, XX.X% we to Due by to from our XXXX. at of our similar to cash operating excellent leverage our cash flow expect full-year For grow continue grew business, flow rates. the

margin guide revenue EBITDA per long-term growth multi-year Our XX%. remains of to expansion On an currency, basis improvement annual XXX long-term target a year. approximately points targets approximately constant

intended quarterly EBITDA guidance. are or guidance intended even targets guidance specific and to revenue be not and specific targets to multi-year Our are annual be

our details to like additional results. I'd back give some it of operating turn to on over you some Now Tad to

Tad Weed

Dave, again, to morning everyone. Thanks, good and

productive their also the and during a I'd also hard their very year and for company, efforts Cogent. continued another productive thank and quarter like very results congratulate for And for to Cogent work the and their team

comments corporate on Some NetCentric by and revenue customer connections. and

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

Our bandwidth centers. buy of amounts customers data NetCentric us carrier-neutral in large from

in office bandwidth corporate buildings Our in North multi-tenant buy us the from large typically customers America.

over as revenue Some XX.X%. X.X% connections our corporate from corporate million increase $XXX.X for quarter connections we the from mentioned by customer type. customer customers increase Revenue year. of year, of for customers X.X% earlier, sequentially $XX.X the over end last represented by and fourth grew network of last an annual XX.X% our grew our the million was was full-year, on and that the At comments and of to corporate Dave year. an the by Revenue XX,XXX year-over-year, quarter had which on customer

revenue million, was Revenue last X.X% $XXX.X full-year for X.X%. NetCentric our $XX.X million but increased from Quarterly a to XXXX by customers by customers year-over-year X.X% of which was sequentially over our declined decrease from NetCentric year.

customers quarterly increase connections basis, over of We X.X% currency XX,XXX increased constant at had from NetCentric the network and quarter-end, however fourth was last an which by on of a On slightly year-over-year X% NetCentric year. by sequentially our our increased revenue X.X%. customer our quarter

factors. more corporate to impact our growth certain customers, foreign sizes revenue the due for revenues than larger NetCentric and NetCentric of seasonal the exchange, volatility customer experiences also Our significantly

type. revenue connections on by network customer comments and Some

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

was the of million full-year, represented over revenue increase last for on-net year. Our $XXX.X X.X% which an

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

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

was full-year off-net Our million that and an last X.X% of was revenue the over for increase year. $XXX.X

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

trends, megabit base and average price new by quarter XX.X% by installed contracts and by historical declined to fourth for of sequentially with our average Consistent last quarter customer for from installed XX.X% The pricing. per The the on of year. X.X% base, per average $X.XX new declined customer for of our quarter contracts price our year. from by the price megabit declined comments and quarter. our the the the megabit declined last for per decreased to Some fourth $X.XX again sequentially XX.X%

Comments revenue unit. per on ARPU or average

our quarter ARPU for increased decreased. actually off-net and the ARPU on-net Our

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

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

our churn comments on Some rates.

Our on-net quarter. our off-net was flat the slightly churn for increased rate very and rate unit churn

the quarter X.X% for on-net churn are unit These X.X%. was and rates. was rate churn Our quarter it last unit

for was we with exact rate incurred quarter. churn amount same Our off-net the this unit X.X% quarter last as

orders. Some comments on move-out change

and And to our also NetCentric volume we As discounts all offer customers. commitment our we term a to NetCentric to customers. reminder, contract discounts related offer of corporate

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

as about adjusted. and EBITDA comments Some EBITDA

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

plan, at cost our the impact expenses occurs beginning annual this CPI. gains periods the taxes the typically and of our in and on audits; amount in increases of periods; audit our vacation year and in in year; annual our and and this the also the resetting the transactions; February; tax of meeting annual summer typically CPI right our timing resets; annual year services January costs year which Some seasonal or SG&A occurring States are beginning the first larger in typically first timing that United seasonal every doing to and at the increases include: equipment factors similar in the occurs cost living quarter we're amount and that the and typically lastly, the payroll now of occurred quarter as incurred typically also benefit month sales which annual level our of of

So increase happened our these fourth years. seasonal quarter that our for factors SG&A expenses has typically from historically first and quarter our many in

by Our quarterly million. EBITDA to sequentially $XX.X increased X.X%

year-over-year by $X.X or increased by EBITDA million quarterly Our XX.X%.

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

by Our million. full-year to increased almost EBITDA XXXX $XXX X.X%

increased margin by to points basis XXXX full-year Our XX.X%. XX EBITDA

which these over follows. transactions, equipment adjusted, have related amounts is past but which as EBITDA includes as few were EBITDA declining also our years, to but Our been the gains

last quarter for of quarter. and last Our $XXX,XXX quarter. for were They the equipment year, the gains they were $XX,XXX only $XX,XXX fourth were

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

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

points as asset XX full-year EBITDA as our $XXX X.X% the and XXXX again full-year XX.X%. basis increased margins our to by EBITDA to adjusted increased Finally, million by adjusted including XXXX gains

share. per earnings our on comments Some

year. was Our quarter basic quarter was $X.XX to that and last the and per fourth diluted quarter income of for and $X.XX last share compared the for $X.XX

that each we million June loss happened dollars they are Our was $XXX be quarter diluted to be this $X.X The reported was gain month and in basic to Euro our issued U.S. that by million reduced last we our by Euro this exchange per exchange $X $X.XX and notes This notes and quarter notes last share that of share the income and Euro and at loss diluted year gain quarter or share. per for using unrealized our $X.XX U.S. this reason it dollar a increased income foreign converted per need that on per the foreign on to basic million rates. end quarter, in incurred our $X.XX share. unrealized and share the exchange per

gain cumulatively per share income for foreign by that $X.X was a since unrealized increased that full-year was for per and the year, $X.XX million our diluted and and Finally, actually gain basic exchange June, our share.

on further Some foreign comments exchange.

XX% approximately was years. in dollars our revenues reported U.S. over has of consistent of outside several revenue the States been earned percentage past the Our that total and quarterly United and

About were XX% were of and of Asia-Pacific, our X% revenues the our Canadian, and about in related to revenues based or Mexican, this American Europe Latin operations. quarter remainder our

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

revenue rates measured actually a from and X.X% quarterly X.X% basis, on accelerated Our growth were and year-over-year. last constant now sequentially quarter currency

exchange The Finally foreign revenue revenues. constant negative on impact growth currency revenue a X%. annual impacts our for foreign was our basis was million the $X.X on measured reported materially and of a impact year, our when NetCentric the rate annual primarily exchange was

far $X.XX these been average rates Looking Canadian and first been current sequential dollar to year forward, the about the current levels exchange Euro remain for so estimate dollar on for that impact quarter our has average at average has $X.XX. the will be rate we revenues material. FX XXXX, U.S. of rate our the quarter Should not of conversion the remainder quarterly about

foreign the about impact However, is be exchange estimated negative approximately $XXX,XXX conversion to a basis. on year-over-year

our time. of revenues revenues that have customers customer comments X% than top concentration. our Some and not less Recently, highly numbers XX for consistent been believe on the for These over less than X% this revenue and XXXX. also is quarter our represented our We concentrated. full-year of customer base

comments, Further capital expenditures.

capital Our and almost decreased sequentially X.X% expenditures quarterly decreased by XX% by year-over-year.

this million fourth quarter to Our quarter $XX.X for million the XXXX. $XX.X and of million third year last from of were $XX capital compared about was that quarter expenditures

last year. was For X% our million CapEx the that from approximately million a and was $XX of decrease incurred our full-year, $XX of we CapEx

Some comments and our on leases. our capital lease capital payments

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

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

by lease agreements capital principal but increased these X.X% IRU dark fiber Our slightly sequentially payments declined under year-over-year. X.X% quarterly

quarter, quarter principal Our $X.X was million same payments it the lease of for for capital $X quarter for year, last third the the amount were million and the of fourth XXXX.

payments the capital by million $X.X compared million principal lease declined our For last XX.X% full-year, and to year-over-year year. $XX.X were

the you payments quarter our principal million year. combine and together, CapEx, for quarter, $XX combined total $XX.X to When this capital compared with lease million of our fourth quarter the last was $XX.X million last

year-over-year. represented capital Our and the with aggregate to X% million CapEx this $XX.X lease that $XX.X combined in reduction last year for compared payments for year principal were million approximately year the of a

sheet. on further balance the comments Some

year totaled million. $XXX As Dave and cash we're cash $XXX.X at equivalents the mentioned, of at almost million, end our the

million. million $X.X our We by quarter, obligations and increased payment our dividend of was on quarter related million and our our $XX.X net-net increased that to our returned spent cash stakeholders our capital million $XX.X actually this includes of by payments cash of over quarter $X $X.X to for semi-annual payments our dividend quarter, that interest and regular aggregate through the for the payment quarterly a debt. the the our all For million

quarterly by Our cash XX.X% year-over-year. by almost from sequentially XX% increased flow operations increased and

$XX.X last for of the quarter year, quarter to the quarter Our was $XX.X for third $XX.X of cash million from million XXXX. for million the and flow operations compared fourth

this from to by from operating the is year, almost business. XX.X% the of leverage our For flow our due full-year, increased million and last cash $XXX operations to

net gross Dave total mentioned, our at was $XXX.X million. including par, our debt As debt was at par lease obligations debt ratios, this million $XXX.X our our year-end is capital at and

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

and receivable. comments on bad some days sales Finally, debt accounts and

increase X.X% revenues expense bad of the the third to last year. debt of from XXXX, Our of was slight revenues X.X% fourth the the for from our our the and about quarter X.X% quarter, a from quarter

was bad X.X% from Our slight increase the that year. that debt we incurred full-year revenues X.X% expense and the was last for a of our

to quarter, receivable our for to accounts was outstanding Our And same still job, and providing and excellent at fantastic members and DSO I sales like number days an the always or worldwide us XX last days. exactly for again, as collections and for from and service. recognize customers our worldwide appreciate collecting and our billing outstanding customer customers thank a team continuing do in would serving

will I call to the that, with turn Now back over Dave.

Dave Schaeffer

Tad. thanks, Hey,

couple a of and Now for comments on the scale network. scope our of

over We Cogent America have directly in XXX feet buildings multi-tenant of North to Network. connected million the office square

XX% to world of intercity these are Network consists connectivity remains that Cogent in Cogent of over our Less of network connect fiber most free portions metro We utilizing the XX,XXX approximately our remaining maintain direct routinely with peers, augmentations utilization and augment as network customers. to network settlement XX,XXX low transit paying those The of Our these miles. width rates. miles XX in the being over the network. X,XXX currently with interconnected We're capacity X,XXX than networks, this the networks. route networks need Cogent to over capacity

of For the for additional quarter increasing to is operating footprint. XXXX, quarterly at growth XXX,XXX centers XX centers XX which capacity. add space, controlled total data XX%. our for of sequential X% XX% are with rays we data XX traffic year-end. square at quarter, In achieved did Cogent of and controlled we We from two Cogent approximately These to traffic feet of a growth operate year-over-year the facilities

is long-term quarter an better on will focus force our rate of to than X.X%. that sales area and continue turnover turnover improvement. we X.X% at with again rep rep the was Our training This in

below productivity quarterly full-time average X.X per per was month. Our long-term sales equivalent units rep per month. X.X% rep is FTE The or units per historical of rate productivity X.X our

ports by and and been allowing the Our rep large traffic location. by larger to significantly sales as of in tenure ports, not we've a aggregate selling the have impacted number lower a customers many impacted rep productivity decline given average in capacity our significantly fact that was

with reps sales XXX that XXXX. with from service. quarter reps the at a XXXX. ended sales We had This We we the increase significant most we've ended had at ever the increase year-end reps our reps, a XXX sales our significant full-time selling the XXX selling service, is sales had we XXX the quarter year-end equivalent from equivalent full-time

unmatched of So value the industry. Internet our services, in access proposition Cogent low the summary, cost remains provider is in transfer

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

XX% currency constant XXX our EBITDA rate of approximately points of growth demonstration model. long-term of of multi-year of basis our expansions are the expectation target a and margin business Our long-term strength

board per convinced share quarterly strength increasing dividend Our this a by the share. $X.XX increase XXth that in regular dividend quarterly our consecutive $X.XX of approved to

Our growth consistent cash capabilities. flow and the in generating confidence dividend increase demonstrates business of its this our

remain will in the quarter’s cash through increasing million XXXX. our remaining of shareholders returning buyback our had a of basis. end, to $XX.X year-end opportunistic common We current committed to At we on stock. repurchase about amounts authorization regular We're

With I'd floor over now to to turn that, questions. like the

Operator

Instructions]. [Operator

Badri Your Credit first Sami question comes Suisse. from from

Sami Badri

something say bigger? here to that much broader as commencement level come that else its next coming well into app we've to maybe you through And perhaps is always network? would Dave now new at been you you. you've that next couple Cogent step app through take question the I a more a could still thank the network. hearing the your is Or about have global high-level beginning could referred just or that that come say big a back you maybe really and been next think the big onto Hi, -- could that your of big apps network, there's take could would

Dave Schaeffer

Internet and XX compounded a to applications. able at the of the new been while of XX% numbers large slowdown and to rate think I years approximately has due So avoid has old, grown law

year, majority products the of becoming higher are minutes Over the viewership past the that Internet. the on services streaming of we've proliferation years, next think over be also streaming over-the-top We resolution. seen direct-to-consumer of video via services. Those is dramatically a increasing will consumed several

very the about grow feel the growth as year-over-year growth Cogent And disproportionally So we provider single rate XX% faster. application this in drive and continue that. for will compounded comfortable Internet our capture fact, at therefore indicates and cost growth to even low that will that

think many are video, video these video, applications another are next of embedded virtual traffic there will different it I And that Finally, augmented think developed, more growth. will provide yet new in I resolutions higher in interactive or leg being have forms reality that that it. is Internet

fact this So long-term transit competition the as And all I seen improve And positive a we And accelerating that the of basis, now NetCentric revenues as we we're return growth. growth to we've currency materially, of a our a period to our on share. then growth. year-over-year a long-term traffic almost reflected think positive on after product, gaining extremely sequential negative basis, is targets. remain on deemphasize growth market in increasingly constant for prognosis

we continue over trends will that very several So next years. confident these feel the

Sami Badri

that sales there. maybe regarding in for the was just mentioned the made going were It's into? just kind do question on could Got productivity And so that comments you introduced into number color. couple history. know is a the I has just lowest of you expand company's reported this you that here? then actually necessarily revenue And And dynamics model can But my that probably the and be just expand this was because that same with some sales dynamic it. what's growth being Just the year-on-year next on force a very may you accelerated, Thank new one that's you hoping not factors. versed I on force rate the of you of of we dynamics productivity. the your time, at to well

Dave Schaeffer

Sami. fair, Yes,

there So on. two going are different things

normal we will increase, XXXX force, hire The declined. kind where the was a hiring, therefore we XX%. was which of and And our entire to hiring XX% to goal of came think revert outsized rep was sales rate it first is back tenure down. across between in average and a the accelerated tenure a therefore X% of Last and year

corporate the has the productivity metric growth larger common But between multi-site being to measure significant customers. within single across the in our sell reason site three is productivity only smaller give divergence the that sell groups customers, driving our sales force. of different the reps more our the unit our revenue actually The unit That reps of ports. it's and that we reps, NetCentric and factor been to sale larger

But our been try second majority, kind of we some corporate what in of uniform up So row, sales happened the our increased and XX% And for quarter. metric. has the GigE ARPUs in with why is the corporate to a interfaces. that actually more come quarter than had sequentially

NetCentric Cogent's on of NetCentric the we've in Secondly, the rapid time side, XXX-gig adoption we're grooming third actually seeing customers. is going with on This seen history interfaces. a that

NetCentric most into in the interfaces. ago, XXXX took Gig migration XX-gig one-Gig consolidated XXXX years interfaces. was through to of interfaces period kind multiple, interfaces customers where There a XX-gig fewer XX So customers

past interfaces. choose XXX-gig to were port on most customers year, NetCentric use the vendors the down brought seeing interfaces, XXX-gig equipment have as we Over the prices

unit more with to but committed higher in base are basis, bandwidth and a generate may fewer on they higher So connections, fact selling rates bandwidth. be usage revenue able

fact by services. So basis their for customers that megabit. fact connection their lower cost recurring charge carrier-neutral connections. in cost may constantly accelerated one looking centers fee cross reduce XXX-gig cross is and per connect delivering XX-gig be And they can they the six are five, data effective can This four, to if groom in or most replacing a connects

we've know got today interfaces. testing in this are to think XXX-gig I ways go I trend. vendors still So equipment

NetCentric our quarters, interfaces -- But available probably we're cost corporate from of effective to that we the years still X-gig a think do proliferation interfaces, away next and customers, with and commercially a customers. with XX several basis. see think will I being several XXX-gig on I for continue

Sami Badri

my it. your adjusted fact clearly necessarily growing. are last clarification. then for clearly is dividend the growth do your has And rate that is isn't necessarily decelerating the from the on scope step-ups at growing, Is allocation $X.XX dividend can in you're maybe something you it's give now. there? quarterly margins actually Thank to an to one question flow higher some increasing that thinking point thing from a Got capital with then that cash how there consider EBITDA for you you just us And the delivering idea to about your expansions, and

Dave Schaeffer

So, discussion that was major probably most board capital of is a had our where allocation discussion yesterday the We important meetings. topic quarterly at a discussion. each meeting that of

at the Just point, the arithmetically $X.XX. we net That -- something our leverage board the increase then gets declined unit and leverage a the as increasing decelerate. base increase of ratios the a at is and is increase of refresh memory, rate are of and $X.XX fact will of mid-point the in net share. of. our penny the were arithmetically leverage below is It To that to very people's absolute They share note gross we larger, the size one quarter and cognizant took target.

something So the under think board of lot course uncertainty But a that quarter made staying to the this due I felt sense. active most macro the the it is is for consideration.

Operator

from from comes Philip JPMorgan. question Cusick next Your

Philip Cusick

again, it NetCentric Thinking thanks. impact we be customer good, concentration? about stabilizing the like is this may bottomed at are seems of least, on Hi,

Dave Schaeffer

necessarily opposed new suffering. among one is But broaden. to that is I moderating. therefore, new though to in or service being a averages, the of a there's power these of with growth now market trying two we're for weighted to less pretty and number a different the of consumers a the that means eyeball rate to effective nominal from one major provider on think growth players some decline rate much seeing historical not than I'm seeing volume dozen compete And monopsony the decline customer. that out half starting spread players continuing is faster we're base the a at line as is lot And Even entrants. because average imply the of a part Phil, see any OTT of so, basis in players. time, think therefore the on we rate I

Philip Cusick

Do next a this you think currency sequential to XX that months? continue adjusted in the basis, grow could on

Dave Schaeffer

be the business. remind each case going exact It usage-based how users visibility appears is don't their to to day a to our end Even be this of into many a investors customers spending. have is minutes

when sales predict, at funnels, And series to a the growth are names we had to and think just sales NetCentric growth. We NetCentric tremendous that encouraging different household going consumer revenue. been direct-to-consumer they'll they our there's continue. think ensure see providers. I But XXX again, can't we basis had But signs successful. outlined providers, that the to various will or products roughly know uptick. that's a drive more very reps, we that look We traffic of by appear going model customer-by-customer have some port be we're on in all the a linear that have now reaction different

going not control. answer in to your just is it So but a that's our sequential we're long to think question, improvement, something totally we see

Philip Cusick

following-up larger even should then the the sequential given the And on growth in pressure quarter? first or maybe that expect we Okay. large reps, sales force, margins on in again as

Dave Schaeffer

The So pickup first first had. quarter. that a the basis have quarter expenses year-over-year the small this audit seasonal the million SG&A to in quarter, you a the extraordinary will meaningful, and employee, bulk taxes. We enumerated. we expect Cogent when similar at on $X.X number, like reset about in will company looking reasons kind resets, employer pacing social the like at falls to our and margin That benefits Tad EBITDA expense. on increased we expense sound a to spent quarter for due on our but margins not SG&A in sales payroll Gross of but kickoff continue basis, may that's a of a improve our pressure on the have meeting.

a have of those a margin. drag on bit All of

compared will when QX, margins, of expect QX the of So in we QX have XXXX should step-down we a QX EBITDA doing better. to but year, as be versus you XXXX every

Philip Cusick

bigger But typical than step seasonal down? no

Dave Schaeffer

Phil. correct, is That

Operator

Colby Your next from question Cowen. from Synesael comes

Colby Synesael

Great, thank you.

as when considered you on signing, or basis we and Just response curious that that. at plus Can traffic the the plus for OTT tied here plus contract perhaps we driven last works And the just did that? look the the first-off you're us how get Sami's are objective about or be a year to goal it pricing XX% a XXXX, then the that we being now, dividend few down XXX of think points, significant these a XX%, a the Thank in EBITDA you for from or you an I margin OTT if correctly remind then year-to-year? Should structure longer-term gets quarter back saw deals XX%, question have there to just on have maybe example. longer-term goal in board growth dividend, that some by you. be guide? trying negotiations? step a how these to thinking month-to-month could these above fourth And makes to sense you the hear question Second, maybe anticipate sense revenue to have it

Dave Schaeffer

all for the thanks Colby Sure, questions.

question capital start return me dividend the the of question. Let and with

flexibility accelerating our realized that an evaluating cognizant would for We the of which our asset us and to put markets, additional to are sheet capital. is balance We work of holders, in return give constantly we our that very leverage. debt need underlevered equity we're

in in we of somewhat targets return, fully are of dividend time. optimal adjusting publicly Secondly, the buyback the fall agnostic amount buybacks a to the efficiency the as relative capital. be not commented below the at that returning We rate as or acknowledge will of looking in rate given of point at mechanism we leverage versus either the the increase our and without we dividend, past, have

to not a think probably I target in rate kind dividend of of growth specific is optimal.

I step the want the and to and Again, toolbox. problems think up level step to dividend arithmetically have the a was acknowledge the our of each the pace with. vigorous every that as of But continue the flexibility of our tools we to and both below we companies of are in compared and board the in for were growth, compared fall or maintain of good pace these to Sami's using many board meetings, or will focus we at either there debate targets. be will that buybacks to often that have I question, board said response primary our will up

Now OTT with long-term growth, regard trend Cogent accelerating. provider the recipients access -- believe every the a with and of relationships major that OTT over-the-top traffic are we of secular that almost is this there to traffic. majority networks well globally of vast is that has

X,XXX over footprint expect due centers. continue that carrier-neutral our and countries to XX We data to ubiquitous in

We also us our market. disproportionate of a to allows that share capture think pricing the

we're dependent said, traffic achieve on but usage to the installed going that also we And is around coming and successful for that been us broaden of XX% launches it's we we'll of trends We to be tell We think U.S. But had circulate whether we over highly how is growth. months. various high-profile is think going can get the you to very the product successful of the off that With almost past understand any growth. is, launches the to have that world. is these a couple majority Cogent are. There's see few that can think capacity to the we that's and than traffic better a port OTT impossible definitely in we will base particular say market continues what successful. larger then All to grow. the continue customers going

the a components, have typically contract is the actually contract. three common to terms three-year Finally, terms, most a those duration,

The ports fixed commitment those commitment base then, ports. at charged the commitment. a is of And on certain fixed finally, premium component to a typically a usage a and there's that is second number meaning a

increase is come happens back customers commonly their to increase commit, Cogent number turn in the ports, and their price per megabit. What of reduce

We volume. that extra contracts we think repricings, almost revenue. there material In fact, the connections built aggregate those, do million results. referred revenue happen based But basis. Cogent of impact anticipate our scheduled, will Tad will in none be are total enough contract of any ordinary NetCentric is price and of none have there reductions earlier that to are increased to on routine commitment that $XX was exclusively X,XXX the that on to and a That not

Operator

Walter Piecyk LightShed. from comes question next Your from

Walter Piecyk

Hey Dave, it how going? is

Dave Schaeffer

Good, Walt.

Walter Piecyk

annual it our Is looks nine mass, first When for I the think that on to year-over-year sound, like like about is quarters. NetCentric, talk growth you've I returned growth? this right, time

Dave Schaeffer

That is correct, correct, Walt. yes that is

Walter Piecyk

years, whatever flow number us. you sequentials more look and in And of the if then sequential, bit don't a I know, little interesting to an back there seems the X to like, goes are back however model be obviously ebb like

you us wrap negative you're whether if four, on And you're and curious sense geographic X.X% of years, color, just process couple sequential, of thinking of drove think, of sustainability. customer look quarters, drove you're you seven forward? again, give NetCentric five And this color, or like quarters back kind also, I I'm a six sequential yes, as of up thoughts in of bit if So or like but what little over around those kind it's this down then quarters, of anything. of just what can one type what couple thought what more part had comments again, it's we a going quarter,

Dave Schaeffer

more traffic Yes, X,XXX driver in driven in also customers those we win video. whose six we high ways. OTT key But world launches on profile were that think for for the the carrying We remains players. acceleration so those couple around material two months of because of OTT networks the win past a NetCentric. win content have from download that by NetCentric very And revenues I players. the access There

point. us few price of of at broadening on and a the OTT general, things, has allowed it's accelerated done as not be the in to names the think dependent universe OTT I players very and So therefore lowest it's two

their where inflection instances seen several business, the customers then starts quarters and point in We've rate hit mature. benefit multiple in a for past we to their of growth

revenues, are dependent, very predict short-term. over NetCentric the to So the hard highly which are usage

predict. you the bigger back important to step Over for pretty the that the easy and look it's long-term, at to think actually to refer And investors I are cycles trends.

Also on business a the of corporate connections side, which tends more there much of we to be linear granular growth. this progression see very small

Walter Piecyk

sequential corporate very point, kind inflection right? this are I point, cutters And the we're is some possible this it three word you still kind But one, mean is you that So, guess these, going in all is cord of Yes. quarters, NetCentric can argue of think of on predictable. that quarters -- could growth forward? obviously I three situation? to sustain you on have just going Do type of

Dave Schaeffer

No, hard it is too to predict, Walt. really

in though period now think, We quarter, market. positive Will if faster better think nine pointed a after confident of the grow had grows, will have quarters, that, market -- we it permanent? performance. a don't early and we're that I is into you poor have what be we just out for we very I the be can -- than

share. And growth a at we fact comes point. capture the will that We from disproportionate disproportionate price price a that lower

Walter Piecyk

weeks? any using mean, in Got of I there is not traffic on mean, is couple have One terms are of these Dave. I in the and going any traffic? affected last this, question, are this in based past increase looking selloff any stimulate on people market areas the the shelter have it. of in seen could more -- any, learnings coronavirus, there any that people outside you if for been given that usage that something Internet

Dave Schaeffer

to are a Obviously, things to up the do hardest says been to that and they're that low video is China's OTT if people cost logic time. obviously, for hit. So virtually staying and looking fill home, unlimited way

the sanction the out they, main country. kind the of goes to the in Chinese of We what and China. major networks are throttles in state government three But provider

contagion how see So and those traffic wish. a the to spreads, us determine it as will to hard has that, growth providers coronavirus. exactly is we been directly some we from from the think related of -- do I traffic little for three benefit much coronavirus fear of

Walter Piecyk

Spain the you seen haven't couple Spain in example as the days? haven't seen as anything in last in Dave an of anything you -- couple But in but another example, past

Dave Schaeffer

pickup slight just I've not again, seen have it past single data. We've But traffic attribute going past three pickups the days I'm weekend. enough don't cause, and to just I a in over in to seen I take and the predictive

Operator

Your question Louthan Frank next from Raymond comes James. from

Frank Louthan

of more I strategic one. and Great, question thank one would practical you, a got

Are let of strategic do do and drive selling some as should to of a equipment corporate remainder as well consistent side, cash kind I it's asset a you, it's the NetCentric of peak, perhaps On then should with you've from percentage down more about how given And standpoint? we and secondly, adjust and where that addressed the do that how business much you that from And self-provisioning the But of NetCentric used it's side, that from done the forward, on picked corporate going up XXXX? dusting-off bit. to your things the be. kind and revenue from impacting of flow other it back XX% to revenue focused -- the trend, become is and your strategy just going think the and sales pretty what strategic to of much contributing how to growth apologize about supply the the the for business you and a how in room about that then remarks. think if we how a

Dave Schaeffer

very different Okay, questions. two so

where in go applications, a other corporate skewing, we SD-WAN OTT Let's biggest kind NetCentric. the with is of heavily is adoption and demand by start of corporate and other is natural and driven the words, versus being the cloud, VPNs. There demand SAS,

We of are both sales parts growing organization. our

to ebbed always of as has continue and focus We part business. NetCentric and resources. committed flowed that remain to market sales our

The NetCentric our market our marketing growth NetCentric customers been customers a network NetCentric Cogent In it more for one, and fact has number market the are as known. earlier, the customers do. corporate where more the of more just growing benefit there's and Cogent of addressable from on honestly in a importantly, out from on gaining Both well to share. corporate. market quite is pointed it fairly More because create for is headcount we corporate where And us effect side was basis. is sequential

support with more second us. We are now need do and in often us, help prospects they all of virtually the largest the still provider sales know to them world, times

to contributors be can free flow of think We going cash meaningful businesses these forward. both

an telesales corporate not both for product. begins This NetCentric. always effort outbound self-provision process a Our with and is

impacting our So in I don't growth business. materially see that either

asset Finally, let I of question on sales, touch to will that. your Tad

Tad Weed

sure. Yes,

we of had first we quarter an through back, So not more look if amount looking $XXX,XXX. have sale XXXX, than back the I'm asset

the been was really So $XXX,XXX of have beginning that XXXX, quarter of since largest the de-minimis one quarter really the XXXX. first in the amount since amounts in

the but future have really not -- currently not late as been of could in material. change that it material they been they've So but they've

Dave Schaeffer

the to dependent Cogent. markets we really Right, for view that on need obsolete I it's mean is the equipment

We actually core that finally, or that booked not inventories but but and revenue business, they're And in it revenue reflected revenue. EBITDA book is received we the because buyers, is service equipment have we don't and of revenue not is as we cash not. that is Cogent's they're it as sometimes sometimes huge that report but cash gain

Operator

Your from comes Del next question from Nick Deo MoffettNathanson.

Nick Del Deo

it was at question. was network of Hey, your over XXXX ask a what total thanks talking what revenue, I'll a other much in should be of percent I'm expect dollars, function that your are item? one operations just decline the the XXXX full-year a for going how despite we FX, look of forward network should time, and if the aware expense of percent not little we for the because I full-year and expansion ex-USF, drivers line versus given down that

Dave Schaeffer

to therefore outside of lower impact has expense. the expense therefore a would U.S. of XX% a strengthened, So and the FX to XX% that basis the that of third roughly would on the reported extent be resides network the dollar

for circuit. cable substantial And for big discounts large buildings because competition network not been off-net aggressive in all of and part have wholesale the point-to-point area loop the services North and cost of brought between the of to on-net. second negotiate with providers actually we The able Telco providing America, expense is we have that major

million buildings about America. X.X in have North So we

we've But price buy the vendors. X%. of in loop is reality comparable different XX decline the have our average an a material We about loop per and seen for

that roughly occurred decline because part margin XX% why in down is and come prices the those So has on have loop we're of ARPU at service. a big off-net a

is offset in on-net partially connections. that's which by Now the same that seeing we're towards a move larger corporate, trend

we were Most trend supporting Ethernet our those the expect to off-net only we seeing eventually for sub standard. XXX-Meg services. gigs to but we're sales So still on-net are on become will in a XXX-Meg of off-net more assemblage. like special bleed based a and we Today, do over long-time,

Finally, those made we've subsea renting pressure concluded be on there that seen cables more to that market. a And cables owning constructed. number of put new we versus And sense. long-ago

capacity. some effective own did fact, cables earlier today we various abandon In Cogent leaser remain a its of that in history and through acquisitions

Operator

Your Breen question from William comes next James from Blair.

James Breen

you're in Thanks. is Thanks the market, VPN for progressing guys you you about impact how that market the and taking talk going of just the sort SD-WAN the seeing and question. there moved I forward. Can bit know in little more

Dave Schaeffer

sure, Thanks Yes, for questions. Jim.

the to of have it current a to go sell throughput XX% investors VPN SD-WAN About of a of ports purposes. our begin into have choose sold the they discussion. of premise for the around are But VPLS ports large of customers remind for corporate understand rates. of MPLS limitations customer typically SD-WAN sales; we when becomes customers SD-WAN. number state higher critical We the sales continue and Most VPLS actually conversation are turned internet corporate get access. see to sales equipment, just part So to roughly sales dedicated XX% for

we're Now seeing equipment. improvements in

are broader that the year customers a fed either of is aggregate reality XX% will two. we'll has increasingly the the product. with key is, MPLS SD-WAN. switch Today, CPE the or they'll that to VPLS. switch and equipment it of already from hype But the of over see deployment declined peak. to think we And to willing are and most about MPLS market its takeaway next true think And I I catch-up think in up

Operator

question comes from next Your from Citi. Michael Rollins

Michael Rollins

Hi, good morning.

I follow-ups if two Just could.

the per could should changes that that Is that future? that there the rebalancing rate pricing to actually XX The is bit of the we how contract as then, periodically? in of of terms XX USF Thanks. And decrease revenue XX metrics mind the in Is of on going government be expectation that always over months? at keeping rates impact an disclosed average price is just in just next the the helped to those flow first look in have revenues kind a the those secondly some you line? terms on little something new of as the does Meg, that we

Dave Schaeffer

to pricing Okay. take let take the I'm USF the push. Tad I'll going and

Tad Weed

quarter it Well, is the tax directed first rate is has to foreign to of entirely control. it the rate the is is decrease And scheduled Yes. decrease in I of recently it the guess and government. outside however each similar our going exchange; increased, to quarter. USF, it by

first the same rate for But our So There quarter, outside example, fourth of There has quarter had scheduled the it's been third the about $X control. amount kind $X.X the the the of about million. the for out $X XXXX. our recently and million to second for quarter. of it's It's increased. quarter for because literally rate the for was of about decrease million, that's established was by governments control it's

Dave Schaeffer

Yes and maybe that just works. a little background of how

revenue margin, are basis, impacts to Cat the engineers to that Big but a E-Rat pass or on We base gross is new it services then they a subject through actually of negatively that wants of applicable X So reverse VPN services to money raise programs. distribute government amount USF. target and how to target rate And through adjusted much wanted sets Tap then project our or quarterly. a amount it going The quarterly shrinking, we government us over help tries is go is this on up revenues as up, in deployment needed predict. to because going rural would the areas. but broadband inclusive suspect reported is to probably accelerate time a and to rate the really that for it the does really aggregate it's base money I fee. impossible of as USF basis, obviously of In

flow look really to of their a discounting. this NetCentric to optimize is spend; consistently Customers Now through the phenomena.

phenomena the since they're they period. customer it's later number and outsized We've longer into will at time for their materially come hasn't a larger their that signs contract. point three-year and in partially and or during This growth earlier, it's back very it contract mentioned do, term, commitment for a As period it usually a for in the I But another And renegotiate. reported typical changed. years that consistently when consistent the has past re-extend because been of XX they'll more. business

I of historical sales the pretty in the is So trends. much new with rate think decline line in quarter this

base a those declining new little ago, was base point renegotiate rapidly two faster. less average, installed were than when less The if more the these and declined based But contracts. go little customers new a parameters declining almost historic actually you were I just three declined some rapidly two inverted There's to sales back completely oscillation or on where sales rapidly. the quarters

Michael Rollins

there of much year-over-year like like calendar help you would first the And sequentially is expectation terms amount the commentary impact change or that in the about coming do some quarter? USF the factor in for quarter, in of that revenue FX

Dave Schaeffer

the new FCCs the every USAC; visibility Well, changes first after contract establishes which of we have quarter. rate, all, only

So it's annual we projection not would And our be be it'll just where not on but is meaningful. of material I the this down mean, to this; part. from a meaningless sit little bit, number. materiality think a I quarter

Tad Weed

a based only But a that part as only it's been U.S. just and applicable to services upon it's reminder, our it's so. And again based tax, – U.S. of based

Michael Rollins

be I talking. might mean you

Tad Weed

all. of don't all first -- first of I know know I don't

Dave Schaeffer

it's A dollars of not maybe, number. a hundred I just thousand couple mean meaningful

Tad Weed

rate, to frankly but surprised USF guess it's recently I What do wasn't just surprised when I their is increased, decreased. was I -- with the FCC going it it when

-- it's So

Michael Rollins

you. Thank

Dave Schaeffer

it's many. Yes, not -- not many just

Operator

from question next Your Tim comes Oppenheimer. from Horan

Tim Horan

your just sales you're in can about I maybe NetCentric trending of think at? side, you Can share And did. Do they're adding lot terms hurting market market on you you think with a think how segments. about growth Thanks. at And that's think just CDNs it Thanks. and you delivering lot the kind you a talk obviously. share traffic on a both more of sides specifically your seemed the than I'm share you than you Dave, gain like you of both all where in ton assuming it? or market are people, there you the and in what faster grew guess score market

Dave Schaeffer

NetCentric. the I So, of slightly we're on people NetCentric. say to sales corporate would and adding is increase both corporate the than greater that rate side

customers we and per side, So of XX per buildings in and connections customers connections of sold per And the start sold building. about on we're building unique with we've to building. number corporate the the number we've XX.X

We're So were out roughly XX penetrated. potential adding new XX% customers of buildings.

on-net corporate market relationship, share. less In we of that also we But the off-net are an market, high. than X% have cost prohibitively sales know the without

overbuilding to So off-net switch in new and customers rate we from more after than desire per just to of SaaS, corporate have and why on-net they so penetration technologies become that's have depend almost footprint to our remaining no real right even improve And us as to not go Cogent increasingly, XX only the deploy building customers. like bought cloud years. our for continues who linearly,

we that grow. to feel we So runway long have a

can our NetCentric measured market ways. side, share be On three the

XX.X center. roughly connections We have data per

share of of the about selling metrics, spent and have bits And the have Secondly, customers bigger transit XX% per share importantly, of all three we a bigger dollar getting those traffic, we of share more XX.X% of on revenue. We're services. under generated. center, most gaining a about data

to or bandwidth the major We point every companies build service CDNs directly CDNs, who selling. their own are third-party customer. CDN Cogent incorporate either To they that your sell into is to our CDNs bandwidth about a then

base not a are Cogent. and of CDNs a competitors So for rather ecosystem our but portion customer

Tim Horan

penetration on XX ultimately the CDNs know, to? accelerated three this helpful. more did get years, like it can Any from faster or of four think we clearly did response, do now, can it color And to that mean, they over bit bit in some your like a update the grow very I and the just seems fast them. maybe for you seems revenues grow where kind there, maybe buildings quarter? you talking you That's give

Dave Schaeffer

those growth that some came in Yes Cogent's from think CDNs. I revenue of and same acceleration

we it of Some bundled came disproportionate of win revenue CDNs a them. to share space, think a storage, customers. incorporate processing, will directly power, continue and as And end-user from product. from bandwidth We

of the rate of think of In NetCentric market, can third terms eventually to the to a decline other that historical the get deemphasize price as transit, a number to on of side due penetration, we players particularly commoditization. and continue the we about

Internet a of is greatly and have compounded, and been annum secondly, And I the declined against in grow revenues has our things. where flow company, and think over -- not to our going away. that's two exaggerated as grow depth then even world importantly proven Cogent our XX prices a XX% years public as that. most the demonstrated per to One, And we ability continue has cash

and penetration feel market to is only going increase. we comfortable So very committed our the to we're that transmit

Operator

question next comes from Lee from Bora Your RBC.

Bora Lee

more a about Gig connections? between the And taken swapping of the secondly, connections? the commonly XX% give Gig So of sales mix you corporate corporate differential following up and comment most then sales existing interfaces, pricing can bandwidth of than on to your sense being new versus ports lower what's out of bandwidth lower

Dave Schaeffer

Bora. sure Yes,

GigE quarter than connection. interface that a existing XX% brand connections, eventually So those first FastE taking the And We to to a capable will do upgrades premium of say a of think have disappear. and is ports. FastE them connection Today, are of at the all, a we sell of do that. migrating of are that of many a majority is We would swap GigE as sales interface. in customers outs, where that incremental customer new want willing XX% about to sales differential some less equipment GigE corporate from I

think all we take that. future, accept CPA of not interfaces, at Gig And standard the the product product when today, ubiquitously able becomes can point customers will in become Gig to customers some Cogent's

ARPU we'll than connection increase. see the So the decline seeing rather just corporate on side, size

fact, our large utilization this of about to has GigE part proliferation In because connection average XX% fallen in corporate XX% of interface. a from of

an us need to kind media connection fiber do And which in than to reason for put then copper cheaper suite sell is, to a to the connection. is customer one Cogent the we FE step final the not actually the point, it it's converter is gig unique a to a a of down and

copper. the So a that Gig to it our is That's convert gig, customer that in to CPA if customer still a if delivered Cogent all and optical charged Meg piece takes and are from to But Megs XXX cost to of the about fiber. via a down step customer to of $XXX running have that's disappears. connection XXX the our suite typically connections customer a from NRC connection, we $XXX install

want to the fact same sell it's a kind of So that weird more pattern for price. we actually

Operator

further are questions at this time. There no

Dave Schaeffer

and We're Bye-bye. a for everyone with to Thanks. of attention thank seeing their very our Well, I like conferences. care look results. upcoming would and to at Take soon. support. number investors forward pleased talk I

Operator

today's a concludes Ladies have you day. participation and your gentlemen, and wonderful Thank this for conference.

You may now disconnect.

Cogent Communications (CCOI) 27 Feb 202019 Q4 Earnings call transcript