CCOI - Earnings call transcript Q1 2020 | Cogent Communications Holdings, Inc.

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Operator

Good morning, and welcome to the Cogent Communications Holdings First Quarter 2020 Earnings Conference Call.

As a reminder, this conference call is being recorded. 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. ahead. go Please

Dave Schaeffer

call thank quarter and Cogent’s much. to this Welcome Executive Chief our Good Officer. Financial earnings you conference first morning’s on me XXXX And Schaeffer, Jean-Michel call. our Slagmuylder, Officer. Acting morning, with very is I’m Chief Dave

COVID-XX are our even outlook our the the uncertainty for and beyond, results We the quarter be impact to of and continue pleased our the in business with with and optimistic underlying for and pandemic. strength of XXXX

Our an gross company points. high by quarterly reached margin record by basis of the sequentially increased XX XX.X%. XX increase It basis points, year-over-year

revenue Our EBITDA year-over-year, quarterly of growth the XX.X%. reduced from XXXX taxes X.X%. of margin points revenue to by in quarter reduction this X.X%. excise the our sequential for $XXX,XXX. On fee a XX revenue basis, Universal approximately growth basis quarter for currency Service of increased And first constant A quarter achieved we

and for On a been a basis. constant impact would sequential growth quarterly X% currency of adjusting on have basis the our revenue USF, a and reduction

was for traffic quarter growth over XXXX fourth achieved the first XX% growth year-over-year the quarter the we quarter, of XX%. of sequential Our traffic and for

Board regular We available in million our $XX.X our the we authorized we million $XX.X the end, continue has quarter, our had to XXXX. stock During returned quarter. stock did any during program shareholders quarterly through common to through purchase our dividend. not At which December quarter buyback

to X.XX. in our leverage X.XX the and from leverage from net ratio from decreased slightly increased last Our quarter the X.XX to gross ratio quarter X.XX

$XXX,XXX,XXX $XX.X Cash $XXX,XXX,XXX, quarter unrestricted available at end. our company held Cogent for total was Holdings dividends at was was million. cash This is buybacks. held and our cash level Our at operating combined and/or and at quarter cash end

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

that dividend per our we share of – announced represents increase from sequentially our regular $X.XX $X.XX have in per increasing $X.XX in as yet share our in per quarter quarter press our from per quarter This sequential a per in As quarter to quarterly XXst indicated increase consecutive dividend. the sequential another $X.XX dividend, share first the result, in fourth release, we XXXX.

like world. and some the by workforce, work-remote workforce impacted pandemic uncertainty which moment its continues just entire pandemic through to and companies, of been take global I’d has Beginning to effects Cogent COVID-XX. mid-March, Now, the a on a Like in transitioned responses around of the touch the related today. to and governments accompanying Cogent many worldwide COVID-XX

while transition. our disruption, the to This particular, accomplished to was thank field network we helped little so also they equip for transition, difficult, with who work and out In a and I’d workforce compliment maintaining frontline continue Cogent workers effectively. can stepped like group customers. personally supporters seamless serve up and IT like to thank engineers our upgrading remote are our our as to I’d customers, are entire and installing continue and

weeks two the to of limited. new revenue last positive install corporate in NetCentric quarter saw impact impact XXXX, a our was of but pandemic In March, customers. downtick of first fairly the COVID-XX the ability our slight we in During a growth,

traffic on two saw increase also We a during weeks, material these in our network.

uncertainty ultimate as and time, on the significant remains. at pandemic a However, of this impact unknown is Cogent the volatility of amount

that work run, no and protect moved to we the status, While sufficient assurance will employees. over this have our key remote a Cogent to has workforce long be

existing orders, may difficult in for be new distress are financial customers locations accessing install difficulty the operations operations. customers equipment buildings could to field of find governmental difficulties new see who have assessing, downturn and procuring may to result pandemic it and/or perform and restrictions future of associated encounter adversely a customer customers as experiencing impacted its and trajectory Moreover, or we and the our to as shipping and repairs continue, from a in to collect

year-end operational trends, statistics. outlined that may additional the these details will Jean-Michel that XX, on are impact These our I could will and are impact several other greater operational Lastly, provide we’ll prolonged effects and the financial today’s will the supplement as quarter XXXX. certain shortly Throughout December detail risks review will described be businesses. our and the business this economic filed global highlight highlights our as well in and of XX-K risks pandemic discussion, in in after have more this for filed in some XX-Q our call, performance. for detail

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

I’d read language. to our Jean-Michel Now like to Harbor Safe ask

Jean-Michel Slagmuylder

are everyone. morning, forward-looking risks forward-looking and good number subject that results and These Dave, made historical may uncertainties, you, our statements. earnings belief This includes not differ facts and and conference intent, of upon statements a call that expectations. statements may current call materially. are are this Thank to and be based all statements actual forward-looking the on These

release, – actual or on could our call, forward-looking measurement Cogent website refer in SEC posted will factors we use If during statements. results revise reconciled on more GAAP financial information our is our to the at Please you undertakes obligation www.cogentco.com. measures which filings our no non-GAAP differ. cause to the the these this for earnings find that to to reconciled update

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

Dave Schaeffer

had chance release. Hey, thank to our press a you, Jean-Michel. earnings review Hopefully, we’ve

number includes historical quarterly release Our metrics. press a of

our represents XX% of revenues. Our corporate business total

from of the corporate business X.X% grew XXXX. first Our quarter

quarter which NetCentric to the XXXX. flat underperformed was Our and has business, historical compared first averages to compared of

sequentially the X% for business corporate quarter – grew did X.X%. Our

and rate future basis. is and we sequential corporate in business, quarterly a our negatively tax rates cannot change The impacted year-over-year USAC. on by predict change rate both USF set The

of increased constant NetCentric and the our X.X% by improved a impacts foreign and XXXX Our On NetCentric fourth performance business volatility from quarter revenue basis, exchange from X.X% XXXX. previous first primarily the quarter from quarters of our increased X%. business. currency The NetCentric grew of

be guidance XXX to points improvement expansion year. about basis EBITDA remains expected an annual per of Our long-term margin

Our objectives are XX% long-term multiyear constant currency, year. growth per

intended are not be Our intended multiyear guidance. guidance EBITDA and quarterly to revenue be and goals specific are to

Now I’d like details financial quarter. some additional to Jean-Michel for cover the

Jean-Michel Slagmuylder

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

of efforts customers like and based team customers congratulate work First on-net, we off-net thank another and I our classified Cogent. their of during our network their two revenues revenues Cogent customers. and to We continued the the hard and our for productive all, upon also would types, analyze results analyze quarter We corporate type, non-core based customer all also type. upon into NetCentric and for

X.X%. in bandwidth bandwidth by customers data from carrier-neutral grew buy multi-tenant customers €XX of us centers. from in buildings. Revenue corporate large the office quarter to X.X% large us from grew year-over-year NetCentric amounts for our Our and customers Corporate buy million by sequentially

will XX. network NetCentric corporate end, light do of patterns on to We We was on our the Retail increased million our XX,XXX XXXX. of X.X% customer from future sequentially be flat revenue quarter – increase corporate and because by quarter there impact an at X% first our had of annual in business for lower COVID over the of $XX year-over-year. USF and believe customer a customer buying corporate rate connections

customer year-over-year an X.X%. by customer the on see resulting in We the sequentially two traffic saw in currency basis, to and so at from elevated We growth revenue of net-centric this last are our levels NetCentric a traffic continuing On increased by the quarter uptick revenue of of a far quarter, X.X% of first our X.X% increased connections XX,XXX quarter. over significant quarterly growth and quarter increase had in our constant network end, weeks XXXX.

larger revenue NetCentric to experienced foreign seasonal exchange, growth Our volatility factors. due significantly our than certain corporate more size customer revenues and impact of the

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

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

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

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

and on-net our XX.X% megabit words average our ARPU by customer average price base to off-net about of installed – of for Consistent ARPU respect declined for the X.X% XX.X% trends, quarter. per In quarter for quarter sequentially on declined pricing. and price our ARPU our decreased of Some our average by the from new XX% new ARPU sequentially or by per contracts and installed sorry, $X.XX historical The megabit the quarter from per to The was the – by our the contract price decreased. of quarter declined declined XXXX. base the $X.XX with and megabit customer XXXX. first first flat to

was customers, last NetCentric both same Our quarter. on-net the and which ARPU, quarter, includes for the as corporate $XXX

X.X% – is comprised ARPU, customer, the for quarter. corporate was decrease customer off-net $X,XXX Our of last the from which quarter. predominantly of A

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

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

quarter, offered Our corporate related increase from quarter. was last customers. our this NetCentric X.X% off-net and discounts all term for contract a slight rate unit the churn We X.X% to to of

commitment our customer. NetCentric volume discounts to We also offer

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

our of tax each amount gains and plan and timing of level in our sales that cost services; of as payroll annual the beginning quarterly our of from living taxes the our our tax our flow factors costs Seasonal audit benefit adjusted, adjusted amount impact of our of include: the and resetting seasonal expenses year; States typically at operation all annual release. increase. earnings The timing audit our our meeting or cash EBITDA reconciled increase; our period; cost of respect in United Now annual as EBITDA on are and and to CPI EBITDA and the SG&A our transaction; EBITDA of – equipment in press vacations

our sequential $XX.X sequentially increase from typically to factors fourth of our our increase a in in million; G&A EBITDA by result – SG&A SG&A and seasonal our decreased million. The in first quarter fourthly, $X.X expenses quarter X.X%

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

quarterly to Our decreased an increase XX.X%, margin sequentially XX basis EBITDA points XXX by by basis points. year-over-year

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

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

by or increase decreased an as X.X% million by by X.X%. $X.X sequentially quarterly Our adjusted, million, or year-over-year EBITDA ��X.X $X.X to million by

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

issued Our and share for XXXX. basic this income million U.S. using for and hand euro $X.X was dollar one share notes to and QX exchange $X.XX quarter was $X.XX June gain – to quarter, and XXXX that per are our dollar our by we foreign diluted Or compared quarter share. that U.S. $X.XX each basic Realized increasing per in income quarter last million notes at in Euro €XX reported this rate. $X.XX converted the diluted per exchange on was the

our unrealized last foreign in decreasing notes and XXXX. QX exchange $X $X.XX our QX on The Euro million diluted loss was quarter per share XXXX, by income per share basic for

currency Some words about foreign our impact.

Our were based about in approximately revenue and United States XX% Latin Mexican, in dollar and revenue our to revenues. quarterly of revenue our Pacific total Approximately American U.S. Europe earned XX% Asia and operation. reported of outside quarter of is our X% our were was related Canadian, the this

exchange and financial revenue rates quarterly result currency impact can foreign in volatility results. our materially overall our Continued

our a And on a was reported on negative exchange $XXX,XXX. was revenue US$XXX,XXX. exchange reported impact our quarterly impact revenue quarterly the sequential negative year-over-year foreign Foreign

Our constant growth was year-over-year. a and on quarterly X.X% revenue sequentially currency basis X.X% rate

exchange our of quarter XXXX, current be Canadian million. primarily US$XXX,XXX, The U.S. on the for for a US$X that average The of quarterly our for so on sequential this remain be revenues. rate quarter foreign of a quarterly foreign dollar year-over-year foreign remainder rate revenue exchange estimate and at impacts is current is the exchange variability average levels $X.XX. the our negative revenues our we dollar will and and far impact of the $X.XX Should negative customers of average quarter these to foreign the exchange would NetCentric exchange euro second average impact conversion rates conversion

for that we is and increased decreased our to and this revenue concentration, XX capital X.X% customers factors year-over-year. quarterly believe our seasonal our base customer XX% due less by highly sequentially capital Adding revenues – represented than quarter. our by to expenditure, concentrated. Adding capital expenditures not our X% Up customer of

QX, Our this $X.X capital $XX.X million for XXXX. to expenditure for QX compared million quarter were $XX.X million

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

IRU contracts lease XXX lease a obligation total At March suppliers. capital quarter dark different totaled fiber we with at IRU XX, Our fiber of XXXX. end, $XXX.X had million

our an capital XXX.X% agreements IRU principal payments XXX% lease under Again, quarterly increased Our sequentially. increase factors, to fiber by dark seasonal due by year-over-year.

payments Our and $X.X to for the $X.X quarter were QX for capital $X million for compared million QX principal million XXXX. XXXX

our Our capital the expenditure compared quarter to last €XX.X with combined million capital payments, of principal quarter were XXXX. lease million quarter first $XX $XX for and million this

XX, million. totaled March of As €XXX.X XXXX, cash cash equivalents and our

quarter, cash the all by capital was $XX on semiannual stakeholders our our We on that and million For returned million. spent decreased this payment payment debt. million regular quarter our million €XX.X of $XX.X to quarterly to $XX.X dividend of interest

maintenance in increase which in and made and by flow interest cash increase payments our are prepaid annual from payments, first other expenses in quarterly Our operation decreased from sequentially an to quarter. typically due XX.X% an

decreased flow the and to our quarter quarterly the from operations X.X% quarter $XX.X of for from cash fourth million Our $XX.X for the compared for first flow XXXX of $XX.X year-over-year, was million by cash XXXX. quarter million operation

million Regarding March our our $XXX.X debt net XX, our our debt XXXX ratio, was IRU debt $XXX.X at at million. par, gross capital was including debt total lease obligation and and

to – ratio our debt was adjusted, XX and last debt as EBITDA, March XXXX, was March in XX, trailing months total Our X.XX. X.XX net at

bad XXXX. debt for X.X% expenses X.X% debt DSO, the our our XXXX quarter for X.X% of Regarding compared of of quarter and and to revenue bad in the QX revenue first was

a DSO days one the increase for were days XX accounts for Our receivable XX from quarter, day quarter. sales day last or outstanding worldwide

collecting fantastic notice during our opportunity member again to serving of and are collections the X billing team generally rates, delays weeks line in continuing our in corporate some and customer the to for in from recognize with a did While our customer. I challenging customer we from quarter last collection to these historical worldwide do the and thank take job want times.

back the call I over to would Dave. now turn

Dave Schaeffer

Jean-Michel. Hey, thanks lot, a

a on office the of feet network. scope square had At the of for scale Now network. over our couple and million Cogent to we of quarter end, words connected XXX multi-tenant buildings

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

Cogent networks that connect customers. we are remaining The to

capacity our utilizing We rates. see lit to are we XX% We in our on network the utilization network. of approximately parts currently traffic increases as of maintain in capacity low routinely augment these

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

We are feet operate XX centers over XXX,XXX those Cogent-controlled data approximately of space at and operating capacity. with facilities XX%

of turnover in was the long-term month, force, was per significantly our X.X% sales of than sales Our X.X%. force rate a better quarter average turnover in that our

sales Our quarter. productivity improved force in the

units per X.X quarterly equivalent Our per rep sales full-time was productivity month. installed

While units our this was below X.X of last average it quarter. productivity rate the remains from X.X%, substantial per long-term equivalent rep reported improvement full-time a

our quarter as ports. the that tenure in by decline ended rep quota-bearing larger with the as rep productivity typically reps. NetCentric We reps fact are our impacted selling the are Our sales XXX rates well

was with end This gone full-time reps, we full-time from year-end ramp reps through period. at from and a XXXX. of XXXX. increase of we And reps six ended that XXX however, training year a have XXX equivalent the had And the these equivalent substantial is this are decrease quarter, their

and to times are reps difficult these onboard remotely. during process hiring our modified have We now able

employees our are remotely all continue supporting and rep productivity, our monitor We metrics. existing of utilizing to

compelling. low-cost and Cogent simple proposition summary, services our transit In remains of Internet a is provider and value access and

as remains business services services our and Each IP of data utility completely co-location. a these for focused Internet well center customer. necessary the connectivity are Our on as

of expansion EBITDA long-term our currency future. the margin constant growth should rate long-term basis approximately and target of Our approximately XXX continue XX% for points multiyear foreseeable

dividend consecutive Our our the Board per regular share our quarter of by XXst quarter Directors quarterly increase share $X.XX XXXX. to $X.XX in quarter first approved our per of dividend. per Increasing per in

regarding stock $XX.X demonstrates had under and as we remain remains the increase quarter our common purchase dividend program. capabilities during At market. opportunistic remaining hope open flow continued in times. and million healthy revenue-generating the safe optimism of the We everyone current timing buyback We end, our and business. our consistent Our of cash these our

are our our colleagues safe in all Cogent employee taking to the times. difficult and necessary keep value safety of We precautions these

we While increased globally. unemployment we rate about with a are model, uncertain long-term number economies believe the of staying we stay-at-home for implications world and employees the at are a home beneficiary the the large of around of

remain basis. regular targets are we to and intact capital an Our and shareholders committed to our amount growth profitability increasing of a on returning

With questions. that, like for the open floor I’d to

Operator

Michael first Funk your America. comes And Bank question Instructions] with from [Operator Okay. of

Unidentified Analyst

returns It’s [indiscernble] On an you corporate questions. the Hey to normal And expectation year? then guys, in of the you over? Mike. a obviously, impact when on level, have for will the you reliant on do slowdown of for being seen installs, taking kind how Thanks. just thus do have more think somewhat in far an And is this Thanks revenue on the much for the in that have quarter? what shutdown

Dave Schaeffer

Yes.

all, is change in about metric. two the – corporate sequential grew was the revenue our rural impacted USF have that first long-term grew seen all our That in average under fund We but revenue. rate. falls USF metric, largest revenue was construction not to That on we change and purely rate in a in is of a This and years U.S. in business. did resets not of about year-over-year corporate designed unit the of impact just historical the corporate XX%. things: a not our by growth rate. in First growth versus slowdown That So X.X% of quarter, the all, at

few our get to into at historical markets We not rates. inability employees, New hit certain to buildings of March, incremental basis, would construction we see that such to the last as trying hard sell tenants’ particularly customers. we’re productive, continue were allow York workers to unit and be to buildings, in did turn in particularly the the other COVID-XX come as weeks a up reps On continue and by they protect in

working saw company a employees increases at office, for bandwidth corporate at office bandwidth sounds uptick as a you hoc which at looking would significant there. would We fact, also the when corporate counterintuitive, they home in location. why being home, more locations, a ad customers there first those are customers more as blush, the because for need their need say, at phenomenon from their bandwidth VPNs customers are are in employees in no amount And corporate of most work that the from concentrated

have And in megabit, order to make bottlenecks, new looked our XXX experience upgrade not to customers most our and prevalent access employees has which customers. prevalent information adequate of number many our product, gigabit, which and a corporate can those we to get connections of a had is sure that from to to sale, have most increase become

the are stay-at-home corporate to our levels be to expect and we being buildings technicians traditional around kind lifted rebound of As orders field growth. of able access more to continuing to country, a get are

Unidentified Analyst

the for Got it. taking question. Thanks

Dave Schaeffer

thank you. Hey,

Operator

your Cusick And JPMorgan. next question comes from Philip with

Philip Cusick

talk You then? that Thanks. about you but Hi, weeks in weakness? since last what the of relatively Are thanks, quarter Can SMB mentioned closed? Dave. installs were you the since the churn some tougher five from of still the insulated about business March,

Dave Schaeffer

thanks question, for Hey, Phil. the Yes.

in input growth providing customers the we’ve traffic selling. of this that our NetCentric service accelerated seen increase albeit no seen off point. to of the of at are churn in portion continuing, business, leveled we’ve So an rate are growth and has increase the we rate on our the And

collections On side, to we continue monitor the corporate diligently.

because business difficult and the be we owners. been about advantage to times base added more by building in have customer but an that they concerned our economic vetted resilient are We failures, have tends

difficult of the credit by in the to pass at look that skyscrapers typically checks tend you of landlords in real buildings most Cogent to, stable economic A represent tenants expensive the they tend the estate market, fairly be market, those that If times. Class connects roster can and to that

at Now We and above March rate we the previous monitor rate slightly saw collections year’s collections April of our collections. daily. continue our of throughout

customers don’t our employees to in bills make process and of many have Now payments.

DSOs And with seen So bad as any this in a we debt quarter. quarter, consistent X.X of one-day saw in have increase historical rates. last not our of yet X%, about in significant DSOs remained we at increase

low. For churn failures the our and we expect most rates part, remain customer to

of negative services But telecom material are that. naive And are I see that But growth and in other company. of material would and monitoring it we think than much we a any virtually to be none any position customers. better could our that to going are unemployment, we wireline think GDP impact

Philip Cusick

mostly broadening side, And starting Thanks. that’s on that there of you Are that from to customers? an Or growth base off. accelerating? said is you of then seeing you the customer acceleration a NetCentric saw moderate biggest the traffic nice your

Dave Schaeffer

where It’s quite was, ago. from six months bit actually broadened even say, a it

has base We’re world seeing megabit. a quite the the effective think the access the us and seen a video base bandwidth on services, their broadened that our price streaming over-the-top users, a which alternate, networks end broadens that helps decline around continue of lot per of to and for also I more of rate number need We’ve also bit.

a we’re traffic customers. remain As think we relatively the growth in on of I NetCentric And side, the Jean-Michel base. broadening to the wider benefit number from from commented of unconcentrated in continuing customer our on call, a

Philip Cusick

Thanks Dave. very much,

Dave Schaeffer

Thanks, Phil.

Operator

Badri question And Suisse. from comes Crédit Sam your next with

George Engroff

Dave, actually this for George Sami. is on

I my mentioned few So past you’ve is, the would question sales quarters, unit guess over improve that productivity. reps bolder

sizes larger productivity. port average negatively that are We know impacting also

So XXXX? balance for I the of those should guess we remainder how out

Dave Schaeffer

that that number our and So months, more band three than declined been quarter trained. we’re slightly a pickup here equivalents full-time least we total in have by tenure, XX, meaning yet increased at reps few things. of six, One, got by in in a the our

three in weeks three were modify weeks onboarding. Now our reps we honestly, of took the quite It us March. unable onboard to about to last

backlog office have history. physical our still start have of could we accepted without So to offers reps We that in into continue for hire actually coming largest to training. the reps a the

trying video-based physical more reps keep our regional We as whereas managers tended and classes to are system what is on. to at bring and individuals, XX, to classes have about where we’re learning classes, the larger video be online, like we conducting with XX those experiment those optimal an training to

We the aggregate to growth hit to expect for a growth headcount year. our our XX% targets and continue to of X%

our also the over rep improve. continue tenure average year to expect We to

We also to environment. our reps have been monitoring ability underperforming remote a in manage out

We have that two the video about been team physically concerned required day. every fact do rep every see in don’t day, to is each managers manager person every conferences with their entire

one-on-ones And that maybe the us then need. with underperformers individual members. has that the aren’t attention getting concerned But team they

from put X.X% additional to the we continue rep to some long-term average. So was place still we there. expect productivity increase movement all, below efforts but a improvement, in material X.X%, to slightly in to the help All X.X%

We and we to full-time grow. equivalent expect quarter to continue the see to expect number that our through improve to continue

good but is slight for USF sales on our all, in The force larger drag are an feel Now a ARPU, pretty NetCentric ports. offset That reps, is selling offset. all about we they improvements.

George Engroff

it. another helpful. I then Got allocation. one on, guess, And capital That’s

you’ve the has given considering mentioned in buyback entire are always been way to that of dividend And $X.XX your then also the used previous you you’ve So maybe from the scaling, increasing that $X.XX? business increases rate authorization. stock quarters,

as about think well? going how guess, I forward should So that we

Dave Schaeffer

that. and So a we the the Board to every do quarter, and yesterday reallocation debates of board had our mechanism capital meeting

but our appropriate. our Today, volatility policy confident current macro about concerned return business. feels in are We

dampened that will out mechanism much to in while in buybacks What has versus of clear we it future, a is, volatility market As the again little saw that highly need return is crisis, of more that we bit on is volatility early volatility, dividend, the dependent project we down. capital.

a globally a not increase dividend will So be that is and of quarters literally Board long-term maintain think that growth one expected dividend of consecutive rate the that that dividend of pacing, to this also to specific environment, in remains, handful we analysis, and know very the quarterly increased committed decision of one do to XX they takes they once is companies this as Cogent With growth this it’s the seriously growth. commitment policy. of that I type

quarter. going but leverage So boundaries. leverage going to we’re evaluated specific also I each a we be to those remain have have it’s answer, just targets, don’t within and

Operator

Frank, from Your Raymond Frank Louthan is next question your James. with line comes open.

Frank Louthan

about A to time. the button use couple Sorry questions. that. mute a little learn I’ll of better next

much traffic. think trends of traffic that to forward? bump the permanent? increase, given aren’t the the at you’ve expected kind that is be abrupt revenue? seeing And Looking And in seen that in we a How should going of network about traffic bigger why how we

Dave Schaeffer

right, All Frank. take going order those in reverse to I��m

occurred the traffic in two all, the of the of step-up First rate growth the last of weeks quarter.

So our not only remember, going impact. to have it a And of material it’s impacts XX% revenue.

our out quarter. an of two in saw revenue weeks XX% uptick of for So XX the

in beyond. So a QX more fairly minor carries through impact. It should have a much material impact that as and

in traffic. environment. as audio key of work home of part and this We more that has traffic applications, number video a permanency gone around conferencing, from support we’ve of a to conferencing, uptick the to increased all Now materially

of a is which of in what video, linear returned this primary has top. and will trend. of a of traffic, temporary but video reversion were of of is spike there People a minutes linear be the to see is material will in eventually traffic. over a the acceleration rate de to business not from a rate acceleration, of may base. OTT complete We minimis reduction the that And people not volume rate temporary, where before, migration return – driver type more that unit the watching be is year reduction, offices that trend, permanent And maybe is traffic we day is broad permanent What rate their be acceleration, compared more accelerating saw but up television. models, while to traffic as expect That of we for of of a to normalized XXXX. a XXXX off That displacement full a streaming we’re higher of to above growth but their do growth. we to a the a our mix at

Frank Louthan

your All I you right. or $XXX month. customers for believe offering that of then to Great. additional maybe you’re – revenue something per And effect, corporate

And Have that? should were to took for that increase into You think of corporate corporate uptake offering continued And took to them your percentage if you a it bandwidth significant has continued? unlimited customers that that’s more Or do effect they the expect to in offer? see or take of bandwidth, QX? of some the we that peaked? that something contract. advantage customers see What rest you

Dave Schaeffer

Sure.

rolled we continues, They saw that megs to when connection, of out the contract from increase ability revenue monthly taking extend their terms. current not it for in upgrade, So which a to promotion, have increase recurring the number X,XXX megs take of advantage XXX at we customers mid-month $XXX. of an do to starting their

So meg. of X% remaining to and was gig, of whatever XX% service, mid-March gig somewhere the at has prior the a at our some the base speed. XXX X fractional is. that. so of for XX% base far About taken already X% term About of it’s was and was meg About base, gigabit X XXX our between base

seen X% shipped. about We’ve

roll XX% that XX XX% we’re the million So to has to out. has continuing got or gone – and

of to social gigabit their fact, corporate helpful historical as to understand I a a on-net incremental for we some and think that due as continue were compared result flat the even due this a it’s should need $XXX upgrade of uptick long be this they ARPUs, rate of slight to revenue removed they the from decline, in it for work, speeds. to And rate lengthening, contract which, of be to the as to within conversion expect of our continue. return companies the portion period time to workforce to will distancing office,

Frank Louthan

about All certainly it that? a and some forth so how about you your on-net how and think that’s right, we about great. guess last way the a people to I little of changing NetCentric most should reporting but Would you think corporate? made talk and publicly? decade and ago, business and revenue one report we thoughts sense report describe And that think more consider question. business I off-net, changing mean any on the versus how about I

Dave Schaeffer

Frank. Sure,

as ways. do FX; critical On-net by which different which important four revenue type, for for things versus by by USF of which is for is product, dollar is off-net, impact; is for addressable which market. such customer each classify actually critical we geography, and it margin So we important contribution;

be metrics for much and we a years add our the the to do in so all report, that growth investors. at give we where more Q, looking been tried customer obfuscate to you exceedingly careful ways reluctant detail not breakdown which are public XX we’ve consistent. add in evaluate things that company, We We may of We’ve to can see just type. but the as We, investors. future, for confuse really in by

Frank Louthan

Thanks, Great. All it. right. Appreciate Dave.

Dave Schaeffer

Thanks, Frank.

Operator

And your Walter Piecyk with from comes LightShed. next question

Walter Piecyk

that where booked $X.X USF Dave, excise has Thanks. your taxes, Hey, the is is million?

Dave Schaeffer

correct. tax. our excise is only that That Excise is –

Walter Piecyk

Got it.

added, you I if If mean, looks were mean up I I So like you it I put $XXX,XXX. down $XXX,XXX.

So delta bit, did $XXX,XXX, basis sequential. XXX points still only your corporate

that bit took about it’s more to USF. That’s talk sequential me, the not a – Can growth excuse things little or obviously So X%? a X.X% down X.X% headwind only corporate. business you the to

Dave Schaeffer

Yes.

I additional the few correct install think the which and two think your you’re you way in to Walt, weeks a it factors, in did last we new absolutely did in customers I arithmetic. experience of was March. But inability

FCC As were that from into we the stay-at-home people essential our our to could able work, get had these these services, were contractors we and travel that go people to field able to orders. get that had and buildings certifications eventually

of weeks we And full it. about part So then… miss That’s three of productivity. did install

Walter Piecyk

shelter was weeks? weeks? place three Three their in Where for

Dave Schaeffer

New York, believe… I

Walter Piecyk

so. don’t don’t I I so. think think

two weeks. it like I was think more

Dave Schaeffer

I to was thought XX. it like

And on… we went so

Walter Piecyk

XX. to not Definitely

Dave Schaeffer

as We work home. went XXth a from to to globally due company, on

things. I this softer mean, And fairly of a at is all best was So it was quarter, volatility. if but business, not the corporate to little that’s quarter. I bit look days. think it. some was a XX those of be we And tends there corporate the it lost steady, And you

Walter Piecyk

Okay, thank you.

Operator

question next Cowen. Your Synesael comes from with Colby

Colby Synesael

you. few just ones. Thank Actually, Great. a quick

something what Second, assume to expect up speaking NetCentric. versus to XXXX kind meg it tell is? comparing of you traffic, should specifically installs month XXXX. not me, and that’s rev require that’s $XXX that incremental be could that assume I those off, $XXX, What a you in does excuse was that, do said actually – you buildings. guys. million I for on that Can mentioned for XXX you to? gig, you’re the the opportunity XXXX people back To you in be go us X we bogey therefore, the First end, per to guys to on you

as Therefore, that should orders fairly through. those be quickly come happening

to from I incremental talking of new to like confirm Just just comes others, your installs I’m hearing quarter customers last to then what seeing? if usual, sounds in what business the growth by from I’m versus revenue customers? and you’re improve mean, get correctly. wanted typically if the as second will, Walt And that. that you I’m And comes about it that expecting each that are we and the curious to and – percentage quarter? you can corporate, current question, just response back

Dave Schaeffer

Yes. All right.

of those. all take to try me Let

will than Let’s traffic growth about that. was XX% start the It It better be one. last with year.

Our but be will long-term year-over-year XX% be by up entirely we’ll and almost average is that around XX%. I’m over there, quite NetCentric. sure is not we driven

interface the to us converter to to not but gigabit require media their cases, does many a it customer at Secondly, the anything, require remove premise. in conversion typically does, do a

customer’s done the we a connection deliver the fiber our limit That’s we premise. So XXX in to And rate in that to equipment basement. megs.

fiber Many accept customers handoff. not historically could a

switch That you that be is us suite so it to needs the So costs the taking part converting it to there device as is a it fiber customer is installed pack converter, generally a our media of copper. the it’s small literally a $XXX, and about out, charge, most does cases, copper but or plug field We customer themselves. device the at dispatch through router that. do and cases, a the take jumper connection device and someone In we walk physically to from the site. fiber person that that customer in. to it be some it that, In do the in removed, pull size to signal device, install do customer’s of of can cigarettes, and about that the

is small of work, on do physical factor. but XXX handoff. number very a have the fiber is not out about your Walt, There and a that And question is probably on In meg corporate of who were that to part also corporate we should growth rebounding, the is zero too, customers have that my anything. slowdown to common connections case, don’t answer taking There I installs. most a see then to did finally, in we called this downturn, off-net corporate

corporate corporate than been. challenges lower growth, all turn our historically customers. XX had being virtually off-net saw – able it’s our growth corporate, And have our own workforces was their what roughly lower You vendors than is with to slightly those was off-net their and up

returning issues now most we’re normalized those and of to installation off-net resolved We’re seeing windows. more

Colby Synesael

more with kind So you at Are it – of would abated to are But the – in this or I install just are we hit just quarter? they should keep expect here? type mean, of some you then headwinds expect the issues? point? pressure specific still moderate Or the second

Dave Schaeffer

I quarter unit a they’re second corporate at on expect like quarter and the more and should think normalized abated pretty installs. point growth look we well this to

Colby Synesael

Absolutely. Thanks, David.

Dave Schaeffer

Thanks, to you. Colby. Same

Operator

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

Nick Del Deo

a for than the is recently NetCentric First, but like NetCentric pricing contracts bit base a quite bit, has broadened it seen. lower quite you the new you’ve noted looks

Can square said mean quarter. might growth? I in it net-centric help $X.XX the for you pace it think observations revenue Jean-Michel of what was the and those

Dave Schaeffer

Sure.

and literally contract the between So nominal versus always is the sign pricing that there number that on have a per is we price. quoted, basis, a volume-weighted disconnect quote and

lot low sign from customers So who a are can but come your under you a contract at growth at price, higher contracts of can prices.

in the that’s fact, the phenomenon we saw quarter. In

decline some XX%, year-over-year than higher lower actually customers price. of at prices, at with growth the So most pretty coming but in existing while versus normal we sequential much signed at was was XX% contracts what’s contracts from greater normally rate of growth had or a around the line. a We

between and contract narrowed. the So delta the realized the price price

Nick Del Deo

sense. Okay. more side. on the That Got makes NetCentric it. And one then

you You volumes. get, oftentimes have incent they customers breakpoints to structure those give so pricing to traffic contracts, higher

the in be there discernable to any not growth of past, in that the might such the dog think a you’ve those is the expected, much I track. that thresholds, pushed like rabbit some about? analogy faster we than something the traffic effect should customers closer worried numbers? Has that at on used Or be spike

Dave Schaeffer

something it we we customers probably two years I least hit it’s monitor. X.X us. Well, guess, thresholds one about or was that impacted some ago, meaningful and large had at it And pretty

volume tried to that price lower the Two, independent time substantially smaller. out rate One, deltas of volume. greater bigger their a to expect we’ve things. three So of they those That’s tried NetCentric market, kind growths customer make of ladder and A expect those we’ve decline. of more they a on. are that goes judiciously, if expects as than

And then third, volume. just aggregate

a the only has classify a on not volume-weighted lower rate, the touched seen first NetCentric rates, price but I good aggregate is, So more this which accelerating as them helped on we The news we per actually the growing us mid-tier at part gets in would customers your megabit, what effective question. price. number lot to of have as of

Nick Del Deo

the Dave. Terrific. Thanks detail, for Okay.

Dave Schaeffer

Nick. Thanks,

Operator

with comes question Nispel from KeyBanc. next Brandon Your

Brandon Nispel

view. curious Yes. I’m about Dave, Thanks question. for your taking the

provide from enterprises could term? perspective, you metrics, leasing longer home, do multi-tenant missed would CapEx I or come and third, that office guess, if for and I space, whether you great. you the help you in think I with those, at change the year macro Just think installs then capital where not And from the expect churn a spending customers slowdown be us maybe their can working impacts patterns in think about for everybody to corporate XXXX? Second, for

Dave Schaeffer

in probably reverse Sure. those take order. I’ll

corporate pretty before, it are that to rate. the CapEx. why be line continue this with were much down bit and but expect start a at footprint And in we year slower from down expanding we year I our last year, with That’s a last Let’s will slightly think year. little

when churn offices to, I our of do size off-net about their is X.X% question, X.X%. a about reordering than of off-net to month going to the Secondly, want REIT-oriented net it’s rate the need on the vulnerable rates, think material little And question, people is a to go is on or But unit back some basis, – more not final the churn they per difference. this then which of to, can? are workspace more is, or a a on-net. which probably

percentage a remotely. kind people is, of schools their One think of work workforce have of I there’s population two thought. different larger permanently

to in which of amount those capita market for this a Secondly, space distancing, at end open but of for Class floor foot have tends go. the employee. square rates. need per know the tend to they’ll more the to be a plan actually that is full, remain of this and that’s What think offices, need to the space, point because return way higher of may social which and office be go back, physical rents more down lower happens we at to enough materially, decline A information typically I don’t going a

to really and in Class in and vacancy surge office the tends And B the C be more marginal Class the buildings. space

Street not much office with be kind that XXXX, and economic them. very more, a space. hardest, having So and I’m skyscrapers different to see an In was and tends that. businesses office malls still big parks, overly low-rise recession, saw strip see We think not we the economic to big we’ll going factors downturn the it, concerned that is of office their I towers that financial and XXXX, in hit we’re services downturn but and that just not financial maintain in actually companies This go don’t dark. did issue Great space the retail industry Main have causing hitting

Operator

comes Tim question next Oppenheimer. your And from Horan with

Tim Horan

there. just to be is been agree space Three your to the articles I faster? people to classic going It’s transit traffic churn One, I think the questions. of tenants a that throttle congestion Dave. experience little a guess, to are could there’s peers growth office in any lot on of Thanks, of network traffic IP off asked had Europe a handling Secondly, I business? And And did going there’s full. that stay in own your the on you or back. to lot

like? guess that’s moving us negative, your I in lastly, a market you And I give year million a if a question, to roughly, little kind on I about of but think term Can And this existing takes. revenue you puts X% share tenants when kind your color parts. is this versus and for the but good about of the the know way give flow what this more don’t talk although share? and trends of a can new the short come mean, kind maybe guidance, year, then you look

Dave Schaeffer

than start Yes, closer XX%. by going on in feels order. sure, much Tim. this multiyear guidance And to I’ll it’s I’m going the those guidance is meaningful quarter be reverse our to that that saying to I in take year to This a QX that year-over-year we they and like quarter X.X% did became be will do obvious for QX in year. as continue tailwinds business some of the think, our throughout We the full basis. and materialize have, latter the part

growth. about feel we very good revenue So improving

of would XX% tailwind us average the approximately penetration the question tenants because actually on network. buildings building that to have that in has unique XX – we Cogent the about serve, we turnover, the about a To tenant we be

front someone our just the have a has We decision, of higher make sold of moves the to under When tenant of reliability, decision. greater the when who a a get throughput. win we we the make in due they building, And purchase opportunities bandwidth install, to and those connections into to have XX tenants. XX to speed of XX% a those diversity

turnover when in better do there those buildings. to we expect So higher is

So buildings. see new and good rate we overall, of leases we’ll some I may be greater shape as think in

the Now and congestion really questions there question. two in were question, to that

to The bandwidth was, last-mile Europe. customers strain to lower were compared they if those our to continued number a reduce asked did to have on higher been in reduce resolution from voluntarily what stream networks customers That one resolution. first it in would of

meaningful not have for In could were it that impact, very material being was that aggregate, a sure networks access the very I’m but been on those congested.

the customer. interconnections, traffic our customer of our majority of goes terms In to vast

conversely, customers, access network scrambling now only Cogent fact, to our Many traffic or XX% access goes our a through access a about upgrade. XX% to were Cogent networks peers. network of traffic In goes producer of content about from those X,XXX

upgraded. were on Some being dependent markets were very exotic and of capacity them in subsea

lag So was bit of a a there there.

bureaucratic peers, our with our as news the larger, peers with and plenty react not on optimal. then had have good our of entities Telekom of ongoing more of quickly we be as And would did exception is, litigation. many to Deutsche and tended everyone, headroom been The

others Telecom. that as of experience and access we do other the fine, incumbent but Deutsche but congestion network, some any say All with the still not any were ideal, quickly than as would not moved operators of I be not would did

Operator

Markets. question Bora And next comes Lee with your RBC Capital from

Bora Lee

Dave. Thanks I taking the questions. if Hi, could. for Two,

lease give increase? the about in then... first principal Can payments color reason you $X.X And the some year. obligations million the year-over-year versus million is one was just finance the So prior of for the quarter the on $X

Dave Schaeffer

Go ahead.

Bora Lee

there about And relative streaming anything the optimism Is to XQ? that that traffic. there the trending some then was app launches, secondly, impact on to cap would traffic was and network COVID impact network how how looked XQ, prior in

Dave Schaeffer

Yes, sure.

fiber that most let here also bit material was me uptick a one. XX,XXX some of domestically, pretty miles. actually to We prepaid. principal I actually XXX in know, take of and fiber, had We of in network substantially Brazil, little was We did prepaid. our but a And of major long-haul footprint. miles grew much That’s that Turkey metro and few, our the expansions pretty don’t a almost easy. added So XXX miles IRU actually almost over

prepaid but piece of of So little bit IRUs. A is that the it it’s biggest most it. was of just timing,

prepaying no there’s you’re since to goes it interest, principal. it, And all

of or those the grow XX the probably in or traffic, a normal the couple probably really a weeks, it of that for made quarter. was traffic full on first, QX XX XX% year-over-year, the do quarter the we And weeks, a a anticipate X% versus very it only couple been at would weeks quarter’s quite as quarter have looked and saw but like growth, terms spike the In in sequential little grower. just And QX. of sequentially last abnormal bit impact because we wasn’t of a faster, X% meaningful seeing

Bora Lee

and new those pipeline? be upgrades in that last the installed The to tend install they And weren’t Do able to due it. request just building Or one remain to do out? just fall Got restrictions. corporate one.

Dave Schaeffer

No, they tend the to remain in pipeline.

In fair off-net most reasonable. customers have tend ones, amount understand SLA But our fact, to that. think we of particularly I be And pretty for a cushion in customers built-in.

and installs averages. understand they into realistic difficult not they landlord people they allow And to could and hook be their get a are streets can’t tend the a Our difficult up. industry an tenant, when for people be to building, empty, also get know or from I going their may are as be see, if contractors they faster to think it’s they it to in order than under service be in

Bora Lee

very Got it. much. Thanks

Operator

from And Partners. Guggenheim your comes with question McCormack last Mike

Mike McCormack

Just question. a quick

sort the thinking from about of mean getting the footprint, for then Just the just some compute edge, tower initiative perhaps. tower commentary if does that and company Verizon’s of your will, long-term? business the tower more multi-edge is the towards you What compute

Dave Schaeffer

extension and the reason is will And computing, cost for is space frequently is, the that tend content be. against you’re too small impactful the kind more not how of CDNs have Also, those you’re doing expensive. it’s the of is of efficient edge that base lower to that and ability the accessed. balance footprint. skeptical is to use a trying power have the number of effectively tower architecture, how less of compute that storage many for that because such to but the at over and than the an computer, the of and being more a endpoints and There little compute, very a processed moderate I’m it storage It’s that utilize the material. endpoints be requested, a and place of precious is CDN

most mobile that on the important at This will user eventually are cell reduce as represent go Internet switching their base to but And of to site impact. finally, opposed leave marginal being what’s they of and of office site. and a only globally Internet, load represent not have users understand the material is, than handled global carriers traffic. mobile for looking Internet, the IP, while will a still and traffic I X% then impact, to ways latency less the backhaul it’s Most to because improve XX% a fully networks.

of the connection. traffic So terminated wireline vast a on majority gets

So to our I don’t a going is on this have impact business. think meaningful

Mike McCormack

Dave. Thanks,

Dave Schaeffer

Mike. Thanks,

Operator

the I conference further no any turn showing now the at over remarks. for like this I’m to time. speakers closing back would And questions to

Dave Schaeffer

And want I I So That thank to would about safe actually first more everyone this in I of a do matures unsecured I in liquidity. touch about topic is I everyone, year. all, I environment. one have get to and par. $XXX million callable stays actually at want We this. thought is this of debt on. a question have debt hope that

refinancing that business, in calling did was quarter, Cogent access and criteria concerned wireline carrier the based we as certifications time loan, PPP are comfortable We and drew that with the in at loan, made. We a very we the we considering the that as we place the were criteria that the met a less the to the we loan did receive apply our than it. the small X,XXX employees. on with actually in Earlier SBA, debt debt classified by were markets. a – for about

fact return XX, the modified criteria. those quite it loan. for pattern April the on those prudent SBA be that we concluded that would the criteria, honestly, changed. Based to On Cogent market And has in

under look we markets. public fact, So that returned $XX plan drawn debt and in we the million to have, to the loan that now had

world’s have on. SBA to that to placed, furloughed in Internet not We we that the have continue data As necessary people criteria was service fact, we need But run maintain providers, that additional the to market in of is and, liquidity employees PPP using largest we we and hire inappropriate. the the have light our one are that of any employees. felt and newer a the dependent the business

stay want and soon. well, thank everyone we’ll talk again, Take everyone. want to I Bye-bye. So I care. to

Operator

gentlemen, call. this you today’s and for Thank concludes conference Ladies participating.

You may disconnect. now

Cogent Communications (CCOI) 8 May 202020 Q1 Earnings call transcript