CCOI - Earnings call transcript Q2 2022 | Cogent Communications Holdings, Inc.

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Operator

Welcome to the Cogent Communications Holdings Second Quarter 2022 Earnings Conference Call.

As a reminder, this conference is being recorded and it will be available for replay at www. cogentco.com. A transcript of this conference call will be posted on the same website when it becomes available. Cogent's summary of financial and operational results attached to its press release can be downloaded from the Cogent website. I to now over the And Mr. to Instructions] would turn like call [Operator and Officer Chief Holdings. Chairman Schaeffer, Dave Executive of Communications Cogent

Dave Schaeffer

Thank Tad earnings a our good our and with you've me Schaeffer, you had everyone. afternoon's And Chief very to call earnings Financial this Welcome Hopefully, is Cogent's afternoon CEO. review second our call. press chance conference to XXXX to on release. I'm Weed, Dave quarter much, Officer.

that number a in of includes we release metrics quarter. present consistent quarterly press each manner Our a historical

the We XXXX Now our In proceeds for the date offering this of we between $XXX XXXX dollar our due €XXX a we million, at at dollar received by used $XX of economic euro quick rate euro overview of XXXX. million rate notes notes. maturity redeem and the from to settlement. extended June, million date debt gain compared obtained net of results. unsecured the to the proceeds issuance note, that difference a as we an were million issued to $XX our extinguishing of to from of and average euro our a portion of that unsecured We the in

and funds restrictive transfer also be from times was available X.XX our EBITDA. buybacks. our company We to therefore, a covenant to and euro-denominated share operating eliminated a one our for limited This in provision notes company, holding ability that both restrictive dividends to covenant

can of of companies at transferred holdings at million, of was dividends million Cash had of held Cogent additional $XX.X was our million be Holdings quarter. XX, consolidated $XXX.X restricted cash available million, to and/or for total end either held our that we cash unrestricted total and cash an cash $XXX.X at a As and $XXX.X $XXX.X that's was for and buybacks. operating million June our now

leverage our was ratio Our ratio and gross was X.XX, X.XX. net leverage

under our lower notes quarter's calculated X.XX at ratio leverage consolidated end. at slightly indenture as Our was

the against negative and strengthening the total NetCentric Our particular, and movement quarter our of revenues exchange significant dollar, foreign materially impacted the in U.S. euro. during by the revenues were a

For of a The is of more sequential the our quarter million. had significant. revenues exchange even negative million year-over-year foreign negative we the quarter translation negative - and $X.X exchange $X.X be impact of expected quarter, on foreign for to third

Our materially are Fund U.S. the total government. impacted reduction Service also by corporate in rate revenues revenues quarter to the in the USF or in by negatively USF change due the Universal and revenues the

negative million USF and revenues a to on our of the For impact of basis. was was sequentially The year-over-year impact negative $X.X million our $X.X on million the USF revenues negative negative combined and $X.X of basis. foreign $X.X sequential impact on quarter, and year-over-year million a a exchange

activities was sequentially. partially albeit have in be continues XXXX, operate declined by and activities for and USF of of seen the American business real the change revenue and by revenues Two key the offices buildings which activities activities cities. during central in estate in influenced corporate but attributable this level corporate a which leasing in North market business first including real in decline Leasing quarter rates. markets workers card Our swipes returned estate our the the of levels. impact, that the we slowly. to half corporate basis, X.XXX% the return to to major pre-pandemic Adjusting some to GAAP business yet for indicate across USF district continue leasing not to improvement, central districts U.S. negative improve, statistics, X.X%, have our their was On

pandemic. the We given corporate the economic and of of uncertainty revenues continued environment our outlook for the the continue cautious remain to lingering in our effects

to growth continues in business robust benefit NetCentric and video Our traffic streaming. from

quarter, and GAAP by a on year-over-year revenues a our year-over-year the by basis grew was NetCentric up XX%. XX.X%. U.S. our of equivalent impact by Adjusting On revenues, a increased approximately year-over-year grew For basis, basis increased on and sequentially On by on on X% sequentially revenues an traffic $XX.X on constant in X.X% foreign a sequentially the currency NetCentric total revenues USF basis X.X% a would constant a and and the to year-over-year year-over-year exchange sequential X.X%, our X.X%. grown our XX.X% a basis increased adjusting also second X.X% GAAP basis. change in for currency basis, rate by currency constant sequential growth basis the and million X.X% to and a have our increased by year-over-year, a declined negative on basis, on our X.X%. U.S. basis, for quarterly sequentially a revenues On quarter. quarter revenues X.X% and quarterly a basis last increase On by

company's Our from by XX.X%, per EBITDA force encouraged that sales margin numbers history. sales the per to fourth we've quarter. last installed margins We're our X.X X.X of represents productivity fact that quarter this is productivity also orders increased equivalent rep best up quarter EBITDA since month, the increased the XXXX. the This the seen force in which full-time highest to actually

any end. shareholders million purchase the of did have year and We million quarterly during our under During not through which $XX.X Board to our quarter returned regular buybacks through we our for quarter, stock continue has $XX.X authorized program, total the our available a to dividend.

share XXth by share of flow on generating opportunities dividend quarter, the regular and our dividends, per increase $X.XXX our capabilities sequential and strong Our $X.XXX again quarterly has investment therefore, represents consecutive increase growth cash from our the This in the company $X.XX well as per raising per dividend increase in is today that annual our share. XX.X%. reflected as to quarterly decided to Board rate Directors our dividend quarterly sequentially

few Now expectations targets. guidance for long-term our a against

targets Our meant to term. are be long

points year. margin EBITDA, expansion a be to XXX annual approximately Our is anticipated basis

approximately be XX%. should rate growth currency constant multiyear targeted Our

targets assume or that intended to quarter. albeit to be in targets work model. these offices, continue guidance. meant EBITDA will to a annual and their businesses targets rather multiyear revenue specific looking return quarterly Our This not to hybrid And is be at a are than

I'd our read and quarter. harbor safe the some our on Now in operations language details Tad provide additional like

we'll open for and floor that, the Following questions answers.

Tad Weed

this Thank other risks you, are you'll refer could Cogent update no on statements. find conference And and differ. more not if call forward-looking includes statements These reconciled morning, that measurement the companies, to earnings Like our responses to non-GAAP This our forward-looking facts this materially. subject actual measures uncertainties, earnings the information we obligation good everyone. are forward-looking to call, statements. to And COVID-XX our the number filings and made actual which Dave. cause historical a results corresponding belief GAAP for all the of results forward-looking world. may are in upon by factors on to financial Please around be These differ call use accompanying SEC on to many undertakes that be or during expectations. our are by and intent, the these impacted pandemic revise releases, at governments may statements posted website continue cogentco.com. current and our statements that and the based we

other our XX-K on risks and our annual related reports and on described on Form XXXX Form detail for are report risk quarterly to Our in COVID-XX more in XX-Q.

and revenue corporate connections. on NetCentric customer discussion Some and

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

firms neutral in customers in center professional multi-tenant they buildings carrier bandwidth data centers, educational or and in office buildings or large from financial carrier-neutral located footprint. our Our customers network our service are multi-tenant connect typically firms, to institutions us buy through and these corporate office data service

consumers amounts include customers serve carrier-neutral streaming well networks us from data and who bandwidth access of buy companies distribution and significant service of content. in as providers NetCentric Our content the as centers

impact VPN a of our impact by and Our the had had USF a $X.X USF We our quarter. customer negative corporate as corporate corporate our year-over-year A tax corporate sequential our cannot on declined a sequential connections, was was million in Dave decrease only X.X%. applies which X.X% our sequentially our on decline and rates represented X.X% mentioned, -- X.X%. of this we million of year-over-year And end. a revenues. on to changes and XX,XXX revenue $X.X tax business negative quarterly connections USF declined year-over-year. and $XX.X million future revenue connections predict by The That network and quarter rate the of growth tax revenues at corporate impact rate, XX.X% decline

primarily year-over-year in Our the and XX.X% grew FX by NetCentric The $XX.X solid impact represented and year-over-year. million and by of X.X%. our foreign quarter, exchange in impacts had customer sequential a materially Comments of rates sequentially by our On on our X.X% to by NetCentric despite the revenue which volatility our and type. was a network quarter currency by revenue another material negative NetCentric business, revenues a on headwinds, XX.X%. and had revenue and constant increase very increased increase XX.X% end, basis, sequentially sequentially connections XX,XXX customer quarter year-over-year. both XX% X.X% NetCentric at We and year-over-year network

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

buildings. multi-tenant network And to total on by connections in office sequentially customer on-net our these year-over-year. serve customer increased Our increased carrier-neutral X,XXX on-net we data and and X% X.X% on-net center by XX,XXX connections our

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

of by our off-net savings we and prices into off-net introduction The lower revenues our base revenues local these impacts the our revenue our Our lowers are impacted off-net revenues. pricing. customers into off-net loop cost from incorporating -- obtain ARPU

quarter. XX,XXX North increase quarter located off-net growth sequentially connections We the buildings connections Our are off-net was off-net customer increased from and last these year-over-year customer primarily off-net our in in to buildings, was about the X.X%, X,XXX which and ended serving X.X% an America. by

better new on $X.XX quarter $X.XX for for price declined historical year-over-year megabit price by year-over-year per X.X% per megabit The long-term rate historical by for quarter. our trends, comments and and year-over-year sequentially XX.X%. and The XX% price by our average pricing. base base to to decline with Some rate customer of by that installed per our the installed XX.X%, our decreased sequentially contracts megabit was our XX.X%. our average average and customer of new than contracts decreased the for of our Consistent

gigabit than of a our our selected of and to in greater average XXX the price more larger it effect at connections connection results selling to connections in changes in succeed XXX these to impacts megabit rate has mix locations Selling larger our a connections and gigabit our ARPU. lowering continued customers. change We in per

ARPU. Regarding

and of revenues. on Our primarily the ARPU our negative impact from negative decreased on-net impact foreign the of USF exchange

our to decline obtained the on pricing to And vendors. we off-net from circuit continued ARPU lower customers. that off-net off-net passed we Our our from again, savings

both and on-net includes by was Our declined $XXX. X.X% sequentially NetCentric ARPU, which revenues, corporate and

corporate which off-net Our X.X% ARPU, is on to predominantly sequentially by $XXX. customers, churn. Comments declined

for were quarterly on-net connections sequential rates relatively stable. Our off-net churn and

discounts the they service terminating in their term We are this and/or customer on-net turnover, employ quarter last quarter, works with group off-net was with churn contracts their induce their rate churn us customers to to these to us. dedicated Our that from reduce quarter. compared customers additional order to to In our considering X.X% was and indicated to X.X% service order who unit or extend to our pricing to X% compared reverse X% sales termination retain decision that have purchase to us. of rate we a last may them offer

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

beginning the our annual annual typically press to in increases. Some the services comments living expenses the include and benefit EBITDA seasonal year, taxes from reconcile factors our and payroll of our quarterly cost impact and audit level resetting operations cost our of and of cash flow Seasonal our increases, of at or of plan our United the CPI timing vacation in periods, States on tax the and EBITDA that margin. EBITDA our each We EBITDA SG&A releases.

by impact foreign negatively of million by year-over-year year-over-year. $X.X $X.X $X.X our the impacted Our increase growth million. And EBITDA and increased sequentially million also EBITDA exchange dollar

absent So year-over-year. would that, million it have $X.X been

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

comments share. Some earnings on per

was the diluted income share basic for and $X.XX Our quarter. per

consequently, in the our into rate and notes gains the extinguished per this of debt been and dollars on income, and losses of in exchange valuation on interest have Foreign changes the noncash we them XX variability Losses net the euro until swap on share contributors June the our agreement our of translation primary of quarter. to extinguishment our the results.

exchange. million increase notes was last exchange last It gain second of $X million by and decreased in of foreign on quarter on notes million. $X.X charge $XX.X was agreement, million our net estimated net in they was million quarter, quarter $XX.X quarter. increased by last notes we loss of of income year. our decreased quarter quarter. related our million all of quarter $XX.X a year. last the retired $XX.X this this this last income foreign and second before loss that there year our was loss quarter net a extinguished -- $XX.X incurred a million, of $X.X income noncash in We amounts, Combining in interest and value $X.X our in quarter million Our comments when of notes the rate our euro We that euro increase Further our million million to this of in on the the were second fair 'XX $XX.X swap last quarter the a extinguishment these the and by in XXXX was incurred of

based was operations. XX% of in revenue South and Mexican, States were U.S. of dollars our and revenues in quarterly Canadian, Our Europe About related is of of is outside our approximately revenue our the to total Pacific, this African earned X% revenues. XX% United our American and Asia reported quarter in

we our negative to The to quarter dollars. be and this Canadian so a rate the of be remainder it's impacts this those dollar we for revenue these the translate notes rates the exchange of quarter negative our on current notes for quarter. average into U.S. and financial until quarter, for also amounts our quarter, X% impacts euro impact with consistent $X.X as materially results, in foreign materially XX results quarter As this the would reported quarterly our can is in and third quarterly in $X.XX foreign and customer million. the on a million in experienced $X.XX. average third that currency and again year-over-year our materially and highly impact believe revenues exchange extinguish would our exchange If in this The in top euro is FX customers foreign valuation past. we third impact is $X.X quarter far expected negative negative remain our base represented our and overall exchange their currency FX rates revenue our at volatility the impact revenue rate be not this U.S. EBITDA sequential estimate the dollar average the we about of conversion that quarters We quarter, revenues concentrated, levels many was

growth that X.X% accommodate our anticipatory to needs. Our quarterly by purchasing of uncertainties equipment typical us Supply to plans ensure capital causing to sequentially decreased network $XX.X expenditures schedule million. network to and our shift levels and these are designed for satisfactory chain we inventory equipment, is customer have investments

Some finance and leases IRU our comments leases. on

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

obligations IRU totaled million quarter $XXX.X Our at finance end. lease

have set we suppliers. IRU have contracts very with We fiber different a diverse of dark XXX and a total IRU of suppliers,

Our million. by finance $X.X sequentially XX.X% decreased to lease principal payments

equivalents million is cash value flow. totaled interest Some and of and cash rate our agreement. cash estimated our swap tied our At comments to end, cash of on operating $XXX.X quarter and million, the and $XX.X cash cash restricted fair restricted

of and this corresponding interest Comments that that of obligations which was quarter from and was Our cash part a from debt our But on sequential million, quarter. no this decrease decline semiannual $XX with of included note on $XX.X payments million we this quarter quarter, operations quarter. last made flow million was amount in $XX.X ratios. last

$X.X XXXX debt debt at lease IRU and euro gross $XXX issuance the of end, our new of total notes Our obligations, net our million was extinguishment million. our was finance quarter and including $XXX.X notes our par, at the billion reflecting

was Our Further swap. the and And last our as trailing debt X.XX% slightly XX X.XX. comments less, adjusted at X.X%. ratio calculated our EBITDA ratio, total as was net gross on to the denture months debt ratio was under

fixed-rate That with restricted balance made the $X.X to payment May. of achieved each net liability. November counterparty swap one market We last $X.X XX. secured a was million to settlement we of agreement noncash of with on to our our corresponding a through We the payment that's XXXX of net At $XX.X that million the end, are each party XXXX, a November of modifies of variable cash obligation the to end our savings August May from cash the the our due agreement to and The for value maintain or swap made fair settlement quarter by overnight last an we a quarter changes increased financing interest net savings reporting the the gains Under October. April equal the was rates. swap obligation from the estimated period million are net required at interest rate swap we a this notes rate of to of Under are under we based made $XXX inception the $X.X the rate in SOFR. to liability payments in the or from achieved that associated record initial year, November million. agreement value in period, May, Under million. date and fair period year occur interest of settlement last interest swap, agreement swap losses the

a So since $X.X savings we've agreement on million. our total of swap cash achieved inception

DSOs. and debt some Lastly, on comments bad

the to quarter quarter the last was and revenues second in of X.X% expense compared of X.X% quarter for last year. X.X% only debt bad Our our

for want job and for We Dave. and quarter. was XX worldwide for again I outstanding, do collection to our will customers receivable back to days And and the Our or worldwide billing to our call now collecting members DSO, from fantastic turn accounts continuing the our recognize days over sales serving a thank team customers.

Dave Schaeffer

customer network, basis. like On was in NetCentric revenue of on highlight I'd growth strengths our currency XX.X% a to growth sales We our base year-over-year, some and NetCentric a force. our constant Tad. of business. revenue Thanks, excellent our XX.X% the achieved and

to end, We any At third-party our than more carrier continued and over-the-top increase in The in to international to and latency. optimize centers, were Cogent we a connected other customers of beneficiary XX streaming quarter's NetCentric measured of traffic, our carrier-neutral the be data and particularly as data reduce direct video markets. breadth centers research. X,XXX coverage networks enables our by

lead comprise We to operators mobile At the subscribers force focused this collection cable solely quarter's additional to is mobile plan XXX each focused segment. this group or carriers networks continue market. professionals regional of we vast world's next systems of our expect on that several sales and centers to in provide salespeople connect for the professionals years. At to to users. the we companies, market end, unique on companies, widen data telephone this and quarter's Internet. phone connected XXX We as believe the autonomous broadband of a network were dedicated majority our had us of end, market access to the group we an carrier-neutral year of ISPs, X,XXX directly This the NetCentric largest

corporate for Now business. our on comments few a

as people's normal But some part connections aggressively positive become will business. seeing part require including user Our experience these work to bandwidth we supporting This infrastructure, jobs. corporate is believe becoming improve of in upgrade larger the in remote outside We routine, environment, inside employees' are of working trends Internet to particularly are corporate all premise. that will high work-from-home new customers customers of as of a established corporate of their in continue connections aspects video and their their our both usage conferencing the to workers integrating applications such environment of

coverage symmetric cost and robust to begun boost bidirectional now push of and has gig Our greater XX aggressive gig bandwidth for and corporate the providing demand one connections. lowering towards our

the redundant connections remote ad increasing corporate their purchases to data hoc private Our in also that are centers their virtual networks of carrier-neutral help need. workers customers support

few a comments sales for our Now force. on

count more XXX. slightly time from were as decreased We a decreased pandemic. our these to XXX in equivalent declined than and continue equivalents out other our XX total XX. seen to underperformers. full-time rep during by to in our count to sequential we've pre periods improvement XXX, and of training force as experience On year-over-year basis, sales the sales total our due declines did head Both basis, reps decline from total in On our managing XXX head a well our by full moderate rep productivity

quarter for sales Our majority sales and of the force the Xst. returned to a first only Cogent on was working March remotely office

and That month per a numbers Our turnover a month. the peak of rate The sales the the training X.X quarter in-office been sales contribute factors turnover that per of the They we X.X% from is productivity force at QX. are percentage This our the of improvement improving. and previous force sales the X.X% material were better significant force the peak. attendance. in increase to from during X.X is in experienced reps a reduction a pandemic month in have X.X per

central about and business So districts cities. serving we optimistic of the remain in medium businesses position in unique in small major summary, our

of key rate signs or lease are that level network, well a multi-tenant have total whether billion supporting about approximately remain feet We of We square slower rentable of office one declines of vacancy of as to of pace signatures. indicators space. concerned new tenants workplace number reentry the directly our office a leasing seeing increase in returning, X,XXX office connected a are we it as buildings improvement heightened but office the of be and showing in

pre-pandemic months. therefore, office office While encouraged market past tenants XX We're the and over substantially are XXXX, improve. to a continue return commercial should in that many they the these improved leasing to indicating remain levels, below are

this We office for We a are return sales will benefit and optimistic organization with and normalized more customers. the the believe teams in combination sales our environment our of to being our long-term deferred positive architectures sell network allow is upgrade Cogent. are for decisions. or network This hybrid a delayed work have establishing tenants companies a incorporate us Many policy. that who to

requirements elect opportunity corporations re-tenanted be will office to new the allow downsize office to the sell We to with benefit those addressable market increased to tenants spaces opportunity certain an to multi-tenanted as more As actually landlords strive in office space believe organizations. fill this us Canada. U.S. buildings, this as services vacant space begin more in and provides from their aggressively

constant Our targeted remains our But about target during been This XX% expansion and that rate we've the long-term EBITDA growth margin operating half multiyear in is averages. line currency is long-term XXX historical basis points. our at pandemic, with level. of

expect but, long-term to We gradual improvement unfortunately, to a see these a targets. continued

our We holdings June is of extended average substantially maturity as were have $XXX.X our included of a total million available that XX, covenants eliminated our euro of cash more benefit we of notes. have the to in shareholders. at debt, available restrictive And that

to our in and business felt million we decision the a in dividend consecutive for not is is that belief stock did remaining, increase $X.XXX $XX.X have any growth grow. rate the quarter the Board we to to per consistent XX.X% with our quarter XXth that dividend took for representing share our While quarter, the continuing repurchase our a yet

the increases dividend consistent long-term business. have optimism demonstrate in Our we our

for open to the questions. like floor I'd Now

Operator

Instructions] Our [Operator very you Williams Cowen. Thank much. the ahead. question from comes with Gregory, line Gregory first of go Great.

Gregory Williams

for Thanks Great. my questions. taking

the Has of target, now in appetite X.X% question you've past target just the noting increasing and on since you're growth want you'd for in that. Dave, corporate. concern second a bit is the changed that to historical the about noted sequential is get the that leasing just next one X%, debt And office trends? your little on few to quarters. First

debt high those with paying much X.X With of that or us you you're a higher did debt now euros, debt removed least of new I lot or how understand lifting debt you're those rate. some hoping now comfortable flexible, re-fied more be taking understand that Thanks. in it of a covenants range new and it's I restrictive raise this your while was a at target to sort you'd here, nice you'd I be levels So at you at a up times? give covenants.

Dave Schaeffer

Yeah.

on let all, me of first touch rate. So corporate the growth

We seen, in shutter material factors the business. those And a impact of the think, pandemic, growth corporate buildings the go and impact I rate saw in activity At and negative corporate out business central had that just increased on have district. we many beginning our vacancy three businesses rate. of

second to thing remaining had The look no those end the were they then occurred make they that in tenants would what the to is unwilling like around because part networks for decisions post-pandemic buildings, architectural the their of in pandemic. visibility

of third probably to been fully has leases end at the The most customers understand, their vacate factor, some which and the are has the difficult been that to fact to tenants electing continue properties.

reduction we in So while have an vacancies. seen and a has the yet inversion abated, in vacancy increase not

for a business rate in we sign have sequential I reoccupying leases. to will X.X% see net absorption those vacancy to corporate, back district rates and central get us tenants to think growth of

of landlords. duration. less those factors Those much focused leases are We on dollar value are for very important or the the

the in Because degradation, have of complete we rate, not positive. -- back were turn hoping seen in have visibility rate year don't seen While second the that net to yet that, would slowdown that we number that absorption we while the positive half a get first we we to of have this of that.

improving. quarter, appear last seeing be yet in but corporate We being declines to similar improvement. not plateau We signs of kind with are to a at of

several minimum, away. at quarters we're So I think still

occupancy get leading question. done now buildings We their to to to by encouraged some the the that leases, still swipes rate. tours, which work we historical are to and are card indicators, be but more Pivoting debt back over serve there your is

don't long we're range number stated We range X.X that to part period, consideration point. by the that leases raise dividend. EBITDA over capital all yet alarming a the [ph] decision at of the growth a feel again We have the match also $X.XXX in Board the includes of that, We over leverage has an making its of inclusive times had a dividend X.X understand Today, big X.X. this that, EBITDA. in our the that to is net that at in to It's growth that

historically We than grown grown dividend. we've the the faster since EBITDA And grown slower. have it pandemic, has

We continue situation. monitor the to

number has we'll X.X We And or above think Board X.X we'll growth we back so. do the several we at over we're an dividend or the not more are level that think yet And is with our for revert below quarters, to year that committed into official comfortable range. changed and the while be policy. next

Gregory Williams

Dave. Thanks,

Dave Schaeffer

Thanks, Greg.

Operator

you. Thank

next up We will our queue question.

by James. is Frank with Louthan question next Our Raymond

Unidentified Analyst

guys. on Frank. for It's Rob Hey,

So obviously, the and to the vacancies respect rate re-absorption Dave, you just with corporate beyond for outlook talked then that. of to

Just what Internet year might traffic where traffic a during Internet traffic were growth, Thanks. volumes be addressed potentially ago? growth there Like on or able any You going they have to pivoting traffic earlier. this return reason is to look might like that the like two the what's outlook And forward? growth did to quarter? about

Dave Schaeffer

the average investors concerned the were of of We're growth, a on stated that grew saw know We X%. were basis that international actually a grew as are saw. constant out than content accelerated are XX%. as of had a by investors on our come year-over-year second growth this to currency many We're result at not very basis, mostly because NetCentric customers businesses performing sequentially that so their well the XX.X% the months. growth the sequential months summer Traditionally, quarter why slower long-term rate growth winter very encouraged by we part from and a reason on were the in X%, I direct and markets. of far our year-over-year These growth as our expected. revenues positive seeing We XX.X% some growth above traffic actually basis slower called traffic signs. delivery

thousands XXX delivery to over have networks network. continuing content use We networks and proprietary our of

feel NetCentric have surprised we quarters we and actually future. least continue to well several at So pretty this foreseeable good and the past outperformance upside actually expect how on for business to the performed been has the for pleasantly our

Unidentified Analyst

Very it. Got Thanks, helpful. Dave.

Dave Schaeffer

Rob. Thanks,

Operator

Thank you.

speaker Del - question Go with Nic from answer next ahead, next our Our Deo is Nic. and MoffettNathanson.

Nic Del Deo

If corporate unit and that noted of questions. the business. couple to I vacancy ever corporate back was need driver Tad, don't Afternoon, think a rates, to that to faster Thanks think think questions for vacancy growth to much really you when around get you key you of was growing normal. thought back Hey. see my guys. bounced rates at of I your a rates decline ago, taking as

I think the the connections driver was improving your in you serve. share of building

share So almost it to gains? makes aren't business the be stay the if sound me if shouldn't that mean, I'm And interpreting even part story. corporate share or I maybe you to flat gains able just grow disconnect trends corporate tied of incorrectly? way you vacancy understand via help vacancy rates the growth like something

Dave Schaeffer

So share are growing gains our our of corporate way business. primary

absolutely You are correct.

went the today is XX% over CBDs. addressable our by it rate to in shrank nationwide vacancy market average where when However, XX%, X% from

are at building, the customer's the reasons just is actually the provider. of cities factors the incumbent a building, our re-architected take many not they The changed. are to are new that's of are new office experiences I to CBD average. to believe always advantage nearly And the rates or Some why most three are is infrastructure reality not, just And tenants with commit, we're Cogent's during think for just the capturing reluctant we where little market, we've still provider. if people level they're Internet in I These tenants willing building. But architectural make figuring probably of example. is Things going tenants a going building. different extreme. definitely make market to of from moves at think improved. And or its a I key seen. rates to make and are of have by buyer's downsize. our in with vacancy come most they're to XX%. their will a to I'm customers building, switch. coming to it's softer That don't a environment from of Francisco there we for they reluctant materially because seller's And rates, were existing during a from long-term need multiyear they we've to move probably is incremental new they're that, in back Downtown in which has know market. more growth rental corporate below that than not also excuses, renegotiating stay historically pandemic normal or take worst And vacancy their space the not rate see many what a Those peak. San I commitment because can one vacancy I going that a to They not the this may that when market think where a tenants the and windows stable three has to win a lower consider think decision. to these maybe a reluctant will of going customers. are When another normal. are some have the of But bandwidth. to but either are that remain a dramatically IT But when stated pandemic, trying a customer changed customer They tenants lack migrating do I growth not lot into the failure think in

Nic Del Deo

okay. That's helpful. Okay,

side, talked more On you've some time. NetCentric for pace normal about NetCentric a obviously, to returning the

target more taper anomaly rate? still to rate is it's rate, a quite If normal at Should that seen your hard take as of tapering could not an kind you It's it's down this Or think years. growth So and surprising growth a of the volatile. growth think longer going constant bounce did and and forecast. sequential what I Obviously, up it that's from to it we look X.X forward? this bit to last off. we've currency down sequential over step

Dave Schaeffer

have in We've again above obviously much the that's internationalization the the seen, it's trend will some for and of We're typically, how we fourth that has has and because XX% markets think mean rate. if rate world. materially. to and to quarter trajectory to quarter, quarter I time, therefore, the relatively pickup the will U.S. four have a the sequential both a us revenue many today. a been And streaming It's We've trend of continue probably at of said corresponding first NetCentric in we to we continues growing. see the for it still XX%, don't to the to the think, the pre-pandemic four volatility. third years. then comfortable hard I follow pandemic. X% and a expect of the converge just over not traffic, investors that Canada slowed same not more happened and definitely to growth. in next be That growth quarter. tell it did, throughout Well, least And the elevated It And means streaming. or and have as slowing growth during not about the in again, are little tell years just we'd historic enough expect That second the for nascent. level data annualized of Canada U.S. growth same three our a developing latter down X% part of in But maturity throughout doesn't three NetCentric

Nic Del Deo

Thank Okay. you.

Operator

you. Thank

the line next with Horan of Our Timothy comes Oppenheimer. question from

Timothy Horan

Thanks, guys.

they yet. not really But They're changing networks So Dave, if really or they're of upgrading customers their moving not move. frozen. might kind are

aren't XX, in Or more confidence in or extends new more tenants So XX three the this with last recession a increase that churn period, will another few the think coming And this reverse low. of this dividend what will months? really is maybe Do quarters? frozen you or that years kind gives relatively out yet. you two

Dave Schaeffer

Yeah.

points. different two So

So our recessions, materially typically crisis the by corporate 'XX, and in growth into in from that What base. 'XX, the rate. previous is, in exception rent at experienced financial we've with And see terms recessions of our one of buildings B not we upgrade customer impacted of were offices is first we their the C buildings. to tenants A use same migrating or lower the

you Wakefield, CoStar, whether case. that's for previous the at If it's recessions, look data, always JLL, third-party Cushman & been

growth most it impactful really reason, believe the lower reduce It's corporate in typically to to as more to XXXX, in Now we vacancy that recession, have And XXXX. really in the economic have to likely for that we had the is rate rents aggressiveness if our that don't buildings rate. the think flexibility most will And that continue. going is material of of expensive recessions. We not the rates. landlords growth the a previous doing as be they

of converted supply the lower We we're the to end also think continuing market, that see at residential. be to

mean looks work has the at It why, the of more it's rate even hybrid part So a environment, vacancies That we're mostly though stabilized. I of has least it a a U. think like it V. seeing that the doesn't means reason world plateau. migrated to But

feel outperformance We've In terms we in raising the $X.XXX very of of the our comfortable dividend, NetCentric today. got business.

the of the total to NetCentric and XX% being expansion pandemic going performance the percentage pandemic kicked the of today XX% We has into have that business the of EBITDA in margins revenues history. in best company's revenues. our approximately is The from throughout roughly up

to to ability as our increase a more cash. we So as increases generate at in and continues share an comfortable that it long as feel outpaced rate,

that without business, percentage rate As our rate converge. eventually on-net our We dividend necessary NetCentric that absolutely continue we'll margin growth expansion I growth of and see even with it's in to further stated our corporate growth EBITDA high aggressive We we in earlier, of a corporate acceleration think EBITDA thought for and not think the corporate ago. two but in will have material rate we quarters customers is are on-net. or the as realistic three reacceleration improve, on-net improvement do also would and off-net as even that

Timothy Horan

good. Very

been change a seeing you side? other two corporate Are in ticked in lot lot. the up there? prices Have has a seen Inflation Just in have any trajectory change pricing any down maybe brief. the and you

Dave Schaeffer

inflation in live industry we the that So forgot.

the of selling We business are a deflationary in service.

moderate As actually Tad mentioned, average per in rate some. megabit did the the price of decline

sold those megabits distorted more of part to the be a have that fact that of world, that which tended developed has of think little think I outside more I bit. in is the markets expensive

the in improvements a lines division We interfaced huge beneficiary optically are technology, wave of We both future. trend will those foreseeable multiplexing routers. substantial think continue and for

that support vendors equipment Our prognosis.

pretty feel we good. So

businesses. expenses like rising just other clearly, are the all On side, operation our

those the some rents, of services we margins and expand passed obviously, been to in remain able buy. for employee been have and other for that though even market, advantage we have take pressures inflationary increase We market office our salaries, on to able of conditions competitive

that fortunate power fluctuations. purchases most are also to are of and wild our market not are We susceptible fixed

we've in some those power, had to have We and our pass customers. been on able increases to

all, think we So you. Thank all in EBITDA. our will that ability grow our not impact to inflation

Timothy Horan

Thanks.

Operator

Thank you.

Walter with LightShed Our next Piecyk the comes of question Partners. line from

Walter Piecyk

Thanks. Hey, Dave.

the long-term on deals, qualitative the growth and in visibility You in you on asking us reductions. companies mentioned prepared for good about Can you they're me, of deals comments, puts Typically, deals? enter the you also terms in excuse some content kind -- some of that or of of long-term give that NetCentric. But mentioned line. comments of those prepared takes those price the gives into comments long-term some - kind when

Dave Schaeffer

give every and one Sure, And of decade, customers we how and go can the same you for past value way, them have we by Yeah. back in section contract what quantitatively their Walt. increase many to transcripts the that was. and

So fixed accustomed offer for a and a buying to fixed NetCentric basis. services commitment We metered term. discounts on is customer

ports. is typically at to do they will number XX% capacity, total a a typically commit and of will will XX%, port approximately running They customer a be buy [ph] same what So level.

customer more may gotten do year about a they year the on, per more left or start their enter run into three pay sign than we'll price. capacity, first a Because at utilizing ports XX they the two, contract more recast most that contract, paying that months say, higher contract they XX% three As reduction initial traffic. experiencing What us, time price, halfway they capacity usually have volumes. lower is months, then take a price to that new back commitment come rate will is understand point typically additional declined committed megabit. on which in and Customers the in market a that may case they're year ports, goes to about either are prices XX add get One, things. are total and per penalty a over to premium, for through will their a and two the like at NetCentric haven't that to price, they customers lowest committed

customers, re-pricings. then three to the is into That that most NetCentric next common routinely commitment. their that for these expect contract happen year and We pattern with factor we

Tad Weed

add. would I just

remainder accept that pricing commitment, is the customer value greater asking new the contract new so original to - that. us change contract for a a term, on for the contract for to total than in the For be must us accept

Dave Schaeffer

is there a only gets if the salesperson increase there's is an which And governor, a second in monthly commission the spend.

control of an and So there's kind both customer a mechanism mechanism. control internal

Walter Piecyk

growth want term, provided outlook really to not you that because go the - of than pandemic to also that put since was EBITDA well, to term. response this of, your started. expecting in then that. you And the context long that I you're cautious Thank kind I to guess, long I back Nick bit for Del a I think Deo's more kind want of question and

the some as growth know the already you're moment, I time were it. frame think the at is, you under rate, what you with about rate said the but obviously going But to non-specific You pacing dividend point. highlighted. EBITDA growth is don't which I converge at

when then can't leverage to. you've seems below of we don't think those know everyone of you down some frame don't there's Obviously, past. expect possibility we given like But gotten wrong X.X. things when how understanding them it were converge, in that to stuff if wrong really I you go terms the time as Nick, stuff the a get can gets in cautious

aside. that So let's put

number. for of leverage tired to got take there's this to X.X X.X the we're the Board At bogey X.X what, Like X what do waiting to not a like you convergence. X.X? what point to it like X, willing out? X, say, willing you Are And out. stick or or Or You're benchmark? this X.X or be times? is At the know is point does stick you

Dave Schaeffer

to three answers. question, parts three So your

were would to everybody pandemic. home started, just thought before me return four and we have not going for you the it or and do I I three go back like would When all, for -- of a crystal weeks ask if be to the everything come normality. ball First pandemic was was to going

still Now which in world, significant change the later, has issues, price supply a employer-employee X.XX experienced and years living distortions a in we're different dynamic. chain

employers power the much think all pendulum employees power more the of having much work result of a a more to environment from having common pandemic. I has result a swung that hybrid as become place. as swing, the And

historical that do taken all is to expected. know or have we can't norms predict transitory back change. What I again, longer revert permanent than I a is a these to had change of Now

our has As very clear: bottomed result, corporate been out. have I business expect a we

proven we've think I that.

correct. think I our expectations were

we was two the to I I On clear, thought from return call, normality. I previous were away to said that earnings three quarters pretty

we've passed, and got indicators, the we improving see about leading data results the same. points has quarter another while as -- additional are things While

we an your to as kind result in what Because question to environment that, make normal back just And that going to front need be. thousands, win But we're maybe is know our cautious -- a of they you you willing XX% how to office, can proposals the environment. architecture a the in our tie customers issue. maybe more get absolutely a I focus So And of is on-net and we a thousands it of of that feel what on reality seen win prospect. return of go buildings, architectural the customer and literally tenants in could transitioned have And got to think of is have the play a of their I through work transition the of would pace tens - to won't. across and We really lineage decisions. you next slower you'll predicted. than hundreds of that to be of when firm pandemic. out back I you've We and to we to

Now we business. winning are

is positive outperformed into improving. customers gaining all our our going expectations These fortunate that the sales are had is signs. and has actually are a business time. We We've the basis pandemic because on attribute longer quite being much we've more profitable an the percentage been the of period on-net dollar efficacy that That incremental is business has of for also contribution and NetCentric honestly higher.

and that line this we're or at think this XX% public, going We Cogent's X%. throughout roughly EBITDA is together look at to the top at slower. improving, do at and EBITDA. XX% we growing EBITDA materially we are are at a go confidence average quarter If put says why X.X%, back in Today, since growing dividend. see going and it growth our All period. XX% grew top X.X% about we that line -- of Those we in have that's and

in about the dividend going have feel continue to substantial we substantial to borrowing But sheet, confidence forward, we to we have ability of the monitor lot dividend. we liquidity it. As capacity, on grow our incremental that the balance we think a and continue

we But feel in today. very It forward. flow going to business pace monitor cash the Now each situation we're comfortable is may producing of growth again, this as that more not go vary. we But the free quarter.

Walter Piecyk

to confidence also grow greater are right understand argue conversions your a question, point inflation, you -- last of turn, cities. pay market, could among the like we've in as the uncertainties I I voice The than leverage ever where in a don't know to slow now small the has to said what rentals residential the you to we new I just are of is construction you -- part signposts there of in just and cost kid that than think was is you where but but mean, office economy, host my on of and I put different got your York and things. it Dave, gets City see -- a these where be residential that what or terms ratio more the Everything to dividend. substantially the going of New of lot for it

can there's high X.X uncertain X XX leverage probably leverage agree core say is, -- -- point there that is enough, And what at a future. and So Board times leverage. an the times we might too does be is question the

get agree what there's a I'm So the a to that number. is trying we can number. of sense just

Dave Schaeffer

I you Okay. that... Well, tell definitely can

Walter Piecyk

X? it Is X? it Is

Dave Schaeffer

and We contractual actually Well, into leverage have our terms X secured Those that are leverage. indentures our more have are than times X indentures. limits. times cannot gross built

We those are very of both from limits. far

of rented a maintain terms cost In of of question of of leverage, ability levels to debt. it is capital elevated really the business' the

remain substantially costs substantially capital competitors debt averages. below our and Our below historic

meeting, has the that dividend saying, So hit don't hard the to think we at it, Board growth specific think the But I a is Board we we look going we're something consider it the totality. number we a every about slow number, day and down. single

We been pretty also to pointed we've there's $XX our million $XX we million Tad clear: out, know, to $XXX sheet. balance need run business. as million on the And only keep or

foreseeable because a I our one have we through we now -- And much expect number the eventually the can't to lot So cash That's exist. covenants. as unencumbered to return of hard excess give cash. modification It's to a continue of you return. doesn't for future,

Walter Piecyk

right, Thank fine. that’s you. Dave. All Yeah,

Dave Schaeffer

Wal. Thanks,

Operator

you. Thank

will in our next queue We question.

America. comes of with question from Our Bank next Barden David

David Barden

guys. was so of on Twitter, but Hey, been a Thanks crap good me that a much. giving Walts question. lot

looking would and have be force went sales we from a one on back force retention. I got with productivity. the the of redlining you hiring one are we I've actually back had you guess cited problems Number fully And kind sales is what when recruitment? in I guys are at success Dave, guess, into left? as -- how coming the the into couple. of productivity So I rate we office, force that being you your remember office sales

of talk kind to like I'd about so a that And bit. little

connectivity that. not don't and I prices hunting potential to have has the the for be, Lucent, and both data And Cogent. would the cited extending wholesale near-term data the the your been them, to center of - the in hear or view maybe aware love been? of could, Thanks. if on likelihood would industry what come at Lucent of prominent kind this its disintermediation which hear I short call out confident while, Cogent them. a prospects Lumen thoughts rising negative data the last, be that's thesis would the with of And of I'm people a been have you're by who's there's for center The that a that the I'd a then of for that who and implications of by property would problem industry. is, providers. transit question AT&T of have love for know. And your short been But it's have on the would cloud beneficiary and industry, center I risk seller second kind for be: investor on

Dave Schaeffer

and answer And important to answers. that Yeah. I questions. that the listening answer feel appreciate listen, everyone here them. I'm really we staying to it's I do late our And

sales take our So decline sales force substantially first. let in The rate one of force the me moderated.

sales net reduced force by From XX%. to QX, So from QX QX to we lost QX QX, to or we QX only two salespeople.

record We have actually at hired rates. since the beginning of the pandemic

shortage of no have We applicants.

vaccinated. force, individuals Yes, who in a had sales XXX or an salespeople like of XX person We over organization. There individuals XXX XXX new reason was are months of don't me, To for reason it total there like have encouraging and working each quota-bearing returned who that hiring peak are office. of don't of most nearly extremely And some the turnover. those XX-year And lower the being of higher our is represents to average productivity. we productivity.

So long the of before well in since of XXXX, we force beginning QX have the not so productivity sales done this pandemic.

flattened up to did quarter of up of and point. the that. force of around seeing encouraged way the in will from sales size basically materially declined We're by in think We X.X% X% growing. of very terms and -- X.X%. any the force. from grow It an sales the much issues all this quarter. X.X% again turnover rate We're our It Now this not is average to last declined tick force sales

terms we learning In training environment. combination is in from of all the of environment people productivity, office, experimented the that a the improving with in having and a remote this the

force revenue cost. increased continue growth efficacy pretty we're by to its our sales drive acquisition ability an and to encouraged incremental subscriber So without

I'll your pricing. about question of I believe I heard that quite the be from one large buy honest. circuits. wholesale comment it. carriers to off-net Now and didn't We

compounded every X% instance, least that seen And we we suppliers. a have we XX have And as X% private price buy And providers. We off-net almost two as host of reduction XX,XXX for loops. there by almost fiber. delivered particularly we fiber services from at both incumbent sell been are rate the have well of overbuild off-net continue, carriers. different projects In customers. over in has or as We those only wholesale equity funded think a that will

two, one, lower to buy. experiencing we're the So we NetCentric; prices sell in and not wholesale we're prices as raising in our we customers

to data your Mr. Now last short question Chanos' on thesis centers. about

equinoxes not serve I have any and center capital, every build interactions. have much footprint. carriers our substitution. data We for ROIC There's -- the Pretty the a why is -- in X,XXX There by most spend their been we reason But site have not, into world. office data and We're more hyperscale limited in network robust. they in ourselves to with capital center multiple if centers center associated data is very data in equipment. We're in that sites. obsolescence. different It carrier have several facilities. sales valuations there on -- consistent sectors. cost a data not the and There's hundred part there's of very chosen know market. more more typically There's the blame of we're are than cloud perpetual absolutely their and operated vast a We're demonstrated oversupply all more other core that exceptions some majority, in operator, While above centers competition. technological growth. we're limited we

our comes or serve ironic, is seen a that quarterly have remove go facility. it, the And unwind data we data centers business. takes single We we quarter. What it. every and rewind agnostic. many we of out new operator six over probably don't We usually after fiber. we're - quarter, have however, five that Now we unwind is centers next What's in

the condition data on there beyond to of I So care I longer probably experienced Internet. customers the normal And that power know really have that It's comment that I access sell. going NetCentric part the pandemic. the continue term we for facilities space fundamental operates our demand I That's the about it, and than industrial long we comfortable. center our is It's feel to and is do can't anticipated our directly don't in operators. what grow to the facility. we trend care. What of of profitability beginning had line. growth business, in has at whoever And business

David Barden

Dave. Thanks, great. That’s

Dave Schaeffer

Dave. Thanks,

Operator

Thank you.

Rollins Citi. comes next with – our line Michael of the speaker from next Our question

Michael Rollins

the one Hi. question. follow-up One and taking Thanks for question.

centers be, of changes tax. are today you build or the next when on the What's Dave, you for CapEx would for and did influence type few tax a the subject material And on Where terms your mention timing follow-up D.C. goal that annually data the position any expectations? in So to And then build start the years. implications secondly, of plan? you tax of cash XXX proposed in have taxes? on Thanks. the that does the paying

Dave Schaeffer

Yeah.

take let center me first. the one So data

XXX We have new construction, a a both pace did the facilities and realistic. operators year It's about the pretty that and year. last are and building existing robust feel we by funnel very addresses of operators is actual that under

do recovering because We buildings, expansion reached market enough, is even multi-tenant wanted had less the because targeted are buildings pandemic, not to office MTOB that slowed the as probably had we not before our going but quickly materially we to. the

data we by from XXX will our The change as Now several has that We that on a been a very to will without that we be in With in sequential But pretty about year coming number footprint there CapEx year guidance, on past the and centers of that, are buildings expansion total down think over the on year. a terms CapEx about measured payments go our leases. markets, capital CapEx center square straight principal footage. them. X% last line both achievable X% in new in MTOB to slowed basis, major think a are has came with CapEx. consistent. data in year and It

of Now slightly to has billion Cogent tax question. your $X NOLs. still over

in many be of $XX the with NOLs BD a that holds holding European about tax those new Luxembourg XX% minimum minimum. U.S. in to are subject statutory largest a in we will markets of due international calculation believe are the company the only million in The those independent NOLs of our XX% to concentration However, our majority of subsidiaries. We

XX%. we not a then So will taxes over the to at cash utilize NOLs the tax international taxpayer, U.S. we by two, believe being of capture we outside will paying next foreign indirect able be but become year the caught but effectively our or

kind not as a It's think but a out pretty a years, XX% at outcome. paying Cogent in it's think or higher perfect, I of model better investors I So rate. that's good than surely

Michael Rollins

Thanks.

Dave Schaeffer

Thanks, Mike.

Operator

for now our final And you. question. Thank

the Our KBCM. Brandon question final Nispel comes from of line from

is line now Your open.

Unidentified Analyst

that? you thanks. could starting It's to Hey, you thinking a what bit around for about talk Evan and would maybe to on you thoughts start your about buybacks need Brandon. Thanks. Do exist little conditions the for think share

Dave Schaeffer

Sure. Yeah.

to think are So question that's shareholders. are we to yes. evaluate, really amounts. of about return a And is to was question. a The that something it of return capital first is that as rate I growth that starts committed with on. Walt increasing amounts of to it's capital But we dividend He our - focused of to we question. return it phrased unequivocally question but committed The will continuing answer returning increasing absolutely the

not the have suspending using volatility mostly effective. was buyback dividend seen told because a the mechanism today Now we in is of that the of part level dividends, us return more and

of capital, for therefore, of a dividend advantageous return as been able result recipient. our have the We classify tax a to getting dividend the majority

more that of in As been that, through quarter. consider a We to that million buybacks has has total. of $XXX use $XXX we decided result billion dividends through every million that returned have dividends. Roughly buybacks. We've and $X.X been of about than

remain evaluate based But I dividend point, on we'll market conditions. probably every and focused. it again, think at quarter will this each

Unidentified Analyst

Thanks. Okay.

Dave Schaeffer

Thanks.

Operator

I closing more No remarks. you. over Thank back to for questions. to turn it would Dave like

Dave Schaeffer

in normally some but thank to accommodate Well, all you we late. do We much the staying this mornings, very for needed schedules.

any So everyone was attention, we're calls. thank too their to hopefully, care. Take inconvenient. Talk follow-up and do available to you for not We this Bye-bye. soon.

Operator

This participation in today's your conference. program. conclude Thank does the you for

disconnect. now may You

Cogent Communications (CCOI) 7 Aug 222022 Q2 Earnings call transcript