Q1 2020 Earnings Call
We'll be Cogent Communications Holdings first quarter 2020 earnings conference call.
As a reminder, this conference call is being recorded there will be available for replay at www Dot Cogency, Oh Dot com.
I would now like to turn the call over to Mr., Dave Shaffer, Chairman and Chief Executive Officer of Cogent Communications Holdings. Please go ahead.
Good morning, and thank you very much a welcome to our first quarter 2020, <unk> earnings Conference call I'm, Dave Shaffer coaches Chief Executive Officer.
Lets me on this morning's call is John Michel Slag more are acting Chief financial Officer.
We're pleased with our results for the quarter and can tend to be optimistic and the underlying strength of our business and our outlook for 2020 and beyond even with the impact and uncertainty of the Cove. It 19 pandemic.
Our quarterly gross margin reached a company record high of 60.5% it increased sequentially by 20 basis points, an increase year over year by 70 basis points.
Our EBITDA margin for the quarter increased 30 basis points from the first quarter of 29 team to 35.8%.
On a constant currency basis, we achieved sequential revenue growth of six cents of 4% and year over year quarterly revenue growth of 5.6%.
A reduction in U.S personal service fee excise taxes for this quarter reduced our revenue by approximately $600000 on a constant currency basis, and adjusting for the impact and a reduction of view of south or quarterly revenue growth would have.
And 1%.
On a sequential basis, our year over year traffic growth was 36% for the quarter and we achieved sequential traffic growth for the first quarter over the fourth quarter of 29 team up 12%.
During the quarter, we've returned 30.6.
$6 million to our shareholders through our regular quarterly dividend, we did not purchase any common stock during the quarter at quarter end, we had $34.9 million available in our stock buyback program, which our board has authorized stick content.
New through December 2020.
Our gross leverage ratio decreased in the quarter to 4.78 from 4.86 from the last quarter and our net leverage ratio increased slightly to 2.92 from 2.86.
Cash held at Cogen holdings at quarter end was $80.5 million.
It is unknown at this time.
Significant amount of uncertainty and volatility remains walk cogent has moved to a remote work status. We have nourish assurance that over the long run this will be sufficient to protect our workforce and key employees. Moreover, as a result of operations could.
Adversely be impacted as the future of the pandemic and as trajectory and associated governmental restrictions may continue.
We may see a downturn a new costs from a waters find it difficult to collect some customers who are experiencing financial distress and encounter difficulties assessing accessing buildings and location to install new customers.
And to perform repairs for existing customers or have difficulty and securing an indoor shopping equipment to our field operations.
Lastly, the global impact of the pandemic may have prolonged economic effects that could impact our business as well as other businesses.
This restaurant described in more detail at our 10 Q. filed for the cool water and this will be filed shortly after today's call and these will supplement.
The risks that are outlined and are a year and 10 K. for December 31st 2019.
<unk> throughout this discussion will highlight several operational statistics I will review in greater detail shirt operational highlights and trends Hey, Sean Michelle provide some additional details on our financial performance following our remarks, well open the for for questions and answers.
Yeah like task drama shelter radar Safe Harbor language.
Thank you, Dave and good morning, everyone.
Earnings comes from school includes forward looking statements.
Forward looking statements are based upon or current intent belief and expectations.
He's forward looking statements and all this statement that maybe made on the school.
Not historical fact are subject to a number of risk and uncertainties, an actual results may differ materially.
These referred to as he findings for more information on the factors that could cause extra resulted differ <unk>.
<unk> no obligation to update or revise or forward looking statements. If we use them get sinuses measures. During the school you wouldn't find to reconcile d. So we can start <unk>, you know, earning <unk>, which is sports posted on a website at www Cogent cool dot com.
I'd like to turn to call back over to Dave.
Hey, Thank you Sean Michelle.
We've had a chance to review our earnings Pressrelease are Pressrelease includes a number of historical quarterly metrics.
Our corporate business represent 69 per cent of our total revenues, our corporate business cruise, 7.5% from the first quarter of 2019.
Are netcentric assist which has underperform compared to historical averages and was flat compared to the first quarter of 2000 is 19.
Corporate business for the quarter cruise sequentially, 2% did two tenths of 1%.
The change in U.S.F. tax rate negatively impacted our corporate business, both on a sequential and here over a year basis.
The rate changes quarterly and we cannot predict future raise set by USAC.
Are netcentric revenue performance improved from previous quarters and group.
By 1% the volatility of foreign exchange, primarily [laughter] impacts are netcentric business on a constant courtesy bases are netcentric business increase 1.7% from the first quarter of 2019 and increased 1.4.
4% from before quarter of 2090.
<unk> <unk> annual March and expansion guidance.
<unk> a improvement to be expected of about 200.
Basis points per year, or multi or constant currency long term growth objectives are 10 per cent per year.
Our revenue and Aber Das guidance are intended to be multi year goals and there are not intended to be specific quarterly guidance.
Now I'd like charm, a shell to cover some additional financial details for the quarter.
Things, Dave and again, good morning to everyone.
First of all also would like to thank and congratulate the coaching team for the result of their continued hard work and there are four it's doing another productive quarter full cogent.
Hmm.
We analyze and revenues based upon network died on that have met an encore.
And we also an analyzer revenues based upon <unk>.
Because I see fight all all customers into two types that centric customers and corporate customers.
<unk> customers by large amounts of bench with from us in cardio neutral data centers.
With customers by bandwidth from Us enlargements dependent office buildings.
Revenue from our corporate customer for the quarter grew sequentially by 0.2% to 97 million.
<unk> year over year by 7.5%.
We do believe there will be a few three bucks on no corporate business, because the lower U.S.F. rate and corporate customer buying patterns in light of course 19.
We had 48499 corporate customer connections on network at court and.
<unk>.
2.6% over the first quarter of 2019.
Well see revenue for from old Netcentric customer increase sequentially by 1% 44 meeting and west flat year over year.
We <unk> uppity can traffic growth in the last two weeks of the courtroom, resulting in revenue growth and not continuing to see elevated levels of traffic so far this quarter.
On a constant currency basis, well currently revenue from on Netcentric customer increased by 1.4% sequentially.
And increase year over year by 1.7%.
We have 38007 and 14 netcentric customer connections on network and.
An increase of 9.8% over the first quarter of two dozen 19.
Oh, Netcentric revenue growth experienced and usually can be more facility volatility to know cope with revenues due to the impact of for any change larger Christmas size and swords in season, then factors.
[noise] on on that's revenue was 103.5 million for the quarter to see <unk> quarterly increase of 0.8%.
And the year over year increase of 6.5%.
<unk> on that customer connection increase by 0.8% sequence, Shirley and increased by 5.8% year over year.
We end this quarter, we 75000 hundred and 63 on that the customer connection on network you know what 2823 total on that Multitenant office encouraging neutral data center buildings.
Off net revenue was 37.3 meeting for the quarter.
The second she'll quoted decrease of 0.4% and he year over year increase of 1.3%.
<unk> ausnet customer connection increase sequentially by 0.5% and increased by 5.2% year over year.
We ended the quarter, serving 11721 off next customer connection.
6930.
<unk> <unk>.
These buildings are probably in North America.
So some words boedo pricing consistent with historical trends the average price per megabit, Oh installed base and on new customer contract decrease for the quarter.
<unk> declined sequentially by 8.4%.
<unk> three cents and declined by 21.8 to send from the first quarter of 2019.
You have rich price for maybe it'd be on new customer contract with a quarter declined sequentially like 29% 20 cents and declined by 49.8% from the first quarter of two dozen 19.
[noise] respect of our pool, Oh, Oh on that's <unk>.
<unk> was flat the quarter of net <unk> decreased on it all pool, which includes booze corporate and that's going to customers was $461 for the quarter.
The same as last quarter.
Often at all pool, which is comprised of predominantly customer <unk> corporate customer <unk> $1064 for the quarter decrease of 1.4% from the last quarter.
German.
On that <unk>, <unk> flats, with a quarter and often that you need <unk> rate slight increase.
<unk> was 1.1% for this quarter.
The same rate as last quarter.
Off not Unitron weightless, 1.2% for this quarter, a slight increase from 1.1% last quarter.
We offer discounts relates to contract term to all all all all of our corporate Netcentric customers.
We also offer volume commitment discount, we'll all netcentric customer.
During the quarter Sorta netcentric customers to advent actual volume and contract term discounts and entered into long term contract for over 3000 customer connection.
Pleasing their revenue commitment to cogent bike 27.3 million.
Not in respect of Oh, it'd be done and it'd be does adjust it.
Oh, that'd be the and or it'd be that as adjusted are we going to talk to your cash flow from operation in all all quarterly earnings <unk>.
He's in the factors that typically in but the amount of as Jenny expenses include.
<unk> payroll taxes in United States at the beginning of each year.
And we will cost of living or C.P.I. increases.
Notifications periods.
Timing and <unk> Oh detects.
Oh, Oh These index services.
Timing and the amount of old games on the equipment transaction.
Oh I knew it saves meeting cost and benefit plan on will cost increases.
Seasonal factors typically increase as Genie expenses, you know first quarter formal fourth quarter and results sequence will increase you know Jeannie <unk> 1 million.
<unk> decrease by 4.4% sequentially 250, 50, built 4 million.
Well quarterly it'd be though increase year over year by 2.8 million or by 6% [noise].
<unk> it'd be done margin decrease by 180, Macy's point sequentially.
35.8% and increase year over year by 30 basis point.
Oh it'd be done as adjusted include games related to or equipment transactions.
<unk> equipping gains were only 30 $39000 for the quarter 536000 for the first quarter of last year and 251000th last quarter.
Awkwardly that'd be the as adjust it.
<unk> by 2.5 million or by 4.8% sequentially 250.4 million and increase year over year by 2.3 million or by 4.9%.
Well crudely it'd be <unk> I, just margin decrease sequentially by 200 <unk>, 235.8%.
And decreased by 10 10 basis points year over year.
Oh basic in dilute income per share with 20 cents of door for the quarter compared to 16 sounds last quarter and 24 Q. on 2019.
Or 135 million Euro notes that was that we issued in June 2019 are reported in U.S. solar and converted to at each month hand, using two euros <unk> exchange rates [noise].
Realized spring exchange gain although euro notes was 2.9 million this quarter, increasing or basic in diluted income per share this quarter by six cents for sure.
And realize foreign exchange loss Oh, your notes was 4 million for Q. for 2019.
<unk>.
Can dilute income per share last quarter by nine cents per share in Q. for 2019.
Somewhere it's about Oh foreign currency packed.
<unk> earned outside the United States is report in U.S. dollar and was approximately 23% over total cool T. revenues.
Approximately 17% of a revenue these quarter, where based in Europe and about 6% over when you were related to Canadian Mexican Asia Pacific and not seen American operation.
Continued volatility in foreign currency exchange rates can materially impact to quarterly revenue result, and the overall financial results.
<unk> exchanging black on the reports quarterly sequential revenue was a negative 200000, <unk> 200, 200000, U.S. told her and the year over year four and <unk>.
Impact on reports quarterly run you was and it gets <unk> seven <unk> $700000.
Quickly revenue growth rate on a constant currency basis was 0.6% sequentially and 5.6% yeah yeah.
Variability affording you change family impacts on Netcentric customers and revenues.
Average euro to you as the lower rates so far for this quarter is one dollar and nine cents and the average Canadian dollar exchange rate is 71 sense.
Two d.'s average freeing exchange rates to remain at the current average levels for the reminder, over the sick, although second quarter of 2020.
We estimate the foreseeing change conversion impact on those sequential crudely revenues for all current quarter Houdini and they get chief of 600000, U.S. dollar and a year over year Fraying exchange conversion impact on the cruelty ruin you will be negative of 1 million U.S.
[noise] customer can situation, we believe that it'll revenue and customer base is not highly concentrated up to 25 customers. We presented the less than 6% oval revenues for this quarter.
<unk> capital expenditure capital or quarterly capital expenditures increase by 30% sequentially.
You do a cease to seasonal factors and decrease by 3.2% year over year.
Capital expenditure, where 12.9 million these quarter compared to 13.3 million for Q. on 9.1 million for Q. for 2019.
Oh <unk> are you obligations for long term dark fiber leases and typically has initial germs, Oh 15 to 20 years or even longer.
Often and often include multiple renewal options after the initial term.
Oh <unk> are you fiber <unk> told to 167.9 million at March 31st 2020.
<unk> and we had argued contracts with a total of 251 different duct fiber suppliers.
Of course leak kept the least principles payments under or dark fiber are you agreements increase by 200.
Descend sequentially.
When do you to season the factors.
An increase by 100 in 3.5% year over year.
Oh capital principles payments were 6.2 million for the quarter compared to 3 million for Q1, 2019, and 2.1 million for Q. for two dozen 19.
Well kept the least principal payment combined with a capital expenditure, where 19 million these quarter compared to 12 million last quarter and 16 million 0.3 for the first quarter of 2019.
As of March 31st 2020, Oh, cash and cash equivalent to 375 to 1 million.
<unk>, Oh, Oh cast decrees like 23, but 24.3 million, we return 42.5 million of capital to stakeholders these quarter, two or 3.6 million.
Regular quarterly dividend payment and 12 million that was spent on semi annual interest payments on no deaths.
Oh cool to the customers operation decrease by 38.3% sequentially.
Due to an increasing interest payments, an increasing sleep expenses for monument and then I know the payments, which typically eight you know first quarter.
Well could lead cash flow from operations decrease by 0.6% year over year.
Guess flow from operation was 28.5 million for the quarter compared to 28.6 million for the first quarter of 2019 and 46.1 meeting for.
Fourth quarter of 2019.
Regarding adept <unk> total gross debt at par, including <unk> <unk> 962.1 million at March 31st 2020, and no net debt was 587.8 million.
<unk>, so trading last 12 months it'd be though as adjusted.
<unk> <unk> <unk> 4.7, 78, and March March 31st 2020, and <unk> was two point 92.
<unk> and D.S., so bad that expenses was 0.8% revenue for the quarter compared to 0.8% or have a new full queue for 2019.
And 0.5% in or in the first quarter of with those in 19.
Oh, they sales outstanding Oh, Dear so for worldwide accounts receivable, where 24 days for the quarter.
One day increase from 20 days 20 days last quarter.
Collections are generally in line, we used to refer rates, we didn't notice some delays in the last two weeks.
Of the quarter from corporate customer.
I want to take the opportunity to think again and recognize a world what billing and collection team member for continuing to do a fantastic job in serving Oh customer and collecting from our customer during these 10 times.
Oh, no turn the cold back over to Dave.
Hey, Hey, so much on Michelle Yeah for a couple of worse on the scope and scale if our network.
At quarter N., we had over 961 million square feet Multitenant office building.
Connected to the coach and network.
Our network consists of over 36000 metro fiber miles and over 58000 inner city root miles of fiber.
Cogent network remains the most interconnected and the world and we directly connect to over 7040 networks.
Oh these networks less than 30 are subtle met free peers, the remaining networks that weight connect to our code trend customers.
We are currently utilizing approximately 35% of the let capacity on our network.
We routinely augment capacity import serve our network as we see increases and traffic to maintain the issue Oh utilization rates.
For the quarter, we achieved sequential traffic growth of 12% and here every year traffic growth of 36% we operate.
Coaching control data centers with over 606000 feet I'm space and those facilities are operating at approximately 33% capacity.
Our sales force turnover in the quarter was 4.7% per month.
Right that was significantly better than our long term average of turnover on our sales force Oh, 5.6%.
Salesforce productivity improved in the water.
Quarterly sales Rep productivity was 4.5 units install per full time, a club one per month.
Well this productivity rate remains below our long term average oh, 5.1%. It was a substantial improvement from the 4.1 per units per full time equivalent rap reported last quarter.
Our sales rep productivity rage are impacted by the decline in our <unk> tenure as well as the fact that are not centric wrap sorry, typically Sally orasure porch.
We ended the quarter with 542.
Bearing wraps this was a decrease of sex from year end 2019.
We ended the quarter or however, with 522 full time equivalent wraps visa wraps that have gone through their wrapping training Perez and this is a substantial increase from 502 full time equivalent wraps we.
Had at end of year 2019.
We have modified are hiring process during these difficult times and <unk> able to onboard wraps remotely.
We are supporting all.
Oh far employees remotely hey continue to monitor rep productivity utilizing our existing maxrx.
And summary, cogent is very low costs provide or have internet access and transit services.
Proposition remains Oh.
Simple and compelling.
Our business remains completely focused on the internet and I.P. connectivity services as well as data center call location. Each of these services are a necessary utility or a customer.
Or multi year constant currency long [laughter] Road park at approximately 10%.
There are all term either a martian expansion right over approximately 200 basis points should continue for the foreseeable future.
Or board of directors approved for our 31st consecutive increase and our regular a quarterly dividend increasing or give a damn by two cents <unk>.
Per share per quarter, just 68 cents per share per quarter in the first quarter 2019.
Consistent dividend increase demonstrates art continued optimism regarding the cash flow and revenue generating capabilities of our business.
Mm, we remain opportunistic and the timing and purchase of our common stock in the open market.
<unk>, we had 34.9 million remaining under our current buyback program.
We hope everyone remain safe and healthy during these times.
Value or employee safety and are taking all the necessary precautions should keep our coach and colleagues safe in these difficult times.
Well, we believe we are beneficiary of a stay at home model.
We are uncertain about the long term applications or economies around the world with the large number of employees staying at home and the increase rate of unemployment globally.
Our growth and profitability carcass remain intact, and we are committed to returning and increasing amount of capital to our shareholders on a regular basis.
What's that unlike open the for for questions.
Okay and ask a question you will need to press star one on your telephone.
Your question press the pound key.
Please then by all the compiler q. and a roster.
[noise] and your first question comes on my cell phone, let's think of America.
Hey, guys. It's <unk>, thanks for taking the questions.
I'm, just a slow down in the corporate themselves what have you seen the or the corridor.
<unk>.
Normal level, obviously don't want reliant on the.
Shutdown being over on the on how much of it <unk> on revenue decent this will help yeah.
Yeah, So first of all our core.
Separate revenue I did not grew and a quarter, but not at our historical growth rate, we grow about seven and a half per cent year over year versus say long term average.
Which of about just under 11% that slow down corporate growth was impacted by two things first of all.
The change in U.S. half revenue at is purely a revenue match right not a unit metric Oh, yeah that right <unk> and is designed to fund rural construction and the U.S. and.
<unk> all T.M. pack falls on.
Our corporate business <unk> change way of seeing any errors in that U.S.F. right.
On the unit basis are wraps continue to be productive and we continue to sell at historical range. We didn't say in the last few weeks of March the inability to get in.
Choose certain buildings, particularly a market such as New York that were particularly a hard hit by Cove at 19.
As buildings were trying to protect other tenants employees, they would not allow construction workers to calm and and turn up incremental costs drummers. We also saw a significant I'll check in customers looking for more bandwidth at their corporate.
Locations, which at first blush channels counter intuitive because as.
The employees are working from home you would say why would accompany need more bandwidth at our corporate office. When there are no employees there and in fact, the work from home phenomenon for most corporate customers.
Increases the amount of bandwidth they need in their office as those customers AD hoc V.P.N.'s are being concentrated at that location.
And in order to make sure that employees can get adequate access to information and not experience bottlenecks. Many of our customers have ought to increase those connections from <unk> Oh.
Oh and corporate product to a gig about witches be calm are most prevalent new sale and we have had to upgrade a number of customers as stay at home orders are being lifted around the contrary our field technicians are continuing to be able to get.
Access to buildings, and we expect kind of a rebound tomorrow for additional levels of corporate crime.
Got it actually going to question Hey, too.
[noise] Your next question account.
Acoustic.
Hi, Thanks to can you talk about some of the last five weeks of the business a quarter closed you mentioned the installs were tougher in March but what about Sean. Since then are you still relatively isolated from U.S.B. weakness. Thanks.
Yeah. He tags for question fell show on the Netcentric portion of our business, we are providing input to the service our customers are selling and we've seen no increasing shower and and we've Shane they accelerated rate of traffic road continuing.
I'll be at the rate of increase and that growth has leveled off at this point on the corporate side, we continue to monitor collections delicately.
We are concerned about business failures, but we have an avid advantage and that our customer base tends to be more resilient and difficult economic times, because they have been headed by the building owners. If you look.
They lost or buildings that coaching connects to buy market. They tend to represent the most expensive real estate in that market class, a skyscrapers and that kind of second typically pass the credit check sub those landlords tend to be fairly stable.
And difficult economic times, Yeah, we monitor art collections daily we saw or rate of collections Route March and April continue hat slightly above the previous years rate of collections.
Many of our customers don't have employees and can process bills and make payments show, we shall I one day, increasing D.S. shows.
Last quarter, we have not seen any significant increase in T.S. shows as of yet in s. quarter, and our bad debt remained at about 0.8 of one per cent consistent with.
Oh right yeah.
Yeah for the most part we expect are yeah, sure and rage and customer failures to remain low, but we are monitoring cat and yeah. We are going to say material negative G.D.P. growth and material on employment.
And it would be naive to think that none of that could impact any of our customers, but I think we are and a much better possession, then first Fanny other wire on telecom services company.
Thanks, and then on the net centric side you said these phone acceleration of traffic growth, it's starting to moderate off or you seem that from mostly your biggest customers or is there a nice broadening of the customer base accelerating.
It's actually broadened quite a bit from where it was say even a six months ago. You know, we're seeing a lot of all turn it over the top video streaming services and that has broadened the base light a bet. We've also seen a number.
<unk> access networks around the world continued to need more bandwidth for their and users and that also broadens the base, which I think helps us on the effective rate or price decline per macip bad.
Michelle commented on the call we remain relatively on concentrated and our customer base and I think all the netcentric side, we're continuing to benefit from a broadening of they grow and traffic from a white or a number of customers.
Thanks, very much too.
Thanks, though.
So you're next question it comes from San bedroom.
[noise]. It is this is actually George on for Sammy So.
I guess my question is over the past few quarters, you mentioned that you know bowls of sales reps would improve unit productivity. We also know that larger average port sizes are negatively impacting productivity. So I guess, how should we balance those out for the remainder of 2020.
So a few things one our total number of wraps declined slightly in a quarter buy sex yet are full time ucweb lunch increased by 20, meaning we got a pickup in Kenya or at least in that band that have been you hear more than three months and works fine.
Now quite honestly, we were on able to on board wraps and the last three weeks or March it took us about three weeks to modify our on boarding so we could still continue at a higher without ramps coming.
Into a physical office for training, we actually have the largest backlog of wraps just start that have accept it offers in our history.
We have a online video based training system, where our regional warning man or <unk>.
Are conducting classes you know we're trying to keep those video classes to about 20 individuals, whereas the physical classes tend to be large arnatt more like 40, as we experiment with what is optimal to bring those wraps on we expect our head.
Count growth to continue and to hit our targets.
A seven to 10 per cent aggregate growth for the year.
Also expat our average rap tenure over the year continued to improve.
We also have been monitoring our ability to manner child underperforming wraps in a remote environment.
We have been concerned about the fact that man or insurers don't see physically every rap or in person. Every day, you know every man or tourist required to do two videoconferences with their entire team each day and then one on ones with individual team members, but that has.
I was concerned that maybe the underperformers aren't getting the attention they need so we put some additional efforts in place to help them. All in all we expect <unk> productivity check continued to increase.
Movement from for one of four or five was saying material improvement.
Slightly below the five one long term average we expect that to continue to improve through the quarter and we expect to see our full time equivalent number continue to grow.
Now you have four netcentric RUPS. They are selling harsher reports that is a slight offset yeah. The U.S.F. track as an offset or are too, but all at all we feel pretty good about our sales force improvements.
The that's helpful. And then another one on I just kept the location so given the way that you're in businesses [noise].
Husband scaling are you considering increasing the rate of.
Dividend increases from two cents to maybe three cents and then in previous quarters. You also mentioned that you always use the entire stuck buyback authorization. So I guess, how should we think about the going forward as well.
So we had a board meeting yesterday and our board every quarter to Bay, the reallocation of capital into mechanism to that you know we are concerned about macro volatility, but confident and our business.
Hot today, our current offer a term policy of feels appropriate as we can check out in the future. It is clear that we will need to return more capital all what that mechanism as buybacks first dividends is highly dependent on.
Market volatility, while we saw a little bit of volatility early in the crisis much of that volatility again has damping down. So this is a long term analysis not a specific quarterly <unk> and it's also one the board takes very.
<unk> say no once they increase that pays saying that when he would be expected to maintain that increase right <unk>.
<unk> 31 consecutive quarters of dividend grow and the commitment to do that in this environment I think cogent remains glitter only one of a handful of companies globally that is committed to this type of dividend growth policy show you know, it's just going to be evaluated each quarter.
I don't have a specific answer but we also have leverage targets and we're gonna remain within those leverage boundaries.
Thank you.
The next question comes right.
Jane.
Caroline is open.
Sorry about that how learn to use the mute button a little better next time.
<unk>.
A couple of questions looking at the trends in in network traffic.
How much of that traffic that you've seen is expected to be permanent and kind of given the abrupt traffic increase you know why aren't we sing a a bigger bump in in the revenue and actually we think about that going forward.
Hi, I'm gonna take those whom reversal what our <unk> first of all the step up in a rate of trap gross occur at the last two weeks of the core so it's not going to have a material impact and remember it only impacts 31.
<unk> of our revenues shut 31% of our revenue.
Oh and Optek for two weeks out of 13, and a quarter or so a a fairly minor impact you should have a much more material impact as that carries through and q. too and beyond now to the park around permanent.
Say all this up kick in traffic.
You know we support a number of key applications video conference, saying audio conference hang out all of that traffic has <unk> increased as we've gone to a more work from home environment.
People will eventually returned to their offices and there will be a reduction maybe not a complete reversion to where we were before but a reduction and that type of traffic.
That traffic is the minimum ass compared to streaming video traffic, which is the primary driver of United volume growth.
We see there's broad mix of voting t. chain business models.
Accelerating they're just placement of Lenny or a television that is hey, Parliament and trend nodding temporary trend what is temporary as people may be walking more minutes, a day of heading out.
Well what is permanent is the migration from linear too over the top and while we saw a material.
Oh and the rate of acceleration.
That rate of acceleration is returned to a more normalize rate of acceleration.
But we're at a hot off of a higher bayes and we do expect or rate of traffic growth for the whole year.
2020 to be above that 2019.
Alright, Great and then you believe you are offering your corporate customers for maybe $200 or something that affect of additional additional revenue per month. You were you were offering them some unlimited bandwidth or see if an increase in the band with something that affect if they took it for the rest of the contract what percentage of your of your core.
For customers took that took that and has that continued have you continue to see that uptake in India Q2, and do you think that's peak or should we expect to see you know more corporate customers take advantage that offer.
Sure.
So we saw a number of customer starting at mid month, one way rolled out that promotion which continues.
Taking advantage of that upgrade the ability to take their current connection increase it from 100 Megs 2000.
For an increase and monthly recurring revenue of $200.
They do not have to extend their contract terms. So it's for whatever the remaining charm is.
About 2% of our base has so far taken that about 11% of our bayes prior to mid March was at already one gig at that speed.
About 2% of the base was somewhere between 100 Mag any gags some fractional gig service.
And <unk>, 87% of the base was at 100, Matt we've seen about 2% ship. So the 85 has gone or 87 is gone to 85 and work channeling the role that out.
I think as companies continue to understand that some portion of their workforce will be remote for a long period of time due to the need for social distancing within the office, even as they return a work we expect.
At this rate of conversion to continue and you know it should be helpful to our corporate on net <unk>, which in fact, yeah, we're flat.
Pair to the historical rate of a slight decline due to contract lengthening. That's a result of this incremental revenue from the 200, a dollar optek as they upgrade to get at that stage.
Alright, Great I guess, one last question. It would you would you consider changing some of your reporting to report report revenue it and and so forth on Netcentric first corporate I mean, I think that's how most people think about the business.
Certainly talk about it that way and on setting off that made a little more sense, a decade ago, but how how should we think about that in any thoughts about you.
Changing how you reported described the business probably.
Sure Frank So we actually classify each color of revenue for different ways on net versus off at which is critical for marketing contribution.
Byproduct.
<unk> critical for things such as U.S. half at impact.
We do it by geography, which is important or four at hacks and by customer type, which is important for a trustful bull market.
You know.
We aren't careful not to.
Had so much detailed that way obfuscate things for investors, we do get that breakdown in our Q., where you can see the gross bye customer time, we've just never often to add.
More Mac correct and confuse investors, we in the future may value weight working at all the way so much way report, but you know.
For 16 years as a public company, we've really tried to be heating weight 'cause us.
Great I think they appreciate it.
Right.
Yes question.
I think with lights yeah.
Thanks, Hey, Dave is excise taxes is that where your U.S.F. is booked a 3.79.
That is correct <unk> that is our only excise tax.
Got it so.
I mean, if I added.
I mean listen you were down 600 Grand if I put you up 200 Grand So delta that 800 Grand.
Your corporate someone when did 100 basis points sequential.
So it's obviously not U.S.F., that's the only headwind to corporate key talk a little bit more about the things. It took a two and a half Oh excuse me 2.8 per cent sequential growth business down to 1%.
Yeah, I think it was two two additional factors fault and I think you're absolutely correct and the way in which you did your Resmon tag, but we did experience.
A inability to install new customers and the last few weeks of Mark.
As we eventually we're able to get you know are contractors in our field people able to work yeah. We had get certifications from the F.C.C. that these were essential services that these people could travel and go into buildings that had a stay at home or water.
Hers shall we get Miss about three weeks of.
Install productivity, that's part of head and everywhere you just <unk> wherever they're sheltering place for three weeks.
A new York I believe for one I don't think so.
I don't think so I think one more like two weeks.
Like to 12th and so we went on definitely have as well.
We went on the 13th as a company global.
Okay.
Work from home.
Yeah, we HOS 18 days I mean, that's a little bit of had not that get you know it was <unk> all of those things and you know if you look at the corporate business it tends to be fairly steady, but there is some volatility and go that's was not the best corporate quarter.
Okay. Thank you.
Your next question Huh Oh.
<unk>.
Hi, <unk> actually just a few quick one is first off you mentioned that you expect traffic I seem to <unk> speaking specifically to <unk>.
To be up in 20 versus 19 can you tell us what the bogey is what was it in 19, and we should be kind of comparing to second I'm I'm here Nag to one gave you said that that the 200 million 200 dollar excuse me <unk> incremental right opportunity for you guys I I assume that.
That's something you guys can do on the back end and therefore does not require.
Install or for people to actually go to those building therefore that shouldn't be happening you know fairly quickly those orders come through just wanting to confirm that and then the last question what percentage of your your incremental revenue growth each quarter typically comes from <unk> and I'm talking about corporate comes from new.
Customers versus current customers and and and and what are you seeing I mean, it sounds like just in response to the Walton others, you're expecting that the installs Tim proven that it can get back to business as usual if you will buy the second quarter I'm, just curious I'm hearing that correctly.
Yeah, Oh, all right, let me try to take all of those let's start with the traffic worth one it was about 34%.
Last year, it will be better than that our long term apparatus around 47%.
I'm not sure we'll quite be there, but we will be up over 34% year over year and that is <unk> almost entirely by not soundtrack.
Secondly, the.
Conversion to <unk> interface.
Typically does not require.
US to do anything but it does in many cases.
Why are the costs drummer to remove a media convert or at their prime us. So we don't lever a fiber connection to the customers promise.
And we rate limit that to 100 Megs that's done at our equipment in the basement.
Many customers historically cannot accept a fiber handle so there is a small device. It's about the size of a pack of cigarettes that is installed in the customer suede as part of our install charge. It generally cautious about 250.
Dollars and it is a media converter are taking that fiber signal and Cumberland get a copy of.
That device needs to be removed so you literally pull the copper jumper.
That's device to the customers <unk> router or sweat Chow and that device and plus the fiber connection n.
We want the customer through that in most cases, the customer can do it themselves in some cases, we do dispatcher field person should do that but it does take someone to physically be at the site.
There is a very small number of corporate costs from Earth, who were taking hundreds mag connections on a fiber hand off in that case, we don't have to do anything you know is euros physical work, but that is not the most common factor and then.
Finally to your question about.
Corporate growth rebounding part of the downturn shown I, probably should have call to shout on my answer can wall is that we didn't see also a slowdown in off yeah.
Corporate installs use our corporate growth was slightly lower that our corporate off that Chris <unk> off net as corporate was lower than what is historically, Ben and are roughly 90 vendors have had their own challenged shows what their workforces and being.
Able to turn off those costs from or we're saying most of those issues now resolved and we're returning to more normalized all Nat installation.
So as you sit back then just to kind of hit with a student or specific you mean that are you.
And the install issues are they debated at this point or should we still expect sometimes mater moderate headwind your pressure in the in in the second court.
[laughter].
You know I think they're pretty well debated at this point and we should expect the second quarter to look more like hang normalize quarter on corporate growth and unit installs.
Excellent thank David be set.
Okay. Thanks, Kobe same to you.
[noise] next question sounds fun <unk>.
[noise] eight day, thanks for taking my questions.
First you notice the net centric bases broadens quite a bit but it looks like the pricing for new netcentric contracts is quite a bit lower than you've recently seen think Jean Michel said, it was 20 cents and a quarter can help square those observations and what it might mean for a you know the pace admit centered revenue growth.
Sure so that probably the same number that weight quote and have always quoted is literally on a per contract signed basis and there is a disconnect between the volume weighted versus the nominal price.
You know showed you can sign a lot of contracts at a low price, but your growth in com from customers, who are under a contract at a higher prices. In fact, that's the phenomena. We saw in the quarter. So while we had a greater than normal sequential rate.
Oh gross or decline F., 49% versus you know what's normally around 15. They every year was pretty much in line. We signed some contracts are prices, but most of the growth was actually coming from customers with existing contracts.
A higher price the delta between the contract price and realize price narrowed.
Okay got it that makes sense.
You know one more on the net centric side you oftentimes structure those contracts. So they have pricing break points to Saint customers. You got you know give you hire a traffic volumes.
I think in the past you'd use the analogy is like a rabbit at the dog track has the spike in traffic growth pushed any customers you know much closer to those thresholds faster they expected.
That that might be some effect you know just turn them on the numbers or is that not something that we should be worried about.
Well, it's something we monarch her and I guess was probably about a year and a half ago. We had at least one or two large customers that had some pretty meaningful threshold and <unk> impacted us. So we've kind of tried to flatter those <unk> more judiciously and we've tried to make those deltas.
Smaller you know a netcentric costs from or expect three things, one hey, lower price as time goes on that's independent volume two they expect that if they're volume grows are substantially greater than that of the market. They expect a beggar.
<unk> rate of decline and then or just aggregate fall yeah, so not only the rate, but they aggregate number get some tool or price. The good news is we have seen a lot of what we would classify more as minteer netcentric customers growing and accelerate.
Eating rage, which is actually helped us on this volume weight it affect price per Mac about this I touched on in the first part of your question.
Okay terrific, that's where the detail day.
Facts snack.
The next question kind of some branding <unk> with Keybank.
You guys said, thanks for taking a question.
They have them cares about your view just from a macro perspective.
Everybody working from home I guess do you think.
Prizes and corporate customers change their their leasing patterns for you know multicast office space longer term.
Second I think I Miss the turn metrics, if you could provide those that would be great.
And then third can help us think about you know whether or not the slow down and installed impacts capital spending for the year and maybe where you.
Got back to come in at for 2020 thing [noise].
Sure Oh, probably take those and reversal water, let's start with cap X. I think it'll be pretty much on line with last year down slightly from the year before but you know we are expanding our corporate footprint at a slower rate.
That's why we were down a little bit last year and expect that to continue this year.
Second way on the <unk> you know the on that churn raves about 1.1% per month on A.N. a basis off that about 1.2 I do think the off that is probably a little more vulnerable to some of this.
Reordering of work space size, then on that.
But you know it's not a material deference and then the file question, which is more of a great. Orienting question, which is are people going to go back to their offices when they need to or want to or can I think there's kind of two different schools of thought one.
As people permanently have a larger percentage of their workforce population <unk> remotely secondly for those that go back they'll actually need more space because of the need for social destined, saying and this may be the end of the open for plan or return.
The more <unk> says, which tend to be a higher amount of square for per capita of employee you know I don't think we have enough information at this point to know which way that's going to go what typically happens in a down.
<unk> is rents decline materially.
The class say office phase.
Remain fall, but at lower rates and really the surge in phase can see tends to be and the more marginal office space and the class say in class B. buildings. So you know I'm not overly concerned that will say big office.
Towers go dark we did not see that in the great recession in 2008, 2009, very different factors, causing yet but that was actually a economic downturn that hit the financial industry. The artist and we still saw.
Yeah financial services companies maintain or office space. This economic downturn is heading mainstreet, much more and that tends to be kind of retail space and strip malls and low rise office parks and I. Just don't think we're going to have a big.
Yeah [noise].
With you know skyscrapers not having businesses on that.
So thank you.
[noise]. Your next question comes from Tim.
Mmm.
[laughter] two questions. One did you experience any congestion on your own at work or handing off traffic appears on the I.T. tragic business and there's a lot articles in Europe that people are asked to throttle back I guess, you know could your traffic growth.
Faster.
You know secondly, I I agree to the class or office space is going to stay for just that I can just be a lot of trying of of detention or [noise] and I I guess the question. If that's kind of short term negative but can you talk about your for sure. When you touch can I commend versus your existing market share and then lastly.
Oh, a moving parts <unk> you maybe.
Gives a little more colorful this year on on top of what the revenue trends.
Guidance, but I mean it this 5% roughly is it's it's a good way to think about the year in in all the the puts and takes <unk>.
Yeah, sure, Tim and I'm on a take those in reverse order I'll start by saying or multi or guidance is 10%. This year feels like it's going to be much closer to that Guy is then you know five and a half that we get desk water you know any year over year basis, Yeah. We.
Do have I think some tailwinds to our business that yeah became obvious and the latter part of Q1, and we'll be meaningful as they materialize for the for water and Q2 and continued throughout the year. So we feel very good about.
Improving revenue growth.
To the question about tenant turnover that actually would be a tailwind to wash because we have about 25% penetration in the buildings that we sure we the average.
Building has approximately 51 unique tennis on the kosher network. We have sold 23 connections to just under it came up those tenants.
And when a tenant moved into a building they have to make a bandwidth purchased assertion when we again in front of someone who has to make his assertion we win 50% of those opportunities.
To the speed of our install the higher reliability, the diversity and the greater throughput. So we expect to do better.
When there is higher turnover in those buildings. So overall I think we'll be in good shape.
As we may see yeah, some great or rate of new leases and buildings now to the congestion question and it really two questions and that question.
First one was a number of our customers were asked to voluntarily reduce resolution to lower strain on last mile networks in Europe.
That did reduce bandwidth.
From those customers compared to what what have been if they continue to stream and higher resolution.
And aggregate I'm not sure that was a very material and path, but it could have been very meaningful.
In terms of R. and R. connections the vast majority of our traffic goes cost river across from her fact about 73% of our traffic now goes from my Cogent access network to a cogent.
Content produce or or I can versalite.
Only about 27 per cent of traffic goes through peers.
Many of our access network customers. So 7000 access networks were scrambling to upgrade some of them were very exotic markets and we're dependent on sub see capacity being upgraded she doesn't want something about lag there and then on our peers.
Many of our peers tended to be larger more bureaucratic entities.
And did not react as quickly as would've been optimal the good news as we had plenty of head room with every one with the exception of torture Telecom are ongoing litigation all of the other we're fine, but I would say that some of the and.
Combine operators mood.
Not as quickly as would be ideal, but we did not and still do not experienced any congestion with any access network other than doing she telecom.
Thank you.
Mmm. Your next question comes from orally or B.C. capital market.
[noise] Hi, Dave Thanks for taking the questions.
If I had heard the first one is the principal payment financed least obligations right.
About 6.2 million and a quarter versus 3 million that prior year, just get some color and the reason for the year over year increase.
And <unk>.
Go ahead.
Oh, and then a second to lay there were some optimism about the impact streaming app launches have a network traffic is laid out and pack. Her network traffic was trying to enquire took her bed and one chair and <unk> <unk> <unk> <unk>.
Yeah sure. So let me take the I.R.U. principle, one that that's actually pretty easy, we actually had a pretty material up tech and our footprint. We added almost 400 miles of metro fibre and a few I almost 400 mile Hall's show of all five.
Over much of that was pre pay.
Yeah, we did some major expansions and Turkey and.
Well, a little bit here domestically, but our network actually grew substantially over 94000 miles and most of that was pre pay so that was the biggest piece of it a little bit of it as tiny but most of it's just prepaid IRA <unk> and <unk>.
And they're all goes to principle in terms of good traffic growth.
You know.
Q1 look like a very normal quarter.
For the first.
You know, probably 10 or 11 weeks, so the quarter and we really saw the abnormal spike and traffic only those last couple of weeks and that yeah made the quarter grows sequentially a little bit faster you know at 12% first is probably would've.
Seven or eight per cent sequential per hour.
And on the year over year wasn't quite as meaningful because it was just a couple of weeks.
But we do anticipate you know, saying yellow four quarters and Pat into too.
Okay <unk> just one last one at the new corporate installed request, an upgrade that weren't able to be installed due to build and restrictions does tend to have a man and a pipeline or get a just a fallout.
No they tend to remain in the pipeline in fact customers understand that and particularly for often out once we have a fair amount of cushion in R.S.L.A. below Tan Ah, but you know I think most customers tend to be pretty reasonable orange falls tend to be fine.
Faster than industry average has and.
I think people also are realistic when they say.
Screech her empty they understand it can be difficult or they may be under in the water from their land or not to allow people into a building and they know if they can't get in this town and it's going to be difficult for contractors to get in and help their services.
Got it thanks very much that.
Hey, thanks for.
And you're a last question comes from Mike Mccormick.
Partner.
Hey did you.
A quick question I'm, just thinking about the <unk> multitudes compute.
You live and then some of the commentary in the tower company, it's just sort of getting more compute towards the.
As the tower, if you will our footprint, perhaps what does that leave for your business long term.
Yeah.
I'm, a little more skeptical of how impactful that all day and the reason is the space at the base of a tower is very precious and expensive.
Too bad.
<unk>.
Use of that computer the cost of distortion power against how frequently the content that is being processed and requested.
Access there is a place for edge computing, but it's not material. Most <unk> will leave the cell size and eventually go to a mobile slaughtering office and be costs inside p. to the internet as opposed to being fully handle.
<unk>.
At that site, you know I understand carriers are looking for ways to reduce latency and improve load on their back hall and that works. This will have a marginal impact, but not a material impact and then finally, what's most important is.
While mobile users represent 80% of the user base globally as the internet they still only represent less than 3% of global Internet traffic. So the vast majority air traffic gets terminator on a wireless.
<unk>. So I don't think this is going to have a meaningful impact on or this.
[noise] experts nice Mike.
And I'm sorry, no further questions at this time I went on <unk> conference back onto the speakers renting closing remarks.
So first of all I Wanna, Thank everyone on I hope everyone stay safe finish environment actually have one more topic I want to touch on I actually thought I would get a question about this and this is about liquidity, we do have $189 million of on secured debt that matures.
A year.
That debt as call Bowl at par, we are considering calling that debt and refinancing yet.
Earlier in the <unk> actually in the quarter, we were concerned about our access to the debt markets.
Cogent good apply for a P.P.P. loan as a wireless carrier classified by the S.B.A.. We met the criteria is a small business with less than 1500 employees, we did receive that loan.
And based on the criteria that was in place at the time that we drew the loan we were very comfortable with the certifications we may.
On April 23rd the S.B.A. modified those criteria and quite honestly, the fast pattern and the monitor didn't change based on those criteria. We concluded that it would be prudent for cogent to return that loan.
So we have in fact returned the $10 million that we had drawn under that loan and now planned to walk to the public debt markets. You know as one of the world's <unk> Internet providers. You know we have a service that people are done.
<unk>, we need to maintain the liquidity that it's necessary to run our business and we have not furloughed any employees and in fact continue to hire employees.
But we felt that using the P.P.P. and white of the newer market data, we have and the additional criteria that the S.B.A. place was inappropriate.
So again I want a thank everyone I want everyone to stay well and we'll talk should take care bye-bye.
[noise] doesn't include today's conference call.
Paintings may now disconnect.
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