Q3 2020 Cogent Communications Holdings Inc Earnings Call
[music].
Good morning.
Welcome to the Cogent Communications Holdings first quarter 2020 earnings conference call and webcast.
As a reminder, this conference call is being recorded and will be available for replay at Freeport W. Dot could junko dot com I would know like prefer to call over to Mr., Dave Shaffer, Chairman and Chief Executive Officer of Cogent Communications Holdings, you may begin.
Hey, Thank you and good morning to everyone welcome to our third quarter 2020 earnings Conference call I'm, Dave Shaffer Coach's Chief Executive Officer with me on this morning's call, Sean Wallace, our Chief Financial Officer.
Continue to believe in the long term strength of our business the growing importance and breadth of our network and increasing profitability of our operations. We also remain confident and the importance of our products and services to our customer base, which continues to utilize cogens Internet services.
For their mission critical operations fundamentally the Interconnectivity and volume of traffic among businesses service providers carriers. The data centers continues to grow at extremely high rates and we operate important infrastructure that supports that growth.
As discussed in previous earnings calls our churn remains within historical averages and were not seeing any significant changes to our customer base. However, we are continuing to see new and existing customers take a cautious approach to new configuration.
Trends and upgrades as well as continued reduction in demand for services as smaller satellite offices for corporate customers. We continue to see challenges and uncertainties related to incremental sales directly related to the Cove at 19 Pan.
Mmm, our third quarter revenues grew sequentially at nine tenths of a percent to $142.3 million, an increase 3.9% on a year over year basis on a constant currency basis, we experienced quarterly revenue decline of 210.
Most of our percent and achieved a year over year quarterly revenue growth on a constant currency basis of 3.1%.
We continue to operate an efficient network. We're serves a growing number of markets buildings within those markets and is able to handle the continued growth in traffic volume on our network.
Our non-GAAP gross profit grew by eight tenths of a percent sequentially and seminar and a half percent year over year. Despite a modest decline in margins our non-GAAP gross margin improved by 200 basis points year over year continued discipline.
And expense controls enabled us to reduce the level of our SGN today for a quarter on quarter.
At the same time, we supported a 4.4% sequential increase and a number of sales reps selling our products as a result, our EBITDA margin improved to a historic high of 38.4%, which was a 60 basis point sequential.
<unk> Mint, and a 150 basis points year over year improvement.
Our EBITDA grew sequentially by 2.3% and 8.1% year over year.
The performance of our existing customer base continued to be strong despite the impact of Cove at 19.
Customer churn bad debt and Dsos out remained within our historical norms and our cash collections for the quarter performed above expectations.
We believe that these statistics indicate a strong credit quality of our customer base and the importance of cogent services to those organizations.
Towards the end of the quarter, we began to see positive trends and network traffic the reintroduction of sporting events and the reopening of schools, even with remote learning reinvigorated traffic growth.
For the third quarter traffic growth grew slightly less than 1% on a sequential basis and grew 35% year over year. So.
September was the best month of the quarter in terms of traffic growth and our October traffic growth acceleration continued and was approximately 8% above the traffic volumes of September.
During the quarter, we returned $32.7 million sure our shareholders through our regular quarterly dividend. We also purchased $3.3 million of common stock through October 30, Onest and as Hell of October 31, 2020, we had approximately.
31.6 million available to us under our authorized stock buyback program, which our board has authorized to continue through December 2021.
Our cash held at Cogent holdings was $134.3 million at quarter's end that cash is unrestricted and available to be used for dividends and or stock buybacks cash held at our operating companies was $259 million at quarter's end.
And our total combined cash was $393.3 million at quarter's end.
First leverage ratio increased to 5.0 weight.
Two 5.10 from quarter over quarter, and our net leverage ratio increased to 3.24 from 3.07.
These leverage ratios increased primarily related to the $17.4 million increase and the US dollar translated the value of our $350 million of Euro denominated notes outstanding.
Our consolidated leverage ratio as calculated under our debt indenture was 4.99 at quarter's end.
Our board of directors, which reflected on the strong cash generation capabilities of our business and worked at other investment opportunities has decided to increase our quarterly dividend by another two and a half cents.
Quarter sequentially, raising our dividend from 17, and a half cents per share in Q2 to 73 cents per share.
Times I also want to thank our field engineers contractors and other employees, who continue to work on the frontlines installing our new customers and maintaining and upgrading our network. So that we can continue to serve our customers.
The ultimate impact of the pandemic on Cogent is unknown as a significant amount of uncertainty and volatility remains.
In Q for the quarter that will be filed shortly after this call and in our annual report on form 10-K for the year ended December 31, 2019, and in our quarterly reports on form 10-Q for the quarters ended June 32020, and March 31 2023.
Quarter of 2019, and 2.3% sequentially from Q2 of 2020.
Our long term EBITDA annual margin expansion guidance remains at a targeted annual improvement rate of 200 basis points a year.
Mostly in off net office buildings, and many new sales orders customers are reducing their accurate number of locations and this results in lower sales to satellite offices, the slowdown in sales combined with normal historical levels of churn.
Has contributed to a modest reduction in corporate sales for this period, the higher USF rate, which only applies to corporate virtual private network connections increased corporate revenues, while the continuing trend of lowered local loop pricing reduced off net corporate revenue as we continue to pass on those savings to new customers we have.
At 47722, corporate customer connections on a network at the quarter, and which was the decline of one 2% versus the second quarter and a decrease of 0.9% over the third quarter of 2019.
Quarterly revenue from our Netcentric customers showed improve growth as revenues increased by five 9% sequentially and increased by nine 6% annually. We had 40787 netcentric customer connections on our network at quarter and an increase of eight 7% over the third quarter of 2019.
Our netcentric business benefited from continued strong demand for our larger 10 gigabit per second and 100 Gigabits per second ports are netcentric revenue growth experiences significantly more volatility in our corporate revenues due to the impact of foreign exchange large customer size and see certain seasonal factors.
While traffic grew on our network by 35% year on year, primarily a result of increased netcentric traffic. This increase in traffic only partially cause created a corresponding increase in revenues as volume discounts and traffic mix, particularly for some of our largest customers offset a great deal of this traffic growth.
Talking about revenue customer connections by network type are on net revenue was $105.
$1 million for the quarter, a sequential quarterly increase of one 2% and a year over year increase of five 7% are on net customer connections increased by 5% sequentially and increased by three 3% year over year. We ended the quarter with 76330 on net customer connections.
On a network in art 2884, total on net multi tenant office and carrier neutral data center buildings.
Our on net unit churn was 1.1% for this quarter, a slight increase from 1% last quarter. Our off net unit churn was 1.5% for this quarter an increase from 1.1% last quarter as we have mentioned the reduction in the need for satellite offices has resulted in lower off net sales and a slightly.
The elevated level of off net churn.
Mac orders.
In order to reduce our customer turnover, we employ a dedicated sales group, which works primarily to retain customers who have indicated that they are considering terminating their services. We typically offer pricing discounts to these customers in order to induce them to purchase more services and or to extend the term of their contracts.
For the quarter compared to income per share of 19 last quarter and 30 for the third quarter of 2019 are diluted loss for sure was 11 for the quarter compared to income for sure of 18 cents last quarter and 30 for the third quarter of 2019 unrealized gains and losses on the translation of 2020.
For Euro notes in the U S dollars are the primary contributor to variability in our net income and consequently, our income or loss per share in particular in this quarter.
Foreign currency.
25.
Finance leases and finance lease payments.
Our finance lease IRU obligations are for long term dark fiber leases and typically have initial terms of 15 to 20 years or longer and often include multiple renewal options. After the initial term our finance lease IRU fiber lease obligations totaled $212.9 million at September 32020.
At quarter end, we had IRU contracts with a total of 262 different dark fiber suppliers, our finance lease principal payments were $9.5 million for the quarter, primarily due to dart purchases of dark fiber in international markets compared to $2.0 million for the third quarter of 2019.
And $3.67 million for the second quarter of 2020.
Dollars and converted to Usthirty at each month, and using the month and euro to us the exchange rate the unrealized foreign exchange unrealized loss on our Euro notes was 17.3 million this quarter or 38 cents per share as compared to an unrealized loss of three.
Point $4 million last quarter, and an unrealized gain of $6.2 million for the third quarter of 2019.
Bad debt and day sales outstanding.
Our bad debt expense as a percentage of our revenues improved sequentially and year over year.
Our bad debt expense was 8.6% of our revenues for the quarter compared to 0.9% of our revenues for the second quarter of 2020 and 0.7% in the third quarter of 2019.
Our days sales outstanding or DSO for worldwide accounts receivables was 22 days for the quarter unchanged from last quarter I want to thank and recognize our worldwide billing and collections team members for continuing to do a fantastic job, serving our customers and collecting from our customers during very challenging times I will now turn the call back to.
Hey, Thanks, Sean I'd like to highlight a couple of strengths of our network, our customer base and our Salesforce.
Entrance network scale continues to grow due to the expansion of our physical network. We now operate in 47 countries as we've introduced our services to new markets. The breadth of our network, our salesforce and our competitive pricing model has helped us.
Gross demand and new services in these locations. Our initial success in South America and Africa indicates that we can profitably extend our network into new markets and our business model and to many more countries.
First upgrade their internet connections to support greater infrastructure with larger connections for their work from home employees as employees remain outside of the main office corporations need high capacity circuits both in.
And out of these premises cogent robust bi directional symmetric one gig circuits have significant advantages over many other networks, which have overall capacity limitations and typically provide a semi truck traffic with only downstream.
Capabilities.
We believe we're well positioned to benefit from Netcentric customer demand growth for orange or pipes, our network ubiquity, our operation and 47 countries and nearly 1300 data centers.
Large number of access networks that we connect to and the over 220 dedicated Netcentric salespeople, who focus solely on this market and give us a huge advantage in terms of focus and understanding of our customer needs.
Our brick customers.
We also believe that our sales force productivity has been impacted from their work from home, which does somewhat limit our ability to train and view, our salesforce and as has lowered our effectiveness in managing the egg set of underperforming.
Bad debt expense declined showed an improvement and shows the necessary nature of the service we sell our customers.
We saw an acceleration in the number of customers are choosing to pay us electronically versus paper checks as many of these customers have not fully returned to their offices.
Overall, we believe that these statistics and the strong credit quality of our customer base and the importance of Cogens services makes our corporate growth a continued trend in our business.
Cogent is the low cost provider of Internet access and transit services and our value proposition to our corporate and Netcentric customers remains unmatched in the industry.
Increase in our dividend and the rate of increase in all of our dividend by two and a half cents per share sequentially to 73 cents per share per quarter. This represents a 14.1% annual growth rate in our dividend are consistent dividend.
Increases and are continuing optimism and the increasing cash flow generation of our business drives our ability to grow returns of cap over shareholders. We believe that describes the management team to be highly disciplined around the choices we make in capital.
All allocation and how we grow our top on and manage our expenses.
In the quarter. We also continue to purchase shares of our stock we purchase 3.3 million shares of stock through the end of October 2020 as of October 31st we have 31 6 million remaining under our.
Current authorization and buyback program, which is in place through December 2021, we hope everyone. On this call remain safe and healthy in these challenging times, we value the safety of all of our employees and continue to take all necessary poor cautions.
We believe we are a net beneficiary of the current stay at home models that are being deployed around the world.
And we are on certain about the long term amplifications of Covid on the macro economy, a cruise them profitability targets remain intact.
We remain committed to returning increasing amounts of capital to our shareholders on a regular basis within I would like to open the floor for plush.
Nice and gentlemen, if you have a question at this time. Please press this part and then the number one on your Touchtone telephone if they're question has been answered or you wish to remove yourself from the queue. Please press the county.
Your first question comes from failed Cusick with J P. Morgan you May now ask you a question.
Alright, Thanks, Dave.
<unk> can you.
Just go again through your comments on September and October you talked about really good sales momentum. That's September what did you see on October and then in terms of traffic growth as well is that coming from big customers at lower prices or are you seeing that more or like average price. Thank you.
Sure. Thanks for the question itself.
We saw a reacceleration and sales activity, both in our corporate and Netcentric business as customers.
Turn from their summer vacations as.
<unk> flag of a few weeks to a few months for off that will begin showing up and our fourth quarter sales productivity numbers.
Can you just remind me quickly what was the timing of when that that new CRM system was implemented and when do you now think that everything sort of normal.
So it was implemented the first week in July we own we did not want to disrupt the end of quarter in end of month sales in June.
We migrated off of our pre.
Previous CRM provider, which was a SaaS service.
So large order or any kind of one time benefit. This was a broad participation of our customer base, both small and large customers access networks and content providers and those trends have actually accelerated.
Into the fourth quarter.
We reported on October numbers were only a few days and to November but we continue to hit Aly traffic volume growth Frack her age and you know as the majority of our footprint is returning to some kind of modified lockdown or shelter.
Additionally, our sales meetings have been exclusively internal this year, because we are migrating to a virtual platform, we're actually going to have customers participate as well as salespeople, even with a much larger participation we think will.
Recognize probably about a 1.3 $1.4 million savings in the first quarter versus what we spent last year.
All right great. Thank you very much hey, thanks.
Your next question comes from Colby, claiming phone.
Colin you May now ask your question.
Thank you two if I may 1st off on some trends so whether it's on that are off net we saw a fairly notable.
Deceleration in total net adds.
In the third quarter versus really historical trend.
Based on the productivity comments that you're speaking of that you're seeing already in the fourth quarter can you give us some color on what we should anticipate for sub trends going forward and then also on the $9.5 million IR you payment.
Also up notably versus what we typically see I think you referenced maybe 2 million or so.
Last year.
How should we think about those going forward as you continue to look to expand the network you mentioned South American you mentioned Africa.
How should we think about those IRU payments going forward since obviously Athena data has some type of cash.
Consequence, thank you yes.
Sure Colby.
Couple of different questions there, let's take fee.
The unit productivity and sub trends.
Primary drag on our business has actually been our off net corporate sales.
Our on net corporate sales are slightly below trend line foot pretty much still in line with historic average is.
When we sell to a corporate costs from or the sale begins with an on net sale those sales for continuing very well at primary locations they've actually been bolstered by the fact that existing customers are migrating from 100 megabit.
To gigabit connections to support VPN work and our new sales are almost exclusively one gigabit pulling our ARPU is up it.
It is really the secondary locations that have software companies say, we don't have employees in those offices were not going to make any network decisions until we understand what our final real estate footprint will look like as a result of that we are selling less.
Connections, both for Internet, and VPN services, whether SD land or fee Pls to those secondary locations.
Most of those are off now that that is why our off net revenue actually declined on a year over year basis. It did grow slightly in the quarter, but much below historic trends.
On average we would typically grow our on net and off net corporate sales at the same rate. We do also sell a few secondary locations off net those have also slowed and that's why that growth rate has slowed.
Equally decelerated, but in China roll, our corporate on net business is performing well and actually in this environment far better than any other wireline provider.
But its that off net problem that has really impacted our business.
And then pivoting over to our Netcentric customers, which by primarily on a metered basis, we're seeing a.
Real acceleration in larger port sizes, as those customers look to optimize cost cannot expenses and the nearly 1300 data centers that we operate in and want to be able to support greater traffic volume. So we're seeing that.
Broadly across our customer base and our Netcentric salesforce productivity is improving and also our netcentric revenues are improving and we expect those trends to continue throughout this quarter as we monitor traffic now for five years.
Weeks into the quarter and seen continued improvement.
You know that.
The overall effectiveness of the sales force is improving now to pivot to your IR you question.
We have continued to expand our footprint globally now we're in 47 countries.
We purchased a significant additional dark fiber into Latin American markets.
Terrestrial dark fiber in Brazil to connect Rio and some pollo, the two largest markets as well as expanded our metro footprint in those markets and we purchased significant.
Additional dark fiber in Mexico to provide some new markets as well as now having three discrete border crossings, giving us much more diversity in and out of Mexico as we have seen that market.
Grow at an extremely high rate I think in large part as a result of some of the DEA regulations set the Mexican regulator has implemented several years ago.
I'll just add to that Dave we spent $6.1 million in the first quarter 3.7. The second obviously going up to 9.5, we expect will come back down into that range of three to six.
Call it $4 million to $5 million in the future. So that was as we expand into those two Latin American countries that was a bit of an anomaly yeah. It was a one timer.
Great. Thank you thanks Colin.
Your next question comes from Walter Piecyk with light, Sir you May know after question.
Thanks.
Dave the with a deceleration that thats going on in the corporate business, which has traditionally been pretty steady for you I guess two questions one.
I mean back in May you saw so that we can get back to historical averages. That's clearly not happening when do you think that may happen and if it doesn't happen. Your leverage ratio has now gone up I knew is going up because you obviously increased the.
The rate of dividend payments so.
Just curious like if corporate does it revert back to like a normalized growth rate does it make sense to continue to grow the dividend like you are at this pace.
Okay. So let me.
There are three questions, there and I'm going to take them in reverse order.
We are.
Absolutely committed to being efficient in returning capital and our dividend has been a very effective way to do that also feed costs in.
Roughly 50% of our dividends has been able to be characterized as a return of capital we have.
Eric more on dividends than buybacks, but cogent has consistently returned more incremental capital each and every quarter to shareholders and we feel that the 14.1% growth rate in dividend can absolutely be supported by.
The growth rate in our free cash flow. The second point you raised was the change in our leverage ratios and as we mentioned in the script that was almost exclusively as a result of foreign currency translation we.
We elected not to hedge our 350 million euro denominated debt, we chose to raise debt in Europe, because it was a lower cost of capital almost 100 basis points less expensive than in the U.S. and because our European operation.
Funds are profitable, we can service that debt and repay that debt out of European operations. So the optical increasing our leverage ratio was not as a result of incremental through debt on a constant currency basis, but rather that 17.
Point $4 million swing that occurred in the value of that $350 million debt thats a non cash.
And non realized loss for the quarter and.
Our bed is over time, the euro will probably remain about where it is against the dollar now to your very first question, which is corporate growth.
The corporate growth has really been a tale of on net and off net the on net corporate growth rate is pretty close to being with and long term trend lines. We've averaged about 11% growth, we're probably around nine and considering the.
Our work from home environment, and the impact of the pandemic.
That's pretty impressive up it's really been the shortfall and off that which as secondary locations.
I do believe companies are going through a bit of a real estate reevaluation. They will ultimately decide on what architecture is best for them, but I do not believe that there will be a permanent accidents from us cities and.
Our footprint will remain the core for our corporate customers real estate needs. We absolutely believe that are.
Corporate business should end up growing.
Back at historic trends, but even if it doesn't we have sufficient cash flow generation and our margin.
Contribution is actually improving costs, our netcentric business has a much higher percentage of on net versus off net and our corporate business. So all in all were very comfortable with our ability to grow cash flow and continue to grow the dividend.
So you're saying in the third quarter. Your on net corporate growth rate was 9% because that's an owner the math would be challenging to get to know at frito since.
Since the beginning of the pandemic. So if you take okay. So, but I'm just looking at the quarter right. So and thank you for that clarification on your own. So right now your corporate business is growing at 1.3%. It was 10% only a couple of quarters ago. So I guess the question again as.
You can't return that to grow within back in May you thought you could return it back to that normalized gross and we can we stay at this 1% type of growth rate sequentially or annually for corporate.
Notwithstanding any changes in currency your leverage will rise to like three three or 3.4 and I'm just in that scenario does it make sense to continue to increase the dividend at this rate.
So the answer is we will continue to increase the dividend we have a leverage ratio thats between two and a half in three and a half. So the three three or three four that you referenced is still within that guidance. Secondly, we have consistently message to investors that we have a.
Requirement to disgorge excess cash on our balance sheet. The only method to do that as either through accelerated buybacks or accelerated dividends and as you saw in this last quarter, we took the opportunity to avail ourselves of both techniques.
So only if the leverage gets above 3.5 should we start to wonder whether maybe the dividend growth should not remain the way you have it set.
I think that's right Walt and again every five is not set in stone and we have to we have historically evaluated our leverage targets each and every quarter with the board just to remind you our national leverage target was two and a half.
Half times, when we first raise debt and then when we breach that the board established the new guidance range of two and a half to three and a half times when we compare ourselves to other businesses with the durability of our revenue stream and the predict.
Ability of growth.
Even in a very turbulent macro environment.
We have substantially more borrowing capacity and in a low interest rate environment and may actually be beneficial to shareholders to continue to evaluate whether three and a half is the right target. So I don't have an answer today costs were sitting here.
Well below the target range.
Thank you thanks.
Thanks will.
Your next question.
Michael Rollins with SCB you May ask your question.
Hi, Good morning, I was curious if you could update us on where your market shares are for the corporate and Netcentric business. How you look at the baseline opportunities to increase that overtime and then as you look at pricing in the corporate market.
How do you view the durability of your price points for different speed tiers that you are selling into the base. Thanks, Yeah, Hi, sure Mike So you know.
With just under 1800 multi tenant office buildings on net and 968 million square feet. We have 22.5 connections sold per building that's down slightly from the twin.
The 2.9 last quarter, we did add some new buildings late in the quarter with no cost streamers.
You know we do have.
Typically sold about 1.5 connections per customer today, it's more likely were selling closer to one connection because we're not selling very much in the way of VPN services I think that will change the connections that are.
Sold tend to be of higher speed. So we're selling gigabit at higher ARPU news and our Arpus are going up.
Also our product is non oversubscribed non blocked and some metric that has real implications for work at home employees as those AD hoc VPN is concentrated at a firewall need to have that level of cemetery.
And many of our competitors don't have products that can offer that type of service cable and telco have typically sold products that are some metric in their services may have usage caps. So for our corporate customers are.
Three times greater reliability, nine times faster install and better price performance and volume Throughputs, all give us I think a great deal of superiority. We also sell to our corporate customers on a limited.
Basis, some off net services and on net buildings you. So why would you do that and its customers wanting a backup service on a diverse network and thats actually become more critical since the pandemic No company wants its VPN concentration to be down.
Now they realized that in that backup mode, they're going to be and a lower bandwidth operation, but they are absolutely very interested in getting that network redundancy. So we are picking up some additional connections not.
VPN, but for redundant off net connections to on net customers and then on the Netcentric side.
The surface is primarily metered. So you pay by the megabit per port size does have a reservation fee associated with it but the majority of the revenue is based on traffic flows and larger ports mean fewer cross connects and data centers.
And we're continuing to see a significant migration from 10 gigabit 100 gigabit ports.
We feel that we have more idle capacity in more data centers than any other provider in the world and Thats allowed us to gain market share. So in both our corporate and Netcentric markets, we feel pretty good about our market share gains.
Thanks very much.
Hey, Thanks, Mike.
Your next question, Kevin from Nick the Leo that will fit neatly into human or ask a question.
Hey, good morning, guys. Thanks for taking my questions.
You know first Dave you've expressed confidence that class a office space would ultimately be okay. As we got through the pandemic I think you made a quick comment to that effect earlier in acuity has your thinking on that.
On that front evolved at all or become more nuanced, whether from a timing perspective or more fundamental factors.
So I have to admit my thinking on the pandemic has evolved quite a bit over the eight months that we've been living with this first of all I think to duration is going to be much longer.
Yes. This is both me as an individual am I observations and talking to salespeople and customers I don't think we're going to return to anything resembling normality for at least another year. If you would ask me that question back in April or May I would have not expected.
You know a 18 month.
Pandemic disruption to life.
Secondly.
You know I believe that.
Central business districts will continue to how those businesses and the skyscrapers in which we operate we will continue to have substantially higher occupancy rates than they previously did.
As a result of lower rents tenants will tend to migrate from more marginal buildings and to better buildings. The majority of our footprint about 59% or LEED certified to buildings are on average nearly 50 times.
The National average I think many of the equity owners of those buildings may get wiped out, but the buildings won't disappear.
I also think the work habits are going to change are going to go to a hybrid model, where some employees. Some days of week, we'll work remotely secondly, I think the shared office model, probably will not return anywhere like it was.
Year ago with the growth of companies like Regis and we work.
Third I think the offices will typically be dwarfed offices, requiring more square foot per capita and less open floor plans.
So I think the aggregate.
Usage per employee will actually go up you won't have as many employees in the office as many days of the week the offices will still remain in business like.
Like I was sharing with one customer I said, it's really hard for a law firm to build $2000 an hour on the partners in home and as Bathrobe employee.
I really do want to come into an office and occasionally meet and transact business.
The final piece that I don't have great clarity on is what happens with branch offices those branch offices fall into two categories. Those that are in separate cities. I think those will continue to have a law firm is headquartered in Cleveland as offices in Chicago and Philadelphia.
Thats going to still be required what may not be required just a company that has an office in downtown Manhattan and satellite offices in Stamford, Connecticut, Amar's town, New Jersey to accommodate partners, who maybe did not want to commute in.
I think in those cases, you will see some validation of offices.
And you will see.
Yes, the hybrid work from home model. So the answer is my thinking has evolved and probably will continue to evolve.
Well I think theres still lot of on nodes, including one we'll have adequate vaccines distribution and.
When even therapeutics will be sufficiently robust that people will return to life as normal I mean, we're just not there again kind just add some to daves color Nick.
If we look at our Multitenant office buildings is 800 buildings, we talked about and we look at direct Internet access connections if the world of director of Central business Office is were is declining we would see an acceleration in churn in those buildings for those type of circuits and indeed, the churn has actually gone down to a couple of months. So yes.
As we mentioned corporates are delaying decisions and not deciding to do things now we're seeing normal levels of churn, but we don't see.
Material change in the number of tenants in those buildings, we do see discussions from commercial brokers, where law firms who might be in three floors might go to two floors, I think will benefit from that because more space and potentially be more tenants. We won't really see any change in that until depend demick is over and people sort of.
Turn to normalcy.
Got it.
I want to drag to call it too much but Dave I thought the comment you made regarding the off net locations in different metro areas versus within a metro area. What was interesting is there a way to size what share of your off net corporate connections would be in phone.
Phones, one category versus the other.
So.
We obviously have data on where those nearly 12000 connections our 11900 narrower in approximately 6800 buildings.
I'd say the majority greater than 50%.
Our in.
Different most Asian markets.
But there is a significant minority that operate within a given MSA as well. So we do have exposure there I'd be lying if we did and that's really where the pain has been.
Okay. That's great. Thank you Dave Thanks, Sean Thanks.
Your next question comes from Tim Horan with Oppenheimer, even though ask your question.
Thanks, just on the previous questions for Dave on so I guess the million dollar question is when we see churn pickup and these class a office space as you know next year because of cost of coal that are people just decided look I don't want to be these downtown areas anymore. One out of here or if that will happen or not you. Obviously if that doesn't happen. It's very good for your business, but.
Did I hear you on it may have been.
12, 18 months, maybe some people just came up on those leases a move out as a question I guess.
Yes, and yes, I wish I had the answer to that question I'm also going to answer the question with my experience as a central business district landlord.
Actually im continuing to sign new leases in downtown space.
No I sign about a new lease of weaken my portfolio I mean, thats anecdotal evidence up.
I do think companies are rethinking how their workforce is going to be housed and I do think there will be some permanent work from home, but I think it will be more on a flat spaces I just in talking to customers have not been able to see.
How a large law firm can function without say an office.
If in fact as law firms shrinks as footprint that can actually be a net positive for us because it increases the number of discrete tenants in the building our average customer today is housed in about 8000 square feet and has 30 desktops that clearly we have some very.
A large law firms that have 10 floors in the building and three or 4000 desktops, if they end up going to half of that footprint, that's probably a net positive for us.
I just.
Don't see people totally abandoning cities that there will be a shift but you know a lot of individuals voluntarily chose an urban life style and much business still depends.
On physical contact and interaction, we're making doing a pandemic, we're getting by with social distancing and zoom conferences, but I know and talking to customers.
One of the common refrains I had it here as Im zoom exhausted I can't wait to get back to my office. So again this is all anecdotal feedback but.
No I think rents will come down there will be increased competition, there will be turnover in the ownership of these assets, but I just don't see say, the New York or San Francisco or Chicago, Skylines going dark can I just add.
One thing to Dave insight is we did have a convert Jones Lang Lasalle has a research group. They went in these surveyed 100 commercial tenants in the Midwest. These are businesses that are in place what Chicago in Pittsburgh in Minneapolis.
Of the 195, they are not leaving that central business District by district, 5% said, they don't know they're not sure zero said Theyre, leaving I think it's very very difficult. We service 95 to 100 largest law firms in the United States.
Very difficult for a law firm to to be successful if they aren't near their clients. They can attract very very smart intelligent people can work there and tracking it out they can't do it in suburban areas. They have to do in central business districts, where there are other vendors and our clients are so we remain again, our small to medium sized business clients have no.
Those workers, who are in consulting firms accounting firms law firms. These are the folks who have to be in central business District, and we again, we haven't seen any uptick no uptick whatsoever that are multi tenant office buildings of these direct internet access ports, which are the lifeblood of that internet infrastructure for those types of numbers.
I'll close on one comment I was talking to a partner in one of our customers and.
He said one of the greatest challenge is is how do they train and attract new talent in a remote environment, we figured it out and cogent for a telesales organization, that's a much different training curve than a partner track at a white.
Through law firm or a partner track in Mckenzie or a bane or BCG I mean, those young very smart individuals need the mentoring in person of senior partners and that's not going away. So we.
We will get through this my thinking has evolved it is taking longer but we will return to something that resembles the life. We led before the pandemic it happened to 1918, and it's going to happen again.
That's great color and it does seem like a big positive longer term. Thanks, a lot guys.
I am showing no further question at this time I would now like to turn the conference back to Mr., Dave Shaffer.
I want to thank everyone up please stay safe social distance orasure hands, where our mask those aren't political statement. Those are good hygiene and feel free to reach out to Sean or myself. If anyone has any questions I would normally shall look forward to seeing you on that.
Conference Circuit, but now I look forward to talking to you on the conference circuit take care everyone.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day hemi all disconnect.
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