Q1 2021 Cogent Communications Holdings Inc Earnings Call
Yeah.
And we are good.
Good morning, and welcome to the Cogent Communications Holdings first quarter 2021 earnings Conference call. As a reminder, this conference call is being recorded and it will be available for replay at www dot the cogent co dot com a transcript of this conference call will be posted on the same website.
Becomes available Cogent summary of financial and operational results of attached to its press release can be downloaded from the cogent website.
And I'd like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings.
Thank you and good morning to everyone and welcome to our first quarter 2021 and earnings conference call from day shoe for Cogent Chief Executive Officer.
With me on this morning's call and Sean Walsh, our Chief Financial Officer.
Now for a few comments on our results as the number of COVID-19 cases, and the United States have begun to decline and businesses have initiated plans to begin the reopening offices, we have begun to see an improving business climate for our corporate segment.
We have seen declining unit churn and our corporate segment sequentially for the last five months and.
And our churn levels for the first quarter were lower than the elevated levels and we saw in 2020 are.
Netcentric business continues to benefit from the greater than expected growth and streaming subscriptions and the segment saw its third sequential quarter of accelerated growth for.
For the first quarter for <unk>.
Traffic was up 8% on a sequential basis and 36% on a year over year basis to.
Despite these improvements we remain cautious and of all outwork about the uncertainty of the current economic environment and the challenges that the pandemic has raw.
Our first quarter results show, a higher level of growth and revenues as our revenues grew sequentially by 2% to 146.8 million balance.
And the increase.
2% on a year over year basis.
On a constant currency basis, we experienced a revenue growth rate sequentially of 1.7% and a year.
Year over year of growth range of $2 three per cent.
We continue to operate and extremely efficient network.
Our network service.
A growing number of markets, including carrier neutral data centers and multi tenant office buildings and the central business districts of North American cities.
And is able to handle the increase and traffic volume at a relatively fixed cost base, we've experienced year over year and sequential growth and our non-GAAP gross profit.
Our non-GAAP gross profit margin and substantial year over year of growth and our EBITDA and EBITDA margin.
Our non-GAAP gross profit grew by two 7% sequentially and grew by 7.6% on a year over year basis.
Our non-GAAP gross margin percentages for the quarter improved by 40 basis points sequentially.
To our record high of 62.5 per cent and grew by 200 basis points on a full year over year basis for.
Quarterly EBITDA grew by 10, 2% on a year over year basis of.
Quarterly EBITDA margin increased by 200 basis points from the first quarter of 2020 to 37, 8%.
The performance of our existing customer base continues to be strong. Despite the impact of COVID-19 customer churn and day sales outstanding and maybe most importantly cash collections all improved in the quarter and had noted earlier and our corporate churn.
Rate fell for the second quarter and our ROE.
Our day sales outstanding at 21 days just the <unk>.
<unk> ever and Cogent history.
The expense as a percentage of our revenues were stable sequentially and improved on a year over year basis.
We believe that these statistics indicate the.
The strong credit quality of our customer base and maybe most importantly, the importance of cogent to those organizations during the quarter, we returned $36 $1 million to our shareholder through our regular quarterly dividend program, we did not repurchase any stock.
During the first quarter and have a total of $34 million available for stock buybacks under our program, which our board has authorized to continue through December 31 2021.
Over the past 12 months, we have repurchased for $5 million worth of stock representing approximately 79000 of shares of stock.
Our cash held at Cogent Holdings was approximately 59 and $10 million headquarters and.
This cash is unrestricted and available to use for dividends and stock buybacks.
Cash older and our operating companies was $178 8 million headquarters and and our consolidated cash position was approximately $238 million at quarters end.
Our gross leverage ratio fell from 5.14 times EBITDA to for three nine and the last quarter and our net leverage ratio also declined from three point for O to 3.31.
Our consolidated leverage ratios as calculated under our note indenture for point for one headquarters and.
Our leverage ratios fell as a result of the recently disclosed purchase of $115 $9 million from principal balance of our secure senior note.
And that are scheduled to mature in March of 'twenty 'twenty two.
The decline and the value of our euro notes versus U S dollar and all.
And so on a translated basis for our 350 million dollar euro and nodes.
108, or excuse me $18 $8 million increase and our operating cash flow.
Now for dividends, our board of directors, which reflected on our strong cash generating capabilities and investment opportunities have decided to increase our quarterly dividend again by another two and a half cents per share per quarter regime.
Our quarterly dividend from 75.5 cents to <unk> 78 per share.
The increase represents the 35th consecutive sequential increase and on a regular quarterly dividend and our annualized growth rate and our dividend is 14, 7% now I'd like to have Shawn read our safe Harbor.
And which gives you an update on some additional COVID-19 details and.
And give you some additional color on some of our operating performance and the quarter.
Thank you Dave good morning, everyone.
This earnings conference call includes forward looking statements. These forward looking statements are based on upon our current intent belief and expectations.
These forward looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.
Please refer to our SEC filings for more information on the factors that could cause actual results to differ cogent.
Cogent undertakes no obligation to update or revise our forward looking statements. If we use non-GAAP financial measures. During this call you will find these reconciled to the GAAP measurement and our earnings release, which is posted on our website at www Dot Cogent co dot com.
And we'll update on COVID-19.
Like many other companies cogent continues to be impacted by the COVID-19 pandemic and the accompanying the responses by governments around the world.
Virtually our entire workforce continues to work remotely.
And I want to thank the entire cogent workforce and in particular, our it department for their continued hard work. During these very challenging times I also want to thank our field engineers and contractors billing and collection staff and many other cogent employees, who continue to work on the front lines installing our new.
<unk>, maintaining and upgrading our network and providing outstanding service to our customers.
These and other risks are described in more detail and our annual report on form 10-K for 2020 and in our quarterly reports on form 10-Q for the quarters ended March 31, 2021 September 32020, and June 32020 throughout.
This discussion we will highlight several operational statistics I will review in greater detail certain operational highlights and trends. Following our remarks, we will open up the call for Q&A now I'd like to turn the call back to Dave Hey, Thanks, Sean and hopefully you've had a chance to review our earnings press release on.
The press release includes a number of historical metrics that we report on a consistent basis.
Now for a few comments against our results against long term multi year targets that we have been reaffirming our targeted long term EBITDA annual margin expansion guidance is for our and approximately 200 basis points.
Per year of marginal of.
Margin expansion.
Our target and multi year constant currency and long term growth rate is approximately 10%.
Our revenue and EBITDA guidance targets are intended to be multiyear goals and are not intended to be used as quarterly guidance.
Our corporate business represents 62, 7% of our revenues for <unk>.
Corporate business declined year over year by 5.1% from the first quarter of 2020 and decline of one 8% from the fourth quarter of 2020.
Our netcentric business, which represents 37, 3% of our revenues had yet another strong quarter and showed accelerating growth.
Sequentially growing nine 2% quarter over quarter and grew by 24, 6% as compared to the first quarter of 2020.
Volatility and foreign exchange rates, primarily impacts our netcentric business is approximately half of that business is outside of the U S. On a constant currency basis, our netcentric business increased by 18, 7%.
Percent from the first quarter of 'twenty, and 'twenty and by eight 3% on it.
Sequential basis from the fourth quarter of 'twenty 'twenty.
Now Sean will provide some additional details on our quarterly results. Thanks, Dave and again good morning to everyone.
Talking about corporate and Netcentric revenue and customer connections, we analyze our revenues based upon network type.
That includes on net off net and non core and we also analyze our revenue is based on customer type and we classify all of our customers into two types netcentric customers and corporate customers, our corporate customers buy bandwidth from us and large multi tenant office buildings or in carrier neutral data centers. These.
<unk> are typically professional services firms financial services firms and the educational institutions, located and multi tenant office buildings or connecting to our network through our cm DC footprint, our netcentric customers buy significant amounts of bandwidth from us and carrier neutral data centers and include the streaming company.
<unk> and content distribution and service providers as well as access networks, who serve the consumers of content.
Yeah.
Revenue from our corporate customers for the quarter fell sequentially by one 8% to 92.0 million and fell year over year by five 1%.
And increase in the USF tax rate had a <unk> 4 million sequential positive impact on our quarterly corporate revenues and had a <unk> 8 million positive impact year over year, the USF tax rate changes quarterly and we cannot predict the impact of future USF rate changes on our revenue.
<unk>.
As we have discussed in previous earnings calls, we believe that the growth of our corporate revenues was directly impacted by reduced building occupancy and central business districts of major cities as a result of the COVID-19 pandemic.
We also found that as a result of the work from home environment and general challenges from the pandemic that many of our corporate customers delayed decisions about the system upgrades and new network investments the slowdown in sales combined with normal historical levels of churn has contributed to a modest reduction in court.
Revenues for the past several quarters.
On a positive note we are seeing some signs that indicate corporate buying patterns are beginning to return to a more normal level.
Sales of our largest product by revenue and connections are one gigabit per second direct internet access product had its third quarter in a row of rising sales. We're also seeing some of our larger corporate clients begin to expand and reconfigure their networks.
And in terms of churn and our corporate base. We are encouraged the churn has fallen and each of the last five months and most of the churn is derived from our older 100, Megabits per second VPN and direct Internet access products and we continue to see very low levels of churn.
From our one gigabit connections.
The higher USF rate, which only applies to corporate VPN connections increased corporate revenues by <unk> 4 million for the quarter, while the continuing trend of lower loop pricing contributed to the reduction in our year over year off net corporate revenues as we continue to pass on these savings to new off net customers.
We had 46719 corporate customer connections on our network at quarter, and which was a decline of 1% versus the fourth quarter and a decrease of three 7% from the first quarter of 2020.
Continued growth and international traffic and streaming services helped our Netcentric business continue to accelerate growth and the first quarter and for the past nine months.
The revenue from our Netcentric customers increased sequentially by nine 2% to $54 8 million and increased year over year by an impressive 24, 6%. We had 44206 netcentric customer connections on our network at quarter and an increase of four 2% sequentially.
And an increase of 14, 2% over the first quarter of 2020.
Our netcentric business benefited from continued strong demand for our larger 10, Gigabits and 100 gigabit.
Gigabits per second ports the demand from outside the United States was particularly strong and our sales activity from Europe, and the first quarter with significantly higher than the quarterly average of last year, our netcentric revenue growth experiences significantly more volatility and our corporate revenues due to the impact of for.
And exchange larger customer size and certain seasonal factors primarily related to usage.
Traffic grew on our network by 8% sequentially and by 36% year on year, primarily as a result of increased netcentric traffic.
Our on net revenue was $109 9 million for the quarter, a sequential quarterly increase of two 6% and of year over year increase of six 3%.
Our on net customer connections increased by one 4% sequentially and increased by four 3% year over year. We ended the quarter with 78389 on net customer connections on our network and our 2939 total on net multi tenant office and.
C and D C buildings.
Our off net revenue was $36 7 million for the quarter, a sequential quarterly increase of 1% and of year over year decrease of one 6%.
When we sell new off net circuits, we incorporate the cost savings from the lower local loop prices into our pricing and the introduction of these customers into our base lowers our overall off net ARPA our off net customer connections increased sequentially by two 1% and increased by four two.
<unk> percent year over year, we ended the quarter, serving 12 216 off net customer connections and over 7285 off net buildings. These off net buildings are primarily in North America.
Consistent with our historical trends, our average price per megabit of both installed customer base decreased for the quarter. However, the average price per megabit of our new customer contracts sequentially increased the average price per megabit for our installed base declined by six 8% to three eight.
And declined by 28, 1% for the first quarter of 2020.
The average price per megabit of our new customer contracts for the first quarter increased to 20.
From <unk> 19 for the fourth quarter, our average price per megabit for our new customer contracts was unchanged for 2000 and from.
From the first quarter of 2020.
As we continue to succeed and selling larger 10 gigabit and 100 gigabit connections to customers. This change and our connection mix change will have the effect of lowering our price per megabit, and a greater rate than changes and our pricing per connection for Arco.
Our on net <unk> increased sequentially and year over year, our off net <unk> decreased sequentially and year over year, the increases and our on net <unk> reflects the growing importance and change and the mix of our larger bandwidth products for the corporate and Netcentric markets growth and our.
One gigabit connections to corporate customers continues to contribute to a higher on net ARPA enel.
Another product that is contributing to our higher net <unk> is our 100 gigabit products, which are sold primarily to our netcentric customers the growth in units and the size of their respective <unk> is having a positive impact on our net.
On net <unk>.
Our on net ARPA, which includes both corporate and Netcentric customers was $471 for the quarter and increase of one 3% from last quarter and an increase of two 2% from the first quarter of 2020.
Our off net ARPA, which is predominantly comprised of corporate customers was $1012 for the quarter of decrease of one 4% from last quarter and a decrease of four 9% from the first quarter of 2020, we expect the off net ARPA will continue to decline as we take advantage of volume and time based discounts and entre.
Lower the cost of our local loops. These reductions and costs are passed on to our corporate customers and are making us more competitive in this market.
Our sequential quarterly on net connection churn rate was stable and our off net connection churn rate improved our on net unit churn rate was 1% for this quarter. The same as last quarter. Our off net unit churn was one 1% for this quarter and improvement from one 4% last quarter.
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 with us we may offer pricing discounts to these customers in order to induce them to purchase additional service and order to extend the term of their contracts.
With us due.
Due to the commodity nature of Netcentric services, the vast majority of our move add or change contact tracks are related to our netcentric customers during the quarter certain of our Netcentric customers took advantage of our volume and contract term discounts and entered into long term contracts with us for over 2600 customer connections.
And increasing their total revenue commitment to cogent by over $21 $3 million.
Our EBITDA is reconciled to our cash flow from operations in each of our quarterly earnings press releases and seasonal factors that typically impact. Our SG&A expenses include the resetting of payroll taxes and the United States at the beginning of the each year annual cost of living or CPI increases seasonal vacation periods.
And the timing and level of our audit and tax services, our annual sales meeting costs and our benefit plan annual cost increases.
Our EBITDA was flat sequentially, primarily due to seasonal increases and our SG&A costs and our EBITDA increased by $5 $2 million year over year, primarily result of $6 $5 million of increase and our on net revenue our quarterly EBITDA margin decreased by 90 basis points sequentially.
237, 8% and increased by year over year by 200 basis points, which is in line with our long term expectations.
Our basic and diluted income or loss per share was 41 for the quarter Thats of income.
Compared to a loss per share of 14 last quarter and income per share. It was <unk> 20 for the quarter.
The first quarter of 2020.
Unrealized gains and losses on the translation of our 2020 for Euro notes into U S. Dollars are the primary contributor to the variability and our net income and consequently, our income and loss per share in particular last quarter and this quarter.
Our revenue earned outside of the United States as reported in the U S dollars and increased to approximately 25% of total quarterly revenues from 24% of our total quarterly revenues in the fourth quarter of 2020.
Approximately 18% of our revenues this quarter were based on Europe, and about 7% of our revenues related to our Canadian Mexican Asia, Pacific's Asia Pacific South American and African operations, we have not hedged our foreign currency obligations, including our payments on our euro notes.
Continued volatility and foreign currency exchange rates can materially impact our quarterly reported revenue results and our overall financial results. The foreign exchange impact of our quarterly sequential revenue was a positive $5 million and the year over year of foreign exchange impact was a positive $2 6 million.
Our quarterly revenue growth rate on a constant currently basis currency basis was one 7% sequentially and two 3% year over year variability and foreign exchange rates, primarily impacts our netcentric business the.
The average euro to U S dollar rate. So far this quarter is one of one nine and the average Canadian dollar exchange rate is <unk>.
Zero should these average foreign exchange rates remain at the current average levels for the remainder of our second quarter of 2021, we estimate that the FX conversion impact on our sequential quarterly revenues for our second quarter would be of negative $2 million and the year over year FX conversion impact on quarterly revenues would be of positive $2 5 million.
We believe that our revenue and customer base is not highly concentrated our top 25 customers represented less than six 2% of our revenues for this quarter.
Our quarterly capital expenditures decreased by <unk> 4 million sequentially and increased by $2 $6 million year over year, our capital expenditures were $15 4 million this quarter compared to $15 9 million for the fourth quarter of 2020, and $12 9 million for the first quarter of 2020, a good deal of.
The increase of our capital expenditures was the result of the need to increase capacity on certain parts of the network as a result of the growing demand and our Netcentric segment, we continue to anticipate a reduction and our capital expenditures for fiscal 2021.
Our finance lease <unk> 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 <unk> fiber lease obligations totaled $218 5 million at March.
31, 2021 at quarter, and we had <unk> contracts with a total of 280 different dark fiber suppliers are.
Our finance lease principal payments were 577 million for the quarter, primarily due to purchases of dark fiber and international markets compared to $6 2 million for quarter, one and 2020 and $4 6 million for the fourth quarter of 2020, our finance lease principal payments combined with our capital expenditures were <unk>.
$21 $2 million this quarter compared to $20 5 million last quarter and were 19.01 million for the first quarter of 2020.
And as of March 31, 2021, our cash and cash equivalents totaled 238 points of $1 million for the quarter, our cash decreased by $133 3 million, primarily from the principal payment of $119 $7 million on the partial redemption of our 2022 notes and an increase.
And in our quarterly dividend payment.
Our quarterly cash flow from operations increased sequentially by 25, 4% to $47 $1 million pre.
Primarily due to an $8 $7 million increase and our working capital our quarterly cash flow from operations increased by $18 $6 million year over year, our cash flow from operations. This quarter represented the largest amount and cogent history.
Our total gross debt at par, including our finance lease obligations was $963 4 million at March 31, 2021, and our net debt was $725 4 million. Our total gross debt to trailing 12 months EBITDA as adjusted was for three.
Nine at March 31, 2020, and our net debt ratio was 331, our consolidated leverage ratio as calculated under our note indenture agreements was for four one at March 31 2021 on.
Our $350 million Euro notes are reported in U S dollars and converted to U S dollars and each month and using the month and euro to U S. Dollar exchange rate the unrealized foreign exchange.
Gain on our Euro notes was $18 9 million and this quarter or 41 per share compared to an unrealized loss of $19 2 million last quarter, and and unrealized gain of $2 9 million for the first quarter of 2020, our bad debt expense as a percentage of our revenues revenues improved year over year.
<unk> and was stable sequentially, our bad debt expense was <unk>, 6% of our revenues for the quarter compared to <unk>, 5% of our revenues last quarter and <unk>, 8% and the first quarter of 2020, our bad debt expense was <unk>, 5% of our revenues last quarter, our day sales outstanding or DSO for worldwide accounts.
<unk> was 21 days for the quarter, representing a corporate record for GSO and the significant improvement from our 2004 days last quarter I want to thank and recognize our worldwide billing and collections team members for continuing to do a fantastic job and serving our customers and collecting from customers during very challenging times and with that I'll turn of.
It back to Dave Hey, Thanks, Sean I'd like to highlight a couple of the strengths of our network, our customer base and our sales force and as I stated earlier, we saw an acceleration of revenue growth and our Netcentric business during the last three quarters and and impressive netcentric growth rate of 20.
The four 6% year over year streaming subscriptions, primarily in international markets continue to outpace analysts' expectations and of our.
And we are a direct beneficiary of this trend and how.
Some of the key statistics that we believe reflects some of the strength and on our Netcentric business.
At quarter, and we connected to one 274 of carrier neutral data centers and 50 for Cogent data centers. This is more than any other carrier globally as measured by independent third Party research.
The breadth of this coverage allows our netcentric customers to better optimize share networks and reduced latency.
We expect pebbles and widen our lead and this market as we project to connect to over an additional 100 carrier neutral data centers per year for the next several years based on the planned construction pipeline of the facility.
And at quarter, and we directly connected to 7470 networks.
This represents a six 1% increase from a year earlier this collection of ISP and telephone companies cable networks mobile network operators and other carriers allows us to wrap the access to the majority of the world's broadband subscribers and <unk>.
Mobile phone users at quarter, and we had a sales force of 239 for.
Perfect and holes solely focused on the Netcentric market. We believe that this group of professionals gives us one of the largest and most sophisticated sales teams in this industry segment now.
And now for some comments on our corporate business, we are seeing some positive trends and our corporate business, but they have yet to fully materialize and positive revenue growth.
As work from home environment becomes established as part of the way people work going forward or corporate customers continue to look to upgrade their internet access infrastructure to larger connections and symmetric connections our corporate cost.
For Mers are aggressively integrating some of the new applications that will become part of the work from home of world such as video conferencing.
This usage will require high capacity connections, both inside and outside of the promise.
And as Sean mentioned earlier, this has been and aggressive push for us to increase our corporate customers connection size to either one gigabit and then some cases 10 gigabit symmetric connections.
Our sales force continues to experience improvement from the continuous training efforts and.
And the accelerated management out of underperforming reps as a result on a sequential basis. Our total sales force head count declined to 547 reps and our full time equivalents, perhaps shrunk to 500 and <unk>.
Eight two full time equivalents at quarter's end year.
Year over year, our sales force increased by five reps of 1% and our full time equivalents Rep Count was flat our sales force turnover was 6.6% per month in the quarter, which is a slight drop from the $6 nine per.
<unk> per month that we experience and the fourth quarter of 2020.
Primarily as a result of our disciplined approach and monarch shrink on a remote sales force and managing out those underperformers and improving the efficacy of our sales force. These factors resulted in a continued rebound and sales productivity.
The four three orders per full time equivalents per moths of two 4% sequential increase from the for two orders installed per full time equivalents per month and the previous quarter.
Overall, we believe our sales force has accomplished a great deal on the past year. The first quarter was our sales team's best quarter and the company's history.
Of that business is installing and will be fully reflected in the second quarter or two.
And thank our entire sales force and the entire cogent support team for all they've done and the hard work that they've had throughout COVID-19, and the continued improvements that we're implementing in 2021.
So in summary, cogent is the low cost provider of Internet access transit services for Valley.
The <unk> proposition remains unmatched in the industry demonstrating our low cost position is the fact that since 2016.
Of our cost of goods sold per byte mile transmitted by and annual compound rate of 22.
5%.
We remain optimistic about our unique position and serving small and medium sized businesses located and the central business districts of major cities in North America with approximately 1800, multi tenant office buildings on net and over 975 million.
And square feet.
The recent drop and new tender.
Tenancy and many of the cities, we are beginning to seat and landlords of aggressively and ties new tenants and to their space with all of our rents shorter lease terms and improved tenant amenities, which will keep these class a buildings and high occupancy levels.
And as COVID-19 vaccinations increase throughout the United States, and and Canada, our tenants will begin to return to the multi tenant and footprint.
We believe that our corporate business can return to its long term historic growth trends or customer churn and bad debt day sales outstanding are all better than our historic norms. We.
Believe this represents the unique.
And and quality of our customer base and the value of our service to these customers are targeted multiyear.
Constant currency revenue growth range of 10% and EBITDA margin expansion of 200 basis points per year for <unk>.
<unk> are current.
Yes.
Our board of directors has increased our dividend for the 35th consecutive quarter at two five cents per share per quarter to 78.
Representing a 14, 7% annual acquired right and dividend.
Our consistent dividend increases demonstrate our optimism and the business the operating leverage of our business model and most importantly, the accelerating cash flow generating capabilities of our business.
While we did not repurchase stock and the quarter, we did have over $30 million available for repurchase program to remain in place through year end.
Now I'd like to take a moment and just close on some of our capital markets activity.
We are working to optimize our balance sheet and take advantage of the current interest rate environment, we anticipate being able to lower our cash interest expense by over $10 million per year.
And the first quarter, we've repurchased $115 9 million of principal senior secured notes that are due March of 2022 with cash on hand.
We also issued of conditional call for another $45 million of the stopes.
Assuming that we do perform on this call.
Pro forma leverage will fall below for on a quarter of times as defined in our indentures, both and of our 2020 channel and 2020 for notes.
And as a result of that we will be able to transfer and accumulated builder basket from the operating company to the holding company freeing up more capital to the return to shareholders as part of this capital of management program. We are planning to offer $500 million of new senior.
And our secured notes due in 2026 under $1 40 for egg.
Yesterday afternoon, we released our 10-Q at quarter for quarter, ending March 31, 2008, and 21 and on a quarterly press release to facilitate this transaction.
My apologies to our research analysts who expect this information early the next morning, but we felt it was critical to get this information into the market. So our potential debt investors could analyze our improved business outlook.
And if we're successful on pricing this offering and we will complete our conditional call retire $45 million of par.
22, senior secured notes, we will reclassify of $121 $5 million and to our permitted restricted payments.
We can then move this cash of holdings to fund future dividends and share buybacks.
Buybacks post this reclassification, we will repay the full balance of the senior secured 2022 notes through the fees.
And issue our new 2026 notes pro forma this transaction, we will have $390 million of cash on hand, and total and $145 million available at the holding company for dividends and share repurchases.
Again, and I'd like to thank all of our cash terms for their continued support and the entire cogent team for an excellent for us.
And I'd like to open the floor for questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone and for your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Okay.
Go ahead.
Go ahead, yes.
Your first question is from the line of Colby Eastern of sale with Cowen and company.
Hey, this is Michael on for Colby two questions if I may.
Were there any onetime items, we should be aware of and the quarter, particularly within the netcentric business and as part of that.
How should we think about the sustainability of the momentum and growth that we're seeing and the Netcentric business currently.
And then also I would ask you you mentioned improving <unk>.
Sales backdrop is there any quantification you could give us on what youre seeing or the improvement youre seeing and your corporate sales funnel either quarter over quarter of year over year that'd be great. Thank you yes.
Yes, sure Michael Thanks for the for any questions.
So.
First of all debt, where no extraordinary items and our Netcentric business. This was actually a very broad number of customers both content delivery.
And access networks, increasing the utilization of our network. We benefited from the fact that our new shale price actually increased rather than declined.
And as a result, both of foreign currency translation since nearly half of that business is outside of the U S.
And the continued broadening of our customer base.
Almost 69% of our traffic results and a two sided payment where both the customer sending and the customer receiving our pain cogent.
And about 41% of our traffic exits or enters our network through one of our settlement free peers and to remind investors cogent does not sell peering or purchase peering or of transit as a service.
To your second part of the Netcentric question.
We think that this reflects an accelerated shift and viewership throughout the world moving from linear video to streaming video, Inc. Proofing resolution improving content improving choices and subsea.
<unk> models on.
All of these things.
Of occurred and the U S. On are now becoming more internationalized that should bode very well for the Netcentric business and in particular of cogent should capture a disproportionate share of that due to the global nature of our network the carrier neutral footprint.
That we described and the sheer number of access networks that connect to us versus any other carrier give us a sustainable advantage.
Now this is a usage based business and it typically generally just non accrual is rapidly on a sequential basis of war month's ash and cool because people spend more time outside and less time consuming video this year may be a bit different particularly the cost some of the Oct.
Down throughout Europe, where people are not able to go out and actually the good weather the same way they would normally be able to and the U S. We are seeing I think a more normalized seasonal pattern.
As I think about the corporate business, the 24 plus percent year over year growth that we delivered was either of the best of the second best and the company's history over 21 years.
That business ebbs and flows but has average a 9% growth rate, we were underperforming ever since the loss of Mega upload and some of the peering issues with violations of net neutrality.
We're encouraged by the current regulatory backdrop and the current administration's commitment to and open Internet all of this bodes well for this business performing.
Now at historic trends for the foreseeable future now we may have several really good quarters, but over the next five to 10 years, we think the netcentric business can exhibit that high single digit nine or 10% year over year growth rate.
Now for the final part of your question around corporate disability.
One we have seen the decline and churn rates, we have seen most of that churn come from smaller older customers who.
Who have bell economic pressure because of the pandemic offsetting that has been the increase and larger connection of sizes.
And the increased activity level of the sales force as measured by number of spoke twos per day number of spoke twos converted and the opportunities and number of opportunities sold and that is demonstrated by the increase and sales force.
Productivity.
With over 65% of the sales force focused on the corporate market here in North America.
Many companies are expecting to return to the office either on a full time or a hybrid basis. These companies realize that they need to plan for that return to work and sell accommodate work from how that has been a positive trend for us.
As companies now are looking for symmetric larger connections and more of locations there will be some network roaming of some offices.
But for the most part we anticipate sequential continued improvement and our corporate business and a return to its long term average growth rate and.
As corporate Workforces return to the office and a post pandemic world.
Next question please.
Your next question is from the line of of Walter Piecyk with the light shed.
Yes.
Alright.
And so let's go back to the corporate I would say it's been down.
Would you explain the U S half of 2% or more and the last three quarters sequentially.
Aside from the long term returning to growth as people come back.
Out of the trends look for the for the current June quarter can you maintain flat revenue and the June quarter.
So I actually think we will see continued improvement.
The rate of decline has trough as I commented on the churn numbers have sequentially declined now for five consecutive months and preliminary data for this month's indicates and will decline even further and.
In addition of that based on sales activities, we actually believe that the corporate business and.
Improve on a sequential basis in the second quarter, whether that is enough to return to an aggregate positive number is yet to be seen but.
And many parts of the contrary, probably everywhere, except northeast and Toronto, We're seeing an increase and office re openings and and immediate need to accommodate this new hybrid model.
So it is improving so when you say improving you're just thinking like some kpis within the business but.
It's unclear if that can deliver.
The flat revenue sequentially.
And do I understand that range.
That's correct I do not have and as the company.
What I listen I do have visibility to is the fact.
In fact that the rate of revenue decline will improve will improve to a zero of rate of decline. It's too early in the quarter tab Walter I just added to Dave's insights I think I think we look if we look at what happened in 2020.
And what's interesting is when we look at the two products the <unk> product, which was the 1000 megabits per second versus the 100 virtually all of that churn was and our 100 megabit product. We grew every month on our gigabit product and as we've discussed earlier that mix of products between 100 Meg to gig.
100, Meg was our biggest product needs of the first quarter of last year, it's gone from over 50% of the corporate revenue down to 33. So the impact of that decline is going down and so the impact of older clients, who are disconnecting is going down and we've mentioned that as we've seen churn go down five months of the ROE.
And we also look at growth and our direct Internet access product.
And January our units declined but in February and March we saw the first increases and net units.
Since the beginning of last year, So we see a bunch of green shoots all over the place lower churn and companies.
The company's beginning to look at how they're going to.
Operate their business in the new environment.
The great growth and our 10 gig VPN product, which was a small product, but tripled and sort of units. So we see all sorts of improvements of the churn that we had suffered for 2020 is going down and corporates are beginning to reconfigure their network and are beginning to make decisions about what they're going to do and that typically means theyre going to increase our capacity.
<unk> and we're the right company to do that.
Got it thanks, Thanks, Sean and kind of just ask one quick question also on the.
On the balance sheet and when you say your your net debt numbers.
If you exclude the operating lease liabilities, which obviously increased over the course of the year can you just refresh our memory.
In terms of across 22, why that went from.
So it was $88 million Q1 last year to 109 this year and then is there.
Because that goes up is there like and offset in terms of expenses that are not booked as expenses and are just depreciate. It and if so does that factor into kind of of debt covenants that you.
And that Youre, citing when you were talking about this three two times net leverage.
Lots of 331.
As our as our current net right.
Dave.
The operating lease liabilities, because I assume that the EBITDA includes any benefit from that accounting of having operating lease liabilities. Then if you include the 200 million of.
Excuse me $109 million.
Actually 120 of operating lease and it takes the leverage up to three eight so I'm just trying to understand the kind of the puts and takes on operating lease and I know that was kind of from an accounting change from a year ago or so but.
Is there a benefit to EBITDA.
So if you remember last year fast be change the rules.
For the lease accounting.
You used to also have to classify your future contingent obligations.
Non.
<unk>.
Those types of <unk>.
Characterizations ash on operating lease liability.
As a result, we saw some of our expenses reclassified as capital leases.
And particularly some long term O&M contract on fiber IR of Hughes Secondly, we should kind of EBITDA right, which does help EBITDA and that was clearly disclosed last share and the first quarter.
And then also we have seen the operating lease balance now increase the cost some of those future obligations now need to be classified as operating leases.
And.
Sean on US you want to add any more account and we can go through.
I think that was clear I'm just trying to get you know I'm just trying to look at the rate net debt leverage whether it be included.
And if youre using the three three I guess, we have to put those.
<unk> back and if we're excluding operating leases and any event its obviously youre leverages up.
Year over year do you think this is kind of of the Max on.
On leverage if you just took.
Forget about the last four quarters, even the current quarter.
Annualized do.
Do you think we've kind of reached the peak in terms of your leverage however, you're calculating the numerator and denominator yes.
So there is no P&L impact of this accounting change. This is purely a balance sheet growth shop show there is no impact on.
On our range.
We expect over the next couple of quarters, given the growth growth and cash flow and given our modest reduction in capex that are our EBITDA level of debt to EBITDA levels are going to come down marginally quarter on quarter and.
And finally, as I mentioned earlier and the call we anticipate with this proposed refinancing.
And the effective constant level of debt when going back to prior to our repurchase of the 160 $815 $9 million of debt.
<unk>.
We will end up saving about $10 million, a year and cash interest expense.
Okay. Thanks, Dave Thanks, Sean.
Hey, thanks.
Your next question is from the line of Tim Horan with Oppenheimer.
Thanks, guys I might've missed could you give the corporate cash.
Customer connection total this quarter and last for you haven't.
Yes, let me get you the exact number and it is.
Thanks.
The.
One of the Mississippi.
For.
Connections and you are asking.
Last one.
So we had 46 seven and one nine at the end of this quarter. We had 4700 75 at the end of last quarter. So a decrease of one per 1%.
Okay Tom.
Got it but it's a little weird.
And the churn.
Well I guess that was due to the off net churn over the last couple of quarters why kind of the decline.
That is correct and the decline and smaller connections. So while we can have.
Unit churn it is actually possible because of the <unk> uplift from larger connections to actually see the revenue growth improve we also get the benefit of the mix shift with more connections and bets being on net and off that.
Off net are those primarily secondary offices. So we also get that benefit to our cash flow.
Got it so.
So the corporate <unk> that that would be it would have been down slightly year over year. Just so we're on the St Patrick's day.
That is correct.
So I guess, how is that climbing and if the mix of shifting to gigabit and from 100 Megs I.
I would expect of that number two of increased.
Of two things going on on the on that side you are seeing an increase in the ARPA on the off net side. It is declining very rapidly because of the below of our looping and indeed, that's the part of the strategy are our loans are <unk> on off net is declining sort of the 8% to 10% per year much faster than our debt are changed.
And our.
And our on net connections got it got it and.
And that 9% decline per year.
And.
And I guess, what's the what's the average like connection price now and will that stabilize at some point do you think for off net yes.
Off net is about 70 $525 for one gigabit connection and again, that's declining and high single digits per year as part of the strategy. So that we can become more and more competitive.
I mean, the 1700, just seems a little high I mean, the cable guys are out there gigabit connections and I know, it's not the same quality but for.
For a couple of hundred dollars.
I know you have for fiber and those surgical yeah.
The non of our share and there are unmatched and Thats really the difference and I remember, 100% of our off net services just high color on net surfaces are only delivered over a fiber connection and there is no coax and companies can have.
Surge capacity, but when they have worked from home employees. They quickly realize that a cable one gigabit product is not what they.
I believe it is and it does not support that type of VPN connection.
Got it so I guess.
<unk> hundred and who you're competing with and what are the what's the market price pointed out the area.
Okay.
Let's go back first of all most of our off net business is sold in conjunction with on debt. So we developed the relationship with the on net connection which is most likely of one gig connection and the kind of five.
The $700 price range, depending on contract term the customer then says I want a similar service and a off net location.
We look at our database of nearly 4 million fiber served buildings from 90 different vendors.
Get the very best loop price and on automated tool and then go and double that to get of 50% gross margin product to offer that customer our win rates for much lower and off net we're probably competing with inferior prop.
<unk> delivered over tdm or over coax, and we're selling and on.
Yes, just the naked pipe are not selling bundled services and.
And again the off net.
This is not a dedicated viable business, but rather it is an adjunct to our on net relationship and Thats why many customers buy from us and many locations.
The simplicity, so if you're if you're a company reconfiguring and <unk> got eight locations and let's say for on net and for off net.
And much more difficult to go to another vendor goodbye. The so when you blend all of the cost of our on net circuit versus our off net circuit.
And most corporates will prefer to use one vendor ie cogent versus having to use multiple vendors for different circuits very helpful. Thank you Lastly, Dave I mean do you expect the on traffic growth overall, too slow and I know it.
It's been kind of relatively stable here. The last five months, just the year over year comps could get pretty difficult on the second half of this year.
Yeah.
It's a little hard to answer that question because it is usage based.
While we are returning to work in the U S. Much of the rest of the world is behind the U K, Singapore Korea, Israel and there are some markets, where we're seeing pretty good re openings, but there is still a lot of shutdowns.
And people required to stay in place. So I actually think we're going to continue to see elevated traffic growth rates for.
For the foreseeable future and then we also have this long term phenomena, which is the reduction of linear packages and the adoption of multiple streaming packages and I think we're still at the early stages of people figuring out.
How many concurrent packages theyre going to have but the broadening of the screaming supply chain actually helps two ways and helps us and charging more for streaming and it's going out and it means the receivers who are also paying us.
Of probably receiving more bets more hours of the day.
Thank you very much.
Hey, thanks.
Your next question is from the line of of Nick del Deo with Moffett Nathanson.
Sure.
First on the Netcentric front, obviously the improvement there has been pretty pretty stunning.
And the driver you call out all makes sense, but I feel like they've been chugging along for a while so it's kind of hard to tie to the changes and growth.
OTT adoption has been growing for some time, even pushing overseas for some time the customer basically being brought in and out for some time.
And I think the pace of traffic growth this quarter, even ticked down a little bit.
Is there anything else that's different now that's having such a dramatic impact on the growth and drove such an inflection.
Okay. So the first of all of the I'll start by thanking you for participating and cogent lot I have not had a chance to do that next one of the thank you for that up but.
I think these are really continuations of long term trends the net.
Centric business tends to be a bit lumpy. These trends tend to take several quarters to fully manifest themselves and.
And.
You are right that the share quaint shall traffic growth did tick down slightly as it normally would this time of year.
But effectively we have been able to get a higher revenue per bit shaved that two ways one the.
The average price of new Megabit sold actually slightly went up that is a reflection of a broader buyer universe. We also were helped by the fact that more of the access network growth is coming outside of the United States, where we are.
Our stronger and the U S. The.
Three largest access networks are not cogent transit customers and the U S. But are rather peers now all of those three companies Dubai transit from Us and international markets, but that is not true of.
The converse for some of our European and Asian peers.
And they buy from us.
Customers they buy from us globally, they are not peers anywhere so his.
Internationalization phenomena.
Bank has on all way to go and it also is back to the question about impact and COVID-19. It really has been worse and continental Europe than it has been and most of the U S. Probably with the exception of of the northeast most of the U S appears to be reopening.
Nick I would just add.
They are I'd say the.
And they May disagree with me and I think there is clearly more growth overseas you talk about HBO, Max which has had a slow start but has now begun to really pick up steam there, indicating that theyre going from one market. The 61 markets and as Dave mentioned, they're not a customer of the United States, but outside.
Theoretically they would find cogent a much more.
A bunch of better vendor of given that we're in 47 countries, where and all these C and Dcs and as Dave points out we of all of these access network. So as streaming goes international is that happened over the last several months I think we benefited from an outsized portion of versus competitors.
Okay. Okay, and then just maybe one last one on the corporate segment kind of thinking about the mechanics of that.
The business goes from a potential tenant and of building two of cogent customer.
How should we think about.
The time it would typically take from the time from when the business starts looking for space and signed the lease and takes the space and moves in and signs up for DAA TIAA and what does that cycle typically look like.
So for the new tenant that's the best news they have to make the decision herself, forcing event.
And typically our company well look anywhere from one month of they are moving into a spec suite. This pre built out to as much as of year and advanced till they intend to take occupancy and if theres an extensive build out I think because many of the new leases.
Tend to be for shorter duration and the landlords in order to improve occupancy and more wanting to build spec suites I think that window from decision to actual move and on average a short thing I take the much more important trend.
And though for Cogent is what is impacting the decision cycle of an existing tenant as they think about bringing their employees back to the office and they are not of cogent and customer today.
And there I think there are three key factors one the belief that some portion of the workforce will continue to work from home. So therefore, I would need to make sure I've got enough bandwidth both in and out of my network.
Two the application set on deploying are more and more and going to pay off Prem and the.
The data computing and storage will be more and more off premise. All of these drivers have companies reevaluate their internet access requirements layer.
Player on top of that the VPN transaction. So as we've talked about many times vpns have been dominated by mpls that degradation was happening long before the pandemic actually and away the pandemic.
Cash provided a lifeline to those mpls providers, because customers were necessarily and kind of a wait and see mode as opposed to making a new network architecture decision now that theyre coming back to the office and this was.
The two the first question on Michael asked one of the questions is.
And what's my New office office connectivity going on and offline and that is of very strong positive so volatile when new customers coming in the <unk>.
Bigger opportunity for us as those existing customers.
Our existing tenants, who are not cogent customers one of the return to office needing a new network architecture.
Okay got it thanks, Dave Thanks, Sean.
Okay.
The next question is from the line of James Breen with William Blair.
Thanks for taking the question Dave have you guys had any discussions on the landlord side just around as companies start to downsize of the real estate footprint.
And as an opportunity here, where your average 50 tenant and starts to go up.
As the tenants, taking less space and you've talked in the past.
And that's opportunity for selling when changes happen.
Your thoughts on that thanks.
So.
We have reached out to our roughly 350 institutional owners of MTO based show 1800 buildings.
And by about 350 different organizations from the largest Brookfield to maybe a small single building owner and what we have heard as our real estate team is engaged with them.
And is three things one the increased need for high quality bandwidth as a tenant amenity to attract people to their space should we've even seen.
Some of our landlords.
Coming to us and say we have another building that may not have met <unk> criteria will actually.
Give you a free license agreement and as opposed to the license to frame. It you pay for it as sort of that building and we may even foot part of the bill to for you to construct and of the building I can think of a handful of buildings and New York right now that are being repositioned net we're doing exactly that on.
The second thing, we're seeing is land wards and increasing the amount of spec suites and.
And those are designed for smaller tenants, while every landlord, but love to get the.
Big.
Martin Dale Hubbell kind of top 10 law firm for 15 or 20 year lease those leases are hard to come by some boring because our moving down market for smaller tenants to attract them. The landlords are spending of $150 a foot building out specs.
Suites, hoping the tenants come in and the good news there is they come quickly and having high speed Internet access at the immediately available is very attractive.
The third thing that's happened is there's actually a decrease and the portion of the building that has been used for shared amenities.
And there was a bit of a war going on by of landlords of how fancy of of gym. They can put and how much of a conference center and they can put and you know how free beer was available and a party ran for tenants and now we're seeing people go back to a more traditional leasing model.
Where are they say all I care about is my space I don't really care about that share space and that means there's more square footage of available for rent paying and internet purchasing tenants. So I think all of these things bode well to increase our total addressable market.
And.
Great. Thanks.
Hey, Thanks, Jim.
Your next question is from the line of Brennan and Mr with Keybanc.
Hey, guys and seven young on for Brandon.
Youre, showing a growing trend and international net centric demand, where do you see the kind of the mix between domestic and international revenue settling and the next few years on that.
And there's more international demand affects the average price per bed.
And.
So there are really.
Two very different trends. The first one is content per car auction tends to be pretty much and American phenomenon of yes. There's Bollywood there are some other markets, but virtually all of the major streaming services our U S space now.
In order to reduce latency they may purchase both domestically and internationally from us and the revenue will be reflected accordingly, but they are priced on a global purchase agreement.
The second thing is for the receiving access network.
The adoption of streaming.
And the less developed world and even in Europe lags behind the U S and that is a positive eventually as we've looked at internet traffic and the U S has declined and 20 years from 85% of global Internet traffic to 30.
3% that'll eventually decline to somewhere between four and 5% because thats what percentage of the world's population weigh on that.
It's a multi decade trend because tele density and infrastructure and most of the world lags behind the U S. I know.
We get a lot of things for poor infrastructure and everybody looks at Korea. For example, as this model for broadband but for.
The most part there is still more ubiquity and higher speeds much higher prices and the U S than the rest of world and we are seeing significant fiber to the prem builds being promulgated by government incentives such as UK open range.
The Elliot build and France are two very strong and examples of a national commitment to getting fiber and every premise.
There is a major effort and Germany to overbuild major effort and the Netherlands. So.
Thank you.
Over time international will represent a larger and larger percentage of our Netcentric business I think it's impossible to predict the exact mix three or four years out.
Great. Thanks, guys.
Thanks.
Your next question is from the line of Frank the Luton with Raymond James.
Great. Thanks.
And can get your answer to this one but are you in any way concerned about some of the fixed wireless claims and some of the larger carriers, particularly for the off net business for backup type type services. It seems like where they're targeting some of that will be more and some suburban type areas, where maybe some of the off net business.
Yeah generally lives.
Just give us your thoughts on that.
So as we've stated many times shrank and anything that brings more traffic to the internet is ultimately a positive for cogent.
More access technologies, whether they be fiber to the prem of fixed wireless domestically or internationally bodes well for our business.
Now our off net corporate business is a adjunct to our on net debt. There is no fixed wireless service that is on a per unit basis anywhere nearly as reliable on a cost effect.
And as our on net services, we fully of met that are off net services are more expensive and less reliable even though they are delivered over fiber from someone else.
And.
Refused to re shell fixed wireless access because of the very high cost per bit. There is a segment of the market that will use that product now whether or not that's going to be material to broadband true.
<unk> growth I'm very skeptical just because the cost per bit is so high just as we have.
Had questions around getting new satellite ventures, such as star of land mass fancher very ambitious generate lots of subscribers, but at the end of the day. The constraint is it's a fixed wireless path.
That is very very expensive per bit.
And it will never compete if there is a terrestrial fiber alternative it will work and those white unserviceable areas that are the white space that fiber cannot be cost justified in but what we're seeing is a concerted.
The effort and the U S and governments around the world to realize that finally, the digital divide needs to be closed and fiber as a necessary infrastructure of society.
Alright, great and just quickly what is your outlook for for sales sales head count growth for the year, where do you expect the end up relative to where you did the beginning of the year.
So our state of goal remains to growth the total sales force at seven.
The 10% per year for all.
Up 1% right now on a year over year basis. So we are lagging part of that is the challenges of managing a remote sales force and the pandemic and our flag and managing out underperforming reps I think we have put those systems in place.
To be able to monarch for rep productivity and that's why our sales force productivity is increasing we are hoping for a return to our offices at least in North America and the U K by the end of summer and that should allow us to reaccelerate our high.
Hiring and get back to a more traditional onboarding and training program that should get us back on track for that 7% and 10% total sales force growth.
Alright, great. Thanks, Dave.
Your next question is from the line of Angela Zhao with Bank of America.
Hi, Thank you for taking my question. This is the answer that on for Mike Funk That'd be a day and so earlier on the call you talked about the new sales force being focused on Netcentric margin could you expand on that and could you talk about the overall margin progression for the remainder of 2021 and.
Two if I may can you talk about the projected growth and enterprise connection and.
Going forward from here.
Yes, So let me start with margin when we add a dollar of on net debt carries 100% gross margin contribution and 95 cents of EBITDA and.
And our corporate business roughly 60% of sales are on net 40% are off and Netcentric, it's over 90% on and only 10% of shows the increase in net centric growth.
Bodes well for gross margin expansion and EBITDA margin expansion.
We have guided to a 200 basis point per year, multi year expansion and EBITDA margins with roughly half coming from gross margin expansion and half coming from EBITDA, we actually achieved that but most of the benefit was on the gross margin side.
And the increased cost of operating and the pandemic offset some of the SG&A improvement as we return to the office. We think those factors should normalize and we should be able to continue to say about 200 base.
At this point of year and kill EBITDA margins plateau at around 50% based on the size of our addressable market.
Now to the enterprise connection question.
We expect to continue to increase the penetration and the on net buildings that we have.
Also expect that we will return to an average of 1.5 connections sold per customer with half of the customers, taking a second connection either for backup or for V. P. And we also believe that not all of the secondary.
Offices will be shuttered only those and the same metropolitan market. So as a result, we think our off net unit volume growth should mirror that of our on net business call it kind of <unk>.
11% and 12% grower of long term, which has been the long term averages, but as Shawn mentioned earlier the input cost for loops of net have been coming down to Tim <unk> question about our <unk> for those one gigabit connections we've seen a nice.
And our 10% annual cost for adoption and those loops and we expect that to continue as cable and telco continue to overbuild fiber and put pressure on those suburban infrastructure facilities.
Vertical systems now indicates that 64% of all.
Business premises that half of 'twenty of more employees have one or more of five our suppliers to them. This has greatly expanded our off net addressable market.
Thank you so much.
Thanks.
Okay. Your next question is from the line of Bora Lee with RBC capital markets.
And so on it.
On the aspects of this during the call I'm, just trying to understand the path that with traffic and Henk, perhaps for use in the U S. That's the model.
Can you talk up and the network traffic patterns you saw on the U S. As it relates to COVID-19 shutdowns and the opening and brand Europe is on that curve and to the extent that there's any quantification you can provide.
Yes, sure Bora, so a couple of points first of all <unk>.
And 90% of our traffic is from our Netcentric business on the corporate side, what we saw I'll talk about that 10% for us as people work from home the.
The bandwidth going in and out of a business actually needed to be some metric as opposed to and a normal time when the employees for sitting in the office, they're sending a few requests spits out and just pulling information and and the connection can.
And be much more asymmetric more down than up I think and a hybrid corporate model, which is appears to be what is evolving for businesses that cemetery is going to become increasingly important.
Now to where 90% of the traffic comes from and that is content going to consumer residential consumer.
That content is distributed and data centers, we have over 13 of 100 of them, which gives us a competitive advantage that content wants to be closer to the customer to have greater weight lower latency, but also needs to have high utilization and they justify the space and power.
<unk> expense.
We then need direct connectivity to as many access networks as possible, we have that now and North America more of our exiting the traffic goes to our peers rather than our customers. We do have several very large.
Cable operators as customers, many and dependent telcos.
Allison's of small regional players whether they be CLEC.
<unk> and very rural areas or rural telcos, but as a percentage of the U S customer base they are relatively small.
If we pivot over to the international market, we have most of the PT teas and the world buying from US most of the cable operators and most of the competitive carriers. So internationally, we have a much higher percentage.
Of traffic, where we're getting paid on both sides versus the U S. And this increased internationalization has improved our.
Active price per megabit.
Great.
And in terms of sales reps and.
And thank you stay on the path and the.
Cater of how session of the sales force and.
And you just provided an update the number given all the moving pieces and the head count.
Yeah actually our sales force tenure has actually increased slightly throughout the pandemic.
And we've gone from and average Rep life of about 28 months to just around 30 months, which is the optimal point where productivity peaks.
Most of our sales force turnover occurs and the first six months of the reps tenure at cogent the.
The first month is for Onboarding and training and then in the next five months are expected to head of number of Kpis that may not include significant quota of do require a large number of customers spoke twos and funnel building activity and that's.
And really where we have seen the greatest struggle and the pandemic environment to train reps to build the adequate funnels and what then happens is in that first five or six months being on the phone.
The funnels and adequate.
And on why you can succeed and those reps are then managed out of the business.
Okay. So it sounds like you're a wealth of the sales forces and reasons.
And well positioned kiosk try and take advantage when and.
Thanks <unk>.
And so we can always do better and we are looking to grow the sales force for Franks question, but we feel we are absolutely and are positioned to capture market share as people come back to the off.
Okay, Great and just one last question it looks like your lunch, Eric local per connect service and the third quarter and and just provide a little color on the service and what's your husband cash cheese and customer interest that you've seen since the launch.
Sure so.
We are a firm believer that transit is the best way for smaller networks to connect to the public Internet. However, there is about 10% of the market that had chosen to use single location exchanges such as D kicks links and they may be.
Replicated of multiple markets.
We took advantage of our unique assets and belt and global exchange, where there is no distance sensitivity and there is no fixed port commitment that has been very well received we've sold hundreds of ports to hundreds of.
Networks now.
Now it does require the networks entering the change to affirmatively agreed to exchange traffic with one another where when you purchase tranches that becomes the obligation of your upstream provider the.
Vast majority of our traffic still goes through transit it's easier to use.
It's cheaper.
And it provides more scalability.
But there is this 10% of the market that wants that direct control feature of and exchange and I think our exchange has been very successful.
Yeah I do think there is a network effect and you know our tranche of business has a 20 year head start, but we're very encouraged by the early adoption of the exchange and the hundreds of customers, who have chosen and connect to it.
Great. Thanks, Steve.
Okay.
Yeah.
At this time, there and no further questions I will turn the call back cause it to the host for any closing remarks.
Like to thank everyone. I know these calls go on and we get really work on trying to shorten our scrap and fulfill we did have the capital markets activity that we need and just touch on line. So again I want to thank everyone. Please stay in touch and thank you for your support and stay safe and well bye bye.
Ladies and gentlemen. This concludes today's conference call. Thank you for your parts of the patient and have a wonderful day you may all disconnect.