Q1 2022 Cogent Communications Holdings Inc Earnings Call
Welcome to the Cogent Communications Holdings incorporated first quarter 2022 earnings conference call and webcast.
My name is yoga and I will be your operator for today's call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press zero one on your Touchtone phone.
As a reminder, this conference call is being recorded and will be available for replay at Www Dot co Gen code dotcom.
A transcript of this conference call will be posted on the same website when it becomes available.
Cogent summary of financial and operational results attached to its press release can be downloaded from the cogent website.
I will now turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings.
Thank you and good morning, welcome to our first quarter 2022 earnings Conference call I'm, Dave Shaffer, Coach's Chief Executive Officer.
With me on this call. This morning is Sean Walsh, our former Chief Financial Officer, and Todd We are returning Chief Financial Officer I want to personally thank Sean a longtime friend for his willingness to step in and act as our Chief Financial Officer of Wall pad was on medical leave.
And now the Ted has fully recovered and ask.
For a brief transition period with Sean talk will be resuming the CFO duties.
I wanted to welcome Chad back as our CFO hopefully you've had a chance to review our earnings press release. Our press release includes a number of historical quarterly metrics, which are presented on a consistent basis.
Our corporate <unk>.
This continues to be influenced by real estate activity in central business districts.
Two key statistics, including the level of card swipes for security entrance into buildings.
Leasing activity indicates that George.
The first quarter, but the real estate market and leasing activity in central business districts in which we operate continue to see improvement during the quarter of leasing activity across major markets continue to increase our workers returned offices continued to accelerate in the first.
Quarter corporate business experienced a smallest decline since the beginning of the pandemic.
As gross additions improved.
<unk>.
Churn continued <unk> adjusting for the negative effect of changes in the Universal Service Fund revenue more corporate business was essentially flat in the quarter.
While these improvements in our corporate business are encouraging we continue to remain cautious in our outlook given the uncertain economic environment and the continuing challenges of the endemic.
Our Netcentric business continues to benefit from continued growth in video traffic and streaming for the first quarter, our traffic was up 8% sequentially and increased by 17% on a year over year basis.
Our next juncture business grew by 4.4% sequentially quarter over quarter and by 15, 1% on a year over year basis on.
On a constant currency basis, our netcentric business increased by 18, 6% from the first quarter 2021 and grew by five 3% from the fourth quarter of 2021.
Despite facing significant revenue headwinds this quarter from the negative impact of foreign exchange and the reduction in U S revenue, our first quarter total revenues increased sequentially by 1.3% to 149.
$2 million and increased by 1.6% on a year over year basis on.
On a constant currency basis, our revenue increased sequentially by 1.7% had 2.9% on a year over year basis on a constant currency basis and adjusting for the negative impact of the decline in USF revenues from the change in.
USF tax rate.
Experienced a sequential growth in revenue from the fourth quarter of 2021 of 2.1%.
Year over year.
Growth rate.
Three 5%.
We continue to operate in an extremely efficient network. Our network serves a growing number of markets carrier neutral data centers.
Multi tenant office buildings and is able to support <unk>.
Dramatic increases in traffic and revenue with a relatively fixed cost base.
Our performance of our existing customer base continues to be strong despite.
Despite the impact of COVID-19.
Customer churn bad debt expense and days sales outstanding for the quarter for our corporate customers.
All fell for the second quarter in a row, our Dsos outstanding of 21 days equals the best and Cogent history, our bad debt expense as a percentage of revenues was the best since the first quarter of 2016.
Both our on net and off net churn rate improved for the quarter. We believe these statistics demonstrate the strong credit quality of our customer base have your importance with coach and services to these businesses.
During the quarter, we return.
One $3 million to our shareholders through our regular dividend, we did not purchase any stock in the quarter and have a total of $34 million authorized under our buyback program, which is authorized to continue through December 31.
2022.
Our cash at Cogent Holdings is 107 6 million at quarter end.
This cash is unrestricted and available to be used for dividends from buybacks cash held at our operating company is $204 2 million and our total consolidated cash and restricted cash was 311 8 million at quarter's end.
<unk> ratio declined to 4.94 from 5.0 too.
In the last quarter.
And our net leverage ratio remained unchanged at 3.58.
Our consolidated leverage ratio as calculated under our indentures as 491 at quarter's end.
Our board of directors reflected on the strong cash generating capabilities and investment opportunities and cogent business as previously announced we decided to increase our dividend sequentially by another two and a half cents per share this quarter.
Raising our quarterly dividend from 88.5.
<unk> per share to <unk> 88 cents per share per quarter. This increase represents a 39 consecutive sequential increase in our quarterly dividend.
Our annual dividend growth rate is approximately 12, 8%.
Now for some expectations against our long term objectives, our targeted long term EBITDA annual margin expansion guidance calls for an improvement of 200 basis points per year.
Our targeted multi year constant currency revenue growth rate is approximately 10%.
Our revenue and EBITDA guidance are meant to be multiyear goals and are not intended to be used as specific quarterly or annual guidance now. It's like test had to re safe Harbor language should give an update on COVID-19 and review some of our operating.
<unk> sure.
Sean will provide some additional performance details later in the call Ted Thank.
Thank you, Dave and good morning, everyone.
This earnings conference call includes forward looking statements. These forward looking statements are based 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 undertakes no obligation to update or revise our forward looking statements. If we use non-GAAP financial measures. During the call you will find these reconciled to the GAAP measurement in our earnings release, which is posted on our website.
At Cogent co dot com.
A brief update on COVID-19.
Like many other companies, we continue to be impacted by the pandemic and the accompanying response by governments around the world.
Our entire workforce returned to an in office environment this quarter in March.
We want to thank our entire workforce and in particular, our T Department for their continued hard work during these very challenging times.
We also want to thank our field engineers contractors billing and collection staff and many other cogent employees, who continue to work on the front lines installing our new customers, maintaining and upgrading our network and providing outstanding service to our customers.
Our risks related to COVID-19, and other risks are described in more detail in our annual report on Form 10-K for 2021 and in our quarterly reports on Form 10-Q, our 10-Q for this quarter will be filed shortly after this call.
Throughout this discussion we'll highlight several operational statistics, Shawn and I will review in greater detail some highlights and trends and then following our remarks, Dave will close and then as always we'll open it up for Q&A.
Some comments on corporate and Netcentric revenue and customer connections.
As a reminder, we analyze our revenues based on network connection type, which is on net off net and noncore and we also analyze our revenues based upon customer type.
<unk> all of our customers into two types netcentric customers and corporate customers.
Our corporate customers buy.
Bandwidth from us in large multi tenant office buildings or in carrier neutral data centers. These customers are typically professional service firms financial services firms educational institutions that are located in multi tenant office buildings or connected to our network through our carrier.
Neutral data center footprint.
On net customers buy significant amounts of bandwidth from us in carrier neutral data centers and includes streaming companies and content distribution service providers as well as access networks, who serve the consumers of content.
Our corporate business represented 57, 7% of our revenues this quarter.
Our corporate business declined year over year by six 4% to $86 1 million from the first quarter of last year and declined sequentially, but only by <unk>, 8%.
This was an improvement in our corporate business from last quarter, when our corporate revenue declined year over year by seven 4% and declined sequentially by two 5%.
As Dave mentioned, a decrease in the USF rate, which only applies to our corporate VPN customer connections had $5 million negative impact on our sequential quarterly corporate revenues.
And an 800000.
Negative impact on our year over year corporate revenue.
The USF tax rate changes quarterly and we cannot predict the impact of future USF rate changes on our revenues, although it has been declining.
The USF rate for the second quarter of 2022, so the current quarter. We're in has already been established and will reduce yet again to 23, 8% from 25, 2%.
As we have discussed in previous earnings calls, we believe that the growth rate of our corporate revenues was directly impacted by reduced building occupancy in central business districts of major cities as a result of the pandemic.
We also found that as a result of the work from home environment in general challenges related to the pandemic many of our corporate customers delayed decisions about system upgrades and making new network investments.
This slowdown in corporate sales combined with normal historic levels of churns contributed to a reduction in our corporate revenue for the past two years.
We are seeing some continuing positive signs that indicate that corporate buying patterns are beginning to return to a more normal level and our sequential rate of corporate revenue decline is just about ceased.
Sales of our largest product by revenue and connections are one gigabit.
<unk> products experienced its fourth quarter in a row of ryzen sales were.
We are also seeing some of our larger corporate customers begin to expand and reconfigure their networks.
In terms of churn and our corporate base. We are also encouraged that the churn has fallen and most of our corporate churn is derived from our older products 100 megabit.
DAA and Huggard megabit VPN products.
We continue to see very low levels of churn for our one gigabit connections.
The number of connections we had 485393 corporate connections on our network at quarter end, which was a decline, but only a decline of one 1% from the first quarter.
Versus the fourth quarter of 2021.
Our corporate connections decreased by two 8% from the first quarter of last year.
Consist like the revenue improvement these corporate connection declines were an improvement in our corporate business from last quarter. When the connections declined year over year by <unk>, 3% and sequentially by three 7%.
Our netcentric business, our Netcentric business, which represented 42, 3% of our revenues despite material FX headwinds had another strong quarter and grew by four 4% to $63 1 million quarter over quarter and grew by 15, 1% on a year over.
Per year basis.
Volatility in foreign exchange rates, primarily impacts our netcentric business and that impact was materially negative both sequentially and year over year.
On a constant currency basis, our netcentric business increased by 18, 6% from the first quarter of last year by five 3% from last quarter.
Connections, we had 49491 netcentric customer connections on our network at quarter end, which was a sequential increase of two 5% and 12% year over year.
Our netcentric business benefited from the continued strong demand of our larger ports 10 gig 100 gig and now 400 gig ports in selected locations.
And the demand from outside of the U S was particularly strong.
Now revenue and customer connections by type.
Our on net revenue was $112 6 million for the quarter, which was a sequential increase of one 7% and a year over year increase of two 4%.
Our on net customer connections increased by one 1% sequentially to 81627 on net connections and increased by four 1% year over year.
We serve these on net customer connections on our network and our 3065 total on net multi tenant office buildings and carrier neutral data center buildings.
Off net revenue was $36 4 million for the quarter that was a sequential quarterly increase of 2%, but a year over year decrease of <unk>, 9%.
Our off net revenues are impacted by incorporating the cost savings that we obtain from local lower local loop prices that we combined into our pricing to our customers.
The introduction of these customers into our off net revenue base lowers our combined off net <unk>.
Our off net customer connections increased sequentially by 2% to 12922 off net connections and increased by five 8% year over year.
And we ended the quarter, serving these off net customer connections and about 7800 off net buildings.
These off net buildings are primarily located in North America.
Some comments on pricing.
Consistent with our long term historical trends, our average price per megabit of our installed customer base decreased for the quarter, but the decrease would add was at a lower year over year rate of decline.
Our average price per megabit for our new customer contracts actually increased sequentially.
The numbers the average price per megabit for our installed base declined sequentially by five 8% to 31.
And declined by 18, 6% from the first quarter of last year.
The average price per megabit of our new customer contracts for the quarter increased to 18 from 17 last quarter and 20 in the first quarter of last year.
We continued to succeed in selling larger 10 gig and 100 gig connections and now 400 gig connections in select locations to our customers.
And selling more of these larger connections resulted in a change in our connection mix and has the effect of lowering our average price per megabit at a greater rate and the changes we experience in our <unk> or our average price per connection.
So speaking of <unk>, our on net <unk> increased sequentially, but decreased year over year, primarily from the negative impact of foreign exchange and USF revenues.
Our off net <unk> continued to decline and decrease sequentially and year over year.
Our on net <unk>, which includes both corporate and Netcentric customers was $463 for the quarter that was an increase of <unk>, 8% from last quarter and a decrease of one 8% from last year.
Our off net <unk>, which is predominantly comprised of corporate customers was $948 for the quarter.
A sequential decrease of one 4% and six 4% from last year.
We do expect that our off net <unk>, we will continue to decline as we take advantage of volume and time based discounts in order to lower the cost of our local loops and these reductions in our local loop costs are passed on to our off net corporate customers and therefore lowering our ARPA.
Our sequential quarterly churn rates for bolt on net and off net bolt improved for the quarter.
Our on net unit churn rate was <unk>, 9%, which was 1% last quarter and our off net unit churn rate was 1%. It was one 1% last quarter.
In order to reduce our customer turnover, we employ a dedicated sales group that works to retain customers who have indicated that they are considering terminating their service with us we may offer pricing discounts to these customers in order to induce them to reverse their termination decision purchase additional served.
From us <unk> extend the term of their contract with us.
Due to the Commoditized nature of our Netcentric services. The vast majority of these move out or change contracts are related to our netcentric customers.
And during the quarter certain of our Netcentric customers took advantage of our volume and contract term discounts and entered into long term contracts for us that represented over 2400 customer connections and increased their revenue commitment to cogent by over $21 $3 million.
Some comments on EBITDA, and we reconcile EBITDA to our cash flow from operations in each of our quarterly press releases.
We do have some seasonal factors and the seasonal factors that impact our EBITDA and our SG&A expenses include the resetting of payroll taxes in the United States at the beginning of each year annual cost of living or CPI increases seasonal vacation periods, and the timing and level of our audit and tax.
Services and finally, our annual benefit plan cost increases.
Our EBITDA decreased sequentially by $1 3 million, which was primarily due to the impact of these recurring seasonal increases that we experienced in our SG&A. However.
However, our EBITDA increased year over year about $1 6 million.
Our quarterly EBITDA margin decreased by 70 basis points and was 38, 3%. However, our EBITDA margin increased year over year by 50 basis points.
Earnings per share our basic and diluted income per share was <unk> <unk> for the quarter.
There is some material items that impact that unrealized gains and losses on the translation of our 2024 notes into USD and recently the noncash interest expense on our interest rate swap agreement had been the primary contributors to the variability in our net income and consequently, our.
<unk> per share.
We have an unrealized foreign exchange gain of $24 million on our 2024 Euro notes from the difference between the euro rate at the end of April of this year, which was $1 five in the euro to USD rate of $1 12, when we issued the notes in June 2020.
Our total unrealized gains in our euro notes for the quarter was $8 million. It was $8 8 million last quarter and $18 9 million in the first quarter of last year.
During the quarter, we incurred $21 3 million of noncash interest expense this quarter related to the increase in the estimated fair value of our interest rate swap agreement, which we achieved a cash savings, but the accounting requires us to record the fair value.
Comments on foreign currency more details.
Our revenue earned outside of the United States as reported in U S dollars and it was about 25% of our revenues for the quarter, 17% of those revenues were from Europe , and the remaining 8% related to Canada, Mexico Asia Pacific South America, and our African operations.
Continued volatility in foreign exchange can materially impact our quarterly reported revenue results valuation in our euro notes and our overall financial results.
The revenue impact from the variability in foreign exchange rates, primarily impacts our netcentric revenues.
The foreign exchange impact on our revenue for the quarter was material and.
Expected to again be material this quarter.
Foreign exchange impact on our quarterly sequential revenues. This quarter was negative <unk> 5 million in the year over year year over year negative foreign exchange impact was $1 9 million.
The average euro to USD rate. So far this quarter is $1 eight and currently trading at about $1 $5 six and the average Canadian dollar exchange rate is 79.
If those averages remain at their current levels for this quarter second quarter of 2022, we estimate that the negative FX impact will be.
900000 year over year, and almost $3 million.
Year over year.
We believe that our revenue and customer base continues to not be highly concentrated our top 25 customers represent about 6% of our revenues for the quarter.
And with that I will turn the call over to Sean to go over some additional details related to our performance. Thanks, Tom take it away Sean Thanks, Todd and I also wanted to just have a quick moment of thanking Dave for his trust in providing me. This position it's been a great experience for me.
Also want to thank the entire cogent team. This is a fine company with a strong dedicated management team and as a shareholder I look forward to watch it for continued progress in the future.
Let's talk about capital expenditures, our quarterly capital expenditures increased by $2 8 million sequentially and increased by $2 $7 million year.
Year over year, our capital expenditures were $18 1 million this quarter compared to $15 3 million for the fourth quarter of 2021, and $15 4 million for the first quarter of 2021.
Supply chain uncertainty is causing us to shift our typical purchasing schedule for network equipment. These anticipatory investments are designed to ensure that our.
Sorry.
That we have satisfactory inventory levels of network equipment to accommodate our growth plans. We do continue to anticipate a reduction in our total capital expenditures for fiscal 2022.
Finance leases and finance lease payments are 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 IR you fiber lease obligations totaled $245 2 million at March 31, $2000.
Two at quarter end, we had <unk> contracts with a total of 297 different dark fiber suppliers are finance lease principal payments were $5 9 million for the quarter, primarily due to purchases of dark fiber in international markets compared to $5 7 million for the first quarter of <unk>.
2021, and $6 2 million for the fourth quarter of 2021, our finance lease principal payments combined with our capital expenditures were 24.0 million for this quarter compared to $21 5 million last quarter and $21 2 million for the first quarter of 2021.
Cash and operating cash flow as of March 31, 2022, our cash and cash equivalents and restricted cash totaled $311 8 million for the quarter. Our cash decreased primarily from an increase in our quarterly dividend payments are $33 million of restricted cash is tied to the estimate.
At fair value of our interest rate swap.
Our cash flow from operations was $49 4 million for the quarter compared to $47 1 million for the first quarter of 2021 and $36 million for the fourth quarter of 2021, our quarterly cash flow from operations increased by $13 4 million sequentially and increased by $2 3 million.
On a year over year basis, our cash flow from operations this quarter represents.
The largest cash flow from operations and cogent history.
Debt ratios, our total gross debt at par, including our finance lease obligations was $1 1 billion.
At the end of March and our net debt was $822 7 million our.
Our total gross debt to trailing last 12 months EBITDA as adjusted ratio was $4 94 at March 31, 2022, and our net debt ratio was 358, our consolidated leverage ratio as calculated under our note indenture agreements was $4 nine.
$4 nine one times at March 31, 2022.
Yeah.
Our $350 million Euro notes are reported in U S dollars and converted to USD at each month and using the month end euro to USD exchange rate the unrealized foreign exchange gain.
On our Euro notes was $8 million this quarter or <unk> 17 per share compared to an unrealized gain of $8 8 million last quarter or <unk> 19 per share and an unrealized gain of $18 9 million for the first quarter of 2021 or <unk> 41 per share.
Our swap agreement in restricted cash and noncash interest expense, we are a party to an interest rate swap agreement that modifies our fixed interest rate obligations associated with our $500 million 2026 notes to a variable interest rate obligations based on the secured overnight financing rate or sofa.
The estimated fair value of the swap agreement at each reporting period, and we incurred noncash gains or losses due to changes in market interest rates as of March 31, 2022, the fair value of the swap agreement increased to a net liability of $30 3 million, we are required to maintain restricted cash.
Cash balances with the counterparty equal to the net liability we recorded noncash interest expense of $21 3 million this quarter related to the increase in the estimated fair value of this interest rate swap agreement the settlement payments under the swap agreement are made in November in May.
Under our initial settlement payment, we achieved a net cash savings of $6 million for the period from the swap agreement inception date in August 2021 to October 31 2021 under.
Under the settlement period made on May four 2022, we achieved a net cash interest savings of $1 2 million for the period from November one 2021 to April 32022 are cumulative cash interest savings on the swap agreement totals $1 8 million.
Bad debt.
Sales authentic our bad debt expense as a percentage of our revenues was our best performance since the first quarter of 2016.
Our bad debt expense was only 2% of our revenues for the quarter compared to <unk>, 5% last quarter and 6% in the first quarter of 2021, our days sales outstanding or DSO for worldwide accounts receivable matched our corporate record low DSO of 21 days for the quarter, we want to.
<unk> and recognize our worldwide billing and collections team members for continuing to do a fantastic job in serving our customers and collecting from our customers during very challenging times I will now turn the call back over to Dave. Thank you Hey, Thanks, Sean I'd like to highlight a couple of shrinks about our network our.
<unk> base for our sales force.
Our Netcentric performance details are as follows as I stated earlier, we saw an acceleration of revenue growth in our Netcentric business. During the last three quarters, our netcentric year over year growth rate was 15, 1%.
18, 6% on a constant currency basis.
We are a direct beneficiary of increased over the top video and streaming services.
<unk> in non U S markets.
I would like to highlight some important trends and statistics, we believe.
Demonstrate the strength of our Netcentric business.
At quarter's end, we were connected to 1383 carrier neutral data centers.
And 54 Cogent data centers.
More than any other carrier globally as measured by independent third Party research.
Most of our coverage enables our netcentric customers can better optimize our network and reduce their wait and see.
We expect that we will continue to widen our lead in this market as we project to connect over the additional 100 carrier neutral data centers per year to our network for the next several years based on.
Construction pipeline of anticipated new data centers.
At quarter's end, we directly connected to 7625 networks.
Collection of Isps telephone companies cable companies mobile operators and other carriers provided us a vast majority of the world's broadband subscribers and mobile phone users directly connected to Cogent network.
At quarter's end, we had a sales force of 208 professionals solely focused on the netcentric market for the sale of transit.
We believe this group of professionals as one of the largest and most sophisticated sales teams focused on this market and the industry.
And our corporate business, we are seeing some positive trends in our corporate business as work from home environment becomes established as part of way people, where we believe our corporate customers will continue to look to upgrade their internet access infrastructure.
To support larger capacity connections.
Order to ensure high quality corporate access for work from home employees.
Our corporate cross tumors are aggressively integrating new applications have become part of a remote work environment such as video conferencing.
Usages will require high capacity connections.
Inside and outside their promise.
Crossover pushed towards the lower cost of bandwidth and greater coverage has begun to boost our corporate demands are robust.
Fractional and metric one gigabit and now 10 gigabit corporate products Corp.
Corporate customers are increasingly buying connections and carrier neutral data centers to supplement their corporate LOE.
Local area network connections and provide redundancies to support AD hoc vpns that are necessary for work from home.
Now for a few comments on our sales force and its performance.
Experienced improvement in our sales productivity.
Our continuous training as well as managing out underperforming sales reps on a sequential basis. Our total rep head count did declined to 479 and the number of full time equivalent sales reps declined to four hunger and 50.
Three quarters at.
Our year over year.
Yep head count decreased by 68, or our full time equivalent number of reps decreased on a year over year basis by 69.
Remember our sales team was working remotely for the majority of the first quarter.
Returning to the office.
For in person management and training on March 1st in the U S and even later than some of our international offices.
Our sales force turnover rate was six 9% per month for the first quarter, a slight drop from the 7.0% per month, we experience as a fourth quarter and that's primarily as a result.
More disciplined approach of managing out Underperformers. Many of these individuals had been hired remotely.
And never received the intense mentoring and training that can only occur within an office environment.
These factors contributed to a rebound in our sales force productivity to four seven orders installed per full time equivalent per month, a 12% increase sequentially from the four two orders per month per full time equivalent rep.
In the previous quarter, we believe our sales force has been able to accomplish a great deal under some very challenging circumstances throughout the pandemic.
In the first quarter of 2022, our sales team was able to achieve.
Best sales performance in our company's history, we wanted to thank the entire sales force and our entire sales team for all they've accomplished and look forward to continued improvements in sales efficacy and the size of the sales force throughout 2022.
In summary, we remain optimistic about our unique position in serving small and medium sized business is located in the central business districts of major cities in North America, where we have 1824 multi tenant office buildings directly connected to our network.
Representing approximately 1 billion square feet of Rentable office space.
Currently key indicators for office activity, including workplace reentry and leasing activity.
Remain below pre pandemic levels. However, they are very encouraging signs.
<unk> companies are returning to the office employees are returning and many new leases are being signed to really bring down vacancy rates in our footprint.
We are optimistic that with the combination of an office sales teams and a return to a more normal office environment, we will benefit from selling tenants.
Services that have deferred or delayed upgrade decisions to their network for nearly two years. Many companies are establishing a long term network architecture that is designed to support a hybrid workforce with greater flexibility.
We'll benefit from this opportunity to sell our services to new tenants as landlords oppressively work to fill vacant space in their office buildings in the U S and in Canada.
Our customer churn, our bad debt and Dsos are all better than our historical norms. We believe these statistics represent a strong credit quality of our customer base and the increasing importance of our service to the operation of their businesses.
Our targeted multiyear constant currency long term revenue targets of 10%.
Our long term EBITDA expansion.
Rates of approximately 200 basis points in margin per year.
Remain.
A very achievable goal in this improving environment.
Our board of Directors has approved our 39th consecutive sequential increase in our regular dividend increasing our dividend by two five cents per share to <unk> 88 per share in the quarter.
Sure.
Increase represents a 12, 8% annual growth rate in our dividend.
Our constant currency dividend increase demonstrates the optimism of the increasing cash flow capabilities from our business, while we did not repurchase stock in the first quarter, we do have $34 million available at quarter's end and our buyback program that Jim.
Place till the end of 2022.
Again, I'd like to just personally thanks, Sean.
Five year friend, who stepped in and really help cogent and a time of need.
<unk> pad timing needed to fully recover.
And.
This has just been a great work experience. The team has worked together well and I think cogent is in the best place because of this collaborative effort.
I'd like to open the floor for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press <unk> one using your Touchtone phone.
If you wish to be removed from the queue. Please press see relative.
If you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press zero, one you're seeing your touchtone phone.
We have a question from Phil Cusick from Jpmorgan. Please go ahead.
Hey, guys. Thanks.
I guess, two if I can starting with corporate.
Sales trends can you talk about trends through the first quarter and in April .
A month to month and the potential for corporate revenue to grow excluding USF in the second quarter.
And then second.
I think akamai was talking about slowing traffic globally anything youre seeing in the netcentric business to that angle, both overall and at peak periods and what you think about the impact on revenue there. Thank you.
Yes, hey, thanks, Phil for both questions first of all in terms of our corporate sales funnels. They had continued to build over the past six months, although many corporate customers, who clearly needed service and we're engaging with the sales force.
We're not ready to make that final purchase decision due to uncertainties first from Delta variant and then from Omicron I think most of our corporate customers now have a much clearer view on what their future network.
<unk> will require and that we will be living with some level of COVID-19 for the foreseeable future as a result of that virtually all of our customers have some hybrid work component to their network architecture.
And they are now ready to upgrade their networks to support that meaning.
At their primary location, increasing connectivity and extending contracts. It also means that they will.
Had a alternate VPN concentration point typically in a carrier neutral data center.
Where there is still some uncertainty around branch office locations. Many of the secondary locations still remain on occupied some will be permanently closed others may return with a hybrid work.
<unk> environment.
So for that reason our secondary sales of DAA in those locations have lagged as well as our VPN services. Those VPN services are delivered by either SD Wan or PPL last they are meant to be.
Permanent office to office connectivity.
While that market is not.
Permanently impaired there is not the same level of clarity around network architecture for those vpns. So there is a bit more of a lag.
Terms of trends that we've seen in April they continue to be strong we continue to see customers ready to sign contracts for the products and services that I've. Just described while we do not give specific.
Quarterly guidance it does appear that the improvements that we saw throughout.
The term of the first quarter sequentially getting better on a month to month basis from January to February to March are continuing into April and as a result of that we are encouraged that with the only 0.1% sequential revenue.
In corporate revenues.
In the first quarter, when adjusting for USF and FX.
Should see a stable and hopefully growing.
Revenue stream from corporate.
I want to caution investors, we're still probably several quarters away from that robust kind of two to two 5% sequential corporate growth rate that we had experienced for nearly a decade prior to the pandemic, but we are seeing good consistent imp.
Proved meant and should expect that to continue throughout the year as companies are back in offices, signing new leases and kind of adapting to the new world of water now pivoting to your second question on Netcentric.
<unk>.
You know.
Typically summer months.
See a slowdown in traffic growth I think that on a sequential basis will probably continue to see that trend play out we saw the pandemic constant.
Consequently, we saw a.
Benefit from growth.
Side of the developed World I think the rest of the world's internet traffic growth rates are still substantially above the developed world. It is still being driven primarily by over the top video.
Cogent benefits really two ways, one we sell to the majority of those video producers those companies that are distributing that content, but secondly, we have over 7600.
Access networks around the world.
By their upstream from Cogent as a result of this.
Our effective price per megabit is actually increasing even though our headline price may continue to decline at historical rates.
Ours is the fact that we're getting paid by both the sender and receiver.
As a case of the content delivery network that you mentioned.
Mention they only get paid by the sender and typically have to pay the receiver to connect to them.
So we have a very different market dynamic in fact, we sell to virtually all of the third party CDN operators as well as proprietary CDN networks for content publishers.
Great. Thank you.
Thanks, Phil.
Thank you. Our next question comes from Brett Feldman from Goldman Sachs. Please go ahead, yes. Thanks, David.
Multipart question around inflation, and how you're thinking about managing the impacts on your business and the two things I was hoping you could expand upon our first of all how inflation impacts your cost structure I think your biggest cost is really your sales force and so if you can maybe expand upon what you're seeing in terms of wage growth.
There and whether you have an opportunity to mitigate that and then.
On the pricing side to what extent at all do you think you have an ability to revisit or maybe even raise price for your customers. If you were to experience sustained upward pressure on your cost structure. Thank you.
Hey, Thanks for both questions, Brad I'm going to actually take them in reverse order.
While I would work to be able to say, we have pricing power that is not realistic.
We are in the technology business.
The underlying.
Underlying technologies that we utilize a wave division multiplexing and optically interfaced routers continue to improve and are nowhere near reaching their technical limitations. So we see.
The cost of production of our surface continuing to decline due to these advances in technology and our ability to optimize utilization of our global fiber infrastructure.
Now short term, we are absolutely experiencing a quip meant delays and it is causing an increase and then efficiency and our capital deployment. So when we replace equipment in our network are typical.
Model is to take existing equipment at the core of the network and move it to more peripheral locations, putting the newest generation of equipment and the densest parts of the network.
That still is our model, but typically that equipment is not a unitary box, but rather a chassis with multiple cards what we.
We've experienced is that we order the complete configuration the chassis and all the requisite cards.
The chassis and three quarters of the card show up and then the last 25% have some kind of supply chain issue and therefore, we're stranding capital on our warehouse shelves until that final component can come in.
And Thats made our capital expenditures more lumpy, but we think these are transitory events. These are not permanent situations and talking with our current equipment vendors and their competitors.
I think all of them feel that this issue will get resolved.
The market remains sufficiently competitive and as a result, the cost of production is declining and the competitive pressures being prices will come down we would capture that efficiency better than any of our competitors and anticipate our capital.
As a percentage of revenues to continue to decline as well as <unk>.
Our margins to continue to expand.
Now with the wage piece that I'll, let tad touch on that so.
So I mentioned in the prepared remarks, our CPI adjustments typically all occur in the first quarter. So you are seeing any impact of CPI adjustments that we have.
Primarily in the first quarter of this year with respect to wages. We did have an annual Cola increase that was all included in the wage adjustments for the first quarter, we do not make in term adjustments to wages.
With exception for promotions most of our contracts if they do have the CPI clause have an embedded cap and that CPI clause. So.
In short any impact of inflation on our cost is essentially reflected in our first quarter amounts and if you want to add anything to that.
I think in terms of our employee base content has always offered a very robust entry level package for our sales reps.
Even in a tight labor market, we have a surplus of resumes and Apple at kids.
We have a very.
Well developed training program, but.
As we've shared both internally with our sales force and externally. It is a hard job to tell us sell to the volumes that we require to be successful and not all reps succeed.
We really hope that you are now we're back in the office for good that.
We'll be able to continue to lower that turnover rate, but we feel that the reps that are here at cogent as well as those that were hiring were extremely competitive and don't feel that there is not a material wage pressure.
Great. Thanks, Dave.
Hey, Thanks, guys.
Thank you. Our next question comes from Walter <unk> from <unk>. Please go ahead.
Thanks, Dave given the rising interest rate environment do you have any different leverage targets that you are considering.
So.
We have been always focused on our absolute lowest cost of capital. That's why we've looked at the euro denominated debt.
We are considering the possibility of monetizing that on realized gain that we made and I wish I could have a smart enough to know the future of currency movements, how Washington, but we'll take it when we can get it and I think.
We may do that we may look at extending some of our maturities in terms of aggregate leverage we're very comfortable and where we are at we have a great deal of flexibility.
We remain under Levered relative to many of our peers and we have the two pillars of a great business, which is.
Growing revenues throughout a very challenging environment, we continue to grow and continued margin expansion. So with that we feel comfortable that while we are slightly ahead of our.
Our targeted range at three.
Two 5% to three five times to 358 times Levered, we're well within our comfort zone and even in a rising interest rate environment, we feel that our cost of debt capital is substantially below the equity cost of capital and therefore de lever.
Our balance sheet makes sense.
So does that comfort allow you to have the comfort to go to four times by maintaining the dividend growth rate that you're that you've.
<unk> been consistent that MLR.
Last many quarters.
Well I can comment on the past 39 quarters, because they've already occurred and you know that is a rarefied club of companies that have that level of dividend growth.
Pes and consistency.
In terms of the future I fully anticipate to be able to do that I cannot make a promise we're going to continue to monitor the situation, but based on the fact patterns as they exist today, we have a great deal of confidence in our ability to generate increasing amounts of free cash.
And then the decision will be to evaluate market conditions and determine whether we should accelerate buybacks.
We're continuing to accelerate dividend.
Aside from buybacks because that would obviously accelerate.
Increased the leverage even faster.
I guess this is kind of a circular question I'm trying to get to but if your comfort level is three to three and a half that's fine that's where you are today.
If your dividends, taking a four time, so you're above the stated three and a half comfort level youre.
Youre comfortable with going to four as interest rates rise as that.
Is that what.
I understand.
So we're already our range is two five to three and a half while we have not.
Italy.
We have not officially modified that we've been at 358 now for two consecutive quarters, where Florida that we are comfortable being over three and a half.
For a period of time, and we will evaluate based on the relative cost of capital and the growth rate as far growth rate re accelerates the historical norms. This.
<unk> will become moved.
Sure, but if it doesn't you are.
Basically, allowing your leverage to go up one at a time when rates are going up rapidly.
But whatever so let's move on to the yes, I mean just.
Yes.
These are numbers that basic math right.
Can we just talk about the sales force the sales force obviously was.
<unk> was an area of focus in terms of.
Corporate growth.
I think maybe tad with focus on that.
Youre basically back to 2018 levels.
The stuff you talked about in your prepared remarks were similar to what we heard last quarter.
What should we expect in terms of the trajectory of the sales force is it just going to continue to decline and if that's happening how should we think about your ability to return to.
Return to growth in corporate.
Alright, so three components first of all our sales force productivity materially improved from four two to $4 seven installed orders per full time equivalent sequentially. We are actually still below the long term average.
Five orders per rep. So there is still room to improve productivity.
Secondly.
Two thirds of the quarter was out of the office, we did not have our coach and people in the office, we know that they are more productive when they have training and management at our side rather than remote.
Third.
While our turnover rate slightly moderated.
<unk> ahead of historical rates at six 9% a month, that's far above the five point to long term average, we're going to see that number come down as employees are in the office.
Many of the people that are leaving the vast majority are individuals that were hired during the pandemic and trained remotely.
I think we did a great deal you had 550 <unk> 550 quota bearing salespeople in 2019 at the end of 2019, which was before the pandemic.
480.
No I understand I'm going to explain we continue to hire throughout the pandemic at the identical or actually slightly improved rate.
Over what we were doing pre pandemic what occurred during the pandemic was our turnover rate spiked from 5% a month to almost nine at peak.
Problem was those individuals we hired remotely no matter, how well we modified our training did not do as well as people who are hired and trained and the office. That's empirical evidence as a result now that we're back in the office will continue to hire at these rates.
We expect our turnover rate to decline as a result, our sales force will grow and our productivity will rise also remember our addressable market for corporate opportunities has been reduced temporarily by about 10%.
So the average occupancy rate and our footprint has fallen from about 94% occupancy to about 85% occupancy as those buildings re tenant and typically with smaller tenants per spice measured.
By square footage, our Tam will actually increase that will also benefit a larger sales force, we will grow the sales force and we will increase productivity.
Got it I will look for that next quarter. Thank you.
Thank you. Our next question comes from James Breen from William Blair. Please go ahead.
Thanks for taking the question Dave just following up on that point can you just talk about the discussions you've had on the real estate side.
They started to see some real leasing of the space.
To sort of boost that fit the average tenant is up to the mid 60 range.
As we come out sort of the backend.
<unk>. Thanks.
Hey, Thanks for the question, Jim So I'm going to actually speak with two hat side myself.
Have a fairly substantial real estate portfolio only here in D C. But also.
Two others in the industry in other markets I think we've seen a significant increase in tour activities up to levels that equal pre pandemic levels now tours take a while to convert to leases, but we're also seeing leasing activity acts.
Celebrate probably.
Back to 60% of pre pandemic levels from a trough of about 20% of pre pandemic levels at the worst.
The third point is that.
Those tenants are taking smaller footprints the nature of their office configuration is changing and they are of leases tend to be shorter in term.
So while the vacancy rates remain around 15% to 16% across our CBD office footprint.
I think over the next several quarters that vacancy rate will decline.
And the number of tenants per building will continue to increase.
Leasing is a bit of a lagging indicator I think companies have demonstrated that they are now committed to a hybrid environment and a return to office and.
As a result, we're seeing I think good leading indicators as say our corporate total addressable market will actually be better post pandemic than it was pre pandemic.
Great. Thanks.
Thanks, Jim.
Thank you. Our next question comes from Nick del Deo from Moffett Nathan. Please go ahead.
Hey, good morning, guys.
Hey, Sean congratulations on the new role I really appreciate all your help over the past couple of years.
It's great to hear you fully recovered and nice to hear your voice again.
You kind of like turning to questions.
There are a few metrics that we can look to to measure the return to office trend.
I think you called out bad swipes and leasing activity do you view those as the metric that most strongly correlate to the outlook for the corporate segment or is it more dependent on things, we cant quantify like.
Customers understand their needs and their comfort signing deals and things like that.
I think it's a combination of both.
We saw a pickup in all of our leading indicators in the corporate market.
Probably last fall, meaning more spoke twos more proposals being issued.
What we also saw was customers reticent to actually pull the trigger and sign those orders.
I think after going through the.
<unk>.
I would say third worked from home.
Return office work from home shift with Omicron.
I think virtually all companies that we speak to say, we're now committed to the path, we're on and we're ready to actually take those proposals and convert them into orders.
So I think the.
Lengthening of the decision cycle.
Now a shrinking decision cycle and I think that helped us in the quarter and I think it's going to help us for the next several quarters.
Those leading indicators are important to understand the total addressable market.
There is still.
Three times as much vacancy in our footprint as normal.
No.
To put it in perspective out of our 1 billion square feet. There is really another 100 million square feet of vacancy that would be equivalent to probably all of the office space and a mark as say the size of Philadelphia, Philadelphia had not a single every office building was completely empty.
T.
That's a big number.
<unk>.
And I think what's happening now as landlords have adjust their rents.
Adapted to more flexible lease terms, not requiring 10, and 15 year leases and as a result companies are willing to sign those new commitments and I think offices will begin to see a decline in their vacancy rates.
It's probably a several year process until we return to a fully robust.
Office market. The final factor Thats really impacted office space has been the fairly significant residential conversion phenomenon.
Is not typically impacted cogent buildings because of the size and type of buildings nationwide. It's anticipated that about 10% of the inventory of office space in North America will be converted to residential that as a risk.
Hold of a.
12 to 13 year, Underinvestment and housing units, where we were running about up three.
300000, or 400000 units per year below pre financial crisis trend lines and one of the easiest ways to catch up is taking the existing office building and converted into an apartment or a condo development and we're seeing a lot of that.
That phenomenon is tightening the market coupled with the willingness of the plan was to be flexible in our class a buildings, we see a lot of tenants moving in from B and C buildings, who would never been coaching opportunities now come again to our footprint.
Alright, Alright, that's helpful, Dave and I guess, maybe one more question.
To worries out there regarding a possible recession.
Obviously impossible to predict exactly how that might shake out.
That might affect your business if it happens, but at a high level. How do you think a recession might impact each segment of your business.
Especially with corporate still recovering from from Covid.
Yes, so I mean, we have lived through at least three previous recessions.
And our business grew in those except for two quarters in the financial crisis.
Was a very very deep downturn that was very abrupt.
In late <unk> early <unk>, when we did experience two quarters of negative corporate growth absent that cogent has grown through more benign recessions.
It is likely that economic growth will slow as stimulus is being withdrawn and as interest rates increase but again companies are looking at their total cost of operations and economizing, taking less space, having employees work remotely taking advantage.
Of technology.
And we are a net beneficiary of those trends because we provide the technology that supports those remote workers and the ability to reduce that real estate footprint. So.
I think we'll continue to do well.
<unk> has always won market share based on.
A.
Relative value and.
The Internet has become so seminal the final point I would like to make is that we've seen a pretty significant shift across CBD office leasing away from traditional.
Fintech and.
Financial services companies and law firms much more tech focused businesses.
And <unk>.
That is a net beneficiary of cogent because those businesses tend to be very bandwidth needy at Neal.
Need our surface remember coaches corporate.
Value prop is symmetric non oversubscribed non block non metered and more bandwidth same price to your question on Netcentric.
I think the.
Transition from linear to screaming is continuing it's not a straight line up.
You saw some of our screaming customers experience some challenges in the last quarter, particularly in the more developed markets.
But in general there is still a lot of linear video that's going to be streamed and as a result total bandwidth is going to continue to grow and will continue to capture disproportionate share of that we feel comfortable that even in a recession.
Our netcentric business will continue to perform.
Alright, great. Thank you Dave.
Hi, Thanks.
Thank you. Our next question comes from Greg Williams from Cowen.
Great. Thank you for taking my question. This is just one for Greg I just wanted to touch on Capex, a little bit I know you said that it is expected to decline in 2022, just to clarify is that on a year over year basis versus 2021.
And then just in terms of magnitude. When you include capital leases is it fair to expect capex to remain around that $20 million per quarter range or what could that potentially dropped below in 2022 any color you could provide there would be helpful. Thanks.
Yes sure so.
The capital efficiency of our network continues to improve but we are continuing to have to deal with pre ordering equipment that is not necessarily immediately deployable as I explained earlier as a risk.
Sold.
While we expect Capex to decline.
It will not decline back to a more normalized rate until supply chain issues have been fully resolved and I don't think thats going to happen in 2022 I think it's probably.
Still a year out and discussions with our primary vendor, they're predicting shipment challenges for the next year with regard to capital leases, we are continuing to expand our international footprint and therefore acquiring some.
Additional fiber.
As noted Sean mentioned, we have 297 different suppliers, that's up from I think 291 last quarter and.
As a result, our principal payments on capital leases will probably be at similar levels. So.
Capex and capital lease expenditures will come down, but probably not precipitously for the next year.
Great. Thank you.
Okay.
Thank you. The next question comes from David Barden from Bank of America.
Good morning, everyone. Thanks for taking my question. This is Alex on for Dave.
Dave encouraging to hear that we're seeing an improvement in.
Turning to office leasing in the central business districts that Youre talking about are there any areas geographic areas that youre seeing a little bit of a lag and return to office in leasing.
Across the across North America.
So I would definitely say the more challenging markets tend to be.
On the coast.
San Francisco's been a slow market to recover.
D. C has been a slow market actually Toronto has been a slow market.
The best of return office has been in the South.
Florida, Texas.
Pretty close to pre pandemic levels.
Some other markets like New York, Philadelphia, lagging, but still not.
As bad as say D. C. I think Atlanta is kind of in that intermediate category. So it's not completely homogeneous, but I think that most companies in most locations now have kind of a return.
Office philosophy.
I know your employer Bank of America has changed its policy several times and.
My guess is it's not quite as crowded in your building as it was pre pandemic, but it sure feels a lot better than it did even a few months ago in terms of number of people in the office.
Nope I think that's fair. Thank you Dave I appreciate it.
Thank you. Our next question comes from Frank Louthan from Raymond James.
Hey, guys. This is Rob one for Frank So what are the CDN providers on their call earlier. This week said they are seeing the rate of growth in traffic slow.
Would you say that you're seeing something similar.
And what do you think the overall growth rate of Internet traffic looks like for the full year. Thanks.
Yeah. So.
Our growth rate at 17% year over year is actually below our long term multiyear trend the base is getting larger.
The 8% sequential growth rate for us was pretty much in line with averages we continue to gain share.
I do think global Internet traffic growth.
Accelerated during the pandemic and has slowed now too.
Mid double digits low teens, and that's below kind of the 15 year trend line, but that's after a year or two being above trend line.
And I think one of the key.
Drivers was the fact that during the pandemic the streaming transaction accelerated.
It's now more normalized I think it may actually reaccelerate, a little bit if we do see a recession.
<unk>.
Video consumption is a classic inferior good meaning if people have less disposable income and they spend more time watching TV secondly, streaming tends to be more cost effective than any of the linear.
Applications.
So.
I think.
While we've seen some slowdown we may actually have the ability to see some re acceleration a little later in the year.
Great. Thanks, Dave.
Thank you. Our next question comes from Bora Lee from RBC capital markets.
For taking the question.
First you spoken in the past about corporate customers upgrading from megabit to one gigabit or 10 gigabit.
Wondering if that rate of conversion of staying stable or accelerating or slowing down.
I'm trying to figure out if there is a base of customers that will stay at that 100, megabit service and how much.
How much more room, there is for cogent to continue to benefit from that trend.
So I think the 100 Meg to gigabit conversion is substantially complete there are always some technological laggards, who arent going to change or if it's not broke don't fix it mindset, but what we've actually seen.
As a pretty significant increase in corporate customers actually now asking for 10 gigabit connections.
I don't think those connections are.
Shirley needed at this time.
Average corporate customer who is this battle, 11% of their bandwidth at peak.
But what we are seeing is companies, particularly those that are less price sensitive looking to move to those 10 gigabit connections.
That represents an even bigger step up in differential then to move from one two.
100, megabits to gigabit and as a result.
I think we may see some ability to see our corporate on net <unk> go up.
Okay, and then so with that can you say what that percentage differential is between 100, Meg to one and one to 10.
Just Scott you're correct magnitude.
What's the sense of percentage magnitude differential between those two asked okay.
So today, probably about 10% of our basis of 100 and about.
80, 990% is at.
One gig and less than 1% today is at 10 gigabit.
But as I said, we are seeing.
Accelerating rate.
From a small base of people that actually didn't want to go to 10 gigabit.
Okay.
How much more in terms of pricing how much greater SRP four at 10 gigabit service versus the one gigabit.
Generally about a five to six shacks increase got it.
Okay, Great and then secondly can you talk about any differences in head count changes and productivity trends, specifically between that netcentric versus corporate sales forces.
Some of them are actually touch on head count for the entire company and productivity. It was a real milestone for the entire company to have the highest revenue per employee in our history at $604000 per employee than our sales and operations.
Better than companies that are 20 times, our size normally theirs and improving efficiency with scale that we've achieved.
I think Ed.
On a smaller scale than others.
In terms of head count.
<unk>.
Our sales force is down as Walter pointed out we continue to hire we expect turnover to decline and most of that turnover has been on the corporate side typically on the entry level or regional account managers to sell to the smaller corporate.
Customers.
Our Netcentric sales force, while it declined declined only very modestly and our national account managers that focus on multi site customers also has declined but much more gradually the bulk of the turnover has been and the lowest entry.
Level and it was really those individuals that we hired during the pandemic that never became fully productive.
So is it fair to say then that the average tenure of your sales force has actually increased spend with that attrition at the more.
<unk>.
<unk>.
It actually has so our average tenure of the sales force increased by another.
Tenths of percent, 10%, a 10th of a month.
<unk> and <unk>.
During the entire pandemic, our average sales tenure actually increased by about 20% as a result of almost all of the turnover being.
Very on tenured reps.
Got it great. Thanks, very much Dave.
Thanks, Paul.
Thank you. Our next question comes from Brandon Isbell from Keybanc capital markets.
Okay, great. Thanks for taking my questions. Dave question for you as we look at the corporate growth. Excluding USF. This quarter, you guys sort of get to flat maybe slightly grew sequentially should we expect that to continue throughout the rest of the year and do you think you can finish the youre actually growing that business on a year over year basis, Secondly, gross margins were.
Were down 90 basis points this quarter year over year, and it's been several quarters in a row now the gross margin compression, what's really causing that and what should we expect for the remainder of 'twenty two.
Yes.
Take them in reverse order Brandon.
On gross margin, it's basically been our international expansion.
And although occupancy in those new markets till they fully ramp.
<unk>.
We think that that is a temporary phenomenon and experience has shown us that markets that we expanded into two or three years ago achieve gross margin profiles identical to the more mature cogent network.
But the rapid rate of new market expansion pulled down aggregate.
Gross margins to your first question about corporate.
I kind of stated earlier.
We don't give exact quarterly guidance, but I do think that.
The worst of our corporate.
Churn.
<unk> sales headwinds are behind us and we should see continuous improvement.
Will that be enough to have full year over year growth I'm not I.
I don't have enough data to give that exact level of prediction, but I do feel that we should see continued improvement throughout the year.
Thanks for taking the questions.
Thank you. The next question comes from Tim Horan from Oppenheimer.
Thanks, Steve can you just talk about your strategy in terms of raising debt and refinancing debt and just what do you think the overall cost of debt will be.
Foreseeable future.
Secondly, your Salesforce is maybe one of the reasons. The churn is so high that they're just not making enough money.
Leasing activity is kind of relatively low and I guess, maybe can you just talk about your comp structure for the sales force are they making more than they were.
So pre pandemic.
Knocked off some inflation thanks.
Yes so.
Two very different questions. Let me take the debt strategy question first I do think we're in a rising interest rate environment for the next couple of years.
Theres, probably heightened capital markets volatility as a result of that I think we would like to extend maturities. We would also like to monetize that $24 million FX gain that Tad mentioned, so it is likely.
That we will.
Paul our euro denominated debt and put in place probably a U S denominated issue of longer duration.
That will raise our interest rate.
But.
The cash savings that we monetize will more than cover that for.
Several years.
Think longer term, we're back to a low interest rate environment. So I do think this is not a permanent.
New normal, but rather a response to a number of exogenous shocks to the system that have created really unprecedented inflation.
To your question about sales force.
We typically give a rep a three month bridge so they get their full commission payment.
Three months than they are just on their base salary and they are variable.
Across the organization, we're roughly about two thirds salary one third variable.
Our total comp package is actually one of the most aggressive in the industry, where we give reps accelerators for the length of time that they've been a cogent as well as we give accelerators for different levels of certification and that we give raises.
Based on tenure, so you get both more variable and more base. The longer you have been here. That's part of the reason why our average tenure continues to increase and really the reps that we have been.
Turning over or those that are very early in their career and have never achieved the funnel building necessary to be successful.
It was unfortunate we did the best we could in a remote environment I think now we're back in person in office, we're going to say that our turnover rate come down.
We are not losing reps to competitors that's not the issue, it's really more of what losing reps, who just never could ramp and meet our expectations.
Thanks, Nick.
Hey, Thanks, Tim.
Thank you that is our last question I would like to turn the call over to Mr. Shaffer for final remarks.
Again, I want to thank everyone was expecting a little shorter call, but I'm glad everyone was engaged and again I hope you all join with me in thanking Sean and wishing him well in his new venture and.
He's been a great asset to cogent. So thanks, a lot and we're glad to have Tad back right next to me and take care everyone Bye bye.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
Okay.
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Okay.
Yes.
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Yeah.