Q1 2023 Cogent Communications Holdings Inc Earnings Call
Good morning, and welcome to the Cogent Communications Holdings first quarter 20 twenty-three earnings Conference call. As a reminder, this conference call is being recorded and it will be available for replay at W. W. Dot Cogent co dot com at transcript of this conference call will be posted at <unk>.
<unk> website when it becomes available.
Cogent summary of financial and operational results attached to its press release can be downloaded from Dakota website, I would now like to turn the call over to Mister, Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communications Holdings days. Please go ahead [laughter].
Hey, good morning, and thank you are welcome to all our first quarter 2000, twenty-three Orange conference call I'm, Dave Shaefer Cogency up with me on this morning call is tadd, we'd our chief financial Officer, hopefully you've had a chance to review our earnings Percival.
<unk> or press release includes a number of historical quarterly matrix that we present on a consistent basis.
Quarter.
Now for an overview of our results of revenue for the quarter increase sequentially by 1.1% to $153.6 million, an increase three per cent euro per year on a constant currency basis or revenue for the quarter year over year <unk>.
Four per suck.
Corporate business continues to be influenced by real estate activity in the central business district of major cities.
To teach statistics, including the level of security badge entry into a building and leasing activity should indicate that year to date, the real estate market and will you shrink activity in the Central business District has continued to see improvement, but it's not yet.
Turn to pre pandemic levels.
We continue to remain cautious and are out walk for our corporate revenues, given neon shortened economic environment and other challenges that a result of the after effects of the pandemic.
Netcentric business continues to benefit from continued growth and video traffic and screaming.
For the quarter or traffic was up sequentially three per cent quarter over quarter and increased 20% on a year over year basis.
On a U S gap basis are netcentric revenues, Bruce sequentially by 2.7% and grew by 7.8% here over a year. However, adjusting for currency fluctuations on a constant currency basis or a godson trick revenues increase.
<unk> bye.
By 10.2% from the first quarter of 2022.
Our sales force productivity increase from 3.8 waters installed per month per full time equivalent last quarter to four units per month per full time equivalent salesperson.
We also increase the number of sales reps in this quarter by 14 or a 2.6% sequential increase we ended the quarter with 562 sales reps and 539 full time equivalents sales reps <unk>.
<unk> a sequential increase of.
7.2%, a full time equivalents sales reps from the fourth quarter of 2022 to the first quarter of 2023.
Now for some overviews on our recently announced closure of the acquisition of the Sprint Global markets group business or T Mobile's wireline business.
We closed that transaction on may 1st the head of our initially planned closing, we incurred approximately $400000 and professional fees and her first corner.
Spent a cumulative expense of about $2.6 million they have professional phase associated with the closing of this transaction.
The spread wireline revenues, where approximately $570 million Andrew.
Annually for the physical here 20th 22.
The sprint wireline revenue run right at closing.
<unk> $490 million, we expect this number to decline and exit the here at year end with a run rate of the acquired customer base of $440 million, which we then expect to remain stable.
The primary reason for this for adoption and revenue is the continued elimination of non-core products. We expect that number of products will be reduced from approximately 30 products that were offered when our agreement was signed down.
Two four core products at here and.
Over the next three years, we expect to achieve significant annual savings Stooges synergies of the car.
Combination of these businesses.
We expect that $180 million.
Who will be saved on the North American network of spread primarily through the use of our on net footprint in the elimination of off net services inter.
Internationally, we will be shutting down the existing sprint network and migrating all of that traffic on to the coach at network as opposed to the leash spread network, resulting in about $25 million an annualized savings.
And then finally, we will be able to exit a significant I are you in North America that will save cogent approximately $15 million Android, an operation and maintenance expense for that network error when.
Our next anniversary that allows us to ask it occurs within the next couple of years, we anticipate <unk> I guess shuttle <unk> S. G N a savings and other costs for adoptions as well as positive revenue center or shade.
On the closing date, we paid one dollar to the seller.
And we funded $61.1 million in cash for working capital a set forth is the purchase agreement.
This working capital payment was primarily related to the injection of approximately $43.4 million.
In approximately 30 international subsidiaries, you'll have sufficient liquidity in these facilities to continue operations as we migrate those customers does vendors and those employees onto the <unk> inner.
National entities.
Additionally.
The working capital of <unk> inclusion estimate a payment of approximately $31 million. So we will receive from T. Mobile for acquired police obligations. These will be paid and for equal 25%.
Installments in months 55 through 58 post closing.
Now for a little overview of our product expansion in connection with the acquisition.
Of the wireline business, we are beginning to sell optical wavelength and optical transport services, we intend to sell these services Choi assisting customers Oh.
While our customers from sprint communications and to new customers. These.
These customers <unk>.
Required dedicated optical connectivity without spending capital and the associated ongoing operational expansive owning and operating their own network and plus Ralph sharp.
As part of our transaction with T. Mobile we entered into a I P Transit services agreement on May 1st 2023 T.
T mobile will be purchasing an aggregate of $700 million of transit services over the next 54 months from <unk>.
<unk> <unk>.
April payments over the next 12 months totaling $350 million or approximately $29 million a month.
We will then receive for the subsequent 42 months, an additional $350 million equally spread out monthly are approximately 9 million a month.
We will recognize T associated 700 million of transient revenue services from T mobile on a straight line basis over 54 months for approximately $13 million a month.
To remind and pasture socialist a product to carry a 100% EBITDA margin contribution as it is completely on that and the available capacity to deliver the services already exist and <unk> <unk>.
In addition, we signed a series of <unk> related agreements all closing we entered into a transition services agreement in order to receive specific services in order to maintain an orderly transition of the business.
<unk> services or primary related to information technology back office, and finance support <unk> facilities, and real estate Fender and supply chain management and human resources support from T mobile.
These services will be provided under a transition services agreement.
In addition, we entered into a reverse transition services agreement, where we will be providing necessary technology network support finance and back office support to support the remaining <unk>.
Wireless components that are located in facilities that we acquire.
Alright initial transcription services expense monthly this anticipate paid it to be approximately $1.7 million to be paid to T mobile.
And the cost under the reverse transition services agreement paid for by T mobile to cogent, well <unk> $100000 per month.
These initial transition costs may fluctuate and are expected to diminish over time.
Each party migrates into its own systems. The services that were previously rendered under the transition services are cool evening.
The transition services agreement calls for the service is being able to be provided for a two year period with the ability of either side to request a one year extension.
Third party costs incurred in providing these services will be passed on at cost with no.
Additional large at.
Either party can transition off of the services with 30 days notice.
<unk> to the transition services.
We will be selling commercial services to T mobile.
Outside of the transfer agreement.
Commercial relationship with T. Mobile includes the services co location space empower connectivity.
Either a liar, one or a liar too.
<unk>. This commercial services agreement will result in T mobile paying cogent approximately $2.7 million a month.
In cash for the initial services and this may also fluctuate and diminish over time.
This is in addition to the 700 billion dollar I P Transit services.
We providing to T mobile over the next 54 months T.
T mobile has indicated that on day, one they will initially use a portion of the services.
In addition, we have the opportunity of cogent to materially expand our network reach and footprint. We are adding 45 sprint data centers to the 55 cogent data Sir.
Centers that we operate all of the facilities that were acquiring from sprint <unk> showed the 100.
Cogent data centers are in addition to the 1400 and 90 carrier neutral data centers that the combined company connects to.
We are adding 18905 route miles of <unk> in our city fibre. We are also adding 12000 spot Ah 1200, and 57 route miles of owed metropolitan fiber.
And finally in conjunction with this acquisition, we are adding approximately 11400 miles of inter city I R. U fibre acquire from sprint and 5506.
<unk> route miles of Metropolitan I argue fibered also acquired from sprint.
Now for a comment on our dividends <unk> order, we return $45.3 million sure shareholder sure regular quarterly dividend.
Our board of directors.
Reflected on the strong cashflow generating capacity of our business investment opportunities inclusive of the sprint acquisition and all of its rockfish cents cash flow streams.
And decided to increase our quarterly dividend sequentially by one cent racing or sequential quarter.
Quarterly dividend too.
93.5 cents from 92.5 cents.
<unk>, our 43rd consecutive sequential month of growing our regular dividend our dividend growth right now stands and realize at 6.3%.
Now in terms of guidance the company does not give specific quarterly guidance. However, with the combination of the sprint <unk> business <unk> business.
We anticipate a longterm growth rate of approximately between five and seven per cent annually.
EBITDA margins for the combined business should expand at an annualized rate of about 100 basis points a year once way I've been able to shave decent initial synergies.
This does not include.
The expectation of the $700 million and I P transit revenue from T. Mobile our growth is exclusive of that acquired revenue stream.
Our revenue and EBITDA guidance are meant to be multi year goals and are not intended to be specific quarterly or annual goals.
No I'd like cast Tad radar Safe Harbor language provide some further details are operating performance for the quarters.
And then following that I'll conclude with a few statements and then we'll open the floor for questions.
Yep. Thank you, Dave and good morning to everyone. This earnings conference call in these forward looking statements.
These forward looking statements are based upon are currently in Cleveland 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 an actual results may differ materials.
Please refer to our SEC filing some more information on the factors that could cause actual results to differ.
Undertake no obligation to update or revise are forward looking statements and if we use non-GAAP financial measures. During this call you will find these reconcile with corresponding gap measurement and earnings releases, which are posted on our website <unk> dot com.
Like many companies, we continued to be impacted by the COVID-19 pandemic.
Are risks related to COVID-19. Other risks are described in more detail in our annual report on our 20 twenty-two Form 10-K, and then our quarterly reports on Form 10-Q.
Some comments on <unk>.
We analyze our revenues based upon network connection type, which is on net off net and encore and we also analyze our revenue based upon customer type.
Currently classified our customers into two types netcentric customers and corporate customers and with the spread acquisition will will be adding enterprise customers to our mix.
Our corporate customers buy bandwidth from us large multi tenant office buildings Orange terror neutral datacentres.
These customers are typically professional services firms financial services firms and educational institutions located in Multitenant office buildings or connecting to our network for a carrier neutral data center footprint.
Our on our net centric customers by significant amount of bandwidth from us take care of neutral data centers and include streaming companies and content distribution service providers as well as access networks to serve consumer and business customers.
Our corporate customer business represented 55.8% of our revenues for the quarter.
A quarterly corporate revenue decline year over year slightly by 0.6% to $85.6 million from the first quarter of last year and decreased sequentially, but by only 0.2%.
We had 44570 corporate customer connections on our network at quarter end, which was a sequential decrease the 0.6% a year over year decline of 1.8%.
For the quarter, the sequential impact of USAF on our revenues was not significant and.
And year over year, the impact was positive at about $1.5 million from the first quarter of last year.
Our netcentric business, which represented 44.2% of our revenues for the quarter at another solid quarter and grew sequentially by 2.7% to 68 million and grew by 7.8% on a year over year basis.
Volatility in foreign exchange rates, primarily impacts are netcentric revenue in on a constant currency basis or quarterly net center revenue increased you're over here by 10.2%.
We had 52857 netcentric customer connections on our network at quarter and that was a sequential increase of 2.3% a year over year increase 6.8 per cent.
Beginning with our next quarterly report, we will begin to report enterprise customer revenue as a new customer type as I mentioned.
Are on that revenue was 116.1 million for the core that was a sequential increase 1.1% and year over year, 3.1%.
Or on their customer connections or 83268 at quarter end and we serve our on that customers and 3190 total.
Net Multitenant office and carry a neutral data center buildings.
We continue to succeed in selling larger 100, gigabyte connections and 400 gigabyte connections and selected locations and this has the impact of increasing our on our food, which again happen this quarter.
Are off net revenue was 37.3 million for the quarter that was a sequential increase of 1% a year over year increase of 2.5%.
Are off net revenues are impacted by incorporated the cost savings, we obtain from lower loose local lou prices into our pricing and that is the impact of decreasing are often in <unk>, which again happened in this quarter.
Are often that customer connections, where 13785 at quarter end and we.
We serve these off Nick customers in about 8400 off net buildings.
These often that buildings are primarily located in North America.
Comments on pricing the average price per megabit for our installed base declined sequentially by $6 seven per cent to 25 cents a year over year by 24%.
Consistent with long term averages.
The average price per megabyte or a new customer contract for the quarter was 10 cents that was a sequential decline of 20.9% a year over year, 41.6% and this was impacted by entering into some larger customer contracts during the core.
Selling larger connections and larger contracts results in a change to our connection mix and it has the effect of lowering our average price per megabit at a greater rate changed and changes in our our.
Related to <unk> are on that <unk> for the quarter increased and are often at our food continued to decline, but at a modest rate. This is from lower pricing again, we're obtaining for often at circuit vendors and we passed that savings onto our off net customers.
Are on <unk>, which includes both corporate and that's central customers increase sequentially by 0.6% to 467 from 464.
Are off net <unk>, which is predominantly comprised of corporate customers quiet declined sequentially by 0.5% from 914 to $910 per connection.
Sure. It is very stable or sequential quarterly turn rates for both on and off and it was around 1% and that's what they were for the quarter, both off net and off on and off network, 1% for this quarter and that was the same as last quarter.
In order to reduce our customer turnover, we employ at dedicated sales group that works to retain customers who have indicated that they are considering terminating their services.
You may offer pricing discounts to these customers in order to induce them to reverse their termination decision to purchase additional services from us and or extend the term of their contracts with us.
During the quarter certain customers took advantage of our volumes contract term discounts and entered into longterm contracts with us for over 22380 customer connections that increase their revenue commitment cogent by over 29 $21.9 million.
An EBITDA in EBITDA margin, we reconcile our EBIT onto our cash flow from operations in each of our quarterly earnings press releases.
Seasonal factors that typically 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 a C. P I increases.
Seasonal vacation periods.
You were in bonuses came to our employees and the timing and level of ordered an attack services.
And recently sprint acquisition costs and also annual benefit plan cost increases.
During the quarter when Kurt Warner.
400000 of sprint acquisition costs.
Our EBITDA for the quarter, including these cause decreased sequentially by 1.1 million and by 1.1 million year over year.
EBITDA results were impacted by our materially increased sales rep that counts.
And you'll see P I compensation increases and.
And circuit in power costs related to our international expansion.
Our quarterly EBITDA margin, including the 400000 sprint acquisition costs decreased sequentially by 110 basis points to $36 five per cent in year over year by 180 basis points.
Our revenue earned outside of the United States is reported in U S dollars and was approximately 26% of our total quarterly revenues this quarter.
About 17% of our revenues this quarter were based in Europe .
9% of our revenues were related to the rest of the world operations, which is Canadian Mexican oceanic South American and African operations.
The average euro USD right. So far this quarter is $1.10 in the average Canadian dollar exchange rate and 74 cents.
These averages remain at the current level for the remainder of this quarter, we estimate that the F X conversion impact on sequential revenues will be positive at about.
Customer concentration are revenue in customer base is not highly concentrated in the top 25 customers for the quarter were only about 6% of our revenues.
Our quarterly Capex for the quarter was $23.2 million.
New wavelength product offerings as a result of our spring wireline acquisition.
Our finance lease iron you obligations are poor longterm dark fiber leases and typically have initial terms of 15 to 20 years or longer and often include multiple renewal options. After the initial time.
Are are you finance lease obligations were 3300 24 million at quarter and.
We have a very diverse set of are you suppliers and we have <unk> contracts with a total of 319 different dark fiber suppliers.
A quarter and cash and cash equivalents and restricted cash that's $234 4 million.
Our total gross debt at par, including finance lease obligations was 1.3 billion at quarter end in net debt was $1 billion.
Our consolidated leverage ratio is calculated under our note and dentures was 542 and are secured leverage ratio was 3.50.
Are fixed coverage ratio is calculated under our note and dentures was 324.
We are party to an interest rate swap agreement that modifies are fixed interest rate obligation with our $500 million of 2026 notes to a variable interest rate obligation based on the secured overnight financing right or so for for the remaining term in these notes.
Record the estimated value of the swap agreement each reporting period, and we occur corresponding non-cash gains or losses due to the changes in the value of the swap from changes in market interest rates.
At quarter end, the fair value of the swap agreement decreased by $1.8 million from last quarter to a liability of 50 $353 million.
We are required to maintain and restricted cash balance with the counterparty equal to the estimated liabilities.
Finally, some comments on Baghdad and days sales outstanding.
Are bad that expense was 0.8% of our revenues for the quarter.
Our days sales outstanding was 22 days, which was the same ear and an excellent metrics.
These metrics may be impacted by our spring acquisition going forward.
And with every quarter I want to personally thank and recognize our worldwide billing and collections team members for continuing to do a fantastic amazing job, serving our customers and collecting from them.
I will turn the call back over today for some final remarks, hey.
Hey, Thanks, Ted I'd like to know some of the strengths of our network, our customer base and our sales force.
First we'll start with is Sandra <unk> excellent revenue growth <unk> business. We continue benefit from the increased <unk> a video too over the top and screaming, particularly in international markets at quarters and.
We were on net N 1493rd party carrier neutral data centers, and 55 coaching own data centers pretty Grand total of 1500 and 45 data centers.
Than any other carrier as measured by third party recharge.
The breath of our coverage enables us to serve our netcentric customers I don't allow them to optimize or networks.
Two site and see we expect will continue to widen our lead in this market is really project, adding an additional hungry carrier neutrals per year to our network over the next 70. Several years. In addition, we are adding 45.
Acquired sprint Davis centers to <unk> own footprint.
With both required I, our ears and fibre brown miles.
At quarters, and we drove lastly connect to 7864 networks.
Again this is more than any other carrier in the world. This represents a constellation of Isps telephone companies cable companies mobile operators and other carriers that allow <unk> direct connectivity to the vast majority is a.
World's broadband and mobile phone subscribers.
At <unk>, we had a sales force of 222.
Specials focus solely on the net sand truck market.
Most likely the largest group of sales professionals focused exclusively on this segment in the industry.
We are seeing some positive trends.
Hey, guys. Thanks, so much for taking the questions and congrats on.
And we intend to report the dollar revenue associated with those wavelengths I think this will allow and faster to track accurately our progress in achieving our revenue objectives. We also anticipate an increase.
<unk> network.
One.
Wave sales. So we will have on that off net non-core wave revenue will also because of its materiality need to separately. One line. The revenue from the I P Transit agreement to 700 million recognize straight line over the term as a one line and will also disclose the revenue from.
The commercial arrangement with sprint that starts at the.
Initial rate.
That you mentioned in the script. So that's what the face of the income statement will look like underneath that in the metrics, we will disclose the customer categories, which will include enterprise customers. The new classification for this quarter I hope that helps.
Thank you both I really appreciate it.
Hey, Thanks day.
Our next question comes from the line of Walter <unk>. Walter Please go ahead.
Hey, Dave.
I'm trying to so when you want to keep your eye type stuff you have like Salesforce, and then F full time equivalent rep.
I'm not sure, which one is more correlated corporate but.
Seem to be up like 15% over the past three quarters.
Curious if that.
It should be indicative of maybe returning to growth.
Incorporate an upcoming quarters I'm in D. C. I I understand that the productivity initially is low but uhm.
These new people ramp up in your churn as low lower I guess on employees.
Is that going to lead to some growth and corporate in the next couple of quarters, and then I think you know kind of tied to that.
Or would you like to get very full answers in your prepared remarks.
You were referencing corporate in terms of like customers any more capacity for.
<unk> outside of the office totally get that but what about the the kind of narrative. It you were giving I don't know about a year ago.
Of this concept of like you know if a law firm goes from three floors to one floor. They can lease out two more floors and now we're seeing that corporate vacancies are not in fact recovering and no. One is taking those two additional floor. So in terms of gross driven by actually signing up new corporate customers are we all.
I'll just leaning heavily on hoping that that everyone's getting fatter and fatter pipes.
Yeah. Thanks for the questions Walt so let's start with you know.
Some clarification and definitions on the sales force we disclose the total number of sales people. We also disclose a full time equivalent what's your someone who's undergone three months of training for those first three months they fill a cap of quote are responsive.
<unk>, therefore, they're not kind of counted and the base a month for they become a full time equivalent maybe they're carrying a quota. We've also disclosed that average rap productivity tip.
Typically linearly improves from the.
The end of that F. T go transition from training full time equivalent to about month 30, where they mature. We also are growing to total sales force, but are still below are pre pandemic sales head.
Count numbers repeat it's slightly over 600 worried about 560 today now we troughed during the pandemic at about 470 <unk>.
The primary reason for that trough was the elevated level of turnover due to the lack or performance now we attribute that both to market conditions, but also the inability is your train reps effectively managed from most effectively remotely so cogent rich.
Turn to the office should remain she'll five day in the office company.
In terms of the split we actually disclose the number of Rapture focus on <unk>. The number of reps that focus on corporate we will also begin to disclose the number of rap step focus exclusively on large enterprise. So we'll have three <unk>.
<unk> and you could track their growth or decline in each category each quarter.
<unk> productivity <unk> is one that has spread across all groups.
So it's a little I think too much data and not really additive to breakdown productivity by rep type that relatively equivalent.
And the goal here is to give useful K P I and not K P. I set off the escape key trends now to your underlying question about corporate growth rates. We did have a couple of quarters of positive growth sequentially. This quarter depth to negative two tenths.
4%.
We've been very clear that.
Yeah, a year or 18 months ago, we expected a more rapid return office from recovery and corporate and <unk>.
Couple of quarters ago on your Orange call I was very specific in saying that this is taking longer it's gonna be let's see then and slower than we anticipated. We are seeing improvements, we <unk> corporate <unk> co op, we our shame.
Revenues.
Affectively flat now as opposed to the declining not the 11% a year over year growth, we're accustomed to it but I do believe we will get back to it now I'm Gonna go back to your leasing comment while it is true that the average police size is declining bacon.
Right and all major U S markets have P. N are declining but again at the rate of decline is very modest if you want to cross the actual building said coach and as in pre pandemic they at about 6% vacancy.
That peaked at about 18% fake and say.
It's down to about 17.2 today so.
It's not materially better, but it is better and it's not getting worse. So we are seeing some improvement and occupancy, which then increases 10 account. We've also saying this migration of customers, taking additional porch and Davis centers for <unk>.
Back up and a.
Larger port size all of these have probably buffer some of the decline in pure Eunice. So people can see revenue decline from pre pandemic corporate to now it's much more modest than the decline and Eunice which is about <unk>.
10% you know.
It is getting better, but again I want to be as transparent as I can we are not perfect visibility, but it does appear that the corporate business is improving but at a slow and uneven pitch.
Does it concern you that a lot of these economists are talking about a recession will specifically hit that market. So that if it went from six to 18, maybe down to 17, maybe down the 16, but by the end of the year, it's gonna get worse.
Rather than better.
So again, we have been in operation through at least four other recessions, including the great recession, which was probably a more profound shock to the system.
And.
Tannic base tends to be more recession proof because they tend to pre slack to the most desirable buildings with the highest credit screenings and are generally not the businesses that go out of business in a recession.
I do believe that the underlying owners of the real estate assets are in significant trouble I as a real estate owner myself can tell you the pressures are.
Material you know most of the landing tall at the office market comes from regional banks.
Who are under tremendous pressure and you know wall bread rolls her down the.
The banks need liquidity and are basically not willing to refinance has such as they mature.
What's putting more pressure on the real estate market than necessarily the increase of vacancy rate and while I do think yeah monetary policy is going to continue to slow the economy and most likely caused a recession I don't think that's going to materially.
Impact the tenants <unk> shell too.
Okay. That's a good segue to my final question, which is could you just remind us on the capital leases, what what you're paying right you're paying there and is there anything in terms of maxing that out because obviously when you're <unk>.
Dividend is is consuming more than the free cash well.
The the the gross debt increases showing up and capital leases is there a max on that and is it what's the right you're paying I mean, we had a call with F D. A.
Earlier, and I had a loan that they're obviously paying down rather than buying stock back is that part of the consideration for that.
Part of your debt instruments. Thanks.
Yeah. So first of all and both of our indentures, we have no limitation on our ability to enter into capital leashes.
In many cases these leases are pre paid beanie, we pay an upfront fee and don't pay anything else other than a maintenance fee over time.
The underlying interest rate that's impute it depends on the right. When the lease was signed all attack touch on that yeah. The average, which we disclose in the 10-Q for all the leases is about 8%.
And as Dave right tab, but right, which is you know not not low and then if you if that rises your capital lease balance rises like let's say you went up to 15 20 million.
And what's the new 15 coming on.
No. The the leases recorded when the route is accepted at the rate at that time, and it's not changed so the rate dot at least for the next month is the new rates and at the rate goes up the value of the leeches will actually come down on me understood, but <unk> not floating Andrew I'm sure they don't change that.
Right.
Thank you very much.
Sure Hey, thanks long.
Our next question comes from the line of neck dumped out of them.
<unk> May I. Please go ahead.
Hi, Good morning, Dave first I wanted to ask you know kind of the same question I've asked since you announced this sprint deal which is basically.
Basically can you update us regarding customer interest and you know any commercial trashing you've had in waves and dark fiber. It seems like it's been pretty positive to date and that'd be interesting. How it's evolved now that sales team that had a a few months under their belt to sell waves and and whether you've closed any dark fiber deals that you may have been negotiating pre deal.
So.
Two different answers to do different questions wage, which was a product that we've standardized and began selling on a brief sale agreement with sprint. We've sold several Dawson waves pre closing and have a backlog of several hundred in the.
Q.
That we can know process since they are truly on net we no longer have a two step process to get those waves approved.
We also looked at.
Albeit a test bed the sprint wave product at our simplifying that product to make selling even easier we have integrated the ability to shell waves and two R. C. R M system, which allows for instant <unk>.
He is quoting as opposed to a multi day process previously at sprint and I would say.
The demand.
For wage has actually been more robust than we anticipated.
Secondly, we've been surprised at the ability to cross sell meaning existing customers taking waves, but also we've had customers that were in our prospect funneled that changed for our customers that we have on soul to that now are interested in buying.
<unk> from us because we can show them, both waves and <unk> <unk>.
So you know we.
We have laid out a target to grow the wavelength business from our run rate at acquisition of about $8 million and now it's purely a.
Test product for T mobile.
Two within seven years, a 500 million dollar revenue run rate for Cogent, we feel quite confident based on the backlog, we're probably going to be our internal estimates of how quickly we will get there. So we remain really positive.
On the wavelengths.
Dark fibers different it's very route specific some router I'm more demand than others.
We quite honestly have a lot of experience as a buyer not a lot of experience as a seller that'd be cause seizure longterm agreements, we're gonna enter into them cautiously we have actually only executed one dark fiber agreement that actually we couldn't <unk>.
<unk> until the day I'll close so there's a conditional agreement.
But you know we are going to be selective we have not factor dark fiber into our revenue projections review that is additive.
And I think we'll be prepared maybe in a few quarters to have enough experience on market demand to really lay out a realistic set of expectations firm pastures, but today, it's not in Arctic items, it's not in kind of our forecasts there'll be Peter just been opportunistic.
Sale.
Okay, but that's all very encouraging, especially waves should we send the dog poo for for wave as being.
2000 Bucks a month per unit something in that range.
Yeah, I think it will actually be a little bit higher than that neck show today. The market is dominated by 100 gig waves, but there are still some 10 gig wage.
The spread product.
Divided the country into three <unk> instead of a sold on kind of his own basis are you in one go between one and two are sown one two and three what would you like to order the subway <unk>.
You know, we're actually going to collapse it down to to.
We also don't have the same constraints and metro that they had where they typically I would go out and buy a metro link to then complete the wave sail shall I think you will do will be down to two I think for 100 gig waves you know <unk>.
Probably the 2500 dollar range just way to think about it for 10 gig waves you know probably eight $900 is a reasonable price in the market again, a little bit of variance, whether it's one or two towns and then there is a nascent but.
Developing 400 gig waived market that will participate in.
10 gigs waves to continue to decline and eventually the 400 replace some of the 100 and become a chunk category.
While we have not a Scottish pricing for that and there's not really much of an existing market today.
Okay. Okay, that's super helpful.
Maybe you know date can we just touch on your kind of traffic growth in that center growth.
<unk> I think you said traffic grocery 3% sequentially.
Kind of soft for what's seasonally or usually a strong quarter for you.
That's central grow with the celebrated quite noticeably two over queue is there anything we should be aware of or concerned about when viewing that you know when viewing those trends and what what should we expect added that business from here kind of near term longterm.
Should we grew 3% sequentially, 20% quarter over quarter or year over year.
More of our sales for very large customers that kind of reversed or trend of the past year, where it was more smaller customers.