Q2 2024 Cogent Communications Holdings Inc Earnings Call

Ladies and gentlemen, good morning and welcome to the Cogent Communications Holdings second quarter 2024 earnings conference call.

Operator: As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted on Cogent's website when it becomes available. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications.

Operator: As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted on Cogent's website when it becomes available. Cogent's Summary of Financial and Operational Results attached to the press release can be downloaded from the Cogent website. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications

As a reminder, this conference call is being recorded and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted on Cogent's website when it becomes available.

Dave Schaeffer: Cogent's summary of financial and operational results attached with press release can be downloaded from the Cogent website. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings.

David Schaeffer: We're the owners of approximately 37.8 million IPv4 addresses. We acquired 27.9 million of these addresses when we purchased PSInet and other acquisitions in the early 2000s. 11.1 million of the leased addresses and 1.4 million unleased addresses were part of that securitization transaction. IPv4 internet addresses are a finite resource.

David Schaeffer: Hey, good morning, and thanks everyone for joining today's call. Welcome to our second quarter 2024 earnings conference call. I'm Dave Schaeffer, Cogent's Chief Executive Officer. With me on this morning's call is Thad Weed, our Chief Financial Officer. Hopefully, you've had a chance to review our earnings press release. This release includes a number of historical metrics that we present on a consistent basis each quarter. Now for a couple of comments on the activity in the quarter.

Dave Schaeffer: Hey, good morning and thanks everyone for joining today's call. Welcome to our second quarter 2024 earnings conference call. I'm Dave Schaeffer, Cogent's Chief Executive Officer. With me on this morning's call is Taddeus Weed, our Chief Financial Officer.

David Schaeffer: In the quarter, we had two debt transactions. On May 2nd, we closed the issuance of our inaugural $206 million asset-backed securitization of our IPv4 notes at 7.9%. These notes mature in five years and may be extended for up to a 30-year term.

David Schaeffer: This securitization transaction was the first ever of IPv4 lease revenue. We're the owners of approximately 37.8 million IPv4 addresses. We acquired 27.9 million of these addresses when we purchased PSInet and other acquisitions in the early 2000s. We further enhanced our portfolio when we acquired 9.9 million additional IPv4 addresses in May of 2023 as part of our acquisition of the Sprint Global Markets Group from T-Mobile. On June 11, we closed the issuance of our $300 million 7% unsecured notes.

Taddeus Weed: Hopefully you've had a chance to review our earnings press release. This release includes a number of historical metrics that we present on a consistent basis each quarter.

Dave Schaeffer: now for a couple of comments on activity in the quarter

Taddeus Weed: In the quarter we had two debt transactions. On May 2nd, we closed the issuance of our inaugural 206

Dave Schaeffer: million-dollar asset-backed securitization of our IPv4 notes at 7.9 percent. These notes mature in five years and may be extended for up to a 30-year term.

Dave Schaeffer: This securitization transaction was the first ever of IPv4 lease revenue.

Dave Schaeffer: We are the owners of approximately 37.8 million IPv4 addresses.

Dave Schaeffer: We acquired 27.9 million of these addresses when we purchased PSInet and other acquisitions in the early 2000s.

Dave Schaeffer: we further enhanced our portfolio when we acquired nine point nine million additional ipv for addresses in may of two thousand and twenty- three as part of our acquisition of the sprint global markets group from tam mobile

David Schaeffer: These are mirrored notes. These notes have identical terms to our existing $450 million 2027 notes. We use $114.6 million of the proceeds from this offering to prepay a dark fiber IRU finance lease at a 12% discount rate, saving $15.6 million in cash. This IRU dark fiber lease had monthly cash payments of $4.2 million a month through 2026, all of which have been eliminated, and therefore materially improving our cash flow through December of 2026.

Dave Schaeffer: On June 11th, we closed the issuance of our $300 million, 7% unsecured notes. These are mirrored notes.

Dave Schaeffer: These notes have identical terms to our existing $450 million, 2027 notes.

Speaker Change: We use 114.6 milliliters.

Dave Schaeffer: of the proceeds from this offering to prepay a dark fiber iru finance lease at a twelve percent discount rate saving fifteen point six million dollars and cash

Dave Schaeffer: This IRRU dark-fiber lease had monthly cash payments of $4.2 million a month.

Dave Schaeffer: through 2026, all of which have been eliminated and therefore materially improving our cash flow through December of 2026.

David Schaeffer: We are leasing approximately $12.8 million of our IPv4 addresses out for a monthly revenue run rate of $3.6 million per month at the end of the quarter. We securitized 3.1 million of these leases in our IPv4 securitization. 11.1 million of the leased addresses and 1.4 million unleased addresses were part of that securitization transaction. IPv4 internet addresses are a finite resource.

Dave Schaeffer: We are leasing approximately $12.8 million of our IPv4 addresses out for a monthly revenue run rate of $3.6 million per month at the end of the quarter.

Dave Schaeffer: We securitized $3.1 million of these leases in our IPv4 securitization.

Dave Schaeffer: 11.1 million of the leased addresses and 1.4 million unleased addresses were part of that securitization transaction.

Dave Schaeffer: The IPv4 internet addresses are a finite resource. The market price of these addresses has substantially increased over the past several years.

David Schaeffer: The market price of these addresses has substantially increased over the past several years. In the quarter, we also purchased some of our stock back. In June of 2024, we took advantage of market volatility and purchased 153,000 shares of our common stock back for a cost of $8 million and an average price of $51.97. We have $22.4 million remaining in our authorization for share repurchases through December of 2024. Now, for a comment on expected cost savings.

David Schaeffer: The market price of these addresses has substantially increased over the past several years. Revenues under our commercial services agreement with T-Mobile increased sequentially by $2.7 million to $5.9 million in the quarter. The wave revenue increased modestly by 9% sequentially, quarter over quarter, to $3.6 million, and that represents actually a 128.7% increase on a year-over-year basis. This compares to the three payments we received in Q1 of $87.5 million. An additional 41 payments are expected to be made by T-Mobile, each of $8.3 million a quarter, continuing through November of 2027.

Dave Schaeffer: In the quarter, we also purchased some of our stock back.

Dave Schaeffer: In June of 2024 we took advantage of market volatility. We purchased 153,000 shares of our common stock back for a cost of $8 million at an average price of $51.97.

Dave Schaeffer: we have twenty two point four million remaining and our authorization for share repurchases through december of two thousand and twenty four now for a comment on expected cost savings

David Schaeffer: We are in the process of realizing significant cost savings and synergies through the integration of the Sprint assets with the Cogent network. Based on the differences between monthly cost run rates at closing in May of 2023 and the monthly cost run rate in June of 2024, we have realized an annualized savings rate of $135 million. This represents 62% of our targeted cost savings of $220 million over a three-year period. Now for some summary results for the quarter. We did have a very good quarter. Our revenue for the quarter was $260.4 million, and foreign exchange had a negative sequential impact of $300,000.

Dave Schaeffer: We are in the process of realizing significant cost savings and synergies through the integration of the Sprint assets with the Cogent network.

Dave Schaeffer: based upon

Dave Schaeffer: Differences between monthly cost run rates at closing in May of 2023 and the monthly cost run rate in June of 2024

Dave Schaeffer: We have realized an annualized savings rate of $135 million.

Dave Schaeffer: This represents 62% of our targeted cost savings of $220 million over a three-year period.

David Schaeffer: And changes in USF tax rates had a sequential negative impact of $1.4 million on our quarterly revenue. Adjusting for these two negative impacts of $1.7 million, our sequential revenue did decline by 1.5 percent, primarily due to the decline in our non-core products and the management out of low-margin off-net services. Our on-net revenues increased sequentially by 1.5% in the quarter to $140.8 million. Revenues under our commercial services agreement with T-Mobile increased sequentially by $2.7 million to $5.9 million in the quarter.

Dave Schaeffer: Now for some summary results for the quarter. We did have a very good quarter.

Dave Schaeffer: Our revenue for the quarter was $260.4 million.

Dave Schaeffer: Foreign exchange had a negative sequential impact of $300,000 and changes in USF tax rates had a sequential negative impact of $1.4 million on our quarterly revenues.

Dave Schaeffer: adjusting for these two negative impacts of one point seven million dollars

Dave Schaeffer: Our sequential revenue did decline by 1.5%, primarily due to the decline in our non-core products and the management out of low-margin off-net services.

Dave Schaeffer: Our on-net revenues increased sequentially by 1.5% in the quarter to $140.8 million.

Dave Schaeffer: Revenues under our commercial services agreement with T Mobile increased sequentially by 2.7 million dollars to 5.9 million in the quarter.

David Schaeffer: Traffic on our network increased sequentially by 1.9%. It was up 17.4% on a year-over-year basis. Our off-net revenues did decrease by 5.7% to $111.5 million due to the continued elimination of these low-margin services. Our non-core revenues, which generally carry negative gross margin, decreased by $1.4 million to $4.6 million and a quarter.

Dave Schaeffer: Traffic on our network increased sequentially by 1.9 percent. It was up 17.4 percent on a year-over-year basis.

Dave Schaeffer: Our off-net revenues did decrease by 5.7% to $111.5 million due to the continued elimination of these low-margin services.

Dave Schaeffer: Our non-core revenues, which generally carry negative gross margin, decline.

Dave Schaeffer: by $1.4 million to $4.6 million in a quarter. And then finally, while we have not completed the reconfiguration of the SPRINT network, we have installed some WAVE services.

David Schaeffer: And then finally, while we have not completed the reconfiguration of the Sprint network, we have installed some Wave services. Wave revenue increased modestly by 9% sequentially, quarter over quarter, to $3.6 million, and that represents a 128.7% increase on a year-over-year basis. We expect this to materially accelerate starting in early 2025 as we will complete the network integration and optimization for wave services by year end. Our EBITDA as adjusted was $106.2 million, and our EBITDA as adjusted margin was 40.8% for the quarter.

Speaker Change: a raave wave revenue increased modestly by nine percent sequentially quarter- over quarter to three point six million and that re presents actually one hundred and twenty eight point seven percent increase on a year -over year basis

Dave Schaeffer: we expect this to materially accelerate starting an early two thousand and twenty five as we will complete the network integration and optimization for wave services by year end

Speaker Change: Our EBITDA as adjusted was $106.2 million, and our EBITDA as adjusted margin was 40.8% for the quarter.

David Schaeffer: In accordance with our IP Transit Services Agreement with T-Mobile, we received three payments in the quarter totaling $66.7 million. This compares to the three payments we received in Q1 of $87.5 million. The payments in this quarter included two $29.2 million payments and one $8.3 million payment. An additional 41 payments are expected to be made by T-Mobile, each of $8.3 million a quarter, continuing through November of 2027. Our spring acquisition costs in the quarter were $12.4 million.

Speaker Change: it accordance with our ip transit services agreement would t mobile we received three payments in the quarter toing sixty six point seven million dollars

Dave Schaeffer: this compares to the three payments we received in q one of eighty seven point five million

Dave Schaeffer: The payments in this quarter included two $29.2 million payments and one $8.3 million payment.

Dave Schaeffer: An additional 41 payments are expected to be made by T Mobile, each of $8.3 million a quarter, continuing through November of 2027. Our sprint acquisition costs in the quarter were $12.4 million.

David Schaeffer: Included in this cost, and a significant portion of it was the $8 million in final severance reimbursements that were paid to former T-Mobile employees, and these costs are fully reimbursable by T-Mobile. We achieved significant cost reductions both in our cost of goods sold and our SGA in a quarter. Our SG&A decreased by $5 million, or 7.1%, from the previous quarter and decreased by 12.5 million, or 16.1%, from Q2 of 2023. SG&A as a percentage of our revenue decreased to 25% in the second quarter from 26.3% in the previous quarter.

David Schaeffer: Included in this cost, and a significant portion of it was the $8 million in final severance reimbursements that were paid to former T-Mobile employees, and these costs are fully reimbursable by T-Mobile. SG&A as a percentage of our revenue decreased to 25% in the second quarter from 26.3% in the previous quarter.

Dave Schaeffer: Included in this cost and a significant portion of it was the eight million dollars in final severance reimbursements that were paid to former T Mobile employees and these costs are fully reimbursable by T Mobile.

Dave Schaeffer: significant cost reductions both in our cost of goods sold and our SGAA in a quarter.

Dave Schaeffer: Our SG&A decreased by $5 million or 7.1% from the previous quarter and decreased by $12.5 million or 16.1% from Q2 of 2023.

Speaker Change: as gnnaa is the percentage of our revenue decreased to twenty-five percent in the second quarter from twenty- six point three percent in the previous quarter

David Schaeffer: Our cost of goods sold decreased by $12.7 million, or 7.8%, on a sequential basis from Q1 2024, as we continue to reduce network costs and bring off-net traffic on net. We finalized the purchase accounting associated with our acquisition of the Sprint Global Markets Group. And this quarter, we received an additional final gain in our bargain purchase, bringing that total bargain purchase gain to $1.4 billion. Our gross debt to trailing last 12 months EBITDA as adjusted ratio was 4.06 at the end of the quarter, and our net debt ratio did reduce in the quarter from 3.17 times EBITDA to 3.14.

David Schaeffer: Our cost of goods sold decreased by $12.7 million, or 7.8%, on a sequential basis from Q1 2024, as we continue to reduce network costs and bring off-net traffic on net. We ended the quarter with $426.2 million in cash and cash equivalents on our balance sheet. In conjunction with the Sprint acquisition, we hired 942 employees.

Dave Schaeffer: a cost of good soul decreased by twelve point seven million or seven point eight percent on a sequential basis from q one two thousand and twenty four

Dave Schaeffer: as we continue to reduce network costs and bring off-net traffic on-net.

Dave Schaeffer: We finalized the purchase accounting associated with our acquisition of the Sprint Global Markets Group.

Dave Schaeffer: And this quarter, we received an additional final gain in our bargain purchase, bringing that total bargain purchase gain to $1.4 billion.

Speaker Change: or grew stept to trailate last twelve months ebitda as a justusted ratio was four point zerosix at the endth of the quarter

Speaker Change: and our net debt ratio did reduce in the quarter from three point one seven times ebitda to three point one four

David Schaeffer: We ended the quarter with $426.2 million in cash and cash equivalents on our balance. Now for a comment on our sales force. Our sales rep productivity was 4 units in Q1 per rep per month and 3.8 units installed per rep, full-time equivalent, per month in Q2. In conjunction with the Sprint acquisition, we hired 942 employees. At quarter end, 655 of these employees remain employed with us.

Speaker Change: We ended the quarter with $426.2 million in cash and cash equivalents on our balance sheet.

Speaker Change: Now for a comment on our sales force. Our sales rep productivity was four units in Q1 per rep per month and 3.8 units installed per rep full-time equivalent per month in Q2.

Speaker Change: In conjunction with the Sprint acquisition, we hired 942 employees. At quarter end, 655 of these employees remain employed with us.

David Schaeffer: Now for a couple of comments on our optical transport and wave services, in connection with the acquisition of the Sprint Jam cheapest. We expanded our product offering to include optical wavelength services and optical transport services over our fiber network. We're selling these wavelength services to existing customers, as well as new customers. These customers require dedicated optical transport without the capital and ongoing expense of owning and operating their own infrastructure.

Speaker Change: Now for a couple of comments on our optical transport and wave services.

Speaker Change: in connection with the acquisition of the sprint cham cheapbusiness

Speaker Change: we expanded our product offering to include optical wavelength services an optical transport services over our fiber network we are selling these wavelength services to existing customers as well as new customers

David Schaeffer: We're selling these wavelength services to existing customers, as well as new customers. These customers require dedicated optical transport without the capital and ongoing expense of owning and operating their own infrastructure. We have sold wavelengths in 156 locations, with substantially reduced provisioning.

Speaker Change: These customers require dedicated optical transport without the capital and ongoing expense of owning and operating their own infrastructure.

David Schaeffer: As of today, we have connectivity and wavelength capability services in 574 locations. However, our provisioning cycles remain elongated at about 90 days. We intend to substantially reduce that provisioning time as we complete the network optimization programs by year end.

Speaker Change: As of today, we have connectivity and wavelength capability services in 574 locations.

Speaker Change: However, our provisioning cycles remain elongated at about 90 days. We intend to substantially reduce that provisioning time as we complete the network optimization programs by year end.

David Schaeffer: We have sold wavelengths in 156 locations. By year-end 2024, we expect to be able to offer wavelength services in over 800 North American locations, with substantially reduced provisioning. We have a significant backlog and funnel of wave opportunities representing over 2,700 unique wavelengths.

Speaker Change: We have sold wavelengths in 156 locations.

Speaker Change: By year-end 2024, we expect to be able to offer Wavelength Services in over 800 North American locations with substantially reduced provisioning cycles.

David Schaeffer: We have a significant backlog and funnel of wave opportunities representing over 2700 unique wavelengths. To date, we have reconfigured 34 of the Sprint Acquired facilities and added these new data centers to the 1,602 carrier neutral and 86 data centers that Cogent operates. The Cogent data centers in operation today have 164 megawatts of protected power.

Speaker Change: we have a significant backlog and funnel of wave opportunities representing over twenty seven hundred unique wavelengs

David Schaeffer: Our Sprint acquisition materially expanded our data center footprint. To date, we have reconfigured 34 of the Sprint acquired facilities and added these new data centers to the 1,602 carrier neutral and 86 data centers that Cogent operates. The Cogent data centers in operation today have 164 megawatts of protected power.

Speaker Change: Our sprint acquisition materially expanded our data center footprint.

Speaker Change: To date, we have reconfigured 34 of the SPRINT-acquired facilities and added these new data centers to the 1,602 carrier neutral and 86 data centers that Cogent operates.

Speaker Change: The Cogent data centers in operation today have 164 megawatts of protected power.

David Schaeffer: We are decommissioning some legacy Cogent data centers and leasing facilities where they are redundant with the simple own facilities that we acquire from Sprint. We are in the process of converting an additional 18 former Sprint facilities into Cogent data centers, and we'll continue to optimize our portfolio. With regard to dividends, our Board of Directors reflected on the strong cash flow generating capabilities and investment opportunities and decided once again to increase our quarterly regular dividends sequentially by one cent a share.

Speaker Change: We are decommissioning some legacy Cogent data centers and lease facilities where they are redundant with the simple own facilities that we acquire from Sprint.

Speaker Change: We are in the process of converting an additional 18 former Sprint facilities into Cogent data centers, and we'll continue to optimize our portfolio.

David Schaeffer: With regard to dividends, our Board of Directors reflected on the strong cash flow generating capabilities and investment opportunities and decided once again to increase our quarterly regular dividends sequentially by one cent a share. Raising our quarterly dividend from 97.5 cents per share to 98.5 cents per share. This represents the 48th consecutive sequential quarter where we have grown our dividends.

Speaker Change: with regard to dividends or board of directors reflected on the strong cash flow generating capabilities investment opportunities and decided once again to increase or quarterly regular dividends sequentially by one center share

David Schaeffer: Raising our quarterly dividend from $0.975 per share to $0.985 per share. This represents the 48th consecutive sequential quarter where we have grown our dividends. Our dividend growth rate is now at an annualized rate of 4.2%. Now for our long-term expectations. Now that we have combined the Sprint and Cogent networks and operations, we anticipate our long-term annual growth rates to be between 5 and 7 percent, and EBITDA's adjusted margins to expand by approximately 100 basis points annually.

Speaker Change: raising our quarterly dividend from ninety seven point five cents per share to ninety eight point five cents per share this represents the forty eighth the secutive sequential quarnerter where we have grown our dividend

Speaker Change: Our dividend growth rate is now at an annualized rate of 4.2%.

David Schaeffer: Now for long-term expectations. Our EBITDA adjusted and leverage ratios are impacted by the $700 million IP transit agreement we entered into with T-Mobile. Now I'd like to turn it over to Thad to read the Safe Harbor language and give us some additional operating metrics on the business. 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.

Speaker Change: Now for long-term expectations.

Speaker Change: now that we have combined the sprint and cogent networks and operations

Speaker Change: We anticipate our long-term annual growth rates to be between 5 and 7 percent, and EBITDA's adjusted margins to expand by approximately 100 basis points annually.

David Schaeffer: Our revenue and EBITDA guidance is intended to be multi-year targets and are not intended to be used for specific quarterly or annual targets. Our EBITDA is adjusted, and leverage ratios are impacted by the $700 million IP transit agreement we entered into with T-Mobile. In accordance with this agreement, beginning in June of 2024, we began receiving cash payments of $29.2 million per month for 12 months, and then those payments stepped down for the next 42 months to $8.3 million a month and continued through November of 2027.

Speaker Change: Our revenue and EBITDA guidance are intended to be multi-year targets and are not intended to be used for specific quarterly or annual targets.

Speaker Change: Our EBITDA is adjusted and leverage ratios are impacted by the $700 million IP transit agreement we entered into with T Mobile.

Speaker Change: In accordance with this agreement, beginning in June of 2024, we began receiving

Speaker Change: Cash payments of $29.2 million per month for 12 months, and then those payments step down for the next 42 months to $8.3 million a month and continue through November of 2027.

David Schaeffer: The reduction in monthly cash payments will impact our EBITDA adjusted and leverage ratios, which are measured on a trailing 12-month basis. Now I'd like to turn it over to Thad to read the Safe Harbor language and give us some additional operating metrics on the business. Thank you, Dave, and...

Speaker Change: the reduction monthly cash payments will impact our ebita adjusted and leverage ratios which are measured on a ting trailing twelve month basis

Thaddeus Weed: Please refer to our SEC filings for more information on the factors that could cause actual results to differ from Corresponding Gap Measurement and our earnings releases that are posted on our website at cogentco.com. And we also analyze our revenues based upon customers' We classify our customers into three types: net-centric customers, corporate customers, and enterprises. Our corporate business represented 45.9% of our revenues for the quarter. We had 48,690 corporate customer connections on our network at the end of the quarter. For the quarter, the sequential impact of negative USF on our revenues was minus 1.2. NetCentric.

Ted: Now I'd like to turn it over to Ted to read Safe Harbor language and give us some additional operating metrics on the business.

Thaddeus Weed: 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 these forward-looking statements.

Ted: Thank you Dave and good morning everyone. This earnings conference call includes forward-looking statements.

Ted: 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.

Ted: please refer to our sec filings for more information on the factors that could cause actual results to differ

Ted: Cogent undertakes no obligation to update or revise our forward-looking statements. If we use non-GAAP financial measures during this call, you will find these reconciled to the corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com

Thaddeus Weed: If we use non-GAAP financial measures during this call, you will find these reconciled to the corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com. We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength services, and non-core services. And we also analyze our revenues based on customers. We classify our customers into three types: net-centric customers, corporate customers, and enterprise customers. Comments on the corporate business for the court.

Speaker Change: We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength services, and non-core services.

Speaker Change: Taddeus Weed, David Schaeffer

Ted: We classify our customers into three types, net-centric customers, corporate customers, and enterprise customers.

Thaddeus Weed: Our corporate business represented 45.9% of our revenues for the quarter, and our corporate revenue grew by 7.7% year-over-year but decreased sequentially by 4.3%. The sequential decrease was due to the continued elimination of low-margin, off-net connections and the elimination of non-core products. We had 48,690 corporate customer connections on our network at the end of the quarter. For the quarter, the sequential impact of negative USF on our revenues was minus 1.4 million. NetCentric.

Ted: comments on the corporate business for the quarter

Speaker Change: Our corporate business represented 45.9% of our revenues for the quarter, and our corporate revenue grew by 7.7% year-over-year, but decreased sequentially by 4.3%.

Ted: The sequential decrease was due to the continued grooming of low-margin off-net connections and the elimination of non-core products.

Ted: we had forty- eight thousand six hundred and ninety corporate customer connections on our network at the end of the quarter

Ted: for the quarter the sequential impact of negative usf on our revenues was minus one point four million

Thaddeus Weed: Our NetCentric business continues to benefit from continued growth in video traffic, activity related to AI or artificial intelligence, streaming, and wavelength. Our net centric business represented 35% of our revenues this quarter and grew by 4% year over year and by 4.5% on a constant currency basis, but declined sequentially by 0.9%. We had 61,736 NetCenter customer connections on our network at quarter end.

Thaddeus Weed: Our NetCentric business continues to benefit from continued growth in video traffic, activity related to AI or artificial intelligence, streaming, and wavelength. Our net-centric business represented 35% of our revenues this quarter and grew by 4% year-over-year and by 4.5% on a constant currency, but declined sequentially by 0.9%. We had 61,736 NetCenter customer connections on our network at quarter end.

Ted: NetCentric. Our NetCentric business continues to benefit from continued growth in video traffic, activity related to AI or artificial intelligence, streaming, and wavelength sales.

Ted: our net centric business represented thirty-five percent of our revenues this quarter and grew by four percent year-over-year and by four and a half percent on a constant currency basis

Operator: 2nd quarter, 2024 Earnings Conference Call As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com A transcript of this conference call will be posted on Cogent's website when it becomes available Cogent's summary of financial and operational results, excuse me, attached to a press release can be downloaded from the Cogent website I would now like to turn the call over to Mr. Dave Schaeffer, Chairman, and Chief Executive Officer of Cogent Communications Holdings Hey, good morning, and thanks everyone for joining today's call. Welcome to our 2nd quarter, 2024 Earnings Conference Call.

Ted: but declined sequentially by 0.9%.

Ted: We had 61,736 NetCenter customer connections on our network at quarter end.

Thaddeus Weed: Our network traffic for the quarter, as Dave mentioned, increased by 1.9% sequentially and was up by 17.4% year-over-year. On enterprise, our enterprise business represented 19.1% of our revenues this quarter, $49.8 million.

Ted: Our network traffic for the quarter, as Dave mentioned, increased by 1.9% sequentially and was up by 17.4% year-over-year.

Ted: on Enterprise. Our Enterprise business represented 19.1% of our revenues this quarter.

Thaddeus Weed: $49.8 million, 400 gigabit connections and carry them to a data center. We also sell 10 gigabit connections in selected multi-tenant offices. Our on-net revenue was $140.8 million for the quarter, a year-over-year increase of 10.3% and a sequential increase of $1.9 million. Our wavelength revenue was $3.6 million for the quarter. That was a sequential increase of 9% and a year-over-year increase of $128.7 for our Wavelength Customer Connections. Non-core customer connections were 7,883 at quarter end, a sequential decline of 21 and a half.

Thaddeus Weed: We had 18,356 enterprise customer connections at the end of the quarter, and our enterprise revenue increased by 20.8% year over year and increased sequentially by 0.8%. Revenue and Customer Connections by Network Type and OnNet We serve our on-net customers in our 3,386 total on-net multi-tenant office and carrier-neutral data center buildings, and we continue to succeed in selling larger 100-gigabit connections, 400 gigabit connections, and carrier-neutral data centers.

Speaker Change: and was $49.8 million. We had 18,356 enterprise customer connections at the end of the quarter, and our enterprise revenue increased by 20.8% year over year and increased sequentially by 0.9%.

Operator: I'm Dave Schaeffer, Cogent's Chief Executive Officer With me on this morning's call is Ted Weed, our Chief Financial Officer. Hopefully you've had a chance to review our Earnings press release. This release includes a number of historical metrics that we present on a consistent basis each quarter. Now, for a couple of comments on activity in the quarter, in the quarter we had two debt transactions. On May 2nd, we closed the issuance of our inaugural $206 million asset-backed securitization of our IPv4 notes at 7.9%.

Ted: on Revenue and Customer Connections by Network Type and On-Net Revenue.

Ted: we serve our onnet customers in our three thousand three hundred and eighty-six total onnet multitenant office and carer neutral data center buildings

Ted: we continue to succeed in selling larger hundred igabit connections

Operator: These notes mature in five years and may be extended for up to a 30-year term. This securitization transaction was the first ever of IPv4 lease revenue. We are the owners of approximately 37.8 million IPv4 addresses. We acquired 27.9 million of these addresses when we purchased PSINAT and other acquisitions in the early 2000s. We further enhanced our portfolio when we acquired 9.9 million additional IPv4 addresses in May of 2023 as part of our acquisition of the Sprint Global Markets Group from T-Mobile.

Ted: and four hundred gigavit connections and care under to data centers and we also sell ten gigab it connections in selected mulultti-tenant office buildings

Thaddeus Weed: And we also sell 10 gigabit connections in selected multi-tenant offices. Offering these larger connections has the impact of increasing our on-net ARPU, which occurred again this quarter. Our on-net revenue was $140.8 million for the quarter, a year-over-year increase of 10.3%, and a sequential increase of $1.5 million. Our on-net customer connections were 87,387 in quarter one, on Auckland and River. Our off-net revenue was $111.5 million for the quarter, a year-over-year increase of 9.3 percent and a sequential decrease of 5.7 percent.

Ted: Telling these larger connections has the impact of increasing our on-net ARPU, which occurred again this quarter.

Ted: Our on-net revenue was $140.8 million for the quarter, a year-over-year increase of 10.3%, and a sequential increase of 1.5%.

Ted: Our on-net customer connections were 87,387 at quarter-end.

Ted: on Off-Net Revenue.

Ted: Our off-net revenue was $111.5 million for the quarter, year-over-year increase of 9.3% and a sequential decrease of 5.7%.

Thaddeus Weed: Again, the sequential decline in our off-net revenue was partially impacted by our migration of certain off-net customers to on-net and, more importantly, the continued grooming and termination of low-margin, off-net customer contracts. Our off-net customer connections were 32,758 at quarter end.

Ted: again the sequential decline in our offnet revenue was partially impacted by our mark migration of certain offnet customers to onnet and more importantly the continued grooming and termination of low margin off net customer contracts

Operator: On June 11th, we closed the issuance of our $300 million, 7% unsecured notes. These are mirrored notes. These notes have identical terms to our existing $450 million 2027 notes. We use 114.6 million of the proceeds from this offering to prepay a dark fiber IRU finance lease at a 12% discount rate saving $15.6 million in cash. This IRU dark fiber lease had monthly cash payments of $4.2 million a month through 2026, all of which have been eliminated and therefore materially improving our cash flow through December of 2026.

Ted: our off net customer connections were thirty two thousand seven hundred and fifty eight at quarter end

Thaddeus Weed: Our wavelength revenue was $3.6 million for the quarter. That was a sequential increase of 9% and a year-over-year increase of $128.7. Our Wavelength Customer Connections were 754 at the end of the quarter, which was an 8.8% sequential increase. Some comments on IPV4, our leasing revenue. Our ITV4 leasing business had an excellent quarter.

Ted: Our wavelength revenue was $3.6 million for the quarter. That was a sequential increase of 9% and a year-over-year increase of 128.7%.

Ted: Our Wavelength Customer Connections were 754 at the end of the quarter, which was an 8.8% sequential increase.

Speaker Change: some comments on itv four are leasing revenue

Thaddeus Weed: We were leasing 12.8 million addresses at the end of the quarter, and that was a 4.9% increase in leased addresses from last quarter. Our IPV4 leased revenue increased by 4.4% from last quarter to $10.7 million. Our average revenue per IPv4 address sold for the quarter was $0.51 per address, and that is a very material increase from our base at the beginning of the quarter for all addresses, which was approximately $0.30.

Speaker Change: our itv for leasing business had an excellent quarter we were leasing twelve point eight million of addresses at the end of the quarter and that was a four point nine percent increase in leasted addresses from last quarter

Speaker Change: Our IPV4 leased revenue increased by 4.4% from last quarter to $10.7 million.

Operator: We are leasing approximately 12.8 million of our IPv4 addresses out for a monthly revenue run rate of $3.6 million per month in the end of the quarter. We securitized 3.1 million of these leases in our IPv4 securitization. 11.1 million of the lease addresses and 1.4 million unleased addresses are part of that securitization transaction. The IPv4 internet addresses are a finite resource. The market price of these addresses has substantially increased over the past several years.

Speaker Change: Our average revenue per IPv4 address sold for the quarter was $0.51 per address. And that is a very material increase from our base at the beginning of the quarter for all addresses that was approximately $0.30.

Thaddeus Weed: Lastly, our non-core revenue was $4.6 million for the quarter. That was a sequential decrease of $1.4 million, or 23.7%, as we're ending non-core products. Non-core customer connections were 7,883 at quarter end, a sequential decline of 21 and a half. Comments on pricing, ARPU, and churn.

Speaker Change: Lastly, our non-core revenue was $4.6 million for the quarter. That was a sequential decrease of $1.4 million, or 23.7%, as we're ending the quarter.

Speaker Change: these noncore products

Speaker Change: Non-core customer connections were 7,883 at quarter-end, a sequential decline of 21.5%.

Speaker Change: Some comments on pricing, ARPU, and churn.

Thaddeus Weed: Our average price per megabit for our installed base decreased sequentially by 5% to $0.25, and we often see it at our post office box. On churn, our on-net unit monthly churn rate was stable, 1.4%, the same as last quarter. As a reminder, our EBITDA, as adjusted, is adjusted for Sprint acquisition costs and cash payments received under the $700 million IP Transit Services Agreement with T-Mobile. We collected $66.7 million under the IP Transit Service. As with scheduled decline, it was $87.5 million under the same agreement last year. Our EBITDA, as adjusted, was $106.2 million for the quarter, and that was a 40.8% margin.

Thaddeus Weed: Our average price per megabit for our installed base decreased sequentially by 5% to $0.25. Our average price per megabit for new customer contracts was $0.12, which actually was an increase of 13.5%. ARPU, or average revenue per user, increased from the impact of selling larger connections, are often at ARPUs like Our on-net ARPU increased sequentially by 2.1% from 525 to 536.

Speaker Change: Our average price per megabit for our installed base decreased sequentially by 5% to $25,000.

Operator: In the corner, we also purchased some of our stock back. In June of 2024, we took advantage of market volatility. We purchased 153,000 shares of our common stock back for a cost of $8 million at an average price of $51.97. We have 22.4 million remaining in our authorization for sharey purchases through December of 2024. Now for a comment on expected cost savings. We are in the process of realizing significant cost savings and synergies through the integration of the Sprint assets with the Coaching Network.

Speaker Change: twenty five cents

Speaker Change: Our average price per megabit for new customer contracts was $0.12, which actually was an increase of 13.5%.

Speaker Change: arput

Speaker Change: our onnet arpu increased from the impact of selling larger connections are often in rpuo slightly decreased

Speaker Change: our onnetarpu increased sequentially by two point one percent from five twenty five to five and thirty six

Thaddeus Weed: In a year-over-year basis, there was an increase of 11% from 483 in Q2 of last year, but ARPU, which is often at ARPU, slightly decreased sequentially from 1,106 to 1,103. Year over year, that was a decrease of 14.7%; it was 12.94 last year. Our wavelength, RPU, increased by 2% and was 1670 this quarter; it was 1638 last year.

Operator: Based upon differences between monthly cost run rates at closing in May of 2023 and the monthly cost run rate in June of 2024, we have realized an annualized savings rate of $135 million. This represents 62% of our targeted cost savings of $220 million over a three-year period.

Speaker Change: On a year-over-year basis, it was an increase of 11% from 483 from Q2 of last year.

Speaker Change: our oftenat arpu slightly decreased sequentially from one thousand and one six to one thousand and one of three year-over-year that was a decrease of fourteen point seven percent it was twelve ninety four last year

Speaker Change: Our wavelength, ARPU, increased by 2% and was 1670 this quarter. It was 1638 last quarter.

Thaddeus Weed: Our average revenue per IPV for address sold was $0.51 per address for the quarter, again, a significant increase from $0.30 from the base at the beginning. On churn, our on-net unit monthly churn rate was stable, 1.4%, the same as last quarter.

Speaker Change: our average revenue per ipv for adaddress sold again was fifty one cents per adverse for the quarter again the significant increase from thirty cents from the base at the beginning

David Schaeffer: Now for some summary results for the quarter, we did have a very good quarter. Our revenue for the quarter was $260.4 million. For an exchange, had a negative sequential impact of $300,000 and changes in USF tax rates had a sequential negative impact of 1.4 million on our quarterly revenues. Adjusting for these two negative impacts of $1.7 million or sequential revenue did decline by 1.5%, primarily due to the decline in our non-core products and the management out of low margin off-net services.

Speaker Change: On churn, our on-net unit monthly churn rate was stable, 1.4%, the same as last quarter. Our off-net churn rate did tick up, 2.3% this quarter, 2.1% last quarter. Again, we continue to groom and terminate low-margin off-net contracts.

Thaddeus Weed: Our off-net churn rate did tick up. It was 2.3% this quarter, and 2.1% last quarter. Again, we continue to groom and terminate low-margin off-net contracts.

Thaddeus Weed: EBITDA, and EBITDA-MARG. We reconcile our EBITDA to our cash flow from operations in each of our quarterly press releases. Our EBITDA increased sequentially by 8.7 million, and our EBITDA margin increased sequentially by 350 basis points to 10.4%. This is the EBITDA class, EBITDA as adjusted and as adjusted margin. And as a reminder, our EBITDA as adjusted is adjusted for Sprint acquisition costs and cash payments received under the $700 million IP Transit Services Agreement with T-Mobile. We collected $66.7 million under the IP Transit Services this quarter.

Speaker Change: eidda and ebita margin

Speaker Change: We reconcile our EBITDA to our cash flow from operations in each of our quarterly press releases.

Speaker Change: Our EBITDA increased sequentially by 8.7 million, and our EBITDA margin increased sequentially by 350 basis points to 10.4%.

Speaker Change: this is ebitda classic

Speaker Change: ebita as adjusted and as adjusted margin and as our reminder are ebitda as adjusted is adjusted for sprint acquisition costs and cash payments received under the seven hundred million iv transit services agreement with t mobile

David Schaeffer: Our on-net revenues increased sequentially by 1.5% in the quarter to 140.8 million. Revenues under our commercial services agreement with T-Mobile increased sequentially by $2.7 million to $5.9 million in the quarter. Traffic on our network increased sequentially by 1.9%, it was up 17.4% on a year-over-year basis. Our off-net revenues did decrease by 5.7% to 111.5 million due to the continued elimination of these low margin services. Our on-core revenues were generally carrying negative gross margin to decline, by 1.4 million to 4.6 million in a quarter.

Speaker Change: we collected sixty six point seven million under the ip transit servicesgre

Thaddeus Weed: As with the scheduled decline, it was $87.5 million under the same agreement last year. Our EBITDA, as adjusted, was $106.2 million for the quarter, and that was a 40.8% margin. We incurred $12.4 million of Sprint non-capital acquisition costs this quarter, an increase from $9 million last quarter, largely due to the end of the seventh quarter. Included in Sprint acquisition costs for the quarter were $8 million of reimbursed severance costs. And last quarter, included in the $9 million, that was $4.3 million. These severance costs are paid by us but will be fully reimbursed by T-Mobile.

Speaker Change: This quarter,

Speaker Change: as was scheduled decline it was eighty-seven point five million under the same agreement last quarter

Speaker Change: Our EBITDA, as adjusted, was $106.2 million for the quarter, and that was a 40.8% margin.

Speaker Change: We incurred $12.4 million of Sprint non-capital acquisition costs this quarter, an increase from $9 million last quarter, largely due to the end of the severance payments.

Speaker Change: Included in Sprint acquisition costs for the quarter were $8 million of reimbursed severance costs,

Speaker Change: And last quarter, included in the $9 million, that was $4.3 million.

Thaddeus Weed: These severance costs are paid by us, but they are fully reimbursed by them and Purchase Accounting at CLOSER. And again, the total gain... This is the final quarter for the severance reimbursement, so this is now. Our revenue earned outside of the United States is reported in U.S. dollars and is approximately 17% of our revenue. About 11% of our revenues were based in Europe, and 6% of our revenues were related to our Canadian, Mexican, Oceanic, South American, and African communities. The average Euro to USD rate so far this quarter is $1.09, and the average Canadian dollar rate is $0.73.

Speaker Change: These severance costs are paid by us but are fully reimbursed by T-Mobile.

Thaddeus Weed: Under U.S. GAAP, the accounting for these severance costs needs to be retroactively reported as an acquired receivable asset and Purchase Accounting at Close. And that results in an increase in our acquired assets and a corresponding increase to our gain on the bargain purchase. Again, the total gain... after the one-year window for adjustments was $1.4 billion. When we pay the severance to an employee, we record this transaction as Sprint Acquisition

Speaker Change: Under U.S. GAAP, the accounting for these severance costs needs to be retroactively reported as an acquired receivable asset.

David Schaeffer: And then finally, while we have not completed the reconfiguration of the Sprint Network, we have installed some wave services. Arrayed Wave Revenue increased modestly by 9% sequentially quarter over quarter to 3.6 million. And that represents actually a 128.7% increase on a year-over-year basis. We expect this to materially accelerate starting in early 2025 as we will complete the network integration and optimization for wave services by year-end. Our EBITDA as adjusted was 106.2 million.

Speaker Change: and Purchase Accounting at closing, and that results in an increase to our acquired assets and a corresponding increase to our gain on bargain purchase. Again, the total gain...

Speaker Change: After the one-year window for adjustments was $1.4 billion.

Speaker Change: When we pay the severance to an employee, we record this transaction as Sprint Acquisition Costs.

Thaddeus Weed: When we reimburse by T-Mobile, the opening balance sheet receivable from T-Mobile is reduced from the cash payment. This is the final quarter for the severance reimbursement, so this is now behind. Foreign currency impact: Our revenue earned outside of the United States is reported in U.S. dollars and was approximately 17% of our revenues for the quarter. About 11% of our revenues were based in Europe, and 6% of our revenues were related to our Canadian, Mexican, Oceanic, South American, and African islands. The average Euro to USD rate so far this quarter is $1.09, and the average Canadian dollar rate is $0.73.

Speaker Change: When reimbursed by T Mobile, the opening balance sheet receivable from T Mobile is reduced from the cash payment.

Speaker Change: This is the final quarter for the severance reimbursement, so this is now behind us.

Speaker Change: Foreign Currency Impact

Speaker Change: Our revenue earned outside of the United States is reported in U.S. dollars and was approximately 17% of our revenues from the U.S.

David Schaeffer: And our EBITDA as adjusted, margin was 40.8% for the quarter. In accordance with our IP transit services agreement with T-Mobile, we received three payments in the quarter, totaling $66.7 million. This compares to the three payments we received in Q1 of 87.5 million. The payments in this quarter included $29.2 million payments and $1.3 million payment. An additional 41 payments are expected to be made by T-Mobile each of $8.3 million a quarter continuing through November of 2027.

Speaker Change: for the quarter.

Speaker Change: About 11% of our revenues were based in Europe , and 6% of our revenues were related to our Canadian, Mexican, Oceanic, South American, and African operations.

Speaker Change: The average Euro to USD rate so far this quarter is $1.09 and the average Canadian dollar rate is $0.73.

Thaddeus Weed: Should these average rates remain at these current levels, we do not expect a material effect on impact both sequentially and on a year-over-year basis. Customer Concentration. We believe that our revenue and customer base is not very highly concentrated. Our top 25 customers were about 20% of our revenues for the quarter, excluding capital expenditure. Our quarterly capital expenditures were $48.8 million this quarter. We are continuing our network integration of the former Sprint network and legacy Cogent network into one unified network and converting former Sprint switch sites into Cogent data. We have accelerated our data center conversion program due to the very high level of demand for our power availability.

Speaker Change: Should these average rates remain at these current levels, we do not expect immaterial effects.

Speaker Change: impact both sequentially and on a year-over-year basis.

Speaker Change: Customer Concentration

Speaker Change: We believe that our revenue and customer base is not very highly concentrated. Our top 25 customers were about 20% of our revenues for the quarter.

David Schaeffer: Our Sprint acquisition costs in the quarter were $12.4 million. Included in this cost and the significant portion of it was the $8 million in final severance reimbursements that were paid to former T-Mobile employees and these costs are fully reimbursable by T-Mobile. We achieved significant cost reductions both in our cost of goods sold and our SGA in a quarter. Our SGA decreased by $5 million or 7.1% from the previous quarter and decreased by 12.5 million or 16.1% from Q2 of 2023.

Speaker Change: on Capital Expenditures.

Speaker Change: Our quarterly capital expenditures were $48.8 million this quarter. We are continuing our network integration of the former Sprint network and legacy Cogent network into one unified network, and converting former Sprint switch sites into Cogent data centers.

Speaker Change: We have accelerated our data center conversion program due to the very high level of demand for our power availability.

Thaddeus Weed: Our finance lease IRU obligations are for long-term dark fiber. Our IRU finance lease obligations were $426.4 million at the end of the quarter. That was a reduction of $91.1 million from last quarter. The significant decrease from last quarter resulted from the early prepayment at a discount of $114.6 million under the IRU lease, partly offset by replacement IRU route cancellations for new routes of $42.2 million for the quarter. We have a very diverse set of IRU suppliers, and we have contracts with 356 dark fiber suppliers at the end of the quarter.

Speaker Change: Our finance lease IRU obligations are for long-term dark fiber leases.

Speaker Change: Our IRU finance lease obligations were $426.4 million at the end of the quarter. That was a reduction of $91.1 million from last quarter.

Speaker Change: the significant decrease from last quarter resulted from the early pretainment addeda discount of one hundred and fourteen point six million

David Schaeffer: SGA is the percentage of our revenue decreased to 25% in the second quarter from 26.3% in the previous quarter. Our cost of goods sold decreased by 12.7 million or 7.8% on a sequential basis from Q1 of 2024. As we continue to reduce network costs and bring off net traffic on net. We finalized the purchase accounting associated with our acquisition of the Sprint Global Markets Group. In this quarter we received an additional final gain in our bargain purchase bringing that total bargain purchase gain to $1.4 billion.

Speaker Change: under the IRU lease.

Speaker Change: partly offset by replacement IRU route cancellations for new routes of 42.2 million for the quarter.

Thaddeus Weed: We have a very diverse set of IRU suppliers, and we have contracts with 356 dark fiber suppliers, $41.8 million of restricted cash, $35.5 million of that was tied to the swap. 4.5, and our secured leverage ratio. Further comments on the swap. The fair value of our swap agreement decreased by $9.3 million from last quarter and was $35.5 million.

Speaker Change: We have a very diverse set of IRU suppliers, and we have contracts with 356 dark fiber suppliers at the end of the quarter.

Thaddeus Weed: At quarter end, our cash and cash equivalents and restricted cash totaled $426.2 million. Of that, $41.8 million of restricted cash, $35.5 million of that was tied to the swap, and $6.3 million, which is new, was tied to the customer payment processing requirements under our IPV 49. Debt and Debt Ratio. Our total gross debt at par, including our finance lease obligations, was $1.9 billion at the end of the quarter, and net debt was $1.5 billion.

Speaker Change: At quarter end, our cash and cash equivalents and restricted cash totaled $426.2 million.

Speaker Change: of our total.

Speaker Change: $41.8 million of restricted cash, $35.5 million of that was tied to the swap, and $6.3 million, which is new, was tied to the customer payment processing requirements under our IPV4 notes.

David Schaeffer: Our gross debt to trailing last 12 months, EBITDA, as a trusted ratio, was 4.06 at the end of the quarter, and our net debt ratio did reduce in the quarter from 3.17 times EBITDA to 3.14. We ended the quarter with 426.2 million in cash and cash equivalents on our balance sheet. Now for a comment on our sales force, our sales rep productivity was 4 units in Q1 per rep per month and 3.8 units installed per rep full-time equivalent per month in Q2.

Speaker Change: Debt and Debt Ratios

Speaker Change: our total gross debt at par including our finance lease obligations was one point nine billion at the end of the quarter and net debt was one point five billion

Thaddeus Weed: Our total gross debt to last 12 months' EBITDA as adjusted ratio was 4.06 at quarter end, and net was 3.14. The Consolidated Leverage Revenue ratio, rather, as calculated under our notes. 4.5, and our secured leverage ratio as calculated under our note indentures was 2.49. Some further comments on the swap. We are party to an interest rate swap agreement that modifies our fixed interest rate obligation on our 500 million 2026 notes to a variable interest obligation based on SOFR, and that is for the remaining term of these 2026 notes.

Speaker Change: Our total gross debt to last 12 months EBITDA as adjusted ratio was 4.06 at quarter end and net was 3.14.

Speaker Change: Our consolidated leveraged revenue

Speaker Change: ratio rather as calculated under our notes was 4.5 and our secured leverage ratio as calculated under our note indentures was 2.49

Thaddeus Weed: The fair value of our swap agreement decreased by $9.3 million from last quarter and was $35.5 million. Changes in the fair value of the swap agreement are now required to be classified Excuse me in our public filings with interest. As of today, the value of our swap agreement was $30.9 million, so it's declined. Lastly, on bad debt and day sales outstanding. Our day sales improved from last quarter and were 26 days versus 27 in the previous quarter. That debt expense was $2.9 million, or 1.1% of revenues.

Speaker Change: Some further comments on the swap.

Speaker Change: we are party to an interest rate swap agreement that modifies our fixed interest rate obligation with our five hundred million two thousand and twenty six notes to a variable interest obligation based on soofa and that is for the remaining term or the these two thousand and twenty six notes

David Schaeffer: In conjunction with the Sprint acquisition, we hired 942 employees at quarter end, 655 of these employees remain employed with us.

Speaker Change: The fair value of our swap agreement decreased by $9.3 million from last quarter and was $35.5 million.

David Schaeffer: Now for a couple of comments on our optical transport and wave services. In conjunction with the acquisition of the Sprint CMG business, we expanded our product offering to include optical wavelength services and optical transport services over our fiber network. We are selling these wavelength services to existing customers, as well as new customers. These customers require dedicated optical transport without the capital and ongoing expense of owning and operating their own infrastructure. As of today, we have connectivity and wavelength capability services in 574 locations.

David Schaeffer: Changes in the fair value of a swap agreement are now required to be classified directly. At quarter end, we had 280 salespeople focused exclusively on the net-centric market and the expansion of our data center footprint. We purchased $8 million of our common stock at the end of the quarter. We look to continue to monetize our IPv4 addresses, dark fiber, and our data center spaces on a wholesale and retail basis. We've remained in active discussion with multiple counterparties from multiple sites.

Speaker Change: Changes in the fair value of the swap agreement are now required to be classified, excuse me, in our public filings with interest expense.

Speaker Change: As of today, the value of our swap agreement was $30.9 million.

Speaker Change: So it's declined.

Speaker Change: Lastly on Bad Debt and Day Sales Outstanding

Speaker Change: our day sales improved from last quarter and was twenty-six ges versus twenty seven and plast quarter that debt expense was two point one milk two point nine million one point one percent of revenues that's consistent with our historical performance

Thaddeus Weed: That's consistent with our historical performance, and I want to again thank and recognize our Worldwide Billing and Collections team members for continuing to do just a fantastic job serving customers. And with that, I will turn the call back. Hey, thanks!

Speaker Change: And I want to again thank and recognize our Worldwide Billing and Collections team members for continuing to do just a fantastic job serving our Cogent customers.

David Schaeffer: However, our provisioning cycles remain elongated at about 90 days. We intend to substantially reduce that provisioning time as we complete the network optimization programs by year end. We have sold wavelengths in 156 locations. By year end 2024, we expect to be able to offer wavelength services in over 800 North American locations with substantially reduced provisioning cycles. We have a significant backlog and funnel of wave opportunities representing over 2700 unique wavelengths.

David Schaeffer: Hey, thanks, Thad. I'd like to highlight a few of the strengths of our network, our customer base, and our sales team. In our network-centric business, we continue to see significant traffic growth from our customer base. We're the direct beneficiaries of over-the-top video, AI activity, and streaming.

Speaker Change: And with that, I will turn the call back to Dave.

Dave Schaeffer: Hey, thanks, Thad. I'd like to highlight a few of the strengths of our network, our customer base, and our sales force.

Dave Schaeffer: In our net-centric business, we continue to see significant traffic growth from our customer base.

Speaker Change: We are direct beneficiaries of over-the-top video, AI activity, and streaming.

David Schaeffer: At Quarter End, we have over 1,602 carrier-neutral data centers connected to our network and 86 Cogent data centers, bringing our total connected data center footprint to 1,688, more than any other carrier globally as measured by third-party independent research. The breadth of our coverage enables our NetCentric customers to better optimize their networks and reduce latency. We expect we'll continue to widen this lead in the market and are projected to add over an additional 100 carrier-neutral data centers per year to our network over the next several years.

Speaker Change: At Quarter End, we have over 1,602 carrier-neutral data centers connected to our network and 86 Cogent data centers.

David Schaeffer: Our Sprint acquisition materially expanded our data center footprint. To date, we have reconfigured 34 of the Sprint acquired facilities and added these new data centers to the 1600 and 2 carrier neutral and 86 data centers that cogent operates. The cogent data centers in operation today have 164 megawatts of protected power. We are decommissioning some legacy cogent data centers and waste facilities where they are redundant with the simple own facilities that we acquire from Sprint. We are in the process of converting an additional 18 former sprint facilities into cogent data centers that will continue to optimize our portfolio.

Speaker Change: bringing our total connected data center footprint to 1,688, more than any other carrier globally as measured by third-party independent research.

The breadth of our coverage enables our NetCentric customers to better optimize their networks and reduce latency.

Speaker Change: we expect will continue to widenthismis lead in the market and are projected to add over an additional one hundred carrier neutral data centers per a year to our network over the next several years

David Schaeffer: With an extended provisioning cycle, we could sell wavelengths today in 574 locations. However, we are slow to do that because we are focused on the optimization of our network and, therefore, the shortening of our provisioning cycles across the entire bay.

Speaker Change: With an extended provisioning cycle, we can sell wavelengths today in 574 locations.

Speaker Change: We are slow to do that because we are focused on the optimization of our network, and therefore the shortening of our provisioning cycles across the entire base.

David Schaeffer: With regard to dividends, our board of directors reflected on the strong cash flow generating capabilities, investment opportunities and decided once again to increase our quarterly regular dividends sequentially by one center share, raising our quarterly dividend from 97.5 cents per share to 98.5 cents per share. This represents the 48th consecutive sequential quarter where we have grown our dividend. Our dividend growth rate is now at an annualized rate of 4.2%.

David Schaeffer: By year-end 2024, we expect to be able to sell wavelength services in over 800 carrier neutrals in North America with a very reduced provisioning interface. At Quarter End, we're directly connected to 1,000 or 8,135 networks. 23 of these networks are peers, and 1,112 of these networks are Cogent Transit customers. This makes Cogent the most interconnected network globally.

Speaker Change: By year-end 2024, we expect to be able to sell wavelength services in over 800 carrier neutrals in North America with very reduced provisioning intervals.

Speaker Change: At Quarter End, we're directly connected to 8,135 networks. 23 of these networks are peers.

David Schaeffer: and

Speaker Change: 1,112 of these networks are Cogent Transit customers. This makes Cogent the most interconnected network globally.

David Schaeffer: This collection of ISPs, telephone companies, cable companies, and mobile phone operators allows us to reach the vast majority of the world's broadband subscribers and mobile phone users directly. We remain focused on our sales force, productivity, and efficacy, and continue to manage out under performing reps. Our salesforce turnover rate was 5.6% per month for the quarter, down from a peak of 8.7% during the height of the pandemic, and in line with our average salesforce turnover rate, historically.

David Schaeffer: Now for long-term expectations. Now that we have combined the sprint, encodient, networks and operations, we anticipate our long-term annual growth rates to be between 5 and 7%, and EBITDA has adjusted margins to expand by approximately 100 basis points annually. Our revenue and EBITDA guides are intended to be multi-year targets and are not intended to be used for specific quarterly or annual targets. Our EBITDA has adjusted and leverage ratios are impacted by the $700 million IP transit agreement we entered into with T-Mobile.

Speaker Change: This collection of ISPs, telephone companies, cable companies, and mobile phone operators allow us to reach the vast majority of the world's broadband subscribers and mobile phone users directly.

David Schaeffer: We remain focused on our sales force productivity and efficacy and continue to manage out under performing reps.

David Schaeffer: At quarter's end, we had 280 salespeople focused exclusively on the net-centric market, 364 sales professionals focused on the corporate market, and 12 sales reps focused on the enterprise. We remain optimistic about our unique position serving small and mid-sized businesses in the central business district. We have 1,864 multi-tenant office buildings on net with over 1 billion square feet.

David Schaeffer: Our sales force turnover rate was 5.6.

Speaker Change: percent per month for the quarter down from a peak of 8.7 percent during the height of the pandemic and in line with our average

David Schaeffer: sales force turnover rate historically of 5.6 percent. At quarters end we had 280 salespeople focused exclusively on the net centric market.

David Schaeffer: In accordance with this agreement, beginning in June of 2024, we began receiving cash payments of 29.2 million per month for 12 months, and then those payments stepped down for the next 42 months to $8.3 million a month and continued through November of 2027. The reduction in monthly cash payments will impact our EBITDA's adjusted and leverage ratios which are measured on a trailing 12 month basis.

David Schaeffer: 364 sales professionals focused on the corporate market and 12 sales reps focused on the enterprise space.

David Schaeffer: We remain optimistic about our unique position in serving small and mid-sized businesses in central business districts.

Speaker Change: We have 1,864 multi-tenant office buildings on net with over 1 billion square feet.

David Schaeffer: We also remain focused on selling to large enterprises and are continuing to grow that business. We are enthusiastic and optimistic about the addition of optical transport services or wavelengths to our product portfolio and the expansion of our data center footprint. We have a significant backlog and funnel of these wave opportunities at over 2,700 discrete wavelengths.

Thaddeus Weed: Now I'd like to turn it over to Ted to read safe harbor language and give us some additional operating metrics on the business. Thank you Dave and good morning everyone.

David Schaeffer: We also remain focused on selling to large enterprises and are continuing to grow that business.

David Schaeffer: We are enthusiastic and optimistic about the addition of optical transport services or wavelengths to our product portfolio and the expansion of our data center footprint.

Thaddeus Weed: 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, our subjecture 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. Codent undertakes no obligation to update or revise our forward-looking statements.

David Schaeffer: We have a significant backlog and funnel of these wave opportunities at over 2,700 discrete wavelengths.

David Schaeffer: And while we have accentuated provisioning cycles, we hope that with the network reconfiguration work, we can bring these orders installed in much shorter times by year end. We're diligently working to complete the integration of the Sprint network and the Cogent network and the optimization. We remain optimistic and excited about our ability to create cost savings and generate increasing amounts of cash. Based on the differences between monthly cost run rates at May of 2023 and June of 2024, we have already achieved $135 million of these savings, or 62% of our targeted $220 million in savings.

Speaker Change: And while we have accentuated provisioning cycles, we hope that with the network reconfiguration work, we can bring these orders installed in much shorter times by year end.

Thaddeus Weed: If we use non-gap financial measures during this call, you will find these reconciled to the corresponding gap measurement in our earnings releases that are posted on our website at codentcode.com. We analyze our revenues based upon network connection type, which is on net, off net, wavelength services, and non-core services. And we also analyze our revenues based upon customer type. We classify our customers into three types, net-centered customers, corporate customers, and enterprise customers.

David Schaeffer: We're diligently working to complete the integration of the Sprint network and the Cogent network and the optimization.

David Schaeffer: We remain optimistic and excited about our ability to create cost savings and generate increasing amounts of cash flow.

David Schaeffer: Based on the differences between monthly cost run rates at May of 2023 and June of 2024,

David Schaeffer: We have already achieved $135 million of these savings, or 62% of our targeted $220 million in savings.

Thaddeus Weed: Comments on the corporate business for the quarter. Our corporate business represented 45.9% of our revenues for the quarter, and our corporate revenue grew by 7.7% year over year, but decreased sequentially by 4.3%. The sequential decrease was due to the continued grooming of low margin off net connections and the elimination of non-core products. We had 48,690 corporate customer connections on our network at the end of the quarter. For the quarter, the sequential impact of negative USF on our revenues was minus 1.4 million.

David Schaeffer: We purchased $8 million of our common stock at the end of the quarter and still have $22.4 million for additional buybacks if warranted.

David Schaeffer: We look to continue to monetize our IPv4 addresses, dark fiber, and our data center spaces on a wholesale and retail basis.

David Schaeffer: and are willing to either sell or enter into long-term leases for many of these facilities over the next several years.

David Schaeffer: We remain in active discussion with multiple counterparties from multiple sites.

Thaddeus Weed: On net-centric, our net-centric business continues to benefit from continued growth in video traffic, activity related to AI or artificial intelligence, streaming, and wavelength sales. Our net-centric business represented 35% of our revenues this quarter, and grew by 4% year over year, and by 4.5% on a constant currency basis, but declined sequentially by 0.9%. We had 61,736 net-centric customer connections on our network at quarter end. Our network traffic for the quarter, as Dave mentioned, increased by 1.9% sequentially and was up by 17.4% year over year.

David Schaeffer: We purchased $8 million of our common stock at the end of the quarter, and we still have $22.4 million for additional buybacks if warranted. We look to continue to monetize our IPv4 addresses, dark fiber, and our data center spaces on a wholesale and retail basis, and are going to either sell or enter into long-term leases for many of these facilities over the next several years. We remain in active discussions with multiple counterparties from multiple sites. With that said, I'd like to open the floor to questions.

David Schaeffer: With that said, I'd like to open the floor for questions. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Sebastiano Petti with JP Morgan. Your line is open.

Speaker Change: with that i've like to the four for quest

Speaker Change: If you would like to withdraw your question simply press Star one a second time.

David Schaeffer: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

David Schaeffer: Again press star one to join the queue.

David Schaeffer: And your first question comes from the line of Sebastiano Petty, with J.P. Morgan. Your line is open. Sure, hey, thanks for both questions, Sebastiano. So, let me take the EBITDA classic question first. We had significant improvement sequentially in that due to the reduction in our SG&A as well as cost of goods sold. However, we understand that the IP transit payments from T-Mobile are continuing to step down. In the quarter, we had effectively a $20 million reduction in those payments, but our EBITDA, as adjusted, was down only $9 million due to the improvements in the underlying classic EBITDA rate. We expect that trend to continue. We understand that in the third quarter, we will only be receiving three of the $8.3 million payments.

Speaker Change: And your first question comes from the line of Sebastiani Petti with JP Morgan Your line is open.

Sebastiano Petti: Hi Dave, thank you for taking the question. Dave, just starting with EBITDA classic, I mean, you realized 62% of the targeted cost savings you just touched on, which is likely to provide a tailwind and, you know, continue to groom or exit profitable contracts. Help us think about, you know, expectations for EBITDA classic margin expansion. Is that something maybe we can kind of continue to see here off of the 10.4 in the second quarter of 24?

Sebastiano Petty: Hi, Thank you for taking the question Dave.

Thaddeus Weed: On enterprise, our enterprise business represented 19.1% of our revenues this quarter and was 49.8 million. We had 18,356 enterprise customer connections at the end of the quarter, and our enterprise revenue increased by 20.8% year over year and increased sequentially by 0.9%.

Speaker Change: Starting with EBITDA Classic I mean, you realized 62% of the targeted cost savings you just touched on which is likely to provide a tailwind.

David Schaeffer: <unk> to groom or exit unprofitable contracts.

Speaker Change: Help us think about you know expectations for EBITDA classic margin expansion is that something maybe we can kind of continue to see here. After the $10 four in the second quarter of 24, and then related separately.

Sebastiano Petti: And then separately, you may have heard that a competitor recently announced dark fiber deals totaling $5 billion. In the past, he talked about dark fiber, and today it is a longer-term kind of opportunity, perhaps, after you stand up and scale the waves opportunity. I guess first, are you surprised by that announcement? And does this in any way change how you're thinking about the speed to market on a dark fiber basis?

Thaddeus Weed: On revenue and customer connections by network type and on net revenue. We serve our on net customers in our 3,386 total on net multi-tenant office and carrier and neutral data center buildings. We continue to succeed in selling larger 100 gigabit connections and 400 gigabit connections and carrier and neutral data centers, and we also sell 10 gigabit connections in selected multi-tenant office buildings. Telling these larger connections has the impact of increasing our on net RPU, which occurred again this quarter.

David Schaeffer: You may have heard that a competitor recently announced dark fiber deals totaling $5 billion.

Speaker Change: In the past you talked about dark fiber and today is a longer term kind of opportunity perhaps after you.

Speaker Change: Standup and scale the waves opportunity I guess first do you are you surprised by that announcement and does this in any way change how youre thinking about the speed to market on a dark fiber basis.

David Schaeffer: And how are you positioned to maybe get a piece of that action? Thank you. Sure. Hey. Thanks.

Speaker Change: How are you positioned to maybe get a piece of that action. Thank you.

David Schaeffer: Sure. Hey, thanks for both questions, Sebastiano. So let me take the classic EBITDA question first. We had significant sequential improvement in that due to the reduction in our SG&A, as well as cost of goods sold. We understand that the IP transit payments from T-Mobile are continuing to step down. In the quarter, we had effectively a $20 million reduction in those payments, but our EBITDA, as adjusted, was down only $9 million due to the improvements in the underlying classic EBITDA rate. We expect that trend to continue. However, we understand that in the third quarter, we will only be receiving three of the $8.3 million payments.

David Schaeffer: So we have effectively another $40 million of headwind to EBITDA as adjusted. We will continue to see improvement in EBITDA classic, the underlying cost due to these grooming and cost synergy programs, probably at a similar pace to what we saw from Q1 to Q2. And I think you'll see that similar pacing Q2 to Q3 and even Q3 to Q4 and continuing on. That particular competitor had been very reluctant to sell dark fiber.

David Schaeffer: Sure Hey, thanks for both questions Sebastiano. So let me take the EBITDA Classic question first we had significant improvement sequentially and that due to the reduction in our SG&A as well as cost of goods sold.

Thaddeus Weed: Our on net revenue was 140.8 million for the quarter, a year over year increased of 10.3% and a sequential increase of 1.5%. Our on net customer connections were 87,387 at quarter end on off net revenue. Our off net revenue was 111.5 million for the quarter, year over year, increase of 9.3% and a sequential decrease of 5.7%. Again, the sequential decline in our off-net revenue was partially impacted by our migration of certain off-net customers to on-net, and more importantly, the continued grooming and termination of low margin off-net customer contracts.

Speaker Change: We understand that the <unk>.

David Schaeffer: IP tranches payments from T mobile are continuing to step down in.

David Schaeffer: In the quarter, we had effectively a $20 million reduction in those payments, but our EBITDA as adjusted was down only $9 million due to the improvement in the underlying classic EBITDA rate we expect.

David Schaeffer: So we have effectively another $40 million of headwind to EBITDA as adjusted. We will continue to see improvement in EBITDA classic, the underlying cost due to these grooming and cost synergy programs, probably at a similar pace to what we saw from Q1 to Q2. And I think you'll see that similar pacing Q2 to Q3 and even Q3 to Q4 and continuing on. As we add wavelength revenue, which carries very high contribution margins, we'll see a further acceleration in the EBITDA classic number due to the fact that those wavelength services are virtually all on net. And now that's probably a decent transition into the second question, you know.

David Schaeffer: Expect that trend to continue.

David Schaeffer: We understand that in the third quarter, we will only be receiving three of the 8.3 million dollar payments.

Thaddeus Weed: Our off-net customer connections were 32,758 at quarter end. Our wavelength revenue was 3.6 million for the quarter. That was a sequential increase of 9% and a year over year increase of 128.7%. Our wavelength customer connections were 754 at the end of the quarter, which was an 8.8% sequential increase.

David Schaeffer: We have effectively another $40 million of headwind to EBITDA as adjusted.

David Schaeffer: We will continue to see.

David Schaeffer: Improvement in EBITDA classic the underlying cost due to these grooming and cost synergy programs, probably at a similar pace to what we saw from Q1 to Q2, and I think youll see that similar pacing Q2 to <unk>.

Thaddeus Weed: Some comments on ITV4 are leasing revenue. Our ITV4 leasing business had an excellent quarter. We were leasing 12.8 million of addresses at the end of the quarter and that was a 4.9% increase in leased addresses from last quarter. Our ITV4 leased revenue increased by 4.4% from last quarter to 10.7 million. Our average revenue per ITV4 address sold for the quarter was 51 cents per address and that is a very material increase from our base at the beginning of the quarter for all addresses that was approximately 30 cents.

David Schaeffer: Three and even three to four and continuing on as we add wavelength revenue, which carries a very high contribution margins, we will see a further acceleration in the EBITDA classic number due to the fact that those wavelength.

Speaker Change: Services are virtually all on net.

Speaker Change: And now that's probably a decent try in session and to the second question.

David Schaeffer: No.

David Schaeffer: We have been very clear about our targeted market for wavelengths and our strategy of being very aggressive in gaining market share. We think we have a number of competitive advantages, whether it be ubiquity, speed of provisioning, or reliability once installed and uniqueness of route. I actually think what was announced by our competitor was more of a defensive action as a result of our entry into the market. That particular competitor had been very reluctant to sell dark fiber, and, in fact, on multiple occasions regretted the fact that it had sold 12,900 miles of dark fiber to Cogent, enabling a competitor. We, in fact, intend to give that fiber back as we migrate off of that fiber and onto the facilities we acquired from Sprint. We also know that we have excess capacity on our network for dark fiber. Now, we will sell dark fiber. I think we do have a significant opportunity.

Speaker Change: We have been very clear about our targeted market for wavelengths and our strategy of being very aggressive in gaining market share. We think we have a number of competitive advantage, whether it be ubiquity SPIE.

Thaddeus Weed: Lastly, our non-core revenue was 4.6 million for the quarter. That was a sequential increase of 1.4 million or 23.7% as we're ending these non-core products. Non-core customer connections were 7,883 at quarter end, the sequential decline of 21.5%.

Speaker Change: Peter provisioning or.

Speaker Change: Reliability once installed and uniqueness of routes.

Thaddeus Weed: Some comments on pricing are food and churn. Our average price per megabit for our installed base decreased sequentially by 5% to 25 cents. Our average price per megabit for new customer contracts was 12 cents, which actually was an increase of 13.5%. Our on net arpu increased from the impact of selling larger connections. Our off net arpu slightly decreased. Our on net arpu increased sequentially by 2.1% from 525 to 536. In a year-over-year basis, it was an increase of 11% from 483 from Q2 last year.

David Schaeffer: I actually think what was announced by our competitor was more of a defensive action as a result, our entry into the market.

David Schaeffer: In fact, on multiple occasions, regretted the fact that it had sold 12,900 miles of dark fiber to Cogent, enabling a competitor. We, in fact, intend to give that fiber back as we migrate off of that fiber and onto the facilities we acquired from Sprint. Now, we will sell dark fiber. I think we do have a significant opportunity.

David Schaeffer: That particular competitor had been very reluctant to sell dark fiber in fact on multiple occasions regretted. The fact that it's sold 12900 miles of dark fiber to cogent at enabling a competitor we in fact.

David Schaeffer: And tend to give that fiber back as we migrate off of that fiber and onto the facilities, we acquired from sprint.

David Schaeffer: We also know that we have excess capacity on our network.

Thaddeus Weed: Our off net arpu slightly decreased sequentially from 10106 to 10103 year-over-year. That was a decrease of 14.7%. It was 12.94 last year. Our wavelength arpu increased by 2% and was 16.70 of this quarter. It was 16.38 last quarter. Our average revenue per IPv for address sold again was 51 cents per address for the quarter. Again, the significant increase from 30 cents from the base at the beginning. On churn, our on net unit monthly churn rate was stable, is 1.4% the same as last quarter. Our off net churn rate did tick up. It was 2.3% this quarter, 2.1% last quarter. Again, we continue to groom and terminate low margin off net.

David Schaeffer: Four.

David Schaeffer: Fiber.

David Schaeffer: I think our routes are unique, but we have been reluctant to do so until we have done the wave enablement of our network. The competitor I think you mentioned derives a significant portion of its cash flow from the way. They dominate the wavelength market, and I think their change in position and willingness to sell dark fiber was a direct result of maybe the acknowledgment that the market was going to become much more competitive with Cogent's entry.

David Schaeffer: I think our routes are unique, but we have been reluctant to do so until we have done the wave enablement of our network. The final point to that is, we have had many of the same customers who have placed wavelength orders with us, we've provisioned some of those orders, and we've actually said no to some orders. We have refused to deploy capital at a low single-digit return.

David Schaeffer: Now we will sell dark fiber.

David Schaeffer: I think we do have a significant opportunity I think our routes are unique but we have been reluctant to do so.

David Schaeffer: We have done the wave enablement of our network.

Speaker Change: The competitors are I think you mentioned derives a significant portion of its cash flow from wavelengths.

Speaker Change: Dominate the wavelength market and I take care change in position and willingness to sell dark fiber was a direct result to may be the acknowledgment that the market is going to become much more competitive with cogent and trends so far.

David Schaeffer: The final point is, we have had many of the same customers who have placed wavelength orders with us, and we've fulfilled some of those orders, and we've actually said no to some orders. Many of the hyperscalers are building proprietary single-tenant data centers where they want wavelengths. We have refused to deploy capital at a low single-digit return where we would be subject to the monopsony power of that single tenant in that location. So we will not go out and build a specific sole-tenanted facility unless there is sufficient de-risking in the form of upfront payments, higher returns, and also long-term contracts.

David Schaeffer: I'll point to that is we have had many of the same customers who have placed wavelength orders with us we have provisions some of those waters and we've actually said no to Soma waters.

Thaddeus Weed: Contracts, EBIDOT and EBIDOT Margin. We reconcile our EBIDOT to our cash flow from operations in each of our quarterly press releases. Our EBIDOT increased sequentially by 8.7 million and our EBIDOT Margin increased sequentially by 350 basis points to 10.4%. This is EBIDOT Classic. EBIDOT as adjusted and as adjusted margin and as a reminder our EBIDOT as adjusted is adjusted for sprint acquisition costs and cash payments received under the 700 million IP transit services agreement with T-Mobile.

David Schaeffer: Many of the Hyperscale or are building proprietary single tenant data centers, where they won't wavelength services, we have refused to deploy capital at low single digit returns.

David Schaeffer: Where we would be subject to the monopsony power of that.

David Schaeffer: Single tenant in that location. So we will not go out and build to a specific sold tenanted facility unless there is sufficient derisking in the form of upfront payments higher returns.

Thaddeus Weed: We collected 66.7 million under the IP transit services agreement this quarter as was scheduled decline it was 87.5 million under the same agreement last quarter. Our EBIDOT as adjusted was 106.2 million for the quarter and that was a 40.8% margin. We incurred 12.4 million of sprint non-capital acquisition costs this quarter and increased from 9 million last quarter largely due for the end of the severance payments. Included in sprint acquisition costs for the quarter were 8 million of Rennert's severance costs and last quarter included in the 9 million that was 4.3 million.

Speaker Change: And also long term contracts I think what was announced the other day by this competitor was an acceptance of terms that we found on economic.

David Schaeffer: I think, you know, what was announced the other day by this competitor was an acceptance of terms that we found uneconomic. And your next question comes from the line of Greg Williams with TD Cowan. The foundational work that we are doing, starting with a clean sheet of paper, allowed us to build a network on top of the Sprint physical assets that would allow us to provision a wavelength in two weeks without predeploying capital for transponders, which is a very capital inefficient way, based on the number of wave permutations that are possible. Wavelength pricing is determined by two characteristics: the speed of the wavelength, which comes in three speeds. The larger the speed, the more expensive. The second dimension of pricing is the distance traveled.

David Schaeffer: I think, you know, what was announced the other day by this competitor was an acceptance of terms that we found uneconomic. Thank you. And your next question comes from the line of Greg Williams with TD Cowan. Great. Thanks for taking my questions. Dave, just wanted to talk.

David Schaeffer: Okay.

David Schaeffer: Thanks.

Gregory Williams: And your next question comes from the line of Greg Williams with TD Cowan. Your line is open.

David Schaeffer: And your next question comes from the line of Greg Williams with TD Cowen Your line is open.

Greg Williams: Great. Thanks for taking my questions.

Speaker Change: David just wanted to talk about ways and came in a little light at $3 6 million, but you did say it will ramp up early 'twenty, five and youre going to reach the 800 data centers by year end, but we've only got 156 locations. So that you can sell ways too by the end of June and you got a long way to go with less than five months to get to 800, So just help us.

Thaddeus Weed: These severance costs are paid by us but are fully reimbursed by T-Mobile. Under US GAAP the accounting for these severance costs needs to be retroactively reported as an acquired receivable asset and in purchase accounting at closing and that results in an increase to our acquired assets and a corresponding increase to our gain on bargain purchase. Again the total gain after the one-year window for adjustments was 1.4 billion. When we pay the severance to an employee we record this transaction as sprint acquisition costs. When we were reimbursed by T-Mobile the opening balance sheet receivable from T-Mobile is reduced from the cash payment.

Speaker Change: Feel comfortable ramping up to the 800 data centers.

Speaker Change: Part and parcel to that the backlog that you mentioned of 2700 circuit can we apply the <unk> ways of 16, 7% at 27, hundreds or a dollar amount to that backlog is that is that a fair way to do it. Thanks.

David Schaeffer: So two very different questions, Greg. First of all, we are wave-enabled in 574 data centers as of today. We have actually only sold waves in 156 of those 574. Now, the method that we have to use to provision those wavelengths is very cumbersome and similar to the way our competitors provision a waiver. The foundational work that we are doing, starting with a clean sheet of paper, allowed us to build a network on top of the Sprint physical assets that would allow us to provision a wavelength in two weeks without pre-deploying capital for transponders, which is a very capital-inefficient way based on the number of wave permutations that are possible.

Speaker Change: So two very different questions. Greg first of all we are wave enabled and 574 data centers as of today.

Thaddeus Weed: This is the final quarter for these severance reimbursements so this is now behind us.

Speaker Change: We have actually only sold waves and 156 of those 574.

Thaddeus Weed: Foreign currency impact. Our revenue earned outside of the United States is reported in US dollars and was approximately 17% of our revenues for the quarter. About 11% of our revenues were based in Europe and 6% of our revenues were related to our Canadian, Mexican, Oceanic, South American and African operations. The average euro to USD rates so far this quarter is a dollar nine and the average Canadian dollar rate is 73 cents. Should these average rates remain at these current levels we do not expect in material effects impact both sequentially and on a year over a year basis.

David Schaeffer: Now the method that we have to use to provision those wavelengths is very cumbersome and similar to the way our competitors.

David Schaeffer: Vision a wavelength.

David Schaeffer: The foundational work that we are doing starting with a clean sheet of paper allowed us to build a network on top of the sprint physical assets that would allow us to provision a wavelength in two weeks without pre deploy.

Speaker Change: <unk> capital for transponders, which is a very capital efficient way.

Thaddeus Weed: Customer concentration. We believe that our revenue and customer base is not very highly concentrated. Our top 25 customers were about 20% of our revenues for the quarter.

Speaker Change: Just on the number of wave permutations that are possible.

David Schaeffer: So each time we provision a wave today, we take resources away from the network reconfiguration. We will take that $574 and be at all $800 by year end. So we literally have $226 to go, and we're confident we will make that gold.

David Schaeffer: So each time, we provision a wave today we.

Thaddeus Weed: Uncapital expenditures. Our quarterly capital expenditures were 48.8 million in this quarter. We are continuing our network integration of the former sprint network and legacy cogent network into one unified network and converting former sprint switch sides into cogent data. We have accelerated our data center conversion program due to the very high level of demand for our power availability. Our finance lease IRU obligations are for long term dark 5 or leases. Our IRU finance lease obligations were 426.4 million at the end of the quarter.

David Schaeffer: Take resources away from the network reconfiguration work.

Speaker Change: We will take that $5 74 and be at all 800 by year end.

Speaker Change: So we literally have 226 to go and we're confident we will make that goal.

David Schaeffer: Two, we are conducting a number of network modifications internal to the network to allow the provisioning of a wave to occur end-to-end with only two field dispatches compared to the industry average of probably six to eight dispatches, which is similar to the way we have to do it today. And with that, we should be able to rapidly eat into that backlog, but also, hopefully, build an even larger backlog. As customers say, we are able to provide provisioning much faster than our competitors.

David Schaeffer: Two we are conducting a number of network modifications internal to the network to allow provisioning of a wave to occur.

Speaker Change: And to and with only two field dispatches compared to the industry average.

Thaddeus Weed: That was a reduction of 91.1 million from last quarter. It resulted from the early pre-payment at a discount of 114.6 million under the IRU lease, partly offset by replacement IRU route cancellations for new routes of 42.2 million for the quarter. We have a very diverse set of IRU suppliers and we have contracts with 356 dark 5 or 5 or suppliers at the end of the quarter. At quarter end, our cash and cash equivalents and restricted cash totaled 426.2 million of our total, 41.8 million of restricted cash, 35.5 million of that was tied to the swap, and 6.3 million, which is new, was tied to the customer payment processing requirements under our IPv4 notes, debt and debt ratios are total gross debt at par, including our finance lease obligations was 1.9 billion at the end of the quarter and net debt was 1.5 billion.

Speaker Change: Probably six to eight dispatches, which is similar to the way we have to do it today.

David Schaeffer: And.

David Schaeffer: With that we should be able to rapidly eat into that backlog, but also hopefully build an even larger backlog as customers say, we are able to provision much faster than our competitors now.

David Schaeffer: Now to the ARPU question. Wavelength pricing is determined by two characteristics: the speed of the wavelength, which comes in three speeds, tender, 100 gigabit, and 400. The larger the speed, the more expensive. The second dimension of pricing is the distance traversed.

Speaker Change: Now to the <unk> question.

David Schaeffer: <unk> pricing is determined by two characteristics the speed of the wavelength, which comes in three speeds.

David Schaeffer: Ken.

David Schaeffer: 100 gig and 400 K the larger the speed the more expensive the second dimension of pricing.

Bert: Sure Bert if you noticed our <unk> did tick up 2% sequentially in the quarter with a modest number of incremental one.

David Schaeffer: If you notice, our ARPU did tick up 2% sequentially in the quarter, with a modest number of incremental customers continuing to need more connectivity. We are seeing a transition away from 10 gig. 100 gigabit remains dominant, but I think over the next year or two, 400 gigabit will be the dominant form of wavelengths, bringing ARPUs up. And then beyond that, there will be a migration path based on the equipment we've installed to support it.

David Schaeffer: If you notice, our ARPU did tick up 2% sequentially in the quarter with a modest number of incremental increases. However, more of the backlog is skewed towards 100 and 400 gigabit waves than 10 gigabit. That probably means the ARPU of what's in that backlog is slightly larger than the ARPU of the installed base. A big part of our effort is to make sure that we can support all of these speeds across the footprint, as these higher bandwidth applications continue to need more connectivity. We are seeing a transition away from 10 gigabits.

Speaker Change: More of the backlog is skewed towards 104 hundred gig waves than 10 gig that probably means the our pool of what's in that backlog is slightly larger than they are two of the installed base.

Thaddeus Weed: Our total gross debt to last 12 months EBITDA as adjusted ratio was 4.06 at quarter end and net was 3.14. Our consolidated leverage revenue ratio rather as calculated under our notes was 4.5 and our secured leverage ratio as calculated under our note indentures was 2.49.

David Schaeffer: Big part of our effort is to make sure that we can support all of the speeds across the footprint as the higher bandwidth applications continue to need more connectivity.

Thaddeus Weed: So further comments on the swap. We are party to an interest rate swap agreement that modifies our fixed interest rate obligation with our 500 million 2026 notes to a variable interest obligation based on sofa, and that is for the remaining term with these 2026 notes. The fair value of our swap agreement decreased by 9.3 million rather from last quarter and was 35.5 million. Changes in the fair value of the swap agreement are now required to be classified, excuse me, in our public filings with interest expense. As of today, the value of our swap agreement was 30.9 million, so it is declined.

David Schaeffer: We're seeing a transition away from 10 gig 100 gig remains dominant but I think over the next year or two 400 gig will be the dominant form of wavelengths, bringing our push up and then beyond that there will be a migration path based on the equipment.

David Schaeffer: 100 gigabit remains dominant, but I think over the next year or two, 400 gigabit will be the dominant form of wavelengths, bringing ARPUs up. And then beyond that, there will be a migration path based on the equipment we've installed to support 800 and eventually 1.6 terabit waves. You know, the systems that we are deploying are flex spectrum, meaning they're no longer adhering to the ITU grid standards and therefore allow us the flexibility to support these higher throughputs as equipment vendors make them commercially available.

David Schaeffer: We've installed to support.

David Schaeffer: 800 and eventually 1.6 terabit ways. Is there still an opportunity maybe to use some of the Sprint dark fiber to do a similar deal, except on lower terms? The new construction of single-purpose facilities has to be weighed against other uses of our capital.

David Schaeffer: 800, and eventually one six terabits wage.

David Schaeffer: The systems that we are deploying our flex back from meaning they are no longer adhering to the ITU grid standards and therefore allow us the flexibility to support these higher throughput as the equipment vendors make them commercially available.

David Schaeffer: Hopefully that was helpful. Greg.

Thaddeus Weed: Lastly, on bad debt and day sales outstanding, our day sales improved from last quarter and was 26 days versus 27 in last quarter. That debt expense was 2.9 million, 1.1% of revenues that is consistent with our historical performance. And I want to again thank and recognize our worldwide billing and collections team members for continuing to do just a fantastic job, and serving our country customers.

Speaker Change: That was helpful. Thank you.

David Schaeffer: Thanks.

Walter Piecyk: And your next question comes from the line of Walter Piecyk.

Speaker Change: And your next question comes from the line of Walter Piecyk with light shed your line is open.

Walter Piecyk: Excuse me, Dave, thanks for that explanation on the cyber deals. Just maybe as a counter thought on this. I mean, they needed money, right, and they have a free cash flow burn situation. You know, with your TSA payments coming up, your leverage ratio obviously is going to go up, recognizing that maybe it's single-digit returns. Is there still an opportunity, maybe to use some of the Sprint dark fiber to do a similar deal, except for the lower term? But basically, just use it, as you know, to cash in some money. I mean, it's basically just a construction.

Speaker Change: Excuse me.

David Schaeffer: Dave Thanks for that explanation on.

Speaker Change: The fiber deals just just maybe as a counter our thought on this.

Speaker Change: I mean, they needed money right.

Speaker Change: They have a free cash flow burn situation.

Speaker Change: Would your TSA payments coming up your leverage ratio.

David Schaeffer: And with that, I will turn the call back to Dave. Hey, thanks, Ted. I'd like to highlight a few of the strengths of our network, our customer base, and our sales force. In our net-centric business, we continue to see significant traffic growth from our customer base. We're direct beneficiaries of over-the-top video AI activity and streaming. At quarter-end, we have over 1,600 and two carrier-neutral data centers connected to our network and 86 Cogent data centers, bringing our total connected data center for our friend to 1,688.

Speaker Change: Do you see is going to go up recognizing that maybe it's single digit returns.

David Schaeffer: Is there still an opportunity maybe to use some of the sprint dark fiber.

David Schaeffer: Do a similar deal except the lower terms.

Speaker Change: But basically just use it as the cash and some money.

Speaker Change: Basically just a construction type deal right.

David Schaeffer: So, I mean, there's two parts. Sorry, sorry, Dave, just interrupt. Is your thought, I guess, that over some period of time, dark fiber will get used and get higher returns, but then it's like time value in terms of when that may or may not happen in the future? Sorry, go ahead.

Speaker Change: So I mean is this.

Dave: Just your thoughts sorry, Dave just as you thought I guess to that over some period of time at dark fiber will get using and get higher returns within its life time value of in terms of when that may or may not happen in the future sorry go ahead.

David Schaeffer: Yeah, so I think there are two parts to that wall. We are absolutely, willing, and expect to sell dark fiber on the routes that we have, i.e., sell our inventory where the return is infinite because we have a negative cost basis in that fiber. We will do that when we have the resources to allocate to the provision at five.

Speaker Change: Yes, so I think two parts to that wall, we are absolutely willing.

David Schaeffer: Willing and expect to sell dark fiber on the routes that we have I E sell our inventory where the return is infinite because we have a negative cost basis and that fiber alright, we will do that when we have the resources to allocate to the provision that fiber.

David Schaeffer: More than any other carrier globally as measured by third-party independent research. The breadth of our coverage enables our net-centric customers to better optimize their networks and reduce latency. We expect we'll continue to widen this lead in the market and are projected to add over an additional 100 carrier and neutral data centers per year to our network over the next several years. With an extended provisioning cycle, we can sell wavelengths today in 574 locations.

David Schaeffer: The new construction of single-purpose facilities has to be weighed against other uses of our capital. I can't speak to what my competitors' alternatives are; I can speak to what Cogent has, and Cogent has much better places to go to raise cash. You know, we have over a hundred megawatts and a million square feet of surplus data center space. The current market price for that type of asset is about, at one point, about $14 million a megawatt compared to our offering price of $10 million a megawatt.

Speaker Change: The new construction to single purpose facilities has to be weighed against other uses of our capital I can't speak to what my competitors' alternatives are I can't speak to what Cogent has a cogent has much better places to go to Ray.

David Schaeffer: I can't speak to what my competitors' alternatives are, but I can speak to what Cogent has. And Cogent has much better places to go to raise cash. You know, we have over a hundred megawatts and a million square feet of surplus data center space. 1, for about $14 million a megawatt compared to our offering price of $10 million a megawatt. As Thad mentioned, we panned out and did increase our capital spending slightly in the quarter to accelerate the availability of these facilities. Again, to remind everyone, these were not built as data centers. They were built as telephone central offices.

Speaker Change: <unk> cash.

Speaker Change: We have.

David Schaeffer: We are slow to do that because we are focused on the optimization of our network and therefore the shortening of our provisioning cycles across the entire base. By year end 2024, we expect to be able to sell wavelength services in over 800 carrier neutrals in North America with very reduced provisioning intervals. At quarter-end, we directly connected to 8,135 networks. 23 of these networks are peers and 1112 of these networks are Cogent transit customers.

David Schaeffer: Over a 100 megawatts and 1 million square feet of surplus data center space. The current market price for that type of asset is about one point.

David Schaeffer: Four.

David Schaeffer: About $14 million a megawatt.

David Schaeffer: <unk> to our offering price of $10 million a megawatt so rather than go out and accept a very low return construction project. It is better for us to take our resources and capital and sell off some of these data centers that again, we have a negative base.

David Schaeffer: So rather than go out and accept a very low return construction project, it is better for us to take our resources and capital and sell off some of these data centers that, again, we have a negative basis on. As Thad mentioned, we pivoted and did increase our capital spending slightly in the quarter to accelerate the availability of these facilities. Again, to remind everyone, these were not built as data centers. They were built as telephone central offices. Many of them are quite large, but we had to remove the telephone equipment, and we had to condition those spaces to turn them into marketable data centers.

Speaker Change: This is.

Todd: As Todd mentioned.

David Schaeffer: Pivoted and did increase our capital spending slightly in the quarter to accelerate the availability of these facilities again to remind everyone. These were not built data centers that were built as telephone central offices. Many of them are quite large, but we had to remove telephone.

David Schaeffer: This makes Cogent the most interconnected network globally. This collection of ISPs, telephone companies, cable companies and mobile phone operators allow us to reach the vast majority of the world's broadband subscribers and mobile phone users directly. We remain focused on our sales force productivity and efficacy and continue to manage out under performing reps. Our sales force turnover rate was 5.6% per month for the quarter, down from a peak of 8.7% during the height of the pandemic.

Speaker Change: <unk> and we had to condition those spaces to turn them into marketable data centers and we're in discussions now with dozens of counterparties for dozens of locations that is a better way to raise cash we also have our IPV or inventory.

David Schaeffer: And we're in discussions now with dozens of counterparties for dozens of locations. That is a better way to raise cash. We also have our IPV4 inventory. The competitor that you mentioned actually sold off a large portion of their inventory several years ago to raise cash. We did not. We chose not to.

Speaker Change: The competitor that you mentioned actually sold off a large portion of their inventory several years ago to raise cash we did not we chose not to prices continue to appreciate.

David Schaeffer: In line with our average sales force turnover rate, historically a 5.6%. At quarter-end, we had 280 sales people focused exclusively on the net-centric market. 364 sales professionals focused on the corporate market, and 12 sales reps focused on the enterprise space. We remain optimistic about our unique position and serving small and mid-sized businesses and central business districts. We have 1,864 multi-tenant office buildings on net with over 1 billion square feet. We also remain focused on selling to large enterprises and are continuing to grow that business.

David Schaeffer: Prices continue to appreciate. We've demonstrated our ability to raise prices on leasing and to securitize that revenue with a very low cost of capital. You know, the fact that we have $462 million of cash on our balance sheet, we continue to grow our dividend, we buy back our stock, and we are deploying capital as fast as we can in the network gives us the flexibility to say no to low single-digit IRRs. My goal is not to borrow money at 7% to get a 3% return.

Speaker Change: We've demonstrated our ability to raise pricing on leasing and to securitize that revenue with a very low cost of capital.

Speaker Change: Fact that we have $462 million of cash on our balance sheet. We continue to grow our dividend we bought back our stock and we are deploying capital as fast as we can in the network gives us the flexibility to say no to low single digit Irr's My goal is not to.

Speaker Change: Borrow money at 7% to give a 3% return.

David Schaeffer: That's fair. So Dave, that's a good segue to my next question. I mean, first on the data centers. Yeah, you can sell them.

Speaker Change: That's fair so David.

Speaker Change: Good segue to my next question.

Walter Piecyk: But I think you grew on that data centers. And your pace was typically adding carry on neutral data centers. I'm talking about, I think you typically add 100, um a year you seem well ahead of that pace just just curious um you know thought process there and then on the ipv4 uh similar question is you know the growth in the quarter was a little slower than last quarter in terms of the the number of leases obviously you implemented a price increase but is this the type of pace pace to expect on those ip leases and You know, given no sales in the quarter and, you know, you're kind of talking about the least growth there.

Speaker Change: I mean first on the data centers you can fill them, but I think you grew on net data centers in your pace was typically add in carrier neutral data centers I'm talking about I think you typically at 100.

David Schaeffer: We are enthusiastic and optimistic about the addition of optical transport services or wavelengths for our product portfolio and the expansion of our data center footprint. We have a significant backlog and funnel of these wave opportunities at over 2,700 discrete wavelengths. And while we have accentuated provisioning cycles, we hope that with the network reconfiguration work, we can bring these orders installed in much shorter times by year end. We are diligently working to complete the integration of the sprint network and the cogent network and the optimization.

Speaker Change: A year.

Speaker Change: Well ahead of that pace, just just curious.

Speaker Change: Thought process, there and then on the IPV for.

Speaker Change: Similar question is.

Speaker Change: The growth in the quarter was a little lower than last quarter in terms of the number of leases, obviously, you implemented a price increase but as this time.

Speaker Change: Type of pace.

Speaker Change: To expect on those IP leases and.

Speaker Change: Given no sales in the quarter and you're kind of talking about the lease growth there.

Walter Piecyk: Are cells still on the table? Can you give us some update on them? Thoughts on whether that may or may not happen given the current market? Or would you rather add the lease revenue sequentially every quarter?

Speaker Change: Our sales still on the table can you give us some update on on.

David Schaeffer: Thoughts on whether that may or may not happen given the current market, or you would just rather add the lease revenue sequentially every quarter. Thank you. And then on the IPv4, we are still considering selling addresses. You know, we evaluate the market conditions; we know that the two largest buyers are currently leasing addresses at a significant premium to our even increased prices. We also are going to evaluate our ability to raise the existing base. With the average contract length of 1.5 months, we have a great deal of flexibility and raising prices to existing customers versus our cost of capital versus what we can sell those addresses in the marketplace.

Speaker Change: Thoughts on whether that may or may not happen given the current market or you just rather add.

David Schaeffer: We remain optimistic and excited about our ability to create cost savings and generate increasing amounts of cashflow. Based on the differences between monthly cost run rates, if May of 2023 and June of 2024, we have already achieved 135 million of these savings or 62 percent of our targeted 220 million in savings. We purchased 8 million dollars for a common stock at the end of the quarter and still have 22.4 million for additional buybacks if warranted.

David Schaeffer: The lease revenue sequentially every quarter. Thank you.

David Schaeffer: Yes, let me take those in order, Walt. On the data centers, to be honest, it's a reactive process. We operate in 54 countries around the world, and our goal is to get to every carrier neutral in every country. We are licensed.

David Schaeffer: Yes, So let me take those in order Walt on the data centers to be honest, it's a reactive process. We operate in 54 countries around the world and our goal is to get to every carrier neutral in every country. We are licensed in now we measure those base.

David Schaeffer: Now we measure those based on the size of the facility, the quality of the underlying operator, and our cost-effective ability to get to that center. With the rapid influx of capital into the data center market over the past year and continuing, we are seeing a much larger number of data centers come online. So it is likely that for the next year or two, we may do over 100 per year just because there are more being built.

Speaker Change: Just on the size of the facility.

Speaker Change: Quality of the underlying operator, and our cost effective ability to get to that center.

David Schaeffer: With the rapid influx of capital into the data center market over the past year and continuing.

David Schaeffer: We look to continue to monetize our IPv4 addresses, dark fiber and our data center spaces on a wholesale and retail basis. And are going to either sell or enter into long term leases for many of these facilities over the next several years. We remain an active discussion with multiple counter parties for multiple sites.

Speaker Change: We are seeing a much larger number of data centers coming online. So it is likely that for the next year or two we may do over a 100 a year just because there are more being built.

David Schaeffer: And then on the IPv4, we are still considering selling addresses; you know, we evaluate the market conditions; we know that the two largest buyers are currently leasing addresses at a significant premium to our even increased prices. You know, as Thad mentioned, we increased the price from an average of $0.30 an address per month across the base. For new sales, we went to $0.51 per address and saw a very modest reduction in unit volume, but I think that's somewhat temporary.

David Schaeffer: And then on the IPP for we are still considering selling addresses.

Operator: With that, I would like to open the floor for questions. Thank you.

David Schaeffer: We evaluate the market conditions, we know that the two largest buyers are currently leasing addresses.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your hand set and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.

David Schaeffer: At a significant premium to or even increase prices.

David Schaeffer: As Tad mentioned, we increased pricing.

David Schaeffer: From an average of 30 cents and address per month.

David Schaeffer: Cross the base for new sales, we want to 51 cents.

Speaker Change: Per address and saw very modest for adoption.

Sebastiano Petti: And your first question comes from the line of Sebastiano Petty with JP Morgan. Your line is open. Hi, thank you for taking the question. Dave, just starting with EBITDA classic, I mean you realized 62% of the targeted cost savings you just touched on, which is likely to provide a tailwind and you know continue to groom or exit unprofitable contracts. Just help us think about you know expectations for EBITDA classic margin expansion.

Speaker Change: Unit volume and I think that's somewhat temporary.

David Schaeffer: We also are going to evaluate our ability to raise the existing base. With the average contract length of 1.5 months, we have a great deal of flexibility and can raise prices to existing customers. This is a very sticky business with an annual churn rate of 0.8% per year. So we will look at our ability to lease more addresses at a higher rate and the DCF associated with that versus our cost of capital versus what we can sell those addresses for in the marketplace.

David Schaeffer: We also are going to evaluate our ability to raise the existing base with the average contract length of one five months, we have a great deal of flexibility in raising prices to existing customers. This is a very sticky business with an annual churn rate of point <unk>.

Speaker Change: 8% per year.

David Schaeffer: So we will look at our ability to <unk>.

Sebastiano Petti: Is that something maybe we can kind of continue to see here off of the 10.4 in the second quarter of 24? And then relate separately you may have heard that a competitor recently announced dark fiber deals totaling $5 billion. In the past he talked about dark fiber and today is a longer term kind of opportunity perhaps after you stand up and scale the waves opportunity. I guess first are you surprised by that announcement and you know does this in any way change how you're thinking about the speed to market on a dark fiber basis and you know how are your positions maybe get a piece of that action. Thank you. Sure. Hey thanks for both questions Sebastiano.

David Schaeffer: At least more addresses at a higher rate and the DCF associated with that.

David Schaeffer: Versus our cost of capital versus what we can sell those addresses in the marketplace and we are open to adding up those options to help us maximize return to our shareholders. Thanks.

David Schaeffer: And we are open to any of those options to help us maximize return to our shareholders. You know, we've streamlined our sales process for addresses or leasing process and normalized our compensation structure. All of those things, I think, are going to help us see this continue to grow. And while it is only four percent of our total revenues, it did grow at a sequential growth rate of over four percent quarter over quarter. And we?

David Schaeffer: And we are open to any of those options to help us maximize return to our shareholders. Thanks, Walt. Let's get the answer. Oh, I just got a long cue, Walt. I get criticized for running the call, too.

David Schaeffer: Thanks, Paul just a question on the.

Speaker Change: Okay pace, just got long queue wall.

David Schaeffer: Okay.

Speaker Change: Just wanted to ask two.

Walter Piecyk: Your prepared comments, that's the issue. The pace of leasing, is this the typical pace, or is it gonna be up and down? You know, it's with any service, you know, you're going to depend on specific demand in a quarter. But it does appear that the funnel for IP leasing remains very strong. And even with the increase in offering price, we are seeing no real decline in demand.

Speaker Change: Your prepared comments that the issue of the pace of leasing is it. This is the typical pace or is it going to be up and down.

David Schaeffer: So let me take the EBITDA classic question first. We had significant improvement sequentially in that due to the reduction in our S&A as well as cost of goods sold. We understand that the IP transit payments from T-Mobile are continuing to step down. You know in the quarter we had effectively a $20 million reduction in those payments but our EBITDA as adjusted was down only $9 million due to the improvements and the underlying classic EBITDA rate.

David Schaeffer: As with any service.

Speaker Change: Youre going to depend on a specific demand in the quarter, but it does appear that the funnel for IP leasing remains very strong and even with the increase in offering price, we're seeing no real munition and demand.

Speaker Change: Okay. Thank you.

Paul: Thanks, Paul.

Tim Horan: And your next question comes from the line of Tim Horan with Oppenheimer. Your line is open. Thanks, Dave.

Walter Piecyk: Okay, thank you. And your next question comes from the line of Tim Horan with Oppenheimer. Your line is open. Thanks, Dave. Just following up on Walt, would you raise prices on the legacy base and, you know, maybe timing it, or, you know, if so, why not for the IP?

Speaker Change: And your next question comes from the line of Tim Horan with Oppenheimer. Your line is open.

Speaker Change: Well I think Steve just following up on what would you raise prices on the legacy base and maybe timing or if so why not to the IPP for dresses and then secondly, it looks like alumina is talking about are substantially larger market.

David Schaeffer: We expect that trend to continue. We understand that in the third quarter we will only be receiving three of the $8.3 million payments. So we have effectively another $40 million of headwind to EBITDA as adjusted. We will continue to see improvement in EBITDA classic the underlying cost due to these grooming and cost synergy programs probably at a similar pace to what we saw from Q1 to Q2 and I think you'll see that similar pacing Q2 to 3 and even 3 to 4 and continuing on. As we add wavelength revenue which carries very high contribution margins we'll see a further acceleration in the EBITDA classic number due to the fact that those wavelength services are virtually all on net.

David Schaeffer: <unk> 7 billion or so or more.

Speaker Change: For the <unk> well.

Speaker Change: The wavelength market broadly speaking do you think the market is that large and they're also talking about.

David Schaeffer: Doubling into locations that go to in a much better platform.

David Schaeffer: Provision services.

Speaker Change: Are you worried that maybe they will be a better competitor are you seeing them lower prices or quality of fruit there. Thank you.

David Schaeffer: Yeah, so let me take the IPV41 first, Tim. You know, we absolutely intend to raise prices on the installed base. We will be doing that later this quarter for a portion of the base and measuring the impact on churn. We will continue to monitor the market for the sale of addresses, and that is definitely not off the table. The goal is to sell at the highest price possible, and I think there is a likelihood that prices will go up.

David Schaeffer: Yeah. So let me take the IPV four one first Tim.

David Schaeffer: We absolutely intend to raise prices on the installed base, we will be doing that later this quarter for a portion of the base and measure the impact on churn.

David Schaeffer: We will continue to monitor the market for the sale of addresses and that is definitely not off the table. The goal is to sell at the highest price possible and I think there is the likelihood that prices will go up and then.

David Schaeffer: And then, finally, on IPV4 pricing, it's not clear to us that the increase that we put in place now will be the last increase. As the resource continues to increase in scarcity, we intend to adjust prices to maximize return on our inventory. You know, we've streamlined our sales process for addresses, our leasing process, and normalized our compensation structure.

David Schaeffer: And now that's probably a decent transition into the second question. You know we have been very clear about our targeted market for wavelengths and our strategy of being very aggressive in gaining market share. We think we have a number of competitive advantages whether it be ubiquity speed or provisioning or reliability once installed and uniqueness of routes. I actually think what was announced by our competitor was more of a defensive action as a result to our entry into the market.

David Schaeffer: Finally on IPV floor pricing, it's not clear to us that the increase that we've put in place now will be the last increase as they've resource continues to increase and scarcity, we intend to adjust price to maximize return on our inventory.

David Schaeffer: We've streamlined our sales process of addresses our leasing process and normalized our compensation structure. All of those things I think are going to help us see this continue to grow and while it is only 4% of our total revenues it did grow at all.

David Schaeffer: All of those things, I think, are going to help us see this continue to grow. And while it is only 4% of our total revenues, it did grow at a sequential growth rate of over 4%, quarter over quarter. Now to the wavelength market. There are both wavelengths and dark fiber, and there is some fungibility.

David Schaeffer: The sequential growth rate of over 4% quarter over quarter.

David Schaeffer: That particular competitor had been very reluctant to sell dark fiber. In fact, on multiple occasions regretted the fact that it had sold 12,900 miles of dark fiber to Cogent, enabling a competitor. We, in fact, intend to give that fiber back as we migrate off of that fiber and onto the facilities we acquired from Sprint. We also know that we have excess capacity on our network for dark fiber. Now, we will sell dark fiber.

Speaker Change: Now to the wavelength market.

David Schaeffer: No.

Speaker Change: There is both wavelengths dark fiber and there is some fungibility for a whole lot of customers dark fiber makes no sense because of the upfront capital and the ongoing operational support expense all for others. It may make sense.

David Schaeffer: For a lot of customers, dark fiber makes no sense because of the upfront capital and the ongoing operational support and expense. For others, it may make sense. You know, the global wavelength market is 7 billion, as measured by third parties. Unfortunately, Lumen is only in North America, so they can't participate in 3.5 billion because it's outside of North America.

David Schaeffer: The global wavelength market is $7 billion.

Speaker Change: As measured by third parties. Unfortunately lumen is only in North America. So they can't participate and $3 5 billion. It's outside of North America, and then that includes both metro and long haul.

David Schaeffer: I think we do have a significant opportunity. I think our routes are unique. But we have been reluctant to do so until we have done the wave enablement of our network. The competitor, I think you mentioned, derives a significant portion of its cash flow from wavelengths. They dominate the wavelength market. And I think their change in position and willingness to sell dark fiber was a direct result to maybe the acknowledgement that the market is going to become much more competitive with Cogent's entrance.

David Schaeffer: And then that includes both metro and long haul. You know, we are going to have more locations that are WAVE enabled, and anyone else. We'll continue to add them to follow up on Walt's question about data center additions. Any data center in North America, so that means Mexico, Canada, and the U.S. that we add, we will make WAVE enabled from day one.

David Schaeffer: We are going to have more locations wave enabled.

Walter: Than anyone else, we will continue to add them to follow up on Walter's question about data center additions any data center in North America, So that means Mexico.

Speaker Change: Canada and the U S that we add we will make wave enabled from day one.

David Schaeffer: And we welcome competition. You know, in the transit business, will we become the dominant player globally with 25% of the world's traffic? We competed in a market with 200 players. And, in fact, the competitor you mentioned was the dominant player that we displaced to be the largest player. You know, listen. I wish I could wake up one day and be a monopolist. But I'm not.

David Schaeffer: And we.

Speaker Change: Welcome competition.

Speaker Change: Transient business, where we become the dominant player globally with 25% of the world's traffic. We competed in a market with 200 players and in fact the competitor you mentioned was the dominant player that we displaced to be the orange is supplier.

David Schaeffer: The final point to that is we have had many of the same customers who have placed wavelength orders with us, we've provisioned some of those orders, and we've actually said no to some of the waters. Many of the hyperscalers are building proprietary single-tenant data centers where they want wavelength services. We have refused to deploy capital at low single-digit returns where we would be subject to the monopsony power of that single tenant in that location.

David Schaeffer: Allison.

Speaker Change: Wish I could wake up one day and be monopolist Im not yes.

David Schaeffer: You know, I welcome the fact that we have to win customers every day on the value that we deliver, and I am quite confident that Cogent will have a better value proposition than any of our competitors. And if that means being more aggressive on wave pricing, that is absolutely something we are prepared and expect to be able to do. We are going to grow that business and generate that incremental revenue. Yeah, yeah, I guess they're doing well. They're saying there's a potential of like 5 billion locked up, but another 7 billion.

Speaker Change: I welcome. The fact that we have to win customers every day on the value that we deliver and I.

Speaker Change: Im quite confident that cogent will have a better value proposition than any of our competitors and if that means being more aggressive on pricing that is absolutely something we are prepared and expect to be able to do.

David Schaeffer: We are going to important that business to generate that incremental revenue.

David Schaeffer: So we will not go out and build to a specific sole-tenant facility unless there is sufficient derisking in the form of upfront payments, higher returns, and also long-term contracts. I think what was announced the other day by this competitor was an acceptance of terms that we found on economic. Thank you.

David Schaeffer: So 12 billion total, I guess it's at a high level. Do you think the market maybe is much larger, growing much faster than maybe what you thought a year ago because of AI? I think it's... It probably is somewhat larger, but a big part of what they're referencing is new construction projects, meaning building fiber to facilities that have never had fiber before. How big the recurring revenue opportunity is in those facilities is yet to be figured out.

Speaker Change: Yes, yes, I guess, they're what they're seeing that as a potential 5 billion locked up but another 712 billion total I guess just at a high level do you think the market maybe as much larger growing much faster than maybe what you thought a year ago because of AI.

David Schaeffer: I think it's.

Speaker Change: It probably is somewhat larger but a big part of what they're referencing is new construction projects, meaning building fiber to facilities that never had fiber before.

Speaker Change: How big the recurring revenue opportunity is in those facilities is yet to be figured out.

Speaker Change: Thank you.

Operator: Thanks for taking my questions.

Frank Louthan: And your next question comes from the line of Frank Louthan with Raymond James. Your line is open. Thank you.

David Schaeffer: And your next question comes from the line of Frank Louthan with Raymond James. Yeah, so in terms of conduit, we do not have spare conduit. The Sprint network was built with direct buried fiber in an armor jacket, typically six feet below grade versus conduit networks in plastic that are generally along public highway right of way, two feet below grade.

David Schaeffer: Thank you. And your next question comes from the line of Frank Louthan with Raymond James. Great. Thanks, Dave. A couple of questions.

David Schaeffer: And your next question comes from the line of Frank Louthan with Raymond James Your line is open.

David Schaeffer: I just wanted to talk about ways. [inaudible] So two very different questions, Greg. First of all, we are wave enabled in 574 data centers as of today. We have actually only sold waves in 156 of those 574. Now, the method that we have to use to provision those wavelengths is very cumbersome and similar to the way our competitors in provision a wavelength.

Frank Louthan: Great. Thanks, Dave a couple of questions do you.

Frank Louthan: I think I know the answer but just wanted to check so looking at your network did do you have do you have spare conduit in Gmg network that you could sell.

Speaker Change: That would possibly compete with some of these some of these deals and then going forward. Once you have all of the buildings configured and so forth and you're set for selling waves. What do you think is a reasonable quarterly run rate for that business once it gets up to speed.

Frank Louthan: Yeah, so in terms of conduit, we do not have spare conduit. The Sprint network was built with direct buried fiber in an armor jacket, typically six feet below grade versus conduit networks in plastic that are generally along public highway right of way, two feet below grade. As a result, we have had 50% fewer splices per mile than other networks, even though our network is a decade older. That gives us better loss and better throughput.

Speaker Change: Yes, so <unk> and.

David Schaeffer: In terms of conduit, we do not have spare conduits.

David Schaeffer: Sprint network was built with direct buried fiber and armor jackets, typically six feet below grade versus conduit networks and plastic that are generally all public highway right of way two feet below grade as it were.

David Schaeffer: Result, we have had 50% fewer spices per mile than those other networks, even though the network is a decade older that gives us better loss and better throughput.

David Schaeffer: As a result, we have had 50% fewer splices per mile than those other networks, even though our network is a decade older. That gives us better loss and better throughput. Now, in terms of, you know, the run rate for our wave growth. We will be generating $500 million in WAVE revenue. We believe that is absolutely a realistic target out of the $2 billion addressable market that we referenced.

David Schaeffer: The foundational work that we are doing starting with a clean sheet of paper allowed us to build a network on top of the sprint physical assets that would allow us to provision a wavelength in two weeks without pre-deploying capital for transponders, which is a very capital and efficient way based on the number of wave permutations that are possible. So each time we provision a wave today, we take resources away from the network reconfiguration work.

David Schaeffer: We absolutely have fiber to sell, not conduits, and the fiber that we have is capable of supporting all of the coherent technology for 100, 400, and even 800 1.6-terabit wavelengths when that becomes the de facto standard. Now, in terms of, you know, the run rate for our wave growth. We have said that it will be from five years from acquisition, so that would be by May of 2028. We will be generating $500 million in WAVE revenue.

Speaker Change: Absolutely have fiber to cell not conduits and the fiber that we have is capable of supporting all of the coherent technology 400, 400, and even 801 six terabits wavelengths.

David Schaeffer: When that becomes the de facto standard.

David Schaeffer: Now in terms of.

David Schaeffer: The run rate for our wave growth.

David Schaeffer: We have said that from five years from acquisition should that would be by May of 'twenty 28, we will be generating $500 million and wave revenues, we believe that is apt.

David Schaeffer: We will take that 574 and be at all 800 by year end. So we literally have 226 to go and we're confident we will make that goal to we are conducting a number of network modifications internal to the network to allow provisioning of a wave to occur and to end with only two field dispatches compared to the industry average of probably six to eight dispatches, which is similar to the way we have to do it today. And with that we should be able to rapidly eat into that backlog but also hopefully build an even larger backlog as customers say we are able to provision much faster than our competitors.

David Schaeffer: We believe that is absolutely a realistic target out of the $2 billion addressable market that we referenced, and to Tim's point, maybe we undersized that market a little bit, but we feel quite confident that we will get there. And I think once we have normalized our provisioning and our footprint is complete, that growth rate should be fairly linear.

Tim: <unk>, a realistic target out of the $2 billion addressable market that we referenced and to Tim's point, maybe we undersized that market a little bit, but we feel quite confident that we will get there and I think once we have normalized our.

David Schaeffer: And to Tim's point, maybe we undersized that market a little bit, but we feel quite confident that we will get there. And I think once we have normalized our provisioning and our footprint is complete, that growth rate should be fairly linear. Hey, Jim, well, first of all, welcome to Cogent. Welcome to coverage with us.

Jim: <unk> and our footprint is complete.

Jim: That growth rate should be fairly linear.

Jim: Okay, great. Thank you.

Jim: Hey, Thanks Frank.

Jim Schneider: And your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.

Speaker Change: And your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.

Jim Schneider: Good morning. Thanks for taking my question. Dave, I wanted to sort of ask you, you know, you're on the cost control side, delivering very strong cost controls on some of the data center transitions and other things. Maybe, can you quantify for us how much more there is to go on this? Any other buckets of cost takeout there may be? But more importantly, with those cost takeouts, is that sufficient to potentially get you to an EBITDA non-classic or with the sprint payments in 2025? With a growth situation.

Jim: Good morning, Thanks for taking my question.

David Schaeffer: Now to the RPU question, wavelength pricing is determined by two characteristics, the speed of the wavelength which comes in three speeds, 10 gig, 100 gig, and 400 gig, the larger the speed, the more expensive, the second dimension of pricing is the distance traversed. If you noticed our RPU did check up two percent sequentially in a quarter with a modest number of incremental waves. More of the backlog is skewed towards 100 and 400 gig waves than 10 gig.

Jim: I wanted to sort of ask you on the cost control side, delivering very strong cost controls on some of the data or data center transitions and other things maybe could you quantify for us how.

Speaker Change: Much more there is to go on this any other buckets of cost take out there may be but more importantly.

Jim: With those cost take outs is that sufficient to potentially get you to an EBITDA.

Jim: Non classic or with the sprint payments growth situation in 2025.

David Schaeffer: Hey, Jim, well, first of all, welcome to Cogent. Welcome to coverage with us. And thanks for your question.

David Schaeffer: And thanks for your question. We absolutely have significantly more cost savings to achieve. We have a combination of non-core services, low-margin revenue services, and then additional GNA savings. Thanks. And maybe a second one, at the risk of piling on waves and drug fiber, but maybe one to just get your sense, can you maybe kind of characterize for us your view on how many and which routes that Cogent has that are unique relative to your competitors, and maybe say something about whether your competitor has any routes which you believe are particularly unique, and how you sort of think about the future landscape of additional deals that could transpire. Thanks. Yeah, so.

Speaker Change: Hey, Jim well first of all welcome to Cogent and welcome to coverage with Us and thanks for your question. So we absolutely have significantly more cost savings to achieve we have a combination of non core services.

David Schaeffer: That probably means the RPU of what's in that backlog is slightly larger than the RPU of the installed base. A big part of our effort is to make sure that we can support all of these speeds across the footprint as these higher bandwidth applications continue to need more connectivity. We are seeing a transitional wave from 10 gig. 100 gig remains dominant, but I think over the next year or two, 400 gig will be the dominant form of wavelengths bringing RPUs up.

David Schaeffer: So we absolutely have significantly more cost savings to achieve. We have a combination of non-core services, low-margin revenue services, and then additional GNA savings. We also understand that the T-Mobile payments which were meant to bridge this period of maximum burn are stepping down. We will now be at a run rate for the next 41 quarters or 41 months, excuse me, at a lower rate of $8.3 million per month. With that, we absolutely will be in a position in 2025 when we're on an apples-to-apples basis, so we're looking at quarters where we have three monthly payments of $8.3 million in 24 versus 3 in 25, so it'll be Q3.

David Schaeffer: Low margin revenue services, and then additional G&A savings. We also understand that the T. Mobile payments were meant to bridge. This period of maximum burn are stepping down we will.

Speaker Change: Now be at a run rate for the next 41 quarters or 41 months excuse me at.

Speaker Change: At the lower rate of 8.3 million per month.

David Schaeffer: With that we absolutely will be in a position in 2025.

David Schaeffer: Beyond that, there will be a migration path based on the equipment we've installed to support 800 and eventually 1.6 terabyte waves. The systems that we are deploying are flexed back from meaning they are no longer adhering to the ITU grid standards and therefore allow us the flexibility to support these higher throughput as the equipment vendors make them commercially available.

Speaker Change: When we're on an apples to apples basis. So were looking at quarters, where we have three monthly payments of $8 3 million and 24 versus three and 25. So it will be Q3.

David Schaeffer: At $8.3 million, that EBITDA will be growing, and we expect that growth to continue. So, yes, EBITDA will step down in the remainder of 24 due to these lower payments because EBITDA is adjusted now, you know, to the earlier question, or EBITDA Classic will continue to improve, but that improvement will not fully offset that step down from $87 million down to $25 million, but after we normalize to that rate, we absolutely will be in a positive EBITDA growth number, and we've achieved only 62% of the targeted 2 I think there are some additional savings opportunities that, you know, we'll be able to talk about in the quarters to come.

Speaker Change: At the $8 3 million that EBITDA will be growing and we expect that growth to.

Speaker Change: Can you so yes, EBITDA will step down and the remainder of 'twenty four due to these lower payments because EBITDA as adjusted now.

Walter Piecyk: And your next question comes from the line of Walter Piecyk with Light Shed. Your line is open. Excuse me, Dave. Thanks for that explanation on the fiber deals. Just maybe as a counterthought on this. I mean, they needed money, right? You know, they have a free cashflow burn situation. You know, with your KSA payments coming up, your leverage ratio, obviously is going to go up, recognizing that maybe it's single digit returns.

David Schaeffer: To the earlier question, our EBITDA classic will continue to improve.

David Schaeffer: But that improvement will not fully offset that step down from $87 million down to $25 million, but absolutely normalized to that great. We absolutely will be in a positive.

David Schaeffer: EBITDA growth number and we've achieved only 62% of the targeted 220 and savings and our belief at this time is that $2 20 will eventually go up I think there are some additional savings opportunities that we'll be able to talk.

Walter Piecyk: Is there still an opportunity maybe to use some of the sprint dark fiber to do a similar deal, except the lower terms. But basically just use it as, you know, the cash and some money. I mean, it's basically just a construction type deal, right? So, I mean, is your thought, I guess that over at some period of time that dark fiber will get using it higher returns. But then it's like time value in terms of when that may or may not happen in the future.

David Schaeffer: About in the quarters to come.

David Schaeffer: Thanks. And maybe a second one, at the risk of piling on to waves and drug fiber, but maybe one to just get your sense. Can you maybe kind of characterize for us your view on how many and which routes that Cogent has that are unique relative to your competitors and maybe say something about whether your competitors have any routes which you believe are particularly unique and if you sort of think about the future landscape of additional deals that could transpire. Yeah, so.

David Schaeffer: Thanks, and maybe a second one at the risk of piling on on waves and drug fiber, but maybe wanted to get your sense can you maybe kind of characterize for us your view on.

Walter Piecyk: Sorry, go ahead. Yeah, so I think two parts to that wall, we are absolutely willing and expect to sell dark fiber on the routes that we have. IE saw our inventory where the return is infinite because we have a negative cost basis in that fiber. We will do that when we have the resources to allocate to the provision at fiber. The new construction to single purpose facilities has to be weighed against other uses of our capital.

David Schaeffer: How many and which routes that cogent has are unique relative to your competitors and maybe say something about whether your competitor has any routes, which you believe are particularly unique.

David Schaeffer: Sort of think about the future landscape of additional deals are good to go.

David Schaeffer: Transpire.

Speaker Change: Yeah. So.

David Schaeffer: We and our competitors, multiple competitors, serve all of the key North American markets, roughly a hundred cities. I think, you know, there's at least three or four dark fiber routes between those cities. Now, 90% of the sprint routes have no other fiber on them. They were built along these unique railroad right-of-ways.

David Schaeffer: We and our competitors, multiple competitors, serve all of the key North American markets, roughly 100 cities. I think, you know, there's at least three or four dark fiber routes between those cities. Now, 90% of the Sprint routes have no other fiber on them. They were built along these unique railroad right-of-ways. There may be a parallel path along a public highway, along a pipeline. Uh, generally speaking.

Speaker Change: We and our competitor tours multiple competitors serve all of the key North American markets roughly a 100.

Walter Piecyk: I can't speak to what my competitors alternatives are. I can't speak to what cogent has. And cogent has much better places to go to raise cash. You know, we have over a hundred megawatts and a million square feet of surplus data center space. The current market price for that type of asset is about 1.4 or about $14 million a megawatt compared to our offering price of $10 million a megawatt. Rather than go out and accept a very low return construction project, it is better for us to take our resources in capital and sell off some of these data centers that again we have a negative basis in.

David Schaeffer: Cities.

Speaker Change: I think yes, there is.

David Schaeffer: At least three or four dark fiber routes between those cities now 90% of the sprint routes have no other fiber on them. They were built along these unique railroad right of ways there may be a parallel path.

David Schaeffer: There may be a parallel path along a public highway, along a pipeline. Generally, most of our competitors build their fiber or did build their fiber differently along public highway right-of-way, shorter burial distances, and in plastic conduit. The conduit absolutely gives you the flexibility to add more. And your next question comes from the line of Nick Deldeo with Moffitt Nathanson. Your line is open.

David Schaeffer: Along with public highway along a pipeline.

David Schaeffer: Generally most of our competitors build their fiber or did built their fiber differently public highway right of way lower.

David Schaeffer: Most of our competitors build their fiber or did build their fiber differently along public highway right of way, shorter burial distances, and in plastic conduit. The conduit absolutely gives you the flexibility to add more. But, you know, if you pick two cities, just put two pins on a map, and I'm gonna just pick two random ones, say Phoenix to Cleveland. Cogent would have a unique route, but you could also buy a different route from Azeo Earl Newman to connect those two cities. Now, it's more likely than not that maybe the other two are not on a unique right of way, but we're all three of us going to be able to serve those two cities.

David Schaeffer: Burial distances and in plastic Congo conduit, absolutely gives us the flexibility to add more.

David Schaeffer: But.

Speaker Change: If you pick two cities just put two pins in the map I would just put two random say Phoenix to Cleveland.

Speaker Change: Cogent would have a unique route but you can also buy a different route.

Walter Piecyk: As Ted mentioned, we pivoted and did increase our capital spending slightly in the quarter to accelerate the availability of these facilities. Again, to remind everyone, these were not built as data centers, they were built as telephone central offices. Many of them are quite large, but we had to remove telephone equipment and we had to condition those spaces to turn them into marketable data centers. And we're in discussions now with dozens of counter parties for dozens of locations.

Speaker Change: Seo or alumina to connect those two cities now it's more likely than not that may be the other two are not on a unique right of way, but where all three of us going to be able to serve those two city pairs.

Nick DelDeo: Thank you.

Nick DelDeo: Thanks, Jim.

David Schaeffer: Okay.

Nick DelDeo: And your next question comes from the line of Nick Deldeo with Moffitt Nathanson. Your line is open.

David Schaeffer: And your next question comes from the line of Nick del Deo with Moffett Nathanson. Your line is open.

Nick DelDeo: Hey, good morning, guys. Thanks for the questions and I appreciate all the detail on this call. I guess first, you gave us a little color on some of the revenue and connection declines in your prepared remarks, but I was hoping you could dig a little bit into the corporate trend specifically. I'm just trying to tease out how much of that was a function of, you know, kind of bad Sprint revenue and connections rolling off versus what's happening with better Sprint corporate connections and classic Cogent corporate connections.

Nick DelDeo: Hey, good morning, guys. Thanks for the questions and I appreciate all the detail on this call.

Walter Piecyk: That is a better way to raise cash. We also have our IPv4 inventory. The competitor that you mentioned actually sold off a large portion of their inventory several years ago to raise cash. We did not. We chose not to. Prices continue to appreciate. We've demonstrated our ability to raise pricing on leasing and to secure ties that revenue with a very low cost of capital. You know, the fact that we have $462 million of cash on our balance sheet, we continue to grow our dividend, we buy back our stock and we are deploying capital as fast as we can in the network, gives us the flexibility to say no to low single-digit IRRs.

Nick DelDeo: I guess first you gave us a little color on some of the revenue in connection declines in your prepared remarks.

Nick DelDeo: But I was hoping you could dig a little bit into the corporate trend specifically I'm.

Nick DelDeo: I'm just trying to tease out how much of that was a function of kind of bad sprint revenue.

Nick DelDeo: Connections rolling off versus what's happening with better sprint corporate connections and classic cogent corporate connections.

David Schaeffer: Yeah, so thanks for your question, Nick. First of all, our net revenues grew sequentially in the quarter. Even though our net-centric revenue growth actually declined slightly in the quarter, so we grew on net corporate revenue, that was both kind of traditional Cogent business as well as Sprint business that we migrated from OffNet to OnNet. You know, there are three buckets of revenue that we acquired from Sprint that are not desirable. We have an easy fix for one of those three; that is, traffic that is in buildings that were off-net to Sprint that are on-net to Cogent.

Nick DelDeo: Yeah. So thanks for your question Nick first of all our on net revenues grew sequentially in the corner.

David Schaeffer: Even though our net-centric revenue growth actually declined slightly in the quarter, so we grew on net corporate revenue, which was both kind of traditional Cogent business as well as Sprint business that we migrated from OffNet to OnNet, that is traffic that is in buildings that were off-net to Sprint that are on-net to Cogent. And we're rapidly migrating those customers as those tail circuit contracts mature. And in the final bucket are Ofnat, Sprint, Acquire, and Sarkis.

Speaker Change: Even though our netcentric revenue growth actually declined slightly in the quarter. So we grew on net corporate revenues that was both kind of traditional cogent business.

Walter Piecyk: My goal is not to borrow money at 7% to give a 3%, Richard. That's fair. So, Dave, that's a good segue to my next question. I mean, first on the data centers, yeah, you can sell them, but I think you grew on that data centers. And your pace was typically adding carry on neutral data centers. I think you typically add 100, and a year. You seem well ahead of that page, just curious thought process there.

David Schaeffer: As well as sprint business that we migrated from off net to on net.

David Schaeffer: And we're rapidly migrating those customers as those tail circuit contracts mature. We also have non-core products that we absolutely want to end their life cycle as quickly as possible. And you saw our run rate on those products decline by about $2 million sequentially. But there's still, you know, over four million a quarter in that non-core revenue bucket that really needs to go to zero and help us improve margin. And in the final bucket are OffNet Sprint Acquired circuits that are not prof, and it's because they're very low speed; they may have been delivered over a suboptimal media, coax, Twisted Pair, in some cases, or Fetched Wireless; we're migrating to Fiber, and we're upping those speeds. Some of that revenue will go away. Most of it will actually transition to a fiber solution.

David Schaeffer: There are three buckets of revenue that we acquired from sprint that are not desirable.

David Schaeffer: We have an easy fix for one of those three.

Walter Piecyk: And then on the IPV4 similar question, the growth in the quarter was a little slower than last quarter in terms of the number of leases. Obviously, you implemented a price increase. But is this type of pace to expect on those IP leases and, you know, given no sales in the quarter and, you know, you're kind of talking about the lease growth there. Our sales still on the table. Can you give us some update on thoughts on whether that may or may not happen given the current marketer.

David Schaeffer: That is traffic that is in buildings that were off net to spreads that are on net to cogent and we're rapidly migrating those customers as those tales circuit contracts mature.

David Schaeffer: We also have non core products.

David Schaeffer: That we absolutely want to end of life as quickly as possible.

David Schaeffer: You saw our run rate on those products declined by about $2 million sequentially.

Walter Piecyk: You just rather add the lease revenue sequentially every quarter. Thank you. Yeah, so let me take those in order, Walt, on the data centers, to be honest, it's a reactive process. We operate in 54 countries around the world. And our goal is to get to every carrier neutral in every country we are licensed in. Now, we measure those based on the size of the facility, the quality of the underlying operator and our cost effective ability to get to that center.

David Schaeffer: Still.

David Schaeffer: Over $4 million a quarter in that noncore revenue bucket that really needs to go to zero and help us improve margins.

David Schaeffer: And then the final bucket are offset sprint acquired circuits that are not profitable.

David Schaeffer: And it's because they are very low speed. They may have been delivered over a suboptimal media coax twisted pair or in some cases or fetch wireless we're migrating to fiber and we're upping those speeds.

Walter Piecyk: With the rapid influx of capital into the data center market over the past year and continuing, we are seeing a much larger number of data centers coming online. So it is likely that for the next year or two, we may do over a hundred a year just because there are more being built. And then on the IPv4, we are still considering selling addresses. Of, you know, we evaluate the market conditions. We know that the two largest buyers are currently releasing addresses at a significant premium to our even increased places.

David Schaeffer: Twisted Pair, in some cases, or Fetched Wireless, we're migrating to fiber, and we're upping those speeds. Some of that revenue will go away, but most of it will actually transition to a fiber solution.

David Schaeffer: Some of that revenue will go away most of it will actually transition to a fiber solution.

David Schaeffer: So as we look at the corporate decline, it was really bad business that we are minushing off intentionally, and the good business is growing. And that, I think, is part of the way that we achieve that sequential improvement of over 250 basis points and cost of goods sold is by getting rid of that low-margin, off-net business, as well as encore.

David Schaeffer: So as we look at the corporate decline.

David Schaeffer: It was really bad business, which we are minushing off intentionally, and the good business is growing. And that, I think, is part of the way that we achieve that sequential improvement. OK, OK, that'll make sense. And one other question on costs and EBITDA. Obviously, we have made good progress there. Again, we've talked in the past about there being a fair bit of integration costs, lease exit costs, lease remediation costs, and so on that you're not specifically breaking out of EBITDA and that probably suppress the reported number versus what the real underlying results are.

David Schaeffer: It was really bad business that we are managing all intentionally and the good business is growing and that I think is part of the way that we achieve that sequential improvement.

Speaker Change: With over 250 basis points and cost of goods sold is by getting rid of that low margin off net business as well as non core.

Walter Piecyk: You know, as Ted mentioned, we increased pricing from an average of 30 cents an address per month across the base for new sales. We went to 51 cents per address and saw a very modest reduction in unit volume. And I think that's somewhat temporary. We also are going to evaluate our ability to raise the existing base with the average contract length of 1.5 months. We have a great deal of flexibility and raising prices to existing customers.

David Schaeffer: Okay, okay, that'll make sense. And, you know, one other question on costs and EBITDA. Obviously, good progress there. Again, we've talked in the past about, you know, there being a fair bit of integration costs, lease exit costs, lease remediation costs, and so on that you're not specifically breaking out of EBITDA that probably suppress the reported number versus what the kind of real underlying results are. I guess, could you update us on that and how we should think about that progressing in future quarters?

David Schaeffer: Okay, Okay that will make sense.

David Schaeffer: And one other question on.

Speaker Change: Cost and EBITDA obviously.

Speaker Change: Good progress there.

David Schaeffer: I think we've talked in the past about there being a fair bit of integration cost lease exit costs lease remediation costs and so on that you are not specifically breaking out of EBITDA that probably suppressed.

Speaker Change: The reported number versus what the kind of real underlying results or I guess could you update us on that and how we should think about that progressing in future quarters.

David Schaeffer: I guess, could you update us on that? And how should we think about that progressing in future quarters? I think it overly complicates our account.

David Schaeffer: Yeah, and, you know, for the past 15 months since the acquisition... We've been spending about $5 million a month on OPEX related to integration projects. We do not break that out separately. We do not add it back to EBITDA because we had the added complexity of the T-Mobile ad back and did not want to, I think, overly complicate our account.

Speaker Change: Yes, and yes.

David Schaeffer: For the past 15 months since the acquisition.

Walter Piecyk: This is a very sticky business with an annual turn rate of 0.8% per year. So we will look at our ability to lease more addresses at a higher rate and the DCF associated with that versus our cost of capital versus what we can sell those addresses in the marketplace. And we are open to any of those options to help us maximize return to our shareholder. Thanks, Walter. Just a question on the pace.

Speaker Change: We've been spending about $5 million a month on opex related to integration projects, we do not break that out separately, we did not add back to EBITDA, because we had the added complexity of the T mobile add back and did not.

Speaker Change: Want to.

David Schaeffer: I think overly complicate our accounting.

David Schaeffer: We anticipate that $5 million a month crag on epidog to be a three-year track. That was what we said it would take us to go from the negative 190 of acquired EBITDA to, if you just looked at those customers, about 85 to 90 million of positive EBITDA. You know, I think we are on track to do that. But I think that drag will continue. You know, beyond this year and then, you know, well into next year, but it will start to taper off. We are ahead of schedule in terms of taking costs out, which gives us the ability to turn off some of that extraordinary expense sooner.

Speaker Change: We anticipate that $5 million a month.

Speaker Change: Lag on EBITDA to be a three year track that was what we said it would take us to go from the negative 190 of acquired EBITDA.

Walter Piecyk: Oh, I just got a long cue, Walter. You're prepared comments. That's the issue of the pace of leasing. Is it the typical pace or is it going to be up and down? You know, it's with any service, you know, you're going to depend on a specific demand in the quarter, but it does appear that the funnel for IP leasing remains very strong. And even with the increase in offering price, we are seeing no real diminishing in demand. Okay, thank you. Thanks, Walter.

Speaker Change: If you just looked at those customers about $85 million to $90 million of positive EBITDA.

David Schaeffer: I think we are on track to do that I think that drag will continue.

Speaker Change: Beyond this year, and then well into next year.

Speaker Change: But it will start to taper off we are ahead of schedule in terms of taking cost out which gives us the ability to turn off some of that extraordinary expense sooner.

David Schaeffer: And your next question comes from the line of Tim Horan with Oppenheimer. Your line is open.

Timothy Horan: I think they've just followed me up the wall. Would you raise prices on the legacy base and, you know, maybe timing it or, you know, if so, you know, why not for the IPV for addresses. And then secondly, it looks like Lumen is talking about a substantially larger market. I think they're referencing $7 billion or so or more for the IP, well, the wavelength market broadly speaking. Do you think the market is that large?

David Schaeffer: Okay, great. Thanks, Dave.

David Schaeffer: Okay, great. Thanks, Dave. Once the wave enablement is done and the internal team is freed up to turn its attention to dark fiber, what would it take operationally to get to a point where the sales force is able to start offering dark fiber services, and what's sort of a rough timeline for that process?

Dave: Okay, great. Thanks, Dave.

Timothy Horan: And they're also talking about obviously doubling the locations they go to and a much better platform to provision services. You know, are you worried that, you know, maybe they will be a better competitor? Are you seeing them lower prices or quality?

Nick: Hey, Thanks, Nick.

Bora Lee: And your next question comes from the line of Bora Lee with RBC Capital Markets. Your line is open.

Speaker Change: And your next question comes from the line of Bora Lee with RBC capital markets. Your line is open.

David Schaeffer: Hi Dave, thanks for taking the questions. Once the weight enablement is, Once the wave enablement is done, and the internal team is freed up to turn its attention to dark fiber, what would it take operationally to get to a point where the sales force is able to start offering dark fiber services, and what's sort of a rough timeline for that process?

Speaker Change: Hi, Thanks for taking the questions.

David Schaeffer: One is the wave of enablement.

David Schaeffer: Okay.

David Schaeffer: One is the wafer enablement is done and the internal team has freed up to turn its attention to dark fiber what would it take operationally to get to a point for the sales force to be able to start offering dark fiber services, and what's sort of a rough timeline for that process.

David Schaeffer: So, the sales force already knows that dark fiber is coming. They've had multiple requests from customers for specific routes. John Hodulik, We will actually show this quarter a couple of very modest dark fiber sales in Q1, in Q3, really to help certain customers in specific situations. But each of these requests is kind of a calculus of whether we put in jeopardy the bigger opportunity to optimize the wave network. By year-end, that optimization project will be complete, and we can then, you know, kind of free up people to do that provisioning. I think in terms of complexity, these are more bespoke.

David Schaeffer: So.

David Schaeffer: Thank you. Yeah, so let me take the IPV for one first Tim. You know, we absolutely intend to raise prices on the install base. We will be doing that later this quarter for a portion of the base and measure the impact on charm. We will continue to monitor the market for the sale of addresses. And that is definitely not off the table. The goal is to sell at the highest price possible.

Speaker Change: The sales force already knows the dark fiber is coming.

Speaker Change: They've had multiple requests from customers for specific routes.

David Schaeffer: Bob.

David Schaeffer: We will actually show this quarter a couple of very modest dark fiber sales in Q, putting in jeopardy the bigger opportunity to optimize the wave network based on what we view as suboptimal returns, but we will sell out our excess inventory, and monthly on-net ARPU continues to tick up. In the past, you've mentioned that you're benefiting from a transition to higher-capacity connections. Just wondering if that's what's driving the ARPU gains this quarter, and if so, can you update us on the mix and trends that you've been seeing there? There are private equity funds that are looking for a platform to build on.

Speaker Change: We'll actually show this quarter, a couple of very modest dark fiber sales in Q.

David Schaeffer: <unk>.

Speaker Change: In Q3 really to help certain customers in specific situations, but each of these requests as kind of a calculus of do we.

David Schaeffer: And I think there is the likelihood that prices will go off. And then finally on IPV for pricing, it's not clear to us that the increase that we put in place now will be the last increase. As the resource continues to increase in scarcity, we intend to adjust price to maximize return on our inventory. You know, we've streamlined our sales process of addresses or leasing process and normalized our compensation structure. All of those things, I think, are going to help us see this continue to grow. And while it is only 4% of our total revenues, it did grow at a sequential birth rate of over 4% quarter over quarter.

David Schaeffer: Putting jeopardy, the bigger opportunity to optimize the waived network by.

David Schaeffer: By year end that optimization project will be complete and we can then kind.

Speaker Change: Kind of free up people to do that provisioning I think in terms of complexity.

David Schaeffer: It's less of a standard product, and it is very route-specific. That means, you know, the distance; it means the uniqueness of the route, and also the total fiber availability on the route. Not all routes are the same. For example, one of our most in-demand routes is our northern route that goes between Chicago and Seattle. The reason for that is it's the lowest latency path between the East Coast and the West Coast, which is particularly interesting for certain applications. Why is that true? The Earth is curved. The distance at higher latitudes is shorter than it is at, Yeah, lower latitudes to hit the same longitudinal arm.

Speaker Change: These are more bespoke is plus or the standard product.

Speaker Change: And it is very route specific.

Speaker Change: That means.

Speaker Change: The distance.

Speaker Change: The uniqueness of the row and also the total fiber availability on the route all routes are the same that example would be one of our most in demand routes as our northern route that goes between Chicago and Seattle.

David Schaeffer: Now to the wavelength market. There's both wavelengths in dark fiber and there is some fungibility. For a lot of customers, dark fiber makes no sense because of the upfront capital and the ongoing operational support expense. Offer others, it may make sense. You know, the global wavelength market is 7 billion as measured by third parties. Unfortunately, Lumen is only in North America so they can't participate in 3.5 billion. It's outside of North America.

Speaker Change: The reason for that is it's the lowest latency path.

Speaker Change: Between East Coast, and the West Coast, that's particularly interesting for certain applications why is that true <unk> curve distance at higher latitudes is shorter than it is at.

Speaker Change: Yes, Laurel attitudes to hit the same longitudinal online and for that reason, that's particularly end demand path.

David Schaeffer: And, you know, for that reason, that's a particularly in-demand path. But we don't have enough market data and haven't actively sold them to be able to fully assess that. But I do think next year we'll be in a position to have the wave business kind of working as expected and then pivot resources to start to build a funnel of dark fiber requests and then figure out where the optimal price is. But again, we have no intention of building new fiber based on what we view as suboptimal returns, but we will sell out our excess inventory.

Speaker Change: We don't have enough market data and haven't actively sold to be able to fully assess that but I do think next year will be in a position.

David Schaeffer: And then that includes both metro and long haul. You know, we are going to have more locations wave enabled, than anyone else will continue to add them to follow up on Walt's question about data center additions. Any data center in North America, so that means Mexico, Canada, and the US that we add, we will make wave enabled from day one. And we welcome competition, you know, in the transit business where we become the dominant player globally.

Speaker Change: To have the wave business kind of working as expected and then pivot resources to start to build a funnel of dark fiber requests and then figure out where the optimal pricing, yes, but again, we have no intention of building new fiber.

David Schaeffer: Based on what we view as suboptimal returns, but we will sell out our excess inventory.

David Schaeffer: And monthly on-net ARPU continues to tick up. In the past, you've mentioned that you're benefiting from a transition to higher-capacity connections. Just wondering if that's what's driving the ARPU gains this quarter, and if so, can you update us on the mix and trends that you've been seeing there?

Speaker Change: Got it.

David Schaeffer: And on monthly on net ARPA continues to pick up in the past you've mentioned that you're benefiting from a transition to higher capacity connections. Just wondering if that's what's driving the RPI gains this quarter and if so can you update us on the Mexican trends that you've been seeing there.

David Schaeffer: We've got 50% of the world's traffic. We competed in a market with 200 players, and in fact, the competitor you mentioned was the dominant player that we displaced to be the largest player. You know, listen, I wish I could wake up one day and be a monopolist. I'm not. You know, I welcome the fact that we have to win customers every day on the value that we deliver, and I am quite confident that coaching will have a better value proposition than any of our competitors.

David Schaeffer: Yeah, that is, in fact, a key driver. You know, on the corporate side, we continue to see an expansion of 10 gigabit opportunities and multi-tenant office buildings, and then on the network-centric side, we are seeing an increased number of hundred gigabit and even 400 gigabit transit ports. So all of that is helping drive higher ARPU online.

Speaker Change: Yes that is in fact, a key driver.

Speaker Change: On the corporate side, we continue to see an expansion of 10 gig.

Speaker Change: Opportunities and multi tenant office buildings and then on the.

Speaker Change: Netcentric side, we are seeing an increased number of 100 gig and even 400 gig transit ports. So all of that is helping drive higher <unk> on net.

David Schaeffer: And if that means being more aggressive on wave pricing, that is absolutely something we are prepared and expect to be able to do. We are going to put that business and generate that incremental revenue. Yeah, I guess they're well, they're saying there's a potential like 5 billion locked up, but another 7 billion, so 12 billion total. I guess it's at a high level. Do you think the market may be as much larger, growing much faster than maybe what you thought a year ago because of AI? I think it's, it probably is somewhat larger, but a big part of what they're referencing is new construction projects, meaning building fiber to facilities that never had fiber before.

David Schaeffer: And lastly, just curious about the types of counterparties who've shown the most interest in the data center assets, just given their size. Are these enterprises for their own use or financial sponsors, strategic?

Speaker Change: And lastly, just curious about the types of Counterparties have shown that most interested in the data center assets just given their size are these enterprises for their own use or national sponsors strategic.

David Schaeffer: If you could provide any colors there, that would be helpful. Yeah, um, you know, I would say

Speaker Change: Provide any color there that would be helpful.

David Schaeffer: Yeah, you know, I would say there are at least five different categories of potential counterparties that we're talking to. There are tier two data center operators who are attracted to some of these markets. There are private equity funds that are looking for a platform to build off of. There are international carriers who are looking for a U.S. data center footprint. There are hyperscalers who are looking at these as edge facilities, and there are AI compute businesses who want greater power density but understand that there's a time to market advantage for these facilities.

David Schaeffer: Yeah.

Speaker Change: I would say there are at least five different categories of potential counter parties that were talking to.

David Schaeffer: So all five of those types of customers are in the mix today for these data. Thank you. Hey, thanks. And your next question comes from the line of Brandon Nispel with KeyBank Capital Markets. Your line is open.

David Schaeffer: Bob.

Speaker Change: There are.

Speaker Change: Tier two data center operators, who are attracted to some of these markets.

David Schaeffer: How big the recurring revenue opportunity is in those facilities is yet to be figured out.

Speaker Change: There are private equity funds that are looking for a platform to build off of.

David Schaeffer: Thank you.

Frank Louthan: And your next question comes from the line of Frank Lelvin with Raymond James. Your line is open. Great. Thanks, Dave. A couple of questions. Do you? I think I know the answer, but just wanted to check.

David Schaeffer: There are international carriers who are looking for a U.S. data center footprint. So, you know, in terms of, true. Right. There were no material deviations from any kind of historical norm.

Speaker Change: There are international carriers, who are looking for a U S data center footprint.

Speaker Change: There are hyper scale.

Speaker Change: We're looking at these as edge facilities.

David Schaeffer: So looking at your network that you have, do you have spare conduit in GMG network that you could sell? That would, you know, to possibly compete with some of these, some of these deals and then going forward, you know, once you have all of the buildings configured and so forth and you're, you're set for selling waves. What do you think is a reasonable quarterly run rate for that business?

Speaker Change: And there are AI compute businesses.

David Schaeffer: Who want greater power density, but understand that there is a time to market advantage of these facilities. So all five of those types of customers are in the mix today for these data centers.

David Schaeffer: Once it gets up to speed, thanks. Yeah, so in terms of conduit, we do not have spare conduit. The sprint network was built with direct buried fiber in armored jacket, typically six feet below grade versus conduit networks in plastic that are generally along public highway right of way, two feet below grade. As a result, we have had 50% fewer splices per mile than those other networks, even though the network is a decade older, that gives us better loss and better throughput.

David Schaeffer: Thanks.

Speaker Change: Hey, thanks.

David Schaeffer: And your next question comes from the line of Brandon <unk> with Keybanc capital markets. Your line is open.

Brandon Nispel: Great. Hey Dave. Thanks for taking the questions. Mostly just a housekeeping question. Could you guys provide what the churn rate was for net centric corporate and enterprise and then, as

David Schaeffer: Great Hey, Dave Thanks for taking the question Hey, Brian.

Speaker Change: Mostly just a housekeeping question could you guys provide what the churn rate was through Netcentric corporate and enterprise and then as we look at the reported connection.

Speaker Change: Net adds or losses by those segments could you give us an estimate in terms of how many are coming from sort of noncore low margin products or other so we can try to understand what the underlying run rate is.

David Schaeffer: Yeah, so, you know, we give our churn rate between on net and off net, which is a good way to triangulate to the corporate churn rate. You know, it's roughly about 1.2% per month.

Speaker Change: Yeah. So we give our churn rate between on net and off net which is a good way to triangulate to the corporate churn rate.

David Schaeffer: We absolutely have fiber to sell, not conduits, and the fiber that we have is capable of supporting all of the coherent technology for 100, 400 and even 800, 1.6 terabet wavelengths when that becomes the de facto stand.

Speaker Change: It's roughly about one 2% per month.

David Schaeffer: And, you know, net centric was just a little bit below that this quarter, and enterprise was a little further below that. As you saw, enterprise revenues actually grew sequentially. So, you know, in terms of, Sure, right. There were no material deviations from kind of the historical norm.

David Schaeffer: And.

David Schaeffer: Netcentric was just a little bit below that this quarter and enterprise was a little further below that as you saw enterprise revenues actually grow sequentially.

David Schaeffer: Now, in terms of the run rate for our wave growth, we have said that from five years from acquisition, so that would be by May of 2028, we will be generating $500 million in wave revenues. We believe that is absolutely a realistic target out of the $2 billion addressable market that we referenced and to Tim's point, maybe we undersize that market a little bit, but we feel quite confident that we will get there. And I think once we have normalized our provisioning and our footprint is complete, that growth rate should be fairly linear.

David Schaeffer: So.

David Schaeffer: In terms of.

David Schaeffer: Churn rate.

David Schaeffer: There were no material deviations from kind of historical norms.

David Schaeffer: Yeah, what was your second question, Brandon? I was just hoping you could provide, you know, some adjustments for us as we look at the reported connection losses or gains to help us understand what is sort of a function of you guys making decisions around, you know, non-core or low-margin products versus the underlying business. Okay, so on the non-core, you should make the assumption that every non-core churn, both in unit and dollar, is in tension.

David Schaeffer: What was your second question Brandon.

Speaker Change: I was just hoping you could provide some adjustments for us as we look at the reported connection losses or gains.

David Schaeffer: Great, thank you.

Speaker Change: To help us understand what.

Speaker Change: What is sort of a function of you guys, making decisions around.

Speaker Change: Non core low margin product versus what the underlying business is doing.

Speaker Change: Okay. So on the non core you should make the assumption that every non core churn both in unit and dollar is intentional we would've liked that business to go away today, if we could but we have contractual obligations.

David Schaeffer: We would like that business to go away today if we could, but we have contractual obligations that we have to honor, and those run through the end of 2026. Again, that's part of the reason why we continue to get transit Payment subsidies from T-Mobile through November of 2027. Secondly, for both corporate and enterprise customers, there are locations for enterprise customers in countries that we are not licensed to do business in. Sprint had been selling those through an agency program that we concluded did not meet our threshold for legal compliance, so we are effectively selling the port, but taking the loop and having the customer buy the loop separately.

Speaker Change: <unk> that we have to honor and those run through the end of 2026 again, that's part of the reason why we continue to get transit payment subsidies from T mobile through November of 2027.

Jim Schneider: And your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open. Good morning, thanks for taking my question. They've wanted to sort of ask you, you know, you're on the cost control side, delivering very strong cost controls on some of the data data center transitions and other things.

David Schaeffer: Secondly.

Speaker Change: Or they both corporate.

David Schaeffer: Maybe you quantify for us how much more there is to go on this any other buckets of cost takeout there may be, but more importantly, with those cost takeouts, is that sufficient to potentially get you to an EBITDA non-classic or with this treatment growth situation in 2025? Hey, Jim. Well, first of all, welcome to cogent, welcome to coverage with us and thanks for your question. So we absolutely have significantly more cost savings to achieve.

Speaker Change: And enterprise customers.

David Schaeffer: There are locations for enterprise customers in countries that we are not places to do business.

Speaker Change: Sprint's had been selling those through.

Speaker Change: The agency program that we concluded did not meet our threshold for legal compliance show we are.

Speaker Change: Effectively selling the port, but taking the loop and having the customer by the loop separately. So that's.

David Schaeffer: We have a combination of non-core services, low margin revenue services and then additional GNA savings. We also understand that the T-mobile payments were meant to bridge this period of maximum burn are stepping down. We will now be at a run rate for the next 41 quarters, or 41 months, excuse me, at the lower rate of 8.3 million per month. With that, we absolutely will be in a position in 2025 when we're on an apples to apples basis.

David Schaeffer: So that's an intentional turn to bifurcate that service and lower the ARPU by taking the loop of that off-net enterprise customer in an exotic market off of our revenues. On the corporate side, it's mostly these very low-speed broadband services that we are looking to migrate. Now, if those services happen to be in an on-net building, we're migrating them independent of speed and automatically upgrading the speed. If they are in a location that is very rural, we are, in fact, terminating those. A very large termination, for example, in this last quarter, which was intentional, of a corporate customer was ERCOT, which is the Energy Management System in the state of Texas.

Speaker Change: Internal churn to bifurcate that service and lower they are too by taking the loop of that offset enterprise customer and then an exotic market off of our revenue stream.

David Schaeffer: On the corporate side, it's mostly this very low speed broadband services that we are looking to migrate now if those services happen to be entered on net building we're migrating them.

David Schaeffer: We're migrating them independent of speed and automatically upgrading the speed. Hey, thanks, Brad. And your final question comes from the line of Michael Rollins with Citi. Your line is open. Thanks, and good morning, in the buildings. Yeah, so we are seeing modest growth in our corporate on net business, probably in the order of about 4% year over year, still substantially below the pre-pandemic level for a subset of customers, not all, but a very small number. And then to the VPN question.

Speaker Change: Speed and automatically upgrading the speed.

Speaker Change: If they are in a location that is very rural.

Speaker Change: We are in fact terming those a very large termination for example in this last quarter, which was intentional of a corporate customer was ERCOT that as the energy management system in the state of Texas They had.

David Schaeffer: So we're looking at quarters where we have three monthly payments of 8.3 million in 24 versus three and 25. So it'll be 2, 3, at the 8.3 million that EBITDA will be growing and we expect that growth to continue. So yes, EBITDA will step down in the remainder of 24 due to these lower payments because EBITDA is adjusted now to the earlier question. Our EBITDA classic will continue to improve, but that improvement will not fully offset that step down from 87 million down to 25 million.

David Schaeffer: They had several hundred locations, primarily very rural substations, with 2 megabit connectivity, all of which was delivered over copper, none of which was upgradable to a fiber solution. And when we looked at the totality of that particular customer relationship, you know, our business is not providing SCADA backhaul management for 2-meg copper circuits. They're just not profitable. So we have five, and we are terminating all of those. Now, some still have contract terms on them, but a big bulk of the churn in this quarter was that specific, very uneconomic customer, which actually helped us improve margin because they were actually losing money on those off-net circuits.

Speaker Change: Several hundred locations, primarily at very rural Substations.

Speaker Change: With two megabit connectivity.

Speaker Change: All of which was delivered over a copper none of which was upgradeable to a fiber solution. When we looked at the totality of that particular customer relationship.

Speaker Change: Our business is not providing data backhaul management for two Meg copper circuits, they're just not profitable. So we effect our terming all of those now some still have contract term on them, but a big bulk of the churn in this quarter.

David Schaeffer: But after we normalize to that rate, we absolutely will be in a positive EBITDA growth number. And we've achieved only 62% of the targeted 220 and savings. And our belief at this time is that 220 will eventually go up.

David Schaeffer: I think there are some additional savings opportunities that we'll be able to talk about in the quarters.

Speaker Change: Was that specific very uneconomic customer, which actually helped us improve march and they were actually losing money on those off net circuits.

David Schaeffer: Thanks, Thad. Hey, thanks for having me. And your-

Dan: Thanks, Dan.

Brian: Hey, Thanks, Brian.

Jim Schneider: Thanks, and maybe a second one at the risk of piling on on waves and drug fiber, but maybe want to just get your sense, can you maybe kind of characterize for us your view on how many and which roots that Cogent has are unique relative to your competitors and maybe say something about whether your competitor has any roots which you believe are particularly unique. And if you sort of think about the future landscape of additional deals that could transpire.

Michael Rollins: And your final question comes from the line of Michael Rollins with Citi. Your line is open. Thanks, and good morning. Good morning, and thanks for hanging in there, Mike. Sure, appreciate you squeezing me in for a question. Just curious to delve a little bit more...

David Schaeffer: Final question comes from the line of Michael Rollins with Citi. Your line is open.

Michael Rollins: Thanks, and good morning.

Michael Rollins: Good morning, and thanks for hanging in there, Mike. Sure. I appreciate you squeezing me in for a question. I'm just curious to delve a little bit more into the corporate trends. If you can give us a sense of what's happening on the corporate side with respect to unique customers in the buildings, and their spending patterns with you, you know, with respect to the core transit services, the VPN, and the types of bandwidth that they're buying. Thanks.

David Schaeffer: Good morning, guys. Thanks for hanging in there Mike.

Michael Rollins: Sure I appreciate you squeezing me in for a question.

Michael Rollins: I'm, just curious to delve a little bit more into the corporate trends. If you can give us a sense of what's happening on the corporate side with respect to unique customers.

Jim Schneider: Yeah, so we and our competitors, multiple competitors, serve all of the key North American markets, roughly 100 cities. I think you know, there's at least three or four dark fiber routes between those cities. Now 90% of the sprint routes have no other fiber on them. They were built along these unique railroad right of ways. There may be a parallel path along the public highway along a pipeline. Generally most of our competitors built their fiber or did build their fiber differently along public highway right of way, lower burial distances and in plastic conduit.

Michael Rollins: In the buildings.

Speaker Change: And their spending patterns with you with respect to the core transit services.

David Schaeffer: <unk>.

Speaker Change: And the types of bandwidth that they are buying.

David Schaeffer: Yeah, so we are seeing modest growth in our corporate on net business, probably in the order of about 4% year over year, still substantially below the pre-pandemic level. We are winning new incremental customers, albeit the fact that there are fewer tenants in the building today than there were pre-pandemic. We also are seeing a migration of a subset of customers, not all, but a very large number. That's probably now several percent of the base that want 10 gigabit connections.

Michael Rollins: Yeah. So.

David Schaeffer: We are seeing modest growth in our corporate on net business, probably new order of about 4% year over year still are substantially below pre pandemic levels.

Speaker Change: Winning new incremental customers, albeit the fact that there are less tenants in the building today than there were pre pandemic.

David Schaeffer: Also are seeing a migration.

David Schaeffer: All of a subset of customers not all but a very.

Speaker Change: It's probably now several percent of the base.

Jim Schneider: The conduit absolutely gives you the flexibility to add more, but you know, if you pick two cities, just put two pins in the map. I'm going to just put two ran say Phoenix to Cleveland. Cogent would have a unique route, but you could also buy a different route from a zeo or a lumen to connect those two cities. Now it's more likely than not that maybe the other two are not on a unique right of way, but we're all three of us going to be able to serve those two city payers. Thank you. Thanks, Jim.

Speaker Change: 10 gig connections. So we went through a transition from 110 gig, we're starting to see the beginning of that connection going to 10 gig.

David Schaeffer: So we went through a transition from 100 to gigabit. We're starting to see the beginning of that connection going to 10 gigabits. I don't think that is going to be a dominant product for several years because I think most customer premises equipment for corporate customers are not able to take those connections. But I do see that as an increasing... ARPU, ARPU Uplift, and Corporate OnNet Services. And then to the VPN question.

Speaker Change: Don't think that is going to be a dominant product for several years.

Speaker Change: Most customer premise equipment for corporate customers are not able to take those connections, but I do see that as an increasing.

Speaker Change: <unk> uplift and corporate on net services.

Speaker Change: And then to the VPN question.

David Schaeffer: We saw a fairly dramatic grooming of VPNs coming out of the pandemic as companies were paring back multiple remote offices. We've seen that stabilize, and we are seeing our BPLS sales to corporate customers be about a quarter of new incremental sales, which is similar to where it was pre-pandemic. So when it dipped, it has started to come back. Now, it's dwarfed by the VPN sales that we provide to the legacy Sprint customers that are provided over MPL. And, you know, we actually saw our enterprise business grow sequentially, in part because of those large enterprise networks, continuing to grow and increase ports.

Speaker Change: We saw a fairly dramatic grooming a fee pms coming out of the pandemic as companies were paring back multiple remote offices, we've seen that stabilize and we are seeing.

Nick Beldeo: And your next question comes from the line of Nick Beldeo with Moffitt Nathanson. Your line is open. Hey, good morning guys. Thanks for the questions and appreciate all the the detail in this call. I guess first you gave us a little color on some of the revenue and connection declines in your prepared remarks, but I was hoping you could dig a little bit into the corporate trends specifically. I'm just trying to tease out how much of that was a function of kind of bad sprint revenue and connections rolling off versus what's happening with better sprint corporate connections and classic cogent corporate connections.

Speaker Change: Our VP of sales to corporate customers.

Speaker Change: About a quarter of new incremental sales, which is similar to where it was pre pandemic. So when it dipped it has started to come back.

Speaker Change: Now it's dwarfed by the VPN sales that we provide to the legacy sprint customers that are provided over mpls and.

Nick Beldeo: Yeah, so thanks for a question Nick. First of all, our on net revenues grew sequentially in the quarter. Even though our net centric revenue growth actually declined slightly in the quarter, so we grew on net corporate revenues. That was both kind of traditional cogent business as well as sprint business that we migrated from off net to on net. You know, there are three buckets of revenue that we acquired from Sprint that are not desirable.

Speaker Change: Actually saw our enterprise business grow sequentially in part because of those large enterprise networks continuing to grow at increased port speeds.

Michael Rollins: Thanks, Dave.

David Schaeffer: Thanks, David. Hey, thanks, Mike. Well, I would like to thank everyone.

David Schaeffer: Thanks, Dave. Hey, thanks, Mike. Well, I would like to thank everyone. I appreciate your patience on the call. And hopefully, we answered all your questions. Look forward to seeing you soon, and take care. Bye bye.

Mike: Great. Thanks, Mike.

Speaker Change: Well I would like to thank every one I appreciate your patience on the call and hopefully we answered all your questions look forward to seeing you soon and take care all bye bye.

David Schaeffer: Yes.

Speaker Change: Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

Nick Beldeo: We have an easy fix for one of those three. That is traffic that is in buildings that we're off net to Sprint that are on net to coach it and we're rapidly migrating those customers as those tail circuit contracts mature. We also have non-core products that we absolutely want to end the life as quickly as possible. And you saw our run rate on those products declined by about $2 million sequentially. But there's still, you know, over four million or quarter in that non-core revenue bucket that really needs to go to zero and help us improve margins.

David Schaeffer: Please wait the conference will begin shortly.

David Schaeffer: Yes.

David Schaeffer: Sure.

David Schaeffer: Okay.

David Schaeffer: Okay.

David Schaeffer: Yes.

David Schaeffer: Yes.

David Schaeffer: Okay.

David Schaeffer: Yes.

David Schaeffer: Yes.

David Schaeffer: Yes.

Speaker Change: Thank you.

David Schaeffer: Okay.

David Schaeffer: Yes.

David Schaeffer: [music].

David Schaeffer: Yes.

David Schaeffer: Thanks.

David Schaeffer: Yes.

David Schaeffer: [music].

Nick Beldeo: And then the final bucket are off net Sprint acquired circuits that are not profitable. And it's because they're very low speed. They may have been delivered over a suboptimal media, coax, twisted pair in some cases or fixed wireless. We're migrating to fiber and we're upping those speeds. Some of that revenue will go away. Most of it will actually transition to a fiber solution.

David Schaeffer: No.

David Schaeffer: Yes.

David Schaeffer: Yes.

David Schaeffer: Yes.

David Schaeffer: Thanks.

David Schaeffer: So as we look at the corporate decline, it was really bad business that we are managing off intentionally and the good business is growing. And that I think is part of the way that we achieved that sequential improvement, you know, of over 250 basis points and cost of good sold is by getting rid of that low margin off net business as well as non-core. Okay. That'll make sense. And, you know, one other question on, you know, cost and EBITDA, obviously good progress there.

David Schaeffer: Again, we've talked in the past about, you know, there being a fair bit of integration cost, lease exit costs, lease remediation costs and so on that you're not specifically breaking out of EBITDA that probably suppress the reported number versus what the kind of real underlying results are. I guess could you update us on that and how we should think about that progressing in future quarters? Yeah. And, you know, for the past 15 months since the acquisition, we've been spending about $5 million a month on OPEX related to integration projects.

David Schaeffer: We do not break that out separately. We do not add a back to EBITDA because we had the added complexity of the T-Mobile add back and did not want to... I think overly complicate or accounting. We anticipate that 5 million a month drag on EBITDA to be a three year drag. That was what we said. It would take us to go from the negative 190 of acquired EBITDA to, if you just looked at those customers, about 85 to 90 million.

David Schaeffer: I think we are on track to do that. I think that drag will continue beyond this year and well into next year, but it will start to taper off. We are ahead of schedule in terms of taking costs out, which gives us the ability to turn off some of that extraordinary expense sooner. Great. Thanks, Dave. Thanks, Nate.

Bora Lee: And your next question comes from the line of Bora Lee with RBC Capital Market. Your line is open. Hi, Dave. Thanks for taking the questions. Once the wave enablement is done, and that internal team is freed up to turn its attention to dark fiber, what would it take operationally to get to a point for the sales force to be able to start offering dark fiber services? And what sort of a rough timeline for that process?

Bora Lee: So the sales force already knows the dark fiber is coming. They've had multiple requests from customers for specific routes. We will actually show this quarter a couple of very modest dark fiber sales and Q3, really to help certain customers in specific situations. But each of these requests is kind of a calculus of do we put a jeopardy, the bigger opportunity to optimize the wave network by year end, that optimization project will be complete, and we can then, you know, kind of free up people to do that provisioning.

Bora Lee: I think in terms of complexity, these are more bespoke, it's less of a standard product, and it is very route specific. That means, you know, the distance, it means the uniqueness of the route, and also the total fiber availability on the route, not all routes are the same. An example would be one of our most in demand routes is our northern route that goes between Chicago and Seattle. The reason for that is, it's the lowest latency path up between East Coast and the West Coast, that's particularly interesting for certain applications.

Bora Lee: Why is that true? The Earth is curved, the distance at higher latitudes is shorter than it is, at, you know, lower latitudes to hit the same longitudinal line, and, you know, for that reason, that's a particularly in demand path.

David Schaeffer: You know, we don't have enough market data and haven't actively sold to be able to fully assess that, but I do think next year we'll be in a position to have the wave business kind of working as expected, and then pivot resources to start to build a funnel of dark fiber requests, and then figure out where the optimal price is, is, but again, we have no intention of building new fiber based on what we view as suboptimal returns, but we will sell out our excess inventory.

David Schaeffer: And monthly on net ARP who continues to pick up in the past, you've mentioned that you're benefiting from a transition to higher capacity connections. Just wondering if that's what's driving the ARP who gains this quarter and if so, can you update us on the mix and fence that you've been seeing there? Yeah, that is in fact a key driver. You know, on the corporate side, we continue to see an expansion of 10 gig opportunities and multi-tenant office buildings and then on the net centric side, we are seeing an increased number of 100 gig and even 400 gig transit ports.

David Schaeffer: So all of that is helping drive higher ARP who on net. And lastly, just curious about the types of counter parties who've shown the most interest in the data center assets, just given their size, are these enterprises for their own use or natural sponsors, strategic. You can provide any color there that will be helpful. Yeah, you know, I would say there are at least five different categories of potential counter parties that we're talking to.

David Schaeffer: You know, there are tier two data center operators who are attracted to some of these markets. There are private equity funds that are looking for a platform to build off of. There are international carriers who are looking for a US data center footprint. There are hyper scalers who are looking at these as age facilities and there are AI compute businesses who want greater power density. But understand that there's a time to market advantage of these facilities. So all five of those types of customers are in the mix today for these data centers.

Brandon Nispel: And here next question comes from the line of Brandon Nistel with Keybank Capital Markets. Your line is open. Great. Hey, Dave. Thanks for taking the question. Mostly just to housekeeping question. Could you guys provide what the turn right was for net centric corporate enterprise. And then as we look at the reported connection net ads or losses by those segments. Could you give us an estimate in terms of how many are coming from sort of non core, low margin products or other grooming.

Brandon Nispel: So we can try to understand what the underlying run rate is. Thanks. Yeah. So, you know, we give our turn rate between on net and off net, which is a good way to triangulate to the corporate turn rate. You know, it's roughly about 1.2% per month. And net centric was just a little bit below that this quarter. And enterprise was a little further below that as you saw enterprise revenues actually grow sequence.

Brandon Nispel: So, you know, in terms of turn right, you know, there were no material deviations from kind of historical norms. Now, what was your second question, Brandon? I was just hoping you could provide, you know, some adjustments for us as we look at the reported connection losses or gains to help us understand what, what is sort of a function of you guys making decisions around, you know, non-core for low margin product versus what the underlying business is doing.

Brandon Nispel: Okay, so on the non-core, you should make the assumption that every non-core turn, both in unit and dollar, is intentional. We would like that business to go away today, if we could, but we have contractual obligations that we have to honor, and those run through the end of 2026. Again, that's part of the reason why we continue to get transit payments subsidies from T-Mobile through November of 2027. Secondly, for the both corporate and enterprise customers, there are locations for enterprise customers in countries that we are not places to do business.

Brandon Nispel: Sprint had been selling those through an agency program that we concluded did not meet our threshold for legal compliance. So, we are effectively selling the port but taking the loop and having the customer buy the loop separately. So, that's an intentional turn to bifurcate that service and lower the RPU by taking the loop of that off net enterprise customer and an exotic market off of our revenue stream. On the corporate side, it's mostly this very low speed broadband services that we are looking to migrate.

Brandon Nispel: Now, if those services happen to be in an on net building, we're migrating them independent of speed and automatically upgrading the speed. If they are in a location that is very rural, we are in fact trimming those. A very large termination, for example, in this last quarter, which was intentional of a corporate customer was ERCOT, that is the energy management system in the state of Texas. They had several hundred locations primarily at very rural substations with two megabit connectivity.

Brandon Nispel: All of which was delivered over a copper, none of which was upgradable to a fiber solution and when we looked at the totality of that particular customer relationship. You know, our business is not providing skate of backhaul management for two meg copper circuits. They're just not profitable. So we, in fact, are terming all of those. Now, some still have contract turmoil on them, but a big bulk of the charm in this quarter was that specific, very uneconomic customer, which actually helped us improve margin. They were actually losing money on those off net circuits. Thanks, Dad. Hey, thanks, Brandon.

Michael Rollins: And your final question comes from the line of Michael Rollins with City. Your line is open. Thanks, and good morning. Good morning, and thanks for hanging in there, Mike. Sure, appreciate you squeezing me in for a question. Just curious to delve a little bit more into the corporate trends. If you can give us a sense of what's happening on the corporate side with respect to unique customers in the buildings. And they're spending patterns with you, you know, with respect to the core transit services, the VPN, and the types of bandwidth that they're buying.

Michael Rollins: Thanks. Yeah, so we are seeing modest growth in our corporate on net business, probably a new order of about 4% year over year, still substantially below pre pandemic levels. We are winning new incremental customers, albeit the fact that there are less tenants in the building today than there were pre pandemic. We also are seeing a migration of a subset of customers, not all, but a very, that's probably now several percent of the base that want 10 gig connections.

Michael Rollins: So we went through a transition from 100 to gig. We're starting to see the beginning of that connection going to 10 gig. I don't think that is going to be a dominant product for several years. So I think most customer promise equipment for corporate customers are not able to take those connections, but I do see that as an increasing or to uplift and corporate on net services. And then to the VPN question, we saw a fairly traumatic grooming of VPNs coming out of the pandemic as companies were pairing back multiple remote offices.

Michael Rollins: We've seen that stabilized and we are seeing our VPLS sales to corporate customers be about a quarter of new incremental sales, which is similar to where it was pre pandemic. So when it dipped, it has started to come back. Now it's dwarfed by the VPN sales that we provide to the legacy spring customers that are provided over MPLS. And, you know, we actually saw our enterprise business grow sequentially in part because of those large enterprise networks continuing to grow and increase port speeds. Hey, thanks, Mike.

Well, I would like to thank everyone. I appreciate your patience on the call and hopefully we answered all your questions. Please look forward to seeing you soon and, uh, take care all, bye-bye. Ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect. Please wait, the conference will begin shortly. Thank you very much.