Q1 2025 Cogent Communications Holdings Inc Earnings Call

Speaker Change: Good morning and welcome to the Cogent Communication Holdings, first card third to thousand thirty five earnings conference call. As a reminder, this conference call is being recorded and it will be available for replay at www.cogentco.com At last rate of this conference call will be posted.

Speaker Change: On Cogent's website, when it becomes available, Cogent's summary of financial and operational results that's to express release can be dowelsed for the Cogent website. I would not like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communication Holdings. Please go ahead.

Speaker Change: Thank you and good morning everyone. Welcome to our first quarter, 2025 Arning's conference call. I'm Dave Schaeffer, Coaches Chief Executive Officer, and on this call this morning with me is Thad Weed, our Chief Financial Officer.

Speaker Change: We have received numerous comments from investors related to the structure of our earnings call We greatly appreciate their observations and constructive comments and we've implemented a number of those suggestions in the script that we are using for this call

Speaker Change: Please continue to provide additional suggestions to help us refine our reporting.

Speaker Change: We are well aware that coaching has undergone significant changes over the past two years and we want to fully address the impact of those changes on our strategy and our prepared remarks and strive to focus on our growth plans going forward.

Speaker Change: I want to recognize that these achievements are but some of the milestones that we have achieved.

Speaker Change: We are now offering wavelength services in 883 data centers with 10 gig, 100 gig and 400 gig capabilities.

Speaker Change: We have materially been able to reduce our provisioning times to today approximately 30 days.

Speaker Change: Our wavelength revenues for the quarter for $7.1 million an increase of 114% over the same period in 2023.

Speaker Change: 24. Sequentially or wavelength connections increased by 18% sequentially and our wavelength revenue increased by 2.2%

Speaker Change: The vast majority of our connections were provisions near the very end of the quarter. We have sold wavelength services now in 329 locations.

Speaker Change: We have proficient and cleaned up our former backlog of wavelength orders.

Speaker Change: We currently have a backlog and funnel of 3,433 wavelength opportunities.

Speaker Change: With more wave-pervisioning experience and the actual ability to deliver services, we now anticipate that between 4 and 5 percent of this funnel will be installed each month going forward.

Speaker Change: We also expect based on the growth in the sales activity that by year end there will be 10,000 unique wave opportunities in our funnel.

Speaker Change: We currently have provisioning capacity to install 500 waves per month. We intend to capture 25% of this highly concentrated North American market within three years.

Speaker Change: Our IPV4 leasing revenue for the quarter increased sequentially by 14.8% to 14.4 million and increased 42% year over year.

Speaker Change: Due to the scarcity of this valuable asset and the terms of our customer contracts, we have been able to increase our IPV for leasing pricing.

Speaker Change: We maintain a consistent, acceptable use policy and did retrieve a significant number of addresses in the first quarter from a customer who violated these policies.

Speaker Change: Our average revenue per IPv4 address sold was 49 cents for the quarter, a 63% increase from the 30 cent install base number at the beginning of the year.

Speaker Change: We have titled to nearly 38 million V4 addresses, which is more than any other service provider.

Speaker Change: We have realized the remainder of our targeted $220 million in cost savings that we outlined at the acquisition of spring.

Speaker Change: We expect to achieve at minimum another 20 million dollars of cost savings through the second quarter of 2026.

Speaker Change: and our gross margin increased by 790 basis points from the first quarter of 2024 to 44.6%.

Speaker Change: Additionally, our SGNA declined by 3.8 million from the first quarter of last year.

Speaker Change: 10.6 million of the sequential increase in SGNA expenses was due to traditional, typical, seasonal factors.

Speaker Change: including annual CPI increases, the timing of vacations taken and the accruals associated with them, and the reset of payroll taxes. [inaudible]

We are now connected to 3,500 OnNet buildings.

Speaker Change: We have reconfigured several sprint-acquired facilities. These facilities have been added to our 1668 carrier neutral and 101 Cogent Data Center footprint.

Speaker Change: Our Coaching Data Centers have 183 megawatts of installed and available power. We have converted additionally 79 smaller sprint facilities into edge data centers.

Speaker Change: These edge data centers each have approximately 40 rack capability and in total have about 28 megawatts of additional install power.

Speaker Change: After the quarter ended, we repurchased approximately 100,000 shares of our common stock for approximately five million dollars at an average price of 53 dollars and seven cents under our stock buyback program.

Speaker Change: A total of 17.4 million remains available under that program through year-end, a common on tariffs. We do not anticipate any material impact of tariffs on our business or our cat-bex projections.

Speaker Change: Much of our data center and network conversion equipment has been ordered pre-tariff and a majority has been received

Speaker Change: A portion of our network equipment purchases do have tariff input costs, but these are menable.

Speaker Change: We recognize that we have increased our leverage due to these activities and our board of directors.

Speaker Change: has elected to slow the rate of dividend growth but continuing that dividend growth rate at a half a cent per share per quarter.

and a half cent.

Speaker Change: Now that the sprint business is combined with our legacy business,

Speaker Change: And we have fully analyzed the revenue burn off of undesirable revenues, we are adjusting our long term annual revenue growth rates to 6% to 8%.

Speaker Change: And we are increasing the <unk>.

Tad: 2006, and elected to retire and we wish him well in that retirement now I'd like to turn things back over to Tad to read Safe Harbor language. It gives some additional color on our operating performance.

Tad: 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.

Tad: 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 vote undertakes no obligation to uptake or revise our forward looking statements. Please.

Tad: Measures. During this call you will find these reconciled to the corresponding GAAP measurement and our earnings releases that are posted on our website at Cogentco Dot com.

Tad: Now some comments on results our revenue for the quarter was 247 million our rep productivity increased by 9% to 3.8 units per full time equivalent rep. This quarter, which was an increase from 3.5.

Tad: Equivalent Ref last quarter are EBITDA as adjusted was 68.8 million, which was a 1.9 million increase and our EBITDA as adjusted margin increased sequentially by 130 basis points for 27.8%.

Tad: Our EBITDA as adjusted is adjusted first print acquisition costs, if any during the period and payments under the RP IP Transit agreement with Tmobile in accordance with our IP Transit services agreement, we received three monthly payments.

Tad: This quarter the same as last quarter 25 million last quarter, a year ago. We received 87.5 million in the first quarter of 2024 as those payments stepped down in that quarter.

Tad: We will continue to receive an additional 32 monthly payments of 8.3 million each until November of 2027. There are further payments related to lease obligations. We assumed at closing that total at least 28 million.

Tad: Is to be paid to us in four equal payments from November 27 to February 28.

Tad: If we analyze our revenues based upon network connection type, which is on that offnet wavelength and non core and we analyze our revenues based upon customer type and we classify our customers into three types net centric corporate and enterprise.

Tad: Representative 44.9% of our revenues this quarter it decreased 11.4% year over year and 2.1% sequentially. These decreases in our corporate revenue are primarily due to the continued grooming of low margin.

Tad: And the elimination of non core products, our net centric business continues to benefit from the growth in video traffic activity related to artificial intelligence streaming and wavelength sales our net centric business represented.

Tad: Percent of our revenues for the quarter increased 0.7% year over year and decline sequentially by 1.1% our quarterly net centric revenue under our commercial services agreement was T mobile declined sequentially by point 8 million.

Tad: 10 million for the quarter and it declined two and a half million year over year. The decline in revenue from the commercial service agreement from T mobile and the negative impact of FX, which was point 5 million sequentially and 1.3 million year over year.

Tad: Negative impact on our net centric revenue results our enterprise business represented 17.7% of our revenues for the quarter net revenue decreased by 11.3% year over year and sequentially by.

Tad: And primarily due to reduction in non core and low margin enterprise revenues on net revenue we serve our on net customers in our 3500 total on net buildings, we continue to succeed in selling larger hundred gigabyte connections and 400 gigabyte connections.

Tad: Our sequential on net revenue results were negatively impacted by the same contract T mobile the commercial services agreement the point 8 million sequential decline in on net revenue and also negatively impacted by point 5 million of negative.

Tad: Our off net revenue was 107.3 million for the quarter a year over year decrease of 9.2% and a sequential decrease of 5.2% our off net revenue results are impacted by our migration of certain offnet customers to on net.

Tad: And continued grooming and termination of low margin off net contracts.

Tad: Comments on pricing, our average price per megabit for our installed base decrease sequentially by 6% to 20 cents and decreased by 25% year over year. This is consistent with the historical trends our average price.

Tad: Customer contracts for the quarter was 10 cents, a sequential price per megabit decrease of 10% and 5% year over year. Some ARPU churn statistics, our rpus for the quarter were are on net our hundred 96.

Tad: Monthly churn rate was 2.2%.

Tad: Our network traffic was flat sequentially for the quarter, but increased 8% year over year.

Tad: Foreign currency comments, our revenue earned outside the United States is reported in U S dollars and was about 18% of our revenues this quarter. The average euro to U S. D rate. So far this quarter is $1.12 in the average Canadian dollar rate 72 cents.

Tad: Averages remain at the current levels for the remainder of this quarter. The FX conversion impact on sequential revenues would be 2 million and the positive impact year over year would be 1.2 million.

Tad: We believe that our revenues and custom base is not very highly concentrated our top 25 customers were 18% of our revenues for the quarter Capex. Our total capex for the quarter was 58.1 million our principal payments on capital.

Tad: 8 million for the quarter, we're continuing our network integration to the former sprint network and legacy Cogent network into one unified network and converting form sprint switch sides into cogent Datacenters, we have accelerated and expanded our data.

Tad: Due to the high level of demand for our power available. This program will require capital spending for the first half of 25 similar to the last half of 24, and then decline in the second half of 25.

Tad: Our total gross debt at car, including our finance lease obligations was 2 billion at quarter end and our net debt was 1.8 billion. Our total gross debt to the last 12 months EBITDA as adjusted ratio was 6.69.

Tad: Nine days at quarter end, the same as the end of the year and our bad debt expense was 2.1 million, which was less than 1% of our revenues this quarter I'm turning the call back over to Dave Hey, Thanks, Tad now for a couple of comments on our net centr.

Tad: [noise] at quarter end, we directly connected to 80 240 other networks of which 22 of these are peers and 80 218 are cogent trans.

Tad: We remain focused on our sales force productivity and continue to man our child under performers our sales force turnover rate was 7.1% a month. This is down from the peak of 8.7% per month, but was slightly above.

Tad: Oh average of 5.7% per month at quarters end, we had 296 professionals focused solely on selling that centric 319 professionals focused on the corporate market and 14 professionals focused.

Tad: Enterprise market.

Tad: We remain excited about our ability to deliver profitable on net and off net I P services to enterprise and corporate customers. We are enthusiastic about our wavelength opportunity the.

Tad: Buildings that we now connect to and the backlog on that funnel of nearly 30 433, waylength opportunities, we have completely refreshed that funnel and cleaned out older.

Tad: Over a year period, while we were dealing network reconfiguration, we have diligently worked on accelerating the cost savings of the sprint network integration with exceeded our initial targets and.

Tad: We're able to continue to monetize I P V for addresses fiber assets and excess datacenters spaces, either through sale or long term leases, we are inactive discussions beyond the.

Tad: Parties and since our inception, we've offered superior service expedited provisioning and disruptive pricing that is why cogent remains a industry leader in the services itself with that I'd like to open the floor for questions.

Speaker Change: 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 one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press the star one again, if you recall upon.

Speaker Change: Hi, it's Josh in for Jim Thanks for taking the questions I guess within the waves business are you seeing any change in competition be it pricing or terms or otherwise as squential revenue growth was not or most had expected and do you think the crown castles will.

Speaker Change: Slash. So first of all you know our two primary competitors in the wavelength market have struggled to provision and do not have the ubiquity of coverage that we had is.

Speaker Change: Any customers were willing to sign agreements with Cogen, what cogen couldn't even give them a firm delivery date or a commitment to exact endpoints as we've purged that older funnel the.

Speaker Change: Built now is a much more accurate representative of orders that will continue to install we've developed a enough of a cadence to know that about 5% of.

Speaker Change: In the quarter.

Speaker Change: We installed virtually all of the incremental units the 18% sequential growth at the very end of the quarter. The reason for that is many of the customers were not ready.

Speaker Change: That a because they had waited many of those customers did take service at the end of the quarter. We expect that the competition will continue to improve on their.

Speaker Change: And offer faster installs, but today, we think we have a significant advantage with regard to the Crown Castle Zo combination that is probably year away I know that each of those companies.

Speaker Change: It's a number of previous acquisitions that are still being integrated and I would anticipate even post closing it will take several years based on the pacing that each of those companies have achieved in.

Speaker Change: Entire company to be functioning as a unified organization, we should always be paranoid about competitors, but at the end of the day. We think this is a fairly distant threat not something immediate.

Speaker Change: We have churn the vast majority of that revenue. We note that that has inflected our total top line growth rate negative.

Speaker Change: We believe that we will be through that process by the mid part of Q3 based on our need to honor certain contract commitments from that point forward.

Speaker Change: Business that was declining at seven 4.4% a year and representative 40% of the revenue of the combined company. We further accelerated that decline by electing to terminate these.

Speaker Change: I think the corporate segment as all of our segments will be growing by the end or the middle of two 325. Thanks Shosh got it. Thank you. Thanks.

Speaker Change: Your next question comes from the line of Greg Williams at T. D. Cowen. Please go ahead, great. Thanks for taking my questions Dave on the half Penny per share dividend growth per quarter is this like a temporary move and and would we you know think about returning to the.

Speaker Change: And if so what would the milestones need to be I imagine leverage targets would be one of them to return to that growth. If you choose to do so and then just back on the waves cadence you mentioned, 4% to 5% of your you know bookings will be installed a month that's got 150.

Speaker Change: Last you said you'd get to 500 circuits, a month, what needs to happen to get to that target and and when when could that be reached at this point. Thanks, Yeah sure. So let me take each of those questions. Thanks for them, Greg first of all.

Speaker Change: The board reflected on the.

Speaker Change: Increase in leverage and realize that the fundamentals of the business remain strong but that our leverage is going to continue to increase as we've outlined on.

Speaker Change: Chevrole of these calls that are aggregate leverage will peak in Q3 of this year due to the decline in transit payments from T mobile.

Speaker Change: We have been able to affect a material amount of cost savings.

Speaker Change: Those still did not result in enough to fully offset the decline in monthly payments from Tmobile from 29 million down to 8 million as a result of that throughout the year.

Speaker Change: Is absolutely committed to returning capital to shareholders. Finally, we I think have continued to demonstrate our willingness to opportunistically enter the market and supplement our dividend with.

Speaker Change: That policy will continue going forward, but we absolutely believe that our ability to return cash flow will increase starting in the fourth quarter and some of that will be used to.

Speaker Change: Some will be used for increasing the dividend and finally, some will be used for opportunistic buybacks. So I think the milestone will be the reduction in.

Speaker Change: Now gonna pivot to your second question, which is wavelength installation as we have been very clear in previous discussions with investors.

Speaker Change: We built a funnel of wavelength opportunity with no to find installation window.

Speaker Change: S. It became clear that we could begin two install and select locations in Q3 of 2024, we began the process of cleansing that F.

Speaker Change: N.

Speaker Change: As expected the majority of that funnel fell out those customers went elsewhere, because they could not wait for our deliverys. The funnel that we have now of 30 433.

Speaker Change: Is a completely rebuilt funnel that was rebuilt from the end of Q3 24 to the end of Q1 25.

Speaker Change: We now have much more clarity around.

Speaker Change: And about timing to be able to install at 883 locations. We can now install in 30 days.

Speaker Change: We have sufficient field resources.

Speaker Change: Pluggable optics and service delivery coordinators to be able to provision 500 orders a month with a 3400 order backlog and funnel that.

Speaker Change: With a 5% conversion rate about 160, so we have more installation capacity than orders that are ready to install as we build credibility with customers. We will both see an update and number of opportunity.

Speaker Change: O four that the conversion rate monthly will be greater than the 5%. We outline we're basing that on our three month experience of actually being able to provision orders.

Speaker Change: No point I would make really is the sequential pacing of growth with 18% sequential unit growth. We did very well however, 2% revenue growth was a result.

Speaker Change: Of those orders installing near the very end of the quarter and the issue was come January we were ready to start installing at that point. It was 802 sites and we grew that to the.

Speaker Change: We continue to grow.

Speaker Change: Many customers, who still wanted the services needed time to have their equipment ready to accept those services and that resulted in most of the install activities being back and loaded at the end of the quarter as we go.

Speaker Change: Two two and beyond we think that the patient of installs will be more evenly distributed throughout the quarter hopefully that help clarify the question and the goal is to be very specific with 500 cable.

Speaker Change: Shawls per month, we think we will be hitting that target probably near the end of the year when the funnel reaches the 10000 and the conversion rate remains at about 5%.

Speaker Change: That's helpful. Thank you Hey, Thanks, Craig. Your next question is from the line of Alex Warders of Bank of America. Please go ahead.

Alex Warders: Good morning, Dave Thanks for taking my questions, maybe just first.

Alex Warders: Can you talk about the wavelength arpoo and kind of where you see that trending throughout the year and then secondly, just on the datacenter monetization can you talk just timing scale and size of the some of these potential deals. Thanks.

Speaker Change: Thanks, Alex and congratulations on your new more senior role you know our wavelength RP was just under $2000 in the quarter about 1930.

Speaker Change: You know I think our base is now large enough, meaning we have enough visibility into the mix of 1000, and 400 gig ways as well as contract duration and.

Speaker Change: But you of.

Speaker Change: Something around 1900 to $2000 per wavelength, we are seeing a much higher uptick rate and a higher capacity ways.

Speaker Change: 82% of our sales have been of hundred gigabytes that compares to the install base in the industry of 55% of the base being 10 gig waves. So the.

Speaker Change: Selling tend to be at 100 gig with about 8% of sales being 400 gig as compared to the industry base of about 3% at 400 gig so.

Speaker Change: In terms of route Lang you know, we now have nationwide, we're actually continental ubequility into the orders that we have been booking and.

Speaker Change: Book to Bill cadence I think that 2000 dollar RPU is a good modeling number now with regard to your second question of datacenter sales and modern and monetization. We are continuing our work to convert those facility.

Speaker Change: And have just over 100 megawatts of power and what is now 24 facilities way. It originally targeted 23 that we are earmarking for sale or long term lease.

Speaker Change: You've taken four of our letters of intent and move forward towards initial contract negotiations, we are still engaging with parties who are conducting you know.

Speaker Change: Hopefully that was helpful.

Alex Warders: Thank you, Dave Hey, Thanks, Alex.

Speaker Change: Your next question is from the line of Wolfeck from Lightshed. Please go ahead.

Speaker Change: Thanks, David I first wanted to go back to that a couple questions ago, just to make sure I heard you right. So 'cause I know there was this thesis that you know people rolled on wavelength that it was just limited by your ability to to execute but I think you said.

Speaker Change: See but you're just waiting on the customers to fill that capacity and then if you can just talk about if you had installed at the start of the quarter, rather than 2.2% sequential growth, which was obviously impacted by the back end loading.

Speaker Change: What that growth might've looked like so we get a sense of kind of unit growth conversion to revenue growth. Yeah. So if we had assumed that the orders had installed mid quarter as opposed to end of quarter are revenue growth rate would have been I.

Speaker Change: Five if we were fortunate enough that they had all installed at the beginning of the quarter. It would have been nearly 20% because the 18.2% unit growth actually understated the revenue growth.

Speaker Change: Actually slightly higher than the installed base.

Speaker Change: With regard to.

Speaker Change: Two very different metrics that we have given the first metric is our ability to install our ability was limited by the repurposing of the sprint network and we were constrained til.

Speaker Change: Where we had to do each installation that was done the roughly thousand waves that we had sold on a custom basis and a limited number of sites. After the first of the year.

Speaker Change: 802 sites, which is now grown to 883 sites to install those services in 30 days. So that's on the cogent supply side, we can do it in those sites at any of three speeds and deliver within 30 days.

Speaker Change: We had a funnel of orders that had been bought with customers over a year and a half period as we were Repurposing This network with liter or no.

Speaker Change: To the customer on when we can install it was not surprising to us and we commented US extensively on our last earnings call that we were going through a process to purge that funnel of orders that customers had gone somewhere else for us.

Speaker Change: Now we have rebuilt that funnel. We also know that many of those orders the customers are not ready when we are ready we expect that.

Speaker Change: Okay, but I don't want you to have to repeat what you already said I heard all that I'm just because it was just told to me you know rather than this install of 6% a quarter or whatever it is which is you know how customers Act that there was this bold thesis that people were pitching that like Oh, it's just it.

Speaker Change: And that they would just fill the supply as soon as that was available. So I think I heard you correctly I was just trying to clarify that which it sounds like that's the case, it's just customers have to be ready with their equipment and it's gonna be and that's gonna impact how that growth can I can I just move on the IP, which is.

Speaker Change: Order Tad I think you know during the call I, specifically asked about what you could do each quarter and he said, it's going to bounce back to 500000 and that was February I know in your that was late February. So I know in your prepared remarks, you said you had a basically disconnected.

Speaker Change: So it's a disconnection like 700000 I P addresses and can you talk about like what does someone have to do with their IP addresses that would merit getting disconnected and I guess similarly should we just assume it should bounce back to 500.

Speaker Change: Forward yeah, Okay. So two one cracks your Walt I want to say, 5% not six that you.

Speaker Change: As the conversion of the funnel and the growth in the funnel so.

Speaker Change: I'll be start with what someone has to do to be disconnected and by the way our acceptable use policy is clearly stated on our website typically this will be one of three violations either.

Speaker Change: Any of the 57 countries that we operate in the world that a customer announcing those addresses is doing something that that government views as illegal. If that's the case, we immediately take it down and it's upon the customer to resolve that issue.

Speaker Change: Second area of abuse is typically copyright violations and that is someone transmitting copyrighted information without the correct authority to do so that is the case here that.

Speaker Change: Customer was violated the digital rights management requirements.

Speaker Change: S. The U S government and then the third potential area of abuse is if someone is using the addresses for a disruptive activity such as website.

Speaker Change: R. Spamming those are the three main categories of a U P violations there were actually more than one customer in the quarter, who had a significant digital rights management issue that.

Speaker Change: Decline and units, but also we were still able to grow revenues due to price increases we absolutely anticipate to clearly answer your question returning to a gross add of 500000 address a quarter.

Speaker Change: And it is difficult for us to predict there have been episodic periods in the past, where we've had to take down blocks. This was a particularly larger instance, this quarter.

Speaker Change: Okay. So there could be additional churn going forward from this type of stuff, but it's just too hard to protect protect got it and then are you still good with the 350 for the year 'cause, it's obviously going to be a pretty big seven second half ramp to get there. So.

Speaker Change: We have a very steep hill to climb on EBITDA, because we had 104 million dollar reduction in transit payments from T. Mobile we feel comfortable we are continuing to.

Speaker Change: R EBITDA and growth at and should be able to achieve the goals that we've outlined thanks and thanks for the short and prepared comments appreciate it. Thank you your suggestions were helpful.

Speaker Change: [noise]. Your next question comes from the line of Krystal from U B S. Your line is open.

Speaker Change: Great. Thank you for taking the questions just to follow up on your new long term growth targets. What gives you confidence today to raise the target in any help breaking down that 68% revenue growth expectation by customer segment and I believe in recent quarters for the legacy.

Speaker Change: Sorbing sprints negative growth trajectory at closing and then accelerated by our attempt to purge undesirable services and revenues that is how we have been able to.

Speaker Change: O cashflow, while declining top line. This is on a customer by customer basis. We now have clear line of sight to the remaining services that we need to disconnect and we.

Speaker Change: And some cases customers agreeing to allow us to disconnect those services sooner than their contractual terms would allow us to with that we're comfortable that will be able to get through.

Speaker Change: C fast majority of that intentional churn by mid Q3, and then return to organic growth.

Speaker Change: We also now have higher confidence in the wavelength trajectory due to the realistic book to build cycle and the quality of the funnel.

Speaker Change: Within the customer segments, we think that enterprise revenues will effectively be flat.

Speaker Change: We think that corporate revenues should on a consolidated basis net of this intentional churn should be growing in kind of the mid single digits of 4% to 5% and.

Speaker Change: Both the only cogend traditional corporate customer as well as the corporate customers that we had acquired from sprint most of which that could be moved on that have been moved on that and then the remainder.

Speaker Change: Oh, we're going to continue to pay off net as to locations are just not practical to bring on net and then finally on the net centric segment that is where the vast majority of the wavelength revenue will be AB.

Speaker Change: And.

Speaker Change: Over 93 or 94% of the waves that have been sold to date have been to net centric customers with the combination of the net centric IP growth and the wave growth.

Speaker Change: Small percentage of that we anticipate net centric aggregate growth. So that's both IP and wavelengths to be north of 10% that combined growth rates and the fact that we have work through.

Speaker Change: Should get us to a increased total revenue growth rate of 68% compared that to Cogen pre acquisition of sprint where four a T.

Speaker Change: Three we had a compounded average growth rate of 10.2% you know a big part of the reason why we required T mobile to enter into the transfer degree and subsidize.

Speaker Change: And the realization F. A period of time, what we were.

Speaker Change: Correcting the revenue mix and the business. We acquired we were gonna suffer negative revenue growth that is now clearly in our sites to turn positive and then secondly, we are comfortable that we will also get better.

Speaker Change: Then we had initially forecast and quite honestly from the day, we've closed our margin contributions have actually exceeded our internal targets.

Speaker Change: Thanks, Dave and then just do you have what the core growth rates were for corporate and net centric in the quarter X. All the grooming efforts. So it's become a harder and harder for us to kind of.

Speaker Change: Provision the customers you know I believe the corporate segment grew between three and 4%, but that is not as a precise of a number as I would like to give you and I think net central.

Speaker Change: Six or 7% on a year over year basis.

Chris: Great. Thank you, Dave Hey, Thanks, Chris.

Speaker Change: And your next question comes from the line of Nick Dilda from Mufflet Nathanson. Your line is open.

Nick Dilda: Hey, Thanks for my questions and Dave also appreciate the new call format I thought that was helpful. So thanks for making those changes you know first going back to the S. G. N. A line I think you basically said that the entire sequential increase was due to normal seasonal items.

Nick Dilda: It still feels like an awfully high increase even after taking those into account I guess like was Q4 SGA depressed for some reason such that it wasn't a good jump off point for thinking about Q1, and as we think about Q2 SGNA you know how should we think about.

Nick Dilda: You know the roll off of you know tax and audit costs and the sales meeting costs and those sorts of things yeah, I'm gonna start to Tad.

Nick Dilda: Requential increase in expenses was greater this year than it was last year and the primary reason for that is we had the entire sprint employee base in.

Nick Dilda: Three we only picked up those expenses on may 1st and all of the vacation accruals that those employees had were actually paid out in cash by T mobile as a condition.

Nick Dilda: We did not assume those probably the biggest component of the sequential change in.

Speaker Change: S N a actually relates to the fact that people we have a user lose policy and you know people user vacation in Q4, and then building accrual going forward, but I'm gonna, let K give you a little more granularity on the components and kind of.

Speaker Change: This year and other years sure. So in the fourth quarter. There were no unusual items I would say, though bad debt expense for the fourth quarter of last year was unusually low we're usually at about 1% of our revenues and it was 1% of our revenues actually 0.8%.

Speaker Change: You're hitting the vacation of Google and not having to expense it because you've built that accrual over time when you get back to the first quarter you need to rebuild that again. So you have a swap in expense now building the accrual when you were charging the accrual in the fourth quarter.

Speaker Change: Again, it's it's 4 million of the 10.6 million sequential increase but it's it's normal and we had to say it was just it's a normal activity I would say it was just outsized because of the nature of seven months versus full year spring employees.

Speaker Change: Health is that answer that.

Speaker Change: Yes, yes, it does.

Speaker Change: Are you willing to share anything regarding where that's gonna land in in Q2.

Oh, where where S. G. A is gonna land in Q2 or is this a run rate that we should think about people will hit their biker taxes typically declined.

Speaker Change: Okay. Okay on the I P V. Four addresses you said it was a large number that you took back are you willing to share the exact number.

Speaker Change: Yeah, well it was from more than one customer so it can't be attributed to just one but it was any order of about six to 700000 addresses and it's INAC.

Speaker Change: Okay. So so your your underlying trends are much better than they than they appear you know we've had this in the past you know it's rare that you get this much in a quarter, but you know we don't predict when people do bad things and.

Speaker Change: I'm trying to say is gonna go away and I can't answer that question because I can't tell you no one's going to violate you know Turkish security laws and we get you know a take down notice from the government of Turkey for a big block of address.

Speaker Change: That happens and it is episodic it was just more extreme this quarter than not unfortunately for US we had such a good tailwind from the pricing increases that the revenue still grew sequentially at 14.4.

Speaker Change: Okay, and then maybe one last quick one if it's okay. I think you said that a majority of your Q4 of the backlog and funnel from ways that you shouldn't Q for fell out as part of the cleanup process. I mean again can you share what that number is I'm just trying to get a sense of what your gross adds.

Speaker Change: Log and funnel, we're in Q1, yeah. So.

Speaker Change: We the stuff that fell out and the stuff that installed starting in Q at the end of Q3. So we had visibility to starting to tell people, we could give them firm delivery date, starting and January.

Speaker Change: Sorry, 90% of the total funnel that exists at the end of Q3 24 fell out only about 10% of that funnel, which was about also about 3500.

Speaker Change: Either installing or carrango over and more of the installs that occurred for example in Q1 were things that were sold in Q4 and went into the final.

Speaker Change: The funnel is continuing to grow and you know until we could actually install I was extremely reluctant to give people you know kind of a.

Speaker Change: Book to Bill kind of cadence and you know really even in RPO now that we've got at least a couple of quarters, where we could give people actual install dates with S. L. A commitments associated with it.

Speaker Change: You know I can look at the I P funnel and have great deal of clarity around this conversion rate on a monthly basis. I think you know what we've said of you know 4% to 5% is.

Speaker Change: I'm, hoping that conversion rate actually accelerates as the funnel grows and we demonstrate to customers. We can really deliver but the fact that we've actually delivered services now in 329 sites I.

Speaker Change: Additions to the backlog and funnel in the quarter, which would I guess intanded with your expected install it kind of gets you that 10000 by year end that is correct.

Speaker Change: Okay, great well. Thank you guys Hey, Thanks, Nick you have a question from Michael Roll. It's at City. Please go ahead.

Michael Roll: [noise] I date good morning, Thanks for taking the questions two if I could so first first if you could discuss the slower internet traffic growth year over year, and what you're seeing also in regards to pricing and the.

Speaker Change: Look at Internet Transit revenue performance within the net centric revenue going forward and then secondly are you seeing any changes in customer behavior in terms of sales cycle decision, making since the beginning of April after the.

Speaker Change: Mind US you know how a slower macro could impact your business performance Yeah, Let me start with the traffic growth number. So if you look at open vault data, which is looking at traffic on the other side, which is and user total.

Speaker Change: That has slowed to about 8%, which is in alignment with what we're seeing kind of on the supply side or upstream component I think there are really three things going on.

Speaker Change: The rate of broadband adoption in countries that have decent access network capabilities has slowed to the number of minutes of use per day has.

Speaker Change: Moderated and third the adoption of video has slowed so at the beginning of the pandemic, we were at about 18% of and.

Speaker Change: Yeah, and five years accelerated to about 54%. It is going to continue to go up from here and in particular, the pivot to more live event available.

Speaker Change: That is helpful, but I do think with a larger video base that application is maturing I also think we're in a period when most of the network.

Speaker Change: Four a is directed at wavelengths because most of that network load is for training and not inference, but as the results of those large language models get should present, a new use.

Speaker Change: Years will use internet connectivity more and bid volumes will go up so we have seen this pattern of kind of oscillations in aggregate demand as applications changed.

Speaker Change: Directly and I think that'll probably continue to be the case, but I think we're going to see over the next year or two a re acceleration at least in bit intensity per user now in terms.

Speaker Change: We have seen yeah the rate of price declines pretty consistent now for 25 years about 22, 23% a year and while there is always some short term very.

Speaker Change: That long term trend line is pretty consistent and I don't think that's going to change even though there is less competition the technology associated with manufacturing those bit miles is.

Speaker Change: To improve pretty significantly so I think we'll see some more price declines for the industry and kind of more of a return to historical traffic growth rates to your last question.

Speaker Change: Sheriffs I'm gonna actually answer it with kind of two different views. One is four our net centrix customers and this could be either wave or IP.

Speaker Change: Most of the time, they need equipment to accept those services, they're not happy that equipment is more expensive. It does have some terrifoad on it as at least a portion of it is.

Speaker Change: But they still need it to deliver service. So I think that's probably an initial shock and in terms of materiality to their overall cost structure I think it's much like cogent, it's not material.

Speaker Change: There's just a shock when that happens, but you know I would say the only thing on the terror front that could potentially impact.

Speaker Change: Eccentric business is if there is an effective content tariffy the movie tariff, which doesn't exist I have no visibility to how that's going to affect end user demand.

Speaker Change: And then on the corporate side I do believe that a number of corporate users are just concerned with the overall macro situation and are we.

Speaker Change: Of reduced or negative growth and higher inflation and for that reason, they're just being more cautious on long term commitments, but again, because we sell a utility I don't think that's going nanim.

Speaker Change: Then the kind of 2008 2009, great financial crisis level of paralysis, and you know our underlying corporate growth continues you know as we've complete this grooming we feel confirm that a.

Speaker Change: Later this year.

Speaker Change: Thanks, Hey, Thanks, Mike.

Speaker Change: Yeah next question comes from the line Optim Huran from Oppenheimer. Your line is open.

Optim Huran: Thanks, guys, Dave can you give us maybe just some timing on the datacenter sale and maybe expectations on price. If you've you know received any and then on the wavelength side have you seen any competitive response.

Optim Huran: You're probably the only competitive response was aimed at the Hyperscaler segment of the wave market and.

Optim Huran: Decision by at least one of our competitors. After 20 years to agree to sell dark fiber, which is a potential substitute for wavelengths, where the customer buys the dark fiber and then produces their own.

Optim Huran: You know I think on the kind of delivery of wavelength services, we have not seen any change in pricing or delivery schedules and what we have heard from good.

Optim Huran: I have not had to pay maybe as aggressive as we thought we would have to be once we had the network fully configure again five months doesn't make a permanent trend, but we feel pretty good.

Optim Huran: The pricing that we're going to market has been well received by customers and viewed as adequately competitive to win share.

Optim Huran: I'm Gonna pivot now to your datacenter question.

Optim Huran: And as I stated earlier, we have a handful of situations, where we are moving from letter of intent to contract. There is nothing that we can announce today.

Optim Huran: We are also continuing to do the work necessary to complete that datacenter conversion, but we think that'll be completed in the next two months, we were pretty clear that we'll have that done by the end of Q.

Optim Huran: Two and we are on track to do that.

Speaker Change: You know and Trump's of pricing I would say the.

Speaker Change: Couple parties that are negotiating leases are similar to our ask price.

Speaker Change: The parties that are negotiated for outright purchase.

Speaker Change: There is a much wider dispersion at least one of the contracts is at the as price, but the others are below that we need to vet the.

Speaker Change: Ability of each of the parties to perform and that's part of what is going on while we are refining economic terms at an L. O into a contract you know because we've never done this before.

Speaker Change: The remain reluctant to give a firm date on when we can do this I think we're making good progress and we'll get this we will monetize some of these but it really does take two parties and the.

Speaker Change: Wherewithal the perform so we're going through that process and I know early in the process you had the ability to tour one of the facilities that was a work in progress and I could assure you. If you go back to that emergency.

Speaker Change: Very different than when you toward it but it's something you think you can get done in like three months or is it more of a you know six month type negotiation.

Speaker Change: Yeah, it's really hard for me to answer.

Speaker Change: Oh to be conservative I would take the longer view, Tim not to shorter view just because.

Speaker Change: We've got parties at the table, but we've got a flush through.

Speaker Change: Oh, what are the conditions they need Matt what is their timeline to close how much is there earnest money deposit what are the outs that they're looking to negotiate and again, there's a fairly broad spectrum from sophisticated.

Speaker Change: Existing datacenter operators to more new business models and.

Speaker Change: L. I just want a maximize value and I think it's going to be more than three months I don't know how much more but you know I think that's probably aggressive to say that there's so an actual close sale.

Speaker Change: Got it thank you.

Speaker Change: Alright, I think we are through our questions. The last topic I'm Gonna touch on just quickly is something that affects me personally and that is that I have due to coaching stock volatility had to samp stay increase some of.

Speaker Change: Okay taxes over the years I have not increased any borrowing but I do want shareholders to be aware that you know I'm trying to be as transparent as possible you know I've been check.

Speaker Change: That is continuing I want to personally thank everyone. Hopefully this new format was more efficient we did get everybody's questions answered and got it down to an hour 15 and.

Speaker Change: Look forward to seeing you all in person soon take care. Thanks Bye bye.

Speaker Change: This concludes today's conference call. Thank you all for joining US you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.