Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communications Holdings Second Quarter 2020 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 the same 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 Holdings.

Thank you and good morning to everyone. Welcome to our second quarter 2020 earnings conference call. I'm Dave Schaeffer, Cogent's CEO, and with me on this morning's call is Shawn Wallace, our Chief Financial Officer. We continue to be optimistic about the underlying strength in our business, the growing importance and breadth of our network, and most importantly, the increasing profitability of our operations. We remain confident in our outlook for 2020 and beyond, even with the continuing impact and uncertainty due to the COVID-19 pandemic. On a constant currency basis, we achieve sequential growth A reduction in universal service fees, excise taxes, and the rate associated with them this quarter reduced our sequential quarterly revenues by $450,000. On a constant currency basis, and adjusting for the impact of this change in USF rate, our sequentially quarterly revenue growth would have been one-half of 1%. We continue to take advantage of the operating leverage in our network. We manage also to moderate our SG&A expense growth. Our network scale helped our quarterly gross margins reach yet another company record of 62%. This margin was sequentially 150 basis points higher and 220 basis points higher than a year-over-year number for the quarter ending in June 2020. Our EBITDA margin at 37.8% also improved and was sequentially 200 basis points higher and 290 basis points higher on a year-over-year basis. Our cash flow from operations grew sequentially by 45%. Our customer performance and metrics continue to be strong in spite of the impact of COVID-19. Customer churn, bad debt, and sales outstanding all performed within historical norms, and our cash collections in the month of June were on all-time record. We believe that these statistics indicate the strong credit quality of our customer base and the importance of coach and service to these organizations. We continue to see strong growth in traffic across our network as quarterly traffic growth accelerated from 36% year-over-year in the first quarter to 49% this quarter, and sequentially traffic grew from the first quarter of 2020 to the second quarter by 10%. The rapid growth in traffic was driven by increased streaming applications, A full quarter of the work from home phenomena and gaming and other applications that have seen an increase in usage due to the pandemic. During the quarter, we returned $31.7 million to our shareholders through our regular quarterly dividend. We did not purchase any common stock during the quarter. At quarter end, we have a total of $34.9 million available in our stock buyback authorization program, which has been authorized to continue through the end of the year by our board. In June, we demonstrated our continual ability to access the capital markets when we issued a tack-on offering to of 215 million euros to our existing 135 million euro-denominated unsecured notes. The net proceeds from this offering were 240.3 million dollars. A portion of those proceeds were used to redeem at par our 189.2 million dollars of its outstanding unsecured 2021 notes. This also provided us additional cash. As a result of these transactions, our average interest rate fell, we extended the duration of our indebtedness, and we were able to transfer $117 million in our builder basket from our operating company to our holding company. Our cash at Cogent Holdings was $166.5 million at quarter end. This cash is unrestricted and available for dividends and stock buybacks. Cash held at our operating companies, in addition to that held at the holding company, was $250.5 million, giving Cogent, a combined cash balance of $417 million at quarter end. Our gross leverage ratio increased to 5.08 from 4.78 from last quarter, and our net leverage ratio increased to 3.07 from 2.92. Our consolidated leverage, as calculated under the note indentures, was 4.92 at quarters end. After careful consideration, our board of directors evaluated the strength and growth in our business as well as its cash generating capabilities and investment opportunities for the company. We decided to increase our quarterly dividend at the rate of two and a half cents this quarter Therefore, raising our dividend from 68 cents per share last quarter to 70.5 cents in the third quarter. This increase represents the 32nd consecutive sequential increase in our growth of our quarterly dividend, and this increase is larger than the roughly two cents increase and Q2 of 2020. Now I'd like to turn the call over to Sean Wallace, welcoming Sean as our CFO, and Sean will read both our safe harbor language and give some overview of our response to COVID-19.

Thank you, David, and good morning, everybody. This earnings conference call includes forward-looking statements. These forward-looking statements are based on our current intent, belief, and expectations. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our SEC filings for more information on the factors that could cause actual results to differ. Cogent undertakes no obligation to update or revise our forward-looking statements. If we use non-GAAP financial measures during this call, You will find these reconciled to the GAAP measurement in our earnings release, which is posted on our website at www.cogentco.com. A few words on the COVID-19 update. Like many other companies, Cogent continues to be impacted by the COVID-19 pandemic and the accompanying responses by governments around the world. Our entire workforce continues to work remotely. I want to thank the entire Cogent workforce, and in particular, Our IT department for their hard work during these challenging times. I also want to thank our field engineers and other employees who continue to work on the front lines, installing new customers and maintaining and upgrading our network so that we can continue to serve our customers. During the second quarter of 2020, the impact of the COVID-19 pandemic on Cogent was somewhat limited. We did experience a decrease in our sales productivity, particularly in sales to corporate customers. Traffic on our network continues to grow at an accelerated rate compared to our historical growth rates. However, the traffic growth rate for the quarter was slower than the traffic growth rate at the end of the first quarter. The ultimate impact of the pandemic on Cogent is unknown as the significant amount of uncertainty and volatility remains. We do not know the scope and duration of the pandemic, Thank you. Thank you. Thank you. and David Kapp, Jean-Michel F.F Slagmuylder, Vincent Teissier as companies located in these buildings elect not to return to their office space either on a temporary or even on a permanent basis. The global economic impact of the COVID-19 pandemic may have prolonged effects that impact our business well into the future. These and other risks are described in more detail in our quarterly report on Form 10Q for the quarter that will be filed shortly after this call and in our annual report on Form 10K for the year ended December 31st, 2019, and in our quarterly report on Form 10-Q for the quarter ended March 31st, 2020. Throughout this discussion, we will highlight several operational statistics. I will review in greater detail certain operational highlights and trends. Dave will provide additional details on the network, and following our remarks, we will open the call up for Q&A. Now I'd like to turn it back to Dave.