Cogent Communications Holdings, Inc.

and welcome to the Cogent Communications Holdings Third Quarter 2020 Earnings Conference Call and Webcast. As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com. I would now like to turn the call over to Mr. Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communications Holdings. You may begin.

Hey, thank you, and good morning to everyone. Welcome to our third quarter 2020 earnings conference call. I'm Dave Schaefer, Cochran's Chief Executive Officer. With me on this morning's call is Sean Wallace, our Chief Financial Officer. We continue to believe in the long-term strength of our business, the growing importance and breadth of our network, and the increasing profitability of our operations. We also remain confident in the importance of our products and services to our customer base, which continues to utilize Cochran's Internet services for their mission-critical operations. Fundamentally, the interconnectivity and volume of traffic among businesses, service providers, carriers, and data centers continues to grow at extremely high rates. and we operate important infrastructure that supports that growth. As discussed in previous earnings calls, our churn remains within historical averages, and we are not seeing any significant changes to our customer base. However, we are continuing to see new and existing customers take a cautious approach to new configurations and upgrades, as well as continued reduction in demand for services at smaller satellite offices for our corporate customers. We continue to see challenges and uncertainties related to incremental sales directly related to the COVID-19 pandemic. Our third quarter revenues grew sequentially at nine tenths of a percent to $142.3 million and increased 3.9% on a year-over-year basis. On a constant currency basis, we experienced quarterly revenue decline of 0.2% and achieved a year-over-year quarterly revenue growth on a constant currency basis of 3.1%. We continue to operate an efficient network which serves a growing number of markets, buildings within those markets, and is able to handle the continued growth and traffic volume on our network. Our non-GAAP gross profit grew by 0.8% sequentially and 7.5% year-over-year, despite a modest decline in margins. Our non-GAAP gross margin improved by 200 basis points year-over-year. Continued disciplined expense controls enabled us to reduce the level of our SG&A for a quarter-on-quarter. At the same time, we supported a 4.4% sequential increase in the number of sales reps selling our products. As a result, our EBITDA margin improved to a historic high of 38.4%, which was a 60 basis point sequential improvement and a 150 basis point year-over-year improvement. Our EBITDA grew sequentially by 2.3% and 8.1% year-over-year. The performance of our existing customer base continued to be strong despite the impact of COVID-19. Customer churn, bad debt, and DSOs remained strong. within our historical norms and our cash collections for the quarter performed above expectations. We believe that these statistics indicate the strong credit quality of our customer base and the importance of cogent services to those organizations. Towards the end of the quarter, we began to see positive trends in network traffic. The reintroduction of sporting events and the reopening of schools, even with remote learning, reinvigorated traffic growth. For the third quarter, traffic growth grew slightly less than 1% on a sequential basis and grew 35% year over year. September was the best month of the quarter in terms of traffic growth, And our October traffic growth acceleration continued and was approximately 8% above the traffic volumes of September. During the quarter, we returned $32.7 million to our shareholders through our regular quarterly dividend. We also purchased $3.3 million of common stock through October 31st. And as of October 31st, 2020, we had approximately $31.6 million available to us under our authorized stock buyback program, which our board has authorized to continue through December 2021. Our cash held at Cogent Holdings was $134.3 million at quarter's end. That cash is unrestricted and available to be used for dividends and or stock buybacks. Cash held at our operating companies was $259 million at quarters end, and our total combined cash was $393.3 million at quarters end. Our gross leverage ratio increased to 5.08 to 5.10 from quarter over quarter, and our net leverage ratio increased to 3.24 from 3.07. These leverage ratios increased primarily related to the $17.4 million increase in the U.S. dollar translated value of our $350 million of euro-denominated notes outstanding. Our consolidated leverage ratio is calculated under our Debt indenture was 4.99 at quarter's end. Our board of directors, which reflected on the strong cash generation capabilities of our business and looked at other investment opportunities, has decided to increase our quarterly dividend by another 2.5 cents per quarter, sequentially raising our dividend from 70.5 cents per share in Q2 to 73 cents per share. The increase represents the 33rd consecutive sequential increase in our regular quarterly dividend, and our dividend growth rate is 14.1%. Now I'd like to ask Sean to read some safe harbor language and give an additional update on COVID-19 and some review of our operating performance.

Thank you, Dave, and good morning to everyone. 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 measurements in our earnings release, which is posted on our website at www.cogentco.com. A little update on COVID-19. Like many other companies, Cogent continues to be impacted by the COVID-19 pandemic and the accompanying responses by governments around the world. Virtually 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, contractors, and other employees who continue to work on the front lines, installing our new customers, and maintaining and upgrading our network so that we can continue to serve our customers. The ultimate impact of the pandemic on Cogent is unknown, as a significant amount of uncertainty and volatility remains. We do not know the scope and duration of the pandemic, what actions governments may take in the future in response to the pandemic, and how the pandemic will impact the economies of the world. While Cogent is working remotely, we have no assurance that this will be sufficient to protect our workforce, and our key employees. Moreover, our results of operations may be adversely affected in the future as the pandemic and the related government restrictions continue. We may see slowdowns in new customer orders, find it difficult to collect from customers who are experiencing financial distress, encounter difficulties accessing the buildings and locations where we install our new customers and serve existing customers, or have difficulties procuring, shipping, or installing necessary equipment on our network. We may also find that our corporate customers, our largest customer base, which is served primarily in our on-net multi-tenant office buildings, may be adversely affected by falling demand for commercial office space in central business districts as companies located in these buildings elect not to return to their office space either on a temporary or even a permanent basis. We have also seen our satellite office locations decline as certain customers either disconnect certain offices or elect not to purchase direct Internet access or virtual private network connections for smaller offices. 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 10-K for the year ended December 31, 2019, and in our quarterly reports on Form 10-Q for the quarters ended June 30, 2020, and March 31, 2020. Throughout our discussion, we will highlight several operational statistics. I will review in detail certain operational highlights and trends. Following our remarks, we will open up the call for Q&A. Now I'd like to turn it over to Dave.