Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communication Holdings fourth quarter 2020 and full year 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. Cogent's summary of financial and operational results attached to its press release can be downloaded from the Cogent website. I would now like to turn the call over to Mr. Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communication Holdings.

Thank you and good morning to everyone. Welcome to our fourth quarter 2020 and full year 2020 earnings conference call. I'm Dave Schaefer, Cogent's CEO. And 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 operations. We remain confident in the importance of our products and services to our client base, which continues to utilize Cochran's internet services for mission-critical products for their operations. Fundamentally, the interconnectivity and volume of traffic among businesses, service providers, carriers, data centers continues to grow at an extremely high rate, and we are an important part of the infrastructure to facilitate that growth. We believe that our investment in expanding our network to international markets combined with our leadership and connectivity to carrier-neutral data centers continues to position Cogent uniquely for the globalization of the internet. As discussed in previous earnings calls, our churn levels remain within historical averages. In fact, we experienced a modest decline in both our on-net and off-net customer churn during the fourth quarter, which is encouraging considering the environment in which we are operating. Despite this improvement, We continue to see new and existing corporate customers taking a cautious approach to new configurations and are also continuing a reduction in demand for services to some of their smaller satellite offices. We see these challenges and uncertainties related to incremental sales as a direct result of the COVID-19 pandemic. Despite the pandemic-related challenges, our fourth quarter revenues grew sequentially by 1.1% to $143.9 million and increased 2.6% on a year-over-year basis. Our full-year 2020 revenue increased by 4% to $568.1 million from full-year 2019. On a constant currency basis, we experienced quarterly revenue increase sequentially of 0.7% and achieved a year-over-year quarterly revenue growth rate of 1.2%. We continue to operate an extremely efficient network which serves a growing number of markets and buildings and is able to handle a continuous growth in traffic at a fixed cost basis. We experience year-over-year and sequential growth in our gross profit, gross profit margin, EBITDA, and EBITDA margin. Our gross profit grew by 1.4% sequentially and grew by 5.6% year-over-year. Our gross profit grew by 7% from full year 2019 to full year 2020. Our gross margin percentage improved by 20 basis points sequentially to 62.1% and grew by 180 basis points on a full year over year basis. Our gross margin percentage improved by 170 basis points on year over year, excuse me, and 180 on a quarterly basis, our EBITDA quarterly margin increased by 110 basis points from the fourth quarter of 2019 to 38.7%. This is also an increase of 30 basis points sequentially and an increase of 150 basis points for full year 2019. Our quarterly EBITDA grew by 2% sequentially and grew by 5.6% year over year. Our full year 2020 EBITDA was $214 million, an increase of 8.1% from full year 2019. The performance of our existing customer base continued to be strong despite the impact of COVID-19. Customer churn, bad debt, and days of sales outstanding on our cash collections all performed within historical norms in the quarter. And as I noted earlier, our churn slightly declined from the third quarter, and additionally, our bad debt improved. We believe these statistics indicate the strong credit quality of our customer base, and the fundamental importance of coaching services to their organizations. We continue to see positive trends in network traffic. We believe that the growth in network traffic is being driven by a variety of factors, including the continued internationalization of the Internet, of which we are an outstanding beneficiary. we continue to see success in distributing streaming products. Consumers are purchasing a greater number of streaming subscriptions than was previously expected, and this is driving a greater increase in demand for bandwidth from streaming operators. This growth in demand for streaming subscriptions is also requiring our access network customers to increase their capacity purchases from Cogent in order to meet the needs of their end users. Operators and publishers all seem to be enhancing capacity to improve the speed and quality of their services and differentiate their products. All of these factors require more bandwidth. For the fourth quarter, our traffic was up 14% on a sequential basis, and on a year-over-year basis in the fourth quarter, our traffic was up 41%. And for full year 2020 versus 2019, our traffic increased by 39%. the annual rate of traffic increase increased from 35% in 2019 to the 39% in 2020. And this increase in volume of traffic on our network actually exceeded the total amount of traffic that Cochran carried only five short years ago in 2015. During the quarter, we returned $34.4 million to our shareholders through our regular quarterly dividend, and our dividends for the full year were $129.4 million. During the quarter, we also purchased $4.2 million of common stock as of the end of January 2021. we have a total of $30.4 million still available in our stock buyback program, which is authorized to continue through the end of December 2021. For full year 2020, we purchased $4.5 million of common stock, or approximately 79,000 shares of stock. Our cash held at Cochin Holdings was $94 million at quarter end. This cash is unrestricted and available to be used for dividends and or stock buybacks. Cash held at our operating companies was $277.3 million, and our total cash on a consolidated basis is $371.3 million at the end of the quarter. Our gross leverage ratio increased from 5.10 to 5.14 last quarter, and our net leverage increased to 3.40 from 3.24. Our consolidated leverage ratio, as calculated under our debt indentures, was 5.06 at quarters end. The leverage ratio increase is primarily as a result of the $18.9 million increase in the cost of our European denominated debt due to the U.S. dollar to euro translation. This was more than offset by our increase in consolidated cash flow. Our Board of Directors which reflects on our business's strong cash flow generating capabilities and investment opportunities, has again decided to increase our quarterly dividend by another 2.5 cents per share, sequentially raising our dividend from 73 cents a share in the third quarter to 75.5 cents for the fourth quarter. This increase represents the 34th consecutive sequential quarter in which we have increased our regularly quarterly dividend. The dividend is growing at a compounded growth rate of 14.4%. Now I'd like Sean to spend a moment reading some safe harbor language and giving a little more color on the impact of the pandemic.

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 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. An 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 continued hard work during these very challenging times. I also want to thank our field engineers, contractors, billing and collection staff, and other Cogent 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, and 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 most Cogent employees are 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 new customers and serve existing customers or have difficulties procuring, shipping, or installing 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. Companies located in these buildings may elect not to return to their office space either on a temporary or even on a permanent basis. We have also seen customer additions of satellite office locations decline as 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 annual report on Form 10-K for 2020 that will be filed shortly after this call, and in our quarterly reports on Form 10-Q for the quarters ended September 30, 2020, June 30, 2020, and March 31, 2020. Throughout this discussion, we will highlight several operational statistics. I'll review in greater detail certain operational highlights and trends. Following our remarks, we'll open up for Q&A. Now I'd like to turn it over back to Dave.