Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communications Holdings Second Quarter 2021 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 it over to Mr. Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communications Holdings.

Thank you, and good morning to everyone. Welcome to our second quarter 2021 earnings conference call. I'm Dave Schaefer, Cogent's Chief Executive Officer, and with me on this morning's call is Sean Wallace, our Chief Financial Officer. As a result of the pandemic-related efforts that have shifted towards a broad reopening of the U.S. economy, and as many large businesses have developed plans and deadlines to reopen their offices, we've seen some signs of improvement in the business climate for our corporate segment. Our net-centric business continues to benefit from the greater than expected growth in streaming subscribers and the continued internationalization of the internet and the streaming phenomenon, where our global footprint positions Cogent as the best network to deliver traffic on an end-to-end basis globally. For the second quarter, our traffic growth moderated somewhat from the fast pace of growth in previous periods, but was up 1% sequentially in what is traditionally a seasonally slow period and increased 25% on a year-over-year basis. Despite these improvements, we remain cautious in our outlook given the uncertain economic climate and the challenges that have resulted as the continuation of the pandemic and the emergence of the Delta variant. Our second quarter revenues grew sequentially by 0.8% to $117.9 million, an increase of 4.9% on a year-over-year basis. On a constant currency basis, we experienced sequentially revenue growth of 0.6% and a year-over-year constant currency growth rate of 2.8%. We've made progress with our sales force as our sales rep productivity improved to 4.5 installed orders per month per full-time equivalent, up from 4.3 in the previous quarter, and the turnover rate in our sales force, our sales rep churn rate, declined from 6.6% a month to 5.6% per month on a sequential basis. We continue to operate an extremely efficient network. Our network services are able to be received in a growing number of markets, additional carrier neutral data centers, and multi-tenant office buildings, and is able to handle a continuing growth in traffic volume at a fixed cost basis. This operating leverage allows us to achieve year-over-year and sequential growth in our EBITDA and EBITDA margin. Our quarterly EBITDA grew by 2.9% and grew by 7.2% on a year-over-year basis. Our quarterly EBITDA margin was $38. which is an increase of 90 basis points, both on a sequential and on a year-over-year basis. The performance of our existing customer base continues to be strong throughout the pandemic. Customer churn, day sales outstanding, and cash collections all are within historical norms. Bad debt as a percentage of our revenue improved sequentially and also improved on a year-over-year basis. We believe that these are strong indicators of the credit quality of our customer base and the seminal importance of our services to these organizations. During the quarter, we returned $37 million to our shareholders through our regular quarterly dividend. We did not repurchase any stock during the first quarter and have a total of $30.4 million available for buybacks under our stock repurchase program, which has been authorized through December 31, 2021. Our cash held at Cogent Holdings was $148. million at quarter end. This cash is unrestricted and available to use for dividends and or stock buybacks. Cash held at our operating company was $225.7 million, and our total cash in both operating and holding companies were $374 million at quarter end. Our gross leverage ratio was 5.13, and our net leverage ratio was 3.45 at the end of second quarter 2021. Our consolidated leverage ratio, as calculated under our indentures, was slightly lower at 5.10. In the second quarter, we successfully issued $500 million of 3.5% senior secured notes due in 2026. The proceeds from this offering were primarily used to retire our $445 million of 5 and 3-8 senior secured notes that were due in 2022 and provide us additional liquidity. A couple of things to note regarding this financing. We're gratified to receive a ratings upgrade by Standard & Poor's and now have a Senior Secured Rating, BA3BB, which we believe reflects the strength of the company's operational excellence and financial conditions. This $500 million fundraising was the largest in the company's history, and the 3.5% interest rate that we achieved was the lowest interest rate the company has paid on debt. We expect to save approximately $6.5 million in interest expense as a result of this transaction, in addition to receiving $55 million of incremental liquidity. with regard to dividends, our board of directors, which reflected on the strength and the cash flow generating capabilities of our business, the investment opportunities that we remain disciplined in executing, and the ability to deploy capital internally to grow our sales force, decided to increase our quarterly dividend yet again by another two and a half cents a share, therefore raising our quarterly dividend from 78 cents per share to 80.5 cents per share in the second quarter to be paid in the third quarter. This increase represents the 36th consecutive sequential increase in our regular quarterly dividend And our dividend grew at a rate of 14.2% year over year. Now I'd like to turn things over to Sean to read our safe harbor language, give a little more color on our COVID-19 policies and challenges, and review some of our operating performance for the quarter.

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 many other Cogent employees who continue to work on the front lines installing our new customers, maintaining and upgrading our network, and providing outstanding services to our customers. These and other risks are described in more detail in our annual report on Form 10-K for 2020 and in our quarterly reports on Form 10-Q for the quarters ended June 30, 2021, March 31, 2021, and September 30, 2020. Throughout this discussion, we will highlight several operational statistics. I will review in greater detail certain operational highlights and trends. Following our remarks, we'll open up the call for Q&A. Now I'd like to turn it back over to Dave.