Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communications Holdings Third 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 the call over to Mr. Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communications Holdings.

Hey, thank you, and good morning, everyone. Welcome to our third quarter 2021 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. Now for a few comments on our results. As the focus of the pandemic-related efforts of companies have shifted to a broad reopening of the US and global economy, and as most large businesses have developed plans and deadlines to reopen their offices, we've seen signs of improvement in our corporate business climate. However, despite this improvement, the Delta variant has delayed a large portion of these back-to-work plans to early next year, and many key indicators of office activity remain significantly below normal levels. In many U.S. northern cities and in Canada, we see that rates of employees working in offices and the leasing of commercial office space and central business districts remain significantly below historical levels. Our net-centric business continues to benefit from the greater-than-expected growth in streaming subscribers and the continued internationalization of the Internet, where our global footprint positions Cogent as the best network to deliver end-to-end on a global basis for our customers. For the third quarter, our traffic growth moderated somewhat from the fast pace in previous periods, but was up 1% sequentially and 25% on a year-over-year basis. Despite these improvements, we remain cautious in our near-term outlook in the uncertain economic environment and the challenges that are continuing because of the pandemic. On a U.S. GAAP basis, our revenue was up slightly to $147.9 million in the quarter, an increase by 4% on a year-over-year basis. On a constant currency basis, we experienced sequential quarterly revenue growth of one-half of a percent and an improvement in our year-over-year growth rate to 3.6%, From the 2.8% constant currency growth rate in Q2, we continue to make progress with our sales force. Our sales force productivity was 4.3 orders installed per full-time equivalent rep in the quarter. We continue to operate an extremely efficient network. Our network services are continue to be expanded into new markets, additional carrier-neutral data centers, and multi-tenant office buildings, and is able to handle the continued increase in traffic volume at a relatively fixed cost basis. The operating leverage because of our network has allowed us to achieve both year-to-year and sequential growth in EBITDA and EBITDA margins. Our quarterly EBITDA grew 1% sequentially and grew by 5.8% year over year. Our quarterly EBITDA margin was 39%, the best in the company's history, which is an increase of 30 basis points on a sequential basis and 60 basis points on a year over year basis. The performance of our existing customer base continues to be strong, throughout the entire pandemic. Bad debt expense and our customer cash collections remain within historical levels. Our days of sales outstanding improved to 21 days, equaling the best DSOs in the company's history. Churn rates continue to decline, in particular in our corporate segment. We believe these statistics demonstrate the strong credit quality of our customer base and maybe most importantly, the importance of the Internet and cogent services to these organizations. As our business continues to expand, we lit our 3,000th building in the quarter and now have 3,008 buildings directly connected to the cogent network that now serves 50 countries around the world. During a quarter, we returned $37.7 million to our shareholders through a regular dividend. We did not purchase any stock during a quarter and have a total of $30.4 million available for stock buybacks in volatile situations as our board has authorized this to continue through December 2022. Our cash held at Cochran Holdings is $111 million at quarter end. Cash held in our operating companies is $244 million at quarter's end. And therefore, our total consolidated cash is $355 million at the end of the third quarter. Including cash at Holdings, we have a total of of $226 million that is permitted under our indentures to be available to be returned to shareholders either for dividends or stock buybacks. Our gross leverage ratio was 5.07 in the quarter, and our net leverage was 3.50. Our consolidated leverage, as calculated under our indentures, however, was slightly lower than with a gross leverage of 5.02 and a net leverage of 3.47. Our board of directors reflected on the strong cash flow generating capabilities of our business and the investment opportunities that we have and decided an increase in our quarterly dividend of 2.5 cents was appropriate. raising our dividend sequentially by 3.1% from 80.5 cents a share in the second quarter to 83 cents per share in this quarter. The dividend increase represents our 37th consecutive sequential increase in our regular dividend, and our annual dividend growth rate is 13.7%. Now I'd like to turn it over to Sean to read our safe harbor language and provide some updated information on our responses to the COVID-19 pandemic and review some of the 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. COGEN 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.coginco.com. Quick update on COVID-19. Like many companies, Cogin continues to be impacted by the lingering effects of the COVID-19 pandemic and the accompanying responses by governments around the world. In October of this year, our entire U.S. workforce returned to our offices after 18 months of working remotely. A majority of our offices in the rest of the world continue to work remotely, although our employees outside of the United States are scheduled to return to their Cogent offices by the end of the year. I want to thank the entire Cogent workforce, and in particular our IT and finance departments, 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 of installing our new customers, maintaining and upgrading our network, and providing outstanding customer service. The COVID-19 risks 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 September 30, 2021, June 30, 2021, and March 31, 2021. 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 questions and answers. Now I'd like to turn it back over to Dave.