Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communication Holdings first quarter 2035 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 Cogent's 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 Shaffer, Chairman and Chief Executive Officer of Cogent Communication Holdings. Please go ahead.

Thank you, and good morning, everyone. Welcome to our first quarter 2025 earnings conference call. I'm Dave Shaffer, Cogent's Chief Executive Officer, and on this call this morning with me is Tad Weed, our Chief Financial Officer. We have received numerous comments from investors related to the structure of our earnings call. We greatly appreciate their observations and constructive comments, and we've implemented a number of those suggestions in the script that we are using for this call. Please continue to provide additional suggestions to help us refine our reporting. We are well aware that Cochran has undergone significant changes over the past two years, and we want to fully address the impact of those changes on our strategy and our prepared remarks and strive to focus on our growth plans going forward. For the quarter, I'd like to touch on some significant milestones that we achieved. I want to recognize that these achievements are but some of the milestones that we've achieved. We are now offering wavelength services in 883 data centers with 10 gig, 100 gig, and 400 gig capabilities. We have materially been able to reduce our provisioning times to today approximately 30 days. Our wavelength revenues for the quarter were $7.1 an increase of 114% over the same period in 2024. Sequentially, our wavelength connections increased by 18% sequentially, and our wavelength revenue increased by 2.2%. The vast majority of our connections were provisioned near the very end of the quarter. We have sold wavelength services now in 329 locations. We have provisioned and cleaned up our former backlog of wavelength orders. We currently have a backlog and funnel of 3,433 wavelength opportunities. With more wave provisioning experience and the actual ability to deliver services, we now anticipate that between 4 and 5% of this funnel will be installed each month going forward. We also expect, based on the growth in the sales activity, that by year end there will be 10,000 unique wave opportunities in our funnel. We currently have provisioning capacity to install 500 waves per month. We intend to capture 25% of this highly concentrated North American market within three years. Our IPv4 leasing revenue for the quarter increased sequentially by 14.8% to 14.4 million and increased 42% year over year. Due to the scarcity of this valuable asset and the terms of our customer contracts, we have been able to increase our IPV4 leasing pricing. We maintain a consistent acceptable use policy and did retrieve a significant number of addresses in the first quarter from a customer who violated these policies. Our average revenue per IPv4 address sold was $0.49 for the quarter, a 63% increase from the $0.30 installed base number at the beginning of the year. We have titled to nearly 38 million V4 addresses, which is more than any other service provider. We have realized the remainder of our targeted 220 million in cost savings that we outlined at the acquisition of Sprint. We expect to achieve at minimum another $20 million of cost savings through the second quarter of 2026. Demonstrating the impact of these savings on our cost of goods sold, they declined from 31.6 million in the first quarter of last year, and our gross margin increased by 790 basis points from the first quarter of 2024 to 44.6%. Additionally, our SG&A declined by 3.8 million from the first quarter of last year. 10.6 million of the sequential increase in SG&A expenses was due to traditional typical seasonal factors, including annual CPI increases, The timing of vacations taken and the accruals associated with them and the reset of payroll taxes. We are now connected to 3500 on net buildings. We have reconfigured several Sprint acquired facilities. These facilities have been added to our 1668 carrier neutral and 101 Cogent data center footprint. Our Cogent data centers have 183 megawatts of installed and available power. We have converted additionally 79 smaller Sprint facilities into edge data centers. These edge data centers each have approximately 40 rack capability, and in total have about 28 megawatts of additional installed power. So on a combined basis, Cogent has 180 data centers, edge and core, with 211 megawatts of installed power available for customers. After the quarter ended, we repurchased approximately 100,000 shares of our common stock for approximately $5 million at an average price of $53.07 under our stock buyback program. A total of $17.4 million remains available under that program through year-end. A comment on tariffs. We do not anticipate any material impact of tariffs on our business or our CapEx projections. Much of our data center and network conversion equipment has been ordered pre-tariff and a majority has been received. A portion of our network equipment purchases do have tariff input costs, but these are minimal. We recognize that we have increased our leverage due to these activities and our board of directors has elected to slow the rate of dividend growth but continuing that dividend growth rate at a half a cent per share per quarter our dividends for the quarter rose from one dollar and a half cent to one dollar and one cent this represents the 51st consecutive sequential increase on our regular quarterly dividend and an annual dividend growth rate of 3.6%. Now that the Sprint business is combined with our legacy business, and we have fully analyzed the revenue burn-off of undesirable revenues, we are adjusting our long-term annual revenue growth rates to 6% to 8%, and we are increasing the rate at which we anticipate our EBITDA as adjusted margin to expand annually to 150 basis points. Our updated revenue and EBITDA targets are meant to be multi-year goals and not designed to be specific quarterly or annual guidance. We are nearing the ending of grooming of undesirable revenues from Sprint contracts that are set to expire. We expect to return to total top line revenue growth by mid Q3 2025. Finally, I would like to take a moment to recognize one of our long serving board members, Blake Bath, for his outstanding counsel and service to coaching. Blake had served on our board since November of 2006. and elected to retire, and we wish him well in that retirement. Now I'd like to turn things back over to Tad to read Safe Harbor language and give some additional color on our operating performance.

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. FOJA undertakes no obligation to uptake or revise our forward-looking statements. We use non-GAAP financial measures during this call. You will find these reconcile to the corresponding GAAP measurement and our earnings releases that are posted on our website at codeandco.com. Now some comments on results. Our revenue for quarter was $247 million. Our rep productivity increased by 9% to 3.8 units per full-time equivalent rep this quarter, which was an increase from 3.5 units per full-time equivalent rep last quarter. Our EBITDA as adjusted was $68.8 million, which was a $1.9 million increase, and our EBITDA as adjusted margin increased sequentially by 130 basis points of 27.8%. Our EBITDA as adjusted is adjusted for sprint acquisition costs, if any, during the period, and payments under the IP transit agreement with T-Mobile. In accordance with our IP transit services agreement, we received three monthly payments totaling $25 million this quarter same as last quarter 25 million last quarter a year ago we received 87.5 million in the first quarter of 2024 as those payments stepped down in that quarter we will continue to receive an additional 32 monthly payments of 8.3 million each until november of 2027. there are further payments related to lease obligations we assumed at closing that total at least 28 million This amount is to be paid to us in four equal payments from November 27 to February 28. We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength, and non-core, and we analyze our revenues based upon customer type, and we classify our customers into three types, net-centric, corporate, and enterprise. Our corporate business represented 44.9% of our revenues this quarter. It decreased 11.4% year over year and 2.1% sequentially. These decreases in our corporate revenue are primarily due to the continued grooming of low margin off net connections and the elimination of non-core products. Our net centric business continues to benefit from the growth in video traffic activity related to artificial intelligence, streaming, and wavelength sales. Our net-centric business represented 37.5% of our revenues for the quarter, increased 0.7% year over year, and declined sequentially by 1.1%. Our quarterly net-centric revenue under our commercial services agreement with T-Mobile declined sequentially by 0.8 million and was 0.7 million for the quarter, and it declined two and a half million year over year. The decline in revenue from the commercial service agreement from T-Mobile and the negative impact of FX, which was 0.5 million sequentially and 1.3 million year over year had a negative impact on our net centric revenue results. Our enterprise business represented 17.7% of our revenues for the quarter, That revenue decreased by 11.3% year-over-year and sequentially by 4.1%, primarily due to reduction in non-core and low-margin enterprise revenues. On-net revenue. We serve our on-net customers in our 3,500 total on-net buildings. We continue to succeed in selling larger 100-gigabit connections and 400-gigabit connections in carrier-neutral data centers and selling 10 gigabit connections in selected multi-tenant office buildings. Our on-net revenue was $129.6 million for the quarter, a year-over-year decrease of 6.5%, and a sequential increase of 0.9 million or 0.7%. Our sequential on-net revenue results were negatively impacted by the same contract with T-Mobile, the commercial services agreement, 0.8 million sequential decline in on-net revenue and also negatively impacted by 0.5 million of negative FX. Our off-net revenue was $107.3 million for the quarter, a year-over-year decrease of 9.2% and a sequential decrease of 5.2%. Our off-net revenue results are impacted by our migration of certain off-net customers to on-net and and the grooming and continued grooming and termination of low margin off net contracts. Comments on pricing. Our average price per megabit for our installed base decreased sequentially by 6% to 20 cents and decreased by 25% year over year. This is consistent with historical trends. Our average price per megabit for our new customer contracts for the quarter was 10 cents, a sequential price per megabit decrease of 10% and 5% year-over-year. Some ARPU churn statistics. Our ARPUs for the quarter were our on-net ARPU was 496, our off-net ARPU was 1,266, our wavelength ARPU was 1,945, and our IPv4 revenue per address for the quarter was 49 cents. On churn, our on-net monthly churn rate was 1.4% and off-net monthly churn rate was 2.2%. Our network traffic was flat sequentially for the quarter, but increased 8% year over year. Foreign currency comments, our revenue earned outside the United States is reported in US dollars and was about 18% of our revenues this quarter. The average Euro to USD rate so far this quarter is $1.12, and the average Canadian dollar rate is 72 cents. Should these averages remain at the current levels for the remainder of this quarter, the FX conversion impact on sequential revenues would be $2 million, and the positive impact year over year would be $1.2 million. We believe that our revenues and customer base is not very highly concentrated. Our top 25 customers were 18% of our revenues for the quarter. CapEx, Our total CapEx for the quarter was $58.1 million. Our principal payments on capital leases declined to $8 million for the quarter. We are continuing our network integration of the former Sprint network and legacy Cogent network into one unified network and converting former Sprint switch sites into Cogent data centers. We have accelerated and expanded our data center conversion program due to the high level of demand for our power availability. spending for the first half of 25 similar to the last half of 24 and then decline in the second half of 25. our total gross debt at par including our finance lease obligations was 2 billion at quarter end and our net debt was 1.8 billion our total gross debt to the last 12 months even as adjusted ratio was 6.69 at quarter end and net debt was 6.08 As calculated under our note indentures, our leverage ratio was 5.86, secured leverage ratio was 3.44, and fixed coverage was 2.8. Finally, our day sales outstanding was 29 days at quarter end, the same as the end of the year, and our bad debt expense was 2.1 million, which was less than 1% of our revenues this quarter. I'm turning the call back over to Dave.