Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cogent Communications Holdings Inc (CCOI, Financial) achieved substantial cost savings of $165 million, which is 75% of their targeted $220 million in annual savings from the Sprint acquisition.
- The company's wavelength revenues increased significantly by 45.8% sequentially and 76.7% year over year.
- Cogent Communications Holdings Inc (CCOI) reported an 8% sequential increase and a 19% year-over-year increase in network traffic.
- The company improved its sales force productivity, increasing from 3.8 installed orders per rep per month in Q2 to 4 orders per rep per month in Q3.
- Cogent Communications Holdings Inc (CCOI) increased its quarterly dividend for the 49th consecutive time, reflecting confidence in its cash flow generation capabilities.
Negative Points
- Total revenue was impacted by the grooming of low-margin off-net connections and the elimination of non-core products, leading to a decline in certain revenue streams.
- Revenue from the commercial services agreement with T-Mobile decreased sequentially by $1.8 million.
- The company's EBITDA as adjusted decreased due to a scheduled reduction of $41.7 million in payments under the IP transit services agreement with T-Mobile.
- Cogent Communications Holdings Inc (CCOI) experienced an increase in net debt ratio from 3.14 to 4.13, primarily due to the reduction in IP transit payments from T-Mobile.
- The cost of goods sold increased by $5.3 million due to expenses related to converting former Sprint switch sites and vendor contract termination costs.
Q & A Highlights
Q: Can you comment on the recent uptick in the wavelengths business and the backlog growth?
A: David Schaeffer, CEO, explained that Cogent has significantly increased the number of endpoints for wavelength services and expects to reach over 800 sites by year-end. The company is working to reduce provisioning times to about two weeks. While some backlog orders may not be installed, the company anticipates accelerated funnel expansion in 2025 as they demonstrate success in delivering wavelengths.
Q: How should we think about the network cost side and its impact on future quarters?
A: David Schaeffer, CEO, noted that costs will improve due to the elimination of unprofitable products and the resolution of a complex contract buyout. While some smaller contracts will impact 2025, the company is also accelerating the conversion of data centers to meet market demand, which will require elevated capital spending through mid-2025.
Q: Can you provide more color on the on-net revenue decline and future expectations?
A: David Schaeffer, CEO, attributed the decline to a $1.8 million reduction in the commercial services agreement with T-Mobile and a $3.5 million impact from terminating a low-margin contract. The company is focused on grooming low-margin off-net services and expects this process to continue into 2025.
Q: What is the status of the data center sale process, and could they sell for less than the $10 million per megawatt marker?
A: David Schaeffer, CEO, stated that while the company is investing in data center conversions to meet market demand, the pricing will depend on market conditions. The company is conducting a quiet auction with multiple counterparties and is open to both sales and long-term leases.
Q: How is Cogent addressing the IP address leasing market, and what is your view on price elasticity?
A: David Schaeffer, CEO, mentioned that demand remains robust despite a price increase. The company is seeing growth in leasing volumes and pricing, particularly for large block sales. Cogent is confident in its ability to continue growing this revenue stream.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
