Cogent(US:CCOI)2020-08-09 19:49Financial Data and Key Metrics Changes - The company achieved sequential quarterly revenue growth of 0.2% and year-over-year revenue growth of 5.1% on a constant currency basis [4][45] - Gross margins reached a record 62%, improving by 150 basis points sequentially and 220 basis points year-over-year [6] - EBITDA margin improved to 37.8%, up 200 basis points sequentially and 290 basis points year-over-year [6][41] - Cash flow from operations grew sequentially by 45% and increased by 1.7% year-over-year, totaling $41.3 million for the quarter [7][50] Business Line Data and Key Metrics Changes - Corporate business, representing 69% of revenues, grew year-over-year by 5.1% and sequentially by 1% [22][27] - NetCentric business grew 3.6% year-over-year but was flat sequentially [22][29] - On-net revenue increased by 6.5% year-over-year, while off-net revenue decreased by 0.4% year-over-year [31][32] Market Data and Key Metrics Changes - The company experienced a 49% year-over-year growth in network traffic, driven by increased streaming applications and remote work [8][59] - Customer connections for corporate customers decreased by 0.4% sequentially but increased by 1.4% year-over-year [28] - NetCentric customer connections increased by 9.3% year-over-year [29] Company Strategy and Development Direction - The company remains focused on Internet connectivity and data center co-locations, targeting small and medium-sized businesses [68] - The company is optimistic about its position in emerging markets, particularly in Africa, and continues to expand its network globally [55][68] - The Board authorized a 32nd consecutive increase in the quarterly dividend, reflecting confidence in cash-generating capabilities [12][71] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the underlying strength of the business despite uncertainties from the COVID-19 pandemic [4][17] - The company noted that while sales cycles have lengthened, there is an increase in customer conversations and opportunities [80][94] - Management believes that the demand for Internet connectivity will remain strong as businesses adapt to new operational models [68][98] Other Important Information - The company returned $31.7 million to shareholders through dividends and has $34.9 million remaining in its stock buyback authorization [9][72] - The company’s cash balance at quarter-end was $417 million, with gross leverage ratio increasing to 5.08 [11][51] - The average price per megabit for the installed customer base decreased by 10.2% sequentially, while new customer contracts saw an increase of 17.2% [34] Q&A Session Summary Question: Should the increase in quarterly dividend be expected as a target going forward? - The Board decided to increase the dividend growth rate to $0.025 due to accelerating free cash flow, and this will be evaluated each quarter [75] Question: What is the impact of COVID on corporate customer sales? - COVID has led to increased bandwidth needs for remote work, but also a reduction in VPN sales due to shuttered offices, resulting in longer sales cycles [76][80] Question: What drove the increase in new customer contracts' average price per megabit? - The increase is attributed to a higher proportion of gigabit connections being sold compared to lower bandwidth options, which raises ARPU [82] Question: What is the outlook for IRUs and their impact on costs? - The renewal of a significant IRU agreement resulted in a reduction of COGS and is expected to benefit EBITDA going forward [87][88] Question: Concerns about the trend of large commercial buildings and VPN services? - There is a concern about reduced office connectivity needs, but management believes this is a temporary trend as offices will eventually reopen [86][92]