Cogent(US:CCOI)2020-05-08 23:03Financial Data and Key Metrics Changes - The quarterly gross margin reached a record high of 60.5%, increasing sequentially by 20 basis points and year-over-year by 70 basis points [4] - EBITDA margin for the quarter increased by 30 basis points year-over-year to 35.8% [5] - Quarterly revenue growth was 5.6% year-over-year, with a sequential growth of 0.6% on a constant currency basis [5][34] - Cash held at Cogent Holdings at quarter end was $80.5 million, with total combined cash of $375.1 million [7][38] - Basic and diluted income per share was $0.20 for the quarter, compared to $0.16 last quarter and $0.20 for Q1 2019 [32] Business Line Data and Key Metrics Changes - Corporate business, representing 69% of total revenues, grew 7.5% year-over-year and 0.2% sequentially [17][21] - NetCentric business was flat year-over-year but improved by 1% sequentially [18] - On-net revenue was $103.5 million, a sequential increase of 0.8% and a year-over-year increase of 6.5% [24] - Off-net revenue was $37.3 million, a sequential decrease of 0.4% but a year-over-year increase of 1.3% [25] - Average price per megabit for installed base declined by 8.4% sequentially and 21.8% year-over-year [26] Market Data and Key Metrics Changes - Year-over-year traffic growth was 36% for the quarter, with sequential traffic growth of 12% [6][43] - Approximately 23% of total quarterly revenues were earned outside the United States, with 17% based in Europe [33] - The average euro to U.S. dollar rate for the quarter was $1.09, with an estimated negative foreign exchange impact on revenue of $600,000 for the current quarter [35] Company Strategy and Development Direction - The company aims for a long-term EBITDA annual margin expansion of about 200 basis points per year and a multiyear constant currency growth objective of 10% per year [19][47] - The company remains focused on Internet and IP connectivity services, as well as data center co-location, viewing these as necessary utilities for customers [47] - The Board approved a sequential increase in the quarterly dividend, reflecting confidence in cash flow and revenue-generating capabilities [48] Management's Comments on Operating Environment and Future Outlook - The impact of the COVID-19 pandemic was limited in Q1 2020, but uncertainty remains regarding future effects on operations and customer orders [11][12] - Management noted a significant uptick in bandwidth demand from corporate customers, despite many employees working from home [54] - The company expects a rebound to traditional levels of corporate growth as stay-at-home orders are lifted [55] Other Important Information - The company returned $30.6 million to shareholders through dividends and had $34.9 million remaining in its stock buyback program [6][48] - The company experienced a slight increase in net leverage ratio to 2.92 from 2.86 [7] Q&A Session Summary Question: What has been seen regarding the slowdown in corporate installs and expectations for recovery? - Management indicated that corporate revenue grew but not at historical rates, impacted by changes in USF revenue and inability to access certain buildings due to COVID-19 [52][53] Question: How has churn been affected since the quarter closed? - Management reported no increase in churn and continued monitoring of collections, noting that the customer base tends to be resilient [58][60] Question: What is the expected traffic growth for 2020 compared to 2019? - Management expects traffic growth to be above 34% year-over-year, driven primarily by NetCentric [84] Question: What percentage of corporate customers took advantage of the bandwidth upgrade offer? - About 2% of the corporate customer base has taken the upgrade offer, with expectations for continued uptake as companies adapt to new work environments [73][74] Question: Will there be changes in how revenue is reported? - Management stated that they classify revenue in multiple ways but are cautious about adding too much detail that could confuse investors [75]