Cogent(US:CCOI)2019-05-03 20:48Financial Data and Key Metrics Changes - The EBITDA margin for Q1 2019 increased by 120 basis points to 35.5% compared to Q1 2018 [4] - Gross margin for the quarter reached an all-time high of 59.8%, increasing by 230 basis points year-over-year and by 180 basis points sequentially [5] - Quarterly cash flow grew by 16.2% from Q1 2018, driven by excellent operating leverage [15] - Basic and diluted income per share was $0.20, a 25% increase from the previous quarter and a 33% increase year-over-year [28] Business Line Data and Key Metrics Changes - Corporate business, representing 67% of total revenues, grew year-over-year by 11.2%, outperforming the long-term growth target of 10% [14] - NetCentric business declined by 8% year-over-year, with a constant currency decline of 3% [14] - Revenue from Corporate customers grew sequentially by 2.6% to $90.2 million [18] - Quarterly revenue from NetCentric customers declined by 7.6% year-over-year to $44 million [19] Market Data and Key Metrics Changes - On-net revenue was $97.2 million, with a year-over-year increase of 5.2% [20] - Off-net revenue was $36.8 million, reflecting a year-over-year increase of 1.9% [21] - The average price per megabit for the installed base decreased by 24.4% year-over-year to $0.68 [22] - On-net ARPU decreased by 0.8% to $463, while off-net ARPU decreased by 1.2% to $1,111 [23] Company Strategy and Development Direction - The company remains focused on Internet, IP connectivity, and data center colocation services, which are essential utilities for customers [42] - Long-term growth target is set at 10% with an EBITDA margin expansion of approximately 200 basis points over the next several years [43] - The company plans to utilize its balance sheet opportunistically for stock buybacks and dividends, with $34.9 million remaining under the current buyback authorization [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of the business and its cash flow generating capabilities [9] - The company anticipates a return to historical NetCentric revenue growth rates of about 9.5% year-over-year [47] - Management noted that the decline in NetCentric revenue is expected to improve as traffic patterns normalize [66] Other Important Information - The company returned $26.6 million to shareholders through dividends in the quarter [6] - Cash held at Cogent Holdings was $106 million at the end of the quarter, available for dividends or buybacks [6] - The total gross debt at par was $811.3 million, with a net debt of $552.2 million [36] Q&A Session Summary Question: Can you expand on the pressure on the NetCentric side? - Management noted a slowdown in traffic due to net neutrality violations, but expects a return to historical growth rates as traffic patterns normalize [46] Question: Is there an intention to trend lower productivity per rep? - Management clarified that the decline in productivity was due to an increase in new hires, which typically take time to reach full productivity [50] Question: What is the expectation for Corporate growth going forward? - Management expects consistent Corporate growth in the range of 11% to 13% [64] Question: Can you discuss the improvement in gross margin? - Management attributed the improvement to operating leverage and a higher proportion of on-net sales, which carry a 100% gross margin contribution [73] Question: What is the outlook for shareholder returns? - Management is committed to increasing shareholder returns and will consider using excess cash for larger dividends or opportunistic buybacks based on market conditions [78]