Cogent(US:CCOI)2019-02-25 06:45Financial Data and Key Metrics Changes - The EBITDA margin for the year increased by 230 basis points to 35.5%, the highest annual EBITDA margin in the company's history [3][21] - EBITDA for the full year increased by $23.2 million, a 14.4% increase from the previous year [3][21] - Gross margin for the full year increased by 100 basis points to 58.0% [3] - Cash held at Cogent Holdings was $131 million at quarter end, unrestricted and available for dividends and buybacks [5][28] - The company returned $26.5 million to shareholders through dividends and repurchased 148,000 shares for $6.6 million [4][34] Business Line Data and Key Metrics Changes - Revenue from corporate customers grew sequentially by 2.8% to $87.9 million and year-over-year by 11.7% [14] - Revenue from NetCentric customers declined sequentially by 1% to $44.1 million and year-over-year by 5.1% [15] - On-net revenue was $95.4 million for the quarter, a sequential increase of 1.7% and a year-over-year increase of 6.7% [16] - Off-net revenue was $36.6 million for the quarter, a sequential increase of 1% and a year-over-year increase of 2.5% [16] Market Data and Key Metrics Changes - The company achieved quarterly revenue growth of 1.8% sequentially and 6.2% year-over-year on a constant currency basis [3][26] - Approximately 22% of total revenues were earned outside the United States, with 17% based in Europe [25] - The average price per megabit for the installed base declined by 7.1% sequentially and 26.4% year-over-year [17] Company Strategy and Development Direction - The company is focused on internet, IP connectivity, and data center co-location, with a long-term revenue growth target of approximately 10% due to the slowdown in the NetCentric business [33] - The company plans to continue enhancing its sales force and has opened new offices to support growth [40] - The long-term EBITDA margin expansion target is approximately 200 basis points per year [10][49] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the underlying strength of the business and cash flow generation capabilities [3][34] - The NetCentric business is expected to improve and return to its long-term average growth rate of about 9.5% year-over-year [37] - The company anticipates continued cash flow growth at similar rates in the future [11][49] Other Important Information - The company added 170 buildings to its network in 2018, with a total of 944 million square feet of multi-tenant office space in North America [31] - The sales force turnover was approximately 5%, better than the long-term average [32] - The company has a total gross debt of $809.2 million at year-end, with a net debt of $533.2 million [28] Q&A Session Summary Question: Changes in long-term growth potential for the NetCentric business - Management believes the NetCentric business will improve and return to its long-term average growth rate of about 9.5% year-over-year, despite recent underperformance [37] Question: Sales force churn and strategy - The company has implemented a rigorous training program that has reduced churn and expects to grow the sales force by 7% to 10% annually [40] Question: Update on the NetCentric sales force - The company has 141 of its 487 sales reps focused on the NetCentric market and expects to grow both Corporate and NetCentric sales forces at similar rates [42] Question: Drivers of margin expansion - Approximately 100 basis points of margin expansion came from COGS efficiency, with better utilization of the sales infrastructure contributing to SG&A efficiency [48] Question: Update on SD-WAN offering - The company has seen customer interest in SD-WAN, with many MPLS customers frustrated with high costs and lack of flexibility, indicating a potential market shift [50]