Cogent(US:CCOI)2025-05-08 13:32Financial Data and Key Metrics Changes - Revenue for the quarter was $247 million, with an adjusted EBITDA of $68.8 million, reflecting a $1.9 million increase and an adjusted EBITDA margin of 27.8%, up 130 basis points sequentially [17][18] - IPv4 leasing revenue increased sequentially by 14.8% to $14.4 million and increased 42% year over year, with average revenue per IPv4 address sold rising to $0.49, a 63% increase from the beginning of the year [8][10] - Gross margin increased by 790 basis points to 44.6%, with cost of goods sold declining from $31.6 million in the first quarter of the previous year [10] Business Line Data and Key Metrics Changes - Wavelength revenues for the quarter were $7.1 million, a 14% increase year over year, with a sequential increase of 2.2% [6] - Corporate business represented 44.9% of revenues, decreasing 11.4% year over year and 2.1% sequentially, primarily due to the grooming of low-margin off-net connections [20] - NetCentric business represented 37.5% of revenues, increasing 0.7% year over year but declining 1.1% sequentially, impacted by a decline in revenue from a commercial services agreement with T-Mobile [21] Market Data and Key Metrics Changes - On-net revenue was $129.6 million, a year-over-year decrease of 6.5% but a sequential increase of $900,000 [22] - Off-net revenue was $107.3 million, a year-over-year decrease of 9.2% and a sequential decrease of 5.2% [23] - Average price per megabit for the installed base decreased sequentially by 6% to $0.20 and decreased by 25% year over year [23] Company Strategy and Development Direction - The company aims to capture 25% of the North American wavelength market within three years and anticipates achieving a minimum of $20 million in additional cost savings through Q2 2026 [7][10] - The long-term annual revenue growth rate is adjusted to 6% to 8%, with EBITDA margin expansion targeted at 50 basis points annually [14] - The company is focused on integrating the former Sprint network and legacy Cogent network into a unified network, with plans to convert Sprint facilities into Cogent data centers [26] Management's Comments on Operating Environment and Future Outlook - Management expects to return to total top-line revenue growth by mid-Q3 2025, following the completion of the grooming of undesirable revenues from Sprint contracts [15][40] - The company acknowledges increased leverage due to recent activities but remains committed to returning capital to shareholders through dividends and buybacks [14][49] - Management expressed confidence in the wavelength business, citing a rebuilt funnel of 3,433 wavelength opportunities and a target of reaching 10,000 by year-end [7][52] Other Important Information - The company repurchased approximately 100,000 shares for about $5 million under its stock buyback program, with $17.4 million remaining available [12] - Total gross debt at par was $2 billion, with a net debt of $1.8 billion, and a gross debt to EBITDA ratio of 6.69 at quarter-end [28] Q&A Session Summary Question: Changes in competition within the Waves business - Management noted that primary competitors in the wavelength market have struggled with provisioning, giving Cogent a competitive advantage [36] Question: Update on corporate revenue trends - Management indicated that undesirable revenue from Sprint has been largely purged, and they expect corporate revenue to grow by mid-Q3 2025 [40] Question: Dividend growth and milestones for returning to growth - Management stated that the board is committed to returning capital to shareholders and will evaluate the pace of deleveraging to potentially return to dividend growth [49] Question: Wavelength ARPU trends - Management expects wavelength ARPU to stabilize around $1,900 to $2,000 as the base continues to grow [60] Question: Data center monetization timing and scale - Management is actively negotiating contracts for surplus capacity and is motivated to sell as it would aid in deleveraging [62]