Cogent Communications Holdings Inc (CCOI) Q1 2025 Earnings Call Highlights: Strong Wavelength ...
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Cogent Communications Holdings Inc (NASDAQ:CCOI) achieved a significant milestone by offering wavelength services in 883 data centers with 10GB, 100GB, and 400GB capabilities.
Wavelength revenues for the quarter increased by 114% over the same period in 2023, reaching $7.1 million.
The company has materially reduced provisioning times to approximately 30 days.
Cogent Communications Holdings Inc (NASDAQ:CCOI) has realized the remainder of its targeted $220 million in cost savings from the acquisition of Sprint.
Gross margin increased by 790 basis points from the first quarter of 2024 to 44.6%.
Corporate revenue decreased by 11.4% year over year and 2.1% sequentially, primarily due to the grooming of low-margin off-net connections.
Net-centric revenue declined sequentially by 1.1% and was negatively impacted by a decline in revenue from the commercial service agreement with T-Mobile.
Enterprise revenue decreased by 11.3% year over year and sequentially by 4.1%, primarily due to a reduction in non-core and low-margin enterprise revenues.
Off-net revenue decreased by 9.2% year over year and 5.2% sequentially.
The company has increased its leverage, leading the board to slow the rate of dividend growth.
Warning! GuruFocus has detected 5 Warning Signs with CCOI.
Q: Within the waves business, are you seeing any change in competition, and do you think the Crown Castle's Zao deal will change the landscape? Also, can you update us on corporate revenue trends and your new revenue growth targets? A: Our primary competitors in the wavelength market struggle with provisioning and lack our coverage ubiquity. We have a significant advantage in this area. Regarding the Crown Castle Zao combination, it is likely a year away from impacting the market. As for corporate revenue, we expect to be through the undesirable Sprint revenue by mid-Q3, after which we anticipate positive total revenue growth.
Q: On the dividend growth, is the half-penny per share increase temporary, and what milestones would be needed to return to a penny growth per quarter? Also, what needs to happen to reach the target of 500 wavelength circuits installed per month? A: The board is committed to returning capital to shareholders, and as our leverage begins to decline in Q4, we will evaluate increasing the dividend growth rate. Regarding wavelength installations, we have the capacity to install 500 orders a month, but currently, the funnel conversion rate is about 5%. We expect to reach the 500 installs per month target by year-end as the funnel grows.
Q: Can you discuss the wavelength ARPU and where you see it trending throughout the year? Also, provide details on the data center monetization timing and scale. A: Our wavelength ARPU was just under $2,000 this quarter, and we expect it to stabilize around $1,900 to $2,000 as the base grows. For data center monetization, we are moving from letters of intent to contract negotiations and are motivated to sell surplus capacity, though exact timing is uncertain.
Q: Regarding the slower internet traffic growth, what are you seeing in terms of pricing and implications for internet transit revenue? Also, have you noticed any changes in customer behavior since the tariff announcements? A: Internet traffic growth has slowed to about 8%, aligning with broader trends. Pricing declines remain consistent at about 22-23% annually. Tariffs have caused some initial shock, but we don't expect a material impact on our business. Corporate customers are cautious due to macroeconomic concerns, but we anticipate positive growth later this year.
Q: Can you provide more details on the SG&A increase and what to expect in Q2? Also, how many IPv4 addresses were taken back this quarter? A: The SG&A increase was primarily due to seasonal factors and the full inclusion of Sprint employees. We expect a slight decrease in Q2 as payroll taxes decline. We took back approximately 600,000 to 700,000 IPv4 addresses due to policy violations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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