Good morning and welcome to Cogent Communications Holdings First Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted at Cogent's website when it becomes available. Cogent's summary of financial and operational results attached to the press release can be downloaded from the Cogent's website. I would like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings. Please go ahead.

Thank you and good morning to everyone. Welcome to our first quarter 2025 earnings call. I'm Dave Schaeffer, Cogent's Chief Executive Officer, and on this call this morning with me is Tad Weed, our Chief Financial Officer. We have received numerous comments from investors related to the structure of our earnings call. We greatly appreciate their observations and constructive comments, and we've implemented several of those suggestions in the script that we are using for this call. Please continue to provide additional suggestions to help us refine our reporting. We are well aware that Cogent has undergone significant changes over the past two years, and we want to fully address the impact of those changes on our strategy in our prepared remarks and strive to focus on our growth plans going forward. For the quarter, I'd like to touch on some significant milestones that we achieved. I want to recognize that these achievements are what some of the milestones that we've achieved. We are now offering wavelength services in 883 data centers with 10-gig, 100-gig, and 400-gig capabilities. We have materially been able to reduce our provisioning times to approximately 30 days today. Our wavelength revenues for the quarter were $7.1 million, an increase of 114% over the same period in 2024. Sequentially, our wavelength connections increased by 18% and our wavelength revenue increased by 2.2%. The vast majority of our connections were provisioned near the very end of the quarter. We have sold wavelength services now in 329 locations. We have provisioned and cleaned up our former backlog of wavelength orders. We currently have a backlog and funnel of 3,433 wavelength opportunities. With more wave provisioning experience and the actual ability to deliver services, we now anticipate that between 4% and 5% of this funnel will be installed each month going forward. We also expect, based on the growth in the sales activity, that by year-end, there will be 10,000 unique Wave opportunities in our funnel. We currently have provisioning capacity to install 500 waves per month. We intend to capture 25% of this highly concentrated North American market within three years. Our IPv4 leasing revenue for the quarter increased sequentially by 14.8% to $14.4 million and increased 42% year-over-year. Due to the scarcity of this valuable asset and the terms of our customer contracts, we have been able to increase our IPv4 leasing pricing. We maintain a consistent acceptable use policy and did retrieve a significant number of addresses in the first quarter from a customer who violated these policies. Our average revenue per IPv4 address sold was $0.49 for the quarter, a 63% increase from the $0.30 installed base number at the beginning of the year. We are titled to nearly 38 million IPv4 addresses, which is more than any other service provider. We have realized the remainder of our targeted $220 million in cost savings that we outlined at the acquisition of Sprint. We expect to achieve at minimum another $20 million of cost savings through the second quarter of 2026. Demonstrating the impact of these savings on our cost of goods sold, they declined from $31.6 million in the first quarter of last year, and our gross margin increased by 790 basis points from the first quarter of 2024 to 44.6%. Additionally, our SG&A declined by $3.8 million from the first quarter of last year. $10.6 million of the sequential increase in SG&A expenses was due to traditional typical seasonal factors, including annual CPI increases, the timing of vacations taken and the accruals associated with them and the reset of payroll taxes. We are now connected to 3,500 on-net buildings. We have reconfigured several Sprint acquired facilities. These facilities have been added to our 1,668 carrier-neutral and 101 Cogent data center footprint. Our Cogent data centers have 183 megawatts of installed and available power. We have converted additionally 79 smaller Sprint facilities into edge data centers. These edge data centers each have approximately 40 racks capacity and, in total, have about 28 megawatts of additional installed power. So on a combined basis, Cogent has 180 data centers, edge and core, with 211 megawatts of installed power available for customers. After the quarter ended, we repurchased approximately 100,000 shares of our common stock for approximately $5 million at an average price of $53.07 under our stock buyback program. A total of $17.4 million remains available under that program through year-end. A comment on tariffs. We do not anticipate any material impact of tariffs on our business or our CapEx projections. Much of our data center and network conversion equipment has been ordered pre-tariff, and a majority has been received. A portion of our network equipment purchases do have tariff input costs, but these are minimal. We recognize that we have increased our leverage due to these activities, and our Board of Directors has elected to slow the rate of dividend growth while continuing that dividend growth rate at $0.05 per share per quarter. Our dividends for the quarter rose from $0.015 to $1.01. This represents the 51st consecutive sequential increase in our regular quarterly dividend and an annual dividend growth rate of 3.6%. Now that the Sprint business is combined with our legacy business, and we have fully analyzed the revenue burn-off of undesirable revenues, we are adjusting our long-term annual revenue growth rates to 6% to 8%, and we are increasing the rate at which we anticipate our EBITDA as adjusted margin to expand annually to 150 basis points. Our updated revenue and EBITDA targets are meant to be multiyear goals and are not designed to be specific quarterly or annual guidance. We are nearing the ending of grooming undesirable revenues from Sprint contracts that are set to expire. We expect to return to total top line revenue growth by mid-Q3 2025. Finally, I would like to take a moment to recognize one of our long-serving Board members, Blake Bath, for his outstanding counsel and service to Cogent. Blake has served on our Board since November 2006 and has decided to retire, and we wish him well in that retirement. Now I'd like to turn things back over to Tad to read safe harbor language and give some additional color on our operating performance.

Thank you, Dave, and good morning, everyone. This earnings conference call includes forward-looking statements based on our current intent, belief, and expectations. These statements, along with any others made during this call that are not historical facts, are subject to various risks and uncertainties, and actual results may differ significantly. Please refer to our SEC filings for more details on factors that could lead to variations in actual results. Cogent has no obligation to update or revise any forward-looking statements. If we reference non-GAAP financial measures during this call, you can find them reconciled to the corresponding GAAP metrics in our earnings releases available on our website at cogentco.com. Now, regarding our results, our revenue for the quarter was $247 million. Our rep productivity rose by 9% to 3.8 units per full-time equivalent rep this quarter, compared to 3.5 units last quarter. Our adjusted EBITDA was $68.8 million, a $1.9 million increase, with the adjusted EBITDA margin improving sequentially by 130 basis points to 27.8%. This adjusted EBITDA reflects adjustments for Sprint acquisition costs, if any, incurred during the period, and payments under the IP transit agreement with T-Mobile. According to our agreement for IP transit services, we received three monthly payments of $25 million this quarter, matching last quarter’s amount. A year ago, we received $87.5 million in the first quarter of 2024, as those payments decreased in that quarter. We will continue to receive an additional 32 monthly payments of $8.3 million each until November 2027. We also have further payments related to lease obligations at closing totaling at least $28 million, which will be paid to us in four equal installments from November 27 to February 28. We analyze our revenues based on network connection types, such as on-net, off-net, wavelength, and non-core, and we classify our customers into three categories: NetCentric, Corporate, and Enterprise. Our Corporate business accounted for 44.9% of our revenues this quarter, reflecting an 11.4% decline year-over-year and a 2.1% decline sequentially. These declines in Corporate revenue arise mainly from the ongoing trimming of low-margin off-net connections and the discontinuation of non-core products. Our NetCentric business continues to benefit from increasing video traffic, activity in artificial intelligence, streaming, and wavelength sales. This segment represented 37.5% of our revenues for the quarter, with a 0.7% increase year-over-year and a sequential decline of 1.1%. Quarterly NetCentric revenue from our commercial services agreement with T-Mobile fell sequentially by $0.8 million and amounted to $0.7 million for the quarter, a decrease of $2.5 million year-over-year. The reduction in revenue from the T-Mobile agreement and the adverse impact of foreign exchange, which totaled $0.5 million sequentially and $1.3 million year-over-year, negatively affected our NetCentric revenue results. Our enterprise business contributed 17.7% of our revenues this quarter, with net revenue declining by 11.3% year-over-year and 4.1% sequentially, primarily due to a decrease in non-core and low-margin enterprise revenues. In terms of on-net revenue, we serve our on-net customers across our 3,500 on-net buildings. We continue to excel in selling larger 100-gigabit and 400-gigabit connections in carrier-neutral data centers as well as 10-gigabit connections in select multi-tenant office buildings. Our on-net revenue was $129.6 million for the quarter, reflecting a 6.5% decrease year-over-year but a sequential increase of $0.9 million or 0.7%. The sequential on-net revenue results were impacted negatively by the commercial services agreement with T-Mobile, which accounted for the $0.8 million sequential decline in on-net revenue, alongside a $0.5 million negative foreign exchange impact. Our off-net revenue was $107.3 million for the quarter, showing a 9.2% year-over-year decrease and a 5.2% sequential decrease. Off-net revenue results have been affected by our transition of certain off-net customers to on-net and the ongoing reduction and termination of low-margin off-net contracts. Regarding pricing, our average price per megabit for our installed base fell sequentially by 6% to $0.20 and decreased by 25% year-over-year, consistent with historical trends. The average price per megabit for our new customer contracts for the quarter was $0.10, indicating a sequential decrease of 10% and a 5% year-over-year decrease. On ARPU churn statistics, our on-net ARPU was 496, our off-net ARPU was 1,266, our wavelength ARPU was 1,945, and our IPv4 revenue per address for the quarter was $0.49. In terms of churn, our on-net monthly churn rate was 1.4% and our off-net monthly churn rate was 2.2%. Our network traffic remained flat sequentially for the quarter but grew by 8% year-over-year. On foreign currency, revenues earned outside the United States, reported in USD, comprised about 18% of our revenues this quarter. The average euro to USD rate this quarter is $1.12, and the average Canadian dollar rate is $0.72. If these averages remain steady for the rest of this quarter, the foreign exchange impact on sequential revenues would be $2 million and the positive impact year-over-year would amount to $1.2 million. We believe our revenues and customer base are not highly concentrated, with our top 25 customers making up 18% of our revenues this quarter. For capital expenditures, our total CapEx for the quarter was $58.1 million, and principal payments on capital leases decreased to $8 million for the quarter. We continue to integrate the former Sprint network and legacy Cogent network into a unified system, repurposing former Sprint switch sites into Cogent data centers. Due to strong demand for power availability, we have accelerated and expanded our data center conversion program, which will require capital spending through the first half of 2025, similar to the last half of 2024, before tapering off in the second half of 2025. Our total gross debt, including finance lease obligations, was $2 billion at the end of the quarter, while our net debt stood at $1.8 billion. The ratio of total gross debt to last 12 months adjusted EBITDA was 6.69 at quarter end, with net debt at 6.08. According to our note indentures, our leverage ratio was 5.86, secured leverage ratio was 3.44, and fixed coverage was 2.8. Lastly, our days sales outstanding was 29 days at quarter end, consistent with year-end figures. Our bad debt expense was $2.1 million, representing less than 1% of our revenues this quarter. I’ll now hand the call back to Dave.

Thanks, Tad. Now for a couple of comments on our NetCentric business. At quarter end, we directly connected to 8,240 other networks, of which 22 of these are peers and 8,218 are Cogent transit customers. We remain focused on our sales force productivity and continue to manage out underperformers. Our sales force turnover rate was 7.1% a month. This is down from the peak of 8.7% per month, but was slightly above our historical average of 5.7% per month. At quarter's end, we had 296 professionals focused solely on selling NetCentric, 319 professionals focused on the corporate market, and 14 professionals focused on the enterprise market. We remain excited about our ability to deliver profitable on-net and off-net IP services to enterprise and corporate customers. We are enthusiastic about our wavelength opportunity, the portfolio of buildings that we now connect to, and the backlog in that funnel of nearly 3,433 wavelength opportunities. We have completely refreshed that funnel and cleaned out older orders that had been accumulated over a one-year period while we were doing network reconfiguration. We have diligently worked on accelerating the cost savings of the Sprint network integration. We have exceeded our initial targets and raised those targets. We are able to continue to monetize IPv4 addresses, fiber assets, and excess data center spaces, either through sale or long-term leases. We are in active discussions beyond the LOI stage with multiple counterparties. And since our inception, we've offered superior service, expedited provisioning, and disruptive pricing. That is why Cogent remains an industry leader in the services it sells. With that, I'd like to open the floor for questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from Jim Schneider from Goldman Sachs. Please go ahead.

Hi, it’s Josh in for Jim. Thanks for taking my questions. I guess within the Waves business, are you seeing any change in competition, be it pricing or terms or otherwise as the sequential revenue growth was not where most had expected? And do you think the Crown Castle, Zayo deal will change the landscape at all? And then separately, you've referenced in the past a few more quarters of potential revenue headwinds in corporate. Can you give us an update on these trends and the mix of pricing and customer growth, especially as we think about your new revenue growth targets? Thanks.

Yes, sure. Thanks a lot, Josh. So first of all, our two primary competitors in the Wavelength market have struggled to provision and do not have the ubiquity of coverage that we have. I think that is why many customers were willing to sign agreements with Cogent when Cogent couldn't even give them a firm delivery date or a commitment to exact endpoints. As we've purged that older funnel, the funnel that we have built now is a much more accurate representation of orders that will continue to install. We've developed enough of a cadence to know that about 5% of that funnel will convert each month. In the quarter, we installed virtually all of the incremental units, the 18% sequential growth at the very end of the quarter. The reason for that is many of the customers were not ready when we were ready because they had waited. Many of those customers did take service at the end of the quarter. We expect that the competition will continue to improve on their ability to offer ubiquity and offer faster installs. But today, we think we have a significant advantage. With regard to the Crown Castle, Zayo combination, that is probably a year away. I know that each of those companies represents a number of previous acquisitions that are still being integrated. And I would anticipate even post-closing it will take several years based on the pacing that each of those companies has achieved in integration for the entire company to be functioning as a unified organization. We should always be paranoid about competitors. But at the end of the day, we think this is a fairly distant threat, not something immediate. Now pivoting to your question on corporate revenue. We have gone through the undesirable revenue in the Sprint base. We have churned the vast majority of that revenue. We know that, that has inflected our total top line growth rate negative. We believe that we will be through that process by the mid-part of Q3 based on our need to honor certain contract commitments. From that point forward, we anticipate Cogent's total revenue growth to be positive and continue after the roughly 18 years of positive growth that we demonstrated pre-acquisition of Sprint. Our growth did turn negative when we acquired a business that was declining at 7.4% a year and represented 40% of the revenue of the combined company. We further accelerated that decline by electing to terminate these unprofitable non-core services. I think the fact that we've been able to increase our EBITDA in absolute terms even with revenue decline is a very clear indication of the unprofitability of this business. But I think the corporate segment, as all of our segments will be growing by the end or the middle of Q3 2025. Thanks, Ron.

Got it. Thank you.

Your next question comes from the line of Greg Williams at TD Cowen. Please go ahead.

Great. Thanks for taking my questions. Dave, on the $0.05 per share dividend growth per quarter, is this like a temporary move? And would we think about returning to the $0.01 growth quarter-over-quarter? And if so, what would the milestones need to be? I imagine leverage targets would be one of them to return to that growth if you choose to do so. And then just back on the Waves cadence, you mentioned 4% to 5% of your bookings will be installed a month. That's about 150 circuits a month. In the past, you said you'd get to 500 circuits a month. What needs to happen to get to that target? And when could that be reached at this point? Thanks.

Yes, sure. So let me take each of those questions. Thanks for them, Greg. First of all, the Board reflected on the increase in leverage and realized that the fundamentals of the business remain strong, but that our leverage is going to continue to increase. As we've outlined on several of these calls that our aggregate leverage will peak in Q3 of this year due to the decline in transit payments from T-Mobile. We have been able to affect a material amount of cost savings, but those still did not result in enough to fully offset the decline in monthly payments from T-Mobile from $29 million down to $8 million. As a result of that, throughout the year, after those payments decline, our leverage is going up. As our leverage begins to decline in Q4 of this year and going forward, the Board will continue to evaluate the pace of that delevering and is absolutely committed to returning capital to shareholders. Finally, we, I think, have continued to demonstrate our willingness to opportunistically enter the market and supplement our dividend with buybacks. That policy will continue going forward, but we absolutely believe that our ability to return cash flow will increase starting in the fourth quarter, and some of that will be used to delever, some will be used for increasing the dividend. And finally, some will be used for opportunistic buybacks. So I think the milestone will be the reduction in net leverage. I'm now going to pivot to your second question, which is Wavelength installation. As we have been very clear in previous discussions with investors, we built a funnel of Wavelength opportunities with no defined installation window. As it became clear that we could begin to install in select locations, in Q3 of 2024, we began the process of cleansing that funnel. And as expected, the majority of that funnel fell out. Those customers went elsewhere, because they could not wait for our deliveries. The funnel that we have now of 3,433 orders is a completely rebuilt funnel that was rebuilt from the end of Q3 2024 to the end of Q1 2025. We now have much more clarity around locations and about timing to be able to install. At 883 locations, we can now install in 30 days. We have sufficient field resources, pluggable optics, and service delivery coordinators to be able to provision 500 orders a month. With a 3,400 order backlog in funnel, that represents, with a 5% conversion rate, about 160. So we have more installation capacity than orders that are ready to install. As we build credibility with customers, we will both see an uptick in the number of opportunities going into that funnel. Based on the sales forecast that we have, we anticipate that funnel to reach 10,000 from 3,430 by year-end, so in the next seven months. And while we are hopeful that the conversion rate monthly will be greater than the 5% we outlined, we're basing that on our three-month experience of actually being able to provision orders. The final point I would make really is the sequential pacing of growth. With 18% sequential unit growth, we did very well. However, 2% revenue growth was as a result of those orders installing near the very end of the quarter. And the issue was, come January, we were ready to start installing. At that point, it was 802 sites, and we grew that to the 883 at quarter end, and that number has continued to grow. But many customers who still wanted the services needed time to have their equipment ready to accept those services. And that resulted in most of the install activity being back-end loaded at the end of the quarter. As we go into Q2 and beyond, we think that the pacing of installs will be more evenly distributed throughout the quarter. Hopefully, that helped clarify the question. And the goal is to be very specific, with 500 capable installs per month, we think we will be hitting that target probably near the end of the year when the funnel reaches the 10,000 and the conversion rate remains at about 5%.

That's helpful. Thank you.

Thanks.

Your next question is from the line of Alex Waters of Bank of America. Please go ahead.

Good morning, Dave. Thanks for taking my question. Maybe just first, can you talk about the wavelength ARPU and kind of where you see that trending throughout the year? And then secondly, just on the data center monetization, can you talk about timing, scale and size of some of these potential deals? Thanks.

Yeah. Hey, thanks, Alex, and congratulations on your new more senior role. Our wavelength ARPU was just under $2,000 in the quarter, about $1,930. I think our base is now large enough, meaning we have enough visibility into the mix of 1,000 and 400 gig waves as well as contract duration and route length that using an ARPU of about $1,900 is probably a reasonable way to model the business. As the base continues to grow, the installed base, I think that number of the entire base will converge to something around $1,900 to $2,000 per wavelength. We are seeing a much higher uptick rate and higher capacity waves. 82% of our sales have been of 100 gig waves. That compares to the installed base in the industry of 55% of the base being 10 gig waves. So in terms of route length, we now have nationwide or actually continental ubiquity and pretty good visibility into the orders that we have been booking. And as we get stability around the book-to-bill cadence, I think that $2,000 ARPU is a good modeling number. Now with regard to your second question of data center sales and monetization. We are continuing our work to convert those facilities and have just over 100 megawatts of power in what is now 24 facilities we had originally targeted 23 that we are earmarking for sale or long-term lease. We have taken four of our letters of intent and moved forward towards initial contract negotiations. We are still engaging with parties who are conducting site condition studies and engineering due diligence. We don't have an exact time frame, but we are highly motivated to sell this surplus capacity as it is not baked into our financial projections but would be the easiest way for us to quickly delever. Hopefully, that was helpful.

Thank you, Dave.

Thanks, Alex.

Your next question is from the line of Walter Piecyk from LightShed. Please go ahead.

Thanks. Dave, I first wanted to go back to that a couple of questions ago, just to make sure I heard you right. So because I know there was this thesis that people are super bold on wavelengths that it was just limited by your ability to execute. But I think you said you had the capacity, but you were just waiting on the customers to fill that capacity. And then if you can just talk about if you had installed at the start of the quarter rather than 2.2% sequential growth, which was obviously impacted by the back-end loading, what that growth might have looked like, so we get a sense of kind of unit growth conversion to revenue growth?

Yes. So if we had assumed that the orders had installed mid-quarter as opposed to the end of the quarter, our revenue growth rate would have been in the roughly 13% range. If we were fortunate enough that they had all installed at the beginning of the quarter, it would have been nearly 20% because the 18.2% unit growth actually understated the revenue growth because the ARPUs were actually slightly higher than the installed base. With regard to two very different metrics that we have given, the first metric is our ability to install. Our ability was limited by the repurposing of the Sprint network, and we were constrained until the beginning of this year where we had to do each installation that was done, the roughly 1,000 waves that we had sold on a custom basis in a limited number of sites. After the first of the year, we have the ability at 802 sites, which has now grown to 883 sites to install those services in 30 days. So that's on the Cogent supply side. We can do it in those sites at any of three speeds and deliver within 30 days. We had a funnel of orders that had been booked with customers over a 1.5 years period, as we were repurposing this network with little or no clarity to the customer on when we can install. It was not surprising to us, and we commented this extensively on our last earnings call that we were going through a process to purge that funnel of orders that customers had gone elsewhere for. They couldn't wait for us. Now we have rebuilt that funnel. We also know that many of those orders, the customers are not ready when we are ready. We expect...

Dave, I don’t want you to repeat what you’ve already said because I heard all of that. I just want to clarify something regarding the bold thesis that some people are pitching, suggesting that it’s entirely about supply and that they could fill it as soon as it becomes available. It seems I understood you correctly; the issue is that customers need to be prepared with their equipment, which will affect how that supply grows. Now, moving on to IP, I remember asking you last quarter about your expectations for each quarter, and you mentioned that it would bounce back to 500,000. That was in late February. In your prepared remarks, you mentioned having to disconnect someone who was misusing it. Was that disconnection for 700,000 IP addresses? Can you explain what actions would lead to someone getting disconnected? Also, should we expect it to bounce back to 500 a quarter going forward?

Yes. Okay. So one correction, Walter, I want to say 5%, not 6%.

Sorry, 5%. Yes.

Is the conversion of the funnel and the growth in the funnel. So let me start with what someone has to do to be disconnected. And by the way, our acceptable use policy is clearly stated on our website. Typically, this will be one of three violations; either there is a government order saying that from any of the 57 countries that we operate in the world that a customer announcing those addresses is doing something that, that government views as illegal. If that's the case, we immediately take it down, and it's upon the customer to resolve that issue with that government. The second area of abuse is typically copyright violations, and that is someone transmitting copyrighted information without the correct authority to do so. That is the case here that resulted in this fairly material takedown. This customer was violating the digital rights management requirements of the US government. And then the third potential area of abuse is if someone is using the addresses for a disruptive activity such as web scraping or spamming. Those are the three main categories of AUP violations. There were actually more than one customer in the quarter who had a significant digital rights management issue that resulted in a material decline in units. But also we were still able to grow revenues due to price increases. We absolutely anticipate to clearly answer your question, returning to a gross add of north of 500,000 incremental addresses a quarter. And it is difficult for us to predict. There have been episodic periods in the past where we've had to take down blocks. This was a particularly larger instance this quarter.

Okay. So there could be additional churn going forward from this type of stuff, but it's just too hard to predict. Got it. And then are you still good with the $350 million for the year because it's obviously going to be a pretty big second half ramp to get there?

So we know that we have a very steep hill to climb on EBITDA because we had a $104 million reduction in transit payments from T-Mobile. We feel comfortable we are continuing to improve our EBITDA and grow that and should be able to achieve the goals that we've outlined.

Thanks and thanks for the shortened prepared comments. Appreciate it.

Thank you.

Your next question comes from the line of Chris Scholl from UBS. Your line is open.

Great. Thank you for taking the question. Just a follow-up on your new long-term growth targets. What gives you confidence today to raise the target? And any help breaking down that 6% to 8% revenue growth expectation by customer segment? And I believe in recent quarters for the legacy Cogent business, you provided a core growth rate for both corporate and NetCentric. What did core growth look like this quarter? And how do you expect that to evolve from here? Thank you.

Yes. Thanks for the questions, Chris. So our growth was greatly impacted by absorbing Sprint's negative growth trajectory at closing and then accelerated by our attempt to purge undesirable services and revenues. That is how we have been able to actually grow cash flow, while declining top line. This is on a customer-by-customer basis. We now have clear line of sight to the remaining services that we need to disconnect, and we've been able to negotiate, in some cases, customers agreeing to allow us to disconnect those services sooner than their contractual terms would allow us to. With that, we're comfortable that we'll be able to get through the vast majority of that intentional churn by mid-Q3 and then return to organic growth. We also now have higher confidence in the wavelength trajectory due to the realistic book-to-bill cycle and the quality of the funnel. Within the customer segments, we think that enterprise revenues will effectively be flat. We think that corporate revenues should, on a consolidated basis, net of this intentional churn, should be growing in the mid-single digits of 4% to 5%, and that represents both the on-net Cogent traditional corporate customer, as well as the corporate customers that we had acquired from Sprint, most of which that could be moved on-net have been moved on-net. And then the remainder are going to continue to be off-net as the locations are just not practical to bring on-net. And then finally, on the NetCentric segment, that is where the vast majority of the wavelength revenue will be ascribed. And over 93% or 94% of the waves that have been sold to date have been to NetCentric customers. With the combination of the NetCentric IP growth and the wavelength growth, albeit a small percentage of that, we anticipate NetCentric aggregate growth. So that's both IP and wavelengths to be north of 10%. That combined growth rate and the fact that we have worked through the business that we want to exit should get us to an increased total revenue growth rate of 6% to 8%. Compare that to Cogent pre-acquisition of Sprint, where for an 18-year history, we had a compounded average growth rate of 10.2%. A big part of the reason why we required T-Mobile to enter into the transit agreement and subsidize us was both the losses and the realization that for a period of time while we were correcting the revenue mix in the business we acquired, we were going to suffer negative revenue growth. That is now clearly in our sites to turn positive. And then, secondly, we are comfortable that we will also get better margin contribution than we had initially forecast. And, quite honestly, from the day we've closed, our margin contributions have actually exceeded our internal targets.

Thanks Dave. And then, just do you have what the core growth rates were for Corporate and NetCentric in the quarter, excluding all the grooming efforts?

So, it's become harder and harder for us to kind of parse that out as we've re-provisioned the customers. I believe the corporate segment grew between 3% and 4%, but that is not as precise a number as I would like to give you. And I think NetCentric probably grew at around 6% or 7% on a year-over-year basis.

Great. Thank you, Dave.

Hey, thanks Chris.

And your next question comes from the line of Nick Del Deo from MoffettNathanson. Your line is open.

Hey. Thanks for taking my questions. And Dave, I also appreciate the new call format. I thought that was helpful, so thanks for making the changes. First, going back to the SG&A line, I think you basically said that the entire sequential increase was due to normal seasonal items. It still feels like an awfully high increase even after taking those into account. I guess, like, was Q4 SG&A depressed for some reason such that it wasn't a good jump-off point for thinking about Q1? And if we think about Q2 SG&A, how should we think about the roll-off of tax and audit costs, the sales meeting costs, and those sorts of things?

Yeah. I'm going to start, and then I'm going to pass it to Tad. Our sequential increase in expenses was greater this year than it was last year. And the primary reason for that is we had the entire Sprint employee base in Cogent's numbers for 2024. And in 2023, we only picked up those expenses on May 1. And all of the vacation accruals that those employees had were actually paid out in cash by T-Mobile as a condition prior to closing. So we did not assume those. Probably the biggest component of the sequential change in SG&A actually relates to the fact that we have a use-or-lose policy, and people used their vacation in Q4 and then built an accrual going forward. But I'm going to let Tad give you a little more granularity on the components and kind of the variance between this year and other years.

In the fourth quarter, there were no unusual items. However, I noted that the bad debt expense for the fourth quarter of last year was significantly low. Typically, we see it around 1% of our revenues, but this quarter it was actually 0.8%, which amounts to about $1.5 million. The remainder of the $10.6 million increase is attributed to seasonal factors mentioned by Dave. This includes a 2.5% cost of living adjustment for all employees with over a year of service, the annual resetting of tax and payroll expenses that occurs each year in the U.S., and the annual audit fees. Additionally, there's a vacation accrual that saw a $4 million change due to seasonal patterns, as people tend to take vacations during the holidays in the fourth quarter, affecting the accrual without having to expense it immediately because it was built up over time. When we return to the first quarter, we'll need to rebuild that accrual. Therefore, there’s a shift in expenses as we build the accrual while we were expensing it in the fourth quarter. This $4 million accounts for part of the $10.6 million sequential increase, but it's a normal occurrence and was simply more pronounced this time due to the variations in months compared to a full year. Does that help?

Yes. Yes, it does. Are you willing to share anything regarding where that's going to land in Q2? Where SG&A is going to land in Q2? Or is this a run rate to think about?

Slightly ticked down because more people will hit their FICA capacity and the payroll taxes typically decline.

Okay. Okay. On the IPv4 addresses, you said it was a large number that you took back. Are you willing to share the exact number?

Yes. Well, it was from more than one customer. So it can't be attributed to just one, but it was in the order of about 600,000 to 700,000 addresses in aggregate that were taken back.

Okay. So your underlying trends are much better than they appear.

We've had this in the past. It's rare that you get this much in a quarter, but we don't predict when people do bad things. And Walt tried to say it's going to go away. And I can't answer that question because I can't tell you no one is going to violate Turkish security laws, and we get a takedown notice from the government of Turkey for a big block of addresses. I mean, stuff like that happens, and it is episodic. It was just more extreme this quarter than not. And fortunately, for us, we had such a good tailwind from the price increases that the revenue still grew sequentially at 14.4%.

Okay. And then maybe one last quick question, if that's alright. I believe you mentioned that most of the backlog and funnel from Q4 was cleared out during the cleanup process. Can you provide that number? I'm trying to understand what your gross additions to the backlog and funnel were in Q1.

Yes. By the end of Q3, we started to inform people about firm delivery dates beginning in January. Almost 90% of the total opportunities that were present at the end of Q3 2024 did not proceed. Only about 10%, which equals roughly 3,500, either resulted in installations or were carried over. Many of the installations in Q1 were actually sold in Q4 and added to the pipeline, which continues to expand. Until we had actual installations, I was hesitant to provide any book-to-bill metrics or even discuss ARPU. With a few quarters having passed where we can offer concrete installation dates along with SLA commitments, we now have enhanced visibility. I can analyze the IP pipeline and see a clear monthly conversion rate. I believe our estimate of 4% to 5% is conservative, and I'm optimistic that this conversion rate will improve as the pipeline grows and we prove our ability to deliver. The fact that we've successfully provided services at 329 locations has significantly boosted our credibility and has accelerated the growth of our pipeline compared to previous periods.

But it sounds like, based on your commentary, you had at least a few thousand on a clean basis, a few thousand additions to the backlog and funnel in the quarter, which would, I guess, in tandem with your expected install, kind of get you to that 10,000 by year-end?

That is correct.

You have a question from Michael Rollins at Citi. Please go ahead.

Hi, there. Good morning. Thanks for taking the questions. Two, if I could. So first, curious if you could discuss the slower Internet traffic growth year-over-year and what you're seeing also in regards to pricing and the implications of all of that as you look at Internet transit revenue performance within the NetCentric revenue going forward? And then secondly, are you seeing any changes in customer behavior in terms of sales cycle, decision-making since the beginning of April after the tariff announcement? And can you just remind us how a slower macro could impact your business performance?

Yes. Let me start with the traffic growth number. So if you look at Open Vault data, which is looking at traffic on the other side, which is end user total downloads, that has slowed to about 8%, which is in alignment with what we are seeing kind of on the supply side or upstream component. I think there are really three things going on concurrently. One, the rate of broadband adoption in countries that have decent access network capabilities has slowed. Two, the number of minutes of use per day has also moderated. And third, the adoption of video has slowed. So at the beginning of the pandemic, we were at about 18% of end-user video consumption being streamed. That in five years, accelerated to about 54%. It is going to continue to go up from here. And in particular, the pivot to more live event availability is helpful. But I do think with a larger video base, that application is maturing. I also think we're in a period when most of the network load for AI is directed at wavelengths because most of that network load is for training and not inference. But as the results of those large language models get distributed, that should present a new use case where users will use Internet connectivity more and bit volumes will go up. We have seen this pattern of kind of oscillations in aggregate demand as applications change historically. And I think that will probably continue to be the case. But I think we're going to see over the next year or two, a reacceleration at least in bit intensity per user. Now, in terms of pricing, we have seen the rate of price declines pretty consistent now for 25 years, that's at about 22%, 23% a year. And while there is always some short-term variability, that long-term trendline is pretty consistent, and I don't think that's going to change. Even though there is less competition, the technology associated with manufacturing those bit miles is continuing to improve pretty significantly. So I think we'll see some more price declines for the industry and kind of more of a return to historical traffic growth rates. To your last question around tariffs, I'm going to actually answer it with kind of two different views. One is for our NetCentric customers, and this could be either Wave or IP. Most of the time, they need equipment to accept those services. They're not happy. That equipment is more expensive. It does have some tariff load on it as at least a portion of it is coming from high tariff locations. But they still need it to deliver service. So, I think that's probably an initial shock. And in terms of materiality to their overall cost structure, I think it's much like Cogent. It's not material, but there's just a shock when that happens. But I would say the only thing on the tariff front that could potentially impact NetCentric business is if there is an effective content tariff, i.e., the movie tariff, which doesn't exist; I have no visibility to how that's going to affect end user demand. And then on the corporate side, I do believe that a number of corporate users are just concerned with the overall macro situation. And are we entering a period of reduced or negative growth and higher inflation. And for that reason, they're just being more cautious on long-term commitments. But again, because we sell a utility, I don't think that's going to have a material impact. I don't think we're in the kind of 2008, 2009 Great Financial Crisis level of paralysis. And our underlying corporate growth continues. As we complete this grooming, we feel confident that aggregate growth and corporate growth will be positive later this year.

Thanks.

Hey, thanks, Mike.

Your next question comes from the line of Tim Horan from Oppenheimer.

Thanks, guys. Dave, can you give us maybe just some timing on the data center sale and maybe expectations on price if you've received any? And then on the wavelength side, have you seen any competitive response?

Yes, I'll address those questions in reverse order. The only competitive response we noticed was directed at the hyperscaler segment of the wave market. One of our competitors has decided to start selling dark fiber after two decades, which could serve as a potential alternative for wavelengths, allowing customers to buy and produce their own. Regarding our wavelength services, we haven't observed any changes in pricing or delivery timelines. Customers placing orders with us have indicated that our pricing is favorable. We haven't needed to be as aggressive as we anticipated once our network was fully configured. Although five months doesn’t indicate a long-term trend, we feel optimistic that our pricing has been well received and is competitive enough to capture market share. Now, about your data center question. We have a few instances where we're transitioning from letters of intent to contracts, but there's nothing to announce at this time. We are also continuing our work on the data center conversion, which we expect to complete in the next two months, on track for the end of Q2. In terms of pricing, the parties negotiating leases are aligning with our asking price, while those negotiating for outright purchases show a wider range. One contract matches our asking price, but others are lower. We need to assess each party's ability to follow through, which is part of refining the economic terms and transitioning the LOIs into contracts. Since this is our first experience with this process, I’m hesitant to provide a specific timeline. We are making good progress and will generate revenue from these, but it requires cooperation from both parties. Early on, you had the opportunity to tour one of our facilities under development, and I can assure you that if you revisit the Merchantville location today, it would look quite different from your last visit.

But it's something you think you can get done in like three months? Or is it more of a six-month type negotiation?

It's difficult for me to provide a clear answer. To approach this conservatively, I believe we should consider the longer term rather than the shorter term simply because there are parties involved. We need to evaluate the conditions they require, their timeline for closing, the amount of their earnest money deposit, and the terms they wish to negotiate. There is a wide range of parties involved, from sophisticated private equity firms to existing data center operators and newer business models. My goal is to maximize value. I suspect this process will take more than three months; I'm not sure how much longer, but it might be overly ambitious to expect a completed sale in that timeframe.

Got it. Thank you.

All right. I think we are through our questions. The last topic I'm going to touch on just quickly is something that affects me personally, and that is that I have, due to Cogent stock volatility, had to substantially increase some of the shares that I had pledged to pay taxes over the years. I have not increased any borrowing, but I do want shareholders to be aware that I'm trying to be as transparent as possible. I've been forced to inject money into my real estate portfolio, and that is continuing. I want to personally thank everyone. Hopefully, this new format was more efficient. We did get everybody's questions answered and got it down to an hour and 15, and I look forward to seeing you all in person soon. Take care. Thanks. Bye-bye.

This concludes today's conference call. Thank you all for joining us. You may now disconnect.