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Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q3 2023 Earnings Call Transcript

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q3 2023 Earnings Call Transcript November 9, 2023

Cogent Communications Holdings, Inc. misses on earnings expectations. Reported EPS is $-1.2 EPS, expectations were $-0.87.

Operator: Good morning, and welcome to the Cogent Communications Holding Third Quarter 2023 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 on Cogent’s website when it becomes available. Cogent’s summary of financial and operational results attached to its press release can be downloaded from the Cogent website. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings. Please go ahead.

Dave Schaeffer: Thank you, and good morning, everyone. Welcome to our third quarter 2023 earnings call. I’m Dave Schaeffer, Cogent’s CEO. With me on this morning’s call is Tad Weed, our Chief Financial Officer. Hopefully, you’ve had a chance to review our earnings press release. Our press release includes a number of historical quarterly metrics, which we present in a consistent manner each quarter. Now, for a few comments on our results. We closed our acquisition of the Sprint business on May 1, 2023. This transaction significantly expanded our network, our customer base, and materially increased the scope and scale of our business. Our annualized revenue run rate now exceeds $1 billion. We acquired a number of large enterprise customers, many of which are Fortune 500 companies.

Customers that are typically larger than our typical Cogent corporate customer base. We acquired significant owned fiber optic roots and facilities. We acquired numerous right-of-way in relationships with the underlying landowners, which represent over tens of thousands of route miles of dark fiber. These assets and relationships would be virtually impossible for us to assemble on our own. We hired many valuable experience Sprint business employees. Many of these sprint business employees had an average tenure with the company of 22 years prior to the acquisition. We acquired a network with an appraised value of over $1 billion for $1. We will receive a total of $700 million from T-Mobile to offset operating losses for serving enterprise customers and for providing T-Mobile IP Transit Services.

$350 million in the first year for $29.2 million in monthly installments, and then $350 million over the next 42 months for a monthly installment of $8.3 million per month. We are very optimistic about the cash flow generating capabilities of the combined operation. Our recent results show we achieved immediate and substantial savings in many areas, many of which exceeded our initial expectations. We anticipate additional substantial cost savings from our current run rates in many areas. As we had mentioned in our last earnings call, we have combined the Cogent classic legacy business and the Sprint business operations. As a result, we will no longer be reporting separate metrics. The combined Cogent business had a very good quarter. Our total revenues were $275.4 million.

Our operations from the quarter include a full quarter of the Sprint business versus 2 months, as reported in Q2. Our EBITDA as adjusted was $131.4 million, an increase by $77.4 million from Q2 of 2023. Our EBITDA as adjusted margin was a record at 47.7%, a significant increase from the EBITDA as adjusted margin last quarter of 25.2%. We received three payments totaling $87.5 million under the Transit Services Agreement from T-Mobile in the quarter versus only one IP Transit Service payment of $29.2 million in Q2. Our gross debt to trailing 12 months EBITDA as adjusted and our net debt ratio both significantly improved in the quarter. Our total gross debt to trailing 12 months EBITDA as adjusted ratio was 4.56 at the end of the quarter and our net debt ratio at the end of the quarter was 4.24.

This is compared to a gross debt of 5.63 times in Q2 and a net debt of 4.79. We anticipate further improvements in in these leverage levels over the next several quarters. Our network traffic increased sequentially by 6%. It was all 26% year-over-year. This traffic growth acceleration was better than the 4% sequential growth rate we had seen in Q2, and the 21% year-over-year traffic growth. We’ve begun to realize synergies and over the next 3 years, we will continue to anticipate achieving annual savings of $180 million annually from the Sprint North American network, $25 million from the Sprint International wireline network, and a $15 million reduction in O&M expenses for Cogent’s North American network. We anticipate achieving additional SG&A savings and other cost and revenue synergies over the next several years.

Our recent progress in achieving these savings is very encouraging and in fact exceeded our initial targets on savings. Our total revenue for the quarter increased sequentially about 14.9% to $275.4 million and increased by 83.6% on a year-over-year basis. Our rep productivity at 9.2 last quarter and 3.6 this quarter for full-time equivalents. This number included the full-time equivalent productivity because of the 9,000 commercial services orders sold T-Mobile under our commercial services contract. This commercial service contract with T-Mobile is in addition to our $700 million IP Transit contract. Our rep productivity results also included the impact of the enterprise customer sales reps that we had acquired from Sprint, which are now counted as full time equivalents and are continuing to receive training on Cogent’s products and are not yet fully productive.

In connection with the Sprint acquisition, we hired a total of 942 employees. During the quarter, our total sales reps actually decreased by 10 or 1.5%. We ended the quarter with 637 sales reps and 621 full-time equivalents. A 9.5% increase in full-time equivalent reps, primarily due to the reps that were hired from the Sprint business now being counted as full-time equivalents. Now, for a comment on our optical transport services or wavelength businesses. In connection with our acquisition of the Sprint business, we’ve expanded our offerings of optical wavelength services and optical transport network to utilize the Sprint network. We’re selling these wavelength services to existing customers, acquired customers from Sprint, and to new customers.

The customers require dedicated optical transport without the capital and ongoing expenses of owning their own infrastructure and network. Our wavelength revenue for the quarter was $3 million and there were 449 wavelength customer connections at quarter end. We have sold wavelengths in a total of 50 locations with shorter provisioning cycles. We have connectivity and wavelength sales capabilities in over 250 locations, but with longer provisioning cycles. In approximately 14 months, we expect to be able to offer wavelengths in over 800 carrier neutral data center locations in the U.S. with more rapid provisioning cycles. Our Sprint acquisition material expanded our network footprint. We added 18,905 route miles of intercity-owned fiber; 12,570 route miles of metropolitan-owned fiber network.

We added approximately 11,400 route miles of intercity IRU fiber and approximately 4,500 metro route miles of IRU fiber to the Cogent network. Most of this is redundant and will be eliminated as part of our cost saving measures. We eliminated approximately 430 redundant fiber route miles that were released in the quarter. We will reconfigure 45 of the acquired Sprint facilities into data centers, and add those to the 1,528 carrier neutral data centers that we operate in and the 60 proprietary Cogent data centers. To date, we have converted four of these acquired Sprint facilities into Cogent data centers. Now, for a comment on our dividend program. During a quarter, we returned $45.1 million to our shareholders for our regular dividend. Our Board of Directors which reflects on our strong cash flow generating capability and investment opportunities, including the Sprint acquisition decided to increase our quarterly dividend yet again by an additional $0.01 per share sequentially.

Raising our dividend quarterly from $0.945 per share to $0.955 per share. This represents the 45th consecutive sequential increase in our regular quarterly dividend, and a 4.4% annual growth rate in our dividend. Now, for a comment on our future guidance and expectations. Now that we have combined the Sprint business with the Cogent business, we anticipate long-term average revenue growth of between 5% and 7% per year, and EBITDA margin expansion of approximately 100 basis points per year. Our revenue and EBITDA guidance were intended to be multi-year goals and are not intended to be used as specific quarterly or annual guidance. Our EBITDA as adjusted and our leverage ratios were impacted by the $700 million IP Transit Services Agreement that we are entered into with T-Mobile.

Beginning in May of 2024, these payments will be reduced from $29.2 million per month to $8.3 million. That reduction will impact future EBITDA as adjusted in our leverage ratios beginning in the second quarter of 2024. However, these metrics are measured on a trailing 12-month basis. Now, I’d like to ask Tad to read our safe harbor language and provide some additional operating performance metrics for the quarter. Following our remarks, we will open the floor for questions and answers.

Thaddeus Weed: Thank you, Dave, and good morning to everyone. This earnings conference call includes forward-looking statements. These forward-looking statements are based upon our current intent, belief, and expectations. These forward-looking statements and all other statements that may be made on this call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our SEC filings for more information on the factors that could cause actual results to differ. Cogent undertakes no obligation to update or revise our forward-looking statements. If we use non-GAAP financial measures during this call, you will find these reconciled to the corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com.

We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength services, and non-core services. And we also analyze our revenues based upon customer type. We classify all of our customers into three types, net-centric customers, corporate customers, and enterprise customers. Our corporate customers buy bandwidth from us in large multi-tenant office buildings or in carrier neutral data centers. These corporate customers are typically professional services firms, financial services firms, and educational institutions located in multitenant office buildings, or connecting to our network through our carrier neutral data center footprint. Our net-centric customers buy significant amounts of bandwidth from us and carrier neutral data centers, and include streaming companies and content distribution service providers, as well as access networks who serve consumer and business customers.

Our corporate and enterprise customers generally purchase our services based upon a price-per-location, and our net-centric customers purchase our services based upon price-per-megabit. Comments on the corporate business. Our corporate business continues to be influenced by real estate activity in central business districts. Two key statistics including the level of cards, rights and buildings, and leasing activity indicate that year-to-date the real estate market and leasing activity in central business districts, where we operate has seen some continuing improvement in certain areas of the country, but has not returned to pre-pandemic levels in most geographic regions. We continue to remain cautious in our outlook for our corporate revenues given the uncertain economic environment and other challenges from the lingering effects of the pandemic.

Our corporate business represented 43.7% of our revenues for the quarter, and our quarterly corporate revenue increased year-over-year by 40.9% to $120.5 million from last year and increased sequentially by 8.5%. We had 55,045 corporate customer connections on our network at quarter end. This was a sequential decrease of 10.2% and a year-over-year increase of $21.8. The sequential net decrease in corporate customer connections primarily resulted from the elimination of a non-core product for corporate customers. During the quarter, we eliminated 8,486 Session Initiation Protocol, or SIP, non-core customer connections of which 5,006 of these 8,400 were non-core corporate customer connections. Excluding the impact of the SIP corporate customer connections that reached end of life, our corporate customer connections decreased by 1,200 connections or by 2.2% from last quarter and that was also due to some other non-core products being end of life.

For the quarter, the sequential impact of USF on our corporate revenues was a positive $3.5 million and a positive year-over-year impact of $10.4 million. Some comments on the net-centric business. Our net-centric business continues to benefit from continued growth in video traffic and streaming. For the quarter, our network traffic growth accelerated and was up by 6% sequentially and 26% year-over-year. Our net-centric business represented 34.5% of our revenues for the quarter and grew sequentially by 8.4% to $94.9 million, and grew by 47.2% year-over-year. We had 62,291 net-centric customer connections on our network at quarter end. That was a sequential decrease of 6.6% and a year-over-year increase of 21.8%. Explaining the sequential decrease included in our net-centric customer connections at the end of last quarter for 8,028 net-centric customer connections under the commercial services agreement with T-Mobile that Dave mentioned earlier and 1,088 of the SIP customer connections that product that reached end of life.

At the end of the quarter, there were 4,661 net-centric customer connections under the commercial services agreement with T-Mobile. If you exclude the impact of both these net-centric customer connections under the T-Mobile commercial services agreement and the SIP product that reached end of life in both periods. Our net-centric customer connections increased sequentially by 35 connections. Our enterprise business was 21.8% of our revenues for the quarter. We had 20,689 enterprise customer connections at the end of Q3. There were 2,392 SIP enterprise connections at the end of last quarter that reached their end of life during this quarter. Again, all the SIP connections were canceled during the quarter, whether they were corporate, net-centric, or enterprise, and all of that product was non-core.

Revenue and customer connections by network type, on-net revenues. Our on-net revenue was $130 million for the quarter. That was a sequential increase of 1.9% and year-over-year 14.9%. Our on-net customer connections were 89,623 at the end of the quarter. We serve our on-net customers in 3,257 total on-net multi-tenant office in carrier neutral data center buildings. We continue to succeed in selling larger 100 gigabit connections and 400 gigabit connections in carrier neutral data centers. And selling 10 gigabit connections in select multi-tenant office buildings. Selling these larger connections has the impact increasing our year-over-year on-net ARPU. Off-net revenue. Our off-net revenue was $131 million for the quarter. Sequential increase of 28.4% and year-over-year increase of 257.7%.

An aerial view of an internet exchange point, illustrating the importance of an online service provider.
An aerial view of an internet exchange point, illustrating the importance of an online service provider.

Including our new off-net locations from the Sprint business, we now serve off-net customers in over 27,800 off-net buildings. These off-net buildings are primarily located in North America. Wavelength revenue. Our wavelength revenue increased by 88.8% sequentially and was $3 million for the quarter. Our wavelength customer connections were 449 at quarter end. Non-core revenue. Our non-core revenue was $11.4 million for the quarter. Non-core customer connections were 11,187 at quarter end. At the end of last quarter, total non-core customer connections, again included the 8,486 SIP customer connections that reached our end of life this quarter. Comments on pricing. Our average price per megabit for our installed base increased sequentially by 7.7% to $0.30 and also increased year-over-year by 9.6%.

Our average price per megabit for our new customer contracts was $0.17 and that was almost 64% increase over $0.10 from last quarter and a year-over-year price increase of 8.8%. So increases all around. Comments on ARPU. Our on-net and off-net ARPUs for the quarter decreased sequentially primarily from the impact of the Sprint business ARPUs. However, our year-over-year on-net and off-net ARPUs increased. Our on-net ARPU decreased sequentially by 1.7% from $483 to $475. And year-over-year our on-net ARPU increased by 3.8% and it was $458 last year for the third quarter. Our off-net ARPU decreased sequentially by 10.7% from $1,294 to $1,156. And year-over-year our off-net ARPU increased by 25.6% and it was $920 last year for the third quarter.

Churn rates. Our sequential churn rate for our on-net connections for the combined business did increase from the impact of the Sprint business this quarter. Our on-net unit churn rate was 1.8% for the quarter, up from 1.4% last quarter. Our off-net unit churn rate was 1.5% for the quarter which was a slight decrease from 1.6% last quarter. These on-net and off-net churn rates do not include large number of non-core churn customer connections. On EBITDA. We reconcile our EBITDA to our cash flow from operations in each of our quarterly press releases. We incurred $0.4 million of Sprint non-capital acquisition cost this quarter compared to $0.7 million last quarter. Our EBITDA for the quarter increased sequentially by $19.4 million and decreased by $14.3 million year-over-year.

Our EBITDA margin increased to 15.8% from 10.1% last quarter. Now, on EBITDA as adjusted. Our EBITDA as adjusted, which includes adjustments for Sprint acquisition costs and the cash payments received under our $700 million IP Transit Services Agreement with T-Mobile. We billed and collected $87.5 million under the IP Transit Services Agreement this quarter. Last quarter, we billed $58.4 million and collected $29.2 million under the agreement. All amounts billed under the IP Transit Services Agreement have been paid on time, and as of this call, we have received two additional payments. Our EBITDA as adjusted for Sprint acquisition costs and cash payments received under the $700 million IP Transit Services Agreement, was $131.4 million for the quarter.

That was a 47.7% EBITDA as adjusted margin. This EBITDA as adjusted margin is a company record and a substantial increase from 22.5% last quarter. And the increase was from both additional payments under the IP Transit Services Agreement and cost reduction, and an increase in revenue. Foreign currency impact. Our revenue earned outside of the United States is reported in U.S. dollars and was approximately 16% of our revenues this quarter. About 10% of our revenues this quarter were based in Europe and 6% of our revenues related to our Canadian, Mexican, Oceanic, South American and African operations. The average euro to U.S. dollar rate so far this quarter is about $1.6, and the average Canadian dollar exchange rate is about CAD 0.73. If these average foreign exchange rates remain at their current levels for the quarter, we estimate that the FX conversion impact on our sequential revenues would be a negative about $1 million and the FX conversion impact year-over-year would be a positive of about $0.8 million.

Customer concentration. We believe that our revenue and customer base is not very highly concentrated, although it has increased with the Sprint acquisition. Including the impact of the customers acquired in the Sprint business, our top 24 customers represented about 19% of our revenues this quarter. We acquired a number of larger enterprise customers with the Sprint business, and we are providing services to T-Mobile under the commercial services agreement. Our quarterly CapEx materially decreased and was $25.4 million this quarter compared to $37.4 million last quarter. On finance leases and finance lease payments, also known as capital leases. Our finance lease IRU obligations are for long-term dark fiber leases and typically have initial terms of 15 to 20 years or longer, and often include multiple renewal options after the initial term.

Our IRU finance lease obligations totaled $483.2 million at quarter end. We have a very diverse set of IRU suppliers and IRU contracts with over 315 different dark fiber suppliers. We acquired relationships with several new suppliers of dark fiber with the Sprint business. During the quarter, we recorded a purchase accounting measurement period adjustment to reclassify a lease agreement from right-of-use operating lease assets acquired from T-Mobile to finance lease assets. This adjustment under U.S. GAAP Accounting Standard 842 accounting for leases resulted in a reclass of almost of about $161 million from our acquired operating lease liabilities to a finance lease liability. The corresponding adjustment also reduced our cost of goods sold run rate by $12.6 million per quarter and increased our depreciation expense by about $11 million in the quarter.

Some comments on cash and operating cash flow. At quarter end, our cash and cash equivalents and restricted cash totaled $166.1 million. Our $56.4 million of restricted cash is tied to the estimated fair value of our interest rate swap agreement. And as of November 6, so just recently, the swap valuation reduced from $56.4 million to $43.8 million. Our operating cash flow results are materially impacted by the timing and amount of our payments under our Transition Services Agreement with T-Mobile and the presentation of the payments under our $700 million IP Transit Agreement. Payments under the IP Transit Agreement under U.S. GAAP, are considered cash receipts from investing activities and are not classified as operating activities. Our operating cash flow was a use of $52.4 million for the quarter compared to a positive $82.6 million last quarter, mostly from the impact of the Transition Services Agreement.

Last quarter, the TSA agreement provided $118.8 million of operating cash flow, since no payments were due or made during the quarter. This quarter, we paid $153.1 million under the TSA, under their terms and when the payments were due. Combined with amounts billed under the TSA for the quarter, net cash provided from the TSA was $9.5 million this quarter and that change from last quarter under this one-line item is $109.3 million. Most of the amounts paid under the TSA are for direct reimbursement of Sprint business vendors paid by T-Mobile on our behalf. We have transitioned a significant majority of these payments to our payable systems and expect to transition the remaining vendors by the end of the year. IP Transit payments under the IP Transit Agreement to $700 million.

Our payments received under the IP Transit Agreement are recorded as cash provided by investing activities, and were $29.2 million last quarter compared to $87.5 million this quarter. Total net cash used in investing activities was $22.3 million last quarter, and cash provided by investing activities was $62.1 million this quarter. That was a sequential quarterly increase of cash of $84.4 million for this line item investing activity. As Dave mentioned debt and debt ratios. Our total gross debt at par, including our finance lease obligations, was $1.4 billion at quarter end, and our net debt was $1.3 billion. Our total gross debt to last 12 months EBITDA as adjusted, and our net debt ratio both significantly improved this quarter. Our total gross debt to last 12 months EBITDA as adjusted ratio was 4.79, and net debt ratio was 4.24.

This was a material improvement and compared to gross debt to trailing ratio as adjusted of 5.63 last quarter and net debt ratio of 4.56. Our consolidated leverage ratio, as calculated under the note indentures reduced to 5.09 from 5.30 last quarter. Our secured leverage ratio as calculated under our note indentures increased slightly up to 3.5 from 3.45. Additional comments on the swap agreement. We are party to an interest rate swap agreement that modifies our fixed interest rate obligation associated with our $500 million 2026 notes to a variable interest rate obligation based upon the secured overnight financing rate for the remaining term of our 2026 notes. We record the estimated fair value of the swap agreement at each recording period and we occur corresponding non-cash gains or losses due to the changes in market interest rates.

The fair value of our swap agreement increased by $4.8 million from last quarter at quarter end to a liability of $56.4 million. We are required to maintain a restricted cash balance with the counterparty equal to the liability. And as I mentioned previously, as of November 6, our swap valuation reduced to $43.8 million. Lastly, some comments on bad debt and DSO. Our day sales outstanding or DSO remain stable. Our DSO for worldwide accounts receivable was 24 days, the same as last quarter. In the fourth quarter, we will be converting the billing of the Sprint business customers to the Cogent billing platform, and in fact, we just completed that process. Our bad debt expense was only $0.8 million and only 3% of our revenues for the quarter, outstanding results.

Again, we want to thank and recognize our worldwide billing and collections team members, including our new billing and collections employees from the Sprint business. We’re doing a fantastic job in serving our legacy Cogent customers and our new Sprint customers, and collecting for them and converting the Sprint billing to the Cogent billing system. I will now turn the call back over to Dave.

Dave Schaeffer: Hey, thanks, Ted. I’d like to highlight a couple of strengths of our network, our customer base and sales force. We continue to experience significant revenue and traffic growth in our legacy, net-centric business. We are direct beneficiaries of increased streaming over-the-top video and other streaming applications, particularly in international markets. At quarter’s end, we were on-net in 1,528 carrier neutral data centers and 60 of Cogent-owned data centers for a grand total of 1,588 data centers, more than any other carrier as measured by independent third-party research. The breadth of our coverage enables our net-centric customers to better optimize their network and reduce legacy. We expect that we will continue to widen this lead in the market and project to add approximately an additional 100 carrier neutrals per year to our network footprint over the next several years.

We expect to convert an additional 41 of the former Sprint technical facilities to new Cogent data centers. To date, we have converted four of these facilities. As of today, we are selling wavelengths in 50 carrier neutral data centers with reasonable provisioning windows, and we are selling wavelengths in 250 additional locations with a prolonged ability to install those services. In the next 14 months, we expect to be able to sell wavelength services in 800 U.S. carrier neutral data centers with substantially reduced provisioning times. Our network traffic growth accelerated in a quarter. Our traffic growth increased by 6% sequentially and 26% year-over-year. We expanded our footprint and have additional IRUs and owned fiber and right-of-way agreements.

At quarter’s end, we are the most interconnected network in the world with 7,971 networks directly connected to Cogent. This collection of ISPs, telephone companies, cable companies, mobile operators, and other carriers allow us to reach directly the vast majority of the world’s broadband subscribers and mobile phone customers. At quarter’s end, we had 257 sales professionals solely focused on the net-centric market. This group of professionals is one of the largest, most successful sales teams in the industry. This team will be primarily responsible for growing our wavelength market. Now for a couple of comments on our corporate business. We are seeing positive trends in our corporate business. Corporate customers are increasingly integrating new applications and part of their working environment includes the regular use of streaming video conferencing.

This requires high capacity connections both inside and outside of their premise. Our aggressive push to lower bandwidth costs and provide greater coverage has begun to boost corporate demand for bidirectional symmetric 1-gig and 10-gig ports. Corporate customers are increasingly buying connections in carrier neutral data centers for redundancy for the ad hoc VPNs that support a hybrid work environment. Our enterprise customers continue to focus on our dedicated Internet access and VPN services. We are continuing to terminate non-core products and the significant reduction that you saw in the last quarter was the elimination of our voice services based on session initiation protocol. Now for a comment on our sales force productivity, we remain focused on training and improving our sales force efficacy.

We do manage out under performers. On a sequential basis, our total headcount and sales decreased by 10 to 637 reps. Our sales force turnover rate was stable at a 5.7% per month for the quarter, down from a peak of 8.7% during the pandemic and consistent with our long-term average rate of sales force turnover of 5.7%. We remain very optimistic about our unique position to serve small- and medium-sized businesses located in the 1,860 multi-tenant office buildings representing over 1 billion square feet of rentable space in central business districts. We’re excited about the addition of a large enterprise customer base and our ability to sell optical transport networking to our net-centric as well as enterprise customers. We also remain encouraged by demand in our data center footprint and our ability to expand that footprint.

We have a significant backlog and funnel of wavelength orders of approximately 1,000 unique wavelengths. However, due to longer provisioning cycles that we are temporarily experiencing, we are unsure if all of these opportunities will convert into installed orders. Currently, we see key indicators of office activity, work re-entry, and leasing activity all improving as tenants continue to require employees to return to their offices and commercial office vacancy rates have continued to decline. Certain corporations have decreased the amount of square footage they’re taking per location, which will ultimately allow us to grow our addressable market for unique corporate customers. Under our indenture, including our $250 million general basket, we have a cumulative amount of cash available for dividends and buybacks that actually exceeds the amount of cash that we have available.

So we have effectively the ability to use all cash for shareholder friendly activities, whether it be dividends and/or buybacks. We are diligently working on integrating the Sprint business. We’re excited and optimistic about the cash flow generating capabilities. We’ll continue to achieve annual savings of about $180 million on the North American network, $25 million internationally, and $15 million in reduction in Cogent expenses. We also anticipate additional SG&A savings and other cost and revenue synergies over the next several years. Now, I’d like to open the floor for questions.

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