Q4 2023 Cogent Communications Holdings Inc Earnings Call

Participants

David Schaeffer; CEO & Chairman & Founder; Cogent Communications Holdings Inc

Tad Weed; Chief Financial Officer; Cogent Communications Inc

Anton Rinnert; Analyst; Cowen Inc.

Alex Waters; Analyst; Bank of America Corp.

Walter Piecyk; Analyst; LightShed Ventures

Nick Del Deo; Analyst; MoffettNathanson LLC

Tim Horan; Analyst; Oppenheimer & Co. Inc.

Michael Rollins; Analyst; Citigroup Global Markets Holdings Inc.

Bora Lee; Analyst; RBC Capital Markets Corp.

Brandon Nispel; Analyst; KeyBanc Capital Markets Inc.

Presentation

Operator

Good morning and welcome to the Cogent Communications Holdings Fourth Quarter and Full Year 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 the conference call will be posted on Cogent website when it becomes available. Cogent's summary of financial and operational results attached to the 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.

David Schaeffer

Yes, hi. Good morning, and welcome to our earnings call for the fourth quarter of 2023 and full year 2023 for Cogent, Chief Executive Officer. 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. The press release includes a number of historical metrics that we've presented on a consistent basis each and every quarter.
Now for a quick summary of our results. We closed the acquisition of the Sprint business on May 1, 2023. This transaction significantly expanded our network, o ur customer base, and materially increased the scope and scale of our business.
Our annualized revenue run rates are now in excess of $1 billion. We acquired a large number of enterprise customer relationships. These customers are typically larger than our Cogent legacy corporate customer base.
We also acquired a significant network comprised of own fiber and own facilities, many of which are being converted to data centers. We acquired network with an appraised value substantially above $1 billion for $1.
We are repurposing the acquired fiber network to be optimized for the sale of wavelength services. We received a total of $700 million over time from (technical difficulty) of serving enterprise customers. $350 million of these payments will be made in the first year at $29.2 million per month. And then $350 million of payments will be spread out over the next 42 months of $8.3 million per month.
We remain optimistic about the cash flow capabilities of our combined operations. Our recent results show that we have achieved immediate and substantial savings in multiple areas, many of which have exceeded our initial expectations. We anticipate additional cost savings from our current run rates.
Our combined Cogent business had a very good quarter and a very good year. Our total revenues for the quarter were $272.1 million and $940.9 million for full year 2023. Our EBITDA as adjusted for the quarter was $110.5 million, and for the full year, was $352.5 million in 2023. Our EBITDA as adjusted margin was 40.6% for the quarter, and 37.5% for full year 2023.
We received three payments totaling $87.5 million from T-Mobile this quarter, and a total of seven payments in 2023, totaling $204.2 million. Our gross total debt to trailing 12 month EBITDA as adjusted and our net debt ratio significantly improved in the quarter. Our gross debt to trailing 12 months EBITDA as adjusted ratio was 4.07 at year end, and our net debt ratio was 3.75, a substantial improvement from the 4.23 times in the last quarter.
Our network traffic increased sequentially by 7%, and was up 22% year over year. We have a number of areas in which we expect to continue to execute on cost savings. We're under the process of realizing savings and synergies over a three-year period that will result in an annualized savings of $220 million. We anticipate achieving additional SG&A savings and other costs and revenue synergies over this over the next several years, hopefully exceeding that $220 million target. Our recent progress in achieving these savings is very encouraging, and we do intend to surpass the targets that we have laid out.
Our sales force productivity last quarter was 3.6 units installed per rep, and 3.3 units per full-time equivalent this quarter. Our sales rep productivity has been substantially impacted by the enterprise customer reps that joined us from the Sprint business. These new enterprise reps are continuing to receive training on Cogent sales processes, and have not yet reached their full productivity.
Now for the size and scope of our sales force, in connection with the Sprint acquisition, we hired a total of 942 employees. As of today, 742 of these employees remain employed with Cogent. During the quarter, our total sales rep count increased by 20, or approximately a 3% sequential increase. For full year 2023, o ur total sales reps increased by 109, or a 20% increase, substantially ahead of our normal rate of sales force growth, catching up for some of the slower growth that occurred throughout the pandemic years. W e ended the year with 657 sales reps, of which 620 were counted as full-time equivalents.
Now for some comments on our wavelength and optical transport services. In connection with our acquisition of the Sprint business, we are expanding our product offering to include wavelengths and optical transport over our newly acquired fiber-optic network. We are selling these wavelength services to existing customers, as well as customers acquired from Sprint. These customers require dedicated optical transport connectivity, without the capital and ongoing expenses associated with operating their own network.
We have sold wavelengths, to date, in 65 locations. Many of these have shorter provisioning cycles. We have connectivity and capability to sell wavelengths today in an additional 285 locations with longer provisioning cycles.
By year end 2024, we expect to be able to offer a wavelength services in 800 North American carrier-neutral data center locations, with substantially shorter provisioning times. Our footprint expanded materially with the acquisition of Sprint. We added 18,905 route miles of owned of intercity fiber, and 12,000 -- excuse me, 1,257 route miles of own metropolitan fiber to our network. We also added 11,400 route miles of intercity [IRU] fiber and approximately 4,500 route miles of metropolitan IRU fiber to the Cogent network. We are in the process of rationalizing these acquired IRU fiber agreements as our contractual terms allow us to exit them.
To date, w e have also reconfigured 22 of the acquired Sprint facilities into data centers. And we added these new data centers to the 1,558 carrier-neutral data centers that we operate, bringing and brought the total of Cogent-operated data centers to 77, which today have 157 megawatts of power. We are in the process of converting an additional 23 Sprint facilities into Cogent data centers, and optimizing and rationalizing (technical difficulty).
During the quarter, we returned $46.4 million to our shareholders w ith our our regular quarterly dividend. We paid four quarterly dividends in 2023, totaling $181.7 million or $3.76 per share. We expect the tax treatment for these dividends are generally treated as completely return of capital, s o therefore, 100% of those dividends will be treated on a tax-deferred basis.
Our Board of Directors, which continues to evaluate our growth and cash flow and the capabilities of our team to execute against our opportunities, i nclusive of the Sprint acquisition, increased our quarterly dividend yet again by $0.01 a share sequentially, raising our quarterly dividend from $0.995 per share per quarter to $0.965 per share per quarter. This increase represents the 46th consecutive sequential increase in our quarterly dividend, and a 4.3% annual growth rate in that dividend.
Now for a couple of comments around our long-term targets. Now that Cogent is fully integrated and combined with the Sprint business, we anticipate our long-term average revenue growth to remain between 5% and 7% annually. And w e expect our EBITDA margins as adjusted to increase by approximately 100 basis points annually. This will be impacted in the short term by the step down in payments from T-Mobile.
Our revenue and EBITDA guidance targets are intended to be multi-year goals, and are not intended to be used as quarterly or annual specific targets. Our EBITDA as adjusted and leverage ratios are impacted by the $700 million payment stream that we receive from T-Mobile. Beginning May 2024, these payments will step down from $29.2 million per month to $8.3 million a month, and remain in place for the subsequent 42 months. The reductions will impact our future EBITDA as adjusted, leverage ratios, and will impact our ratios in the third quarter of 2024 o n a trailing 12-month basis.
Now I'd like to turn it over to Tad to read our Safe Harbor language and provide some additional details. And then I will jump back on to address some additional operating metrics.

Tad Weed

Thank you, Dave, and good morning, everyone. This e arnings conference call (technical difficulty). These forward-looking statements are based upon our current beliefs and expectations. And these forward-looking statements and all other statements that we 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 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 measures in our earnings releases that are posted on our website at cogentco.com.
So some comments on the accounting for the Sprint acquisition, which was very complex, frankly. In connection with our accounting for the acquisition, we recorded a total gain on bargain purchase for the year of $1.4 billion, or almost $27 per share for the year. I ncluded in that $1.4 billion gain is the discounted present value of the $700 million IP transit services agreement with T-Mobile.
During the fourth quarter, and in consultation with our auditors and valuation specialist, a Big 4 accounting firm, w e recorded -- both Big 4 accounting firms, w e recorded an additional intangible asset for $9.9 million of IPV4 Internet addresses that we acquired in the Sprint acquisition. These IPV4 addresses have an indefinite useful life and are not being amortized. This asset was recorded $458 million, for an average of about $46 per address. Because of the novel nature of this asset and the fact that the transaction has already resulted in a material bargain purchase gain prior to reporting this asset, we reported the asset after consideration of the appropriate valuation approach. The net after-tax impact of reporting the IPV4 Internet addresses, and other valuation adjustments that we made this quarter, resulted in a net additional gain on bargain purchase of $254 million that we recorded in the fourth quarter.
The acquired network, including owned real estate assets, fiber routes, right-of-way agreements, network equipment, and the IPV4 Internet addresses, have been appraised by a Big 4 accounting firm at a total valuation of $1.4 billion. The total fair value of the net assets acquired, so net of liabilities, was [$809 million]. And including the net present value of the consideration to be paid to us by T-Mobile of $600 million -- well, on a discounted value, and the $458 million of IPV4 for Internet addresses, a gain, the total acquisition resulted in a $1.4 billion bargain purchase gain. These amounts are subject to additional adjustments through one year from the closing date, which will be May 1, 2024.
Some comments on corporate and net-centric revenue and customer connections. We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength services, and non-core services. And we analyze our revenues based upon customer type, and we classify all of our customers into three types: net-centric, corporate, and enterprise.
Our corporate business continues to be influenced by real estate activity in central business districts. We continue to remain cautious in our outlook for our corporate revenues, given the uncertain economic environment and other challenges from the lingering pandemic effects. Our corporate business was 46.5% of our revenues this quarter. And our quarterly corporate revenue increased year over year by 47.6%, to a total of $126.6 million from the fourth quarter of last year, and increased sequentially (technical difficulty). Sequentially, for the full year 2023 (technical difficulty) revenue increased by 29.5% to $443.7 million.
We have 54,493 corporate customer connections on our network at year end. This represented a sequential decrease of 1%, and year-over-year increase of 21.5%. For the quarter, t he sequential impact of [USF] taxes recorded as revenues on our corporate revenues was a positive $5.9 million, and a positive year-over-year quarterly impact of $16.3 million. For the full year, the positive USF impact was $34.8 million.
Some comments on the net-centric business. Our net-centric business continues to benefit from the continued growth in video traffic, streaming, and wavelength sales. Our net-centric business represented 34.2% of our revenues this quarter, and declined sequentially by 1.9% to $93.1 million, and grew by [48.7%] on a year-over-year basis. For the full year 2023, our net-centric revenue increased by 33.7% to $343.6 million.
We had 62,370 net-centric customer connections on our network at year end. That was a slight sequential increase of 0.1%, and year-over-year increase of 20.7%.
Comments on the enterprise business. Our e nterprise business represented 19.2% of our revenues for the quarter, and was $52.3 million. We had 20,740 enterprise customer connections at the end of the year o n our network. Our enterprise revenue decreased sequentially by $7.7 million or by 12.8%. For the full year 2023, our enterprise business revenue was 16.3% of our revenues -- just a reminder, there was no enterprise revenue last year, or $153.6 million.
Lastly, on the wavelength business. Our new wavelength product represented 1.2% of our revenues this quarter, and was $3.3 million, and we had a total of 667 wavelength connections on our network at year end.
Revenue and customer connections by network type. I need to make some comments also on a billing transition that we went through in the fourth quarter. In the fourth quarter, we fully integrated our Sprint customers into our billing platform. All Cogent customers worldwide are now built on one Cogent billing system. This transition delayed some customer payments from December into January, since the former Sprint customers needed to update their systems to remit payments to our lockbox, from the T-Mobile lockbox. This increased our day sales to [37] at year end, which was a temporary increase.
Additionally, once we provisioned every Sprint order into our billing system, we reclassified $1 million of on-net revenue and $400,000 of off-net revenue from Q3 to non-core revenue. We also reclassified 1,373 on-net customer connections at the end of the third quarter to 157 off-net customer connections and 1,216 non-core customer connections. This was to conform to our classification methodology, as we were using the T-Mobile billing system through October of 2023. Changes are reflected retroactively in our summary of financial and operational results tables, that is included in our press release.
On-net revenue. Our on-net revenue, including wavelength revenue, was $141.2 million for the quarter. That was a sequential increase of 6.9%, and a year-over-year increase of 22.8%. For the full year 2023, our on-net revenue increased by 14.5% to $518.6 million. Our on-net customer connections were 88,733 at year end.
We serve our on-net customers in our 3,277 total on-net multi-tenant office, and 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 selected multi-tenant office buildings. Selling these larger connections has the impact of increasing our year-over-year, and sequentially, on-net ARPU.
Our off-net revenue was $123.7 million for the quarter. That was a sequential decrease of 5.3% and a year-over-year increase of 235.4%. The s equential decline in our off-net revenue was partially impacted by our migration of certain off-net customers to on-net. For full year 2023, our off-net revenue increased by 169.2% to $393.5 million.
Our off-net customer connections were 36,895 at year end, and we serve these off-net customers in over 27,000 off-net buildings. These off-net buildings are primarily located in North America.
Lastly, on non-core revenues, our non-core revenue was $7.3 million for the quarter. That was a sequential decrease of $5.6 million or 43.5% due to our decision to end of life for these non-core products. Non-core customer connections were 1,975 at year end.
Some statistics on pricing, our average price per megabit for our installed base decreased sequentially but increased year over year by 4.9%. Our average price per megabit for our new customer contracts for the quarter was $0.1.
ARPU. Our on-net ARPU increased sequentially and our off-net ARPU decreased year over year. On-net and off-net ARPUs increased primarily from the impact of the Sprint business and also selling larger connections. Our on-net RPU increased sequentially by 9.7% from $484 to $530. Year over year, o ur on-net ARPU increased by 14.4% from $464 last year. Our off-net ARPU decreased sequentially by 2.9% from $1,150 to $1,117 year over year. Our off-net ARPU increased by 22.2% from $914 last year.
Our sequential churn rate for our on-net and off-net connections for the combined business improved Our on-net unit monthly churn rate was 1.2% for the quarter, which was a material improvement from 1.8% last quarter. Our off-net unit monthly churn rate was 1.3% this quarter, an improvement from 1.5% last quarter.
Ebitda and EBITDA margin. We reconcile our EBITDA to our cash flow from operations in each of our quarterly press releases. We incurred $17 million of Sprint non-capital acquisition costs this quarter compared to $400,000 last quarter. Included in that $17 million of Sprint acquisition costs for the quarter. Our $16.2 million of severance costs that we paid but are fully reimbursed by T-Mobile and have been fully reimbursed under US GAAP. These costs need to be reported as SG&A post acquisition costs and correspondingly as a component of the bargain purchase gain. So on net P&L impact, and they are reflected as Sprint acquisition cost and stay are directly tied to the acquisition classified that way.
On our P&L, EBITDA as adjusted and EBITDA as adjusted margin. Our EBITDA as adjusted includes adjustments for Sprint acquisition cost and cash payments received under the $700 million IP transit services agreement with T-Mobile, we billed and collected $87.5 million under that agreement this quarter, we build $233.3 million and collected $242.2 million under that agreement for all our mills under the IP transit services agreement and have been paid to us on time.
Our EBITDA as adjusted for Sprint acquisition costs and cash payments under the IP transit services agreement was $110 million for the quarter and a 40.6% margin. Our EBITDA as adjusted of $352.5 million for the full year and a 37.5% margin comments on foreign currency.
Our revenue earned outside the United States is reported in US dollars and was about 16% of our revenue this quarter and 18% for the year. About 10% of our revenues for the quarter were based in Europe and the remaining 6% outside the US were related to Canada, Mexico, oceanic, South American and African operations. The average U.S. to euro rate so far this quarter as $1.9 in the Canadian dollar average rate $0.75, and if those average rates remain at their current levels for the remainder of the first quarter of this year, we estimate that the FX conversion impact on our sequential quarterly revenues would be positive and about $0.5 million in the same impact on a year-over-year basis.
We believe that our revenue and customer base is not very highly concentrated, even with the Sprint acquisition, including the impact of the customers acquired in the Sprint business, our top 25 customers represented 16% of our revenues this quarter and 15% for the year CapEx. Our quarterly CapEx was 43.6 million this quarter, and our CapEx was [$129.6 million] for the year.
We are continuing our network integration of the former Sprint network and legacy Cogent network to one unified network and converting Sprint switch side sites into Cogent data centers on finance leases and payments are financed. Lease IRU obligations are for long-term dark fiber leases and typically have initial terms of 15 to 20 years with longer and often include multiple renewal options.
After the initial term, our total IRU financed lease obligation patients were $484.5 million at quarter end. We have a very diverse set of argue suppliers, and we have contracts with over 325 different dark fiber suppliers worldwide.
Comments on cash and cash flow at quarter end, our cash and cash equivalents and restricted cash of $113.8 million or $38.7 million of restricted cash is directly tied to the estimated fair value of our interest rate swap agreements. 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 payments under the $700 million IP transition services agreement payments. Under the IP transit $700 million, $3 million under US GAAP are considered cash receipts from investing activities and not classified as operating activities of our operating cash flow was a use of $32.5 million for the quarter compared to $52.4 million of the use last quarter.
Our operating cash flow this quarter was impacted by the billing conversion, and our operating cash flow was [$33.6 million] for full year 2023. Payments received under the IP transit agreement are recorded as cash provided by investing activities were $87.5 million last quarter, the same as this quarter and for the year, $204.2 million was collected.
Our total gross debt at par, including finance, arguably lease obligations, was $1.5 billion at year end, net debt was $1.4 billion. Our total gross debt to last 12 months. Ebitda as adjusted and net debt ratios both significantly improved this quarter. Our total gross debt to last 12 months. Ebitda as adjusted was 4.7 at year end, net debt of 3.75, an improvement of 4.23 at the end of Q3. This is compared to a gross debt and last 12 months EBITDA as adjusted payout ratio of 4.79 at the end of Q3, and again, net ratio of 44.23 last quarter.
Our consolidated leverage ratio as calculated under our note indentures slightly different reduced to 3.67 from 4.57 last quarter. And our secured leverage ratio as calculated under the note indentures reduced to 2.4 from 2.97 last quarter. Some comments related to our swap agreement. We are party to an interest rate swap agreements as quantifies our fixed interest rate obligation associated with our [$500 million 26% notes] to a variable interest rate obligation.
Based upon the secured overnight financing rate or so over for the remaining term of those notes, we recorded the estimated fair value of the swap agreement each reporting period and incur corresponding non-cash gains and losses due to changes in market interest rates. Our interest expense and operating cash flow for the full year 2023 was impacted by $21.5 million of interest expense paid in May and November associated with the swap agreements, and that was compared to $2.1 million last year. The fair value of our swap agreements decreased by $17.7 million from last quarter to $38.7 million.
We are required to maintain restricted cash balance with the counterparty equal to the liability. Our days sales outstanding or DSO, as I mentioned earlier, was significantly impacted by the billing conversion. Our DSO for worldwide accounts receivables 37 days versus 27 last quarter. Our DSOs after year end have reverted back to historical norms.
Our bad debt expense was $1.9 million and 0.7% of our revenues for the quarter. That was also impacted by the billing conversion. Our bad debt expense was $8.6 million or 0.9% of our revenues for the year.
Finally, I want to thank and recognize our worldwide billing and collections team members for managing the billing conversion from legacy T-Mobile Sprint billing platform to our coding billing engine. This was a tremendous operational achievements, and we completed this in only six months from the acquisition date. All customers were built worldwide from the Cogent billing system starting in November of 2020.
I will now turn the call back over to Dave.

David Schaeffer

Hey, thanks, Tad. I'd like to highlight a couple of the strengths of our network, our customer base and sales force, we continue to experience significant traffic growth and our NetCentric business. We continue to be beneficiaries of increased over the top video and streaming, particularly in international markets.
By quarter's end, we ended with 1,558 carrier neutral data centers and 68 Cogent data center. Of that total goal of 626 data centers has more than any other carrier Glowpoint Lee Azman measure by independent third party research. The breadth of coverage allows us to serve the NetSuite truck market Bevil, allowing our customers to optimize their networks to reduce latency. We expect to continue to wind this lead and the market as we project adding over an additional 100 carrier neutral data centers to our network per year for the next several years.
We also expect to continue to convert Sprint facilities into Cogent data centers. 23 of these facilities are in process of being converted. To date. We have completed the conversion of 22 of the facilities into Cogent data centers. As of today, we are selling wavelength services 65 carrier neutral data centers with expanded provisioning cycles. We can also sell wavelengths and an additional 285 carrier neutral data centers or a total of 360 facilities across North America.
We're generating $3.3 million of revenue from wavelength sales in the previous quarter was 667 discrete installed wavelengths. We have a significant funnel of wavelength orders in the pipeline. Today, we have a combination of orders signed as well as our sales funnel of over 2,300 orders. Our network traffic continues to increase that increase 7% sequentially to 22% year over year.
At quarter end, we directly connected to 7,988 networks. This collection of ISPs telephone companies, cable companies, mobile operators and other carriers film allow us to rock quality of the world. Broadband subscribers have mobile phone users.
At quarter's end, we had a sales force of 271 net centric fabs focused on this market. That was in addition to the 374 reps that we have focused on our corporate segment and 12 sales reps focused on our enterprise market for corporate trends that we are saying are positive, but have still been impacted by the pandemic.
Our corporate customers are continuing to integrate new applications, which are big home part of their normal workload, including the extended use of video conferencing. This usage requires high speed, high capacity connection runs both inside and outside of their promise us. Our enterprise customers continue to focus on dedicated Internet access and VPN services, inclusive of the older MPLS technology to manage their now network.
We remain focused on improving our sales force efficacy through training and manufacturing out underperforming sales reps. Our sales force turnover rate improved substantially in the quarter, 4.1% per rep per month for the quarter, down from a peak of 8.7 reps per month at the height of the pandemic and much better than our average historical number of 5.6% are continuing to train reps who joined Coach from the Sprint business.
We remain optimistic about our unique concession and surveying the market, particularly around our core brokerage footprint in the central business districts, where we have over a billion square feet of rentable office space and 1,862 multi-tenant buildings on net. We're excited about our large enterprise customer base as this provides us a new targeted market and our wavelength opportunity is just beginning to unfold as we continue to repurpose this Sprint network and optimize it for the delivery of wavelength services.
As mentioned earlier, we can serve customers and 65 locations today where we are delivering waves. We have another 285 locations that are a name for servers with all of our provisioning windows that significant backlog and funnel of approximately 2,300 wavelength opportunities gives us a great deal of confidence that as we continue to modify and then enhanced the Sprint network to provision wavelengths, we will be able to convert these on a much more expeditious casual and by year end, hope to mirror the provisioning windows that we have experienced in our net centric tranche IT services.
The key indicators of office activity, workplace reentry and leasing activity remain substantially below pre-pandemic levels. However, tenants are returning to their offices and leasing activity appear there's two beginning to improve. We are diligently working to continue to integrate all increased Sprint assets and customers into our systems. Our processes in one unified now for this will allow us to continue to improve our cash flow generation over the next three years. We anticipate annual savings due to multiple synergies of over $220 million a year.
With that, I'd like to open the call now for questions. Thank you.

Question and Answer Session

Operator

(Operator Instructions) Anton Rinnert, Cowen.

Anton Rinnert

Hi, thanks for letting me on the call for equity cap size, CapEx came in a little bit higher at $43 million. On how should we think about CapEx going forward o n the outlook there?

David Schaeffer

Thanks. Yes, sure, Anton. Thanks for the question of. As we outlined, the CapEx that we expect to spend on a going-forward basis should be about a $100 million a year. We also indicated at the time we announced the acquisition of the Sprint net far fit. That would be about a $15 million or one time set of expenditures were about 60% of the way through that extraordinary up $50 million. That was the reason why our CapEx came in and at approximately $130 million last year.
And thinking about the capital required to run the combined business, there are really three categories. There is the maintenance capital required to run the legacy Cogent network and its associated P. and PPN. business, which is about $35 million a year. There was approximately $40 million a year and continuing capital expenditures on the acquired Sprint network. We are continuing to spend that cap. But all however, we have or repurposing those spend richer expenditures to primarily focus on the wavelength opportunity.
And then third, we are expecting to be able to our Additionally, we'll be able to use capital to expand the footprint. We spend about $30 million here in footprint expansion.
The final point I'd like to make is thinking about our capital if you really need to look at the combination of what is reported as capital as well as the principal payments on capital leases. And in fact, sequentially from the third quarter to the fourth quarter, those principal payments on and capital leases declined materially from $41.3 million to $18.8 million. I think you should think about fees as pretty good run rate going forward.
So yes, probably in the order of about $80 million a year for the next slide, several years of principal payments on capital leases. And then on addition to that, about $100 million and CapEx.

Anton Rinnert

Got it. Thank you.

David Schaeffer

Hey, thanks.

Operator

Alex Waters, Bank of America.

Alex Waters

Maybe just first on wavelengths, can we maybe just talk a little bit about the rationale of no longer stripping out wavelengths in the press release? And then secondly, on that, just heading into 2024, I think last quarter, you noted that we should probably be around $20 million range better by midyear for wafer lines. Can you just talk about that ramp as we get there? And then just on SG&A, can we talk about the uptake quarter over quarter and then how we should think about SG&A going into 2024? Thanks.

David Schaeffer

Yes, sure. So the decision on just not including it in the press release was so we would have a more fulsome opportunity to discuss it in the prepared remarks. As we did, as you know, we think it is important to be able to disclose both the revenue run rate, which was $3.3 million up sequentially. And the unit count, which was 67 of we are still hampered by the number of sites that we can provision.
The backlog has more than doubled sequentially in the quarter. So all on the third quarter earnings call, our backlog was approximately 1,000 orders and the sales funnel and provisioning funnel that number's up to approximately 2,300 of we actually anticipate based on information from the sales force in our conversations with customers that we're going to continue to see an acceleration in the order of volume.
We are frustrated by the amount of time time it's taken to waive enable sites. W e are still confident by year end that we will be able to have 800 sites that can provision waves with a two-week average provisioning window. We are definitely not there today. As a result, we will probably not be on a run rate by midyear of $20 million of install business. I think we will have a final that will demonstrate that.
But the sheer number of sites that need to be touched and the number of steps that have to be done to convert the former Sprint voice network into a wavelength optimized network is a very daunting task. We are progressing well. There are a sales of our 2,000 employees who are almost completely full time focused on this effort. All we absolutely will meet the year-end targets. But I think by midyear, the final will demonstrate that run rate, but it probably will not be proficient.

Alex Waters

And due to these extended provisioning windows in those 285 sites and all that can jump in to the SG&A numbers?

David Schaeffer

Sure. So I think the best way to look at our cost run rate is to look at the combined COGS and SG&A together. We had some classification adjustments we needed to make in the quarter and for the year. Results of that is for a period next time. Key to T-Mobile was paying our bills for us. So we were getting that information and having to classified according to what came in from.
The takeaway is for the third quarter, the combined cost of goods sold and SG&A rate was about $231 million. There was a benefit in that quarter of about 8.5 million for the change in accounting for our capital lease. So adjusted for that, it's about $240 million for the quarter. The combined for this quarter was about 249 million, and we had a couple of increases that are not going to reoccur.
USF, as we mentioned on the call, increased by $6 million. We had a bad debt that we needed to record since it's based on the relationship of cash receipts seats to billing. And because of the billing delay, that one up net was about $2 million. And then we have year end audit adjustments. These companies have about $2 million. So you're comparing an adjusted $240 million combined COGS and SG&A for Q3 to about $239 million this quarter. So I do should slightly improve. I know that's a little complex.
And I think the other way to look at SG&A on a going-forward basis is about 27% of revenue. Hopefully, that helps.

Alex Waters

Thank you very much.

Operator

Walter Piecyk, LightShed Ventures.

Walter Piecyk

Actually the NewCo systematic. I mean my question and I assume that there was some reversal of reversals, but the USF 10 revenue as well. Right. So the expense goes up and that's correct that as collateral or at $5.8 million sequentially. So let's look at a different way how to take a one-time reported minus to $87.5 million, I guess $23 million, which was down 15% sequentially. And our how we do whatever comparisons are one year over year. Again, my best guess at best a new run rate, maybe less to $40 million versus to $49.9 million for the run rate's $30 million of EBITDA for the legacy business. When you exclude the TSA payments, which we all know have a finite apps.

David Schaeffer

So Walt, your arithmetic is a bit flawed in this case because what you're doing is counting the expenses that we acquired in acquiring the Sprint enterprise space. But then excluding from there at the subsidy payments that T-Mobile contractually agreed to what you are correct, they are finite.

Walter Piecyk

So are those expenses and we are achieving substantial improvements by reducing head count by X, sitting on economic agreements and by moving customers from off-net to on-net?

David Schaeffer

As we had described, it would take us three years to do that and we would achieve approximately $220 million in Andy. Well, I used savings. We actually are running ahead of that T-Mobile payments and their pace or based on negotiations between the parties and the contractual schedules that or expenses that we knew we would accept, but maybe could not exit immediately all. So I actually think to calculate EBITDA, you have to use both the expenses and the money's coming in well, as I've thrown off flawed at all.
I fully appreciate that the synergies that will be achieved in three years, but those that's three years from now. You don't get the synergies today and we're trying to figure out, obviously a baseline for EBITDA and many oil achieve synergies, which will give you full credit for over three years. And I say that you're ahead of schedule on the $220, but the baseline EBITDA going 30 plus not necessarily a positive rate. If you want to say we've got more synergy ahead of us to achieve off of that baseline as opposed to less.
So I don't know if you have my math is flawed. I fully understand how synergies are achieved over time. I'm not saying that this at the baseline EBITDA today. So first of all, we have begun achieving those synergies to date. Many of those synergies of have contractual counterparty obligations that roll off between now and the end of 2026. W e have been very clear in general and intimates and which I think everyone's estimates, but that has nothing to do with Pyxis EBITDA. But I don't ever want everyone know Europe expenses fall off price to cover those expenses. We have a stream of payments that are contractually obligated to be paid by T-Mobile to us.
And looking at EBITDA, you need to include those T-Mobile expenses go had pointed out, for example, to $16.2 million in severance reimbursement that we got in the quarter is not in your EBITDA number, but it was a cash payment to us from T-Mobile All we're trying to be as we can possibly be. But the I think it would be helpful to them if you're trying to be transition in the press release rather than having people feverishly. Right down the data on on.

Walter Piecyk

I know you said earlier you just said you want to have a robust prepared comments, but that's not helpful in the spirit of transparency as opposed to putting the numbers in print in the press release when the quarter's release I think were pretty granular and the level of detail. And can you comment, you wondering in the press release was all-time compared to other public companies are now?

David Schaeffer

I'm going to differ with you. I think we are very granular. The only comment that on made is one of the online channel and our frustration in that we're only selling wavelengths and 65 locations today. While we have orders in hundreds of other locations that we are rapidly enabling to be able to support those wavelengths. But again, to your EBITDA number on and we can take this offline and happens, we'll follow-up with you.
I think you can read the K, you can look at the detail we're about as granular as Paul oriented. All we are we ready at all, but we just let me last question, Dave, unless let's focus on revenue. Corporate revenue on a positive side, although again, those numbers that we don't get life and Sprint non-core, it looks like at least is not declining anymore. Can you give us a I can't even stricter all these numbers and first stuff that's not reported, but what is the what do you think the sequential growth has been your legacy corporate revenue, excluding the ag side of the management of our operating numbers that are provided in the press release for the quarter.

Walter Piecyk

Okay. But revenue was 26.6 preventing offloads 2019. I had an accurate number. There's a whole lot of a tenant finish.

David Schaeffer

Well, let me comment last quarter. One 20.5, that's an increase of 6.2 in that increase is $5.8 million of USF. So there was a net increase of about 300,000 sequentially. If you adjust for U.S. while And the reality is there's also in that number also is in that number is Sprint corporate non-core, which is not broken out and that number can go up amount of all.
Total non-core total non-core declined from 12 to set out at declined by five and a half. It actually declined by more than that, as we pointed out, because when we convert a customers from the Sprint billing platform that T-Mobile is operating ours, there was another $1.4 million of revenue that really was non-core but not designated with product codes that would represent non-core under T-Mobile's billing. So the $5.5 million sequential decline in non-core is actually understated by one or $8.4 million.
So it's again to the day, we're not moving forward on what worked for me to get everything into a consistent way. So quarter-over-quarter, you can look at the now, of course, and it's going to go back up, but it's going to continue to go out. And the fact that I went from 12.5 to 7.5 with a $1.4 million and PAD is to me very positive in terms of either today or was it. I'm just trying to get that number because I would say that it looks like you inverted positive this quarter.
I just wanted to affirm that because of these multiple moving pieces and getting to what was a very predictable number prior to all of this mess with Sprint. So I assume that that's positive now, which is in and I assume the Eureka have. So I assume you're expecting that to continue positive going forward. And if you want to talk about the dynamics of the corporate market now please do well, you know, you are correct. Our corporate business net of U.S. half did grow sequentially. Is continuing to grow. The pace at that growth is not at pre-pandemic levels, but we are seeing sequential improvements.

Walter Piecyk

Perfect. Thank you very much.

David Schaeffer

Thanks, Walt.

Operator

Nick Del Deo, MoffettNathanson.

Nick Del Deo

I guess I'm still a little confused on the on the cost and EBIT to our trajectory. I get you to maybe ask it slightly different way. Last quarter, your EBITDA, including the T-Mobile payments on excluding integration costs, was $131 million. This quarter was underwritten 10 or 11 years ago and $20 million sequential decline in EBITDA.
And Tad, I know you called out the higher bad debt for a couple million bucks year-end audit and bonus for a couple of million bucks in Q4. I guess, anything else worth calling out to help explain that $20 million delta?

David Schaeffer

Yes. Our last quarter we had the benefit of the lease accounting, which was set was $8.4 million. So that's a different to that. And then also on the USF impact, which was 5 and the bad debt. So build anywhere at year end, that debt audit bonus accruals, that thing that does all combined are close to $5 million.

Tad Weed

Okay. Just to maybe drill down on two as really the costs comparable, it's about 40 versus 2009, and that's COGS and SG&A combined. Now revenue did decline until that's really the pure as adjusted EBITDA of $40 million less because there are payments for the same 87.5 to 87.5. So the SG&A run rate forget reclasses and other things. And year end adjustments should be about 27% and of revenues for modeling purposes going forward.

Nick Del Deo

Okay. Just to close to 30 assets for this quarter. Okay. Just to clarify two things. The USF for five you called out again, this isn't U.S. that's just a pass-through with no profit impact on?

David Schaeffer

Yes, it is. But when you're reconciling those lines, you need to included. I agree on the EBITDA perspective, it's a wash.

Nick Del Deo

Okay. And then the lease adjustment again thing that I thought that Tom had, Megan things are the different. You had the $12 million or $13 million adjustment where at least went from OpEx to NIM to a finance lease that bumped that the right dose. And so I thought that was that would have occurred in Q3 and Q4 consistently.

David Schaeffer

No, because the previous expenses were reversed when the accounting was changed, both FirstNet does continue going forward. But the guidance you've got the payments this quarter hit interest and principle. And when we recorded the lease in the third quarter, we recorded the balance and then you had to reverse the prior amounts that have been charged from May through September 30. So average for all eight of five months of for ourselves versus the run rate.

Nick Del Deo

Okay. Okay. That that latter nuance I hadn't picked up on our angle there. Thanks for. Thanks for clarifying that. And maybe. If I could ask two other questions, maybe for Tad. First would be with the Sprint ITE. four addresses from what's the plan there? Do you sell them delay some to hang onto them for the business? And what might the financial impact be over time?

Tad Weed

Okay. So there's a fair amount of complexity here. So when we acquired PS. side, we got a large number of address as previous the Sprint and we have some organic Cogent and some from other acquisitions. But pre Sprint, we had approximately that had zero valuable on our balance sheet, yet they had real economic value. Those addresses are traded every day and public exchanges for IPV4 address. You can go online and we'll get to quote says we talk all when we did the acquisition of PS. sign-up dimension of value to address this because they were still available for free.
And second, the accounting rules were different and we've recorded things as negative goodwill, which is no longer how you record a gain. You now recorded as a bargain purchase gain. And we did in Sprint's case in case of Sprint, since we acquired 9.9 million IPV4 addresses, bringing our total to about 37.8 million in address is that we own all when that happened, we actually had initially we're not going to focus on down and because we have been generating leasing revenue from addresses since 2015.
Included in our Corporate and NetCentric numbers are it's primarily NetCentric. It's roughly 85% net centric bout almost 13% corporate and a couple of percent in the enterprise. We generated $40 million a year out of leasing dovish numbers out of We continue to lease out incremental inventory.
Today, we are at least think about of 11.4 million of the 37.8 million addresses that we currently have our average lease price per address as about $0.3 per address per month. We were somewhat unique in the market and having an inventory and being a service provider and leasing. These had traverses. We didn't focus a whole lot of attention on annual interest. Included in all of our numbers did even break it out as a separate process.
And just baked in now we are going to break out the unit count and the number separately and part of the change occurred about a year ago when Amazon, which had been a serial acquirer of addresses, began to compete with Cogent and what he had treasures almost on leases, it addresses on an hour or a really clear system by the hour.
And in fact, they generate about three and six times Cogent's rate. So based on kind of now a two-part, a lease chip market, the accounting firm for the appraisal came back and said you guys purchase gain to account for these and other and $54 million in the final point to this is we are days to either sell addresses, which we have not done on the app for potential flows from those addresses for generating about 40 million of EBITDA to of will continue to evaluate us a better to lease or should we sell. I'm sorry, go ahead. Had goods.

David Schaeffer

Just summarize quickly on the inventory in the queue. Counting just 38 million addresses in total in 2,020, we paid only $12 million in cash to clear sign that back in those days. The accounting was you record only the assets, the 1 million of intangibles, basically the rules net assets acquired with Sprint. We call addresses that as an acquired asset that needs to be valued.
We have the Big 4 accounting firm, including their appraisal, how much these addresses are worth per address value of $46 per address. So they are reflected on our bank on sheet in our 10 K, which we will file today. At $458 million quarter includes the 250 million that we've increased the bargain purchase. These new address the adjustment for the income tax impact of that, so deferred we recorded. So I hope that's a good summary as to where we are.

Tad Weed

As Dave mentioned, we are leasing 11.4 million of the addresses and generating about $35 million of lease revenue currently for a year. There's no costs associated an asset that's partly on our balance sheet and partly not.

Nick Del Deo

Okay. A lot of great detail thinking about how many do you think you need to run the business. So that was how many if you wanted to virtually none, probably 400,000 new could run the network. You would do some to number. Your own now have about 60,000 network devices and the network and customers in 2015 and make year 2022.

David Schaeffer

We actually would only have we had from us our job anticipating Amazon's entry and sort of we saw a significant spike up in leasing activity of five leasing AmTrust to do continue to buy bandwidth. We could sell those have trusses above that roughly 100,000 or run the company may say, very limited pools of addresses.

Nick Del Deo

Okay. Okay. Thanks, Dave. And then sorry if it has been so long, I guess I'm not sure we're on plan. I mentioned in what you can share there and what do you think is going to have any customer revenue impacts?

David Schaeffer

I did talk about it at our that's actually something initiated by coach and strep with NTK. since 2001, two to gain market share in Asia, NTT. refused to give us connectivity in Asia. We remain multiple conversations within TT. technical and management individuals. And they basically said they did not welcomed and refuse to as our peering required in retaliation asking them to connect even outside of the home market of Japan were willing to take Singapore, Australia, you have Taipei Hong Kong a relative to the protection of their home market that they continue to refuse. So as a result, mainly in Europe, they do have a year were forcing Asian traffic trough, still connectivity that was just customers had to go from Japan.
Now I am at strategy and your European customers have to come to Europe. Bob, I know it sounds, it's a tit for tat, but at actors in the world who don't and expand one point further, you know, we have a similar situation with Deutsche Telekom, which has been capacity in Asia, but refused to expand in Europe. So they'll expand connectivity in Asia, but they want to protect their German market. So while they may neutrality water and air contrary, they are absolutely violating the Spirit encouraging that the FCC may finally, yes, codify this in a way.

Nick Del Deo

Okay. I'll stop there. Thank you, Dave.

Operator

Tim Horan, Oppenheimer.

Tim Horan

AWS expects, I mean, where a customer is going to go, if you think you would lose those customers and a $40 million goes to $240 of free cash flow?
Yes. So I'll first of all, we did mark with pricing umbrella and 2015 when we started leasing, yes, we have never changed our pricing on addresses while our band 1% a year during that same period of second point is you are absolutely correct in your pretty sticky the expenses, small end of labor involved and rain number.

David Schaeffer

Amazon doesn't disclose its numbers from this project will they are what I do know is that their inventory of addresses what Amazon is about comparable in size to coach, actually both Microsoft for the past decade and each have address inventories about what we are evaluating should we do something that was quite honestly, foreign to us. W e're conscious of that and we are going to evaluate the best ways to maximize the value of these addresses. And whether that includes that includes of raising prices or it includes all the ability to sell addresses, who are evaluating all of those opportunities. And we understand that turned out to be valuable. That's kind of like Bitcoin with a follow-up. So it sometimes better.

Tim Horan

I guess, Dave, related to this, whatever wants a bit frustrated about is the complexity and accounting did look like in '24 on your results. Is the $110 of a good run rate, maybe the $220 million in expense savings. And how much how does that kind of pay out of the aisle tried to touch on both of them.

David Schaeffer

So the first point is convinced that we received from T-Mobile one year from closing, so that will impact our EBITDA as reported. Second, those calls cost synergy is those cost synergies, unfortunately, are limited by some of the contractual obligation this business from T-Mobile. And again, these are all things that were considered in the negotiation and the purchase price.
T-Mobile sold 2 million addresses prior to close. They recorded $120 million gain from that sale to keep more addresses and sell them at then the subsidy check they would have. So it's not like these are surprised us. They will all thought about in the negative EBITDA, you should think about the current run rate is about correct for the next will step down.
Now when those payments come down from T-Mobile is as those cost savings are a key. What we have said publicly and we are absolutely reaffirming is that within five years of closing, the $1 billion of revenue and have at least $500 million of EBITDA was 33 that we did last quarter. And for that, the reality is EBITDA will go down and then come back up and running.
And I also understand as hard trying to be as transparent as possible with the payments are fixed for a month. So we know it's $29.2 million per month for a year and so on and the step down will occur in May, I would say that the S-band in the fourth quarter, which was about 30%, will be less in the first quarter.
And then as I mentioned earlier, about 27 have a network operating expenses that will be relatively flat, may come down slightly as well as circuits and from facilities. So it should come down slightly from the 64% this quarter net sales, but net-net it should decline yet.

Tim Horan

Thank you.

David Schaeffer

Yes, thanks. Tim.

Operator

Michael Rollins, Citi.

Michael Rollins

Thanks. Good morning. The IP addresses. Can you remind us what the addressable market for that is?

David Schaeffer

Yes, sure. So our job when the Internet was a numbers game and they chose IPV5, which is to the 64 at 4.3 billion addresses those trusts us first then allocated by I am often of commerce. And then subsequently those five regional registries around the world.
The U.S. government purposes, primarily deo day since there's been about 3.5 billion usable addresses. The registries began to run out of our trusses in 2011 and March for those have trusses developed and prices to buy and address at that time or about $4 in the intervening decade or 13 years. That price has gone from $4 to $55. All of the registries ran out of addresses by 2018 and there are no more addresses to get.
Now there has been a movement to migrate to IPV6, which is two to the 128 power number of addresses. So basically, the square of EUR4.3 billion, a very, very large number. But there have been many challenges in doing that, including literally trillions of dollars dollars of capital that will be necessary to replace equipment to support that. So IPV. six still has a relatively small presence on the Internet, about 7% of traffic.
So of the market, anybody who needs those addresses and wants to reach the whole Internet. There are multiple workaround schemes, but those schemes are not easily implemented and are not as easily manage as just renting or buying IPV. four. So I think for the foreseeable future of the world. We're one of the four there will be limited supply. And as a result, people will either lease or buy the East PHIL their needs Thanks.

Michael Rollins

And then just a question on the business, the sales productivity. Well, thank you. On kind of a flat and can you unpack what's happening in terms sales productivity, where there might be pluses and performance and where there might be some minuses in performance?

David Schaeffer

Yes. I mean, I would say the biggest drag on productivity, and I'm not trying to call out specific names, but have been employees that came over from Sprint.
Yes, as part of our contractual obligation, we had to guarantee their quota for a full year on closing, that's very different than the way a organically hire Cogent salesperson would be comped and their productivity has been a significant drag. Now there's only a dozen of them left focused on enterprise accounts but we have premiums for those reps into corporate and NetCentric roles, but their productivity remains depressed.
The second factor that has drawn down productivity has been the rapid expansion of the sales force coming out of the pandemic. Normally pre-pandemic, we were growing at about 7% a year and absorbing those people and training them. And reality is while they have three months to become a full-time equivalent. It takes really a year to be fully productive. Last year, we grew the sales force 20% year over year, so almost three times faster than we normally grow the sales force. So that's been a second drag on those numbers. I think of we will see some additional turnover and hopefully we'll see productivity start to improve.

Michael Rollins

Thanks.

David Schaeffer

Thanks, Mike.

Operator

Bora Lee, RBC Capital Markets. Please go ahead.

Bora Lee

I'm going to take housekeeping first. There was a step-down in G&A during the quarter relative to three key wall CapEx increase. Was that related to some of the reclass expedite fees? And is that fourth quarter number of the jumping off point go forward? Or is there something else we should be thinking about more of that reclass occurred in the fourth quarter versus the third quarter?

David Schaeffer

Really the impact on the run rate in the third quarter predominantly had to do with the impact on COGS. Okay. So the step down in the fourth quarter was related to our SG&A in the fourth quarter has increased from the third quarter, and I tried to recognize that. Yes, SG&A.
Okay. So the right way to take, was just yes, about 27% of revenues going forward. I think these moving pieces of reclass are hopefully behind us and that we've got everything into Cogent systems are all been audited by Ernst & Young and complied with all of the GAAP requirements and critical accounting matters for lease accounting. So I think we're in pretty good shape. We are okay.

Bora Lee

And as far as clearing out the Sprint spaces, sorry, tax, were you saying something?

David Schaeffer

No, go ahead. Go ahead, Bora.

Bora Lee

Right. As you're clearing out the Sprint spaces, is there an opportunity to sell some of that older equipment? And is that meaningful or just sort of a test that needs to be done it's definitely a test that needs to be done?

David Schaeffer

It does not have a meaningful salvage value of most of this equipment has been not manufactured for 15 plus years. There is a de minimus amount of scrap value for copper and new equipment. There is some equipment that has been sold to third party brokers, but there's also a work effort associated with taking those 22,500 racks of get equipment out. Net-net, this is not it's going to be a significant, either a cost or a significant revenue opportunity for us.
The better opportunity is going to be as we keep populating these facilities of this data equipment and convert them to Cogent data centers, those 68 facilities and of the 157 megawatts that we have now that are less than 30% utilized, become a significant opportunity, particularly as there is a short term, one for power and space for data centers driven by AI. We are in the process of looking at multiple ways to fill that space up more quickly.

Bora Lee

And I guess lastly for me, recognizing that it's still early days. Do you have any quantitative or qualitative color on the extent to which there's been actual cross selling or cross interest across the legacy cogen and Sprint customer bases?

David Schaeffer

So I will say I'll start with wavelengths. The majority of the wavelengths in that funnel and the wavelengths that we have sold our customers that Cogent already had a relationship with or a handful of cases where they're a customer that Cogent had not worked with previously. That's the vast majority of those 23 under the waters in the funnel. And those that have been installed.
The 667 I've come from people that Cogent had a relationship with of the second thing, the Sprint enterprise space has been receptive to our on-net footprint, our global reach and our ability to modernize their VPN technologies. We actually saw very modest, but a very slight uptick sequentially. And the number of enterprise connections I remember this as well and much smaller sales force focusing on those customers. So I think there is going to be the ability to help modernize some of those enterprise customers. I think there will be cross-selling opportunities, both direct.

Bora Lee

Okay. Thank you.

Operator

Brandon Nispel, KeyBanc Capital Markets.

Brandon Nispel

Hey, guys, it's Evan on for Brandon, with the backlog you guys talked about for wavelengths on you are saying it's growing and outpacing the provisioning you're able to do on your facilities or do you think you'll be able to get through that 2,300-order backlog by the end of the year? Or are you finding any customers finding alternative solutions because of the backlog?

David Schaeffer

So Brandon, I think two different things will happen. We will provision most of those orders, but there will be some costs from farmers who cannot wait. We our trying to be very transparent with customers, and it's a site-by-site discussion of what that provisioning window will look like. We know that with the network reconfigurations that we have going on, we'll have more than doubled the number of sites and a standardized provisioning window by year end. But in the intervening time, if a customer needs to go somewhere else and we can't provision, we are going to let them out of that obligation. I mean, it's yes, if we want to do business with them going forward, we need to understand that this is a cogent problem and not the customer's problem.
Conversely, and we continue to build credibility with customers and we get more sites and a VoLTE and shorter provisioning windows. We actually anticipate the pace of that funnel building actually accelerating. You know, in the last quarter it took us basically five months from closing to build a funnel of a thousand in the last quarter. We got that up to 2,300. And yes, there have been some fallout, but the net number grow, and I think that will continue to grow. As I stated earlier, over the long run. I think it's not healthy to talk about funnels but install revenue. But until we get the network configured correctly and get enough sites where we can provision a expeditious manner of couple of weeks we have to give both customers and investors an understanding of what the backhaul looks like.

Brandon Nispel

Thanks. Good. Thanks.

Operator

This will conclude our question-and-answer session. I will now turn the call back over to Dave Schaeffer for closing remarks.

David Schaeffer

Hey, thank you very much. And all again, it was a long call, but there are a lot of pieces of information. We are definitely trying to be wholesome and transparent of what we are reporting are.
Thank you all very much and we'll talk soon and take it up this concludes today's conference.

Operator

Thank you for your participation. You may now disconnect.