Good morning and welcome to the Cogent Communications Holdings First Quarter 2015 Earnings Conference Call. As a reminder this conference call is being recorded and will be available for replay at www.cogentco.com. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings.

Thank you and good morning. Welcome to our first quarter 2015 earnings conference call. I am Dave Schaeffer, Cogent's Chief Executive Officer. With me on this morning's call is Tad Weed, our Chief Financial Officer. Despite financial or significant foreign currency headwinds, we're relatively pleased with our results for the quarter and are optimistic about the strength of our business and the outlook for 2015. During the quarter we experienced accelerated constant currency sequential growth, sales were up, turnover and productivity were far above historical averages. During the quarter we returned a total of $24.1 million to our shareholders through a combination of dividends and stock buybacks. We purchased 232,000 shares of our common stock at an average price of $34.98 during the quarter. At the end of the quarter we had approximately $29.1 million still available under our stock buyback authorization which is expected and available for us to use through February of 2016. We continue to remain confident in the growth and our free cash flow generating capabilities. As a result, and as we indicated in our press release, we've announced another increase to our regular quarterly dividend from $0.32 per share per quarter to $0.33 per share per quarter, our 11th consecutive increase in our regular quarterly dividend. Our second quarter 2015 regular dividend will be paid on June 12 to holders of record on May 22, 2015. Since we purchased only $8.1 million of our common stock in the first quarter, under our return of capital program this is less than our minimum commitment of $12 million. We will make a special dividend payment of $3.9 million, or $0.09 per share in the second quarter along with our regularly recurring dividend. As a result our combined dividend to be paid in the second quarter will be…

Thank you, Dave, and good morning, 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 forward-looking statements. If we use any non-GAAP financial measures during this call, you'll find these reconciled to the GAAP measurement in our earnings release and posted on our website at cogentco.com. Now I'll turn the call back over to Dave.

Hey, thanks, Tad. Hopefully you’ve had a chance to review our earnings press release. As within previous quarters, our press release includes a number of historical metrics. These metrics will be added to our website. Several investors have requested that we include additional details regarding our determination of EBITDA as-adjusted, so we have added all of these details to the metric table that we did release. Now with regard to our guidance, our EBITDA margin, adjusting for the $1.4 million in non-recurring legal expenses that we spent in support of net neutrality and excluding the asset sale gains in the first quarter of 2015 was 31.9%. We continue to anticipate that our full year revenue growth for 2015 over 2014 on a constant currency basis will be within our guidance range of 10% to 20%. We also anticipate that our gains on asset sales and equipment transactions will be approximately $5 million in 2015 as compared to $11 million of equipment gains we experienced in 2014. We expect our EBITDA margin, excluding asset gains for 2015 over 2014 to be over a 100 basis points better than it was the previous year, but it’s somewhat dependent on the amount of monies needed to be spent related to the legal fees in defending net neutrality. We anticipate incurring additional net neutrality costs in 2015, but we do believe these costs will be less than 2014, but are today unsure of the exact amounts of these costs. Tad will now cover some additional details related to our quarter.

Thanks, Dave and again good morning to everyone. I would also like to thank and congratulate our entire Cogent team for their results and the hard work and efforts during another very busy quarter for the company. On revenue by type. We analyze our revenues based upon product class which is on-net, off-net and non-core and also analyze our revenues based upon customer type. We classify all of our customers into two types, NetCentric customers and corporate customers. Our NetCentric customers buy large amounts of bandwidth from us in carrier neutral data centers and our corporate customers buy bandwidth from us in large multi-tenant office buildings. Revenue from our corporate customers grew by 3.8% from the fourth quarter of 2014 to $55.1 million. Our corporate customer connections grew 2.4% sequentially to 22,090 corporate customer connections on the network at the end of the quarter. Revenue from our NetCentric customers decreased by 3.5% from $43.6 million for the fourth quarter of 2014 to $42.1 million for this quarter. The decrease was primarily and almost entirely due to the sequential $2.3 million negative impact of foreign exchange on our first-quarter revenues. Our European revenue is almost entirely NetCentric revenue and accordingly subject to the impact of variations in FX. Despite the revenue decline our NetCentric customer connections grew sequentially by 2.8% for the quarter to 25,321 net centric customer connections. Revenue by product class; our on-net revenue was $71.2 million for the quarter which was a sequential quarterly decrease of 0.1%, again, primarily related to the FX headwinds and increased by 3.1% from the first quarter of last year. Approximately 85% of our new sales for the quarter were for our on-net services. Our on-net customer connections increased by 2.4% sequentially and increased by 12.2% from the first quarter of last year.…

Hey, thanks, Tad. Now for a moment on our sales force activity and productivity; we began first quarter of 2015 with 346 reps and ended the quarter with 343. We hired 43 reps in the quarter and 46 reps left the company during the quarter. Our rep churn rate was 4.3% for the quarter which again has been much better than our long-term average of 6.3%, which continues to come down. We began the quarter with 329 full time equivalent reps selling our services and ended the quarter with 326. Productivity on a full time equivalent basis for the quarter was 5.3 installed orders per full-time equivalent rep per month. This rate of organic rep productivity is again significantly ahead of our long-term historical averages for rep productivity, which has averaged 4.7 units per full-time equivalent since the company has gone public. Now for a moment on our network scale and scope, the size of our network continues to grow. We passed a major milestone with over 800 million square feet of North American multi-tenant office space directly connected to the network. Our network consists of over 27,600 metro fiber miles and approximately 55,000 intercity route miles. The Cogent network is one of the most interconnected networks in the world and we directly connect with over 5,335 networks. Approximately 35 of these networks are settlement free peers, the remaining networks are all Cogent customers. We are currently utilizing 31% of our route [ph] capacity. We routinely augment capacity in parts of our network to maintain these low utilization rates. We operate 49 Cogent controlled data centers with 550,000 square feet of raised floor space. So in summary, we believe that the Cogent network remains the lowest cost network. We are the low-cost provider of Internet access and transit services, and…

Certainly. [Operator Instructions]. Our first question comes from the line of Nick Del Deo of MoffettNathanson. Your line is now open.

Okay. Hey, thanks for taking my question. Probably I’ll be hoggy [ph] and ask two. So first, Dave, you had guided to 3% to 3.5% growth at the end of February, meaning you had almost two months results under your belt when you made that - when you gave that guidance. Was there a sales slowdown in March or anything else that sort of put you below the low end of that range? And are you still comfortable with that sort of 3% to 3.5% sequential going forward? And then the second question with respect to the productivity, obviously it's higher than the 4.7 long-term average that you’ve had. I think in 2013 and 2014 you averaged like six installed units per rep, so last two quarters have been below that, you’ve achieved since making those sales force changes. So I was wondering if you could comment on that.

Sure. First of all thanks for the question Nick. With regard to the revenue growth coming in at 2.9% sequentially, we did see slightly lower burst traffic in the month of March than was anticipated. That put us just below the guidance range. But I do feel comfortable that we'll be able to continue to deliver that increasing growth rate and be in that 3% to 3.5% range. If you look at our corporate growth rate, which does not include any burst it grew at an accelerated rate of 3.8% sequentially. No FX, no burst, no seasonality, really impacting that number. The corporate off-net growth rate was 2.3%. The on-net corporate growth rate was actually 4.2%. So these numbers mean that 57% of our revenues are growing above trend line. With regard to the NetCentric revenue we did see slightly lower burst. Our traffic growth was more moderate. Some of that is the impact of congested ports with our peers and we believe we will see that continuing to moderate as we start to see some of the peers abiding by the open Internet order. Now with regard to the sales productivity numbers we actually achieved better ARPU in the quarter, both a more moderate rate of price per megabit decline and actually on a per unit basis a more moderate rate, we actually saw our corporate on-net ARPUs actually tick up slightly in the quarter. The productivity numbers are a bit volatile. They're not perfectly linear. We did have a few reps leaving the company in the quarter, a little bit above our target but still below long-term trend lines. And I feel comfortable that the initiatives that Ernie's put in place are taking hold, are delivering results. You see that most clearly on the corporate side. On the NetCentric side, we're getting the unit productivity. It's just we haven't seen all the benefits of traffic growth. If you look at our off-net or our NetCentric business it actually declined at about 3.5%, sequentially even if you add back for the FX impact, it only grew at about 1.1%, considerably below the 2.8% trend line. And part of that is that those ports still remain congested and we're unable to accept that burst traffic. As those ports become un-congested, I think we will see that burst revenue continue to reaccelerate, and hopefully get our NetCentric growth rate back up to a constant currency rate that has historically been 2.8% or even above that, and with that I think we will be able to achieve growth rates for the entire business well within our guidance range.

Okay. That's great. Thanks, Dave.

Thank you. Our next question comes from James Breen of William Blair. Your line is now open.

Yeah, thanks, Dave. Can you talk about, on the net neutrality side, and the recent agreement you signed with Verizon, in your comments you just made you talked a lot about port capacity, how do you think this agreement with Verizon will help that? And then how do you feel about the potential of having similar arguments with the other ISPs or is Verizon unique in this situation? Thanks.

Sure. So first of all we're very pleased that we were able to enter this agreement. Cogent has been, since its inception, a proponent of billing keep, meaning each party bills its customers and keeps the revenue and there are no settlement fees. Cogent has not purchased peering and continues not to purchase peering and does not sell peering. The exact terms of the agreement are covered by confidentiality, but there is a mechanism in the agreement to ensure that all of the congestion that exists today will be eliminated fairly quickly and then as it is eliminated there is a mechanism for continued annual upgrades and the ability to moderate or adjust the pace of those upgrades as needed. So I feel that for Verizon which is our second largest peer, this problem has been ameliorated, even though none of the impact has shown up as of yet, over the next few months we think that problem will be gone. We also have seen a marked improvement in Comcast s behavior, really just in advance of the Justice Department evaluating its proposed merger and ultimately withdrawn merger with Time Warner. While all of the congestion today has not been alleviated, much of it has been alleviated and we would think that if the upgrades that are in the works are installed over the next month, there will be no congestion. So the number one and number two peering partners will be resolved. We sincerely hope that the other three North American providers and the three European providers that continue to have congested ports honor the requirements of the open Internet order even though they may question its validity and this problem goes away. We're in active discussions with all of the parties. I'm hopeful and I sincerely hope that we have to bring no enforcement actions with the FCC. But we're prepared to do so if necessary. So while I was not pleased about spending now $7 million on these proceedings for legal and economic analysis I think it was money well spent and we're seeing the benefit of it and we should see improved quality of service for all customers on the Internet and for all backbone providers, not just Cogent over the next couple of quarters.

Great. Thanks.

Thank you. Our next question comes from Michael Bowen of Pacific Crest. Your line is now open.

Thanks a lot for taking the question. Dave just wanted to clarify something in case I missed it. I think last call you said you were expecting around $15 million of FX impact in 2015. I wanted to see if you could give us an update on that? And then with regard to the legal costs, obviously still reasonably significant this quarter, can you give us an idea of what are the particular costs that you're getting hit with now in somewhat of a post net neutrality world? And how do we think about the pacing of that as we model that impact going forward? Thanks.

Sure. Thanks for the questions, Michael. So you are correct. It is still a material expense and we would like that expense to go to zero. Some of this expense was the final work necessary to help support the FCC, as they issued the open Internet order as well as final expenses in providing information to the DoJ for the Comcast, Time Warner merger. As you may have noted, we have also filed protests against the AT&T DIRECTV merger. While we are not proposing an outright block on the merger we are proposing conditions that will include a commitment to make sure that the interconnections between AT&T's network and the rest of the Internet are open. We do think that our expenses are going down. They have tailed down throughout the first quarter. They are continuing in first half of this quarter to be at a lower rate and you should see throughout the year lower numbers than last year. The wildcard in that is, if we have to file any enforcement actions, and if we do, will the Enforcement Bureau actually prosecute those or will we be forced to present our case directly to an Administrative Law Judge, and we just don't have answers to that. As you know there are four current protests to the validity of the open Internet order requesting stays. We're going to be filing a brief supporting the FCC and opposing the stay. We feel pretty comfortable that the law, as a consumer protection law, will remain in place and we sincerely hope everyone obeys by. And I'm going to let Tad to take the FX number now.

Sure. Euro had further depreciated since our last estimate, or the dollar had strengthened when we talked about $15 million. The estimate now is slightly more than $17 million negative impact. That's because the average rate for the euro for 2014 was a $1.33. And our number that kind of backs into that estimate is approximately $1.10, and I think today it's about $1.11. So those are kind of the figures that get us to about a $17.5 million impact expected year-over-year related to foreign exchange on revenue.

Okay. Great. Thank you.

Yeah, thanks, Michael.

Thank you. Our next question comes from James Moorman of DA Davidson. Your line is now open.

Yeah. Thanks for taking the question. Just first I guess, a follow-up on the - what you just said about AT&T. So given the fact that you filed the protest have you - how are discussions going with AT& T, kind of have they started? And then also back to the sales force. Do you think it’s kind of more of an issue with the sales force or are you just seeing more competition out there that might be having an impact?

Sure. So first of all with regard to the peers that are resistant to opening up additional ports, we're having regular discussions with all of those peers. I think it would probably be inappropriate for me to comment on the exact staging of the AT&T discussions. I can tell you that we reached out to them and have discussions on a very regular basis. And I hope they end up coming to a similar conclusion that Verizon did, and understand that they have a responsibility to their customers to ensure they get connectivity to the whole Internet. And just the open Internet Order more than anything else is a consumer protection order and it's disturbing when any ISP decides to deliver lower quality to its customers than it should. With regard to the sales force I think this is really a Cogent issue, not a competition issue. We've basically have two competitive landscapes. On the corporate side of our business, we typically compete with the incumbent telco and we've actually seen substantial improvement in our corporate performance. Our sequential corporate revenue growth has gone from like 1.5% when Ernie joined us to over 3.8%. Our on-net sequential growth rate has gone up to 4.2%, our off-net growth rate at 2.3%. These are all marked improvements and put us on an annualized basis well above the midpoint of our guidance range. And remember this business is purely in North America, very little FX impact, and represents 57% of our revenue. So we feel pretty comfortable that what we're doing is resulting in better performance on the corporate side of our business. I think we have not seen any material change in the corporate behavior in our on-net footprint of our competitors. In the off-net footprint we do continue to see cable…

Great, thanks a lot.

Thanks.

Thank you. Our next question comes from Georgios Kyriakopoulos of SunTrust. Your line is now open.

Excellent. Thank you, guys. First of all on Netflix, you mentioned in the past about the possibility for companies like Netflix be to be able to get out of contracts signed with the incumbents at a time when ports were congested. How likely do you think this might be and what level of revenue you expect to capture over the next few months? And then one more question on OpEx. Basically you mentioned you resetting payroll taxes in in the U.S. at the annual sales meeting, some of the reasons for the higher spending this quarter, how should we think about OpEx for the remaining of 2015? And also given that you had a high watermark for legal fee spend in the March quarter, should we think that OpEx should trend lower from here throughout 2015? Thank you.

Sure Georgios, thanks for the question. I'll take the Netflix and I’m going to get Tad to take the OpEx question. With regard to companies that were pressured and into signing bilateral paid peering agreements, while these agreements are legal under the open Internet order they also are governed by a fair and reasonableness test. And the measure of that test is pretty simple. Are these agreements commercially economically attractive? Today, the cost of transit which includes connectivity to the whole Internet is less than the cost of these direct paid peering agreements. So the fact that these companies entered into agreements to buy a more reduced product set at a higher price only can be explained by the market power the terminating access networks used to pressure them into these agreements. Now it's not up to us to go protest these agreements and have them repudiated. It would be up to the parties who signed them. I think you would have to ask Netflix and others how they plan to react. I think what I've heard publicly from these companies is they would like to extricate themselves from these agreements, if there was adequate transit capacity available for them to purchase. I believe these improvements in interconnections with Verizon and others are going to help us in fact give them that alternative. Now it is true that our largest customer, as a percentage of revenues did increase in the quarter from about 1.8% of revenues to 2.1%. I think that will continue. And they have not yet gotten out of the contracts that they are today bound by. So it's really difficult for me to give you an exact prediction of when or how much additional revenue will come. What I know is that Cogent is the lowest cost, highest quality provider. And if there are no artificial constraints in the market we will win the business. I'll let Tad touch on the OpEx question.

Sure. As I mentioned in the prepared remarks we always experience a seasonal SG&A increase from the fourth to the first quarter. And I can give you some kind of details on that, in the aggregate, it that was about - just about $2 million. From the compensation side which is salaries and commissions really from changes in CPI is about $0.5 million from the fourth quarter to the first quarter benefits, and - which relate to two things, really the resetting of payroll taxes, but also an increased rate for medical costs, it's about $800,000. Audit fees are always higher in the first quarter following our 10-K and completing our annual audit and annual report, also the proxy. That's about $300,000. So in the aggregate that's sort of a seasonal impact. When you look from the fourth quarter or the first quarter rather to the second quarter, expect about $1 million to $1.5 million decline in the aggregate in SG&A, and that will come from the lower tax rate for payroll taxes in the U.S. We don't have the sales meeting which is about $450,000. I didn't mention that, that occurs in the first quarter. And then the audit fees are lower just because of seasonality and that's already about $0.5 million there. So I do expect a decline first quarter to second quarter in the aggregate. The level for all of 2015 will be largely dependent upon what we do with head count with respect to primarily sales reps and then also what happens with the legal fees that we expect to decline. But frankly, that level of decline is kind of unknown at this point.

Okay, thank you.

Thank you. Our next question comes from Colby Synesael of Cowen. Your line is now open.

Thanks. I apologize I jumped on late, so hopefully this wasn't already covered. But I was hoping you could summarize or review what was talked about at your annual shareholder meeting. I know the last few years you've been inviting key investors to come down and give their thoughts to the Board, maybe just kind of summarize what were the key aspects the investors that were there were talking about, and then also what the Board or at least your own response on those suggestions were? Thanks.

Yeah, hey thanks Colby. Thanks for your question. So as many of our shareholders know we've actually been over the years encouraging people to come to our shareholders meeting and this year was well attended. We had six or seven significant holders represented. As always there was a diverse view of opinions around mechanisms to return capital. I think shareholder questions kind of fell into three major categories. One was just the ability to continue to reaccelerate growth and reaccelerate profitability. The second category was our ability to continue to moderate our level of capital spending. We did see a spike up in 2014 after four consecutive years of declining capital intensity. We will see that number come down this year and I think investors wanted to hear from management and the Board that would be the case. And then the third topic was return of capital. And there were questions there in two areas. One, what would be the exact mechanism? Would it be more buybacks or more dividends? I think what you heard from the Board at that meeting was a commitment to continuing to grow the regular recurring dividend at a moderate pace. Two, to be able to use buybacks opportunistically, and then commit with this extraordinary commitment of return of capital program. So I think it was kind of stay the course, if market conditions change. I think what the Board indicated is they would it be extremely flexible and would react quickly to those changes in market conditions, and give management the tools they needed, including additional authorizations if necessary to step in and up buy a significantly greater amount of stock back than we have been. Then the other part of the question was what happens to the actual targeted net leverage ratio. We still have excess capital on our balance sheet. We ended the quarter with $260 million of capital. I think the Board had an open mind to either raising the net leverage target to allow us to disgorge more of that capital and return it to shareholders. And whether or not it was a higher stated limit or we just went over that limit, wasn't determined. And even the ability to go over that was not yet determined. But I think the board had an open mind and heard loud and clear from the shareholders that unless there was a productive business use to deploy that $200 million of excess capital, or there was some great M&A opportunity, it needs to be returned to shareholders. And I think the Board has supported that. Hopefully over the next couple of quarters as we breach that 2.5 level, we'll have some further announcements on that.

Great, thank you.

Thank you. Our next question comes from Eric Pan of JPMorgan. Your line is now open.

Hey, guys. Thanks for taking the question. A couple of things. On the Interconnection agreement, when do you expect the port upgrades to be completed with Verizon and then how should we think about the relief of Verizon Comcast congestion with regard to the 3% and 3.5% growth expectation? And then on the capital return, share buybacks has slowed over the last few quarters while special dividends has increased, what's the reasoning behind the shift?

Sure. With regard to the Verizon upgrade, there are planning sessions that are occurring on a regular basis between Cogent engineers and Verizon engineers. We've identified the locations and amounts of the initial upgrades. They are in progress and I would suspect over the next couple of months, the first wave of those upgrades will be completed. Both parties believe those upgrades are going to be sufficient to alleviate the congestion. I'll be honest, I don't know for sure because we can't tell how much traffic is pent-up waiting to go through those ports. And there is a mechanism in the agreement that allows us to review at the end of that initial upgrade cycle if it was adequate. If it's not there is a requirement for further upgrades. And then there are, over the multi-year agreement, a mechanism for continuous upgrades. So I feel pretty comfortable that over the next two to three months, the Verizon congestion issues which have been extreme, will be gone. With regard to Comcast, as I said, they began slowly upgrading earlier in the year and then throughout the year we saw the pace of those upgrades improve, whether they'll continue to improve or not unclear. There is no binding written agreement on of the parties. There's just a return to the pattern and practice that we've had in the past. We've had some movement out of some of the other ISPs also with moderate upgrades. So my hope is that at least half of the interconnection problem gets resolved, just through what's underway now. I would hope that going forward, they would all be resolved.

And how should we think about the resolution in regards to that 3% and 3.5% quarter-over-quarter growth expectation.

Sure. So there will be no impact on the Corporate business, which is 57% of revenue and today is growing above that 3.5% range. Corporate on-net grew 4.2%, corporate off-net 2.3%, blended rate 3.8%, probably just about where it should be, maybe it will improve slightly from here. On the NetCentric side, the growth rate is below par at a constant currency growth rate of 1.1%, a reported growth rate of negative 3.5%. That's clearly currency related. But then we should expect to see those ports opening up and that roughly 18% of traffic or 10% of revenues that were declining at basically 20%, so a 2% headwind, dissipate and turn into a bit of a tailwind. Again I cannot predict exactly when, but what we would hope is that our NetCentric growth rate would return to its long-term trend line of 2.8% or maybe even go above that. And then with regard to return of capital we have been opportunistic about buying stock in the open market. We've been reluctant when the market seems to be very fully valued, not necessarily for Cogent, but the market in general. We've been selective. We did buyback over 4% of the company last year. And we are committed to buy back the return of capital program that's meant to be a safeguard to keep management honest and make sure that the buyback that is announced is really used. And that's really a minimum level that we're going to return above and beyond what we're returning through the regular dividend.

Great. Thanks Dave.

Thanks.

Thank you. And at this time I'm showing no further questions in the queue I would like to turn the call back to management for any closing remarks.

We want to thank everyone for the call and for the questions. And we look forward to chatting with you soon. And most importantly, we are committed to continuing to accelerate our growth and return increasing capital as we have promised shareholders. Thanks a lot everyone.