Good morning, and welcome to the Cogent Communications Holdings First Quarter 2024 Earnings Conference Call. As a reminder, this conference call is being recorded and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted on Cogent's website when it becomes available. Cogent's summary of financial and operational results attached to its press release can be downloaded from the Cogent's website. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings. You may begin.

Thank you, and good morning to everyone. Welcome to our first quarter 2024 earnings conference call. I'm Dave Schaeffer, Cogent's Chief Executive Officer, and with me on this morning's call is Tad Weed, our Chief Financial Officer. Hopefully, you've had a chance to review our earnings press release. Our press release includes a number of historical metrics we present in a consistent manner each and every quarter. On May 2nd of this year, we closed the issuance of our $206 million IPV4 securitization notes at 7.9%. These notes mature in 5 years, but may be extended for up to a 30-year term. This securitization was the first ever of the securitization of IPV4 lease revenue. Cogent is the owner of approximately 38.8 million IPV4 addresses. We acquired 28.8 million of these addresses when we purchased PSINet and various other acquisitions early in our history. We acquired an additional 9.9 million IPV4 addresses in May of 2023 with the acquisition of the Sprint network assets from T-Mobile. We are leasing approximately 12.2 million of these IPV4 addresses out for a monthly revenue run rate of approximately $3.4 million a month. We have securitized $3.1 million of that monthly leased revenue, and this represents revenue from 11.1 million lease addresses. We also included 1.4 million unleased addresses in the pool of the securitization. The IPV4 Internet addresses are a finite resource. The price of these addresses has substantially increased over the past several years. Now for an overview of our results. Our combined Cogent business had a very good quarter. Our total revenues were $266.2 million in the quarter. This did represent a $5.9 million sequential decline. Our on-net revenues increased by 0.4% to 138.6 million. Our revenue under the commercial services agreement with T-Mobile declined sequentially by $5.8 million. Our non-core…

Thank you, Dave, and good morning to everyone. This earnings conference call includes forward-looking statements. These forward-looking statements are based upon our current intent, belief and expectations. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our SEC filings for more information on the factors that could cause actual results to differ. Cogent undertakes no obligation to update or revise our forward-looking statements. If we use non-GAAP financial measures during this call, you will find these reconciled to the corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com. We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength and non-core, and we analyze our revenues based on customer type. We classify all of our customers into 3 types, net-centric, corporate, and enterprise customers. 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 effects of the pandemic. Our Corporate business represented 46.9% of our revenues for the quarter, and it decreased sequentially by 1.4% to $124.9 million due to the grooming of low-margin off-net connections and the elimination of non-core products. We had 51,821 corporate customer connections on our network at quarter end. And for the quarter, the sequential impact of USF on our corporate revenues was not significant. Our Net-Centric business continues to benefit from continued growth in video traffic, streaming and wavelength sales. Our Net-Centric business represented 34.6% of our revenues for the quarter, and it declined sequentially by 1.3% to $92…

Thanks, Tad. Now for a few highlights on the strength of our network, our customer base and sales force. Our Net-Centric business continued to experience significant traffic growth in our business from streaming and other customers. We are a direct beneficiary of the continued migration of video to over the top. At quarter's end, we were on-net in 1,586 third-party carrier-neutral data centers and 78 of Cogent's owned data centers for a total of 1,664 data centers. This is more data centers connected by a network than any other carrier as measured by third-party research. The breadth of this coverage enables us to serve our Net-Centric customers and a larger number of locations and helping them reduce latency on their network. We continue to expand our footprint and anticipate adding approximately a 100 carrier-neutral data centers to our network per year over the next several years above and beyond the additional 23 data centers that Tad mentioned earlier, that we are adding due to the conversion of the Sprint switch sites into data centers. We are continuing to experience extended provisioning cycles for wavelengths, but we now can offer wavelength services in 419 locations. By year-end, we will have over 800 carrier-neutral locations connected to our network throughout North America with substantially reduced provisioning cycles that will mirror the provisioning times that we are able to achieve with our transit services. At quarter's end, we were directly connected to 8,098 networks. This collection of ISPs, telephone companies, cable companies, global operators and other carriers allow us to reach the vast majority of the world's broadband and mobile phone users. Cogent remains the most interconnected network in the world. Our Corporate customers are aggressively integrating new applications that become part of their working world, such as video conferencing. These usages will…

[Operator Instructions] Your first question comes from the line of Sebastian [ Kati ] with JPMorgan.

We continue to see issues with the provisioning on the [ wave ] side. I mean what gives you comfort in hitting the 800 [ locations ] by year-end? And how should we think about the trajectory or the ramp-up in the revenue portion of that as you progress over the course of the year and then perhaps on a 12 to 18-month basis thereafter? And then can you help us -- perhaps trying to get more comfortable with the decline in Enterprise? Maybe help us think about the -- you said a lot of the revenue decline was predicated on non-core and other legacy revenues kind of deteriorating. But help us think about Enterprise specifically. And what is the glide path there? Is that just a continued decline in revenue? Or is that -- should that stabilize in the coming quarters perhaps maybe before returning to growth?

[indiscernible] that were wave enabled to 419 in the 12 months since the acquisition was closed. The wave enablement contains 4 key work efforts. We need to put a transponder shelf in each of our carrier-neutral data centers to accept the wavelengths. We need to reconfigure the metropolitan networks to be optimized for wavelength delivery. We need to physically extend the Sprint network to intersect our metro networks. And then finally, we need to deploy a reconfigurable add/drop multiplexer at the intersection of the intercity and intracity networks. All 4 of those efforts are underway to touch all 800 of the locations. This project has multiple subprojects and multiple constraints. Most of those constraints that were outside of Cogent's hands have been resolved. And now all of the additional work is work that is under our control. All of our markets are now physically interconnected. All of the markets have a clear project plan to complete them. And I think we'll see a continued increase in that number relatively linearly between 419 on May 9th to 800 by 12/31/24. Now to maybe the more important question on wavelength is provisioning. One of the key advantages that Cogent will have in this market is the standardization of our products and the ability to provision these services within a 2-week window, which is far better than the industry has historically been able to provision wavelength services. 25 years ago when Cogent started selling high-capacity transit services, the provisioning windows in the industry for those services averaged over 90 days. Cogent transformed the industry by shrinking that to an average of 9 days to install, and that is a big part of the reason why Cogent has become the largest transit provider globally. Now with wavelength services, most carriers provision those on a…

Your next question comes from the line of Greg Williams with TD Cowen.

Maybe I can follow up on the waves question, just ask it differently. You had $3.3 million in waves revenue. Last fall, I think you said you're going to get a run rate of about $20 million in revenue annualized by around now. Of course, you [ rescinded ] that goal. But when could we reach the $20 million? Or any other target you can give for waves? Just help us figure out the cadence and the confidence in the wave revenue increase? And then the second question is just on the integration cost for Sprint. You noted $9 million in Sprint acquisition cost. But at the end of your scripted remarks, I think you were mentioning separate identified integration costs and that's reducing your EBITDA. What is that number? How much of this onetime sort of integration cost of Sprint do you have? And where is that going throughout the course of the next year [ or 2 ]?

2 very good questions, Greg. So first of all, on wavelengths, we continue to grow our funnel. We're actually trying to discourage customers until we can give them more realistic provisioning time lines. The demand for the routes that we have and the data centers that we are targeting is stronger than we had initially expected. As we kind of outlined, we anticipate the wave business to be about a $500 million run rate business 5 years after the acquisition. We were hoping that we could grow that business linearly, meaning it would grow $100 million to $100 million business a year, post closing $200 million in the second year. And our hope was based on the fact that the limited number of locations that we initially serve would actually be the locations that the market wanted. What we discovered as we began selling was that the wave demand was much more diffused across a much larger number of data centers. It's not that the demand is not there. It's just spread out into facilities that we could not provision. So we do still believe that there will be a $500 million business by run rate of May of '28. I know that's a long time and investors want much nearer targets. The reconfiguration of the network is progressing. We are over halfway through bringing on the number of sites that we need. We are not though yet in a position to have the standardized delivery that I spoke about. That will be in place by year-end. We hope that, that will allow us to [ eat ] into the backlog and to also accelerate new sales as we will be more comfortable in taking those orders with more standardized provisioning windows. So in terms of a specific target, burn…

[ I would ] just add something to the Sprint costs that we do include. So they're just professional fees associated with -- directly associated with the acquisition, so non-recurring. And then because under the U.S. GAAP accounting we need to record the severance amount as a receivable at the closing date, so you put that asset on the books and it increases the gain, even though they're reimbursed when we're actually paying those severance costs. They are also included as an expense. So that is obviously directly attributed to the acquisition and those severance costs are included in the Sprint costs. I hope that helps.

Your next question will come from the line of David Barden with Bank of America.

Just one kind of housekeeping item, Dave. You gave us the IPV4 contribution $3.4 million per month. Can you kind of give us a sense as to what that would look like sequentially and year-over-year from a growth standpoint as a contributor to the -- presumably the Corporate revenue line? And then just on a related point, you've discussed the reservoir of IPV4 that you have and the data center opportunity that's kind of midstream and then the dark fiber. Could you kind of give us a sense as to how we monetize that? Is the intention to do more kind of ABS-type financings to reinvest in the business? Or have you had any inbounds for potential sales of these assets, that sort of thing?

Okay. A couple of great questions, Dave. So first of all, the growth rate in the IPV4 revenue stream has been running between 2% and 3% sequentially per month for the past 1.5 years, and we anticipate that growth to continue. As part of focusing on the IPV4 value, we did a few things. We modified our compensation structure for the sales force to increase their commission rates to make leasing of address space equivalent to that of selling bandwidth. And 2, we have incrementally raised prices on addresses. Now we did not raise the installed base, but for new sales we have increased prices because of the pricing umbrella established by both Amazon through AWS and Microsoft through Azure. So I would expect this business to continue to grow at a similar rate. We are also evaluating should we sell some of the addresses, because it may take us too long at this growth rate to fully recognize value out of them by leasing them. That final decision has not been made. We today are leasing out about 1/3 of our inventory, meaning 2/3 are unutilized. We'll continue to aggressively raise prices and increase sales and then may also choose to pair our inventory by selling. Again, a final decision has not been made. And it's somewhat dependent on market conditions. I think the IPV4 purchase market was more robust 6 months ago. It slacked off a little bit. I think that will come back and that may impact our decision on timing and exact magnitude of potential sales. Now with regard to the data centers, there we have a lot of foundational work. So independent of everything that I've described on the network reconfiguration, there is a dedicated team of individuals working on clearing out these sites and…

Your next question will come from the line of Frank Louthan with Raymond James.

Dave, can you comment on kind of where the non-core revenue bottomed out? I assume it doesn't necessarily go to 0. But when you get rid of the negative gross margin and other products and so forth, how should we think about where that revenue line kind of bottoms out? And how long do you think it will take to get there? And is there any part of it that you might consider putting in discontinued ops since you're clearly kind of pushing it out? First question. Secondly, can you comment on the usage of the circuits to T-Mobile thing? Or are they cash payments? Are they using those? And is there a potential for them to grow and do more business with you beyond that?

Yes. 2 very different questions. So in the non-core business, prior to the Sprint acquisition, Cogent had about $100,000 a month of non-core revenue, about $300,000 a quarter. And that was services that were left over from acquisitions that were 18 years or more earlier. So there is a very long tail on these services. We are actually still providing hosted e-mail to PSINet customers 21 years after the acquisition. We kind of wish it goes away, it produces some margin and we support it. The Sprint services were much more complex and probably much lower margin. Our goal is to get rid of them as quickly as possible. Our expectation is they will be substantially gone by the end of 2026, which is the longest dated contract that were obligated to support. But there probably will be some residual tail beyond that. We are also looking at the enterprise customer base and realizing that some of the services they are getting for connectivity are not economically viable. The locations are very remote. The services are delivered over inferior transmission, off-net circuits and the margins are very low. We are doing a combination of raising prices and migrating traffic. First and foremost, anything that's off-net that we can bring into on-net, we're doing that. And you see that in both our numbers in terms of on-net connections and also revenue improvement as well as margin improvement. We have no intention of putting these services into a separate bucket of discontinued operations. There is already too much accounting complexity here at Cogent.

Yes. Just comparing the amounts related to this non-core revenue and the associated cost, it's really not material enough to group into a discontinued operations bucket.

Your next question will come from the line of Walter Piecyk with LightShed Ventures.

Dave, I just want to go back to Barden's question on the IPV4 stuff. So 2.5%, does that mean that 1 year ago you had about $3 million of revenue? And when exactly did that revenue start for you in Corporate, Dave?

Okay. So first of all, we began leasing IPV4s in 2015. One thing I did not correct in Dave's question was the breakdown between Corporate, Net-Centric and Enterprise. Let me give that. In IPV4 leasing, 85% of the revenues are Net-Centric. 14% are Corporate and 1% are Enterprise. Between 2015 and midyear 2022, we would only lease addresses to companies that also purchased bandwidth from us at the same time. In the summer of '22, we relaxed that restriction. At that point, the growth rate in this business materially accelerated. The second thing that we did in the beginning of this year was to normalize the commission structure. So we would pay the sales force the same payout ratio if they lease addresses as opposed to just selling bandwidth. That had a positive impact on the sales rate. And then the third thing that we implemented actually April 1st is an increase in pricing. This was a relatively small part of Cogent's business and something that, quite honestly, we had not focused on initially. We were approached by a number of banks to potentially do an asset-backed securitization of our network. We reviewed that and concluded that would be impractical due to the fact that our network traverses 12,000 municipal, local and national jurisdictions, perfecting a security interest and that broad of a network is just not practical. Second, 60% of our network is based on IRU. While there is precedent to securitize that, it's more challenging. And third, there was not a huge amount of customer diversity. As we looked in our aggregate balance sheet, we thought that it would make sense for us to reach out to ABS investors as a new group of investors and realized that our V4 revenues were an optimal candidate, widely diffused customer base, 8,000 customers, 12,000 unique agreements, a very sticky customer base. The churn rate and IPV4 leasing is [ 0.8% of 1% ] annually, almost 15 times better than the churn rate in our bandwidth business. And it is an extremely high-margin business with no real operating cost. So it was an ideal candidate for this market. Now what turned out to be challenging in doing this transaction were 2 things: the complexity involved in securitizing not only domestic but international revenue streams; and then secondly, educating investors on a new asset that they had never seen before. So it was a lengthy process. But our business for IPV4 leasing has some significant tailwinds and the decision by Microsoft and Amazon to lease out at 12x Cogent's rates at the time in 2023, created quite a high umbrella for us in terms of pricing and giving us the confidence that we have the ability to move prices up. Hopefully,...

Well, you mentioned that last quarter, Dave, about Amazon and Microsoft. So it's been 90 days, it doesn't look like growth accelerated there or you sold. And then I think in answering Barden's question you said, I guess, the market was -- looked a little softer, I guess, for IPV4. So I mean who knows what happens given what can happen with IPV6? It would seem like there would be some immediacy to either increase price at the existing leases, try and lease more aggressively or sell it more aggressively in case that market disappears. So just comments on that? And also as it relates to Corporate, I know this is more of a Net-Centric business, but I think your buildings dropped for the first time. I look back in my model. I think I go back to like 2008, I don't think I've ever seen your multi-tenant buildings actually drop. What's going on with that? Because you usually add buildings, which obviously gives you incremental potential capacity for some corporate growth.

Okay. I'll take those in reverse order. So post pandemic, we have slowed the rate of multi-tenant building additions. We actually did add several buildings in the quarter, but we also had a half a dozen buildings converted to residential service from office. So the net reduction of one building from 1,862 to 1,861 was fairly insignificant. Actually, the square footage increased, meaning the new buildings that came on were larger than the ones that were taken [ offline ] because of the residential conversion. We do expect our multi-tenant footprint to continue to grow, but at a more moderate rate. It makes more sense for us to divert that capital into more data center connectivity as that is a more robust and growing market. Now I'll go to your IPV4 monetization question. IPV6 was introduced in 1998. It today accounts for a whopping 7% of Internet traffic. The Federal Government -- U.S. Federal Government in 2010 put a mandate out for all agencies to be entirely on V6 within 18 months. Today, they're less than 2% converted. This has a very long tail. It is a very fine resource and the expense of renumbering is not trivial. So even if you had V6 and it would work, the cost of leasing and addresses so diminished versus the benefit it gives. Most companies will take a very long time to renumber. And no one wants a partial view of the Internet. The primary reason, sale prices have softened over the past 6 months as Amazon and Microsoft have been withdrawing from the purchase market as they accomplish our initial goals. Now I think both of those companies will re-enter the market. There is still a broad and active market. The pricing for larger blocks has actually continued to go up. So we will explore sales. We're very comfortable with our ability to continue to grow the leasing business, and we are going to do what it takes to create the maximum long-term value for shareholders out of this asset, our data center assets and our fiber assets. No one should have any doubt that Cogent is sitting on [ value ] assets that could be monetized.

But in the absence of a sale, maybe you can just give us some sense of, without having the IPV4s in order to secure that incremental financing? I mean, obviously, these TSA payments are going to drop from [ $87 million ] to [ $24 million ]. So that drop alone, I think, takes your EBITDA to a level that I'm not sure it covers CapEx and cash interest expense. So when we think about incremental financing without IPV4 assets to lean on for incremental gross debt increases, what is that rate going to look like, interest rate?

Yes. So first of all, if I remember, Walter, I had a few fairly aggressive questions from you several quarters ago around our aggregate leverage. And as I pointed out, it peaked at a net leverage target of 4.6, which was, as you pointed out on that call, substantially above the 2.5 to 3.5 range that we had laid out. We have been able to reduce that leverage to 3.17, substantially below the high end of that range. And that number will come down even further in the next quarter as it is, as Tad pointed out, an LTM tax. We are going to look at our aggregate balance sheet and try to optimize whether it be through incremental high yield, whether it be through securitization or through asset sales. We have many levers to pull. We have been very transparent around the reduction in payments from T-Mobile. They are going down. They will go down in June. However, we are achieving substantial cost savings ahead of what we laid out. And again, I know -- I think it was last quarter, you had great doubts on our call about our ability to do that. And I think our improvement in EBITDA shows clearly our ability to reduce those costs, both SG&A and COGS substantially. So I think it will be the combination of cost reductions and revenue growth. As the incremental wavelength business grows at a more normalized rate with very high contribution margins, our aggregate EBITDA will begin to grow. As I laid out on the last call, we did $352 million in EBITDA in '23, up from $233 million in '22. While we're not giving exact guidance, it will be similar in '24. But in '25, the impact of wavelengths, IPV4 monetization and data center monetization, coupled with growth in the core IP business should grow our EBITDA and expand margins. As I said, it's a top line 5% to 7% growing business with a 100% or a 100 basis point a year margin expansion. I'm also going to clarify a question that I didn't answer for Frank, which is T-Mobile's utilization. And that's 2 parts. One, the commercial services are typically connectivity services and [ Colo ]. They're getting out of our facilities. They are stopping using us for backhaul. In many cases, we're buying it and reselling it to them. That's part of why off-net declined. They are very far along in that exit. The revenues declined sequentially at about $5 million. On the transit services, it was always meant to be a subsidy payment to Cogent. They are using a couple percent of the transit that we are providing them. They could use it all. It would be fine with us. It's all provision. But I'm not sure there's a huge incremental opportunity with T-Mobile. Hopefully...

So what is the incremental rate -- no, I mean, the question was what's the incremental rate when you're not using IPV4 to back the cash you're going to need to pay the dividend? Because again -- yes, the leverage is going down, Dave, that's just math, right? You're getting TSA payments. But when those payments drop from [ $87 million ] to [ $24 million ], so does the EBITDA and then EBITDA can't cover CapEx or cash interest. I mean, it's just math, right? The leverage is obviously going to go up. So the only question is what is the rate when you have to borrow more? what do you think the rate on that new debt is going to look like?

So a couple of things. One, you are correct. As the TSA payments go away, that will have a negative impact on EBITDA. However, growth in the business and the ability to monetize these assets will have a positive impact. They are roughly going to offset each other. So EBITDA for full year '24 will be similar to full year '23 and will grow in full year '24. In terms of being a [indiscernible] on interest rates, that's difficult. I'm not [indiscernible] and I'm not in a position to answer that question totally. But what I can tell you is that our current unsecured bonds not IPV4 securitized are trading at around [ $99 million ], giving a yield to worst of about 7.5%. And I think that would be indicative of about what our incremental cost of capital would be. We will [indiscernible] a combination of additional securitizations and additional debt. We understand that as our EBITDA grows, we have a targeted range. We are committed to returning capital to shareholders. So your point that we're giving out more than 100% of our free cash flow is old news, Walt. It's been our policy since 2010...

No, no, no. I didn't say -- I'm not talking about the dividend. I was saying the EBITDA is not covering CapEx or cash interest. That is new after these payments run because of the cash interest from the deal, right? That's the new thing...

I don't -- I'll just agree with your arithmetic. I think you're...

Okay. We will just see how it play that. Dave, just one last question. Just on the synergies, just ballpark, like what have you realized so far? And what's left in the bucket when we try and come up with EBITDA estimates? And we know what the targets are, so you don't need to review them, just kind of percentage realized or dollars already realized?

Yes. We're probably 40% through the synergy realization.

[indiscernible] will come from the line of Michael Rollins with Citi.

I'm just curious, if we take a step back, can you simplify either how Heritage growth rate in corporate Net-Centric are performing? And if you'd rather do it pro forma given the integration of the business? It's just some way to kind of appreciate the level of growth that you're achieving relative to what you're used to over the long-term. And if you see things in those growth rates inflecting more positively or pulling back in terms of that rate of growth as you look out over the next few quarters and you look at the sales trends, the volumes, et cetera?

Yes, absolutely. Mike, good questions. So Cogent has 2 market segments. It has a Net-Centric segment that it focuses on transit sales, that continued to grow. T-Mobile as a customer was a Net-Centric customer. They're a service provider. If you just net out their decline in revenue, that business grew. Traffic grew sequentially 1%, roughly 20% year-over-year, and that business on a Heritage basis is probably growing around 10%. In the Heritage business, that represented about 40% of Cogent's aggregate revenues. The other larger business, Heritage, was Cogent's corporate customer base. That Corporate customer business was actually declining during the pandemic, far worse than its long-term average growth rate of 11%. And today is probably at a growth rate of around 3% to 4% year-over-year. Still far worse than what we had experienced for nearly 15 years between going public and the beginning of the pandemic. That business is slowly improving, but I've given up trying to predict when everybody is going to be back in the office at the same level of occupancy pre-pandemic. There is improvement. That business is improving sequentially and year-over-year, but it is a slow pace. We now have a singular integrated customer base. We report now on 3 customer types, and we report on some additional products that were not material. Non-core, we always reported on, but was immaterial. Now it's more material, and we now have wavelengths as a service. So yes, Cogent became more complicated when we acquired Sprint. We got new customers and new products. But the trends in the underlying Heritage business are reasonable. They're not at peak, but they're doing pretty well. I mean a 10% growing Net-Centric base and a kind of 3% to 4% Corporate is not terrible.

And 2 follow-ups, if I could. Just first on the corporate side. Just given where your share is in your buildings of unique customers, what do you see as the catalyst to try to improve share? Is there anything competitively that's shifting in that market that could help or hurt this performance?

It's been a gradual shift. Everybody in our footprint is already using Internet connectivity. And if they need a VPN service, they already have a VPN service. So they need to either relocate or they need to change their usage patterns. I think video conferencing was a huge tailwind to that as people became dependent on it, that max out their connections. However, many, many companies were reluctant to enter into new IP contracts until they had some clarity around their office real estate requirements. I think companies are now kind of settling into what that new real estate requirements footprint looks like. So I think we're seeing this gradual improvement, but there are still leases that have term left on them that people intend to exit or downsize from. And until they make that final real estate decision, they're not going to make a permanent bandwidth decision. Bandwidth is a utility to support their office occupancy. I don't know if there's another killer application that's going to drive things, but I do think the dependence on video conferencing is a significant shift in the world from pre-pandemic to post-pandemic. And I think as companies figure out, I'm going to stay in this office, this is how many square feet, they're going to be much more interested in signing a long-term higher cap bandwidth connection. It was interesting. 5 years ago, our average corporate on-net user was using about 18% of a 100 [ meg ] connection at peak. Today, our average Corporate customer is using 13% of a 1 gigabit connection at peak. So they're using 8 times more bandwidth than they were 5 years ago. I think video conferencing is probably the one thing I'd point to. And remember, they're doing that with 40% less employee days in the office. Hopefully, that was helpful.

Your next question will come from the line of Nick Del Deo with MoffettNathanson.

How are you plans to use the proceeds from the securitization? Are you going to buy out that uneconomic dark fiber lease that you've seen from Sprint you've talked about? And if that's the case, can you talk about the mechanics and the benefits?

Yes, sure. So I'll start with the benefits of mechanics. So the lease has a provision that allows us to buy out at a 12% discount rate. This is a lease that is fiber, that we don't need and would like to exit as quickly as possible. There is about a $130 million liability associated with that lease today. The payment stream on that is $4.2 million a month, and we would have to write a check for probably about $112 million, $113 million to buy out. I don't necessarily know we would use all of our cash to do that that we received. So we did $206 million and with an ABS securitization that were both substantial costs and reserve accounts established, our net proceeds were about $200 million, of which about $6 million were restricted in reserve accounts. So $194 million of debt proceeds, and I'm not sure I want to use $112 million of that in cash. So we are looking at the points that Walt raised, do we raise more money. So I think what we're going to do is keep some cash on the balance sheet. We will look to buy out of this lease and continue to be able to invest in the business at the appropriate rates, which include the conversion of the data centers, the wave enablement of the network and our ability to demonstrate, I think, kind of all 3 legs of the value proposition that we were anticipating from Sprint. We've been able to, I think, validate the worth of our IP address inventory. I think we have to show the value of the wavelength and dark fiber assets and the colocation. And I think these proceeds will be used to help demonstrate all of that.

And then 2 clarifications on EBITDA. So first, it looks like your unfavorable lease amortization went from $10.3 million in Q4 to $2.5 million in Q1. So I think if we were to look at it on like a cash basis, I think the sequential improvement would have been even stronger than you showed. Is that fair?

Yes. The unfavorable lease liability had to be adjusted and increased for the extension in renewal terms, that we had already recorded under leases themselves, so the lease liabilities that are on the balance sheet, kind of as a gross up, but the unfavorable lease needed to be matched to that. So that was one of the corrections that was made in the quarter that resulted in a net of a $5.5 million reduction in the gain and the $1.4 billion gain for the bargain purchase.

Yes. So we would have been a little better without that accounting adjustment. And listen, there are so much complexity to Cogent's accounting for this transaction. We are working very diligently to report everything in a consistent and non-confusing way for investors.

But going forward, in terms of changes to the purchase accounting, we'll have additional severance and perhaps an adjustment to the tax rate could be an adjustment to the deferred tax liability. That is all that is expected in the second quarter.

Yes. We also have an anticipated substantial tax refund coming as a result of this. We had overpaid based on Cogent's run rates going in our Federal estimated tax and have approximately $18 million of a pending tax refund.

Right. So that will be split. We'll get some prior to filing the tax return and the remainder when the tax return is [ filed ].

And just to be clear on the amortization point, the reduction versus Q4, you're saying it went into the gain rather than an expense reduction?

Yes, [ that's ] [ correct ].

And then second, just a quick one. I think you called out [indiscernible] [ indication ] accruals in Q1. Tad, did you say that you did not have audit expenses in Q1 because you normally have those?

We absolutely did. So...

[indiscernible].

Yes. Those associated just with the Sprint acquisition, which was valuation services, are in the Sprint cost. But the traditional audit, we paid over $2 million. You can read it in the proxy on a regular audit, that's included in the first quarter costs. And the variation vacation, if you look at fourth quarter to first quarter, it's a couple of million dollars in...

I must [indiscernible] here with your comment then. And then did you have your sales meeting this quarter? Is that in Q2?

We're actually not going to have it this year because it would end up just a large distraction. We've got so much integration work going on. Now what we have done is ramped up our regional learning manager program, hire some additional resources and are doing it on a more regionalized basis as opposed to a global meeting. We'll resume that next year. But we felt with all that was going on with the integration that there just wasn't enough cycles to do that. We think there's great value in it, but we're kind of taking a less impactful strategy in doing it just through regional meetings.

And we have no further questions at this time. I'll hand the call back to Dave Schaeffer for any closing remarks.

As always, our calls tend to be a little long. I want to thank everyone for their patience. I think hopefully, we've been clear in answering questions, and we look forward to seeing each and every one of you as we get together at conferences. Take care [ soon ]. See you soon. Bye-bye.

That will conclude today's meeting. Thank you all for joining. You may now disconnect.