The pandemic stopped many companies’ network upgrade plans dead in their tracks last year, but Cogent Communications CEO and Chairman Dave Schaeffer said sales activity has picked back up over the past eight weeks as more organizations planned for a return to the office.
During a J.P. Morgan investor conference, Schaeffer said there have traditionally been two catalysts for corporate network upgrades, including migration of computing to the cloud and the adoption of software-as-a-service platforms. Now, he said it’s seeing a third driver, specifically the need for a better connection at an organization’s primary office and symmetrical capabilities to support remote employees.
“We continue to see almost all of our new sales be 1 gigabit sales as companies want to accommodate those remote workers,” he said, adding it is also seeing the “upgrade cycle for SaaS and cloud reaccelerating.”
Factored out, Schaeffer said he sees reopening benefitting Cogent in two ways. First, he said as new and existing customers seek more bandwidth, Cogent can differentiate itself since its channels are not oversubscribed and it can offer symmetrical capabilities.
Schaeffer also noted roughly 25% of Cogent’s corporate business is comprised of VPN products based on VPLS or SD-WAN, putting it in position to swoop in as companies resume plans to upgrade their network architecture. According to a company document, VPLS refers to its virtual private LAN service, which is described as "a class of VPN that supports the connection of multiple sites in a single bridged domain over a managed IP or MPLS network."
While “the pandemic stopped companies replacing their MPLS networks with one of these two technologies, now that companies are reopening…they’re using this as an opportunity to tear out that MPLS and put one of these lower cost, more flexible network architectures in place,” Schaeffer said.
In its recent Q1 2021 earnings report, Cogent posted net income of $18.9 million, up year-on-year from $9.2 million. Service revenue of $146.8 million increased from $140.9 million in Q1 2020. Capital expenditures jumped $2.6 million year on year to $15.4 million, which executives attributed to a need to increase capacity on certain parts of its network.