Dave 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, as part of our contractual obligation, we had to guarantee their quota for a full year from closing. That’s very different than the way a organically higher 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 transferred those reps into corporate and eccentric 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 we will see some additional turnover and hopefully we’ll see productivity start to improve.
Michael Rollins: Thanks very much.
Dave Schaeffer: Thanks, Mike.
Operator: [Operator Instructions] Your next question comes from Bora Lee with RBC Capital Markets. Please go ahead.
Bora Lee: Good morning. One bit of housekeeping first, there was a step down in D&A during the quarter relative to 3Q while CapEx increase. Was that related to some of the reclass activities and is that fourth quarter number of the jumping off point go forward or is there something else we should be thinking about?
Thaddeus Weed: More of the reclass occurred in the fourth quarter versus the third quarter. Really the impact on the run rates in the third quarter predominantly had to do with the impact on COGS from the lease accounting.
Bora Lee: Okay. So the D&A step down in the fourth quarter was related to —
Thaddeus Weed: Well, SG&A in the fourth quarter has an increase from the third quarter and I tried to record all that.
Bora Lee: D&A.
Thaddeus Weed: Yes, SG&A.
Dave Schaeffer: SG&A.
Thaddeus Weed: Yes.
Bora Lee: Okay.
Dave Schaeffer: So, the right way to think about Bora is just 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. They’re all been audited by Ernst and Young and comply with all of the gap requirements and critical accounting matters for lease accounting. So, I think we’re in pretty good shape.
Thaddeus Weed: We are.
Bora Lee: Okay. And as you’re clearing out the Sprint spaces, is there, sorry, Thad, were you saying something?
Thaddeus Weed: No, no, go ahead. Go ahead, Bora.
Bora Lee: Great. As you’re clearing out the sprints spaces, is there an opportunity to sell some of that old equipment and is that meaningful or just sort of a task that needs to be done?
Dave Schaeffer: It’s definitely a task that needs to be done. It does not have a meaningful salvage value. Most of this equipment has been not manufactured for 15-plus years. There is a de minimis amount of scrap value for copper in the 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 dead equipment out. Net-net, this is not going to be a significant either cost or a significant revenue opportunity for us. The better opportunity is going to be as we depopulate these facilities of this dead equipment and convert them to Cogent data centers, those 68 facilities and the 157 megawatts that we have now that are less than 30% utilized become a significant opportunity, particularly as there is a short-term crunch for power and space for data centers driven by AI. We are in the process of looking in multiple ways to fill that space up more quickly.
Bora Lee: All right. 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 Cogent and Sprint customer bases?
Dave 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 are to customers that Cogent already had a relationship with. There are a handful of cases where there are a customer that Cogent had not worked with previously, but the vast majority of those 2,300 waters in the funnel and those that have been installed, the 667, have come from people that Cogent had a relationship with. The second thing is the Sprint enterprise base 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 in the number of enterprise connections.
And remember, this is with a 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. So I think there will be cross-selling opportunities in both directions.
Bora Lee: Great. Thank you.
Dave Schaeffer: Hey, thanks, Bora.
Operator: Your final question comes from Brandon Nispel with KeyBanc Capital Markets. Please go ahead.
Unidentified Analyst: Hi, guys. It’s Evan on for Brandon. The backlog you guys talked about for Wavelengths, you were saying it’s growing and now pacing the provisioning you’re able to do on your facilities. 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? Thanks.
Dave Schaeffer: So, Evan, I think two different things will happen. We will provision most of those orders, but there will be some customers who cannot wait. We are trying to be very transparent with customers, and it’s a site-by-site discussion on what that provisioning window will look like. We know that with the network reconfigurations that we have going on, we’ll have more than double 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, 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, as we continue to build credibility with customers and we get more sites enabled and shorter provisioning windows, we actually anticipate the pace of that funnel building actually accelerating. In the last quarter, it took us basically five months from closing to build a funnel of 1,000. In the last quarter, we got that up to 2,300. And yes, there have been some ball-out, but the net number grew, 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 in a expeditious manner of a couple of weeks, we have to give both customers and investors an understanding of what the backlog looks like.
Thanks.
Unidentified Analyst: Great. Thanks guys.
Operator: This will conclude our question and answer session. I will now turn the call back over to Dave Schaeffer for closing remarks.
Dave Schaeffer: Hey, thank you very much. I know, again, it was a long call, but there are a lot of pieces of information. We are definitely trying to be wholesome and transparent in what we are reporting. Thank you all very much, and we’ll talk soon. Take care. Bye-bye.
Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.
