Dave Schaeffer: Yeah, so on corporate growth, I would say it was very similar to the growth rates that we’ve had in Q2. That’s kind of an underlying kind of same-store growth rate of about 1% year-over-year far less than the kind of 10% to 11% that we had long-term average. We are seeing slow, but consistent improvement in corporate buying cycles and expect that corporate growth to continue to improve. The non-core services in answering Brandon’s question that are heavily weighted towards corporate and enterprise will continue to decline, but probably not nearly as precipitously as they did this quarter. So you may see a low customer connection count, but you will see, I think, revenue growth probably continued to be positive.
From this point forward since SIP was the largest of these non-core products. And then in terms of SG&A, as Tad mentioned, we had record low bad debt expense. I think we’re probably expecting that to revert back to historical norms. And then, we are continuing to continue to grow in headcount and expect to see some underlying improvement. Tad?
Thaddeus Weed: Yeah, so the Q3 run rate is about reflective of our current run rate as we exit at the quarter.
Unidentified Analyst: Okay. Thank you.
Operator: Our next question comes from Michael Rollins from Citi. Your line is now open.
Michael Rollins: Thanks, and good morning. Just a couple of questions going back to some of the comments from earlier in the call, and then just one on the business. So, first, in the same way you just a couple questions ago, recapped the breakdown of what happened with the SIP product? Could you do the same with the T-Mobile commercial services agreement in terms of just recapping and summarizing in total? What happened, which customer verticals that volume came out of and what’s left going forward for that? And then secondly, with respect to the reclass of the operating leases to the capital lease. If I’m doing the math right, it looks like it’s about 3 years in terms of the change in the cost of the lease versus how much you increase the balance sheets accounts by?
And just curious if that’s something that once it expires, it goes away, or is this something that needs to get renewed? Like, how should we be thinking about what needs to happen for this lease after you get through the next few years of the balance that you’ve increased? And then I have an operating question I’ll follow up with.
Dave Schaeffer: That’s actually a very good question, Mike, and you did your arithmetic quickly. That lease ends at the end of 2026. It will not be renewed. It does not need to be replaced. It is completely uneconomic. And it is for an IRU that is not even fully in use and is totally redundant to fiber that we have today is something that Sprint signed almost 35 years ago and had CPIs. The end of the lease is our first – what we have the ability to exit it in about 3 years at the end of 2026, and we’ll exit it as quickly as possible. The lease is way out of market, as I indicated, and we indicated on the previous earnings call, there’s about $150 million of uneconomic value, and that means it’s about a lot of market, and it was a reduction in the gain in our purchase of the assets.
It’s just something we had to take, and I’m sure, as T-Mobile would say, that’s why we’re paying them $700 million. It took some bad stuff, and that’s probably the single worst item. It clearly meets the test to be a capital lease. It is for fiber. And it’s something that will not be replaced.
Thaddeus Weed: I’ll take the CSA. So under the commercial services agreement with T-Mobile, and this is just like the regular customer, not under the IP Transit Services Agreement. So the revenue was $7.3 million in the second quarter and $8 million in the third quarter. The connections, this is all net-centric revenue, the connections were $8,028 at the end of the second quarter and $4,661 at the end of the third quarter. So the revenue was about the same, and the connections dropped about 50%.
Dave Schaeffer: And Mike, to give you a little more granularity, there are really two primary services that are not covered by the transit agreement. The first is co-location, these are T-Mobile bays or racks that are located in our facilities that we are removing at the request of T-Mobile. But there’s a long tail on those. And then the second are the VPN services, the Ethernet point-to-point services that are providing backhaul for T-Mobile through our network. And they are grooming those circuits as well. So we would expect the unit count to continue to come down. We also do expect the revenue to eventually come down. But I think what has been going on in the short-term has been grooming units more than a revenue focus.
Michael Rollins: And so, even though the volume fell significantly quarter-over-quarter, would you expect as you’re describing a more measured roll-down of this over the next few years?
Dave Schaeffer: I don’t have visibility that far out. That would really be a question you need to ask T-Mobile, because they can cancel these with 30-day notice. I do have visibility this quarter and it looks very similar to Q3. Q4 should be similar to Q3 in terms of revenue, but with fewer units.
Michael Rollins: And just moving to the operating side of the business and thanks for all that detail. You made a comment earlier in the discussion about how customers on the net-centric side are really pushing to much higher levels of switching? I think you mentioned 100-gig, 400-gig, and as customers are moving up to these higher port speeds. What does that mean in terms of volume being a lesser indicator of revenue, because customers are pushing more volume, they’re just doing it through fewer connections. And is this a short-term blip, where this type of grooming or optimization happens quickly on the volume side? Or do you see for whatever the reason that there might be an ongoing difference between the way the revenue in net-centric performs and the way volume performs, because more customers across more ports adopt these higher speeds?
