Cogent Communications Reports Second Quarter 2017 Results and Increases Regular Quarterly Dividend on Common Stock
WASHINGTON, Aug. 3, 2017 /PRNewswire/ --
Financial and Business Highlights
-- Cogent approves a 4.5% increase of $0.02 per share to its regular
quarterly dividend to $0.46 per common share to be paid on September 1,
2017 to shareholders of record on August 18, 2017
-- Service revenue for Q2 2017 increased by 2.2% from Q1 2017 to $119.8
million and on a constant currency basis increased from Q1 2017 by 1.7%
-- Service revenue for Q2 2017 increased by 8.9% from Q2 2016 and on a
constant currency basis increased from Q2 2016 by 9.6%
-- Cash flow from operations increased by 19.3% from Q1 2017 to $28.0
million and increased from Q2 2016 by 18.3%
-- GAAP gross margin increased by 50 basis points from Q1 2017 and
increased from Q2 2016 by 200 basis points
-- EBITDA margin increased by 130 basis points from Q1 2017 to 33.5% and
increased from Q2 2016 by 170 basis points
Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $119.8 million for the three months ended June 30, 2017, an increase of 8.9% from $110.0 million for the three months ended June 30, 2016 and an increase of 2.2% from $117.2 million for the three months ended March, 31, 2017. Foreign exchange positively impacted service revenue growth from Q1 2017 to Q2 2017 by $0.5 million and negatively impacted service revenue growth from Q2 2016 to Q2 2017 by $0.7 million. On a constant currency basis, service revenue grew by 9.6% from Q2 2016 to Q2 2017 and grew by 1.7% from Q1 2017 to Q2 2017.
On-net service is provided to customers located in buildings that are physically connected to Cogent's network by Cogent facilities. On-net revenue was $85.6 million for the three months ended June 30, 2017; an increase of 7.6% over $79.5 million for the three months ended June 30, 2016 and an increase of 2.4% from $83.6 million for the three months ended March 31, 2017.
Off-net customers are located in buildings directly connected to Cogent's network using other carriers' facilities and services to provide the last mile portion of the link from the customers' premises to Cogent's network. Off-net revenue was $34.0 million for the three months ended June 30, 2017; an increase of 12.7% over $30.1 million for the three months ended June 30, 2016 and an increase of 1.8% over $33.4 million for the three months ended March 31, 2017.
GAAP gross profit is defined as total service revenue less network operations expense, depreciation and amortization and equity based compensation included in network operations expense. GAAP gross margin is defined as GAAP gross profit divided by total service revenue. GAAP gross profit increased by 14.5% from $43.5 million for the three months ended June 30, 2016 to $49.8 million for the three months ended June 30, 2017 and increased by 3.7% from $48.0 million for the three months ended March 31, 2017. GAAP gross margin was 41.5% for the three months ended June 30, 2017, 39.5% for the three months ended June 30, 2016 and 41.0% for the three months ended March 31, 2017. Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $2.7 million for the three months ended June 30, 2017, $2.6 million for the three months ended March 31, 2017 and $2.2 million for the three months ended June 30, 2016.
Non-GAAP gross profit represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation and amortization expense). Non-GAAP gross margin is defined as non-GAAP gross profit divided by total service revenue. Non-GAAP gross profit increased by 10.6% from $62.2 million for the three months ended June 30, 2016 to $68.8 million for the three months ended June 30, 2017 and increased by 3.2% from $66.7 million for the three months ended March 31, 2017. Non-GAAP gross profit margin was 57.4% for the three months ended June 30, 2017, 56.6% for the three months ended June 30, 2016 and 56.9% for the three months ended March 31, 2017.
Cash flow from operating activities increased by 18.3% from $23.7 million for the three months ended June 30, 2016 to $28.0 million for the three months ended June 30, 2017 and increased by 19.3% from $23.5 million for the three months ended March 31, 2017.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 14.7% from $35.0 million for the three months ended June 30, 2016 to $40.1 million for the three months ended June 30, 2017 and increased by 6.3% from $37.7 million for the three months ended March 31, 2017. EBITDA margin was 33.5% for the three months ended June 30, 2017, 31.8% for the three months ended June 30, 2016 and 32.2% for the three months ended March 31, 2017.
EBITDA, as adjusted, increased by 4.4% from $39.4 million for the three months ended June 30, 2016 to $41.1 million for the three months ended June 30, 2017 and increased by 3.2% from $39.9 million for the three months ended March 31, 2017. EBITDA, as adjusted, margin was 34.3% for the three months ended June 30, 2017, 35.8% for the three months ended June 30, 2016 and 34.0% for the three months ended March 31, 2017.
Basic and diluted net income per share was $0.10 for the three months ended June 30, 2017, $0.09 for the three months ended June 30, 2016 and $0.09 for the three months ended March 31, 2017.
Total customer connections increased by 16.4% from 57,563 as of June 30, 2016 to 66,982 as of June 30, 2017 and increased by 4.3% from 64,243 as of March 31, 2017. On-net customer connections increased by 16.4% from 49,243 as of June 30, 2016 to 57,307 as of June 30, 2017 and increased by 4.6% from 54,805 as of March 31, 2017. Off-net customer connections increased by 17.1% from 7,971 as of June 30, 2016 to 9,335 as of June 30, 2017 and increased by 3.1% from 9,055 as of March 31, 2017.
The number of on-net buildings increased by 141 on-net buildings from 2,297 on-net buildings as of June 30, 2016 to 2,438 on-net buildings as of June 30, 2017 and increased by 32 on-net buildings from 2,406 on-net buildings as of March 31, 2017.
During the three months ended June 30, 2017 Cogent purchased 46,750 shares of its common stock for $1.8 million at an average price of $39.13 per share.
Quarterly Dividend Increase and Extension of Stock Buy Back Plan Approved
On August 2, 2017, Cogent's board approved a regular quarterly dividend of $0.46 per common share payable on September 1, 2017 to shareholders of record on August 18, 2017. This third quarter 2017 regular dividend represents a 4.5% increase of $0.02 per share from the second quarter 2017 regular dividend of $0.44 per share. Also on August 2, 2017, Cogent's board approved an extension of Cogent's stock buyback program to December 31, 2018.
The payment of any future dividends and any other returns of capital will be at the discretion of Cogent's board of directors and may be reduced, eliminated or increased and will be dependent upon Cogent's financial position, results of operations, available cash, cash flow, capital requirements, limitations under Cogent's debt indenture agreements and other factors deemed relevant by Cogent's board of directors.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on August 3, 2017 to discuss Cogent's operating results for the second quarter of 2017 and to discuss Cogent's expectations for full year 2017. Investors and other interested parties may access a live audio webcast of the earnings call in the "Events" section of Cogent's website at www.cogentco.com/events. A replay of the webcast, together with the press release, will be available on the website following the earnings call.
About Cogent Communications
Cogent Communications (NASDAQ: CCOI) is a multinational, Tier 1 facilities-based ISP. Cogent specializes in providing businesses with high speed Internet access, Ethernet transport, and colocation services. Cogent's facilities-based, all-optical IP network backbone provides services in over 190 markets globally.
Cogent Communications is headquartered at 2450 N Street, NW, Washington, D.C. 20037. For more information, visit www.cogentco.com. Cogent Communications can be reached in the United States at (202) 295-4200 or via email at info@cogentco.com.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
------------------------------------------------------
Summary of Financial and Operational Results
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
------- ------- ------- ------- ------- -------
Metric ($ in 000's, except share and per share data) - unaudited
----------------------------------------------------------------
On-Net revenue $78,705 $79,539 $81,846 $83,511 $83,586 $85,586
-------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 2.9% 1.1% 2.9% 2.0% 0.1% 2.4%
--------------------------- --- --- --- --- --- ---
Off-Net revenue $29,356 $30,149 $30,972 $31,861 $33,386 $33,980
--------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 3.3% 2.7% 2.7% 2.9% 4.8% 1.8%
--------------------------- --- --- --- --- --- ---
Non-Core revenue (1) $230 $267 $239 $224 $231 $211
------------------- ---- ---- ---- ---- ---- ----
% Change from previous Qtr. -5.3% 16.1% -10.5% -6.3% 3.1% -8.7%
--------------------------- ---- ---- ----- ---- --- ----
Service revenue - total $108,291 $109,955 $113,057 $115,596 $117,203 $119,777
----------------------- -------- -------- -------- -------- -------- --------
% Change from previous Qtr. 3.0% 1.5% 2.8% 2.2% 1.4% 2.2%
--------------------------- --- --- --- --- --- ---
Constant currency total revenue quarterly growth rate -
sequential quarters (4) 3.0% 0.9% 3.1% 2.9% 1.6% 1.7%
------------------------------------------------------- --- --- --- --- --- ---
Constant currency total revenue quarterly growth rate - year
over year quarters (4) 12.2% 11.1% 9.7% 10.2% 8.7% 9.6%
------------------------------------------------------------ ---- ---- --- ---- --- ---
Network operations expenses (2) $47,156 $47,727 $48,666 $49,943 $50,551 $50,974
------------------------------ ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 3.2% 1.2% 2.0% 2.6% 1.2% 0.8%
--------------------------- --- --- --- --- --- ---
GAAP gross profit (3) $43,261 $43,479 $45,426 $45,434 $48,003 $49,765
-------------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 4.7% 0.5% 4.5% 0.0% 5.7% 3.7%
--------------------------- --- --- --- --- --- ---
GAAP gross margin (3) 39.9% 39.5% 40.2% 39.3% 41.0% 41.5%
-------------------- ---- ---- ---- ---- ---- ----
Non-GAAP gross profit (4) (6) $61,135 $62,228 $64,391 $65,653 $66,652 $68,803
---------------------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 2.8% 1.8% 3.5% 2.0% 1.5% 3.2%
--------------------------- --- --- --- --- --- ---
Non-GAAP gross margin (4) (6) 56.5% 56.6% 57.0% 56.8% 56.9% 57.4%
---------------------------- ---- ---- ---- ---- ---- ----
Selling, general and administrative expenses (5) $27,472 $27,278 $27,220 $28,576 $28,925 $28,704
----------------------------------------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 11.1% -0.7% -0.2% 5.0% 1.2% -0.8%
--------------------------- ---- ---- ---- --- --- ----
Depreciation and amortization expense $17,753 $18,604 $18,804 $20,073 $18,538 $18,897
------------------------------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -1.4% 4.8% 1.1% 6.7% -7.6% 1.9%
--------------------------- ---- --- --- --- ---- ---
Equity-based compensation expense $2,181 $2,687 $2,991 $2,876 $2,647 $3,225
--------------------------------- ------ ------ ------ ------ ------ ------
% Change from previous Qtr. -15.2% 23.2% 11.3% -3.8% -8.0% 21.8%
--------------------------- ----- ---- ---- ---- ---- ----
Operating income $15,675 $17,511 $16,063 $14,795 $18,666 $19,000
---------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 11.7% -8.3% -7.9% 26.2% 1.8%
--------------------------- ---- ---- ---- ---- ---- ---
Interest expense $10,065 $10,243 $9,891 $10,602 $11,891 $12,090
---------------- ------- ------- ------ ------- ------- -------
% Change from previous Qtr. -2.1% 1.8% -3.4% 7.2% 12.2% 1.7%
--------------------------- ---- --- ---- --- ---- ---
Net income $3,354 $4,224 $3,459 $3,892 $4,136 $4,317
---------- ------ ------ ------ ------ ------ ------
Basic net income per common share $0.08 $0.09 $0.08 $0.09 $0.09 $0.10
--------------------------------- ----- ----- ----- ----- ----- -----
Diluted net income per common share $0.08 $0.09 $0.08 $0.09 $0.09 $0.10
----------------------------------- ----- ----- ----- ----- ----- -----
Weighted average common shares - basic 44,402,640 44,491,899 44,574,583 44,577,826 44,649,645 44,717,372
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous Qtr. 0.2% 0.2% 0.2% 0.0% 0.2% 0.2%
--------------------------- --- --- --- --- --- ---
Weighted average common shares - diluted 44,593,710 44,757,494 44,816,860 44,803,782 44,917,014 44,988,655
---------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous Qtr. 0.2% 0.4% 0.1% 0.0% 0.3% 0.2%
--------------------------- --- --- --- --- --- ---
EBITDA (6) $33,663 $34,950 $37,171 $37,077 $37,727 $40,099
--------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 3.8% 6.4% -0.3% 1.8% 6.3%
--------------------------- ---- --- --- ---- --- ---
EBITDA margin 31.1% 31.8% 32.9% 32.1% 32.2% 33.5%
------------- ---- ---- ---- ---- ---- ----
Gains on asset related transactions $1,946 $4,439 $687 $667 $2,124 $1,023
----------------------------------- ------ ------ ---- ---- ------ ------
EBITDA, as adjusted (6) $35,609 $39,389 $37,858 $37,744 $39,851 $41,122
---------------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 10.6% -3.9% -0.3% 5.6% 3.2%
--------------------------- ---- ---- ---- ---- --- ---
EBITDA, as adjusted, margin 32.9% 35.8% 33.5% 32.7% 34.0% 34.3%
--------------------------- ---- ---- ---- ---- ---- ----
Fees - net neutrality $493 $1,036 $1,315 $432 $2 $188
--------------------- ---- ------ ------ ---- --- ----
Net cash provided by operating activities $27,557 $23,698 $22,833 $33,879 $23,514 $28,045
----------------------------------------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 25.3% -14.0% -3.7% 48.4% -30.6% 19.3%
--------------------------- ---- ----- ---- ---- ----- ----
Capital expenditures $15,034 $14,260 $8,745 $7,195 $12,249 $12,007
-------------------- ------- ------- ------ ------ ------- -------
% Change from previous Qtr. 203.0% -5.1% -38.7% -17.7% 70.2% -2.0%
--------------------------- ----- ---- ----- ----- ---- ----
Principal payments on capital leases $3,369 $3,935 $2,354 $2,808 $3,854 $2,194
------------------------------------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 2.9% 16.8% -40.2% 19.3% 37.3% -43.1%
--------------------------- --- ---- ----- ---- ---- -----
Dividends paid $16,171 $16,671 $17,169 $18,199 $18,999 $19,946
-------------- ------- ------- ------- ------- ------- -------
Purchases of common stock $ - $ - $1,666 $2,826 $ - $1,829
------------------------- --- --- ------ ------ --- ------
Gross Leverage Ratio 4.39 3.94 3.89 4.73 4.64 4.62
-------------------- ---- ---- ---- ---- ---- ----
Net Leverage Ratio 2.97 2.88 2.90 2.90 2.94 2.98
------------------ ---- ---- ---- ---- ---- ----
Customer Connections - end of period
------------------------------------
On-Net 47,252 49,243 51,079 52,874 54,805 57,307
------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 3.9% 4.2% 3.7% 3.5% 3.7% 4.6%
--------------------------- --- --- --- --- --- ---
Off-Net 7,654 7,971 8,259 8,598 9,055 9,355
------- ----- ----- ----- ----- ----- -----
% Change from previous Qtr. 5.2% 4.1% 3.6% 4.1% 5.3% 3.1%
--------------------------- --- --- --- --- --- ---
Non-Core (1) 450 349 386 350 383 340
----------- --- --- --- --- --- ---
% Change from previous Qtr. 12.5% -22.4% 10.6% -9.3% 9.4% -11.2%
--------------------------- ---- ----- ---- ---- --- -----
Total customer connections 55,356 57,563 59,724 61,822 64,243 66,982
-------------------------- ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 4.1% 4.0% 3.8% 3.5% 3.9% 4.3%
--------------------------- --- --- --- --- --- ---
On-Net Buildings - end of period
--------------------------------
Multi-Tenant office buildings 1,545 1,560 1,577 1,592 1,601 1,618
----------------------------- ----- ----- ----- ----- ----- -----
Carrier neutral data center buildings 675 686 706 729 752 767
------------------------------------- --- --- --- --- --- ---
Cogent data centers 51 51 51 52 53 53
------------------- --- --- --- --- --- ---
Total on-net buildings 2,271 2,297 2,334 2,373 2,406 2,438
---------------------- ----- ----- ----- ----- ----- -----
Square feet - multi-tenant office buildings - on-net 834,341,216 840,042,330 847,266,071 858,958,167 864,432,176 872,293,092
---------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Network - end of period
------------------------
Intercity route miles 56,183 56,183 56,684 57,213 57,213 57,403
--------------------- ------ ------ ------ ------ ------ ------
Metro fiber miles 28,316 28,874 29,326 29,536 30,190 30,516
----------------- ------ ------ ------ ------ ------ ------
Connected networks - AS's 5,617 5,700 5,834 5,927 5,949 5,983
------------------------- ----- ----- ----- ----- ----- -----
Headcount - end of period
-------------------------
Sales force - quota bearing 398 397 394 422 432 434
--------------------------- --- --- --- --- --- ---
Sales force - total 517 519 516 542 554 559
------------------- --- --- --- --- --- ---
Total employees 855 854 858 887 900 909
--------------- --- --- --- --- --- ---
Sales rep productivity - units per full time equivalent sales
rep ("FTE") per month 6.3 5.9 5.7 6.1 6.1 6.5
------------------------------------------------------------- --- --- --- --- --- ---
FTE - sales reps 373 373 377 384 416 410
---------------- --- --- --- --- --- ---
(1) Consists of legacy services of
companies whose assets or
businesses were acquired by
Cogent, primarily including voice
services (only provided in
Toronto, Canada).
(2) Network operations expense excludes
equity-based compensation expense
of $121, $145, $161, $146, $111
and $141 in the three month
periods ended March 31, 2016
through June 30, 2017,
respectively. Network operations
expense includes excise taxes,
including Universal Service Fund
fees of $2,003, $2,156, $2,362,
$2,549, $2,604 and $2,672 in the
three month periods ended March
31, 2016 through June 30, 2017,
respectively.
(3) GAAP gross profit is defined as
total service revenue less network
operations expense, depreciation
and amortization and equity based
compensation included in network
operations expense. GAAP gross
margin is defined as GAAP gross
profit divided by total service
revenue.
(4) Non-GAAP gross profit represents
service revenue less network
operations expense, excluding
equity-based compensation and
amounts shown separately
(depreciation expense). Non-GAAP
gross margin is defined as non-
GAAP gross profit divided by total
service revenue. Management
believes that Non-GAAP gross
profit and Non-GAAP gross profit
margin are relevant metrics to
provide investors, as they are
metrics that management uses to
measure the margin available to
the company after network service
costs, in essence a measure of the
efficiency of the Company's
network.
(5) Excludes equity-based compensation
expense of $2,060, $2,542, $2,830,
$2,730, $2,536 and $3,084 in the
three month periods ended March
31, 2016 through June 30, 2017,
respectively.
(6) See schedule of non-GAAP metrics
below for definitions and
reconciliations to GAAP measures
below.
Schedules of Non-GAAP Measures
EBITDA and EBITDA, as adjusted
EBITDA represents net cash flows from operating activities plus changes in operating assets and liabilities, cash interest expense and cash income tax expense. Management believes the most directly comparable measure to EBITDA calculated in accordance with generally accepted accounting principles in the United States, or GAAP, is cash flows provided by operating activities. The Company also believes that EBITDA is a measure frequently used by securities analysts, investors, and other interested parties in their evaluation of issuers. EBITDA, as adjusted, represents EBITDA plus net gains (losses) on asset related transactions.
The Company believes that EBITDA, and EBITDA, as adjusted, are useful measures of its ability to service debt, fund capital expenditures and expand its business. EBITDA, and EBITDA, as adjusted are an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information. EBITDA, and EBITDA, as adjusted are not recognized terms under GAAP and accordingly, should not be viewed in isolation or as a substitute for the analysis of results as reported under GAAP, but rather as a supplemental measure to GAAP. For example, these metrics are not intended to reflect the Company's free cash flow, as it does not consider certain current or future cash requirements, such as capital expenditures, contractual commitments, and changes in working capital needs, interest expenses and debt service requirements. The Company's calculations of these metrics may also differ from the calculations performed by its competitors and other companies and as such, its utility as a comparative measure is limited.
EBITDA, and EBITDA, as adjusted, are reconciled to cash flows provided by operating activities in the table below.
Q1 Q2 Q3 Q4 Year Q1 Q2
2016 2016 2016 2016 2016 2017 2017
---- ---- ---- ---- ---- ---- ----
($ in 000's) - unaudited
------------------------
Net cash flows provided by operating activities $27,557 $23,698 $22,833 $33,879 $107,967 $23,514 $28,045
----------------------------------------------- ------- ------- ------- ------- -------- ------- -------
Changes in operating assets and liabilities (3,681) 1,755 4,737 (6,781) (3,968) 3,192 950
------------------------------------------- ------ ----- ----- ------ ------ ----- ---
Cash interest expense and income tax expense 9,787 9,497 9,601 9,979 38,861 11,021 11,104
-------------------------------------------- ----- ----- ----- ----- ------ ------ ------
EBITDA $33,663 $34,950 $37,171 $37,077 $142,860 $37,727 $40,099
------ ------- ------- ------- ------- -------- ------- -------
PLUS: Gains on asset related transactions 1,946 4,439 687 667 7,739 2,124 1,023
----------------------------------------- ----- ----- --- --- ----- ----- -----
EBITDA, as adjusted $35,609 $39,389 $37,858 $37,744 $150,599 $39,851 $41,122
------------------- ------- ------- ------- ------- -------- ------- -------
EBITDA margin 31.1% 31.8% 32.9% 32.1% 32.0% 32.2% 33.5%
------------- ---- ---- ---- ---- ---- ---- ----
EBITDA, as adjusted, margin 32.9% 35.8% 33.5% 32.7% 33.7% 34.0% 34.3%
--------------------------- ---- ---- ---- ---- ---- ---- ----
Constant currency revenue is reconciled to service revenue as reported in the tables below.
Constant currency impact on revenue changes - sequential periods
($ in 000's) - unaudited Q1 Q2 Q3 Q4 Year Q1 Q2
2016 2016 2016 2016 2016 2017 2017
--- ---- ---- ---- ---- ---- ---- ----
Service revenue, as reported - current period $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777
--------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Impact of foreign currencies on service revenue (10) (709) 273 749 892 195 (531)
----------------------------------------------- --- ---- --- --- --- --- ----
Service revenue - as adjusted for currency impact (1) $108,281 $109,246 $113,330 $116,345 $447,792 $117,398 $119,246
----------------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Service revenue, as reported - prior sequential period $105,177 $108,291 $109,955 $113,057 $404,234 $115,596 $117,203
------------------------------------------------------ -------- -------- -------- -------- -------- -------- --------
Constant currency increase $3,104 $955 $3,375 $3,288 $43,558 $1,802 $2,043
-------------------------- ------ ---- ------ ------ ------- ------ ------
Constant currency percent increase 3.0% 0.9% 3.1% 2.9% 10.8% 1.6% 1.7%
---------------------------------- --- --- --- --- ---- --- ---
(1) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the prior
sequential period. The Company
believes that disclosing
quarterly sequential revenue
growth without the impact of
foreign currencies on service
revenue is a useful measure of
sequential revenue growth.
Service revenue, as adjusted
for currency impact, is an
integral part of the internal
reporting and planning system
used by management as a
supplement to GAAP financial
information.
Constant currency impact on revenue changes - prior year periods
($ in 000's) - unaudited Q1 Q2 Q3 Q4 Year Q1 Q2
2016 2016 2016 2016 2016 2017 2017
--- ---- ---- ---- ---- ---- ---- ----
Service revenue, as reported - current period $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777
--------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Impact of foreign currencies on service revenue 855 (168) (68) 276 892 503 743
----------------------------------------------- --- ---- --- --- --- --- ---
Service revenue - as adjusted for currency impact (2) $109,146 $109,787 $112,989 $115,872 $447,792 $117,706 $120,520
----------------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Service revenue, as reported - prior year period $97,242 $98,799 $103,017 $105,177 $404,234 $108,291 $109,955
------------------------------------------------ ------- ------- -------- -------- -------- -------- --------
Constant currency increase $11,904 $10,988 $9,972 $10,695 $43,558 $9,415 $10,565
-------------------------- ------- ------- ------ ------- ------- ------ -------
Percent increase 12.2% 11.1% 9.7% 10.2% 10.8% 8.7% 9.6%
---------------- ---- ---- --- ---- ---- --- ---
(2) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the
comparable prior year period.
The Company believes that
disclosing year over year
revenue growth without the
impact of foreign currencies on
service revenue is a useful
measure of revenue growth.
Service revenue, as adjusted
for currency impact, is an
integral part of the internal
reporting and planning system
used by management as a
supplement to GAAP financial
information.
Non-GAAP gross profit and Non-GAAP gross margin
Non-GAAP gross profit and Non-GAAP gross margin are reconciled to GAAP gross profit and GAAP gross margin in the table below.
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Year 2016 Q1 2017 Q2 2017
------- ------- ------- ------- --------- ------- -------
($ in 000's) - unaudited
------------------------
Service revenue total $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777
--------------------- -------- -------- -------- -------- -------- -------- --------
Minus - Network operations expense
including equity-based compensation and
including depreciation and amortization
expense 65,030 66,476 67,631 70,162 269,299 69,200 70,012
---------------------------------------- ------ ------ ------ ------ ------- ------ ------
GAAP Gross Profit (1) $43,261 $43,479 $45,426 $45,434 $177,601 $48,003 $49,765
-------------------- ------- ------- ------- ------- -------- ------- -------
Plus - Equity-based compensation -
network operations expense 121 145 161 146 573 111 141
----------------------------------- --- --- --- --- --- --- ---
Plus - Depreciation and amortization expense 17,753 18,604 18,804 20,073 75,234 18,538 18,897
-------------------------------------------- ------ ------ ------ ------ ------ ------ ------
Non-GAAP Gross Profit (2) $61,135 $62,228 $64,391 $65,653 $253,408 $66,652 $68,803
------------------------ ------- ------- ------- ------- -------- ------- -------
GAAP Gross Margin (1) 39.9% 39.5% 40.2% 39.3% 39.7% 41.0% 41.5%
-------------------- ---- ---- ---- ---- ---- ---- ----
Non-GAAP Gross Margin (2) 56.5% 56.6% 57.0% 56.8% 56.7% 56.9% 57.4%
------------------------ ---- ---- ---- ---- ---- ---- ----
(1) GAAP gross profit is defined as
total service revenue less
network operations expense,
depreciation and amortization and
equity based compensation
included in network operations
expense. GAAP gross margin is
defined as GAAP gross profit
divided by total service revenue.
(2) Non-GAAP gross profit represents
service revenue less network
operations expense, excluding
equity-based compensation and
amounts shown separately
(depreciation and amortization
expense). Non-GAAP gross margin
is defined as non-GAAP gross
profit divided by total service
revenue. Management believes
that non-GAAP gross profit and
non-GAAP gross margin are
relevant metrics to provide to
investors, as they are metrics
that management uses to measure
the margin and amount available
to the Company after network
service costs, in essence these
are measures of the efficiency of
the Company's network.
Gross and Net Leverage Ratios
Gross leverage ratio is defined as total debt divided by the trailing last 12 months EBITDA, as adjusted. Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the trailing last 12 months EBITDA, as adjusted. Cogent's gross leverage ratio was 4.64 at March 31, 2017 and 4.62 at June 30, 2017 and Cogent's net leverage ratio was 2.94 at March 31, 2017 and 2.98 at June 30, 2017 and as shown below.
($ in 000's) - unaudited As of March 31, 2017 As of June 30, 2017
------------------------ -------------------- -------------------
Cash and cash equivalents $263,196 $256,492
------------------------- -------- --------
Debt
----
Capital leases - current portion 7,215 7,635
-------------------------------- ----- -----
Capital leases - long term 137,917 142,155
-------------------------- ------- -------
Senior unsecured notes 189,225 189,225
---------------------- ------- -------
Senior secured notes 375,000 375,000
-------------------- ------- -------
Note payable 8,611 9,445
------------ ----- -----
Total debt 717,968 723,460
---------- ------- -------
Total net debt 454,772 466,968
-------------- ------- -------
Trailing 12 months EBITDA, as adjusted 154,842 156,575
-------------------------------------- ------- -------
Gross leverage ratio 4.64 4.62
-------------------- ---- ----
Net leverage ratio 2.94 2.98
------------------ ---- ----
Cogent's SEC filings are available online via the Investor Relations section of www.cogentco.com or on the Securities and Exchange Commission's website at www.sec.gov.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
2017 2016
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $256,492 $274,319
Accounts receivable, net of allowance for doubtful accounts of $1,731 and $1,734, 34,754 33,598
respectively
Prepaid expenses and other current assets 21,906 19,706
------ ------
Total current assets 313,152 327,623
Property and equipment, net 376,867 361,641
Deferred tax assets 35,661 42,241
Deposits and other assets - $705 and $128 restricted, respectively 6,759 6,387
----- -----
Total assets $732,439 $737,892
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $9,284 $11,551
Accrued and other current liabilities 49,412 47,149
Installment payment agreement, current portion, net of discount of $312 and $204, 6,004 2,587
respectively
Current maturities, capital lease obligations 7,635 6,626
----- -----
Total current liabilities 72,335 67,913
Senior secured 2022 notes, net of unamortized debt costs of $2,066 and $2,257, 373,355 373,205
respectively and including premium of $421 and $462, respectively
Senior unsecured 2021 notes, net of unamortized debt costs of $2,339 and $2,575, 186,886 186,650
respectively
Capital lease obligations, net of current maturities 142,155 135,335
Other long term liabilities 28,909 28,043
------ ------
Total liabilities 803,640 791,146
------- -------
Commitments and contingencies:
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 45,927,374 and 46 45
45,478,787 shares issued and outstanding, respectively
Additional paid-in capital 447,852 442,799
Accumulated other comprehensive income - foreign currency translation (9,702) (17,193)
Accumulated deficit (509,397) (478,905)
-------- --------
Total stockholders' deficit (71,201) (53,254)
------- -------
Total liabilities and stockholders' deficit $732,439 $737,892
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND JUNE 30, 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Three Months
Ended Ended
June 30, 2017 June 30, 2016
------------- -------------
(Unaudited) (Unaudited)
Service revenue $119,777 $109,955
Operating expenses:
Network operations (including $141 and $145 of equity-based compensation 51,115 47,872
expense, respectively, exclusive of depreciation and amortization shown
separately below)
Selling, general, and administrative (including $3,084 and $2,542 of equity-based 31,788 29,820
compensation expense, respectively)
Depreciation and amortization 18,897 18,604
------ ------
Total operating expenses 101,800 96,296
Losses on debt purchases and installment loan repayment - (587)
Gains on equipment transactions 1,023 4,439
----- -----
Operating income 19,000 17,511
Interest income and other, net 1,015 335
Interest expense (12,090) (10,243)
------- -------
Income before income taxes 7,925 7,603
Income tax provision (3,608) (3,379)
------ ------
Net income $4,317 $4,224
====== ======
Comprehensive income:
Net income $4,317 $4,224
Foreign currency translation adjustment 6,163 (1,967)
----- ------
Comprehensive income $10,480 $2,257
======= ======
Net income per common share:
Basic and diluted net income per common share $0.10 $0.09
Dividends declared per common share $0.44 $0.37
Weighted-average common shares - basic 44,717,372 44,491,899
Weighted-average common shares - diluted 44,988,655 44,757,494
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND JUNE 30, 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Six Months Six Months
Ended Ended
June 30, 2017 June 30, 2016
------------- -------------
(Unaudited) (Unaudited)
Service revenue $236,981 $218,247
Operating expenses:
Network operations (including $252 and $266 of equity-based compensation expense, respectively, 101,778 95,149
exclusive of depreciation and amortization shown separately below)
Selling, general, and administrative (including $5,620 and $4,602 of equity-based compensation 63,252 59,352
expense, respectively)
Depreciation and amortization 37,435 36,357
------ ------
Total operating expenses 202,465 190,858
Losses on debt purchases and installment loan repayment - (587)
Gains on equipment transactions 3,146 6,385
----- -----
Operating income 37,662 33,187
Interest income and other, net 1,870 468
Interest expense (23,978) (20,309)
------- -------
Income before income taxes 15,554 13,346
Income tax provision (7,101) (5,768)
------ ------
Net income $8,453 $7,578
====== ======
Comprehensive income:
Net income $8,453 $7,578
Foreign currency translation adjustment 7,491 2,107
----- -----
Comprehensive income $15,944 $9,685
======= ======
Net income per common share:
Basic and diluted net income per common share $0.19 $0.17
Dividends declared per common share $0.86 $0.73
Weighted-average common shares - basic 44,720,971 44,484,863
Weighted-average common shares - diluted 44,990,298 44,713,196
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND JUNE 30, 2016
(IN THOUSANDS)
Three months Three months
Ended Ended
June 30, 2017 June 30, 2016
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $4,317 $4,224
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 18,897 18,604
Amortization of debt discount and premium 287 480
Equity-based compensation expense (net of amounts capitalized) 3,225 2,687
Losses on debt purchases and installment loan repayment - 587
Gains - equipment transactions and other, net (1,457) (4,294)
Deferred income taxes 3,292 3,310
Changes in operating assets and liabilities:
Accounts receivable (384) (1,058)
Prepaid expenses and other current assets (133) (1,218)
Accounts payable, accrued liabilities and other long-term liabilities (423) 386
Deposits and other assets 424 (10)
--- ---
Net cash provided by operating activities 28,045 23,698
------ ------
Cash flows from investing activities:
Purchases of property and equipment (12,007) (14,260)
------- -------
Net cash used in investing activities (12,007) (14,260)
------- -------
Cash flows from financing activities:
Dividends paid (19,946) (16,671)
Purchases of common stock (1,829) -
Purchases of senior secured 2021 notes - (10,775)
Proceeds from exercises of stock options 186 424
Principal payments on installment payment agreement (733) (19,019)
Principal payments of capital lease obligations (2,194) (3,935)
------ ------
Net cash used in financing activities (24,516) (49,976)
------- -------
Effect of exchange rates changes on cash 1,774 (545)
----- ----
Net decrease in cash and cash equivalents (6,704) (41,083)
Cash and cash equivalents, beginning of period 263,196 196,050
------- -------
Cash and cash equivalents, end of period $256,492 $154,967
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND JUNE 30, 2016
(IN THOUSANDS)
Six months Six months
Ended Ended
June 30, 2017 June 30, 2016
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $8,453 $7,578
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 37,435 36,357
Amortization of debt discount and premium 567 696
Equity-based compensation expense (net of amounts capitalized) 5,872 4,868
Losses on debt purchases and installment loan repayment - 587
Gains - equipment transactions and other, net (3,628) (6,480)
Deferred income taxes 6,626 5,633
Changes in operating assets and liabilities:
Accounts receivable (341) (1,445)
Prepaid expenses and other current assets (1,200) (3,435)
Accounts payable, accrued liabilities and other long-term liabilities (2,084) 8,765
Deposits and other assets (141) (1,869)
---- ------
Net cash provided by operating activities 51,559 51,255
------ ------
Cash flows from investing activities:
Purchases of property and equipment (24,256) (29,294)
------- -------
Net cash used in investing activities (24,256) (29,294)
------- -------
Cash flows from financing activities:
Dividends paid (38,945) (32,842)
Purchases of common stock (1,829) -
Purchases of senior secured 2021 notes - (10,775)
Proceeds from exercises of stock options 486 630
Principal payments on installment payment agreement (951) (21,203)
Principal payments of capital lease obligations (6,048) (7,304)
------ ------
Net cash used in financing activities (47,287) (71,494)
------- -------
Effect of exchange rates changes on cash 2,157 909
----- ---
Net decrease in cash and cash equivalents (17,827) (48,624)
Cash and cash equivalents, beginning of period 274,319 203,591
------- -------
Cash and cash equivalents, end of period $256,492 $154,967
======== ========
Except for historical information and discussion contained herein, statements contained in this release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "projects" and similar expressions. The statements in this release are based upon the current beliefs and expectations of Cogent's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Numerous factors could cause or contribute to such differences, including future economic instability in the global economy or a contraction of the capital markets which could affect spending on Internet services and our ability to engage in financing activities; the impact of changing foreign exchange rates (in particular the Euro to USD and Canadian dollar to USD exchange rates) on the translation of our non-USD denominated revenues, expenses, assets and liabilities; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including net neutrality rules by the United States Federal Communications Commission and in the area of data protection; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; the ability to maintain our Internet peering arrangements on favorable terms; our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; and outcomes in litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our report on Form 10-Q for the quarter ended June 30, 2017 to be filed with the Securities and Exchange Commission. Cogent undertakes no duty to update any forward-looking statement or any information contained in this press release or in other public disclosures at any time.
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SOURCE Cogent Communications Holdings, Inc.
