Cogent Communications Reports Third Quarter 2017 Results and Increases Regular Quarterly Dividend on Common Stock
WASHINGTON, Nov. 2, 2017 /PRNewswire/ --
Financial and Business Highlights
-- Cogent approves a 4.3% increase of $0.02 per share to its regular
quarterly dividend to $0.48 per common share to be paid on December 4,
2017 to shareholders of record on November 17, 2017
-- Service revenue for Q3 2017 increased by 2.7% from Q2 2017 to $123.0
million and on a constant currency basis increased from Q2 2017 by 1.2%
-- Service revenue for Q3 2017 increased by 8.8% from Q3 2016 and on a
constant currency basis increased from Q3 2016 by 7.7%
-- Capital expenditures decreased by 7.5% from the nine months ended
September 30, 2016 to the nine months ended September 30, 2017 from
$38.0 million to $35.2 million
-- Cash flow from operations increased by 2.6% from Q2 2017 to $28.8
million and increased from Q3 2016 by 26.1%
Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $123.0 million for the three months ended September 30, 2017, an increase of 8.8% from the three months ended September 30, 2016 and an increase of 2.7% from the three months ended June 30, 2017. Foreign exchange positively impacted service revenue growth from the three months ended June 30, 2017 to the three months ended September 30, 2017 by $1.7 million and positively impacted service revenue growth from the three months ended September 30, 2016 to the three months ended September 30, 2017 by $1.3 million. On a constant currency basis, service revenue grew by 1.2% from the three months ended June 30, 2017 to the three months ended September 30, 2017 and grew by 7.7% from the three months ended September 30, 2016 to the three months ended September 30, 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 $87.9 million for the three months ended September 30, 2017; an increase of 2.7% from the three months ended June 30, 2017 and an increase of 7.4% over the three months ended September 30, 2016.
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 $34.9 million for the three months ended September 30, 2017; an increase of 2.6% over the three months ended June 30, 2017 and an increase of 12.6% over the three months ended September 30, 2016.
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 10.6% from the three months ended September 30, 2016 to $50.2 million for the three months ended September 30, 2017 and increased by 1.0% from the three months ended June 30, 2017. GAAP gross margin was 40.9% for the three months ended September 30, 2017, 40.2% for the three months ended September 30, 2016 and 41.5% for the three months ended June 30, 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 September 30, 2017, $2.7 million for the three months ended June 30, 2017 and $2.4 million for the three months ended September 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 8.0% from the three months ended September 30, 2016 to $69.6 million for the three months ended September 30, 2017 and increased by 1.1% from the three months ended June 30, 2017. Non-GAAP gross profit margin was 56.6% for the three months ended September 30, 2017, 57.0% for the three months ended September 30, 2016 and 57.4% for the three months ended June 30, 2017.
Cash flow from operating activities increased by 26.1% from the three months ended September 30, 2016 to $28.8 million for the three months ended September 30, 2017 and increased by 2.6% from the three months ended June 30, 2017.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 8.2% from the three months ended September 30, 2016 to $40.2 million for the three months ended September 30, 2017 and increased by 0.3% from the three months ended June 30, 2017. EBITDA margin was 32.7% for the three months ended September 30, 2017, 32.9% for the three months ended September 30, 2016 and 33.5% for the three months ended June 30, 2017.
EBITDA, as adjusted, increased by 7.2% from the three months ended September 30, 2016 to $40.6 million for the three months ended September 30, 2017 and decreased by 1.3% from the three months ended June 30, 2017. EBITDA, as adjusted, margin was 33.0% for the three months ended September 30, 2017, 33.5% for the three months ended September 30, 2016 and 34.3% for the three months ended June 30, 2017.
Basic and diluted net income per share was $0.08 for the three months ended September 30, 2017, $0.08 for the three months ended September 30, 2016 and $0.10 for the three months ended June 30, 2017.
Total customer connections increased by 16.2% from September 30, 2016 to 69,417 as of September 30, 2017 and increased by 3.6% from June 30, 2017. On-net customer connections increased by 16.2% from September 30, 2016 to 59,357 as of September 30, 2017 and increased by 3.6% from June 30, 2017. Off-net customer connections increased by 17.7% from September 30, 2016 to 9,724 as of September 30, 2017 and increased by 4.2% from June 30, 2017.
The number of on-net buildings increased by 138 on-net buildings from September 30, 2016 to 2,472 on-net buildings as of September 30, 2017 and increased by 34 on-net buildings from June 30, 2017.
Quarterly Dividend Increase Approved
On November 1, 2017, Cogent's board approved a regular quarterly dividend of $0.48 per common share payable on December 4, 2017 to shareholders of record on November 17, 2017. This fourth quarter 2017 regular dividend represents a 4.3% increase of $0.02 per share from the third quarter 2017 regular dividend of $0.46 per share.
The payment of any future dividends and any other returns of capital will be at the discretion of Cogent's board of directors and may be reduced, eliminated or increased and will be dependent upon Cogent's financial position, results of operations, available cash, cash flow, capital requirements, limitations under Cogent's debt indenture agreements and other factors deemed relevant by Cogent's board of directors.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on November 2, 2017 to discuss Cogent's operating results for the third quarter of 2017 and to discuss Cogent's expectations for full year 2017. Investors and other interested parties may access a live audio webcast of the earnings call in the "Events" section of Cogent's website at www.cogentco.com/events. A replay of the webcast, together with the press release, will be available on the website following the earnings call.
About Cogent Communications
Cogent Communications (NASDAQ: CCOI) is a multinational, Tier 1 facilities-based ISP. Cogent specializes in providing businesses with high speed Internet access, Ethernet transport, and colocation services. Cogent's facilities-based, all-optical IP network backbone provides services in over 195 markets globally.
Cogent Communications is headquartered at 2450 N Street, NW, Washington, D.C. 20037. For more information, visit www.cogentco.com. Cogent Communications can be reached in the United States at (202) 295-4200 or via email at info@cogentco.com.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
------------------------------------------------------
Summary of Financial and Operational Results
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
------- ------- ------- ------- ------- ------- -------
Metric ($ 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 $87,898
-------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 2.9% 1.1% 2.9% 2.0% 0.1% 2.4% 2.7%
--------------------------- --- --- --- --- --- --- ---
Off-Net revenue $29,356 $30,149 $30,972 $31,861 $33,386 $33,980 $34,865
--------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 3.3% 2.7% 2.7% 2.9% 4.8% 1.8% 2.6%
--------------------------- --- --- --- --- --- --- ---
Non-Core revenue (1) $230 $267 $239 $224 $231 $211 $206
------------------- ---- ---- ---- ---- ---- ---- ----
% Change from previous Qtr. -5.3% 16.1% -10.5% -6.3% 3.1% -8.7% -2.4%
--------------------------- ---- ---- ----- ---- --- ---- ----
Service revenue - total $108,291 $109,955 $113,057 $115,596 $117,203 $119,777 $122,969
----------------------- -------- -------- -------- -------- -------- -------- --------
% Change from previous Qtr. 3.0% 1.5% 2.8% 2.2% 1.4% 2.2% 2.7%
--------------------------- --- --- --- --- --- --- ---
Constant currency total revenue quarterly growth rate - sequential quarters (4) 3.0% 0.9% 3.1% 2.9% 1.6% 1.7% 1.2%
------------------------------------------------------------------------------ --- --- --- --- --- --- ---
Constant currency total revenue quarterly growth rate - year over year quarters (4) 12.2% 11.1% 9.7% 10.2% 8.7% 9.6% 7.7%
---------------------------------------------------------------------------------- ---- ---- --- ---- --- --- ---
Network operations expenses (2) $47,156 $47,727 $48,666 $49,943 $50,551 $50,974 $53,405
------------------------------ ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 3.2% 1.2% 2.0% 2.6% 1.2% 0.8% 4.8%
--------------------------- --- --- --- --- --- --- ---
GAAP gross profit (3) $43,261 $43,479 $45,426 $45,434 $48,003 $49,765 $50,238
-------------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 4.7% 0.5% 4.5% 0.0% 5.7% 3.7% 1.0%
--------------------------- --- --- --- --- --- --- ---
GAAP gross margin (3) 39.9% 39.5% 40.2% 39.3% 41.0% 41.5% 40.9%
-------------------- ---- ---- ---- ---- ---- ---- ----
Non-GAAP gross profit (4) (6) $61,135 $62,228 $64,391 $65,653 $66,652 $68,803 $69,564
---------------------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 2.8% 1.8% 3.5% 2.0% 1.5% 3.2% 1.1%
--------------------------- --- --- --- --- --- --- ---
Non-GAAP gross margin (4) (6) 56.5% 56.6% 57.0% 56.8% 56.9% 57.4% 56.6%
---------------------------- ---- ---- ---- ---- ---- ---- ----
Selling, general and administrative expenses (5) $27,472 $27,278 $27,220 $28,576 $28,925 $28,704 $29,360
----------------------------------------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 11.1% -0.7% -0.2% 5.0% 1.2% -0.8% 2.3%
--------------------------- ---- ---- ---- --- --- ---- ---
Depreciation and amortization expense $17,753 $18,604 $18,804 $20,073 $18,538 $18,897 $19,147
------------------------------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -1.4% 4.8% 1.1% 6.7% -7.6% 1.9% 1.3%
--------------------------- ---- --- --- --- ---- --- ---
Equity-based compensation expense $2,181 $2,687 $2,991 $2,876 $2,647 $3,225 $3,734
--------------------------------- ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. -15.2% 23.2% 11.3% -3.8% -8.0% 21.8% 15.8%
--------------------------- ----- ---- ---- ---- ---- ---- ----
Operating income $15,675 $17,511 $16,063 $14,795 $18,666 $19,000 $17,891
---------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 11.7% -8.3% -7.9% 26.2% 1.8% -5.8%
--------------------------- ---- ---- ---- ---- ---- --- ----
Interest expense $10,065 $10,243 $9,891 $10,602 $11,891 $12,090 $12,266
---------------- ------- ------- ------ ------- ------- ------- -------
% Change from previous Qtr. -2.1% 1.8% -3.4% 7.2% 12.2% 1.7% 1.5%
--------------------------- ---- --- ---- --- ---- --- ---
Net income $3,354 $4,224 $3,459 $3,892 $4,136 $4,317 $3,650
---------- ------ ------ ------ ------ ------ ------ ------
Basic net income per common share $0.08 $0.09 $0.08 $0.09 $0.09 $0.10 $0.08
--------------------------------- ----- ----- ----- ----- ----- ----- -----
Diluted net income per common share $0.08 $0.09 $0.08 $0.09 $0.09 $0.10 $0.08
----------------------------------- ----- ----- ----- ----- ----- ----- -----
Weighted average common shares - basic 44,402,640 44,491,899 44,574,583 44,577,826 44,649,645 44,717,372 44,767,163
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous Qtr. 0.2% 0.2% 0.2% 0.0% 0.2% 0.2% 0.1%
--------------------------- --- --- --- --- --- --- ---
Weighted average common shares - diluted 44,593,710 44,757,494 44,816,860 44,803,782 44,917,014 44,988,655 45,118,607
---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous Qtr. 0.2% 0.4% 0.1% 0.0% 0.3% 0.2% 0.3%
--------------------------- --- --- --- --- --- --- ---
EBITDA (6) $33,663 $34,950 $37,171 $37,077 $37,727 $40,099 $40,204
--------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 3.8% 6.4% -0.3% 1.8% 6.3% 0.3%
--------------------------- ---- --- --- ---- --- --- ---
EBITDA margin 31.1% 31.8% 32.9% 32.1% 32.2% 33.5% 32.7%
------------- ---- ---- ---- ---- ---- ---- ----
Gains on asset related transactions $1,946 $4,439 $687 $667 $2,124 $1,023 $397
----------------------------------- ------ ------ ---- ---- ------ ------ ----
EBITDA, as adjusted (6) $35,609 $39,389 $37,858 $37,744 $39,851 $41,122 $40,601
---------------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 10.6% -3.9% -0.3% 5.6% 3.2% -1.3%
--------------------------- ---- ---- ---- ---- --- --- ----
EBITDA, as adjusted, margin 32.9% 35.8% 33.5% 32.7% 34.0% 34.3% 33.0%
--------------------------- ---- ---- ---- ---- ---- ---- ----
Fees - net neutrality $493 $1,036 $1,315 $432 $2 $188 $824
--------------------- ---- ------ ------ ---- --- ---- ----
Net cash provided by operating activities $27,557 $23,698 $22,833 $33,879 $23,514 $28,045 $28,783
----------------------------------------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 25.3% -14.0% -3.7% 48.4% -30.6% 19.3% 2.6%
--------------------------- ---- ----- ---- ---- ----- ---- ---
Capital expenditures $15,034 $14,260 $8,745 $7,195 $12,249 $12,007 $10,927
-------------------- ------- ------- ------ ------ ------- ------- -------
% Change from previous Qtr. 203.0% -5.1% -38.7% -17.7% 70.2% -2.0% -9.0%
--------------------------- ----- ---- ----- ----- ---- ---- ----
Principal payments on capital leases $3,369 $3,935 $2,354 $2,808 $3,854 $2,194 $3,320
------------------------------------ ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 2.9% 16.8% -40.2% 19.3% 37.3% -43.1% 51.3%
--------------------------- --- ---- ----- ---- ---- ----- ----
Dividends paid $16,171 $16,671 $17,169 $18,199 $18,999 $19,946 $20,879
-------------- ------- ------- ------- ------- ------- ------- -------
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 4.57
-------------------- ---- ---- ---- ---- ---- ---- ----
Net Leverage Ratio 2.97 2.88 2.90 2.90 2.94 2.98 3.00
------------------ ---- ---- ---- ---- ---- ---- ----
Customer Connections - end of period
------------------------------------
On-Net 47,252 49,243 51,079 52,874 54,805 57,307 59,357
------ ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 3.9% 4.2% 3.7% 3.5% 3.7% 4.6% 3.6%
--------------------------- --- --- --- --- --- --- ---
Off-Net 7,654 7,971 8,259 8,598 9,055 9,355 9,724
------- ----- ----- ----- ----- ----- ----- -----
% Change from previous Qtr. 5.2% 4.1% 3.6% 4.1% 5.3% 3.1% 4.2%
--------------------------- --- --- --- --- --- --- ---
Non-Core (1) 450 349 386 350 383 340 336
----------- --- --- --- --- --- --- ---
% Change from previous Qtr. 12.5% -22.4% 10.6% -9.3% 9.4% -11.2% -1.2%
--------------------------- ---- ----- ---- ---- --- ----- ----
Total customer connections 55,356 57,563 59,724 61,822 64,243 66,982 69,417
-------------------------- ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 4.1% 4.0% 3.8% 3.5% 3.9% 4.3% 3.6%
--------------------------- --- --- --- --- --- --- ---
On-Net Buildings - end of period
--------------------------------
Multi-Tenant office buildings 1,545 1,560 1,577 1,592 1,601 1,618 1,635
----------------------------- ----- ----- ----- ----- ----- ----- -----
Carrier neutral data center buildings 675 686 706 729 752 767 784
------------------------------------- --- --- --- --- --- --- ---
Cogent data centers 51 51 51 52 53 53 53
------------------- --- --- --- --- --- --- ---
Total on-net buildings 2,271 2,297 2,334 2,373 2,406 2,438 2,472
---------------------- ----- ----- ----- ----- ----- ----- -----
Square feet - multi-tenant office buildings - on-net 834,341,216 840,042,330 847,266,071 858,958,167 864,432,176 872,293,092 881,184,145
---------------------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Network - end of period
------------------------
Intercity route miles 56,183 56,183 56,684 57,213 57,213 57,403 57,403
--------------------- ------ ------ ------ ------ ------ ------ ------
Metro fiber miles 28,316 28,874 29,326 29,536 30,190 30,516 31,071
----------------- ------ ------ ------ ------ ------ ------ ------
Connected networks - AS's 5,617 5,700 5,834 5,927 5,949 5,983 6,076
------------------------- ----- ----- ----- ----- ----- ----- -----
Headcount - end of period
-------------------------
Sales force - quota bearing 398 397 394 422 432 434 444
--------------------------- --- --- --- --- --- --- ---
Sales force - total 517 519 516 542 554 559 565
------------------- --- --- --- --- --- --- ---
Total employees 855 854 858 887 900 909 919
--------------- --- --- --- --- --- --- ---
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 5.7
----------------------------------------------------------------------------------- --- --- --- --- --- --- ---
FTE - sales reps 373 373 377 384 416 410 420
---------------- --- --- --- --- --- --- ---
(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,
$141 and $179 in the three month
periods ended March 31, 2016
through September 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, $2,672 and $2,691
in the three month periods ended
March 31, 2016 through September
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, $3,084 and $3,555
in the three month periods ended
March 31, 2016 through September
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 Q3
2016 2016 2016 2016 2016
2017 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 $28,783
----------------------------------------------- ------- ------- ------- ------- -------- ------- ------- -------
Changes in operating assets and liabilities (3,681) 1,755 4,737 (6,781) (3,968) 3,192 950 721
------------------------------------------- ------ ----- ----- ------ ------ ----- --- ---
Cash interest expense and income tax expense 9,787 9,497 9,601 9,979 38,861 11,021 11,104 10,700
-------------------------------------------- ----- ----- ----- ----- ------ ------ ------ ------
EBITDA $33,663 $34,950 $37,171 $37,077 $142,860 $37,727 $40,099 $40,204
------ ------- ------- ------- ------- -------- ------- ------- -------
PLUS: Gains on asset related transactions 1,946 4,439 687 667 7,739 2,124 1,023 397
----------------------------------------- ----- ----- --- --- ----- ----- ----- ---
EBITDA, as adjusted $35,609 $39,389 $37,858 $37,744 $150,599 $39,851 $41,122 $40,601
------------------- ------- ------- ------- ------- -------- ------- ------- -------
EBITDA margin 31.1% 31.8% 32.9% 32.1% 32.0% 32.2% 33.5% 32.7%
------------- ---- ---- ---- ---- ---- ---- ---- ----
EBITDA, as adjusted, margin 32.9% 35.8% 33.5% 32.7% 33.7% 34.0% 34.3% 33.0%
--------------------------- ---- ---- ---- ---- ---- ---- ---- ----
Constant currency revenue is reconciled to service revenue as reported in the tables below.
Constant currency impact on revenue changes - sequential periods
($ in 000's) - unaudited Q1 Q2 Q3 Q4 Year Q1 Q2 Q3
2016 2016 2016 2016 2016 2017 2017 2017
--- ---- ---- ---- ---- ---- ---- ---- ----
Service revenue, as reported - current period $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777 $122,969
--------------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Impact of foreign currencies on service revenue (10) (709) 273 749 892 195 (531) (1,701)
----------------------------------------------- --- ---- --- --- --- --- ---- ------
Service revenue - as adjusted for currency impact (1) $108,281 $109,246 $113,330 $116,345 $447,792 $117,398 $119,246 $121,268
----------------------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Service revenue, as reported - prior sequential period $105,177 $108,291 $109,955 $113,057 $404,234 $115,596 $117,203 $119,777
------------------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
Constant currency increase $3,104 $955 $3,375 $3,288 $43,558 $1,802 $2,043 $1,491
-------------------------- ------ ---- ------ ------ ------- ------ ------ ------
Constant currency percent increase 3.0% 0.9% 3.1% 2.9% 10.8% 1.6% 1.7% 1.2%
---------------------------------- --- --- --- --- ---- --- --- ---
(1) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the prior
sequential period. The Company
believes that disclosing
quarterly sequential revenue
growth without the impact of
foreign currencies on service
revenue is a useful measure of
sequential revenue growth.
Service revenue, as adjusted for
currency impact, is an integral
part of the internal reporting
and planning system used by
management as a supplement to
GAAP financial information.
Constant currency impact on revenue changes - prior year periods
($ in 000's) - unaudited Q1 Q2 Q3 Q4 Year Q1 Q2 Q3
2016 2016 2016 2016 2016 2017 2017 2017
--- ---- ---- ---- ---- ---- ---- ---- ----
Service revenue, as reported - current period $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777 $122,969
--------------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Impact of foreign currencies on service revenue 855 (168) (68) 276 892 503 743 (1,257)
----------------------------------------------- --- ---- --- --- --- --- --- ------
Service revenue - as adjusted for currency impact (2) $109,146 $109,787 $112,989 $115,872 $447,792 $117,706 $120,520 $121,712
----------------------------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Service revenue, as reported - prior year period $97,242 $98,799 $103,017 $105,177 $404,234 $108,291 $109,955 $113,057
------------------------------------------------ ------- ------- -------- -------- -------- -------- -------- --------
Constant currency increase $11,904 $10,988 $9,972 $10,695 $43,558 $9,415 $10,565 $8,655
-------------------------- ------- ------- ------ ------- ------- ------ ------- ------
Percent increase 12.2% 11.1% 9.7% 10.2% 10.8% 8.7% 9.6% 7.7%
---------------- ---- ---- --- ---- ---- --- --- ---
(2) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the
comparable prior year period.
The Company believes that
disclosing year over year
revenue growth without the
impact of foreign currencies on
service revenue is a useful
measure of revenue growth.
Service revenue, as adjusted for
currency impact, is an integral
part of the internal reporting
and planning system used by
management as a supplement to
GAAP financial information.
Non-GAAP gross profit and Non-GAAP gross margin
Non-GAAP gross profit and Non-GAAP gross margin are reconciled to GAAP gross profit and GAAP gross margin in the table below.
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Year 2016 Q1 2017 Q2 2017 Q3 2017
------- ------- ------- ------- --------- ------- ------- -------
($ in 000's) - unaudited
------------------------
Service revenue total $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777 $122,969
--------------------- -------- -------- -------- -------- -------- -------- -------- --------
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 72,731
-------------------------------------------- ------ ------ ------ ------ ------- ------ ------ ------
GAAP Gross Profit (1) $43,261 $43,479 $45,426 $45,434 $177,601 $48,003 $49,765 $50,238
-------------------- ------- ------- ------- ------- -------- ------- ------- -------
Plus - Equity-based compensation - network
operations expense 121 145 161 146 573 111 141 179
------------------------------------------- --- --- --- --- --- --- --- ---
Plus - Depreciation and amortization expense 17,753 18,604 18,804 20,073 75,234 18,538 18,897 19,147
-------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Non-GAAP Gross Profit (2) $61,135 $62,228 $64,391 $65,653 $253,408 $66,652 $68,803 $69,564
------------------------ ------- ------- ------- ------- -------- ------- ------- -------
GAAP Gross Margin (1) 39.9% 39.5% 40.2% 39.3% 39.7% 41.0% 41.5% 40.9%
-------------------- ---- ---- ---- ---- ---- ---- ---- ----
Non-GAAP Gross Margin (2) 56.5% 56.6% 57.0% 56.8% 56.7% 56.9% 57.4% 56.6%
------------------------ ---- ---- ---- ---- ---- ---- ---- ----
(1) GAAP gross profit is defined as
total service revenue less network
operations expense, depreciation
and amortization and equity based
compensation included in network
operations expense. GAAP gross
margin is defined as GAAP gross
profit divided by total service
revenue.
(2) Non-GAAP gross profit represents
service revenue less network
operations expense, excluding
equity-based compensation and
amounts shown separately
(depreciation and amortization
expense). Non-GAAP gross margin
is defined as non-GAAP gross
profit divided by total service
revenue. Management believes that
non-GAAP gross profit and non-
GAAP gross margin are relevant
metrics to provide to investors,
as they are metrics that
management uses to measure the
margin and amount available to the
Company after network service
costs, in essence these are
measures of the efficiency of the
Company's network.
Gross and Net Leverage Ratios
Gross leverage ratio is defined as total debt divided by the trailing last 12 months EBITDA, as adjusted. Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the trailing last 12 months EBITDA, as adjusted. Cogent's gross leverage ratio was 4.62 at June 30, 2017 and 4.57 at September 30, 2017 and Cogent's net leverage ratio was 2.98 at June 30, 2017 and 3.00 at September 30, 2017 and as shown below.
($ in 000's) -
unaudited As of June 30, 2017 As of September 30, 2017
-------------- ------------------- ------------------------
Cash and cash
equivalents $256,492 $250,765
------------- -------- --------
Debt
----
Capital leases -
current portion 7,635 6,698
---------------- ----- -----
Capital leases -
long term 142,155 147,623
---------------- ------- -------
Senior unsecured
notes 189,225 189,225
---------------- ------- -------
Senior secured
notes 375,000 375,000
-------------- ------- -------
Note payable 9,445 9,915
------------ ----- -----
Total debt 723,460 728,461
---------- ------- -------
Total net debt 466,968 477,696
-------------- ------- -------
Trailing 12 months
EBITDA, as
adjusted 156,575 159,318
------------------ ------- -------
Gross leverage
ratio 4.62 4.57
-------------- ---- ----
Net leverage ratio 2.98 3.00
------------------ ---- ----
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 SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2017 2016
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $250,765 $274,319
Accounts receivable, net of allowance for doubtful accounts of $2,044 and $1,734, respectively 39,118 33,598
Prepaid expenses and other current assets 20,427 19,706
------ ------
Total current assets 310,310 327,623
Property and equipment, net 381,010 361,641
Deferred tax assets, net 32,668 42,241
Deposits and other assets - $727 and $128 restricted, respectively 5,872 6,387
----- -----
Total assets $729,860 $737,892
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $12,314 $11,551
Accrued and other current liabilities 47,449 47,149
Installment payment agreement, current portion, net of discount of $309 and $204, respectively 7,090 2,587
Current maturities, capital lease obligations 6,698 6,626
----- -----
Total current liabilities 73,551 67,913
Senior secured 2022 notes, net of unamortized debt costs of $1,969 and $2,257, respectively and including premium of $402 and $462, respectively 373,433 373,205
Senior unsecured 2021 notes, net of unamortized debt costs of $2,200 and $2,575, respectively 187,025 186,650
Capital lease obligations, net of current maturities 147,623 135,335
Other long term liabilities 28,351 28,043
------ ------
Total liabilities 809,983 791,146
------- -------
Commitments and contingencies:
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 45,946,226 and 45,478,787 shares issued and outstanding, respectively 46 45
Additional paid-in capital 452,369 442,799
Accumulated other comprehensive income - foreign currency translation (5,912) (17,193)
Accumulated deficit (526,626) (478,905)
-------- --------
Total stockholders' deficit (80,123) (53,254)
------- -------
Total liabilities and stockholders' deficit $729,860 $737,892
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Three Months
Ended Ended
September 30, 2017 September 30, 2016
------------------ ------------------
(Unaudited) (Unaudited)
Service revenue $122,969 $113,057
Operating expenses:
Network operations (including $179 and $161 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown
separately below) 53,584 48,827
Selling, general, and administrative (including $3,555 and $2,830 of equity-based compensation expense, respectively) 32,915 30,050
Depreciation and amortization 19,147 18,804
------ ------
Total operating expenses 105,646 97,681
Gains on equipment transactions 397 687
--- ---
Operating income 17,720 16,063
Interest income and other, net 1,632 207
Interest expense (12,266) (9,891)
------- ------
Income before income taxes 7,086 6,379
Income tax provision (3,436) (2,920)
------ ------
Net income $3,650 $3,459
====== ======
Comprehensive income:
Net income $3,650 $3,459
Foreign currency translation adjustment 3,790 688
----- ---
Comprehensive income $7,440 $4,147
====== ======
Net income per common share:
Basic and diluted net income per common share $0.08 $0.08
Dividends declared per common share $0.46 $0.38
Weighted-average common shares - basic 44,767,163 44,574,583
Weighted-average common shares - diluted 45,118,607 44,816,860
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Nine Months Nine Months
Ended Ended
September 30, 2017 September 30, 2016
------------------ ------------------
(Unaudited) (Unaudited)
Service revenue $359 ,949 $331,304
Operating expenses:
Network operations (including $431 and $427 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown
separately below) 155,362 143,976
Selling, general, and administrative (including $9,175 and $7,432 of equity-based compensation expense, respectively) 96,165 89,403
Depreciation and amortization 56,583 55,161
------ ------
Total operating expenses 308,110 288,540
Losses on debt purchases and installment loan repayment - (587)
Gains on equipment transactions 3,543 7,071
----- -----
Operating income 55,382 49,248
Interest income and other, net 3,502 677
Interest expense (36,245) (30,200)
------- -------
Income before income taxes 22,639 19,725
Income tax provision (10,536) (8,688)
------- ------
Net income $12,103 $11,037
======= =======
Comprehensive income:
Net income $12,103 $11,037
Foreign currency translation adjustment 11,281 2,795
------ -----
Comprehensive income $23,384 $13,832
======= =======
Net income per common share:
Basic and diluted net income per common share $0.27 $0.25
Dividends declared per common share $1.32 $1.11
Weighted-average common shares - basic 44,787,067 44,563,279
Weighted-average common shares - diluted 45,083,765 44,796,259
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016
(IN THOUSANDS)
Three months Three months
Ended Ended
September 30, 2017 September 30, 2016
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $3,650 $3,459
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 19,148 18,804
Amortization of debt discount 332 183
Equity-based compensation expense (net of amounts capitalized) 3,734 2,991
Gains - equipment transactions and other, net (766) (645)
Deferred income taxes 3,209 2,820
Changes in operating assets and liabilities:
Accounts receivable (3,976) (1,033)
Prepaid expenses and other current assets 1,845 179
Accounts payable, accrued liabilities and other long-term liabilities 673 (4,265)
Deposits and other assets 934 340
--- ---
Net cash provided by operating activities 28,783 22,833
------ ------
Cash flows from investing activities:
Purchases of property and equipment (10,927) (8,745)
------- ------
Net cash used in investing activities (10,927) (8,745)
------- ------
Cash flows from financing activities:
Dividends paid (20,879) (17,169)
Purchases of common stock - (1,666)
Proceeds from exercises of stock options 433 264
Principal payments on installment payment agreement (1,232) -
Principal payments of capital lease obligations (3,320) (2,354)
------ ------
Net cash used in financing activities (24,998) (20,925)
------- -------
Effect of exchange rates changes on cash 1,415 21
----- ---
Net decrease in cash and cash equivalents (5,727) (6,816)
Cash and cash equivalents, beginning of period 256,492 154,967
------- -------
Cash and cash equivalents, end of period $250,765 $148,151
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016
(IN THOUSANDS)
Nine months Nine months
Ended Ended
September 30, 2017 September 30, 2016
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $12,103 $11,037
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 56,583 55,161
Amortization of debt discount and premium 899 879
Equity-based compensation expense (net of amounts capitalized) 9,606 7,859
Losses on debt purchases and installment loan repayment - 587
Gains - equipment transactions and other, net (4,394) (7,124)
Deferred income taxes 9,835 8,453
Changes in operating assets and liabilities:
Accounts receivable (4,317) (2,478)
Prepaid expenses and other current assets 645 (3,256)
Accounts payable, accrued liabilities and other long-term liabilities (1,411) 4,499
Deposits and other assets 793 (1,529)
--- ------
Net cash provided by operating activities 80,342 74,088
------ ------
Cash flows from investing activities:
Purchases of property and equipment (35,183) (38,039)
------- -------
Net cash used in investing activities (35,183) (38,039)
------- -------
Cash flows from financing activities:
Dividends paid (59,824) (50,011)
Purchases of common stock (1,829) (1,666)
Purchases of senior secured 2021 notes - (10,775)
Proceeds from exercises of stock options 919 894
Principal payments on installment payment agreement (2,183) (21,203)
Principal payments of capital lease obligations (9,368) (9,658)
------ ------
Net cash used in financing activities (72,285) (92,419)
------- -------
Effect of exchange rates changes on cash 3,572 930
----- ---
Net decrease in cash and cash equivalents (23,554) (55,440)
Cash and cash equivalents, beginning of period 274,319 203,591
------- -------
Cash and cash equivalents, end of period $250,765 $148,151
======== ========
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 September 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.
