Cogent Communications Reports Fourth Quarter 2017 and Full Year 2017 Results and Increases Regular Quarterly Dividend on Common Stock
WASHINGTON, Feb. 22, 2018 /PRNewswire/ --
Financial and Business Highlights
-- Cogent approves a 4.2% increase of $0.02 per share to its regular
quarterly dividend to $0.50 per common share to be paid on March 26,
2018 to shareholders of record on March 9, 2018
-- Dividends for 2017 totaled $81.7 million, or $1.80 per share, with 50.2%
treated as a return of capital and 49.8% treated as dividends for US
federal income tax purposes
-- Service revenue increased by 1.8% from Q3 2017 to Q4 2017 to $125.2
million, increased from Q4 2016 to Q4 2017 by 8.3% and increased from
fully year 2016 to full year 2017 by 8.6% to $485.2 million
-- Cash flow from operations for Q4 2017 increased by 9.0% from Q3 2017 to
$31.4 million and increased from full year 2016 to full year 2017 by
3.5% to $111.7 million
-- EBITDA increased by 7.6% from Q3 2017 to Q4 2017 to $43.2 million,
increased from Q4 2016 to Q4 2017 by 16.6% and increased from full year
2016 to full year 2017 by 12.9% to $161.3 million
-- EBITDA margin for Q4 2017 increased by 240 basis points to 34.5% from Q4
2016 and increased by 180 basis points from Q3 2017
-- GAAP gross profit increased by 12.6% from full year 2016 to $200.0
million for full year 2017 and GAAP gross margin increased by 150 basis
points to 41.2% from full year 2016 to full year 2017
Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $125.2 million for the three months ended December 31, 2017, an increase of 8.3% from the three months ended December 31, 2016 and an increase of 1.8% from the three months ended September 30, 2017. Service revenue was $485.2 million for the year ended December 31, 2017, an increase of 8.6% from the year ended December 31, 2016. Foreign exchange had no impact on service revenue growth from the three months ended September 30, 2017 to the three months ended December 31, 2017. Foreign exchange positively impacted service revenue growth from the three months ended December 31, 2016 to the three months ended December 31, 2017 by $2.1 million and positively impacted service revenue growth from the year ended December 31, 2016 to the year ended December 31, 2017 by $1.9 million. On a constant currency basis, service revenue grew by 1.8% from the three months ended September 30, 2017 to the three months ended December 31, 2017, grew by 6.6% from the three months ended December 31, 2016 to the three months ended December 31, 2017 and grew by 8.1% from the year ended December 31, 2016 to the year ended December 31, 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 $89.4 million for the three months ended December 31, 2017; an increase of 1.7% from the three months ended September 30, 2017 and an increase of 7.0% over the three months ended December 31, 2016. On-net revenue was $346.4 million for the year ended December 31, 2017; an increase of 7.1% over the year ended December 31, 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 $35.7 million for the three months ended December 31, 2017; an increase of 2.3% over the three months ended September 30, 2017 and an increase of 11.9% over the three months ended December 31, 2016. Off-net revenue was $137.9 million for the year ended December 31, 2017; an increase of 12.7% over the year ended December 31, 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 14.4% from the three months ended December 31, 2016 to $52.0 million for the three months ended December 31, 2017 and increased by 3.4% from the three months ended September 30, 2017. GAAP gross profit increased by 12.6% from the year ended December 31, 2016 to $200.0 million for the year ended December 31, 2017. GAAP gross margin was 41.5% for the three months ended December 31, 2017, 39.3% for the three months ended December 31, 2016 and 40.9% for the three months ended September 30, 2017. GAAP gross margin was 41.2% for the year ended December 31, 2017, and 39.7% for the year ended December 31, 2016. Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $2.9 million for the three months ended December 31, 2017, $2.7 million for the three months ended September 30, 2017, $2.5 million for the three months ended December 31, 2016, $9.1 million for the year ended December 31, 2016 and $10.9 million for the year ended December 31, 2017.
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 8.9% from the three months ended December 31, 2016 to $71.5 million for the three months ended December 31, 2017 and increased by 2.8% from the three months ended September 30, 2017. Non-GAAP gross profit increased by 9.1% from the year ended December 31, 2016 to $276.5 million for the year ended December 31, 2017. Non-GAAP gross profit margin was 57.1% for the three months ended December 31, 2017, 56.8% for the three months ended December 31, 2016 and 56.6% for the three months ended September 30, 2017. Non-GAAP gross margin was 57.0% for the year ended December 31, 2017, and 56.7% for the year ended December 31, 2016.
Cash flow from operating activities decreased by 7.4% from the three months ended December 31, 2016 to $31.4 million for the three months ended December 31, 2017 and increased by 9.0% from the three months ended September 30, 2017. Cash flow from operating activities increased by 3.5% from the year ended December 31, 2016 to $111.7 million for the year ended December 31, 2017.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 16.6% from the three months ended December 31, 2016 to $43.2 million for the three months ended December 31, 2017 and increased by 7.6% from the three months ended September 30, 2017. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 12.9% from the year ended December 31, 2016 to $161.3 million for the year ended December 31, 2017. EBITDA margin was 34.5% for the three months ended December 31, 2017, 32.1% for the three months ended December 31, 2016 and 32.7% for the three months ended September 30, 2017. EBITDA margin was 33.2% for the year ended December 31, 2017 and 32.0% for the year ended December 31, 2016.
EBITDA, as adjusted, increased by 15.4% from the three months ended December 31, 2016 to $43.6 million for the three months ended December 31, 2017 and increased by 7.3% from the three months ended September 30, 2017. EBITDA, as adjusted, increased by 9.7% from the year ended December 31, 2016 to $165.1 million for the year ended December 31, 2017. EBITDA, as adjusted, margin was 34.8% for the three months ended December 31, 2017, 32.7% for the three months ended December 31, 2016 and 33.0% for the three months ended September 30, 2017. EBITDA, as adjusted, margin was 34.0% for the year ended December 31, 2017 and was 33.7% for the year ended December 31, 2016.
Basic and diluted net (loss) income per share was $(0.14) for the three months ended December 31, 2017, $0.09 for the three months ended December 31, 2016 and $0.08 for the three months ended September 30, 2017. Basic and diluted net income per share was $0.13 for the year ended December 31, 2017 and $0.33 for the year ended December 31, 2016. The signing of the Tax Cuts and Jobs Act in December 2017 that amended the Internal Revenue Code and reduced the corporate tax rate from a maximum of 35% to a flat 21% rate increased Cogent's non-cash deferred income tax expense by approximately $11.3 million in the three months and year ended December 31, 2017. This represents a (loss) of $(0.25) per basic and diluted share for the three months ended December 31, 2017 a (loss) of $(0.25) per basic and diluted share for the year ended December 31, 2017.
Total customer connections increased by 15.8% from December 31, 2016 to 71,613 as of December 31, 2017 and increased by 3.2% from September 30, 2017. On-net customer connections increased by 16.0% from December 31, 2016 to 61,334 as of December 31, 2017 and increased by 3.3% from September 30, 2017. Off-net customer connections increased by 15.8% from December 31, 2016 to 9,953 as of December 31, 2017 and increased by 2.4% from September 30, 2017.
The number of on-net buildings increased by 133 on-net buildings from December 31, 2016 to 2,506 on-net buildings as of December 31, 2017 and increased by 34 on-net buildings from September 30, 2017.
Quarterly Dividend Increase Approved
On February 21, 2018, Cogent's board approved a regular quarterly dividend of $0.50 per common share payable on March 26, 2018 to shareholders of record on March 9, 2018. This first quarter 2018 regular dividend represents a 4.2% increase of $0.02 per share from the fourth quarter 2017 regular dividend of $0.48 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.
Tax Treatment of 2017 Dividends
Cogent paid four quarterly dividends in 2017 totaling $81.7 million, or $1.80 per share. The expected tax treatment of these dividends are generally that 50.2% are treated as a return of capital and 49.8% are generally treated as dividends for United States federal income tax purposes. While the above information includes general statements about the tax classification of dividends paid on Cogent common stock, these statements do not constitute tax advice. The taxation of corporate distributions can be complex, and stockholders are encouraged to consult their tax advisers to determine what impact the above information may have on their specific tax situation.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on February 22, 2018 to discuss Cogent's operating results for the fourth quarter of 2017 and full year 2017 and to discuss Cogent's expectations for full year 2018. 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.
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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 Q4 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 $89,374
-------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 2.9% 1.1% 2.9% 2.0% 0.1% 2.4% 2.7% 1.7%
--------------------------- --- --- --- --- --- --- --- ---
Off-Net revenue $29,356 $30,149 $30,972 $31,861 $33,386 $33,980 $34,865 $35,662
--------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 3.3% 2.7% 2.7% 2.9% 4.8% 1.8% 2.6% 2.3%
--------------------------- --- --- --- --- --- --- --- ---
Non-Core revenue (1) $230 $267 $239 $224 $231 $211 $206 $190
------------------- ---- ---- ---- ---- ---- ---- ---- ----
% Change from previous Qtr. -5.3% 16.1% -10.5% -6.3% 3.1% -8.7% -2.4% -7.8%
--------------------------- ---- ---- ----- ---- --- ---- ---- ----
Service revenue - total $108,291 $109,955 $113,057 $115,596 $117,203 $119,777 $122,969 $125,226
----------------------- -------- -------- -------- -------- -------- -------- -------- --------
% Change from previous Qtr. 3.0% 1.5% 2.8% 2.2% 1.4% 2.2% 2.7% 1.8%
--------------------------- --- --- --- --- --- --- --- ---
Constant currency total revenue quarterly growth rate - sequential quarters (4) 3.0% 0.9% 3.1% 2.9% 1.6% 1.7% 1.2% 1.8%
------------------------------------------------------------------------------ --- --- --- --- --- --- --- ---
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% 6.6%
---------------------------------------------------------------------------------- ---- ---- --- ---- --- --- --- ---
Network operations expenses (2) $47,156 $47,727 $48,666 $49,943 $50,551 $50,974 $53,405 $53,745
------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 3.2% 1.2% 2.0% 2.6% 1.2% 0.8% 4.8% 0.6%
--------------------------- --- --- --- --- --- --- --- ---
GAAP gross profit (3) $43,261 $43,479 $45,426 $45,434 $48,003 $49,765 $50,238 $51,964
-------------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 4.7% 0.5% 4.5% 0.0% 5.7% 3.7% 1.0% 3.4%
--------------------------- --- --- --- --- --- --- --- ---
GAAP gross margin (3) 39.9% 39.5% 40.2% 39.3% 41.0% 41.5% 40.9% 41.5%
-------------------- ---- ---- ---- ---- ---- ---- ---- ----
Non-GAAP gross profit (4) (6) $61,135 $62,228 $64,391 $65,653 $66,652 $68,803 $69,564 $71,481
---------------------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 2.8% 1.8% 3.5% 2.0% 1.5% 3.2% 1.1% 2.8%
--------------------------- --- --- --- --- --- --- --- ---
Non-GAAP gross margin (4) (6) 56.5% 56.6% 57.0% 56.8% 56.9% 57.4% 56.6% 57.1%
---------------------------- ---- ---- ---- ---- ---- ---- ---- ----
Selling, general and administrative expenses (5) $27,472 $27,278 $27,220 $28,576 $28,925 $28,704 $29,360 $28,238
----------------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 11.1% -0.7% -0.2% 5.0% 1.2% -0.8% 2.3% -3.8%
--------------------------- ---- ---- ---- --- --- ---- --- ----
Depreciation and amortization expense $17,753 $18,604 $18,804 $20,073 $18,538 $18,897 $19,147 $19,344
------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -1.4% 4.8% 1.1% 6.7% -7.6% 1.9% 1.3% 1.0%
--------------------------- ---- --- --- --- ---- --- --- ---
Equity-based compensation expense $2,181 $2,687 $2,991 $2,876 $2,647 $3,225 $3,734 $3,684
--------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. -15.2% 23.2% 11.3% -3.8% -8.0% 21.8% 15.8% -1.3%
--------------------------- ----- ---- ---- ---- ---- ---- ---- ----
Operating income $15,675 $17,511 $16,063 $14,795 $18,666 $19,000 $17,891 $20,534
---------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 11.7% -8.3% -7.9% 26.2% 1.8% -5.8% 14.8%
--------------------------- ---- ---- ---- ---- ---- --- ---- ----
Interest expense $10,065 $10,243 $9,891 $10,602 $11,891 $12,090 $12,266 $12,222
---------------- ------- ------- ------ ------- ------- ------- ------- -------
% Change from previous Qtr. -2.1% 1.8% -3.4% 7.2% 12.2% 1.7% 1.5% -0.4%
--------------------------- ---- --- ---- --- ---- --- --- ----
Net income (loss) $3,354 $4,224 $3,459 $3,892 $4,136 $4,317 $3,650 $(6,227)
---------------- ------ ------ ------ ------ ------ ------ ------ -------
Basic net income (loss) per common share $0.08 $0.09 $0.08 $0.09 $0.09 $0.10 $0.08 $(0.14)
---------------------------------------- ----- ----- ----- ----- ----- ----- ----- ------
Diluted net income (loss) per common share $0.08 $0.09 $0.08 $0.09 $0.09 $0.10 $0.08 $(0.14)
------------------------------------------ ----- ----- ----- ----- ----- ----- ----- ------
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 44,844,469
-------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous Qtr. 0.2% 0.2% 0.2% 0.0% 0.2% 0.2% 0.1% 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 45,118,607 44,844,469
---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous Qtr. 0.2% 0.4% 0.1% 0.0% 0.3% 0.2% 0.3% -0.6%
--------------------------- --- --- --- --- --- --- --- ----
EBITDA (6) $33,663 $34,950 $37,171 $37,077 $37,727 $40,099 $40,204 $43,243
--------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 3.8% 6.4% -0.3% 1.8% 6.3% 0.3% 7.6%
--------------------------- ---- --- --- ---- --- --- --- ---
EBITDA margin 31.1% 31.8% 32.9% 32.1% 32.2% 33.5% 32.7% 34.5%
------------- ---- ---- ---- ---- ---- ---- ---- ----
Gains on asset related transactions $1,946 $4,439 $687 $667 $2,124 $1,023 $397 $319
----------------------------------- ------ ------ ---- ---- ------ ------ ---- ----
EBITDA, as adjusted (6) $35,609 $39,389 $37,858 $37,744 $39,851 $41,122 $40,601 $43,562
---------------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. -3.1% 10.6% -3.9% -0.3% 5.6% 3.2% -1.3% 7.3%
--------------------------- ---- ---- ---- ---- --- --- ---- ---
EBITDA, as adjusted, margin 32.9% 35.8% 33.5% 32.7% 34.0% 34.3% 33.0% 34.8%
--------------------------- ---- ---- ---- ---- ---- ---- ---- ----
Fees - net neutrality $493 $1,036 $1,315 $432 $2 $188 $824 $260
--------------------- ---- ------ ------ ---- --- ---- ---- ----
Net cash provided by operating activities $27,557 $23,698 $22,833 $33,879 $23,514 $28,045 $28,783 $31,360
----------------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
% Change from previous Qtr. 25.3% -14.0% -3.7% 48.4% -30.6% 19.3% 2.6% 9.0%
--------------------------- ---- ----- ---- ---- ----- ---- --- ---
Capital expenditures $15,034 $14,260 $8,745 $7,195 $12,249 $12,007 $10,927 $10,618
-------------------- ------- ------- ------ ------ ------- ------- ------- -------
% Change from previous Qtr. 203.0% -5.1% -38.7% -17.7% 70.2% -2.0% -9.0% -2.8%
--------------------------- ----- ---- ----- ----- ---- ---- ---- ----
Principal payments on capital leases $3,369 $3,935 $2,354 $2,808 $3,854 $2,194 $3,320 $1,833
------------------------------------ ------ ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 2.9% 16.8% -40.2% 19.3% 37.3% -43.1% 51.3% -44.8%
--------------------------- --- ---- ----- ---- ---- ----- ---- -----
Dividends paid $16,171 $16,671 $17,169 $18,199 $18,999 $19,946 $20,879 $21,833
-------------- ------- ------- ------- ------- ------- ------- ------- -------
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 4.44
-------------------- ---- ---- ---- ---- ---- ---- ---- ----
Net Leverage Ratio 2.97 2.88 2.90 2.90 2.94 2.98 3.00 2.94
------------------ ---- ---- ---- ---- ---- ---- ---- ----
Customer Connections - end of period
------------------------------------
On-Net 47,252 49,243 51,079 52,874 54,805 57,307 59,357 61,334
------ ------ ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 3.9% 4.2% 3.7% 3.5% 3.7% 4.6% 3.6% 3.3%
--------------------------- --- --- --- --- --- --- --- ---
Off-Net 7,654 7,971 8,259 8,598 9,055 9,355 9,724 9,953
------- ----- ----- ----- ----- ----- ----- ----- -----
% Change from previous Qtr. 5.2% 4.1% 3.6% 4.1% 5.3% 3.1% 4.2% 2.4%
--------------------------- --- --- --- --- --- --- --- ---
Non-Core (1) 450 349 386 350 383 340 336 326
----------- --- --- --- --- --- --- --- ---
% Change from previous Qtr. 12.5% -22.4% 10.6% -9.3% 9.4% -11.2% -1.2% -3.0%
--------------------------- ---- ----- ---- ---- --- ----- ---- ----
Total customer connections 55,356 57,563 59,724 61,822 64,243 66,982 69,417 71,613
-------------------------- ------ ------ ------ ------ ------ ------ ------ ------
% Change from previous Qtr. 4.1% 4.0% 3.8% 3.5% 3.9% 4.3% 3.6% 3.2%
--------------------------- --- --- --- --- --- --- --- ---
On-Net Buildings - end of period
--------------------------------
Multi-Tenant office buildings 1,545 1,560 1,577 1,592 1,601 1,618 1,635 1,653
----------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Carrier neutral data center buildings 675 686 706 729 752 767 784 800
------------------------------------- --- --- --- --- --- --- --- ---
Cogent data centers 51 51 51 52 53 53 53 53
------------------- --- --- --- --- --- --- --- ---
Total on-net buildings 2,271 2,297 2,334 2,373 2,406 2,438 2,472 2,506
---------------------- ----- ----- ----- ----- ----- ----- ----- -----
Square feet - multi-tenant office buildings - on-net 834,341,216 840,042,330 847,266,071 858,958,167 864,432,176 872,293,092 881,184,145 893,580,297
---------------------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Network - end of period
------------------------
Intercity route miles 56,183 56,183 56,684 57,213 57,213 57,403 57,403 57,403
--------------------- ------ ------ ------ ------ ------ ------ ------ ------
Metro fiber miles 28,316 28,874 29,326 29,536 30,190 30,516 31,071 31,254
----------------- ------ ------ ------ ------ ------ ------ ------ ------
Connected networks - AS's 5,617 5,700 5,834 5,927 5,949 5,983 6,076 6,152
------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Headcount - end of period
-------------------------
Sales force - quota bearing 398 397 394 422 432 434 444 455
--------------------------- --- --- --- --- --- --- --- ---
Sales force - total 517 519 516 542 554 559 565 574
------------------- --- --- --- --- --- --- --- ---
Total employees 855 854 858 887 900 909 919 929
--------------- --- --- --- --- --- --- --- ---
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 5.8
----------------------------------------------------------------------------------- --- --- --- --- --- --- --- ---
FTE - sales reps 373 373 377 384 416 410 420 429
---------------- --- --- --- --- --- --- --- ---
(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, $179 and $173 in the three
month periods ended March 31, 2016
through December 31, 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, $2,691 and
$2,943 in the three month periods
ended March 31, 2016 through
December 31, 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, $3,555 and
$3,511 in the three month periods
ended March 31, 2016 through
December 31, 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 Q4 Year
2016 2016 2016 2016 2016 2017
2017 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 $31,360 $111,702
----------------------------------------------- ------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Changes in operating assets and liabilities (3,681) 1,755 4,737 (6,781) (3,968) 3,192 950 721 300 5,270
------------------------------------------- ------ ----- ----- ------ ------ ----- --- --- --- -----
Cash interest expense and income tax expense 9,787 9,497 9,601 9,979 38,861 11,021 11,104 10,700 11,583 44,300
-------------------------------------------- ----- ----- ----- ----- ------ ------ ------ ------ ------ ------
EBITDA $33,663 $34,950 $37,171 $37,077 $142,860 $37,727 $40,099 $40,204 $43,243 $161,272
------ ------- ------- ------- ------- -------- ------- ------- ------- ------- --------
PLUS: Gains on asset related transactions 1,946 4,439 687 667 7,739 2,124 1,023 397 319 3,862
----------------------------------------- ----- ----- --- --- ----- ----- ----- --- --- -----
EBITDA, as adjusted $35,609 $39,389 $37,858 $37,744 $150,599 $39,851 $41,122 $40,601 $43,562 $165,134
------------------- ------- ------- ------- ------- -------- ------- ------- ------- ------- --------
EBITDA margin 31.1% 31.8% 32.9% 32.1% 32.0% 32.2% 33.5% 32.7% 34.5% 33.2%
------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
EBITDA, as adjusted, margin 32.9% 35.8% 33.5% 32.7% 33.7% 34.0% 34.3% 33.0% 34.8% 34.0%
--------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Constant currency revenue is reconciled to service revenue as reported in the tables below.
Constant currency impact on revenue changes - sequential periods
($ in 000's) - unaudited Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
2016 2016 2016 2016 2016 2017 2017 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 $125,226 $485,175
--------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Impact of foreign currencies on service revenue (10) (709) 273 749 892 195 (531) (1,701) 16 (1,905)
----------------------------------------------- --- ---- --- --- --- --- ---- ------ --- ------
Service revenue - as adjusted for currency impact (1) $108,281 $109,246 $113,330 $116,345 $447,792 $117,398 $119,246 $121,268 $125,242 $483,270
----------------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Service revenue, as reported - prior sequential period $105,177 $108,291 $109,955 $113,057 $404,234 $115,596 $117,203 $119,777 $122,969 $446,900
------------------------------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Constant currency increase $3,104 $955 $3,375 $3,288 $43,558 $1,802 $2,043 $1,491 $2,273 $36,370
-------------------------- ------ ---- ------ ------ ------- ------ ------ ------ ------ -------
Constant currency percent increase 3.0% 0.9% 3.1% 2.9% 10.8% 1.6% 1.7% 1.2% 1.8% 8.1%
---------------------------------- --- --- --- --- ---- --- --- --- --- ---
(1) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the prior
sequential period. The Company
believes that disclosing
quarterly sequential revenue
growth without the impact of
foreign currencies on service
revenue is a useful measure of
sequential revenue growth.
Service revenue, as adjusted
for currency impact, is an
integral part of the internal
reporting and planning system
used by management as a
supplement to GAAP financial
information.
Constant currency impact on revenue changes - prior year periods
($ in 000's) - unaudited Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
2016 2016 2016 2016 2016 2017 2017 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 $125,226 $485,175
--------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Impact of foreign currencies on service revenue 855 (168) (68) 276 892 503 743 (1,257) (2,055) (1,905)
----------------------------------------------- --- ---- --- --- --- --- --- ------ ------ ------
Service revenue - as adjusted for currency impact (2) $109,146 $109,787 $112,989 $115,872 $447,792 $117,706 $120,520 $121,712 $123,171 $483,270
----------------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Service revenue, as reported - prior year period $97,242 $98,799 $103,017 $105,177 $404,234 $108,291 $109,955 $113,057 $115,596 $446,900
------------------------------------------------ ------- ------- -------- -------- -------- -------- -------- -------- -------- --------
Constant currency increase $11,904 $10,988 $9,972 $10,695 $43,558 $9,415 $10,565 $8,655 $7,575 $36,370
-------------------------- ------- ------- ------ ------- ------- ------ ------- ------ ------ -------
Percent increase 12.2% 11.1% 9.7% 10.2% 10.8% 8.7% 9.6% 7.7% 6.6% 8.1%
---------------- ---- ---- --- ---- ---- --- --- --- --- ---
(2) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the
comparable prior year period.
The Company believes that
disclosing year over year
revenue growth without the
impact of foreign currencies on
service revenue is a useful
measure of revenue growth.
Service revenue, as adjusted
for currency impact, is an
integral part of the internal
reporting and planning system
used by management as a
supplement to GAAP financial
information.
Non-GAAP gross profit and Non-GAAP gross margin
Non-GAAP gross profit and Non-GAAP gross margin are reconciled to GAAP gross profit and GAAP gross margin in the table below.
Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
2016 2016 2016 2016 2016 2017 2017 2017 2017 2017
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
($ in 000's) - unaudited
------------------------
Service revenue total $108,291 $109,955 $113,057 $115,596 $446,900 $117,203 $119,777 $122,969 $125,226 $485,175
--------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Minus - Network operations expense 65,030 66,476 67,631 70,162 269,299 69,200 70,012 72,731 73,262 285,205
including equity-based compensation
and including depreciation and
amortization expense
--------------------
GAAP Gross Profit (1) $43,261 $43,479 $45,426 $45,434 $177,601 $48,003 $49,765 $50,238 $51,964 $199,970
-------------------- ------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Plus - Equity-based compensation - network operations expense 121 145 161 146 573 111 141 179 173 604
-------------------------------------------------------------- --- --- --- --- --- --- --- --- --- ---
Plus - Depreciation and amortization expense 17,753 18,604 18,804 20,073 75,234 18,538 18,897 19,147 19,344 75,926
-------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Non-GAAP Gross Profit (2) $61,135 $62,228 $64,391 $65,653 $253,408 $66,652 $68,803 $69,564 $71,481 $276,500
------------------------ ------- ------- ------- ------- -------- ------- ------- ------- ------- --------
GAAP Gross Margin (1) 39.9% 39.5% 40.2% 39.3% 39.7% 41.0% 41.5% 40.9% 41.5% 41.2%
-------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Non-GAAP Gross Margin (2) 56.5% 56.6% 57.0% 56.8% 56.7% 56.9% 57.4% 56.6% 57.1% 57.0%
------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(1) GAAP gross profit is defined as
total service revenue less
network operations expense,
depreciation and amortization and
equity based compensation
included in network operations
expense. GAAP gross margin is
defined as GAAP gross profit
divided by total service revenue.
(2) Non-GAAP gross profit represents
service revenue less network
operations expense, excluding
equity-based compensation and
amounts shown separately
(depreciation and amortization
expense). Non-GAAP gross margin
is defined as non-GAAP gross
profit divided by total service
revenue. Management believes
that non-GAAP gross profit and
non-GAAP gross margin are
relevant metrics to provide to
investors, as they are metrics
that management uses to measure
the margin and amount available
to the Company after network
service costs, in essence these
are measures of the efficiency of
the Company's network.
Gross and Net Leverage Ratios
Gross leverage ratio is defined as total debt divided by the trailing last 12 months EBITDA, as adjusted. Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the trailing last 12 months EBITDA, as adjusted. Cogent's gross leverage ratio was 4.57 at September 30, 2017 and 4.44 at December 31, 2017 and Cogent's net leverage ratio was 3.00 at September 30, 2017 and 2.94 at December 31, 2017 and as shown below.
($ in
000's)
-
unaudited As of September 30, 2017 As of December 31, 2017
---------- ------------------------ -----------------------
Cash
and
cash
equivalents $250,765 $247,011
------------ -------- --------
Debt
----
Capital
leases
-
current
portion 6,698 7,171
------- ----- -----
Capital
leases
-
long
term 147,623 150,333
------- ------- -------
Senior
unsecured
notes 189,225 189,225
--------- ------- -------
Senior
secured
notes 375,000 375,000
------- ------- -------
Note
payable 9,915 10,748
-------- ----- ------
Total
debt 728,461 732,477
----- ------- -------
Total
net
debt 477,696 485,466
----- ------- -------
Trailing
12
months
EBITDA,
as
adjusted 159,318 165,136
-------- ------- -------
Gross
leverage
ratio 4.57 4.44
--------- ---- ----
Net
leverage
ratio 3.00 2.94
--------- ---- ----
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
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $247,011 $274,319
Accounts receivable, net of allowance for doubtful accounts of $1,499 and $1,734,
respectively 39,096 33,598
Prepaid expenses and other current assets 20,011 19,706
Total current assets 306,118 327,623
Property and equipment:
Property and equipment 1,233,756 1,136,470
Accumulated depreciation and amortization (852,474) (774,829)
Total property and equipment, net 381,282 361,641
Deferred tax assets 17,616 42,241
Deposits and other assets ($736 and $128 restricted, respectively) 5,572 6,387
Total assets $710,588 $737,892
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $11,592 $11,551
Accrued and other current liabilities 47,947 47,149
Installment payment agreement, current portion, net of discount of $337 and $204,
respectively 7,816 2,587
Current maturities, capital lease obligations 7,171 6,626
Total current liabilities 74,526 67,913
Senior secured 2022 notes, net of unamortized debt costs of $1,870 and $2,257,
respectively and including premium of $382 and $462, respectively 373,512 373,205
Senior unsecured 2021 notes, net of unamortized debt costs of $2,060 and $2,575,
respectively 187,165 186,650
Capital lease obligations, net of current maturities 150,333 135,335
Other long term liabilities 27,596 28,043
Total liabilities 813,132 791,146
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 45,960,799 and
45,478,787 shares issued and outstanding, respectively 46 45
Additional paid-in capital 456,696 442,799
Accumulated other comprehensive income (4,600) (17,193)
Accumulated deficit (554,686) (478,905)
Total stockholders' deficit (102,544) (53,254)
Total liabilities and stockholders' equity $710,588 $737,892
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Three Months
Ended Ended
December 31, 2017 December 31, 2016
----------------- -----------------
(Unaudited) (Unaudited)
Service revenue $125,226 $115,596
Operating expenses:
Network operations (including $173 and $146 of equity-based compensation expense,
respectively, exclusive of depreciation and amortization shown separately below) 53,918 50,089
Selling, general, and administrative (including $3,511 and $2,730 of equity-based
compensation expense, respectively) 31,749 31,306
Depreciation and amortization 19,344 20,073
------ ------
Total operating expenses 105,011 101,468
Gains on equipment transactions 319 667
--- ---
Operating income 20,534 14,795
Interest income and other, net 166 341
Interest expense (12,222) (10,602)
------- -------
Income before income taxes 8,478 4,534
Income tax expense (14,705) (642)
------- ----
Net (loss) income $(6,227) $3,892
======= ======
Comprehensive loss:
Net (loss) income $(6,227) $3,892
Foreign currency translation adjustment 1,312 (5,295)
----- ------
Comprehensive loss $(4,915) $(1,403)
======= =======
Net (loss) income per common share:
Basic and diluted net (loss) income per common share $(0.14) $0.09
Dividends declared per common share $0.48 $0.40
Weighted-average common shares - basic 44,844,469 44,577,826
Weighted-average common shares - diluted 44,844,469 44,803,782
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR EACH OF THE TWO YEARS ENDED DECEMBER 31, 2017
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2017 2016
---- ----
Service revenue $485,175 $446,900
Operating expenses:
Network operations (including $604 and $573 of equity-based compensation expense,
respectively), exclusive of amounts shown separately 209,278 194,066
Selling, general, and administrative (including $12,686 and $10,162 of equity-based
compensation expense, respectively) 127,915 120,709
Depreciation and amortization 75,926 75,235
------ ------
Total operating expenses 413,119 390,010
------- -------
Gains on equipment transactions 3,862 7,739
Losses on debt extinguishment and redemption - (587)
--- ----
Operating income 75,918 64,042
Interest income and other 3,667 1,021
Interest expense (48,467) (40,803)
------- -------
Income before income taxes 31,118 24,260
Income tax expense (25,242) (9,331)
Net income $5,876 $14,929
====== =======
Comprehensive income:
Net income $5,876 $14,929
Foreign currency translation adjustment 12,593 (2,500)
------ ------
Comprehensive income $18,469 $12,429
Net income per common share:
Basic and diluted net income per common share $0.13 $0.33
Dividends declared per common share $1.80 $1.51
Weighted-average common shares-basic 44,855,263 44,641,805
Weighted-average common shares-diluted 45,184,203 44,873,030
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016
(IN THOUSANDS)
Three months Three months
Ended Ended
December 31, 2017 December 31, 2016
----------------- -----------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net (loss) income $(6,227) $3,892
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 19,343 20,074
Amortization of debt discount and premium 340 226
Equity-based compensation expense (net of amounts capitalized) 3,684 2,876
(Gains) losses - equipment transactions and other, net (439) (549)
Deferred income taxes 14,844 771
Changes in operating assets and liabilities:
Accounts receivable, net 156 (705)
Prepaid expenses and other current assets 501 333
Accounts payable, accrued liabilities and other long-term liabilities (1,160) 5,768
Deposits and other assets 318 1,193
--- -----
Net cash provided by operating activities 31,360 33,879
------ ------
Cash flows from investing activities:
Purchases of property and equipment (10,618) (7,195)
------- ------
Net cash used in investing activities (10,618) (7,195)
------- ------
Cash flows from financing activities:
Dividends paid (21,833) (18,199)
Purchases of common stock - (2,826)
Net proceeds from issuance of senior secured 2022 notes-net of debt costs of $1,202 - 124,267
Proceeds from exercises of stock options 303 326
Principal payments of installment payment agreement (1,619) -
Principal payments of capital lease obligations (1,833) (2,808)
------ ------
Net cash (used in) provided by financing activities (24,982) 100,760
------- -------
Effect of exchange rates changes on cash 486 (1,276)
--- ------
Net (decrease) increase in cash and cash equivalents (3,754) 126,168
Cash and cash equivalents, beginning of period 250,765 148,151
------- -------
Cash and cash equivalents, end of period $247,011 $274,319
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE TWO YEARS ENDED DECEMBER 31, 2017
(IN THOUSANDS)
2017 2016
---- ----
Cash flows from operating activities:
Net income $5,876 $14,929
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 75,926 75,235
Amortization of debt discount and premium 1,239 1,105
Equity-based compensation expense (net of amounts capitalized) 13,290 10,735
Losses on debt extinguishment and redemption - 587
Gains-equipment transactions and other, net (4,833) (7,674)
Deferred income taxes 24,679 9,224
Changes in operating assets and liabilities:
Accounts receivable (4,161) (3,183)
Prepaid expenses and other current assets 1,146 (2,923)
Deposits and other assets 1,111 (336)
Accounts payable, accrued liabilities and other long-term liabilities (2,571) 10,268
------ ------
Net cash provided by operating activities 111,702 107,967
------- -------
Cash flows from investing activities:
Purchases of property and equipment (45,801) (45,234)
------- -------
Net cash used in investing activities (45,801) (45,234)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of 2022 secured notes-net of debt costs of $1,202 and
$1,397, respectively - 124,267
Extinguishment of 2021 unsecured notes - (10,775)
Dividends paid (81,657) (68,210)
Principal payments of capital lease obligations (11,201) (12,466)
Principal payments of installment payment agreement (3,802) (21,203)
Purchases of common stock (1,829) (4,492)
Proceeds from exercises of common stock options 1,222 1,220
Net cash (used in) provided by financing activities (97,267) 8,341
Effect of exchange rate changes on cash 4,058 (346)
Net (decrease) increase in cash and cash equivalents (27,308) 70,728
Cash and cash equivalents, beginning of year 274,319 203,591
------- -------
Cash and cash equivalents, end of year $247,011 $274,319
======== ========
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-K for the year ended December 31, 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.
