Cogent Communications Reports Second Quarter 2018 Results and Increases Regular Quarterly Dividend on Common Stock
WASHINGTON, Aug. 2, 2018 /PRNewswire/ --
Financial and Business Highlights
-- Cogent approves a 3.8% increase of $0.02 per share to its regular
quarterly dividend to $0.54
-- Cogent Group's consolidated leverage ratio, as defined in Cogent Group's
indenture agreements, is below 4.25 which will allow Cogent Holdings to
utilize its accumulated builder basket
-- Service revenue, on a constant currency basis, increased by 1.1% from Q1
2018 to Q2 2018 and increased from Q2 2017 to Q2 2018 by 6.3%
-- Service revenue increased by 0.5% from Q1 2018 to Q2 2018 to $129.3
million and increased from Q2 2017 to Q2 2018 by 7.9%
-- EBITDA margin increased by 120 basis points from Q1 2018 to 35.5% and
increased by 200 basis points from Q2 2017
-- EBITDA increased by 4.1% from Q1 2018 to Q2 2018 to $45.9 million
and increased from Q2 2017 to Q2 2018 by 14.5%
-- GAAP gross profit increased by 9.9% from Q2 2017 to $54.7 million for Q2
2018 and GAAP gross margin increased by 80 basis points to 42.3% from Q2
2017 to Q2 2018
-- Cash flow from operations increased by 3.6% from Q1 2018 to Q2 2018 to
$31.3 million and increased from Q2 2017 to Q2 2018 by 11.5%
Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $129.3 million for the three months ended June 30, 2018, an increase of 7.9% from the three months ended June 30, 2017 and an increase of 0.5% from the three months ended March 31, 2018. Foreign exchange negatively impacted service revenue growth from the three months ended March 31, 2018 to the three months ended June 30, 2018 by $0.8 million and positively impacted service revenue growth from the three months ended June 30, 2017 to the three months ended June 30, 2018 by $1.9 million. On a constant currency basis, service revenue grew by 1.1% from the three months ended March 31, 2018 to the three months ended June 30, 2018 and grew by 6.3% from the three months ended June 30, 2017 to the three months ended June 30, 2018.
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 $93.0 million for the three months ended June 30, 2018; an increase of 0.7% from the three months ended March 31, 2018 and an increase of 8.7% over the three months ended June 30, 2017.
Off-net customers are located in buildings directly connected to Cogent's network using other carriers' facilities and services to provide the last mile portion of the link from the customers' premises to Cogent's network. Off-net revenue was $36.1 million for the three months ended June 30, 2018; the same amount as the three months ended March 31, 2018 and an increase of 6.3% over the three months ended June 30, 2017.
GAAP gross profit is defined as total service revenue less network operations expense, depreciation and amortization and equity based compensation included in network operations expense. GAAP gross margin is defined as GAAP gross profit divided by total service revenue. GAAP gross profit increased by 9.9% from the three months ended June 30, 2017 to $54.7 million for the three months ended June 30, 2018 and increased by 1.2% from the three months ended March 31, 2018. GAAP gross margin was 42.3% for the three months ended June 30, 2018, 41.5% for the three months ended June 30, 2017 and 42.0% for the three months ended March 31, 2018. Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $3.1 million for the three months ended June 30, 2018, $3.2 million for the three months ended March 31, 2018 and $2.7 million for the three months ended June 30, 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 9.2% from the three months ended June 30, 2017 to $75.1 million for the three months ended June 30, 2018 and increased by 1.5% from the three months ended March 31, 2018. Non-GAAP gross profit margin was 58.1% for the three months ended June 30, 2018, 57.4% for the three months ended June 30, 2017 and 57.5% for the three months ended March 31, 2018.
Cash flow from operating activities increased by 11.5% from the three months ended June 30, 2017 to $31.3 million for the three months ended June 30, 2018 and increased by 3.6% from the three months ended March 31, 2018.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 14.5% from the three months ended June 30, 2017 to $45.9 million for the three months ended June 30, 2018 and increased by 4.1% from the three months ended March 31, 2018. EBITDA margin was 35.5% for the three months ended June 30, 2018, 33.5% for the three months ended June 30, 2017 and 34.3% for the three months ended March 31, 2018.
EBITDA, as adjusted, increased by 12.5% from the three months ended June 30, 2017 to $46.3 million for the three months ended June 30, 2018 and increased by 4.7% from the three months ended March 31, 2018. EBITDA, as adjusted, margin was 35.8% for the three months ended June 30, 2018, 34.3% for the three months ended June 30, 2017 and 34.3% for the three months ended March 31, 2018.
Basic net income per share was $0.15 for the three months ended June 30, 2018, $0.10 for the three months ended June 30, 2017 and $0.15 for the three months ended March 31, 2018. Diluted net income per share was $0.14 for the three months ended June 30, 2018, $0.10 for the three months ended June 30, 2017 and $0.15 for the three months ended March 31, 2018.
Total customer connections increased by 13.8% from June 30, 2017 to 76,193 as of June 30, 2018 and increased by 3.1% from March 31, 2018. On-net customer connections increased by 14.1% from June 30, 2017 to 65,407 as of June 30, 2018 and increased by 3.2% from March 31, 2018. Off-net customer connections increased by 12.3% from June 30, 2017 to 10,480 as of June 30, 2018 and increased by 2.3% from March 31, 2018.
The number of on-net buildings increased by 161 on-net buildings from June 30, 2017 to 2,599 on-net buildings as of June 30, 2018 and increased by 58 on-net buildings from March 31, 2018.
Consolidated Leverage Ratio
The indentures of Cogent Group (the company owned by Cogent Holdings, Inc. which owns Cogent's operating companies) governing its indebtedness contain covenants that restrict Cogent Group's ability to make certain payments, such as dividends and stock purchases, until Cogent Group's consolidated leverage ratio, as defined in the indentures, is less than 4.25. As of June 30, 2018, Cogent Group's consolidated leverage ratio was below 4.25, and as a result, amounts accumulated under the builders basket, as defined by the indentures, may be used by Cogent to make payments including dividends and stock purchases.
Quarterly Dividend Increase Approved
On August 1, 2018, Cogent's board approved a regular quarterly dividend of $0.54 per common share payable on August 31, 2018 to shareholders of record on August 17, 2018. This third quarter 2018 regular dividend represents a 3.8% increase of $0.02 per share from the second quarter 2018 regular dividend of $0.52 per share.
The payment of any future dividends and any other returns of capital will be at the discretion of Cogent's board of directors and may be reduced, eliminated or increased and will be dependent upon Cogent's financial position, results of operations, available cash, cash flow, capital requirements, limitations under Cogent's debt indenture agreements and other factors deemed relevant by Cogent's board of directors.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on August 2, 2018 to discuss Cogent's operating results for the second quarter of 2018 and to discuss Cogent's expectations for full year 2018. Investors and other interested parties may access a live audio webcast of the earnings call in the "Events" section of Cogent's website at www.cogentco.com/events. A replay of the webcast, together with the press release, will be available on the website following the earnings call.
About Cogent Communications
Cogent Communications (NASDAQ: CCOI) is a multinational, Tier 1 facilities-based ISP. Cogent specializes in providing businesses with high speed Internet access, Ethernet transport, and colocation services. Cogent's facilities-based, all-optical IP network backbone provides services in over 195 markets globally.
Cogent Communications is headquartered at 2450 N Street, NW, Washington, D.C. 20037. For more information, visit www.cogentco.com. Cogent Communications can be reached in the United States at (202) 295-4200 or via email at info@cogentco.com.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
Summary of Financial and Operational Results
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
------- ------- ------- ------- ------- -------
Metric ($ in 000's,
except share and per
share data) -
unaudited
---------------------
On-Net revenue $83,586 $85,586 $87,898 $89,374 $92,387 $93,026
-------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 0.1% 2.4% 2.7% 1.7% 3.4% 0.7%
---------------------- --- --- --- --- --- ---
Off-Net revenue $33,386 $33,980 $34,865 $35,662 $36,144 $36,107
--------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 4.8% 1.8% 2.6% 2.3% 1.4% -0.1%
---------------------- --- --- --- --- --- ----
Non-Core revenue (1) $231 $211 $206 $190 $175 $163
------------------- ---- ---- ---- ---- ---- ----
% Change from previous
Qtr. 3.1% -8.7% -2.4% -7.8% -7.9% -6.9%
---------------------- --- ---- ---- ---- ---- ----
Service revenue -
total $117,203 $119,777 $122,969 $125,226 $128,706 $129,296
----------------- -------- -------- -------- -------- -------- --------
% Change from previous
Qtr. 1.4% 2.2% 2.7% 1.8% 2.8% 0.5%
---------------------- --- --- --- --- --- ---
Constant currency
total revenue
quarterly growth rate
- sequential quarters
(4) 1.6% 1.7% 1.2% 1.8% 2.0% 1.1%
---------------------- --- --- --- --- --- ---
Constant currency
total revenue
quarterly growth rate
- year over year
quarters (4) 8.7% 9.6% 7.7% 6.6% 7.0% 6.3%
---------------------- --- --- --- --- --- ---
Network operations
expenses (2) $50,551 $50,974 $53,405 $53,745 $54,686 $54,147
------------------ ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 1.2% 0.8% 4.8% 0.6% 1.8% -1.0%
---------------------- --- --- --- --- --- ----
GAAP gross profit (3) $48,003 $49,765 $50,238 $51,964 $54,043 $54,701
-------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 5.7% 3.7% 1.0% 3.4% 4.0% 1.2%
---------------------- --- --- --- --- --- ---
GAAP gross margin (3) 41.0% 41.5% 40.9% 41.5% 42.0% 42.3%
-------------------- ---- ---- ---- ---- ---- ----
Non-GAAP gross profit
(4) (6) $66,652 $68,803 $69,564 $71,481 $74,020 $75,149
--------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 1.5% 3.2% 1.1% 2.8% 3.6% 1.5%
---------------------- --- --- --- --- --- ---
Non-GAAP gross margin
(4) (6) 56.9% 57.4% 56.6% 57.1% 57.5% 58.1%
--------------------- ---- ---- ---- ---- ---- ----
Selling, general and
administrative
expenses (5) $28,925 $28,704 $29,360 $28,238 $29,928 $29,241
-------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 1.2% -0.8% 2.3% -3.8% 6.0% -2.3%
---------------------- --- ---- --- ---- --- ----
Depreciation and
amortization expense $18,538 $18,897 $19,147 $19,344 $19,788 $20,216
--------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. -7.6% 1.9% 1.3% 1.0% 2.3% 2.2%
---------------------- ---- --- --- --- --- ---
Equity-based
compensation expense $2,647 $3,225 $3,734 $3,684 $3,784 $4,695
--------------------- ------ ------ ------ ------ ------ ------
% Change from previous
Qtr. -8.0% 21.8% 15.8% -1.3% 2.7% 24.1%
---------------------- ---- ---- ---- ---- --- ----
Operating income $18,666 $19,000 $17,891 $20,534 $20,637 $21,354
---------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 26.2% 1.8% -5.8% 14.8% 0.5% 3.5%
---------------------- ---- --- ---- ---- --- ---
Interest expense $11,891 $12,090 $12,266 $12,222 $12,408 $12,373
---------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 12.2% 1.7% 1.5% -0.4% 1.5% -0.3%
---------------------- ---- --- --- ---- --- ----
Net income (loss) $4,136 $4,317 $3,650 $(6,227) $6,784 $6,552
---------------- ------ ------ ------ ------- ------ ------
Basic net income
(loss) per common
share $0.09 $0.10 $0.08 $(0.14) $0.15 $0.15
------------------ ----- ----- ----- ------ ----- -----
Diluted net income
(loss) per common
share $0.09 $0.10 $0.08 $(0.14) $0.15 $0.14
------------------ ----- ----- ----- ------ ----- -----
Weighted average
common shares - basic 44,649,645 44,717,372 44,767,163 44,844,469 44,923,973 45,016,767
---------------------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous
Qtr. 0.2% 0.2% 0.1% 0.2% 0.2% 0.2%
---------------------- --- --- --- --- --- ---
Weighted average
common shares -
diluted 44,917,014 44,988,655 45,118,607 44,844,469 45,294,697 45,536,473
---------------- ---------- ---------- ---------- ---------- ---------- ----------
% Change from previous
Qtr. 0.3% 0.2% 0.3% -0.6% 1.0% 0.5%
---------------------- --- --- --- ---- --- ---
EBITDA (6) $37,727 $40,099 $40,204 $43,243 $44,092 $45,908
--------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 1.8% 6.3% 0.3% 7.6% 2.0% 4.1%
---------------------- --- --- --- --- --- ---
EBITDA margin 32.2% 33.5% 32.7% 34.5% 34.3% 35.5%
------------- ---- ---- ---- ---- ---- ----
Gains on asset related
transactions $2,124 $1,023 $397 $319 $117 $357
---------------------- ------ ------ ---- ---- ---- ----
EBITDA, as adjusted
(6) $39,851 $41,122 $40,601 $43,562 $44,209 $46,265
------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 5.6% 3.2% -1.3% 7.3% 1.5% 4.7%
---------------------- --- --- ---- --- --- ---
EBITDA, as adjusted,
margin 34.0% 34.3% 33.0% 34.8% 34.3% 35.8%
-------------------- ---- ---- ---- ---- ---- ----
Fees - net neutrality $2 $188 $824 $260 $14 $39
--------------------- --- ---- ---- ---- --- ---
Net cash provided by
operating activities $23,514 $28,045 $28,783 $31,360 $30,179 $31,271
--------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. -30.6% 19.3% 2.6% 9.0% -3.8% 3.6%
---------------------- ----- ---- --- --- ---- ---
Capital expenditures $12,249 $12,007 $10,927 $10,618 $14,905 $11,988
-------------------- ------- ------- ------- ------- ------- -------
% Change from previous
Qtr. 70.2% -2.0% -9.0% -2.8% 40.4% -19.6%
---------------------- ---- ---- ---- ---- ---- -----
Principal payments on
capital leases $3,854 $2,194 $3,320 $1,833 $2,304 $3,755
--------------------- ------ ------ ------ ------ ------ ------
% Change from previous
Qtr. 37.3% -43.1% 51.3% -44.8% 25.7% 63.0%
---------------------- ---- ----- ---- ----- ---- ----
Dividends paid $18,999 $19,946 $20,879 $21,833 $22,819 $23,788
-------------- ------- ------- ------- ------- ------- -------
Purchases of common
stock $ - $1,829 $ - $ - $ - $ -
------------------- --- ------ --- --- --- ---
Gross Leverage Ratio 4.64 4.62 4.57 4.44 4.33 4.22
-------------------- ---- ---- ---- ---- ---- ----
Net Leverage Ratio 2.94 2.98 3.00 2.94 2.94 2.93
------------------ ---- ---- ---- ---- ---- ----
Customer Connections -
end of period
----------------------
On-Net 54,805 57,307 59,357 61,334 63,366 65,407
------ ------ ------ ------ ------ ------ ------
% Change from previous
Qtr. 3.7% 4.6% 3.6% 3.3% 3.3% 3.2%
---------------------- --- --- --- --- --- ---
Off-Net 9,055 9,355 9,724 9,953 10,241 10,480
------- ----- ----- ----- ----- ------ ------
% Change from previous
Qtr. 5.3% 3.1% 4.2% 2.4% 2.9% 2.3%
---------------------- --- --- --- --- --- ---
Non-Core (1) 383 340 336 326 307 306
----------- --- --- --- --- --- ---
% Change from previous
Qtr. 9.4% -11.2% -1.2% -3.0% -5.8% -0.3%
---------------------- --- ----- ---- ---- ---- ----
Total customer
connections 64,243 66,982 69,417 71,613 73,194 76,193
-------------- ------ ------ ------ ------ ------ ------
%1 Change from
previous Qtr. 3.9% 4.3% 3.6% 3.2% 3.2% 3.1%
-------------- --- --- --- --- --- ---
On-Net Buildings -
end of period
------------------
Multi-Tenant office
buildings 1,601 1,618 1,635 1,653 1,672 1,710
------------------- ----- ----- ----- ----- ----- -----
Carrier neutral data
center buildings 752 767 784 800 816 837
-------------------- --- --- --- --- --- ---
Cogent data centers 53 53 53 53 53 52
------------------- --- --- --- --- --- ---
Total on-net buildings 2,406 2,438 2,472 2,506 2,541 2,599
---------------------- ----- ----- ----- ----- ----- -----
Square feet - multi-
tenant office
buildings - on-net 864,432,176 872,293,092 881,184,145 893,580,297 911,283,287 927,410,239
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
Network - end of
period
-----------------
Intercity route miles 57,213 57,403 57,403 57,403 57,403 57,403
--------------------- ------ ------ ------ ------ ------ ------
Metro fiber miles 30,190 30,516 31,071 31,254 31,850 31,953
----------------- ------ ------ ------ ------ ------ ------
Connected networks -
AS's 5,949 5,983 6,076 6,152 6,247 6,363
-------------------- ----- ----- ----- ----- ----- -----
Headcount - end of
period
------------------
Sales force - quota
bearing 432 434 444 455 432 438
------------------- --- --- --- --- --- ---
Sales force - total 554 559 565 574 555 566
------------------- --- --- --- --- --- ---
Total employees 900 909 919 929 908 917
--------------- --- --- --- --- --- ---
Sales rep productivity
- units per full time
equivalent sales rep
("FTE") per month 6.1 6.5 5.7 5.8 5.7 5.7
---------------------- --- --- --- --- --- ---
FTE - sales reps 416 410 420 429 427 413
---------------- --- --- --- --- --- ---
(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 $111, $141, $179, $173, $189
and $232 in the three month
periods ended March 31, 2017
through June 30, 2018,
respectively. Network operations
expense includes excise taxes,
including Universal Service Fund
fees of $2,604, $2,672, $2,691,
$2,943, $3,157 and $3,108 in the
three month periods ended March
31, 2017 through June 30, 2018,
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 $2,536, $3,084, $3,555,
$3,511, $3,595 and $4,463 in the
three month periods ended March
31, 2017 through June 30, 2018,
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 Q1 Q2
2018 2018
2017 2017 2017 2017
---- ---- ---- ----
($
in
000's)
-
unaudited
---------
Net
cash
flows
provided
by
operating
activities $23,514 $28,045 $28,783 $31,360 $30,179 $31,271
---------- ------- ------- ------- ------- ------- -------
Changes
in
operating
assets
and
liabilities 3,192 950 721 300 2,919 2,408
----------- ----- --- --- --- ----- -----
Cash
interest
expense
and
income
tax
expense 11,021 11,104 10,700 11,583 10,994 12,229
-------- ------ ------ ------ ------ ------ ------
EBITDA $37,727 $40,099 $40,204 $43,243 $44,092 $45,908
------ ------- ------- ------- ------- ------- -------
PLUS:
Gains
on
asset
related
transactions 2,124 1,023 397 319 117 357
------------ ----- ----- --- --- --- ---
EBITDA,
as
adjusted $39,851 $41,122 $40,601 $43,562 $44,209 $46,265
-------- ------- ------- ------- ------- ------- -------
EBITDA
margin 32.2% 33.5% 32.7% 34.5% 34.3% 35.5%
------ ---- ---- ---- ---- ---- ----
EBITDA,
as
adjusted,
margin 34.0% 34.3% 33.0% 34.8% 34.3% 35.8%
--------- ---- ---- ---- ---- ---- ----
Constant currency revenue is reconciled to service revenue as reported in the tables below.
Constant currency impact on revenue changes - sequential periods
($
in
000's)
-
unaudited Q1 Q2 Q3 Q4 Q1 Q2
2017 2017 2017 2017 2018 2018
--- ---- ---- ---- ---- ---- ----
Service
revenue,
as
reported
-
current
period $117,203 $119,777 $122,969 $125,226 $128,706 $129,296
-------- -------- -------- -------- -------- -------- --------
Impact
of
foreign
currencies
on
service
revenue 195 (531) (1,701) 16 (981) 802
---------- --- ---- ------ --- ---- ---
Service
revenue
-
as
adjusted
for
currency
impact
(1) $117,398 $119,246 $121,268 $125,242 $127,725 $130,098
-------- -------- -------- -------- -------- -------- --------
Service
revenue,
as
reported
-
prior
sequential
period $115,596 $117,203 $119,777 $122,969 $125,226 $128,706
---------- -------- -------- -------- -------- -------- --------
Constant
currency
increase $1,802 $2,043 $1,491 $2,273 $2,499 $1,392
-------- ------ ------ ------ ------ ------ ------
Constant
currency
percent
increase 1.6% 1.7% 1.2% 1.8% 2.0% 1.1%
-------- --- --- --- --- --- ---
(1) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the prior
sequential period. The Company
believes that disclosing
quarterly sequential revenue
growth without the impact of
foreign currencies on service
revenue is a useful measure of
sequential revenue growth.
Service revenue, as adjusted for
currency impact, is an integral
part of the internal reporting
and planning system used by
management as a supplement to
GAAP financial information.
Constant currency impact on revenue changes - prior year periods
($
in
000's)
-
unaudited Q1 Q2 Q3 Q4 Q1 Q2
2017 2017 2017 2017 2018 2018
--- ---- ---- ---- ---- ---- ----
Service
revenue,
as
reported
-
current
period $117,203 $119,777 $122,969 $125,226 $128,706 $129,296
-------- -------- -------- -------- -------- -------- --------
Impact
of
foreign
currencies
on
service
revenue 503 743 (1,257) (2,055) (3,280) (1,937)
---------- --- --- ------ ------ ------ ------
Service
revenue
-
as
adjusted
for
currency
impact
(2) $117,706 $120,520 $121,712 $123,171 $125,426 $127,359
-------- -------- -------- -------- -------- -------- --------
Service
revenue,
as
reported
-
prior
year
period $108,291 $109,955 $113,057 $115,596 $117,203 $119,777
-------- -------- -------- -------- -------- -------- --------
Constant
currency
increase $9,415 $10,565 $8,655 $7,575 $8,223 $7,582
-------- ------ ------- ------ ------ ------ ------
Percent
increase 8.7% 9.6% 7.7% 6.6% 7.0% 6.3%
-------- --- --- --- --- --- ---
(2) Service revenue, as adjusted for
currency impact, is determined
by translating the service
revenue for the current period
at the average foreign currency
exchange rates for the
comparable prior year period.
The Company believes that
disclosing year over year
revenue growth without the
impact of foreign currencies on
service revenue is a useful
measure of revenue growth.
Service revenue, as adjusted for
currency impact, is an integral
part of the internal reporting
and planning system used by
management as a supplement to
GAAP financial information.
Non-GAAP gross profit and Non-GAAP gross margin
Non-GAAP gross profit and Non-GAAP gross margin are reconciled to GAAP gross profit and GAAP gross margin in the table below.
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
------- ------- ------- ------- ------- -------
($ in 000's) -
unaudited
--------------
Service revenue
total $117,203 $119,777 $122,969 $125,226 $128,706 $129,296
--------------- -------- -------- -------- -------- -------- --------
Minus - Network
operations expense
including equity-
based compensation
and including
depreciation and
amortization
expense 69,200 70,012 72,731 73,262 74,663 74,595
------------------- ------ ------ ------ ------ ------ ------
GAAP Gross Profit
(1) $48,003 $49,765 $50,238 $51,964 $54,043 $54,701
----------------- ------- ------- ------- ------- ------- -------
Plus - Equity-
based compensation
- network
operations expense 111 141 179 173 189 232
------------------- --- --- --- --- --- ---
Plus - Depreciation
and amortization
expense 18,538 18,897 19,147 19,344 19,788 20,216
------------------- ------ ------ ------ ------ ------ ------
Non-GAAP Gross
Profit (2) $66,652 $68,803 $69,564 $71,481 $74,020 $75,149
-------------- ------- ------- ------- ------- ------- -------
GAAP Gross Margin
(1) 41.0% 41.5% 40.9% 41.5% 42.0% 42.3%
----------------- ---- ---- ---- ---- ---- ----
Non-GAAP Gross
Margin (2) 56.9% 57.4% 56.6% 57.1% 57.5% 58.1%
-------------- ---- ---- ---- ---- ---- ----
(1) GAAP gross profit is defined as
total service revenue less network
operations expense, depreciation
and amortization and equity based
compensation included in network
operations expense. GAAP gross
margin is defined as GAAP gross
profit divided by total service
revenue.
(2) Non-GAAP gross profit represents
service revenue less network
operations expense, excluding
equity-based compensation and
amounts shown separately
(depreciation and amortization
expense). Non-GAAP gross margin
is defined as non-GAAP gross
profit divided by total service
revenue. Management believes that
non-GAAP gross profit and non-
GAAP gross margin are relevant
metrics to provide to investors,
as they are metrics that
management uses to measure the
margin and amount available to the
Company after network service
costs, in essence these are
measures of the efficiency of the
Company's network.
Gross and Net Leverage Ratios
Gross leverage ratio is defined as total debt divided by the trailing last 12 months EBITDA, as adjusted. Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the trailing last 12 months EBITDA, as adjusted. Cogent's gross leverage ratio and net leverage ratio at March 31, 2018 and June 30, 2018 are shown below.
($ in 000's) -
unaudited As of March 31, 2018 As of June 30, 2018
-------------- -------------------- -------------------
Cash and cash
equivalents $236,026 $224,282
------------- -------- --------
Debt
----
Capital leases -
current portion 7,003 8,428
---------------- ----- -----
Capital leases - long
term 150,939 151,439
--------------------- ------- -------
Senior unsecured notes 189,225 189,225
---------------------- ------- -------
Senior secured notes 375,000 375,000
-------------------- ------- -------
Note payable 11,349 12,437
------------ ------ ------
Total debt 733,516 736,529
---------- ------- -------
Total net debt 497,490 512,247
-------------- ------- -------
Trailing 12 months
EBITDA, as adjusted 169,494 174,637
-------------------- ------- -------
Gross leverage ratio 4.33 4.22
-------------------- ---- ----
Net leverage ratio 2.94 2.93
------------------ ---- ----
Cogent's SEC filings are available online via the Investor Relations section of www.cogentco.com or on the Securities and Exchange Commission's website at www.sec.gov.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2018 AND DECEMBER 31, 2017
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
2018 2017
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $224,282 $247,011
Accounts receivable, net of allowance for doubtful accounts of $1,131
and $1,499, 39,482 39,096
respectively
Prepaid expenses and other current assets 32,972 20,011
------ ------
Total current assets 296,736 306,118
Property and equipment, net 382,730 381,282
Deferred tax assets 9,038 17,616
Deposits and other assets 11,725 5,572
------ -----
Total assets $700,229 $710,588
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $10,330 $11,592
Accrued and other current liabilities 47,447 47,947
Installment payment agreement, current portion, net of discount of $413
and $337, 8,746 7,816
respectively
Current maturities, capital lease obligations 8,428 7,171
----- -----
Total current liabilities 74,951 74,526
Senior secured 2022 notes, net of unamortized debt costs of $1,668 and
$1,870, 373,672 373,512
respectively and including premium of $340 and $382, respectively
Senior unsecured 2021 notes, net of unamortized debt costs of $1,772 and
$2,060, 187,453 187,165
respectively
Capital lease obligations, net of current maturities 151,439 150,333
Other long term liabilities 27,350 27,596
------ ------
Total liabilities 814,865 813,132
------- -------
Commitments and contingencies:
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 46,443,945
and 46 46
45,960,799 shares issued and outstanding, respectively
Additional paid-in capital 467,007 456,696
Accumulated other comprehensive income - foreign currency translation (8,187) (4,600)
Accumulated deficit (573,502) (554,686)
-------- --------
Total stockholders' deficit (114,636) (102,544)
-------- --------
Total liabilities and stockholders' deficit $700,229 $710,588
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2018 AND JUNE 30, 2017
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Three Months
Ended Ended
June 30, 2018 June 30, 2017
------------- -------------
(Unaudited) (Unaudited)
Service revenue $129,296 $119,777
Operating expenses:
Network operations (including $232 and $141 of equity-based compensation 54,379 51,115
expense, respectively, exclusive of depreciation and amortization shown
separately below)
Selling, general, and administrative (including $4,463 and $3,084 of
equity-based 33,704 31,788
compensation expense, respectively)
Depreciation and amortization 20,216 18,897
------ ------
Total operating expenses 108,299 101,800
Gains on equipment transactions 357 1,023
--- -----
Operating income 21,354 19,000
Interest income and other, net 189 1,015
Interest expense (12,373) (12,090)
------- -------
Income before income taxes 9,170 7,925
Income tax provision (2,618) (3,608)
------ ------
Net income $6,552 $4,317
====== ======
Comprehensive income:
Net income $6,552 $4,317
Foreign currency translation adjustment (6,198) 6,163
------ -----
Comprehensive income $354 $10,480
==== =======
Net income per common share:
Basic net income per common share $0.15 $0.10
Diluted net income per common share $0.14 $0.10
Dividends declared per common share $0.52 $0.44
Weighted-average common shares - basic 45,016,767 44,717,372
Weighted-average common shares - diluted 45,536,473 44,988,655
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND JUNE 30, 2017
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Six Months Six Months
Ended Ended
June 30, 2018 June 30, 2017
------------- -------------
(Unaudited) (Unaudited)
Service revenue $258,002 $236,981
Operating expenses:
Network operations (including $421 and $252 of equity-based compensation 109,252 101,778
expense, respectively, exclusive of depreciation and amortization shown
separately below)
Selling, general, and administrative (including $8,058 and $5,620 of
equity-based 67,227 63,252
compensation expense, respectively)
Depreciation and amortization 40,004 37,435
------ ------
Total operating expenses 216,483 202,465
Gains on equipment transactions 475 3,146
--- -----
Operating income 41,994 37,662
Interest income and other, net 1,879 1,870
Interest expense (24,780) (23,978)
------- -------
Income before income taxes 19,093 15,554
Income tax provision (5,757) (7,101)
------ ------
Net income $13,336 $8,453
======= ======
Comprehensive income:
Net income $13,336 $8,453
Foreign currency translation adjustment (3,587) 7,491
------ -----
Comprehensive income $9,749 $15,944
====== =======
Net income per common share:
Basic net income per common share $0.30 $0.19
Diluted net income per common share $0.29 $0.19
Dividends declared per common share $1.02 $0.86
Weighted-average common shares - basic 45,011,616 44,720,971
Weighted-average common shares - diluted 45,456,831 44,990,298
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2018 AND JUNE 30, 2017
(IN THOUSANDS)
Three months Three months
Ended Ended
June 30, 2018 June 30, 2017
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $6,552 $4,317
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 20,216 18,897
Amortization of debt discount and premium 381 287
Equity-based compensation expense (net of amounts capitalized) 4,695 3,225
Gains - equipment transactions and other, net 46 (1,457)
Deferred income taxes 2,192 3,292
Changes in operating assets and liabilities:
Accounts receivable (2,096) (384)
Prepaid expenses and other current assets 582 (133)
Accounts payable, accrued liabilities and other long-term liabilities (414) (423)
Deposits and other assets (883) 424
---- ---
Net cash provided by operating activities 31,271 28,045
------ ------
Cash flows from investing activities:
Purchases of property and equipment (11,988) (12,007)
------- -------
Net cash used in investing activities (11,988) (12,007)
------- -------
Cash flows from financing activities:
Dividends paid (23,788) (19,946)
Purchases of common stock - (1,829)
Proceeds from exercises of stock options 705 186
Principal payments on installment payment agreement (2,289) (733)
Principal payments of capital lease obligations (3,755) (2,194)
------ ------
Net cash used in financing activities (29,127) (24,516)
------- -------
Effect of exchange rates changes on cash (1,900) 1,774
------ -----
Net decrease in cash and cash equivalents (11,744) (6,704)
Cash and cash equivalents, beginning of period 236,026 263,196
------- -------
Cash and cash equivalents, end of period $224,282 $256,492
======== ========
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND JUNE 30, 2017
(IN THOUSANDS)
Six months Six months
Ended Ended
June 30, 2018 June 30, 2017
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $13,336 $8,453
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 40,004 37,435
Amortization of debt discount and premium 751 567
Equity-based compensation expense (net of amounts capitalized) 8,479 5,872
Gains - equipment transactions and other, net (439) (3,628)
Deferred income taxes 4,815 6,626
Changes in operating assets and liabilities:
Accounts receivable (741) (341)
Prepaid expenses and other current assets (631) (1,200)
Accounts payable, accrued liabilities and other long-term liabilities (2,418) (2,084)
Deposits and other assets (1,706) (141)
------ ----
Net cash provided by operating activities 61,450 51,559
------ ------
Cash flows from investing activities:
Purchases of property and equipment (26,893) (24,256)
------- -------
Net cash used in investing activities (26,893) (24,256)
------- -------
Cash flows from financing activities:
Dividends paid (46,607) (38,945)
Purchases of common stock - (1,829)
Proceeds from exercises of stock options 1,002 486
Principal payments on installment payment agreement (4,254) (951)
Principal payments of capital lease obligations (6,059) (6,048)
------ ------
Net cash used in financing activities (55,918) (47,287)
------- -------
Effect of exchange rates changes on cash (1,368) 2,157
------ -----
Net decrease in cash and cash equivalents (22,729) (17,827)
Cash and cash equivalents, beginning of period 247,011 274,319
------- -------
Cash and cash equivalents, end of period $224,282 $256,492
======== ========
Except for historical information and discussion contained herein, statements contained in this release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "projects" and similar expressions. The statements in this release are based upon the current beliefs and expectations of Cogent's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Numerous factors could cause or contribute to such differences, including future economic instability in the global economy or a contraction of the capital markets which could affect spending on Internet services and our ability to engage in financing activities; the impact of changing foreign exchange rates (in particular the Euro to USD and Canadian dollar to USD exchange rates) on the translation of our non-USD denominated revenues, expenses, assets and liabilities; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including net neutrality rules by the United States Federal Communications Commission and in the area of data protection; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; the ability to maintain our Internet peering arrangements on favorable terms; our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; and outcomes in litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our report on Form 10-Q for the quarter ended June 30, 2018 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.
