Cogent Communications Reports First Quarter 2024 Results and Increases its Regular Quarterly Dividend on its Common Stock
Cogent Communications reported service revenue of $266.2 million for Q1 2024, a decrease of 2.2% from Q4 2023. The company increased its regular quarterly dividend by $0.01 per share to $0.975 per share for Q2 2024, marking the forty-seventh consecutive quarterly dividend increase.
Wavelength revenue increased by 7.0% to $3.3 million for Q1 2024.
EBITDA, adjusted for Sprint acquisition costs, was $115.0 million for Q1 2024, showing a healthy financial performance.
Cogent closed the issuance of $206.0 million of its IPV4 Securitized Notes, providing additional capital for operations.
Non-core revenue decreased by 16.8% from Q4 2023 to Q1 2024, indicating a decline in legacy services.
GAAP gross margin dropped to 9.9% for Q1 2024, down from 10.9% in Q4 2023, reflecting a decrease in profitability.
Net leverage ratio increased to 3.17 for Q1 2024, signaling higher financial leverage.
Insights
Examining the financial and business highlights of Cogent Communications' Q1 2024 report, several key factors stand out. The service revenue marks a quarterly decline of 2.2% but an impressive year-over-year increase of 73.3%. This dichotomy suggests aggressive expansion or pricing strategy changes over the past year, though recent stagnation may indicate a plateauing in demand or market saturation.
Wavelength revenue growth at 7.0% is indicative of increased demand for high-capacity data transmission, which is a positive signal for the company's strategic positioning in high-speed services. However, a notable decline in the commercial agreement revenue with T-Mobile, down 63% from the previous quarter, could reflect a shift in partnership dynamics or competitive pressures.
The reported EBITDA margin, at 43.2%, shows an operational efficiency gain from the previous quarter. Additionally, an increase in the regular quarterly dividend for Q2 2024 evidences confidence in sustaining cash flow, reinforcing shareholder value. However, investors should be cautious about the decline in both GAAP gross profit and margin, which may signal cost management challenges or pricing pressure.
While the adjustment of leverage ratios signals a strengthening balance sheet, it is essential to scrutinize the context, such as cash flows from operations turning positive after a previous deficit and new debt issuances like the IPV4 Securitized Notes. These factors could impact future flexibility and interest obligations.
Focusing on the telecommunications sector specifics, the quarter demonstrates a mixed performance for Cogent. Improving cash flow from operations is encouraging, pointing towards better working capital management or improved collections.
The shift in on-net and off-net revenues reflects the evolving landscape where Cogent's direct network connectivity (on-net) remains stable, whereas reliance on other carriers (off-net) is decreasing. This could be due to a strategic pivot towards more profitable or controllable segments of the business, or merely market-driven necessity.
Furthermore, the context provided regarding the residual impact of the COVID-19 pandemic on Cogent’s corporate results underlines the reality of market recovery and the shift in working patterns. Rising office occupancy might bring opportunities for growth, yet the unpredictability of this trend lends an element of risk.
Lastly, the agreement for IP transit services with T-Mobile provides a substantial guaranteed revenue stream, which should be factored into any long-term valuation of the company, despite the potential volatility in other revenue segments.
From a technology perspective, the increase in wavelength revenue and customer connections suggests a growing market for Cogent’s high-speed internet and Ethernet services, indicative of underlying demand within the industry. It's also a positive signal that the company is effectively leveraging its all-optical IP network backbone to capture additional market share in high-speed data services.
However, the Gross margin decline year-over-year from 45.4% to 9.9% raises concerns about the sustainability of profitability in the face of increasing costs or potential price competition. This could suggest that while Cogent is expanding its service footprint and customer base, it may be at the cost of lower profitability or the necessity to invest in maintaining competitive service offerings.
Investors should also consider the implications of the company’s IPV4 Securitized Notes issuance. As the value of IPV4 addresses continues to appreciate due to scarcity, this financial instrument may provide strategic advantages but also introduces unique risks associated with the commoditization of IP addresses.
Financial and Business Highlights
- Service revenue for Q1 2024 was
$266.2 million $272.1 million - Wavelength revenue increased sequentially by
7.0% to$3.3 million - Revenue under the Commercial Services Agreement with T-Mobile was
$8.6 million $3.2 million - Non-core revenue decreased from Q4 2023 to Q1 2024 by
16.8% from$7.3 million $6.0 million
- Wavelength revenue increased sequentially by
- Net cash used in operating activities was
$48.7 million $19.2 million - Net cash provided by investing activities was
$60.1 million $51.0 million - Cash received under the IP Transit Agreement with T-Mobile, and included in cash provided by investing activities, was
$87.5 million $87.5 million
- Cash received under the IP Transit Agreement with T-Mobile, and included in cash provided by investing activities, was
- Net cash provided by investing activities was
- EBITDA, as adjusted for Sprint acquisition costs and cash received under the IP Transit Agreement with T-Mobile was
$110.5 million $115.0 million - EBITDA, as adjusted for Sprint acquisition costs and cash received under the IP Transit Agreement with T-Mobile, margin was
40.6% for Q4 2023 and43.2% for Q1 2024.- Total Sprint acquisition costs were
$17.0 million $9.0 million - Severance costs, reimbursed by T-Mobile, and included in Sprint acquisition costs were
$16.2 million $4.3 million
- Severance costs, reimbursed by T-Mobile, and included in Sprint acquisition costs were
- Total Sprint acquisition costs were
- Gross leverage ratio was 4.07 for Q4 2023 and was 3.57 for Q1 2024.
- Net leverage ratio was 3.75 for Q4 2023 and was 3.17 for Q1 2024.
- Cogent closed its issuance of
$206.0 million 7.924% IPV4 Securitized Notes on May 2, 2024.
- Cogent approved an increase of
$0.01 $0.97 5$0.96 5
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
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
Wavelength revenue was
Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell. Non-core revenue was
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 decreased by
GAAP gross margin was
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
Non-GAAP gross margin was
Net cash provided by operating activities was
Total Sprint acquisition costs were
Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted, for Sprint acquisition costs and cash paid under the IP Transit Services Agreement (discussed below) was
EBITDA as adjusted, for Sprint acquisition costs and cash paid under the IP Transit Services Agreement margin, was
Basic net income (loss) per share was
Total customer connections increased by
The number of on-net buildings increased by 131 from March 31, 2023 to 3,321 as of March 31, 2024 and increased by 44 from December 31, 2023.
IP Transit Services Agreement
On May 1, 2023, the closing date of the Sprint acquisition, Cogent and T-Mobile USA, Inc. ("TMUSA"), a
Commercial Services Agreement
Additionally, on the closing date of the Sprint acquisition, Cogent and T-Mobile entered into a commercial agreement (the "Commercial Agreement"), for colocation and connectivity services. Revenue under the Commercial Agreement was
Quarterly Dividend Increase Approved
On May 8, 2024, Cogent's Board approved a regular quarterly dividend of
The payment of any future dividends and any other returns of capital will be at the discretion of the Board 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 indentures and other factors deemed relevant by the Board.
Residual Impact of COVID-19 Pandemic on Corporate Results
Beginning with and throughout the COVID-19 pandemic, Cogent witnessed a deteriorating real estate market in and around the buildings it serves in central business districts in
These and other risks are described in more detail in Cogent's Annual Report on Form 10-K for the year ended December 31, 2023 and in its Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2023, September 30, 2023 and March 31, 2024.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on May 9, 2024 to discuss Cogent's operating results for the first quarter of 2024. 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. A downloadable file of Cogent's "Summary of Financial and Operational Results" and a transcript of its conference call will also be available on Cogent's website following the conference 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 235 markets globally.
Cogent Communications is headquartered at 2450 N Street, NW,
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES Summary of Financial and Operational Results | |||||
Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | |
Metric ($ in 000's, except share, per | |||||
On-Net revenue | |||||
% Change from previous Qtr. | 1.0 % | 9.9 % | 1.1 % | 7.0 % | 0.4 % |
Off-Net revenue | |||||
% Change from previous Qtr. | 1.1 % | 173.5 % | 28.0 % | -5.3 % | -4.4 % |
Wavelength revenue (1) | $- | ||||
% Change from previous Qtr. | - | - | 88.8 % | 3.9 % | 7.0 % |
Non-Core revenue (2) (17) | |||||
% Change from previous Qtr. | 3.2 % | NM | 49.9 % | -43.5 % | -16.8 % |
Service revenue – total | |||||
% Change from previous Qtr. | 1.1 % | 56.1 % | 14.9 % | -1.2 % | -2.2 % |
Constant currency total revenue | 0.2 % | 55.9 % | 14.9 % | -1.1 % | -2.3 % |
Constant currency total revenue | 4.0 % | 61.4 % | 82.4 % | 78.1 % | 73.1 % |
Constant currency and excise tax | 0.1 % | 51.4 % | 13.4 % | -3.2 % | -2.3 % |
Constant currency and excise tax | 3.7 % | 56.2 % | 75.5 % | 67.4 % | 62.4 % |
Excise Taxes included in service | |||||
% Change from previous Qtr. | 2.6 % | 163.3 % | 31.9 % | 40.3 % | 0.6 % |
Corporate revenue (5) (17) | |||||
% Change from previous Qtr. | -0.2 % | 29.6 % | 8.5 % | 5.1 % | -1.4 % |
Net-centric revenue (5) (16) | |||||
% Change from previous Qtr. | 2.7 % | 28.9 % | 8.4 % | -1.9 % | -1.3 % |
Enterprise revenue (5) | - | ||||
% Change from previous Qtr. | - | NM | 45.6 % | -12.8 % | -5.7 % |
Network operations expenses (4) | |||||
% Change from previous Qtr. | 2.8 % | 134.7 % | 26.2 % | 0.6 % | -3.2 % |
GAAP gross profit (6) | |||||
% Change from previous Qtr. | -2.3 % | -28.7 % | -69.7 % | 97.0 % | -11.4 % |
GAAP gross margin (6) | 45.4 % | 20.8 % | 5.5 % | 10.9 % | 9.9 % |
Non-GAAP gross profit (3) (7) | |||||
% Change from previous Qtr. | 0.0 % | 7.8 % | -0.3 % | -4.2 % | -0.3 % |
Non-GAAP gross margin (3) (7) | 61.9 % | 42.8 % | 37.1 % | 36.0 % | 36.7 % |
Selling, general and administrative | |||||
% Change from previous Qtr. | 2.5 % | 100.9 % | -25.0 % | 28.6 % | -6.4 % |
Depreciation and amortization expense | |||||
% Change from previous Qtr. | 6.8 % | 108.7 % | 65.2 % | -21.8 % | 4.6 % |
Equity-based compensation expense | |||||
% Change from previous Qtr. | 5.1 % | -5.0 % | 18.6 % | -9.8 % | 4.0 % |
Operating income (loss) | |||||
% Change from previous Qtr. | -11.0 % | NM | 46.1 % | 35.4 % | -13.3 % |
Interest expense (9) | |||||
% Change from previous Qtr. | -13.6 % | 50.8 % | -15.5 % | 44.3 % | -34.1 % |
Non-cash change in valuation – Swap | |||||
Gain on bargain purchase (10) | - | ||||
Net income (loss) | |||||
Basic net income (loss) per common | |||||
Diluted net income (loss) per common | |||||
Weighted average common shares – | 47,037,091 | 47,137,822 | 47,227,338 | 47,353,291 | 47,416,268 |
% Change from previous Qtr. | 0.3 % | 0.2 % | 0.2 % | 0.3 % | 0.1 % |
Weighted average common shares – | 47,381,226 | 47,526,207 | 47,227,338 | 48,037,841 | 47,416,268 |
% Change from previous Qtr. | 0.4 % | 0.3 % | -0.6 % | 1.7 % | -1.3 % |
EBITDA (3) | |||||
% Change from previous Qtr. | -1.9 % | -56.9 % | 80.4 % | -86.2 % | 207.0 % |
EBITDA margin (3) | 36.5 % | 10.1 % | 15.8 % | 2.2 % | 6.9 % |
Sprint acquisition costs (15) | |||||
Cash payments under IP Transit | $- | ||||
EBITDA, as adjusted for Sprint | |||||
% Change from previous Qtr. | -1.6 % | -4.2 % | 143.1 % | -15.9 % | 4.1 % |
EBITDA, as adjusted for Sprint | 36.8 % | 22.5 % | 47.7 % | 40.6 % | 43.2 % |
Net cash provided by (used in) | |||||
% Change from previous Qtr. | -1.4 % | 130.7 % | -163.4 % | -7.1 % | -139.5 % |
Capital expenditures | |||||
% Change from previous Qtr. | 18.4 % | 61.4 % | -32.2 % | 71.9 % | -6.3 % |
Principal payments of capital (finance) | |||||
% Change from previous Qtr. | -61.5 % | -17.5 % | 429.7 % | -54.5 % | 23.5 % |
Dividends paid (18) | |||||
Gross Leverage Ratio (3) (11) | 5.47 | 5.63 | 4.79 | 4.07 | 3.57 |
Net Leverage Ratio (3) (11) | 4.46 | 4.56 | 4.24 | 3.75 | 3.17 |
Customer Connections – end of period | |||||
On-Net customer connections | 83,268 | 92,846 | 88,250 | 88,291 | 87,574 |
% Change from previous Qtr. | 0.8 % | 11.5 % | -5.0 % | 0.0 % | -0.8 % |
Off-Net customer connections | 13,785 | 38,762 | 36,923 | 36,676 | 34,579 |
% Change from previous Qtr. | 1.9 % | 181.2 % | -4.7 % | -0.7 % | -5.7 % |
Wavelength customer connections (1) | 414 | 449 | 661 | 693 | |
% Change from previous Qtr. | - | 8.5 % | 47.2 % | 4.8 % | |
Non-Core customer connections (2) (17) | 374 | 19,408 | 12,403 | 11,975 | 10,037 |
% Change from previous Qtr. | 3.0 % | NM | -36.1 % | -3.5 % | -16.2 % |
Total customer connections (16) (17) | 97,427 | 151,430 | 138,025 | 137,603 | 132,883 |
% Change from previous Qtr. | 0.9 % | 55.4 % | -8.9 % | -0.3 % | -3.4 % |
Corporate customer connections (5) | 44,570 | 61,284 | 55,045 | 54,493 | 51,821 |
% Change from previous Qtr. | -0.6 % | 37.5 % | -10.2 % | -1.0 % | -4.9 % |
Net-centric customer connections (5) | 52,857 | 66,711 | 62,291 | 62,370 | 61,599 |
% Change from previous Qtr. | 2.3 % | 26.2 % | -6.6 % | 0.1 % | -1.2 % |
Enterprise customer connections (5) | - | 23,435 | 20,689 | 20,740 | 19,463 |
% Change from previous Qtr. | - | NM | -11.7 % | 0.2 % | -6.2 % |
On-Net Buildings – end of period | |||||
Multi-Tenant office buildings | 1,841 | 1,844 | 1,860 | 1,862 | 1,861 |
Carrier neutral data center buildings | 1,294 | 1,327 | 1,337 | 1,347 | 1,382 |
Cogent data centers | 55 | 56 | 60 | 68 | 78 |
Total on-net buildings | 3,190 | 3,227 | 3,257 | 3,277 | 3,321 |
Total carrier neutral data center nodes | 1,490 | 1,526 | 1,528 | 1,558 | 1,586 |
Square feet – multi-tenant office | 1,001,382,577 | 1,001,491,002 | 1,006,523,795 | 1,008,006,655 | 1,009,702,653 |
Total Technical Buildings Owned (12) | - | 482 | 482 | 482 | 482 |
Square feet – Technical Buildings | - | 1,603,569 | 1,603,569 | 1,603,569 | 1,603,569 |
Network – end of period (13) | |||||
Intercity route miles – Leased (13) | 61,300 | 72,694 | 72,694 | 72,552 | 76,211 |
Metro route miles – Leased (13) | 17,826 | 22,556 | 22,128 | 24,779 | 25,977 |
Metro fiber miles – Leased (13) | 42,863 | 75,577 | 69,943 | 77,365 | 79,138 |
Intercity route miles – Owned (13) | 2,748 | 21,883 | 21,883 | 21,883 | 21,883 |
Metro route miles – Owned (13) | 445 | 1,704 | 1,704 | 1,704 | 1,704 |
Connected networks – AS's | 7,864 | 7,891 | 7,971 | 7,988 | 8,098 |
Headcount – end of period (14) | |||||
Sales force – quota bearing (14) | 562 | 647 | 637 | 657 | 677 |
Sales force – total (14) | 714 | 841 | 833 | 847 | 871 |
Total employees (14) | 1,107 | 2,020 | 1,990 | 1,947 | 1,955 |
Sales rep productivity – units per full | 4.0 | 9.2 | 3.6 | 3.3 | 4.0 |
FTE – sales reps | 539 | 567 | 621 | 620 | 627 |
(1) In connection with the acquisition of the Wireline Business, Cogent began to provide optical wavelength services and optical transport services over its fiber network.
(2) Consists of legacy services of companies whose assets or businesses were acquired by Cogent.
(3) See Schedules of Non-GAAP measures below for definitions and reconciliations to GAAP measures.
(4) Network operations expense excludes equity-based compensation expense of
(5) In connection with the acquisition of the Wireline Business, Cogent classified revenue and customer connections as follows;
$12.9 million $6.5 million $20.1 million - Conversely, Cogent reclassified
$0.3 million $0.3 million $0.02 million
(6) 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.
(7) 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 measures to provide investors. Management uses them to measure the margin available to the company after network service costs, in essence a measure of the efficiency of the Company's network.
(8) Excludes equity-based compensation expense of
(9) As of March 31, 2024, Cogent was party to an interest rate swap agreement (the "Swap Agreement") that has the economic effect of modifying the fixed interest rate obligation associated with its Senior Secured 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate ("SOFR") so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR. Interest expense includes
(10) The estimated gain on bargain purchase from the Sprint acquisition was
(In thousands) Gain on bargain purchase | |||
Fair value of net assets acquired | |||
Total net consideration to be received from Seller, net of discounts | 594,582 | ||
Gain on bargain purchase |
(11) Includes cash payments under the IP Transit Services Agreement, as discussed above, of
$29.2 million $58.3 million $29.2 million $87.5 million $87.5 million $87.5 million $87.5 million $87.5 million $87.5 million $87.5 million $87.5 million $87.5 million
(12) In connection with the acquisition of the Wireline Business, Cogent acquired 482 technical buildings. Twenty-four of those buildings have been converted to a Cogent Data Centers.
(13) As of June 30, 2023,
- Leased intercity route miles of dark fiber include 11,376 former Sprint route miles and 61,318 Cogent route miles.
- Leased metro route miles of dark fiber include 4,527 former Sprint route miles and 18,029 Cogent route miles.
- Leased metro fiber miles of dark fiber include 32,346 former Sprint fiber miles and 43,231 Cogent fiber miles
- As of September 30, 2023,
- Leased intercity route miles of dark fiber include 11,376 former Sprint route miles and 61,318 Cogent route miles.
- Leased metro route miles of dark fiber include 4,047 former Sprint route miles and 18,081 Cogent route miles.
- Leased metro fiber miles of dark fiber include 26,602 former Sprint fiber miles and 43,341 Cogent fiber miles.
- As of December 31, 2023,
- Leased intercity route miles of dark fiber include 11,017 former Sprint route miles and 61,535 Cogent route miles.
- Leased metro route miles of dark fiber include 3,911 former Sprint route miles and 20,868 Cogent route miles.
- Leased metro fiber miles of dark fiber include 25,252 former Sprint fiber miles and 52,113 Cogent fiber miles.
- As of March 31, 2024,
- Leased intercity route miles of dark fiber include 11,017 former Sprint route miles and 65,194 Cogent route miles.
- Leased metro route miles of dark fiber include 3,146 former Sprint route miles and 22,831 Cogent route miles.
- Leased metro fiber miles of dark fiber include 21,471 former Sprint fiber miles and 57,667 Cogent fiber miles.
- In connection with Cogent's Sprint acquisition, Cogent acquired 19,135 owned intercity route miles of dark fiber and 1,259 owned metro route miles of dark fiber.
(14) In connection with the acquisition of the Wireline Business Cogent hired 942 total employees, including 75 quota bearing sales employees and 114 sales employees.
- As of June 30, 2023, there were 888 employees remaining from the original Wireline Business employees.
- As of September 30, 2023, there were 839 employees remaining from the original Wireline Business employees.
- As of December 31, 2023, there were 758 employees remaining from the original Wireline Business employees.
- As of March 31, 2024, there were 718 employees remaining from the original Wireline Business employees.
(15) In connection with the acquisition of the Wireline Business the Company incurred the following Sprint Acquisition Costs
$0.4 million $0.7 million $0.4 million $17.0 million $9.0 million
Included in Sprint acquisition costs were the following reimbursable severance costs;
$16.2 million $4.3 million
(16) Sales rep productivity for Q2 2023 included 9,084 net-centric customer connections from a commercial services agreement ("CSA") with TMUSA entered into in May 2023.
- Net-centric revenue under the CSA was
$7.3 million $8.0 million $8.6 million $3.2 million
Net-centric customer connections under the CSA were
- 8,028 as of June 30, 2023,
- 4,661 as of September 30, 2023,
- 3,576 as of December 31, 2023 and
- 2,658 as of March 31, 2024
(17) As of June 30, 2023 total non-core customer connections included 8,486 Session Initiation Protocol ("SIP") customer connections. This non-core corporate product was discontinued. There were no SIP, non-core customer connections as of September 30, 2023, December 31, 2023 or March 31, 2024.
(18) The first quarter 2024 dividend totaling
NM Not meaningful
Schedules of Non-GAAP Measures
EBITDA, EBITDA, as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Services Agreement , EBITDA margin and EBITDA, as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Services Agreement , margin
EBITDA represents net cash flows provided by 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 Company believes that EBITDA, EBITDA, as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Services Agreement, EBITDA margin and EBITDA as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Services Agreement margin are useful measures of its ability to service debt, fund capital expenditures, pay dividends and expand its business. The company believes its EBITDA, as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Services Agreement, is a useful measure because it includes recurring cash flows stemming from the IP Transit Services Agreement that are of the same type as contracted payments under commercial contracts. The measurements are an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information. EBITDA, EBITDA, as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Agreement, EBITDA margin and EBITDA as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Agreement margin 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 measures are not intended to reflect the Company's free cash flow, as they do 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 measures may also differ from the calculations performed by its competitors and other companies and as such, their utility as a comparative measure is limited.
EBITDA, and EBITDA, as adjusted for Sprint acquisition costs and cash payments made to the Company under the IP Transit Services Agreement, are reconciled to net cash provided by operating activities in the table below.
Q1 | Q2 | Q3 | Q4 | Q1 | |
($ in 000's) – unaudited | |||||
Net cash provided by (used in) operating | |||||
Changes in operating assets and liabilities | |||||
Cash interest expense and income tax | 18,797 | 31,875 | 44,956 | 18,424 | 33,873 |
EBITDA | |||||
PLUS: Sprint acquisition costs | |||||
PLUS: Cash payments made to the | - | 29,167 | 87,500 | 87,500 | 87,500 |
EBITDA, as adjusted for Sprint | |||||
EBITDA margin | 36.5 % | 10.1 % | 15.8 % | 2.2 % | 6.9 % |
EBITDA, as adjusted for Sprint | 36.8 % | 22.5 % | 47.7 % | 40.6 % | 43.2 % |
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 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
Service revenue, as reported – current | |||||
Impact of foreign currencies on service | (1,292) | (417) | 10 | 375 | (304) |
Service revenue - as adjusted for | |||||
Service revenue, as reported – prior | |||||
Constant currency revenue increase | |||||
Constant currency revenue percent | 0.2 % | 55.9 % | 14.9 % | -1.1 % | -2.3 % |
(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 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
Service revenue, as reported – current | |||||
Impact of foreign currencies on service | 1,553 | (277) | (1,768) | (1,412) | (362) |
Service revenue - as adjusted for | |||||
Service revenue, as reported – prior | 149,175 | 148,450 | |||
Constant currency revenue increase | 5,966 | 91,079 | |||
Constant currency percent revenue | 4.0 % | 61.4 % | 82.4 % | 78.1 % | 73.1 % |
(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. |
Revenue on a constant currency basis and adjusted for the impact of excise taxes is reconciled to service revenue as reported in the tables below.
Constant currency and excise tax impact on revenue changes – sequential periods
($ in 000's) – unaudited | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
Service revenue, as reported – current | |||||
Impact of foreign currencies on service | (1,292) | (417) | 10 | 375 | (304) |
Impact of excise taxes on service | (107) | (6,847) | (3,517) | (5,871) | (121) |
Service revenue - as adjusted for | |||||
Service revenue, as reported – prior | |||||
Constant currency and excise taxes | |||||
Constant currency and excise tax | 0.1 % | 51.4 % | 13.4 % | -3.2 % | -2.3 % |
(3) | Service revenue, as adjusted for currency impact and the impact of excise taxes, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the prior sequential period and adjusting for the changes in excise taxes recorded as revenue between the periods presented. The Company believes that disclosing quarterly sequential revenue growth without the impact of foreign currencies and excise taxes on service revenue is a useful measure of sequential revenue growth. Service revenue, as adjusted for the impact of foreign currency and excise taxes, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information. |
Constant currency and excise tax impact on revenue changes – prior year periods
($ in 000's) – unaudited | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
Service revenue, as reported – | |||||
Impact of foreign currencies on | 1,553 | (277) | (1,768) | (1,412) | (362) |
Impact of excise taxes on service | (451) | (7,592) | (10,439) | (16,342) | (16,356) |
Service revenue - as adjusted for | |||||
Service revenue, as reported – | |||||
Constant currency and excise | |||||
Constant currency and excise tax | 3.7 % | 56.2 % | 75.5 % | 67.4 % | 62.4 % |
(4) | Service revenue, as adjusted for currency impact and the impact of excise taxes, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the prior year period and adjusting for the changes in excise taxes recorded as revenue between the periods presented. The Company believes that disclosing quarterly sequential revenue growth without the impact of foreign currencies and excise taxes on service revenue is a useful measure of sequential revenue growth. Service revenue, as adjusted for the impact of foreign currency and excise taxes, 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 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | |
($ in 000's) – unaudited | |||||
Service revenue total | |||||
Minus - Network operations expense | 83,798 | 190,013 | 260,328 | 242,355 | 239,824 |
GAAP Gross Profit (5) | |||||
Plus - Equity-based compensation – | 149 | 231 | 370 | 370 | 385 |
Plus – Depreciation and amortization | |||||
Non-GAAP Gross Profit (6) | |||||
GAAP Gross Margin (5) | 45.4 % | 20.8 % | 5.5 % | 10.9 % | 9.9 % |
Non-GAAP Gross Margin (6) | 61.9 % | 42.8 % | 37.1 % | 36.0 % | 36.7 % |
(5) | 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. |
(6) | 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 measures for investors, as they are measures 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 12 months EBITDA, as adjusted for Sprint acquisition costs and cash payments under the IP Transit Services Agreement. Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the last 12 months EBITDA, as adjusted for Sprint acquisition costs and cash payments under the IP Transit Services Agreement. Cogent's gross leverage ratios and net leverage ratios are shown below.
($ in 000's) – unaudited | As of | As of | As of | As of | As of |
Cash and cash equivalents & | |||||
Debt | |||||
Capital (finance) leases – | 19,782 | 20,114 | 63,236 | 64,594 | 64,043 |
Capital (finance) leases – long | 300,600 | 311,405 | 419,941 | 419,921 | 453,473 |
Senior Secured 2026 Notes | 500,000 | 500,000 | 500,000 | 500,000 | 500,000 |
Senior Unsecured 2027 Notes | 450,000 | 450,000 | 450,000 | 450,000 | 450,000 |
Total debt | 1,270,382 | 1,281,519 | 1,433,177 | 1,434,515 | 1,467,516 |
Total net debt | 1,035,960 | 1,037,566 | 1,267,105 | 1,320,734 | 1,304,242 |
Trailing 12 months EBITDA, as | 232,169 | 227,774 | 298,984 | 352,465 | 411,001 |
Gross leverage ratio | 5.47 | 5.63 | 4.79 | 4.07 | 3.57 |
Net leverage ratio | 4.46 | 4.56 | 4.24 | 3.75 | 3.17 |
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 MARCH 31, 2024 AND DECEMBER 31, 2023 (IN THOUSANDS, EXCEPT SHARE DATA) | ||||||
March 31, 2024 | December 31, 2023 | |||||
(Unaudited) | ||||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 118,433 | $ | 75,092 | ||
Restricted cash | 44,841 | 38,689 | ||||
Accounts receivable, net of allowance for credit losses of | 107,169 | 135,475 | ||||
Due from T-Mobile, IP Transit Services Agreement, current portion, net of discount of | 119,788 | 179,269 | ||||
Due from T-Mobile, Transition Services Agreement | 3,232 | 4,514 | ||||
Prepaid expenses and other current assets | 79,698 | 80,588 | ||||
Total current assets | 473,161 | 513,627 | ||||
Property and equipment: | ||||||
Property and equipment | 3,046,160 | 2,947,376 | ||||
Accumulated depreciation and amortization | (1,484,792) | (1,409,559) | ||||
Total property and equipment, net | 1,561,368 | 1,537,817 | ||||
Right-of-use leased assets | 347,993 | 361,587 | ||||
IPV4 intangible assets | 458,000 | 458,000 | ||||
Other intangible assets, net | 14,370 | 14,815 | ||||
Deposits and other assets | 26,327 | 23,438 | ||||
Due from T-Mobile, IP Transit Services Agreement, net of discount of | 243,061 | 263,750 | ||||
Due from T-Mobile, Purchase Agreement, net of discount of | 21,132 | 38,585 | ||||
Total assets | $ | 3,145,412 | $ | 3,211,619 | ||
Liabilities and stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 45,932 | $ | 48,356 | ||
Accrued and other current liabilities | 187,495 | 120,523 | ||||
Accrued dividend payable | 45,789 | — | ||||
Due to T-Mobile – Transition Services Agreement | 5,816 | 66,908 | ||||
Due to T-Mobile – Purchase Agreement | 4,981 | 4,981 | ||||
Current maturities, operating lease liabilities | 66,553 | 67,962 | ||||
Finance lease obligations, current maturities | 64,043 | 64,594 | ||||
Total current liabilities | 420,609 | 373,324 | ||||
Senior secured 2026 notes, net of unamortized debt costs of | 498,653 | 498,498 | ||||
Senior unsecured 2027 notes, net of unamortized debt costs of | 447,276 | 447,088 | ||||
Operating lease liabilities, net of current maturities | 320,898 | 330,095 | ||||
Finance lease obligations, net of current maturities | 453,473 | 419,921 | ||||
Deferred income tax liabilities | 436,504 | 471,498 | ||||
Other long-term liabilities | 67,355 | 61,639 | ||||
Total liabilities | 2,644,768 | 2,602,063 | ||||
Commitments and contingencies: | ||||||
Stockholders' equity: | ||||||
Common stock, | 49 | 49 | ||||
Additional paid-in capital | 614,535 | 606,755 | ||||
Accumulated other comprehensive loss | (19,419) | (14,385) | ||||
Accumulated (deficit) earnings | (94,521) | 17,137 | ||||
Total stockholders' equity | 500,644 | 609,556 | ||||
Total liabilities and stockholders' equity | $ | 3,145,412 | $ | 3,211,619 | ||
COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) | ||||||
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||
(Unaudited) | (Unaudited) | |||||
Service revenue | $ | 266,168 | $ | 153,588 | ||
Operating expenses: | ||||||
Network operations (including | 168,933 | 58,638 | ||||
Selling, general, and administrative (including | 76,696 | 45,078 | ||||
Acquisition costs – Sprint Business | 9,037 | 400 | ||||
Depreciation and amortization | 70,891 | 25,160 | ||||
Total operating expenses | 325,557 | 129,276 | ||||
Operating (loss) income | (59,389) | 24,312 | ||||
Interest expense | (23,010) | (19,005) | ||||
Reduction to gain on bargain purchase – Sprint Business | (5,470) | — | ||||
Change in valuation – interest rate swap agreement | (6,152) | 1,847 | ||||
Interest income – IP Transit Services Agreement | 7,330 | — | ||||
Interest income – Purchase Agreement | (480) | — | ||||
Interest income and other, net | 2,737 | 3,498 | ||||
Income before income taxes | (84,434) | 10,652 | ||||
Income tax benefit (expense) | 19,127 | (4,504) | ||||
Net (loss) income | $ | (65,307) | $ | 6,148 | ||
Comprehensive (loss) income: | ||||||
Net (loss) income | $ | (65,307) | $ | 6,148 | ||
Foreign currency translation adjustment | (5,034) | 1,788 | ||||
Comprehensive (loss) income | $ | (70,341) | $ | 7,936 | ||
Net (loss) income per common share: | ||||||
Basic net (loss) income per common share | $ | (1.38) | $ | 0.13 | ||
Diluted net (loss) income per common share | $ | (1.38) | $ | 0.13 | ||
Dividends declared per common share | $ | 0.965 | $ | 0.925 | ||
Weighted-average common shares - basic | 47,416,268 | 47,037,091 | ||||
Weighted-average common shares - diluted | 47,416,268 | 47,381,226 | ||||
COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023 (IN THOUSANDS) | ||||||
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||
(Unaudited) | (Unaudited) | |||||
Cash flows from operating activities: | ||||||
Net (loss) income | $ | (65,307) | $ | 6,148 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 70,891 | 25,160 | ||||
Amortization of debt discounts | 342 | 324 | ||||
Amortization of discounts, due from T-Mobile, IP Transit Services & Purchase Agreements | (6,850) | — | ||||
Equity-based compensation expense (net of amounts capitalized) | 6,950 | 6,581 | ||||
Reduction to gain on bargain purchase – Sprint Business | 5,470 | — | ||||
Gains – lease transactions | — | (615) | ||||
Deferred income taxes | (33,069) | 890 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | 28,306 | (860) | ||||
Prepaid expenses and other current assets | 890 | (2,919) | ||||
Change in valuation – interest rate swap agreement | 6,152 | (1,847) | ||||
Due to T-Mobile – Transition Services Agreement | (61,092) | — | ||||
Due from T-Mobile – Transition Services Agreement | (3,052) | — | ||||
Unfavorable lease liabilities | (2,451) | — | ||||
Accounts payable, accrued liabilities and other long-term liabilities | 75,397 | 2,923 | ||||
Deposits and other assets | (3,358) | 36 | ||||
Net cash provided by operating activities | 19,219 | 35,821 | ||||
Cash flows from investing activities: | ||||||
Cash receipts - IP Transit Services Agreement – T-Mobile | 87,500 | — | ||||
Acquisition of Sprint Business – severance reimbursements | 4,334 | — | ||||
Purchases of property and equipment | (40,883) | (23,204) | ||||
Net cash provided by (used in) investing activities | 50,951 | (23,204) | ||||
Cash flows from financing activities: | ||||||
Dividends paid | (478) | (45,311) | ||||
Proceeds from exercises of stock options | 164 | 145 | ||||
Principal payments of finance lease obligations | (23,235) | (9,450) | ||||
Net cash used in financing activities | (23,549) | (54,616) | ||||
Effect of exchange rates changes on cash | 2,872 | 510 | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 49,493 | (41,489) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 113,781 | 275,912 | ||||
Cash, cash equivalents and restricted cash, end of period | $ | 163,274 | $ | 234,423 | ||
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 the impact of our acquisition of the Wireline Business, including our difficulties integrating our business with the acquired Wireline Business, which may result in the combined company not operating as effectively or efficiently as expected; transition services required to support the acquired Wireline Business and the related costs continuing for a longer period than expected; transition related costs associated with the acquisition; the COVID-19 pandemic and the related government policies; future economic instability in the global economy, including the risk of economic recession, recent bank failures and liquidity concerns at certain other banks 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; cyber-attacks or security breaches of our network; 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 and right-of-way agreements on favorable terms; our reliance on a few equipment vendors, 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 and right-of-way providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; our ability to make payments on our indebtedness as they become due and outcomes in litigation, risks associated with variable interest rates under our interest rate swap agreement, 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 Annual Report on Form 10-K for the year ended December 31, 2023 and our Form 10-Q for the quarterly periods ended June 30, 2023, September 30, 2023 and March 31, 2024. 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.
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