Cogent Communications Reports Fourth Quarter and Full Year 2022 Results and Increases its Regular Quarterly Dividend on its Common Stock
Cogent Communications (NASDAQ: CCOI) has announced a quarterly dividend increase of $0.01 per share, bringing the total to $0.925 for Q1 2023. This marks the company's 42nd consecutive quarterly dividend increase and represents an annual increase of 8.2% from Q1 2022. Service revenue for Q4 2022 reached $152.0 million, a 1.3% increase from the previous quarter, with on-net revenue at $114.9 million. Net cash provided by operating activities rose 2.0% to $173.7 million for the year. However, the company continues to face challenges due to the COVID-19 pandemic affecting commercial office demand.
- Quarterly dividend increased to $0.925, marking a 1.1% rise from Q4 2022 and an 8.2% annual increase.
- Service revenue for Q4 2022 grew 1.3% sequentially to $152.0 million.
- EBITDA margin for Q4 2022 was 37.6%, maintaining stability in earnings.
- Continued adverse effects from COVID-19 impacting demand for commercial office space.
- Operating cash flow decreased by 32.2% from Q3 2022's $53.6 million to Q4's $36.3 million.
Financial and Business Highlights
- Cogent approved an increase of
$0.01 $0.92 5$0.91 5 - The Q1 2023
$0.92 58.2% from the dividend per share of$0.85 5 - Service revenue increased from Q3 2022 to Q4 2022 by
1.3% to$152.0 million 3.2% , and increased from full year 2021 to 2022 by1.7% to$599.6 million - Service revenue, on a constant currency basis, increased from Q3 2022 to Q4 2022 by
1.3% , increased from Q4 2021 to Q4 2022 by5.5% and increased from full year 2021 to full year 2022 by3.9% . - Service revenue, on a constant currency basis and adjusted for the impact of excise tax revenues, increased from Q3 2022 to Q4 2022 by
1.3% , increased from Q4 2021 to Q4 2022 by5.7% and increased from full year 2021 to full year 2022 by4.4% . - Net cash provided by operating activities increased by
2.0% from full year 2021 to full year 2022 to$173.7 million - Sprint (T-Mobile Wireline) acquisition costs were
$0.2 million $2.2 million - EBITDA margin, including the impact of
$0.2 million 37.6% . - EBITDA, including the impact of
$2.2 million 38.5% - EBITDA, excluding the impact of
$2.2 million 38.8% .
The impact of excise taxes, including
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
Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell.
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
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
Net cash provided by operating activities increased by
Earnings before interest, taxes, depreciation and amortization (EBITDA), including
EBITDA margin, including Sprint (T-Mobile Wireline) acquisition costs, was
Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding
EBITDA margin, excluding Sprint (T-Mobile Wireline) acquisition costs, was
Basic net income (loss) per share was
Total customer connections increased by
The number of on-net buildings increased by 120 from
Quarterly Dividend Increase Approved
On
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.
Tax Treatment of 2022 Dividends
Cogent paid four quarterly dividends in 2022 totaling
Impact of COVID-19
Cogent continues to be impacted by the COVID-19 pandemic and the accompanying responses by governments around the world. Cogent continues to believe that its largest customer base, which is served primarily in its multi-tenant office buildings, is being adversely affected by falling demand for commercial office space in central business districts as companies located in these buildings elect not to return to their office space either on a temporary or even permanent basis or slow the pace of opening new offices. In addition, Cogent's corporate customer base may reduce their overall number of locations due to adverse economic conditions or new working configurations which may adversely affect Cogent's number of corporate connections and service revenues. Cogent continues to experience a slight slowdown in the availability and delivery of networking equipment but Cogent believes it can adequately manage the operation, maintenance, upgrading and growth of its network. A worsening or prolonged slowdown may impact our ability to expand and augment our network.
A resurgence of COVID-19, due to immunity-resistant variants, may cause our corporate customers to continue to delay the return of their employees to the office, to cause these customers to shift workers in the office back to remote work and to delay further opening new offices. A resurgence may also cause Cogent's employees to be more reluctant to continue in, or make new employees more reluctant to accept, full time, in-office positions. As a result, the lingering impact of the COVID-19 pandemic on office occupancy trends, supply chains and our ability to attract and retain employees may have prolonged effects that impact Cogent's business well into the future. These and other risks are described in more detail in Cogent's Annual Report on Form 10-K for the year ended
Conference Call and Website Information
Cogent will host a conference call with financial analysts at
About
Summary of Financial and Operational Results | ||||||||
Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | |
Metric ($ in 000's, except share and per share data) – unaudited | ||||||||
On-Net revenue | ||||||||
% Change from previous Qtr. | 2.6 % | 1.0 % | 0.1 % | -0.3 % | 1.7 % | -0.6 % | 1.1 % | 1.5 % |
Off-Net revenue | ||||||||
% Change from previous Qtr. | 0.1 % | -0.1 % | -0.1 % | -1.0 % | 0.2 % | -0.3 % | 0.9 % | 0.7 % |
Non-Core revenue (1) | ||||||||
% Change from previous Qtr. | -10.8 % | 29.9 % | 23.7 % | -9.9 % | -0.6 % | 25.3 % | -11.9 % | -7.6 % |
Service revenue – total | ||||||||
% Change from previous Qtr. | 2.0 % | 0.8 % | 0.0 % | -0.5 % | 1.3 % | -0.5 % | 1.0 % | 1.3 % |
Constant currency total revenue quarterly growth rate – sequential quarters (6) | 1.7 % | 0.6 % | 0.5 % | 0.1 % | 1.7 % | 0.4 % | 2.0 % | 1.3 % |
Constant currency total revenue quarterly growth rate – year over year quarters (6) | 2.3 % | 2.8 % | 3.6 % | 2.9 % | 2.9 % | 2.7 % | 4.3 % | 5.5 % |
Constant currency and excise tax impact on total revenue quarterly growth rate – sequential quarters (6) | 1.4 % | 0.5 % | 0.5 % | 0.4 % | 2.1 % | 0.6 % | 1.6 % | 1.3 % |
Constant currency and excise tax impact on total revenue quarterly growth rate – year over year quarters (6) | 1.8 % | 1.7 % | 2.9 % | 2.8 % | 3.5 % | 3.6 % | 4.7 % | 5.7 % |
Excise Taxes included in service revenue | ||||||||
% Change from previous Qtr. | 9.3 % | 6.3 % | 0.0 % | -9.9 % | -13.7 % | -7.9 % | 19.4 % | -0.8 % |
Network operations expenses (2) | ||||||||
% Change from previous Qtr. | 0.9 % | 1.9 % | 0.8 % | -0.4 % | 1.8 % | -1.6 % | 1.2 % | -0.3 % |
GAAP gross profit (3) | ||||||||
% Change from previous Qtr. | 1.6 % | 2.8 % | -1.3 % | -0.7 % | 1.2 % | -0.3 % | 1.5 % | 2.2 % |
GAAP gross margin (3) | 46.1 % | 47.1 % | 46.4 % | 46.3 % | 46.3 % | 46.4 % | 46.6 % | 47.0 % |
Non-GAAP gross profit (4) (6) | ||||||||
% Change from previous Qtr. | 2.7 % | 0.1 % | -0.4 % | -0.6 % | 1.0 % | 0.2 % | 1.0 % | 2.3 % |
Non-GAAP gross margin (4) (6) | 62.5 % | 62.1 % | 61.8 % | 61.8 % | 61.6 % | 62.0 % | 62.0 % | 62.6 % |
Selling, general and administrative expenses (5) | ||||||||
% Change from previous Qtr. | 7.4 % | -4.3 % | -2.8 % | -0.5 % | 3.5 % | -3.1 % | -1.6 % | 14.0 % |
Depreciation and amortization expense | ||||||||
% Change from previous Qtr. | -2.2 % | 0.6 % | 2.3 % | -0.2 % | 0.5 % | 1.7 % | -0.8 % | 2.9 % |
Equity-based compensation expense | ||||||||
% Change from previous Qtr. | 25.0 % | -5.9 % | -4.2 % | -8.1 % | 0.0 % | -2.5 % | 5.1 % | 0.9 % |
Operating income | ||||||||
% Change from previous Qtr. | -4.0 % | 7.3 % | 1.2 % | 26.6 % | -20.4 % | 2.7 % | -5.0 % | -2.8 % |
Interest expense | ||||||||
% Change from previous Qtr. | -1.1 % | -10.1 % | 0.3 % | -3.9 % | 3.3 % | -4.9 % | 33.2 % | 22.5 % |
Non-cash change in valuation – Swap agreement | ||||||||
Net income (loss) | ||||||||
Foreign exchange gains (losses) on 2024 Euro Notes | $- | $- | ||||||
Basic net income (loss) per common share | ||||||||
Diluted net income (loss) per common share | ||||||||
Weighted average common shares – basic | 46,067,096 | 46,229,603 | 46,293,524 | 46,420,168 | 46,575,848 | 46,691,142 | 46,736,742 | 46,885,512 |
% Change from previous Qtr. | 0.4 % | 0.4 % | 0.1 % | 0.3 % | 0.3 % | 0.2 % | 0.1 % | 0.3 % |
Weighted average common shares – diluted | 46,507,258 | 46,229,603 | 46,866,929 | 46,992,639 | 46,929,191 | 47,029,446 | 46,736,742 | 47,196,890 |
% Change from previous Qtr. | 1.3 % | -0.6 % | 1.4 % | 0.3 % | -0.1 % | 0.2 % | -0.6 % | 1.0 % |
EBITDA (6) | ||||||||
% Change from previous Qtr. | -0.2 % | 2.9 % | 1.0 % | -0.6 % | -0.4 % | 2.3 % | -1.0 % | -1.3 % |
EBITDA margin | 37.8 % | 38.7 % | 39.0 % | 39.0 % | 38.3 % | 39.4 % | 38.6 % | 37.6 % |
Sprint (T-Mobile Wireline) acquisition costs | $- | $- | $- | $- | $- | $- | ||
EBITDA, as adjusted for Sprint (T-Mobile Wireline) acquisition costs (6) | ||||||||
% Change from previous Qtr. | -0.2 % | 2.9 % | 1.0 % | -0.6 % | -0.4 % | 2.3 % | 2.4 % | -4.2 % |
EBITDA, as adjusted for Sprint (T-Mobile Wireline) acquisition costs, margin | 37.8 % | 38.7 % | 39.0 % | 39.0 % | 38.3 % | 39.4 % | 39.9 % | 37.8 % |
Net cash provided by operating activities | ||||||||
% Change from previous Qtr. | 25.4 % | -15.6 % | 19.3 % | -24.1 % | 37.3 % | -30.4 % | 55.7 % | -32.2 % |
Capital expenditures | ||||||||
% Change from previous Qtr. | -2.6 % | 11.5 % | 27.5 % | -30.3 % | 18.5 % | -4.6 % | 38.7 % | -18.3 % |
Principal payments of capital (finance) lease obligations | ||||||||
% Change from previous Qtr. | 24.9 % | 7.8 % | -21.0 % | 27.4 % | -5.9 % | -10.7 % | 88.3 % | 148.6 % |
Dividends paid | ||||||||
Gross Leverage Ratio (6) | 4.39 | 5.13 | 5.07 | 5.02 | 4.94 | 5.22 | 5.32 | 5.39 |
Net Leverage Ratio (6) | 3.31 | 3.45 | 3.50 | 3.58 | 3.58 | 3.70 | 3.93 | 4.20 |
Customer Connections – end of period | ||||||||
On-Net | 78,389 | 79,146 | 80,162 | 80,723 | 81,627 | 82,277 | 82,614 | 82,620 |
% Change from previous Qtr. | 1.4 % | 1.0 % | 1.3 % | 0.7 % | 1.1 % | 0.8 % | 0.4 % | 0.0 % |
Off-Net | 12,216 | 12,386 | 12,495 | 12,669 | 12,922 | 13,160 | 13,359 | 13,531 |
% Change from previous Qtr. | 2.1 % | 1.4 % | 0.9 % | 1.4 % | 2.0 % | 1.8 % | 1.5 % | 1.3 % |
Non-Core (1) | 320 | 336 | 334 | 334 | 335 | 340 | 348 | 363 |
% Change from previous Qtr. | -1.5 % | 5.0 % | -0.6 % | - % | 0.3 % | 1.5 % | 2.4 % | 4.3 % |
Total customer connections | 90,925 | 91,868 | 92,991 | 93,726 | 94,884 | 95,777 | 96,321 | 96,514 |
% Change from previous Qtr. | 1.5 % | 1.0 % | 1.2 % | 0.8 % | 1.2 % | 0.9 % | 0.6 % | 0.2 % |
On-Net Buildings – end of period | ||||||||
Multi-Tenant office buildings | 1,796 | 1,802 | 1,816 | 1,817 | 1,824 | 1,826 | 1,832 | 1,837 |
Carrier neutral data center buildings | 1,089 | 1,119 | 1,138 | 1,164 | 1,187 | 1,216 | 1,240 | 1,264 |
Cogent data centers | 54 | 54 | 54 | 54 | 54 | 53 | 54 | 54 |
Total on-net buildings | 2,939 | 2,975 | 3,008 | 3,035 | 3,065 | 3,095 | 3,126 | 3,155 |
Total carrier neutral data center nodes | 1,274 | 1,309 | 1,332 | 1,359 | 1,383 | 1,409 | 1,433 | 1,458 |
Square feet – multi-tenant office buildings – on-net | 978,095,164 | 979,876,141 | 984,753,702 | 986,941,224 | 992,336,259 | 993,590,499 | 995,522,774 | 1,000,044,418 |
Network – end of period | ||||||||
Intercity route miles | 58,761 | 59,741 | 59,741 | 60,676 | 60,869 | 61,024 | 61,065 | 61,292 |
Metro route miles | 15,596 | 15,742 | 15,979 | 16,338 | 16,614 | 16,822 | 17,477 | 17,616 |
Metro fiber miles | 38,058 | 38,351 | 38,825 | 39,559 | 40,113 | 40,529 | 42,212 | 42,491 |
Connected networks – AS's | 7,471 | 7,530 | 7,597 | 7,569 | 7,625 | 7,685 | 7,766 | 7,792 |
Headcount – end of period | ||||||||
Sales force – quota bearing | 547 | 565 | 516 | 490 | 479 | 477 | 522 | 548 |
Sales force - total | 693 | 710 | 662 | 633 | 620 | 619 | 669 | 698 |
Total employees | 1,066 | 1,087 | 1,031 | 1,001 | 987 | 988 | 1,041 | 1,076 |
Sales rep productivity – units per full time equivalent sales rep ("FTE") per month | 4.3 | 4.5 | 4.3 | 4.2 | 4.7 | 4.9 | 4.6 | 3.8 |
FTE – sales reps | 522 | 511 | 521 | 467 | 453 | 449 | 465 | 503 |
(1) | Consists of legacy services of companies whose assets or businesses were acquired by Cogent. |
(2) | Network operations expense excludes equity-based compensation expense of |
(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 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. |
(5) | Excludes equity-based compensation expense of |
(6) | See Schedules of Non-GAAP measures below for definitions and reconciliations to GAAP measures. |
Schedules of Non-GAAP Measures
EBITDA, EBITDA, as adjusted for Sprint acquisition costs, EBITDA margin and EBITDA, as adjusted for Sprint (T-Mobile Wireline) acquisition costs, margin
Acquisition of
On
Acquisition Related Costs
In connection with the Transaction and negotiation of the Purchase Agreement the Company incurred
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 (T-Mobile Wireline) acquisition costs, EBITDA margin and EBITDA as adjusted for Sprint (T-Mobile Wireline) acquisition costs margin are useful measures of its ability to service debt, fund capital expenditures and expand its business. 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, EBITDA margin and EBITDA as adjusted for Sprint acquisition costs 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 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 measures 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 for Sprint acquisition costs, are reconciled to net cash provided by operating activities in the table below.
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Year | Year | |
($ in 000's) – unaudited | ||||||||||
Net cash provided by operating activities | ||||||||||
Changes in operating assets and liabilities | ||||||||||
Cash interest expense and income tax expense | 17,504 | 15,080 | 13,526 | 13,819 | 14,038 | 18,946 | 17,320 | 16,663 | 59,939 | 67,163 |
EBITDA | ||||||||||
PLUS: Sprint acquisition costs | - | - | - | - | - | - | - | |||
EBITDA, as adjusted for Sprint (T-Mobile Wireline) acquisition costs | ||||||||||
EBITDA margin | 37.8 % | 38.7 % | 39.0 % | 39.0 % | 38.3 % | 39.4 % | 38.6 % | 37.6 % | 38.6 % | 38.5 % |
EBITDA, as adjusted for Sprint (T- Mobile Wireline) acquisition costs, margin | 37.8 % | 38.7 % | 39.0 % | 39.0 % | 38.3 % | 39.4 % | 39.9 % | 37.8 % | 38.6 % | 38.8 % |
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 | Q3 | Q4 2022 | Year | Year |
Service revenue, as reported – current period | ||||||||||
Impact of foreign currencies on service revenue | (447) | (150) | 709 | 808 | 516 | 1,350 | 1,486 | (92) | (5,306) | 13,063 |
Service revenue - as adjusted for currency impact (1) | ||||||||||
Service revenue, as reported – prior sequential period | ||||||||||
Constant currency increase | ||||||||||
Constant currency percent increase | 1.7 % | 0.6 % | 0.5 % | 0.1 % | 1.7 % | 0.4 % | 2.0 % | 1.3 % | 2.9 % | 3.9 % |
(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 | Q3 | Q4 2022 | Year | Year |
Service revenue, as reported – current period | ||||||||||
Impact of foreign currencies on service revenue | (2,608) | (2,965) | (555) | 916 | 1,914 | 3,417 | 4,246 | 3,371 | (5,306) | 13,063 |
Service revenue - as adjusted for currency impact (2) | ||||||||||
Service revenue, as reported – prior year period | 147,208 | |||||||||
Constant currency increase | 8,142 | |||||||||
Constant currency percent increase | 2.3 % | 2.8 % | 3.6 % | 2.9 % | 2.9 % | 2.7 % | 4.3 % | 5.5 % | 2.9 % | 3.9 % |
(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 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 2022 | Year | Year |
Service revenue, as reported – current period | ||||||||||
Impact of foreign currencies on service revenue | (447) | (150) | 709 | 808 | 516 | 1,350 | 1,486 | (92) | (5,306) | 13,063 |
Impact of excise taxes on service revenue | (384) | (283) | (2) | 477 | 594 | 294 | (670) | 32 | (3,400) | 3,093 |
Service revenue - as adjusted for currency and excise taxes impact (3) | ||||||||||
Service revenue, as reported – prior sequential period | ||||||||||
Constant currency and excise taxes increase | ||||||||||
Constant currency and excise tax percent increase | 1.4 % | 0.5 % | 0.5 % | 0.4 % | 2.1 % | 0.6 % | 1.6 % | 1.3 % | 2.3 % | 4.4 % |
(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 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 2022 | Year | Year |
Service revenue, as reported – current period | ||||||||||
Impact of foreign currencies on service revenue | (2,608) | (2,965) | (555) | 916 | 1,914 | 3,417 | 4,246 | 3,371 | (5,306) | 13,063 |
Impact of excise taxes on service revenue | (785) | (1,513) | (911) | (192) | 786 | 1,363 | 695 | 250 | (3,400) | 3,093 |
Service revenue - as adjusted for currency and excise taxes impact (4) | ||||||||||
Service revenue, as reported – prior year period | ||||||||||
Constant currency and excise taxes increase | ||||||||||
Constant currency and excise tax percent increase | 1.8 % | 1.7 % | 2.9 % | 2.8 % | 3.5 % | 3.6 % | 4.7 % | 5.7 % | 2.3 % | 4.4 % |
(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 2021 | Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Year | Year | |
($ in 000's) – unaudited | ||||||||||
Service revenue total | ||||||||||
Minus - Network operations expense including equity-based compensation and including depreciation and amortization expense | 79,062 | 78,276 | 79,254 | 78,985 | 80,137 | 79,585 | 80,117 | 80,535 | 315,577 | 320,376 |
GAAP Gross Profit (1) | ||||||||||
Plus - Equity-based compensation – network operations expense | 2,076 | 136 | 163 | 146 | 144 | 145 | 176 | 88 | 2,521 | 553 |
Plus – Depreciation and amortization expense | 21,970 | 22,096 | 22,609 | 22,567 | 22,688 | 23,071 | 22,897 | 89,240 | ||
Non-GAAP Gross Profit (2) | ||||||||||
GAAP Gross Margin (1) | 46.1 % | 47.1 % | 46.4 % | 46.3 % | 46.3 % | 46.4 % | 46.6 % | 47.0 % | 46.5 % | 46.6 % |
Non-GAAP Gross Margin (2) | 62.5 % | 62.1 % | 61.8 % | 61.8 % | 61.6 % | 62.0 % | 62.0 % | 62.6 % | 62.1 % | 62.0 % |
(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 measures to provide to 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 last 12 months EBITDA, as adjusted for Sprint acquisition costs. 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 for Sprint acquisition costs. Cogent's gross leverage ratio and net leverage ratio are shown below.
($ in 000's) – unaudited | As of | As of |
Cash and cash equivalents & restricted cash | ||
Debt | ||
Capital (finance) leases – current portion | 24,135 | 17,182 |
Capital (finance) leases – long term | 263,750 | 287,044 |
Senior Secured 2026 Notes | 500,000 | 500,000 |
Senior Unsecured 2027 Notes | 450,000 | 450,000 |
Total debt | 1,237,885 | 1,254,226 |
Total net debt | 914,221 | 978,314 |
Trailing 12 months EBITDA, as adjusted for Sprint (T-Mobile Wireline) acquisition costs | 232,899 | 232,871 |
Gross leverage ratio | 5.32 | 5.39 |
Net leverage ratio | 3.93 | 4.20 |
Cogent's
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
AS OF | ||||||
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) | ||||||
2022 | 2021 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 223,783 | $ | 319,609 | ||
Restricted cash | 52,129 | 9,015 | ||||
Accounts receivable, net of allowance for credit losses of | 44,123 | 41,938 | ||||
Prepaid expenses and other current assets | 45,878 | 39,015 | ||||
Total current assets | 365,913 | 409,577 | ||||
Property and equipment: | ||||||
Property and equipment | 1,714,906 | 1,619,515 | ||||
Accumulated depreciation and amortization | (1,170,476) | (1,161,635) | ||||
Total property and equipment, net | 544,430 | 457,880 | ||||
Right-of-use leased assets | 81,601 | 101,687 | ||||
Deposits and other assets | 18,238 | 15,413 | ||||
Total assets | $ | 1,010,182 | $ | 984,557 | ||
Liabilities and stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 27,208 | $ | 11,923 | ||
Accrued and other current liabilities | 63,889 | 39,057 | ||||
Current maturities, operating lease liabilities | 12,005 | 12,197 | ||||
Installment payment agreement, current portion, net of discount of | — | 785 | ||||
Finance lease obligations, current maturities | 17,182 | 17,048 | ||||
Total current liabilities | 120,284 | 81,010 | ||||
Senior unsecured 2024 notes, net of unamortized debt costs of | — | 394,112 | ||||
Senior secured 2026 notes, net of unamortized debt costs of | 497,892 | 497,308 | ||||
Senior unsecured 2027 notes, net of unamortized debt costs of | 446,371 | — | ||||
Operating lease liabilities, net of current maturities | 94,587 | 111,794 | ||||
Finance lease obligations, net of current maturities | 287,044 | 228,822 | ||||
Other long-term liabilities | 82,636 | 44,609 | ||||
Total liabilities | 1,528,814 | 1,357,655 | ||||
Commitments and contingencies | ||||||
Stockholders' deficit: | ||||||
Common stock, | 48 | 48 | ||||
Additional paid-in capital | 575,064 | 547,734 | ||||
Accumulated other comprehensive loss | (19,156) | (11,003) | ||||
Accumulated deficit | (1,074,588) | (909,877) | ||||
Total stockholders' deficit | (518,632) | (373,098) | ||||
Total liabilities and stockholders' deficit | $ | 1,010,182 | $ | 984,557 | ||
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES | |||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME | |||||||||
FOR EACH OF THE THREE YEARS ENDED | |||||||||
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) | |||||||||
2022 | 2021 | 2020 | |||||||
Service revenue | $ | 599,604 | $ | 589,797 | $ | 568,103 | |||
Operating expenses: | |||||||||
Network operations (including | 228,154 | 226,337 | 219,157 | ||||||
Selling, general, and administrative (including | 163,021 | 162,380 | 158,476 | ||||||
Acquisition costs – Sprint (T-Mobile Wireline) | 2,248 | — | — | ||||||
Depreciation and amortization | 92,222 | 89,240 | 83,477 | ||||||
Total operating expenses | 485,645 | 477,957 | 461,110 | ||||||
Gains on equipment transactions | — | 18 | 352 | ||||||
Gains (losses) on lease terminations | — | 7,375 | (423) | ||||||
Operating income | 113,959 | 119,233 | 106,922 | ||||||
Interest expense | (67,584) | (58,059) | (62,486) | ||||||
Change in valuation – interest rate swap | (43,113) | (9,015) | — | ||||||
Realized foreign exchange gain on 2024 Notes | — | — | 2,533 | ||||||
Foreign exchange gain (loss) on 2024 Notes | 31,561 | 32,522 | (36,997) | ||||||
Loss on debt extinguishment and redemption – 2021 Notes | — | — | (638) | ||||||
Loss on debt extinguishment and redemption – 2022 Notes | — | (14,698) | — | ||||||
Loss on debt extinguishment and redemption – 2024 Notes | (11,885) | — | — | ||||||
Interest income and other | 3,438 | 1,437 | 978 | ||||||
Income before income taxes | 26,376 | 71,420 | 10,312 | ||||||
Income tax expense | (21,230) | (23,235) | (4,096) | ||||||
Net income | $ | 5,146 | $ | 48,185 | $ | 6,216 | |||
Comprehensive (loss) income: | |||||||||
Net income | $ | 5,146 | $ | 48,185 | $ | 6,216 | |||
Foreign currency translation adjustment | (8,153) | (9,697) | 11,020 | ||||||
Comprehensive (loss) income | $ | (3,007) | $ | 38,488 | $ | 17,236 | |||
Basic net income per common share | $ | 0.11 | $ | 1.04 | $ | 0.14 | |||
Diluted net income per common share | $ | 0.11 | $ | 1.03 | $ | 0.13 | |||
Dividends declared per common share | $ | 3.555 | $ | 3.170 | $ | 2.780 | |||
Weighted-average common shares-basic | 46,875,992 | 46,419,180 | 45,947,772 | ||||||
Weighted-average common shares -diluted | 47,207,298 | 46,963,920 | 46,668,198 | ||||||
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||
FOR THE THREE MONTHS ENDED | |||||||
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) | |||||||
Three Months Ended | Three Months Ended | ||||||
Service revenue | $ | 151,979 | $ | 147,208 | |||
Operating expenses: | |||||||
Network operations (including | 56,972 | 56,418 | |||||
Selling, general, and administrative (including | 43,889 | 39,433 | |||||
Acquisition costs – Sprint (T-Mobile Wireline) | 244 | — | |||||
Depreciation and amortization | 23,563 | 22,567 | |||||
Total operating expenses | 124,668 | 118,418 | |||||
Gain on lease termination | — | 7,375 | |||||
Operating income | 27,311 | 36,165 | |||||
Interest expense | (21,990) | (13,714) | |||||
Change in valuation – interest rate swap | 2,590 | (5,939) | |||||
Foreign exchange gain on 2024 Notes | — | 8,763 | |||||
Interest income and other | 4,106 | (9) | |||||
Income before income taxes | 12,017 | 25,266 | |||||
Income tax expense | (11,166) | (6,759) | |||||
Net income | $ | 851 | $ | 18,507 | |||
Comprehensive income: | |||||||
Net income | $ | 851 | $ | 18,507 | |||
Foreign currency translation adjustment | 9,257 | (2,445) | |||||
Comprehensive income | $ | 10,108 | $ | 16,062 | |||
Basic net income per common share | $ | 0.02 | $ | 0.40 | |||
Diluted net income per common share | $ | 0.02 | $ | 0.39 | |||
Dividends declared per common share | $ | 0.915 | $ | 0.830 | |||
Weighted-average common shares-basic | 46,885,512 | 46,420,168 | |||||
Weighted-average common shares -diluted | 47,196,890 | 46,992,639 | |||||
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES | |||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
FOR EACH OF THE YEARS ENDED | |||||||||
(IN THOUSANDS) | |||||||||
2022 | 2021 | 2020 | |||||||
Cash flows from operating activities: | |||||||||
Net income | $ | 5,146 | $ | 48,185 | $ | 6,216 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 92,222 | 89,240 | 83,477 | ||||||
Amortization of debt discount and premium | 1,464 | 1,759 | 1,894 | ||||||
Equity-based compensation expense (net of amounts capitalized) | 24,439 | 26,822 | 23,525 | ||||||
Foreign currency exchange (gain) loss on 2024 Notes | (31,561) | (32,522) | 36,997 | ||||||
Realized foreign currency exchange gain on 2024 Notes | — | — | (2,533) | ||||||
Loss on extinguishment & redemption of 2024 notes | 11,885 | — | — | ||||||
Loss on extinguishment & redemption of 2022 notes | — | 14,698 | — | ||||||
Loss on extinguishment & redemption of 2021 notes | — | — | 638 | ||||||
Gain – lease termination | — | (7,375) | — | ||||||
Gains—equipment transactions and other, net | 372 | 69 | (546) | ||||||
Deferred income taxes | 16,539 | 18,159 | 282 | ||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable | (2,838) | 1,385 | (2,702) | ||||||
Prepaid expenses and other current assets | (7,427) | (17) | (2,771) | ||||||
Change in valuation – interest rate swap agreement | 43,113 | 9,015 | — | ||||||
Deposits and other assets | (282) | (12) | (873) | ||||||
Accounts payable, accrued liabilities and other long-term liabilities | 20,635 | 851 | (3,284) | ||||||
Net cash provided by operating activities | 173,707 | 170,257 | 140,320 | ||||||
Cash flows from investing activities: | |||||||||
Purchases of property and equipment | (78,971) | (69,916) | (55,952) | ||||||
Net cash used in investing activities | (78,971) | (69,916) | (55,952) | ||||||
Cash flows from financing activities: | |||||||||
Net proceeds from issuance of 2027 Notes, net of debt costs of | 446,010 | — | — | ||||||
Net proceeds from issuance of 2026 Notes, net of debt costs of | — | 496,933 | — | ||||||
Net proceeds from issuance of 2024 Notes, net of debt costs of | — | — | 240,285 | ||||||
Redemption and extinguishment of 2024 Notes | (375,354) | — | — | ||||||
Redemption and extinguishment of 2022 Notes | — | (459,317) | — | ||||||
Redemption and extinguishment of 2021 Notes | — | — | (189,225) | ||||||
Dividends paid | (169,857) | (150,288) | (129,412) | ||||||
Principal payments of finance lease obligations | (45,472) | (23,054) | (23,990) | ||||||
Principal payments of installment payment agreement | (790) | (6,922) | (10,547) | ||||||
Purchases of common stock | — | — | (4,495) | ||||||
Proceeds from exercises of common stock options | 614 | 1,823 | 1,382 | ||||||
Net cash used in financing activities | (144,849) | (140,825) | (116,002) | ||||||
Effect of exchange rate changes on cash | (2,599) | (2,193) | 3,513 | ||||||
Net decrease in cash and cash equivalents & restricted cash | (52,712) | (42,677) | (28,121) | ||||||
Cash and cash equivalents & restricted cash, beginning of year | 328,624 | 371,301 | 399,422 | ||||||
Cash and cash equivalents & restricted cash, end of year | $ | 275,912 | $ | 328,624 | $ | 371,301 | |||
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
FOR THE THREE MONTHS ENDED | ||||||
(IN THOUSANDS) | ||||||
Three Months | Three Months Ended | |||||
Cash flows from operating activities: | ||||||
Net income | $ | 851 | $ | 18,507 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 23,563 | 22,567 | ||||
Amortization of debt discount and premium | 320 | 426 | ||||
Equity-based compensation expense (net of amounts capitalized) | 6,264 | 6,053 | ||||
Foreign currency exchange loss gain on 2024 Notes | — | (8,763) | ||||
Gain – lease termination | — | (7,375) | ||||
Gains—equipment transactions and other, net | (3,159) | 416 | ||||
Deferred income taxes | 11,857 | 6,237 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | 265 | 1,544 | ||||
Prepaid expenses and other current assets | 1,977 | (1,751) | ||||
Change in valuation – interest rate swap agreement | (2,590) | 5,939 | ||||
Deposits and other assets | (518) | (7,827) | ||||
Accounts payable, accrued liabilities and other long-term liabilities | (2,507) | 11 | ||||
Net cash provided by operating activities | 36,323 | 35,984 | ||||
Cash flows from investing activities: | ||||||
Purchases of property and equipment | (19,591) | (15,296) | ||||
Net cash used in investing activities | (19,591) | (15,296) | ||||
Cash flows from financing activities: | ||||||
Dividends paid | (43,975) | (39,552) | ||||
Principal payments of finance lease obligations | (24,514) | (6,228) | ||||
Principal payments of installment payment agreement | — | (1,077) | ||||
Proceeds from exercises of common stock options | 188 | 586 | ||||
Net cash used in financing activities | (68,301) | (46,271) | ||||
Effect of exchange rate changes on cash | 3,817 | (748) | ||||
Net decrease in cash and cash equivalents & restricted cash | (47,752) | (26,331) | ||||
Cash and cash equivalents & restricted cash, beginning of year | 323,664 | 354,955 | ||||
Cash and cash equivalents & restricted cash, end of year | $ | 275,912 | $ | 328,624 | ||
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 pending acquisition of
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