Cogent Communications Reports Second Quarter 2020 Results and Increases its Regular Quarterly Dividend on its Common Stock by $0.025

Rhea-AI Summary

Cogent Communications (CCOI) announced a quarterly dividend increase of $0.025 per share to a total of $0.705 for Q3 2020, marking its thirty-second consecutive increase. This represents a 13.7% rise from $0.62 in Q3 2019. Service revenue for Q2 2020 rose to $141.0 million, a 0.1% sequential increase and 4.6% year-over-year. GAAP gross profit reached $67.2 million, with a gross margin of 47.7%, up 290 basis points from Q2 2019. However, COVID-19 impacts persist with uncertainties regarding future business operations.

Positive

• Quarterly dividend raised to $0.705, a 3.7% increase from Q2 2020.
• Service revenue increased by 4.6% year-over-year to $141.0 million.
• GAAP gross profit rose by 11.3% from Q2 2019 to $67.2 million.
• Net cash provided by operating activities increased 45.2% from Q1 2020 to $41.3 million.

Negative

• COVID-19 pandemic impacts sales productivity, especially to corporate customers.
• Uncertain market conditions may lead to future declines in customer connections and revenues.

WASHINGTON, Aug. 6, 2020 /PRNewswire/ --

Financial and Business Highlights

• Cogent approved an increase of $0.025 per share to its regular quarterly dividend for a total of $0.705 per share for Q3 2020 as compared to $0.68 per share for Q2 2020 – Cogent's thirty-second consecutive quarterly dividend increase and a greater increase than the $0.02 per share increase in Q2 2020.
• The Q3 2020 $0.705 dividend per share represents an annual increase of 13.7% from the dividend per share of $0.62 for Q3 2019.
• Service revenue, on a constant currency basis, increased by 0.2% from Q1 2020 to Q2 2020 and increased from Q2 2019 to Q2 2020 by 5.1%.
• Service revenue increased by 0.1% from Q1 2020 to Q2 2020 and increased from Q2 2019 to Q2 2020 by 4.6%.
• GAAP gross profit increased by 11.3% from Q2 2019 to $67.2 million for Q2 2020. Non-GAAP gross profit increased by 8.4% from Q2 2019 to $87.4 million for Q2 2020.
• GAAP gross margin increased by 290 basis points from Q2 2019 to Q2 2020 to 47.7%. Non-GAAP gross margin increased by 220 basis points from Q2 2019 to Q2 2020 to 62.0%.
• Net cash provided by operating activities increased by 45.2% from Q1 2020 to $41.3 million for Q2 2020 and increased by 1.7% from Q2 2019.
• EBITDA increased by 5.9% from Q1 2020 to $53.3 million for Q2 2020 and increased by 13.3% from Q2 2019.
• EBITDA margin increased by 200 basis points from Q1 2020 to 37.8% for Q2 2020 and increased by 290 basis points from Q2 2019.
• Cogent issued €215 million of Senior Euro Notes due in 2024 in June for net proceeds of $240.3 million. The net proceeds were used to redeem and extinguish its $189.2 million of Senior Notes due in 2021 at par and to provide cash for general corporate purposes including to dividend cash from its operating companies to Cogent Holdings, Inc.

Cogent Communications Holdings, Inc. (NASDAQ: CCOI) ("Cogent") today announced service revenue of $141.0 million for the three months ended June 30, 2020, an increase of 0.1% from the three months ended March 31, 2020 and an increase of 4.6% from the three months ended June 30, 2019. Foreign exchange negatively impacted service revenue growth from the three months ended March 31, 2020 to the three months ended June 30, 2020 by $0.2 million and negatively impacted service revenue growth from the three months ended June 30, 2019 to the three months ended June 30, 2020 by $0.7 million. On a constant currency basis, service revenue grew by 0.2% from the three months ended March 31, 2020 to the three months ended June 30, 2020 and grew by 5.1% from the three months ended June 30, 2019 to the three months ended June 30, 2020. Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $3.3 million for the three months ended June 30, 2020, $3.2 million for the three months ended June 30, 2019 and $3.7 million for the three months ended March 31, 2020.

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 $103.8 million for the three months ended June 30, 2020; an increase of 0.3% from the three months ended March 31, 2020 and an increase of 6.5% over the three months ended June 30, 2019.

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 $37.0 million for the three months ended June 30, 2020; a decrease of 0.7% over the three months ended March 31, 2020 and a decrease of 0.4% over the three months ended June 30, 2019.

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 11.3% from the three months ended June 30, 2019 to $67.2 million for the three months ended June 30, 2020 and increased by 2.6% from the three months ended March 31, 2020. GAAP gross margin was 47.7% for the three months ended June 30, 2020, 44.8% for the three months ended June 30, 2019 and 46.5% for the three months ended March 31, 2020. Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $3.3 million for the three months ended June 30, 2020, $3.2 million for the three months ended June 30, 2019 and $3.7 million for the three months ended March 31, 2020. 

Non-GAAP gross profit represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation and amortization expense). Non-GAAP gross margin is defined as Non-GAAP gross profit divided by total service revenue.  Non-GAAP gross profit increased by 8.4% from the three months ended June 30, 2019 to $87.4 million for the three months ended June 30, 2020 and increased by 2.5% from the three months ended March 31, 2020. Non-GAAP gross profit margin was 62.0% for the three months ended June 30, 2020, 59.8% for the three months ended June 30, 2019 and 60.5% for the three months ended March 31, 2020. 

Net cash provided by operating activities increased by 1.7% from the three months ended June 30, 2019 to $41.3 million for the three months ended June 30, 2020 and increased by 45.2% from the three months ended March 31, 2020.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 13.3% from the three months ended June 30, 2019 to $53.3 million for the three months ended June 30, 2020 and increased by 5.9% from the three months ended March 31, 2020.  EBITDA margin was 37.8% for the three months ended June 30, 2020, 34.9% for the three months ended June 30, 2019 and 35.8% for the three months ended March 31, 2020. 

EBITDA, as adjusted, increased by 13.2% from the three months ended June 30, 2019 to $53.6 million for the three months ended June 30, 2020 and increased by 6.2% from the three months ended March 31, 2020. EBITDA, as adjusted, margin was 38.0% for the three months ended June 30, 2020, 35.1% for the three months ended June 30, 2019 and 35.8% for the three months ended March 31, 2020.

Basic net income per share was $0.19 for the three months ended June 30, 2020, $0.16 for the three months ended June 30, 2019 and $0.20 for the three months ended March 31, 2020. Diluted net income per share was $0.18 for the three months ended June 30, 2020, $0.16 for the three months ended June 30, 2019 and $0.20 for the three months ended March 31, 2020.

Unrealized foreign exchange (losses) gains on Cogent's 2024 Senior Euro Notes were $(3.4) million for the three months ended June 30, 2020, $0.2 million for the three months ended June 30, 2019 and $2.9 million for the three months ended March 31, 2020. Cogent realized a $2.5 million foreign exchange gain related to the issuance of its €215 million of 2024 Senior Euro Notes in the three months ended June 30, 2020.

Total customer connections increased by 4.8% from June 30, 2019 to 88,112 as of June 30, 2020 and increased by 1.0% from March 31, 2020. On-net customer connections increased by 4.8% from June 30, 2019 to 75,927 as of June 30, 2020 and increased by 1.0% from March 31, 2020. Off-net customer connections increased by 4.6% from June 30, 2019 to 11,846 as of June 30, 2020 and increased by 1.1% from March 31, 2020. 

The number of on-net buildings increased by 117 buildings from June 30, 2019 to 2,854 on-net buildings as of June 30, 2020 and increased by 31 on-net buildings from March 31, 2020.

Quarterly Dividend Increase Approved

On August 5, 2020, the Board approved a regular quarterly dividend of $0.705 per common share payable on September 4, 2020 to shareholders of record on August 21, 2020. This third quarter 2020 regular dividend represents a 3.7% increase of $0.025 per share from the second quarter 2020 regular dividend of $0.68 per share and an annual increase of 13.7% from the Q3 2019 dividend of $0.62 per share. 

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 indenture agreements and other factors deemed relevant by the Board.

Impact of COVID-19

Cogent continues to be impacted by the COVID-19 pandemic and the accompanying responses by governments around the world.  Cogent's entire workforce continues to work remotely with dedication.  During the second quarter of 2020, the impact of the COVID-19 pandemic on Cogent's business remained limited.  Cogent experienced a decrease in sales productivity, particularly in sales to its corporate customers.  Traffic on the Cogent network continued to grow at an accelerated rate compared to Cogent's historical growth rates. However, the traffic growth rate for the second quarter of 2020 was slower than the traffic growth rate at the end of the first quarter of 2020.

The ongoing impact of the COVID-19 pandemic and related government restrictions on Cogent's business is unknown as a significant amount of uncertainty and volatility remains.   Cogent does not know the scope and duration of the pandemic, what actions governments may take in the future in response to the pandemic and what the impact will be on the economies of the world.  While Cogent's workforce is working remotely, Cogent provides no assurance that this will be sufficient to protect its workforce or its key employees.  Moreover, Cogent's results of operations may be adversely affected in the future as the pandemic and the related government restrictions continue.  Cogent may also experience slowdowns in new customer orders, find it difficult to collect from customers who are experiencing financial distress, encounter difficulties accessing the buildings and locations where Cogent installs new services and serves existing customers, or have difficulties procuring, shipping or installing necessary equipment on its network.  Cogent may also find that its largest customer base, which is served primarily in its multi-tenant office buildings, may be 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.   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.  As a result, the global economic impact of the COVID-19 pandemic may have prolonged effects that impact Cogent's business well into the future.  These and other risks will be described in more detail in Cogent's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and are set forth in its annual report on Form 10-K for the year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Conference Call and Website Information

Cogent will host a conference call with financial analysts at 8:00 a.m. (ET) on August 6, 2020 to discuss Cogent's operating results for the second quarter of 2020 and to discuss Cogent's expectations for full year 2020. 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 200 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 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
Metric ($ in 000's, except share and per share data) – unaudited
On-Net revenue	$97,183	$97,472	$99,416	$102,683	$103,457	$103,800
% Change from previous Qtr.	1.9%	0.3%	2.0%	3.3%	0.8%	0.3%
Off-Net revenue	$36,843	$37,191	$37,418	$37,479	$37,321	$37,044
% Change from previous Qtr.	0.8%	0.9%	0.6%	0.2%	-0.4%	-0.7%
Non-Core revenue (1)	$111	$126	$108	$130	$137	$146
% Change from previous Qtr.	-24.5%	13.5%	-14.3%	20.4%	5.4%	6.6%
Service revenue – total	$134,137	$134,789	$136,942	$140,292	$140,915	$140,990
% Change from previous Qtr.	1.6%	0.5%	1.6%	2.4%	0.4%	0.1%
Constant currency total revenue quarterly growth rate – sequential quarters (6)	1.7%	0.7%	1.7%	2.5%	0.6%	0.2%
Constant currency total revenue quarterly growth rate – year over year quarters (6)	5.8%	5.4%	6.0%	6.8%	5.6%	5.1%
Excise Taxes included in service revenue	$3,391	$3,191	$3,998	$4,334	$3,743	$3,298
% Change from previous Qtr.	4.9%	-5.9%	25.3%	8.4%	-13.6%	-11.9%
Network operations expenses (2)	$53,970	$54,181	$54,971	$55,684	$55,669	$53,581
% Change from previous Qtr.	-2.6%	0.4%	1.5%	1.3%	-%	-3.8%
GAAP gross profit (3)	$59,724	$60,403	$61,683	$64,300	$65,486	$67,208
% Change from previous Qtr.	7.7%	1.1%	2.1%	4.2%	1.8%	2.6%
GAAP gross margin (3)	44.5%	44.8%	45.0%	45.8%	46.5%	47.7%
Non-GAAP gross profit (4) (6)	$80,167	$80,608	$81,971	$84,608	$85,246	$87,409
% Change from previous Qtr.	4.6%	0.6%	1.7%	3.2%	0.8%	2.5%
Non-GAAP gross margin (4) (6)	59.8%	59.8%	59.9%	60.3%	60.5%	62.0%
Selling, general and administrative expenses (5)	$32,568	$33,503	$31,456	$31,884	$34,852	$34,061
% Change from previous Qtr.	12.2%	2.9%	-6.1%	1.4%	9.3%	-2.3%
Depreciation and amortization expense	$20,263	$19,979	$20,006	$20,002	$19,508	$19,896
% Change from previous Qtr.	-3.3%	-1.4%	0.1%	-%	-2.5%	2.0%
Equity-based compensation expense	$3,434	$5,289	$4,797	$4,940	$5,075	$6,083
% Change from previous Qtr.	-22.1%	54.0%	-9.3%	3.0%	2.7%	19.9%
Operating income	$24,400	$22,022	$25,799	$28,033	$25,850	$27,574
% Change from previous Qtr.	9.4%	-9.7%	17.2%	8.7%	-7.8%	6.7%
Interest expense	$13,456	$13,595	$15,191	$15,211	$15,220	$15,499
% Change from previous Qtr.	-0.4%	1.0%	11.7%	0.1%	0.1%	1.8%
Net income	$9,217	$7,136	$13,701	$7,465	$9,227	$8,564
Realized and unrealized gains (losses) on 2024 euro notes	$-	$177	$6,128	$(4,032)	$2,908	$(873)
Basic net income per common share	$0.20	$0.16	$0.30	$0.16	$0.20	$0.19
Diluted net income per common share	$0.20	$0.16	$0.30	$0.16	$0.20	$0.18
Weighted average common shares – basic	45,223,157	45,354,327	45,438,656	45,553,727	45,658,565	45,754,880
% Change from previous Qtr.	-0.1%	0.3%	0.2%	0.3%	0.2%	0.2%
Weighted average common shares – diluted	45,644,236	45,912,291	46,019,691	46,145,970	46,391,066	46,686,665
% Change from previous Qtr.	-0.3%	0.6%	0.2%	0.3%	0.5%	0.6%
EBITDA (6)	$47,561	$47,105	$50,515	$52,724	$50,394	$53,348
% Change from previous Qtr.	-%	-1.0%	7.2%	4.4%	-4.4%	5.9%
EBITDA margin	35.5%	34.9%	36.9%	37.6%	35.8%	37.8%
Gains on asset related transactions	$536	$185	$87	$251	$39	$205
EBITDA, as adjusted (6)	$48,097	$47,290	$50,602	$52,975	$50,433	$53,553
% Change from previous Qtr.	0.9%	-1.7%	7.0%	4.7%	-4.8%	6.2%
EBITDA, as adjusted, margin	35.9%	35.1%	37.0%	37.8%	35.8%	38.0%
Net cash provided by operating activities	$28,637	$40,632	$33,443	$46,097	$28,458	$41,311
% Change from previous Qtr.	-29.7%	41.9%	-17.7%	37.8%	-38.3%	45.2%
Capital expenditures	$13,288	$11,720	$12,051	$9,899	$12,866	$13,930
% Change from previous Qtr.	21.5%	-11.8%	2.8%	-17.9%	30.0%	8.3%
Principal payments of capital (finance) lease obligations	$3,030	$1,976	$2,029	$2,056	$6,167	$3,716
% Change from previous Qtr.	42.4%	-34.8%	2.7%	1.3%	200.0%	-39.7%
Dividends paid	$26,565	$27,741	$28,565	$29,776	$30,557	$31,738
Purchases of common stock	$ -	$ -	$ -	$ -	$ -	$-
Gross Leverage Ratio	4.28	5.08	4.97	4.86	4.78	5.08
Net Leverage Ratio	2.92	2.93	2.92	2.86	2.92	3.07
Customer Connections – end of period
On-Net	71,066	72,415	73,870	74,554	75,163	75,927
% Change from previous Qtr.	3.3%	1.9%	2.0%	0.9%	0.8%	1.0%
Off-Net	11,138	11,321	11,503	11,660	11,721	11,846
% Change from previous Qtr.	1.5%	1.6%	1.6%	1.4%	0.5%	1.1%
Non-Core (1)	318	318	319	325	329	339
% Change from previous Qtr.	-12.2%	-%	-0.3%	1.9%	1.2%	3.0%
Total customer connections	82,522	84,054	85,692	86,539	87,213	88,112
% Change from previous Qtr.	3.0%	1.9%	1.9%	1.0%	0.8%	1.0%
On-Net Buildings – end of period
Multi-Tenant office buildings	1,746	1,751	1,757	1,767	1,769	1,771
Carrier neutral data center buildings	908	933	960	980	1,000	1,029
Cogent data centers	52	53	54	54	54	54
Total on-net buildings	2,706	2,737	2,771	2,801	2,823	2,854
Square feet – multi-tenant office buildings – on-net	949,486,923	951,031,709	954,013,024	957,173,183	961,154,384	962,049,183
Network  – end of period
Intercity route miles	57,426	57,426	57,426	57,600	58,009	58,009
Metro fiber miles	33,664	34,163	34,985	35,526	36,079	36,438
Connected networks – AS's	6,668	6,762	6,844	6,954	7,042	7,133
Headcount – end of period
Sales force – quota bearing	501	519	530	548	542	572
Sales force - total	639	656	667	686	684	716
Total employees	997	1,026	1,036	1,055	1,052	1,083
Sales rep productivity – units per full time equivalent sales rep ("FTE") per month	5.1	4.9	4.4	4.1	4.5	4.0
FTE – sales reps	464	478	488	502	522	533

(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 $180, $226, $282, $306, $252 and $305 in the three month periods ended March 31, 2019 through June 30, 2020, respectively.  Network operations expense includes excise taxes, including Universal Service Fund fees of $3,391, $3,191, $3,998, $4,334, $3,743 and $3,298 in the three month periods ended March 31, 2019 through June 30, 2020, 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 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 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 $3,254, $5,063, $4,515, $4,634, $4,823 and $5,778 in the three month periods ended March 31, 2019 through June 30, 2020, respectively.
(6)	See Schedules of Non-GAAP measures below for definitions and reconciliations to GAAP measures.

 

Schedules of Non-GAAP Measures
EBITDA and EBITDA, as adjusted

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 United States, or GAAP, is net cash 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 net cash provided by operating activities in the table below.

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
($ in 000's) – unaudited
Net cash provided by operating activities	$28,637	$40,632	$33,443	$46,097	$28,458	$41,311
Changes in operating assets and liabilities	6,727	(5,729)	3,785	(6,557)	5,325	$(3,232)
Cash interest expense and income tax expense	12,197	12,202	13,287	13,184	16,611	15,269
EBITDA	$47,561	$47,105	$50,515	$52,724	$50,394	$53,348
PLUS: Gains on asset related transactions	536	185	87	251	39	205
EBITDA, as adjusted	$48,097	$47,290	$50,602	$52,975	$50,433	$53,553
EBITDA margin	35.5%	34.9%	36.9%	37.6%	35.8%	37.8%
EBITDA, as adjusted, margin	35.9%	35.1%	37.0%	37.8%	35.8%	38.0%

 

Constant currency revenue is reconciled to service revenue as reported in the tables below.

Constant currency impact on revenue changes – sequential periods

($ in 000's) – unaudited	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
Service revenue, as reported – current period	$134,137	$134,789	$136,942	$140,292	$140,915	$140,990
Impact of foreign currencies on service revenue	135	260	176	88	184	202
Service revenue - as adjusted  for currency impact (1)	$134,272	$135,049	$137,118	$140,380	$141,099	$141,192
Service revenue, as reported – prior sequential period	$132,049	$134,137	$134,789	$136,942	$140,292	$140,915
Constant currency increase	$2,223	$912	$2,329	$3,438	$807	$277
Constant currency percent increase	1.7%	0.7%	1.7%	2.5%	0.6%	0.2%

(1)

Service revenue, as adjusted for currency impact, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the prior sequential period. The Company believes that disclosing quarterly sequential revenue growth without the impact of foreign currencies on service revenue is a useful measure of sequential revenue growth. Service revenue, as adjusted for currency impact, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

 

Constant currency impact on revenue changes – prior year periods

($ in 000's) – unaudited	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
Service revenue, as reported – current period	$134,137	$134,789	$136,942	$140,292	$140,915	$140,990
Impact of foreign currencies on service revenue	2,078	1,505	1,058	683	746	674
Service revenue - as adjusted for currency impact  (2)	$136,215	$136,294	$138,000	$140,975	$141,661	$141,664
Service revenue, as reported – prior year period	$128,706	$129,296	$130,139	$132,049	$134,137	$134,789
Constant currency increase	$7,509	$6,998	$7,861	$8,926	$7,524	$6,875
Percent increase	5.8%	5.4%	6.0%	6.8%	5.6%	5.1%

(2)

Service revenue, as adjusted for currency impact, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the comparable prior year period. The Company believes that disclosing year over year revenue growth without the impact of foreign currencies on service revenue is a useful measure of revenue growth. Service revenue, as adjusted for currency impact, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

 

Non-GAAP gross profit and Non-GAAP gross margin

Non-GAAP gross profit and Non-GAAP gross margin are reconciled to GAAP gross profit and GAAP gross margin in the table below.

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
($ in 000's) – unaudited
Service revenue total	$134,137	$134,789	$136,942	$140,292	$140,915	$140,990
Minus - Network operations expense including equity-based compensation and including depreciation and amortization expense	74,413	74,386	75,259	75,992	75,429	73,782
GAAP Gross Profit (1)	$59,724	$60,403	$61,683	$64,300	$65,486	$67,208
Plus  - Equity-based compensation – network operations expense	180	226	282	306	252	305
Plus – Depreciation and amortization expense	20,263	19,979	20,006	20,002	19,508	19,896
Non-GAAP Gross Profit (2)	$80,167	$80,608	$81,971	$84,608	$85,246	$87,409
GAAP Gross Margin (1)	44.5%	44.8%	45.0%	45.8%	46.5%	47.7%
Non-GAAP Gross Margin (2)	59.8%	59.8%	59.9%	60.3%	60.5%	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 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 are shown below.

($ in 000's) – unaudited	As of March 31, 2020	As of June 30, 2020
Cash and cash equivalents	$375,116	$417,026
Debt
Capital (finance) leases – current portion	8,268	14,734
Capital (finance) leases – long term	159,678	189,044
Senior unsecured notes	189,225	-
Senior secured notes	445,000	445,000
Senior unsecured euro 2024 notes	148,507	393,011
Note payable	12,264	12,831
Total debt	962,942	1,054,620
Total net debt	587,826	637,594
Trailing 12 months EBITDA, as adjusted	201,300	207,563
Gross leverage ratio	4.78	5.08
Net leverage ratio	2.92	3.07

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, 2020 AND DECEMBER 31, 2019 (IN THOUSANDS, EXCEPT SHARE DATA)
		June 30,  2020			December 31,  2019
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	417,026		$	399,422
Accounts receivable, net of allowance for credit losses of $2,115 and $1,771, respectively			40,560			40,484
Prepaid expenses and other current assets			39,530			35,822
Total current assets			497,116			475,728
Property and equipment, net			406,747			368,929
Right-of-use leased assets			87,697			73,460
Deposits and other assets			13,841			14,007
Total assets		$	1,005,401		$	932,124
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	12,171		$	11,075
Accrued and other current liabilities			52,492			51,301
Installment payment agreement, current portion, net of discounts of $291 and $350, respectively			9,374			9,063
Current maturities, operating lease liabilities			11,292			10,101
Current maturities, finance lease obligations			14,734			8,154
Total current liabilities			100,063			89,694
Senior secured 2022 notes, net of unamortized debt costs of $1,480 and $1,897,   respectively and including premiums of $767 and $985, respectively			444,287			444,088
Senior unsecured 2024 Euro notes, net of unamortized debt costs of $3,365 and $1,410,  respectively and net of discounts of $1,183 and $0, respectively			388,463			150,001
Senior unsecured 2021 notes, net of unamortized debt costs of $857			—			188,368
Operating lease liabilities, net of current maturities			99,151			86,690
Finance lease obligations, net of current maturities			189,044			161,635
Other long term liabilities			19,943			15,327
Total liabilities			1,240,951			1,135,803
Commitments and contingencies:
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 47,279,201 and 46,840,434   shares issued and outstanding, respectively			47			47
Additional paid-in capital			506,391			493,178
Accumulated other comprehensive income — foreign currency translation			(12,906)			(12,326)
Accumulated deficit			(729,082)			(684,578)
Total stockholders' deficit			(235,550)			(203,679)
Total liabilities and stockholders' deficit		$	1,005,401		$	932,124

 

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND JUNE 30, 2019 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
		Three Months Ended June 30, 2020			Three Months Ended June 30, 2019
		(Unaudited)			(Unaudited)
Service revenue		$	140,990		$	134,789
Operating expenses:
Network operations (including $305 and $226 of equity-based compensation expense,   respectively, exclusive of depreciation and amortization shown separately below)			53,886			54,407
Selling, general, and administrative (including $5,778 and $5,063 of equity-based compensation    expense, respectively)			39,839			38,566
Depreciation and amortization			19,896			19,979
Total operating expenses			113,621			112,952
Gains on equipment transactions			205			185
Operating income			27,574			22,022
Interest expense			(15,499)			(13,595)
Realized foreign exchange gain on issuance on 2024 Euro Notes			2,547			—
Unrealized foreign exchange (loss) gain on 2024 Euro Notes			(3,420)			177
Loss on debt extinguishment and redemption – 2021 Notes			(638)			—
Interest income and other, net			735			1,576
Income before income taxes			11,299			10,180
Income tax provision			(2,735)			(3,044)
Net income		$	8,564		$	7,136
Comprehensive income:
Net income		$	8,564		$	7,136
Foreign currency translation adjustment			2,913			1,786
Comprehensive income		$	11,477		$	8,922
Net income per common share:
Basic net income per common share		$	0.19		$	0.16
Diluted net income per common share		$	0.18		$	0.16
Dividends declared per common share		$	0.68		$	0.60
Weighted-average common shares - basic			45,754,880			45,354,327
Weighted-average common shares - diluted			46,686,665			45,912,291

 

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND JUNE 30, 2019 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
		Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
		(Unaudited)			(Unaudited)
Service revenue		$	281,904		$	268,930
Operating expenses:
Network operations (including $557 and $406 of equity-based compensation expense,   respectively, exclusive of depreciation and amortization shown separately below)			109,806			108,557
Selling, general, and administrative (including $10,600 and $8,318 of equity-based compensation   expense, respectively)			79,513			74,427
Depreciation and amortization			39,402			40,240
Total operating expenses			228,721			223,224
Gains on equipment transactions			244			721
Operating income			53,427			46,427
Interest expense			(30,720)			(27,051)
Realized foreign exchange gain on issuance of 2024 Euro Notes			2,547			—
Unrealized (loss) gain on foreign exchange on 2024 Euro Notes			(512)			177
Interest income and other, net			28			3,395
Loss on debt extinguishment and redemption- 2021 Notes			(638)			—
Income before income taxes			24,132			22,948
Income tax provision			(6,341)			(6,595)
Net income		$	17,791		$	16,353
Comprehensive income:
Net income		$	17,791		$	16,353
Foreign currency translation adjustment			(580)			(39)
Comprehensive income		$	17,211		$	16,314
Net income per common share:
Basic net income per common share		$	0.39		$	0.36
Diluted net income per common share		$	0.38		$	0.36
Dividends declared per common share		$	1.34		$	1.18
Weighted-average common shares - basic			45,760,302			45,349,397
Weighted-average common shares - diluted			46,592,445			45,838,918

 

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND JUNE 30, 2019 (IN THOUSANDS)
		Three months Ended June 30, 2020			Three months Ended June 30, 2019
		(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income		$	8,564		$	7,136
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			19,896			19,977
Amortization of debt costs, discounts and premiums			453			428
Equity-based compensation expense (net of amounts capitalized)			6,083			5,290
Loss on debt extinguishment and redemption – 2021 Notes			638			—
Unrealized losses (gains) on foreign exchange			3,383			(177)
Realized foreign exchange gain on issuance of 2024 Notes			(2,547)			—
Gains - equipment transactions and other, net			(448)			(76)
Deferred income taxes			1,814			2,259
Changes in operating assets and liabilities:
Accounts receivable			2,697			(1,259)
Prepaid expenses and other current assets			628			(360)
Accounts payable, accrued liabilities and other long-term liabilities			453			7,866
Deposits and other assets			(303)			(452)
Net cash provided by operating activities			41,311			40,632
Cash flows from investing activities:
Purchases of property and equipment			(13,930)			(11,720)
Net cash used in investing activities			(13,930)			(11,720)
Cash flows from financing activities:
Dividends paid			(31,738)			(27,741)
Redemption and extinguishment of 2021 Notes			(189,225)			—
Net proceeds from issuance of senior unsecured 2024 Euro Notes - net of debt costs of $2,137 and $1,556, respectively			240,285			152,128
Principal payments on installment payment agreement			(2,562)			(2,387)
Principal payments of finance lease obligations			(3,716)			(1,976)
Proceeds from exercises of stock options			271			746
Net cash provided by financing activities			13,315			120,770
Effect of exchange rates changes on cash			1,214			459
Net increase in cash and cash equivalents			41,910			150,141
Cash and cash equivalents, beginning of period			375,116			259,138
Cash and cash equivalents, end of period		$	417,026		$	409,279

 

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND JUNE 30, 2019 (IN THOUSANDS)
		Six months Ended June 30, 2020			Six months Ended June 30, 2019
		(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income		$	17,791		$	16,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			39,402			40,240
Amortization of debt costs, discounts and premiums			930			842
Equity-based compensation expense (net of amounts capitalized)			11,157			8,724
Loss on debt extinguishment and redemption – 2021 Notes			638			—
Unrealized losses (gains) on foreign exchange			479			(177)
Realized foreign exchange gain on issuance of 2024 Notes			(2,547)			—
Gains - equipment transactions and other, net			(902)			(307)
Deferred income taxes			4,253			4,831
Changes in operating assets and liabilities:
Accounts receivable			(93)			1,005
Prepaid expenses and other current assets			(2,465)			(3,547)
Accounts payable, accrued liabilities and other long-term liabilities			1,523			5,088
Deposits and other assets			(397)			(3,783)
Net cash provided by operating activities			69,769			69,269
Cash flows from investing activities:
Purchases of property and equipment			(26,796)			(25,008)
Net cash used in investing activities			(26,796)			(25,008)
Cash flows from financing activities:
Dividends paid			(62,295)			(54,306)
Redemption and extinguishment of 2021 Notes			(189,225)			—
Net proceeds from issuance of senior unsecured 2024 Euro Notes - net of debt costs of $2,137 and $1,556, respectively			240,285			152,128
Principal payments on installment payment agreement			(5,128)			(4,774)
Principal payments of finance lease obligations			(9,883)			(5,006)
Proceeds from exercises of stock options			989			919
Net cash (used in) provided by financing activities			(25,257)			88,961
Effect of exchange rates changes on cash			(112)			(36)
Net increase in cash and cash equivalents			17,604			133,186
Cash and cash equivalents, beginning of period			399,422			276,093
Cash and cash equivalents, end of period		$	417,026		$	409,279

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 the COVID-19 pandemic and the related government policies; 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 Quarterly Report on Form 10-Q for the for the quarters ended June 30, 2020 and March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019.  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.

FAQ

What is the new dividend amount for CCOI in Q3 2020?

The new dividend amount for CCOI in Q3 2020 is $0.705 per share.

When is the dividend payment date for CCOI shareholders?

The dividend payment date for CCOI shareholders is September 4, 2020.

How much did CCOI's service revenue increase in Q2 2020?

CCOI's service revenue increased by 4.6% year-over-year to $141.0 million in Q2 2020.

What were the impacts of COVID-19 on CCOI's business?

CCOI experienced decreased sales productivity, with uncertainty surrounding future operations due to COVID-19.

What is the annual increase in CCOI's dividend compared to Q3 2019?

The annual increase in CCOI's dividend compared to Q3 2019 is 13.7%.