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Cogent (CCOI) Q3 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research
·4 min read

Cogent Communications Holdings, Inc. CCOI reported mixed third-quarter 2020 financial results, with the top line missing the Zacks Consensus Estimate but the bottom line beating the same. The stock declined 3.9% in response to the results, closing at $55.04 on Nov 5.

Bottom Line

Net loss in the September quarter came in at $5 million or loss of 11 cents per share against net income of $13.7 million or 30 cents per share in the year-earlier quarter. Despite top-line growth, the year-over-year deterioration was primarily caused by higher operating expenses and adverse foreign exchange translation.

Adjusted earnings for the reported quarter were 23 cents per share, which beat the consensus estimate by a penny.

Cogent Communications Holdings, Inc. Price, Consensus and EPS Surprise

Cogent Communications Holdings, Inc. Price, Consensus and EPS Surprise
Cogent Communications Holdings, Inc. Price, Consensus and EPS Surprise

Cogent Communications Holdings, Inc. price-consensus-eps-surprise-chart | Cogent Communications Holdings, Inc. Quote


Quarterly service revenues were $142.3 million compared with $136.9 million in the year-ago quarter. On a constant-currency basis, the 3.1% increase was backed by higher on-net revenues. However, the top line lagged the consensus estimate of $143 million. Also, owing to COVID-19 induced challenges, Cogent witnessed a decline in sales productivity as new potential customers delayed the purchase of services, while existing customers reduced their number of secondary service locations.

On-net revenues increased 5.7% to $105.1 million from $99.4 million in the year-ago quarter. The increase was primarily driven by 3.3% growth in on-net customer connections. On-net service is provided to customers located in buildings that are physically connected to Cogent’s network by its facilities. The number of on-net buildings increased by 113 year over year to 2,884 as of Sep 30.

Off-net revenues slipped 0.9% to $37.1 million from $37.4 million in the year-ago quarter. Off-net customers are located in buildings directly connected to the company’s network using other carriers’ facilities.

Other Details

Total operating expenses were $115.9 million compared with $111.2 million in the prior-year quarter led by higher amortization and selling, general and administrative expenses. Operating income was $26 million, up from $25.8 million. Adjusted EBITDA totaled $54.7 million compared with $50.6 million in the year-ago quarter for respective margins of 38.4% and 37%.

During third-quarter 2020, the company registered 88,509 customer connections compared with 85,692 in the year-ago quarter. The 3.3% increase was backed by improvement in both on-net and off-net customer connection tallies.

Despite the global pandemic, Cogent hiked its dividend for the 33rd consecutive quarter, which indicates its robust cash flow position. The company increased its quarterly dividend by 2.5 cents per share to 73 cents for fourth-quarter 2020. The amount is payable on Dec 4 to shareholders on record as of Nov 20.

Cash Flow & Liquidity

During the first nine months of 2020, Cogent’s net cash from operating activities was relatively flat at $102.7 million. As of Sep 30, 2020, the company had $393.3 million in cash and cash equivalents with total current liabilities of $95.2 million.

Going Forward

Due to the current macroeconomic headwinds triggered by the COVID-19 pandemic, Cogent has stated that it is likely to encounter financial difficulties in the near term coupled with a significant downward trend in customer orders, supply chain disruptions, lower corporate installs and reduced customer connections. Backed by the current work-from-home trend amid COVID-19 induced lockdown, the company witnessed a positive impact on net-centric revenues in the reported quarter. Nevertheless, the company expects the global economic disturbance and government restrictions to have a negative impact on its business operations in the long run.

Zacks Rank & Stocks to Consider

Cogent currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader industry are Cambium Networks Corporation CMBM, Calix, Inc. CALX and Badger Meter, Inc. BMI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cambium delivered a trailing four-quarter positive earnings surprise of 126.4%, on average.

Calix delivered a trailing four-quarter positive earnings surprise of 72.2%, on average.

Badger Meter delivered a trailing four-quarter positive earnings surprise of 5.4%, on average.

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