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Cogent Communications Reports Fourth Quarter and Full Year 2019 Results and Increases Regular Quarterly Dividend on Common Stock

·17 mins read

WASHINGTON , Feb. 27, 2020 /PRNewswire/ --

Cogent Communications Logo. (PRNewsFoto/Cogent Communications) (PRNewsfoto/Cogent Communications Holdings,)
Cogent Communications Logo. (PRNewsFoto/Cogent Communications) (PRNewsfoto/Cogent Communications Holdings,)

Financial and Business Highlights

  • Cogent approved a $0.02 increase per share to its regular quarterly dividend to $0.66 per share for Q1 2020 from $0.64 per share for Q4 2019 Cogent's thirtieth consecutive quarterly dividend increase.

  • Dividends for 2019 totaled $112.6 million , or $2.44 per share, with 54.0% treated as a return of capital and 46.0% treated as dividends for US federal income tax purposes.

  • Service revenue, on a constant currency basis, increased by 2.5% from Q3 2019 to Q4 2019, increased from Q4 2018 to Q4 2019 by 6.8% and increased from full year 2018 to full year 2019 by 6.0% to $546.2 million .

  • Non-GAAP gross profit increased by 10.4% from Q4 2018 to $84.6 million for Q4 2019 and increased from full year 2018 to full year 2019 by 8.6% to $327.4 million . GAAP gross profit increased by 16.0% from Q4 2018 to $64.3 million for Q4 2019 and increased from full year 2018 to full year 2019 by 12.2% to $246.1 million .

  • EBITDA increased by 4.4% from Q3 2019 to $52.7 million for Q4 2019, increased by 10.8% from Q4 2018 to Q4 2019 and increased from full year 2018 to full year 2019 by 7.3% to $197.9 million .

  • Net cash provided by operating activities increased by 37.8% from Q3 2019 to $46.1 million for Q4 2019, increased by 13.2% from Q4 2018 to Q4 2019 and increased from full year 2018 to full year 2019 by 11.1% to $148.8 million .

Cogent Communications Holdings, Inc. (NASDAQ: CCOI) ("Cogent") today announced service revenue of $140.3 million for the three months ended December 31, 2019 , an increase of 6.2% from the three months ended December 31, 2018 and an increase of 2.4% from the three months ended September 30, 2019 . Service revenue was $546.2 million for the year ended December 31, 2019 , an increase of 5.0% from the year ended December 31, 2018 . Foreign exchange negatively impacted service revenue growth from the three months ended September 30, 2019 to the three months ended December 31, 2019 by $0.1 million , negatively impacted service revenue growth from the three months ended December 31, 2018 to the three months ended December 31, 2019 by $0.7 million and negatively impacted service revenue growth from the year ended December 31, 2018 to the year ended December 31, 2019 by $5.3 million . On a constant currency basis, service revenue grew by 2.5% from the three months ended September 30, 2019 to the three months ended December 31, 2019 , grew by 6.8% from the three months ended December 31, 2018 to the three months ended December 31, 2019 and grew by 6.0% from the year ended December 31, 2018 to the year ended December 31, 2019 .

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 $102.7 million for the three months ended December 31, 2019 ; an increase of 3.3% from the three months ended September 30, 2019 and an increase of 7.7% over the three months ended December 31, 2018 . On-net revenue was $396.8 million for the year ended December 31, 2019 ; an increase of 5.9% over the year ended December 31, 2018 .

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 $37.5 million for the three months ended December 31, 2019 ; an increase of 0.2% over the three months ended September 30, 2019 and an increase of 2.5% over the three months ended December 31, 2018 . Off-net revenue was $148.9 million for the year ended December 31, 2019 ; an increase of 2.7% over the year ended December 31, 2018 .

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 16.0% from the three months ended December 31, 2018 to $64.3 million for the three months ended December 31, 2019 and increased by 4.2% from the three months ended September 30, 2019 . GAAP gross profit increased by 12.2% from the year ended December 31, 2018 to $246.1 million for the year ended December 31, 2019 . GAAP gross margin was 45.8% for the three months ended December 31, 2019 , 42.0% for the three months ended December 31, 2018 and 45.0% for the three months ended September 30, 2019 . GAAP gross margin was 45.1% for the year ended December 31, 2019 and 42.2% for the year ended December 31 , 2018.   Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $4.3 million for the three months ended December 31, 2019 , $4.0 million for the three months ended September 30, 2019 , $3.2 million for the three months ended December 31 , 2018, $14.9 million for the year ended December 31 , 2019 and $12.5 million for the year ended December 31 , 2018. 

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 10.4% from the three months ended December 31, 2018 to $84.6 million for the three months ended December 31, 2019 and increased by 3.2% from the three months ended September 30, 2019 . Non-GAAP gross profit increased by 8.6% from the year ended December 31, 2018 to $327.4 million for the year ended December 31, 2019 . Non-GAAP gross profit margin was 60.3% for the three months ended December 31, 2019 , 58.0% for the three months ended December 31, 2018 and 59.9% for the three months ended September 30 , 2019.  Non-GAAP gross margin was 59.9% for the year ended December 31, 2019 and 58.0% for the year ended December 31 , 2018. 

Net cash provided by operating activities increased by 13.2% from the three months ended December 31, 2018 to $46.1 million for the three months ended December 31, 2019 and increased by 37.8% from the three months ended September 30, 2019 . Net cash provided by operating activities increased by 11.1% from the year ended December 31, 2018 to $148.8 million for the year ended December 31, 2019 .

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 10.8% from the three months ended December 31, 2018 to $52.7 million for the three months ended December 31, 2019 and increased by 4.4% from the three months ended September 30 , 2019.  EBITDA increased by 7.3% from the year ended December 31, 2018 to $197.9 million for the year ended December 31, 2019 . EBITDA margin was 37.6% for the three months ended December 31, 2019 , 36.0% for the three months ended December 31, 2018 and 36.9% for the three months ended September 30 , 2019.  EBITDA margin was 36.2% for the year ended December 31, 2019 and 35.5% for the year ended December 31, 2018 .

EBITDA, as adjusted, increased by 11.1% from the three months ended December 31, 2018 to $53.0 million for the three months ended December 31, 2019 and increased by 4.7% from the three months ended September 30, 2019 . EBITDA, as adjusted, increased by 7.3% from the year ended December 31, 2018 to $199.0 million for the year ended December 31, 2019 . EBITDA, as adjusted, margin was 37.8% for the three months ended December 31, 2019 , 36.1% for the three months ended December 31, 2018 and 37.0% for the three months ended September 30, 2019 . EBITDA, as adjusted, margin was 36.4% for the year ended December 31, 2019 and 35.7% for the year ended December 31, 2018 .

Basic and diluted net income per share was $0.16 for the three months ended December 31, 2019 , $0.16 for the three months ended December 31, 2018 and $0.30 for the three months ended September 30, 2019 . Unrealized foreign exchange gains (losses) on Cogent's ¬135.0 million Euro notes were $6.1 million for the three months ended September 30, 2019 , or $0.13 per basic and diluted net income per share, $(4.0) million for the three months ended December 31, 2019 , or $(0.09) per basic and diluted net income per share and $2.3 million for the year ended December 31, 2019 , or $0.05 per basic and diluted net income per share. Basic net income per share was $0.82 for the year ended December 31, 2019 and $0.63 for the year ended December 31, 2018 . Diluted net income per share was $0.81 for the year ended December 31, 2019 and $0.63 for the year ended December 31, 2018 .

Total customer connections increased by 8.0% from December 31, 2018 to 86,539 as of December 31, 2019 and increased by 1.0% from September 30, 2019 . On-net customer connections increased by 8.4% from December 31, 2018 to 74,554 as of December 31, 2019 and increased by 0.9% from September 30, 2019 . Off-net customer connections increased by 6.3% from December 31, 2018 to 11,660 as of December 31, 2019 and increased by 1.4% from September 30 , 2019. 

The number of on-net buildings increased by 125 on-net buildings from December 31, 2018 to 2,801 on-net buildings as of December 31, 2019 and increased by 30 on-net buildings from September 30, 2019 .

Quarterly Dividend Increase Approved

On February 26, 2020 , the Board approved a regular quarterly dividend of $0.66 per common share payable on March 27, 2020 to shareholders of record on March 13, 2020 . This first quarter 2020 regular dividend represents a 3.1% increase of $0.02 per share from the fourth quarter 2019 regular dividend of $0.64 per share and an annual increase of 13.8% from the Q1 2019 dividend of $0.58 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.

Tax Treatment of 2019 Dividends

Cogent paid four quarterly dividends in 2019 totaling $112.6 million , or $2.44 per share. The expected tax treatment of these dividends are generally that 54.0% are treated as a return of capital and 46.0% are generally treated as dividends for United States federal income tax purposes. While the above information includes general statements about the tax classification of dividends paid on Cogent common stock, these statements do not constitute tax advice. The taxation of corporate distributions can be complex, and stockholders are encouraged to consult their tax advisers to determine what impact the above information may have on their specific tax situation.

Conference Call and Website Information

Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on February 27, 2020 to discuss Cogent's operating results for the fourth quarter of 2019 and full year 2019 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 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Metric ($ in 000's, except share and per share data) unaudited









On-Net revenue

$92,387

$93,026

$93,790

$95,351

$97,183

$97,472

$99,416

$102,683

  % Change from previous Qtr.

3.4%

0.7%

0.8%

1.7%

1.9%

0.3%

2.0%

3.3%

Off-Net revenue

$36,144

$36,107

$36,202

$36,551

$36,843

$37,191

$37,418

$37,479

  % Change from previous Qtr.

1.4%

-0.1%

0.3%

1.0%

0.8%

0.9%

0.6%

0.2%

Non-Core revenue (1)

$175

$163

$147

$147

$111

$126

$108

$130

  % Change from previous Qtr.

-7.9%

-6.9%

-9.8%

-%

-24.5%

13.5%

-14.3%

20.4%

Service revenue total

$128,706

$129,296

$130,139

$132,049

$134,137

$134,789

$136,942

$140,292

  % Change from previous Qtr.

2.8%

0.5%

0.7%

1.5%

1.6%

0.5%

1.6%

2.4%

Constant currency total revenue quarterly growth rate sequential quarters (6)

2.0%

1.1%

1.1%

1.8%

1.7%

0.7%

1.7%

2.5%

Constant currency total revenue quarterly growth rate year over year quarters (6)

7.0%

6.3%

6.2%

6.2%

5.8%

5.4%

6.0%

6.8%

Network operations expenses (2)  

$54,686

$54,147

$54,365

$55,436

$53,970

$54,181

$54,971

$55,684

  % Change from previous Qtr.

1.8%

-1.0%

0.4%

2.0%

-2.6%

0.4%

1.5%

1.3%

GAAP gross profit (3)

$54,043

$54,701

$55,248

$55,437

$59,724

$60,403

$61,683

$64,300

  % Change from previous Qtr.

4.0%

1.2%

1.0%

0.3%

7.7%

1.1%

2.1%

4.2%

GAAP gross margin (3)

42.0%

42.3%

42.5%

42.0%

44.5%

44.8%

45.0%

45.8%

Non-GAAP gross profit (4) (6)

$74,020

$75,149

$75,774

$76,613

$80,167

$80,608

$81,971

$84,608

  % Change from previous Qtr.

3.6%

1.5%

0.8%

1.1%

4.6%

0.6%

1.7%

3.2%

Non-GAAP gross margin (4) (6)

57.5%

58.1%

58.2%

58.0%

59.8%

59.8%

59.9%

60.3%

Selling, general and administrative expenses (5)

$29,928

$29,241

$28,838

$29,034

$32,568

$33,503

$31,456

$31,884

  % Change from previous Qtr.

6.0%

-2.3%

-1.4%

0.7%

12.2%

2.9%

-6.1%

1.4%

Depreciation and amortization expense

$19,788

$20,216

$20,276

$20,952

$20,263

$19,979

$20,006

$20,002

  % Change from previous Qtr.

2.3%

2.2%

0.3%

3.3%

-3.3%

-1.4%

0.1%

-%

Equity-based compensation expense

$3,784

$4,695

$4,821

$4,408

$3,434

$5,289

$4,797

$4,940

  % Change from previous Qtr.

2.7%

24.1%

2.7%

-8.6%

-22.1%

54.0%

-9.3%

3.0%

Operating income

$20,637

$21,354

$22,255

$22,311

$24,400

$22,022

$25,799

$28,033

  % Change from previous Qtr.

0.5%

3.5%

4.2%

0.3%

9.4%

-9.7%

17.2%

8.7%

Interest expense

$12,408

$12,373

$12,767

$13,508

$13,456

$13,595

$15,191

$15,211

  % Change from previous Qtr.

1.5%

-0.3%

3.2%

5.8%

-0.4%

1.0%

11.7%

0.1%

Net income

$6,784

$6,552

$8,231

$7,100

$9,217

$7,136

$13,701

$7,465

Basic net income per common share

$0.15

$0.15

$0.18

$0.16

$0.20

$0.16

$0.30

$0.16

Diluted net income per common share

$0.15

$0.14

$0.18

$0.16

$0.20

$0.16

$0.30

$0.16

Weighted average common shares basic

44,923,973

45,016,767

45,105,830

45,284,481

45,223,157

45,354,327

45,438,656

45,553,727

  % Change from previous Qtr.

0.2%

0.2%

0.2%

0.4%

-0.1%

0.3%

0.2%

0.3%

Weighted average common shares diluted

45,294,697

45,536,473

45,699,635

45,803,418

45,644,236

45,912,291

46,019,691

46,145,970

  % Change from previous Qtr.

1.0%

0.5%

0.4%

0.2%

-0.3%

0.6%

0.2%

0.3%

EBITDA (6)

$44,092

$45,908

$46,936

$47,579

$47,561

$47,105

$50,515

$52,724

  % Change from previous Qtr.

2.0%

4.1%

2.2%

1.4%

-%

-1.0%

7.2%

4.4%

EBITDA margin

34.3%

35.5%

36.1%

36.0%

35.5%

34.9%

36.9%

37.6%

Gains on asset related transactions

$117

$357

$416

$92

$536

$185

$87

$251

EBITDA, as adjusted (6)

$44,209

$46,265

$47,352

$47,671

$48,097

$47,290

$50,602

$52,975

  % Change from previous Qtr.

1.5%

4.7%

2.3%

0.7%

0.9%

-1.7%

7.0%

4.7%

EBITDA, as adjusted, margin

34.3%

35.8%

36.4%

36.1%

35.9%

35.1%

37.0%

37.8%

  Fees net neutrality

$14

$39

$108

$16

$-

$-

$-

$-

Net cash provided by operating activities

$30,179

$31,271

$31,745

$40,726

$28,637

$40,632

$33,443

$46,097

  % Change from previous Qtr.

-3.8%

3.6%

1.5%

28.3%

-29.7%

41.9%

-17.7%

37.8%

Capital expenditures

$14,905

$11,988

$12,107

$10,937

$13,288

$11,720

$12,051

$9,899

  % Change from previous Qtr.

40.4%

-19.6%

1.0%

-9.7%

21.5%

-11.8%

2.8%

-17.9%

Principal payments of capital (finance) lease obligations

$2,304

$3,755

$2,099

$2,128

$3,030

$1,976

$2,029

$2,056

  % Change from previous Qtr.

25.7%

63.0%

-44.1%

1.4%

42.4%

-34.8%

2.7%

1.3%

Dividends paid

$22,819

$23,788

$24,764

$26,516

$26,565

$27,741

$28,565

$29,776

Purchases of common stock

$ -

$ -

$ -

$ 6,564

$ -

$ -

$ -

$ -

Gross Leverage Ratio

4.33

4.22

4.46

4.36

4.28

5.08

4.97

4.86

Net Leverage Ratio

2.94

2.93

2.89

2.87

2.92

2.93

2.92

2.86

Customer Connections end of period









On-Net

63,366

65,407

67,370

68,770

71,066

72,415

73,870

74,554

  % Change from previous Qtr.

3.3%

3.2%

3.0%

2.1%

3.3%

1.9%

2.0%

0.9%

Off-Net

10,241

10,480

10,698

10,974

11,138

11,321

11,503

11,660

  % Change from previous Qtr.

2.9%

2.3%

2.1%

2.6%

1.5%

1.6%

1.6%

1.4%

Non-Core (1)

307

306

307

362

318

318

319

325

% Change from previous Qtr.

-5.8%

-0.3%

0.3%

17.9%

-12.2%

-%

-0.3%

1.9%

Total customer connections

73,194

76,193

78,375

80,106

82,522

84,054

85,692

86,539

% Change from previous Qtr.

3.2%

4.1%

2.9%

2.2%

3.0%

1.9%

1.9%

1.0%

On-Net Buildings – end of period









Multi-Tenant office buildings

1,672

1,710

1,720

1,735

1,746

1,751

1,757

1,767

Carrier neutral data center buildings

816

837

863

889

908

933

960

980

Cogent data centers

53

52

52

52

52

53

54

54

Total on-net buildings

2,541

2,599

2,635

2,676

2,706

2,737

2,771

2,801

Square feet – multi-tenant office buildings – on-net

911,283,287

927,410,239

934,535,144

944,232,756

949,486,923

951,031,709

954,013,024

957,173,183

Network – end of period









Intercity route miles

57,403

57,403

57,403

57,426

57,426

57,426

57,426

57,600

Metro fiber miles

31,850

31,953

32,579

32,946

33,664

34,163

34,985

35,526

Connected networks – AS's

6,247

6,363

6,510

6,588

6,668

6,762

6,844

6,926

Headcount – end of period









Sales force – quota bearing

432

438

453

487

501

519

530

548

Sales force - total

555

566

583

619

639

656

667

686

Total employees

908

917

938

974

997

1,026

1,036

1,055

Sales rep productivity – units per full time equivalent sales rep ("FTE") per month

5.7

5.7

5.8

5.7

5.1

4.9

4.4

4.1

FTE – sales reps

427

413

418

436

464

478

488

502



(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 $189, $232, $250, $224, $180, $226, $282 and $306 in the three month periods ended March 31, 2018 through December 31, 2019, respectively. Network operations expense includes excise taxes, including Universal Service Fund fees of $3,157, $3,108, $3,010, $3,234, $3,391, $3,191, $3,998 and $4,334 in the three month periods ended March 31, 2018 through December 31, 2019, 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 $3,595, $4,463, $4,571, $4,184, $3,254, $5,063, $4,515 and $4,634 in the three month periods ended March 31, 2018 through December 31, 2019, 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

2018

Q2

2018

Q3

2018

Q4

2018

Year
2018

Q1

2019

Q2

2019

Q3

2019

Q4

2019

Year
2019

($ in 000's) – unaudited











Net cash provided by operating activities

$30,179

$31,271

$31,745

$40,726

$133,921

$28,637

$40,632

$33,443

$46,097

$148,809

Changes in operating assets and liabilities

2,919

2,408

4,254

(4,361)

5,355

6,727

(5,729)

3,785

(6,557)

(1,949)

Cash interest expense and income tax expense

10,994

12,229

10,937

11,214

45,241

12,197

12,202

13,287

13,184

51,045

EBITDA

$44,092

$45,908

$46,936

$47,579

$184,517

$47,561

$47,105

$50,515

$52,724

$197,905

PLUS: Gains on asset related transactions

117

357

416

92

982

536

185

87

251

1,059

EBITDA, as adjusted

$44,209

$46,265

$47,352

$47,671

$185,499

$48,097

$47,290

$50,602

$52,975

$198,964

EBITDA margin

34.3%

35.5%

36.1%

36.0%

35.5%

35.5%

34.9%

36.9%

37.6%

36.2%

EBITDA, as adjusted, margin

34.3%

35.8%

36.4%

36.1%

35.7%

35.9%

35.1%

37.0%

37.8%

36.4%

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

2018

Q2

2018

Q3

2018

Q4

2018

Year

2018

Q1

2019

Q2

2019

Q3

2019

Q4
2019

Year

2019

Service revenue, as reported – current period

$128,706

$129,296

$130,139

$132,049

$520,193

$134,137

$134,789

$136,942

$140,292

$546,159

Impact of foreign currencies on service revenue

(981)

802

613

465

(4,021)

135

260

176

88

5,286

Service revenue - as adjusted for currency impact (1)

$127,725

$130,098

$130,752

$132,514

$516,172

$134,272

$135,049

$137,118

$140,380

$551,445

Service revenue, as reported – prior sequential period

$125,226

$128,706

$129,296

$130,139

$485,175

$132,049

$134,137

$134,789

$136,942

$520,193

Constant currency increase

$2,499

$1,392

$1,456

$2,375

$30,997

$2,223

$912

$2,329

$3,438

$31,252

Constant currency percent increase

2.0%

1.1%

1.1%

1.8%

6.4%

1.7%

0.7%

1.7%

2.5%

6.0%



(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

2018

Q2

2018

Q3

2018

Q4

2018

Year

2018

Q1

2019

Q2

2019

Q3

2019

Q4
2019

Year

2019

Service revenue, as reported – current period

$128,706

$129,296

$130,139

$132,049

$520,193

$134,137

$134,789

$136,942

$140,292

$546,159

Impact of foreign currencies on service revenue

(3,280)

(1,937)

445

896

(4,021)

2,078

1,505

1,058

683

5,286

Service revenue - as adjusted for currency impact (2)

$125,426

$127,359

$130,584

$132,945

$516,172

$136,215

$136,294

$138,000

$140,975

$551,445

Service revenue, as reported – prior year period

$117,203

$119,777

$122,969

$125,226

$485,175

$128,706

$129,296

$130,139

$132,049

$520,193

Constant currency increase

$8,223

$7,582

$7,615

$7,719

$30,997

$7,509

$6,998

$7,861

$8,926

$31,252

Percent increase

7.0%

6.3%

6.2%

6.2%

6.4%

5.8%

5.4%

6.0%

6.8%

6.0%



(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 2018

Q2 2018

Q3 2018

Q4 2018

Year
2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Year
2019

($ in 000's) – unaudited











Service revenue total

$128,706

$129,296

$130,139

$132,049

$520,190

$134,137

$134,789

$136,942

$140,292

$546,159

Minus - Network operations expense including equity-based compensation and including depreciation and amortization expense

74,663

74,595

74,891

76,612

300,761

74,413

74,386

75,259

75,992

300,050

GAAP Gross Profit (1)

$54,043

$54,701

$55,248

$55,437

$219,429

$59,724

$60,403

$61,683

$64,300

$246,109

Plus - Equity-based compensation – network operations expense

189

232

250

224

895

180

226

282

306

994

Plus – Depreciation and amortization expense

19,788

20,216

20,276

20,952

81,232

20,263

19,979

20,006

20,002

80,247

Non-GAAP Gross Profit (2)

$74,020

$75,149

$75,774

$76,613

$301,556

$80,167

$80,608

$81,971

$84,608

$327,350

GAAP Gross Margin (1)

42.0%

42.3%

42.5%

42.0%

42.2%

44.5%

44.8%

45.0%

45.8%

45.1%

Non-GAAP Gross Margin (2)

57.5%

58.1%

58.2%

58.0%

58.0%

59.8%

59.8%

59.9%

60.3%

59.9%



(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 September 30, 2019

As of December 31, 2019

Cash and cash equivalents

$396,271

$399,422

Debt



Capital (finance) leases – current portion

7,884

8,154

Capital (finance) leases – long term

160,178

161,635

Senior unsecured notes

189,225

189,225

Senior secured notes

445,000

445,000

Senior unsecured Euro notes

147,379

151,411

Note payable

12,838

12,487

Total debt

962,504

967,912

Total net debt

566,233

568,490

Trailing 12 months EBITDA, as adjusted

193,660

198,964

Gross leverage ratio

4.97

4.86

Net leverage ratio

2.92

2.86

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

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2019 AND 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)












2019


2018


Assets








Current assets:








Cash and cash equivalents


$

399,422


$

276,093


Accounts receivable, net of allowance for doubtful accounts of $1,771 and $1,263, respectively



40,484



41,709


Prepaid expenses and other current assets



35,822



32,535


Total current assets



475,728



350,337


Property and equipment:








Property and equipment



1,366,782



1,300,503


Accumulated depreciation and amortization



(997,853)



(925,178)


Total property and equipment, net



368,929



375,325


Right-of-use leased assets



73,460




Deferred tax assets



335



2,733


Deposits and other assets



13,672



11,455


Total assets


$

932,124


$

739,850










Liabilities and stockholders' equity








Current liabilities:








Accounts payable


$

11,075


$

8,519


Accrued and other current liabilities



51,301



51,431


Current maturities, operating lease liabilities



10,101




Installment payment agreement, current portion, net of discount of $350 and $395, respectively



9,063



8,283


Finance lease obligations, current maturities



8,154



7,074


Total current liabilities



89,694



75,307


Senior unsecured 2024 Euro notes, net of unamortized debt costs of $1,410



150,001




Senior secured 2022 notes, net of unamortized debt costs of $1,897 and $2,695 respectively and including
premium of $985 and $1,405, respectively



444,088



443,710


Senior unsecured 2021 notes, net of unamortized debt costs of $857 and $1,476, respectively



188,368



187,749


Operating lease liabilities, net of current maturities



86,690




Finance lease obligations, net of current maturities



161,635



156,706


Other long term liabilities



15,327



25,380


Total liabilities



1,135,803



888,852


Commitments and contingencies








Stockholders' equity:








Common stock, $0.001 par value; 75,000,000 shares authorized; 46,840,434 and 46,336,499 shares issued and
outstanding, respectively



47



46


Additional paid-in capital



493,178



471,331


Accumulated other comprehensive income



(12,326)



(10,928)


Accumulated deficit



(684,578)



(609,451)


Total stockholders' deficit



(203,679)



(149,002)


Total liabilities and stockholders' equity


$

932,124


$

739,850










COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)




Three Months
Ended
December 31, 2019


Three Months
Ended
December 31, 2018








Service revenue


$

140,292


$

132,049


Operating expenses:






Network operations (including $306 and $224 of equity‑based compensation expense, respectively),
exclusive of amounts shown separately


55,990


55,660


Selling, general, and administrative (including $4,634 and $4,184 of equity‑based compensation
expense, respectively)


36,518


33,218


Depreciation and amortization


20,002


20,952


Total operating expenses


112,510


109,830


Gains on equipment transactions


251


92


Operating income


28,033


22,311


Interest income and other


(2,056)


2,060


Interest expense


(15,211)


(13,508)


Income before income taxes


10,766


10,863


Income tax expense


(3,301)


(3,763)


Net income


$

7,465


$

7,100








Comprehensive income:






Net income


$

7,465


$

7,100


Foreign currency translation adjustment


3,350


(2,256)


Comprehensive income


$

10,815


$

4,844








Basic net income per common share


$

0.16


$

0.16


Diluted net income per common share


$

0.16


$

0.16








Dividends declared per common share


$

0.64


$

0.56








Weighted‑average common shares—basic


45,553,727


45,284,481








Weighted‑average common shares—diluted


46,145,970


45,803,418


COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2019

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)















2019


2018


2017


Service revenue


$

546,159


$

520,193


$

485,175


Operating expenses:











Network operations (including $994, $895 and $604 of equity-based compensation
expense, respectively), exclusive of amounts shown separately



219,801



219,526



209,278


Selling, general, and administrative (including $17,466, $16,813 and $12,686 of equity-
based compensation expense, respectively)



146,913



133,858



127,915


Depreciation and amortization



80,247



81,233



75,926


Total operating expenses



446,961



434,617



413,119


Gains on equipment transactions



1,059



982



3,862


Operating income



100,257



86,558



75,918


Interest income and other



9,870



5,880



3,667


Interest expense



(57,453)



(51,056)



(48,467)


Income before income taxes



52,674



41,382



31,118


Income tax expense



(15,154)



(12,715)



(25,242)


Net income


$

37,520


$

28,667


$

5,876













Comprehensive income:











Net income


$

37,520


$

28,667


$

5,876


Foreign currency translation adjustment



(1,398)



(6,328)



12,593


Comprehensive income


$

36,122


$

22,339


$

18,469













Basic net income per common share


$

0.82


$

0.63


$

0.13


Diluted net income per common share


$

0.81


$

0.63


$

0.13













Dividends declared per common share


$

2.44


$

2.12


$

1.80













Weighted-average common shares—basic



45,542,315



45,280,161



44,855,263













Weighted-average common shares—diluted



46,080,395



45,780,954



45,184,203













COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018

(IN THOUSANDS)




Three Months
Ended
December 31, 2019


Three Months
Ended
December 31, 2018








Cash flows from operating activities:






Net income


$

7,466


$

7,100


Adjustments to reconcile net income 00to net cash provided by operating activities:






Depreciation and amortization


20,001


20,953


Amortization of debt discount and premium


479


407


Equity‑based compensation expense (net of amounts capitalized)


4,940


4,408


Gains—equipment transactions and other, net


(227)


(383)


Unrealized foreign currency exchange loss on 2024 Euro notes


4,032



Deferred income taxes


2,873


3,590


Changes in operating assets and liabilities:






Accounts receivable


1,110


(924)


Prepaid expenses and other current assets


1,132


225


Deposits and other assets


599


(28)


Accounts payable, accrued liabilities and other long‑term liabilities


3,692


5,378


Net cash provided by operating activities


46,097


40,726


Cash flows from investing activities:






Purchases of property and equipment


(9,899)


(10,937)


Net cash used in investing activities


(9,899)


(10,937)


Cash flows from financing activities:






Dividends paid


(29,776)


(26,516)


Principal payments of capital lease obligations


(2,056)


(2,128)


Principal payments of installment payment agreement


(2,659)


(2,550)


Purchases of common stock



(6,564)


Proceeds from exercises of common stock options


367


248


Net cash used in financing activities


(34,124)


(37,510)


Effect of exchange rate changes on cash


1,077


(744)


Net increase (decrease) in cash and cash equivalents


3,151


(8,465)


Cash and cash equivalents, beginning of period


396,271


284,558


Cash and cash equivalents, end of period


$

399,422


$

276,093


COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2019

(IN THOUSANDS)















2019


2018


2017


Cash flows from operating activities:











Net income


$

37,520


$

28,667


$

5,876


Adjustments to reconcile net income to net cash provided by operating activities:











Depreciation and amortization



80,247



81,233



75,926


Amortization of debt discount and premium



1,807



1,533



1,239


Equity-based compensation expense (net of amounts capitalized)



18,460



17,708



13,290


Unrealized foreign currency exchange gain on 2024 Euro notes



(2,273)








Gains—equipment transactions and other, net



(358)



(1,109)



(4,833)


Deferred income taxes



12,158



11,117



24,679


Changes in operating assets and liabilities:











Accounts receivable



1,067



(3,204)



(4,161)


Prepaid expenses and other current assets



(3,730)



(438)



1,146


Deposits and other assets



(1,131)



(1,490)



1,111


Accounts payable, accrued liabilities and other long-term liabilities



5,042



(96)



(2,571)


Net cash provided by operating activities



148,809



133,921



111,702


Cash flows from investing activities:











Purchases of property and equipment



(46,958)



(49,937)



(45,801)


Net cash used in investing activities



(46,958)



(49,937)



(45,801)


Cash flows from financing activities:











Net proceeds from issuance of senior unsecured 2024 Euro notes - net of debt costs of $1,556



152,134






Net proceeds from issuance of 2022 secured notes—net of debt costs of $1,364 and $1,202,
respectively





69,861




Dividends paid



(112,647)



(97,887)



(81,657)


Principal payments of finance lease obligations



(9,097)



(10,286)



(11,201)


Principal payments of installment payment agreement



(10,007)



(9,437)



(3,802)


Purchases of common stock





(6,564)



(1,829)


Proceeds from exercises of common stock options



1,637



1,768



1,222


Net cash provided by (used in) financing activities



22,020



(52,545)



(97,267)


Effect of exchange rate changes on cash



(542)



(2,357)



4,058


Net increase (decrease) in cash and cash equivalents



123,329



29,082



(27,308)


Cash and cash equivalents, beginning of year



276,093



247,011



274,319


Cash and cash equivalents, end of year


$

399,422


$

276,093


$

247,011













Except for historical information and discussion contained herein, statements contained in this release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "projects" and similar expressions. The statements in this release are based upon the current beliefs and expectations of Cogent's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Numerous factors could cause or contribute to such differences, including future economic instability in the global economy or a contraction of the capital markets which could affect spending on Internet services and our ability to engage in financing activities; the impact of changing foreign exchange rates (in particular the Euro to USD and Canadian dollar to USD exchange rates) on the translation of our non-USD denominated revenues, expenses, assets and liabilities; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including net neutrality rules by the United States Federal Communications Commission and in the area of data protection; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; the ability to maintain our Internet peering arrangements on favorable terms; our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; and outcomes in litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our 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.