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

WASHINGTON , Aug. 6, 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 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.

  • 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%.

  • 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.

  • 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.

  • 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.

...