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Cogent Communications Reports Third Quarter 2019 Results, Appoints Two New Directors and Increases Regular Quarterly Dividend on Common Stock

WASHINGTON, Nov. 7, 2019 /PRNewswire/ --

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 $0.64 per share for Q4 2019 from $0.62 per share for Q3 2019 - the twenty-ninth consecutive quarterly dividend increase.
  • Service revenue, on a constant currency basis, increased by 1.7% from Q2 2019 to Q3 2019 and increased from Q3 2018 to Q3 2019 by 6.0%.
  • GAAP gross profit increased by 11.6% from Q3 2018 to $61.7 million for Q3 2019 and non-GAAP gross profit increased by 8.2% from Q3 2018 to $82.0 million for Q3 2019.
  • SG&A expenses decreased by 6.7% from $38.6 million for Q2 2019 to $36.0 million for Q3 2019.
  • EBITDA increased by 7.6% from Q3 2018 to $50.5 million for Q3 2019 and increased by 7.2% from Q3 2018.
  • Net cash provided by operating activities increased by 10.2% to $102.7 million for the nine months ended September 30, 2019 from the nine months ended September 30, 2018.

Cogent Communications Holdings, Inc. (CCOI) ("Cogent") today announced service revenue of $136.9 million for the three months ended September 30, 2019, an increase of 5.2% from the three months ended September 30, 2018 and an increase of 1.6% from the three months ended June 30, 2019. Foreign exchange negatively impacted service revenue growth from the three months ended June 30, 2019 to the three months ended September 30, 2019 by $0.2 million and negatively impacted service revenue growth from the three months ended September 30, 2018 to the three months ended September 30, 2019 by $1.1 million.  On a constant currency basis, service revenue grew by 1.7% from the three months ended June 30, 2019 to the three months ended September 30, 2019 and grew by 6.0% from the three months ended September 30, 2018 to the three months ended September 30, 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 $99.4 million for the three months ended September 30, 2019; an increase of 2.0% from the three months ended June 30, 2019 and an increase of 6.0% over the three months ended September 30, 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 $37.4 million for the three months ended September 30, 2019; an increase of 0.6% over the three months ended June 30, 2019 and an increase of 3.4% over the three months ended September 30, 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 11.6% from the three months ended September 30, 2018 to $61.7 million for the three months ended September 30, 2019 and increased by 2.1% from the three months ended June 30, 2019. GAAP gross margin was 45.0% for the three months ended September 30, 2019, 42.5% for the three months ended September 30, 2018 and 44.8% for the three months ended June 30, 2019.  Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $4.0 million for the three months ended September 30, 2019, $3.2 million for the three months ended June 30, 2019 and $3.0 million for the three months ended September 30, 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 8.2% from the three months ended September 30, 2018 to $82.0 million for the three months ended September 30, 2019 and increased by 1.7% from the three months ended June 30, 2019. Non-GAAP gross profit margin was 59.9% for the three months ended September 30, 2019, 58.2% for the three months ended September 30, 2018 and 59.8% for the three months ended June 30, 2019. 

Net cash provided by operating activities increased by 5.3% from the three months ended September 30, 2018 to $33.4 million for the three months ended September 30, 2019 and decreased by 17.7% from the three months ended June 30, 2019.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 7.6% from the three months ended September 30, 2018 to $50.5 million for the three months ended September 30, 2019 and increased by 7.2% from the three months ended June 30, 2019. EBITDA margin was 36.9% for the three months ended September 30, 2019, 36.1% for the three months ended September 30, 2018 and 34.9% for the three months ended June 30, 2019. 

EBITDA, as adjusted, increased by 6.9% from the three months ended September 30, 2018 to $50.6 million for the three months ended September 30, 2019 and increased by 7.0% from the three months ended June 30, 2019. EBITDA, as adjusted, margin was 37.0% for the three months ended September 30, 2019, 36.4% for the three months ended September 30, 2018 and 35.1% for the three months ended June 30, 2019.

Basic and diluted net income per share was $0.30 for the three months ended September 30, 2019, $0.18 for the three months ended September 30, 2018 and $0.16 for the three months ended June 30, 2019. Unrealized foreign exchange gains on Cogent's €135 million notes were $6.1 million for the three months ended September 30, 2019, or $0.13 per basic and diluted net income per share.

Total customer connections increased by 9.3% from September 30, 2018 to 85,692 as of September 30, 2019 and increased by 1.9% from June 30, 2019. On-net customer connections increased by 9.6% from September 30, 2018 to 73,870 as of September 30, 2019 and increased by 2.0% from June 30, 2019. Off-net customer connections increased by 7.5% from September 30, 2018 to 11,503 as of September 30, 2019 and increased by 1.6% from June 30, 2019. 

The number of on-net buildings increased by 136 on-net buildings from September 30, 2018 to 2,771 on-net buildings as of September 30, 2019 and increased by 34 on-net buildings from June 30, 2019.

Appointment of New Directors of Cogent Communications Holdings, Inc.

On November 4, 2019, Messrs.  Richard Liebhaber and Timothy Weingarten resigned from the Board of Directors (the "Board") of Cogent.  These resignations did not involve any disagreements with Cogent.  Upon recommendation of the Nominating and Corporate Governance Committee, the Board appointed Sheryl Kennedy and Carolyn Katz to serve as directors of Cogent, effective November 5, 2019.

Ms. Kennedy, age 64, is non-executive Chair of Promontory Financial Group Canada, an IBM Company that provides consulting services to the financial services industry.  She is also Vice Chair of the Canadian Public Accountability Board and a Director of the CLS Group Holdings AG and CLS Bank International Board of Directors, serving on the Audit and Finance and the Nominating and Governance Committees. From 1994 to 2008 she was Deputy Governor of the Bank of Canada and chaired the Markets Committee at the Bank for International Settlements in Basel, Switzerland from 2003 to 2006.  She also served as Senior Advisor for International Strategy for Scotiabank in 2006.  Prior to her time with the Bank of Canada, Kennedy worked in the Canadian federal Department of Finance and served as Finance Counsellor at the Canadian Embassy in Paris, France.  Ms. Kennedy serves on the University of Waterloo Board of Governors and its Audit and Risk and Finance and Investment Committees, is a Trustee of the Anglican Church of Canada General Synod Pension Plan and is Vice Chair of the Mothers Matter Centre.

Ms. Katz, age 57, has served on the boards of several public and private companies since 2000.  She has been a director of Vonage Holdings Corp (VG) since 2014, where she is a member of the Audit and Compensation committees.  From 2004 to 2017 she was also a director of American Tower Corporation, a provider of international communications infrastructure, where she was a member of the Audit committee.  From 2002 to 2015 she was a director of NII Holdings, a multinational cellular telecommunications company, where she served as lead director, chair of the Audit committee and was a member of the Finance and Corporate Governance and Nominating committees.  From 2000 to 2004 she was a director of Universal Access, serving on the Audit Committee.  From 2000 to 2001 Ms. Katz served as a principal of Providence Equity Partners Inc., a private investment firm specializing in equity investments in telecommunications and media companies.  From June 1984 to April 2000, she worked at Goldman, Sachs & Co., ending her tenure there as a managing director and co-head of Emerging Communications.  She is a graduate of Princeton University.

Quarterly Dividend Increase Approved

On November 5, 2019, the Board approved a regular quarterly dividend of $0.64 per common share payable on December 9, 2019 to shareholders of record on November 22, 2019. This fourth quarter 2019 regular dividend represents a 3.2% increase of $0.02 per share from the third quarter 2019 regular dividend of $0.62 per share and an annual increase of 14.3% from the Q4 2018 dividend of $0.56 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.

Extension of Share Buy-back Program

On November 5, 2019, the Board extended Cogent's share buy-back program to December 31, 2020.

Conference Call and Website Information

Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on November 7, 2019 to discuss Cogent's operating results for the third quarter of 2019 and to discuss Cogent's expectations for full year 2019. 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 (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

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

  % Change from previous Qtr.

3.4%

0.7%

0.8%

1.7%

1.9%

0.3%

2.0%

Off-Net revenue

$36,144

$36,107

$36,202

$36,551

$36,843

$37,191

$37,418

  % Change from previous Qtr.

1.4%

-0.1%

0.3%

1.0%

0.8%

0.9%

0.6%

Non-Core revenue (1)

$175

$163

$147

$147

$111

$126

$108

  % Change from previous Qtr.

-7.9%

-6.9%

-9.8%

-%

-24.5%

13.5%

-14.3%

Service revenue – total

$128,706

$129,296

$130,139

$132,049

$134,137

$134,789

$136,942

  % Change from previous Qtr.

2.8%

0.5%

0.7%

1.5%

1.6%

0.5%

1.6%

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

2.0%

1.1%

1.1%

1.8%

1.7%

0.7%

1.7%

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%

Network operations expenses (2) 

$54,686

$54,147

$54,365

$55,436

$53,970

$54,181

$54,971

  % Change from previous Qtr.

1.8%

-1.0%

0.4%

2.0%

-2.6%

0.4%

1.5%

GAAP gross profit (3)

$54,043

$54,701

$55,248

$55,437

$59,724

$60,403

$61,683

  % Change from previous Qtr.

4.0%

1.2%

1.0%

0.3%

7.7%

1.1%

2.1%

GAAP gross margin (3)

42.0%

42.3%

42.5%

42.0%

44.5%

44.8%

45.0%

Non-GAAP gross profit (4) (6)

$74,020

$75,149

$75,774

$76,613

$80,167

$80,608

$81,971

  % Change from previous Qtr.

3.6%

1.5%

0.8%

1.1%

4.6%

0.6%

1.7%

Non-GAAP gross margin (4) (6)

57.5%

58.1%

58.2%

58.0%

59.8%

59.8%

59.9%

Selling, general and administrative expenses (5)

$29,928

$29,241

$28,838

$29,034

$32,568

$33,503

$31,456

  % Change from previous Qtr.

6.0%

-2.3%

-1.4%

0.7%

12.2%

2.9%

-6.1%

Depreciation and amortization expense

$19,788

$20,216

$20,276

$20,952

$20,263

$19,979

$20,006

  % 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

  % Change from previous Qtr.

2.7%

24.1%

2.7%

-8.6%

-22.1%

54.0%

-9.3%

Operating income

$20,637

$21,354

$22,255

$22,311

$24,400

$22,022

$25,799

  % Change from previous Qtr.

0.5%

3.5%

4.2%

0.3%

9.4%

-9.7%

17.2%

Interest expense

$12,408

$12,373

$12,767

$13,508

$13,456

$13,595

$15,191

  % Change from previous Qtr.

1.5%

-0.3%

3.2%

5.8%

-0.4%

1.0%

11.7%

Net income

$6,784

$6,552

$8,231

$7,100

$9,217

$7,136

$13,701

Basic net income per common share

$0.15

$0.15

$0.18

$0.16

$0.20

$0.16

$0.30

Diluted net income per common share

$0.15

$0.14

$0.18

$0.16

$0.20

$0.16

$0.30

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

  % Change from previous Qtr.

0.2%

0.2%

0.2%

0.4%

-0.1%

0.3%

0.2%

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

  % Change from previous Qtr.

1.0%

0.5%

0.4%

0.2%

-0.3%

0.6%

0.2%

EBITDA (6)

$44,092

$45,908

$46,936

$47,579

$47,561

$47,105

$50,515

  % Change from previous Qtr.

2.0%

4.1%

2.2%

1.4%

-%

-1.0%

7.2%

EBITDA margin

34.3%

35.5%

36.1%

36.0%

35.5%

34.9%

36.9%

Gains on asset related transactions

$117

$357

$416

$92

$536

$185

$87

EBITDA, as adjusted (6)

$44,209

$46,265

$47,352

$47,671

$48,097

$47,290

$50,602

  % Change from previous Qtr.

1.5%

4.7%

2.3%

0.7%

0.9%

-1.7%

7.0%

EBITDA, as adjusted, margin

34.3%

35.8%

36.4%

36.1%

35.9%

35.1%

37.0%

 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

  % Change from previous Qtr.

-3.8%

3.6%

1.5%

28.3%

-29.7%

41.9%

-17.7%

Capital expenditures

$14,905

$11,988

$12,107

$10,937

$13,288

$11,720

$12,051

  % Change from previous Qtr.

40.4%

-19.6%

1.0%

-9.7%

21.5%

-11.8%

2.8%

Principal payments of capital (finance) lease obligations

$2,304

$3,755

$2,099

$2,128

$3,030

$1,976

$2,029

  % Change from previous Qtr.

25.7%

63.0%

-44.1%

1.4%

42.4%

-34.8%

2.7%

Dividends paid

$22,819

$23,788

$24,764

$26,516

$26,565

$27,741

$28,565

Purchases of common stock

$ -

$ -

$ -

$ 6,564

$ -

$ -

$ -

Gross Leverage Ratio

4.33

4.22

4.46

4.36

4.28

5.08

4.97

Net Leverage Ratio

2.94

2.93

2.89

2.87

2.92

2.93

2.92

Customer Connections – end of period








On-Net

63,366

65,407

67,370

68,770

71,066

72,415

73,870

  % Change from previous Qtr.

3.3%

3.2%

3.0%

2.1%

3.3%

1.9%

2.0%

Off-Net

10,241

10,480

10,698

10,974

11,138

11,321

11,503

  % Change from previous Qtr.

2.9%

2.3%

2.1%

2.6%

1.5%

1.6%

1.6%

Non-Core (1)

307

306

307

362

318

318

319

  % Change from previous Qtr.

-5.8%

-0.3%

0.3%

17.9%

-12.2%

-%

-0.3%

Total customer connections

73,194

76,193

78,375

80,106

82,522

84,054

85,692

  % Change from previous Qtr.

3.2%

3.1%

2.9%

2.2%

3.0%

1.9%

1.9%

On-Net Buildings – end of period








Multi-Tenant office buildings

1,672

1,710

1,720

1,735

1,746

1,751

1,757

Carrier neutral data center buildings

816

837

863

889

908

933

960

Cogent data centers

53

52

52

52

52

53

54

Total on-net buildings

2,541

2,599

2,635

2,676

2,706

2,737

2,771

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

Network  – end of period








Intercity route miles

57,403

57,403

57,403

57,426

57,426

57,426

57,426

Metro fiber miles

31,850

31,953

32,579

32,946

33,664

34,163

34,985

Connected networks – AS's

6,247

6,363

6,510

6,588

6,668

6,762

6,844

Headcount – end of period








Sales force – quota bearing

432

438

453

487

501

519

530

Sales force - total

555

566

583

619

639

656

667

Total employees

908

917

938

974

997

1,026

1,036

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

FTE – sales reps

427

413

418

436

464

478

488



(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 and $282 in the three month periods ended March 31, 2018 through September 30, 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 and $3,998 in the three month periods ended March 31, 2018 through September 30, 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 and $4,515 in the three month periods ended March 31, 2018 through September 30, 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

Q1

2019

Q2

2019

Q3

2019

($ in 000's) – unaudited








Net cash provided by operating activities

$30,179

$31,271

$31,745

$40,726

$28,637

$40,632

$33,443

Changes in operating assets and liabilities

2,919

2,408

4,254

(4,361)

6,727

(5,729)

3,785

Cash interest expense and income tax expense

10,994

12,229

10,937

11,214

12,197

12,202

13,287

EBITDA

$44,092

$45,908

$46,936

$47,579

$47,561

$47,105

$50,515

PLUS: Gains on asset related transactions

117

357

416

92

536

185

87

EBITDA, as adjusted

$44,209

$46,265

$47,352

$47,671

$48,097

$47,290

$50,602

EBITDA margin

34.3%

35.5%

36.1%

36.0%

35.5%

34.9%

36.9%

EBITDA, as adjusted, margin

34.3%

35.8%

36.4%

36.1%

35.9%

35.1%

37.0%

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

2018

Q2

2018

Q3

2018

Q4

2018

Q1

2019

Q2

2019

Q3

2019

Service revenue, as reported – current period

$128,706

$129,296

$130,139

$132,049

$134,137

$134,789

$136,942

Impact of foreign currencies on service revenue

(981)

802

613

465

135

260

176

Service revenue - as adjusted  for currency impact (1)

$127,725

$130,098

$130,752

$132,514

$134,272

$135,049

$137,118

Service revenue, as reported – prior sequential period

$125,226

$128,706

$129,296

$130,139

$132,049

$134,137

$134,789

Constant currency increase

$2,499

$1,392

$1,456

$2,375

$2,223

$912

$2,329

Constant currency percent increase

2.0%

1.1%

1.1%

1.8%

1.7%

0.7%

1.7%



(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

Q1

2019

Q2
2019

Q3
2019

Service revenue, as reported – current period

$128,706

$129,296

$130,139

$132,049

$134,137

$134,789

$136,942

Impact of foreign currencies on service revenue

(3,280)

(1,937)

445

896

2,078

1,505

1,058

Service revenue - as adjusted for currency impact  (2)

$125,426

$127,359

$130,584

$132,945

$136,215

$136,294

$138,000

Service revenue, as reported – prior year period

$117,203

$119,777

$122,969

$125,226

$128,706

$129,296

$130,139

Constant currency increase

$8,223

$7,582

$7,615

$7,719

$7,509

$6,998

$7,861

Percent increase

7.0%

6.3%

6.2%

6.2%

5.8%

5.4%

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

Q1 2019

Q2 2019

Q3 2019

($ in 000's) – unaudited








Service revenue total

$128,706

$129,296

$130,139

$132,049

$134,137

$134,789

$136,942

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

74,663

74,595

74,891

76,612

74,413

74,386

75,259

GAAP Gross Profit (1)

$54,043

$54,701

$55,248

$55,437

$59,724

$60,403

$61,683

Plus  - Equity-based compensation – network operations expense

189

232

250

224

180

226

282

Plus – Depreciation and amortization expense

19,788

20,216

20,276

20,952

20,263

19,979

20,006

Non-GAAP Gross Profit (2)

$74,020

$75,149

$75,774

$76,613

$80,167

$80,608

$81,971

GAAP Gross Margin (1)

42.0%

42.3%

42.5%

42.0%

44.5%

44.8%

45.0%

Non-GAAP Gross Margin (2)

57.5%

58.1%

58.2%

58.0%

59.8%

59.8%

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 June 30, 2019

As of September 30, 2019

Cash and cash equivalents

$409,279

$396,271

Debt



Capital (finance) leases – current portion

7,700

7,884

Capital (finance) leases – long term

160,487

160,178

Senior unsecured notes

189,225

189,225

Senior secured notes

445,000

445,000

Senior unsecured Euro notes

153,508

147,379

Note payable

11,948

12,838

Total debt

967,868

962,504

Total net debt

558,589

566,233

Trailing 12 months EBITDA, as adjusted

190,410

193,660

Gross leverage ratio

5.08

4.97

Net leverage ratio

2.93

2.92

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

(IN THOUSANDS, EXCEPT SHARE DATA)




September 30, 
2019


December 31,
2018



(Unaudited)




Assets







Current assets:







Cash and cash equivalents


$

396,271


$

276,093

Accounts receivable, net of allowance for doubtful accounts of $1,758 and $1,263, respectively



41,292



41,709

Prepaid expenses and other current assets



36,810



32,535

Total current assets



474,373



350,337

Property and equipment, net



370,825



375,325

Right-of-use leased assets



72,591



Deferred tax assets





2,733

Deposits and other assets



14,555



11,455

Total assets


$

932,344


$

739,850








Liabilities and stockholders' equity







Current liabilities:







Accounts payable


$

9,849


$

8,519

Accrued and other current liabilities



49,115



51,431

Installment payment agreement, current portion, net of discount of $391 and $395, respectively



9,078



8,283

Current maturities, operating lease liabilities



10,299



Current maturities, finance lease obligations



7,884



7,074

Total current liabilities



86,225



75,307

Senior secured 2022 notes, net of unamortized debt costs of $2,101 and $2,695, respectively and including premium of $1,092 and $1,405, respectively



443,991



443,710

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $1,483



145,896



Senior unsecured 2021 notes, net of unamortized debt costs of $1,015 and $1,476, respectively



188,210



187,749

Operating lease liabilities, net of current maturities



85,331



Finance lease obligations, net of current maturities



160,178



156,706

Other long term liabilities



13,014



25,380

Total liabilities



1,122,845



888,852

Commitments and contingencies:







Stockholders' equity:







Common stock, $0.001 par value; 75,000,000 shares authorized; 46,821,586 and 46,336,499 shares issued and outstanding, respectively



47



46

Additional paid-in capital



487,396



471,331

Accumulated other comprehensive income — foreign currency translation



(15,676)



(10,928)

Accumulated deficit



(662,268)



(609,451)

Total stockholders' deficit



(190,501)



(149,002)

Total liabilities and stockholders' deficit


$

932,344


$

739,850



COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




Three Months
Ended
September 30,
2019


Three Months
Ended
September 30,
2018



(Unaudited)


(Unaudited)

Service revenue


$

136,942


$

130,139

Operating expenses:







Network operations (including $282 and $250 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)



55,253



54,615

Selling, general, and administrative (including $4,515 and $4,571 of equity-based compensation expense, respectively)



35,971



33,409

Depreciation and amortization



20,006



20,276

Total operating expenses



111,230



108,300

Gains on equipment transactions



87



416

Operating income



25,799



22,255

Interest income and other, net



8,347



1,937

Interest expense



(15,191)



(12,767)

Income before income taxes



18,955



11,425

Income tax provision



(5,254)



(3,194)

Net income


$

13,701


$

8,231








Comprehensive income:







Net income


$

13,701


$

8,231

Foreign currency translation adjustment



(4,709)



(485)

Comprehensive income


$

8,992


$

7,746








Net income per common share:







Basic net income per common share


$

0.30


$

0.18

Diluted net income per common share


$

0.30


$

0.18

Dividends declared per common share


$

0.62


$

0.54








Weighted-average common shares - basic



45,438,656



45,105,830








Weighted-average common shares - diluted



46,019,691



45,699,635



COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




Nine Months
Ended
September 30,
2019


Nine Months
Ended
September 30,
2018



(Unaudited)


(Unaudited)

Service revenue


$

405,866


$

388,144

Operating expenses:







Network operations (including $688 and $671 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)



163,811



163,868

Selling, general, and administrative (including $12,832 and $12,629 of equity-based compensation expense, respectively)



110,396



100,637

Depreciation and amortization



60,246



60,280

Total operating expenses



334,453



324,785

Gains on equipment transactions



808



891

Operating income



72,221



64,250

Interest income and other, net



11,927



3,817

Interest expense



(42,243)



(37,547)

Income before income taxes



41,905



30,520

Income tax provision



(11,851)



(8,953)

Net income


$

30,054


$

21,567








Comprehensive income:







Net income


$

30,054


$

21,567

Foreign currency translation adjustment



(4,748)



(4,072)

Comprehensive income


$

25,306


$

17,495








Net income per common share:







Basic net income per common share


$

0.66


$

0.48

Diluted net income per common share


$

0.65


$

0.47








Dividends declared per common share


$

1.80


$

1.56








Weighted-average common shares - basic



45,428,305



45,096,472








Weighted-average common shares - diluted



45,948,331



45,591,217



COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018

(IN THOUSANDS)




Three Months
Ended
September 30, 2019


Three Months
Ended
September 30, 2018



(Unaudited)


(Unaudited)

Cash flows from operating activities:







Net income


$

13,701


$

8,231

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







Depreciation and amortization



20,006



20,276

Amortization of debt costs and premium



486



375

Equity-based compensation expense (net of amounts capitalized)



4,796



4,821

Gains - equipment transactions and other, net



176



(288)

Unrealized gain on 2024 Euro notes



(6,128)




Deferred income taxes



4,454



2,712

Changes in operating assets and liabilities:







Accounts receivable



(1,048)



(1,539)

Prepaid expenses and other current assets



(1,315)



(32)

Accounts payable, accrued liabilities and other long-term liabilities



(3,738)



(3,055)

Deposits and other assets



2,053



244

Net cash provided by operating activities



33,443



31,745

Cash flows from investing activities:







Purchases of property and equipment



(12,051)



(12,107)

Net cash used in investing activities



(12,051)



(12,107)

Cash flows from financing activities:







Dividends paid



(28,565)



(24,764)

Net proceeds from issuance of 2022 secured notes – net of debt costs of $1,363





69,862

Proceeds from exercises of stock options



351



518

Principal payments on installment payment agreement



(2,574)



(2,634)

Principal payments of finance lease obligations



(2,029)



(2,099)

Net cash (used in) provided by financing activities



(32,817)



40,883

Effect of exchange rates changes on cash



(1.583)



(245)

Net (decrease) increase in cash and cash equivalents



(13,008)



60,276

Cash and cash equivalents, beginning of period



409,279



224,282

Cash and cash equivalents, end of period


$

396,271


$

284,558



COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018

(IN THOUSANDS)




Nine Months
Ended
September 30,
2019


Nine Months
Ended
September 30,
2018



(Unaudited)


(Unaudited)

Cash flows from operating activities:







Net income


$

30,054


$

21,567

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







Depreciation and amortization



60,246



60,280

Amortization of debt costs and premium



1,328



1,126

Equity-based compensation expense (net of amounts capitalized)



13,520



13,300

Gains - equipment transactions and other, net



(131)



(727)

Unrealized gain on 2024 Euro notes



(6,305)




Deferred income taxes



9,285



7,527

Changes in operating assets and liabilities:







Accounts receivable



(43)



(2,280)

Prepaid expenses and other current assets



(4,862)



(663)

Accounts payable, accrued liabilities and other long-term liabilities



1,350



(5,473)

Deposits and other assets



(1,730)



(1,462)

Net cash provided by operating activities



102,712



93,195

Cash flows from investing activities:







Purchases of property and equipment



(37,059)



(39,000)

Net cash used in investing activities



(37,059)



(39,000)

Cash flows from financing activities:







Dividends paid



(82,871)



(71,371)

Net proceeds from issuance of 2022 secured notes – net of debt costs of $1,363





69,862

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



152,128



Proceeds from exercises of stock options



1,270



1,520

Principal payments on installment payment agreement



(7,348)



(6,888)

Principal payments of finance lease obligations



(7,035)



(8,158)

Net cash provided by (used in) financing activities



56,144



(15,035)

Effect of exchange rates changes on cash



(1.619)



(1,613)

Net increase in cash and cash equivalents



120,178



37,547

Cash and cash equivalents, beginning of period



276,093



247,011

Cash and cash equivalents, end of period


$

396,271


$

284,558

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, 2018.  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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