Exhibit 99.1
| FOR IMMEDIATE RELEASE |
Cogent Contacts: | | |
For Public Relations: | | For Investor Relations: |
Nicole Sanders | | John Chang |
+ 1 (202) 295-4313 | | + 1 (202) 295-4212 |
nsanders@cogentco.com | | investor.relations@cogentco.com |
Cogent Communications Reports Third Quarter 2016 Results
and Increases Regular Quarterly Dividend on Common Stock
Financial and Business Highlights
· Cogent approves a 5.3% increase of $0.02 per share to its regular quarterly dividend to $0.40 per common share to be paid on December 9, 2016 to shareholders of record on November 22, 2016
· Service revenue for Q3 2016 increased by 2.8% from Q2 2016 to $113.1 million and on a constant currency basis increased by 3.1%
· Service revenue for Q3 2016 increased by 9.7% on a reported and on a constant currency basis from Q3 2015
· EBITDA for the nine months ended September 30, 2016 increased by 13.3% to $105.8 million from $93.4 million for the nine months ended September 30, 2015
· EBITDA margin for the nine months ended September 30, 2016 increased by 70 basis points to 31.9% from 31.2% for the nine months ended September 30, 2015
· EBITDA, as adjusted, for the nine months ended September 30, 2016 increased by 16.6% to $112.9 million from $96.8 million for the nine months ended September 30, 2015
· EBITDA, as adjusted, margin for the nine months ended September 30, 2016 increased by 170 basis points to 34.1% from 32.4% for the nine months ended September 30, 2015
[WASHINGTON, D.C. November 3, 2016] Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $113.1 million for the three months ended September 30, 2016, an increase of 9.7% from $103.0 million for the three months ended September 30, 2015 and an increase of 2.8% from $110.0 million for the three months ended June 30, 2016. Foreign exchange negatively impacted service revenue from Q2 2016 to Q3 2016 by $0.3 million and positively impacted service revenue growth from Q3 2015 to Q3 2016 by $0.1 million. On a constant currency basis, service revenue grew by 9.7% from Q3 2015 to Q3 2016 and grew by 3.1% from Q2 2016 to Q3 2016.
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 $81.8 million for the three months
ended September 30, 2016; an increase of 9.0% over $75.1 million for the three months ended September 30, 2015 and an increase of 2.9% from $79.5 million for the three months ended June 30, 2016.
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 $31.0 million for the three months ended September 30, 2016; an increase of 11.9% over $27.7 million for the three months ended September 30, 2015 and an increase of 2.7% over $30.1 million for the three months ended June 30, 2016.
Non-GAAP gross profit increased by 11.1% from $58.0 million for the three months ended September 30, 2015 to $64.4 million for the three months ended September 30, 2016 and increased by 3.5% from $62.2 million for the three months ended June 30, 2016. Non-GAAP gross profit margin percentage was 57.0% for the three months ended September 30, 2016, 56.3% for the three months ended September 30, 2015 and 56.6% for the three months ended June 30, 2016. Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $2.4 million for the three months ended September 30, 2016, $2.2 million for the three months ended June 30, 2016 and $1.8 million for the three months ended September 30, 2015.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 11.9% from $33.2 million for the three months ended September 30, 2015 to $37.2 million for the three months ended September 30, 2016 and increased by 6.4% from $35.0 million for the three months ended June 30, 2016. EBITDA margin was 32.9% for the three months ended September 30, 2016, 32.2% for the three months ended September 30, 2015 and 31.8% for the three months ended June 30, 2016.
Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted, increased by 10.1% from $34.4 million for the three months ended September 30, 2015 to $37.9 million for the three months ended September 30, 2016 and decreased by 3.9% from $39.4 million for the three months ended June 30, 2016. EBITDA, as adjusted, margin was 33.5% for the three
months ended September 30, 2016, 33.4% for the three months ended September 30, 2015 and 35.8% for the three months ended June 30, 2016.
Basic and diluted net income per share was $0.08 for the three months ended September 30, 2016, $0.07 for the three months ended September 30, 2015 and $0.09 for the three months ended June 30, 2016.
Total customer connections increased by 18.0% from 50,617 as of September 30, 2015 to 59,724 as of September 30, 2016 and increased by 3.8% from 57,563 as of June 30, 2016. On-net customer connections increased by 17.8% from 43,364 as of September 30, 2015 to 51,079 as of September 30, 2016 and increased by 3.7% from 49,243 as of June 30, 2016. Off-net customer connections increased by 19.7% from 6,897 as of September 30, 2015 to 8,259 as of September 30, 2016 and increased by 3.6% from 7,971 as of June 30, 2016.
The number of on-net buildings increased by 113 on-net buildings from 2,221 on-net buildings as of September 30, 2015 to 2,334 on-net buildings as of September 30, 2016 and increased by 37 on-net buildings from 2,297 on-net buildings as of June 30, 2016.
Quarterly Dividend Increase Approved
On October 31, 2016, Cogent’s board approved a regular quarterly dividend of $0.40 per common share payable on December 9, 2016 to shareholders of record on November 22, 2016. This fourth quarter 2016 regular dividend represents a 5.3% increase of $0.02 per share from the third quarter 2016 regular dividend of $0.38 per share.
The payment of any future dividends and any other returns of capital will be at the discretion of Cogent’s board of directors and may be reduced, eliminated or increased and will be dependent upon Cogent’s financial position, results of operations, available cash, cash flow, capital requirements, limitations under Cogent’s debt indenture agreements and other factors deemed relevant by Cogent’s board of directors.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on November 3, 2016 to discuss Cogent’s operating results for the third quarter of 2016 and to discuss Cogent’s
expectations for full year 2016. Investors and other interested parties may access a live audio webcast of the earnings call in the “Events” section of Cogent’s website at www.cogentco.com/events. A replay of the webcast, together with the press release, will be available on the website following the earnings call.
About Cogent Communications
Cogent Communications (NASDAQ: CCOI) is a multinational, Tier 1 facilities-based ISP. Cogent specializes in providing businesses with high speed Internet access, Ethernet transport, and colocation services. Cogent’s facilities-based, all-optical IP network backbone provides services in over 190 markets globally.
Cogent Communications is headquartered at 2450 N Street, NW, Washington, D.C. 20037. For more information, visit www.cogentco.com. Cogent Communications can be reached in the United States at (202) 295-4200 or via email at info@cogentco.com.
# # #
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
Summary of Financial and Operational Results
| | Q1 2015 | | Q2 2015 | | Q3 2015 | | Q4 2015 | | Q1 2016 | | Q2 2016 | | Q3 2016 | |
Metric ($ in 000’s, except share and per share data) — unaudited | | | | | | | | | | | | | | | |
On-Net revenue | | $ | 71,234 | | $ | 72,010 | | $ | 75,088 | | $ | 76,513 | | $ | 78,705 | | $ | 79,539 | | $ | 81,846 | |
% Change from previous Qtr. | | -0.1 | % | 1.1 | % | 4.3 | % | 1.9 | % | 2.9 | % | 1.1 | % | 2.9 | % |
Off-Net revenue | | $ | 25,730 | | $ | 26,522 | | $ | 27,688 | | $ | 28,421 | | $ | 29,356 | | $ | 30,149 | | $ | 30,972 | |
% Change from previous Qtr. | | 2.3 | % | 3.1 | % | 4.4 | % | 2.6 | % | 3.3 | % | 2.7 | % | 2.7 | % |
Non-Core revenue (1) | | $ | 278 | | $ | 267 | | $ | 241 | | $ | 243 | | $ | 230 | | $ | 267 | | $ | 239 | |
% Change from previous Qtr. | | -3.8 | % | -4.0 | % | -9.7 | % | 0.8 | % | -5.3 | % | 16.1 | % | -10.5 | % |
Service revenue — total | | $ | 97,242 | | $ | 98,799 | | $ | 103,017 | | $ | 105,177 | | $ | 108,291 | | $ | 109,955 | | $ | 113,057 | |
% Change from previous Qtr. | | 0.5 | % | 1.6 | % | 4.3 | % | 2.1 | % | 3.0 | % | 1.5 | % | 2.8 | % |
Constant currency total revenue quarterly growth rate — sequential quarters | | 2.9 | % | 2.0 | % | 4.4 | % | 2.5 | % | 3.0 | % | 0.9 | % | 3.1 | % |
Constant currency total revenue quarterly growth rate — year over year quarters | | 9.3 | % | 9.5 | % | 12.1 | % | 12.1 | % | 12.2 | % | 11.1 | % | 9.7 | % |
Network operations expenses (2) | | $ | 40,907 | | $ | 42,252 | | $ | 45,056 | | $ | 45,710 | | $ | 47,156 | | $ | 47,727 | | $ | 48,666 | |
% Change from previous Qtr. | | 0.0 | % | 3.3 | % | 6.6 | % | 1.5 | % | 3.2 | % | 1.2 | % | 2.0 | % |
Non-GAAP gross margin (2) | | $ | 56,335 | | $ | 56,547 | | $ | 57,961 | | $ | 59,467 | | $ | 61,135 | | $ | 62,228 | | $ | 64,391 | |
% Change from previous Qtr. | | 0.9 | % | 0.4 | % | 2.5 | % | 2.6 | % | 2.8 | % | 1.8 | % | 3.5 | % |
Non-GAAP gross margin percentage (2) | | 57.9 | % | 57.2 | % | 56.3 | % | 56.5 | % | 56.5 | % | 56.6 | % | 57.0 | % |
Selling, general and administrative expenses (3) | | $ | 26,708 | | $ | 25,987 | | $ | 24,740 | | $ | 24,737 | | $ | 27,472 | | $ | 27,278 | | $ | 27,220 | |
% Change from previous Qtr. | | 6.6 | % | -2.7 | % | -4.8 | % | 0.0 | % | 11.1 | % | -0.7 | % | -0.2 | % |
Depreciation and amortization expense | | $ | 17,513 | | $ | 17,371 | | $ | 17,634 | | $ | 18,008 | | $ | 17,753 | | $ | 18,604 | | $ | 18,804 | |
% Change from previous Qtr. | | -0.2 | % | -0.8 | % | 1.5 | % | 2.1 | % | -1.4 | % | 4.8 | % | 1.1 | % |
Equity-based compensation expense | | $ | 3,141 | | $ | 3,098 | | $ | 2,704 | | $ | 2,571 | | $ | 2,181 | | $ | 2,687 | | $ | 2,991 | |
% Change from previous Qtr. | | 4.7 | % | -1.4 | % | -12.7 | % | -4.9 | % | -15.2 | % | 23.2 | % | 11.3 | % |
Operating income | | $ | 10,487 | | $ | 10,810 | | $ | 15,519 | | $ | 16,174 | | $ | 15,675 | | $ | 17,511 | | $ | 16,063 | |
% Change from previous Qtr. | | -19.7 | % | 3.1 | % | 43.6 | % | 4.2 | % | -3.1 | % | 11.7 | % | -8.3 | % |
Interest expense | | $ | 11,307 | | $ | 9,692 | | $ | 10,002 | | $ | 10,280 | | $ | 10,065 | | $ | 10,243 | | $ | 9,891 | |
% Change from previous Qtr. | | -7.2 | % | -14.3 | % | 3.2 | % | 2.8 | % | -2.1 | % | 1.8 | % | -3.4 | % |
Net income (loss) | | $ | (1,585 | ) | $ | 840 | | $ | 3,161 | | $ | 2,480 | | $ | 3,354 | | $ | 4,224 | | $ | 3,459 | |
Basic net income (loss) per common share | | $ | (0.04 | ) | $ | 0.02 | | $ | 0.07 | | $ | 0.06 | | $ | 0.08 | | $ | 0.09 | | $ | 0.08 | |
Diluted net income (loss) per common share | | $ | (0.04 | ) | $ | 0.02 | | $ | 0.07 | | $ | 0.06 | | $ | 0.08 | | $ | 0.09 | | $ | 0.08 | |
Weighted average common shares — basic | | 45,158,250 | | 44,774,831 | | 44,474,724 | | 44,323,131 | | 44,402,640 | | 44,491,899 | | 44,574,583 | |
% Change from previous Qtr. | | -0.2 | % | -0.8 | % | -0.7 | % | -0.3 | % | 0.2 | % | 0.2 | % | 0.2 | % |
Weighted average common shares — diluted | | 45,158,250 | | 45,054,507 | | 44,702,127 | | 44,558,089 | | 44,571,937 | | 44,705,037 | | 44,776,918 | |
% Change from previous Qtr. | | -0.2 | % | -0.2 | % | -0.8 | % | -0.3 | % | 0.0 | % | 0.3 | % | 0.2 | % |
EBITDA (4) | | $ | 29,627 | | $ | 30,560 | | $ | 33,221 | | $ | 34,730 | | $ | 33,663 | | $ | 34,950 | | $ | 37,171 | |
% Change from previous Qtr. | | -3.8 | % | 3.1 | % | 8.7 | % | 4.5 | % | -3.1 | % | 3.8 | % | 6.4 | % |
EBITDA margin | | 30.5 | % | 30.9 | % | 32.2 | % | 33.0 | % | 31.1 | % | 31.8 | % | 32.9 | % |
Gains on asset related transactions | | $ | 1,548 | | $ | 719 | | $ | 1,152 | | $ | 2,023 | | $ | 1,946 | | $ | 4,439 | | $ | 687 | |
EBITDA, as adjusted (4) | | $ | 31,175 | | $ | 31,279 | | $ | 34,373 | | $ | 36,753 | | $ | 35,609 | | $ | 39,389 | | $ | 37,858 | |
% Change from previous Qtr. | | -7.3 | % | 0.3 | % | 9.9 | % | 6.9 | % | -3.1 | % | 10.6 | % | -3.9 | % |
EBITDA, as adjusted, margin | | 32.1 | % | 31.7 | % | 33.4 | % | 34.9 | % | 32.9 | % | 35.8 | % | 33.5 | % |
Fees — net neutrality | | $ | 1,405 | | $ | 952 | | $ | 816 | | $ | 569 | | $ | 493 | | $ | 1,036 | | $ | 1,315 | |
Net cash provided by operating activities | | $ | 18,372 | | $ | 20,035 | | $ | 23,403 | | $ | 21,999 | | $ | 27,557 | | $ | 23,698 | | $ | 22,833 | |
% Change from previous Qtr. | | 2.4 | % | 9.1 | % | 16.8 | % | -6.0 | % | 25.3 | % | -14.0 | % | -3.7 | % |
Capital expenditures | | $ | 12,916 | | $ | 10,866 | | $ | 6,838 | | $ | 4,962 | | $ | 15,034 | | $ | 14,260 | | $ | 8,745 | |
% Change from previous Qtr. | | -0.8 | % | -15.9 | % | -37.1 | % | -27.4 | % | 203.0 | % | -5.1 | % | -38.7 | % |
Principal payments on capital leases | | $ | 3,650 | | $ | 7,332 | | $ | 5,956 | | $ | 3,273 | | $ | 3,369 | | $ | 3,935 | | $ | 2,354 | |
% Change from previous Qtr. | | 31.8 | % | 100.9 | % | -18.8 | % | -45.0 | % | 2.9 | % | 16.8 | % | -40.2 | % |
Dividends paid | | $ | 16,001 | | $ | 18,972 | | $ | 15,296 | | $ | 16,045 | | $ | 16,171 | | $ | 16,671 | | $ | 17,169 | |
Purchases of common stock | | $ | 8,119 | | $ | 19,106 | | $ | 12,169 | | $ | — | | $ | — | | $ | — | | $ | 1,666 | |
Gross Leverage Ratio | | 4.42 | | 4.50 | | 4.57 | | 4.55 | | 4.39 | | 3.94 | | 3.89 | |
Net Leverage Ratio | | 2.45 | | 2.77 | | 2.98 | | 3.02 | | 2.97 | | 2.88 | | 2.90 | |
Customer Connections — end of period | | | | | | | | | | | | | | | |
On-Net | | 40,732 | | 42,002 | | 43,364 | | 45,473 | | 47,252 | | 49,243 | | 51,079 | |
% Change from previous Qtr. | | 2.4 | % | 3.1 | % | 3.2 | % | 4.9 | % | 3.9 | % | 4.2 | % | 3.7 | % |
Off-Net | | 6,368 | | 6,583 | | 6,897 | | 7,279 | | 7,654 | | 7,971 | | 8,259 | |
% Change from previous Qtr. | | 4.8 | % | 3.4 | % | 4.8 | % | 5.5 | % | 5.2 | % | 4.1 | % | 3.6 | % |
Non-Core (1) | | 311 | | 325 | | 356 | | 400 | | 450 | | 349 | | 386 | |
% Change from previous Qtr. | | -14.1 | % | 4.5 | % | 9.5 | % | 12.4 | % | 12.5 | % | -22.4 | % | 10.6 | % |
Total customer connections | | 47,411 | | 48,910 | | 50,617 | | 53,152 | | 55,356 | | 57,563 | | 59,724 | |
% Change from previous Qtr. | | 2.6 | % | 3.2 | % | 3.5 | % | 5.0 | % | 4.1 | % | 4.0 | % | 3.8 | % |
On-Net Buildings — end of period | | | | | | | | | | | | | | | |
Multi-Tenant office buildings | | 1,488 | | 1,510 | | 1,523 | | 1,541 | | 1,545 | | 1,560 | | 1,577 | |
Carrier neutral data center buildings | | 618 | | 631 | | 647 | | 659 | | 675 | | 686 | | 706 | |
Cogent data centers | | 49 | | 50 | | 51 | | 51 | | 51 | | 51 | | 51 | |
Total on-net buildings | | 2,155 | | 2,191 | | 2,221 | | 2,251 | | 2,271 | | 2,297 | | 2,334 | |
Square feet — multi-tenant office buildings — on-net | | 804,760,238 | | 818,039,601 | | 823,712,433 | | 831,585,875 | | 834,341,216 | | 840,042,330 | | 847,266,071 | |
Network — end of period | | | | | | | | | | | | | | | |
Intercity route miles | | 59,161 | | 55,191 | | 56,079 | | 56,079 | | 56,183 | | 56,183 | | 56,684 | |
Metro fiber miles | | 27,619 | | 28,036 | | 28,067 | | 28,158 | | 28,316 | | 28,874 | | 29,326 | |
Connected networks — AS’s | | 5,334 | | 5,435 | | 5,511 | | 5,582 | | 5,617 | | 5,700 | | 5,834 | |
Headcount — end of period | | | | | | | | | | | | | | | |
Sales force — quota bearing | | 343 | | 358 | | 363 | | 378 | | 398 | | 397 | | 394 | |
Sales force - total | | 459 | | 464 | | 474 | | 495 | | 517 | | 519 | | 516 | |
Total employees | | 785 | | 799 | | 808 | | 828 | | 855 | | 854 | | 858 | |
Sales rep productivity — units per full time equivalent sales rep (“FTE”) per month | | 5.3 | | 5.6 | | 6.0 | | 6.3 | | 6.3 | | 5.9 | | 5.7 | |
FTE — sales reps | | 326 | | 330 | | 337 | | 351 | | 373 | | 373 | | 377 | |
(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 $172, $160, $126, $126, $121, $145 and $161 in the three month periods ended March 31, 2015 through September 30, 2016, respectively. Network operations expense includes excise taxes, including Universal Service Fund fees of $53, $57, $1,757, $1,729, $2,003, $2,156 and $2,362 in the three month periods ended March 31, 2015 through September 30, 2016, respectively. Non-GAAP gross margin represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation expense).Non-GAAP gross margin percentage is defined as non-GAAP gross margin divided by total service revenue. Management believes that gross margin is a relevant metric to provide investors, as it is a metric 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.
(3) Excludes equity-based compensation expense of $2,969, $2,938, $2,578, $2,445, $2,060, $2,542 and $2,830 in the three month periods ended March 31, 2015 through September 30, 2016, respectively.
(4) See schedule of non-GAAP metrics below for definition and reconciliation to GAAP measures below.
Schedule of Non-GAAP Measures
EBITDA and EBITDA, as adjusted
EBITDA represents net cash flows from operating activities plus changes in operating assets and liabilities, cash interest expense and 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 cash flows 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 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.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
EBITDA, and EBITDA, as adjusted, are reconciled to cash flows provided by operating activities in the table below.
($ in 000’s) — unaudited | | Q1
2015 | | Q2
2015 | | Q3
2015 | | Nine
Months
2015 | | Q4
2015 | | Q1
2016 | | Q2
2016 | | Q3
2016 | | Nine
Months
2016 | |
Net cash flows provided by operating activities | | $ | 18,372 | | $ | 20,035 | | $ | 23,403 | | $ | 61,810 | | $ | 21,999 | | $ | 27,557 | | $ | 23,698 | | $ | 22,833 | | $ | 74,088 | |
Changes in operating assets and liabilities | | (159 | ) | 1,245 | | (68 | ) | 1,016 | | 3,047 | | (3,681 | ) | 1,755 | | 4,737 | | 2,811 | |
Cash interest expense and income tax expense | | 11,414 | | 9,280 | | 9,886 | | 30,580 | | 9,684 | | 9,787 | | 9,497 | | 9,601 | | 28,885 | |
EBITDA | | $ | 29,627 | | $ | 30,560 | | $ | 33,221 | | $ | 93,406 | | $ | 34,730 | | $ | 33,663 | | $ | 34,950 | | $ | 37,171 | | $ | 105,784 | |
PLUS: Gains on asset related transactions | | 1,548 | | 719 | | 1,152 | | 3,420 | | 2,023 | | 1,946 | | 4,439 | | 687 | | 7,071 | |
EBITDA, as adjusted | | $ | 31,175 | | $ | 31,279 | | $ | 34,373 | | 96,826 | | $ | 36,753 | | $ | 35,609 | | $ | 39,389 | | $ | 37,858 | | $ | 112,855 | |
EBITDA margin | | 30.5 | % | 30.9 | % | 32.2 | % | 31.2 | % | 33.0 | % | 31.1 | % | 31.8 | % | 32.9 | % | 31.9 | % |
EBITDA, as adjusted margin | | 32.1 | % | 31.7 | % | 33.4 | % | 32.4 | % | 34.9 | % | 32.9 | % | 35.8 | % | 33.5 | % | 34.1 | % |
Impact of foreign currencies (“constant currency” impact) on change in sequential quarterly service revenue
($ in 000’s) — unaudited | | Q3 2016 | |
Service revenue, as reported — Q3 2016 | | $ | 113,057 | |
Impact of foreign currencies on service revenue | | 273 | |
Service revenue - Q3 2016, as adjusted (1) | | $ | 113,330 | |
Service revenue, as reported — Q2 2016 | | $ | 109,955 | |
Constant currency increase from Q2 2016 to Q3 2016 - (Service revenue, as adjusted for Q3 2016 less service revenue, as reported for Q2 2016) | | $ | 3,375 | |
Percent increase (Constant currency increase from Q2 2016 to Q3 2016 divided by service revenue, as reported for Q2 2016) | | 3.1 | % |
(1) Service revenue, as adjusted, is determined by translating the service revenue for the three months ended September 30, 2016 at the average foreign currency exchange rates for the three months ended June 30, 2016. The Company believes that disclosing quarterly revenue growth without the impact of foreign currencies on service revenue is a useful measure of revenue growth. Service revenue, as adjusted, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.
Impact of foreign currencies (“constant currency” impact) on change in prior year quarterly service revenue
($ in 000’s) — unaudited | | Q3 2016 | |
Service revenue, as reported — Q3 2016 | | $ | 113,057 | |
Impact of foreign currencies on service revenue | | (68 | ) |
Service revenue - Q3 2016, as adjusted (2) | | $ | 112,989 | |
Service revenue, as reported — Q3 2015 | | $ | 103,017 | |
Constant currency increase from Q3 2015 to Q3 2016 - (Service revenue, as adjusted for Q3 2016 less service revenue, as reported for Q3 2015) | | $ | 9,972 | |
Percent increase (Constant currency increase from Q3 2015 to Q3 2016 divided by service revenue, as reported for Q3 2015) | | 9.7 | % |
(2) Service revenue, as adjusted, is determined by translating the service revenue for the three months ended September 30, 2016 at the average foreign currency exchange rates for the three months ended September 30, 2015. The Company believes that disclosing quarterly revenue growth without the impact of foreign currencies on service revenue is a useful measure of revenue growth. Service revenue, as adjusted, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.
Gross and Net Leverage Ratios
Cogent’s Gross Leverage Ratio was 3.94 at June 30, 2016 and 3.89 at September 30, 2016 and Cogent’s Net Leverage Ratio was 2.88 at June 30, 2016 and 2.90 at September 30, 2016 and as shown below.
($ in 000’s) — unaudited | | As of June 30, 2016 | | As of September 30, 2016 | |
Cash and cash equivalents | | $ | 154,967 | | $ | 148,151 | |
Debt | | | | | |
Capital leases — current portion | | 6,086 | | 6,122 | |
Capital leases — long term | | 129,933 | | 134,229 | |
Senior unsecured notes | | 189,225 | | 189,225 | |
Senior secured notes | | 250,000 | | 250,000 | |
Note payable | | — | | 2,746 | |
Total debt | | 575,244 | | 582,322 | |
Total net debt | | 420,277 | | 434,171 | |
Trailing 12 months EBITDA, as adjusted | | 146,124 | | 149,609 | |
Gross Leverage Ratio | | 3.94 | | 3.89 | |
Net Leverage Ratio | | 2.88 | | 2.90 | |
| | | | | | | |
Cogent’s SEC filings are available online via the Investor Relations section of www.cogentco.com or on the Securities and Exchange Commission’s website at www.sec.gov.
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2016 AND DECEMBER 31, 2015
(IN THOUSANDS, EXCEPT SHARE DATA)
| | September 30,
2016 | | December 31,
2015 | |
| | (Unaudited) | | | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 148,151 | | $ | 203,591 | |
Accounts receivable, net of allowance for doubtful accounts of $1,804 and $1,757, respectively | | 33,487 | | 30,718 | |
Prepaid expenses and other current assets | | 20,642 | | 17,030 | |
Total current assets | | 202,280 | | 251,339 | |
Property and equipment, net | | 370,749 | | 360,136 | |
Deferred tax assets - noncurrent | | 36,716 | | 45,142 | |
Deposits and other assets - $132 and $355 restricted, respectively | | 7,877 | | 6,199 | |
Total assets | | $ | 617,622 | | $ | 662,816 | |
| | | | | |
Liabilities and stockholders’ equity | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 13,019 | | $ | 12,401 | |
Accrued and other current liabilities | | 41,790 | | 38,355 | |
Installment payment agreement, current portion, net of discount of $106 and $678, respectively | | 1,028 | | 11,901 | |
Current maturities, capital lease obligations | | 6,122 | | 6,247 | |
Total current liabilities | | 61,959 | | 68,904 | |
Senior secured 2022 notes, net of unamortized debt costs of $1,121 and $1,252, respectively | | 248,879 | | 248,748 | |
Senior unsecured 2021 notes, net of unamortized debt costs of $2,703 and $3,305, respectively | | 186,522 | | 196,695 | |
Capital lease obligations, net of current maturities | | 134,229 | | 129,763 | |
Other long term liabilities | | 26,519 | | 30,977 | |
Total liabilities | | 658,108 | | 675,087 | |
Commitments and contingencies: | | | | | |
Stockholders’ equity: | | | | | |
Common stock, $0.001 par value; 75,000,000 shares authorized; 45,537,353 and 45,198,718 shares issued and outstanding, respectively | | 45 | | 45 | |
Additional paid-in capital | | 442,125 | | 434,161 | |
Accumulated other comprehensive income — foreign currency translation | | (11,898 | ) | (14,693 | ) |
Accumulated deficit | | (470,758 | ) | (431,784 | ) |
Total stockholders’ deficit | | (40,486 | ) | (12,271 | ) |
Total liabilities and stockholders’ deficit | | $ | 617,622 | | $ | 662,816 | |
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30, 2015
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| | Three Months
Ended
September 30, 2016 | | Three Months
Ended
September 30, 2015 | |
| | (Unaudited) | | (Unaudited) | |
Service revenue | | $ | 113,057 | | $ | 103,017 | |
Operating expenses: | | | | | |
Network operations (including $161 and $126 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below) | | 48,827 | | 45,182 | |
Selling, general, and administrative (including $2,830 and $2,578 of equity-based compensation expense, respectively) | | 30,050 | | 27,318 | |
Depreciation and amortization | | 18,804 | | 17,634 | |
Total operating expenses | | 97,681 | | 90,134 | |
Gain on capital lease termination | | — | | 1,484 | |
Gains on equipment transactions | | 687 | | 1,152 | |
Operating income | | 16,063 | | 15,519 | |
Interest income and other, net | | 207 | | 50 | |
Interest expense | | (9,891 | ) | (10,002 | ) |
Income before income taxes | | 6,379 | | 5,567 | |
Income tax provision | | (2,920 | ) | (2,406 | ) |
Net income | | $ | 3,459 | | $ | 3,161 | |
| | | | | |
Comprehensive income: | | | | | |
Net income | | $ | 3,459 | | $ | 3,161 | |
Foreign currency translation adjustment | | 688 | | 228 | |
Comprehensive income | | $ | 4,147 | | $ | 3,389 | |
| | | | | |
Net income per common share: | | | | | |
Basic and diluted net income per common share | | $ | 0.08 | | $ | 0.07 | |
| | | | | |
Dividends declared per common share | | $ | 0.38 | | $ | 0.34 | |
| | | | | |
Weighted-average common shares - basic | | 44,574,583 | | 44,474,724 | |
| | | | | |
Weighted-average common shares - diluted | | 44,776,918 | | 44,702,127 | |
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30, 2015
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
| | Nine Months
Ended
September 30, 2016 | | Nine Months
Ended
September 30, 2015 | |
| | (Unaudited) | | (Unaudited) | |
Service revenue | | $ | 331,304 | | $ | 299,057 | |
Operating expenses: | | | | | |
Network operations (including $427 and $458 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below) | | 143,976 | | 128,673 | |
Selling, general, and administrative (including $7,432 and $8,486 of equity-based compensation expense, respectively) | | 89,403 | | 85,922 | |
Depreciation and amortization | | 55,161 | | 52,517 | |
Total operating expenses | | 288,540 | | 267,112 | |
Losses on debt purchases and installment loan repayment | | (587 | ) | — | |
Gain on capital lease terminations | | — | | 11,593 | |
Gains on equipment transactions | | 7,071 | | 3,420 | |
Loss on debt extinguishment and redemption | | — | | (10,144 | ) |
Operating income | | 49,248 | | 36,814 | |
Interest income and other, net | | 677 | | 566 | |
Interest expense | | (30,200 | ) | (31,000 | ) |
Income before income taxes | | 19,725 | | 6,380 | |
Income tax provision | | (8,688 | ) | (3,964 | ) |
Net income | | $ | 11,037 | | $ | 2,416 | |
| | | | | |
Comprehensive income (loss): | | | | | |
Net income | | $ | 11,037 | | $ | 2,416 | |
Foreign currency translation adjustment | | 2,795 | | (5,485 | ) |
Comprehensive income (loss) | | $ | 13,832 | | $ | (3,069 | ) |
| | | | | |
Net income per common share: | | | | | |
Basic and diluted net income per common share | | $ | 0.25 | | $ | 0.05 | |
| | | | | |
Dividends declared per common share | | $ | 1.11 | | $ | 1.11 | |
| | | | | |
Weighted-average common shares - basic | | 44,563,279 | | 44,907,505 | |
| | | | | |
Weighted-average common shares - diluted | | 44,758,202 | | 45,190,206 | |
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30, 2015
(IN THOUSANDS)
| | Three months
Ended
September 30, 2016 | | Three months
Ended
September 30, 2015 | |
| | (Unaudited) | | (Unaudited) | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 3,459 | | $ | 3,161 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 18,804 | | 17,634 | |
Amortization of debt discount | | 183 | | 117 | |
Equity-based compensation expense (net of amounts capitalized) | | 2,991 | | 2,703 | |
Gain on capital lease termination | | — | | (1,483 | ) |
Gains — equipment transactions and other, net | | (645 | ) | (1,181 | ) |
Deferred income taxes | | 2,820 | | 2,355 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | (1,033 | ) | (8 | ) |
Prepaid expenses and other current assets | | 179 | | (130 | ) |
Accounts payable, accrued liabilities and other long-term liabilities | | (4,265 | ) | 77 | |
Deposits and other assets | | 340 | | 158 | |
Net cash provided by operating activities | | 22,833 | | 23,403 | |
Cash flows from investing activities: | | | | | |
Purchases of property and equipment | | (8,745 | ) | (6,838 | ) |
Proceeds from disposition of assets | | — | | 29 | |
Net cash used in investing activities | | (8,745 | ) | (6,809 | ) |
Cash flows from financing activities: | | | | | |
Dividends paid | | (17,169 | ) | (15,296 | ) |
Purchases of common stock | | (1,666 | ) | (12,169 | ) |
Proceeds from exercises of stock options | | 264 | | 69 | |
Principal payments on installment payment agreement | | — | | (95 | ) |
Principal payments of capital lease obligations | | (2,354 | ) | (5,956 | ) |
Net cash used in financing activities | | (20,925 | ) | (33,447 | ) |
Effect of exchange rates changes on cash | | 21 | | (351 | ) |
Net decrease in cash and cash equivalents | | (6,816 | ) | (17,204 | ) |
Cash and cash equivalents, beginning of period | | 154,967 | | 224,494 | |
Cash and cash equivalents, end of period | | $ | 148,151 | | $ | 207,290 | |
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND SEPTEMBER 30, 2015
(IN THOUSANDS)
| | Nine months
Ended
September 30, 2016 | | Nine months
Ended
September 30, 2015 | |
| | (Unaudited) | | (Unaudited) | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 11,037 | | $ | 2,416 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 55,161 | | 52,517 | |
Amortization of debt discount | | 879 | | (10 | ) |
Equity-based compensation expense (net of amounts capitalized) | | 7,859 | | 8,944 | |
Losses on debt extinguishment and redemption | | — | | 10,144 | |
Gain on capital lease termination | | — | | (11,593 | ) |
Loss on debt purchases and installment loan repayment | | 587 | | — | |
Gains — equipment transactions and other, net | | (7,124 | ) | (3,018 | ) |
Deferred income taxes | | 8,453 | | 3,830 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | (2,478 | ) | 1,118 | |
Prepaid expenses and other current assets | | (3,256 | ) | (3,254 | ) |
Accounts payable, accrued liabilities and other long-term liabilities | | 4,499 | | 766 | |
Deposits and other assets | | (1,529 | ) | (50 | ) |
Net cash provided by operating activities | | 74,088 | | 61,810 | |
Cash flows from investing activities: | | | | | |
Purchases of property and equipment | | (38,039 | ) | (30,620 | ) |
Proceeds from disposition of assets | | — | | 111 | |
Net cash used in investing activities | | (38,039 | ) | (30,509 | ) |
Cash flows from financing activities: | | | | | |
Dividends paid | | (50,011 | ) | (50,269 | ) |
Purchases of common stock | | (1,666 | ) | (39,394 | ) |
Purchases of senior unsecured 2021 notes | | (10,775 | ) | — | |
Net proceeds from issuance of senior secured 2022 notes | | — | | 248,603 | |
Redemption of senior secured 2018 notes | | — | | (251,280 | ) |
Proceeds from exercises of stock options | | 894 | | 288 | |
Principal payments on installment payment agreement | | (21,203 | ) | (95 | ) |
Principal payments of capital lease obligations | | (9,658 | ) | (16,942 | ) |
Net cash used in financing activities | | (92,419 | ) | (109,089 | ) |
Effect of exchange rates changes on cash | | 930 | | (2,712 | ) |
Net decrease in cash and cash equivalents | | (55,440 | ) | (80,500 | ) |
Cash and cash equivalents, beginning of period | | 203,591 | | 287,790 | |
Cash and cash equivalents, end of period | | $ | 148,151 | | $ | 207,290 | |
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; 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 report on Form 10-Q for the quarter ended September 30, 2016 to be filed with the Securities and Exchange Commission. 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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