WASHINGTON, Feb. 25, 2021 /PRNewswire/ --

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 $0.755 per share for Q1 2021 as compared to $0.730 per share for Q4 2020 – Cogent's thirty-fourth consecutive quarterly dividend increase.
    • The Q1 2021 $0.755 dividend per share represents an annual increase of 14.4% from the dividend per share of $0.660 for Q1 2020.
  • Dividends for 2020 totaled $129.4 million, or $$2.780 per share, with 63.1% treated as a return of capital and 36.9% treated as dividends for US federal income tax purposes.
  • Service revenue increased by 1.1% from Q3 2020 to Q4 2020, increased from Q4 2019 to Q4 2020 by 2.6% and increased from full year 2019 to full year 2020 by 4.0%.
  • GAAP gross profit increased by 3.6% from Q4 2019 to $66.6 million for Q4 2020 and increased from full year 2019 to full year 2020 by 2.3% to $251.9 million.  Non-GAAP gross profit increased by 5.6% from Q4 2019 to $89.4 million for Q4 2020 and increased from full year 2019 to full year 2020 by 7.0% to $350.2 million.
    • GAAP gross margin increased by 50 basis points from Q4 2019 to Q4 2020 to 46.3% and increased from full year 2019 to full year 2020 by 160 basis points to 46.7%.  Non-GAAP gross margin increased by 180 basis points from Q4 2019 to Q4 2020 to 62.1% and increased from full year 2019 to full year 2020 by 170 basis points to 61.6%.    
  • Net cash provided by operating activities was $37.6 million for Q4 2020, $33.0 million for Q3 2020 and $46.1 million for Q4 2019.  Net cash provided by operating activities was $148.8 million for full year 2019 and $140.3 million for full year 2020.
  • Sales rep productivity – units per full time equivalent sales rep per month - increased from 3.7 for Q3 2020 to 4.2 for Q4 2020.
  • EBITDA margin increased by 30 basis points from Q3 2020 to 38.7% for Q4 2020, increased by 110 basis points from Q4 2019 to Q4 2020 and increased from full year 2019 to full year 2020 by 150 basis points to 37.7%.
  • EBITDA increased by 2.0% from Q3 2020 to $55.7 million for Q4 2020, increased by 5.6% from Q4 2019 to Q4 2020 and increased from full year 2019 to full year 2020 by 8.1% to $214.0 million.

Cogent Communications Holdings, Inc. (NASDAQ: CCOI) ("Cogent") today announced service revenue of $143.9 million for the three months ended December 31, 2020, an increase of 1.1% from the three months ended September 30, 2020 and an increase of 2.6% from the three months ended December 31, 2019. Service revenue was $568.1 million for the year ended December 31, 2020, an increase of 4.0% from the year ended December 31, 2019. Foreign exchange positively impacted service revenue growth from the three months ended September 30, 2020 to the three months ended December 31, 2020 by $0.6 million, positively impacted service revenue growth from the three months ended December 31, 2019 to the three months ended December 31, 2020 by $1.9 million and positively impacted service revenue growth from the year ended December 31, 2019 to the year ended December 31, 2020 by $1.5 million. On a constant currency basis, service revenue increased by 0.7% from the three months ended September 30, 2020 to the three months ended December 31, 2020, grew by 1.2% from the three months ended December 31, 2019 to the three months ended December 31, 2020 and grew by 3.7% from the year ended December 31, 2019 to the year ended December 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 $107.1 million for the three months ended December 31, 2020; an increase of 1.9% from the three months ended September 30, 2020 and an increase of 4.3% over the three months ended December 31, 2019. On-net revenue was $419.5 million for the year ended December 31, 2020; an increase of 5.7% over the year ended December 31, 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 $36.7 million for the three months ended December 31, 2020; a decrease of 1.1% from the three months ended September 30, 2020 and a decrease of 2.2% from the three months ended December 31, 2019. Off-net revenue was $148.1 million for the year ended December 31, 2020; a decrease of 0.5% from the year ended December 31, 2019.

Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell. 

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 3.6% from the three months ended December 31, 2019 to $66.6 million for the three months ended December 31, 2020 and increased by 0.7% from the three months ended September 30, 2020. GAAP gross profit increased by 7.9% from the year ended December 31, 2019 to $265.5 million for the year ended December 31, 2020. GAAP gross margin was 46.3% for the three months ended December 31, 2020, 45.8% for the three months ended December 31, 2019 and 46.5% for the three months ended September 30, 2020. GAAP gross margin was 46.7% for the year ended December 31, 2020 and 45.1% for the year ended December 31, 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 $4.1 million for the three months ended December 31, 2020, $4.3 million for the three months ended December 31, 2019, $3.9 million for the three months ended September 30, 2020, $15.1 million for the year ended December 31, 2020 and $14.9 million for the year ended December 31, 2019.

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 5.6% from the three months ended December 31, 2019 to $89.4 million for the three months ended December 31, 2020 and increased by 1.4% from the three months ended September 30, 2020. Non-GAAP gross profit increased by 7.0% from the year ended December 31, 2019 to $350.2 million for the year ended December 31, 2020. Non-GAAP gross profit margin was 62.1% for the three months ended December 31, 2020, 60.3% for the three months ended December 31, 2019 and 61.9% for the three months ended September 30, 2020. Non-GAAP gross margin was 61.6% for the year ended December 31, 2020 and 59.9% for the year ended December 31, 2019.

Net cash provided by operating activities decreased by 18.5% from the three months ended December 31, 2019 to $37.6 million for the three months ended December 31, 2020 and increased by 13.9% from the three months ended September 30, 2020. Net cash provided by operating activities decreased by 5.7% from the year ended December 31, 2019 to $140.3 million for the year ended December 31, 2020.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 5.6% from the three months ended December 31, 2019 to $55.7 million for the three months ended December 31, 2020 and increased by 2.0% from the three months ended September 30, 2020. EBITDA increased by 8.1% from the year ended December 31, 2019 to $214.0 million for the year ended December 31, 2020. EBITDA margin was 38.7% for the three months ended December 31, 2020, 37.6% for the three months ended December 31, 2019 and 38.4% for the three months ended September 30, 2020. EBITDA margin was 37.7% for the year ended December 31, 2020 and 36.2% for the year ended December 31, 2019.

Basic and diluted net (loss) income per share was $(0.14) for the three months ended December 31, 2020, $0.16 for the three months ended December 31, 2019 and $(0.11) for the three months ended September 30, 2020. Basic net income per share was $0.14 for the year ended December 31, 2020 and $0.82 for the year ended December 31, 2019. Diluted net income per share was $0.13 for the year ended December 31, 2020 and $0.81 for the year ended December 31, 2019.

Unrealized foreign exchange (losses) gains on Cogent's 2024 Senior Euro Unsecured Notes were $(19.2) million for the three months ended December 31, 2020, $(4.1) million for the three months ended December 31, 2019, $(17.3) million for the three months ended September 30, 2020, $(37.0) million for the year ended December 31, 2020 and $2.3 million for the year ended December 31, 2019.

Total customer connections increased by 3.5% from December 31, 2019 to 89,600 as of December 31, 2020 and increased by 1.2% from September 30, 2020. On-net customer connections increased by 3.7% from December 31, 2019 to 77,305 as of December 31, 2020 and increased by 1.3% from September 30, 2020. Off-net customer connections increased by 2.7% from December 31, 2019 to 11,970 as of December 31, 2020 and increased by 1.0% from September 30, 2020. 

The number of on-net buildings increased by 113 from December 31, 2019 to 2,914 as of December 31, 2020 and increased by 30 from September 30, 2020.

Quarterly Dividend Increase Approved

On February 24, 2021, Cogent's Board approved a regular quarterly dividend of $0.755 per common share payable on March 26, 2021 to shareholders of record on March 12, 2021. This first quarter 2021 regular dividend represents a 3.4% increase of $0.025 per share from the fourth quarter 2020 regular dividend of $0.730 per share and an annual increase of 14.4% from the Q1 2020 dividend of $0.660 per share. 

The payment of any future dividends and any other returns of capital will be at the discretion of the Board and may be reduced, eliminated or increased and will be dependent upon Cogent's financial position, results of operations, available cash, cash flow, capital requirements, limitations under Cogent's debt indenture agreements and other factors deemed relevant by the Board.

Tax Treatment of 2020 Dividends

Cogent paid four quarterly dividends in 2020 totaling $129.4 million, or $2.78 per share. The expected tax treatment of these dividends are generally that 63.1% are treated as a return of capital and 36.9% are generally treated as dividends for United States federal income tax purposes. While the above information includes general statements about the tax classification of dividends paid on Cogent common stock, these statements do not constitute tax advice. The taxation of corporate distributions can be complex, and stockholders are encouraged to consult their tax advisers to determine what impact the above information may have on their specific tax situation.

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 workforce continues to work remotely with dedication.  

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 ultimate scope and duration of the pandemic, the availability and efficacy of vaccines and therapeutic treatments, government actions that have been taken, or may be taken in the future in response to the pandemic and global economic conditions during and after the pandemic.  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, undergo an increase in customer churn, 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 or slow the pace of opening new offices.   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 Annual Report on Form 10-K for the year ended December 31, 2020 and are set forth in its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2020, June 30, 2020 and March 31, 2020.

Conference Call and Website Information

Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on February 25, 2021 to discuss Cogent's operating results for the fourth quarter of 2020 and full year 2020 and to discuss Cogent's expectations for full year 2021. 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.  A downloadable file of Cogent's "Summary of Financial and Operational Results" and a transcript of its conference call will also be available on Cogent's website following the conference 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

Q3 2020

Q4 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

$105,091

$107,109

  % Change from previous Qtr.

1.9%

0.3%

2.0%

3.3%

0.8%

0.3%

1.2%

1.9%

Off-Net revenue

$36,843

$37,191

$37,418

$37,479

$37,321

$37,044

$37,092

$36,672

  % Change from previous Qtr.

0.8%

0.9%

0.6%

0.2%

-0.4%

-0.7%

0.1%

-1.1%

Non-Core revenue (1)

$111

$126

$108

$130

$137

$146

$119

$120

  % Change from previous Qtr.

-24.5%

13.5%

-14.3%

20.4%

5.4%

6.6%

-18.5%

0.8%

Service revenue – total

$134,137

$134,789

$136,942

$140,292

$140,915

$140,990

$142,302

$143,901

  % Change from previous Qtr.

1.6%

0.5%

1.6%

2.4%

0.4%

0.1%

0.9%

1.1%

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

1.7%

0.7%

1.7%

2.5%

0.6%

0.2%

-0.2%

0.7%

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

5.8%

5.4%

6.0%

6.8%

5.6%

5.1%

3.1%

1.2%

Excise Taxes included in service revenue

$3,391

$3,191

$3,998

$4,334

$3,743

$3,298

$3,902

$4,144

  % Change from previous Qtr.

4.9%

-5.9%

25.3%

8.4%

-13.6%

-11.9%

18.3%

6.2%

Network operations expenses (2) 

$53,970

$54,181

$54,971

$55,684

$55,669

$53,581

$54,173

$54,513

  % Change from previous Qtr.

-2.6%

0.4%

1.5%

1.3%

-%

-3.8%

1.1%

0.6%

GAAP gross profit (3)

$59,724

$60,403

$61,683

$64,300

$65,486

$67,208

$66,164

$66,617

  % Change from previous Qtr.

7.7%

1.1%

2.1%

4.2%

1.8%

2.6%

-1.6%

0.7%

GAAP gross margin (3)

44.5%

44.8%

45.0%

45.8%

46.5%

47.7%

46.5%

46.3%

Non-GAAP gross profit (4) (6)

$80,167

$80,608

$81,971

$84,608

$85,246

$87,409

$88,129

$89,388

  % Change from previous Qtr.

4.6%

0.6%

1.7%

3.2%

0.8%

2.5%

0.8%

1.4%

Non-GAAP gross margin (4) (6)

59.8%

59.8%

59.9%

60.3%

60.5%

62.0%

61.9%

62.1%

Selling, general and administrative expenses (5)

$32,568

$33,503

$31,456

$31,884

$34,852

$34,061

$33,546

$33,713

  % Change from previous Qtr.

12.2%

2.9%

-6.1%

1.4%

9.3%

-2.3%

-1.5%

0.5%

Depreciation and amortization expense

$20,263

$19,979

$20,006

$20,002

$19,508

$19,896

$21,619

$22,455

  % Change from previous Qtr.

-3.3%

-1.4%

0.1%

-%

-2.5%

2.0%

8.7%

3.9%

Equity-based compensation expense

$3,434

$5,289

$4,797

$4,940

$5,075

$6,083

$6,522

$5,846

  % Change from previous Qtr.

-22.1%

54.0%

-9.3%

3.0%

2.7%

19.9%

7.2%

-10.4%

Operating income

$24,400

$22,022

$25,799

$28,033

$25,850

$27,574

$26,036

$27,384

  % Change from previous Qtr.

9.4%

-9.7%

17.2%

8.7%

-7.8%

6.7%

-5.6%

5.2%

Interest expense

$13,456

$13,595

$15,191

$15,211

$15,220

$15,499

$15,760

$16,007

  % Change from previous Qtr.

-0.4%

1.0%

11.7%

0.1%

0.1%

1.8%

1.7%

1.6%

Net income (loss)

$9,217

$7,136

$13,701

$7,465

$9,227

$8,564

$(4,955)

$(6,620)

Realized and unrealized gains (losses) on 2024 Euro Notes

$-

$177

$6,128

$(4,068)

$2,908

$(873)

$(17,315)

$(19,170)

Basic net income (loss) per common share

$0.20

$0.16

$0.30

$0.16

$0.20

$0.19

$(0.11)

$(0.14)

Diluted net income (loss) per common share

$0.20

$0.16

$0.30

$0.16

$0.20

$0.18

$(0.11)

$(0.14)

Weighted average common shares – basic

45,223,157

45,354,327

45,438,656

45,553,727

45,658,565

45,754,880

45,815,718

45,904,943

  % Change from previous Qtr.

-0.1%

0.3%

0.2%

0.3%

0.2%

0.2%

0.1%

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

45,815,718

45,904,943

  % Change from previous Qtr.

-0.3%

0.6%

0.2%

0.3%

0.5%

0.6%

-1.9%

0.2%

EBITDA (6)

$47,561

$47,105

$50,515

$52,724

$50,394

$53,348

$54,583

$55,675

  % Change from previous Qtr.

-%

-1.0%

7.2%

4.4%

-4.4%

5.9%

2.3%

2.0%

EBITDA margin

35.5%

34.9%

36.9%

37.6%

35.8%

37.8%

38.4%

38.7%

Gains on asset related transactions

$536

$185

$87

$251

$39

$205

$99

$10

EBITDA, as adjusted (6)

$48,097

$47,290

$50,602

$52,975

$50,433

$53,553

$54,682

$55,685

  % Change from previous Qtr.

0.9%

-1.7%

7.0%

4.7%

-4.8%

6.2%

2.1%

1.8%

EBITDA, as adjusted, margin

35.9%

35.1%

37.0%

37.8%

35.8%

38.0%

38.4%

38.7%

Net cash provided by operating activities

$28,637

$40,632

$33,443

$46,097

$28,458

$41,311

$32,980

$37,571

  % Change from previous Qtr.

-29.7%

41.9%

-17.7%

37.8%

-38.3%

45.2%

-20.2%

13.9%

Capital expenditures

$13,288

$11,720

$12,051

$9,899

$12,866

$13,930

$13,296

$15,860

  % Change from previous Qtr.

21.5%

-11.8%

2.8%

-17.9%

30.0%

8.3%

-4.6%

19.3%

Principal payments of capital (finance) lease obligations

$3,030

$1,976

$2,029

$2,056

$6,167

$3,716

$9,509

$4,598

  % Change from previous Qtr.

42.4%

-34.8%

2.7%

1.3%

200.0%

-39.7%

155.9%

-51.6%

Dividends paid

$26,565

$27,741

$28,565

$29,776

$30,557

$31,738

$32,657

$34,460

Purchases of common stock

$ -

$ -

$ -

$ -

$ -

$-

$270

$4,225

Gross Leverage Ratio

4.28

5.08

4.97

4.86

4.78

5.08

5.10

5.14

Net Leverage Ratio

2.92

2.93

2.92

2.86

2.92

3.07

3.24

3.40

Customer Connections – end of period









On-Net

71,066

72,415

73,870

74,554

75,163

75,927

76,338

77,305

  % Change from previous Qtr.

3.3%

1.9%

2.0%

0.9%

0.8%

1.0%

0.5%

1.3%

Off-Net

11,138

11,321

11,503

11,660

11,721

11,846

11,849

11,970

  % Change from previous Qtr.

1.5%

1.6%

1.6%

1.4%

0.5%

1.1%

0.0%

1.0%

Non-Core (1)

318

318

319

325

329

339

322

325

  % Change from previous Qtr.

-12.2%

-%

-0.3%

1.9%

1.2%

3.0%

-5.0%

0.9%

Total customer connections

82,522

84,054

85,692

86,539

87,213

88,112

88,509

89,600

  % Change from previous Qtr.

3.0%

1.9%

1.9%

1.0%

0.8%

1.0%

0.5%

1.2%

On-Net Buildings – end of period









Multi-Tenant office buildings

1,746

1,751

1,757

1,767

1,769

1,771

1,783

1,792

Carrier neutral data center buildings

908

933

960

980

1,000

1,029

1,047

1,068

Cogent data centers

52

53

54

54

54

54

54

54

Total on-net buildings

2,706

2,737

2,771

2,801

2,823

2,854

2,884

2,914

Total carrier neutral data center nodes

1,071

1,101

1,128

1,153

1,175

1,203

1,225

1,252

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

949,486,923

951,031,709

954,013,024

957,173,183

961,154,384

962,049,183

968,355,695

976,813,678

Network  – end of period









Intercity route miles

57,426

57,426

57,426

57,600

58,009

58,009

58,142

58,285

Metro fiber miles

33,664

34,163

34,985

35,526

36,079

36,438

36,725

37,567

Connected networks – AS's

6,668

6,762

6,844

6,954

7,042

7,133

7,222

7,338

Headcount – end of period









Sales force – quota bearing

501

519

530

548

542

572

597

569

Sales force - total

639

656

667

686

684

716

740

712

Total employees

997

1,026

1,036

1,055

1,052

1,083

1,110

1,083

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

5.1

4.9

4.4

4.1

4.5

4.0

3.7

4.2

FTE – sales reps

464

478

488

502

522

533

563

542



(1)

Consists of legacy services of companies whose assets or businesses were acquired by Cogent.

(2)

Network operations expense excludes equity-based compensation expense of $180, $226, $282, $306, $252, $305, $346 and $316 in the three month periods ended March 31, 2019 through December 31, 2020, respectively.  Network operations expense includes excise taxes, including Universal Service Fund fees of $3,391, $3,191, $3,998, $4,334, $3,743, $3,298, $3,902 and $4,144 in the three month periods ended March 31, 2019 through December 31, 2020, 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 $3,254, $5,063, $4,515, $4,634, $4,823, $5,778, $6,176 and $5,530 in the three month periods ended March 31, 2019 through December 31, 2020, 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
2019

Q2
2019

Q3
2019

Q4
2019

Year
2019

Q1
2020

Q2
2020

Q3
2020

Q4
2020

Year
2020

($ in 000's) – unaudited











Net cash provided by operating activities

$28,637

$40,632

$33,443

$46,097

$148,809

$28,458

$41,311

$32,980

$37,571

$140,320

Changes in operating assets and liabilities

6,727

(5,729)

3,785

(6,557)

(1,949)

5,325

$(3,232)

$6,255

$1,920

$12,780

Cash interest expense and income tax expense

12,197

12,202

13,287

13,184

51,045

16,611

15,269

15,348

16,184

60,895

EBITDA

$47,561

$47,105

$50,515

$52,724

$197,905

$50,394

$53,348

$54,583

$55,675

$213,995

PLUS: Gains on asset related transactions

536

185

87

251

1,059

39

205

99

10

352

EBITDA, as adjusted

$48,097

$47,290

$50,602

$52,975

$198,964

$50,433

$53,553

$54,682

$55,685

$214,347

EBITDA margin

35.5%

34.9%

36.9%

37.6%

36.2%

35.8%

37.8%

38.4%

38.7%

37.7%

EBITDA, as adjusted, margin

35.9%

35.1%

37.0%

37.8%

36.4%

35.8%

38.0%

38.4%

38.7%

37.7%




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
2019

Q2
2019

Q3
2019

Q4
2019

Year
2019

Q1
2020

Q2
2020

Q3
2020

Q4
2020

Year
2020

Service revenue, as reported – current period

$134,137

$134,789

$136,942

$140,292

$546,159

$140,915

$140,990

$142,302

$143,901

$568,103

Impact of foreign currencies on service revenue

135

260

176

88

5,286

184

202

(1,616)

(621)

(1,492)

Service revenue - as adjusted  for currency impact (1)

$134,272

$135,049

$137,118

$140,380

$551,445

$141,099

$141,192

$140,686

$143,280

$566,611

Service revenue, as reported – prior sequential period

$132,049

$134,137

$134,789

$136,942

$520,193

$140,292

$140,915

$140,990

$142,302

$546,159

Constant currency (decrease) increase

$2,223

$912

$2,329

$3,438

$31,252

$807

$277

$(304)

$978

$20,452

Constant currency percent (decrease) increase

1.7%

0.7%

1.7%

2.5%

6.0%

0.6%

0.2%

(0.2)%

0.7%

3.7%



(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
2019

Q2
2019

Q3
2019

Q4
2019

Year
2019

Q1
2020

Q2
2020

Q3
2020

Q4
2020

Year
2020

Service revenue, as reported – current period

$134,137

$134,789

$136,942

$140,292

$546,159

$140,915

$140,990

$142,302

$143,901

$568,103

Impact of foreign currencies on service revenue

2,078

1,505

1,058

683

5,286

746

674

(1,141)

(1,891)

(1,492)

Service revenue - as adjusted for currency impact  (2)

$136,215

$136,294

$138,000

$140,975

$551,445

$141,661

$141,664

$141,161

$142,010

$566,611

Service revenue, as reported – prior year period

$128,706

$129,296

$130,139

$132,049

$520,193

$134,137

$134,789

$136,942

$140,292

$546,159

Constant currency increase

$7,509

$6,998

$7,861

$8,926

$31,252

$7,524

$6,875

$4,219

$1,718

$20,452

Percent increase

5.8%

5.4%

6.0%

6.8%

6.0%

5.6%

5.1%

3.1%

1.2%

3.7%



(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 2019

Q2 2019

Q3 2019

Q4 2019

Year
2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Year
2020

($ in 000's) – unaudited











Service revenue total

$134,137

$134,789

$136,942

$140,292

$546,159

$140,915

$140,990

$142,302

$143,901

$568,103

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

74,413

74,386

75,259

75,992

300,050

75,429

73,782

76,138

77,284

302,633

GAAP Gross Profit (1)

$59,724

$60,403

$61,683

$64,300

$246,109

$65,486

$67,208

$66,164

$66,617

$265,470

Plus  - Equity-based compensation – network operations expense

180

226

282

306

994

252

305

346

316

1,219

Plus – Depreciation and amortization expense

20,263

19,979

20,006

20,002

80,247

19,508

19,896

21,619

22,455

83,477

Non-GAAP Gross Profit (2)

$80,167

$80,608

$81,971

$84,608

$327,350

$85,246

$87,409

$88,129

$89,388

$350,166

GAAP Gross Margin (1)

44.5%

44.8%

45.0%

45.8%

45.1%

46.5%

47.7%

46.5%

46.3%

46.7%

Non-GAAP Gross Margin (2)

59.8%

59.8%

59.9%

60.3%

59.9%

60.5%

62.0%

61.9%

62.1%

61.6%



(1)

GAAP gross profit is defined as total service revenue less network operations expense, depreciation and amortization and equity-based compensation included in network operations expense.  GAAP gross margin is defined as GAAP gross profit divided by total service revenue.

(2)

Non-GAAP gross profit represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation and amortization expense). Non-GAAP gross margin is defined as non-GAAP gross profit divided by total service revenue.  Management believes that non-GAAP gross profit and non-GAAP gross margin are relevant metrics to provide to investors, as they are metrics that management uses to measure the margin and amount available to the Company after network service costs, in essence these are measures of the efficiency of the Company's network.

Gross and Net Leverage Ratios

Gross leverage ratio is defined as total debt divided by the trailing last 12 months EBITDA, as adjusted.  Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the trailing last 12 months EBITDA, as adjusted.  Cogent's gross leverage ratio and net leverage ratio are shown below.

($ in 000's) – unaudited

As of September 30, 2020

As of December 31, 2020

Cash and cash equivalents

$393,293

$371,301

Debt



Capital (finance) leases – current portion

15,252

15,702

Capital (finance) leases – long term

197,688

203,438

Senior Secured 2022 Notes

445,000

445,000

Senior Unsecured Euro 2024 Notes

410,365

429,264

Note payable

10,404

7,712

Total debt

1,078,709

1,101,116

Total net debt

685,416

729,815

Trailing 12 months EBITDA, as adjusted

211,643

214,353

Gross leverage ratio

5.10

5.14

Net leverage ratio

3.24

3.40

Cogent's SEC filings are available online via the Investor Relations section of www.cogentco.com or on the Securities and Exchange Commission's website at www.sec.gov.


COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2020 AND 2019

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)








2020


2019

Assets






Current assets:






Cash and cash equivalents

$

371,301


$

399,422

Accounts receivable, net of allowance for credit losses of $1,921 and $1,771, respectively


44,185



40,484

Prepaid expenses and other current assets


40,851



35,822

Total current assets


456,337



475,728

Property and equipment:






Property and equipment


1,515,867



1,366,782

Accumulated depreciation and amortization


(1,085,532)



(997,853)

Total property and equipment, net


430,335



368,929

Right-of-use leased assets


99,666



73,460

Deposits and other assets


14,139



14,007

Total assets

$

1,000,477


$

932,124

Liabilities and stockholders' equity






Current liabilities:






Accounts payable

$

9,775


$

11,075

Accrued and other current liabilities


51,029



51,301

Current maturities, operating lease liabilities


11,151



10,101

Installment payment agreement, current portion, net of discount of $136 and $350, respectively


6,786



9,063

Finance lease obligations, current maturities


15,702



8,154

Total current liabilities


94,443



89,694

Senior unsecured 2024 Euro notes, net of unamortized debt
   costs of $2,961 and $1,410, respectively and net of discount of
   $1,142 and $0, respectively


425,160



150,001

Senior secured 2022 notes, net of unamortized debt costs of 
   $1,052 and $1,897 respectively and including premium of $544 
   and $985, respectively


444,492



444,088

Senior unsecured 2021 notes, net of unamortized debt costs of $857




188,368

Operating lease liabilities, net of current maturities


111,318



86,690

Finance lease obligations, net of current maturities


203,438



161,635

Other long-term liabilities


14,792



15,327

Total liabilities


1,293,643



1,135,803

Commitments and contingencies






Stockholders' equity:






Common stock, $0.001 par value; 75,000,000 shares authorized;
   47,214,077 and 46,840,434 shares issued and outstanding, 
   respectively


47



47

Additional paid-in capital


515,867



493,178

Accumulated other comprehensive income (loss)


(1,306)



(12,326)

Accumulated deficit


(807,774)



(684,578)

Total stockholders' deficit


(293,166)



(203,679)

Total liabilities and stockholders' equity

$

1,000,477


$

932,124




COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



Three Months
Ended
December 31, 2020


Three Months
Ended
December 31, 2019







Service revenue

$

143,901


$

140,292


Operating expenses:





Network operations (including $316 and $306 of equity–
   based compensation expense, respectively), exclusive
   of amounts shown separately

54,829


55,990


Selling, general, and administrative (including $5,530
   and $4,634 of equity–based compensation expense,
   respectively)

39,243


36,518


Depreciation and amortization

22,455


20,002


Total operating expenses

116,527


112,510


Gains on equipment transactions

10


251


Operating income

27,384


28,033


Interest expense

(16,007)


(15,211)


Unrealized foreign exchange (loss) gain on 2024 Euro Notes

(19,170)


(4,068)


Interest income and other

529


2,012


(Loss) income before income taxes

(7,264)


10,766


Income tax benefit (expense)

644


(3,301)


Net (loss) income

$

(6,620)


$

7,465







Comprehensive (loss) income:





Net (loss) income 

$

(6,620)


$

7,465


Foreign currency translation adjustment

6,192


3,350


Comprehensive (loss) income

$

(428)


$

10,815







Basic net (loss) income per common share

$

(0.14)


$

0.16


Diluted net (loss) income per common share

$

(0.14)


$

0.16







Dividends declared per common share

$

0.73


$

0.64







Weighted–average common shares—basic

45,904,943


45,553,727







Weighted–average common shares—diluted

45,904,943


46,145,970





COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2020

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)











2020


2019


2018

Service revenue

$

568,103


$

546,159


$

520,193

Operating expenses:









Network operations (including $1,219,
    $994 and $895 of equity-based 
    compensation expense, respectively),
    exclusive of amounts shown separately


219,157



219,801



219,526

Selling, general, and administrative
   (including $22,306, $17,466 and
   $16,813 of equity-based compensation 
   expense, respectively)


158,476



146,913



133,858

Depreciation and amortization


83,477



80,247



81,233

Total operating expenses


461,110



446,961



434,617

Gains on equipment transactions


352



1,059



982

Losses on lease terminations


(423)





Operating income


106,922



100,257



86,558

Interest expense


(62,486)



(57,453)



(51,056)

Realized foreign exchange gain on 2024 Euro Notes


2,533





Unrealized foreign exchange (loss) gain on 2024 Euro Notes


(36,997)



2,271



Loss on debt extinguishment and redemption – 2021 Notes


(638)





Interest income and other


978



7,599



5,880

Income before income taxes


10,312



52,674



41,382

Income tax expense


(4,096)



(15,154)



(12,715)

Net income

$

6,216


$

37,520


$

28,667


Comprehensive income:









Net income

$

6,216


$

37,520


$

28,667

Foreign currency translation adjustment


11,020



(1,398)



(6,328)

Comprehensive income

$

17,236


$

36,122


$

22,339


Basic net income per common share

$

0.14


$

0.82


$

0.63

Diluted net income per common share

$

0.13


$

0.81


$

0.63










Dividends declared per common share

$

2.78


$

2.44


$

2.12










Weighted-average common shares—basic


45,947,772



45,542,315



45,280,161










Weighted-average common shares—diluted


46,668,198



46,080,395



45,780,954




COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

(IN THOUSANDS)



Three Months
Ended
December 31, 2020


Three Months
Ended
December 31, 2019







Cash flows from operating activities:





Net (loss) income 

$

(6,620)


$

7,466


Adjustments to reconcile net (loss) income to net cash provided by operating activities:





Depreciation and amortization

22,455


20,001


Amortization of debt discount and premium

468


479


Equity–based compensation expense (net of amounts capitalized)

5,846


4,940


Gains—equipment transactions and other, net

(115)


(263)


Unrealized foreign currency exchange loss on 2024 Euro notes

19,170


4,068


Deferred income taxes

(1,818)


2,873


Changes in operating assets and liabilities:





Accounts receivable

(1,600)


1,110


Prepaid expenses and other current assets

482


1,132


Deposits and other assets

(245)


599


Accounts payable, accrued liabilities and other long–term liabilities

(452)


3,692


Net cash provided by operating activities

37,571


46,097


Cash flows from investing activities:





Purchases of property and equipment

(15,860)


(9,899)


Net cash used in investing activities

(15,860)


(9,899)


Cash flows from financing activities:





Dividends paid

(34,460)


(34,460)


Principal payments of capital lease obligations

(4,598)


(2,056)


Principal payments of installment payment agreement

(2,692)


(2,659)


Purchases of common stock

(4,225)



Proceeds from exercises of common stock options

207


367


Net cash used in financing activities

(45,768)


(34,124)


Effect of exchange rate changes on cash

2,065


1,077


Net (decrease) increase in cash and cash equivalents

(21,992)


3,151


Cash and cash equivalents, beginning of period

393,293


396,271


Cash and cash equivalents, end of period

$

371,301


$

399,422





COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2020

(IN THOUSANDS)











2020


2019


2018

Cash flows from operating activities:









Net income

$

6,216


$

37,520


$

28,667

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









Depreciation and amortization


83,477



80,247



81,233

Amortization of debt discount and premium


1,894



1,807



1,533

Equity-based compensation expense (net of amounts capitalized)


23,525



18,460



17,708

Unrealized foreign currency exchange loss (gain) on 2024 Euro Notes


36,997



(2,271)



Realized foreign currency exchange gain on 2024 Euro Notes


(2,533)





Loss on extinguishment of 2021 notes


638





Gains—equipment transactions and other, net


(546)



(358)



(1,109)

Deferred income taxes


282



12,158



11,117

Changes in operating assets and liabilities:









Accounts receivable


(2,702)



1,067



(3,204)

Prepaid expenses and other current assets


(2,771)



(3,730)



(438)

Deposits and other assets


(873)



(1,131)



(1,490)

Accounts payable, accrued liabilities and other long-term liabilities


(3,284)



5,040



(96)

Net cash provided by operating activities


140,320



148,809



133,921

Cash flows from investing activities:









Purchases of property and equipment


(55,952)



(46,958)



(49,937)

Net cash used in investing activities


(55,952)



(46,958)



(49,937)

Cash flows from financing activities:









Net proceeds from issuance of senior 2024 Euro
   Notes, net of debt costs of $2,137 and $1,556,
   respectively


240,285



152,134



Net proceeds from issuance of 2022 Notes, net of debt costs of $1,364






69,861

Redemption and extinguishment of 2021 Notes


(189,225)





Dividends paid


(129,412)



(112,647)



(97,887)

Principal payments of finance lease obligations


(23,990)



(9,097)



(10,286)

Principal payments of installment payment agreement


(10,547)



(10,007)



(9,437)

Purchases of common stock


(4,495)





(6,564)

Proceeds from exercises of common stock options


1,382



1,637



1,768

Net cash (used in) provided by financing activities


(116,002)



22,020



(52,545)

Effect of exchange rate changes on cash


3,513



(542)



(2,357)

Net (decrease) increase in cash and cash equivalents


(28,121)



123,329



29,082

Cash and cash equivalents, beginning of year


399,422



276,093



247,011

Cash and cash equivalents, end of year

$

371,301


$

399,422


$

276,093

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 the impact of the COVID-19 pandemic and the related government policies; 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, 2020 and our Quarterly Reports on Form 10-Q for the quarters ended March 31,2020, June 30, 2020 and September 30, 2020.  Cogent undertakes no duty to update any forward-looking statement or any information contained in this press release or in other public disclosures at any time.

 

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SOURCE Cogent Communications Holdings, Inc.

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