PR Newswire
WASHINGTON, Aug. 10, 2023
Financial and Business Highlights
- On May 1, 2023 Cogent completed its acquisition of the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of the wireline business of Sprint Communications and its subsidiaries ("Sprint", or the "Wireline Business") from T-Mobile (TMUS).
- Cogent approved an increase of $0.01 per share to its regular quarterly dividend for a total of $0.945 per share for Q3 2023 as compared to $0.935 per share for Q2 2023 – Cogent's forty-fourth consecutive quarterly dividend increase.
- The Q3 2023 $0.945 dividend per share represents an annual increase of 4.4% from the dividend per share of $0.905 for Q3 2022.
- Service revenue increased from Q1 2023 to Q2 2023 by 56.1% to $239.8 million and increased from Q2 2022 to Q2 2023 by 61.5%.
- Service revenue, on a constant currency basis, increased from Q1 2023 to Q2 2023 by 55.9% and increased from Q2 2022 to Q2 2023 by 61.4%.
- Service revenue from the Wireline Business was $78.0 million from May 1, 2023 to June 30, 2023.
- The gain on bargain purchase from the Sprint acquisition was $1.2 billion for Q2 2023.
- Included in the gain on bargain purchase was the discounted present value of a $700.0 million IP Transit Services Agreement totaling $620.4 million.
- Basic and fully diluted earnings per share for Q2 2023 were $23.84 and $23.65, respectively.
- Net cash provided by operating activities increased by 130.7% from Q1 2023 to $82.7 million for Q2 2023 and increased from Q2 2022 to Q2 2023 by 140.3%.
- Sprint acquisition costs were $0.7 million for Q2 2023.
- EBITDA was $24.2 million for Q2 2023
- EBITDA, as adjusted for Sprint acquisition costs and $29.2 million of a cash payment received under an IP Transit Agreement with T-Mobile for Q2 2023 was $54.1 million
- Amounts billed and amounts paid under an IP Transit Services Agreement with T-Mobile were $58.3 million and $29.2 million in the three months ended June 30, 2023, respectively.
- EBITDA margin for Q2 2023 was 10.1%.
- EBITDA, as adjusted margin for Sprint acquisition costs and cash received under an IP Transit Agreement with T-Mobile for Q2 2023 was 22.5%.
WASHINGTON, Aug. 10, 2023 /PRNewswire/ -- Cogent Communications Holdings, Inc. (NASDAQ: CCOI) ("Cogent") today announced service revenue of $239.8 million for the three months ended June 30, 2023, an increase of 56.1% from the three months ended March 31, 2023 and an increase of 61.5% from the three months ended June 30, 2022. Foreign exchange rates positively impacted service revenue growth from the three months ended March 31, 2023 to the three months ended June 30, 2023 by $0.4 million and positively impacted service revenue growth from the three months ended June 30, 2022 to the three months ended June 30, 2023 by $0.3 million. On a constant currency basis, service revenue increased by 55.9% from the three months ended March 31, 2023 to the three months ended June 30, 2023 and increased by 61.4% for the three months ended June 30, 2022 to the three months ended June 30, 2023. Service revenue from the Wireline Business was $78.0 million from May 1, 2023 (the closing date of the Sprint acquisition) to June 30, 2023.
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 $127.7 million for the three months ended June 30, 2023; an increase of 9.9% from the three months ended March 31, 2023 and an increase of 14.0% from the three months ended June 30, 2022. On-net revenue from the Wireline Business was $4.1 million from May 1, 2023 (the closing date of the Sprint acquisition) to June 30, 2023.
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 $102.0 million for the three months ended June 30, 2023; an increase of 173.5% from the three months ended March 31, 2023 and an increase of 181.1% from the three months ended June 30, 2022. Off-net revenue from the Wireline Business was $63.9 million from May 1, 2023 (the closing date of the Sprint acquisition) to June 30, 2023.
In connection with the Cogent's Sprint acquisition, Cogent expanded its offerings of optical wavelength services and optical transport services over its fiber network. Cogent is selling these wavelength services to its existing customers, Sprint customers and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. Wavelength revenue was $1.6 million for the three months ended June 30, 2023. Wavelength revenue from the Wireline Business was $1.6 million from May 1, 2023 (the closing date of the Sprint acquisition) to June 30, 2023.
Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell. Non-core revenue was $8.6 million for the three months ended June 30, 2023. Non-core revenue from the Wireline Business was $8.4 million from May 1, 2023 (the closing date of the Sprint acquisition) to June 30, 2023.
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 decreased by 27.7% from the three months ended June 30, 2022 to $49.8 million for the three months ended June 30, 2023 and decreased by 28.7% from the three months ended March 31, 2023. GAAP gross margin was 20.8% for the three months ended June 30, 2023.
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 11.4% from the three months ended June 30, 2022 to $102.5 million for the three months ended June 30, 2023 and increased by 7.8% from the three months ended March 31, 2023. Non-GAAP gross margin was 42.8% for the three months ended June 30, 2023.
Net cash provided by operating activities increased by 140.3% from the three months ended June 30, 2022 to $82.7 million for the three months ended June 30, 2023 and increased by 130.7% from the three months ended March 31, 2023. Net cash provided by operating activities from the Wireline Business was $57.9 million from May 1, 2023 (the closing date of the Sprint acquisition) to June 30, 2023.
Earnings before interest, taxes, depreciation and amortization (EBITDA), decreased by 58.7% from the three months ended June 30, 2022 to $24.2 million for the three months ended June 30, 2023 and decreased by 56.9% from the three months ended March 31, 2023. EBITDA margin was 10.1% for the three months ended June 30, 2023.
EBITDA, as adjusted, excluding Sprint acquisition costs of $0.7 million and including $29.2 million for cash paid under the IP Transit Services Agreement (discussed below) for the three months ended June 30, 2023 was $54.1 million which was a decrease of 7.5% from the three months ended June 30, 2022 and a decrease of 4.2% from the three months ended March 31, 2023. EBITDA as adjusted margin, excluding Sprint acquisition costs and including $29.2 million for cash paid under the IP Transit Services Agreement, was 22.5% for the three months ended June 30, 2023. Amounts billed and amounts paid under the IP Transit Services Agreement were $58.3 million and $29.2 million in the three months ended June 30, 2023, respectively.
Basic net income per share was $23.84 for the three months ended June 30, 2023. Diluted net income per share was $23.65 for the three months ended June 30, 2023. Basic and diluted income per share include the impact of the $1.2 billion bargain purchase gain from the Sprint acquisition.
Total customer connections increased by 58.1% from June 30, 2022 to 151,430 as of June 30, 2023 and increased by 55.4% from March 31, 2023. Total customer connections from the Sprint acquisition were 46,212 as of June 30, 2023. On-net customer connections increased by 12.8% from June 30, 2022 to 92,846 as of June 30, 2023 and increased by 11.5% from March 31, 2023. On-net customer connections from the Sprint acquisition were 2,546 as of June 30, 2023. Off-net customer connections increased by 194.5% from June 30, 2022 to 38,762 as of June 30, 2023 and increased by 181.2% from March 31, 2023. Off-net customer connections from the Sprint acquisition were 24,243 as of June 30, 2023. Wavelength customer connections were 414 as of June 30, 2023. Wavelength customer connections from the Sprint acquisition were 402 as of June 30, 2023. Non-core customer connections from the Sprint acquisition were 19,021 as of June 30, 2023.
The number of on-net buildings increased by 132 from June 30, 2022 to 3,227 as of June 30, 2023 and increased by 37 from March 31, 2023. Technical buildings acquired in the Sprint acquisition were 482 buildings.
Gain on bargain purchase and IP Transit Services Agreement
The estimated gain on bargain purchase from the Sprint acquisition was $1.2 billion as shown below. The amounts presented are provisional and are subject to change as Cogent refines its estimates and inputs used in the calculations of the assets acquired and liabilities assumed.
(In thousands) Gain on bargain purchase | |||
Fair value of net assets acquired | $559,905 | ||
Total net consideration to be received from Seller, net of discounts | 595,814 | ||
Gain on bargain purchase | $1,155,719 |
IP Transit Services Agreement
On the closing date of the Sprint acquisition, Cogent and T-Mobile USA, Inc. ("TMUSA"), a Delaware corporation and direct subsidiary of T-Mobile US, Inc., a Delaware corporation ("T-Mobile") , entered into an agreement for IP transit services (the "IP Transit Services Agreement"), pursuant to which TMUSA will pay Cogent an aggregate of $700.0 million, consisting of (i) $350.0 million in equal monthly installments during the first year after the closing date of the Sprint acquisition and (ii) $350.0 million in equal monthly installments over the subsequent 42 months. Amounts billed and amounts paid under the IP Transit Services Agreement were $58.3 million and $29.2 million in the three months ended June 30, 2023, respectively.
Cogent accounted for the transaction as a business combination under ASC Topic 805 Business Combinations ("ASC 805"). Cogent evaluated what elements are part of the business combination and the consideration exchanged to complete the acquisition. Under ASC 805, Cogent has concluded that the $700 million of payments to be made represent consideration received from T-Mobile to complete the acquisition of a distressed business. The $700.0 million IP Transit Services Agreement was recorded in connection with the Sprint acquisition at its discounted present value resulting in a discount of $79.6 million. The discounted amount totaling $620.4 million was included as a component of the gain on bargain purchase. As a result, revenue was not recognized under the IP Transit Services Agreement.
Quarterly Dividend Increase Approved
On August 2, 2023, Cogent's Board approved a regular quarterly dividend of $0.945 per share payable on September 8, 2023 to shareholders of record on August 24, 2023. This third quarter 2023 regular dividend represents an increase of $0.01 per share, or 1.1%, from the second quarter 2023 regular dividend of $0.935 per share and an annual increase of 4.4% from the third quarter 2022 dividend of $0.905 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 indentures and other factors deemed relevant by the Board.
Residual Impact of COVID-19 Pandemic on Corporate Results
Cogent witnessed a deteriorating real estate market in and around the buildings it serves in central business districts in North America, largely attributable to businesses continuing remote work policies instituted during the COVID-19 pandemic. As a result of the rising vacancy levels and falling lease initiations or renewals, Cogent experienced a slowdown in new sales to its corporate customers, which negatively impacted its corporate revenue results. More recently, as the option to fully or partially work from home becomes permanently established at many companies, Cogent's corporate customers are integrating some of the new applications that became part of the remote work environment, which benefits Cogent's corporate business as these customers upgrade their Internet access infrastructure to higher capacity connections. During the three months ended June 30, 2023, Cogent slowly began to see declining vacancy rates and rising office occupancy rates, and to see positive trends in its corporate business. If and when companies eventually return to the buildings in which Cogent operates, Cogent believes it will present an opportunity for increased sales. However, the exact timing and path of these positive trends remains uncertain, and Cogent may continue to see increased corporate customer turnover, fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities, which would negatively impact Cogent's corporate revenue growth.
These and other risks are described in more detail in Cogent's Annual Report on Form 10-K for the year ended December 31, 2022 and in its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2022, March 31, 2023 and June 30, 2023.
Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on August 10, 2023 to discuss Cogent's operating results for the second quarter of 2023 and expectations for full year 2023. 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 227 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 [email protected].
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES | ||||||
Summary of Financial and Operational Results | ||||||
Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | Q2 2023 | |
Metric ($ in 000's, except share | ||||||
On-Net revenue (1) | $112,634 | $111,975 | $113,219 | $114,949 | $116,143 | $127,665 |
% Change from previous Qtr. | 1.7 % | -0.6 % | 1.1 % | 1.5 % | 1.0 % | 9.9 % |
Off-Net revenue (2) | $36,387 | $36,282 | $36,611 | $36,873 | $37,283 | $101,984 |
% Change from previous Qtr. | 0.2 % | -0.3 % | 0.9 % | 0.7 % | 1.1 % | 173.5 % |
Wavelength revenue (3) | - | - | - | - | - | $1,585 |
% Change from previous Qtr. | - | - | - | - | - | NM |
Non-Core revenue (4) | $154 | $193 | $170 | $157 | $162 | $8,572 |
% Change from previous Qtr. | -0.6 % | 25.3 % | -11.9 % | -7.6 % | 3.2 % | NM |
Service revenue – total | $149,175 | $148,450 | $150,000 | $151,979 | $153,588 | $239,806 |
% Change from previous Qtr. | 1.3 % | -0.5 % | 1.0 % | 1.3 % | 1.1 % | 56.1 % |
Constant currency total revenue | 1.7 % | 0.4 % | 2.0 % | 1.3 % | 0.2 % | 55.9 % |
Constant currency total revenue | 2.9 % | 2.7 % | 4.3 % | 5.5 % | 4.0 % | 61.4 % |
Constant currency and excise tax | 2.1 % | 0.6 % | 1.6 % | 1.3 % | 0.1 % | 51.4 % |
Constant currency and excise tax | 3.5 % | 3.6 % | 4.7 % | 5.7 % | 3.7 % | 56.2 % |
Excise Taxes included in service | $3,742 | $3,448 | $4,118 | $4,086 | $4,193 | $11,040 |
% Change from previous Qtr. | -13.7 % | -7.9 % | 19.4 % | -0.8 % | 2.6 % | 163.3 % |
Corporate revenue (7) | $86,116 | $85,177 | $85,495 | $85,783 | $85,627 | $110,998 |
% Change from previous Qtr. | -0.8 % | -1.1 % | 0.4 % | 0.3 % | -0.2 % | 29.6 % |
Net-centric revenue (7) | $63,060 | $63,274 | $64,506 | $66,196 | $67,961 | $87,582 |
% Change from previous Qtr. | 4.4 % | 0.3 % | 1.9 % | 2.6 % | 2.7 % | 28.9 % |
Enterprise revenue (7) | - | - | - | - | - | $41,227 |
% Change from previous Qtr. | - | - | - | - | - | NM |
Network operations expenses (6) | $57,305 | $56,369 | $57,044 | $56,884 | $58,489 | $137,271 |
% Change from previous Qtr. | 1.8 % | -1.6 % | 1.2 % | -0.3 % | 2.8 % | 134.7 % |
GAAP gross profit (8) | $69,038 | $68,865 | $69,883 | $71,444 | $69,790 | $49,793 |
% Change from previous Qtr. | 1.2 % | -0.3 % | 1.5 % | 2.2 % | -2.3 % | -28.7 % |
GAAP gross margin (8) | 46.3 % | 46.4 % | 46.6 % | 47.0 % | 45.4 % | 20.8 % |
Non-GAAP gross profit (5) (9) | $91,870 | $92,081 | $92,956 | $95,095 | $95,099 | $102,535 |
% Change from previous Qtr. | 1.0 % | 0.2 % | 1.0 % | 2.3 % | 0.0 % | 7.8 % |
Non-GAAP gross margin (5) (9) | 61.6 % | 62.0 % | 62.0 % | 62.6 % | 61.9 % | 42.8 % |
Selling, general and | $34,715 | $33,624 | $33,079 | $37,713 | $38,646 | $77,640 |
% Change from previous Qtr. | 3.5 % | -3.1 % | -1.6 % | 14.0 % | 2.5 % | 100.9 % |
Depreciation and amortization | $22,688 | $23,071 | $22,897 | $23,563 | $25,160 | $52,511 |
% Change from previous Qtr. | 0.5 % | 1.7 % | -0.8 % | 2.9 % | 6.8 % | 108.7 % |
Equity-based compensation | $6,056 | $5,907 | $6,211 | $6,264 | $6,581 | $6,249 |
% Change from previous Qtr. | 0.0 % | -2.5 % | 5.1 % | 0.9 % | 5.1 % | -5.0 % |
Operating income (loss) | $28,784 | $29,566 | $28,095 | $27,311 | $24,312 | $(34,604) |
% Change from previous Qtr. | -20.4 % | 2.7 % | -5.0 % | -2.8 % | -11.0 % | NM |
Interest expense (11) | $14,168 | $13,478 | $17,948 | $21,990 | $19,005 | $28,653 |
% Change from previous Qtr. | 3.3 % | -4.9 % | 33.2 % | 22.5 % | -13.6 % | 50.8 % |
Non-cash change in valuation – | $21,271 | $7,510 | $16,923 | $(2,590) | $(1,847) | $1,305 |
Gain on bargain purchase (12) | - | - | - | - | - | $1,155,719 |
Net income (loss) | $1,137 | $11,164 | $(8,007) | $851 | $6,148 | $1,123,863 |
Foreign exchange gains (losses) | $8,014 | $23,547 | $- | $- | $- | $- |
Basic net income (loss) per | $0.02 | $0.24 | $(0.17) | $0.02 | $0.13 | $23.84 |
Diluted net income (loss) per | $0.02 | $0.24 | $(0.17) | $0.02 | $0.13 | $23.65 |
Weighted average common | 46,575,848 | 46,691,142 | 46,736,742 | 46,885,512 | 47,037,091 | 47,137,822 |
% Change from previous Qtr. | 0.3 % | 0.2 % | 0.1 % | 0.3 % | 0.3 % | 0.2 % |
Weighted average common | 46,929,191 | 47,029,446 | 46,736,742 | 47,196,890 | 47,381,226 | 47,526,207 |
% Change from previous Qtr. | -0.1 % | 0.2 % | -0.6 % | 1.0 % | 0.4 % | 0.3 % |
EBITDA (5) | $57,155 | $58,457 | $57,873 | $57,138 | $56,053 | $24,156 |
% Change from previous Qtr. | -0.4 % | 2.3 % | -1.0 % | -1.3 % | -1.9 % | -56.9 % |
EBITDA margin (5) | 38.3 % | 39.4 % | 38.6 % | 37.6 % | 36.5 % | 10.1 % |
Sprint acquisition costs (18) | $- | $- | $2,004 | $244 | $400 | $739 |
Cash payments under IP Transit | $- | |||||
