On November 9, 2023, Cogent Communications Holdings Inc (CCOI, Financial) released its earnings report for the third quarter of 2023, revealing a robust increase in service revenue but a contraction in gross margin. The company's service revenue reached $275.4 million, marking a 14.9% increase from the previous quarter and an 83.6% surge from the same period in 2022. This growth was partially attributed to the acquisition of Sprint's assets, which expanded Cogent's offerings and customer base.
Financial Performance Overview
CCOI's on-net service revenue, derived from customers in buildings directly connected to Cogent’s network, rose modestly by 1.9% quarter-over-quarter to $130.0 million. Off-net revenue, from customers in buildings connected via other carriers, saw a more dramatic increase of 28.4% quarter-over-quarter, reaching $131.0 million. The recent Sprint acquisition contributed to new wavelength services revenue, which totaled $3.0 million for the quarter.
Despite the revenue growth, CCOI's GAAP gross profit experienced a significant decline, dropping by 78.4% year-over-year to $15.1 million, with a GAAP gross margin of just 5.5%. The non-GAAP gross profit, which excludes certain expenses, showed a modest year-over-year increase of 9.9% to $102.2 million, although it decreased slightly by 0.3% from the previous quarter.
Net cash used in operating activities was reported at $52.4 million for the quarter, a stark contrast to the $82.7 million provided in the previous quarter. EBITDA also decreased by 24.7% year-over-year to $43.6 million, although it increased by 80.4% from the second quarter of 2023.
Dividend and Shareholder Returns
CCOI's Board approved a regular quarterly dividend of $0.955 per share, payable on December 8, 2023, to shareholders of record on November 24, 2023. This represents a slight increase from the previous quarter's dividend and a 4.4% increase from the fourth quarter of 2022.
Operational Highlights and Challenges
The company's total customer connections increased by 43.3% year-over-year but decreased by 8.9% from the previous quarter. The number of on-net buildings increased by 131 from the previous year, indicating continued expansion. However, CCOI noted challenges in the corporate sector, with a slowdown in new sales due to the lingering effects of the COVID-19 pandemic on real estate markets and remote work policies.
Looking ahead, Cogent Communications remains cautious about the pace of recovery in corporate revenue growth, as the impact of the pandemic on office occupancy and leasing activity continues to be felt in certain areas.
For a more detailed analysis of Cogent Communications Holdings Inc's financial results, including financial tables and the full earnings release, please visit Cogent's website.
Investors are encouraged to review Cogent's filings with the Securities and Exchange Commission for a more comprehensive understanding of the company's financial performance and the risks it faces.
Explore the complete 8-K earnings release (here) from Cogent Communications Holdings Inc for further details.
