Cogent Communications Reports Third Quarter 2023 Results and Increases its Regular Quarterly Dividend on its Common Stock

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Metric ($ in 000’s, except share,

per share, customer connections

and network related data) –

unaudited

On-Net revenue

$112,634

$111,975

$113,219

$114,949

$116,143

$127,665

$130,049

 % Change from previous Qtr.

1.7 %

-0.6 %

1.1 %

1.5 %

1.0 %

9.9 %

1.9 %

Off-Net revenue

$36,387

$36,282

$36,611

$36,873

$37,283

$101,984

$130,970

 % Change from previous Qtr.

0.2 %

-0.3 %

0.9 %

0.7 %

1.1 %

173.5 %

28.4 %

Wavelength revenue (1)

–

–

–

–

–

$1,585

$2,992

 % Change from previous Qtr.

–

–

–

–

–

NM   

88.8 %

Non-Core revenue  (2) (17)

$154

$193

$170

$157

$162

$8,572

$11,417

 % Change from previous Qtr.

-0.6 %

25.3 %

-11.9 %

-7.6 %

3.2 %

NM   

33.2 %

Service revenue – total

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

$275,429

 % Change from previous Qtr.

1.3 %

-0.5 %

1.0 %

1.3 %

1.1 %

56.1 %

14.9 %

Constant currency total revenue

quarterly growth rate –

sequential quarters (3)

1.7 %

0.4 %

2.0 %

1.3 %

0.2 %

55.9 %

14.9 %

Constant currency total revenue

quarterly growth rate – year over

year quarters (3)

2.9 %

2.7 %

4.3 %

5.5 %

4.0 %

61.4 %

82.4 %

Constant currency and excise tax

impact on total revenue quarterly

growth rate – sequential quarters

(3)

2.1 %

0.6 %

1.6 %

1.3 %

0.1 %

51.4 %

13.4 %

Constant currency and excise tax

impact on total revenue quarterly

growth rate – year over year

quarters (3)

3.5 %

3.6 %

4.7 %

5.7 %

3.7 %

56.2 %

75.5 %

Excise Taxes included in service

revenue (4)

$3,742

$3,448

$4,118

$4,086

$4,193

$11,040

$14,557

 % Change from previous Qtr.

-13.7 %

-7.9 %

19.4 %

-0.8 %

2.6 %

163.3 %

31.9 %

Corporate revenue (17)

$86,116

$85,177

$85,495

$85,783

$85,627

$110,998

$120,484

 % Change from previous Qtr.

-0.8 %

-1.1 %

0.4 %

0.3 %

-0.2 %

29.6 %

8.5 %

Net-centric revenue (16)

$63,060

$63,274

$64,506

$66,196

$67,961

$87,582

$94,936

  % Change from previous Qtr.

4.4 %

0.3 %

1.9 %

2.6 %

2.7 %

28.9 %

8.4 %

Enterprise revenue (5)

–

–

–

–

–

$41,227

$60,009

  % Change from previous Qtr.

–

–

–

–

–

NM   

45.6 %

Network operations expenses (4)

$57,305

$56,369

$57,044

$56,884

$58,489

$137,271

$173,224

 % Change from previous Qtr.

1.8 %

-1.6 %

1.2 %

-0.3 %

2.8 %

134.7 %

26.2 %

GAAP gross profit (6)

$69,038

$68,865

$69,883

$71,444

$69,790

$49,793

$15,101

 % Change from previous Qtr.

1.2 %

-0.3 %

1.5 %

2.2 %

-2.3 %

-28.7 %

-69.7 %

GAAP gross margin (6)

46.3 %

46.4 %

46.6 %

47.0 %

45.4 %

20.8 %

5.5 %

Non-GAAP gross profit (3) (7)

$91,870

$92,081

$92,956

$95,095

$95,099

$102,535

$102,205

 % Change from previous Qtr.

1.0 %

0.2 %

1.0 %

2.3 %

0.0 %

7.8 %

-0.3 %

Non-GAAP gross margin (3) (7)

61.6 %

62.0 %

62.0 %

62.6 %

61.9 %

42.8 %

37.1 %

Selling, general and

administrative expenses (8)

$34,715

$33,624

$33,079

$37,713

$38,646

$77,640

$58,267

 % Change from previous Qtr.

3.5 %

-3.1 %

-1.6 %

14.0 %

2.5 %

100.9 %

-25.0 %

Depreciation and amortization

expense

$22,688

$23,071

$22,897

$23,563

$25,160

$52,511

$86,734

 % Change from previous Qtr.

0.5 %

1.7 %

-0.8 %

2.9 %

6.8 %

108.7 %

65.2 %

Equity-based compensation

expense

$6,056

$5,907

$6,211

$6,264

$6,581

$6,249

$7,411

 % Change from previous Qtr.

0.0 %

-2.5 %

5.1 %

0.9 %

5.1 %

-5.0 %

18.6 %

Operating income (loss)

$28,784

$29,566

$28,095

$27,311

$24,312

$(34,604)

$(50,558)

 % Change from previous Qtr.

-20.4 %

2.7 %

-5.0 %

-2.8 %

-11.0 %

NM   

46.1 %

Interest expense (9)

$14,168

$13,478

$17,948

$21,990

$19,005

$28,653

$24,198

 % Change from previous Qtr.

3.3 %

-4.9 %

33.2 %

22.5 %

-13.6 %

50.8 %

-15.5 %

Non-cash change in valuation –

Swap Agreement (9)

$21,271

$7,510

$16,923

$(2,590)

$(1,847)

$1,305

$4,825

Gain (loss) on bargain purchase

(10)

–

–

–

–

–

$1,155,719

$(3,332)

Net income (loss)

$1,137

$11,164

$(8,007)

$851

$6,148

$1,123,863

$(56,723)

Foreign exchange gains on 2024

Euro Notes

$8,014

$23,547

$-

$-

$-

$-

$-

Basic net income (loss) per

common share

$0.02

$0.24

$(0.17)

$0.02

$0.13

$23.84

$(1.20)

Diluted net income (loss) per

common share

$0.02

$0.24

$(0.17)

$0.02

$0.13

$23.65

$(1.20)

Weighted average common

shares – basic 

46,575,848

46,691,142

46,736,742

46,885,512

47,037,091

47,137,822

47,227,338

 % Change from previous Qtr.

0.3 %

0.2 %

0.1 %

0.3 %

0.3 %

0.2 %

0.2 %

Weighted average common

shares – diluted

46,929,191

47,029,446

46,736,742

47,196,890

47,381,226

47,526,207

47,227,338

 % Change from previous Qtr.

-0.1 %

0.2 %

-0.6 %

1.0 %

0.4 %

0.3 %

-0.6 %

EBITDA (3)

$57,155

$58,457

$57,873

$57,138

$56,053

$24,156

$43,587

 % Change from previous Qtr.

-0.4 %

2.3 %

-1.0 %

-1.3 %

-1.9 %

-56.9 %

80.4 %

EBITDA margin (3)

38.3 %

39.4 %

38.6 %

37.6 %

36.5 %

10.1 %

15.8 %

Sprint acquisition costs (15)

$-

$-

$2,004

$244

$400

$739

$351

Cash payments under IP Transit

Services Agreement (11)

$-

$-

$-

$-

$-

$29,167

$87,500

EBITDA, as adjusted for Sprint

acquisition costs and cash

payments under IP Transit

Services Agreement (3) (11)

$57,155

$58,457

$59,877

$57,382

$56,453

$54,062

$131,438

 % Change from previous Qtr.

-0.4 %

2.3 %

2.4 %

-4.2 %

-1.6 %

-4.2 %

143.1 %

EBITDA, as adjusted for Sprint

acquisition costs and cash

payments under IP Transit

Services Agreement, margin (3)

(11)

38.3 %

39.4 %

39.9 %

37.8 %

36.8 %

22.5 %

47.7 %

Net cash provided by (used in)

operating activities

$49,411

$34,403

$53,570

$36,323

$35,821

$82,654

$(52,433)

  % Change from previous Qtr.

37.3 %

-30.4 %

55.7 %

-32.2 %

-1.4 %

130.7 %

-163.4 %

Capital expenditures

$18,121

$17,288

$23,971

$19,591

$23,204

$37,449

$25,373

 % Change from previous Qtr.

18.5 %

-4.6 %

38.7 %

-18.3 %

18.4 %

61.4 %

-32.2 %

Principal payments of capital

(finance) lease obligations

$5,863

$5,236

$9,859

$24,514

$9,450

$7,797

$41,302

 % Change from previous Qtr.

-5.9 %

-10.7 %

88.3 %

148.6 %

-61.5 %

-17.5 %

429.7 %

Dividends paid

$41,298

$41,855

$42,729

$43,975

$45,311

$44,907

$45,136

Gross Leverage Ratio (3) (11)

4.94

5.22

5.32

5.39

5.47

5.63

4.79

Net Leverage Ratio (3) (11)

3.58

3.70

3.93

4.20

4.46

4.56

4.24

Customer Connections – end of

period (16) (17)

On-Net customer connections

81,627

82,277

82,614

82,620

83,268

92,846

89,623

 % Change from previous Qtr.

1.1 %

0.8 %

0.4 %

0.0 %

0.8 %

11.5 %

-3.5 %

Off-Net customer connections

12,922

13,160

13,359

13,531

13,785

38,762

36,766

 % Change from previous Qtr.

2.0 %

1.8 %

1.5 %

1.3 %

1.9 %

181.2 %

-5.1 %

Wavelength customer

connections (1) 

–

–

–

–

–

414

449

% Change from previous Qtr.

–

–

–

–

–

NM   

8.5 %

Non-Core customer connections

(2) (17) 

335

340

348

363

374

19,408

11,187

 % Change from previous Qtr.

0.3 %

1.5 %

2.4 %

4.3 %

3.0 %

NM   

-42.4 %

Total customer connections (16)

(17)

94,884

95,777

96,321

96,514

97,427

151,430

138,025

 % Change from previous Qtr.

1.2 %

0.9 %

0.6 %

0.2 %

0.9 %

55.4 %

-8.9 %

Corporate customer connections

(17)

45,393

45,103

45,176

44,844

44,570

61,284

55,045

  % Change from previous Qtr.

-0.1 %

-0.6 %

0.2 %

-0.7 %

-0.6 %

37.5 %

-10.2 %

Net-centric customer

connections (16)

49,491

50,674

51,145

51,670

52,857

66,711

62,291

  % Change from previous Qtr.

2.5 %

2.4 %

0.9 %

1.0 %

2.3 %

26.2 %

-6.6 %

Enterprise customer

connections (5)

–

–

–

–

–

23,435

20,689

  % Change from previous Qtr.

–

–

–

–

–

NM   

-11.7 %

On-Net Buildings – end of period

Multi-Tenant office buildings

1,824

1,826

1,832

1,837

1,841

1,844

1,860

Carrier neutral data center

buildings 

1,187

1,216

1,240

1,264

1,294

1,327

1,337

Cogent data centers

54

53

54

54

55

56

60

Total on-net buildings

3,065

3,095

3,126

3,155

3,190

3,227

3,257

Total carrier neutral data center

nodes 

1,383

1,409

1,433

1,458

1,490

1,526

1,528

Square feet – multi-tenant office

buildings – on-net

992,336,259

993,590,499

995,522,774

1,000,044,418

1,001,382,577

1,001,491,002

1,006,523,795

Total Technical Buildings Owned

(12)

–

–

–

–

–

482

482

Square feet – Technical

Buildings Owned (12)

–

–

–

–

–

1,603,569

1,603,569

Network  – end of period (13)

Intercity route miles – Leased

(13)

60,869

61,024

61,065

61,292

61,300

72,694

72,694

Metro route miles – Leased  (13)

16,614

16,822

17,477

17,616

17,826

22,556

22,128

Metro fiber miles – Leased (13)

40,113

40,529

42,212

42,491

42,863

75,577

69,943

Intercity route miles – Owned

(13)

2,748

2,748

2,748

2,748

2,748

21,883

21,883

Metro route miles – Owned (13)

445

445

445

445

445

1,704

1,704

Connected networks – AS’s

7,625

7,685

7,766

7,792

7,864

7,891

7,971

Headcount – end of period (14)

Sales force – quota bearing  (14)

479

477

522

548

562

647

637

Sales force – total (14)

620

619

669

698

714

841

833

Total employees (14)

987

988

1,041

1,076

1,107

2,020

1,990

Sales rep productivity – units per

full time equivalent sales rep

(“FTE”) per month (16)

4.7

4.9

4.6

3.8

4.0

9.2

3.6

FTE – sales reps

453

449

465

503

539

567

621

(1) In connection with the acquisition of the Wireline Business, Cogent began to provide optical wavelength services and optical transport services over its fiber network. 

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

(3) See Schedules of Non-GAAP measures below for definitions and reconciliations to GAAP measures.

(4) Network operations expense excludes equity-based compensation expense of $144, $145, $176, $88, $149, $231 and $370 in the three month periods ended March 31, 2022 through September 30, 2023, respectively.  Network operations expense includes excise taxes, including Universal Service Fund fees, of $3,742, $3,448, $4,118, $4,086, $4,193, $11,040 and $14,557 in the three month periods ended March 31, 2022 through September 30, 2023, respectively. 

(5) In connection with the acquisition of the Wireline Business, Cogent classified $12.9 million of the Wireline Business monthly recurring revenue and 17,823 customer connections as corporate revenue and corporate customer connections, respectively, $6.5 million of monthly recurring revenue and 5,711 customer connections as net-centric revenue and customer connections, respectively, and $20.1 million of monthly recurring revenue and 23,209 customer connections as enterprise revenue and enterprise customer connections, respectively. Conversely, Cogent reclassified $0.3 million of monthly recurring revenue and 387 customer connections of legacy Cogent monthly recurring revenue to enterprise revenue and enterprise customer connections, respectively ($0.3 million of corporate monthly recurring revenue and 363 corporate customer connections and $0.02 million of net-centric monthly recurring revenue and 24 net-centric customer connections).

(6) 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.

(7) 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 measures to provide investors. Management uses them to measure the margin available to the company after network service costs, in essence a measure of the efficiency of the Company’s network.

(8) Excludes equity-based compensation expense of $5,912, $5,762, $6,035, $6,176, $6,432, $6,018 and $7,041 in the three month periods ended March 31, 2022 through September 30, 2023, respectively and excludes $2,004, $244, $400, $739 and $351 of Sprint acquisition costs for the three month periods ended September 30, 2022, December 31, 2022, March 31, 2023 June 30, 2023 and September 30, 2023, respectively. 

(9) As of September 30, 2023, Cogent was party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with its Senior Secured 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”) so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR. Interest expense includes $(1.2 million), $3.3 million and $9.5 million of interest (income) expense for the three month periods ended June 30, 2022, December 31, 2022 and June 30, 2023, respectively related to the  Swap Agreement.

(10) 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

$561,393

Total net consideration to be received from Seller, net of discounts

590,993

Gain on bargain purchase

$1,152,386

(11) Includes cash payments under the IP Transit Services Agreement, as discussed above, of $29.2 million 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. Includes cash payments under the IP Transit Services Agreement, as discussed above, of $87.5 million for the three months ended September 30, 2023. Amounts billed and amounts paid under the IP Transit Services Agreement were $87.5 million and $87.5 million in the three months ended September 30, 2023, respectively.

(12) In connection with the acquisition of the Wireline Business, Cogent acquired 482 technical buildings.  Four of those buildings have been converted to a Cogent Data Centers.

(13) As of June 30, 2023, leased intercity route miles of dark fiber include 11,376 former Sprint route miles and 61,318 Cogent route miles.  As of June 30, 2023, leased metro route miles of dark fiber include 4,527 former Sprint route miles and 18,029 Cogent route miles.  As of June 30, 2023, leased metro fiber miles of dark fiber include 32,346 former Sprint fiber miles and 43,231 Cogent fiber miles. As of September 30, 2023, leased intercity route miles of dark fiber include 11,376 former Sprint route miles and 61,318 Cogent route miles.  As of September 30, 2023, leased metro route miles of dark fiber include 4,047 former Sprint route miles and 18,081 Cogent route miles.  As of September 30, 2023, leased metro fiber miles of dark fiber include 26,602 former Sprint fiber miles and 43,341 Cogent fiber miles.   In connection with Cogent’s Sprint acquisition, Cogent acquired 19,135 owned intercity route miles of dark fiber and 1,259 owned metro route miles of dark fiber.

(14) In connection with the acquisition of the Wireline Business  Cogent hired 942 total employees, including 75 quota bearing sales employees and 114 sales employees.

(15) In connection with the acquisition of the Wireline Business and negotiation of the related purchase agreement, the Company incurred $2.2 million of professional fees in the year ended December 31, 2022, $0.4 million in the three months ended March 31, 2023, $0.7 million in the three months ended June 30, 2023 and $0.4 million in the three months ended September 30, 2023.

(16) Sales rep productivity for Q2 2023 includes 9,084 net-centric customer connections from a commercial services agreement (“CSA”) with TMUSA entered into in May 2023.  Net-centric revenue under the CSA was $7.3 million for the three months ended June 30, 2023 and was $8.0 million for the three months ended September 30, 2023. Net-centric customer connections under the CSA were 8,028 as of June 30, 2023 and were 4,661 as of September 30, 2023.

(17) As of June 30, 2023 total non-core customer connections included 8,486 Session Initiation Protocol (“SIP”) customer connections. This non-core corporate product was discontinued. There were no SIP, non-core customer connections as of September 30, 2023.

NM  Not meaningful

Q1
2022

Q2
2022

Q3
2022

Q4

2022

Q1

2023

Q2

2023

Q3

2023

($ in 000’s) – unaudited

Net cash provided by (used in)
operating activities

$49,411

$34,403

$53,570

$36,323

$35,821

$82,654

$(52,433)

Changes in operating assets and
liabilities

$(6,294)

$5,108

$(13,017)

$4,152

$1,435

$(90,373)

$51,064

Cash interest expense and income tax
expense

14,038

18,946

17,320

16,663

18,797

31,875

44,956

EBITDA

$57,155

$58,457

$57,873

$57,138

$56,053

$24,156

$43,587

PLUS: Sprint acquisition costs

–

–

$2,004

$244

$400

$739

$351

PLUS: Cash payments made to the

Company under IP Transit Services

Agreement

–

–

–

–

–

29,167

87,500

EBITDA, as adjusted for Sprint

acquisition costs and cash

payments made to the Company

under IP Transit Services

Agreement

$57,155

$58,457

$59,877

$57,382

$56,453

$54,062

$131,438

EBITDA margin

38.3 %

39.4 %

38.6 %

37.6 %

36.5 %

10.1 %

15.8 %

EBITDA, as adjusted for Sprint

acquisition costs and cash

payments made to the Company

under IP Transit Services

Agreement, margin

38.3 %

39.4 %

39.9 %

37.8 %

36.8 %

22.5 %

47.7 %

($ in 000’s) – unaudited

Q1
2022

Q2
2022

Q3
2022

Q4

2022

Q1

2023

Q2

2023

Q3

2023

Service revenue, as reported – current
period

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

$275,429

Impact of foreign currencies on service
revenue

516

1,350

1,486

(92)

(1,292)

(417)

10

Service revenue – as adjusted for
currency impact (1)

$149,691

$149,800

$151,486

$151,887

$152,296

$239,389

$275,439

Service revenue, as reported – prior
sequential period

$147,208

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

Constant currency revenue increase

$2,483

$625

$3,036

$1,887

$317

$85,801

$35,633

Constant currency revenue percent
increase

1.7 %

0.4 %

2.0 %

1.3 %

0.2 %

55.9 %

14.9 %

(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.

($ in 000’s) – unaudited

Q1
2022

Q2
2022

Q3
2022

Q4

2022

Q1

2023

Q2

2023

Q3

2023

Service revenue, as reported – current
period

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

$275,429

Impact of foreign currencies on service
revenue

1,914

3,417

4,246

3,371

1,553

(277)

(1,768)

Service revenue – as adjusted for
currency impact (2)

$151,089

$151,867

$154,246

$155,350

$155,141

$239,529

$273,661

Service revenue, as reported – prior
year period

$146,777

$147,879

$147,927

147,208

149,175

148,450

$150,000

Constant currency revenue increase

$4,312

$3,988

$6,319

8,142

5,966

91,079

$123,661

Constant currency percent revenue
increase

2.9 %

2.7 %

4.3 %

5.5 %

4.0 %

61.4 %

82.4 %

(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.

($ in 000’s) – unaudited

Q1
2022

Q2
2022

Q3
2022

Q4

2022

Q1

2023

Q2

2023

Q3

2023

Service revenue, as reported – current
period

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

$275,429

Impact of foreign currencies on service
revenue

516

1,350

1,486

(92)

(1,292)

(417)

10

Impact of excise taxes on service
revenue

594

294

(670)

32

(107)

(6,847)

(3,517)

Service revenue – as adjusted for 
currency and excise taxes impact (3)

$150,285

$150,094

$150,816

$151,919

$152,189

$232,542

$271,922

Service revenue, as reported – prior
sequential period

$147,208

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

Constant currency and excise taxes
revenue increase

$3,077

$919

$2,366

$1,919

$210

$78,954

$32,116

Constant currency and excise tax
revenue percent increase

2.1 %

0.6 %

1.6 %

1.3 %

0.1 %

51.4 %

13.4 %

(3)

Service revenue, as adjusted for currency impact and the impact of excise taxes, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the prior sequential period and adjusting for the changes in excise taxes recorded as revenue between the periods presented. The Company believes that disclosing quarterly sequential revenue growth without the impact of foreign currencies and excise taxes on service revenue is a useful measure of sequential revenue growth. Service revenue, as adjusted for the impact of foreign currency and excise taxes, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

($ in 000’s) – unaudited

Q1
2022

Q2
2022

Q3
2022

Q4

2022

Q1

2023

Q2

2023

Q3

2023

Service revenue, as reported –
current period

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

$275,429

Impact of foreign currencies on
service revenue

1,914

3,417

4,246

3,371

1,553

(277)

(1,768)

Impact of excise taxes on service
revenue

786

1,363

695

250

(451)

(7,592)

(10,439)

Service revenue – as adjusted
for currency and excise taxes impact
(4)

$151,875

$153,230

$154,941

$155,600

$154,690

$231,937

$263,222

Service revenue, as reported –
prior year period

$146,777

$147,879

$147,927

$147,208

$149,175

$148,450

$150,000

Constant currency and excise
taxes revenue increase

$5,098

$5,351

$7,014

$8,392

$5,515

$83,487

$113,222

Constant currency and excise tax
percent revenue increase

3.5 %

3.6 %

4.7 %

5.7 %

3.7 %

56.2 %

75.5 %

(4)

Service revenue, as adjusted for currency impact and the impact of excise taxes, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the prior year period and adjusting for the changes in excise taxes recorded as revenue between the periods presented. The Company believes that disclosing quarterly sequential revenue growth without the impact of foreign currencies and excise taxes on service revenue is a useful measure of sequential revenue growth. Service revenue, as adjusted for the impact of foreign currency and excise taxes, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

($ in 000’s) – unaudited

Service revenue total

$149,175

$148,450

$150,000

$151,979

$153,588

$239,806

$275,429

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

80,137

79,585

80,117

80,535

83,798

190,013

260,328

GAAP Gross Profit (1)

$69,038

$68,865

$69,883

$71,444

$69,790

$49,793

$15,101

Plus – Equity-based compensation – 
network operations expense

144

145

176

88

149

231

370

Plus – Depreciation and amortization
expense

22,688

23,071

22,897

$23,563

$25,160

$52,511

$86,734

Non-GAAP Gross Profit (2)

$91,870

$92,081

$92,956

$95,095

$95,099

$102,535

$102,205

GAAP Gross Margin (1)

46.3 %

46.4 %

46.6 %

47.0 %

45.4 %

20.8 %

5.5 %

Non-GAAP Gross Margin (2)

61.6 %

62.0 %

62.0 %

62.6 %

61.9 %

42.8 %

37.1 %

(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 measures for investors, as they are measures 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.

As of September 30,
2023

As of June 30,
2023

Cash and cash equivalents & restricted cash

$166,072

$243,953

Debt

Capital (finance) leases – current portion

63,236

20,114

Capital (finance) leases – long term

419,941

311,405

Senior Secured 2026 Notes

500,000

500,000

Senior Unsecured 2027 Notes

450,000

450,000

Total debt

1,433,177

1,281,519

Total net debt

1,267,105

1,037,566

Trailing 12 months EBITDA, as adjusted for Sprint acquisition costs and
cash payments from the IP Transit Services Agreement

298,984

227,774

Gross leverage ratio

4.79

5.63

Net leverage ratio

4.24

4.56

COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

(IN THOUSANDS, EXCEPT SHARE DATA)

September 30, 

2023

December 31, 

2022

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

109,661

$

223,783

Restricted cash

56,411

52,129

Accounts receivable, net of allowance for credit losses of $4,158 and $2,303, respectively

87,170

44,123

Due from T-Mobile, IP Transit Services Agreement, current portion, net of discount of $29,029

237,637

—

Due from T-Mobile, Transition Services Agreement

16,831

—

Prepaid expenses and other current assets

73,541

45,878

Total current assets

581,251

365,913

Property and equipment:

Property and equipment

2,946,723

1,714,906

Accumulated depreciation and amortization

(1,329,114)

(1,170,476)

Total property and equipment, net

1,617,609

544,430

Right-of-use leased assets

364,397

81,601

Intangible assets, net

54,362

—

Deposits and other assets

22,143

18,238

Due from T-Mobile, IP Transit Services Agreement, net of discount of $32,613

284,054

—

Due from T-Mobile, Purchase Agreement, net of discount of $14,444

37,865

—

Total assets

$

2,961,681

$

1,010,182

Liabilities and stockholders’ (deficit) equity

Current liabilities:

Accounts payable

$

29,367

$

27,208

Accrued and other current liabilities

120,031

63,889

Due to T-Mobile – Transition Services Agreement

69,629

—

Due to T-Mobile – Purchase Agreement

4,981

—

Current maturities, operating lease liabilities

68,418

12,005

Finance lease obligations, current maturities

63,236

17,182

Total current liabilities

355,662

120,284

Senior secured 2026 notes, net of unamortized debt costs of $710 and $905, respectively, and discount of
   $945 and $1,203, respectively

498,345

497,892

Senior unsecured 2027 notes, net of unamortized debt costs of $1,001 and $1,173, respectively, and
   discount of $2,095 and $2,456, respectively

446,904

446,371

Operating lease liabilities, net of current maturities

330,993

94,587

Finance lease obligations, net of current maturities

419,941

287,044

Deferred income tax liabilities

388,273

—

Other long-term liabilities

79,435

82,636

Total liabilities

2,519,553

1,528,814

Commitments and contingencies:

Stockholders’ equity (deficit):

Common stock, $0.001 par value; 75,000,000 shares authorized; 48,612,382 and 48,013,330 shares issued and
   outstanding, respectively

49

48

Additional paid-in capital

598,494

575,064

Accumulated other comprehensive loss

(19,761)

(19,156)

Accumulated deficit

(136,654)

(1,074,588)

Total stockholders’ equity (deficit)

442,128

(518,632)

Total liabilities and stockholders’ equity (deficit)

$

2,961,681

$

1,010,182

Three Months Ended

September 30, 2023

Three Months Ended

September 30, 2022

(Unaudited)

(Unaudited)

Service revenue

$

275,429

$

150,000

Operating expenses:

Network operations (including $370 and $176 of equity-based compensation expense, respectively,
   exclusive of depreciation and amortization shown separately below)

173,594

57,220

Selling, general, and administrative (including $7,041 and $6,035 of equity-based compensation
   expense, respectively)

65,308

39,114

Acquisition costs – Sprint Wireline Business

351

2,004

Depreciation and amortization

86,734

22,897

Total operating expenses

325,987

121,235

Loss on lease transactions

—

(670)

Operating (loss) income

(50,558)

28,095

Interest expense

(24,198)

(17,948)

Loss on bargain purchase – Sprint Wireline Business

(3,332)

—

Change in valuation – interest rate swap agreement

(4,825)

(16,923)

Interest income – IP Transit Services Agreement

10,299

—

Interest income – Purchase Agreement

664

—

Interest income and other, net

1,604

(262)

Income before income taxes

(70,346)

(7,038)

Income tax benefit (expense)

13,623

(969)

Net loss

$

(56,723)

$

(8,007)

Comprehensive loss:

Net loss

$

(56,723)

$

(8,007)

Foreign currency translation adjustment

(4,134)

(7,752)

Comprehensive loss

$

(60,857)

$

(15,759)

Net loss per common share:

Basic net loss per common share

$

(1.20)

$

(0.17)

Diluted net loss per common share

$

(1.20)

$

(0.17)

Dividends declared per common share

$

0.945

$

0.905

Weighted-average common shares – basic

47,227,338

46,736,742

Weighted-average common shares – diluted

47,227,338

46,736,742

COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Nine Months Ended

September 30, 2023

Nine Months Ended

September 30, 2022

(Unaudited)

(Unaudited)

Service revenue

$

668,822

$

447,625

Operating expenses:

Network operations (including $750 and $465 of equity-based compensation expense, respectively,
   exclusive of depreciation and amortization shown separately below)

369,734

171,183

Selling, general, and administrative (including $19,491 and $17,709 of equity-based compensation
   expense, respectively)

194,046

119,129

Acquisition costs – Sprint Wireline Business

1,490

2,004

Depreciation and amortization

164,403

68,659

Total operating expenses

729,673

360,975

Gains on lease terminations

—

(210)

Operating (loss) income

(60,851)

86,440

Interest expense

(71,855)

(45,594)

Gain on bargain purchase – Sprint Wireline Business

1,152,386

—

Change in valuation – interest rate swap agreement

(4,283)

(45,703)

Unrealized foreign exchange gain on 2024 Euro Notes

—

31,561

Loss on debt extinguishment and redemption- 2024 Euro Notes

—

(11,885)

Interest income – IP Transit Services Agreement

17,968

—

Interest income – Purchase Agreement

1,170

—

Interest income and other, net

5,154

(462)

Income before income taxes

1,039,689

14,357

Income tax benefit (expense)

33,599

(10,063)

Net income

$

1,073,288

$

4,294

Comprehensive income (loss):

Net income

$

1,073,288

$

4,294

Foreign currency translation adjustment

(605)

(17,410)

Comprehensive income (loss)

$

1,072,683

$

(13,116)

Net income per common share:

Basic net income per common share

$

22.72

$

0.09

Diluted net income per common share

$

22.54

$

0.09

Dividends declared per common share

$

2.805

$

2.640

Weighted-average common shares – basic

47,234,025

46,759,632

Weighted-average common shares – diluted

47,624,709

47,097,580

Three Months Ended

September 30, 2023

Three Months Ended

September 30, 2022

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net loss

$

(56,723)

$

(8,007)

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

Depreciation and amortization

86,734

22,897

Amortization of debt discount and premium

334

315

Amortization of discounts, due from T-Mobile, IP Transit Services & Purchase Agreements

(10,963)

—

Equity-based compensation expense (net of amounts capitalized)

7,411

6,211

Loss on bargain purchase – Sprint Wireline Business

3,332

—

Gains – equipment transactions and other, net

354

2,223

Deferred income taxes

(36,319)

1,544

Changes in operating assets and liabilities:

Accounts receivable

1,671

426

Prepaid expenses and other current assets

9,377

(4,254)

Change in valuation – interest rate swap agreement

4,825

16,923

Due to T-Mobile – Transition Services Agreement

9,530

—

Due from T-Mobile – Transition Services Agreement

(9,816)

—

Unfavorable lease liabilities

(9,705)

—

Accounts payable, accrued liabilities and other long-term liabilities

(52,165)

14,910

Deposits and other assets

(310)

382

Net cash (used in) provided by operating activities

(52,433)

53,570

Cash flows from investing activities:

Cash receipts – IP Transit Agreement – T-Mobile

87,500

—

Purchases of property and equipment

(25,373)

(23,971)

Net cash provided by (used in) investing activities

62,127

(23,971)

Cash flows from financing activities:

Dividends paid

(45,136)

(42,729)

Proceeds from exercises of stock options

402

92

Principal payments of finance lease obligations

(41,302)

(9,859)

Net cash used in financing activities

(86,036)

(52,496)

Effect of exchange rates changes on cash

(1,539)

(3,286)

Net decrease in cash, cash equivalents and restricted cash

(77,881)

(26,183)

Cash, cash equivalents and restricted cash, beginning of period

243,953

349,847

Cash, cash equivalents and restricted cash, end of period

$

166,072

$

323,664

COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022

(IN THOUSANDS)

Nine Months Ended

September 30, 2023

Nine Months Ended

September 30, 2022

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

1,073,288

$

4,294

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

Depreciation and amortization

164,403

68,659

Amortization of debt discount and premium

986

1,144

Amortization of discounts, due from T-Mobile, IP Transit Services & Purchase Agreements

(19,138)

—

Equity-based compensation expense (net of amounts capitalized)

20,241

18,174

Gain on bargain purchase – Sprint Wireline Business

(1,152,386)

—

Gains – equipment transactions and other, net

(277)

3,531

Loss on debt extinguishment and redemption – 2024 Euro Notes

—

11,885

Unrealized foreign currency exchange gain on 2024 Euro Notes

—

(31,561)

Deferred income taxes

(63,509)

4,682

Changes in operating assets and liabilities:

Accounts receivable

(3,247)

(3,103)

Prepaid expenses and other current assets

(4,763)

(9,404)

Change in valuation – interest rate swap agreement

4,283

45,703

Due to T-Mobile – Transition Services Agreement

69,629

—

Due from T-Mobile – Transition Services Agreement

(16,831)

—

Unfavorable lease liabilities

(16,174)

—

Accounts payable, accrued liabilities and other long-term liabilities

9,715

23,144

Deposits and other assets

(177)

236

Net cash provided by operating activities

66,043

137,384

Cash flows from investing activities:

Cash receipts – IP Transit Agreement – T-Mobile