Exhibit 99.1

 

FOR IMMEDIATE RELEASE

 

Cogent Contacts:
For Public Relations:		For Investor Relations:
Alexandra Gekas		John Chang
+ 1 (202) 295-4336		+ 1 (202) 295-4212
agekas@cogentco.com		investor.relations@cogentco.com

 

Cogent Communications Reports Second Quarter 2016 Results
and Increases Regular Quarterly Dividend on Common Stock

 

Financial and Business Highlights

 

·                  Cogent approves a 2.7% increase of its regular quarterly dividend to $0.38 per common share to be paid on September 9, 2016 to shareholders of record on August 19, 2016

·                  Cogent’s gross leverage ratio declines to 3.94 for Q2 2016 from 4.39 for Q1 2016

·                  Service revenue for Q2 2016 increased by 1.5% from Q1 2016 to $110.0 million

·                  Service revenue for Q2 2016 increased by 11.3% from Q2 2015

·                  EBITDA, as adjusted, for Q2 2016 increased by 10.6% from Q1 2016 to $39.4 million

·                  EBITDA, as adjusted, for Q2 2016 increased by 25.9% from Q2 2015

·                  EBITDA, as adjusted, margin for Q2 2016 increased to 35.8% from 32.9% for Q1 2016 and 31.7% for Q2 2015

·                  There were 57,563 customer connections on the Cogent network at the end of Q2 2016 — an increase of 17.7% from the end of Q2 2015 and an increase of 4.0% from the end of Q1 2016

 

[WASHINGTON, D.C. August 4, 2016] Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $110.0 million for the three months ended June 30, 2016, an increase of 11.3% from $98.8 million for the three months ended June 30, 2015 and an increase of 1.5% from $108.3 million for the three months ended March 31, 2016.  Foreign exchange positively impacted service revenue from Q1 2016 to Q2 2016 by $0.7 million and positively impacted service revenue growth from Q2 2015 to Q2 2016 by $0.2 million.  On a constant currency basis, service revenue grew by 11.1% from Q2 2015 to Q2 2016 and grew by 0.9% from Q1 2016 to Q2 2016.

 

On-net service is provided to customers located in buildings that are physically connected to Cogent’s network by Cogent facilities. On-net revenue was $79.5 million for the three months ended June 30, 2016; an increase of 10.5% over $72.0 million for the three months ended June 30, 2015 and an increase of 1.1% from $78.7 million for the three months ended March 31, 2016.

 

 

Off-net customers are located in buildings directly connected to Cogent’s network using other carriers’ facilities and services to provide the last mile portion of the link from the customers’ premises to Cogent’s network. Off-net revenue was $30.1 million for the three months ended June 30, 2016; an increase of 13.7% over $26.5 million for the three months ended June 30, 2015 and an increase of 2.7% over $29.4 million for the three months ended March 31, 2016.

 

Non-GAAP gross profit increased by 10.0% from $56.5 million for the three months ended June 30, 2015 to $62.2 million for the three months ended June 30, 2016 and increased by 1.8% from $61.1 million for the three months ended March 31, 2016. Non-GAAP gross profit margin percentage was 56.6% for the three months ended June 30, 2016, 57.2% for the three months ended June 30, 2015 and 56.5% for the three months ended March 31, 2016.  Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $2.2 million for the three months ended June 30, 2016, $2.0 million for the three months ended March 31, 2016 and $0.1 million for the three months ended June 30, 2015.  Non-GAAP gross profit margin, excluding the impact of excise taxes, was 57.7% for the three months ended June 30, 2016, 57.3% for the three months ended June 30, 2015 and 57.5% for the three months ended March 31, 2016.

 

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted, increased by 25.9% from $31.3 million for the three months ended June 30, 2015 to $39.4 million for the three months ended June 30, 2016 and increased by 10.6% from $35.6 million for the three months ended March 31, 2016. EBITDA, as adjusted, margin was 35.8% for the three months ended June 30, 2016, 31.7% for the three months ended June 30, 2015 and 32.9% for the three months ended March 31, 2016.

 

Basic and diluted net income per share was $0.09 for the three months ended June 30, 2016, $0.02 for the three months ended June 30, 2015 and $0.08 for the three months ended March 31, 2016.

 

Total customer connections increased by 17.7% from 48,910 as of June 30, 2015 to 57,563 as of June 30, 2016 and increased by 4.0% from 55,356 as of March 31, 2016. On-net customer connections increased by 17.2% from 42,002 as of June 30, 2015 to 49,243 as of June 30, 2016

 

 

and increased by 4.2% from 47,252 as of March 31, 2016. Off-net customer connections increased by 21.1% from 6,583 as of June 30, 2015 to 7,971 as of June 30, 2016 and increased by 4.1% from 7,654 as of March 31, 2016.

 

The number of on-net buildings increased by 106 on-net buildings from 2,191 on-net buildings as of June 30, 2015 to 2,297 on-net buildings as of June 30, 2016 and increased by 26 on-net buildings from 2,271 on-net buildings as of March 31, 2016.

 

Quarterly Dividend Increase Approved

 

On August 3, 2016, Cogent’s board approved a regular quarterly dividend of $0.38 per common share payable on September 9, 2016 to shareholders of record on August 19, 2016. This third quarter 2016 regular dividend of $0.38 per share represents an increase of 2.7% from the second quarter 2016 regular dividend of $0.37 per share.

 

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

 

Restricted Payments Basket Under Cogent Notes Indentures

 

Cogent’s consolidated leverage ratio under its note indentures is below 4.25 which enables Cogent to utilize its accumulated consolidated cash flow at its operating entities. Cogent is in the process of transferring funds from its operating entities to its holding company — Cogent Communications Holdings, Inc.

 

Conference Call and Website Information

 

Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on August 4, 2016 to discuss Cogent’s operating results for the second quarter of 2016 and to discuss Cogent’s expectations for full year 2016. Investors and other interested parties may access a live audio webcast of the earnings call in the “Events” section of Cogent’s website at www.cogentco.com/events. A replay of the webcast, together with the press release, will be available on the website following the earnings call.

 

 

About Cogent Communications

 

Cogent Communications (NASDAQ: CCOI) is a multinational, Tier 1 facilities-based ISP.  Cogent specializes in providing businesses with high speed Internet access, Ethernet transport, and colocation services. Cogent’s facilities-based, all-optical IP network backbone provides services in over 190 markets globally.

 

Cogent Communications is headquartered at 2450 N Street, NW, Washington, D.C. 20037. For more information, visit www.cogentco.com. Cogent Communications can be reached in the United States at (202) 295-4200 or via email at info@cogentco.com.

 

#  #  #

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

 

Summary of Financial and Operational Results

 

		Q1 2015			Q2 2015			Q3 2015			Q4 2015			Q1 2016			Q2 2016
Metric ($ in 000’s, except share and per share data) — unaudited
On-Net revenue		$	71,234		$	72,010		$	75,088		$	76,513		$	78,705		$	79,539
% Change from previous Qtr.		-0.1		%	1.1		%	4.3		%	1.9		%	2.9		%	1.1		%
Off-Net revenue		$	25,730		$	26,522		$	27,688		$	28,421		$	29,356		$	30,149
% Change from previous Qtr.		2.3		%	3.1		%	4.4		%	2.6		%	3.3		%	2.7		%
Non-Core revenue (1)		$	278		$	267		$	241		$	243		$	230		$	267
% Change from previous Qtr.		-3.8		%	-4.0		%	-9.7		%	0.8		%	-5.3		%	16.1		%
Service revenue — total		$	97,242		$	98,799		$	103,017		$	105,177		$	108,291		$	109,955
% Change from previous Qtr.		0.5		%	1.6		%	4.3		%	2.1		%	3.0		%	1.5		%
Constant currency total revenue quarterly growth rate — sequential quarters		2.9		%	2.0		%	4.4		%	2.5		%	3.0		%	0.9		%
Constant currency total revenue quarterly growth rate — year over year quarters		9.3		%	9.5		%	12.1		%	12.1		%	12.2		%	11.1		%
Network operations expenses (2)		$	40,907		$	42,252		$	45,056		$	45,710		$	47,156		$	47,727
% Change from previous Qtr.		0.0		%	3.3		%	6.6		%	1.5		%	3.2		%	1.2		%
Non-GAAP gross margin (2)		$	56,335		$	56,547		$	57,961		$	59,467		$	61,135		$	62,228
% Change from previous Qtr.		0.9		%	0.4		%	2.5		%	2.6		%	2.8		%	1.8		%

 

 

Non-GAAP gross margin percentage (2)		57.9		%	57.2		%	56.3		%	56.5		%	56.5		%	56.6		%
Selling, general and administrative expenses (3)		$	26,708		$	25,987		$	24,740		$	24,737		$	27,472		$	27,278
% Change from previous Qtr.		6.6		%	-2.7		%	-4.8		%	0.0		%	11.1		%	-0.7		%
Depreciation and amortization expense		$	17,513		$	17,371		$	17,634		$	18,008		$	17,753		$	18,604
% Change from previous Qtr.		-0.2		%	-0.8		%	1.5		%	2.1		%	-1.4		%	4.8		%
Equity-based compensation expense		$	3,141		$	3,098		$	2,704		$	2,571		$	2,181		$	2,687
% Change from previous Qtr.		4.7		%	-1.4		%	-12.7		%	-4.9		%	-15.2		%	23.2		%
Operating income		$	10,487		$	10,810		$	15,519		$	16,174		$	15,675		$	17,511
% Change from previous Qtr.		-19.7		%	3.1		%	43.6		%	4.2		%	-3.1		%	11.7		%
Interest expense		$	11,307		$	9,692		$	10,002		$	10,280		$	10,065		$	10,243
% Change from previous Qtr.		-7.2		%	-14.3		%	3.2		%	2.8		%	-2.1		%	1.8		%
Net income (loss)		$	(1,585	)	$	840		$	3,161		$	2,480		$	3,354		$	4,224
Basic net income (loss) per common share		$	(0.04	)	$	0.02		$	0.07		$	0.06		$	0.08		$	0.09
Diluted net income (loss) per common share		$	(0.04	)	$	0.02		$	0.07		$	0.06		$	0.08		$	0.09
Weighted average common shares — basic		45,158,250			44,774,831			44,474,724			44,323,131			44,402,640			44,491,899
% Change from previous Qtr.		-0.2		%	-0.8		%	-0.7		%	-0.3		%	0.2		%	0.2		%
Weighted average common shares — diluted		45,158,250			45,054,507			44,702,127			44,558,089			44,571,937			44,705,037
% Change from previous Qtr.		-0.2		%	-0.2		%	-0.8		%	-0.3		%	0.0		%	0.3		%
EBITDA (4)		$	29,627		$	30,560		$	33,221		$	34,730		$	33,663		$	34,950
% Change from previous Qtr.		-3.8		%	3.1		%	8.7		%	4.5		%	-3.1		%	3.8		%
EBITDA margin		30.5		%	30.9		%	32.2		%	33.0		%	31.1		%	31.8		%
Gains on asset related transactions		$	1,548		$	719		$	1,152		$	2,023		$	1,946		$	4,439
EBITDA, as adjusted (4)		$	31,175		$	31,279		$	34,373		$	36,753		$	35,609		$	39,389
% Change from previous Qtr.		-7.3		%	0.3		%	9.9		%	6.9		%	-3.1		%	10.6		%
EBITDA, as adjusted, margin		32.1		%	31.7		%	33.4		%	34.9		%	32.9		%	35.8		%
Fees — net neutrality		$	1,405		$	952		$	816		$	569		$	493		$	1,036

 

 

Net cash provided by operating activities		$	18,372		$	20,035		$	23,403		$	21,999		$	27,557		$	23,698
% Change from previous Qtr.		2.4		%	9.1		%	16.8		%	-6.0		%	25.3		%	-14.0		%
Capital expenditures		$	12,916		$	10,866		$	6,838		$	4,962		$	15,034		$	14,260
% Change from previous Qtr.		-0.8		%	-15.9		%	-37.1		%	-27.4		%	203.0		%	-5.1		%
Principal payments on capital leases		$	3,650		$	7,332		$	5,956		$	3,273		$	3,369		$	3,935
% Change from previous Qtr.		31.8		%	100.9		%	-18.8		%	-45.0		%	2.9		%	16.8		%
Dividends paid		$	16,001		$	18,972		$	15,296		$	16,045		$	16,171		$	16,671
Purchases of common stock		$	8,119		$	19,106		$	12,169		$	—		$	—		$	—
Gross Leverage Ratio		4.42			4.50			4.57			4.55			4.39			3.94
Net Leverage Ratio		2.45			2.77			2.98			3.02			2.97			2.88
Customer Connections — end of period
On-Net		40,732			42,002			43,364			45,473			47,252			49,243
% Change from previous Qtr.		2.4		%	3.1		%	3.2		%	4.9		%	3.9		%	4.2		%
Off-Net		6,368			6,583			6,897			7,279			7,654			7,971
% Change from previous Qtr.		4.8		%	3.4		%	4.8		%	5.5		%	5.2		%	4.1		%
Non-Core (1)		311			325			356			400			450			349
% Change from previous Qtr.		-14.1		%	4.5		%	9.5		%	12.4		%	12.5		%	-22.4		%
Total customer connections		47,411			48,910			50,617			53,152			55,356			57,563
% Change from previous Qtr.		2.6		%	3.2		%	3.5		%	5.0		%	4.1		%	4.0		%
On-Net Buildings — end of period
Multi-Tenant office buildings		1,488			1,510			1,523			1,541			1,545			1,560
Carrier neutral data center buildings		618			631			647			659			675			686
Cogent data centers		49			50			51			51			51			51
Total on-net buildings		2,155			2,191			2,221			2,251			2,271			2,297
Square feet — multi-tenant office buildings — on-net		804,760,238			818,039,601			823,712,433			831,585,875			834,341,216			840,042,330
Network — end of period
Intercity route miles		59,161			55,191			56,079			56,079			56,183			56,183
Metro fiber miles		27,619			28,036			28,067			28,158			28,316			28,874

 

Connected networks — AS’s		5,334			5,435			5,511			5,582			5,617			5,700
Headcount — end of period
Sales force — quota bearing		343			358			363			378			398			397
Sales force - total		459			464			474			495			517			519
Total employees		785			799			808			828			855			854
Sales rep productivity — units per full time equivalent sales rep (“FTE”) per month		5.3			5.6			6.0			6.3			6.3			5.9
FTE — sales reps		326			330			337			351			373			373

 

(1)         Consists of legacy services of companies whose assets or businesses were acquired by Cogent, primarily including voice services (only provided in Toronto, Canada).

(2)         Network operations expense excludes equity-based compensation expense of $172, $160, $126, $126, $121 and $145 in the three month periods ended March 31, 2015 through June 30, 2016, respectively.  Network operations expense includes excise taxes, including Universal Service Fund fees of $53, $57, $1,757, $1,729, $2,003 and $2,156 in the three month periods ended March 31, 2015 through June 30, 2016, respectively.  Non-GAAP gross margin represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation expense).Non-GAAP gross margin percentage is defined as non-GAAP gross margin divided by total service revenue.  Management believes that gross margin is a relevant metric to provide investors, as it is a metric that management uses to measure the margin available to the company after network service costs, in essence a measure of the efficiency of the Company’s network.

(3)         Excludes equity-based compensation expense of $2,969, $2,938, $2,578, $2,445, $2,060 and $2,542 in the three month periods ended March 31, 2015 through June 30, 2016, respectively.

(4)         See schedule of non-GAAP metrics below for definition and reconciliation to GAAP measures below.

 

Schedule of Non-GAAP Measures

 

EBITDA and EBITDA, as adjusted

 

EBITDA represents net cash flows from operating activities plus changes in operating assets and liabilities, cash interest expense and income tax expense.  Management believes the most directly comparable measure to EBITDA calculated in accordance with generally accepted accounting principles in the United States, or GAAP, is cash flows provided by operating activities. The Company also believes that EBITDA is a measure frequently used by securities analysts, investors, and other interested parties in their evaluation of issuers.  EBITDA, as adjusted, represents EBITDA plus net gains (losses) on asset related transactions.

 

The Company believes EBITDA, and EBITDA, as adjusted, are useful measures of its ability to service debt, fund capital expenditures and expand its business.  EBITDA, and EBITDA, as adjusted are an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information. EBITDA, and EBITDA, as adjusted are not recognized terms under GAAP and accordingly, should not be viewed in isolation or as a substitute for the analysis of results as reported under GAAP, but rather as a supplemental measure to GAAP. For example, these metrics are not intended to reflect the Company’s free cash flow, as it does not consider certain current or future cash requirements, such as capital expenditures, contractual commitments, and changes in working capital needs, interest expenses and debt service requirements. The Company’s calculations of these metrics may also differ from the calculations performed by its competitors and other companies and as such, its utility as a comparative measure is limited.

 

 

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

EBITDA, and EBITDA, as adjusted, are reconciled to cash flows provided by operating activities in the table below.

 

($ in 000’s) – unaudited		Q1 2015			Q2 2015			Q3 2015			Q4 2015			Q1 2016			Q2 2016
Net cash flows provided by operating activities		$	18,372		$	20,035		$	23,403		$	21,999		$	27,557		$	23,698
Changes in operating assets and liabilities		(159		)	1,245			(68		)	3,047			(3,681		)	1,755
Cash interest expense and income tax expense		11,414			9,280			9,886			9,684			9,787			9,497
EBITDA		$	29,627		$	30,560		$	33,221		$	34,730		$	33,663		$	34,950
PLUS: Gains on asset related transactions		1,548			719			1,152			2,023			1,946			4,439
EBITDA, as adjusted		$	31,175		$	31,279		$	34,373		$	36,753		$	35,609		$	39,389

 

Impact of foreign currencies (“constant currency” impact) on change in sequential quarterly service revenue

 

($ in 000’s) – unaudited		Q2 2016
Service revenue, as reported — Q2 2016		$	109,955
Impact of foreign currencies on service revenue		(709		)
Service revenue - Q2 2016, as adjusted (1)		$	109,246
Service revenue, as reported — Q1 2016		$	108,291
Constant currency increase from Q1 2016 to Q2 2016 - (Service revenue, as adjusted for Q2 2016 less service revenue, as reported for Q1 2016)		$	955
Percent increase (Constant currency increase from Q1 2016 to Q2 2016 divided by service revenue, as reported for Q1 2016)		0.9		%

 

(1)         Service revenue, as adjusted, is determined by translating the service revenue for the three months ended June 30, 2016 at the average foreign currency exchange rates for the three months ended March 31, 2016. The Company believes that disclosing quarterly revenue growth without the impact of foreign currencies on service revenue is a useful measure of revenue growth. Service revenue, as adjusted, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

 

Impact of foreign currencies (“constant currency” impact) on change in prior year quarterly service revenue

 

($ in 000’s) – unaudited		Q2 2016
Service revenue, as reported — Q2 2016		$	109,955
Impact of foreign currencies on service revenue		(168		)
Service revenue - Q2 2016, as adjusted (2)		$	109,787
Service revenue, as reported — Q2 2015		$	98,799
Constant currency increase from Q2 2015 to Q2 2016 - (Service revenue, as adjusted for Q2 2016 less service revenue, as reported for Q2 2015)		$	10,988
Percent increase (Constant currency increase from Q2 2015 to Q2 2016 divided by service revenue, as reported for Q2 2015)		11.1		%

 

(2)         Service revenue, as adjusted, is determined by translating the service revenue for the three months ended June 30, 2016 at the average foreign currency exchange rates for the three months ended June 30, 2015. The Company believes that disclosing quarterly revenue growth without the impact of foreign currencies on service revenue is a useful measure of revenue growth. Service revenue, as adjusted, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

 

Gross and Net Leverage Ratios

 

Cogent’s Gross Leverage Ratio was 4.39 at March 31, 2016 and 3.94 at June 30, 2016 and Cogent’s Net Leverage Ratio was 2.97 at March 31, 2016 and 2.88 at June 30, 2016 and as shown below.