Cogent(CCOI) - 2024 Q2 - Quarterly Results

Financial and Business Highlights Cogent reported Q2 2024 service revenue of $260.4 million, with improved margins and strategic financial activities Q2 2024 Key Financial Highlights (in millions) | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Service Revenue | $260.4 | $266.2 | $239.8 | | EBITDA Margin | 10.4% | 6.9% | 10.1% | | EBITDA, as adjusted | $106.2 | $115.0 | $54.1 | | Non-GAAP Gross Margin | 40.2% | 36.7% | 42.8% | | Gross Leverage Ratio | 4.06 | 3.57 | 5.63 | - Cogent approved a $0.01 per share increase to its quarterly dividend, reaching $0.985 per share for Q3 2024, marking the company's 48th consecutive quarterly dividend increase[1] - The company purchased 153,322 shares of its common stock for $8.0 million in Q2 2024 under its buyback program[1] - Cogent completed two significant debt issuances: $206.0 million of 7.9% IPV4 Securitized Notes and $300.0 million of 7.0% Unsecured Notes[1] Q2 2024 Financial Performance Cogent's Q2 2024 service revenue reached $260.4 million, with a net loss per share, as on-net growth was offset by declines in other segments Revenue Analysis Q2 2024 total service revenue was $260.4 million, showing on-net and wavelength growth despite declines in off-net and non-core revenues Q2 2024 Revenue by Service Type (in millions) | Service Type | Q2 2024 Revenue | Change from Q1 2024 | Change from Q2 2023 | | :--- | :--- | :--- | :--- | | Total Service Revenue | $260.4 | -2.2% | +8.6% | | On-net | $140.6 | +1.5% | +10.3% | | Off-net | $111.5 | -5.7% | +9.3% | | Wavelength | $3.6 | +9.0% | +128.7% (vs Q1 2023) | | Non-core | $4.6 | -23.7% | -46.2% | - Foreign exchange rates negatively impacted service revenue by $0.3 million compared to Q1 2024 and by $0.4 million compared to Q2 2023[2] Profitability and Earnings Q2 2024 GAAP gross margin was 11.6%, with adjusted EBITDA at $106.2 million, resulting in a net loss of $(0.68) per share Q2 2024 Profitability Metrics | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | GAAP Gross Margin | 11.6% | 9.9% | 20.8% | | Non-GAAP Gross Margin | 40.2% | 36.7% | 42.8% | | EBITDA, as adjusted | $106.2M | $115.0M | $54.1M | | EBITDA, as adjusted, margin | 40.8% | 43.2% | 22.5% | | Net Loss per Share (Basic & Diluted) | $(0.68) | $(1.38) | $23.84 / $23.65 | - Net cash used in operating activities was $22.2 million for Q2 2024, a significant shift from the $82.7 million provided by operating activities in Q2 2023[7] - Total Sprint acquisition costs were $12.4 million for the quarter, including $8.0 million in severance costs reimbursed by T-Mobile[8] Operational Metrics and Agreements Total customer connections declined to 128,782, while on-net buildings increased, and T-Mobile agreements provided significant revenue Customer Connections as of June 30, 2024 | Connection Type | Count | Change from Q1 2024 | | :--- | :--- | :--- | | Total Connections | 128,782 | -3.1% | | On-net | 87,387 | -0.2% | | Off-net | 32,758 | -5.3% | | Wavelength | 754 | +8.8% | | Non-core | 7,883 | -21.5% | - The number of on-net buildings increased by 65 from the previous quarter to a total of 3,386 as of June 30, 2024[11] - Under the IP Transit Services Agreement, T-Mobile paid Cogent $66.7 million in Q2 2024[12] - Revenue from the Commercial Agreement with T-Mobile increased by 86.2% from the previous quarter to $5.9 million[13] Summary of Financial and Operational Results Quarterly results reflect the Sprint acquisition's impact, with declining off-net revenues offset by steady on-net growth and strong adjusted EBITDA Quarterly Revenue Trend (in thousands) | Quarter | On-Net Revenue | Off-Net Revenue | Wavelength Revenue | Non-Core Revenue | Total Service Revenue | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2023 | $127,665 | $101,984 | $1,585 | $8,572 | $239,806 | | Q3 2023 | $129,031 | $130,560 | $2,992 | $12,846 | $275,429 | | Q4 2023 | $138,064 | $123,669 | $3,108 | $7,258 | $272,099 | | Q1 2024 | $138,624 | $118,178 | $3,327 | $6,039 | $266,168 | | Q2 2024 | $140,757 | $111,451 | $3,625 | $4,610 | $260,443 | Quarterly Adjusted EBITDA and Margin Trend (in thousands) | Quarter | EBITDA, as adjusted | Adjusted EBITDA Margin | | :--- | :--- | :--- | | Q2 2023 | $54,062 | 22.5% | | Q3 2023 | $131,438 | 47.7% | | Q4 2023 | $110,512 | 40.6% | | Q1 2024 | $114,989 | 43.2% | | Q2 2024 | $106,163 | 40.8% | Quarterly Customer Connections Trend | Quarter | On-Net | Off-Net | Wavelength | Non-Core | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2023 | 92,846 | 38,762 | 414 | 19,408 | 151,430 | | Q3 2023 | 88,250 | 36,923 | 449 | 12,403 | 138,025 | | Q4 2023 | 88,291 | 36,676 | 661 | 11,975 | 137,603 | | Q1 2024 | 87,574 | 34,579 | 693 | 10,037 | 132,883 | | Q2 2024 | 87,387 | 32,758 | 754 | 7,883 | 128,782 | - The acquisition of the Wireline Business involved hiring 942 employees, with 655 remaining with the company as of June 30, 2024[31][32] Consolidated Financial Statements Consolidated financial statements show increased cash from new debt, higher liabilities, a net loss, and negative operating cash flow for Q2 2024 Condensed Consolidated Balance Sheets As of June 30, 2024, the balance sheet shows increased cash to $384.4 million from new debt, with total assets at $3.34 billion and liabilities at $2.93 billion Balance Sheet Summary (in thousands) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $384,419 | $75,092 | | Total current assets | $689,475 | $513,627 | | Total assets | $3,344,173 | $3,211,619 | | Total current liabilities | $312,960 | $373,324 | | Total liabilities | $2,928,650 | $2,602,063 | | Total stockholders' equity | $415,523 | $609,556 | Condensed Consolidated Statements of Comprehensive Income Q2 2024 income statement shows $260.4 million in service revenue, an operating loss, and a net loss of $(0.68) per share, contrasting with prior year's acquisition gain Income Statement Summary - Three Months Ended June 30 (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Service revenue | $260,443 | $239,806 | | Total operating expenses | $310,918 | $274,410 | | Operating loss | $(47,143) | $(34,604) | | Gain on bargain purchase | $27,673 | $1,155,719 | | Net (loss) income | $(32,338) | $1,123,863 | | Diluted net (loss) income per share | $(0.68) | $23.65 | Condensed Consolidated Statements of Cash Flows Q2 2024 cash flows show net cash used in operations, positive investing cash from T-Mobile, and a large financing inflow from new debt Cash Flow Summary - Three Months Ended June 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(22,171) | $82,654 | | Net cash provided by (used in) investing activities | $25,889 | $(22,316) | | Net cash provided by (used in) financing activities | $255,595 | $(52,464) | | Net increase in cash | $262,967 | $9,531 | Non-GAAP Financial Measures and Reconciliations Cogent uses non-GAAP measures like Adjusted EBITDA and constant currency revenue to provide insights into operational efficiency and underlying growth trends - EBITDA, as adjusted, is a key metric that adds back Sprint acquisition costs and includes cash payments received from T-Mobile under the IP Transit Services Agreement to reflect recurring cash flows and evaluate debt servicing ability[35][36] - Constant currency revenue calculations are provided to show revenue growth without the impact of foreign exchange rate fluctuations, offering a useful measure of underlying sequential and year-over-year growth[41][42] - Non-GAAP gross profit, which excludes depreciation, amortization, and equity-based compensation from network operations expense, is used by management to measure network efficiency and margin after service costs[48] - Gross and Net Leverage Ratios are calculated using the trailing 12 months of Adjusted EBITDA, providing insight into the company's debt levels relative to its adjusted earnings[49] Other Information The company faces mixed corporate business results due to remote work, with ongoing risks related to economic instability and Sprint integration - The company notes that the deteriorating commercial real estate market and remote work policies since the COVID-19 pandemic have negatively impacted its corporate revenue, though some positive trends in office occupancy and higher capacity connections are emerging[17] - Cogent will host a conference call for financial analysts on August 8, 2024, to discuss the Q2 2024 results, with a webcast available on the company's website[20] - The report includes a forward-looking statements disclaimer, highlighting risks such as difficulties in integrating the Sprint Wireline Business, economic instability, foreign exchange rate changes, and competition[60]