Cogent(CCOI) - 2019 Q2 - Quarterly Report

Revenue Performance - Service revenue increased by 4.2% to $134.789 million for the three months ended June 30, 2019, compared to $129.296 million for the same period in 2018[104] - On-net revenue rose by 4.8% to $97.472 million, while off-net revenue increased by 3.0% to $37.191 million during the same period[104] - Revenues from corporate customers increased by 10.8% to $92.3 million, while revenues from net-centric customers decreased by 7.7% to $42.5 million[110] - Service revenue increased by 4.2% for the six months ended June 30, 2019, totaling $268.9 million, despite a $3.6 million negative impact from exchange rates[128] - On-net revenue grew by 5.0% for the six months ended June 30, 2019, with a 10.7% increase in on-net customer connections[131] - Off-net revenue increased by 2.5% for the six months ended June 30, 2019, with an 8.0% rise in off-net customer connections[134] Customer Connections - The number of on-net customer connections increased by 10.7% to 72,415, while off-net customer connections grew by 8.0% to 11,321[106] - The total number of on-net buildings connected to the network increased to 2,737 as of June 30, 2019, from 2,599 in 2018, reflecting a disciplined network expansion program[142] Pricing and ARPU - Average Revenue Per Unit (ARPU) for on-net services decreased by 6.0% to $453, and off-net ARPU declined by 5.0% to $1,104[106] - The average price per megabit for the installed base decreased by 27.1% to $0.63, reflecting pricing pressures in the market[106] - Average price per megabit for the installed base decreased by 26.1% from the six months ended June 30, 2018, to the same period in 2019[130] Expenses - Network operations expenses remained relatively stable, increasing by only 0.1% to $54.407 million[104] - Selling, general, and administrative expenses rose by 14.4% to $38.566 million, indicating increased investment in sales and marketing efforts[104] - Network operations expenses increased by 0.1% for the three months ended June 30, 2019, due to a 10.3% increase in customer connections and 138 more on-net buildings compared to the same period in 2018[113] - SG&A expenses rose by 14.4% for the three months ended June 30, 2019, primarily due to increased salaries and related costs, with non-cash equity-based compensation expense at $5.1 million[114] Financial Position - Net cash provided by operating activities for the six months ended June 30, 2019, was $69.3 million, up from $61.5 million in 2018[149] - Cash used in investing activities was $25.0 million for the six months ended June 30, 2019, compared to $26.9 million in 2018, primarily due to the timing and scope of network expansion activities[146] - Principal payments under finance lease obligations were $5.0 million for the six months ended June 30, 2019, down from $6.1 million in 2018[147] - The company paid $54.3 million in quarterly dividends during the six months ended June 30, 2019, compared to $46.6 million in 2018[147] - Total indebtedness as of June 30, 2019, was $967.9 million, with total cash and cash equivalents of $409.3 million[148] Future Outlook - The company plans to continue expanding its network and increasing the number of on-net buildings served, focusing on profitable customer acquisition strategies[101] - The company expects cash on hand and cash generated from operating activities to be adequate for working capital, capital expenditures, and debt service for the next twelve months[159] - Future acquisitions or significant unplanned costs may require raising additional funds through debt or equity issuance, which could dilute existing stockholders[160] Interest and Tax - Interest expense rose by 9.2% for the six months ended June 30, 2019, primarily due to the issuance of $70.0 million of senior secured notes and the 2024 Notes[139] - The income tax provision increased to $3.0 million for the three months ended June 30, 2019, from $2.6 million in the same period in 2018, due to higher taxable income[120] - The income tax provision increased to $6.6 million for the six months ended June 30, 2019, compared to $5.8 million for the same period in 2018, primarily due to an increase in taxable income[140] Equipment Transactions - Gains on equipment transactions were $0.7 million for the six months ended June 30, 2019, compared to $0.5 million for the same period in 2018[137] - The company completed an offering of €135.0 million ($153.7 million) of 2024 Notes on June 25, 2019, with net proceeds of approximately $152.1 million[158]