Cogent(CCOI) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents Cogent Communications' unaudited condensed consolidated financial statements for Q3 2019, covering financial position, performance, and cash flows Condensed Consolidated Balance Sheets Balance Sheet Summary (in thousands) | Metric | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $396,271 | $276,093 | | Total current assets | $474,373 | $350,337 | | Total assets | $932,344 | $739,850 | | Total current liabilities | $86,225 | $75,307 | | Total liabilities | $1,122,845 | $888,852 | | Total stockholders' deficit | $(190,501) | $(149,002) | - The company adopted new lease accounting standards (ASU 2016-02), resulting in the recognition of $72.6 million in Right-of-use leased assets and corresponding operating lease liabilities of $95.6 million ($10.3 million current, $85.3 million non-current) on the balance sheet as of September 30, 2019, which were not present at year-end 2018[9][45] Condensed Consolidated Statements of Comprehensive Income Q3 2019 vs Q3 2018 Performance (in thousands, except per share data) | Metric | Q3 2019 (Unaudited) | Q3 2018 (Unaudited) | Change | | :--- | :--- | :--- | :--- | | Service revenue | $136,942 | $130,139 | +5.2% | | Operating income | $25,799 | $22,255 | +15.9% | | Net income | $13,701 | $8,231 | +66.5% | | Diluted EPS | $0.30 | $0.18 | +66.7% | Nine Months 2019 vs 2018 Performance (in thousands, except per share data) | Metric | Nine Months 2019 (Unaudited) | Nine Months 2018 (Unaudited) | Change | | :--- | :--- | :--- | :--- | | Service revenue | $405,866 | $388,144 | +4.6% | | Operating income | $72,221 | $64,250 | +12.4% | | Net income | $30,054 | $21,567 | +39.4% | | Diluted EPS | $0.65 | $0.47 | +38.3% | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2019 (Unaudited) | 2018 (Unaudited) | | :--- | :--- | :--- | | Net cash provided by operating activities | $102,712 | $93,195 | | Net cash used in investing activities | $(37,059) | $(39,000) | | Net cash provided by (used in) financing activities | $56,144 | $(15,035) | | Net increase in cash and cash equivalents | $120,178 | $37,547 | - The significant increase in cash from financing activities in 2019 was primarily driven by the net proceeds of $152.1 million from the issuance of senior unsecured 2024 Euro notes, partially offset by $82.9 million in dividend payments[20] Notes to Interim Condensed Consolidated Financial Statements - The company is a facilities-based provider of high-speed Internet access, private network services, and data center colocation, serving customers in North America, Europe, Asia, Australia, and Brazil[24][25] - On June 25, 2019, the company issued €135.0 million of 4.375% senior unsecured notes due 2024, receiving net proceeds of approximately $152.1 million[59] - The Board of Directors approved a quarterly dividend of $0.64 per common share, expected to be paid on December 9, 2019[77] Revenue by Geography - Nine Months Ended Sep 30, 2019 (in thousands) | Region | On-net | Off-net | Non-core | Total | | :--- | :--- | :--- | :--- | :--- | | North America | $236,636 | $98,670 | $300 | $335,606 | | Europe | $53,889 | $12,192 | $45 | $66,126 | | Latin America | $244 | $8 | — | $252 | | Asia Pacific | $3,300 | $582 | — | $3,882 | | Total | $294,069 | $111,452 | $345 | $405,866 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2019 financial performance, highlighting revenue growth, pricing pressure, SG&A increase, and liquidity from new notes and dividends Results of Operations Q3 2019 vs Q3 2018 Key Metrics | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Service Revenue | $136,942 | $130,139 | 5.2% | | On-net Revenue | $99,416 | $93,790 | 6.0% | | Off-net Revenue | $37,418 | $36,202 | 3.4% | | SG&A Expenses | $35,971 | $33,409 | 7.7% | | On-net Customer Connections | 73,870 | 67,370 | 9.6% | | Average Price per Megabit | $0.61 | $0.78 | (22.2)% | - Revenue from corporate customers grew 10.4% in Q3 2019 YoY, while revenue from net-centric customers decreased by 4.7%, primarily due to a significant decline in the average price per megabit and foreign exchange impacts[106] - The increase in SG&A expenses was primarily driven by an expansion of the sales force, with headcount growing from 583 to 667 between September 2018 and September 2019[110] - Interest income and other, net, increased substantially in Q3 2019 to $8.3 million from $1.9 million in Q3 2018, mainly due to a $6.1 million unrealized foreign exchange gain on the company's new Euro-denominated notes[115] Liquidity and Capital Resources Financial Position as of September 30, 2019 (in millions) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $396.3 | | Total indebtedness (at par) | $962.5 | - In June 2019, the company raised approximately $152.1 million in net proceeds from an offering of €135.0 million of 2024 Notes[141][152] - The company paid $82.9 million in dividends during the first nine months of 2019 and approved a Q4 dividend of $0.64 per share[141][148] - As of September 30, 2019, $34.9 million remained available under the company's stock buyback program, which is authorized through December 31, 2020. No shares were repurchased in Q3 2019[147] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures as of September 30, 2019, compared to its 2018 Annual Report on Form 10-K - There have been no material changes to the company's exposures to market risk from those disclosed in the annual report on Form 10-K for the year ended December 31, 2018[160] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period[162] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[163] PART II OTHER INFORMATION Item 1. Legal Proceedings The company states that it is involved in legal proceedings in the ordinary course of business, which are not expected to have a material impact on its operations or financial results - The company is involved in legal proceedings in the ordinary course of business that are not expected to have a material impact on its operations or results[177] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's Board of Directors has authorized a stock repurchase plan through December 31, 2020, with no shares repurchased during the third quarter of 2019 - The company's stock repurchase program is authorized through December 31, 2020. No shares were purchased during the third quarter of 2019[178] Item 5. Other Information This section discloses recent changes to the Board of Directors, including resignations and new appointments with committee assignments - On November 4, 2019, Messrs. Richard Liebhaber and Timothy Weingarten resigned from the Board of Directors[164] - Effective November 5, 2019, Sheryl Kennedy and Carolyn Katz were appointed to the Board of Directors[164] - New committee appointments include Ms. Kennedy to the Audit Committee and Ms. Katz to the Compensation and the Nominating and Corporate Governance Committees[165][166] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications from the Chief Executive Officer and Chief Financial Officer, as well as financial data formatted in iXBRL - The exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and iXBRL formatted financial statements (Exhibit 101.1)[175]