Cogent(US:CCOI)2025-05-08 15:47PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2025, detailing balance sheets, comprehensive loss, cash flows, and notes, highlighting a $52.0 million net loss and $3.12 billion in total assets Condensed Consolidated Balance Sheets Total assets decreased to $3.12 billion by March 31, 2025, while total liabilities slightly increased, and stockholders' equity declined to $142.8 million Balance Sheet Items (In thousands) | Balance Sheet Items (In thousands) | March 31, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $422,681 | $482,101 | | Total Assets | $3,120,722 | $3,173,102 | | Total Current Liabilities | $283,424 | $253,336 | | Total Liabilities | $2,977,878 | $2,950,254 | | Total Stockholders' Equity | $142,844 | $222,848 | Condensed Consolidated Statements of Comprehensive Loss The company reported a net loss of $52.0 million for Q1 2025, an improvement from the prior year, with service revenue decreasing to $247.0 million Income Statement Items (In thousands, except per share data) | Income Statement Items (In thousands, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Service revenue | $247,048 | $266,168 | | Total operating expenses | $287,340 | $325,557 | | Operating loss | $(40,292) | $(59,389) | | Net loss | $(52,042) | $(65,307) | | Basic net loss per common share | $(1.09) | $(1.38) | | Diluted net loss per common share | $(1.09) | $(1.38) | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $36.4 million in Q1 2025, while investing activities shifted to a $33.1 million outflow, and financing cash use rose Cash Flow Items (In thousands) | Cash Flow Items (In thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,351 | $19,219 | | Net cash (used in) provided by investing activities | $(33,088) | $50,951 | | Net cash used in financing activities | $(57,015) | $(23,549) | | Net (decrease) increase in cash | $(43,946) | $49,493 | Notes to Interim Condensed Consolidated Financial Statements Notes detail accounting policies, the $1.4 billion Sprint acquisition bargain purchase gain, the $700 million T-Mobile IP Transit Agreement, and various debt instruments - The acquisition of the Sprint Business on May 1, 2023, was accounted for as a business combination, resulting in a bargain purchase gain of $1.4 billion213641 - The $700 million in payments from T-Mobile under the IP Transit Services Agreement is recognized as consideration for the acquisition of a distressed business, not as service revenue under ASC 6062627 - As of March 31, 2025, the company had outstanding debt including $500.0 million of 2026 Notes, $450.0 million of 2027 Notes, $300.0 million of 2027 Mirror Notes, and $206.0 million of IPv4 Notes71 - Subsequent to the quarter end, on April 11, 2025, the company issued an additional $174.4 million of secured IPv4 notes106 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, including a 7.2% service revenue decline, Sprint Business integration, strategic initiatives, and liquidity management Acquisition of Sprint Communications Details the Sprint Business acquisition, including a $1 purchase price, a $61.1 million working capital payment, and the $700 million T-Mobile IP Transit Services Agreement - The acquisition of the Sprint Business closed on May 1, 2023, for a purchase price of $1, plus a working capital adjustment payment of $61.1 million made to the seller114115 - Cogent will receive an aggregate of $700 million from T-Mobile under an IP Transit Services Agreement, consisting of $29.2 million per month for the first year and $8.3 million per month for the subsequent 42 months117 - A Transition Services Agreement (TSA) is in place for up to two years to ensure an orderly transition, with costs for services generally passed through between the parties119120 Our Strategy Strategy focuses on expanding customer base, growing wavelength services in 883 data centers, repurposing Sprint facilities, and monetizing 38 million IPv4 addresses - Focus on growing the corporate customer base and expanding business with larger enterprise customers acquired from Sprint135136 - Expand product offerings with Wavelength (optical transport) services, now available in 883 data centers in the US, Mexico, and Canada142 - Expand the data center footprint by converting former Sprint facilities into Cogent data centers143 - Increase leasing of its approximately 38 million IPv4 addresses to monetize this asset144 Results of Operations Q1 2025 service revenue decreased 7.2% to $247.0 million due to customer cancellations, offset by 114.0% Wavelength revenue growth, while expenses declined Key Financial Metrics (In thousands) | Key Financial Metrics (In thousands) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Service revenue | $247,048 | $266,168 | (7.2)% | | Network operations expenses | $137,439 | $168,933 | (18.6)% | | SG&A expenses | $73,863 | $76,696 | (3.7)% | Revenue by Connection Type (In thousands) | Revenue by Connection Type (In thousands) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | On-net | $129,628 | $138,624 | (6.5)% | | Off-net | $107,274 | $118,178 | (9.2)% | | Wavelength | $7,119 | $3,327 | 114.0% | | Non-core | $3,027 | $6,039 | (49.9)% | - The decrease in total service revenue was primarily driven by the cancellation of low-margin and non-core customers acquired with the Sprint Business149 Liquidity and Capital Resources Liquidity relies on operations, cash, and T-Mobile payments; $184.0 million cash as of March 31, 2025, with $174.4 million new IPv4 notes issued post-quarter - The $700 million in payments from the T-Mobile IP Transit Services Agreement is intended to offset the initial negative cash flow and operating losses from the acquired Sprint Business175176 - In April 2025, the company issued $174.4 million in new secured IPv4 notes, with net proceeds of $170.5 million, of which $97.9 million was unrestricted178193 - As of March 31, 2025, the company had cash, cash equivalents, and restricted cash of $184.0 million193 - The Board of Directors approved a quarterly dividend of $1.01 per share, estimated at $48.2 million, to be paid on June 6, 2025208 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures have occurred since the 2024 Annual Report on Form 10-K filing - Management confirms no material changes to market risk exposures since the 2024 year-end 10-K filing216 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2025 - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period218 - There were no material changes to the company's internal control over financial reporting during the most recent fiscal quarter219 PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings not expected to materially impact financial condition or operations - The company is involved in ordinary course legal proceedings which are not expected to have a material impact on its operations222 Item 1A. Risk Factors No material changes to risk factors have occurred since the 2024 Annual Report on Form 10-K filing - Management confirms no material changes to its risk factors since the 2024 year-end 10-K filing223 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The stock buyback program had $22.4 million remaining as of March 31, 2025, with $5.0 million in shares repurchased in April 2025 - As of March 31, 2025, $22.4 million remained available under the company's stock buyback program224 - No common stock was repurchased during the three months ended March 31, 2025224 - Subsequent to the quarter, in April 2025, the company purchased 94,856 shares for $5.0 million207 Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q1 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during Q1 2025225 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including debt agreement supplements, an amendment to the CEO's employment agreement, and certifications - The report includes several exhibits, such as supplements to debt agreements (4.1, 4.2), an amendment to the CEO's employment agreement (10.1), and required certifications (31.1, 31.2, 32.1, 32.2)227