Cogent Communications Reports Fourth Quarter And Full Year 2021 Results And Increases Its Regular Quarterly Dividend On Its Common Stock By 0 025

WASHINGTON, Feb. 24, 2022 /PRNewswire/ —

Financial and Business Highlights

Cogent approved an increase of $0.025 per share to its regular quarterly dividend for a total of $0.855 per share for Q1 2022 as compared to $0.830 per share for Q4 2021 – Cogent’s thirty-eighth consecutive quarterly dividend increase.
The Q1 2022 $0.855 dividend per share represents an annual increase of 13.2% from the dividend per share of $0.755 for Q1 2021.
Dividends for 2021 totaled $150.3 million, or $3.17 per share, with 79.3% are expected to be treated as a return of capital and 20.7% are expected to be treated as dividends for US federal income tax purposes.
Service revenue decreased from Q3 2021 to Q4 2021 by 0.5%, increased from Q4 2020 to Q4 2021 by 2.3% and increased from full year 2020 to full year 2021 by 3.8%.
Service revenue, on a constant currency basis, increased from Q3 2021 to Q4 2021 by 0.1%, increased from Q4 2020 to Q4 2021 by 2.9% and increased from full year 2020 to full year 2021 by 2.9%.
Net cash provided by operating activities increased by 21.3% from full year 2020 to full year 2021 to $170.3 million.
EBITDA margin increased from full year 2020 to full year 2021 by 90 basis points to 38.6%.
EBITDA increased from full year 2020 to full year 2021 by 6.5% to $227.9 million.

Cogent Communications Holdings, Inc. (NASDAQ: CCOI) (“Cogent”) today announced service revenue of $147.2 million for the three months ended December 31, 2021, a decrease of 0.5% from the three months ended September 30, 2021 and an increase of 2.3% from the three months ended December 31, 2020. Service revenue was $589.8 million for the year ended December 31, 2021, an increase of 3.8% from the year ended December 31, 2020. Foreign exchange negatively impacted service revenue growth from the three months ended September 30, 2021 to the three months ended December 31, 2021 by $0.8 million, negatively impacted service revenue growth from the three months ended December 31, 2020 to the three months ended December 31, 2021 by $0.9 million and positively impacted service revenue growth from the year ended December 31, 2020 to the year ended December 31, 2021 by $5.3 million. On a constant currency basis, service revenue increased by 0.1% from the three months ended September 30, 2021 to the three months ended December 31, 2021, increased by 2.9% from the three months ended December 31, 2020 to the three months ended December 31, 2021 and increased by 2.9% from the year ended December 31, 2020 to the year ended December 31, 2021.

The Q1 2022 $0.855 dividend per share represents an annual increase of 13.2% from the dividend per share of $0.755 for Q1 2021.
Service revenue, on a constant currency basis, increased from Q3 2021 to Q4 2021 by 0.1%, increased from Q4 2020 to Q4 2021 by 2.9% and increased from full year 2020 to full year 2021 by 2.9%.

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 $110.7 million for the three months ended December 31, 2021; a decrease of 0.3% from the three months ended September 30, 2021 and an increase of 3.4% over the three months ended December 31, 2020. On-net revenue was $442.8 million for the year ended December 31, 2021; an increase of 5.6% over the year ended December 31, 2020.

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 $36.3 million for the three months ended December 31, 2021; a decrease of 1.0% from the three months ended September 30, 2021 and a decrease of 1.0% from the three months ended December 31, 2020. Off-net revenue was $146.4 million for the year ended December 31, 2021; a decrease of 1.2% from the year ended December 31, 2020.

Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell.

GAAP gross profit is defined as total service revenue less network operations expense, depreciation and amortization and equity-based compensation included in network operations expense. GAAP gross margin is defined as GAAP gross profit divided by total service revenue. GAAP gross profit increased by 2.4% from the three months ended December 31, 2020 to $68.2 million for the three months ended December 31, 2021 and decreased by 0.7% from the three months ended September 30, 2021. GAAP gross profit increased by 3.3% from the year ended December 31, 2020 to $274.2 million for the year ended December 31, 2021. GAAP gross margin was 46.3% for the three months ended December 31, 2021, 46.3% for the three months ended December 31, 2020 and 46.4% for the three months ended September 30, 2021. GAAP gross margin was 46.5% for the year ended December 31, 2021 and 46.7% for the year ended December 31, 2020.

Non-GAAP gross profit represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation and amortization expense). Non-GAAP gross margin is defined as Non-GAAP gross profit divided by total service revenue. Non-GAAP gross profit increased by 1.7% from the three months ended December 31, 2020 to $90.9 million for the three months ended December 31, 2021 and decreased by 0.6% from the three months ended September 30, 2021. Non-GAAP gross profit increased by 4.5% from the year ended December 31, 2020 to $366.0 million for the year ended December 31, 2021. Non-GAAP gross profit margin was 61.8% for the three months ended December 31, 2021, 62.1% for the three months ended December 31, 2020 and 61.8% for the three months ended September 30, 2021. Non-GAAP gross margin was 62.1% for the year ended December 31, 2021 and 61.6% for the year ended December 31, 2020.

Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $4.3 million for the three months ended December 31, 2021, $4.1 million for the three months ended December 31, 2020, $4.8 million for the three months ended September 30, 2021, $18.5 million for the year ended December 31, 2021 and $15.1 million for the year ended December 31, 2020.

Net cash provided by operating activities decreased by 4.2% from the three months ended December 31, 2020 to $36.0 million for the three months ended December 31, 2021 and decreased by 24.1% from the three months ended September 30, 2021. Net cash provided by operating activities increased by 21.3% from the year ended December 31, 2020 to $170.3 million for the year ended December 31, 2021.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 3.1% from the three months ended December 31, 2020 to $57.4 million for the three months ended December 31, 2021 and decreased by 0.6% from the three months ended September 30, 2021. EBITDA increased by 6.5% from the year ended December 31, 2020 to $227.9 million for the year ended December 31, 2021. EBITDA margin was 39.0% for the three months ended December 31, 2021, 38.7% for the three months ended December 31, 2020 and 39.0% for the three months ended September 30, 2021. EBITDA margin was 38.6% for the year ended December 31, 2021 and 37.7% for the year ended December 31, 2020.

Basic net income (loss) per share was $0.40 for the three months ended December 31, 2021, $(0.14) for the three months ended December 31, 2020 and $0.29 for the three months ended September 30, 2021. Diluted net income (loss) per share was $0.39 for the three months ended December 31, 2021, $(0.14) for the three months ended December 31, 2020 and $0.28 for the three months ended September 30, 2021. Basic net income per share was $1.04 for the year ended December 31, 2021 and $0.14 for the year ended December 31, 2020. Diluted net income per share was $1.03 for the year ended December 31, 2021 and $0.13 for the year ended December 31, 2020.

Unrealized foreign exchange gains (losses) on Cogent’s 2024 Senior Euro Unsecured Notes were $8.8 million for the three months ended December 31, 2021, $(19.2) million for the three months ended December 31, 2020, $10.2 million for the three months ended September 30, 2021, $32.5 million for the year ended December 31, 2021 and $(37.0) million for the year ended December 31, 2020.

Total customer connections increased by 4.6% from December 31, 2020 to 93,726 as of December 31, 2021 and increased by 0.8% from September 30, 2021. On-net customer connections increased by 4.4% from December 31, 2020 to 80,723 as of December 31, 2021 and increased by 0.7% from September 30, 2021. Off-net customer connections increased by 5.8% from December 31, 2020 to 12,669 as of December 31, 2021 and increased by 1.4% from September 30, 2021.

The number of on-net buildings increased by 121 from December 31, 2020 to 3,035 as of December 31, 2021 and increased by 27 from September 30, 2021.

Quarterly Dividend Increase Approved On February 23, 2022, Cogent’s Board approved a regular quarterly dividend of $0.855 per common share payable on March 25, 2022 to shareholders of record on March 9, 2022. This first quarter 2022 regular dividend represents a 3.0% increase of $0.025 per share from the fourth quarter 2021 regular dividend of $0.830 per share and an annual increase of 13.2% from the Q1 2021 dividend of $0.755 per share.

The payment of any future dividends and any other returns of capital will be at the discretion of the Board 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 the Board.

Tax Treatment of 2021 DividendsCogent paid four quarterly dividends in 2021 totaling $150.3 million, or $3.17 per share. The expected tax treatment of these dividends are generally that 79.3% are treated as a return of capital and 20.7% are generally treated as dividends for United States federal income tax purposes. While the above information includes general statements about the tax classification of dividends paid on Cogent common stock, these statements do not constitute tax advice. The taxation of corporate distributions can be complex, and stockholders are encouraged to consult their tax advisers to determine what impact the above information may have on their specific tax situation.

Impact of COVID-19Cogent continues to be impacted by the COVID-19 pandemic and the accompanying responses by governments around the world. The recent spread of the Delta and Omicron variants of COVID-19 has introduced new uncertainty.

The ongoing impact of the COVID-19 pandemic, including the spread of variant strains, and related government restrictions on Cogent’s business is unknown as a significant amount of uncertainty and volatility remains. Cogent does not know the ultimate scope and duration of the pandemic, the availability, efficacy and uptake of vaccines and therapeutic treatments, government actions that have been taken, or may be taken in the future in response to the pandemic and global economic conditions during and after the pandemic. Cogent has experienced a slight slowdown in the availability and delivery of networking equipment but Cogent believes it can adequately manage the operation, maintenance, upgrading and growth of its network. A worsening or prolonged slowdown may impact our ability to expand and augment our network. Most Cogent employees worldwide returned to its offices on a full-time basis in the fall of 2021, but following the spread of the Omicron variant in late 2021 and early 2022 and the reintroduction of government restrictions in Europe and Asia, Cogent shifted much of its workforce back to remote work status on a temporary basis. Cogent intends to return its employees worldwide to its offices if and when circumstances warrant. Cogent is implementing measures to protect its workforce, but it can provide no assurance that these measures will be sufficient. Cogent’s decisions to require its employees to return to its offices on a full-time basis in the fall and its determination to do so again later in 2022 and to implement a COVID-19 vaccine mandate, where legally permitted, may impede its ability to retain existing employees or attract new employees. Moreover, Cogent’s results of operations may be adversely affected in the future as the pandemic and the related government restrictions continue or are reintroduced. Cogent may also experience slowdowns in new customer orders, find it difficult to collect from customers who are experiencing financial distress, undergo an increase in customer churn, encounter difficulties accessing the buildings and locations where Cogent installs new services and serves existing customers, or have difficulties procuring, shipping or installing necessary equipment on its network. Cogent may find that the impact of the pandemic on its vendors and their respective workforces may slow the delivery of services from these vendors to Cogent. Cogent may also find that its largest customer base, which is served primarily in its multi-tenant office buildings, may be adversely affected by falling demand for commercial office space in central business districts as companies located in these buildings elect not to return to their office space either on a temporary or even permanent basis or slow the pace of opening new offices. In addition, Cogent’s corporate customer base may reduce their overall number of locations due to adverse economic conditions or new working configurations which may adversely affect Cogent’s number of corporate connections and service revenues. As a result, the global economic impact of the COVID-19 pandemic may have prolonged effects that impact Cogent’s business well into the future. These and other risks are described in more detail in Cogent’s Annual Report on Form 10-K for the year ended December 31, 2021 and our Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021.

Conference Call and Website InformationCogent will host a conference call with financial analysts at 8:30 a.m. (ET) on February 24, 2022 to discuss Cogent’s operating results for the fourth quarter of 2021 and full year 2021 and to discuss Cogent’s expectations for full year 2022. 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. A downloadable file of Cogent’s “Summary of Financial and Operational Results” and a transcript of its conference call will also be available on Cogent’s website following the conference call.

About Cogent CommunicationsCogent 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 216 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 [email protected]

Schedules of Non-GAAP Measures EBITDA and EBITDA, as adjusted

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

Summary of Financial and Operational Results

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Metric ($ in 000’s, except share and per share data) – unaudited

On-Net revenue

$103,457

$103,800

$105,091

$107,109

$109,947

$111,041

$111,099

$110,749

% Change from previous Qtr.

0.8%

0.3%

1.2%

1.9%

2.6%

1.0%

0.1%

-0.3%

Off-Net revenue

$37,321

$37,044

$37,092

$36,672

$36,723

$36,699

$36,656

$36,304

-0.4%

-0.7%

-1.1%

-0.1%

-1.0%

Non-Core revenue (1)

$137

$146

$119

$120

$107

$139

$172

$155

5.4%

6.6%

-18.5%

-10.8%

29.9%

23.7%

-9.9%

Service revenue – total

$140,915

$140,990

$142,302

$143,901

$146,777

$147,879

$147,927

$147,208

0.4%

0.9%

1.1%

2.0%

0.0%

-0.5%

Constant currency total revenue quarterly growth rate – sequential quarters (6)

0.6%

0.2%

-0.2%

0.7%

1.7%

0.5%

Constant currency total revenue quarterly growth rate – year over year quarters (6)

5.6%

5.1%

3.1%

2.3%

2.8%

3.6%

2.9%

Excise Taxes included in service revenue

$3,743

$3,298

$3,902

$4,144

$4,528

$4,811

$4,813

$4,336

-13.6%

-11.9%

18.3%

6.2%

9.3%

6.3%

Network operations expenses (2)

$55,669

$53,581

$54,173

$54,513

$55,016

$56,044

$56,482

$56,272

-3.8%

GAAP gross profit (3)

$65,486

$67,208

$66,164

$66,617

$67,715

$69,603

$68,673

$68,223

1.8%

-1.6%

1.6%

-1.3%

GAAP gross margin (3)

46.5%

47.7%

46.3%

46.1%

47.1%

46.4%

Non-GAAP gross profit (4) (6)

$85,246

$87,409

$88,129

$89,388

$91,761

$91,835

$91,445

$90,936

2.5%

1.4%

2.7%

-0.6%

Non-GAAP gross margin (4) (6)

60.5%

62.0%

61.9%

62.1%

62.5%

61.8%

Selling, general and administrative expenses (5)

$34,852

$34,061

$33,546

$33,713

$36,211

$34,654

$33,692

$33,526

-2.3%

-1.5%

7.4%

-4.3%

-2.8%

Depreciation and amortization expense

$19,508

$19,896

$21,619

$22,455

$21,970

$22,096

$22,609

$22,567

-2.5%

8.7%

3.9%

-2.2%

Equity-based compensation expense

$5,075

$6,083

$6,522

$5,846

$7,307

$6,874

$6,588

$6,053

19.9%

7.2%

-10.4%

25.0%

-5.9%

-4.2%

-8.1%

Operating income

$25,850

$27,574

$26,036

$27,384

$26,291

$28,211

$28,556

$36,165

-7.8%

6.7%

-5.6%

5.2%

-4.0%

7.3%

26.6%

Interest expense

$15,220

$15,499

$15,760

$16,007

$15,836

$14,236

$17,349

$19,653

-10.1%

21.9%

13.3%

Net income (loss)

$9,227

$8,564

$(4,955)

$(6,620)

$18,851

$(2,493)

$13,320

$18,507

Realized and unrealized gains (losses) on 2024 Euro Notes

$2,908

$(873)

$(17,315)

$(19,170)

$18,870

$(5,280)

$10,169

$8,763

Basic net income (loss) per common share

$0.20

$0.19

$(0.11)

$(0.14)

$0.41

$(0.05)

$0.29

$0.40

Diluted net income (loss) per common share

$0.18

$0.28

$0.39

Weighted average common shares – basic

45,658,565

45,754,880

45,815,718

45,904,943

46,067,096

46,229,603

46,293,524

46,420,168

Weighted average common shares – diluted

46,391,066

46,686,665

46,507,258

46,866,929

46,992,639

-1.9%

1.3%

EBITDA (6)

$50,394

$53,348

$54,583

$55,675

$55,550

$57,181

$57,753

$57,410

-4.4%

5.9%

EBITDA margin

35.8%

37.8%

38.4%

38.7%

39.0%

Gains on asset related transactions

$39

$205

$99

$10

$18

EBITDA, as adjusted (6)

$50,433

$53,553

$54,682

$55,685

$55,568

-4.8%

2.1%

EBITDA, as adjusted, margin

38.0%

37.9%

Net cash provided by operating activities

$28,458

$41,311

$32,980

$37,571

$47,106

$39,749

$47,418

$35,984

-38.3%

45.2%

-20.2%

13.9%

25.4%

-15.6%

19.3%

-24.1%

Capital expenditures

$12,866

$13,930

$13,296

$15,860

$15,444

$17,217

$21,959

$15,296

30.0%

8.3%

-4.6%

-2.6%

11.5%

27.5%

-30.3%

Principal payments of capital (finance) lease obligations

$6,167

$3,716

$9,509

$4,598

$5,744

$6,192

$4,890

$6,228

200.0%

-39.7%

155.9%

-51.6%

24.9%

7.8%

-21.0%

27.4%

Dividends paid

$30,557

$31,738

$32,657

$34,460

$36,081

$37,001

$37,654

$39,552

Purchases of common stock

$ –

$270

$4,225

Gross Leverage Ratio

4.78

5.08

5.10

5.14

4.39

5.13

5.07

5.02

Net Leverage Ratio

2.92

3.07

3.24

3.40

3.31

3.45

3.50

3.58

Customer Connections – end of period

On-Net

75,163

75,927

76,338

77,305

78,389

79,146

80,162

80,723

Off-Net

11,721

11,846

11,849

11,970

12,216

12,386

12,495

12,669

Non-Core (1)

329

339

322

325

320

336

334

3.0%

-5.0%

5.0%

Total customer connections

87,213

88,112

88,509

89,600

90,925

91,868

92,991

93,726

1.5%

On-Net Buildings – end of period

Multi-Tenant office buildings

1,769

1,771

1,783

1,792

1,796

1,802

1,816

1,817

Carrier neutral data center buildings

1,000

1,029

1,047

1,068

1,089

1,119

1,138

1,164

Cogent data centers

Total on-net buildings

2,823

2,854

2,884

2,914

2,939

2,975

3,008

3,035

Total carrier neutral data center nodes

1,175

1,203

1,225

1,252

1,274

1,309

1,332

1,359

Square feet – multi-tenant office buildings – on-net

961,154,384

962,049,183

968,355,695

976,813,678

978,095,164

979,876,141

984,753,702

986,941,224

Network – end of period

Intercity route miles

58,009

58,142

58,285

58,761

59,741

60,676

Metro fiber miles

36,079

36,438

36,725

37,567

38,058

38,351

38,825

39,559

Connected networks – AS’s

7,042

7,133

7,222

7,338

7,471

7,530

7,597

7,569

Headcount – end of period

Sales force – quota bearing

542

572

597

569

547

565

516

490

Sales force – total

684

716

740

712

693

710

662

633

Total employees

1,052

1,083

1,110

1,066

1,087

1,031

1,001

Sales rep productivity – units per full time equivalent sales rep (“FTE”) per month

4.5

4.0

3.7

4.2

4.3

FTE – sales reps

522

533

563

511

521

467

(1)

Consists of legacy services of companies whose assets or businesses were acquired by Cogent.

(2)

Network operations expense excludes equity-based compensation expense of $252, $305, $346, $316, $2,076, $136, $163 and $146 in the three month periods ended March 31, 2020 through December 31, 2021, respectively. Network operations expense includes excise taxes, including Universal Service Fund fees of $3,743, $3,298, $3,902, $4,144, $4,528, $4,811, $4,813 and $4,336 in the three month periods ended March 31, 2020 through December 31, 2021, respectively.

(3)

GAAP gross profit is defined as total service revenue less network operations expense, depreciation and amortization and equity based compensation included in network operations expense. GAAP gross margin is defined as GAAP gross profit divided by total service revenue.

(4)

(5)

Excludes equity-based compensation expense of $4,823, $5,778, $6,176, $5,530, $5,231, $6,738, $6,425 and $5,907 in the three month periods ended March 31, 2020 through December 31, 2021, respectively.

(6)

See Schedules of Non-GAAP measures below for definitions and reconciliations to GAAP measures.

EBITDA represents net cash flows provided by operating activities plus changes in operating assets and liabilities, cash interest expense and cash 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 net cash 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 that 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.

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

Constant currency revenue is reconciled to service revenue as reported in the tables below.

2020

Year 2020

2021

Year 2021

($ in 000’s) – unaudited

$140,320

$170,257

Changes in operating assets and liabilities

5,325

$(3,232)

$6,255

$1,920

$12,780

$(9,060)

$2,352

$(6,267)

$(7,095)

$(43,831)

Cash interest expense and income tax expense

16,611

15,269

15,348

16,184

60,895

17,504

15,080

16,602

$28,521

$101,476

EBITDA

$213,995

$227,902

PLUS: Gains on asset related transactions

205

352

–

EBITDA, as adjusted

$214,347

$227,920

EBITDA margin

37.7%

38.6%

EBITDA, as adjusted, margin

Constant currency impact on revenue changes – sequential periods

Constant currency impact on revenue changes – prior year periods

Year

Service revenue, as reported – current period

$568,103

$589,797

Impact of foreign currencies on service revenue

184

202

(1,616)

(621)

(1,492)

(447)

(150)

709

808

(5,306)

Service revenue – as adjusted for currency impact (1)

$141,099

$141,192

$140,686

$143,280

$566,611

$146,330

$147,729

$148,636

$148,016

$584,491

Service revenue, as reported – prior sequential period

$140,292

$546,159

Constant currency (decrease) increase

$807

$277

$(304)

$978

$20,452

$2,429

$952

$757

$89

$16,388

Constant currency percent (decrease) increase

(0.2)%

3.7%

Service revenue, as adjusted for currency impact, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the prior sequential period. The Company believes that disclosing quarterly sequential revenue growth without the impact of foreign currencies on service revenue is a useful measure of sequential revenue growth. Service revenue, as adjusted for currency impact, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

Non-GAAP gross profit and Non-GAAP gross margin

746

674

(1,141)

(1,891)

(2,608)

(2,965)

(555)

916

Service revenue – as adjusted for currency impact (2)

$141,661

$141,664

$141,161

$142,010

$144,169

$144,914

$147,372

$148,124

Service revenue, as reported – prior year period

$134,137

$134,789

$136,942

Constant currency increase

$7,524

$6,875

$4,219

$1,718

$3,254

$3,924

$5,070

$4,223

Percent increase

Service revenue, as adjusted for currency impact, is determined by translating the service revenue for the current period at the average foreign currency exchange rates for the comparable prior year period. The Company believes that disclosing year over year revenue growth without the impact of foreign currencies on service revenue is a useful measure of revenue growth. Service revenue, as adjusted for currency impact, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information.

Non-GAAP gross profit and Non-GAAP gross margin are reconciled to GAAP gross profit and GAAP gross margin in the table below.

Gross and Net Leverage Ratios

Service revenue total

Minus – Network operations expense including equity-based compensation and including depreciation and amortization expense

75,429

73,782

76,138

77,284

302,633

79,062

78,276

79,254

78,985

315,577

GAAP Gross Profit (1)

$265,470

$274,220

Plus – Equity-based compensation – network operations expense

252

305

346

316

1,219

2,076

136

163

146

2,521

Plus – Depreciation and amortization expense

19,508

19,896

21,619

22,455

83,477

21,970

22,096

22,609

22,567

89,240

Non-GAAP Gross Profit (2)

$350,166

$365,981

GAAP Gross Margin (1)

46.7%

Non-GAAP Gross Margin (2)

61.6%

Gross leverage ratio is defined as total debt divided by the trailing last 12 months EBITDA, as adjusted. Net leverage ratio is defined as total net debt (total debt minus cash and cash equivalents) divided by the trailing last 12 months EBITDA, as adjusted. Cogent’s gross leverage ratio and net leverage ratio are shown below.

Cogent’s SEC filings are available online via the Investor Relations section of www.cogentco.com or on the Securities and Exchange Commission’s website at www.sec.gov.

As of September 30, 2021

As of December 31, 2021

Cash and cash equivalents & restricted cash

$354,955

$328,624

Debt

Capital (finance) leases – current portion

16,685

17,048

Capital (finance) leases – long term

222,854

228,822

Senior Secured 2022 Notes

Senior Secured 2026 Notes

500,000

Senior Unsecured Euro 2024 Notes

405,637

397,005

Note payable

1,868

791

Total debt

1,147,044

1,143,666

Total net debt

792,089

815,042

Trailing 12 months EBITDA, as adjusted

226,187

227,902

Gross leverage ratio

Net leverage ratio

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2021 AND 2020

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Assets

Current assets:

Cash and cash equivalents

319,609

371,301

Restricted cash

9,015

—

Accounts receivable, net of allowance for credit losses of $1,510 and $1,921, respectively

41,938

44,185

Prepaid expenses and other current assets

39,015

40,851

Total current assets

409,577

456,337

Property and equipment:

Property and equipment

1,619,515

1,515,867

Accumulated depreciation and amortization

(1,161,635)

(1,085,532)

Total property and equipment, net

457,880

430,335

Right-of-use leased assets

101,687

99,666

Deposits and other assets

15,413

14,139

Total assets

984,557

1,000,477

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

11,923

9,775

Accrued and other current liabilities

39,057

51,029

Current maturities, operating lease liabilities

12,197

11,151

Installment payment agreement, current portion, net of discount of $6 and $136, respectively

785

6,786

Finance lease obligations, current maturities

15,702

Total current liabilities

81,010

94,443

Senior secured 2022 notes, net of unamortized debt costs of $1,052 and including premium of $544

444,492

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $2,121 and $2,961, respectively and net of discount of $772 and $1,142, respectively

394,112

425,160

Senior unsecured 2026 notes, net of unamortized debt costs of $1,156 and discount of $1,536

497,308

Operating lease liabilities, net of current maturities

111,794

111,318

Finance lease obligations, net of current maturities

203,438

Other long-term liabilities

44,609

14,792

Total liabilities

1,357,655

1,293,643

Commitments and contingencies

Stockholders’ equity:

Common stock, $0.001 par value; 75,000,000 shares authorized; 47,674,189 and 47,214,077 shares issued and outstanding, respectively

Additional paid-in capital

547,734

515,867

Accumulated other comprehensive loss

(11,003)

(1,306)

Accumulated deficit

(909,877)

(807,774)

Total stockholders’ deficit

(373,098)

(293,166)

Total liabilities and stockholders’ equity

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020

Three Months Ended December 31, 2021

Three Months Ended December 31, 2020

Service revenue

147,208

143,901

Operating expenses:

Network operations (including $146 and $316 of equity-based compensation expense, respectively), exclusive of amounts shown separately

56,418

54,829

Selling, general, and administrative (including $5,907 and $5,530 of equity-based compensation expense, respectively)

39,433

39,243

Depreciation and amortization

Total operating expenses

118,418

116,527

Gains on equipment transactions

Gain on lease termination

7,375

36,165

27,384

(19,653)

(16,007)

Unrealized foreign exchange gain (loss) on 2024 Euro Notes

8,763

(19,170)

Interest income and other

(9)

529

Income (loss) before income taxes

25,266

(7,264)

Income tax (expense) benefit

(6,759)

644

18,507

(6,620)

Comprehensive income (loss):

Foreign currency translation adjustment

(2,445)

6,192

Comprehensive income (loss)

16,062

(428)

0.40

(0.14)

0.39

Dividends declared per common share

0.83

0.73

Weighted-average common shares—basic

Weighted-average common shares—diluted

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2021

2019

589,797

568,103

546,159

Network operations (including $2,521, $1,219 and $994 of equity-based compensation expense, respectively), exclusive of amounts shown separately

226,337

219,157

219,801

Selling, general, and administrative (including $24,301, $22,306 and $17,466 of equity-based compensation expense, respectively)

162,380

158,476

146,913

80,247

477,957

461,110

446,961

1,059

Gains (losses) on lease terminations

(423)

119,233

106,922

100,257

(67,074)

(62,486)

(57,453)

Realized foreign exchange gain on 2024 Euro Notes

2,533

32,522

(36,997)

2,271

Loss on debt extinguishment and redemption – 2021 Notes

(638)

Loss on debt extinguishment and redemption – 2022 Notes

(14,698)

1,437

978

7,599

Income before income taxes

71,420

10,312

52,674

Income tax expense

(23,235)

(4,096)

(15,154)

Net income

48,185

6,216

37,520

Comprehensive income:

(9,697)

11,020

(1,398)

Comprehensive income

38,488

17,236

36,122

Basic net income per common share

1.04

0.14

0.82

Diluted net income per common share

1.03

0.13

0.81

3.17

2.78

2.44

46,419,180

45,947,772

45,542,315

46,963,920

46,668,198

46,080,395

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Cash flows from operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of debt discount and premium

426

468

Equity-based compensation expense (net of amounts capitalized)

6,053

5,846

Unrealized foreign currency exchange (gain) loss on 2024 Euro Notes

(8,763)

19,170

Gain – lease termination

(7,375)

Gains—equipment transactions and other, net

416

(115)

Deferred income taxes

6,237

(1,818)

Changes in operating assets and liabilities:

Accounts receivable

1,544

(1,600)

(1,751)

482

(245)

Accounts payable, accrued liabilities and other long-term liabilities

(1,888)

(452)

35,984

37,571

Cash flows from investing activities:

Purchases of property and equipment

(15,296)

(15,860)

Net cash used in investing activities

Cash flows from financing activities:

(39,552)

(34,460)

Principal payments of finance lease obligations

(6,228)

(4,598)

Principal payments of installment payment agreement

(1,077)

(2,692)

(4,225)

Proceeds from exercises of common stock options

586

207

Net cash used in financing activities

(46,271)

(45,768)

Effect of exchange rate changes on cash

(748)

2,065

Net decrease in cash and cash equivalents & restricted cash

(26,331)

(21,992)

Cash and cash equivalents & restricted cash, beginning of period

354,955

393,293

Cash and cash equivalents & restricted cash, end of period

328,624

Except for historical information and discussion contained herein, statements contained in this release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “projects” and similar expressions. The statements in this release are based upon the current beliefs and expectations of Cogent’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Numerous factors could cause or contribute to such differences, including the impact of the COVID-19 pandemic and the related government policies; future economic instability in the global economy or a contraction of the capital markets which could affect spending on Internet services and our ability to engage in financing activities; the impact of changing foreign exchange rates (in particular the Euro to USD and Canadian dollar to USD exchange rates) on the translation of our non-USD denominated revenues, expenses, assets and liabilities; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including net neutrality rules by the United States Federal Communications Commission and in the area of data protection; cyber-attacks or security breaches of our network; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; the ability to maintain our Internet peering arrangements on favorable terms; our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; and outcomes in litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2021 and our Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021. Cogent undertakes no duty to update any forward-looking statement or any information contained in this press release or in other public disclosures at any time.

Adjustments to reconcile net income to net cash provided by operating activities:

1,759

1,894

1,807

26,822

23,525

18,460

Unrealized foreign currency exchange loss (gain) on 2024 Euro Notes

(32,522)

36,997

(2,271)

Realized foreign currency exchange gain on 2024 Euro Notes

(2,533)

Loss on extinguishment & redemption of 2022 notes

14,698

Loss on extinguishment & redemption of 2021 notes

638

(546)

(358)

18,159

282

12,158

1,385

(2,702)

1,067

(17)

(2,771)

(3,730)

(12)

(873)

(1,131)

9,866

(3,284)

5,040

170,257

140,320

148,809

(69,916)

(55,952)

(46,958)

Net proceeds from issuance of 2026 Notes, net of debt costs of $1,317

496,933

Net proceeds from issuance of 2024 Euro Notes, net of debt costs of $2,137 and $1,556, respectively

240,285

152,134

Redemption and extinguishment of 2022 Notes

(459,317)

Redemption and extinguishment of 2021 Notes

(189,225)

(150,288)

(129,412)

(112,647)

(23,054)

(23,990)

(9,097)

(6,922)

(10,547)

(10,007)

(4,495)

1,823

1,382

1,637

Net cash (used in) provided by financing activities

(140,825)

(116,002)

22,020

(2,193)

3,513

(542)

Net (decrease) increase in cash and cash equivalents & restricted cash

(42,677)

(28,121)

123,329

Cash and cash equivalents & restricted cash, beginning of year

399,422

276,093

Cash and cash equivalents & restricted cash, end of year

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SOURCE Cogent Communications Holdings, Inc.

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