Cogent Did What?

November 6th, 2008 by · 1 Comment

Cogent Communications (CCOI) reported earnings today, and it was quite a show – a variety show.  You know, the kind where there is some amazing stuff and also some other stuff you wish stayed behind the curtain.  So after reviewing thejuice’s primer let’s look at the usual figures first:  Revenues of $54.6M were perhaps a tad light but roughly as expected.  However adjusted EBITDA was weaker than anticipated at $14.2M, due to higher costs.  Well, I suppose that’s the price you pay when you take a hatchet to your price point. Thejuice was absolutely right though that on-net revenues stagnated while off-net revenues climbed.  On the back of these weaker numbers, the company again reduced 2008 guidance, this time shifting revenue from $218M to $215M and EBITDA from $65M to $60M. Yep, that was the strange guy singing falsetto that you wish you’d never seen.  They did give 2009 guidance that corresponds to roughly 16% annual revenue growth, far down from past rates but still very solid relative to the rest of the sector.

Now on to the act that made you do a double take.  Do you remember back in September we learned that Cogent had bought back $20M in debt for $9.9M in a very shrewd if eyebrow raising move?  Well, apparently that was just the tip of the iceberg.  Including that purchase and moving on into October, Cogent announced that it has bought back $106M of its convertible debt for $47.7M, thus netting $56M for its 2008 earnings though not all was in Q3.  They also bought back 1.2M shares of their stock, but we had known that already.  Now the question is, what will the market think if this?  For Cogent, a $56M windfall trading profit is a big deal – especially at current valuations.  Slowing growth and rising costs are also a big deal.  Does the first make up for the second?  At all?  Or does the gloom just obscure it immediately?

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Categories: Financials · Internet Backbones

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  • Eric S says:

    Per my discussion with Professor Plum, that is exactly why marked-to-market EV matters b/c debt buybacks make a lot of sense with the industry in its strongest footing since inception. The CCOI buy is much bigger than the Level 3 buy relative to its size but I would expect Level 3 to continue to take out debt especially if they toss up $120M in fcf this quarter as theJuice estimates.

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