Cogent Blows Past Estimates, Suspends Special Dividend

November 5th, 2015 by · 3 Comments

According to its report this morning, Cogent Communications reached two interesting milestones this quarter.  First, they surpassed the $100M in quarterly revenue mark for the first time.  The network operator generated $103.0M in revenue and $0.07 per share in earnings, both coming in well ahead of expectations.  And second, they suspended their return of capital program after reaching the net leverage ratio they had been targeting.

 

$ in millions Q3/14 Q4/14 Q1/15 Q2/15 Q3/15
 - On-net 71.1 71.3 71.2 72.0 75.1
 - Off-net 24.3 25.1 25.7 26.5 27.7
 - Other 0.3 0.3 0.3 0.3 0.2
Revenue 95.7 96.7 97.2 98.8 103.0
EBITDA 33.7 33.6 31.2 31.3 34.3
Adj. Earnings per share (0.00) (0.01) (0.04) 0.02 0.07
Adj. Gross Margin 57.9% 57.7% 57.9 57.2 56.3
Adj. EBITDA Margin 35.4% 34.7% 32.1% 31.7% 33.4%
On-net Buildings 2090 2125 2155 2191 2221
Employees 768 776 785 799 808

 

The extra revenues came from a surge in on-net business during the quarter after a succession of low growth quarters on that front.  I am curious to hear on the call whether this is from new accounts generated by the new salesfolk they've been adding, or perhaps the result of the new interconnection agreements they managed to strike with large eyeball networks during the second quarter.  Those interconnection agreements in theory would have eased key bottlenecks in Cogent's traffic levels.  EBITDA also surged back, with margins rising back up above 33%.

On the return-of-capital front, Cogent has been paying significant dividends for a few years now, with the plan to stop once its net leverage ratio reached 2.5-3.5.  This quarter it reached 2.98, and thus the company has suspended the program.  That means the minimum $12M they had allocated to either stock buybacks or special dividends each quarter won't be on the table.  But they do still have the regular quartely dividend, which for Q4 will be $0.35 per common share - a penny more than in Q3.

Cogent's on-net footprint rose by the usual 30 buildings, while headcount passed the 800 mark for the first time as the sales force expansion continued.

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Categories: Financials · Internet Backbones

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