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Press Release -- May 4th, 2017
Source: Cogent Communications
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Cogent Communications Reports First Quarter 2017 Results and Increases Regular Quarterly Dividend on Common Stock

WASHINGTON, May 4, 2017 /PRNewswire/ --

Cogent Communications Logo. (PRNewsFoto/Cogent Communications)

Financial and Business Highlights

  • Cogent approves a 4.8% increase of $0.02 per share to its regular quarterly dividend to $0.44 per common share to be paid on June 2, 2017 to shareholders of record on May 18, 2017
  • Service revenue for Q1 2017 increased by 1.4% from Q4 2016 to $117.2 million and on a constant currency basis increased from Q4 2016 by 1.6%
  • Service revenue for Q1 2017 increased by 8.2% from Q1 2016 and on a constant currency basis increased from Q1 2016 by 8.7%
  • Operating income increased by 26.2% from Q4 2016 to $18.7 million and increased from Q1 2016 by 19.1%
  • EBITDA, as adjusted margin increased by 130 basis points from Q4 2016 to 34.0% and increased from Q1 2016 by 110 basis points

Cogent Communications Holdings, Inc. (CCOI) today announced service revenue of $117.2 million for the three months ended March 31, 2017, an increase of 8.2% from $108.3 million for the three months ended March 31, 2016 and an increase of 1.4% from $115.6 million for the three months ended December 31, 2016.  Foreign exchange negatively impacted service revenue growth from Q4 2016 to Q1 2017 by $0.2 million and negatively impacted service revenue growth from Q1 2016 to Q1 2017 by $0.5 million.  On a constant currency basis, service revenue grew by 8.7% from Q1 2016 to Q1 2017 and grew by 1.6% from Q4 2016 to Q1 2017.

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 $83.6 million for the three months ended March 31, 2017; an increase of 6.2% over $78.7 million for the three months ended March 31, 2016 and an increase of 0.1% from $83.5 million for the three months ended December 31, 2016.

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 $33.4 million for the three months ended March 31, 2017; an increase of 13.7% over $29.4 million for the three months ended March 31, 2016 and an increase of 4.8% over $31.9 million for the three months ended December 31, 2016.

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 11.0% from $43.3 million for the three months ended March 31, 2016 to $48.0 million for the three months ended March 31, 2017 and increased by 5.7% from $45.4 million for the three months ended December 31, 2016. GAAP gross margin was 41.0% for the three months ended March 31, 2017, 39.9% for the three months ended March 31, 2016 and 39.3% for the three months ended December 31, 2016.  Excise taxes, including Universal Service Fund fees, recorded on a gross basis and included in service revenue and cost of network operations expense were $2.6 million for the three months ended March 31, 2017, $2.5 million for the three months ended December 31, 2016 and $2.0 million for the three months ended March 31, 2016.

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 9.0% from $61.1 million for the three months ended March 31, 2016 to $66.7 million for the three months ended March 31, 2017 and increased by 1.5% from $65.7 million for the three months ended December 31, 2016. Non-GAAP gross profit margin was 56.9% for the three months ended March 31, 2017, 56.5% for the three months ended March 31, 2016 and 56.8% for the three months ended December 31, 2016.

Cash flow from operating activities decreased by 14.7% from $27.6 million for the three months ended March 31, 2016 to $23.5 million for the three months ended March 31, 2017 and decreased by 30.6% from $33.9 million for the three months ended December 31, 2016.

Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 12.1% from $33.7 million for the three months ended March 31, 2016 to $37.7 million for the three months ended March 31, 2017 and increased by 1.8% from $37.1 million for the three months ended December 31, 2016. EBITDA margin was 32.2% for the three months ended March 31, 2017, 31.1% for the three months ended March 31, 2016 and 32.1% for the three months ended December 31, 2016.

EBITDA, as adjusted, increased by 11.9% from $35.6 million for the three months ended March 31, 2016 to $39.9 million for the three months ended March 31, 2017 and increased by 5.6% from $37.7 million for the three months ended December 31, 2016. EBITDA, as adjusted, margin was 34.0% for the three months ended March 31, 2017, 32.9% for the three months ended March 31, 2016 and 32.7% for the three months ended December 31, 2016.

Basic and diluted net income per share was $0.09 for the three months ended March 31, 2017, $0.08 for the three months ended March 31, 2016 and $0.09 for the three months ended December 31, 2016.

Total customer connections increased by 16.1% from 55,356 as of March 31, 2016 to 64,243 as of March 31, 2017 and increased by 3.9% from 61,822 as of December 31, 2016. On-net customer connections increased by 16.0% from 47,252 as of March 31, 2016 to 54,805 as of March 31, 2017 and increased by 3.7% from 52,874 as of December 31, 2016. Off-net customer connections increased by 18.3% from 7,654 as of March 31, 2016 to 9,055 as of March 31, 2017 and increased by 5.3% from 8,598 as of December 31, 2016.

The number of on-net buildings increased by 135 on-net buildings from 2,271 on-net buildings as of March 31, 2016 to 2,406 on-net buildings as of March 31, 2017 and increased by 33 on-net buildings from 2,373 on-net buildings as of December 31, 2016.

Quarterly Dividend Increase Approved
On May 3, 2017, Cogent's board approved a regular quarterly dividend of $0.44 per common share payable on June 2, 2017 to shareholders of record on May 18, 2017. This second quarter 2017 regular dividend represents a 4.8% increase of $0.02 per share from the first quarter 2017 regular dividend of $0.42 per share.

The payment of any future dividends and any other returns of capital will be at the discretion of Cogent's board of directors 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 Cogent's board of directors.

Conference Call and Website Information
Cogent will host a conference call with financial analysts at 8:30 a.m. (ET) on May 4, 2017 to discuss Cogent's operating results for the first quarter of 2017 and to discuss Cogent's expectations for full year 2017. 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.

About Cogent Communications
Cogent Communications (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 over 190 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 info@cogentco.com.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

Summary of Financial and Operational Results

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

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

On-Net revenue

$78,705

$79,539

$81,846

$83,511

$83,586

  % Change from previous Qtr.

2.9%

1.1%

2.9%

2.0%

0.1%

Off-Net revenue

$29,356

$30,149

$30,972

$31,861

$33,386

 % Change from previous Qtr.

3.3%

2.7%

2.7%

2.9%

4.8%

Non-Core revenue (1)

$230

$267

$239

$224

$231

  % Change from previous Qtr.

-5.3%

16.1%

-10.5%

-6.3%

3.1%

Service revenue – total

$108,291

$109,955

$113,057

$115,596

$117,203

  % Change from previous Qtr.

3.0%

1.5%

2.8%

2.2%

1.4%

Constant currency total revenue quarterly growth rate –
sequential quarters (4)

3.0%

0.9%

3.1%

2.9%

1.6%

Constant currency total revenue quarterly growth rate –
year over year quarters (4)

12.2%

11.1%

9.7%

10.2%

8.7%

Network operations expenses (2)

$47,156

$47,727

$48,666

$49,943

$50,551

 % Change from previous Qtr.

3.2%

1.2%

2.0%

2.6%

1.2%

GAAP gross profit (3)

$43,261

$43,479

$45,426

$45,434

$48,003

 % Change from previous Qtr.

4.7%

0.5%

4.5%

0.0%

5.7%

GAAP gross margin (3)

39.9%

39.5%

40.2%

39.3%

41.0%

Non-GAAP gross profit (4) (6)

$61,135

$62,228

$64,391

$65,653

$66,652

 % Change from previous Qtr.

2.8%

1.8%

3.5%

2.0%

1.5%

Non-GAAP gross margin (4) (6)

56.5%

56.6%

57.0%

56.8%

56.9%

Selling, general and administrative expenses (5)

$27,472

$27,278

$27,220

$28,576

$28,925

  % Change from previous Qtr.

11.1%

-0.7%

-0.2%

5.0%

1.2%

Depreciation and amortization expense

$17,753

$18,604

$18,804

$20,073

$18,538

 % Change from previous Qtr.

-1.4%

4.8%

1.1%

6.7%

-7.6%

Equity-based compensation expense

$2,181

$2,687

$2,991

$2,876

$2,647

 % Change from previous Qtr.

-15.2%

23.2%

11.3%

-3.8%

-8.0%

Operating income

$15,675

$17,511

$16,063

$14,795

$18,666

 % Change from previous Qtr.

-3.1%

11.7%

-8.3%

-7.9%

26.2%

Interest expense

$10,065

$10,243

$9,891

$10,602

$11,891

 % Change from previous Qtr.

-2.1%

1.8%

-3.4%

7.2%

12.2%

Net income

$3,354

$4,224

$3,459

$3,892

$4,136

Basic net income per common share

$0.08

$0.09

$0.08

$0.09

$0.09

Diluted net income per common share

$0.08

$0.09

$0.08

$0.09

$0.09

Weighted average common shares – basic

44,402,640

44,491,899

44,574,583

44,577,826

44,649,645

 % Change from previous Qtr.

0.2%

0.2%

0.2%

0.0%

0.2%

Weighted average common shares – diluted

44,571,937

44,705,037

44,776,918

44,803,782

44,917,014

 % Change from previous Qtr.

0.0%

0.3%

0.2%

0.1%

0.3%

EBITDA (6)

$33,663

$34,950

$37,171

$37,077

$37,727

 % Change from previous Qtr.

-3.1%

3.8%

6.4%

-0.3%

1.8%

EBITDA margin

31.1%

31.8%

32.9%

32.1%

32.2%

Gains on asset related transactions

$1,946

$4,439

$687

$667

$2,124

EBITDA, as adjusted (6)

$35,609

$39,389

$37,858

$37,744

$39,851

  % Change from previous Qtr.

-3.1%

10.6%

-3.9%

-0.3%

5.6%

EBITDA, as adjusted, margin

32.9%

35.8%

33.5%

32.7%

34.0%

 Fees – net neutrality

$493

$1,036

$1,315

$432

$2

Net cash provided by operating activities

$27,557

$23,698

$22,833

$33,879

$23,514

  % Change from previous Qtr.

25.3%

-14.0%

-3.7%

48.4%

-30.6%

Capital expenditures

$15,034

$14,260

$8,745

$7,195

$12,249

  % Change from previous Qtr.

203.0%

-5.1%

-38.7%

-17.7%

70.2%

Principal payments on capital leases

$3,369

$3,935

$2,354

$2,808

$3,854

  % Change from previous Qtr.

2.9%

16.8%

-40.2%

19.3%

37.3%

Dividends paid

$16,171

$16,671

$17,169

$18,199

$18,999

Purchases of common stock

$ -

$ -

$ 1,666

$ 2,826

$ -

Gross Leverage Ratio

4.39

3.94

3.89

4.73

4.64

Net Leverage Ratio

2.97

2.88

2.90

2.90

2.94

Customer Connections – end of period

On-Net

47,252

49,243

51,079

52,874

54,805

  % Change from previous Qtr.

3.9%

4.2%

3.7%

3.5%

3.7%

Off-Net

7,654

7,971

8,259

8,598

9,055

 % Change from previous Qtr.

5.2%

4.1%

3.6%

4.1%

5.3%

Non-Core (1)

450

349

386

350

383

  % Change from previous Qtr.

12.5%

-22.4%

10.6%

-9.3%

9.4%

Total customer connections

55,356

57,563

59,724

61,822

64,243

  % Change from previous Qtr.

4.1%

4.0%

3.8%

3.5%

3.9%

On-Net Buildings – end of period

Multi-Tenant office buildings

1,545

1,560

1,577

1,592

1,601

Carrier neutral data center buildings

675

686

706

729

752

Cogent data centers

51

51

51

52

53

Total on-net buildings

2,271

2,297

2,334

2,373

2,406

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

834,341,216

840,042,330

847,266,071

858,958,167

864,432,176

Network  – end of period

Intercity route miles

56,183

56,183

56,684

57,213

57,213

Metro fiber miles

28,316

28,874

29,326

29,536

30,190

Connected networks – AS's

5,617

5,700

5,834

5,927

5,949

Headcount – end of period

Sales force – quota bearing

398

397

394

422

432

Sales force - total

517

519

516

542

554

Total employees

855

854

858

887

900

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

6.3

5.9

5.7

6.1

6.1

FTE – sales reps

373

373

377

384

416

(1)

Consists of legacy services of companies whose assets or businesses were acquired by Cogent, primarily including voice services (only provided in Toronto, Canada).

(2)

Network operations expense excludes equity-based compensation expense of $121, $145, $161, $146 and $111 in the three month periods ended March 31, 2016 through March 31, 2017, respectively.  Network operations expense includes excise taxes, including Universal Service Fund fees of $2,003, $2,156, $2,362, $2,549 and $2,604 in the three month periods ended March 31, 2016 through March 31, 2017, 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)

Non-GAAP gross profit represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation expense). Non-GAAP gross margin is defined as non-GAAP gross profit divided by total service revenue.  Management believes that Non-GAAP gross profit and Non-GAAP gross profit margin are relevant metrics to provide investors, as they are metrics that management uses to measure the margin available to the company after network service costs, in essence a measure of the efficiency of the Company's network.

(5)

Excludes equity-based compensation expense of $2,060, $2,542, $2,830, $2,730 and $2,536 in the three month periods ended March 31, 2016 through March 31, 2017, respectively. 

(6)

See schedule of non-GAAP metrics below for definitions and reconciliations to GAAP measures below.

Schedules of Non-GAAP Measures
EBITDA and EBITDA, as adjusted
EBITDA represents net cash flows from 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 cash flows 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 cash flows provided by operating activities in the table below.

Q1
2016

Q2
2016

Q3
2016

Q4

2016

Year
2016

Q1

2017

($ in 000's) – unaudited

Net cash flows provided by operating activities

$27,557

$23,698

$22,833

$33,879

$107,967

$23,514

Changes in operating assets and liabilities

(3,681)

1,755

4,737

(6,781)

(3,968)

3,192

Cash interest expense and income tax expense

9,787

9,497

9,601

9,979

38,861

11,021

EBITDA

$33,663

$34,950

$37,171

$37,077

$142,860

$37,727

PLUS: Gains on asset related transactions

1,946

4,439

687

667

7,739

2,124

EBITDA, as adjusted

$35,609

$39,389

$37,858

$37,744

$150,599

$39,851

EBITDA margin

31.1%

31.8%

32.9%

32.1%

32.0%

32.2%

EBITDA, as adjusted, margin

32.9%

35.8%

33.5%

32.7%

33.7%

34.0%

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

Constant currency impact on revenue changes – sequential periods

($ in 000's) – unaudited

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Year

2016

Q1

2017

Service revenue, as reported – current period

$108,291

$109,955

$113,057

$115,596

$446,900

$117,203

Impact of foreign currencies on service revenue

(10)

(709)

273

749

892

195

Service revenue - as adjusted  for currency impact (1)

$108,281

$109,246

$113,330

$116,345

$447,792

$117,398

Service revenue, as reported – prior sequential period

$105,177

$108,291

$109,955

$113,057

$404,234

$115,596

Constant currency increase

$3,104

$955

$3,375

$3,288

$43,558

$1,802

Constant currency percent increase

3.0%

0.9%

3.1%

2.9%

10.8%

1.6%

(1)

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.

Constant currency impact on revenue changes – prior year periods

($ in 000's) – unaudited

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Year

2016

Q1

2017

Service revenue, as reported – current period

$108,291

$109,955

$113,057

$115,596

$446,900

$117,203

Impact of foreign currencies on service revenue

855

(168)

(68)

276

892

503

Service revenue - as adjusted for currency impact  (2)

$109,146

$109,787

$112,989

$115,872

$447,792

$117,706

Service revenue, as reported – prior year period

$97,242

$98,799

$103,017

$105,177

$404,234

$108,291

Constant currency increase

$11,904

$10,988

$9,972

$10,695

$43,558

$9,415

Percent increase

12.2%

11.1%

9.7%

10.2%

10.8%

8.7%

(2)

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

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

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Year 2016

Q1 2017

($ in 000's) – unaudited

Service revenue total

$108,291

$109,955

$113,057

$115,596

$446,900

$117,203

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

65,030

66,476

67,631

70,162

269,299

69,200

GAAP Gross Profit (1)

$43,261

$43,479

$45,426

$45,434

$177,601

$48,003

Plus  - Equity-based compensation – network operations expense

121

145

161

146

573

111

Plus – Depreciation and amortization expense

17,753

18,604

18,804

20,073

75,234

18,538

Non-GAAP Gross Profit (2)

$61,135

$62,228

$64,391

$65,653

$253,408

$66,652

GAAP Gross Margin (1)

39.9%

39.5%

40.2%

39.3%

39.7%

41.0%

Non-GAAP Gross Margin (2)

56.5%

56.6%

57.0%

56.8%

56.7%

56.9%

(1)

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.

(2)

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.  Management believes that non-GAAP gross profit and non-GAAP gross margin are relevant metrics to provide to investors, as they are metrics that management uses to measure the margin and amount available to the Company after network service costs, in essence these are measures of the efficiency of the Company's network.

Gross and Net Leverage Ratios

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 was 4.73 at December 31, 2016 and 4.64 at March 31, 2017 and Cogent's net leverage ratio was 2.90 at December 31, 2016 and 2.94 at March 31, 2017 and as shown below.

($ in 000's) – unaudited

As of December 31, 2016

As of March 31, 2017

Cash and cash equivalents

$274,319

$263,196

Debt

Capital leases – current portion

6,626

7,215

Capital leases – long term

135,335

137,917

Senior unsecured notes

189,225

189,225

Senior secured notes

375,000

375,000

Note payable

5,521

8,611

Total debt

711,707

717,968

Total net debt

437,388

454,772

Trailing 12 months EBITDA, as adjusted

150,599

154,842

Gross leverage ratio

4.73

4.64

Net leverage ratio

2.90

2.94

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.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2017 AND DECEMBER 31, 2016

(IN THOUSANDS, EXCEPT SHARE DATA)

March 31,
2017

December 31,
2016

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

263,196

$

274,319

Accounts receivable, net of allowance for doubtful accounts of $1,543
and $1,734, respectively

33,698

33,598

Prepaid expenses and other current assets

20,944

19,706

Total current assets

317,838

327,623

Property and equipment, net

368,938

361,641

Deferred tax assets - noncurrent

38,914

42,241

Deposits and other assets - $663 and $128 restricted,
respectively

6,985

6,387

Total assets

$

732,675

$

737,892

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

12,286

$

11,551

Accrued and other current liabilities

45,146

47,149

Installment payment agreement, current portion, net of discount of $306
and $204, respectively

4,602

2,587

Current maturities, capital lease obligations

7,215

6,626

Total current liabilities

69,249

67,913

Senior secured 2022 notes, net of unamortized debt costs of
$2,162 and $2,257, respectively and including premium of $441
and $462, respectively

373,279

373,205

Senior unsecured 2021 notes, net of unamortized debt costs of
$2,445 and $2,575, respectively

186,780

186,650

Capital lease obligations, net of current maturities

137,917

135,335

Other long term liabilities

29,062

28,043

Total liabilities

796,287

791,146

Commitments and contingencies:

Stockholders' equity:

Common stock, $0.001 par value; 75,000,000 shares authorized;
45,498,751 and 45,478,787 shares issued and outstanding, respectively

45

45

Additional paid-in capital

445,976

442,799

Accumulated other comprehensive income — foreign currency translation

(15,865)

(17,193)

Accumulated deficit

(493,768)

(478,905)

Total stockholders' deficit

(63,612)

(53,254)

Total liabilities and stockholders' deficit

$

732,675

$

737,892

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND MARCH 31, 2016

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Three Months
Ended
March 31, 2017

Three Months
Ended
March 31, 2016

(Unaudited)

(Unaudited)

Service revenue

$

117,203

$

108,291

Operating expenses:

Network operations (including $111 and $121 of equity-based compensation expense,
respectively, exclusive of depreciation and amortization shown
separately below)

50,662

47,277

Selling, general, and administrative (including $2,536 and $2,060 of
equity-based compensation expense, respectively)

31,461

29,532

Depreciation and amortization

18,538

17,753

Total operating expenses

100,661

94,562

Gains on equipment transactions

2,124

1,946

Operating income

18,666

15,675

Interest income and other, net

854

133

Interest expense

(11,891)

(10,065)

Income before income taxes

7,629

5,743

Income tax provision

(3,493)

(2,389)

Net income

$

4,136

$

3,354

Comprehensive income:

Net income

$

4,136

$

3,354

Foreign currency translation adjustment

1,328

4,074

Comprehensive income

$

5,464

$

7,428

Net income per common share:

Basic and diluted net income per common share

$

0.09

$

0.08

Dividends declared per common share

$

0.42

$

0.36

Weighted-average common shares - basic

44,649,645

44,402,640

Weighted-average common shares - diluted

44,917,014

44,571,937

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND MARCH 31, 2016

(IN THOUSANDS)

Three months
Ended
March 31, 2017

Three months
Ended
March 31, 2016

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

4,136

$

3,354

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

Depreciation and amortization

18,538

17,753

Amortization of debt discount and premium

280

216

Equity-based compensation expense (net of amounts capitalized)

2,647

2,181

Gains — equipment transactions and other, net

(2,172)

(2,186)

Deferred income taxes

3,229

2,323

Changes in operating assets and liabilities:

Accounts receivable

43

(387)

Prepaid expenses and other current assets

(1,067)

(2,217)

Accounts payable, accrued liabilities and other long-term liabilities

(1,660)

8,379

Deposits and other assets

(460)

(1,859)

Net cash provided by operating activities

23,514

27,557

Cash flows from investing activities:

Purchases of property and equipment

(12,249)

(15,034)

Net cash used in investing activities

(12,249)

(15,034)

Cash flows from financing activities:

Dividends paid

(18,999)

(16,171)

Proceeds from exercises of stock options

300

206

Principal payments on installment payment agreement

(218)

(2,184)

Principal payments of capital lease obligations

(3,854)

(3,369)

Net cash used in financing activities

(22,771)

(21,518)

Effect of exchange rates changes on cash

383

1,454

Net decrease in cash and cash equivalents

(11,123)

(7,541)

Cash and cash equivalents, beginning of period

274,319

203,591

Cash and cash equivalents, end of period

$

263,196

$

196,050

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 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; 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 report on Form 10-Q  for the quarter ended March 31, 2017 to be filed with the Securities and Exchange Commission. 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.

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