Cogent Communications Reports Fourth Quarter 2014 and Full Year 2014 Results and Increases Regular Quarterly Dividend on Common Stock

WASHINGTON, Feb. 25, 2015 /PRNewswire/ —

Financial and Business Highlights

• Service revenue for Q4 2014 of $96.7 million – an increase of 7.7% from $89.9 million for Q4 2013 and an increase of 1.1% from $95.7 million for Q3 2014
  • On a constant currency basis, service revenue increased by 2.5% from Q3 2014 to Q4 2014 and increased by 10.0% from Q4 2013 to Q4 2014
• Service revenue for 2014 of $380.0 million – an increase of 9.2% from $348.0 million for 2013
  • On a constant currency basis, service revenue increased by 9.6% from 2013 to 2014
• Cogent approves a 3.2% increase to its regular quarterly dividend to $0.32 per common share to be paid on March 26, 2015 to shareholders of record on March 11, 2015
  • Under Cogent’s return of capital program, Cogent purchased 328,000 shares of its common stock for $10.6 million during Q4 2014 at an average price of $32.14 per share
  • Under Cogent’s return of capital program, Cogent will pay an additional $1.4 million, or $0.03 per share with its regular quarterly dividend in order to pay a total of $12.0 million under its return of capital program
• In February 2015 Cogent refinanced $240.0 million of 8.375% senior secured debt due in 2018 with $250.0 million of 5.375% senior secured debt due in 2022 resulting in a $6.7 million annual reduction to cash interest expense
• EBITDA, as adjusted, for Q4 2014 of $33.6 million – an increase of 6.5% from $31.5 million for Q4 2013 and a decrease of 0.4% from $33.7 million for Q3 2014
• EBITDA, as adjusted, for 2014 of $133.0 million – an increase of 10.6% from $120.2 million for 2013
• EBITDA, as adjusted, margin was 34.7% for Q4 2014, 35.1% for Q4 2013 and 35.3% for Q3 2014
• EBITDA, as adjusted, margin increased to 35.0% for 2014 from 34.5% for 2013
• Legal fees included in SG&A expenses and associated with defending net neutrality were $1.2 million for Q4 2014 and $5.2 million for 2014
• Cash and cash equivalents were $287.8 million at December 31, 2014
• There were 2,125 buildings on the Cogent network at the end of Q4 2014
• There were 46,222 customer connections on the Cogent network at the end of Q4 2014 – an increase of 15.1% from 40,174 customer connections at the end of Q4 2013 and an increase of 3.6% from 44,630 customer connections at the end of Q3 2014

Cogent Communications Holdings, Inc. (CCOI) today announced  service revenue of $96.7 million for the three months ended December 31, 2014, an increase of 7.7% from $89.9 million for the three months ended December 31, 2013 and an increase of 1.1% from $95.7 million for the three months ended September 30, 2014.  The impact of foreign exchange negatively impacted service revenue growth from Q4 2013 to Q4 2014 by $2.1 million and negatively impacted service revenue growth from Q3 2014 to Q4 2014 by $1.4 million.  On a constant currency basis, service revenue grew by 10.0% from Q4 2013 to Q4 2014 and grew by 2.5% from Q3 2014 to Q4 2014.

Service revenue was $380.0 million for the year ended December 31, 2014, an increase of 9.2% from $348.0 million for the year ended December 31, 2013.  The impact of foreign exchange negatively impacted service revenue growth from 2013 to 2014 by $1.4 million.  On a constant currency basis, service revenue grew by 9.6% from 2013 to 2014.

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 $71.3 million for the three months ended December 31, 2014; an increase of 8.0% over $66.0 million for the three months ended December 31, 2013 and an increase of 0.4% over $71.1 million for the three months ended September 30, 2014. On-net revenue was $281.9 million for the year ended December 31, 2014, an increase of 10.6% from $255.0 million for the year ended December 31, 2013.

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 $25.1 million for the three months ended December 31, 2014; an increase of 7.3% over $23.4 million for the three months ended December 31, 2013 and an increase of 3.3% over $24.3 million for the three months ended September 30, 2014. Off-net revenue was $96.8 million for the year ended December 31, 2014, an increase of 6.3% over $91.1 million for the year ended December 31, 2013.

Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell.  Non-core revenue was $0.3 million for the three months ended December 31, 2014, $0.4 million for the three months ended December 31, 2013 and $0.3 million for the three months ended September 30, 2014.  Non-core revenue was $1.3 million for the year ended December 31, 2014, a decrease of 32.0% from $1.9 million for the year ended December 31, 2013.

Non-GAAP gross profit increased by 8.3% from $51.6 million for the three months ended December 31, 2013 to $55.9 million for the three months ended December 31, 2014 and increased by 0.8% from $55.4 million for the three months ended September 30, 2014. Non- GAAP gross profit increased 11.3% to $220.6 million for the year ended December 31, 2014 from $198.3 million for the year ended December 31, 2013.   Non-GAAP gross profit margin percentage was 57.7% for the three months ended December 31, 2014, 57.4% for the three months ended December 31, 2013 and 57.9% for the three months ended September 30, 2014.  Non-GAAP gross profit margin percentage was 58.1% for the year ended December 31, 2014 and 57.0% for the year ended December 31, 2013.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted, increased by 6.5% from $31.5 million for the three months ended December 31, 2013 to $33.6 million for the three months ended December 31, 2014 and decreased by 0.4% from $33.7 million for the three months ended September 30, 2014.   EBITDA, as adjusted, margin was 34.7% for the three months ended December 31, 2014, 35.1% for the three months ended December 31, 2013, and 35.3% for the three months ended September 30, 2014. EBITDA, as adjusted, increased 10.6% to $133.0 million for the year ended December 31, 2014 from $120.2 million for the year ended December 31, 2013.   EBITDA, as adjusted, margin was 35.0% for the year ended December 31, 2014 and 34.5% for the year ended December 31, 2013.

Basic and diluted net income (loss) per share was $(0.01) for the three months ended December 31, 2014, $1.14 and $1.10, respectively, for the three months ended December 31, 2013 and $(0.00) for the three months ended September 30, 2014.  Basic net income per share was $0.02 for the year ended December 31, 2014 and $1.22 for the year ended December 31, 2013.  Included in basic and diluted net income per share for the quarter and year ended December 31, 2013 was an income tax benefit totaling $49.3 million.

Total customer connections increased by 15.1% from 40,174 as of December 31, 2013 to 46,222 as of December 31, 2014 and increased by 3.6% from 44,630 as of September 30, 2014.  On-net customer connections increased by 14.8% from 34,671 as of December 31, 2013 to 39,786 as of December 31, 2014 and increased by 3.2% from 38,559 as of September 30, 2014.  Off-net customer connections increased by 19.4% from 5,088 as of December 31, 2013 to 6,074 as of December 31, 2014 and increased by 6.7% from 5,694 as of September 30, 2014.  Non-core customer connections were 362 as of December 31, 2014, 415 as of December 31, 2013 and 377 as of September 30, 2014.

The number of on-net buildings increased by 135 on-net buildings from 1,990 on-net buildings as of December 31, 2013 to 2,125 on-net buildings as of December 31, 2014 and increased by 35 on-net buildings from 2,090 on-net buildings as of September 30, 2014.

Quarterly Dividend Increase Approved

On February 24, 2015, Cogent’s board approved a dividend of $0.32 per common share payable on March 26, 2015 to shareholders of record on March 11, 2015. The first quarter 2015 regular dividend of $0.32 per share represents an increase of 3.2% from the fourth quarter 2014 regular dividend of $0.31 per share.

During the quarter ended December 31, 2014 Cogent purchased 328,000 shares of its common stock for $10.6 million at an average price per share of $32.14 under Cogent’s return of capital program.  Under Cogent’s return of capital program, Cogent plans on returning additional capital to its shareholders each quarter through either stock buybacks or a special dividend or a combination of stock buybacks and a special dividend.  The aggregate payment under this program is a minimum of $12.0 million each quarter and this amount is in addition to Cogent’s regular quarterly dividend payments.  Since the amount paid for stock buybacks in the fourth quarter was less than $12.0 million Cogent will pay a special dividend payment in the first quarter of 2015 under its return of capital program totaling $1.4 million or $0.03 per share.  The return of capital program is planned to continue until Cogent’s net debt to trailing twelve months EBITDA, as adjusted, ratio reaches 2.50. Cogent’s net debt to trailing twelve months EBITDA, as adjusted, ratio was 2.40 at December 31, 2014 and was 2.22 at September 30, 2014.

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 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 February 25, 2015 to discuss Cogent’s operating results for the fourth quarter of 2014 and full year 2014 and to discuss Cogent’s expectations for full year 2015.  Investors and other interested parties may access a live audio webcast of the earnings call in the “Events” section of Cogent’s website atwww.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 190 markets globally.

Cogent Communications is headquartered at 1015 31st Street, NW, Washington, D.C. 20007.  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.

Schedule 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 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.

EBITDA, as adjusted, represents EBITDA plus net gains (losses) on asset related transactions. The Company believes EBITDA, as adjusted, is a useful measure of its ability to service debt, fund capital expenditures and expand its business.  EBITDA, as adjusted, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information. The Company also believes that EBITDA is a frequently used measure by securities analysts, investors, and other interested parties in their evaluation of issuers.

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, EBITDA is 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 EBITDA and EBITDA, as adjusted, may also differ from the calculation of EBITDA and EBITDA, as adjusted, by its competitors and other companies and as such, its utility as a comparative measure is limited.

Net debt to trailing 12 months EBITDA, as adjusted, ratio

Under Cogent’s return of capital program Cogent plans on returning an additional at least $12.0 million to its shareholders each quarter through either stock buybacks or a special dividend or a combination of stock buybacks and a special dividend.  The aggregate payment under this program was at least $12.0 million each quarter and this amount is in addition to Cogent’s regular quarterly dividend payments.  The program is planned to continue until Cogent’s net debt to trailing twelve months EBITDA, as adjusted, ratio reaches 2.50. Cogent’s net debt to trailing twelve months EBITDA, as adjusted, ratio was 2.22 at September 30, 2014 and 2.40 at December 31, 2014 as shown below.

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

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 U.S. Universal Service Fund and similar funds in other countries; 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 annual report on Form 10-K for the fiscal year ended December 31, 2014 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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