COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

Summary of Financial and Operational Results

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

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

On-Net revenue

$92,387

$93,026

$93,790

$95,351

$97,183

  % Change from previous Qtr.

0.7%

0.8%

1.7%

1.9%

Off-Net revenue

$36,144

$36,107

$36,202

$36,551

$36,843

  % Change from previous Qtr.

1.4%

-0.1%

0.3%

1.0%

0.8%

Non-Core revenue (1)

$175

$163

$147

$147

$111

  % Change from previous Qtr.

-7.9%

-6.9%

-9.8%

-%

-24.5%

Service revenue – total

$128,706

$129,296

$130,139

$132,049

$134,137

  % Change from previous Qtr.

2.8%

0.5%

0.7%

1.5%

1.6%

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

2.0%

1.1%

1.1%

1.8%

1.7%

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

7.0%

6.3%

6.2%

6.2%

5.8%

Network operations expenses (2) 

$54,686

$54,147

$54,365

$55,436

$53,970

  % Change from previous Qtr.

1.8%

-1.0%

0.4%

2.0%

-2.6%

GAAP gross profit (3)

$54,043

$54,701

$55,248

$55,437

$59,724

  % Change from previous Qtr.

4.0%

1.2%

1.0%

0.3%

7.7%

GAAP gross margin (3)

42.0%

42.3%

42.5%

42.0%

44.5%

Non-GAAP gross profit (4) (6)

$74,020

$75,149

$75,774

$76,613

$80,167

  % Change from previous Qtr.

3.6%

1.5%

0.8%

1.1%

4.6%

Non-GAAP gross margin (4) (6)

57.5%

58.1%

58.2%

58.0%

59.8%

Selling, general and administrative expenses (5)

$29,928

$29,241

$28,838

$29,034

$32,568

  % Change from previous Qtr.

6.0%

-2.3%

-1.4%

0.7%

12.2%

Depreciation and amortization expense

$19,788

$20,216

$20,276

$20,952

$20,263

  % Change from previous Qtr.

2.3%

2.2%

0.3%

3.3%

-3.3%

Equity-based compensation expense

$3,784

$4,695

$4,821

$4,408

$3,434

  % Change from previous Qtr.

2.7%

24.1%

2.7%

-8.6%

-22.1%

Operating income

$20,637

$21,354

$22,255

$22,311

$24,400

  % Change from previous Qtr.

0.5%

3.5%

4.2%

0.3%

9.4%

Interest expense

$12,408

$12,373

$12,767

$13,508

$13,456

  % Change from previous Qtr.

1.5%

-0.3%

3.2%

5.8%

-0.4%

Net income

$6,784

$6,552

$8,231

$7,100

$9,217

Basic net income per common share

$0.15

$0.15

$0.18

$0.16

$0.20

Diluted net income per common share

$0.15

$0.14

$0.18

$0.16

$0.20

Weighted average common shares – basic

44,923,973

45,016,767

45,105,830

45,284,481

45,223,157

  % Change from previous Qtr.

0.2%

0.2%

0.2%

0.4%

-0.1%

Weighted average common shares – diluted

45,294,697

45,536,473

45,699,635

45,803,418

45,644,236

  % Change from previous Qtr.

1.0%

0.5%

0.4%

0.2%

-0.3%

EBITDA (6)

$44,092

$45,908

$46,936

$47,579

$47,561

  % Change from previous Qtr.

2.0%

4.1%

2.2%

1.4%

-%

EBITDA margin

34.3%

35.5%

36.1%

36.0%

35.5%

Gains on asset related transactions

$117

$357

$416

$92

$536

EBITDA, as adjusted (6)

$44,209

$46,265

$47,352

$47,671

$48,097

  % Change from previous Qtr.

1.5%

4.7%

2.3%

0.7%

0.9%

EBITDA, as adjusted, margin

34.3%

35.8%

36.4%

36.1%

35.9%

 Fees – net neutrality

$14

$39

$108

$16

$-

Net cash provided by operating activities

$30,179

$31,271

$31,745

$40,726

$28,637

  % Change from previous Qtr.

-3.8%

3.6%

1.5%

28.3%

-29.7%

Capital expenditures

$14,905

$11,988

$12,107

$10,937

$13,288

  % Change from previous Qtr.

40.4%

-19.6%

1.0%

-9.7%

21.5%

Principal payments on capital (finance) leases

$2,304

$3,755

$2,099

$2,128

$3,030

  % Change from previous Qtr.

25.7%

63.0%

-44.1%

1.4%

42.4%

Dividends paid

$22,819

$23,788

$24,764

$26,516

$26,565

Purchases of common stock

$ -

$ -

$ -

$ 6,564

$ -

Gross Leverage Ratio

4.33

4.22

4.46

4.36

4.28

Net Leverage Ratio

2.94

2.93

2.89

2.87

2.92

Customer Connections – end of period

On-Net

63,366

65,407

67,370

68,770

71,066

  % Change from previous Qtr.

3.3%

3.2%

3.0%

2.1%

3.3%

Off-Net

10,241

10,480

10,698

10,974

11,138

  % Change from previous Qtr.

2.9%

2.3%

2.1%

2.6%

1.5%

Non-Core (1)

307

306

307

362

318

  % Change from previous Qtr.

-5.8%

-0.3%

0.3%

17.9%

-12.2%

Total customer connections

73,194

76,193

78,375

80,106

82,522

  % Change from previous Qtr.

3.2%

3.1%

2.9%

2.2%

3.0%

On-Net Buildings – end of period

Multi-Tenant office buildings

1,672

1,710

1,720

1,735

1,746

Carrier neutral data center buildings

816

837

863

889

908

Cogent data centers

53

52

52

52

52

Total on-net buildings

2,541

2,599

2,635

2,676

2,706

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

911,283,287

927,410,239

934,535,144

944,232,756

949,486,923

Network  – end of period

Intercity route miles

57,403

57,403

57,403

57,426

57,426

Metro fiber miles

31,850

31,953

32,579

32,946

33,664

Connected networks – AS's

6,247

6,363

6,510

6,588

6,668

Headcount – end of period

Sales force – quota bearing

432

438

453

487

501

Sales force - total

555

566

583

619

639

Total employees

908

917

938

974

997

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

5.7

5.7

5.8

5.7

5.1

FTE – sales reps

427

413

418

436

464

(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 $189, $232, $250, $224 and $180 in the three month periods ended March 31, 2018 through March 31, 2019, respectively.  Network operations expense includes excise taxes, including Universal Service Fund fees of $3,157, $3,108, $3,010 and $3,234 and $3,391 in the three month periods ended March 31, 2018 through March 31, 2019, 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 $3,595, $4,463, $4,571, $4,184 and $3,254 in the three month periods ended March 31, 2018 through March 31, 2019, respectively. 

(6)

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

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

Q1
2018

Q2
2018

Q3
2018

Q4
2018

Q1
2019

($ in 000's) – unaudited

Net cash flows provided by operating activities

$30,179

$31,271

$31,745

$40,726

$28,637

Changes in operating assets and liabilities

2,919

2,408

4,254

6,727

Cash interest expense and income tax expense

10,994

12,229

10,937

11,214

12,197

EBITDA

$44,092

$45,908

$46,936

$47,579

$47,561

PLUS: Gains on asset related transactions

117

357

416

92

536

EBITDA, as adjusted

$44,209

$46,265

$47,352

$47,671

$48,097

EBITDA margin

35.5%

36.1%

36.0%

35.5%

EBITDA, as adjusted, margin

34.3%

35.8%

36.4%

36.1%

35.9%

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

2018

Q2

2018

Q3

2018

Q4

2018

Q1
2019

Service revenue, as reported – current period

$128,706

$129,296

$130,139

$132,049

$134,137

Impact of foreign currencies on service revenue

802

613

465

135

Service revenue - as adjusted  for currency impact (1)

$127,725

$130,098

$130,752

$132,514

$134,272

Service revenue, as reported – prior sequential period

$125,226

$128,706

$129,296

$130,139

$132,049

Constant currency increase

$2,499

$1,392

$1,456

$2,375

$2,223

Constant currency percent increase

2.0%

1.1%

1.1%

1.8%

1.7%

(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

2018

Q2

2018

Q3

2018

Q4

2018

Q1
2019

Service revenue, as reported – current period

$128,706

$129,296

$130,139

$132,049

$134,137

Impact of foreign currencies on service revenue

(3,280)

(1,937)

445

896

2,078

Service revenue - as adjusted for currency impact  (2)

$125,426

$127,359

$130,584

$132,945

$136,215

Service revenue, as reported – prior year period

$117,203

$119,777

$122,969

$125,226

$128,706

Constant currency increase

$8,223

$7,582

$7,615

$7,719

$7,509

Percent increase

7.0%

6.3%

6.2%

6.2%

5.8%

(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 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

($ in 000's) – unaudited

Service revenue total

$128,706

$129,296

$130,139

$132,049

$134,137

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

74,663

74,595

74,891

76,612

74,413

GAAP Gross Profit (1)

$54,043

$54,701

$55,248

$55,437

$59,724

Plus  - Equity-based compensation – network operations expense

189

232

250

224

180

Plus – Depreciation and amortization expense

19,788

20,216

20,276

20,952

20,263

Non-GAAP Gross Profit (2)

$74,020

$75,149

$75,774

$76,613

$80,167

GAAP Gross Margin (1)

42.0%

42.3%

42.5%

42.0%

44.5%

Non-GAAP Gross Margin (2)

57.5%

58.1%

58.2%

58.0%

59.8%

(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 and net leverage ratio are shown below.

($ in 000's) – unaudited

As of December 31, 2018

As of March 31, 2019

Cash and cash equivalents

$276,093

$259,138

Debt

Capital (finance) leases – current portion

7,074

7,293

Capital (finance) leases – long term

156,706

157,541

Senior unsecured notes

189,225

189,225

Senior secured notes

445,000

445,000

Note payable

11,239

12,286

Total debt

809,244

811,345

Total net debt

533,151

552,207

Trailing 12 months EBITDA, as adjusted

185,499

189,385

Gross leverage ratio

4.36

4.28

Net leverage ratio

2.87

2.92

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

AS OF MARCH 31, 2019 AND DECEMBER 31, 2018

(IN THOUSANDS, EXCEPT SHARE DATA)

March 31,
2019

December 31,
2018

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

259,138

$

276,093

Accounts receivable, net of allowance for doubtful accounts of $1,353 and $1,263, respectively

39,258

41,709

Prepaid expenses and other current assets

35,454

32,535

Total current assets

333,850

350,337

Property and equipment, net

375,346

375,325

Right-of-use leased assets

73,305

—

Deferred tax assets

159

2,733

Deposits and other assets

14,343

11,455

Total assets

$

797,003

$

739,850

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

9,619

$

8,519

Accrued and other current liabilities

45,564

51,431

Installment payment agreement, current portion, net of discount of $436 and $395, respectively

8,686

8,283

Current maturities, operating lease liabilities

10,389

—

Current maturities, finance lease obligations

7,293

7,074

Total current liabilities

81,551

75,307

Senior secured 2022 notes, net of unamortized debt costs of $2,500 and $2,695, respectively and including 
     premium of $1,302 and $1,405, respectively

443,802

443,710

Senior unsecured 2021 notes, net of unamortized debt costs of $1,325 and $1,476, respectively

187,900

187,749

Operating lease liabilities, net of current maturities

84,645

—

Finance lease obligations, net of current maturities

157,541

156,706

Other long term liabilities

5,795

25,380

Total liabilities

961,234

888,852

Commitments and contingencies:

Stockholders' equity:

Common stock, $0.001 par value; 75,000,000 shares authorized; 46,350,434 and 46,336,499 shares issued and 
     outstanding, respectively

46

46

Additional paid-in capital

475,275

471,331

Accumulated other comprehensive income — foreign currency translation

(12,753)

(10,928)

Accumulated deficit

(626,799)

(609,451)

Total stockholders' deficit

(164,231)

(149,002)

Total liabilities and stockholders' deficit

$

797,003

$

739,850

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND MARCH 31, 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Three Months
Ended
March 31, 2019

Three Months
Ended
March 31, 2018

(Unaudited)

(Unaudited)

Service revenue

$

134,137

$

128,706

Operating expenses:

Network operations (including $180 and $189 of equity-based compensation expense, respectively, exclusive of 
     depreciation and amortization shown separately below)

54,150

54,875

Selling, general, and administrative (including $3,254 and $3,595 of equity-based compensation expense, 
     respectively)

35,860

33,523

Depreciation and amortization

20,263

19,788

Total operating expenses

110,273

108,186

Gains on equipment transactions

536

117

Operating income

24,400

20,637

Interest income and other, net

1,827

1,694

Interest expense

(13,456)

(12,408)

Income before income taxes

12,771

9,923

Income tax provision

(3,554)

(3,139)

Net income

$

9,217

$

6,784

Comprehensive income:

Net income

$

9,217

$

6,784

Foreign currency translation adjustment

(1,825)

2,611

Comprehensive income

$

7,392

$

9,395

Net income per common share:

Basic and diluted net income per common share

$

0.20

$

0.15

Dividends declared per common share

$

0.58

$

0.50

Weighted-average common shares - basic

45,223,157

44,923,973

Weighted-average common shares - diluted

45,644,236

45,294,697

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND MARCH 31, 2018

(IN THOUSANDS)

Three months
Ended
March 31, 2019

Three months
Ended
March 31, 2018

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

9,217

$

6,784

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

   Depreciation and amortization

20,263

19,788

   Amortization of debt discount and premium

414

370

   Equity-based compensation expense (net of amounts 
   capitalized)

3,434

3,784

   Gains — equipment transactions and other, net

(231)

(484)

   Deferred income taxes

2,572

2,623

Changes in operating assets and liabilities:

   Accounts receivable

2,264

1,355

   Prepaid expenses and other current assets

(3,187)

(1,213)

   Accounts payable, accrued liabilities and other long-term 
   liabilities

(2,778)

(2,005)

   Deposits and other assets

(3,331)

(823)

   Net cash provided by operating activities

28,637

30,179

Cash flows from investing activities:

Purchases of property and equipment

(13,288)

(14,905)

Net cash used in investing activities

(13,288)

(14,905)

Cash flows from financing activities:

Dividends paid

(26,565)

(22,819)

Proceeds from exercises of stock options

173

297

Principal payments on installment payment agreement

(2,387)

(1,965)

Principal payments of finance lease obligations

(3,030)

(2,304)

Net cash used in financing activities

(31,809)

(26,791)

Effect of exchange rates changes on cash

(495)

532

Net decrease in cash and cash equivalents

(16,955)

(10,985)

Cash and cash equivalents, beginning of period

276,093

247,011

Cash and cash equivalents, end of period

$

259,138

$

236,026