More Detail on Cogent From TheJuice

Good morning all. Well Cogent (CCOI) reported this morning and there are quite a few items to discuss. First off, these guys are good traders. Although not impacted in the current financial statements it appears they have purchased back more than 50% of their debt for less than .50 cents on the dollar. Further, as we know they continued their assault on share repurchases retiring another 1.2M shares. They have $32.1M of additional shares they can repurchase between now and 12/31/2009 (I confirmed the date with IR last night).

Balance sheet maneuvering aside below are the results vs. my expectations.

				est	diff
	q1	q2		q3
on-net	42811	44215	44243	45109	-866
off-net	7994	8459	8995	8884	111
non-core	1305	1185	1356	1009	347
total rev	52110	53859	54594	55001	-407
cogs	21958	22952	24059	23641	418
gross profit	30152	30907	30535	31361	-826
sga	15550	14448	16403	14860	1543
ebitdas	14602	16459	14132	16500	-2368
one-time gain	16	126	9762	0	9762
adjustment	0	0	7		7
adj. ebitdas	14618	16585	23901	16500	7401
interest	671	1986	2159	2500	-341
working cap	2439	250	-5848	211	-6059
cash flow operating	11492	14223	17828	13789	4039
capex	9778	9029	9515	7193	2322
FCF	1714	5194	8313	6596	1717
repay cap lease	-6396	-3638	-5571	-7000	1429
mature short term investments	0	650	0	0	0
disposition	22	44	40	0	40
stock option	53	47	21	0	21
exchange rate	245	100	-836	0	-836
adj. FCF	-4362	2397	1967	-404	2371
stock buy	-18054	-27994	-11984	-11984	0
debt buy	0	0	-9941	-9900	-41
change in cash	-22416	-25597	-19958	-22288	2330
begin cash	177021	154605	129008	129008	0
end cash	154605	129008	109050	106720	2330

As you can tell on-net revenues were a tad light, however, traffic increased on the network by 5% so I’m not concerned about this data-point. Adjusted EBITDAS was higher than forecast due to the one-time gain, but then lower than forecast due to higher SG&A. I’m betting that comes from hiring more sales guys (not unexpected if that’s the case.) Working cap came back strong and was a big source of cash for the quarter. After taking a bath on the euro and Canadian dollar, they still were FCFP, which is what allows these guys to keep buying back stock. All in all, not a bad quarter at all.

Guidance: Ok, this is where it hurts in the short-term, they are taking Q4 adjusted EBITDAS guidance down by around 7.6%. Personally, with the current environment, I’m not surprised. As to the 2009 adjusted EBITDAS guidance for 2009 they’re looking around an increase of 25%. That’s nice. All told, I’m happy and think the market will like it too!

Here is the updated EV/EBITDAS as of the end of the quarter, adjusted for the debt buyback and the impact on cash. Needless to say, they are trading a very low valuation relative to their historical average, or that of their competitive set.

CCOI
cash	61,350,000
equity	217,593,949	44,588,924	$4.88
current/other	8,646,000	8,646,000	100.00%
leases	97,559,000	97,559,000	100.00%
1% 14	38,455,292	90,705,000	42.396%
adj. ebitdas	60,000,000	196,910,000
ev	300,904,241
ev/ebitdas	5.015
debt/equity	0.665
debt/ebitdas	2.411

Let me know if I’m missing something.

thejuice.

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