Cogent Communications (NASDAQ:CCOI, news, filings) reported its fourth quarter earnings this morning. Overall, Cogent continued its streak of steady, increasingly profitable growth. Revenues were slightly low due to currency fluctuations, but the company managed a nice surprise down on the all-important bottom line. Here’s a quick table of today’s numbers in context.
| $ in millions | Q4/10 | Q1/11 | Q2/11 | Q3/11 | Q4/11 |
|---|---|---|---|---|---|
| Revenue | $69.5 | $73.5 | $75.6 | $77.4 | $79.1 |
| EBITDA | $22.6 | $24.2 | $25.4 | $26.7 | $27.8 |
| Earnings per share | 0.06 | -0.01 | 0.05 | 0.01 | 0.12 |
| Gross Margin | 55.5% | 56.9% | 56.2% | 56.7% | 57.8% |
| Adj. EBITDA Margin | 32.5% | 33.0% | 33.6% | 34.5% | 35.2% |
| On-net Buildings | 1579 | 1609 | 1669 | 1707 | 1744 |
Revenue Growth: The overall revenue number was a bit low due to a negative foreign exchange swing of $1M from the third quarter, else Cogent would have finished just above analyst projections. As has been the trend in recent quarters, Cogent’s off-net services led the way with 5.4% sequential growth, while it’s on-net services grew more slowly. Traffic on the company’s network was up 20% sequentially, and 53% over the same quarter last year – which seems to be in the usual ballpark.
EBITDA and Earnings: Cogent continued to keep costs in line, despite the additional off-net growth. With adjusted EBITDA of $27.8M, margins expanded once again, this time poking a head above the 35% threshold. Meanwhile, earnings per share surged mightily to $0.12, easily outdistancing analyst projections of $0.04 or so. Update: much of the extra EPS resulted from a one-time tax-related event.
Operationally speaking: Headcount increased again by 5% over the third quarter, which I assume to be focused on sales. Traffic on the company’s network was up 20% sequentially, and 53% over the same quarter last year – which seems to be in the usual ballpark. And Cogent added another 37 buildings to its network, finishing the year with an extra 165 on its on-net building list. Update, Cogent had dark fiber expansions into both Turkey and Lithuania in the quarter, as well as Japan via lit capacity.
Followup Thoughts: The company has been very quiet this winter, with the only major news being their peripheral involvement in the Megaupload takedown last month. The lingering question is how big an effect the loss of Megaupload as a customer will be, but that is a Q1 story that perhaps will be addressed on the conference call later this morning.
Megaupload followup: Cogent says that Megaupload was about 5% of total revenues, which would be about $4M/quarter. They do expect a sequential decline in Q1 for revenues, ebitda, and margin due to this customer loss, after which the former growth trend should resume. Growth for 2012 over 2011 will be below their usual 10-20% projections. This seems to be about as expected, at least if one was paying attention.
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7.5% of their ON NET revenues or “NET CENTRIC” are represented by 25 additional customers. Those customers are up for grabs in light of the Megaupload debacle which represented more than five percent standalone.
The larger sales force and corresponding hiring that has preceded all of this, will be hitting ROAD BLOCKS making SG&A a percentage weight as the competition exploits their involvement with Megaupload.
They’re not too good at managing Forex it seems. They lost $1M, or greater than 40 percent of their prior loss projection, and have flagged it going forward again.
Their DSO’s are increasing, which is not a good sign. With the bad wrap surrounding Megaupload, this could accelerate a compounding effect by other customers walking away. The CFO made a pitch to his team to keep working hard at collecting their outstanding bills in light of the approx. $2M “bad debt expense” being UNLOADED on them by MegaUPLOAD.
Nobody asked about the ongoing Megaupload investigation, and how it might be affecting them directly.
Rob, have they been exonerated of all charges, with no risk of BACK-DRAFT tied to aiding and abetting the distribution of pirated content?
There is negative top line growth for this company for the entire 2012, and no analyst, including Donna J. at Dean Davidson hasn’t breathed a word. It’s NOT an INVESTOR’s STORY!
It looks like the perfect short play to me. How it has avoided making a new 52 week low, remains Wall Street’s secret only. imo
Carl,
“It looks like the perfect short play to me.”
Please, please, make my day and do just that. Everything you wrote is just plain wrong.
“There is negative top line growth for this company for the entire 2012,”
You have the analytical powers of a carrot. It would be amusing if it wasn’t so sad.
An opinion is like an AHOLE, ENRON, everyone has one, and uses it routinely. The difference between each of us remains the accuracy of said opinion, and the timing for coming into fruition.
This is a public company, and yet, with an ongoing indictment/investigation tied to its largest customer, whose traffic was being fenced mostly overseas in Europe on its network there, including its own employees having been detained, and its own equipment being usurped by The Feds, not one analyst asked a question about where they are in the process, while such RISK remains so HIGH.
“What’s up with that, DOC?”
Certainly other more nefarious content distributors will be jumping Cogent’s ship with the Fed’s own Proctological Examination taking place, as will more legitimate enterprises who would rather not be affiliated with corporations doing business with such dubious content distributors, i.e. pirates. Some companies value their reputations more than “PRICE,” believe it or not!
Positive sales projections from this charlatan in light of these underlying facts? You need to do a little more mental calculus.
There’s a short cabal that will be circling their wagons.
Dave’s claim to fame remains “settlement free peering” because he’s an internet free loader who has been able to survive as a result of an arcane, improperly designed, legacy regulatory scheme that has yet to fully anticipate the value of the internet.
Moreover, with all the BS he delivered on his cc, there will be NO MNA, and there will be no serious effort to expand in Asia, while more than likely, there will be NO DIVIDEND, so while that SHORT CABAL does a Tora, Tora, Tora, get this “little company” sold to the highest bidder, ENRON!
How much negative FCF did you calculate including capex and interest expense while excluding the note they sold to bolster their cash drawer? tia
How is Cogent treating the data owned by customers of their indicted client, Megaupload? Why didn’t anybody including Enron ask about this?
http://paidcontent.org/article/419-feds-warn-of-data-deletion-in-megaupload-case-other-docs-still-under-se/
Call the SHORT CABAL up in Stamford, CT.! It’s time to take Dave, and his free loading internet “BUDDIES” down!