Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q4 2024 Earnings Conference Call February 27, 2025 8:30 AM ET Company Participants Dave Schaeffer - Founder and Chief Executive Officer Tad Weed - Chief Financial Officer Conference Call Participants Michael Rollins - Citi Sebastiano Petty - JPMorgan Greg Williams - TD Cowen Walter Piecyk - LightShed Tim Horan - Oppenheimer Jim Schneider - Goldman Sachs Christopher Scholl - UBS Nick Del Deo - MoffettNathanson Brandon Nispel - KeyBanc Capital Markets Operato ...

Core Insights - Cogent Communications reported revenue of $252.29 million for the quarter ended December 2024, a decrease of 7.3% year-over-year, and an EPS of -$0.91 compared to -$0.16 in the same quarter last year [1] - The revenue fell short of the Zacks Consensus Estimate of $257.13 million by 1.88%, while the EPS exceeded the consensus estimate of -$1.22 by 25.41% [1] Financial Metrics - Total customer connections were reported at 123,383, below the average estimate of 127,757 [4] - On-net customer connections were 87,500, slightly below the estimate of 88,212 [4] - Off-net customer connections totaled 28,963, compared to the average estimate of 34,171 [4] - Non-core customer connections were 5,802, exceeding the estimate of 5,022 [4] - Corporate revenue was $113.07 million, down 10.7% year-over-year, and below the average estimate of $118.11 million [4] - Enterprise revenue was reported at $45.60 million, below the estimate of $48.96 million [4] - Wavelength revenue was $6.97 million, compared to the average estimate of $8.73 million [4] - Net-centric revenue was $93.63 million, slightly above the estimate of $91.03 million, representing a year-over-year increase of 0.5% [4] - Non-core service revenue was $3.38 million, significantly below the estimate of $4.20 million, reflecting a year-over-year decline of 61.1% [4] - On-net service revenue was $128.76 million, below the estimate of $135.84 million, indicating an 11% year-over-year decrease [4] - Off-net service revenue was $113.19 million, slightly above the estimate of $110.93 million, with a year-over-year decline of 8.2% [4] Stock Performance - Cogent's shares have returned +7.5% over the past month, outperforming the Zacks S&P 500 composite, which declined by -2.2% [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance in the near term [3]

Core Viewpoint - Cogent Communications reported a quarterly loss of $0.91 per share, which was better than the Zacks Consensus Estimate of a loss of $1.22, indicating a positive earnings surprise of 25.41% [1] - The company’s revenues for the quarter were $252.29 million, missing the Zacks Consensus Estimate by 1.88% and down from $272.1 million year-over-year [2] Financial Performance - The company has surpassed consensus EPS estimates three times over the last four quarters [2] - The stock has gained approximately 3.9% since the beginning of the year, outperforming the S&P 500's gain of 1.3% [3] Future Outlook - The earnings outlook for Cogent will be crucial for assessing future stock performance, with current consensus EPS estimates at -$1.21 for the next quarter and -$2.61 for the current fiscal year [7] - The estimate revisions trend for Cogent is currently favorable, leading to a Zacks Rank 2 (Buy) for the stock, suggesting expected outperformance in the near future [6] Industry Context - The Wireless National industry, to which Cogent belongs, is currently in the top 10% of over 250 Zacks industries, indicating a strong industry outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5]

Revenue Performance - Service revenue for Q4 2024 was $252.3 million, a decrease of 1.9% from Q3 2024 and a decrease of 7.3% from Q4 2023[3]. - Total service revenue for the year ended December 31, 2024, was $1,036.1 million, an increase of 10.1% from the previous year[4]. - Cogent experienced a decline in corporate revenue, with Q4 2024 corporate revenue at $113.070 million, down 2.7% from Q3 2024[41]. - On-Net revenue for Q4 2024 was $128.760 million, a decrease of 5.7% from Q3 2024, while Off-Net revenue was $113.190 million, an increase of 1.7%[41]. - The company reported a total service revenue of $940,922 for the year 2023, with a projected increase to $1,036,104 for the year 2024, representing a growth of 10.1%[73]. - Service revenue for the three months ended December 31, 2024, was $252,291, a decrease of 7.0% from $272,099 in the same period of 2023[81]. EBITDA and Profitability - EBITDA for Q4 2024 increased by 16.7% to $41.9 million from Q3 2024, with an EBITDA margin of 16.6%[4]. - GAAP gross profit for the quarter was $69,790, a decrease of 2.3% from the previous quarter[43]. - Non-GAAP gross profit was $95,099, remaining stable with a 0.0% change from the previous quarter[43]. - Operating income was $24,312, reflecting an 11.0% decrease from the previous quarter[43]. - Net income for the quarter was $6,148, compared to a net loss of $56,723 in the previous quarter[43]. - The EBITDA margin for the quarter was 36.5%, down from 15.8% in the previous quarter[43]. Customer Connections - Total customer connections decreased by 10.3% year-over-year to 123,383 as of December 31, 2024[26]. - Customer connections reached 83.2 million, an increase of 5.0% from the previous quarter[44]. - Corporate customer connections reached 4,457,061, with a decrease of 0.6% from the previous quarter[1]. - Customer connections for the enterprise segment totaled 5,285,576, showing a 2.3% increase from the previous quarter[1]. - Net customer connections decreased by 2.3% from the previous quarter, totaling 4,435,520[1]. Dividends and Shareholder Returns - Cogent approved a quarterly dividend increase to $1.005 per share for Q1 2025, marking the fiftieth consecutive quarterly dividend increase[4]. - Cogent's Board approved a quarterly dividend of $1.005 per share, representing a 1.0% increase from Q4 2024's dividend of $0.995 and a 4.1% increase from Q1 2024's dividend of $0.965[30]. - In 2024, Cogent paid total dividends of $189.4 million, equating to $3.92 per share, with 100% treated as a return of capital for tax purposes[33]. - The company declared dividends of $0.995 per common share for the three months ended December 31, 2024, compared to $0.955 in the same period of 2023[81]. Operational Efficiency and Expenses - Network operations expenses for Q4 2024 were $154.706 million, down 4.0% from Q3 2024[41]. - Selling, general and administrative expenses were $38,646, reflecting a 2.5% increase from the previous quarter[43]. - Total operating expenses for the three months ended December 31, 2024, were $285,058, down 16.3% from $340,577 in the prior year[81]. Acquisitions and Strategic Initiatives - The company plans to explore potential mergers and acquisitions to enhance its market position[44]. - Cogent reported a gain on bargain purchase from the Sprint acquisition amounting to $1.4 billion, with a fair value of net assets acquired at $826.1 million[10][54]. - The company acquired 482 technical buildings as part of the Wireline Business acquisition, with 52 converted into Cogent Data Centers[12]. - The company is exploring potential acquisitions to enhance its service offerings and market share, with a target of identifying at least two strategic opportunities by the end of the fiscal year[10]. Financial Position and Cash Flow - Total debt as of December 31, 2024, was $1,994,386, up from $1,270,382 as of March 31, 2023, marking an increase of 56.7%[78]. - Cash and cash equivalents at the end of the period were $198,486, significantly higher than $75,092 at the end of 2023[80]. - Net cash provided by financing activities was $105,925 in 2024, a recovery from a net cash used of $(257,851) in 2023[86]. - Operating cash flow was negative at $(8,645) in 2024, a significant decline from $17,345 in 2023[86]. Market Outlook and Challenges - The company anticipates challenges in integrating the acquired Wireline Business, which may affect operational efficiency[87]. - Future economic instability and competition are expected to impact spending on Internet services and customer acquisition[87]. - The company is subject to risks related to foreign exchange rates, particularly between the Euro and USD, which could affect financial results[87].

Core Viewpoint - Wall Street anticipates a year-over-year decline in earnings for Cogent Communications due to lower revenues, with a focus on how actual results will compare to estimates [1][3] Earnings Expectations - Cogent is expected to report a quarterly loss of $1.23 per share, reflecting a significant year-over-year decline of 668.8% [3] - Revenue projections stand at $257.13 million, indicating a decrease of 5.5% from the previous year [3] Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, suggesting stability in analyst expectations [4] - The Most Accurate Estimate for Cogent is lower than the Zacks Consensus Estimate, leading to an Earnings ESP of -18.78%, indicating a bearish outlook from analysts [10] Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive or negative reading indicates the likelihood of actual earnings deviating from consensus estimates, with positive readings being more predictive of earnings beats [7][8] - Stocks with a positive Earnings ESP and a Zacks Rank of 1, 2, or 3 have historically shown a nearly 70% chance of delivering a positive surprise [8] Historical Performance - In the last reported quarter, Cogent was expected to post a loss of $1.34 per share but delivered a loss of $1.33, resulting in a surprise of +0.75% [12] - Over the past four quarters, Cogent has beaten consensus EPS estimates three times [13] Conclusion - Despite the potential for an earnings beat, other factors may influence stock movement, making it essential to consider a range of indicators before making investment decisions [14][16]

Group 1 - Cogent Communications Holdings, Inc. will host a conference call on February 27, 2025, at 8:30 a.m. (ET) to present its operating results for Q4 and full year 2024 [1] - A press release with the operating results will be issued at 7:00 a.m. (ET) on the same day [1] - The conference call is accessible via specific dial-in numbers for U.S., Canadian, and international callers, and an audio webcast will be available on Cogent's website [1] Group 2 - Cogent is a facilities-based provider of low-cost, high-speed Internet access and private network services, operating in 260 markets globally [2] - The company is headquartered in Washington, D.C., and offers services primarily to bandwidth-intensive businesses [2]

Core Viewpoint - Cogent Communications (CCOI) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook driven by rising earnings estimates, which significantly influence stock prices [1][2]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are closely correlated with near-term stock price movements, particularly due to institutional investors' reliance on these estimates for valuation [3][5]. - An increase in earnings estimates typically leads to higher fair value for a stock, prompting institutional investors to buy or sell, thus affecting stock prices [3]. Cogent's Earnings Outlook - The recent upgrade for Cogent reflects an improvement in its underlying business, with rising earnings estimates expected to drive the stock price higher [4]. - For the fiscal year ending December 2024, Cogent is projected to earn -$4.57 per share, a change of -117.2% from the previous year, but the Zacks Consensus Estimate has increased by 21.1% over the past three months [7]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have averaged a +25% annual return since 1988 [6]. - The upgrade of Cogent to a Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [9].

Core Viewpoint - Cogent Communications Holdings, Inc. (CCOI) has experienced a significant stock price increase of 39.2% over the past six months, outperforming the industry growth of 13.3%, driven by strong demand trends and a flexible business model [1] Growth Drivers - Cogent operates one of the most interconnected Tier 1 networks globally, providing efficient connectivity solutions to various enterprise segments, including financial institutions and educational organizations, at competitive prices [2] - The company offers advanced colocation data center services, ensuring continuous power supply and backup, which is essential for disaster recovery and data backup [2] - High-speed bandwidth and dedicated Internet access are prioritized, supported by a dedicated customer support team to ensure reliability [2] Cost Efficiency - By utilizing Internet routers without additional legacy equipment, Cogent maintains lower operational costs compared to competitors, which has led to increased demand for its 1-gig and 10-gig port offerings [3] Network Infrastructure - Cogent's end-to-end optical transport network and advanced routing technology provide reliable and scalable services across North America, Europe, and Asia, enhancing acquisition opportunities and expanding its customer base [4] - The company is experiencing solid growth in wavelength customer connections, which increased from 449 in the prior year to 1,041 in Q3 2024, with expectations to reach 1,297 by the end of 2025, reflecting a year-over-year growth of 22.5% [5] Financial Performance - Cogent has delivered an average earnings surprise of 27.35% over the last four quarters, indicating strong financial performance [6] - The average brokerage recommendation for CCOI is 2.17, suggesting a favorable outlook for the stock [6]

Industry Overview - The Zacks Wireless National industry is facing high capital expenditures for infrastructure upgrades, supply-chain disruptions due to geopolitical tensions, and high customer inventory levels, but is expected to benefit from accelerated 5G rollout and increased fiber densification in the long run [1][2]. Current Challenges - Increased infrastructure spending is compromising short-term margins, with aggressive promotional expenses and a decline in legacy services contributing to profit erosion [4]. - High raw material prices due to geopolitical tensions and economic sanctions are affecting operations and profitability, leading to challenges in customer retention amid price-sensitive competition [6]. Technological Advancements - Industry participants are deploying advanced 4G LTE technologies and expanding fiber optic networks to support 5G standards, enhancing coverage and speed for customers [5]. - Companies are realigning their networks towards a software-centric model to improve operational efficiencies and meet increasing business demands [7]. Market Performance - The Zacks Wireless National industry has outperformed the S&P 500, with a growth of 33.8% over the past year compared to the S&P 500's 28.5% [10]. - The industry is currently trading at a trailing 12-month EV/EBITDA of 8.7X, significantly lower than the S&P 500's 18.87X and the sector's 19.16X [11]. Key Players - Verizon Communications Inc. is witnessing significant 5G adoption and has a long-term earnings growth expectation of 3%, gaining 8.5% over the past year [13]. - U.S. Cellular is expanding its footprint and adopting unlimited plans, achieving a 55.9% gain over the past year [15]. - Cogent Communications Holdings, Inc. focuses on low-cost, high-speed Internet access and has gained 4.9% in the past year [18].

Core Insights - This week, eight companies are increasing their dividends, with an average increase of 7.1% and a median increase of 4.4% [1] Group 1: Dividend Increases - All eight companies mentioned are classified as dividend contenders, indicating a strong track record of dividend payments [1] Group 2: Investor Tools - The article promotes a platform called customstockalerts.com, which provides utilities for investors to track stock performance and receive alerts on various metrics, including dividend increases [1]