On August 8, 2024, Cogent Communications Holdings Inc (CCOI, Financial) released its 8-K filing for the second quarter of 2024. Cogent, a major broadband provider for businesses, carries over one fifth of the world's internet traffic over its network. The company reported service revenue of $260.4 million for the quarter, a 2.2% decrease from the previous quarter but an 8.6% increase from the same period last year.
Performance and Challenges
Cogent's performance in Q2 2024 was mixed. The company faced a sequential decline in service revenue, attributed partly to unfavorable foreign exchange rates. On a constant currency basis, service revenue decreased by 2.0% from Q1 2024 but increased by 8.8% year-over-year. The decline in revenue from Q1 2024 to Q2 2024 was primarily due to a decrease in off-net revenue, which fell by 5.7% to $111.5 million.
Despite these challenges, on-net revenue, which is derived from customers directly connected to Cogent's network, increased by 1.5% sequentially and 10.3% year-over-year to $140.6 million. Wavelength revenue also showed significant growth, increasing by 9.0% sequentially and 128.7% year-over-year to $3.6 million.
Financial Achievements
Cogent's financial achievements in Q2 2024 include a notable increase in non-GAAP gross profit, which rose by 7.2% sequentially and 2.0% year-over-year to $104.6 million. The non-GAAP gross margin improved to 40.2% from 36.7% in Q1 2024. However, GAAP gross profit decreased by 39.3% year-over-year to $30.2 million, although it increased by 14.8% sequentially.
Net cash used in operating activities was $22.2 million for Q2 2024, a significant decline from the $19.2 million provided by operating activities in Q1 2024 and $82.7 million in Q2 2023. This decline was partly due to increased Sprint acquisition costs, which totaled $12.4 million for the quarter.
Income Statement Highlights
| Metric | Q2 2024 | Q1 2024 | Q2 2023 |
|---|---|---|---|
| Service Revenue | $260.4 million | $266.2 million | $239.8 million |
| GAAP Gross Profit | $30.2 million | $26.3 million | $49.8 million |
| Non-GAAP Gross Profit | $104.6 million | $97.6 million | $102.5 million |
| Net Cash Used in Operating Activities | $(22.2) million | $19.2 million | $82.7 million |
| Basic Net (Loss) Income per Share | $(0.68) | $(1.38) | $23.84 |
Balance Sheet and Cash Flow
Cogent's balance sheet and cash flow statements reveal some critical metrics. The company reported total customer connections of 128,782 as of June 30, 2024, a 3.1% decrease from March 31, 2024, and a 15.0% decrease from June 30, 2023. On-net customer connections decreased by 0.2% sequentially and 5.9% year-over-year to 87,387. Off-net customer connections also saw a decline, dropping by 5.3% sequentially and 15.5% year-over-year to 32,758.
Dividend Increase
On August 7, 2024, Cogent's Board approved a regular quarterly dividend of $0.985 per share, payable on September 6, 2024, to shareholders of record on August 22, 2024. This represents a 1.0% increase from the previous quarter's dividend and a 4.2% increase from the same quarter last year.
Analysis
Cogent Communications Holdings Inc (CCOI, Financial) continues to navigate a challenging environment, marked by fluctuating foreign exchange rates and the residual impact of the COVID-19 pandemic on corporate real estate markets. The company's ability to grow its on-net and wavelength revenues is a positive sign, indicating strong demand for its core services. However, the decline in off-net revenue and total customer connections highlights ongoing challenges.
Investors should closely monitor Cogent's efforts to integrate the Sprint acquisition and manage its operating expenses. The increase in non-GAAP gross profit and margin is encouraging, but the significant cash outflow from operating activities warrants attention. The approved dividend increase reflects the company's confidence in its long-term prospects, despite short-term challenges.
Explore the complete 8-K earnings release (here) from Cogent Communications Holdings Inc for further details.
