Cogent Communications (CCOI) Q3 2024 earnings summary

Executive summary

• Q3 2024 service revenue was $257.2 million, down 6.7% year-over-year, mainly due to intentional elimination of low-margin and non-core products and reduced T-Mobile-related revenues.

• Net loss for Q3 2024 was $63.1 million, with basic and diluted net loss per share of $(1.33); comprehensive loss was $54.3 million.

• Achieved $165 million in annual cost savings from Sprint Global Markets acquisition, reaching 75% of the $220 million target.

• Wavelength and IPv4 leasing businesses showed strong sequential and year-over-year growth, with wavelength revenue up 45.8% sequentially and 76.7% year-over-year to $5.3 million, and IPv4 leasing revenue up 11.8% sequentially and 31.5% year-over-year to $12.8 million.

• Dividend increased for the 49th consecutive quarter, now at $0.995 per share.

Financial highlights

• Adjusted EBITDA was $60.9 million (23.7% margin), down from $106.2 million (40.8%) in Q2 due to lower T-Mobile payments; EBITDA increased 32.2% sequentially to $35.9 million.

• GAAP gross margin fell to 3.8% from 11.6% in Q2 2024; non-GAAP gross margin was 37.4%.

• SG&A decreased by $4.9 million sequentially, now 23.4% of revenue.

• Cost of goods sold increased by $5.3 million sequentially due to data center conversions and contract termination costs.

• Ended quarter with $316.1 million in cash and cash equivalents.

Outlook and guidance

• Expect long-term average revenue growth of 5%-7% and adjusted EBITDA margin expansion of ~100 basis points per year.

• Wavelength services expected to be available in over 800 locations by year-end 2024.

• Elevated CapEx for data center conversions to continue through mid-2025, then normalize.

• IP Transit payments from T-Mobile to continue at $25 million per quarter for nine more quarters.

• Management expects continued integration of the Sprint Business, with a focus on reducing operating costs and expanding optical wavelength and transport services.