Cogent Communications Holdings, Inc. (NASDAQ: CCOI) today announced service revenue of $153.6 million for the three months ended March 31, 2023, an increase of 1.1% from the three months ended December 31, 2022 and an increase of 3.0% from the three months ended March 31, 2022. Foreign exchange rates positively impacted service revenue growth from the three months ended December 31, 2022 to the three months ended March 31, 2023 by $1.3 million and negatively impacted service revenue growth from the three months ended March 31, 2022 to the three months ended March 31, 2023 by $1.6 million. On a constant currency basis, service revenue increased by 0.2% from the three months ended December 31, 2022 to the three months ended March 31, 2023 and increased by 4.0% for the three months ended March 31, 2022 to the three months ended March 31, 2023.
On-net service is provided to customers located in buildings that are physically connected to Cogent’s network by Cogent facilities. On-net revenue was $116.1 million for the three months ended March 31, 2023; an increase of 1.0% from the three months ended December 31, 2022 and an increase of 3.1% from the three months ended March 31, 2022.
Off-net customers are located in buildings directly connected to Cogent’s network using other carriers’ facilities and services to provide the last mile portion of the link from the customers’ premises to Cogent’s network. Off-net revenue was $37.3 million for the three months ended March 31, 2023; an increase of 1.1% from the three months ended December 31, 2022 and an increase of 2.5% from the three months ended March 31, 2022.
Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell.
GAAP gross profit is defined as total service revenue less network operations expense, depreciation and amortization and equity-based compensation included in network operations expense. GAAP gross margin is defined as GAAP gross profit divided by total service revenue. GAAP gross profit increased by 1.1% from the three months ended March 31, 2022 to $69.8 million for the three months ended March 31, 2023 and decreased by 2.3% from the three months ended December 31, 2022. GAAP gross margin was 45.4% for the three months ended March 31, 2023.
Non-GAAP gross profit represents service revenue less network operations expense, excluding equity-based compensation and amounts shown separately (depreciation and amortization expense). Non-GAAP gross margin is defined as Non-GAAP gross profit divided by total service revenue. Non-GAAP gross profit increased by 3.5% from the three months ended March 31, 2022 to $95.1 million for the three months ended March 31, 2023 and was unchanged from the three months ended December 31, 2022. Non-GAAP gross margin was 61.9% for the three months ended March 31, 2023.
Net cash provided by operating activities decreased by 27.5% from the three months ended March 31, 2022 to $35.8 million for the three months ended March 31, 2023 and decreased by 1.4% from the three months ended December 31, 2022.
Earnings before interest, taxes, depreciation and amortization (EBITDA), including Sprint acquisition costs of $0.4 million in Q1 of 2023 and $0.2 million in Q4 of 2022, decreased by 1.9% from the three months ended March 31, 2022 to $56.1 million for the three months ended March 31, 2023 and decreased by 1.9% from the three months ended December 31, 2022. EBITDA margin, including Sprint acquisition costs, was 36.5% for the three months ended March 31, 2023.
Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding Sprint acquisition costs of $0.4 million in Q1 of 2023 and $0.2 million in Q4 of 2022 was $56.5 for the three months ended March 31, 2023 which was a decrease of 1.6% from the three months ended March 31, 2022 and a decrease of 1.6% from the three months ended December 31, 2022. EBITDA margin, excluding Sprint acquisition costs, was 36.8% for the three months ended March 31, 2023.
Basic and net diluted income per share was $0.13 for the three months ended March 31, 2023.
Total customer connections increased by 2.7% from March 31, 2022 to 97,427 as of March 31, 2023 and increased by 0.9% from December 31, 2022. On-net customer connections increased by 2.0% from March 31, 2022 to 83,268 as of March 31, 2023 and increased by 0.8% from December 31, 2022. Off-net customer connections increased by 6.7% from March 31, 2022 to 13,785 as of March 31, 2023 and increased by 1.9% from December 31, 2022.
The number of on-net buildings increased by 125 from March 31, 2022 to 3,190 as of March 31, 2023 and increased by 35 from December 31, 2022.
Quarterly Dividend Increase Approved
On May 3, 2023, Cogent’s Board approved a regular quarterly dividend of $0.935 per share payable on June 2, 2023 to shareholders of record on May 18, 2023. This second quarter 2023 regular dividend represents an increase of $0.01 per share, or 1.1%, from the first quarter 2023 regular dividend of $0.925 per share and an annual increase of 6.3% from the second quarter 2022 dividend of $0.880 per share.
The payment of any future dividends and any other returns of capital will be at the discretion of the Board and may be reduced, eliminated or increased and will be dependent upon Cogent’s financial position, results of operations, available cash, cash flow, capital requirements, limitations under Cogent’s debt indentures and other factors deemed relevant by the Board.
Acquisition of Sprint Communications
On May 1, 2023, Cogent Infrastructure, Inc., a Delaware corporation and our direct wholly owned subsidiary, closed on its acquisition of the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”) in accordance with the terms and conditions of the Membership Interest Purchase Agreement (the “Purchase Agreement”), dated September 6, 2022, by and among Cogent, Sprint Communications LLC, a Kansas limited liability company (“Sprint Communications”) and an indirect wholly owned subsidiary of T-Mobile US, Inc., a Delaware corporation (“T-Mobile”), and Sprint LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of T-Mobile (the “Seller”). On the Closing Date, Cogent purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of Wireline Network Holdings LLC, a Delaware limited liability company that, following an internal restructuring and divisive merger, held Sprint Communications’ assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).
