Cogent Conundrum Continues

Cogent Communications Inc. is full of surprises. The latest is in its quarterly report, filed with the SEC yesterday.

To wit: Cogent's still hanging on, and it even managed to increase its revenue. Meanwhile, most carriers in its market have restructured or abandoned Ethernet services to larger competitors (see Yipes Files Chapter 11: Is Ethernet a Sustainable Business Model?, Has GiantLoop Done a Loop?, and OnFiber Scoops Up Sphera for $2.3M). But Cogent's progress comes with a price, as these revenues are built on a mountain of debt, and the payments on that debt are growing. First, the good news: For the three months ended March 31, 2002, Cogent reports $3.542 million in services revenue. That may sound like small potatoes, but it's nearly 17 percent more than the company's total 2001 revenue of $3.018 million. What's more, about 60 percent of this quarter's revenue came directly from Cogent's core business, and not from its recent acquisitions of NetRail and Allied Riser (see Cogent Buying Binge: Another Bubble? ). Basic and diluted net loss per common share was $6.81, compared with $9.12 one year ago.

Clearly, customers are logging on. At the same time, though, Cogent is still spending big to earn a relatively scanty living. And that leads to the bad news: Cogent's revenue this quarter was less than half of the total $7.1 million in interest expense they paid. Operating expenses for the quarter just ended were $20 million, compared with operating expenses of $12.9 million one year ago and $14 million in all of 2001.

There's more: Cogent has about $102 million in cash, but it's not coming from internally generated funds. For instance, the carrier borrowed about $7.7 million from its $409 million credit facility with chief supplier Cisco Systems Inc. (Nasdaq: CSCO). This worsened operating cash flow to a negative $9.7 million, compared to $7.5 million at the same time last year.

Cogent's total debt is now about $260 million, and its debt-to-equity ratio is a stunning 250 percent.

None of these glaring items represent any new worries for Cogent, but they do raise the question of when Cogent will turn into the profitable entity its backers envision.

The list of those backers features some surprises, too: Key stakeholders include high-profilers Erel Margalit of Jerusalem Venture Partners and James Wei of WorldView Technology Partners:

Table 1: Who Owns Cogent?
Stakeholder Percent of voting control
Jerusalem Venture Partners (Erel Margalit) 25.1%
Worldview Technology Partners (James Wei) 19.7%
Oak Investment Partners 17.3%
David Schaeffer (CEO) 14.7%
Broadview Capital Partners (B. Holt Thrasher) 7.4%
Cisco Systems Capital 5.7%
Smallcap World Fund 5.4%
Other investors 4.7%
Source: SEC filings

— Mary Jander, Senior Editor, Light Reading
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rhynerapologist 12/4/2012 | 10:23:05 PM
re: Cogent Conundrum Continues should say "all of the covenants are very strict".
rhynerapologist 12/4/2012 | 10:23:05 PM
re: Cogent Conundrum Continues Losses will keep widening (next Q will have 10.5mm for PSINet and Shared Technologies of Canada), all of their deals are very strict, and that debt ration of 2.5 is with PP&E listed for far more than its real world value).

But they might have done enough to survive until the end of the year. That's alot better than I, for one, expected.
buliwyf 12/4/2012 | 10:23:03 PM
re: Cogent Conundrum Continues This is either the last of the bubble operators that never had the rug pulled *or*
the plan is to snap up assets and customers today, go chap 11 and restructure later.
Feel sorry for anyone holding the stock.
threeiron 12/4/2012 | 10:22:57 PM
re: Cogent Conundrum Continues Cogent recently fired any and all the top producers in the wholesale division. Wholesale sales are sales to colo centers and ISP's for resale. Retails sales are in-building distribution and meant to replace leased lines w/ 100mbps.

Why would they be firing anyone who could actually sell? They are paying for peering. Don't you get it? They don't want to increase revenue. They want to fail. These numbskulls and their con came will continue until they go under and sell. The top: Schaeffer, Morris and Lee will make out in the end.
dc_optics 12/4/2012 | 10:22:52 PM
re: Cogent Conundrum Continues Remember that Anderson does the books for Cogent. The belief is that Cogent is fudging their numbers. I think that the house of cards should be down by years end.

Question: When is the CEO and CFO going to be put out by the board. One would think that the board would do it before they run the company into the ground.
ace2002 12/4/2012 | 10:18:35 PM
re: Cogent Conundrum Continues can this company make it? how are they going to intigrate the PSINet acquistion?
ace2002 12/4/2012 | 10:18:34 PM
re: Cogent Conundrum Continues I want to hear reasons why you think Cogent will or will not succeed. Factual information would be great but gossip from former employees is good to hear as well.

thinking of buying some COI
threeiron 12/4/2012 | 10:17:04 PM
re: Cogent Conundrum Continues they won't succeed. ask Cogent why they caught the Western Team Wholesale leader submitting false orders for over a year. these orders constitute over 70% of Cogent's wholesale sales. ask em about Kevin Cottrell and see what they say. Ask em about how they paid these losers for orders that were not real. his whole team was doing it.
threeiron 12/4/2012 | 10:16:36 PM
re: Cogent Conundrum Continues ask them why they (week of 6/3) just fired the Director of Retail sales?
ace2002 12/4/2012 | 10:16:12 PM
re: Cogent Conundrum Continues What is your opinion as to why they did these things?

financially do you think they can pull it off?


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