Cogent Communications Group, Inc. (Form: 8-K)

[WASHINGTON, D.C. November 6, 2006] Cogent Communications Group, Inc. (NASDAQ: CCOI) today announced net service revenue of $38.0 million for the three months ended September 30, 2006, compared with $33.8 million for the three months ended September 30, 2005. On-net revenue was $27.5 million for the three months ended September 30, 2006, an increase of 36.1% over $20.2 million for the three months ended September 30, 2005. On-net service is provided to customers located in buildings that are physically connected to Cogent’s network by Cogent-owned facilities. Off-net revenue was $8.3 million for the three months ended September 30, 2006, a decrease of 21.4% from $10.6 million for the three months ended September 30, 2005. Off-net customers are located in buildings directly connected to Cogent’s network using other carriers’ facilities to provide the last mile portion of the link from the customers’ premises to Cogent’s network. Non-core revenue was $2.2 million for the three months ended September 30, 2006, a decrease of 27.8% from $3.0 million for the three months ended September 30, 2005. Non-core services are legacy services, which Cogent acquired and continues to support but does not actively sell.

Gross profit, excluding equity-based compensation expense, increased 51.5% from $12.3 million for the three months ended September 30, 2005 to $18.6 million for the three months ended September 30, 2006. Gross profit margin, excluding equity-based compensation expense, expanded from 36.4% for the three months ended September 30, 2005 to 49.0% for the three months ended September 30, 2006.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted, was $6.9 million for the three months ended September 30, 2006 compared to $2.1 million for the three months ended September 30, 2005.

Basic and diluted net loss applicable to common stock was ($0.24) per share for the three months ended September 30, 2006 compared to ($0.37) per share for the three months ended September 30, 2005. Weighted average common shares outstanding – basic and diluted — were 48.5 million for the three months ended September 30, 2006 as compared to 43.5 million for the three months ended September 30, 2005.

Total customer connections were 11,372 as of September 30, 2006 compared to 9,609 as of September 30, 2005 an increase of 18.3%. On-net customer connections were 6,919 as of September 30, 2006 compared to 4,064 as of September 30, 2005 an increase of 70.3%. Off-net customer connections were 3,356 as of September 30, 2006 compared to 4,108 as of September 30, 2005 a decrease of 18.3%. Non-core customer connections were 1,097 as of September 30, 2006 compared to 1,437 as of September 30, 2005 a decrease of 23.7%.

The number of on-net buildings was 1,094 as of September 30, 2006 as compared to 1,026 as of September 30, 2005.

•

Cogent estimates net service revenue for the fourth quarter of 2006 to be between $40.0 million and $41.0 million.

•

Cogent estimates EBITDA, as adjusted, for the fourth quarter of 2006 to be between $7.5 million and $8.5 million.

•

Cogent estimates that its net loss per basic and diluted common share to be between $(0.20) and $(0.25) for the fourth quarter of 2006. Cogent’s guidance includes the expected $0.3 million to $0.4 million impact of non-cash equity-based compensation expense related to the adoption of FASB Statement No. 123®, and assumes approximately 48.8 million weighted average common shares outstanding.

•

Cogent estimates net service revenue for fiscal 2007 to be between $180.0 million and $190.0 million.

•

Cogent estimates that its on-net revenues will increase from 35% to 40% from fiscal year 2006 to fiscal year 2007.

•

Cogent estimates EBITDA, as adjusted, for fiscal 2007 to be between $45.0 million and $50.0 million.

•

Cogent estimates its net loss per basic and diluted common share for fiscal 2007 to be between $(0.55) and $(0.85). Cogent’s 2007 guidance includes $1.0 million to $1.5 million of non-cash equity based compensation expense related to the adoption of FASB Statement No. 123( R ), “Share Based Payment” and assumes 48.8 million weighted average common shares outstanding.

Cogent will host a conference call with financial analysts at 8:30 a.m. (EST) on November 6, 2006 to discuss Cogent’s operating results for the third quarter of 2006 and expectations for the fourth quarter of 2006 and fiscal year 2007. Investors and other interested parties may access a live audio web cast of the earnings call under “Events” at the Investor Relations section of Cogent’s website at http://www.cogentco.com/htdocs/events.php. A replay of the web cast, together with the press release, will be available on the website following the earnings call.

Cogent Communications (NASDAQ: CCOI) is a multinational, Tier 1 facilities-based ISP. Cogent specializes in providing businesses with high speed Internet access and point-to-point transport services. Cogent’s facilities-based, all-optical IP network backbone spans 14 countries and provides IP services in approximately 90 markets located in North America and Europe.

Cogent Communications is headquartered at 1015 31st Street, NW, Washington, D.C. 20007. For more information, visit www.cogentco.com. Cogent Communications can be reached in the United States at (202) 295-4200 or via email at info@cogentco.com.

COGENT COMMUNICATIONS GROUP, INC., AND SUBSIDIARIES
Summary of Financial and Operational Results


	Q1 2005			Q2 2005			Q3 2005			Q4 2005			Q1 2006			Q2 2006			Q3 2006
Metric ($ in 000’s, except share and per share data) — unaudited
On-Net Revenue	$	18,216		$	18,936		$	20,181		$	20,995		$	22,693		$	25,142		$	27,465
% Change from previous Qtr.		10.1	%		4.0	%		6.6	%		4.0	%		8.1	%		10.8	%		9.2	%
Off-Net Revenue	$	12,747		$	11,718		$	10,553		$	9,624		$	9,114		$	8,583		$	8,296
% Change from previous Qtr.		54.9	%		-8.1	%		-9.9	%		-8.8	%		-5.3	%		-5.8	%		-3.3	%
Non-Core revenue (1)	$	3,451		$	3,152		$	3,038		$	2,603		$	2,640		$	2,430		$	2,193
% Change from previous Qtr.		0.0	%		-8.7	%		-3.6	%		-14.3	%		1.4	%		-8.0	%		-9.7	%
Net service revenue — total	$	34,414		$	33,806		$	33,772		$	33,222		$	34,447		$	36,155		$	37,954
% Change from previous Qtr.		22.0	%		-1.8	%		-0.1	%		-1.6	%		3.7	%		5.0	%		5.0	%
Network operations expenses (2)	$	22,937		$	21,399		$	21,495		$	19,964		$	20,337		$	20,076		$	19,353
% Change from previous Qtr.		13.8	%		-6.7	%		0.4	%		-7.1	%		1.9	%		-1.3	%		-3.6	%
Gross profit (2)	$	11,477		$	12,407		$	12,277		$	13,258		$	14,110		$	16,079		$	18,601
% Change from previous Qtr.		42.3	%		8.1	%		-1.0	%		8.0	%		6.4	%		14.0	%		15.7	%
Gross profit margin		33.3	%		36.7	%		36.4	%		39.9	%		41.0	%		44.5	%		49.0	%
Selling, general and administrative expenses (3)	$	10,296		$	10,096		$	10,176		$	10,776		$	10,785		$	11,594		$	11,749
% Change from previous Qtr.		-15.4	%		-1.9	%		0.8	%		5.9	%		0.1	%		7.5	%		1.3	%
Depreciation and amortization expenses	$	13,680		$	12,795		$	12,432		$	16,693		$	14,144		$	14,658		$	14,878
% Change from previous Qtr.		-8.7	%		-6.5	%		-2.8	%		34.3	%		-15.3	%		3.6	%		1.5	%
Equity-based compensation expense	$	3,195		$	3,175		$	3,164		$	3,770		$	3,499		$	3,372		$	2,619
% Change from previous Qtr.		-0.9	%		-0.6	%		-0.3	%		19.2	%		-7.2	%		-3.6	%		-22.3	%
Net loss	$	(14,973	)	$	(16,151	)	$	(16,106	)	$	(20,288	)	$	(16,441	)	$	(15,491	)	$	(11,854	)
% Change from previous Qtr.		26.0	%		-7.9	%		0.3	%		-26.0	%		19.0	%		5.8	%		23.5	%
Basic and diluted net loss per common share	$	(0.96	)	$	(0.48	)	$	(0.37	)	$	(0.47	)	$	(0.38	)	$	(0.34	)	$	(0.24	)
% Change from previous Qtr.		96.1	%		50.0	%		23.5	%		-28.1	%		19.1	%		10.5	%		29.4	%
Weighted average common shares – basic and diluted		15,610,772			33,963,566			43,474,555			43,619,506			43,841,837			45,099,826			48,463,130
% Change from previous Qtr.		1,803.5	%		117.6	%		28.0	%		0.3	%		0.5	%		2.9	%		7.5	%
EBITDA, as adjusted (4)	$	4,657		$	2,311		$	2,102		$	2,482		$	3,325		$	4,485		$	6,852
% Change from previous Qtr.		213.3	%		-50.4	%		-9.0	%		18.1	%		34.0	%		34.9	%		52.8	%
Cash (used in) provided by operating activities	$	(6,622	)	$	(1,539	)	$	1,839		$	(2,740	)	$	(1,591	)	$	4,918		$	1,498
% Change from previous Qtr.		-42.8	%		76.8	%		219.5	%		-249.0	%		41.9	%		409.1	%		-69.5	%
Capital expenditures	$	3,092		$	5,058		$	3,998		$	5,194		$	4,662		$	7,097		$	6,138
% Change from previous Qtr.		-18.6	%		63.6	%		-21.0	%		29.9	%		-10.2	%		52.2	%		-13.5	%
Customer Connections – end of period

On-Net		3,245			3,587			4,064			4,657			5,267			6,051			6,919
% Change from previous Qtr.		14.3	%		10.5	%		13.3	%		14.6	%		13.1	%		14.9	%		14.3	%
Off-Net		4,469			4,302			4,108			4,027			3,614			3,461			3,356
% Change from previous Qtr.		-0.3	%		-3.7	%		-4.5	%		-2.0	%		-10.3	%		-4.2	%		-3.0	%
Non Core		1,721			1,579			1,437			1,304			1,185			1,129			1,097
% Change from previous Qtr.		-7.4	%		-8.3	%		-9.0	%		-9.3	%		-9.1	%		-4.7	%		-2.8	%
Total		9,435			9,468			9,609			9,988			10,066			10,641			11,372
% Change from previous Qtr.		2.8	%		0.3	%		1.5	%		3.9	%		0.8	%		5.7	%		6.9	%
Other – end of period

Buildings On-Net		1,000			1,009			1,026			1,040			1,053			1,076			1,094
Employees		291			285			307			325			334			337			361

(1)

Consists of legacy services of companies whose assets or businesses were acquired by Cogent, including voice services (only provided in Toronto, Canada), point-to-point private line services and managed modem services.

(2)

Excludes equity-based compensation expense of $96, $95, $95, $113, $105, $101 and $79 in the three months ended March 31, 2005, June 30, 2005, September 30, 2005, December 31, 2005, March 31, 2006, June 30, 2006, and September 30, 2006, respectively.

(3)

Excludes equity-based compensation expense of $3,099, $3,080, $3,069, $3,657, $3,394, $3,271 and $2,540 in the three months ended March 31, 2005, June 30, 2005, September 30, 2005, December 31, 2005, March 31, 2006, June 30, 2006, and September 30, 2006, respectively.

(4)

See schedule of non-GAAP metrics below for definition and reconciliation to GAAP measures. EBITDA, as adjusted, includes net gains from the disposition of assets of $3,476 and $27 in the three months ended March 31, 2005 and three months ended March 31, 2006, respectively. EBITDA, as adjusted, excludes gains on debt and capital lease restructurings of $842, $844 and $255 for the three months ended June 30, 2005, September 30, 2005 and September 30,2006, respectively. EBITDA as adjusted, also excludes a restructuring charge related to the lease termination costs for the Company’s’ Paris office lease of $1,319 taken during the three months ended September 30, 2005.

Schedule of Non-GAAP Measures — EBITDA and EBITDA, as adjusted
EBITDA represents net (loss) income before income taxes, net interest expense, depreciation and amortization. Management believes the most directly comparable measure to EBITDA calculated in accordance with GAAP is cash flows (used in) provided by operating activities.

EBITDA, as adjusted, represents EBITDA less gains on debt and capital lease restructurings and restructuring charges. The Company has excluded these gains because they relate to its capital structure and the restructuring charges because they are non-cash charges. The Company believes EBITDA, as adjusted, is a useful measure of its ability to service debt, fund capital expenditures, expand its business and make bonus determinations for its employees. EBITDA, as adjusted, is an integral part of the internal reporting and planning system used by management as a supplement to GAAP financial information. The Company also believes that EBITDA is a frequently used measure by securities analysts, investors, and other interested parties in their evaluation of issuers.

EBITDA and EBITDA, as adjusted, are not recognized terms under generally accepted accounting principles in the United States, or GAAP, and accordingly, should not be viewed in isolation or as a substitute for the analysis of results as reported under GAAP, but rather as a supplemental measure to GAAP. For example, EBITDA is not intended to reflect the Company’s free cash flow, as it does not consider certain current or future cash requirements, such as capital expenditures, contractual commitments, changes in working capital needs, interest expenses and debt service requirements. The Company’s calculations of EBITDA and EBITDA, as adjusted, may also differ from the calculation of EBITDA and EBITDA, as adjusted, by its competitors and other companies and as such, its utility as a comparative measure is limited.

EBITDA and EBITDA, as adjusted, are reconciled to cash flows (used in) provided by operating
activities in the table below.


	Q1 2005			Q2 2005			Q3 2005			Q4 2005			Q1 2006			Q2 2006			Q3 2006			Q4 2006		2007
																						Midpoint		Midpoint
																						Estimated		Estimated
($ In 000’s) – unaudited
Cash flows (used in) provided by operating activities	$	(6,622	)	$	(1,539	)	$	1,839		$	(2,740	)	$	(1,591	)	$	4,918		$	1,498		$	5,000	$	40,000
Changes in operating assets and liabilities		5,386			1,217			(2,782	)		3,352			3,261			(1,854	)		4,489			1,500		5,000
Cash interest expense, net		2,417			2,633			1,726			1,870			1,628			1,421			865			1,500		5,000
Gains on debt and capital lease restructurings and asset sales, net		3,476			842			844			—			27			—			255			—		—
EBITDA, including gains and restructuring charge	$	4,657		$	3,153		$	1,627		$	2,482		$	3,325		$	4,485		$	7,107		$	8,000	$	50,000

Gains on debt and capital lease restructurings		—			(842	)		(844	)		—			—			—			(255	)		—		—
Restructuring charge		—			—			1,319			—			—			—			—			—		—
EBITDA, as adjusted	$	4,657		$	2,311		$	2,102		$	2,482		$	3,325		$	4,485		$	6,852		$	8,000	$	50,000

Cogent’s SEC filings are available online via the Investor Relations section of www.cogentco.com or on the Securities and Exchange website at www.sec.gov.


	December 31,			September 30,
	2005			2006
				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	29,883		$	49,014
Short term investments — restricted		1,283			80
Accounts receivable, net of allowance for doubtful accounts of $1,437 and $1,223, respectively		16,452			18,725
Prepaid expenses and other current assets		3,959			3,519

Total current assets		51,577			71,338
Property and equipment, net		292,787			270,964
Intangible assets, net		2,554			1,473
Asset held for sale		—			558
Other assets ($1,118 restricted)		4,455			4,181

Total assets	$	351,373		$	348,514


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,521		$	9,259
Accrued liabilities		16,275			15,154
Convertible subordinated notes, net of discount of $1,854 — due June 2007		—			8,337
Capital lease obligations, current maturities		6,698			6,303

Total current liabilities		34,494			39,053
Convertible subordinated notes, net of discount of $3,478		6,713			—
Capital lease obligations, net of current maturities		85,694			82,750
Other long-term liabilities		3,471			2,499

Total liabilities		130,372			124,302

Commitments and contingencies:

Stockholders’ equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 44,092,652 and 48,751,808 shares outstanding, respectively		44			49
Additional paid-in capital		440,500			476,842
Deferred compensation		(9,680	)		—
Stock purchase warrants		764			764
Treasury stock, 61,462 and no shares, respectively		(90	)		—
Accumulated other comprehensive income — foreign currency translation adjustment		665			1,545
Accumulated deficit		(211,202	)		(254,988	)

Total stockholders’ equity		221,001			224,212

Total liabilities and stockholders’ equity	$	351,373		$	348,514


	Three Months			Three Months
	Ended			Ended
	September 30, 2005			September 30, 2006
	(Unaudited)			(Unaudited)
Net service revenue	$	33,772		$	37,954
Operating expenses:
Network operations (including $95 and $79 of equity-based compensation expense, respectively, exclusive of amounts shown separately)		21,590			19,432
Selling, general, and administrative (including $3,069 and $2,540 of equity-based compensation expense, respectively, and $824 and $855 of bad debt expense, net of recoveries, respectively)		13,245			14,289
Restructuring charge		1,319			—
Depreciation and amortization		12,432			14,878

Total operating expenses		48,586			48,599


Operating loss		(14,814	)		(10,645	)
Gain – capital lease restructurings		844			255
Interest income and other, net		489			1,288
Interest expense		(2,625	)		(2,752	)

Net loss	$	(16,106	)	$	(11,854	)


Net loss per common share:
Basic and diluted net loss per common share	$	(0.37	)	$	(0.24	)


Weighted-average common shares—basic and diluted		43,474,555			48,463,130


	Nine Months			Nine Months
	Ended			Ended
	September 30, 2005			September 30, 2006
	(Unaudited)			(Unaudited)
Net service revenue	$	101,990		$	108,556
Operating expenses:
Network operations (including $286 and $285 of equity-based compensation expense, respectively, exclusive of amounts shown separately)		66,117			60,051
Selling, general, and administrative (including $9,249 and $9,205 of equity-based compensation expense, respectively, and $3,795 and $2,001 of bad debt expense, net of recoveries, respectively)		39,816			43,333
Restructuring charge		1,319			—
Depreciation and amortization		38,908			43,679

Total operating expenses		146,160			147,063


Operating loss		(44,170	)		(38,507	)
Gain on disposal of assets, net		3,372			—
Gain on Cisco debt repayment and capital lease restructurings		1,686			255
Interest income and other, net		862			2,471
Interest expense		(8,980	)		(8,005	)

Net loss	$	(47,230	)	$	(43,786	)


Net loss per common share:
Basic and diluted net loss per common share	$	(1.51	)	$	(0.96	)


Weighted-average common shares—basic and diluted		31,234,728			45,705,013


	Nine Months			Nine Months
	Ended			Ended
	September 30, 2005			September 30, 2006
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(6,322	)	$	4,825


Cash flows from investing activities:
Purchases of property and equipment		(12,148	)		(17,941	)
Purchase of German network assets		(932	)		—
(Purchases) maturities of short term investments		(41	)		1,203
Restricted cash-collateral under credit facility		(4,000	)		—
Proceeds from dispositions of assets		5,122			93

Net cash used in investing activities		(11,999	)		(16,645	)


Cash flows from financing activities:
Proceeds from issuance of common stock, net		63,723			36,481
Proceeds from exercise of stock options		—			147
Proceeds from issuance of subordinated note — related party		10,000			—
Repayment of subordinated note — related party		(10,000	)		—
Borrowings under credit facility		10,000			—
Repayments under credit facility		(10,000	)		—
Repayment of Cisco note — related party		(17,000	)		—
Repayments of capital lease obligations		(6,059	)		(6,105	)

Net cash provided by financing activities		40,664			30,523

Effect of exchange rate changes on cash		(632	)		428

Net increase in cash and cash equivalents		21,711			19,131
Cash and cash equivalents, beginning of period		13,844			29,883

Cash and cash equivalents, end of period	$	35,555		$	49,014

Except for historical information and discussion contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The specific forward-looking statements cover Cogent’s expectations for revenue, EBITDA, as adjusted, earnings per share and percentage of on-net revenues for the fourth quarter of 2006 and fiscal year 2007. The statements in this release are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Some of the factors and risks associated with our business are discussed in Cogent’s filings with the Securities and Exchange Commission.


Delaware	1-31227	52-2337274
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

1015 31st St. NW, Washington, District of Columbia		20007
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


	Cogent Communications Group, Inc.

November 6, 2006	By:	David Schaeffer

		Name: David Schaeffer
		Title: Chief Executive Officer & Chairman


Exhibit No.		Description

99.1		Press Release of Cogent Communications Group, Inc. dated November 6, 2006


Cogent Contacts:

For Public Relations:		For Investor Relations:

Jeff Henriksen + 1 (202) 295-4388 jhenriksen@cogentco.com		John Chang + 1 (202) 295-4252 investor.relations@cogentco.com


Date of Report (Date of Earliest Event Reported):		November 6, 2006


Registrant’s telephone number, including area code:		202-295-4200