Cogent at Bank of America Conference: Strategic Moves Amid Challenges

On Thursday, 04 September 2025, Cogent Communications Holdings Inc (NASDAQ:CCOI) participated in the Bank of America 2025 Media, Communications & Entertainment Conference. The discussion centered on Cogent’s strategic initiatives, financial performance, and future outlook. Executives highlighted growth prospects in the wavelength business while addressing challenges such as debt levels and market skepticism.

Key Takeaways

• Cogent’s wavelength business is expanding, with revenue growing 27% sequentially and 149% year-over-year.
• The company aims to deleverage to 5 times net leverage within six quarters while maintaining its dividend strategy.
• Cogent is transitioning its business model, leveraging assets acquired from Sprint to enhance wavelength sales.
• Despite short-term challenges, Cogent remains optimistic about long-term growth driven by AI demand and contract renewals.
• The company’s board reviews the return of capital policy quarterly, with no current plans to alter it.

Financial Results

• Q2 wave revenue grew by 27% sequentially and 149% year-over-year, with a run rate slightly above $36 million annually.
• Cogent has reduced the acquired Sprint business’s losses from $1 million per day to neutral by cutting $220 million in direct costs.
• EBITDA has improved by an average of $5.2 million per quarter over the past eight quarters.
• The company has received about 60% of a $700 million payment from T-Mobile, with the remaining due by 2028.

Operational Updates

• Cogent has enabled over 428 unique locations for wavelength services, with 802 sites capable of delivering waves at various speeds.
• The company aims to achieve $500 million in wave revenue by mid-2028.
• Cogent leases approximately 14 million IPv4 addresses, with prices having more than doubled in the past 18 months.
• Despite interest from potential buyers, no acceptable offers have been made for Cogent’s 180 data centers.

Future Outlook

• Cogent targets revenue neutrality in Q3, followed by positive revenue growth driven by increased wavelength sales and higher-margin revenue streams.
• The company anticipates continued EBITDA improvement, potentially exceeding the recent average of $5.2 million per quarter.
• Cogent plans to maintain its current return of capital strategy while working towards reducing leverage.

Q&A Highlights

• Cogent reported no cancellations before installation in its wavelength business, indicating strong customer commitment.
• The company plans to focus more on GAAP metrics rather than qualitative KPIs.
• Cogent continues to explore the sale of data centers, despite challenges in finding suitable buyers.

Readers are encouraged to refer to the full transcript for a comprehensive understanding of Cogent’s strategic direction and financial performance.

Full transcript - Bank of America 2025 Media, Communications & Entertainment Conference:

Michael, Analyst, Bank of America: So once again, everyone, you for for coming out and, you know, special thanks to Dave Schaefer. Dave, great to great to see you again. You know, it’s good to be covering the space and get reconnected with you and Cogent. So, thank you once again for attending our conference.

Dave Schaefer, Executive, Cogent: Well, thank you. Hey, Anna. Welcome back to telecom from software. Hopefully, it’s a little more exciting. And as always, I want to thank Bank of America for a great venue, the opportunity to present, and I’d like to thank all the investors for taking time to hear a little bit about what we’re doing.

Michael, Analyst, Bank of America: Yeah. Absolutely. Look, if you’ve a chance to catch up on what’s what’s happening at Cogent and yourself has certainly made it more interesting for me as I’ve ramped back up on the space. So I want to start by going back to last quarter and then maybe connecting some things to some previous guidance that you gave about the full year exit rates. So if we can start on the wavelength business, and I’m going to paraphrase my interpretation and then please correct me if I’m wrong.

But the installations in 2Q came in below street expectations. You said that, yes, but the backlog, right, is very large and installations were lower because customers accepting delivery was less than you expected and that was due in part because they were so conditioned to not expect to or to not get delivery in the timeframe that you were delivering, right? But I think your commentary remained positive or reiterated your exit rate expectation for the business for 2025. And I hope that I caught all that right. If I didn’t, please correct me.

So, you know, can you take that as a question and just kind of, know, fill in what I’ve missed and connect the 2Q with the exit rate for 2025?

Dave Schaefer, Executive, Cogent: Yeah. So the Wavelength business is a new business for Cogent and also a new business with the Sprint network and Sprint assets. So when we announced the acquisition of Sprint three years ago actually at this conference when it was still in LA, you know, our plan was to wave enable the former Sprint long distance network, And we laid out a timeline and a path to do that. Probably the biggest disappointment during that process was our inability to sell a significant number of wavelengths between large data centers. So when we initially laid out a target of connecting 800 data centers, we said that would take us almost two years to complete post closing.

In fact, we did it in seventeen months. And during that process, we concentrated our initial work on the largest data centers. While we did sell a small number of wavelengths and install them, the vast majority of the wavelength demand tended to be from smaller data centers to larger data centers. And at the 2024, we had fully enabled eight zero two sites to be able to deliver waves at one of three speeds, 10 gig, 100 gig, and 400 gig, and do that delivery in thirty days. This is an industry where waves have traditionally been installed on a as needed bespoke basis with generally four to six weeks to get a firm quote and then another two to three months for install with a significant number of waves that are quoted never installing due to issues with the service provider and their network availability.

In Q1, we installed a significant number of waves, but virtually all of those waves were installed at the very last day of the quarter. And for that reason, there was a significant disconnect between our revenue and our unit number of WAVE installs. We have not yet implemented a forced billing model. Even though we have the right to do that for customers, because we are a new entrant in the market with less than 1% market share, we have treaded lightly on pressuring customers. In the second quarter, we installed significantly more waves than we ended up recognizing revenue for.

And I believe that that gap will close over the next several quarters as we validate for customers our ability to actually meet the delivery windows that we have laid out. Even with that, albeit from a very small base, our revenue in the Wave business grew sequentially twenty seven percent and one hundred and forty nine percent year over year. Now our run rate in Q2 was a little above $36,000,000 annually. And while the company does not give annual guidance, in validating the reasons for the acquisition, we laid out a series of multi year targets that included growing the wavelength business to $500,000,000 in a period that would be five years post closing. And that would result in mid twenty twenty eight doing $500,000,000 in Wave revenue.

We have built a significant funnel of Wave opportunities. When we announced the transaction, we were expecting to sell to three customer bases: international carriers, regional carriers, and content distributors. A fourth group of buyers emerged, which quite honestly was not anticipated in September 2022, which is AI training. And we think that would drive incremental growth for the aggregate market and help accelerate our ability to meet our revenue targets. We have issued a number of KPIs that are designed to give investors some points to measure Cochin’s progress.

But ultimately, the only KPI that should matter is our GAAP reported revenue. And I think over the next year or two, we will migrate away from these qualitative KPIs and focus on those GAAP numbers. We expect the cadence of installs to pick up and we expect the lag between install and customer acceptance to shrink. We believe that the experience we’ve had in selling high capacity internet and data centers is indicative of what we expect in the wavelength market. So while it is true the unit numbers were below expectations, the revenues were not materially below what we expected.

Michael, Analyst, Bank of America: Okay. Just to boil it down, how I’m thinking about it, Dave, you laid out the customers were conditioned to, I think you said, kind of four to six weeks for delivery and then sometimes it was never delivered. And so one thought that I had asked you last quarter was do you think maybe that these customers were just over purchasing, right? Just that would be a rational thing to do if their experience was that it takes a long time and sometimes it’s never delivered. And then have you seen an improvement in installations, right?

Have you seen an improvement in customer acceptance this quarter versus 2Q? Because I think to hit your target for your exit rate, you would have had to do something 1,000 installs a quarter in 3Q and 4Q. So have you seen improvement? And is my hypothesis about customers over buying, is that on or off base?

Dave Schaefer, Executive, Cogent: So two very different questions. We have seen zero cancellations before install. So that indicates that customers were not overbuying, but rather were caught off guard, in part because they were conditioned by our competitors to believe that we could not install and that the quality of our service would not be what it has turned out to be. I think the fact that we have installed in four twenty eight unique locations at the end of the quarter and have installed services now for several 100 unique customers is helping us get the opportunity to bid on a larger portion of those customers’ backlog of orders. You know, there are approximately 9,000 waves per month that come out of contract with the installed suppliers because most of the waves are going through a capacity migration from 10 to 100 gig and a small segment from 100 to 400.

That means there is a new buy decision required in each of those waves as they come out of contract. So I feel that the breadth and depth of our funnel is a good proof point that we will hit metrics that we have laid out both in the near term and most importantly in the longer term. So I think that we will continue to see the differential between install and customer acceptance shrink, but the sample set is too small and we are too early in the wave business. You know what is maybe a little hard for investors to fully understand is while this business is important and it is the main justification of acquiring the assets from Sprint, from T Mobile, It is a brand new startup in the public arena. So within Cogent, waves represent less than 2% of our revenue.

It is a brand new product set and one that we have to demonstrate credibility with customers. I think the fact that our ARPUs went up and our discounting has not been as extreme as we expected it to be at this point is also a good indication of our ability to capture market share while maintaining price discipline.

Michael, Analyst, Bank of America: Okay. I like to double check sometimes that I’m hearing things correctly. So what I hear is that the longer term opportunity is as large or larger than you thought when you initially did the Sprint transaction. There are a lot of customers coming off contract that create new growth opportunity for Cogent, right? That hasn’t changed.

Maybe some of the near term metrics or KPIs or commentary that you gave to be helpful when you close the deal are less relevant and might slip a little bit because it’s a newer business and it’s hard to project growth and slope of growth early on in new business. But the longer term outlook is intact and still very positive. Is that, am I encapsulating all that correct?

Dave Schaefer, Executive, Cogent: I think you are, Mike.

Michael, Analyst, Bank of America: Okay. Okay. Just want to make sure I understood. You

Dave Schaefer, Executive, Cogent: know, again, in understanding Cogent, you know, there are really three pieces to the thesis. The first piece is understanding the business that existed prior to the acquisition. And that business was impacted negatively by the pandemic. And while it has recovered

Michael, Analyst, Bank of America: The legacy on that off net business.

Dave Schaefer, Executive, Cogent: It is the corporate and eccentric services sold both on net and off net. Is selling internet based products that were two primary services. Either dedicated internet or VPNs over the internet. But 100% of Cogent’s revenues pre acquisition of Sprint were coming from internet based services. We had a very small IPv4 business, very small colocation business, both linked to the sale of internet, but we did not sell transport services or wavelengths.

Okay. When we acquired Sprint, we acquired from T Mobile a large enterprise multi service managed services company that was delivering mostly VPNs and Internet access almost exclusively off net and was losing $1,000,000 a day. That business was declining at 10.6% a year for the three years prior to the acquisition. We were paid $700,000,000 over a fifty four month period to take that business. We have received about 60% of those funds to date, and T Mobile will make the remaining payments between now and the 2028.

That business was burning a million dollars a day. We accelerated the rate of revenue decline. We purged unprofitable services. We cut costs, and we were able to get that business to neutral. Not yet profitable, but neutral, and took out approximately $220,000,000 of direct costs associated with that business.

That business is still selling to a customer base that is in decline. Every enterprise service provider globally is shrinking. We are no different, although we now have mitigated that rate of decline, and it’s probably in the low single digits, one or 2%. And the primary reason for doing the acquisition was the acquisition of a $20,500,000,000 asset that was sitting idle. It was the actual long distance network of Sprint.

482 buildings, 1,900,000 square feet, 230 megawatts of inbound power, and 19,000 route miles of inner city fiber, and 1,200 route miles of metropolitan fiber. All idle. Our thesis was that we had three significant competitive advantages in repurposing that asset. We had a metro network that would enhance the value of that long haul network. We had a sales force that would help us sell services on that network and we had the technical know how to be able to repurpose that network for one and only one purpose, and that is to sell wavelengths.

So a considerable difference between us and the major competitors in the wavelength market is we have built a network from the ground up to sell wavelengths. It is a business that Cogent was never in. And we are very pleased with the progress we’ve made in the wave enablement of the network at or ahead of schedule. We are very pleased with the aggregate level of demand for our services in the locations that we have chosen to serve. And while the pacing of revenue growth may not be exactly what investors modeled or expected, In general, we feel that the opportunity is larger than we expected and it’s important to remember the opportunity was greatly derisked by the payment stream from T Mobile.

Because we have cut the burn on the acquired business to zero, the remaining net present value of payments due from T Mobile is $244,000,000 So effectively we have a windfall, but we also have optionality on a new addressable market.

Michael, Analyst, Bank of America: Mhmm. Let me thank you for the for the overview. I My my perception is that what investors in the market are reacting to is that you are in this phase where there is execution risk, tremendous opportunity, right, with the Sprint asset. But there’s still, you know, execution risk and maybe some, you know, short term metric shortfall, which is fine to be expected in most businesses that are making large strategic transactions or initiatives. But you’re also doing that while carrying a debt load that net debt to EBITDA of what, seven, seven and a half times depending on how you’re calculating it and still paying out $200,000,000 a year in dividend that at least today is not is not self funded.

I know I know you were saying that, you know, it’s gonna be covered because, you know, EBITDA is increasing in free cash flow. And so I think it’s that perilous state that the market is, at least in part, reacted to. So the the question in my statement is, you know, do you support cutting the dividend to at least remove one of the pressure points from the bear argument that some investors might might be making even if the initial stock reaction could be negative, at least puts the company on a more stable financial footing capital structure.

Dave Schaefer, Executive, Cogent: So Cogent has returned in excess of $2,000,000,000 to investors. We have a history of growing our dividend, and we have a track record of periodically enhancing that return of capital through share buybacks. Our leverage today is at about 6.6 times net leverage. That is far above where Cogent is both comfortable with and where we have historically operated. So we have historically hovered around three times leverage while we were consistently growing the dividend.

With the onset of the pandemic and our continued dividend growth, our leverage actually ratcheted up to 4.2 times, above kind of its historical norms, And we slowed down the rate of dividend growth from 2 and a half cents a share to a half a cent a share per quarter. We also rapidly delevered with the acquisition of Sprint from T Mobile due to the front end loading of the payment stream from them. So as a result, our leverage in the first year of the acquisition went from 4.2 to 2.7 times net leverage. Now our leverage has ratcheted back up because those subsidy payments ratcheted down. The headwind that we faced was a $104,000,000 a year.

In the first year were able to cut costs fast enough to stay ahead of that and our EBITDA stayed effectively flat. So we were three fifty two in 2023 and three 48 in 2024. While we are continuing to cut costs and for the eight quarters that we have operated the combined company, we have averaged $5,200,000 a quarter sequentially in underlying EBITDA improvement. So even though our top line on a combined basis was declining because of the acceleration of revenue burn off from the undesirable revenue streams, our EBITDA, not just our margin but the absolute dollars of EBITDA, we’re growing. We still have additional cost savings that we intend to extract from the combined company.

We still have monies that we are spending on integration work that will taper off. We have the ability to both delever and continue to return capital both at a dividend and a buyback. Now it is clear that the market, which is an important constituency here, does not believe that or our dividend yield would not have spiked to the level it’s at today. So one must observe what others think. Whether it’s correct or not, it’s a fact.

The market has spoken. Now we have a clear path to delevering. If we maintain the current return of capital profile, which includes both dividends and buybacks and dividends growing, with our growth in EBITDA we should delever to five times leverage from 6.6 over the next six quarters. Now that may not be sufficiently rapid because even at five times we are probably above what is optimal for Cogent. Now it’s highly dependent on the interest rate environment, but we I think have a great deal of flexibility.

Now the rate of revenue decline has moderated significantly for the combined company. Q4 to Q1 revenues declined $5,400,000 sequentially. From Q1 to Q2, the rate of revenue decline was only 800,000. We have said that we will be revenue neutral sometime in Q3. Now also I’ll qualify that.

I don’t want people to leave with near term guidance expectations. It may be insufficient to make us completely revenue positive for the quarter, but it will moderate and beyond this quarter we will inflect back to positive revenue growth. We also have a mix shift going on. We are installing much higher margin revenue than the revenue that we have intentionally disgorged. So as a result we should be able to see the $5,200,000 that we’ve sequentially improved probably do better on a going forward basis.

Now with all of that said, it is absolutely appropriate for the board every single quarter to evaluate what and how much and in what mechanism we should return capital. If you read our press releases for the past fifteen years, they’ve always included a statement that said the board reviews this each quarter and evaluates it on a quarterly basis. But at this point in time there is no plan to eliminate or change our return of capital strategy.

Michael, Analyst, Bank of America: When does the board meet next?

Dave Schaefer, Executive, Cogent: So the board meets regularly between quarters to address many events and then always meets at least once a quarter. In general, our board meets about 10 to 12 times a year.

Michael, Analyst, Bank of America: Okay. That’s very helpful. We have about twelve minutes left, so I want to pivot a little bit. You know, other areas to potentially address the, you know, the debt and the balance sheet that have been discussed are, you know, sale of IPV4, right, where you continue to have a very large inventory there and or data center asset sales, and that was discussed quite a bit last quarter. So maybe just take those one at a time, your thoughts on IPv4.

I know that some of the market prices that we can track are certainly off a peak. And so what do you think your capacity is to raise capital from IPv4 sales and why hasn’t that happened yet?

Dave Schaefer, Executive, Cogent: So while the sale price has declined, the two major buyers of those addresses have not been active in the market for the past year and a half. While the market is broad, it is not very deep. The volume of total addresses transacted is far below our inventory. We would be flooding the market without those buyers in the market.

Michael, Analyst, Bank of America: Why do you think they haven’t been in the market?

Dave Schaefer, Executive, Cogent: I believe they were very successful in building an inventory of addresses and now they are in a process of monetizing them through leases. So the second thing that has happened

Michael, Analyst, Bank of America: Who are the other buyers that are beyond those two?

Dave Schaefer, Executive, Cogent: Primarily Amazon and Microsoft. But beyond the two, who are the

Michael, Analyst, Bank of America: primary buyers? Who are the other buyers?

Dave Schaefer, Executive, Cogent: Oh, there are hundreds of small buyers.

Michael, Analyst, Bank of America: But they haven’t been active in the space.

Dave Schaefer, Executive, Cogent: No, there have been many many small buyers, but they have not been able to absorb the types of volume Yeah. That we would have. But the second point is that the lease revenue on addresses has gone up materially, both for Cogent and for the industry. So Amazon and Microsoft began leasing addresses at $3.60 an address. They have been followed by Verizon and Cox leasing of $4 an address per month.

Cogent was leasing its addresses at approximately 20¢ a month. We have increased pricing on those leases and averaged 49¢ last quarter.

Michael, Analyst, Bank of America: So Sorry, how many of the addresses do you lease again?

Dave Schaefer, Executive, Cogent: Today we lease about 14,000,000 addresses out.

Michael, Analyst, Bank of America: And what’s the general, you know, expiration term? Are these one or two year contracts The give an expiration to reset

Dave Schaefer, Executive, Cogent: average contract at Cogent is about thirty months. We do not disclose contract by product type, but the churn rate on IPV4 leasing for the past nine years has been point seven of 1% per year. Compare that to our internet service churn rate, which is about 1.1% per month. This is a much more durable revenue stream.

Michael, Analyst, Bank of America: Yeah. I’m just trying to figure out why know, why you haven’t seen more of a lift in your leasing. You know, you said you went five, forgot the exact number, it’s become like 40¢ to 60¢ or whatever. When you’re saying the market rate is multiples of that, so I’m trying to figure out how the expiration time and then releasing spread to when you get to a market rate.

Dave Schaefer, Executive, Cogent: So I think there are two points. First of all, in the past eighteen months we’ve over doubled our effective price per address. That’s a pretty steep rate of price increases. Secondly, our distribution method is very very different. 85% of our leasing goes to other service providers.

100% of Amazon, Microsoft, Cox, and Verizon goes to end users. Each of those companies spends in excess of a billion dollars annually on branding and advertising. Okay. We spend zero. So it’s a different More of

Michael, Analyst, Bank of America: a retail versus a wholesale business. Yeah. That’s part. That’s a difference in the business.

Dave Schaefer, Executive, Cogent: Yeah. And you know, I think we have the ability to lease more addresses and to raise prices. You know, we effectively were able to monetize the addresses while retaining control of them by doing an asset backed securitization. We’re the only company that has ever done that against IP address leasing revenue, and in fact we accessed that market twice in an oversubscribed offering. And it was challenging because we were not only a new time ABS issuer, we were educating the market on what in fact an IPv4 address was and why it had recurring revenue associated.

Michael, Analyst, Bank of America: Sure. Yeah, it’s hugely it’s very interesting, but I guess what I’m hearing too is that given the two biggest buyers are out of the market and the others just in aggregate aren’t enough to absorb capacity, you could have to sell that we’re looking more at the potential to have positive releasing spreads drive value, right? I think that’s both. And

Dave Schaefer, Executive, Cogent: we’re going to explore the sale option, but we want to maximize that value.

Michael, Analyst, Bank of America: Sure. Makes sense. And one more for me and then if there are any from the audience to make sure I didn’t miss anything. I know there’s a lot of ground to cover here. On the data centers last quarter, you said interested buyers, seems like more financial interest to me than operating.

But you know, of the terms they were requesting, they weren’t acceptable to you. Has anything changed? Have we made any progress? Are we any closer to hearing about a deal of the data centers?

Dave Schaefer, Executive, Cogent: So the terms were acceptable. The amount of at risk capital was unacceptable. Meaning, the economics were acceptable to us, but the counterparties were unable to post a large enough non refundable deposit to have us take the assets out of the market.

Michael, Analyst, Bank of America: Sure. Because I think they they wanted to actually see proof of leasing before they. Some. Some did.

Dave Schaefer, Executive, Cogent: Some did, some did not. Actually totally comfortable in taking the facilities empty as is. And let’s maybe turn the clock back. Again, three years ago at this conference in LA, we announced a transaction. And at that time we described the four eighty two facilities we were acquiring, the 1,900,000 square feet, and the two thirty megawatts of power.

Our initial plan was to spend virtually no capital and put a one megawatt, 10,000 square foot colocation facility in 45 of the four eighty two facilities. Sure. As it became clear to us that there was significant demand for the power and space that we had, our thinking changed in two ways. One, we increased the number of facilities that we’re converting from the original 45 to 125. So we almost tripled the number of facilities that we decided to turn into data centers.

Today we have roughly 180 data centers with two eleven megawatts of power in them and about 2,000,000 square feet of colocation space. We also identified 24 of the largest facilities as unlikely for us to be able to fill up with our revenue model. Which is one or two racks at a time, typically to corporate end user customers. Which is what Cogent had historically done in its preexisting data center footprint. So not large block deals or cages, single We rack then said before we market these facilities, let’s go out and talk to counterparties and see if, one, if they’re interested in them.

Two, what they would need to see modified in these facilities in order to buy them or lease them. We conducted a series of tours between April June ’24. We went out to 115 counterparties, that’s grown to 160. We conducted a couple of dozen tours in that first initial period and what we heard categorically was we had to convert the DC negative 48 power plant to AC one twenty to make these marketable, to improve the PUE for these facilities. And we then announced in June ’4, based on this feedback, we were going to commence converting those facilities to AC.

We would spend about $100,000,000 over a twelve month period enabling that conversion. That in fact ended at the June ’25, exactly on plan. We continue to tour the facilities. We’ve had counterparties put in offers at our full ask. We’ve had offers for the entire portfolio, but no one has demonstrated the at risk capital that we would require to take these assets off the market.

We are still motivated to sell them. We believe they will sell. Just as the Wavelength business is new to Cogent, we were very clear to outline that we had never sold a data center. We felt that there was latent value in these assets, and the process that we’re running both on our own and with the help of third party facilitators such as banks, including BofA has brought clients to the table, you know, is one that I think will maximize the value.

Michael, Analyst, Bank of America: Okay, great. Thank you for the explanation. We have about one minute left if there are any questions from the audience that we might be able to fit in here. Okay, looks like we don’t have any today. So Dave, I’m going to end it there because I don’t have time for a full question to fit in, but Dave, thank you so much.

Dave Schaefer, Executive, Cogent: Hey, thanks Michael.

Michael, Analyst, Bank of America: It’s always good to see you. Thank you.

Dave Schaefer, Executive, Cogent: Thank you very much. Thank you all.

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