Cogent at Citi’s Conference: Strategic Growth and Challenges

On Wednesday, 03 September 2025, Cogent Communications Holdings Inc (NASDAQ:CCOI) presented at Citi’s 2025 Global Technology, Media and Telecommunications Conference. CEO Dave Schaefer outlined the company’s strategic direction, highlighting both challenges and growth opportunities. While the integration of Sprint’s global markets business has temporarily hindered growth, Cogent anticipates a return to positive revenue growth driven by its core business and expanding wavelength transport network.

Key Takeaways

• Cogent expects to return to positive revenue growth this quarter, overcoming a temporary decline due to the Sprint acquisition.
• The company plans to eliminate $4 million per month in integration costs over the next 18 months.
• Cogent aims to reduce its leverage from 6.6 times to 5 times by 2026.
• The wavelength business is growing rapidly, with a 27% sequential and 149% year-over-year increase.
• Cogent is focused on divesting non-core assets to strengthen its core services.

Financial Results

• Revenue Growth: Cogent’s revenue declined by 2% due to the Sprint acquisition but is expected to rebound this quarter. Core on-net services are growing in the mid-single digits, while NetCentric revenue, including IPv4, grew by 8%.
• Wavelength Business: The business showed a 27% sequential growth last quarter, with a 149% increase year-over-year. It is on track to achieve a $20-25 million annual revenue run rate by the end of Q4.
• Synergies and Integration Costs: Cogent achieved $220 million in synergies from the Sprint acquisition earlier this year and aims to increase this by $20 million over the next year. Integration costs of $4 million per month are expected to phase out in 18 months.

Operational Updates

• Sprint Acquisition Integration: Cogent has consolidated customers onto common IS platforms and migrated them to its infrastructure, standardizing systems and network elements.
• Network Improvements: The company reconfigured metro networks to support 100 Gbps transport, enabling 10 Gbps connections for corporate clients. Currently, 93-94% of the installed base operates at 1 Gbps or greater.
• VPN Services: Cogent revived older MPLS equipment and deployed 273 global MPLS aggregation points, boosting its VPN business to an all-time high as a percentage of revenue.

Future Outlook

• Revenue Growth: Cogent anticipates an aggregate growth rate of 6-8% and plans to grow margins by about 200 basis points year-over-year.
• Wavelength Business: The company is confident in reaching a $20-25 million run rate by year-end, focusing on reducing the time from installation to customer acceptance.
• Capital Allocation: Cogent may increase buybacks or reduce net cash on the balance sheet, ensuring more cash returns to shareholders.
• Non-Core Asset Divestitures: Cogent is motivated to sell non-core assets, including data centers and dark fiber, with six letters of intent for data centers received last quarter.

Q&A Highlights

• Revenue Trends: Core on-net services are growing in the mid-single digits, with corporate services at 3-4% and NetCentric at around 8%. Non-core product revenues have declined significantly.
• NetCentric Business: Smaller customers face higher costs per bit, with increased international traffic contributing to a higher effective price per megabit.
• Capital Allocation: The market’s decoupling of dividends from stock price may lead to a greater focus on buybacks.

Readers are encouraged to refer to the full transcript for a more detailed understanding.

Full transcript - Citi’s 2025 Global Technology, Media and Telecommunications Conference:

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: Only. Welcome back to Citi’s twenty twenty five global TMT conference. For those of you I haven’t met, I’m Mike Rollins. I cover communications services and infrastructure. Disclosures are available at the back of the room.

And if you don’t have access or would like another copy, please email me @michael.rollinsatCiti.com. We’re pleased to welcome back Dave Schaefer, chief executive officer of Cogent. Dave, thank you for joining us today.

Dave Schaefer, Chief Executive Officer, Cogent: Hey, Mike. Thanks for hosting me. Wanna thank investors for taking time out of the day to listen, and, always, thanks Citi for a great venue.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: Well, you know, thanks so much. You know, maybe we’re we’re start with a high level question for you, which is just an update on the strategy to grow and create value for shareholders.

Dave Schaefer, Chief Executive Officer, Cogent: So within Cogent, we had a organic business that grew at 10.2 a year for fifteen years with no acquisitions between February when we went public, and the beginning of the pandemic. And the growth rate in that business slowed because of COVID to about five percent per year, and the rate of margin expansion also decreased from an average of 220 basis points a year down to about a 100 basis points a year. As the pandemic waned, that business began to improve. But, opportunistically, we had a chance to acquire the original Sprint global markets business from T Mobile. And in that acquisition, there were things that both positively and negatively impacted our growth trajectory.

On the negative side, it was a business that for the previous three years had declined at 10.6% per year, and it was a business that was burning a million dollars a day in cash. To help mitigate that burn, T Mobile agreed to pay us $700,000,000 over a fifty four month period, and we still have payments that we expect to receive between now and the 2028 with a total net present value of about $244,000,000. But when we acquired that operating business, we actually accelerated the rate of revenue decline intentionally to purge that business of unprofitable products and certain unprofitable customers. As a result, over the eight quarters since that acquisition has been completed, our growth rate on a combined basis has declined at about 2% annually. So we went from being a 5% grower to a negative 2% grower.

And we have been able to improve underlying EBITDA margins and actual EBITDA in light of that top line decline at an average sequential rate over those eight quarters of about 5,200,000.0 a quarter. We anticipate the growth in that business that we acquired has plateaued, and the combined company will now start having positive top line growth sometime in this quarter. We also know that there are additional synergies that we can take out of the combined business. And then finally, the monies that we are spending on integration efforts will taper off over the next six quarters. And then finally, the primary reason for doing that acquisition was the opportunity to repurpose the original long distance telephone network into a wavelength transport network.

We spent nearly two years completing that integration and optimization of those assets. We have begun selling those services. What is a brand new business inside of Cogent is actually growing very rapidly. In fact, last quarter, the sequential growth rate in revenues in that Wavelength business was 40% or excuse me, 27% sequentially and 149% year over year. We anticipate that business to keep growing off of a larger base.

And as a result of these three different drivers of growth, one being, you know, roughly 70% of our current revenues growing at about 5%, the second being about a third of our revenues declining at, you know, kind of one to 2%, and this very small but rapidly growing business growing, the aggregate growth rate of Cochin should return to between 68% below our pre pandemic levels, but above the level that we were achieving prior to the acquisition. And that’s really driven by the inclusion of very high margin wavelength revenue. And with this, we anticipate growing margins again at about 200 basis points year over year. So the combination of moderating capital intensity and accelerating EBITDA growth should allow Cogent to materially grow its free cash flow.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: Really helpful. That gives us a lot to drill into. You mentioned a few things that’s gonna affect financial performance going forward, you know, the returning to revenue growth, the synergies, and then getting through the integration expense. Maybe working backwards on that. On the integration, how much is in the, you know, quarterly EBITDA that’s a drag on that from integration that goes away?

Dave Schaefer, Chief Executive Officer, Cogent: So there’s actually two components. There are costs that we have identified that are directly related to that business that we can continue to take out. There is approximately $20,000,000 of those costs that will come out over the next year or so. In addition to that, we are spending about $4,000,000 a month or about $12,000,000 a quarter on direct integration work. When we initially acquired the business, the primary focus was to consolidate all of the customers onto common IS platforms, whether it be billing or customer care or accounting or network monitoring.

Everything was collapsed into a common platform within the first roughly six months of the acquisition. The second area of grooming took much longer and was not completed till earlier this year, and that is the complete elimination of the Sprint network and the migration of 100% of the customers and services onto Cogent’s infrastructure. And we’ve now been focused on the third leg of the integration, which many companies choose to ignore. And that is the standardization of all of the customer information, systems, network elements into a common nomenclature, a common set of reports that allow us to more effectively manage those customers. That work is ongoing.

It encompasses over several 100 discrete projects, and those projects will taper off over the next year and a half, and we anticipate that cost disappearing.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: So by the end of the eighteen months, that 4,000,000 goes to zero.

Dave Schaefer, Chief Executive Officer, Cogent: That’s correct.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: You don’t need anything in its place to get the results that

Dave Schaefer, Chief Executive Officer, Cogent: That is correct.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And then the 20,000,000 of savings you mentioned, does that go in the synergy bucket that’s remaining?

Dave Schaefer, Chief Executive Officer, Cogent: That is going in the synergy bucket. So we had originally projected $220,000,000 of synergy. We achieved that goal earlier this year and then revised that goal upward by about 10% or another $20,000,000.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And that’s on the come over the next year?

Dave Schaefer, Chief Executive Officer, Cogent: That is correct.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And then going back to the revenue, and there’s a lot to get into on the revenue side. You mentioned that the underlying business growing mid single digits. Correct. When we’ve looked through some of the detailed disclosures and we look at on net corporate and we look at on net NetCentric, we’re seeing just based on percentages, and I know there’s some rounding errors, so we have to be careful not to be too precise with this. But it looks like the revenue from those core pieces could be flat to down in the first half of the year.

Is that what you’re seeing, and is there some, you know, perspective to

Dave Schaefer, Chief Executive Officer, Cogent: That is not what we are saying. We are saying that number up, but up modestly.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: Okay.

Dave Schaefer, Chief Executive Officer, Cogent: So I think there are three reasons why you may come to that conclusion. The first is approximately 20% of the revenues that we acquired from Sprint were classified as either corporate or NetCentric, not as enterprise, and those revenues have continued to decline. The second reason is some of those customers were purchasing noncore products. And if the noncore product was associated with a on net service, it got classified an on net. If it was associated with off net, it was classified an off net.

We have, by design, tried to eliminate all of those noncore products. We have taken the run rate in those noncore products down from just under $60,000,000 annually at acquisition closing to today in the order of about $15,000,000. There is still a tail of those services that we have to support due to contractual obligations. And then the third point is that there were actually customers moving from off net to on net, which actually helped on net to some extent beyond just organic sales, and we have groomed a significant amount of off net traffic. Virtually, all of the customers that we acquired with Sprint, whether they be enterprise or corporate, were off net.

Because of the locations of some of those corporate customers, we chose to terminate services to them because there was not a fiber solution to deliver those services. And then for the enterprise customers, we have concluded that the percentage of their services that will be off net will continue to remain much higher than our installed base. So prior to the acquisition, in our installed base of end users, corporate customers, we were doing roughly 60% of revenues on net and 40% off. In that acquired enterprise business, even with the grooming that we’ve been able to achieve, we’re still running 88% off net and only 12% on net. That has two consequences.

One, higher churn due to lower quality, and two, much lower margins associated with those off net services. But the kind of core on net services, whether to NetCentric or corporate customers, are growing in the mid single digits. Probably lower single digits for corporate, you know, kind of in the three to 4% range. It’s bounced around over the last couple of quarters. And then on the NetCentric, there has been some deceleration down to about 8% revenue growth.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And for the 8% growth, does that include the I p v four?

Dave Schaefer, Chief Executive Officer, Cogent: It does include the I p v four, which does is roughly 85 percent a NetCentric product. It is 14% corporate and 1% enterprise. And, again, like any of these ancillary services, if that is associated with a on net customer, it gets counted in on net. If that service is associated with an off net customer, it gets counted in off net. The growth rate in that portion of the revenue stream has been much stronger.

It grew nearly 40% on a year over year basis.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: So when we zoom out a bit, and and maybe we’ll stick with NetCentric, you know, for a moment. You got traffic growth that slowed down to, like, low double, upper single rate?

Dave Schaefer, Chief Executive Officer, Cogent: Eight to 9%.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And and so we’re accustomed to thinking about price declines on average being about 20% per year. So is it a situation where that on net, you know, IP transit piece is shrinking but being made up with, like, off net and I p v four, and that’s kind of the recipe, you know, for now and until, you know, maybe traffic growth reaccelerates in the future?

Dave Schaefer, Chief Executive Officer, Cogent: So there is one error in your calculation, and you’re assuming that all NetCentric customers are homogeneous. They are not. So if we are selling to smaller customers, the effective price per megabit may actually go up while the average price is going down. And the reason for that is smaller customers pay higher cost per bit than larger customers. The second distortion in that analysis is geographic.

We have seen over the past couple of years a much faster rate of traffic growth in the less developed world than the developed world. So as a result, the percentage of traffic that is coming from rest of the world has gone from around forty five percent three years ago to 55%. And that increase in international traffic ends up increasing the effective price per megabit because our pricing tends to be much higher in less developed markets. And while we are not actively selling today in India, but intend to be in that market by the end of this month after an eight year saga to get a license, the pricing in that market is roughly about 15 x, the North American pricing per megabit with a very limited number of competitors. While we will not go into the market at current market prices, we’ll look to disrupt.

We will not be at pricing nearly as low as North America or Western Europe, and probably not even as low as some of Latin America and Africa where there is more competition. So as we get growth from a market like that, the effective price per megabit tends to be much higher.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And one thing I also didn’t mention in that kind of calculation is waves. Is waves in that number?

Dave Schaefer, Chief Executive Officer, Cogent: So waves are, again, classified by the type of customer. To date, 100% of waves have been on net. We have not sold an off net wave. That doesn’t mean we won’t. There could be a situation where a customer needs a wave to a single tenant building that we choose not to build into, and we will combine a local wave from a third party with our long haul wave.

We also look at waves by customer type. The majority of waves have today come from NetCentric customers with over 90% of waves being NetCentric. We have had a handful of waves to either corporates or enterprise customers, but combined, are less than 10% of the way based. But again, to remind investors, every dollar of revenue at Cogent gets four different disclosures, and they’re not meant to be mutually exclusive. They’re designed to give you four different views of the business.

Customer type, corporate, NetCentric, and enterprise, network type, on net, off net. Third, by product type, and then finally, by geography.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And maybe just, you know, connecting a little bit more on the Waves business. Over the summer at some other conferences, you laid out some of the backlog that you’re seeing. Do you have an update on how the backlog is progressing and how the sales of that backlog is progressing?

Dave Schaefer, Chief Executive Officer, Cogent: So I have no specific update other than we feel comfortable with our ability to exit the year at a 20 to $25,000,000 run rate. Two, that we have a significant backlog of waves that have been installed but not yet customer accepted. Third, we continue to build the funnel and the backlog. And what we are hoping to do is compress the time from our installation to customer acceptance and our ability to recognize revenue. So we feel very encouraged about the Wave market in three distinct ways.

One, there is incremental use cases that we were not expecting. Two, the level of loyalty to existing providers is lower than we expected due to many customers perceiving quality of service issues. And then three, the uniqueness of our routes have been viewed as a huge positive for path diversity among customers. A wavelength product is an unprotected product by design and by having common city pairs, common data centers, but having a completely physically diverse route, there is a value to that that the other providers cannot deliver.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And sorry to ask this, but just given how fast waves are growing, when you say a 20 to $25,000,000 run rate in four q, what does that translate into in terms of, like, what we would see on the income statement for four q revenue?

Dave Schaefer, Chief Executive Officer, Cogent: That means we will be on an exit run rate at the end of the quarter for 20 to 25,000,000.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: A year.

Dave Schaefer, Chief Executive Officer, Cogent: A year. Yeah. But it that is measured on a monthly basis. So the variable on that will be how quickly the customers accept, and we will have sufficient number of waves installed with adequate ARPU to hit that number. What we cannot yet predict accurately is the pace from install to acceptance.

And we also know that with our IP services, after a several year period of allowing customers to consistently push out orders, we eventually implemented a forced billing regime. And it is our intention to do the same with wavelengths, but I think we need to have more market share before we can take that more heavy handed approach with customers.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: And so then maybe coming back up to the corporate side of the business, can you give us an update on how you’re doing with individual relationships, that penetration in the buildings? And then what’s happening with the sell through of services? Because you provide the VPNs. You have, of course, the higher connection speeds that you can deliver. So maybe a little bit about that volume number and then that, like, mix in ARPU relative to that.

So

Dave Schaefer, Chief Executive Officer, Cogent: three different questions. First of all, the number of tenants in our footprint has decreased because of COVID and the increase in occupancy rate. Partially offsetting that has been the fact that new lease signatures in our 1,000,000,000 square foot footprint have typically been for smaller suites. So therefore, there is a potential for more aggregate tenants if the building returns to pre pandemic occupancy levels. While we have seen a reduction in the rate of vacancy increases, there have only been a few markets where we’ve seen net absorption be positive and vacancy rates coming down.

Probably the biggest exception to that is DC with Doge, where we are now at all time high vacancy rates, and they are continuing to increase. Even markets that had been challenging after the pandemic, like San Francisco and Seattle, have peaked in vacancy and are now now seeing some positive net absorption. The second point is there is a consistent transition from lower speeds to higher speeds. We went through a significant rotation probably right before the pandemic and then continuing for the first year or so where we were replacing fast e or a 100 megabit connections with one gigabit connections. And today, probably 93 or 94% of the entire installed base is on one gig or greater speeds, and we have seen an increase in demand for 10 gigabit connections, which had historically only been a NetCentric product.

But as we have wave enabled the footprint. We also, in that process of reconfiguration, our metro networks completed the process of creating a 100 gig transport out of each of the buildings, allowing us to sell 10 gig connections. So we are actually seeing corporate ARPUs go up even though the price per megabit is coming down because of that speed shift that is going on. And then the third point that you raised which is by product type. And our business is predominantly a DIA business or Internet connectivity business, but we do sell a significant number of VPNs to end users.

Today, the percentage of VPNs as a percentage of total revenue is actually on an all time high, but it’s distorted by the fact that most of the Sprint customers were receiving VPNs, and only a very small percentage of them were DIA customers. Now the technology that Cogent had been deploying was virtual private line service or VPLS. We continue to deploy that. Sprint had been delivering a much more antiquated service on MPLS for multi packet label switching. And initially, our thought was we would be able to convert all of the Sprint customers to VPLS and they would welcome that because it was cheaper, more flexible, and it was more scalable.

What we quickly realized in conversations with those customers is that they had no interest in migrating to a different VPN architecture. And that actually sent us back to the drawing board, and we actually revived some older equipment that had been pulled out of the Cogent network and deployed 273 global MPLS aggregation points. And we provide that MPLS service over our public Internet backbone, but with MPLS aggregation devices at the edge to allow customers to connect. That allows us to continue to provide MPLS for customers without the threat of turning off the service. And in fact, we’ve given customers a ten year written guarantee that we will support that technology.

That’s actually been very welcome. And for that reason, our aggregate VPN business has grown even though for the legacy corporate customers who were buying VPLS, there has been some replacement of just public Internet. In aggregate, our VPN business has never been higher as a percentage of our revenues.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: That’s really helpful. You know, maybe migrating to capital allocation in the few minutes that we have left. How are you thinking about a possible optimization or shift in going from paying out the dividends that you’re paying to maybe migrating to buybacks or focusing on deleveraging you know, with the cash flow that you generate?

Dave Schaefer, Chief Executive Officer, Cogent: So Cogent has returned approximately $2,000,000,000 to shareholders. We have bought back 10,900,000.0 shares out of a 49,000,000 share float still remaining, and we have a dividend that we have grown for fifty two quarters consecutively, sequentially. We historically hovered in a leverage range of about three times levered while we were doing both buybacks and dividends. With the onset of the pandemic, our leverage went up to 4.2 times. When we initially acquired Sprint, we immediately delevered down to 2.7 times due to the front end loading of the subsidy payments from T Mobile.

Meaning, we got more upfront than we needed to take out and cover the burn, and that helped fund the wave enablement of the network as well as accelerate the purging of undesirable revenue. Now going forward, we have peaked and leveraged in the most recent quarter that was clearly telegraphed in advance. If you look at on an LQA basis, we are already declining in leverage. Secondly, with the growth in EBITDA and the additional growth in EBITDA that will come from selling wavelengths, we generate incrementally more EBITDA and our capital intensity is declining as our reconversion and power optimization in the data center footprint is now complete. So that leaves us with increasing amounts of cash that we could deploy in one of the three different venues.

The market is clearly decoupled our dividend from our stock price. So we have to listen to what the market is saying to us and that they just don’t believe that. We believe that we can both delever and continue to grow the dividend concurrently. The market does not believe that. It is possible that we pivot more to buybacks.

It is possible that we decide to leave more net cash on the balance sheet and therefore, net delever. What is true is we are certain that we will return increasing amounts of cash to shareholders and one, if not all three of those different vectors. And at minimum, we will be able to delever from the 6.6 times leverage we’re at today down to about five times by the 2026, and then we need to go beyond that.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: So in in our final minute, one other way you could delever is sell some of the noncore assets. You talked about data centers in the past. You talked about IPv4. You talked about maybe there could be some fiber. What’s the opportunity?

How do you see that in terms of you know, very quickly in terms of magnitude, timing, likelihood?

Dave Schaefer, Chief Executive Officer, Cogent: We are highly motivated to divest of those noncore assets. We have concluded that we cannot generate revenue fast enough to justify us holding those assets. In the data centers, we had a lot of preparatory work based on feedback from potential customers. That work was done in June. We have six LOIs as of the end of the quarter, last quarter in hand.

We are continuing to negotiate. We also have looked at the IP market, I p v four market there. We have been less willing to try to sell at this point as the two largest buyers have not been in the market. While the market is still robust and is broad, I don’t think it’s deep enough to absorb our inventory. And then our dark fiber, we’ve done a handful of one off deals and we will continue to evaluate those on a case by case basis.

We think that non core asset divestitures are helpful. They will clearly help us to lever in the short term, but they do not build long term enterprise value in the way that we can by growing our recurring revenue business. So our primary focus is on growing wavelengths and growing our core on net services.

Mike Rollins, Communications Services and Infrastructure Analyst, Citi: Dave, thank you so much for your time today.

Dave Schaefer, Chief Executive Officer, Cogent: Hey. Thanks, Mike, for having me. Thank you all for listening. Take care.

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