Cogent at Oppenheimer Conference: Wavelength Strategy in Focus

On Wednesday, 13 August 2025, Cogent Communications Holdings Inc (NASDAQ:CCOI) participated in the Oppenheimer 28th Annual Technology, Internet & Communications Conference. CEO Dave Schafer outlined the company’s strategic plan, focusing on growth through the Sprint acquisition and the wavelength business. While challenges persist, such as declining Sprint revenues, Cogent remains optimistic about achieving its ambitious targets.

Key Takeaways

• Cogent targets $1.5 billion in revenue and $500 million in EBITDA by mid-2028.
• The company aims for a 25% market share in the wavelength market within three years.
• A decrease in the T-Mobile subsidy poses a challenge, but Cogent plans to offset it with revenue growth.
• The company is exploring the sale of non-core assets to boost capital returns to shareholders.
• Cogent plans to enter the Indian market this quarter.

Financial Results

• Target revenue of $1.5 billion and EBITDA of $500 million by mid-2028.
• Sprint business declined at 10.6% annually prior to acquisition.
• Legacy Cogent services grew at approximately 5% after COVID.
• EBITDA increased by $5 million sequentially each quarter post-Sprint transaction.
• T-Mobile subsidy of $700 million over 54 months, front-end loaded.
• 2025 revenue expected to be slightly negative year-over-year, with sequential growth anticipated in Q1 2025.
• Long-term combined revenue growth expected at 6-8%.
• Wavelength business annual run rate was $36 million last quarter.
• Targeting mid-thirties EBITDA margins from the current 29.8%.

Operational Updates

• Wavelength Business:

- Conversion of Sprint voice network to wave network substantially complete in 2024.

- Enabled 938 data centers, with 428 selling waves by the end of the quarter.

- Target of 3,000 installed wavelengths by year-end 2025.

- Pricing strategy includes a 20% discount compared to competitors.

• NetCentric Business:

- Grew 7% year-over-year, despite a 20% price decline.

• Corporate Business:

- Legacy Cogent corporate business returned to 3% growth post-pandemic.

- Sprint corporate business continues to decline at over 20%.

• Data Centers:

- Conversion and optimization complete, with potential sale or lease options being explored.

• IPv4 Addresses:

- Revenue run rate increased from $8 million to $60 million annually over three years.

Future Outlook

• Focus on growing top-line revenue through wavelength sales.
• Sequential top-line revenue growth expected to begin in Q1 2025.
• Long-term revenue growth rate targeted at 6-8%.
• Continued margin expansion of 200 basis points per year expected.
• Plan to achieve $125 million quarterly EBITDA run rate by mid-2028 without T-Mobile subsidies.
• Commitment to increasing returns to shareholders each quarter.

Q&A Highlights

• Confidence in achieving 3,000 installed wavelengths by year-end 2025 is at 90%.
• Pricing strategy includes a 20% discount for wavelengths.
• Legacy corporate business expected to improve gradually.
• Dividend policy may pivot towards buybacks if the stock price remains low.
• Motivated to sell non-core assets, including data centers.

For a more detailed analysis, readers are encouraged to refer to the full conference call transcript below.

Full transcript - Oppenheimer 28th Annual Technology, Internet & Communications Conference:

Tim Horan, Communications Analyst, Oppenheimer: Good afternoon, everybody. Tim Horan, the communications analyst here at Oppenheimer. My pleasure to be hosting the CEO, Dave Schafer from Cogent. Dave, I know it’s been a very trying, week or a few months for you. Not trying to sugarcoat anything.

I know this is the third one you’ve done this week, and I apologize. I did not get to read the full transcripts of the other ones. So, you know, maybe we should try to focus on what hasn’t been discussed too much. But, you know, the main thing I’m trying to figure out is I think, you have guidance for ’28 or ’29 around a billion and a half in revenue and a half a billion of EBITDA, give or take, in that time frame. Could you just maybe update us on on that longer term, you know, aspiration?

And, you know, what what, you know, what’s gonna get us there? What are the steps that we should be kinda tracking to to reach those targets?

Dave Schafer, CEO, Cogent: Yeah. Hey. First of all, thanks for hosting me, Tim. Thanks Oppenheimer for the venue, and thank investors for caring about Cogent and spending some of your time with us. You know, when we announced the transaction to acquire Sprint, we laid out a five year, multi year plan that would get us to a billion and a half dollars of revenue and 500,000,000 of EBITDA.

We started out with a little over a billion dollars of revenue combining the Sprint and the Cogent business. Cogent represented about 60% of the combined company, Sprint about 40% of the combined company. The Sprint business for the previous three years to closing had been declining at 10.6% a year. The Cogent business during that same period had been growing at about 7%, about 5% at the end of that period because we did have some impact from COVID. And we intentionally accelerated the decline in the Sprint business by grooming unprofitable products and unprofitable locations.

As a result, for the two years post transaction, Cogent has had negative revenue growth, but has grown its underlying EBITDA on average 5,000,000 a quarter sequentially each and every quarter for those eight quarters. While we have some additional cost savings and network optimization ahead of us, most of the growth going forward in EBITDA will have to come from the ability to grow top line, in particular selling higher margin products replacing lower margin products. We also were fortunate enough in the negotiations to get a subsidy payment from T Mobile that has been added to our underlying EBITDA. That subsidy payment was $700,000,000 over fifty four months asymmetrically front end loaded. So our EBITDA on that billion dollars of revenue jumped from 260,000,000 to 350,000,000 in the first year, 348,000,000 in the second year, and will be somewhere above 300 to $3.50 this year based on the step down in those subsidy payments coupled with the cost savings that I outlined.

And for the full year, we will still probably be negative, flat to slightly negative. But on a sequential basis, we anticipate our top line revenue returning to growth sometime in this quarter, ’25. And then from this point going forward growing at a combined rate of between 68%. Within that revenue growth, there are really three independent revenue streams. There is the legacy Cogent classic business that is growing at about 5% year over year, not as well as it was pre pandemic, but still a growing business with contribution margins of about a 100 basis points.

There is an acquired Sprint enterprise business that has been migrated onto the Cogent network, costs have been taken out, and undesirable products have been groomed. And that business represents less than a third of our total revenue, and is a flat business with much lower margins. And then finally, we have a new business that is effectively a startup in a public company, which is our wavelength business. That wavelength business was zero at acquisition. It has grown to a $36,000,000 annual run rate by last quarter.

We were not able to actively sell those wavelengths until the beginning of this year, and we anticipate that that business alone will be a $500,000,000 business with roughly a 95% contribution margin on those incremental waves sold. So the combined company having the new products, the legacy customer base, and the traditional cogent will be a business that is 1,500,000,000.0 in revenue scale by mid twenty eight run rate on an annualized basis, and will be generating 500,000,000 in EBITDA. There has been concern among investors that as that T Mobile final subsidy dissipates, can we both make up the ground that we will lose when that last $100,000,000 a year of subsidies for the next two and a half years disappears and had this additional EBITDA from top line growth? And the answer is absolutely yes.

Tim Horan, Communications Analyst, Oppenheimer: So, Dave, I mean, just to clarify the numbers, to hit a 1,500,000,000.0 run rate by mid twenty eight, I mean, you’re talking to more like on a consolidated basis, like 12% revenue growth the next three years. Is that right? So, you know, your guide, I know six to 8%, is that for is that absent wavelength, or is that, you know, include everything? Because if you include every if you’re gonna grow 7%, you know, it’s a number much, much less than 1,500,000,000.0. Yep.

Dave Schafer, CEO, Cogent: So it is a higher growth rate in the near term, and the six to 8% number that we give is meant to be a multiyear long term trend line coupled with the 200 basis points of continued margin expansion. But in the near term to hit our targets, we anticipate aggregate growth rate to be above that and average contribution margins to be higher.

Tim Horan, Communications Analyst, Oppenheimer: Yeah. I mean to, you know, not to put words in your mouth, but yeah, you’d have to have margin expansion more like 300 basis points a year, the next, you know, three to 400 basis points the next three, four years. And and the revenue growth I laid out, like, 12%, you know, the next three, four years. And you you’re still pretty confident you can do that. I mean, lot of that is driven by wavelength obviously, which we’re looking for basically hockey stick growth at this point.

Dave Schafer, CEO, Cogent: So the answer is yes. And with the wavelength business, it is a repurposing of the dormant voice network that Sprint had deployed, connecting it to our metro footprint, and selling a new product. We have enabled 938 data centers. We’ve now sold waves as of the end of the quarter, and a little under half 428 of those facilities. We have less than 1% market share in the wavelength market.

We have a compelling value proposition of four key advantage just. One, more data centers. Two, faster delivery. Three, lower price. And fourth, higher reliability.

Based on those competitive advantages, we are targeting a 25% market share, up from 1% over the next three years. The period of time between closing and the beginning of this year was focused on that network enablement. Now we’re in the process of converting orders into installed revenue and accelerating the build of the funnel. That will result in much higher growth rate in the short term. Remember, we were fighting the headwind of declining revenues, intentionally declining due to the decision to terminate a number of legacy Sprint services.

That decision turned out to be correct because we were able to take the underlying EBITDA, absent the subsidy payments, from less than 5,000,000 a quarter to 48,000,000 a quarter in eight quarters, or a better than 5,000,000 a quarter sequential improvement, which resulted in actually faster EBITDA margin expansion than we’re projecting going forward. While we have some additional savings, and that may account for another two or three quarters of improvement in EBITDA. Most of the improvement will come from wavelength sales. Now there will be continued contribution from legacy Cogent services, whether it be transit, on net Internet, on net VPN services, or address leasing. But the wavelength driver will be enabling us to get from a billion dollars of revenue to 5,000,000,000 and then getting EBITDA margins up to mid thirties from where we are today.

While we are at 29.8 last quarter, that was partially helped by the 25,000,000 subsidy payment from T Mobile. Those subsidies will continue through early twenty eight. But at that point, we need to be on a run rate by mid year of a 125,000,000 of quarterly EBITDA with no subsidy payments, and the progression to get there is selling on that services.

Tim Horan, Communications Analyst, Oppenheimer: Great. Great. Great detail. Thank you. So then I guess it comes down to you know, obviously, it’s taken a little bit longer to get the wavelengths up and running in terms of revenue and, actually, a number of wavelengths.

Can you just talk about how sales are progressing at this point? You know, maybe there’s the most recent kind of few weeks and, you know, how provisioning is going.

Dave Schafer, CEO, Cogent: Yeah. So the first effort we had to do once acquiring Sprint was integrate the networks and convert the Sprint voice network to a wave network. That program was substantially complete at the 2024. While that conversion was ongoing, we were validating our demand assumptions by going to the market with a footprint that was not yet installed and a timeline of when we could not guarantee delivery. We assembled almost 10,000 orders during that period.

About a thousand of those were manually installed between May ’23 and December ’24. At the ’24, the network integration and optimization was complete and we began selling orders with specific delivery windows. Of that original 10,000, a thousand installed, a thousand carried forward, and about 8,000 of those orders disappear. Going forward, we now have 938 specific locations. We have a guarantee of delivery, and we’ve got 296 of our 628 salespeople focused on this market segment.

We have built a funnel of nearly 4,700 orders. That includes orders that have been installed but have not yet started billing, those that are in installation, those that are under firm contract, and then finally those in which the specific route, price, and speed have been negotiated, but the contract has not yet had the terms and conditions executed. We anticipate that funnel number to build. We also anticipate that the two to 300 orders that we installed in q two, but did not begin billing, will bill over the next quarter or two. More orders will come into that window as the provisioning we are doing.

And we should end this year with about double the number of waves that we had at the end of Q1. So we went from a thousand being manually installed in that eighteen month period while we were building the network. First two quarters when the network was operational, we installed basically 500 revenue billing and another two fifty that were not yet billing revenue. We need to get the revenue billed numbers up to 3,000 by year end, but then continue to grow that. And I think as we demonstrate the superiority and the value we deliver, that should be easily done.

We have gotten a great deal of comfort from customer feedback and from the competitive dynamic that the addressable market is actually a little better than we expected it to be.

Tim Horan, Communications Analyst, Oppenheimer: Oh, very, very helpful. So, you know, your confidence level in the 3,000, you know, by by year end, you know, you think there’s 80% chance of hitting that number, 90?

Dave Schafer, CEO, Cogent: I think 90 is a reasonable target. Okay.

Tim Horan, Communications Analyst, Oppenheimer: And, you know, so how many how many wavelengths do you think you can have installed for ’26?

Dave Schafer, CEO, Cogent: So the pace will pick up in 2026. We will have a credible set of reference accounts, and we should be able to triple that number, but somewhere between double and triple the number of wavelengths that we start the year with. While we don’t want to give specific granular guidance on a quarterly basis, we wanna stick to that multi year set of metrics, we should be seeing the wavelength revenue growth of GAAP revenue progress. And what we wanna do is then start to focus exclusively on revenue and not on these other KPIs.

Tim Horan, Communications Analyst, Oppenheimer: Yeah. I greatly appreciate that. And, well, I guess, while we’re on the KPI, the ARPU has been coming in pretty healthy. It sounds like, you know, are are you pricing at a 10% discount to the market now in parity with the market? You know, how how’s the pricing been shaping up?

Dave Schafer, CEO, Cogent: Yeah. So ARPUs actually went up in this quarter, and pricing has been stronger than we had initially expected. We typically go to market with a 20% discount to what we believe the comparable route and speed is from our competitors. We built a pricing engine that took into account both the competitive dynamic on a route by route basis and any incremental costs that we have. In building that tool, we kind of optimized it for a 20% discount to the market rate.

We knew that we would have to discount beyond that. To date, we have not done nearly as much discounting beyond that 20% as we anticipated. And again, to refresh everyone’s memory, in our transit business, we typically discount 50% to market rates.

Tim Horan, Communications Analyst, Oppenheimer: And is that 50% still holding, do you think, Dave, on transit?

Dave Schafer, CEO, Cogent: Yeah. On transit, I think we will continue to be the price leader. We continue to be at about a 20 about a 50% discount. Although, in many international markets, the competitive dynamic is very different. Prices are much higher, and we have not been willing to necessarily be as aggressive against regional local players who are confined to one market.

You know, part of the reason why our NetCentric revenue growth has outpaced the p times q of volume growth and price declines has been our ability to get better pricing in international markets.

Tim Horan, Communications Analyst, Oppenheimer: And the NetCentric business this last quarter that it grew pretty healthy 7% year over year?

Dave Schafer, CEO, Cogent: That is correct. Even though traffic only grew 9% year over year and prices continue to decline in the roughly 20% range, we were able to get more of the revenue sales from smaller customers and international. So some of it’s by Cogent’s marketing and design, but some of it is a shift in the underlying market itself. The Internet is growing faster in the developing world than it is in the developed world. And the market concentration that has occurred with, you know, seven or eight key names accounting for about half of Internet traffic has pretty much played out.

And while we sell to all of those players, we’re seeing a broadening out in growth of mid and smaller players, which results in a higher price per MEG.

Tim Horan, Communications Analyst, Oppenheimer: So, Dave, why don’t you I I mean, it’s just a NetCentric business. You know, it’s not growing that much. You know, why don’t you take the discount over time to 25% instead of 50 or some lower number?

Dave Schafer, CEO, Cogent: Well, that effectively is happening in part through this international strategy where we have limited competition in a given market and therefore are not as aggressive. So if you went to Argentina or Chile, the number of players in that market are very different than going to The Netherlands or to Germany. You know, we are gonna be entering the Indian market this quarter. It took us eight years to get to this point in license applications. And I don’t wanna jinx ourselves, but we’re at the one inch line.

And I think when we go into that market, prices will be higher, and we will not be as aggressive just because the dominant players are buying from us today out of market and bringing traffic in the country. We will continue to support that business where we will will be very aggressive. But within the country, the competitive dynamic is very different, and I don’t think we need to be quite at a 50% discount.

Tim Horan, Communications Analyst, Oppenheimer: Got it. Very helpful. And can you talk a little bit about the the legacy, if you don’t mind, just what you’re seeing in the legacy corporate business, what that’s kind of growing at? I know it’s a little difficult to parse out.

Dave Schafer, CEO, Cogent: Yeah. So our corporate business, which is driven by on net services and large multi tenant office buildings, had grown for a decade between 2010 and 2020 at a compounded rate of eleven percent. When the pandemic hit, that growth rate materially decelerated to negative nine. It returned to about 4% growth. And for the last couple of quarters, it’s actually been growing at about 3%.

And we do think there will be gradual improvement. Layer on that the acquired Sprint corporate business, which had almost exclusively been delivered off net and had a number of non core products. That business is probably declining at 20 plus percent. As a result, the entire corporate business is still slightly negative, but the rate of decline in the acquired Sprint corporate base is also moderating as we have worked our way through those undesirable products and locations.

Tim Horan, Communications Analyst, Oppenheimer: And and when does Sprint kinda reach stability, and can can it ever grow again?

Dave Schafer, CEO, Cogent: So when we acquired Sprint, 80% of the revenues were enterprise, roughly 17% of revenues were corporate, and about less than 3% were NetCentury. That business was a declining business and probably will not return to material top line growth. I think those customers that we acquired from Sprint have been stabilized, but it will be a flattish business. Now in the corporate segment, we’re actively selling those services with over 300 corporate reps selling. And that business in its entirety with the remaining Sprint legacy customers will end up growing in that kind of the 5% ish type range that Cogent’s business had grown.

The true enterprise customers, of which Cogent only had three prior to the acquisition, now we have about 250, and they account for about 30% of our revenues are flat. They are roughly 88% off net. They tend to be smaller locations and global in nature. We think we can get that business to flat to up 1%, which compared to other wireline enterprise companies is a good result. But a large percentage of those customer locations will never be on net for coaching.

So we view that as a maintained business, but not a growth business. The NetCentric portion of our business without wavelengths is a very desirable business. It’s a business that’s roughly 90% on net and only 10% off net, and it’s a business growing at 8%. That business will continue to perform, it tends to be a little bit lumpy. You know, everybody got excited at the beginning of the pandemic when NetCentric revenue growth accelerated to 26% year over year from 3%.

It sits moderated to that kind of 8% range that you mentioned, Tim. And then we layer on wavelengths, are almost exclusively a NetCentric product, we get to a business that is growing in mid to low double digits. And because all of the wavelengths and roughly 90% of the IP based services in NetCentric are on net, the contribution margins are much higher. And that’s how we get to the EBITDA number with the revenue growth.

Tim Horan, Communications Analyst, Oppenheimer: So, Dave, we have eight minutes. I have 30 questions from investors. Have another I have another 30 myself, so maybe, maybe we can go in a quick order here. And I hate to ask this, but can you talk about I know you’ve had a bunch of stock sales for a bunch of different reasons I don’t wanna go into. But can you talk about how how how many stocks you still own, and do you have more to sell?

Dave Schafer, CEO, Cogent: So I have nothing left to sell. I worked at Cogent for twenty five years, never drew a salary, and received a 100% of my compensation in stock. To pay the taxes on that stock, I had borrowed against it. I had a gross tax basis in those awards of a 185,000,000. I subtract the roughly 30,000,000 in return of capital payments over that time, and it had a net basis of $1.55.

I had borrowed about $80,000,000 against 2,700,000.0 shares with two banks. When the stock sold off, I was literally flushed out. The only stock that I have left are the shares that are held by the company that are restricted. Those restrictions will lift. I will be able to use that stock, but I have no longer any debt on it.

And if there’s a silver lining in a very dark cloud, I now have a loss carry forward on my cogent stock. So as that stock vests, I won’t have to pay any taxes.

Tim Horan, Communications Analyst, Oppenheimer: Got it. Okay. And sorry about that.

Dave Schafer, CEO, Cogent: That’s not your fault. It’s my fault for, you know, taking my comp and stock and paying the taxes.

Tim Horan, Communications Analyst, Oppenheimer: Yep. Yep. So question, why don’t you just cut the dividend and buy back stock with the stock so cheap? Like, why are still paying a dividend that no one believes you can support? Yeah.

Dave Schafer, CEO, Cogent: So Pugent has returned $2,000,000,000 of capital to shareholders. We have bought back 10,900,000.0 shares or about 23% of our float, and we have grown our dividend for 52 sequential consecutive quarters. We have done that by growing EBITDA and levering that EBITDA up. We’ve returned more than cash, and our leverage has peaked. It will naturally come down along with the growth and return of capital.

So not just even at the current levels, but returning more each quarter. We can naturally delever based on the extrapolation of the EBITDA growth that we have achieved over the past eight quarters just extrapolating going forward. And it is true that to be able to achieve 5 plus million of EBITDA incrementally each quarter, suck for a quarter or two more, we have some cost savings, but then it has to come from top line growth. We will delever. We were very clear saying our leverage peaked in the ’25 at 6.61 times net.

It will come down. Whether or not we do it exclusively through a dividend or we pivot more to buybacks is really dependent on the stock price. With such a profound dislocation in the stock, the IRR on the buyback is very high, much higher than our debt cost of capital, and it may make us pivot more to buybacks. But I also am cognizant of a number of shareholders who buy Cogent and have supported us because of our dividend consistency. But the message I wanna leave everyone with is we are gonna return an increasing amount, not even a constant amount, but an increasing amount of free cash flow and monies to shareholders each quarter.

Tim Horan, Communications Analyst, Oppenheimer: Very helpful. So lastly, any more update on the data center or wavelength or, yeah, asset sales in any form?

Dave Schafer, CEO, Cogent: So the wavelength we’ve touched on, the data center conversion and optimization is complete at this point. You had the opportunity to tour one of those early in the conversion process and we have been working diligently investing capital, converting the DC plant to AC. We are talking to a number of parties. We have six letters of intent. I actually had just between my last one of your meetings, they gave me a break and I responded to two more new entrants who expressed interest.

Put them in touch with the right parties at Cogent. You know, we are very motivated to sell non core assets. We cannot fill up these data centers. So we are looking to either sell them or lease them or joint venture them, but we know that they are not strategic. We also know that we have excess IPv4 addresses beyond the, you know, roughly 13,000,000 addresses that are securitized and the 15,000,000 that are currently leased.

We are aggressively continuing to lease them. We’ve ramped the revenue run rate on that product from 8,000,000 a year to 60,000,000 a year in three years. It is a 100% margin, and we will continue that. But we will also try to see if we could sell some of those. But the enterprise value creation at Cogent doesn’t come from selling assets, it comes from growing recurring revenues, and that is our primary focus.

Tim Horan, Communications Analyst, Oppenheimer: Dave, we’re out of time. I really, really, really appreciate all the help here, and good luck. And thank you.

Dave Schafer, CEO, Cogent: Hey. Thanks, everyone. Thanks for hosting me, Tim. Take care. Bye bye.

Bye

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