Cogent at TD Cowen Summit: Navigating Challenges and Opportunities

On Tuesday, 12 August 2025, Cogent Communications Holdings Inc (NASDAQ:CCOI) addressed investor concerns at the TD Cowen Communications Infrastructure Summit. CEO Dave Schafer tackled issues ranging from stock performance and personal financial matters to strategic growth initiatives. Despite recent challenges, including an EBITDA miss and real estate issues, Schafer expressed confidence in Cogent’s ability to enhance EBITDA margins and sustain dividends.

Key Takeaways

• Cogent aims to achieve a $20 million revenue run rate in its Waves business by year-end.
• The company received six Letters of Intent for its data centers, with ongoing interest from over 50 parties.
• Cogent returned $2 billion to shareholders through dividends and buybacks.
• CEO Dave Schafer clarified his tax situation and real estate financial challenges.
• Cogent plans to enter the Indian market later this quarter.

Financial Results

Cogent has maintained a compounded growth rate exceeding 10% over its 17-year public history, without relying on mergers and acquisitions. The company has consistently expanded its EBITDA margins, achieving a 200 basis point increase in the most recent quarter. Cogent has returned $2 billion to shareholders, including $250 million through buybacks, and remains committed to growing its dividend, which has a 52-quarter history of increases.

Operational Updates

The Waves business is a focal point for Cogent, with 27% sequential revenue growth and a 149.8% year-over-year increase. The company ended Q2 with approximately 1,500 waves installed and a revenue run rate of $9.1 million. Cogent operates a dedicated North American network for its Waves services, ensuring quality and reliability. In the data center sector, Cogent is exploring sales but emphasizes that these are not essential for maintaining dividends or deleveraging. The company has converted its DC plant to AC at a cost of nearly $100 million and continues to evaluate strategic sales opportunities.

Future Outlook

Cogent anticipates a return to positive revenue growth and plans to accelerate EBITDA expansion by increasing its top line. The company aims to reduce leverage to approximately five times by June 2026 without relying on asset sales. Strategic growth will focus on high-margin products such as transit, wavelengths, and IPv4 addresses, alongside cost-cutting initiatives and building recurring free cash flow. Expansion into the Indian market is slated for later this quarter.

Q&A Highlights

CEO Dave Schafer addressed concerns about his tax situation, explaining the history of his Cogent equity position and share pledging to cover taxes. He confirmed that restricted shares will become unrestricted over time, representing about 1.2% of the company. Regarding data center sales, Schafer reiterated that the company could honor dividends and deleverage without selling these assets, though he remains open to selling IPv4 addresses at a reasonable price.

Readers are invited to refer to the full transcript for more detailed insights into Cogent’s strategic plans and financial performance.

Full transcript - TD Cowen Communications Infrastructure Summit:

Greg Williams, Analyst, TD Cowen: Welcome to our eleventh annual TD Cowen commercial communications My name is Greg Williams. I cover cable, wireless, telco, and fiber.

Joined in this session by Dave Schafer, CEO of Cogent. Dave, thanks for joining us.

Dave Schafer, CEO, Cogent: Hey, Greg. Thank you for hosting me. Maybe most important, I’d like to thank the investors for hanging around here at the end of the conference and not doing something more fun than listening to me run my mouth. But and always, I wanna thank T. D.

Cowan for a great venue. You guys are committed to this space.

Greg Williams, Analyst, TD Cowen: Yeah. We sure are. It’s been eleven years, so it’s great to be here. I wanted to start with your shares are down meaningfully over the last week, know, since earnings especially. And one of the reasons is the calls on your stocks.

Know, this time last year was about your commercial real estate business, but from what understand, it’s more about your tax situation. Maybe you can just contextualize the situation and and where we are in this process now.

Dave Schafer, CEO, Cogent: And I always get criticized by Colby for a long answer, but it’s it is necessary in this case. So when I founded Coach and I put initial capital in, I owned 23% of the company and had raised 500,000,000 of capital. The telecom crash happened, and in negotiations with my investors, my 10 PE and venture investors, I agreed to voluntarily reduce my stake from 23% to 0.7 of the company, give up my liquidation and preference ratchets in exchange for getting access to all of the capital to buy distressed assets. In the period from April through December, we did 13 acquisitions. We acquired companies like PSI Net, Allied Riser, and we dismantled those businesses and reassembled them into what became Cogent.

Cogent is not a roll up. It is the piece parts of other companies. As a result, when Cogent went public, my equity position was down on a half a percent with the public equity dissolution. And my deal with my investors was that I could reconstitute my position by taking 100% of my compensation in stock, and I would do that over time. In fact, I’ve rebuilt my position to 11% of the company.

Greg Williams, Analyst, TD Cowen: Because you paid in stock.

Dave Schafer, CEO, Cogent: Paid in stock and never received a dollar of salary. Again, it’s all in the public filings. For the first couple years, that was okay. And then as the stock appreciated, it got more expensive. So I went to the board and said, I need to have the ability to pledge those shares to pay taxes.

I have a tax basis as of the first of the year of a $155,000,000 that I had paid taxes on, so almost $80,000,000 in card tax that I paid. That was the sum dollar value of my pledge position. I had to contribute stock to be able to do that. I kept a pool of stock unpledged and a pool pledged. And as the stock came down, I went to the board and said, will like to rather than sell, put more stock into the pledge pool.

And I did not anticipate the run that we had and effectively got wiped out of my position. I’m a big boy, I get that. That was the bargain I made. And then the confusion around my real estate, I have never pledged a share of stock for real estate. I have a portfolio outside of Cogent of 42 office buildings.

I had office buildings before I had Cogent, and I built that business up, and it has been under tremendous pressure. Over the past twenty months, I injected $152,340,000 of actual cash into that portfolio to negate the decline in value. So the portfolio at pre pandemic levels was 53% LTV. Today, it’s probably above 90% LTV. While I’ve reduced the debt load from $5.78 to $4.22, the face value of the assets has fallen from 1,100,000,000.0 to below 500,000,000.

And as a result, all of my lenders are looking for incremental equity injections. That is gonna be very difficult now that I don’t have stock or another source of capital.

Greg Williams, Analyst, TD Cowen: And you do have shares in Cogent today, but they’re just restricted. Is that right?

Dave Schafer, CEO, Cogent: They are restricted. Okay. Now, will unrestrict over time, and they will represent about 1.2% of the company. So I guess I’m better off than I was twenty eight years earlier, but not twenty eight years worth of work. But again, that’s the hand

Greg Williams, Analyst, TD Cowen: I’m dealt. Gotcha. Gotcha. And thanks for cleaning that up. The the the other, you know, issues, I guess, were, you know, the EBITDA miss, the Waves miss, maybe the lack of data center sale process, and maybe a risk to the dividend.

To that last point, you know, your dividend yield is over 13%. At at this point, would it be would it make sense to maybe temporarily pause the dividend and and and focus on a buyback?

Dave Schafer, CEO, Cogent: So we have returned almost $2,000,000,000 of capital to shareholders. I am very comfortable that we will be able to delever and grow our return of capital. We have predominantly done that through dividends. We have 52 of growing the dividend, and we have returned about $250,000,000 through 10,900,000.0 shares of bought back stock at an average price of $24.13. Again, prior to this recent sell off, I could have pointed to a double digit return on the compounding of those buybacks.

You know, I’m gonna go back to the first two points that you made around misses. And I don’t wanna sound defensive, but I disagree with some of that statement. First of all, we were extremely clear in our previous earnings call that our revenues would decline for the quarter sequentially. While Cogent as a company does not give quarterly guidance as a practice, Because of the complexity around the Sprint transaction, we have added incremental KPIs, and we’ve given incremental disclosures. We said that we will turn cash flow or revenue growth positive sometime in this quarter.

Whether it’ll be sufficient to be positive for the full quarter is hard to determine. But I think we will return to the positive growth that we had before acquiring Sprint. To just refresh everyone’s memory, if you looked at Cogent pre Sprint, we had a seventeen year public history of a compounded growth rate of greater than 10% with no M and A and an average of over 200 basis points a year of margin expansion. We acquired a business that was 40% the size of our business. It was declining at 10.6% a year, and it had negative EBITDA margins of almost 80%.

With that, we actually accelerated the rate of revenue decline by terminating certain negative margin products at bad locations. That revenue decline is mostly behind us. We, for eight quarters post transaction, had been able to sequentially grow EBITDA, and we grew EBITDA on average over those eight quarters by better than $5,000,000 a quarter underlying. We, in the most recent quarter, had a 200 basis point expansion in EBITDA margins. I’ll be honest, you know, I don’t know many companies can have that kind of EBITDA growth with negative revenue.

And for us going forward, we will accelerate that pace of EBITDA expansion by growing top line. There are still some further cost cuts.

Greg Williams, Analyst, TD Cowen: And I just want to talk about the moving up from the EBITDA to just the Waves business. You know, it seemed to be off to a slow start, but you noted that several 100 installs are there, but they’re just not yet built. Help us with that understanding. You know, like, who orders a circuit and then, you know, you know, doesn’t you know, sits on it for this long? I’m just trying to understand that that process.

Dave Schafer, CEO, Cogent: Well, I caught a little bit of one of your other interviews, and I think that CEO would have said the same thing, which is customers are expecting two things. One, long delays in installation, and two, a high failure rate in those installations, which may result in the circuit never being installed. And again, I would suggest you or any investor do independent channel checks of customers who buy from the current supply base, and ask two questions. What percentage of waves you order never get installed? And two, for those who get installed, how long does it take?

So for Cogent, there are really four pillars to our competitive advantage. Two of them we’ve talked about because they’re under our control and they’re leading indicators. The first is where you can sell the wavelength. Can’t service the market if you’re not in those buildings. We are in more carrier neutral data centers than our competitors.

And at the end of the quarter, we ran 938. That’s an objective metric that we could put out there that can be verified. We’ve actually sold waves at 428 of those nine thirty eight. Two, we have a guarantee to provision in thirty days. The customers do not believe us.

We have been installing, and customers are anticipating we’re gonna behave like our competitors. Some customers take the waves right away, but many of them are dependent on ordering cross connects, patch panel assignments, LOAs, pluggable optics, supplemental power. There are a variety of reasons.

Greg Williams, Analyst, TD Cowen: Right. So on point number two before three and four, just wanna understand. So I understand that you’re a CIO of a company. It’s a lot of coordination, and then the wave just came in too fast. Is that the right way of

Dave Schafer, CEO, Cogent: thinking That’s effectively what faster than I expected. Too fast is the wrong term. It’s just faster than I expected.

Greg Williams, Analyst, TD Cowen: Okay.

Dave Schafer, CEO, Cogent: Now, against Cogent, we are still not installing as many as we need to. We need a bigger backlog, but that is building at a rapid pace. And, you know, the fact that we delivered 27% sequential revenue growth in waves and 149.8% year over year growth, to me, it’s kinda hard to say that’s a miss. Right. I may sound paranoid,

Greg Williams, Analyst, TD Cowen: Right.

Dave Schafer, CEO, Cogent: Those are pretty good numbers.

Greg Williams, Analyst, TD Cowen: And you mentioned that you you have several 100 of these installed but not built waves in the 2Q call. Can you give us give us color of, like, what percentage of these orders will take and then you can bill them? Like is it half over the next quarter?

Dave Schafer, CEO, Cogent: I can’t answer that because it’s in the customer’s Yeah. Decision. So we have tremendous data in our IP business because we’ve installed hundreds of thousands of ports. What I can tell you is we guarantee seventeen days. We average nine.

62% of all orders request a delay in installation. 10% of all orders are eventually forced billed, meaning we don’t give the customer any more extensions, and you just start paying because you have a binding contract, you’ve taken it, you’ve pushed the date out twice, you now have to take the service. For wavelengths, we are too new and don’t have enough credibility to have that kind of market power. I would suspect a year or two from now, after we’ve got tens of thousands of waves installed and customers know and can count on us, then we can implement the same kind of discipline, and this problem totally goes away. But I think as we’re building credibility and changing market behavior, we need to be accommodative.

Greg Williams, Analyst, TD Cowen: Right. Can you tell us how July waived and billed, installed, billed?

Dave Schafer, CEO, Cogent: So what I’m not gonna do, which I made the mistake last time, is giving people interim numbers

Greg Williams, Analyst, TD Cowen: Okay.

Dave Schafer, CEO, Cogent: And getting walked into something like guidance. Okay. I am not gonna do that.

Greg Williams, Analyst, TD Cowen: We’re not touching that one. Well, about the Good try. Good try. How about the confidence in hitting that $20,000,000 wave run rate by year end? I mean, feel like

Dave Schafer, CEO, Cogent: Very high.

Greg Williams, Analyst, TD Cowen: Okay. Even with July and August thus far, you’re feeling confident there?

Dave Schafer, CEO, Cogent: So I’m not gonna give you specifics for months. What I can say is we ended q two with about 1,500 waves and a revenue run rate of 9,100,000.0 for the quarter. We effectively have to double that for the rest of the year. So, basically, since the ARPU stay the same, we roughly need to be at 3,000 waves and go somewhere between around $20,000,000, 25,000,000 of revenue run rate exiting the year. And we have enough backlog, enough provisioning capability, and enough new orders being signed that feel comfortable with that.

But I also wanna emphasize that while we give these KPIs as leading indicators, at some point, they’re gonna go away and investors will measure us solely on GAAP revenue.

Greg Williams, Analyst, TD Cowen: Sure. Sure. And then the competition, Lumen’s here, Zayo’s here. You know, you mentioned that you, you know, have a breadth of service and you have provisioning times, you know, very, very quick. You price competitively.

You know, I feel like they’re not sitting on their hands. I mean, Zayo announced a 400 gig wave capable network. So help us with the competitive reaction in the environment now and what you expect going forward.

Dave Schafer, CEO, Cogent: So you should always be paranoid about your competitors. They will react. Two, I think the architecture of their networks are substantially different than ours and give us some advantage. We have more sites where we can deliver ten, one hundred, and 400 in direction, in all directions. There are still probably about 8% of the vectors, meaning from one side to another, where we are not 400 gig enabled.

But that will be done probably by the end of this quarter, that remaining 400 gig cleanup. And to date, 79% of our orders have been 100 gig waves, whereas for the embedded industry, the mix is fifty five percent ten, forty percent one hundred, and just around five percent four hundred. The final point I want to make is on our competitive advantage. And as I said, there are four pillars. I gave you two.

You mentioned the other two in passing. I don’t wanna expand on that. The third one is price. We have to be a more competitive player. But I heard Steve at lunch, was Sure.

And he said, look, there’s enough here for everybody.

Greg Williams, Analyst, TD Cowen: And you said the 10 gig and the 100 gig, we’re getting more price pressure, but the 400 gig is where where it’s at where you’re strong in price?

Dave Schafer, CEO, Cogent: That’s hard to say, Chris. There’s such a small install base of 400.

Greg Williams, Analyst, TD Cowen: Yeah.

Dave Schafer, CEO, Cogent: And the reality is on a per bit mile basis, 400 is cheaper than 100. Mhmm. It’s just buying a bigger thing. And it’s just like with Internet ports, 100 gig ports are cheaper than ten one hundreds Yeah. Or a 400 gig

Greg Williams, Analyst, TD Cowen: Yeah. You’re buying in bulk essentially.

Dave Schafer, CEO, Cogent: You’re buying in bulk. It’s Costco. Okay. But the final point, which I think we need to demonstrate, and there’s no way to give this to investors upfront, is around quality. Because you can have the first pillars everywhere, fast, at good price, but if the quality is not there, you’re eventually gonna fail.

And the way we dominated the IP business, and both Lumen and Zayo here, they’re competitors in the IP business, but they’re both much smaller than Cogent in that business. And we have been able to do that by delivering the quality we do, the ubiquity, the speed to deliver. But on wavelengths, we architected a network with only one purpose. So I wanna be clear, Coaches running two completely independent networks. There’s an IP network that’s global, that spans a 125,000 miles, all based on IRUs, and then there is a domestic North American, US, Canada, and Mexico network that is solely dedicated to waves.

Greg Williams, Analyst, TD Cowen: Right. And on point number three, just to go back, pricing. In some markets, you’re discounted at 20%. Sometimes it’s 35%. And I think in the IP transit world, in some data centers, you’re like half the level.

Dave Schafer, CEO, Cogent: 50%.

Greg Williams, Analyst, TD Cowen: 50% of the competition. So how did you figure out that 20% or 35% is the right place to be as you think about winning subscribers or winning circuits versus pricing it appropriately?

Dave Schafer, CEO, Cogent: I don’t know. Right. I’ll be honest, we don’t know the answer. You mean,

Greg Williams, Analyst, TD Cowen: getting money on the table if you price to just yeah.

Dave Schafer, CEO, Cogent: So, on average, our pricing algorithms are generally set to a 20% discount to our competitive intelligence on a route by route basis. We then, in some cases, sell it full list, which is a 20% discount. In other cases, incremental discounts. And our pricing grid is based on length, port size, and contract term. And we’re discovering where we need to be.

My goal is not to destroy the market, but to capture market share.

Greg Williams, Analyst, TD Cowen: In capturing that market share, is there concern that maybe you won’t win the big deals? Will you win like the singles and doubles because some of the bigger deals require larger RFPs that are encompassing other products? Can you win what does a typical sale look like, multiple circuits? And can you compete on the large logos that I think Isaiah and Lumen would win?

Dave Schafer, CEO, Cogent: So we have done deals as small as one wave, one ten gig wave to customers that have taken several hundred hundred gig waves and even dozens of 400 gig waves. We have provided waves to a handful of hyperscalers, which are the largest buyers in the market, but they’re still the minority of the market. And also, it’s important to understand that when a hyperscaler buys, they could have three different use cases for those waves. They could need waves for AI training. There’s a whole bunch of buzz around that.

They could use waves to just support their internal network for data replication. And then third, they can use waves for their content delivery models. So whether there’s a Netflix or a YouTube streaming, Google doesn’t come and tell us, oh, this wave’s going to YouTube and this one’s going to the AI training part of the business.

Greg Williams, Analyst, TD Cowen: You can’t really see what it’s used for.

Dave Schafer, CEO, Cogent: You could usually figure it out, but it’s it’s somewhat irrelevant to us. They’re a customer. They need a bunch of waves. We know that their use case is legal. You do what you want with it.

It’s kind of our same, you know, kind of hands off approach to transit that, you know, we don’t question what our customers do. I mean, we sell transit to the RNC, but we also sell to the DNC. We’re not blue or red, you know, we sell to everybody.

Greg Williams, Analyst, TD Cowen: I wanted to switch gears and talk about the data center sale process. Mhmm. You mentioned to me on the call, I think that it’s too early to come off that targeted $10,000,000 per megawatt valuation for the data centers. And what’s the rationale there? Is it because you believe you’ll receive a lot more offers than the six LOI offers today?

I’m just trying to understand why it’s premature at this point.

Dave Schafer, CEO, Cogent: Well, a couple of the offers we have are at that price.

Greg Williams, Analyst, TD Cowen: Yeah.

Dave Schafer, CEO, Cogent: So, it kind of says you don’t negotiate against yourself. Sure. But you also need to give those counterparties the ability to actually either prove their ability to perform or not. I think we started this process assuming no data center conversion and sale other than taking 45 of the original Sprint facilities and putting a small retail footprint in them. We have subsequently increased that to 130 facilities that we are offering retail cocoaching today has 187 data centers, 2,100,000 square feet of data center space, and 214 megawatts of power.

That’s our footprint today. And today, we’re less than 14% occupied. So we’ve got tremendous surplus. Two, in the data centers that we identified as nonstrategic, we’ve cordoned off 24 facilities, a million square feet, and a 109 megawatts of power. We have no idea what we’re eventually gonna get for these, and I’ve really tried to be careful to make sure investors don’t put a number into their expectation.

Second, it’s not a recurring revenue business. It’s an asset disposition. I think there’s value. We’ve had over a 160 parties express interest. We’ve conducted tours for over 70 of them, I believe.

There are still over 50 doing work. There are tours going on literally almost every day. In the early part of this process, we were gathering requirements from the market. What needs to be done for you to be a buyer? And that literally ranged from, we’ll take them as is to, I need you to have liquid immersion, cooling, and cabinets in place so all I have to do is bring GPUs and deliver service.

Why continuum there? We ultimately coalesced out of that input a set of standard requirements. The most significant of those was the need to convert the DC plant to AC. When we did that, we are spending almost $100,000,000 in that conversion process. That is complete.

Those centers are ready to go. We looked at the current market and the data is sketchy and it’s skewed towards large campus built hyperscale facilities. And we thought we were at about a 40% discount to the market. If we have to take a 60% discount, we will. We are motivated to sell these, but we need to have counterparties that are ready to perform.

And the facilities have two limitations. One, there’s zero revenue with them, which is difficult for some private equity buyers. And then two, for the users, these are still relatively small and relatively low power density. The typical facility is about 5,000 square feet and five megawatts of power of six or seven acres. And, you know, I’ve heard people say, well, if it’s not on a 200 acre plot, I’m not interested.

Or if I can’t have a gigawatt or more of committed power, it’s not for us. That’s not what these are.

Greg Williams, Analyst, TD Cowen: Got it. And and you mentioned earlier you’ve you’ve messaged to not put expectations of a data center sale. And just to be clear, if if you don’t sell any data centers, you can still honor the dividend. Now, if if you pause the dividend to do a buyback, that’s a different thing. But right now, you don’t need to sell at any data centers.

You can delever and still honor a dividend. Is that right?

Dave Schafer, CEO, Cogent: So we can grow our aggregate return of capital and delever simultaneously. Our leverage peaked

Greg Williams, Analyst, TD Cowen: this Without a monetization of any

Dave Schafer, CEO, Cogent: Without any asset sales, whether it be I p v four or data centers or dark fiber. Any of the non core assets do not need to be monetized in order to increase the return of capital. Again, we have been committed to returning capital. We’ve returned almost $2,000,000,000 of capital. We bought 10,900,000.0 of our shares back, which represents about 22 percent of the float, and we have 52 of growing the dividend.

The underlying EBITDA in the business is growing. On our LQA versus LTM, we’re actually a half a turn of leverage lower. So if nothing happens but the passage of time, just clock ends up delevering us a half a turn. But that is insufficient. We need to grow our EBITDA.

So if you look at the eight quarters post transaction, we’ve averaged just over 5,000,000 a quarter of underlying EBITDA growth. 100% of that growth has come through cost cutting. We probably have another couple of quarters of cost cutting initiatives that’ll help us, but we must return to top line growth, and we must return to growth from high margin products. So whether we sell transit, which is 88% on net, Wavelengths, which are 100% on net, or IPv4 addresses, which don’t use the network, all of those carry very high contribution margins. We will be able to delever.

Again, while we don’t like to give guidance, we said for this one time, if you take where we were at peak in ’5, by the ’26 or June from now, we will delever down to about five times. That’s still above our comfort level. We had hovered around three times leverage for a full decade. When the pandemic hit, our leverage spiked to four two. When we initially did do deal with T Mobile because of the front end loading of the payments, we delevered down to 2.5.

When those payments stepped down, our leverages ratcheted back up. We’ve been able to mitigate some of that through the underlying EBITDA improvement.

Greg Williams, Analyst, TD Cowen: And just back on the data center, so it’s good to hear that if, you know, you didn’t sell one, but, you know, you very well could. Can you provide more color on the new LOIs? So you had four LOIs, and then you added two more. So are those two more sane, better, worse than the proceeding forward? Do they support the $10,000,000 evaluation?

Dave Schafer, CEO, Cogent: One did, one didn’t.

Greg Williams, Analyst, TD Cowen: Okay.

Dave Schafer, CEO, Cogent: And one was a lease and one was a buy. And I would say the

Greg Williams, Analyst, TD Cowen: willingness to put real meaningful money at risk is no better in these two allies than the four previous ones. K. And and can you talk about that? The the financing, you know, these are parties that are interested, but there’s no committed financing in place. But

Dave Schafer, CEO, Cogent: Oh, but sometimes there’s committed financing, but not the willingness to use it until they get revenue.

Greg Williams, Analyst, TD Cowen: That’s I was thinking. Because some of these parties from Archex are, you know, big private equity firms. You know, what’s really stopping them is looking

Dave Schafer, CEO, Cogent: A tenant.

Greg Williams, Analyst, TD Cowen: Yeah. Getting a tenant in place. Okay. Any updates around the the process itself? So last month, we spoke with your head of data center sales with your permission, so thank you.

Greg Davis. I’ll give his name out.

Dave Schafer, CEO, Cogent: I want anybody to call him who’s interested.

Greg Williams, Analyst, TD Cowen: Yeah. Yeah. Was a great call. And he noted the process is like rolling admissions. So can you help us with how long the rolling admissions window will be open, if you will?

Dave Schafer, CEO, Cogent: You know, until we get a real offer, that is binding.

Greg Williams, Analyst, TD Cowen: Okay.

Dave Schafer, CEO, Cogent: I mean, we’re motivated to sell them. Yeah. You don’t sell them if you close the window to buyers.

Greg Williams, Analyst, TD Cowen: Yep. And and earlier, we discussed the company’s, you know, liquidity position, juggling shareholder returns and delevering. But I guess you noted that you’re good in terms of a dividend and honoring that and the delevering. So how do I think about delevering from this perspective? Because you said, I mean, it really depends on growing your Wave business from here, right, for the most part?

Because, on net can grow, but, you know, WAVE is the 100% margin, and that will really help you in terms of

Dave Schafer, CEO, Cogent: But so is incremental IP leasing, so is incremental transit. So Yeah. I think we’re gonna have growth from all three, but I think in percentage terms, the wave is definitely gonna be the fastest Yeah. Growler. In absolute terms, because for transit, we’re already 25% of the market.

Yeah. It’s much harder to go from 25 to 30 than it is in waves where we’re 1% of the market and we wanna go to 25.

Greg Williams, Analyst, TD Cowen: And and you mentioned IP version for leasing too and, you know, that’s all margin, if you will. But how about selling them outright still? You’re sitting on millions of those that you can potentially sell, but you’re waiting for the right pricing environment. Is that right? Because typically, you know, are you waiting for AWS and Microsoft to come back into the market?

Like, what are the prices today? When do you think they’ll come back in? I know it’s tough to to

Dave Schafer, CEO, Cogent: Well, should ask them that question. Right. Although they are generating billions of dollars of EBITDA off of the addresses that they have bought. I think there’s three pieces. One, I am not sure the market is deep enough to take the size inventory that we would bring to market.

If you look at all of the transactions that have occurred, they’re for much smaller volumes than we would be bringing to market. So even though there’s a liquid market, it may not be big enough to absorb enough that would mean anything to COGIN. Two, we currently are leasing about 15,000,000 out. We’ve got about 2,000,000 that we’ve given away for free for historical purposes, but that leaves 21,000,000 that are fallow. We would be happy to sell a significant portion of those if we could find a buyer at a reasonable price and take a reasonable volume.

The major volume buyers have historically been those two names you mentioned. There are two public exchanges where addresses are bought and sold. You go look at them just like you look at your stock ticker. And you’ll see trades, but they’re of low volume. And I think we are motivated to delever more quickly, but it is not fundamental to the value thesis.

Because if we sold addresses, if we sold data centers, it is meaningful on our balance sheet, but it is a one time event. The real value creation is the ability to produce recurring free cash flow. That is where we’re gonna build value. And within the assets we acquire from Sprint, there were two that could do that. Wavelengths are a business we understand and can do that.

I don’t believe Cogent has the wherewithal, people or expertise, to fill up all of this data center space. It’s just not a core strategy, and our sales force doesn’t possess those skills. That’s why we concluded it should be in the hands of someone else. But what we’re focused on is building recurring free cash flow growth.

Greg Williams, Analyst, TD Cowen: So if I hear you correctly then, it sounds like you have a stronger propensity to lease the IP version for addresses than than sell them outright?

Dave Schafer, CEO, Cogent: Sell them outright if there was a buyer for volume at a reasonable price. And today today the market’s in the low forties.

Greg Williams, Analyst, TD Cowen: Yeah. Do you have a reserve price? I mean, in general? I mean, when you were selling the last time, wasn’t it at the

Dave Schafer, CEO, Cogent: probably sell in that zip code. I don’t wanna price out, put them

Greg Williams, Analyst, TD Cowen: But you can’t sell 40 with the bulk that you have, you’re saying? Is that

Dave Schafer, CEO, Cogent: I would sell if it was meaningful. I don’t wanna sell 500,000 of that. Okay. And and generate, you know, $20,000,000. It’s kinda like, okay, that’s a yawn.

Greg Williams, Analyst, TD Cowen: Right. Okay. And moving on to, you know, NetCentric. Finally talking about your legacy business.

Dave Schafer, CEO, Cogent: Which is only 88% of revenue.

Greg Williams, Analyst, TD Cowen: Yeah. Thirty five minutes into this. Your your traffic grew 9% year over year in the second quarter and 8% in the first quarter. And that’s a stark contrast from your typical, you know, call it 20% growth in traffic. That’s two quarters in a row.

Is this rate sort of the new normal for now? Now, I know AI, we can talk about that augmenting it. But that’s not happening yet. So help us with the traffic growth or the slowdown now, how and long the traffic growth will remain here? And what could pick that up?

Dave Schafer, CEO, Cogent: So I partially answered that question already in that we are 25% of the market. So it becomes harder to outpace the market growth significantly as your percentage of market share grows.

Greg Williams, Analyst, TD Cowen: It’s a law of large numbers.

Dave Schafer, CEO, Cogent: Not large numbers, but market share.

Greg Williams, Analyst, TD Cowen: Yeah. Got it.

Dave Schafer, CEO, Cogent: Two, the market itself has slowed down. So if you look at, for example, OpenVault data, it’s 7% growth. So that’s looking at the world from the download of the customer. If you look at things like telegeography and the visual index, they’re also triangulating to about 7% traffic growth. The Internet is not done growing.

It’s gone through waves of growth, and I think there’s at least one more wave to ride, probably many more. And I think we will gain share. Our revenue growth has been better in part because of the mix of locations and customers generating the incremental demand. So if we sell a lot of IP transit to a large hyperscaler in North America, we get the very lowest price per bit. If we sell a much smaller amount of bandwidth to a regional access player in Cambodia, we get a much higher price per bid.

Yep. And, what we have seen is a gradual rotation away from The US and Western Europe to the rest of the world. And that has been helpful to our revenue growth. We’ve also seen a market rotation now towards some smaller buyers. We’ve had quarters where all the growth came from a couple of large buyers.

That’s not as true now.

Greg Williams, Analyst, TD Cowen: Right. So you’ve got maybe larger buyers, but you have the internationalization of the Internet, if you will. How long do you think that that trend will continue where you have that pricing power before, you know, even they have streaming in Cambodia?

Dave Schafer, CEO, Cogent: Well, I mean, for example, we’re gonna be entering the Indian market later this quarter. It only took us eight years to get a license. You know, it’s gonna be eight years before someone comes behind us. And if you look at the other US based dominant players, they’re actually contracting. I heard one player at lunch say he sold his European business.

Yep. Spun it out. I know another player who sold Latin America and Europe and never really invested in Asia. Cogent is operating in 57 countries, 302 markets, and 1,870 data centers. That is a far bigger footprint than anyone else.

It just gives us more addressable market.

Greg Williams, Analyst, TD Cowen: Right. With the last minute, I wanted to flip over to corporate. On net adds for buildings, you added 18 on net buildings in the second quarter. I think it’s the lowest second quarter I’ve looked at in the past twenty years or so. Obviously, you’re doing the CapEx to refurb your data centers.

And I’m thinking that’s the answer to this question. Can you elaborate on this slowdown? And is this the cadence or the new normal as folks are laser focused on your second, third quarter, and fourth quarter CapEx right now? How

Dave Schafer, CEO, Cogent: many CapEx and principal payments on capital leases will come down to a annualized run rate of about 40,000,000 on capital leases, 100,000,000

Greg Williams, Analyst, TD Cowen: Yep.

Dave Schafer, CEO, Cogent: On CapEx. We have definitely slowed down the rate of multi tenant office building additions. We’re in 1,017,000,000 square feet for two reasons. One, the impact of the pandemic. Two, we’re in most of the buildings we wanna be in.

We are still adding third party data centers. Two, we have slowed down the rate of new country and new market expansion. We are adding them, but at a slower pace. And then third, we did put a lot of capital into connecting the Sprint network to the Cogent network, reconfiguring, and then optimizing that footprint both for WAVs and for IP. But ultimately, we’ve got to deploy capital where the ROIC is substantially above our cost of capital.

Greg Williams, Analyst, TD Cowen: Got it. With that, we’re just about out of time. So thank you, Dave.

Dave Schafer, CEO, Cogent: Thank you very much. And I did get it done in time.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.