Cogent Communications at KeyBanc Forum: Waves Business Challenges and Growth Plans

On Monday, 11 August 2025, Cogent Communications (NASDAQ:CCOI) participated in the KeyBanc Capital Markets Technology Leadership Forum. The company discussed its strategic focus on the Waves business and data center monetization. While facing challenges with installation delays, Cogent remains optimistic about future growth and operational efficiency.

Key Takeaways

• Cogent aims to achieve a $20 million quarterly revenue run rate for its Waves business by year-end.
• The company has automated its provisioning process, pre-enabling 938 data centers for wave deployment.
• Cogent is actively seeking partners for its newly converted data center facilities, having received six letters of intent.
• EBITDA is expected to improve sequentially, although it may fall short of the $350 million target for the year.
• The enterprise segment is stabilizing, while the NetCentric business is growing at low single digits.

Financial Results

• Cogent reported $73.5 million in EBITDA last quarter, including a $25 million payment.
• The company anticipates sequential improvement in EBITDA through cost-cutting and high-margin sales.
• Despite these improvements, the company expects to fall short of its $350 million EBITDA target for the year.

Operational Updates

• The Waves business faced slower-than-expected ramp-up due to network interconnection and installation delays.
• Cogent has transitioned to an automated process to expedite wave deployment across data centers.
• The backlog for Waves orders reached approximately 4,700, with expectations to grow to 10,000 by year-end.
• Half of the backlog consists of signed contracts, with various stages of provisioning and customer readiness.

Future Outlook

• Cogent aims to install and bill approximately 500 additional waves to meet its year-end revenue target.
• The company is exploring data center monetization opportunities, targeting key markets like Chicago, Dallas, and Anaheim.
• Challenges remain in attracting private equity firms due to currently empty facilities.
• Cogent’s enterprise segment, though declining, has stabilized, while the corporate segment shows mixed results.

Q&A Highlights

• CEO Dave Schafer emphasized the company’s strategic focus on interconnecting the former Sprint network with Cogent’s infrastructure.
• The backlog growth exceeded expectations, achieved with less discounting than anticipated.
• The company is actively engaging with potential data center partners to optimize asset utilization.

In conclusion, Cogent Communications is addressing challenges in its Waves business while seeking growth through strategic partnerships and operational improvements. For a detailed understanding, refer to the full transcript.

Full transcript - KeyBanc Capital Markets Technology Leadership Forum:

Brandon, Host, KeyBanc: Thank you for coming to day one of the KBCM Technology Leadership Forum. This is a twenty five minute fireside chat with us. Have Dave Schafer, CEO of Cogent Communications. Dave, thanks for being a foot.

Dave Schafer, CEO, Cogent Communications: Hey Brandon, thanks for hosting me. I’d like to thank KeyBank for a great venue And as always, most importantly, thank investors for taking time out of their day.

Brandon, Host, KeyBanc: Let’s start on Waves, Dave. I think investors have high hopes for this business that you’re starting up. It’s taken a little bit longer to ramp. What have been the factors from your perspective that’s caused this business to ramp more slowly than expectations?

Dave Schafer, CEO, Cogent Communications: So I’ll actually break that into three components. We always knew that it was going to take us about a year and a half to take the former Sprint voice network, interconnect it to Cogent’s existing metro network, and reconfigure it. We actually slightly beat that schedule in terms of number of sites and the speed at which we did that interconnection. The second piece has been the ability of us to build a funnel showing that there is adequate demand out there. I think there is a great deal of belief among investors that the wavelength market is real, that it is growing, and that AI has been an incremental use case that has driven more wavelength demand.

It is a market that is highly concentrated with two players controlling the bulk of the market and then a handful of smaller regional players the remainder of the market. And what we needed to do was three things. One, demonstrate that people would be interested in Cogent and do that before we really had a network. And we built a funnel of almost 10,000, what I would call expressions of interest. About a thousand of those turned into orders, about a thousand of those pushed forward and are or have been installed, but about 8,000 of those early expressions that sat around for a year, year and a half fell out.

As we began to give customers specific implementation schedules, we started to build a much larger and more certain funnel. We ended the last quarter with a strong funnel. We had on earnings day about 4,700 orders that included orders that have been installed but not accepted by customers, orders that are in provisioning, orders that are signed but not yet provisioned, and then finally, orders that the specific route and locations and price have been agreed to but a contract has not been sold.

Brandon, Host, KeyBanc: Real quick, on the 8,000 that fell out, how do you get confident that those didn’t go to one of your competitors?

Dave Schafer, CEO, Cogent Communications: I think they did. I think they stayed with our competitors because of our inability to install them. So, in that period, from deal closing in May ’23 through the ’24, we told customers we were actively working on putting Wavelength services into a defined list of 800 data centers. We even gave the customers the list. We also said we would take an order, but we had no ability to tell the customer when we would install it.

So, we’ll take the order. You should continue to look elsewhere. But if we can wave enable your two endpoints, we’ll contact you, and we will try to manually install that order by engineering that path. And we did that about a thousand waves. The process that we have going forward is a much more automated process.

So what we did is pre enabled now 938 data centers where we could provision a wave from any data center to any data center in thirty days, and we can do that in one of three interface speeds, 10 gig, 100 gig, or 400 gig. That is radically different than how the market works today. So the private line market, which is really what wavelengths are, dedicated circuits, had been around for nearly eighty years. And for the first roughly fifty five of those years, you had to buy them from AT and T and then a little bit MCI. The market changed in the late nineties and third parties like ourselves and Level three and, you know, Broadwing of Williams built their own networks.

Now, we chose not to build a wavelength network. We built only an IP network. Others built networks and sold waves. And waves were always sold as surplus capacity. Kind of think of it as the airline model where you want to sell full price tickets, but you’ll go to priceline.com and give them your surplus.

That market developed into a fairly robust $2,000,000,000 market. Mhmm. And we realized that we had some architectural advantages that would allow us to capture share. We could go to more points. We could build a network without surplus capacity, but rather one that’s designed for quick provisioning, one along unique right of ways, one that would be more reliable, and one that was less expensive.

So I think our approach to this market is really very different than the two major competitors.

Brandon, Host, KeyBanc: So now when we think about sort of the 4,700 units in your backlog, are those now sort of signed contracts in backlog? Are those still indications of interest on orders?

Dave Schafer, CEO, Cogent Communications: So there are four categories. There are waves that have been signed contracts, been installed, but customers not accept.

Brandon, Host, KeyBanc: Yeah. You mentioned that those are

Dave Schafer, CEO, Cogent Communications: Those are between two hundred and three hundred.

Brandon, Host, KeyBanc: Two hundred and three hundred that should have been installed last quarter, right?

Dave Schafer, CEO, Cogent Communications: Should have been counted in install. Okay. But because the customer wasn’t ready, we didn’t start billing them. And we only recognize revenue when the customer accepts. We had the same issue in Q1 where our unit installs were far greater than our revenue installed.

The second bucket are orders that are signed that we’re still doing work on, we’re still provisioning.

Brandon, Host, KeyBanc: And how big would you say that bucket is? A few 100. A few 100.

Dave Schafer, CEO, Cogent Communications: Third, there is a bucket of signed orders that have not yet been provisioned.

Brandon, Host, KeyBanc: Sure.

Dave Schafer, CEO, Cogent Communications: In large part because the customer has told us when we contacted them, we’re not ready yet. We still want it, but we’re not ready. We have a signed order and we’re ready to go. And then the final bucket is those orders that the customers agreed on the exact route, the exact interface, the exact speed, and the price. But All of the key terms, but it has not signed.

Brandon, Host, KeyBanc: So what is signed contracted at this point would you say in the set

Dave Schafer, CEO, Cogent Communications: of Probably close to half of that.

Brandon, Host, KeyBanc: Close to half. So how do you sort of bridge us from sort of, you know, getting to your target exiting this year of, call it $20,000,000 plus in quarterly waves revenue like how does that install metric look? The way that I thought about is you have a couple 100 let’s say two fifty that should have been installed in 2Q plus you have the backlog. So what how should we think about sort of bridging from 2Q to 3Q and 4Q?

Dave Schafer, CEO, Cogent Communications: So at the end of the quarter, we had about 1,500 waves installed and billing. About 1,000 of those were done in that manual process between deal signing and January ’25. We have installed and billed almost 500 the first half of the year. We need to install and bill about another 500. So, well, me, 1,500 in total to get to 3,000 installed billing.

Exiting this year. Exiting the year which gets us to that $20,000,000 run rate from the $9,100,000 run rate we demonstrated in the last quarter.

Brandon, Host, KeyBanc: Okay. And as we think about taking that backlog number one of the metrics you sort of gave us is that you expect sort of 5% of the backlog to install each quarter. Should we use sort of the contracted backlog as a better indication of like on that 5% what should be installed?

Dave Schafer, CEO, Cogent Communications: It’s a combination of both. So we typically have not given KPIs like backlog or book to bill. And I think in the long run those are inappropriate. And I think investors should hold us accountable for GAAP revenue that’s reported and audited. I think at the early stages of wave deployment, it is absolutely necessary to give investors these incremental indications of demand, a funnel, a conversion rate, a pipeline that’s being provisioned, a pipeline that’s provisioned and not installed.

We understand until we prove credibility, we need to provide these kinds of metrics for the next couple of quarters. But at that point, we should step back and revert back to the much more long term multiyear metrics that we have historically given. So again, to remind investors, we do not give quarterly or annual guidance. What we have said is we will grow our aggregate revenues at 6% to 8% and we will deliver about 200 basis points a year of margin expansion. That is meant to be a multiyear guide, not a specific product at a specific quarter.

Now to refresh investors’ memories, when from two thousand and five to twenty twenty with no acquisitions, Cogent actually grew its revenues organically at 10.2% with two twenty basis points a year of margin expansion. Now within that, there was some variability. It wasn’t a spreadsheet with exactly the same numbers. When the pandemic hit, our growth rate slowed to about 5% and our rate of margin expansion decelerated to a 100 basis points. When we acquired the Sprint Global Markets business, our revenue rate of growth turned negative.

Our margins actually compressed. They stepped down. So, if you looked at the underlying EBITDA without the help of the subsidy payments from T Mobile, our quarterly EBITDA went from $60,000,000 to $5,000,000 To offset that, we got a subsidy payment from T Mobile of roughly $29,000,000 a month or $87,000,000 a quarter for one year. We grew that underlying EBITDA about $20,000,000 during that period. So we went from 5 to 25 and that subsidy payment stepped down to approximately a 25,000,000 a quarter number.

We’ve continued to grow underlying EBITDA and we have a smaller subsidy. So last quarter we reported $73,500,000 of EBITDA inclusive of the $25,000,000 payment.

Brandon, Host, KeyBanc: Yep. One more question on Waves. I think a couple of quarters ago you said you could get to sort of a 10,000 backlog number. You sold 1,500, I think, in 2Q. You’re at 4,700 total.

How sales progressing that give you confidence to get to that 10,000 number exiting this year?

Dave Schafer, CEO, Cogent Communications: So, have actually been pleasantly surprised at the customer receptiveness to a new entrant in the market. Now, we have a large existing sales force. We have credibility with most of these customers as we are their transit provider. We are confident we will get to a backlog of about 10,000 by year end. That is actually a stronger backlog than we expected, and we have done it with less discounting than we expected to use.

Brandon, Host, KeyBanc: Okay. I’ll switch gears a little bit talk about sort of the data center monetization opportunity. We’ve talked to a lot of companies today. A lot of companies seem to have sort of five megawatts of power in central offices or maybe smaller data center facilities. You sounded sort of incrementally more cautious on getting a sale done in your 2Q call.

How would you sort of characterize where you are in that process and whether or not we should expect some sort of transaction to occur this year?

Dave Schafer, CEO, Cogent Communications: Those are two very different questions. In terms of where we’re at in the data center conversion, we are substantially complete. We have tried to caution investors that we may not ever monetize these. I don’t think that is likely, but that is a possibility. Two, we have never done this before.

We have now interacted with over 160 counterparties. There are over 60 counterparties that are still doing work. We have received six letters of intent So for this these facilities were a subset of former central offices. We picked the larger ones with the denser power. We had to go in and clear out the old telephone equipment, interconnect them to the market, convert them from DC to ASIP.

All of that work is done. Now we are in the process of finding the right counterparty that is willing to put risk capital.

Brandon, Host, KeyBanc: What does that look like from your perspective? Because you see these big chunky deals from a data center standpoint, two fifty MW, right? You don’t see a lot of just, hey, we need five MW or eight MW, the type of power that you have.

Dave Schafer, CEO, Cogent Communications: So, it’s interesting. If you look at digital reality, which operates 300 centers and is focused on hyperscale builds, they actually said in the last quarter the zero to one megawatt was the strongest demand set they had. You know, an advantage of this footprint is it’s very distributed and it has some expansion capability. What it is not, it is not competing with a 900 acre campus in rural Georgia that’s going to build a three mega or three gigawatt campus of buildings.

Brandon, Host, KeyBanc: What what digital has, though, is assets sort of positioned in the right markets. You these assets are a little bit spread out to your point on distributed. So, I mean, is there what what do you think that, like, the customer set looks like? Who is the six companies that you’re sort of negotiating with? Help us understand

Dave Schafer, CEO, Cogent Communications: what So I would company argue that we’re in all of the key markets and we are interconnected to the key aggregation sites. So, for example, if you went to Chicago, we’re three miles south of Midway. We are directly connected to three fifty Cermak with Dark If you went to Dallas, we’re literally off of ’thirty five in Fort Worth connected to nineteen fifty Stemmons. If you went to Anaheim, we are directly connected to 1 Wilshire. If you went to Merchantville in Jersey, we are directly connected to 401 Locust.

So we are connected to all of the major aggregation points. You know, I think there are three use cases for these facilities. One is as just small COLO facilities where existing data center operators need to fill in their footprint. They may be in some markets that we are not in and then conversely, we’re in markets they’re not in and they want to add this to the footprint. The second group tend to be more portfolio wide deals in which private equity are looking for a vehicle to build a data center business on.

Now, the challenge is none of these have revenue today. They’re empty facilities and that’s problematic for a PE shop because they’re not in the business of buying assets. They’re in the business of buying businesses. While they will pay a very high multiple, they need to see some operating revenue, even if it’s cash flow negative, with the idea they could scale it. And then the third and maybe most interesting use case are the guys that are trying to get ahead of the curve on AI and view these type of edgier facilities as available for inference as opposed to training, which needs to have much lower latency, needs to be much more distributed and tend to be much less power intensive.

Brandon, Host, KeyBanc: Got it. Let’s switch gears. I want to talk a little bit more about the core business, right? So you guided us to a 6% to 8% long term growth rate. I think one could probably assume WAVES contributes of that growth rate a good amount.

Maybe can you unpack where the core business is from a corporate and a NetCentric standpoint? And an enterprise. And an enterprise standpoint and you know try to separate it from sort of the decline from the T Mobile business?

Dave Schafer, CEO, Cogent Communications: Yeah. So when we acquired the T Mobile enterprise business, Sprint, JMG, it was declining at about 10.5% a year. That’s right off of their public filings for the three previous years. We actually accelerated the rate of decline in that business to over 20% a year by intentionally terminating certain products and grooming certain locations. 80% of that business was enterprise.

Our enterprise business today represents about 13% of Cogent’s aggregate revenues and it is a declining business. But we’ve been able to moderate that rate of decline to low single digits and should get it to being a completely stable business. About 17% of the revenue that we acquired got classified into corporate. They were same type of customers, they were just smaller. They didn’t fit the $5,000,000,000 revenue or multinational definition of an enterprise.

And those continue to decline while our underlying corporate business was growing at low single digits.

Brandon, Host, KeyBanc: And is corporate low single digits sort of continuing into 2Q and that would be your expectation for this year?

Dave Schafer, CEO, Cogent Communications: So the on net portion, yes. The off net portion is still being grown from some of those acquired customers.

Brandon, Host, KeyBanc: Okay. And we’re sort of getting past that, right?

Dave Schafer, CEO, Cogent Communications: That’s correct. That is probably pretty close to revenue growth neutral to slightly positive at this point and should return to being a low single digit grower.

Brandon, Host, KeyBanc: The off net corporate piece? Yes.

Dave Schafer, CEO, Cogent Communications: Got it. Finally, the NetCentric business, which does include WAVES, include IPv4 leasing addresses, that business is today growing in the high single digits.

Brandon, Host, KeyBanc: And what about excluding waves and sort of IPv4?

Dave Schafer, CEO, Cogent Communications: Low single digits.

Brandon, Host, KeyBanc: Okay. That has been sort of a deceleration then.

Dave Schafer, CEO, Cogent Communications: It has been a deceleration. Part of it has been traffic deceleration. Part of it has been location of purchases, and then finally, concentration of customers. So, in our transit business, prices are lower in Western Europe and North America than they are the rest of the world. The bigger the customer, the lower the price per MEG.

And there’s oftentimes some variability quarter over quarter. Are you signing more small deals in Asia Pac or Africa or LatAm? That pulls ARPUs up versus doing a really big hyperscaler deal in The U. S.

Brandon, Host, KeyBanc: When you think about NetCentric ex WAVES, ex IPD4, you know, growing low single digits, you know, I guess volumes in terms of traffic is what upper single digits? Pricing decline has historically been 20%. How do you think about growing that business going forward?

Dave Schafer, CEO, Cogent Communications: So over the past twenty years of Cogent being public, that NetCentric business without waves, without IP addresses has grown at an average of 9%. But it’s been exceedingly volatile. The growth rates have been as high as positive 26% year over year and as bad as negative 24% year over year, much more volatile than the corporate business. I think that 9% long term growth rate in the NetCentric transit business is the right way to think about that business.

Brandon, Host, KeyBanc: Okay. In the near term barring any sort of big inflection in traffic we would expect it to be sort of low single digits?

Dave Schafer, CEO, Cogent Communications: Yes. We’re below the long term trend line. Coming off of three years where we were substantially

Brandon, Host, KeyBanc: above Last trend question, and we have like one minute left. You had previously talked about getting to about $350,000,000 in EBITDA for this year. You’re tracking below that. How do you expect EBITDAs to sort of trend sequentially as we exit this year?

Dave Schafer, CEO, Cogent Communications: It will improve sequentially each quarter through both a combination of the remaining cost cutting initiatives as well as the ramp in high margin sales. We will probably do less than that number. Just to remind you, when we acquired Sprint, we were doing two sixty of EBITDA. The first year out of the box calendar year, we did three fifty two. That included the subsidy payments that more than compensated for the negative EBITDA from T Mobile acquired business.

The second year, no one believed we would replicate that. We had a $104,000,000 headwind, and we in fact overcame that headwind, and we did $3.48. In the following year, we have a similar headwind just based on the deceleration of the subsidies. We’re overcoming most of it but probably will not overcome all of it.

Brandon, Host, KeyBanc: Got it. With that we are out of time. Dave, thank you so much for being here. Thanks, Thanks everybody for your attention. You for coming to

Dave Schafer, CEO, Cogent Communications: What do you mean? I’d like to thank KeyBanc for a great venue and as always most importantly thank investors for taking time out of their day. Let’s start on waves Dave. You know

Brandon, Host, KeyBanc: I think investors have high hopes for this business that you’re starting up. It’s taking a little bit longer to ramp. What have been the factors from your perspective that’s caused this business to ramp more slowly than expectations?

Dave Schafer, CEO, Cogent Communications: So I’ll actually break that into three components. We always knew that it was going to take us about a year and a half to take the former Sprint voice network, interconnect it to Cogent’s existing metro network, and reconfigure it. We actually slightly beat that schedule in terms of number of sites and the speed at which we did that interconnection. The second piece has been the ability of us to build a funnel showing that there’s adequate demand out there. I think there is a great deal of belief among investors that the wavelength market is real, that it is growing, and that AI has been an incremental use case that has driven more wavelength demand.

It is a market that is highly concentrated with two players controlling the bulk of the market and then a handful of smaller regional players the remainder of the market. And what we needed to do was three things. One, demonstrate that people would be interested in Cogent and do that before we really had a network. And we built a funnel of almost 10,000, what I would call expressions of interest. About 1,000 of those turned into orders, about 1,000 of those pushed forward and are or have been installed, but about 8,000 of those early expressions that sat around for a year, year and a half fell out.

As we began to give customers specific implementation schedules, we started to build a much larger and more certain funnel. We ended the last quarter with a strong funnel. We had on earnings day about 4,700 orders that included orders that have been installed but not accepted by customers, orders that are in provisioning, orders that are signed but not yet provisioned, and then finally orders that the specific route and locations and price have been agreed to but a contract has not been sold.

Brandon, Host, KeyBanc: Real quick, on the 8,000 that fell out, how do you get confident that those didn’t go to one of your competitors?

Dave Schafer, CEO, Cogent Communications: I think they did. I think they stayed with our competitors because of our inability to install them. So in that period, from deal closing in May ’23 through the ’24, we told customers we were actively working on putting Wavelength services into a defined list of 800 data centers. We even gave the customers the list. We also said we would take an order, but we had no ability to tell the customer when we would install it.

So, we’ll take the order. You should continue to look elsewhere. But if we can waive enable your two endpoints, we’ll contact you, and we will try to manually install that order by engineering that path. And we did that about a thousand waves. The process that we have going forward is a much more automated process.

So, what we did is pre enabled now nine thirty eight data centers where we could provision a wave from any data center to any data center in thirty days, and we can do that in one of three interface speeds, 10 gig, 100 gig, or 400 gig. That is radically different than how the market works today. So the private line market, is really what wavelengths are, dedicated circuits, had been around for nearly eighty years. And for the first roughly fifty five of those years, you had to buy them from AT and T and then a little bit MCI. The market changed in the late nineties and third parties like ourselves and Level three and the Broadwing of Williams built their own networks.

Now, we chose not to build a wavelength network. We built only an IP network. Others built networks and sold waves. And waves were always sold as surplus capacity. Kind of think of it as the airline model where you wanna sell full price tickets, but you’ll go to priceline.com and give them your surplus.

That market developed into a fairly robust $2,000,000,000 market. Mhmm. And we realized that we had some architectural advantages that would allow us to capture share. We could go to more points. We could build a network without surplus capacity, but rather one that’s designed for quick provisioning, one along unique right of ways, one that would be more reliable, and one that was less expensive.

So I think our approach to this market is really very different than the two major competitors.

Brandon, Host, KeyBanc: So now when we think about sort of the 4,700 units in your backlog, are those now sort of signed contracts in backlog? Are those still indications of interest on orders?

Dave Schafer, CEO, Cogent Communications: So there are four categories. There are waves that have been signed contracts, been installed, but customers not accept.

Brandon, Host, KeyBanc: Yeah, you mentioned that those are

Dave Schafer, CEO, Cogent Communications: Those are between two hundred three hundred.

Brandon, Host, KeyBanc: Two hundred and three hundred that should have been installed

Dave Schafer, CEO, Cogent Communications: last quarter, right? Should

have been counted in install. Okay. But because the customer wasn’t ready, we didn’t start billing them. And we only recognize revenue when the customer accepts.

We had the same issue in Q1 where our unit installs were far greater than our revenue installed. The second bucket are orders that are signed that we’re still doing work on, we’re still provisioning.

Brandon, Host, KeyBanc: And how big would you say that bucket is?

Dave Schafer, CEO, Cogent Communications: A few 100. A few 100. Third, there is a bucket of signed orders that have not yet been provisioned.

Brandon, Host, KeyBanc: Sure.

Dave Schafer, CEO, Cogent Communications: In large part because the customer has told us when we contacted them, we’re not ready yet. We still want it, but we’re not ready. We have a signed order and we’re ready to go. And then the final bucket is those orders that the customers agreed on the exact route, the exact interface, the exact speed and the price. All of the key terms

Brandon, Host, KeyBanc: Without a sign.

Dave Schafer, CEO, Cogent Communications: But it has not signed.

Brandon, Host, KeyBanc: So what what is signed contracted at this point would you say in the

Dave Schafer, CEO, Cogent Communications: Probably close to half of

Brandon, Host, KeyBanc: that. Close to half. So how do you sort of bridge us from sort of, you know, getting to your target exiting this

Unidentified speaker: year

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