Cogent Communications Holdings Inc at Bank of America Media, Communications & Entertainment Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mike Funk - Bank of America - Analyst : Yeah, absolutely. I get a chance to catch up on what's Cogent, what's happening at cogent and you know yourself has certainly made it more interesting for me as I've ramped back up on the space. So you know I want to start by going back to last quarter and then you know maybe connecting some things to some previous guidance that you gave about the full year or exit rates. So, if we can start on the on the on the wavelength business and I'm going to paraphrase, my interpretation and then you please correct me if I'm wrong, but the installations in 2Q came in below street expectations. You said that. Yes, but the backlog right is very large and installations were lower because customers accepting delivery was less than you expected, and that was due in part because they're so conditioned to not expect or to not get delivery in the time frame that you were that you were delivering, right. But I think your commentary remained positive or you know you reiterated your exit rate expectations for the business for 2025 and I hope that I caught all that right. If I didn't, please correct me. So can you take that as a question and just kind of you know fill in what I what I've missed and connect the two with the exit rate for 2025. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, so the wavelength business is a new business for Cogent and also a new business with the Sprint network and Sprint assets. So when we announced the acquisition of Sprint three years ago actually at this conference when it was still in LA. Our plan was to wave enable the former Sprint long distance network, and we laid out a timeline and a path to do that. Probably the biggest disappointment during that process was our inability to sell a significant number of wavelengths between large data centers. So when we initially laid out a target of connecting 800 data centers, we said that would take us almost two years to complete post closing. In fact, we did it in 17 months, and during that process we concentrated our initial work on the largest data centers. While we did sell a small number of wavelengths and install them, the vast majority of the wavelength demand tended to be from smaller data centers to larger data centers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 3:20PM, CCOI.OQ - Cogent Communications Holdings Inc at Bank of America Media, Communications & Entertainment Conference And at the end of 2024 we had fully enabled 802 sites to be able to deliver waves at one of three speeds 10 gig, 100 gig, and 400 gig. And do that delivery in 30 days. This is an industry where waves have traditionally been installed on an as needed bespoke basis with generally four to six weeks to get a firm. And then another two to three months for install with a significant number of waves that are quoted never installing due to issues with the service provider and their network availability. In Q1 we installed a significant number of waves, but virtually all of those waves were installed at the very last day of the quarter. And for that reason there was a significant disconnect between our revenue and our unit number of wave installs. We have not yet implemented a forced billing model, even though we have the right to do that for customers. Because we are a new entrant in the market with less than 1% market share, we have treaded lightly on pressuring customers. In the second quarter, we installed significantly more waves than we ended up recognizing revenue for. And you know I believe that that GAAP will close over the next several quarters as we validate for customers our ability to actually meet the delivery windows that we have laid out even with that albeit from a very small base, our revenue in the wave business grew sequentially 27% and 149% year over year. Now our run rate in Q2 was a little above $36 million annually, and while the company does not give annual guidance in validating the reasons for the acquisition, we laid out a series of multi-year targets that included growing the wavelength business to $500 million. In a period that would be five years post closing, and that would result in mid 2028 doing $500 million and wave. Revenue, we have built a significant funnel of wave opportunities. When we announced the transaction, we were expecting to sell to three customer bases. International carriers, regional carriers, and content distributors. A fourth group of buyers emerged which, quite honestly was not anticipated in September of 2022, which is AI training, and we think that will drive incremental growth for the aggregate market and help accelerate our ability to meet our revenue targets. We have issued a number of KPIs that are designed to give investors some points to measure coin's progress, but ultimately the only KPI that should matter is our GAAP reported revenue. And I think over the next year or two we will migrate away from these qualitative KPIs and focus on those GAAP numbers. We expect the cadence of installs to pick up, and we expect the lag between install and customer acceptance to shrink. We believe that the experience we've had in selling high capacity internet and data centers is indicative of what we expect in the wavelength market. So while it is true the unit numbers were below expectations, the revenues were not materially below what we expected.

Question: Mike Funk - Bank of America - Analyst : Okay, I like to double check sometimes that I'm hearing understanding things correctly, so what I What I hear is that the longer term opportunity is as larger than you thought when you initially did the sprint transaction. There are, a lot of customers coming off contract that create, new growth opportunity for cogent right that hasn't changed, maybe some of the near term metrics or KPIs or you know commentary that you gave to be helpful when you close the deal are less of it might slip a little bit because it's a newer business and it's hard to project growth and slope of growth early on in new business, but the longer term outlook is intact and still very positive. Is that, am I encapsulating all that correct? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder I think you are.

Question: Mike Funk - Bank of America - Analyst : Legacy on that off-net business, it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 3:20PM, CCOI.OQ - Cogent Communications Holdings Inc at Bank of America Media, Communications & Entertainment Conference David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Is the corporate and eccentric services sold. Both on net and off-net, it is selling internet-based products that were two primary services, either dedicated internet or VPNs over the internet, but 100% of Kogen's revenues. Pre-acquisition of Sprint were coming from internet-based services. We had a very small IPv4 business, very small co-location business, both linked to the sale of internet, but we did not sell transport services or wavelengths. When we acquired Sprint. We acquired from T-Mobile a large enterprise, multi-service managed services company that was delivering mostly VPNs and internet access almost exclusively off net and was losing a million dollars a day. That business was declining at 10.6% a year for the three years prior to the acquisition. We were paid $700 million over a 54 month period to take that business. We have received about 60% of those funds to date, and T-Mobile will make the remaining payments between now and the end of Q1 2028. That business was burning a million dollars a day. We accelerated the rate of revenue decline. We purged unprofitable services. We cut costs. And we were able to get that business to neutral, not yet profitable, but neutral, and took out approximately $220 million of direct costs associated with that business. That business is still selling to a customer base that is in decline. Every enterprise service provider globally is shrinking. We are no different, although we now have mitigated that rate of decline, and it's probably in the low single digits 1% or 2%. And the primary reason for doing the acquisition was the acquisition of a $20,500 million asset that was sitting idle. It was the actual long distance network of Sprint. 482 buildings, 1.9 million square feet, 230 megawatts of inbound power, and 19,000 route miles of inner city fiber and 1,200 route miles of metropolitan fiber, all idle. Our thesis was that we had three significant competitive advantages in repurposing that asset. We had a metro network that would enhance the value of that long haul network. We had a sales force that would help us sell services on that network. And we had the technical know-how to be able to repurpose that network for one and only one purpose, and that is to sell wavelengths. So a considerable difference between us and the major competitors in the wavelength market is we have built a network from the ground up to sell wavelengths. It is a business that coin was never in. And we are very pleased with the progress we've made in the way of enablement of the network at or ahead of schedule. We are very pleased with the aggregate level of demand for our services in the locations that we have chosen to serve. And while the pacing of revenue growth may not be exactly what investors modeled or expected. In general, we feel that the opportunity is larger than we expected, and it's important to remember the opportunity was greatly [duressed] by the payment stream from T-Mobile because we have cut the urn on the acquired business to 0. The remaining NPV of payments due from T-Mobile is $244 million. So effectively we have a windfall, but we also have optionality on a new addressable market.

Question: Mike Funk - Bank of America - Analyst : When does the board meet next? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So the board meets regularly between quarters to. Address many events and then always meets at least once a quarter and General our board meets about 10 times or 12 times a year.

Question: Mike Funk - Bank of America - Analyst : Why do you think they haven't been in the market? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder I believe they were very successful in building an inventory of addresses and now they are in the process of monetizing them through leases. So the second thing that has happened.

Question: Mike Funk - Bank of America - Analyst : But beyond the two, who are the primary buyers? Who are the other buyers? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Oh, there are hundreds of small buyers,

Question: Mike Funk - Bank of America - Analyst : Sorry, how many addresses do you lease again today. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder We lease about $14 million addresses.

Question: Mike Funk - Bank of America - Analyst : Yeah, I'm just trying to figure out why you haven't seen more of a lift in your in your in your leasing, you said you want to get the exact numbers becoming like $0.40 to $0.60 or whatever when you're saying the market rate is multiples of that, so I'm trying to figure out how the expiration time and then releasing spread to when you get to a market rate. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 3:20PM, CCOI.OQ - Cogent Communications Holdings Inc at Bank of America Media, Communications & Entertainment Conference David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So I think there are two points. First of all, in the past 18 months we've over doubled our effective price per address. That's a pretty steep rate of price increases. Secondly, our distribution method is very different. 85% of our leasing goes to other service providers. 100% of Amazon, Microsoft, Cox, and Verizon goes to end users. Each of those companies spends in excess of a billion dollars annually on branding and advertising. We spend $0 so it's a.

Question: Mike Funk - Bank of America - Analyst : It's huge, it's very interesting, but I guess what I'm hearing too is that, given the two biggest buyers are out of the market and the others just in aggregate aren't enough to absorb capacity, you could have to sell. That we're looking more at the potential to have positive releasing spreads drive value, right? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder I think that's okay to explore the sale option, but we want to maximize that value.

Question: Mike Funk - Bank of America - Analyst : I think they wanted to actually see proof of leasing before. Some did. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2025 / 3:20PM, CCOI.OQ - Cogent Communications Holdings Inc at Bank of America Media, Communications & Entertainment Conference David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Some did not. Some actually were totally comfortable in taking the facilities empty as is. And let's maybe turn the clock back again. Three years ago at this conference in LA, we announced a transaction and at that time we described the 482 facilities we were acquiring. The 1.9 million square feet and the 230 megawatts of power. Our initial plan was to spend virtually no capital and put a 1 megawatt, 10,000 square foot co-location facility in 45 of the 482 facilities. As it became clear to us that there was significant demand for the power and space that we had, our thinking changed in two ways. One, we increased the number of facilities that we're converting from. The original 45 to 125, so we almost tripled the number of facilities that we decided to turn into data centers. Today we have roughly 180 data centers with 211 megawatts of power in them and about 2 million square feet of co-location space. We also identified 24 of the largest facilities as unlikely for us to be able to fill up with our revenue model, which is one or two racks at a time, typically to corporate end user customers, which is what Cogen had historically done. And its pre-existing data center footprint, so not large block deals or cages, but single rack deals. We then said before we market these facilities, let's go out and talk to counterparties and see if they're interested in them, two, what they would need to see modified in these facilities in order to buy them or lease them. We conducted a series of tours between April and June of '24. We went out to 115 counterparties. That's grown to 160. We conducted a couple of dozen tours in that first initial period, and what we heard categorically was we had to convert the DC 48 power plant to AC-120 to make these marketable, to improve the PUE for these facilities and We then announced in June of 204, based on this feedback we were going to commence converting those facilities to AC. We would spend about $100 million over a 12 month period enabling that conversion that in fact ended at the end of June of '25 exactly on plan. We continue to tour the facilities. We've had counterparties put in offers at our full ass. We've had offers for the entire portfolio, but no one has demonstrated the at-risk capital that we would require to take these assets off the market. We are still motivated to sell them. We believe they will sell just as the wavelength business is new to Cogent. We were very clear to outline that we had never sold the data center. We felt that there was latent value in these assets and the process that we're running both on our own and with the help of third party facilitators such as banks, including BFA, has brought clients to the table, is one that I think will maximize the value.