Cogent Communications Holdings Inc at Citi TMT Conference Transcript

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

Question: Mike Rollins - Citi - Analyst : Well, thanks so much. Maybe we'll start with a high-level question for you, which is just an update on the strategy to grow and create value for shareholders. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So within Cogent, we had an organic business that grew at 10.2% a year for 15 years, with no acquisitions between 2005 June when we went public and the beginning of the pandemic. And the growth rate in that business slowed because of COVID to about 5% per year, and the rate of margin expansion also decreased from an average of 220 basis points a year down to about 100 basis points a year. As the pandemic waned, that business began to improve. But opportunistically, we had a chance to acquire the original Sprint Global Markets business from T-Mobile. And in that acquisition, there were things that both positively and negatively impacted our growth trajectory. On the negative side, it was a business that for the previous three years had declined at 10.6% per year, and it was a business that was burning $1 million a day in cash. To help mitigate that burn, T-Mobile agreed to pay us $700 million over a 54 month period. And we still have payments that we expect to receive between now and the end of Q1 2028 with a total net present value of about $244 million. But when we acquired that operating business, we actually accelerated the rate of revenue decline intentionally to purge that business of unprofitable products and certain unprofitable customers. As a result, over the eight quarters since that acquisition has been completed, our growth rate on a combined basis, this declined at about 2% annually, so we went from being a 5% grower to a negative 2% grower. 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 03, 2025 / 7:30PM, CCOI.OQ - Cogent Communications Holdings Inc at Citi TMT Conference And we have been able to improve underlying EBITDA margins and actual EBITDA in light of that top line decline at an average sequential rate over those eight quarters of about $5.2 million a quarter. We anticipate the growth in that business that we acquired has plateaued, and the combined company will now start having positive top line growth sometime in this quarter. We also know that there are additional synergies that we can take out of the combined business. And then finally, the monies that we are spending on integration efforts will taper off over the next six quarters. And then finally, the primary reason for doing that acquisition was the opportunity to repurpose the original long distance telephone network into a wavelength transport network. We spent nearly two years completing that integration and optimization of those assets. We have begun selling those services. What is a brand-new business inside of Cogent is actually growing very rapidly. In fact, last quarter, the sequential growth rate in revenues in that wavelength business was 40% -- or excuse me, 27% sequentially and 149% year-over-year. We anticipate that business to keep growing off of a larger base. And as a result of these three different drivers of growth, one being roughly 70% of our current revenue is growing at about 5%; the second of (technical difficulty) 1% to 2%, and this very small but rapidly growing business growing, the aggregate growth rate of Cogent should return to between 6% and 8%, below our pre-pandemic levels but above the level that we were achieving prior to the acquisition. And that's really driven by the inclusion of very high-margin wavelength revenue. And with this, we anticipate growing margins, again, at about 200 basis points year-over-year. So the combination of moderating capital intensity and accelerating EBITDA growth should allow Cogent to materially grow its free cash flow.

Question: Mike Rollins - Citi - Analyst : So by the end of the 18 months, that $4 million goes to zero? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder That's correct. 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 03, 2025 / 7:30PM, CCOI.OQ - Cogent Communications Holdings Inc at Citi TMT Conference

Question: Mike Rollins - Citi - Analyst : And then the $20 million of savings you mentioned, does that go into synergy bucket that's remaining? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder That is going in the synergy bucket. So we had originally projected $220 million of synergy. We achieved that goal earlier this year and then revised that goal upward by about 10% or another $20 million.

Question: Mike Rollins - Citi - Analyst : And then going back to the revenue and there's a lot to get into on the revenue side, you mentioned that the underlying business growing mid-single digits. When we've looked through some of the detailed disclosures and we look at on-net corporate and we look at on-net NetCentric, we're seeing, just based on percentages, and I know there's some rounding errors so we have to be careful not to be too precise with this, but it looks like (technical difficulty) David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So I think there are three reasons why you may come to that conclusion. The first is approximately 20% of the revenues (technical difficulty) have continued to decline. The second reason is some of those customers were purchasing non-core products. And if a non-core product was associated with an on-net service, it got classified an on-net, if it was associated with off-net, it was classified an

Question: Mike Rollins - Citi - Analyst : (technical difficulty) IPv4? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder It does include the IPv4, which does -- is roughly 85% a NetCentric product, it is 14% corporate, at 1% enterprise. And again, like any of the ancillary services, if that is associated with an on-net customer, it gets counted an on-net. If (technical difficulty) grew nearly 40% on a year-over-year basis.

Question: Mike Rollins - Citi - Analyst : And so we're accustomed to thinking about price declines on average being about 20% per year. So is it a situation where that on-net IP transit piece is shrinking but being made up (technical difficulty) David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder (technical difficulty) are homogeneous. They are not. So if we are selling (technical difficulty) while the average price is going down. And the reason for that is smaller customers pay higher cost per bit than larger customers. The second distortion in that analysis is geographic. We have seen, over the past couple of years, a much faster rate of traffic growth (technical difficulty) the percentage of traffic that is coming from rest of the world has gone from around 45% three years ago to 55%. And that increase in international traffic ends up increasing the effective price per megabit because our pricing tends to be much higher in less developed markets. And while (technical difficulty) this month after an eight year saga to get a license, the pricing in that market is roughly about 15x the North American pricing per megabit (technical difficulty) at current market prices we'll look to disrupt, we will not be pricing nearly as low as North America or Western Europe and probably not even as low as some of Latin America and Africa where there is more competition. 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 03, 2025 / 7:30PM, CCOI.OQ - Cogent Communications Holdings Inc at Citi TMT Conference So as we get growth (technical difficulty)

Question: Mike Rollins - Citi - Analyst : (technical difficulty) Over the summer at some other conferences, you laid out some of the backlog that you're seeing. Do you have an update on how the backlog is progressing and how the sales of that backlog is progressing? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder (technical difficulty) the year at a $20 million to $25 million run rate. Two, that we have (technical difficulty) and the backlog. And what we are hoping to do is compress the time from our installation to customer acceptance and our ability to recognize revenue. So we feel very encouraged about the wave market in three distinct ways. One, there is incremental use cases that we were not expecting. Two, the level of loyalty to existing providers is lower than we expected due to many customers perceiving quality of service issues. And then three, the uniqueness of our routes have been viewed as a huge positive for path diversity among customers. A wavelength product is an unprotected product by (technical difficulty) having a completely physically diverse route, there is a value to that, that the other providers cannot deliver.

Question: Mike Rollins - Citi - Analyst : A year? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder A year, but that is (technical difficulty) customers accept. And we will have sufficient number of waves installed with adequate ARPU to hit that number. What we cannot yet predict accurately is the pace from install to acceptance. And we (technical difficulty) eventually implemented a forced billing regime. And it is our intention to do the same with wavelengths. But I think we need to have more market share before we can take that more heavy-handed approach with customers.

Question: Mike Rollins - Citi - Analyst : (technical difficulty) we have left. How are you thinking about a possible optimization or shift and going from paying out (technical difficulty) David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder (technical difficulty) $2 billion to shareholders. We have bought back 10.9 million shares out of a 49 million share float still remaining. And we have a dividend that we have grown for 52 quarters consecutively sequentially. We historically covered in a leverage range of about 3 times levered while we were doing both buybacks and dividends. With the onset of the pandemic, our leverage went up to 4.2 times. When we initially acquired Sprint, we immediately delevered down to 2.7 times due to the front-end loading of the subsidy payments (technical difficulty) covered the burn, and that helped fund the wave enablement of the network as well as accelerate the purging of undesirable revenue. Now going forward, we have peaked in leverage in the most recent quarter. That was clearly telegraphed in advance. If you look at it on an LQA basis, we are already declining in leverage. (technical difficulty) that will come from selling wavelengths, we generate incrementally more (technical difficulty) our reconversion and power optimization in the data center footprint is now complete. So that leaves us with increasing (technical difficulty) both delever and continue to grow the dividend concurrently. (technical difficulty) It is possible that we (technical difficulty) decide to leave more net cash on the balance sheet, and therefore, net delever. What is true is we are certain that we will return increasing amounts of cash to shareholders in one, if not all three, of those different vectors. And at minimum, we will be able to delever from the 6.6 times leverage we're at today down to about 5 times by the end of 2026. And then we need to go beyond that.