Cogent Communications Holdings Inc Q3 2025 Earnings Call Transcript

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

Question: Gregory Williams - TD Cowen - Analyst : Great, thanks for taking my question, Dave. First question is on the dividend cut. Do you see the company returning to a $4 dividend level as you reach that 4 times leverage, or would it sort of ramp up? And do you see it at that level, at some point in time, and I ask that because with your diminished ownership, just trying to understand if a sizable dividend is still part of the D&A of the stock. Second question is on the data center sale. Nice to see a couple sold here. Can you help us with the valuation? How much was it per megawatt? And when you think about the remaining 22 data centers or potential data centers, could they fetch similar evaluations, or did you just sell sort of the higher tier ones? I know you said these one, these two were larger than the others, so wondering if that evaluation will be, sort of sustainable with the remaining, facilities. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, CCOI.OQ - Q3 2025 Cogent Communications Holdings Inc Earnings Call David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, sure, let me try to answer both of your excellent questions, Greg. First of all, on the reduction in the dividend. Till we reach a net leverage target of 4 times. This was not taken lightly. It was actively debated by the Board, and we weighed feedback from equity holders as well as feedback from bondholders, and we felt in aggregate this was the best strategy. Two, once we have reached that target, we are committed to continuing to return capital to shareholders at a similar rate to what we were doing previously. What I cannot commit to is an exact restart where we left off on a per share per quarter rate. We also may be more aggressive in doing buybacks than dividends, but our commitment is to return all surplus capital to shareholders beyond the capital that is needed to run the business, as you can see from our Accelerating rate of EBITDA growth that we will be able to deliver more rapidly now, and then continue that EBITDA growth to be able to return even larger amounts of capital per quarter to shareholders ultimately. Now with regard to the data center sales, we have a number of other LOIs in negotiations, we have, I think, groomed the pool of parties we're talking to only those that we feel comfortable can actually perform. The two facilities that have been agreed to are representative of the base. We are very pleased with the price per megawatt, and it is definitely within the range that we would have anticipated for the entire portfolio. However, I am not comfortable in disclosing that because that would then set a benchmark. For our other negotiations and in some cases, some of those negotiations are going to yield higher prices per megawatt. Each facility is slightly different based on its size. Current power availability and potential for future power augmentations, so I'm reluctant to put an exact price per megawatt out into the market because then I'm locking, I think, the company into capping what we will receive on the other negotiations and at this time I expect at least some of the other facilities could potentially yield even higher prices per megawatt based on the unique characteristics of those facilities.

Question: Frank Louthan - Raymond James - Analyst : Great, thank you. Can you talk to us a little bit more about the run rate on the waves, you'd stated hitting a run rate of $20 million to $25 million, I think by year end. Just talk to us about that and then on the products you're selling, is it mostly 100 gig waves, any thoughts on your ability to capitalize on demand for 400 and 800 gig waves, with your current network. Thanks. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, sure, Frank, and I'm going to actually take those in somewhat reverse order. We are capable today of selling 10, 100, and 400 across the entire footprint that we have outlined, while the equipment in our network can actually support 800 gig and even 1.6 terabit interfaces. Those interfaces for customers are not readily commercially available, and there really is no commercial market today for 800 gig, but our network at all sites will be capable all the way up to 1.6 terabits per wave as that market develops. In terms of the mix today, roughly 79% of our wave sales have been at 100 gig. That is very different than the aggregate market which is today dominated by 10 gig wavelengths and there is a Product rotation that is ongoing across the industry where customers who had previously had 10 gig waves are now migrating to 100 and then there is further migration from 100 to 400 gig waves. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, CCOI.OQ - Q3 2025 Cogent Communications Holdings Inc Earnings Call Today, just under 10% of our sales have been at 400 gig, but we expect that to continue to accelerate. We have the capability to provide any to any data center connectivity. I know you wrote an extensive research piece on the total market for wavelengths. While we conserve the long haul, the regional, and the metro market, our greatest competitive strength is in the long-haul market because of the uniqueness of our routes, but we will be able to sell. A wavelength product that will include both metro and regional as well as the long haul in a single unified product which gives us a large addressable market. Now, with regard to the acceleration in wavelength sales, we are continuing to build a funnel. We installed more wavelengths this quarter than the previous quarter and expect that trend to continue. As I commented in my prepared remarks, we have still installed more wavelengths than customers have accepted. We are actually encouraged by the fact that there's been a competitive response by other providers in the market to shorten their provisioning windows. That may sound counterintuitive, but it's actually helping us condition customers to take wavelengths as quickly as we can provision them. Now with regard to our exit run rate, it is highly dependent on customers' acceptance. To just clarify, we had talked about a monthly exit run rate at the end of Q4 that would get us to a quarterly rate of $20 million to $25 million. It is extremely dependent on the customer's acceptance of the waves that we have installed, at this point we don't have enough visibility sitting here the first week in November to absolutely say that the backlog that we have installed will actually be accepted by year end, but we are hopeful. Hopefully that answered all your questions, Frank.

Question: Walter Piecyk - LightShed Ventures - Analyst : It's [Piecyk] and LightShed partners in this particular role, as Dave, just on the wavelength, so the $20 million run rate, I think you talked about last quarter exiting the year, or maybe I missed it when you were just responding or is that. Are you expecting to hit that? And I think there was some maybe a little confusion last quarter whether that doesn't necessarily imply $20 million for the quarter, just the run rate that you're exiting as of December 31. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder I'll take those again in reverse order, to be clear, and I thought I was clear enough both on the call and in subsequent conversations. It was a monthly run rate that would get us there, so not a revenue run rate for the full quarter, but an exit run 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. NOVEMBER 06, 2025 / 1:30PM, CCOI.OQ - Q3 2025 Cogent Communications Holdings Inc Earnings Call And then two, just reiterating what I said in answering Frank's question to the first part of your question. While we will install enough wavelengths to hit that target, I am not today confident enough that the customers will accept them, and we can start recognizing that revenue, although.

Question: Walter Piecyk - LightShed Ventures - Analyst : Got it. There's been some, I mean, over the course of the quarter since you had to sell your shares, there's been some conversation about, how you get re-upped and how that process works and obviously you cut the dividend today which probably is going to have an impact on the stock which would present an attractive entry point. Although from a shareholder perspective there might be questions about that, like if the board re-ups you after driving the stock down, is there any discussion in terms of your additional stock getting tied to perhaps the $500 million wavelength target that you have set out for the middle of 2028, or should we expect the board just to re-up you at this depressed level in the stock? David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So those are ongoing discussions. I am committed to Cogent and currently do not have a contract that will extend beyond the end of the year, but I am in discussions with the compensation committee and then ultimately the entire Board around that. The exact form of those incentives will be based on a number of operational metrics as they've been in the past. And just to remind you that, many management teams set the bar low, so they always hit the performance targets. In my case, I have been in multiple instances forfeiting shares because those targets had not been met and you know the exact nature of how that program will be put in place is just still an ongoing discussion.

Question: Walter Piecyk - LightShed Ventures - Analyst : If I could just sneak one last one in Dave on the data centres' LOI on the announcement, what type of due diligence, do they have left, and I assume there's some taxation on that or maybe you have some, I guess you don't have NOLs, right? You've been given cash back through the dividends, but. Yeah, just on the due diligence, what do they have to do? What are the, what's our risk that it doesn't, get finalized. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So there is a detailed list of diligence items. They have third-party consultants verifying the data that we have provided them inclusive of third parties going and doing site inspections. Probably the most important of those diligent items is actually the verification from the utility of what the utility has verified to us in terms of serving power availability because these facilities have been effectively dormant for close to a decade. We initially before we spent the capital, reached out to each of the serving utilities and confirmed that if we spent the capital that the power would be available. We got those affirmations and the counterparties that are acquiring these facilities are doing that same utility verification. That's probably the most important point. And then in terms of taxes, you are correct, Walt, we have very few usable NOLs left. While we have a significant number of NOLs, they are mostly outside of the US and there is virtually no tax basis in these facilities other than the capital that we have spent to modernize them and because of bonus depreciation. We have very little basis in these facilities.

Question: Walter Piecyk - LightShed Ventures - Analyst : Sales like that, yeah, okay. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, that's federal and state, local, that's right (multiple speaker).

Question: Christopher Schoell - UBS AG - Analyst : Great, thank you. Maybe just to follow-up on the wave competition you've talked about a mix of market concentration, route diversity, and faster provisioning driving your competitive edge with Lumen enhancing its provisioning timelines and expanding its wave network. Is this taking away from your edge and has it had any ability, impact on your ability to scale so far? Thanks. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder So, thanks for the question, Chris. So the answer is not yet, but we're only 1.5% of the addressable market today, and Lumen is the dominant player. Our largest competitive advantages actually come from the route diversity that we offer and the reliability of our network vis-a-vis others. It is hard to count that as a competitive advantage until you actually have installed customers. So in kind of a Early deployment, we had to focus on things such as provisioning speed and ubiquity of footprint. We still have over 3 times as many data centers as Lumen that we can connect and provision in. What they are alleging their improved provisioning times are and a subset of their data centers, but what they don't have is the uniqueness of footprint that we got from Sprint and the fact that the Sprint network was deployed with a much deeper (inaudible) cable that has been cut much less frequently, therefore resulting in higher reliability, better throughput, and ultimately less future cuts going forward. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, CCOI.OQ - Q3 2025 Cogent Communications Holdings Inc Earnings Call We monitor the cut activity on a per kilometre basis versus the fiber that we have bought through IRUs. We have bought fiber now from 378 different suppliers around the world, roughly [124,000] route miles of IRU fiber and across that footprint, the frequency of fiber cuts from IRU fiber, I'm not calling out Lumen specifically. But across the entire base is 7 times that of what we experience on the Sprint network, and I think that will ultimately be probably our biggest long-term competitive advantage other than pricing, but we feel very comfortable that we're going to continue to gain market share.

Question: Nicholas Del Deo - Moffettnathanson LLC - Analyst : Hey, morning, Dave. Thanks for taking my questions. First regarding wavelengths, I think in your remarks you said that you know you installed more than have been accepted by customers and you're observing changes in customer behavior and you're confident that you will accelerate the revenue recognition from waves. I guess can you expand on those comments a bit and as part of that perhaps share the number of provisions but not yet build waves that you have to give folks comfort in the outlook you've shared. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, sure. Nick, first of all, thanks for the questions. Let me start with the change in behavior. With our competitors offering accelerated provisioning, we are seeing customers now ordering waves with the expectation that they'll be delivered in a shorter window. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, CCOI.OQ - Q3 2025 Cogent Communications Holdings Inc Earnings Call Now some of that could be the confidence that we're building with that customer based on our existing installed track record. Some of it could be the belief that the industry is changing. It's hard for us to disaggregate that in terms of install but not build. It's several 100 waves that are in place today sitting there waiting for customers to accept them. And you know with IP services we do have a mechanism where we require the customer to start paying even whether they have affirmatively accepted or not. We are still probably several quarters away from implementing that same. Policy to our wavelength products. We are a new entrant. We have 1.5% market share and what we don't want to do is alienate customers through forced billing that would then preclude them from giving us the opportunity to bid on a greater percentage of their wavelength demand. The other thing that has been encouraging to us has been the fact that customers increasingly are choosing us because of the uniqueness of the route. It's something we expected, but until we had a, large enough base, a couple of 1,000 waves installed, we needed to really hear from the customers why they're buying. And while the city pairs are available from any of our competitors, the actual routes that we're on in most instances, there is no other provider on those routes, and that has turned into I think in many ways today our most significant advantage and I think longer-term, I think the greatest advantage that we're going to have is just demonstrating to customers the infrequency of cuts on our network versus the networks that they're more accustomed to. So the measure of quality is multidimensional. I think we're trying to win in every one of those dimensions.

Question: Nicholas Del Deo - Moffettnathanson LLC - Analyst : All right, that sounds good. And can I, sorry, can I slip in one last question on a different topic? Dave, you alluded to this in your prepared remarks, about the inflection to positive revenue growth in mid Q3. I guess it wasn't obvious if that happened in September versus, August, but I guess more importantly, should we expect full quarter revenue growth Q4 versus Q3? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2025 / 1:30PM, CCOI.OQ - Q3 2025 Cogent Communications Holdings Inc Earnings Call David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder I believe we will see positive revenue growth. It did happen late in the quarter, and the one caveat to that, and we did see more off-net corporate churn in the quarter than we anticipated. Some of it was collateral damage to other services that we terminated intentionally. I think that's behind us and we do anticipate returning to aggregate positive growth.

Question: Michael Rollins - Citibank Cameroon SA - Analyst : Thanks, and good morning. It's just maybe. A few follow-ups, first, can you share if you go by your segments, corporate, net centric, etc. Enterprise, can you share how much of the legacy revenue subject to churn. Is left and I'll have a few other follow-ups if you if you don't mind afterwards, so we just think about like what the remaining pressure is in each of the pieces including even in that $1.4 million left of non-core. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, so, there was virtually no net centric revenue acquired from Sprint. The vast majority of the revenue was enterprise, and a smaller percentage, but not immaterial, was corporate. The aggregate rate of decline of acquired Sprint revenue has been nearly 24% annually. It was 10.6%. Average negative decline for the three years prior. We have groomed virtually everything we want to groom. What we don't have visibility to perfectly is for the business that is left from those customers, which we're happy with and the customers are still using, how much of those. Services will still turn off because the customer had other services that they wanted to keep with us that we could not keep, of the non-core revenue, it's down to $1.4 million. It's probably 80% of it still left is ex sprint. I'm not going to say there was zero cogent Encore. It was very small pre-acquisition, but yeah, it was probably a couple 100,000. And then in the corporate off-net segment, there still remains some Sprint revenue and 100% of the enterprise revenues which represent, about 15% of our revenues are still from the enterprise customer base.

Question: Michael Rollins - Citibank Cameroon SA - Analyst : That context is really helpful and maybe just one more going back to the dividend cut and then pausing the buyback simultaneously. Can you give us a little bit more insight into the conversations that changed at the board level where you know if you look at the variances in financials in the quarter versus the severity of the action that you're taking on capital allocation. Can you give us maybe a list maybe in order of importance to the board of what really changed and over the time frame. That these conversations really accelerated. Thank you. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, so two very different timelines. The first one is on the reduction in the dividend. We have a very specific target before we re-accelerate the dividend, and that is a leverage target for the buybacks. We view those as more episodic. They have been temporarily paused, but they are not necessarily tied to the same endpoint. The second point and maybe the more important one that you asked is what changed, and I would say the Two inputs that the board looked at from two different capital markets weighed heavily on their decision. They looked at the trading of our secured bonds and the fact that they had traded off to about 96. And they were concerned that those bondholders were concerned with aggregate leverage. The unsecured bonds continue to trade above 99, like 99.5, and we viewed that as a less relevant input because of the short duration, but because the secured debt at a seven-year maturity. I think the sell-off in those bonds really had the Board focused on that constituency in our capital sack as part of their decision process. I think the second thing that the Board looked at was the violent reaction of the stock last quarter to my forced sales. Now, ultimately, the stock recovered for the most part. But there was a clear decoupling of the dividend yield from the stock price, and I think the board looked at that and said it was an indication. That the equity holders did not believe the sustainability. So with those inputs, I think the Board realized that it would be in the best interest of all of our stakeholders to put a firm marker in the ground around what an acceptable net leverage target would be and then two. A program that would help us get there as quickly as possible.

Question: Michael Ng - Goldman Sachs Group Inc - Analyst : Hey, good morning, thanks for the question. I just wanted to ask about, wavelengths and customer acceptance, just wanted to kind of revisit this concept is these, orders that you have in hand and there's a certain, performance obligation before, a customer accepts and you get revenue, or is this more about, you guys. You know converting that that fallow and connected capacity, dark fiber to lighting it up, and then, expecting to get an order after having that installed capacity, any thoughts there would be helpful. Thank you. David Schaeffer - Cogent Communications Holdings Inc - Chairman of the Board, President, Chief Executive Officer, Founder Yeah, thanks for the questions, Michael. So we do not pre-provision any capacity. Each wavelength is built on an order-by-order basis. What we are referring to are wavelengths that customers have ordered, have signed contracts, we have installed, we have provided the customer the test results of that Installation and service, and the customer says I am not yet ready to begin to use the wave. So very different than say your cable service at home when you call the cable company, they turn up the service you start paying whether you have a television to watch it or not. We do a similar thing with our IP services because we have conditioned customers over a long period that we meet our installation windows. We do allow customers to windows where they can move out acceptance on IP and then there is force billing on wavelengths. We have not implemented any kind of forced billing, but the wavelengths that are installed have specific contracts. They have been installed to the specification that the customer requested and then the customer has informed us they're not yet ready to utilize the service.