Cogent Communications Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025
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Operator

Good morning, and welcome to the Cogent Communications Holdings First Quarter twenty twenty five Earnings Conference Call. As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted on Cogent's website when it becomes available. Cogent's summary of financial and operational results attached to its press release can be downloaded through the Cogent website. I would now like to turn the call over to Mr.

Operator

Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communication Holdings. Please go ahead.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Thank you, and good morning, everyone. Welcome to our first quarter twenty twenty five earnings conference call. I'm Dave Schaeffer, Cogent's Chief Executive Officer. And on this call this morning with me is Tad Weed, our Chief Financial Officer. We have received numerous comments from investors related to the structure of our earnings call.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We greatly appreciate their observations and constructive comments, and we've implemented a number of those suggestions in the script that we are using for this call. Please continue to provide additional suggestions to help us refine our reporting. We are well aware that Cogent has undergone significant changes over the past two years, and we want to fully address the impact of those changes on our strategy and our prepared remarks and strive to focus on our growth plans going forward. For the quarter, I'd like to touch on some significant milestones that we achieved. I want to recognize that these achievements are but some of the milestones that we've achieved.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We are now offering wavelength services in 883 data centers with 10 gig, hundred gig, and 400 gig capabilities. We have materially been able to reduce our provisioning times to today approximately thirty days. Our wavelength revenues for the quarter were 7,100,000.0, an increase of a 14% over the same period in 02/2324. Sequentially, our wavelength connections increased by 18% sequentially, and our wavelength revenue increased by 2.2%. The vast majority of our connections were provisioned near the very end of the quarter.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We have sold Wavelength services now in three twenty nine locations. We have provisioned and cleaned up our former backlog of wavelength orders. We currently have a backlog and funnel of 3,433 wavelength opportunities. With more wave provisioning experience and the actual ability to deliver services, we now anticipate that between 45% of this funnel will be installed each month going forward. We also expect based on the growth in the sales activity that by year end, there will be 10,000 unique wave opportunities in our funnel.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We currently have provisioning capacity to install 500 waves per month. We intend to capture 25% of this highly concentrated North American market within three years. Our IPv4 leasing revenue for the quarter increased sequentially by 14.8% to $14,400,000 and increased 42% year over year. Due to the scarcity of this valuable asset and the terms of our customer contracts, we have been able to increase our IPv4 leasing pricing. We maintain a consistent acceptable use policy and did retrieve a significant number of addresses in the first quarter from a customer who violated these policies.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Our average revenue per IPv four address sold was 49¢ for the quarter, a 63% increase from the 30¢ installed base number at the beginning of the year. We have titled to nearly 38,000,000 v four addresses, which is more than any other service provider. We have realized the remainder of our targeted $220,000,000 in cost savings that we outlined at the acquisition of Sprint. We expect to achieve at minimum another $20,000,000 of cost savings through the second quarter of twenty twenty six. Demonstrating the impact of these savings on our cost of goods sold, they declined from $31,600,000 in the first quarter of last year, and our gross margin increased by seven ninety basis points from the first quarter of twenty twenty four to 44.6%.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Additionally, our SG and A declined by $3,800,000 from the first quarter of last year. Dollars '10 point '6 million of the sequential increase in SG and A expenses was due to traditional typical seasonal factors, including annual CPI increases, the timing of vacations taken and the accruals associated with them, and the reset of payroll taxes. We are now connected to 3,500 on net buildings. We have reconfigured several Sprint acquired facilities. These facilities have been added to our 1,668 carrier neutral and 101 Cogent data center footprint.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Our Cogent data centers have 183 megawatts of installed and available power. We have converted additionally 79 smaller Sprint facilities into edge data centers. These edge data centers each have approximately 40 rack capability and, in total, have about 28 megawatts of additional installed power. So on a combined basis, Cogent has 180 data centers, edge and core, with two eleven megawatts of installed power available for customers. After the quarter ended, we repurchased approximately 100,000 shares of our common stock for approximately $5,000,000 at an average price of $53.07 under our stock buyback program.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

A total of 17,400,000.0 remains available under that program through year end. A comment on tariffs. We do not anticipate any material impact of tariffs on our business or our CapEx projections. Much of our data center and network conversion equipment has been ordered pre tariff and a majority has been received. A portion of our network equipment purchases do have tariff input costs, but these are minimal.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We recognize that we have increased our leverage due to these activities, and our Board of Directors has elected to slow the rate of dividend growth, but continuing that dividend growth rate at a $00 per share per quarter. Our dividends for the quarter rose from $15 to $1.01 This represents the fifty first consecutive sequential increase on our regular quarterly dividend and an annual dividend growth rate of 3.6%. Now that the Sprint business is combined with our legacy business and we have fully analyzed the revenue burn off of undesirable revenues, we are adjusting our long term annual revenue growth rates to 6% to 8%, and we are increasing the rate at which we anticipate our EBITDA as adjusted margin to expand annually to a 50 basis points. Our updated revenue and EBITDA targets are meant to be multiyear goals and not designed to be specific quarterly or annual guidance. We are nearing the ending of grooming of undesirable revenues from Sprint contracts that are set to expire.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We expect to return to total top line revenue growth by mid Q3 twenty twenty five. Finally, I would like to take a moment to recognize one of our long serving board members, Blake Bath, for his outstanding counsel and service to Cogent. Blake had served on our board since February and elected to retire, and we wish him well in that retirement. Now I'd like to turn things back over to Tad to read safe harbor language and give some additional color on our operating performance.

Tad Weed
Tad Weed
CFO at Cogent Communications

Thank you, Dave, and good morning, everyone. This earnings conference call includes forward looking statements. These forward looking statements are based upon our current intent, belief and expectations. These forward looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. Please refer to our SEC filings for more information on the factors that could cause actual results to differ.

Tad Weed
Tad Weed
CFO at Cogent Communications

Cogent undertakes no obligation to update or revise our forward looking statements. If we use non GAAP financial measures during this call, you will find these reconciled to the corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com. Now some comments on results. Our revenue for the quarter was $247,000,000 Our rep productivity increased by 9% to 3.8 units per full time equivalent rep this quarter, which was an increase from 3.5 units per full time equivalent rep last quarter. Our EBITDA as adjusted was $68,800,000 which was a $1,900,000 increase, and our EBITDA as adjusted margin increased sequentially by 130 basis points to 27.8%.

Tad Weed
Tad Weed
CFO at Cogent Communications

Our EBITDA as adjusted is adjusted for Sprint acquisition costs, if any, during the period and payments under the IP transit agreement with T Mobile. In accordance with our IP transit services agreement, we received three monthly payments totaling 25,000,000 this quarter, the same as last quarter, 25,000,000 last quarter. A year ago, we received $87,500,000 in the first quarter of twenty twenty four as those payments stepped down in that quarter. We will continue to receive an additional 32 monthly payments of 8,300,000.0 each until November of twenty twenty seven. There are further payments related to lease obligations we assumed at closing that total at least 28,000,000.

Tad Weed
Tad Weed
CFO at Cogent Communications

This amount is to be paid to us in four equal payments from November 27 to February 28. We analyze our revenues based upon network connection type, which is on net, off net, wavelength, and non core, and we analyze our revenues based upon customer type, and we classify our customers into three types, NetCentric, corporate, and enterprise. Our corporate business represented 44.9 of our revenues this quarter. It decreased 11.4% year over year and 2.1% sequentially. These decreases in our corporate revenue are primarily due to the continued grooming of low margin off net network connections and the elimination of non core products.

Tad Weed
Tad Weed
CFO at Cogent Communications

Our NetCentric business continues to benefit from the growth in video traffic, activity related to artificial intelligence, streaming and wavelength sales. Our NetCentric business represented 37.5% of our revenues for the quarter, increased 0.7% year over year and declined sequentially by 1.1. Our quarterly NetCentric revenue under our commercial services agreement with T Mobile declined sequentially by $800,000 and was $700,000 for the quarter, and a decline of $2,500,000 year over year. The decline in revenue from the commercial service agreement from T Mobile and the negative impact of FX, was $500,000 sequentially and $1,300,000 year over year had a negative impact on our NetCentric revenue results. Our enterprise business represented 17.7% of our revenues for the quarter.

Tad Weed
Tad Weed
CFO at Cogent Communications

Net revenue decreased by 11.3% year over year and sequentially by 4.1%, primarily due to a reduction in non core and low margin enterprise revenue. On net revenue, we serve our on net customers in our 3,500 total on net buildings. We continue to succeed in selling larger 100 gigabit connections and 400 gigabit connections in carrier neutral data centers selling 10 gigabit connections in selected multi tenant office buildings. Our on net revenue was $129,600,000 for the quarter, a year over year decrease of 6.5% and a sequential increase of $900,000 or 0.7%. Our sequential on net revenue results were negatively impacted by the same contract with T Mobile, the commercial services agreement, the $800,000 sequential decline in on net revenue and also negatively impacted by $500,000 of negative FX.

Tad Weed
Tad Weed
CFO at Cogent Communications

Our off net revenue was $107,300,000 for the quarter, a year over year decrease of 9.2% and a sequential decrease of 5.2. Our off net revenue results are impacted by our migration of certain off net customers to on net and the grooming and continued grooming and termination of low margin off net contracts. Comments on pricing. Our average price per megabit for our installed base decreased sequentially by six percent to $0.20 and decreased by 25% year over year. This is consistent with historical trends.

Tad Weed
Tad Weed
CFO at Cogent Communications

Our average price per megabit for our new customer contracts for the quarter was $0.10 sequential price per megabit decrease of 105% year over year. Some ARPU churn statistics. Our ARPUs for the quarter were our on net ARPU was four ninety six, our off net ARPU was twelve sixty six, our wavelength ARPU was nineteen forty five, and our IPv4 revenue per address for the quarter was $0.49 On churn, our on net monthly churn rate was 1.4% and off net monthly churn rate was 2.2%. Our network traffic was flat sequentially for the quarter, but increased 8% year over year. Foreign currency comments.

Tad Weed
Tad Weed
CFO at Cogent Communications

Our revenue earned outside The United States is reported in U. S. Dollars and was about 18% of our revenues this quarter. The average euro to USD rate so far this quarter is $1.12 and the average Canadian dollar rate is $0.72 Should these averages remain at the current levels for the remainder of this quarter, the FX conversion impact on sequential revenues would be 2,000,000 and the positive impact year over year would be $1,200,000 We believe that our revenues and customer base is not very highly concentrated. Our top 25 customers were 18% of our revenues for the quarter.

Tad Weed
Tad Weed
CFO at Cogent Communications

CapEx. Our total CapEx for the quarter was $58,100,000 Our principal payments on capital leases declined to $8,000,000 for the quarter. We are continuing our network integration of the former Sprint network and legacy Cogent network into one unified network and converting former Sprint switch sites into Cogent data centers. We have accelerated and expanded our data center conversion program due to the high level of demand for our power availability. This program will require capital spending for the first half of twenty five, similar to the last half of twenty four, and then decline in the second half of twenty five.

Tad Weed
Tad Weed
CFO at Cogent Communications

Our total gross debt at par, including our finance lease obligations, was $2,000,000,000 at quarter end, and our net debt was $1,800,000,000 Our total gross debt for the last twelve months EBITDA as adjusted ratio was 6.69 at quarter end and net debt was 6.08. As calculated under our note indentures, our leverage ratio was 5.86, secured leverage ratio was 3.44, and fixed coverage was 2.8%. Finally, our day sales outstanding was twenty nine days at quarter end, the same as the end of the year. And our bad debt expense was $2,100,000 which was less than 1% of our revenues this quarter. I'm turning the call back over to Dave.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey. Thanks, Tad. Now for a couple of comments on our NetCentric business. At quarter end, we directly connected to eighty two forty other networks, of which 22 of these are peers and 8,218 are Cogent transfer customers. We remain focused on our Salesforce productivity and continue to manage out underperformers.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Our Salesforce turnover rate was 7.1% a month. This is down from the peak of 8.7% per month, but was slightly above our historical average of 5.7% per month. At quarter's end, we had 296 professionals focused solely on selling NetCentric, 319 professionals focused on the corporate market, and 14 professionals focused on the enterprise market. We remain excited about our ability to deliver profitable on net and off net IP services to enterprise and corporate customers. We are enthusiastic about our wavelength opportunity, the portfolio of buildings that we now connect to, and the backlog on that funnel of nearly 3,433 wavelength opportunities, we have completely refreshed that funnel and cleaned out older orders that had been accumulated over a year period while we were doing network reconfiguration.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We have diligently worked on accelerating the cost savings of the Sprint network integration. We have exceeded our initial targets and raised those targets. We are able to continue to monetize I p v four addresses, fiber assets, and excess data center spaces either through sale or long term leases. We are in active discussions beyond the LOI stage with multiple counterparties. And since our inception, we've offered superior service, expedited provisioning, and disruptive pricing.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

That is why Cogent remains an industry leader in the services itself. With that, I'd like to open the floor for questions.

Operator

Thank you. We will now begin the question and answer star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press the star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, And your first question comes from the line of Jim Schneider from Goldman Sachs. Please go ahead.

Analyst

Hi, it's Josh in for Jim. Thanks for taking the questions. I guess within the Waves business, are you seeing any change in competition, be it pricing or terms or otherwise as sequential revenue growth was not where most had expected? And do you think the Crown Castle's Zayo deal will change the landscape at all? And then separately, you've referenced in the past a few more quarters of potential revenue headwinds in corporate.

Analyst

Can you give us an update on these trends and the mix of pricing and customer growth, especially as we think about your new revenue growth targets? Thanks.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yes. Sure. Thanks a lot, Josh. So first of all, our two primary competitors in the wavelength market have struggled to provision and do not have the ubiquity of coverage that we had. I think that is why many customers were willing to sign agreements with Cogent when Cogent couldn't even give them a firm delivery date or a commitment to exact endpoints.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

As we've purged that older funnel, the funnel that we have built now is a much more accurate representation of orders that will continue to install. We've developed a enough of a cadence to know that about 5% of that funnel will convert each month. In the quarter, we installed virtually all of the incremental units, the 18% sequential growth at the very end of the quarter. The reason for that is many of the customers were not ready when we were ready because they had waited. Many of those customers did take service at the end of the quarter.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We expect that the competition will continue to improve on their ability to offer ubiquity and offer faster installs. But today, we think we have a significant advantage. With regard to the Crown Castle Zayo combination, that is probably a year away. I know that each of those companies represents a number of previous acquisitions that are still being integrated. And I would anticipate, even post closing, it will take several years based on the pacing that each of those companies have achieved in integration for the entire company to be functioning as a unified organization.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We should always be paranoid about competitors, but at the end of the day, we think this is a fairly distant threat, not something immediate. Now pivoting to your question on corporate revenue, we have gone through the undesirable revenue in the Sprint base. We have churned the vast majority of that revenue. We know that that has inflected our total top line growth rate negative. We believe that we will be through that process by the mid part of Q3 based on our need to honor certain contract commitments.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

From that point forward, we anticipate Cogent's total revenue growth to be positive and continue after the roughly eighteen years of positive growth that we demonstrated pre acquisition of Sprint. Our growth did turn negative when we acquired a business that was declining at 74.4% a year and represented 40% of the revenue of the combined company. We further accelerated that decline by electing to terminate these unprofitable noncore services. And I think the fact that we've been able to increase our EBITDA in absolute terms even with revenue decline is a very clear indication of the unprofitability of this business. But I think the corporate segment, as all of our segments, will be growing by the end or the middle of q three twenty twenty five.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Thanks, Josh.

Analyst

Got it. Thank you.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Thanks.

Operator

Your next question comes from the line of Greg Williams at TD Cowen. Please go ahead.

Greg Williams
Greg Williams
Analyst at Cowen

Great. Thanks for taking my questions. Dave, on the $00 per share dividend growth per quarter, is this like a temporary move? And would we think about returning to

Greg Williams
Greg Williams
Analyst at Cowen

the $0 growth quarter over quarter?

Greg Williams
Greg Williams
Analyst at Cowen

And if so, what would the milestones need to be? I imagine leverage targets would be one of them to return to that growth if you choose to

Greg Williams
Greg Williams
Analyst at Cowen

do so. And then just back on

Greg Williams
Greg Williams
Analyst at Cowen

the waves, cadence, you mentioned four to 5% of your, you know, bookings will be installed a month. So that's about a 50 circuits a month. In the past, you said you'd get to 500 circuits a month. What needs to happen to get to, that target? And and when when could that be reached at this point?

Greg Williams
Greg Williams
Analyst at Cowen

Thanks.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. Sure. So let me take each of those questions. Thanks for them, Greg. First of all, the board reflected on the increase in leverage and realized that the fundamentals of the business remain strong, but that our leverage is going to continue to increase as we've outlined on several of these calls that our aggregate leverage will peak in q three of this year due to the decline in transit payments from T Mobile.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We have been able to affect a material amount of cost savings, but those still did not result in enough to fully offset the decline in monthly payments from T Mobile from 29,000,000 down to 8,000,000. As a result of that, throughout the year, after those payments declined, our leverage is going up. As our leverage begins to decline in q four of this year and going forward, the board will continue to evaluate the pace of that delevering and is absolutely committed to returning capital to shareholders. Finally, we, I think, have continued to demonstrate our willingness to opportunistically enter the market and supplement our dividend with buybacks. That policy will continue going forward, but we absolutely believe that our ability to return cash flow will increase starting in the fourth quarter, and some of that will be used to delever, some will be used for increasing the dividend, and finally, will be used for opportunistic buybacks.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

So I think the milestone will be the reduction in net leverage. I'm now gonna pivot to your second question, which is wavelength installation. As we have been very clear in previous discussions with investors, we built a funnel of wavelength opportunities with no defined installation window. As it became clear that we could begin to install in select locations, in q three of twenty twenty four, we began the process of cleansing that funnel. And, you know, as expected, the majority of that funnel fell out.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Those customers went elsewhere because they could not wait for our deliveries. The funnel that we have now of 3,433 orders is a completely rebuilt funnel that was rebuilt from the end of q three twenty four to the end of q one twenty five. We now have much more clarity around locations and about timing to be able to install. At 883 locations, we can now install in thirty days. We have sufficient field resources, pluggable optics, and service delivery coordinators to be able to provision 500 orders a month.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

With a 3,400 order backlog and funnel, that represents, with a 5% conversion rate, about a 60. So we have more installation capacity than orders that are ready to install. As we build credibility with customers, we will both see an uptick in the number of opportunities going into that funnel. Based on the sales forecast that we have, we anticipate that funnel to reach 10,000 from thirty four thirty by year end, so in the next seven months. And while we are hopeful that the conversion rate monthly will be greater than the 5% we outlined, we're basing that on our three month experience of actually being able to provision orders.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

The final point I would make really is the sequential pacing of growth. With 18% sequential unit growth, we did very well. However, 2% revenue growth was as a result of those orders installing near the very end of the quarter. And the issue was, come January, we were ready to start installing. At that point, it was 802 sites, and we grew that to the eight eighty three at quarter end, and that number has continued to grow.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

But many customers who still wanted the services needed time to have their equipment ready to accept those services, and that resulted in most of the install activity being back end loaded at the end of the quarter. As we go into q two and beyond, we think that the pacing of installs will be more evenly distributed throughout the quarter. Hopefully, that helped clarify the question. And the goal is to be very specific with 500 capable installs per month, we think we will be hitting that target probably near the end of the year when the funnel reaches the 10,000 and the conversion rate remains at about 5%.

Greg Williams
Greg Williams
Analyst at Cowen

That's helpful. Thank you.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey, thanks, Frank.

Operator

Your next question is from the line of Alex Waters of Bank of America. Please go ahead.

Alexander Waters
Alexander Waters
Vice President, Equity Research - Communications Infrastructure at Bank of America

Good morning, Dave. Thanks for taking my questions. Maybe just first, can you maybe talk about the wavelength ARPU and kind of where you see that trending throughout the year? And then secondly, just on the data center monetization, can you talk just timing, scale, and sizes of some of these potential deals? Yes.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey, thanks, Alex, and congratulations on your new more senior role. Our wavelength ARPU was just under $2,000 in the quarter, about 1930. You know, I think our base is now large enough, meaning we have enough visibility into the mix of 1,004 gig waves as well as contract duration and route length that using an ARPU of about $1,900 is probably a reasonable way to model the business. As the base continues to grow, the installed base, I think that number of the entire base will converge to something around nineteen hundred to two thousand dollars per wavelength. We are seeing a much higher uptick rate and higher capacity waves.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

82% of our sales have been of hundred gig waves. That compares to the installed base in the industry of 55% of the base being 10 gig waves. So the waves that Cogent has been selling tend to be at a hundred gig with about 8% of sales being 400 gig as compared to the industry base of about 3% at 400 gig. So and then in terms of route length, you know, we now have nationwide well, actually, continental Ubiquiti and pretty good visibility into the orders that we have been booking. And, you know, as we get stability around the book to bill cadence, I think that $2,000 ARPU is a good modeling number.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Now with regard to your second question of data center sales and modern and monetization, we are continuing our work to convert those facilities and have just over a hundred megawatts of power in what is now 24 facilities we had originally targeted 23 that we are earmarking for sale or long term lease. We have taken four of our letters of intent and move forward towards initial contract negotiations, we are still engaging with parties who are conducting, you know, site condition studies and engineering due diligence. You know, we don't have an exact time frame, but we are highly motivated to sell this surplus capacity as it is not baked into our financial projections, but would be the easiest way for us to quickly delever. Hopefully, that was helpful.

Alexander Waters
Alexander Waters
Vice President, Equity Research - Communications Infrastructure at Bank of America

Thank you, Dave.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey. Thanks, Alex.

Operator

Your next question is from the line of Walter Piecyk from LightShed. Please go ahead.

Walter Piecyk
General Partner at LightShed Ventures

Thanks. Dave, I first wanted to go back to that a couple of questions ago just to make sure I heard you right. So because I know there was this thesis that, you know, people who are sold on Wavelengths that it was just limited by your ability to to execute. But I think you said you have the capacity, but you were just waiting on the customers to fill that capacity. And then if you can just talk about if you had installed at the start of the quarter rather than 2.2% sequential growth, which which was obviously impacted by the back end loading, what that growth might have looked like so we get a sense of kind of unit growth conversion to revenue growth.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. So if we had assumed that the orders had installed mid quarter as opposed to end of quarter, our revenue growth rate would have been in the roughly 13% range. If we were fortunate enough that they had all installed at the beginning of the quarter, it would have been nearly 20% because the 18.2% unit growth actually understated the revenue growth because the ARPUs were actually slightly higher than the installed base. With regard to two very different metrics that we have given, the first metric is our ability to install. Our ability was limited by the repurposing of the Sprint network, and we were constrained till the beginning of this year, where we had to do each installation that was done, the roughly thousand waves that we had sold on a custom basis and a limited number of sites.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

After the first of the year, we have the ability at eight zero two sites, which has now grown to 883 sites, to install those services in thirty days. So that's on the Cogent supply side. We can do it in those sites at any of three speeds and deliver within thirty days. We had a funnel of orders that had been bought with customers over a year and a half period as we were repurposing this network with little or no clarity to the customer on when we can install. It was not surprising to us, and we commented this extensively on our last earnings call that we were going through a process to purge that funnel of orders that customers had gone somewhere else for.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

They couldn't wait for us. Now we have rebuilt that funnel. We also know that many of those orders, the customers are not ready when we are ready. We expect that

Walter Piecyk
General Partner at LightShed Ventures

I I heard I I don't want you to have to repeat what you already said. I I I heard all that. I'm just because it it was just told to me, you know, rather than this install of 6% a quarter or whatever it is, which is, you know, how customers act that that there was this bold thesis that people were pitching that, like, oh, it's just it's fully about the supply and that they would just fill the supply as soon as that was available. So I think I heard you correctly. I was just trying to clarify that, which it sounds like that's the case.

Walter Piecyk
General Partner at LightShed Ventures

It's just customers have to be ready with their equipment, and it's gonna be and that's gonna impact how that grows. Can I can I just move on to IP, which is, like, last quarter, Tad, I think, you know, on during the call, I I specifically asked about what you could do each quarter, and he said it's gonna bounce back to 500,000? And And that was February. I know in your in your that was late February. So I know in your prepared remarks, you said you had to basically disconnect somebody that was misusing it.

Walter Piecyk
General Partner at LightShed Ventures

So is the disconnection, like, 700,000 IP addresses? And can you talk about, like, what does someone have to do with their IP addresses that would merit, getting disconnected? And I guess, similarly, should we just assume it should bounce back to 500 a quarter going forward?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. Okay. So two one correction, Walt. I wanna say 5%, not six.

Walter Piecyk
General Partner at LightShed Ventures

Sorry. 5%. Yep.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

As the conversion of the funnel and the growth in the funnel. So let me start with what someone has to do to be disconnected. And by the way, our acceptable use policy is clearly stated on our website. Typically, this will be one of three violations. Either there is a government order saying that from any of the 57 countries that we operate in the world, that a customer announcing those addresses is doing something that that government views as illegal.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

If that's the case, we immediately take it down, and it's upon the customer to resolve that issue with that government. The second area of abuse is typically copyright violations, and that is someone transmitting copyrighted information without the correct authority to do so. That is the case here that resulted in this fairly material takedown. This customer was violating the digital rights management requirements of the US government. And then the third potential area of abuse is if someone is using the addresses for a disruptive activity such as web scraping or spamming.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Those are the three main categories of AUP violations. There were actually more than one customer in the quarter who had a significant digital rights management issue that resulted in a material decline in units, but also we were still able to grow revenues due to price increases. We absolutely anticipate, to clearly answer your question, returning to a gross ad of north of 500,000 incremental addresses a quarter, and it is difficult for us to predict. There have been episodic periods in the past where we've had to take down blocks. This was a particularly larger instance this quarter.

Walter Piecyk
General Partner at LightShed Ventures

Okay. So there could be additional churn going forward from this type of stuff, but it's just too hard to protect protect. Got it. And then are you still good with the $3.50 for the year? Because it's obviously gonna be a pretty big seven second half ramp to get there.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

So we know that we have a very steep hill to climb on EBITDA because we had a hundred and $4,000,000 reduction in transit payments from T Mobile. We feel comfortable we are continuing to improve our EBITDA and grow that and should be able to achieve the goals that we've outlined.

Walter Piecyk
General Partner at LightShed Ventures

Thanks, and thanks for the short and prepared comments. Appreciate it.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Thank you. Your suggestions were helpful, Walt.

Operator

Your next question comes from the line of Chris Scholl from UBS. Your line is open.

Christopher Schoell
Christopher Schoell
Equity Research Associate at UBS Group

Great. Thank you for taking the questions. Just to follow-up on your new long term growth targets. What gives you confidence today to raise the target? And any help breaking down that six to 8% revenue growth expectation by customer segment?

Christopher Schoell
Christopher Schoell
Equity Research Associate at UBS Group

And I believe in recent quarters for the legacy Cogent business, you provided a core growth rate for both corporate and NetCentric. What did core growth look like this quarter? And how do you expect that to evolve from here? Thank you.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. Hey. Thanks for the questions, Chris. So, you know, our growth was greatly impacted by absorbing Sprint's negative growth trajectory at closing and then accelerated by our attempt to purge undesirable services and revenues. That is how we have been able to actually grow cash flow while declining top line.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

This is on a customer by customer basis. We now have clear line of sight to the remaining services that we need to disconnect, and we've been able to negotiate, in some cases, customers agreeing to allow us to disconnect those services sooner than their contractual terms would allow us to. With that, we're comfortable that we'll be able to get through the vast majority of that intentional churn by mid q three and then return to organic growth. We also now have higher confidence in the wavelength trajectory due to the realistic book to bill cycle and the quality of the funnel. Within the customer segments, we think that enterprise revenues will effectively be flat.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We think that corporate revenues should, on a consolidated basis, net of this intentional churn, should be growing in kind of the mid single digits of four to 5%, and that represents both the on net cogent traditional corporate customer as well as the corporate customers that we had acquired from Sprint, most of which that could be moved on net have been moved on net. And then the remainder of are gonna continue to be off net as the locations are just not practical to bring on net. And then finally, on the NetCentric segment, that is where the vast majority of the wavelength revenue will be ascribed. And, you know, over 93 or 94% of the waves that have been sold to date have been to NetCentric customers. With the combination of the NetCentric IP growth and the wavelength growth, albeit a small percentage of that, we anticipate NetCentric aggregate growth.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

So that's both IP and wavelengths to be north of 10%. That combined growth rate and the fact that we have worked through the business that we want to exit should get us to a increased total revenue growth rate of six to 8%. Compare that to Cogent pre acquisition of Sprint where for a eighteen year history, we had a compounded average growth rate of 10.2%. You know, a big part of the reason why we require T Mobile to enter into the transit agreement and subsidize us was both the losses and the realization that for a period of time, while we were correcting the revenue mix in the business we acquired, we were gonna suffer negative revenue growth. That is now clearly in our sights to turn positive.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

And then secondly, we are comfortable that we will also get better margin contribution than we had initially forecast. And quite honestly, from the day we've closed, our margin contributions have actually exceeded our internal targets.

Christopher Schoell
Christopher Schoell
Equity Research Associate at UBS Group

Thanks, Dave. And then just do you have what the core growth rates were for corporate and NetCentric in the quarter ex all of the grooming efforts?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

So it's it's become harder and harder for us to kind of parse that out as we've reprovisioned the customers. You know, I believe the corporate segment grew between 34%, but that is not as precise of a number as I would like to give you. And I think NetCentric probably grew at around 6% or 7% on a year over year basis.

Christopher Schoell
Christopher Schoell
Equity Research Associate at UBS Group

Great. Thank you, Dave.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey, thanks, Chris.

Operator

And your next question comes from the line of Nick Del Deo from MoffettNathanson. Your line is open.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Hey, thanks for my questions. Dave, also appreciate the new call format. I thought that was helpful. Thanks for making those changes. First, going back to the SG and A line, I think you basically said that the entire sequential increase was due to normal seasonal items.

Nick Del Deo
Managing Director at Moffettnathanson LLC

It still feels like an awfully high increase even after taking those into account. I guess, like was Q4 SG and A depressed for some reason such that it wasn't a good jump off point for thinking about Q1? And as we think about Q2 SG and A, how should we think about the roll off of tax and audit costs and the sales meeting costs and those sorts of things?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yes. I'm going to start, and then I'm going to pass it to Tad. Our sequential increase in expenses was greater this year than it was last year. And the primary reason for that is we had the entire Sprint employee base in Cogent's numbers for '24. And in '23, we only picked up those expenses on May 1.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

And all of the vacation accruals that those employees had were actually paid out in cash by T Mobile as a condition prior to closing. So we did not assume those. Probably the biggest component of the sequential change in s g and a actually relates to the fact that people we have a use or lose policy and, you know, people user vacation in q four and then build an accrual going forward. But I'm gonna let TAG give you a little more granularity on the components and kind of the variance between this year and other

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

years.

Tad Weed
Tad Weed
CFO at Cogent Communications

Sure. So in the fourth quarter, there were no unusual items. I would say, though, bad debt expense for the fourth quarter of last year was unusually low. We're usually at about 1% of our revenues, and it was 1% of our revenues.

Tad Weed
Tad Weed
CFO at Cogent Communications

Actually, point 8%, this quarter. So that's about a million and a half. The remainder of the 10,600,000.0 increase is all these seasonal factors that Dave mentioned. It's two and a half percent CPI on everyone's salary that has been here for a year. It's resetting of tax expenses, payroll taxes in The United States that happens every year.

Tad Weed
Tad Weed
CFO at Cogent Communications

It's annual audit fees that happens every year. Those and then, the vacation accrual, which is not insignificant. Sequentially, that's a $4,000,000 change, and it's just a seasonal factor. You people take vacation, of course, in the fourth quarter with the holidays. You're hitting the vacation accrual and not having to expense it because you've built that accrual over time.

Tad Weed
Tad Weed
CFO at Cogent Communications

When you get back to the first quarter, you need to rebuild that again. So you have a a a swap in expense now building the accrual when you were charging the accrual in the fourth quarter. It's it's not insignificant. It's it's, you know, 4,000,000 of the 10,600,000.0 sequential increase, but it's it's normal.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

And we had the same

Tad Weed
Tad Weed
CFO at Cogent Communications

It was just it's a normal activity. I would say it was just outsized because of the nature of, seven months versus a full year Sprint employees. Does that help? Does that answer that?

Nick Del Deo
Managing Director at Moffettnathanson LLC

Yes. Yes. It does. Are you willing to share anything regarding where that's gonna land in in q two?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Oh.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Where where SGA is gonna land in q two? Or is this a run rate that

Nick Del Deo
Managing Director at Moffettnathanson LLC

we should think about?

Tad Weed
Tad Weed
CFO at Cogent Communications

Slightly ticked down because more people will hit their FICA, capacity, and and the payroll taxes typically decline.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Okay. Okay.

Nick Del Deo
Managing Director at Moffettnathanson LLC

On the IPv four addresses, you said it was a large number that you took back. Are you willing to share the exact number?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. Well, it was from more than one customer, so it can't be attributed to just one. But it was in the order of about six to 700,000 addresses, and it's in aggregate that were taken back.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Okay. So so your your underlying trends are much better than they than they appear?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

You know, we've had this in the past. You know, it's rare that you get this much in a quarter, but, you know, we don't predict when people do bad things. And, you know, Walt tried to say it's gonna go away, and I can't answer that question because I can't tell you no one's going to violate, you know, Turkish security laws, and we get, you know, a takedown notice from the government of Turkey for a big block of addresses. I mean, stuff like that happens, and it it is episodic. It was just more extreme this quarter than not.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Unfortunately for us, we had such a good tailwind from the price increases that the revenue still grew sequentially at 14.4%.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Okay. And then maybe one last quick one, if it's okay. I think you said that a majority of your Q4 of the backlog and funnel from waves that you showed in q four fell out as part of the cleanup process. I mean, again, can you share what that number is? I'm just trying to get a sense of what your gross adds to the backlog and funnel were in q one.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. So between the stuff that fell out and the stuff that installed starting in q at the end of q three. So we had visibility to starting to tell people we could give them firm delivery dates starting in January. Nearly 90% of the total funnel that existed at the end of q three twenty four fell out. Only about 10% of that funnel, which was about also about 3,500, ended up either installing or carrying over.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

And more of the installs that occurred, for example, in q one were things that were sold in q four and went into the funnel, and the funnel is continuing to grow. And, you know, until we could actually install, I was extremely reluctant to give people, you know, kind of a book to bill kind of cadence and, you know, really even an ARPU. Now that we've got at least a couple of quarters where we could give people actual install dates with SLA commitments associated with it. We're we've got a lot more visibility. And, you know, I can look at the IP funnel and have great deal of clarity around this conversion rate on a monthly basis.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

I think, you know, what we've said of, you know, four to 5% is conservative, and I'm hoping that conversion rate actually accelerates as the funnel grows and we demonstrate to customers we can really deliver. But the the fact that we've actually delivered services now in 329 sites, I think, just has earned us a lot of credibility and has helped us build the funnel at a much faster pace than we were building it before.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Yeah. But, you know, it it sounds like, you know, based on your commentary, you had at least a few thousand, you know, on a clean basis, a few thousand additions to the backlog and funnel in the quarter, which would, I I guess, in tandem with your expected install, it kinda gets you to that 10,000 by year end.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

That is correct.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Okay, great. Well, thank you guys.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey, thanks Nick.

Operator

You have a question from Michael Rollins at Citi. Please go ahead.

Michael Rollins
Michael Rollins
Analyst at Citigroup

Hi, Dave. Good morning. Thanks for taking the questions. Two if I could.

Michael Rollins
Michael Rollins
Analyst at Citigroup

So

Michael Rollins
Michael Rollins
Analyst at Citigroup

first, curious if you could discuss the slower Internet traffic growth year over year and what you're seeing also in regards to pricing and the implications of all of that as you look at Internet transit revenue performance within the NetCentric revenue going forward? And then secondly, are you seeing any changes in customer behavior in terms of sales cycle, decision making since the April after the tariff announcements? And can you just remind us how a slower macro could impact your business performance?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yes. Let me start with the traffic growth number. So if you look at OpenVault data, which is looking at traffic on the other side, which is end user total downloads, that has slowed to about 8%, which is in alignment with what we are seeing kind of on the supply side or upstream component. I think there are really three things going on concurrently. One, the rate of broadband adoption in countries that have decent access network capabilities has slowed.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Two, the number of minutes of use per day has also moderated. And third, the adoption of video has slowed. So at the beginning of the pandemic, we were at about 18% of end user video consumption being streamed. That, you know, in five years accelerated to about 54. It is going to continue to go up from here, and in particular, the pivot to more live event availability is helpful.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

But I do think with a larger video base, that application is maturing. I also think we're in a period when most of the network load for AI is directed at wavelengths because most of that network load is for training and not inference. But as the results of those large language models get distributed, that should present a new use case where users will use Internet connectivity more and bit volumes will go up. So we have seen this pattern of kind of oscillations in aggregate demand as applications change historically, and I think that'll probably continue to be the case. But I think we're going to see over the next year or two a reacceleration, at least in bid intensity per user.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Now in terms of pricing, we have seen, you know, the rate of price declines pretty consistent now for twenty five years. Let's say about 22, 20 three percent a year. And while there is always some short term variability, that long term trend line is pretty consistent, and I don't think that's going to change. Even though there is less competition, the technology associated with manufacturing those bit miles is continuing to improve pretty significantly. So I think we'll see some more price declines for the industry and kind of more of a return to historical traffic growth rates.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

To your last question around tariffs, I'm gonna actually answer it with kind of two different views. One is for our NetCentric customers, and this could be either Wave or IP. Most of the time, they need equipment to accept those services. They're not happy. That equipment is more expensive.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

It does have some tariff load on it as at least a portion of it is coming from high tariff locations. But they still need it to deliver service, so I think that's probably an initial shock. And in terms of materiality to their overall cost structure, I think it's much like Cogent. It's not material, but there's just a shock when that happens. But, you know, I would say the only thing on the tariff front that could potentially impact NetCentric business is if there is an effective content tariff, I.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

The movie tariff, which doesn't exist, I have no visibility to how that's gonna affect end user demand. And then on the corporate side, I do believe that a number of corporate users are just concerned with the overall macro situation. And are we entering a period of reduced or negative growth and higher inflation? And for that reason, they're just being more cautious on long term commitments. But, again, because we sell a utility, I don't think that's going to have a material impact.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

I don't think we're in the kind of February '8, '2 thousand '9 great financial crisis level of paralysis. And, you know, our underlying corporate growth continues. You know, as we complete this grooming, we feel confident that aggregate growth and corporate growth will be positive later this year.

Michael Rollins
Michael Rollins
Analyst at Citigroup

Thanks.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Hey. Thanks, Mike.

Operator

Your next question comes from the line of Tim Horan from Oppenheimer. Your line is open.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

Thanks, guys. Dave, can you give us maybe just some timing on the data center sale and maybe expectations on price if you've received any? And then on the wavelength side, have you seen any competitive response?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Yeah. I'm gonna take those in reverse order, Tim. You know, probably the only competitive response was aimed at the hyperscaler segment of the wave market and the decision by at least one of our competitors after twenty years to agree to sell dark fiber, which is a potential substitute for wavelengths where the customer buys the dark fiber and then produces their own wavelengths on that. You know, I think on the kind of delivery of wavelength services, we have not seen any change in pricing or delivery schedules. And what we have heard from customers that have put orders into our funnel is that our pricing is good.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We have not had to be maybe as aggressive as we thought we would have to be once we had the network fully configured. Again, you know, five months doesn't make a permanent trend, but, we feel pretty good that the pricing that we're going to market has been well received by customers and viewed as adequately competitive to win share. I'm gonna pivot now to your data center question. And as I stated earlier, we have a handful of situations where we are moving from letter of intent to contract. There is nothing that we can announce today.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We are also continuing to do the work necessary to complete that data center conversion, but we think that'll be completed in the next two months. We were pretty clear that we'll have that done by the end of q two, and we are on track to do that. You know, in terms of pricing, I would say the couple parties that are negotiating leases are similar to our ask price. On the parties that are negotiating for outright purchase, there is a much wider dispersion. At least one of the contracts is at the ask price, but the others are below that.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

We need to vet the ability of each of the parties to perform, and that's part of what is going on while we are, you know, refining economic terms and an LOI into a contract. You know, because we've never done this before, I remain reluctant to give a firm date of when we can do this. I think we're making good progress, and we'll get this we will monetize some of these, but it really does take two parties. And the parties have to have the wherewithal to perform. So we're going through that process.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

And I know early in the process, you had the ability to tour one of the facilities that was a work in progress. And I can assure you if you go back to that facility in Merchantville today, it would look very different than when you toured it.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

But it's something you think you can get done in, like, three months, or is it more of a, you know, six month type negotiation?

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

You know, it's really hard for me to answer. To be conservative, I would take the longer view, Tim, not the shorter view just because we've got parties at the table, but we've gotta flush through, you know, what are the conditions they need met, what is their timeline that could close, how much is their earnest money deposit, what are the outs that they're looking to negotiate? And, again, there's a fairly broad spectrum from sophisticated private equity to existing data center operators to more new business models. And, you know, I just wanna maximize value, and I think it's gonna be more than three months. I I don't know how much more, but, you know, I think that's probably aggressive to say that there's an actual closed sale.

Timothy Horan
Managing Director at Oppenheimer & Co. Inc.

Got it. Thank you.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Alright. I think we are through our questions. The last topic I'm gonna touch on just quickly is something that affects me personally, and that is that I have, due to coach and stock volatility, had to substantially increase some of the shares that I had pledged to pay taxes over the years. I have not increased any borrowing, but I do want shareholders to be aware that, you know, I'm trying to be as transparent as possible. You know, I've been forced to inject money into my real estate portfolio, and that is continuing.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

I wanna personally thank everyone. Hopefully, this new format was more efficient. We did get everybody's questions answered and got it down to an hour fifteen, and I look forward to seeing you all in person soon. Take care. Thanks.

Dave Schaeffer
Dave Schaeffer
Founder and CEO at Cogent Communications

Bye bye.

Operator

This concludes today's conference call. Thank you all for joining us. You may now disconnect.

Executives
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Key Takeaways

  • Wavelength Services Expansion: Cogent now offers wavelength services in 883 data centers with 10G, 100G, and 400G capabilities, has reduced provisioning times to approximately 30 days, achieved 14% year-over-year revenue growth to $7.1 million, and holds a 3,433-connection opportunity funnel targeting a 10,000-opportunity backlog by year-end.
  • IPv4 Leasing Strength: IPv4 leasing revenue rose 14.8% sequentially to $14.4 million (42% YoY), driven by pricing increases to $0.49 per address (up from $0.30) and a portfolio of nearly 38 million addresses, while enforcing acceptable-use policies led to the recovery of over 600,000 misused addresses.
  • Cost Savings & Margin Improvement: The company has realized its $220 million Sprint acquisition cost-savings target and expects another $20 million by Q2 2026, resulting in a 7.9-point gross-margin increase to 44.6% and a $3.8 million reduction in SG&A year-over-year.
  • Network & Data Center Footprint: Cogent is connected to 3,500 on-net buildings and operates 180 data centers (core and edge) with 211 MW of power capacity, and it repurchased 100,000 shares for $5 million in Q1 under its buyback program.
  • Outlook & Capital Return: The company raised its long-term revenue growth target to 6–8% with annual adjusted-EBITDA margin expansion of 50 bps, increased its quarterly dividend to $1.01 (51st consecutive raise), and expects total revenue growth to resume by mid-Q3 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Cogent Communications Q1 2025
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