Cogent Communications Q2 2025 Earnings Call Transcript

Key Takeaways

  • Positive Sentiment: In Q2, wavelength services revenues reached $9.1 M, up 150% YoY and 27% sequentially, with coverage in 938 data centers, 30-day provisioning and a 4,687-opportunity funnel as Cogent targets 25% North American market share.
  • Positive Sentiment: Sequential EBITDA rose 11% to $48.5 M and adjusted EBITDA increased 7% to $73.5 M, with margins expanding 200 bps to 19.7% and 29.8%, respectively.
  • Positive Sentiment: Liquidity was bolstered by a $174.4 M IPv4 securitization at 6.646% and a $600 M 6.5% secured note issue due 2032, extending maturities and adding $100 M of available funding.
  • Positive Sentiment: Shareholder returns were enhanced with a $100 M buyback authorization (total available $106.4 M) and a 5 ¢ quarterly dividend increase to $1.015/share, marking the 52nd consecutive raise.
  • Positive Sentiment: Revenue decline nearly halted, with Q2 down only $0.8 M sequentially versus $5.2 M last quarter, and Cogent expects sequential growth to resume and positive top-line growth in 2025.
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Earnings Conference Call
Cogent Communications Q2 2025
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Operator

Good morning, and welcome to the Cogent Communications Holdings Second 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 downloadable from the Cogent website. I would now like to turn the call over to Mr. Dave Schafer, Chairman and Chief Executive Officer of Cogent Communications Holdings. Please go ahead.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Thank you, and good morning, everyone. Welcome to our second quarter twenty twenty five earnings conference call. I'm Dave Schafer, Cogent's Chief Executive Officer. And with me on this morning's call is Chad Reed, our Chief Financial Officer. I'd like to take a moment to touch on some of the key milestones that we achieved in the quarter.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

As of the end of the quarter, we were offering wavelength services in 938 data centers at 10 gig, 100 gig, and 400 gig service levels, materially, we also had reduced our provisioning intervals to approximately thirty days. Our wavelength revenues for the quarter were $9,100,000 a 150% increase on a year over year basis and a sequential increase of that revenue stream of 27%. As of the end of the quarter, we had sold wavelengths in four eighteen locations. We currently have a backlog and funnel of 4,687 wavelength opportunities. We do intend to capture 25% of the highly concentrated North American wavelength market.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

In the quarter, we completed two significant debt transactions that materially enhanced our liquidity. In April, we issued an additional $174,400,000 of debt against our IPv4 securitizations at a rate of 6.646%, which was substantially below our initial securitization rate of 7.924% for the initial $2.00 $6,000,000 of asset backed securitization IPv4 notes issued in May 2024. In June, we issued $600,000,000 of 6.5% secured notes that mature in 02/1932. This extended the maturity of our $500,000,000 secured notes, which were coming due in May 2026 and provided us an additional $100,000,000 of liquidity. Our EBITDA increased sequentially by 11% to $48,500,000 and our EBITDA margin increased sequentially by 200 basis points to 19.7%.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Our EBITDA as adjusted increased sequentially by 7% to 73,500,000.0 And our EBITDA margin as adjusted increased by 200 basis points sequentially to 29.8%. Our SG and A expenses declined sequentially by $5,600,000 and a decline of 27% of our revenues to 25% of revenues. Our IPv4 leasing revenues for the quarters increased sequentially by 6.3% to $15,300,000 and this represents a 40.1% increase on a year over year basis. Our average revenue per IPv4 address leased in the quarter was 39¢, a 22% increase from the base at the beginning of last year. We have an inventory of a total of approximately 38,000,000 IPv4 addresses.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We have continued the reconfiguration of Sprint facilities and added them to our data center footprint. We currently have connected sixteen hundred and seventy five third party carrier neutral data centers as well as our total fleet of 187 Cogent data centers. The Cogent data centers have a installed base of 214 megawatts of available power. During the quarter, we purchased 230,000 shares of our stock for a price of $11,500,000 at an average price of $50.18 So far this quarter, we have purchased an additional 95,000 shares or $4,500,000 at an average price of $47.24 Our board has authorized an additional $100,000,000 buyback program that will remain in place through 12/31/2026. We currently have a grand total of $106,400,000 available to the company under its buyback program.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Our sales force rep productivity significantly improved in the quarter to 4.8 installed orders per rep per month from an average of 3.8 orders installed per rep per month in the previous quarter. After considering the impacts of HR one tax bill, we are not expected to be a federal tax income taxpayer for at least the next five years. Our board decided to increase our dividend by another $0.05 cent per share quarterly from $1.01 per share per quarter to a dollar and 1.5¢. This represents the fifty second consecutive sequential increase in our regular dividend and a 3% annual dividend growth rate. We anticipate our long term average revenue growth to be between six percent and eight percent, and we expect our EBITDA as adjusted margins to expand by approximately 200 basis points annually.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Our updated revenue and EBITDA guidance targets are meant to be multiyear targets and are not intended to be specific quarterly or annual guidance. We're nearing the end of the grooming of unprofitable and undesirable revenue that we had acquired in the Sprint base. And as these contracts expire and continue to expire, we expect to return to positive top line growth in 2025. We remain focused on selling high margin on net services. Our sequential revenue decline improved materially to $800,000 as compared to a sequential rate of revenue decline in the previous quarter of $5,200,000 With regard to our aggregate leverage, it has peaked at this point.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We believe that our leverage on an LTM basis will continue to improve. Our leverage inclusive of the payments from T Mobile under the IP transit agreement and the net present value of those of 244,800,000.0 should be treated as a cash receivable in calculating our net leverage and represented both on a short term and long term basis. Our gross debt is adjusted for the amounts due from T Mobile on a gross basis was 7.74% at the end of the quarter and 6.61% at the end of q two. As I stated, we expect these numbers to decline sequentially from this point forward. Now I'd like to turn it over to Tad and let him read our harbor language and provide some additional detail on the operating performance in the quarter.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Thank you, Dave, and good morning to 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.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer 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. Summary of our results. Our revenue for the quarter was $246,200,000 sequential decline of $800,000 Our EBITDA, as adjusted, was $73,500,000 for the quarter. That was an increase of $4,700,000 and our EBITDA as adjusted margin increased sequentially by 200 basis points to 29.8%.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

As a reminder, our EBITDA as adjusted includes payments under our IP transit agreement with T Mobile, which is $25,000,000 a quarter at this point. This quarter, we received the three monthly payments totaling $25,000,000 and every payment has been made on time, and it was the same amount as last quarter, 25,000,000. Last quarter of last year's second quarter, we received $66,700,000 as the payments ramped down to $25,000,000 a quarter, and they will continue for 29 monthly payments until November 2027. There are further cash payments related to lease obligations that we will receive from T Mobile that we assumed at closing that will total at least 28,000,000. This $28,000,000 is to be paid to us in four equal payments from December 27 to March 28.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

We analyze our revenues based upon network connection type, on net, off net, wavelength and non core, And we also analyze our revenues based upon customer type. We have three types, net centric, corporate and enterprise. Our corporate business represented 44.3% of our revenues this quarter, which was a decrease by 8.8% year over year and 1.5% sequentially. These decreases in our corporate revenue are primarily due to the continued growing of low margin off net customer connections and the elimination of noncore products that we acquired. Our NetCentric business continues to benefit from the growth in video traffic, activity related to artificial intelligence, streaming and wavelength sales.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Our NetCentric business represented 39.5% of our revenues this quarter, increased by 6.8% year over year and sequentially by 5.1%. Our enterprise business represented 16.2% of our revenues this quarter. That was a decrease of 19.9% year over year and sequentially by 8.8%, primarily due to the reduction in non core and off and low margin off net enterprise revenues that we acquired in the Sprint acquisition. On net revenue, we serve our on net customers in 3,529 on net buildings. Our on net revenue was $132,300,000 for the quarter, a year over year decrease of 6%, but a sequential increase of $2,700,000 or 2.1%.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Our off net revenue was $102,200,000 for the quarter, a year over year decrease of 8.3% and a sequential decrease of 4.8%. We serve our 26239 off net customers and 19,073 off net buildings. Our off net revenue results are impacted by the migration of certain off net customers to on net and the continued grooming and termination of low margin off net contracts mostly acquired from Sprint and T Mobile. On pricing, our average price per megabit for our installed base decreased sequentially by 11% to $0.17 and decreased by 30% year over year. This is relatively consistent with historical trends.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Our average price per megabit for our new customer contracts was $08 a sequential price per megabit decrease of 2134% year over year. ARPU. Our ARPUs for the quarter were as follows: our on net ARPU was $5.00 6,000,000 our off net ARPU was twelve sixty seven Our wavelength ARPU was 2,163. And our IPv4 ARPU for addresses sold was $0.39 per address. Churn has been relatively constant.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Our on net unit monthly churn rate was 1.4%, the same as last quarter. Our off net unit churn rate was 2.3%, slight increase from 2.2% last quarter. Traffic on our network for the quarter increased by 1% sequentially and by 9% year over year. Some comments on foreign exchange. Our revenue earned outside of The United States is reported in U.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

S. Dollars and was about 19% of our revenues this quarter. The average euro to USD rate so far this quarter, so for the third quarter, is $1.17 and the Canadian dollar, $0.07 3. Should these average foreign exchange rates remain at the current levels for the remainder of this quarter, we estimate that the FX conversion impact on sequential revenues would be about $1,000,000 positive and year over year about $2,000,000 positive. We believe that our revenue and customer base is not highly concentrated and our top 25 customers represent 17% of our revenues this quarter, essentially the same as last quarter.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Some comments on CapEx and payments on capital leases. Our CapEx declined by $1,900,000 sequentially and was $56,200,000 this quarter. Our principal payments on capital leases slightly increased by 5,000,000 sequentially and were $8,500,000 this quarter. We are continuing our network integration of the former Sprint network and legacy Cogent network into a unified network and converting former Sprint switch sites into Cogent data centers. This program required capital spending for the first half of twenty twenty five similar to the 2024, and then our capital spending is expected to decline in the second half of this year.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Our capital spending for the 2025 was $114,300,000 and for the fourth quarter was 105,300,000.0 Our principal payments on capital leases for the '5 were $16,500,000 and last year for the first half was $156,700,000 That included a buyout of an uneconomic lease for $114,600,000 at a 12% discount. Comments on debt and debt ratios. Our total gross debt at par, including our $605,200,000 of finance lease obligations, was $2,300,000,000 at quarter end and our net debt total debt net of our cash and our $244,800,000 due from T Mobile was $1,800,000,000 Our leverage ratio as calculated under our more restrictive 2027 unsecured seven fifty million dollars notes was 6.82, and our secured leverage ratio was 4.2, and our fixed coverage ratio was 2.43. Our leverage ratio as calculated under our newly issued 2,032 secondured $600,000,000 notes indenture was 5.05, secured leverage ratio was 3.12 and fixed coverage was 3.27. The definition of consolidated cash flow under our 600,000,000 secured notes that we issued this quarter includes cash payments under the IP transit services agreement with T Mobile, and these payments were 100,000,000 for the last trailing twelve months.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Lastly, our day sales was 21 thirty one days rather at quarter end, slight increase from twenty nine days last quarter due to the timing of cash receipts. Our bad debt expense was significantly less than 1% of revenues for the quarter, so great job there. And I will now turn the call back over to Dave.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Hey. Thanks, Ted. I'd like to highlight a couple of the strengths of our network, our customer base and Salesforce. We are direct beneficiaries of continued increased video traffic, artificial intelligence activity and streaming trends. At quarter end, we were able to sell wavelengths in 938 carrier neutral data centers across North America with reduced provisioning windows of thirty days.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

At quarter's end, we were able to sell our IP services globally in 1,862 data centers. At quarter's end, we were directly connected to 8,085 networks. 22 of these networks represent peers and 8,063 are Cogent Transit customers. The reduction in networks connected from last quarter was due to the completion of the combination of the Sprint and Cogent IP networks into a single unified autonomous system number AS174. Some details on our sales force.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We remain focused on increasing our sales force productivity and managing out underperforming reps. Sales force turnover was 6.2% per month in the quarter, down from a peak of 8.7 during the height of the pandemic, but slightly above the historical average of 5.7% per month. At the end of the quarter, we had six twenty eight sales reps. Our sales reps include 296 sales force that focus solely on the NetCentric market, 318 sales reps focusing on the corporate market in North America, and finally, 14 reps focusing on global enterprise customers. We expect to continue to provide profitable on net and off net IP services to enterprises, corporate customers, and NetCentra customers. We remain encouraged and enthusiastic about the prospects for our Wavelength business. We have a significant Wavelength backlog funnel of over 4,687 Wavelength opportunities.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We have several 100 wavelengths that have been installed but have not yet billed due to customers' inability to accept the services as they are preparing their equipment to receive those wavelengths. And since our inception, we are focused on offering superior service, expedited provisioning, and disruptive pricing. I we now have a base of installed wavelengths that are beginning to give us data showing that our wavelength quality is substantially better than that of our competitors. We expect to continue to monitor this and use quality as a key differentiator in our ability to gain market share. With that, I'd like to open the floor for questions.

Operator

Thank you. Our first question will come from the line of Greg Williams with TD Cowen. Please go ahead.

Greg Williams
Director - Equity Research at TD Cowen

Great. Thanks for taking my questions. Dave, you just ended the statements with focusing on quality as marketing your Waves. You know, waves seem to be continuing to be off to a slow start. Do do you still target four to 500 circuits installed a month by year end?

Greg Williams
Director - Equity Research at TD Cowen

Second question is just on your data center sales progress. Any additional color on interest you're seeing? And perhaps more importantly, at this point, is 10,000,000 a megawatt a realistic ask from the interest that you're seeing, or should we see a haircut on this target? Thanks.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yeah. Hey. Thanks for the questions, Greg. So we always knew that in order to win market share in wavelengths, we needed to be winning on three criteria. First, being ubiquity of coverage.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Second, the price that we offer. And third, the quality of the service. And the quality is actually measured two ways, our ability to actually install in a timely manner and the service to be able to work once installed. We initially focused on the installed metric because we did not have a material base of wavelengths. While our wavelength base is still small, about 1% of the North American market, it is now at least statistically significant enough that we can measure our performance quality as measured by number of outages along each route.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Today, and this is anecdotal, we are running at about seven x fewer outages per span than at least one of our major competitors as reported to us by customers who have similar city pairs along different fiber with that other vendor and with Cogent. We think all of these inputs are critical to us gaining share. In terms of our wavelength install cadence, while we installed and began billing 147 wavelengths in a quarter, we actually installed several 100 more wavelengths than we have begun to bill for. As we had mentioned in previous calls, we have been installing services faster than customers have expected. They then usually need to order cross connects, sometimes pluggable optics on their side to be able to accept these wavelengths, and they've been accustomed to having protracted delays from other vendors.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We are beginning to build credibility with those customers, and we are accelerating our ability to install. We have the capabilities to get to 500 wavelengths per month. We will ramp to that. And I think over the next several quarters, our customer base is going to become accustomed to our rapid provisioning, which is different than what the industry has traditionally experienced. And as a result of that, we think the number of wavelengths that we install but do not bill will shrink.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We report a number of granular KPIs. I think that is critical until we have a material base of billable revenue in our wavelength product set. You know, the fact that our revenues increased 27% sequentially, I think, is a good indication of our gain in market share, albeit off of a small base. I'm gonna pivot to your wave to your data center question. We continue to negotiate with the four initial parties that put in offers and have actually received two more offers.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

So we actually have a set of six total LOIs for firm offers on facilities. They range from the entire portfolio to as few as one facility. We have tried to be very cautious with investors not to project the proceeds of the data center sales into our recurring revenue. We have not done that before. We have, I think, been a bit concerned that some of the counterparties have been unable to post meaningful nonrefundable security deposits as they move from letter of intent to contract.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

I think it is premature for us to conclude that we have to adjust pricing. We will ultimately let the market decide the pricing. You know, we have no initial cost basis in these data centers, and the only basis we have is the work that we have done and the capital that we have done spent to convert these centers. With that, we have a great deal of flexibility in divesting of these noncore assets. We continue to have tours, continue to have third party consultants working on behalf of financial sponsors, evaluating the assets.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

And to be direct and answer your question, we have offers ranging from our full ask price to a fraction of the price. And it's impossible for us to say exactly what we're gonna have to accept until we get a contract with a binding deposit.

Greg Williams
Director - Equity Research at TD Cowen

Thanks, Dave. Just to be clear on your Waves comment then. So the 147 additional Waves, that's what you've billed, but you've installed, you know, far more than that, just not billed yet. Is that the right way to think about it?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

That is absolutely correct, Greg. And and as I as I stated previously, at some point in the future, it will only make sense for Cogent to report not on a funnel, not on orders installed but not billed, but actually installed and billing. But until we build a larger base, I think giving these incremental KPIs is helpful for investors. Next question,

Operator

Your next question comes from the line of Trish Scholl with UBS. Please go ahead.

Christopher Schoell
Christopher Schoell
Equity Research Analyst - Communications & Media at UBS Group

Great. Thank you. Last quarter, Dave, I think you talked about the business returning to top line growth by mid 3Q. Can you just provide your latest thoughts here and to the extent expectations have changed when it shifted for several months ago? And I also believe you slightly raised the margin expansion target long term.

Christopher Schoell
Christopher Schoell
Equity Research Analyst - Communications & Media at UBS Group

Can you just walk us through what gave you confidence to do that today and the main drivers of upside there? Thank you.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yes. Sure. Thanks for both questions, Chris. So as we stated on our last earnings call, we expected our rate of revenue decline to materially decelerate. It actually did.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

It went from sequentially 5,200,000 decline quarter over quarter to 800,000. We knew that, in July, we had a significant resale agreement that was actually terminated in June, but we had a tail that we had to support until July. That is behind us. And with that one remaining large noncore contract now terminated, we have a clear visibility to monthly growth in revenue. Whether that is sufficient to get to aggregate positive for the quarter, it's very close, and I'm not prepared to say.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

You know, there's FX and there's, you know, just some noise around customers, but the rate of decline for the quarter may be lower than the 800,000. It could actually be a positive number. And then from that point forward, we expect to see positive revenue growth each and every quarter sequentially. It's important also, and it ties into your margin, point, that the revenue growth that we are experiencing is almost exclusively on net services, whether they be IP based services or wavelength services. And the revenue declines are coming from much lower margin or, in some case, negative margin off net services.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

The fact that we delivered 200 basis points of margin expansion sequentially last quarter, quarter over quarter, and looking back at the eight quarters since the acquisition of the Sprint assets, we have outperformed, you know, 200 basis points annually. And now with a return to growth, we feel very comfortable that we will replicate the type of margin expansion that Cogent historically had prior to acquiring Sprint. Just to remind investors, from the period in 2005 through 2023 when we acquired Sprint, over that eighteen year period, Cogent organically without acquisition had experienced an average rate of margin expansion of 220 basis points. So this is something that is not theoretical, but it is our actual historical results. We had a margin reset that occurred from acquiring a declining and negative margin business.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We've taken more than $220,000,000 of costs out of that business, and we have experienced better than 200 basis points since the initial acquisition. While there were puts and takes for severance and other reimbursables by T Mobile as part of the transaction, with all of that extraordinary payment behind us, we now have a high degree of confidence that the 200 basis points, as I just outlined, is sustainable going forward on a year over year basis. And, again, to remind everyone, this is meant to be a multiyear average. Some years, we'll beat it. Some years, we may miss it.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

But on average, over the next decade, we will deliver more than 200 basis points a year of margin expansion on average.

Christopher Schoell
Christopher Schoell
Equity Research Analyst - Communications & Media at UBS Group

Thanks, Dave.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Thanks, Your

Operator

next question comes from the line of Walt Pysak with LightShed. Please go ahead.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

Thanks. Dave, can you just remind us in terms of sources of capital or where you could borrow against? Because I think unless your CapEx falls off a cliff, you're probably going to need some incremental capital to fund the dividend growth by the early twenty twenty six. So can you just remind us what you can tap to bring funds in to fund that dividend?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yes. Sure, Walt. So first of all, I'm going to disagree with your premise with over $300,000,000 of cash on the balance sheet. Secondly, we have indicated that our capital spending was elevated in the '24 and the '25, primarily due to the upgrading of the data centers from DC power to AC. That capital expense is behind us now and was approximately a $100,000,000 spread over four quarters.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

So as a result of that, we anticipate our annual rate, and this will be the rate in the '25 and full year '26, to be approximately a $100,000,000 in capital expenditures. On top of that $100,000,000 of CapEx, we do make principal payments on capital leases. Due to GAAP accounting, it's shown at a different point in the cash flow statement, but it should be treated like CapEx. That number for the first half of this year was 16,500,000.0 We have indicated that the annual run rate for those principal payments should be about 40,000,000. So we were actually slightly below.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

It was elevated materially in '24 due to the buyout of the Verizon IRU as a onetime event, which we called out with its associating discount. As a result, the total amount of cash expenditures for principal payments and on capital leases and CapEx should be around $140,000,000 a year. In terms of additional borrowing capabilities, we have borrowing capabilities at three levels in Cogent. We have additional capacity available in the group entity where our leverage today is substantially below the covenant thresholds and our debt service coverage is substantially above. So at Cogent Group, there is several $100,000,000 more of borrowing capacity, either secured or unsecured, allowed in our current indentures.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

And it will be likely that we will look at the 2027 unsecured debt and probably look to refinance at sometime in the latter part of 2026, possibly raising incremental capital, but not necessarily. We also have incremental borrowing at Cogent Infrastructure that includes both the IPv4 ABS, which will have additional capacity based on the growth and cash flow in that as well as the ability to borrow against the other assets that reside in that entity. And then finally, there is always borrowing capability at the holding company level, which has no debt associated with it. However, we

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

I'm sorry. Ahead. Sorry. Go ahead.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yeah. I'll I'll answer your question. We however, we do not anticipate needing material incremental borrowings to either fund the dividend or operations as on an LQA basis, our leverage peaked last year and has been declining. And on an LTM basis, just arithmetically, is gonna continue to decline. So while we are at 6.6 times net leverage on a LTM basis at the end of this quarter, we anticipate that over the next six quarters, that number will fall below five times and continue to delever.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

I mean, it's not six six based on the math. I mean, I think in your math, you're basically taking a net present value of TSA payments and then also including the TSA payments in the denominator of the calculation. So if you just look at what your reported adjusted EBITDA is, which is reported, and your actual net debt, it's seven and a half times leverage. And in terms of not if you're basically saying gross debt's not going up, I mean, I guess we'll just see if that's gonna be the case in future quarters because you're paying 50,000,000 a quarter in dividends. Your operating cash burn is 30,000,000, and you have 300,000,000 less in cash.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

So borrowings you're saying they're not gonna go up, fine. We'll just see what happens, I guess, in future quarters, and we can just, you know, see how that plays out without, obviously, a material cut in CapEx. But I don't understand how you can represent the math when it's actually reported numbers. It's seven and a half times leverage, and it's 12 times when you exclude the TSA payments, which you're trying to use as an NPV. So if we excluded TSA payments, leverage is 12 times on trailing EBITDA.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

So, Walt, we've had this discussion on multiple earnings calls.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

Math. Everyone has the numbers. They can do their own math.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

I totally agree with that. And we absorbed a number of losses from T Mobile, which have depressed our EBITDA, and we received a stream of payments over fifty four months equaling 700,000,000. The net present value of those payments goes down each and every quarter as we receive those payments. But I believe

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

include it in the numerator and the denominator.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

As you said.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

You can do that and present it that way, but investors obviously have to make their own decision. Dave, can you just update us on in terms of the pledged stock? Has the board put any limitation on that? And can you just walk us through the mechanics? If there's any further drop in the stock, how does that impact, if at all, the pledged shares?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

So I, as an individual, have received my compensation from Cogent almost exclusively in stock for twenty five years. I paid taxes on that stock as that stock vested. I have a basis in my stock as of the beginning of this year of a $155,000,000. I borrowed against a portion of that stock in order to fund those tax payments, so I did not have to sell stock. And I was fortunate enough to have income from other sources, primarily my real estate portfolio.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

As the DC real estate market deteriorated, I had additional pressure to reduce leverage on my real estate portfolio, which forced me to begin selling Cogent stock. Some of that stock is pledged, and as a result, I have to reduce the pledge amount as well as receive cash to fund equity injections into my real estate. I've tried to be extremely transparent with investors probably more than most people in my situation would be. And, you know, I am committed to making sure that as an individual, not as cogent, my lenders are made whole even though many of my brethren in my industry have walked away from their assets. And the policy that the board has has not changed in terms of my ability to pledge, my ability to not hedge in any way, which, if I had that ability, would negate some of the pressure that forces me to sell.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

But is there a cap on what you can pledge? Because if you just search GPT, this is I think it occurred with Elon and other companies, and boards have actually implemented caps on the percentage of shares that can be pledged.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

There is not at Cogent.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

And who in the board makes that decision?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

The audit committee.

Walter Piecyk
Partner & TMT Analyst at LightShed Partners

Great. Thank you.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Thanks.

Operator

Next comes from the line of Nick Del Deo with MoffettNathanson. Please go ahead.

Nick Del Deo
Senior Research Analyst at Moffettnathanson LLC

Hi, good morning. Thanks for taking my questions. Dave, you noted that you had provisioned but not yet billed for several 100 waves. Did that metric go up quarter over quarter?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yes.

Nick Del Deo
Senior Research Analyst at Moffettnathanson LLC

Okay. Meaningfully?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Meaningfully. And, you know, we commented on this when we reported q one numbers, and the majority of the wavelengths were installed near the very end of the quarter, and it was the reason for the disconnect between 2% revenue growth and 18% unit growth. We also explained that we wanted to be careful not to alienate significant customers by being too aggressive and pressuring them to accept wavelengths. We have several large customers that have been truly shocked by our ability to provision in the windows that we have outlined. And as a result, they were not prepared to take the wavelength services.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

They typically order their cross connects, order their pluggable optics, and accept them in a three to four month window from placing the order. But in Cogent's case, we had one very large wave order that we were actually able to provision nearly a 100 waves in seven days. I mean, they were truly amazed at that, but they came back and said, we can't take them. And, you know, I understand investors' frustrations that they want to see a installed number. And we only report installations based on billing revenue.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

That's been our policy and practice since inception. We have given incremental KPIs to help investors understand that there's demand here. But as I've said on previous earnings calls, and I wanna repeat today, the ultimate goal is to be measured only by GAAP revenue growth. Now listen, on that metric, it looked really good, but it was because a lot of waves installed at the very end of the previous quarter, which got us to 27% sequential and a 150 revenue growth. With a small base and with these lags, it is going to be lumpier than I would like.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Our our piece of it is much smoother than the lumpiness suggests. And, you know, I think there will be a point in time when we can implement a forced billing discipline, but we are unwilling to do that at this point.

Nick Del Deo
Senior Research Analyst at Moffettnathanson LLC

Okay. Got it. Thanks for that color, Dave. And then, you know, maybe just turning to to the data centers. What do you think is holding those bidders back from putting down deposits?

Nick Del Deo
Senior Research Analyst at Moffettnathanson LLC

Because it seemed like you expressed a bit more caution on that front than you have historically.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Well, it's because another ten weeks has passed since we have publicly commented on this, and there are no firm deposits in hand. And I would say it's kind of twofold. I think for the operators that have LOIs in, they are struggling to get capital committed. And, you know, we've had offers for what I would consider de minimis deposits relative to the size of the portfolio, and I view those as just unacceptable to go to contract, letting someone tie up the portfolio for, say, 1% of the proposed purchase price. That is just inappropriate.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

You wouldn't do that if you were buying a hotel or a shopping center or any real property asset. And then I think for the private equity sponsors, they are trying to get comfort around the revenue stream that their management team is going to generate while they have continued to spend money and do condition reports, do tours, quality assessments. They are being cautious because what they would like to do, which I would do if I was in their shoes, is de risk it by going to the management team you're backing and saying, show me a actual end user contract that I can underwrite. And we've been very clear. The assets that we are looking to divest of have no recurring revenue associated with them.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

And I think it's really these two constraints that have slowed down the process. And we've tried to, I think, caution investors not to place a lot of value on these. I do still think they will be monetized, but I'm not in a position as I am with Wavelengths to give you any clarity on the when and how much until we actually conclude a binding transaction with a meaningful deposit.

Nick Del Deo
Senior Research Analyst at Moffettnathanson LLC

Okay. Got it. Thanks, Dave.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Hey. Thanks, Nick.

Operator

Your next question comes from the line of Mike Funk with Bank of America. Please go ahead.

Michael Funk
Michael Funk
SVP at Bank of America

Yes. Hi, Dave. Good to hear from you again.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Hi. Welcome back, Mike. I know you've been covering some other sectors, but it's great to have you back.

Michael Funk
Michael Funk
SVP at Bank of America

It is is to be back, and thank you for the questions. So given that I'm newer back to the story, let me ask some basic ones here. On the provisioning of circuits, you know, heard your comment, some customer is not ready to take delivery as soon as you're available. But, you know, from my perspective, it signals still disconnect between, you know, your sales team, your provisioning team, and and the customer. So I I would I would expect any better coordination.

Michael Funk
Michael Funk
SVP at Bank of America

So I guess, where is the disconnect if customers aren't, ready to take? And what are you doing to, I guess, alleviate that or improve the coordination with customers? And do you expect them to shorten their, delivery acceptance time?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yeah. So for IP services, which are the bulk of Cogent's revenue, they're 87% of our revenues, we have a twenty five year track record. We install services on that at an average of about nine days. We also allow customers two times to push out a delivery, and then we have kind of a forced billing discipline that's in place. This policy for transit, DIA, and VPN services has been in place for over twenty years.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Customers are accustomed to it, and there is very little float in terms of IP orders installed but not billed. It's not zero, but it's, you know, a couple percent. In the wavelength market, we are a new entrant. Secondly, we made representations that were much more aggressive than any of the other vendors in the market in terms of our speed to deliver, the breadth of locations that we could deliver, and the quality of the service we would deliver. I think it's totally legitimate for customers to say, show me.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Secondly, for the period between deal closing in May '23 and the '24. So in that roughly twenty no. Eighteen month period, we were doing one off provisionings, but they did not go smoothly. We did not have all of the automated systems and processes in place, and we did not have the ubiquity of coverage. We installed about a thousand wavelengths in that kind of semi manual but lengthy process.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

At the beginning of this year, we began provisioning in a streamlined automated way. We have surprised our customers both in terms of where and how quickly we could deliver. Those customers are starting to adjust their behavior, but they've been accustomed to going to the two other major vendors and getting a three to four month delay with a failure rate of, in some cases, up to 50%. We have not had any situations where we have committed to provision and could not provision. There are a few cases where the provisioning windows were as long as ninety days in certain vectors at certain speeds, but a very small percent, about 6% of the total footprint has those limitations.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

So the customers are now starting to understand the first part of our value proposition, which is we're not misleading them, and we really are able to provision the way we say we can. You have to prove your I think I I wanna take too much

Michael Funk
Michael Funk
SVP at Bank of America

of your time, but, I mean, I think one other, you know, potential view concern could be that maybe customers have over provisioned or over purchased wavelengths and, you know, are now maybe, you know, dragging their feet, delaying, acceptance of of delivery. Because if look at other parts of the ecosystem, you know, whether it's data center capacity or, you know, other pieces, customers can't take that fast enough. Right? And so from my seat, I'm hearing this, and I'm thinking, you know, the customers overprovision just to make sure they had enough potential inventory capacity, And now they're pushing out or delaying acceptance. So I mean that's concern from my standpoint, but I definitely hear what you're saying you've improved provision.

Michael Funk
Michael Funk
SVP at Bank of America

Can have one more quick one, Dave? I think in the past you talked about a 4Q exit run rate for Waves. I think $20,000,000 was last time you spoke. Can you update us there, please?

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yeah. We still feel confident that we will hit that quarterly run rate in the fourth quarter. And, you know, I do wanna go back to the over purchasing and delay comment. That is not what we've heard from customers. It's really, we're just surprised you did it when you said you would do it.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

And I do think it goes back to the other comment I started to make earlier, which is we still have to prove to people that not only can we provision faster, the quality is going to be higher than that of our competitors. And, you you know, every vendor can make those claims. The only way you validate them is by delivering and monitoring, and I feel comfortable that we are building credibility. And the size of the funnel that we are accelerating and building is giving us that confidence.

Michael Funk
Michael Funk
SVP at Bank of America

Okay. Dave, thank you so much. Look forward to, seeing you in person soon.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yes. I'll see you at the conference.

Michael Funk
Michael Funk
SVP at Bank of America

Of course. Thank you.

Operator

Your next question comes from the line of Frank Louthan with Raymond James. Please go ahead.

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Great. Thank you. Couple of questions. First, where are you getting most of your Wavelength customers? Are they new to Cogent?

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Are they from or are they from your existing base? And then as far as going forward with the data centers, do you need to hire more experienced dedicated salespeople for that space, or do you have any sales channel relationships that can can help with, converting that space? Thanks.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Okay. Two very different questions. So first of all, on the wavelength customers to date, about three quarters of them have been existing Cogent Transit customers, and about 25% of them are brand new to Cogent. Whether that mix will continue to hold as we build the pipeline and install, I'm not sure. But that to date of the 4600 and change in the funnel and the 1,500 plus install, the 6,000, the mix has been three quarters, one quarter.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

With regard to the data centers, Frank, what we are doing now is trying to do two very different things. One, continue to do one and two rack retail deals into our retail footprint. We have a 187 facilities where we have a retail space available. We're at about 14 and a half percent utilization in that footprint, and the entire 628 person Cogent Salesforce has been the ones who have been focused on filling that footprint up. And I think that will continue.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

The wholesale disposition is a very different process. There, we actually have one of our real estate professionals focused on that disposition process.

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Okay, great. Thank you.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Hey, thanks, Frank.

Operator

Your next question comes from the line of Michael Rollins with Citigroup. Please go ahead.

Michael Rollins
Michael Rollins
Analyst at Citi

Thanks and good morning. Two topics if I could please. So first, Dave, when you look at the opportunities to improve revenue in the future, you talked about waves a bunch on this call. Can you talk more specifically about the customer verticals and how those are each progressing in terms of the corporate, the NetCentric and the enterprise? And then secondly, you mentioned earlier in the call your target to reduce net debt leverage.

Michael Rollins
Michael Rollins
Analyst at Citi

Can you give us just a little bit more of an explanation of how you see both the numerator and the denominator evolving over this next couple of years? And, you know, what are the critical points of of execution to deliver on each of those? Thanks.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yeah. Sure, Mike. Very good questions. So first of all, as I stated in the prepared remarks, we remain focused on selling on net services. Just to remind everyone on this call, every dollar of revenue gets classified by on net, off net, customer type, geography, and by product type.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

In our investor presentation, we give you a great deal of granularity and breakdown of the various mixes of customer type, product, and on net and off net. Our primary business is selling on net services. We get much higher contribution margins from those on net services. For our corporate customers, roughly half of their purchases are on net, Half are in locations that we concluded we cannot economically get a return on invested capital to bring on net and buy off net services for. For the enterprise base, based on their very disparate geography requirements, we are only about 10 to 15% on net and almost exclusively off net.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

That is business that came to us from the acquisition of Sprint. And then finally, in the NetCentric segment, about 90% of our revenues are on net. We are focused on on net corporate, on net NetCentric. Within that, wavelengths as a product are almost exclusively on net. The customer verticals for wavelengths are typically hyperscalers who are using them for AI or for content distribution, other content distribution customers, regional access networks who connect their networks together, international carriers who extend their networks, and then finally, some enterprises who build their own private closed networks.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Each of these represents drivers for wavelengths. For transit services, the market is typically divided between access networks, which we have about 8,050 or so that pull down content around the world and about 5,000 content generating customers that push applications out. And they could be either hyperscalers for their core business. They can be CDNs. They can be publishing companies or application service providers.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

And this is a good pivot into the second part of your question, which is how do we delever? And we delever through three mechanisms. The first being growth in aggregate revenue. Since acquiring Sprint, we've delevered, and we have improved EBITDA solely through the margin improvement that has occurred faster than the decline in the payment streams from T Mobile. But over time, those payment subsidies will go away, and we need to grow EBITDA out of top line growth with high contribution margin products.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

It is why we were confident in saying we can return on a combined basis to 200 basis points of margin expansion year over year. That is a significant delevering in and of itself and then returning from what is effectively negative 1% growth we reported this quarter to a year over year growth rate of between 68%, coupled with the delevering, gets you to EBITDA growth rate in the low to mid teens, which is comparable to where Cogent had been historically prior to acquiring the Sprint business. And then in terms of the aggregate leverage, it has been Cogent's policy since 2010 to return more than a 100% of free cash flow. We did that successfully between 2010 and 2020, maintaining a net leverage range of around 3x levered. With the pandemic and the slowdown in our corporate business, our leverage creeped up to 4.2x net levered.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We acquired the assets from T Mobile, all with the subsidy payments. We initially delevered due to the asymmetry of those payments down to below three times levered. But as those payments step down and went from a 87,000,000 a quarter to 25,000,000 a quarter, our leverage has ticked up. We peaked in net leverage this quarter at 6.6 times net leverage on a fully consolidated basis. That number will come down, but our gross leverage will probably not materially come down.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

It'll come down by improving the aggregate amount of EBITDA.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

Just wanna make a quick comment on the numerator and the denominator. That is the 6.6 is consistent. So on the the debt and the numerator and excluding the or, coming to a net debt, deducting the 248 244,800,000.0 from T Mobile. Essentially, cash and cash equivalents for the short term portion and then a long term investment on the long term portion. So that's getting the net debt from the, numerator.

Thaddeus Weed
Thaddeus Weed
CFO & Treasurer at Cogent Communications

On the denominator, on the EBITDA, that's backwards looking. So the number on the numerator on the top, that is as of the balance sheet date. On the denominator, that's the historical last twelve months that has been paid in cash. So one is as of, and one is looking backwards for the last twelve months. So there's no double counting, and it's a consistent application or treatment of those payments from T Mobile, both that we have received in the past and both that we will receive in the future.

Operator

Next question comes from the line of Tim Horan with Oppenheimer. Please go ahead.

Timothy Horan
MD, Senior Analyst at Oppenheimer & Co. Inc.

Thanks guys. Dave, can you just reiterate your wavelength kind of longer term $500,000,000 target and timing and confidence there? Secondly, can you just give us some your best guess on timing of the data center resolution? And then third, can you give us some sense of what the actual EBITDA numbers will be for the second half of the year, either the third or fourth quarter or full year? Any kind of sense would be helpful. Thank you.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Yes. Sure. Hey, always good to hear from you, Tim, and thanks for the questions. So first of all, on the confidence on Wavelengths, we are actually more confident today than we were on last quarter's call or the quarter before or since we acquired Sprint. The reception that we have received from the customer base, the orders that we have in our funnel, and the customer feedback that we've gotten from the orders that we have installed, all give us confidence that we will reach our $500,000,000 run rate on wavelength revenue by midyear twenty twenty eight, which is identical to what we laid out in our justification in September '22 when we announced the potential transaction that ultimately closed in May '23.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

With regard to the data centers, I am not going to put a date because I we have never done it before. We have interested parties. We could tell they're spending money. They're hiring professionals. They're doing analysis.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

They put in offers. But until we have a actual monetized deal with a meaningful at risk deposit, I'm unprepared to put a stake in the ground of saying when we're gonna close because we have no history. We have had a great deal of interest. We've had some parties who say it's not for them, and they've moved away, but more have been interested than not, and our many parties are continuing to do work. With regard to EBITDA, you know, I'm gonna qualify this by saying we don't give quarterly or even annual guidance.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

What I will say is we expect meaningful sequential growth in EBITDA each and every quarter going forward at or greater than the pacing that we delivered in the last several quarters. So I think, you know, you can model that out, but we feel comfortable that we are both delevering due to the growth in EBITDA and growing our cash flow. And the, you know, 6% to 8% top line growth, I think, is now much more realistic than it was when we announced the deal at 5% to 7% in '22. And again, just to remind investors, from 2005 through 2020, Cogent with no acquisitions organically grew at 10.2% a year. Our growth rate went negative when we acquired the Sprint business as was planned.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

We initially thought we could only return to five to seven. We've become comfortable that we've groomed out the undesirable revenue. The rate of revenue decline sequentially improved from $5,200,000 negative to $800,000 It should be flat to slightly positive in q three and positive from that point going forward. And because we have demonstrated post closing more than 200 basis points a year of margin expansion, and in fact, we delivered 200 basis points sequentially in a quarter this last quarter, we feel comfortable that's the right goalpost going forward.

Timothy Horan
MD, Senior Analyst at Oppenheimer & Co. Inc.

Thank you.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

Hopefully, that was helpful, Tim.

Timothy Horan
MD, Senior Analyst at Oppenheimer & Co. Inc.

Thank you.

Operator

Seeing as we have no further questions for today, that concludes the Q and A session. And I would now like to turn the call back over to Dave Schafer for closing remarks.

Dave Schaeffer
Dave Schaeffer
Founder & CEO at Cogent Communications

I'd like to thank everyone for being on today's call. Hopefully, we were clear in answering your questions. We look forward to seeing investors at some upcoming conferences and remain extremely encouraged around our growth prospects and our ability to expand our free cash flow and maybe most importantly, our commitment to return capital to shareholders. Take care all. We'll talk soon. Bye bye.

Operator

This concludes the meeting. You may now disconnect your lines. Have a pleasant day, everyone.

Executives
Analysts
    • Greg Williams
      Director - Equity Research at TD Cowen
    • Christopher Schoell
      Equity Research Analyst - Communications & Media at UBS Group
    • Walter Piecyk
      Partner & TMT Analyst at LightShed Partners
    • Nick Del Deo
      Senior Research Analyst at Moffettnathanson LLC
    • Michael Funk
    • Frank Louthan
      Managing Director at Raymond James Financial
    • Michael Rollins
      Analyst at Citi
    • Timothy Horan
      MD, Senior Analyst at Oppenheimer & Co. Inc.