Cogent Communications Sees Data Center Sale Easing Debt Fears, Reviving Capital Returns

Key Points

• Cogent Communications says its planned sale of 10 data centers to I Squared Capital for $225 million should help reduce leverage and ease investor concerns about its 2027 debt maturities, with a close expected by June 12.
• The company is still reviewing the remaining 14 targeted data centers and is open to multiple deal structures, while emphasizing that data centers are not core to the business and contribute only about 3% of revenue.
• CEO Dave Schaeffer said capital spending remains elevated due to equipment cost inflation, supply-chain issues and AI-related demand, while Cogent’s wavelength business is growing quickly and could support a future return of capital program.

Cogent Communications NASDAQ: CCOI Chief Executive Dave Schaeffer said the company’s planned sale of 10 data centers to I Squared Capital is part of a broader effort to reduce leverage, address concerns around its 2027 notes and eventually restart a more aggressive return-of-capital program.

Speaking at the TD Cowen TMT Conference with TD Cowen Senior Analyst Greg Williams, Schaeffer said Cogent’s stock has faced several overhangs, including his prior stock sales, slower-than-expected growth in the company’s wavelength business and investor concerns about upcoming debt maturities.

“The business has been more stable than the stock has been,” Schaeffer said. He added that the data center transaction should help Cogent move back toward its historical leverage target. After Cogent acquired assets from Sprint via T-Mobile, net leverage peaked at 6.7 times, compared with the company’s historical level of about 4 times, he said.

Data Center Sale Expected to Close in June

Cogent announced a sale of 10 data centers to I Squared Capital for $225 million. Schaeffer said the transaction involves 53 megawatts of installed inbound power, though the critical IT load is closer to 37 megawatts because the facilities have a power usage efficiency of about 1.5. He said the full 53 megawatts is backed up and protected by generators.

Schaeffer said he expects “very de minimis tax friction” from the sale. Cogent has about $1.1 billion of international net operating losses, which he said would not apply to the transaction, but also has about $140 million of NOLs from 2025. Because of bonus depreciation and capital spent on network modernization, Schaeffer said he does not expect the company to be a federal cash taxpayer on the deal, though some states may differ from federal treatment.

The sale price implies about $4.3 million per megawatt on a gross inbound power basis, or a higher figure when measured against usable power. Schaeffer noted that Cogent’s cost basis for the acquired Sprint network assets was $1, and that the company has invested about $100 million across 125 facilities it modernized, including roughly $30 million directly into the 10 facilities being sold.

Schaeffer said I Squared Capital moved quickly after a prior transaction with another buyer fell apart when that buyer requested financing from Cogent. He said I Squared conducted diligence over a roughly 90-day period and intends to close the purchase by June 12.

Remaining Data Centers Still Under Review

Cogent originally put 24 of its largest data centers up for sale. After the pending sale of 10 facilities, Schaeffer said 14 remain, with 56 megawatts of gross inbound power and roughly 40 megawatts of net usable power.

He said Cogent is open to a range of deal structures for the remaining assets, from a single-property transaction to a sale of the full remaining portfolio. He also said some parties have expressed interest in data centers Cogent had not initially planned to sell.

“We’re open to any or all reasonable transactions for this footprint,” Schaeffer said.

Cogent currently has 185 data centers with about 213 megawatts of inbound power and approximately 2.1 million square feet, Schaeffer said. Even after selling all 24 targeted facilities, the company would retain 161 data centers. He said space and power revenue represents only about 3% of Cogent’s total revenue, and data centers are not considered core to the business.

In many facilities, Cogent uses only a small portion of the space for network equipment or sales offices, Schaeffer said. He added that the company could continue operating in some sites as a tenant if it sold the data center space.

Capital Spending Pressures Continue

Williams also asked about Cogent’s first-quarter capital expenditures, which came in at $46 million, above expectations. Schaeffer said capex declined by $12 million year over year, but not as much as the company had forecast.

Schaeffer identified three major drivers of higher equipment costs: DRAM shortages and increased memory pricing, general supply chain disruption and tariff-related effects, and a shift in demand as hyperscalers buy more telecom equipment for artificial intelligence infrastructure.

Cogent buys equipment from Cisco, Ciena and Arista, Schaeffer said. He said the company historically benefited from declining equipment costs and next-generation products being priced near prior-generation levels while offering much greater functionality. Recently, however, Cogent has experienced sequential price increases, including five price increases in five months from one vendor.

Asked whether Cogent’s previous target of $25 million in quarterly capex remains realistic, Schaeffer said, “I don’t think it’s realistic in this environment.” He said he believes the current cost pressures are temporary, though he avoided using the word “transitory,” and said Cogent expects to remain as capital efficient as possible.

Wavelength Business Still Building Credibility

Cogent’s wavelength business also remains a focus for investors. Schaeffer said the business grew 90% year over year in the most recent quarter, though from a small base, and that Cogent has moved from 0% market share to 3% in roughly a year and a half of actively selling the service.

He said Cogent ended the quarter with 1,107 carrier-neutral data centers in North America enabled for wavelength services and can offer 10-gig, 100-gig and 400-gig speeds. Schaeffer said 492 unique customers now use Cogent’s wavelengths, with services installed in 581 of its enabled data centers.

Schaeffer said the company’s network routes are a competitive advantage because many are unique and use infrastructure acquired from Sprint. He said the network is typically installed in armored cable under train tracks, which he described as more reliable and less prone to cuts than fiber built along public highway rights of way.

On artificial intelligence demand, Schaeffer said hyperscalers use Cogent wavelengths for data center connectivity, content distribution and AI training. He said AI training workloads favor wavelengths because they provide defined latency, which helps maintain high GPU utilization. By contrast, he said AI inference is likely to be more distributed and may occur more over the public internet.

About Cogent Communications NASDAQ: CCOI

Cogent Communications NASDAQ: CCOI is a multinational Internet service provider specializing in high-speed Internet access and data transport services. The company operates one of the largest Tier 1 IP networks in the world, offering wholesale and enterprise customers reliable, low-latency connectivity. Cogent's core services include dedicated Internet access, Ethernet transport, wavelength services, and MPLS-based IP Virtual Private Networks, all delivered over its privately owned, fiber-optic backbone.

In addition to network connectivity, Cogent provides data center colocation and managed services designed to support businesses with demanding bandwidth and redundancy requirements.

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