Cogent Communications Targets Debt Refinance as Sprint Revenue Drag Nears End

Key Points

• Debt refinancing is Cogent’s primary near-term concern: $750 million of unsecured debt became current in the second quarter, and the company is pursuing a smaller, shorter-term secured refinancing to improve flexibility.
• The Sprint revenue drag is nearing an end: Sprint-related revenue has fallen to 15% of combined revenue after 12 quarters of declines, while cost reductions have helped expand EBITDA margins and Cogent expects about $50 million in additional EBITDA benefits next year.
• Growth opportunities are emerging in wavelength services: Wavelength revenue rose 68% year over year to $14.8 million, with 548 customers and roughly 2,500 wavelengths, while lower capital spending and potential data-center sales could support deleveraging.

Cogent Communications NASDAQ: CCOI Chief Executive Officer Dave Schaeffer said investor concerns about the company’s debt refinancing and continued revenue declines in its acquired Sprint business were key factors behind recent pressure on its shares.

Speaking at a TD Cowen conference, Schaeffer said $750 million of Cogent’s unsecured debt became current during the second quarter. The company is pursuing a refinancing that would likely involve a smaller amount of secured debt with a shorter maturity, giving Cogent more flexibility to call the debt.

“I think the number one concern was around that debt maturity,” Schaeffer said.

Sprint Revenue Decline Nearing End

Schaeffer said Cogent’s reported revenue has declined for 12 quarters following its acquisition of Sprint assets, whose revenue had been falling at an annual rate of 10.9% in the three years before the transaction. Sprint represented 42% of the combined company’s revenue at the time of the acquisition, compared with 58% for legacy Cogent.

Cogent intentionally accelerated the reduction of the acquired revenue base by removing unprofitable products and services, migrating access services to fiber where possible, and exiting services outside the 58 countries in which it is licensed, Schaeffer said. He said the Sprint-related revenue base now represents 15% of combined-company revenue.

While revenue has declined, Schaeffer said EBITDA increased sequentially and year over year in 11 of the past 12 quarters, while combined EBITDA margins expanded by more than 2,000 basis points. He attributed most of that improvement to cost reductions.

The company reports EBITDA that includes subsidy payments from T-Mobile, which are set to end in February 2028. Schaeffer said underlying EBITDA was $192 million last year, compared with reported EBITDA of $292 million.

Cogent expects roughly $50 million in additional EBITDA tailwinds entering next year, including savings from its cost base, the sale of a portion of its data center footprint and lower integration-related headcount costs. The company reduced headcount by 6% and expects integration spending to fall to zero by year-end, he said.

Capital Spending Expected to Decline

Cogent’s capital expenditures fell by $18 million sequentially in the second quarter. Schaeffer said the company still views approximately $25 million per quarter as its long-term capital spending run rate, though reaching that level may depend on the easing of supply-chain constraints.

Before acquiring Sprint, Cogent’s annual capital expenditures were about $100 million, while Sprint’s were about $30 million. Cogent had expected network consolidation synergies to bring the combined run rate to roughly $100 million annually, in addition to about $40 million in annual principal payments on capital leases.

Schaeffer said capital spending rose for three primary reasons:

• Cogent converted 125 telephone locations into data centers, including 10 facilities later sold for $225 million in cash.
• The company reconfigured Sprint’s TDM voice network into a wavelength network and extended it to 1,137 carrier-neutral data centers.
• Networking equipment prices and delivery times increased substantially.

Cogent recorded a $130.4 million GAAP gain and a $224.1 million tax gain on the sale of the 10 data centers, which represented 54 megawatts of power. Schaeffer said the company used net operating losses to shelter the tax gain.

He said equipment vendors Cisco, Ciena and Arista have raised prices multiple times during calendar 2026, while delivery times that had historically been around 90 days have stretched to 18 to 24 months for some equipment. Schaeffer attributed the constraints partly to increased demand from hyperscale customers.

Wavelength Business Gains Customers and Units

Cogent reported wavelength revenue of $14.8 million in the second quarter. Schaeffer said the company has sold wavelength services in 608 of its 1,137 wave-enabled locations and now has 548 unique wavelength customers purchasing about 2,500 wavelengths.

The company added 188 wavelengths sequentially during the quarter. Wavelength revenue grew 9.2% sequentially and 68% year over year, according to Schaeffer. He also cited 77 existing wavelength upgrades during the quarter, including upgrades from 10-gigabit to 100-gigabit service and from 100-gigabit to 400-gigabit service.

Schaeffer said Cogent has grown from no market share six quarters ago to 3% of the North American intercity wavelength market. The company’s long-term target is 25% market share, although he said the pace could be slower than initially anticipated.

He expects growth to accelerate as customers increasingly view Cogent as a credible wavelength supplier, as supply and power constraints ease, and as artificial-intelligence training facilities begin operating. Cogent has sold wavelength services to major hyperscalers and neocloud providers, he said.

Data Center Sales and Long-Term Outlook

After selling 10 data centers, Cogent continues to market 14 remaining facilities representing 55 megawatts of power. The company has received letters of intent for four sites but has not countersigned the proposals because it believes pricing can improve, Schaeffer said.

Cogent would prefer to announce a transaction in late 2026 and close it in early 2027, when an annual limitation on its ability to use net operating losses expires. Schaeffer said a later closing could allow more sale proceeds to be used for deleveraging rather than taxes.

Looking ahead, Schaeffer said the shrinking Sprint-related revenue base should allow Cogent’s underlying growth to become more visible. He expects the company to return to a 6% to 8% revenue growth profile, rather than its pre-Sprint growth rate of about 10%, as the remaining acquired revenue declines.

He also said EBITDA margin expansion should moderate to approximately 200 basis points annually. Cogent’s underlying EBITDA margin, excluding T-Mobile transfer payments, has recovered from 1% following the Sprint acquisition to 20%, according to Schaeffer. He said the company expects margins eventually to plateau in the mid-40% range as transfer payments roll off, while lower capital spending supports deleveraging and future capital returns.

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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