COGENT COMMUNICATIONS HOLDINGS, INC. Q2 FY2025 earnings call

• Wavelength: Offered in 938 carrier-neutral data centers in North America with 30-day provisioning windows. Backlog and funnel of 4,687 wavelength opportunities.
• Debt Transactions: Issued $174.4 million debt at 6.646% in April and $600 million 6.5% secured notes in June, enhancing liquidity.
• Financial Metrics: EBITDA $48.5 million, up 11% Q/Q; EBITDA margin 19.7%, up 200 bps. EBITDA adjusted $73.5 million, up 7% Q/Q; margin 29.8%, up 200 bps. SG&A expenses down $5.6 million, 27% of revenues to 25%.
• IPv4: Leasing revenues up, average revenue per IPv4 address leased $0.39, 22% increase Y/Y.
• Data Centers: Continued reconfiguration of Sprint facilities, connected 1,675 third-party carrier-neutral data centers.
• Stock Buyback: Board authorized $100 million buyback program, $106.4 million available.
• Dividend: Increased by $0.005 per share quarterly to $1.015, 52nd consecutive increase.

Wavelength: Revenues for the quarter were $9.1 million, a 150% year-over-year increase and 27% sequential increase. As of the end of the quarter, wavelengths were sold in 418 locations with a backlog and funnel of 4,687 wavelength opportunities. IPv4 Leasing: Sequentially increased by 6.3% to $15.3 million, a 40.1% year-over-year increase. Average revenue per IPv4 address leased was $0.39, a 22% increase from the start of last year. On-net Revenue: $132.3 million for the quarter, a year-over-year decrease of 6% but a sequential increase of 2.1%. Off-net Revenue: $102.2 million for the quarter, a year-over-year decrease of 8.3% and a sequential decrease of 4.8%. Corporate Business: Represented 44.3% of revenues, down Y/Y and sequentially due to low-margin off-net and noncore product elimination. NetCentric Business: Represented 39.5% of revenues, up Y/Y and sequentially, benefiting from video traffic, AI, and wavelength sales. Enterprise Business: Represented 16.2% of revenues, down Y/Y and sequentially due to noncore and low-margin off-net revenue from Sprint acquisition.

• Wavelength: Aim to capture 25% of the North American wavelength market and confident in reaching $500 million run rate by mid-2028.
• Revenue: Anticipate long-term average revenue growth 6%-8%, EBITDA adjusted margins to expand ~200 bps annually. Expect positive top line growth in mid-Q3 2025.
• Debt and Leverage: Leverage peaked, expect to improve as EBITDA grows and T-Mobile payments are received, leading to net leverage decline.

• Data Center Sales: No firm deposits in hand; bidders struggle with capital commitment and require end-user contracts for derisking.
• Customer Coordination: Wavelength provisioning sometimes delayed as customers aren't ready to accept delivery; need to improve coordination but unwilling to force billing.
• Foreign Exchange: Impact on revenues if exchange rates change, but estimated positive impact if current rates continue.

Q: Greg Williams asked about wavelength install cadence and data center sales.

A: Dave Schaeffer responded that more wavelengths were installed than billed, quality better than competitors; data center bidders lack firm deposits, with operators struggling with capital and private equity sponsors derisking.

Q: Chris Schoell inquired about top line growth and margin expansion.

A: David Schaeffer said revenue decline decelerated, nearly back to growth; margin expansion due to on-net services and historical performance, confident in 200 bps annual expansion.

Q: Walt Piecyk questioned capital, dividend, and leverage.

A: David Schaeffer stated cash on balance sheet, CapEx declining, borrowing capacity available; net leverage expected to decline with EBITDA growth and T-Mobile payments.

Q: Nick Del Deo asked about provisioned but unbilled waves and data center delays.

A: David Schaeffer explained unbilled waves due to customers not ready, data center delays due to lack of firm deposits and derisking by sponsors.

Q: Mike Funk inquired about coordination and wave run rate.

A: David Schaeffer said coordination improving, confident in hitting 4Q wave run rate.

Q: Frank Louthan asked about wavelength customers and data center sales.

A: David Schaeffer replied 3/4 wavelength customers are existing, data center sales handled by sales force and real estate professionals.

Q: Michael Rollins asked about revenue verticals and deleveraging.

A: David Schaeffer focused on on-net services, deleveraging through revenue growth, margin expansion, and T-Mobile payments.

Q: Tim Horan asked about wavelength target, data center timing, and EBITDA.

A: David Schaeffer was confident in reaching $500 million wavelength run rate by mid-2028; no date for data center resolution; expect sequential EBITDA growth.