Q2 2025 Cogent Communications Holdings Inc Earnings Call
Conference call is being recorded and it will be available for replay at www.co.com. A transcript of this conference call will be posted and coaches website when it becomes available, cogent summary of Financial and operational resource attached to its press release can be downloadable from the cogent website. I would now like to turn the call over to Mr. Dave, Shafer chairman and chief executive officer of cogent Communications Holdings. Please go ahead.
Thank you and good morning everyone. Welcome to our second quarter 2025 earnings conference call. I'm Dave, chafer coach and chief executive officer and with me on this morning's call is Chad with Archie financial officer.
I'd like to take a moment to touch on some of the key milestones that we achieved in the quarter.
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 30 days, our wavelength revenues for the quarter were 9.1 million dollars, 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 and 418 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.
In the quarter. We completed. 2 significant debt transactions. That material in the hands are liquidity.
April, we
issued an additional 174.4 million dollars 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 206 million of asset backed
June, we issued 600 million dollars of 6 and a half percent secured notes and mature in 2032 this extended to maturity of our 500 million secured notes, which were coming due in May of 2026.
Have provided us an additional 100 million dollars of liquidity.
Or ibida, increase sequentially by 11% to 48.5 million, and our ibida margin increased sequentially by 200 basis points to 19.7%.
Our ibida as adjusted increased sequentially by 7% to 73.5 million and our ibida margin.
as adjusted increased by 200 basis points, sequentially to 29.8%,
Our sgna expenses, decline sequentially by 5.6 million.
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 15.3 million, and this represents a 40.1% increase on a year-over-year basis.
Our average revenue per ipv4 address least in a quarter was 39 cents.
A 22% increase from the base at the beginning of last year, we have an inventory of a total of approximately 38 million IPv4 addresses.
We currently have connected 1675, 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 a quarter we purchased 230,000 shares of our stock or a price of 11.5 million and an average price of fifty dollars and 18 cents.
So far this quarter, we have purchased an additional 95,000 shares or 4.5 million dollars at an average price of 47.24.
Our board has authorized an additional hundred million dollar buyback program, that will remain in place through December 31st of 2026.
We currently have a grand total of 106.4 million available to the company under its buyback program.
our Salesforce 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 hr1 tax bill, we are not expected to be a federal tax income taxpayer. For at least the next 5 years.
Our board decided to increase our dividend by another half. A cent per share quarterly from 1 and 1 cent per share per quarter to a dollar and 1.5 cents this represents the 52nd. Consecutive sequential increase in our regular dividend and a 3% annual dividend growth rate.
We anticipate or long-term average revenue growth to be between 6 and 8%.
And we expect our ibida as adjusted margins to expand by approximately 200 basis points annually.
Our updated revenue and ibido guidance targets are meant to be multi-year 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, Topline growth in mid, Q3 of 2025.
We remained focused on selling high margin on net services.
Our sequential Revenue decline improved materially to 800,000 dollars as compared to a sequential rate of Revenue decline in the previous quarter of 5.2 million.
With regard to our aggregate leverage. It has peaked at this point.
Our leverage inclusive of the payments from T-Mobile under the IP Transit agreement and the net present value of those of 244.8 million should be treated as a cache receivable and calculating our net leverage and represented both on a short term and long term basis.
Thank you, Dave. And good morning to everyone.
This earnings conference call and 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, 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 Gap measurement. In our earnings releases that are posted on our website at code andco.com.
Some summary of our results. Our revenue for the quarter was 246.2 Million, uh, sequential decline of 800,000
Our ibida has adjusted was 73.5 Million. For the quarter, that was an increase of 4% and our EPA is adjusted margin, increase sequentially by 200 basis points to 29.83,
As a reminder, our IBA as adjusted includes payments under our IP Transit agreement with T-Mobile which is 25 million a quarter at this point.
This quarter, we received the 3 monthly payments totaling 25 million and every payment has been made on time and it was the same amount as last quarter 25 million.
Last quarter of last year. Second quarter, we received 66.7 million as the payments ramped, down to 25 million, a quarter, and they will continue for 29 monthly payments until November of 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 million. This 28 million is to be paid to us in 4 equal payments from December 27th to March 28th.
We analyze our revenues based upon network connection type on net, offnet wavelength and non-core, and we also analyze our revenues based upon customer type. We have 3 types, netcentric, 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 Loft, net of low margin
of net, customer connections, and the elimination of non-core products that we acquired
Our net Centric business continues to benefit from the growth in video traffic, activity related, to artificial intelligence streaming and wavelength sales. 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 often that Enterprise revenues that we acquired in the Sprint acquisition.
On net revenue, we serve our on-net customers in 3,529 on-net buildings.
Are on net revenue was 132.3 Million for the quarter, our year-over-year, decrease of 6%, but a sequential increase of 2.7, million or 2.1%.
our offnet Revenue was 1 of 102.2 million for the quarter, a year-over-year, decrease of 8.3% and a sequential decrease of 4.8%
We serve our 26,239, offnet customers.
In 19073 offnet 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.
T-Mobile.
On pricing, our average price per megabit for our installed base to increase, sequentially by 11% to 17 cents and decreased by 30% year-over-year. This is relatively consistent with historical trends.
Per megabit decreased, 21% and 34% year-over-year.
Are poop our, our proofs for the quarter were as follows our on-net rpu was 506.
Our offnet rpu was 1,267. Our wavelength rpu was 2,163.
And our ipv4 rpu for address is sold was 39 cents per address.
Churn has been relatively constant, our onnet unit monthly turn 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
It's on foreign exchange, our Revenue earned outside of the United States is reported in US Dollars and was about 19% of our revenues, this quarter.
The average Euro to USD rate so far this quarter. So the for the third quarter is 117 and the Canadian dollar 73 cents
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 a 1 million positive
and year-over-year, about 2 million 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.
Comments on capex and payments on capital leases.
Our capex decline by 1.9 million sequentially and was 56.2 million. In this quarter, our principal payments on Capital leases slightly increased by half a million.
Functionally. And we're 8.5 million. 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 sights into coach data centers.
This program required capital spending for the first half of 2025, similar to the last half of 2024, and then our capital spending is expected to decline in the second half of this year.
Our Capital spending for the first half of 2025 was 114.3 million and for the fourth quarter was 105.3 million.
Our principal payments on capital leases for the first half of 2025 were $16.5 million.
And last year, for the first half was 156.7 Million.
That included.
A buyout of an uneconomic lease for 114.6 million out of 12% discount.
Comments on debt and debt ratios.
Our total gross debt at par including our 605.2 million, the finance lease obligations was 2.3 billion and a quarter end and our net debt.
total debt, net of our cash and our 244.8% 1.8 billion,
Our leverage ratio as calculated under our more restrictive 2027 unsecured. 750 million 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 2032 secured $600 million notes, in denture was 5.05. Secured leverage ratio was 3.12, and fixed coverage was 3.27.
The definition of Consolidated cash flow, under our 600 million secured notes that we uh issued this quarter includes cash payments under the IP transit services agreement with T-Mobile and these payments were 100 million for the last trailing 12 months.
Lastly our Day sales was 21, uh 31 days, rather a quarter end slight increase from 29 days. Last quarter due to the timing of cash. Receipts.
Our bad debt expense was significantly less than 1% of revenues for the quarter. It's a great job there.
And I will now turn the call back over to Dave. Hey, thanks Ted. I'd like to highlight a couple of the strengths of our Network, our customer base and Salesforce
At quarter end, we were able to sell wavelengths in 938. Carrier neutral. Data centers across North America with reduced provisioning Windows of 30 days.
Headquarters in. We were able to sell our IP Services globally in 1862 data centers, at quarters end. We were directly connected to 8,085 networks. 22 of these networks represent peers and 8,063 or coaching to 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 as1 174,
Some details on our sales force. We remained focused on increasing our sales, force productivity, and managing out under a performing reps.
Salesforce turnover was 6.2% per month and a 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 628 sales reps.
Our sales reps include 296 sales force that focused solely on the net Centric 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 offnet IP services to Enterprises corporate customers and that Central 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.
We have several hundred wavelengths that have been installed but have not yet billed, due to customers and ability 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 and our ability to gain market share with that. I'd like to open the floor for questions.
Thank you, ladies and gentlemen, we will now begin the question and answer session as a reminder, in order to ask a question, please press star, followed by the number 1 on your telephone keypad and if you would like to enjoy your questions, you can press star 1 again.
Our first question will come from the line of Greg Williams. With TD Cowen, please go ahead
Uh, great thanks for taking my questions. Um,
Dave you just ended the the statements with um focusing on quality as marketing your waves um you know waves seem to be continuing to be off to a slow start. Uh do do you still Target 4 to 500 circuits installed a month by year end? Um 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 million megawatt. A realistic ask from the interest that you're seeing or should we see a a haircut on this target? Thanks.
Yeah. Hey thanks for the questions. Greg so
We always knew that in order to win market. Share, and wavelengths. We needed to be winning on 3 criteria.
First.
Being ubiquity of coverage.
Center 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 wave lines. 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 uh, along each route today. And this is anecdotal. We are running at about 7x fewer outages per span than, at least 1 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 and a quarter, we actually installed several hundred more wavelengths than we have begun to bill for. As we mentioned in previous calls, we have been installing services faster than our 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. 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.
We report a number of granular kpis. I think that is critical until we have a material base of
Billable Revenue in our wavelength products at.
You know, the fact that our revenues increased 27% sequentially, I think is a good indication of our gain and market, share, albeit off of a small base. I'm going to Pivot to your wave to your data center question.
We can continue to negotiate with the 4 parties that put in offers and have actually received 2 more offers. So we actually have a set of 6
Total load for firm offers on facilities. They range from the entire portfolio to as few as 1 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
I am a bit concerned that some of the counterparties have been unable to post meaningful.
Non-refundable security deposits as they move from letter of intent to contract.
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 and divesting of these non-core assets.
Financial sponsors are evaluating the assets, and to be direct and answer your question, we have offers ranging from our full ask price to a fraction of the price. It is impossible for us to say exactly what we're going to have to accept until we get a contract with a binding deposit.
Thanks Steve. Just to be clear on your waves comment then so the 147 additional waves. That's what you've built, but you've installed uh, you know, far more than that. Uh, just not build yet. Is that the right way of thinking about it
That is absolutely correct, Greg.
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 built, but actually installed and billing.
But until we build a larger base, I think giving these incremental kpis is helpful for investors.
Next question, please.
Your next question comes from the line of to show with UBS. Please go ahead.
Great. Thank you. Last quarter, Dave. I think you talked about the business returning to Topline growth by mid 3Q. Can you? Just provide your latest thoughts here, and to the extent expectations have changed. What is shifted for several months ago and I also believe you slightly raised the margin expansion. Target, long term. Can you just walk us through? What gave you confidence to do that today and the main drivers of upside there, thank you.
Yeah, sure. Thanks for both questions, Chris. As we stated on our last earnings call, we expected our rate of revenue decline to materially decelerate.
It actually did. It went from sequentially 5.2 million, declining quarter over quarter, to 800,000.
We knew that um 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 1 remaining large non-core contract. Now terminated we have a clear visibility to monthly growth and Revenue.
Whether that is sufficient to get to aggregate positive for the quarter.
It's very close and I'm not prepared to say, you know, there's FX, uh, and there's, you know, just some noise around customers. But the rate of decline for the quarter,
maybe, uh, 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. Uh, 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 cases negative margin uh offnet services.
The fact that we delivered 200 basis points of margin expansion, sequentially last quarter quarter over quarter and looking back at the 84, since the acquisition of the Sprint assets. We have, uh, outperformed in
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.
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.
We've taken more than 220 million dollars of costs out of that business, and we have experienced better than 200 basis points. Since the initial acquisition,
While they were puts and takes for severance and other reimbursable 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 a reminder, everyone, this is meant to be a multi-year average. Some years will be it some years we may miss it but on average over the next decade we will deliver more than 200 basis points. A year of margin expansion on average,
Thanks Dave. Thanks Chris.
Your next question comes from the line of wolf. Pic, with light shed, please go ahead.
Thanks. Um, Dave, can you just remind us in terms of sources of capital or where you could borrow against? Because I think, unless your capex
Like falls off a cliff. You're probably going to need some incremental capital.
To fund the dividend growth um and by the early 2026 so you can just remind us what you can tap.
Um, in to bring funds in to fund that dividend.
Yeah, sure wall. So uh, first of all, I'm going to disagree with your premise, with over 300 million dollars of cash on the balance sheet. Secondly, we have indicated that our Capital spending was elevated in the second half of 24, and the first half of 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 hundred million dollars spread over 4 quarters.
so as a result of that, we anticipate our annual rate and this will be the rate in the second half of 25, and full year 20,
6 to be approximately a hundred million dollars in capital expenditures on top of that hundred million dollars of cap. Ex we do make principal payments on Capital. Leases due to gaap accounting is 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 16.5 million.
We have indicated that the annual run rate for those principal payments should be about 40 million. So we were actually slightly below. It was elevated materially in 24 due to the buyout of the Verizon iru, as a 1-time event, which we called out with this associating, uh, discount.
As a result, the total amount of cash expenditures for principal payments and on Capital, leases and capex should be around 140 million a year.
uh, in terms of additional borrowing capabilities, we have borrowing capabilities at 3 levels and cogent
We have additional capacity of available in the group entity.
where our leverage today is substantially below the Covenant thresholds and our debt service coverage is substantially above
Likely that we will look at the 2027.
uh, unsecured debt and probably look to refinance at some time 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 I'm sorry. Go ahead, sorry, sorry. Go ahead. Yeah, I'll answer your question. We uh, however, we do not anticipate needing material incremental borrowing.
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 going to 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 6 quarters that number will fall below 5 times and continue to develop.
I mean, it's not 66 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 you reported adjusted Eva is, which is reported and your actual net debt. It's 7 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 going to be the case in future quarters because you're paying 50 million a quarter in dividends your operating cash, burn is 30 million and you have 300 million left in cash so borrowing.
If you're saying they're not going to go up, fine, we'll just see what happens. I guess in in future quarters and we can just you know see how that plays out without obviously a material cutting capex.
But I don't understand how you can represent the math when it's actually reported numbers.
It's 7 and a half times Leverage.
And it's 12 timeslot.
so if we excluded TSA payments leverages 12 times on trailing ibida,
so what we've had this discussion on multiple earnings call and its mass, its mass everyone has the numbers, they can do their own math,
I totally agree with that and we absorbed a number of losses from T-Mobile, which have depressed, our ibida. And we've received a stream of payments over 54 months equaling 700 million
The net present value of those payments goes down each and every quarter as we receive those payments.
But you're trying to insert it in the numerator and the denominator.
And 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? Um,
in terms of the Pledge 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? Um, the pledged shares?
So I as an individual have received, my compensation from cogent, almost exclusively, in stock for 25 years, I paid taxes on the stock as that stock vested.
I have a basis in my stock, as of the beginning of this year of 155 million.
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 by real estate portfolio.
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, and 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.
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.
There is not a, a cogent.
And who in the board makes that decision.
Great. Thank you.
Your next question.
Comes from the line of snake Deo with MIT Nathan. Please go ahead.
Hey morning. Uh, thanks for taking my questions. Um, Dave, you know that you had um
Provision but not yet you know build for several hundred waves did. Did that metric go up quarter over quarter?
Yes.
Okay. Uh, meaningfully
meaningfully and you know, we commented on this when we reported q1 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, and the windows that we have outlined and as a result, they were not prepared to take the wavelength Services. Uh, they typically order their cross-connects order, their pluggable Optics, and accept them and a 3 to 4 month window from placing the order. But in cogen's case, we had 1 very large, wave order that we were actually able to provision nearly a 100 waves in 7 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, 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 want to 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 150% Revenue growth.
with a small base and with these lags, it is going to be lumpier than I would like
and 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 unwinding to do that at this point.
Okay, got it. Thanks for that caller. Dave and then, you know, maybe just turning to um uh to the data centers. What do you think is holding those? Um, those bidders back from putting down deposits because it seemed like you expressed a bit more caution on that front than you have. Uh, historically.
Well it's because another 10 weeks has passed since we've 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 Louis 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. When 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.
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 due 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 deep risk it by going to the management team. You're backing and saying, show me a actual ending on a track 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. And I think it's really these 2 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.
Got it. Thanks Dave. Hey, thanks snack.
Your next question comes from the line of Mike Funk with Bank of America. Please go ahead.
Yes. Hi Dave. Good to hear from you again.
All right. Welcome back. Mike. Uh I I know you've been covering some other sectors but it's great to have you back it is it is good to be back and thank you for the question. Um so given that I'm newer back to the story. Let me ask some basic ones here on the provisioning of circuits. Um, you know, her her comments. 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 if I I would I would expect maybe better coordination. So
I guess you know where where is the disconnect if customers aren't um, ready to take and what are you doing to? I guess alleviate that or you know improve the coordination with customers and do you expect them to shorten their um delivery acceptance time?
Yeah. So
4 IP Services which are the bulk of coaching's Revenue. They're 87% of our revenues. We have a
25 year track record, we install services on that and an average of about 9 days.
We also allow customers.
and there was very little,
Float in terms of IP orders installed but not built. It's not zero, but it's, you know, a couple percent.
In the wavelength Market.
We are a new entrant.
Secondly, we may
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.
For customers to say, show me.
Secondly.
For the period between deal closing and may of 2318 month period.
We were doing 1-off provisioning 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.
The beginning of this year.
We began provisioning.
In a streamline 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.
Yeah, we still feel confident that we will hit that quarterly run rate in the fourth quarter.
Okay, Dave, thank you so much. Look forward to um seeing you in person soon.
Yeah, I'll see you at the conference of course, thank you.
Your next question comes from the line of Frank lton with Raymond James. Please go ahead.
Great. Thank you. Um, couple of questions. First, where are you? Are you getting most of your wavelength customers? Are they knew to cogent or are they from um, or are they from your existing base and then as far as going forward with the data centers, do you need to hire? You know, more experienced dedicated sales people for that space? Or do you have any sales Channel relationships? I can can help with, uh, uh, converting that space. Thanks.
Okay, 2 very different questions. So, first of all, on the Wavelength customers, to date, about 34 of them have been existing Cogent Transit customers.
And about 25% of them are brand new to cogent.
Uh, whether that mix will continue to hold as we build the pipeline and install, I'm not sure. But to date, of the 4,600 and change in the funnel and the 1,500 plus install, the 6,000, the mix has been 3/4, 1/4.
uh, with regard to the data centers, Frank
What we are doing now is trying to do 2 very different things, 1 continued to do 1 and 2 rack retail deals into our retail footprint. We have 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 is been the ones.
Who have been focused on filling that footprint up.
And I think that will continue.
The wholesale.
Disposition is a very different process there. We actually have 1 of our real estate professionals focused on that disposition process.
Okay, great. Thank you.
Hey, thanks.
Your next question comes from the line of Michael Rollins with C the group. Please go ahead.
Thanks and good morning. Um, 2 topics if I could please. So first, Dave, when you look at the opportunities to improve Revenue in the future, um 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 net Centric and the Enterprise and then secondly, um, you mentioned earlier in the call, um, your target to reduce net debt, leverage. 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.
Yeah, sure Mike. Uh, 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 and off at customer, type geography, and byproduct, type in our investor presentation. We give you a great deal of granularity and breakdowns.
Of the various mixes of customer type product and onnet and offnet.
Our primary business is selling on net services.
We get much higher contribution margins from those on net services.
For our.
Core customers.
Roughly half of their purchases are on that half or in locations that we concluded. We cannot.
economically, get a return on invested Capital to bring on net and buy offnet services for
for the Enterprise base.
Very desperate geography requirements. We are only about
10 to 15% on that and almost exclusively offnet that is business. That came to us from the acquisition of Sprint. And then finally, in the nth Centric segment about 90,
percent of
revenues are on net.
We are focused on our net corporate on net. Net Centric.
Within that wavelengths as a product or 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 connect their networks together.
International carriers, who extend their networks. And then, finally some Enterprises who build their own private closed Networks.
Each of these represents drivers for wavelengths.
For transit services.
The market is typically divided between access networks which we have about 8,000 50 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. And
Did this is a good pivot into the second part of your question, which is how do we deliver?
And we deliver through 3 mechanisms.
The first being.
Growth in aggregate Revenue.
since acquiring Sprint, we've delivered
And we have improved ibida solely through the margin Improvement. That has occurred faster than the decline and the payment streams from T-Mobile.
But over time, those payment subsidies will go away, and we need to grow EBITDA out of topline growth with high contribution margin products. 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 de-levering.
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 6 and 8% coupled with the delivering gets you to ibid dog growth rate and 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 cogen's policy since 2010 to return more than 100% of free cash flow.
We did that successfully between 2010 and 2020, maintaining a net leverage range of around 3 times lever.
With the pandemic and the slowdown in our corporate business, our leverage creeped up to 4.2 times net lever.
We acquired.
The assets from T-Mobile. All with the subsidy payments, we initially
Down.
and went from,
A 87 million a quarter to 25 million, a quarter, our Leverage is ticked off.
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 growth leverage will probably not materialize. It'll come down by improving the aggregate amount of ibida.
Just want to make a quick comment on the numerator and the denominator. That is, the 6.6 is consistent. So on the debt and the numerator and.
Including the or uh coming to a net debt, deducting, the 248 244.8 million from T-Mobile essentially, cash and cash equivalents for the short term portion and then the long term investment on the long-term portion. So that's getting the net debt from the, uh, numerator on the denominator.
On the EBITDA. That's backwards looking. So, the numerator on the top that is as of the balance sheet date; on the denominator, that's the historical last 12 months that has been paid in cash. So, one is as of, and one is looking backwards for the last 12 months. Therefore, 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.
Your next question comes from the line of Team horn. With open Hymer. Please go ahead.
Uh, thanks guys. Um, Dave.
To reiterate your wavelength kind of longer term, 500 million dollar, Target and timing and confidence there. Secondly, can you just give us some, you know, your best guess on timing of the data center resolution and then third? Can you give us some sense of what the actual ibida numbers will be for the second half of the year? You know, either?
Third or fourth quarter or full year. Any kind of sense would be helpful. Thank you.
Yeah, sure. I always good to hear from you Tim. And thanks for the questions. So, um,
First of all, on the confidence in 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 million dollar run rate on wavelength Revenue.
by mid-year 2028 which is identical to what we laid out in our justification in September of 22, when we announced the potential transaction that ultimately closed in May of 23,
um,
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 their spending money. Their hiring professionals are doing analysis, they put an 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 going to close because we have no history, we have had a great deal of Interest. We've had some part as you say. It's not for them and they've moved away, but more have been interested than not and are many parties are continuing to do work.
With regard to Ibido, you know, I'm going to qualify this by saying we don't give quarterly or even annual guidance.
What I will say is we expect meaningful sequential growth in EBITDA each and every quarter going forward.
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 de-levering due to the growth and EBA and growing our cash flow. Uh, and the, you know, 6 to 8% Topline growth I think is now much more realistic than it was when we announced the deal at 5 to 7%, uh, in 22 and again, just to remind investors.
From 2005, through 2020, kogan with no Acquisitions, organically grew at 10.2% a year.
Mark worth rate went negative when we acquired the Sprint business, as was planned.
We initially thought we could only return to 5 to 7. We have become comfortable that we've groomed out the undesirable revenue.
The rate of Revenue, decline sequentially improved from 5.2 million negative to 800,000.
It should be flat to slightly positive.
In Q3 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 deliver 200 basis points sequentially in a quarter. This last quarter, we feel comfortable. That's, that's the right goal pose going forward.
Hopefully, that was helpful. Tim, thank you.
You guys, we have no further questions for today. That concludes the Q&A session, and I would now like to turn the call back over to Dave Schaeffer for closing remarks.
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 are commitment to return Capital to shareholders.
Take care all. We'll talk soon. Bye, bye.
This concludes the meeting. You may now disconnect your lines. Have a blessed day everyone.
Please wait the conference will begin shortly.