Cogent Communications (NASDAQ:CCOI) Chief Executive Officer Dave Schaeffer used an investor conference appearance hosted by Raymond James to outline what he called three key messages for investors: a return to organic revenue growth, continued margin expansion, and a multi-step plan aimed at improving balance sheet flexibility and refinancing upcoming debt maturities.
Business overview and recent additions
Schaeffer described Cogent as a global provider of connectivity services, offering internet connectivity in 1,900 data centers across 57 countries and carrying “about 25% of the world’s internet traffic.” In North America, he said the company also serves as the ISP to end users in about 1.1 billion square feet of multi-tenant office space.
Organic revenue inflection and margin improvement
Schaeffer said Cogent has “returned to organic top line growth” after a period of declines tied to the acquisition of Sprint Global Markets Group from T-Mobile. He noted that Cogent had previously delivered more than 10% annual organic growth for 18 years without M&A, but that following the Sprint transaction the company averaged roughly 5.5% negative year-over-year revenue growth over nine quarters. He said that trend has now inflected and that Cogent expects to continue delivering organic growth even as revenues from the acquired Sprint customer base decline.
He reminded investors that Cogent was “paid $700 million to acquire” the Sprint business, with payments spread over 54 months, and that approximately two years remain in that payment stream.
On profitability, Schaeffer said the company expanded EBITDA margin by 800 basis points year over year. He attributed the improvement primarily to cost cuts and also to an increasing share of higher-margin “on-net” services. He said Cogent’s revenue mix shifted significantly after the Sprint deal—dropping to 47% on-net, 48% off-net, and 5% non-core—but has since improved to 61% on-net, 39% off-net, and less than 1% non-core.
Looking ahead, Schaeffer said Cogent anticipates:
- Top-line growth of 6% to 8%
- At least 200 basis points per year of margin expansion
Leverage, debt maturities, and refinancing plan
Schaeffer addressed leverage and capital allocation directly, noting Cogent previously returned just under $2 billion to shareholders via dividends and buybacks over 52 consecutive quarters. He said the company cut its dividend by 98% in order to delever after leverage increased to 6.6x net leverage, driven by capital spending associated with the Sprint transaction and the timing mismatch of T-Mobile payments.
He summarized the company’s debt as including a $600 million secured instrument maturing in 2032 and $750 million of unsecured debt maturing in 2027. He then described a proposed corporate restructuring intended to create capacity to refinance the unsecured debt with secured debt by moving certain obligations out of the primary borrowing group.
In Schaeffer’s description, Cogent’s public holding company has no employees and no debt, while operating debt sits in an operating company (“Cogent Group”) and certain acquired assets sit in a separate entity (“Cogent Infrastructure”). He said Cogent Infrastructure has had carry costs (about $140 million) and that an IPv4 leasing business sits under that entity; cash flows from that IPv4 leasing business are fully securitized with $380 million of asset-backed securitization.
The refinancing strategy he outlined includes creating a subsidiary to hold $623 million of capital lease obligations/IRUs, then using a divisive merger to separate developed-world IRUs associated with roughly $569 million of debt. The company intends to merge that entity into Cogent Infrastructure, which Schaeffer said would remove $569 million of “most senior secured debt” from the Cogent Group borrowing structure and create room to raise more than $750 million of secured debt for refinancing purposes.
He said the transaction would include 10-year operating leases (under U.S. GAAP) for the IRU routes back to the operating group and cited an estimated operating lease cost of about $69 million per year. Schaeffer characterized the result as lowering debt at the group level more than EBITDA, improving credit metrics for lenders, and creating additional financing flexibility. He said secured leverage, including the refinancing, would be approximately 3.9x on a prospective forward basis and that the company expects the new secured debt to have a seven-year tenor.
In response to an audience question about whether this would reduce reported EBITDA, Schaeffer said the changes are intercompany arrangements and that “at the public company level… nothing would have changed,” adding that the structure matters primarily for lenders evaluating the borrowing group’s collateral and seniority.
Data center asset sales and proceeds pledge
Schaeffer also discussed steps Cogent has taken to monetize data center assets acquired in the Sprint transaction. He said the company initially planned limited repositioning but changed course in early 2024 after recognizing an “acute shortage” of available data center power. He stated Cogent acquired 230 MW of existing power, calling it a scarce resource.
He said Cogent decided in June 2024 to launch a one-year program to convert 125 of 482 facilities and invest $100 million—mostly into the 24 largest facilities—completing the project at the end of June 2025. After completion, he said Cogent had 109 MW of power positioned for discussions with counterparties for either purchases or long-term triple-net leases.
Cogent previously announced a potential sale of two data centers for $144 million, but Schaeffer said the company canceled that transaction after the prospective buyer changed terms to request owner financing. Cogent then negotiated with backup parties and entered a new non-binding letter of intent for the sale of 10 data centers for “substantially more” proceeds than the prior two-facility LOI; he said the buyer is a global infrastructure fund with more than $35 billion under management. He cautioned that the agreement remains subject to confirmatory due diligence and that closing is likely “a couple of quarters away at least.”
Schaeffer said Cogent plans to contribute 100% of proceeds from the prospective sale into the borrowing group, even though it is not required, to enhance collateral and potentially reduce cost of capital.
On timing, Schaeffer said the company is focused on refinancing over the next several months, in part to avoid having the 2027 unsecured debt appear as a current liability if not refinanced by June. He also noted a make-whole provision that would cost about $13 million if the notes are paid off before mid-June, suggesting Cogent could structure a transaction to close into escrow and fund repayment once the make-whole declines to zero.
Finally, Schaeffer reiterated the company’s goal to return to a net leverage ratio of four times, which he said would position Cogent to resume a return-of-capital program similar to what it operated for 15 years. He also said IPv4 addresses already securitized via ABS remain under the infrastructure entity, while other IPv4 addresses currently within the operating group would remain there.
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.
