Cogent Communications Holdings, Inc. Bank of America 2026 Media,Communications & Entertainment Conference

Thank you again. Michael, thank you for hosting me, as always.

Thank BofA for a great venue, and thank investors for taking time out of their day to hear what we want to talk about.

Let me start by laying kind of the backdrop. Cogent had done no acquisitions between June of 2005 and May of 2023. In that 18-year period, we had a compounded average growth rate of 10.2% a year. Our corporate segment actually was outperforming that, growing at 11.2% a year over that 18-year period. Because the majority of our sales, 76% of our revenues, were on net services, we were experiencing consistent margin expansion. Our EBITDA margins expanded at approximately 220 basis points a year.

Correct. So that's like- No, the actual total margins- Yes had expanded.

So we went public in June of 2005 with zero EBITDA margins.

When we acquired Sprint, our EBITDA margins were 40.5%. We were acquiring a business that was in decline and burning cash. The business we acquired for the three previous years had declined at 10.9% a year, and it represented 42% of the revenues of the combined company. We expected our total revenue growth to go negative. We also knew that the company we acquired was operating a number of unprofitable products and network services and had a negative 60% EBITDA margin. We outlined a plan to take costs out, and more importantly, we had a program to repurpose the physical assets of that business that had been sitting dormant since 2015, and turn that old TDM voice network that was built at a capital cost of over $20 billion in 1980 dollars into a modern wavelength network to serve international carriers, regional carriers, and content distributors.

We did not anticipate the tailwind of AI, so that was a blue bird. I will not profess I was clairvoyant. In September of 2022, when we signed the deal, we knew that AI was going to burst upon the scenes and create a $7 trillion capital investment cycle. What went right? The ability to take costs out were actually better than we expected. We actually raised our cost reduction targets, and we achieved those cost reductions quicker than we expected. What went wrong was we lost more of that revenue than we expected. Now, in a way, that's a blessing in disguise because that revenue was negative margin. Today, the Sprint customer base has gotten margin zero.

It doesn't help, but it doesn't hurt. It has shrunk from 42% of our total revenues to only 15% of our revenues. We today have a business that is at least break even in those Sprint customers. The second part of the transaction was the establishment of a new business, a wavelength business. We actually reenabled the Sprint network on budget and on time. We did not exceed our goals, but we did not fall short. We also made the election after the transaction was announced to invest an additional $100 million into the physical buildings that we acquired and convert those former switch sites to data centers. We had a program to divest of 24 of the 125 that we did convert. We chose those based on their location, size, and proximity to major markets. We then completed that. There was a great deal of skepticism that the company already was spending money on building a wave network and then committing an additional $100 million into what was viewed as a speculative endeavor.

We, I think, proved that investment to be correct. We sold 10 of those 125 facilities for $225 million, 224.1 net, because there was very little transaction costs associated with that divestiture. We did that in-house, and we used those proceeds to reduce debt on our balance sheet. I think on the data center monetization, it was not originally anticipated.

We did spend more than we expected, but we got more than we spent back, and we still have 14 data centers that we plan to divest of using those proceeds to further delever, and we will be left with the remaining footprint that while we view it as not monetizable through sale, we should be able to lease out that capacity.