Cogent Communications Holdings, Inc. TD Cowen 12th Annual Communications Infrastructure Summit

Hey, Sam. Thanks for hosting me. As always, I want to thank TD Cowen for a great venue. It gives me an excuse to get to Boulder, and I would like to thank the investors who hung around late in the day to hear what we have to say.

Yeah, I think there is significant investor concern around the fact that our $750 million of unsecured debt went current in the second quarter, and we are taking steps to refinance that debt as secured debt. We will most likely shrink the amount that we are looking to raise.

Yeah. Probably doing a shorter tenure to give us a little bit more call flexibility.

I think the number one concern was around that debt maturity. Secondly, our top line continued to decline. For 18 consecutive years, when Cogent was organically growing as a standalone company, it had average annual growth rate of 10.2% per year. We acquired Sprint, which three years prior to our acquisition, had a revenue decline rate of 10.9% a year. Sprint represented 42% of the combined company's revenue, Cogent 58%. With that large of a revenue base declining, our revenue growth for the past 12 quarters has been negative. A lot of that negative growth is by design because the Sprint revenues were generating negative EBITDA margins of approximately 60%, $300 million of negative EBITDA on a $485 million run rate. We worked diligently on purging unprofitable products.

That meant killing non-core services, moving customers where possible on net, and migrating access services to fiber rather than fixed wireless or coax or twisted pair. Finally, we purged services outside of the 58 countries in which we are licensed. As a result, the revenue base of Sprint accelerated its rate of decline. Today, that revenue base represents only 15% of the combined company's revenue, and that drag on top line has, I think, discouraged growth investors. During that same period, our EBITDA grew sequentially and year-over-year 11 of the 12 quarters, and our EBITDA margins expanded by over 2,000 basis points on a combined basis. Most of that improvement came through cost cutting. A small amount of that improvement came through the growth in on net versus off net.

We report a higher number of EBITDA because we include the subsidy payments that we receive from T-Mobile. Last year, the underlying EBITDA was $192 million, the reported number, $292 million. Investors are concerned because those payments end in February of 2028, so a little less than two years from now. We probably have about another $50 million of run rate of cost savings to take out. That is about $8 million in the underlying cost basis, $7 million of cost reduction due to the sale of our data center footprint to I Squared, or at least a portion of it, 10 data centers and 54 megawatts, and then finally, from our reduction in headcount related to integration expenses. Just to remind investors, when we announced the Sprint transaction, we outlined that we were going to be spending about $60 million a year on integration efforts.

Almost all of that spending were internal resources, and that spending would be complete by the end of 2026. We had reduced that number down to a $36 million run rate going into the second quarter. We ended up reducing headcount by 6%, and that additional headcount reduction had us exiting the quarter at about a million dollar a month run rate. That number will go to zero by year-end. We go into next year with nearly $50 million of EBITDA tailwind.

We actually hope our long-term CapEx is below that number. Prior to acquiring Sprint, our CapEx was running at around $100 million a year. Sprint's was about $30 million. With the synergies that we achieved, the network consolidation, we thought we would get down to a run rate of about $100 million a year, and we would also be spending about $40 million a year on principal payments on capital leases. The Cogent IP network, which spans 94,000 route miles of inner-city fiber, 33,000 route miles of metro fiber in 308 markets, 58 countries, is the largest IP network in the world, built entirely on IRUs. We expect that principal payment number to remain constant. On the CapEx side, our CapEx did come down sequentially by $18 million. We had a surge in capital spending for three reasons. One, we ended up converting 125 telephone locations into data centers.

That ended up being a wise investment because we sold 10 of those facilities for $225 million in cash. We had a GAAP gain of $130.4 million. We actually had a tax gain of $224.1 million, and we're fortunate that we had sufficient NOLs to shelter that gain. We still operate over 170 data centers, and we have 24 of those remaining data centers, or excuse me, 14 remaining of the 24 that we had earmarked for sale. The second reason CapEx surged is we had to reconfigure the Sprint network. The Sprint network was a TDM voice network. We repurposed that asset into a wavelength network. We extended that network into 1,137 carrier-neutral data centers. This required a significant capital investment. Then third, we have been hit actually by equipment price increases, which is truly unprecedented in technology.

Whether it be in routing or transport or servers, customers expect prices to decline following Moore's Law, which represents about a 55%-per-year price performance improvement. What we have seen in the past 18 months is an unprecedented spade of price increases. We buy equipment from three vendors. Cisco is our largest, Ciena our second largest, and Arista our third. We have had six price increases in calendar year 2026 from Cisco. We've had three from Ciena and two from Arista. This is unusual. We've also seen equipment availability stretch. Normally, equipment would be ordered and shipped within 90 days. Now we're being quoted delivery times for much of this gear being 18 to 24 months. This has resulted in an uplift in our capital spending. We did experience $18 million of savings on a sequential basis.

We expect that number to come down, but I think the $25 million a quarter, which we still think is a long-term rate, probably needs to wait until some of these supply chain issues get resolved.