Cogent Communications Holdings, Inc. Citi’s 2026 Global TMT Conference

Hey, Mike. Thanks for hosting me. Thank you, Roberta. Thanks, Citi, for a great venue. Thank investors for hanging around late in the day. I'm here to try to answer some questions for you.

Yeah. 84% of Cogent's revenues come from our legacy product set. That group of products is continuing to grow and has grown organically since the company began selling services in 2002. For 24 years, we've experienced organic growth. Our DIA business is focused on large multi-tenant office buildings. That business had grown historically for an 18-year period at about 11.2% per year. When the pandemic hit, the growth rate in that corporate segment decelerated to a negative growth rate of 9%. It has subsequently rebounded to about a 3% growth rate. We today have about 35% market share in the 1.1 billion square feet that we have directly on net where we are an ISP. The two primary products we sell are internet access and VPN services, mostly based on a VPLS platform, some based on legacy MPLS platforms. We also have a transit business.

We operate in 310 markets around the world, 58 countries, and 1,950 data centers. I was actually asked a question earlier today, what is the power footprint of that universe of data centers? It's about 17.5 gigawatts of power in that footprint. Our primary product in that market is selling metered internet access. It accounts for 98% of the traffic on Cogent's IP network. It is a business that today in revenue is growing about 8%. It is a business that traditionally is driven by a specific application at a point in time. Even though internet traffic has grown at a compounded rate of 23% per year over the internet's 30-year history, it's been very lumpy, and you can look at six discrete waves of growth. We're actually experiencing acceleration in that traffic growth now coming from agentic AI.

In the past two quarters, we have seen traffic growth accelerate from 8% year-over-year to 15% year-over-year, allowing us to drive that high single-digit revenue growth. Now for the newer parts of Cogent's business. We've leased out IP address space since 2015. Between 2015 and 2022, we only leased addresses to companies that bought bandwidth from us, and it was a relatively small business. In 2022, that business did about $20 million in revenue. Because of the headwinds we were facing from the pandemic, we lifted the restriction on selling addresses only to customers that bought bandwidth from us, and we saw a rapid acceleration in that business. Our IPv4 leasing business today is about 7% of total revenues. It is roughly a $70 million business.

We have leased out about 40% of the inventory of addresses that we have, and it's a business that last year, on a year-over-year basis, grew 18%. We recently entered the wavelength business. Prior to acquiring Sprint was not in the wavelength business, Cogent was not in the wavelength business. We saw this as an adjacent market where our technical acumen, coupled with our sales and customer relationships, would allow us to address a new $2 billion total addressable market for North America. We spent nearly two years reconfiguring the legacy Sprint Global Markets Group network that was built to carry TDM voice into a wavelength network. In earnest, we began selling those services in January of 2025. With that sale, we have seen our wavelength business grow, and today it is about a $65 million run rate business, about 6.5% of Cogent's total revenues.

It grew on a year-over-year basis 62%, and in the last quarter it grew 9.2% sequentially. To round out our product portfolio, we have a co-location business. It has always been a small part of Cogent's revenues. It represents about 2% of our revenue base. We today have 170 data centers representing 1.3 million square feet and roughly 150 megawatts of power. We have 14 of those data centers up for sale. Last quarter, we completed the sale of 10 of these surplus data centers. That sale resulted in $225 million of cash proceeds. The actual transaction costs were less than $1 million. We were able to effectively shelter that gain from taxes and used $175 million of those proceeds to reduce our leverage.

For 18 years prior to acquiring Sprint, but after going public in June of 2005, Cogent's total business grew at a compounded average rate of 10.2% a year with no acquisitions. We acquired the Sprint business, which represented 42% of the revenues of the combined company. Cogent represented 58%. Sprint's rate of revenue decline was 10.9% a year for the three previous years prior to deal closing. We actually took that 10.9% rate of decline and accelerated it to over 20%. In the 12 quarters post-transaction, the combined company has had an average growth rate of a negative 5% top line growth. The Sprint revenues have declined from 42% of combined company's revenues to 15% of revenues, and the aggregate rate of revenue decline in that acquired base in three years has been 69%.

During the same period, the organic Cogent business has grown from 58% of revenues to 85% of revenues and had a compounded growth rate over that three-year period of 29%. We were encouraged last fall when we actually had two out of three months and a quarter of positive growth. But we then had some more churn coming from the acquired Sprint customer base. We have been able to inflect the margin on that acquired base from a negative 60% EBITDA margin to zero. When we lose a dollar of that acquired revenue, it no longer has any impact on our margin. But as we sell organic Cogent services, they carry much higher contribution margins. In the most recent quarter, 82% of our sales were on net, 18% of sales were off net.

For the blended base, which still does include that acquired Sprint off-net base, we were 62% of on-net revenue, 38% off. As a result of this, the rate of revenue decline of the entire company is declining. It is difficult for me, Mike, to be able to give you a specific target date, but it does feel like that within the next year or two, for sure, the Sprint business will be so de minimis and the organic Cogent businesses will be large enough that we will be able to return to total top line growth. Even with that 5% negative top line growth, we have been able to grow EBITDA, not just in margin, but in absolute terms in 11 of the past 12 quarters.

The rate of margin expansion over the past three years has averaged almost 800 basis points a year, far better than Cogent's historical average. We expect that rate of margin expansion to begin to moderate and revert back to the roughly 200 basis points a year that Cogent has historically delivered.