Cogent Communications (NASDAQ:CCOI) reported second-quarter 2026 revenue of $235.6 million, down $3.6 million, or 1.5%, sequentially, as declines in lower-margin off-net and acquired Sprint Wireline revenue continued to outweigh growth in on-net services and wavelength offerings.
Chairman and Chief Executive Officer Dave Schaeffer said the company made progress during the quarter in monetizing former Sprint facilities, reducing leverage, cutting costs, completing integration work and shifting its sales mix toward more profitable on-net products.
Data center sale supports debt reduction
The company said it intends to use most of the proceeds to reduce debt. Cogent’s net leverage, as adjusted to include payments from T-Mobile, declined to 6.23 times EBITDA at the end of the second quarter, from 6.79 times in the prior quarter.
Cogent also amended the indenture governing its secured 2032 notes in June. The amendment increased the maximum secured debt leverage ratio to 4.75 times from 4 times and required Cogent to contribute at least $175 million of initial data center-sale proceeds into the borrowing group for discounted debt repurchases.
During the second quarter, Cogent repurchased $20.4 million in principal amount of 2032 notes at an average price of 91.955 cents on the dollar, producing a $1.6 million gain. In July, it bought an additional $118.4 million in principal amount at an average price of 90.071 cents, which is expected to produce an additional $11.8 million gain in the third quarter.
The company said it has repurchased $138.8 million in face value of the 2032 notes to date for $126.2 million, resulting in a cumulative gain of $13.4 million. It ended the quarter with $369.7 million in cash and restricted cash.
Cogent is also pursuing a refinancing of its $750 million unsecured notes maturing in June 2027. Schaeffer said the company expects that transaction to be completed in the third quarter. He said Cogent may raise less than the full $750 million and use proceeds from the data center sale to reduce the size of the refinancing.
The company continues to market 14 remaining converted Sprint data centers. Schaeffer said sales are likely to occur in groups rather than as a single portfolio transaction. Cogent has received letters of intent for four facilities but has not accepted them because it found the proposed pricing unacceptable. The remaining facilities represent about 55 megawatts of capacity, roughly equivalent to the 55 megawatts associated with the 10 sites already sold.
Wavelength revenue rises, though deployment constraints persist
Wavelength revenue reached $14.8 million in the quarter, up 63.8% from a year earlier and 9.2% sequentially. Customer connections rose 66.4% year over year and 8% sequentially to 2,445.
Cogent said it now offers 10-gigabit, 100-gigabit and 400-gigabit wavelength services at 1,137 locations, with provisioning intervals of approximately 30 days. It has sold wavelength services in 608 locations to 546 unique customers.
In addition to new installations, the company reprovisioned 77 existing wavelengths during the quarter, mostly by upgrading customers from 100-gigabit to 400-gigabit service. Schaeffer said those upgrades reflected growing customer confidence in the network.
However, he said some customers have been unable to accept ordered services because of equipment shortages, power constraints, data center space and cooling limitations, and incomplete facilities. Cogent maintained its long-term goal of capturing 25% of the North American long-haul wavelength market, while acknowledging that its current share is about 3% and that reaching the target will take several years.
Margins improve as mix shifts toward on-net services
Cogent’s gross margin rose 90 basis points sequentially and 260 basis points year over year to 47%. Adjusted EBITDA increased by $900,000 sequentially to $71.1 million, while adjusted EBITDA margin expanded 90 basis points to 30.2%.
The company attributed the improvement to cost reductions and a growing contribution from on-net offerings. On-net revenue, including wavelength revenue, increased 0.7% sequentially and 6.2% year over year to $150.2 million. Off-net revenue fell 5.1% sequentially and 17.3% year over year to $84.5 million as Cogent continued to terminate or groom low-margin contracts, particularly from the acquired Sprint Wireline customer base.
- On-net services, including wavelengths, represented 63.8% of total revenue, compared with 62.4% in the first quarter.
- Off-net revenue accounted for 35.9% of revenue, down from 37.2% in the prior quarter.
- Net-centric revenue rose 10.4% year over year and 1.6% sequentially, representing 45.6% of total revenue.
- Corporate revenue declined 9.6% year over year and 2.4% sequentially, while enterprise revenue fell 26% year over year and 8.9% sequentially.
Chief Financial Officer Tad Weed said the acquired Sprint Wireline revenue base has declined from a quarterly run rate of $118 million at closing to $34 million in the second quarter. By contrast, Cogent’s legacy business increased from a quarterly run rate of $155 million at deal closing to $200 million in the latest quarter.
Cost reductions and capital discipline
Cogent reduced total headcount by 113 employees during the quarter to 1,682, a 6% sequential reduction and a decline of 207 employees from a year earlier. Schaeffer said workforce reductions and integration costs weighed on the pace of margin expansion in the quarter, but he expects further, more moderate headcount reductions and lower integration expenses in the second half.
The company said it has achieved most of its targeted $240 million in annualized direct cost savings related to the Sprint integration. Schaeffer said remaining integration costs could be substantially eliminated before the end of 2026.
Capital expenditures declined 16.7% sequentially and 31.4% year over year to $38.5 million. Cogent expects additional sequential and year-over-year CapEx reductions in the third quarter, although it continues to face equipment price increases from vendors.
Looking ahead, management reiterated its multi-year expectation for revenue growth of 6% to 8% and average annual EBITDA-margin expansion of roughly 200 basis points. Schaeffer emphasized that the targets are multi-year objectives rather than forecasts for a particular quarter or year.
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.
