Cogent Communications (NASDAQ:CCOI) suspended its dividend as it evaluates options to address $700 million in unsecured notes due in June 2027, while reporting higher margins despite a sequential decline in third-quarter revenue.
Revenue fell 1.8% from the previous quarter to $231.2 million as declines in lower-margin services acquired from Sprint outweighed growth in Cogent’s on-net business. Adjusted EBITDA rose $2.8 million sequentially to $73.9 million, and the adjusted EBITDA margin expanded 150 basis points to 32%.
CEO Dave Schaeffer said the board considered it prudent to suspend the dividend at least until the company settles on a path forward for the debt maturity. Cogent has engaged Evercore and Latham & Watkins to evaluate proposals and continues to solicit additional offers.
Debt refinancing and data center sales
Schaeffer said the refinancing proposals involve different combinations of interest rates, collateral and potential principal reductions. Some options would provide financing from investors new to Cogent, he said. He declined to give an expected interest rate or precise completion date, saying the company was working toward a resolution before the notes mature on June 15, 2027.
During the quarter, Cogent repurchased $50 million of its 2027 notes and $138.8 million in principal of its 2032 notes. The transactions, together with lower capital lease balances, reduced total gross debt by $197 million, Schaeffer said. Gross leverage adjusted for amounts due from T-Mobile fell to 6.94 times from 7.5 times in the previous quarter.
The company has been selling former Sprint facilities converted into data centers to help reduce debt. It closed the sale of 10 facilities for $225 million in cash in the prior quarter and has signed two nonbinding letters of intent to sell four more for approximately $100 million combined. Schaeffer said Cogent expects those transactions to close early in 2027, subject to diligence and negotiations.
Cogent initially earmarked 24 facilities for sale or wholesale leasing. Schaeffer said there had been interest in each of the remaining 10, although some potential buyers had not passed the company’s vetting process. He said not all 10 were likely to be sold in the near future.
Asked about liquidity, Schaeffer said Cogent needs roughly $100 million to operate with ample cash globally and that he was comfortable with its liquidity position. He declined to discuss whether warrants or other equity-related components might be part of a refinancing.
On-net growth offsets part of Sprint decline
Cogent’s on-net revenue, including wavelength services, rose 5.8% year over year and 2.4% sequentially to $153.9 million. Those services accounted for 66.6% of total revenue, up from 63.8% in the preceding quarter, according to CFO Tad Weed.
Off-net revenue fell 19.5% year over year to $76.6 million, reflecting the continued termination and management of lower-margin contracts. Revenue from the acquired Sprint Wireline corporate, enterprise, non-core and off-net businesses declined to $29 million in the quarter, Weed said.
The shift toward on-net services and cost reductions helped lift gross margin to 47.6%, up 60 basis points sequentially. Cogent ended the quarter with 1,603 employees, down 79 from the previous quarter. Schaeffer said the company recognized expenses associated with those reductions during the quarter but did not disclose a severance figure.
Schaeffer said previously discussed savings of approximately $50 million on an annualized basis were beginning to appear in results and would continue to flow through. He also noted that payments from T-Mobile associated with the Sprint transaction are scheduled to end in February 2028.
Wavelength demand and longer-term outlook
Wavelength revenue increased 57% year over year to $16 million, with 277 net customer connections added during the quarter, compared with 182 in the previous quarter. Cogent offered the service at 1,151 locations at quarter-end and estimated its share of the North American long-haul wavelength market at approximately 4%.
Schaeffer said demand remains strong, but some customers have faced delays activating services because of data center readiness, power availability and equipment deliveries. He expects wavelength to remain Cogent’s fastest-growing product, while noting that the business’s expansion has been slower than the company would like.
IPv4 leasing revenue rose 5.4% year over year to $18.4 million. Schaeffer said Cogent is testing introductory pricing to encourage leasing but must vet customers to prevent addresses from being abused and subsequently blocked.
Cogent reiterated its long-term expectation for revenue growth of 6% to 8% and annual EBITDA margin expansion of approximately 200 basis points. Schaeffer emphasized that those are multi-year targets rather than guidance for a specific quarter or year.
About Cogent Communications (NASDAQ:CCOI)
Cogent Communications Holdings, Inc (NASDAQ: CCOI) is a telecommunications company that provides high-speed Internet connectivity and data transport services to businesses, telecommunications carriers, content providers, government agencies and educational institutions. The company operates a global, facilities-based fiber-optic network and is recognized as a Tier 1 Internet service provider.
Cogent’s offerings include dedicated Internet access, IP transit, Ethernet and other private network connectivity services.
