Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communications Holding Second Quarter 2035 earnings conference call. As a reminder, this conference call is being recorded and it will be available for replay at .cogentco.com. A transcript of this conference call will be posted in Cogent's website when it becomes available. Cogent's summary of financial and operational results attached to its press release can be downloadable from the Cogent website. I would now like to turn the call over to Mr. Dave Schaefer, Chairman and Chief Executive Officer of Cogent Communications Holding. Please go ahead.

Thank you and good morning everyone. Welcome to our second quarter 2025 earnings conference call. I'm Dave Schaefer, Cogent's Chief Executive Officer and with me on this morning's call is Ted Weed, our Chief Financial Officer. I'd like to take a moment to touch on some of the key milestones that we achieved As of the end of the quarter, we were offering wavelength services in 938 data centers at 10 gig, 100 gig, and 400 gig service levels. Materially, we also had reduced our provisioning intervals to approximately 30 days. Our wavelength revenues for the quarter were $9.1 million, a 150% increase on a year over year basis and a sequential increase of that revenue stream of 27%. As of the end of the quarter, we had sold wavelengths in 418 locations. We currently have a backlog and funnel of 4,687 wavelength opportunities. We do intend to capture 25% of the highly concentrated North American wavelength market. In the quarter, we completed two significant debt transactions that In April, we issued an additional $174.4 million of debt against our IPV4 securitizations at a rate of 6.646%, which was substantially below our initial In June, we issued $600 million of .5% secured notes that mature in 2032. This extended the maturity of our $500 million secured notes, which were coming due in May of 2026 and provided us an additional $100 million of liquidity. Our EBITDA increased sequentially by 11% to $48.5 million, and our EBITDA margin increased sequentially by 200 basis points to 19.7%. Our EBITDA as adjusted increased sequentially by 7% to $73.5 million, and our EBITDA margin as adjusted increased by 200 basis points sequentially to 29.8%. Our SG&A expenses declined sequentially by $5.6 million and a decline of 27% of our revenues to 25% Our IPV4 leasing revenues for the quarters increased sequentially by .3% to $15.3 million, and this represents a .1% increase on a -over-year basis. Our average revenue per IPV4 address leased in the quarter was $0.39, a 22% increase from the base at the beginning of last year. We have an inventory of a total of approximately 38 million IPV4 addresses. We have continued the reconfiguration of Sprint facilities and added them to our data center footprint. We currently have connected 1,675 third-party carrier-neutral data centers, as well as our total fleet of 187 coaching data centers. The coaching data centers have a installed base of 214 megawatts of available power. During the quarter, we purchased 230,000 shares of our stock for a price of $11.5 million and an average price of $50.18. So far this quarter, we have purchased an additional 95,000 shares, or $4.5 million, at an average price of $47.24. Our board has authorized an additional $100 million buyback program that will remain in place through December 31, 2026. We currently have a grand total of $106.4 million available to the company under its buyback program. Our Salesforce rep productivity significantly improved in the quarter to 4.8 installed orders per rep per month, from an average of 3.8 orders installed per rep per month in the previous quarter. After considering the impacts of the H.R. 1 tax bill, we are not expected to be a federal tax income taxpayer for at least the next five years. Our board decided to increase our dividend by another half a cent per share quarterly, from $1.01 per share per quarter to $1.01. This represents the 52nd consecutive sequential increase in our regular dividend and a 3% annual dividend growth rate. We anticipate our long-term average revenue growth to be between 6% and 8%. We expect our EBITDA as adjusted margins to expand by approximately 200 basis points annually. Our updated revenue and EBITDA guidance targets are meant to be multi-year targets and are not intended to be specific quarterly or annual guidance. We are nearing the end of the grooming of unprofitable and undesirable revenue that we had acquired in the sprint base. And as these contracts expire and continue to expire, we expect to return to positive top-line growth in mid Q3 of 2025. We remain focused on selling high margin on-net services. Our sequential revenue decline improved materially to $800,000 as compared to a sequential rate of revenue decline in the previous quarter of $5.2 million. With regard to our aggregate leverage, it has peaked at this point. We believe that our leverage on an LTM basis will continue to improve. Our leverage inclusive of the payments from T-Mobile under the IP transit agreement and the net present value of those of $244.8 million should be treated as a cash receivable in calculating our net leverage and represented both on a short-term and long-term basis. Our gross debt is adjusted for the amounts due from T-Mobile on a gross basis with .74% at the end of the quarter and .61% at the end of Q2. As I stated, we expect these numbers to decline sequentially from this point forward. Now I'd like to turn it over to Taz and let him read our harbor language and provide some additional detail on the operating performance in the quarter.

Thank you, Dave, and good morning to everyone. This earnings conference will call on statements. These forward-looking statements are based upon our current intent, belief, and expectations. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. Please refer to our SEC filings for more information on the factors that could cause actual results to differ. Cogent undertakes no obligation to update or revise our forward-looking statements. If we use non-GAAP financial measures during this call, you will find these reconcile to the corresponding GAAP measurement in our earnings releases that are listed on our website at Cogentco.com. Summary of our results. Our revenue for the quarter was $246.2 million, sequential decline of $800,000. Our EBITDA as adjusted was $73.5 million for the quarter. That was an increase of $4.5 million. And our EBITDA as adjusted margin increased $2.5 million. Our EBITDA as adjusted includes payments under our IP transit agreement with T-Mobile, which is $25 million a quarter at this point. This quarter we received the three monthly payments totaling $25 million and every payment has been made on time. And it was the same amount last quarter, $25 million. Last quarter of last year's second quarter, we received $66.7 million as the payments ramped down to $25 million a quarter and they will continue for 29 monthly payments until November of 2027. There are further cash payments related to lease obligations that we will receive from T-Mobile that we assume that closing that will total at least $28 million. This $28 million is to be paid to us for equal payments from December 27 to March 28. We analyze our revenues based upon network connection type, on-net, off-net, wavelength, and non-core. And we also analyze our revenues based upon customer type. We have three types, net-centric, corporate, and enterprise. Our corporate business represented .3% of our quarter, which was a decrease by .8% year over year and .5% sequentially. These decreases in our corporate revenue are primarily due to the continued growing of low-margin, off-net customer connections and the elimination of non-core products that we acquired. Our net-centric business continues to benefit from the growth in video traffic, activity related to artificial intelligence, streaming, and wavelength sales. Our net-centric business represented .5% of our revenues this quarter, increased by .8% year over year and sequentially by 5.1%. Our enterprise business represented .2% of our revenues this quarter. That was a decrease of .9% year over year and sequentially by 8.8%, primarily due to the reduction in non-core and off-net enterprise revenues that we acquired in the sprint acquisition. On-net revenue, we serve our on-net customers in 3,529 on-net buildings. Our on-net revenue was $132.3 million for the quarter, a year over year decrease of 6%, but a sequential increase of $2.7 million or 2.1%. Our off-net revenue was $102.2 million for the quarter, a year over year decrease of 8.3%, and a sequential decrease of 4.8%. We serve our 26,239 off-net customers in 19,073 off-net buildings. Our off-net revenue results are impacted by the migration of certain off-net customers to on-net and the continued grooming and termination of low-margin off-net contracts mostly acquired from sprint. On pricing, our average price per megabit for our installed base decreased sequentially by 11% to 17 cents and decreased by 30% year over year. This is relatively consistent with historical trends. Our average price per megabit for our new customer contracts was 8 cents, a sequential price per megabit decrease of 21% and 34% year over year. ARPU. Our ARPUs for the quarter were as follows. Our on-net ARPU was 506, our off-net ARPU was 1267, our wavelength ARPU was 2163, and our IPV4 ARPU for addresses sold was 39 cents per address. Churn has been relatively constant. Our on-net unit monthly churn rate was 1.4%, the same as last quarter. Our off-net unit churn rate was 2.3%, slight increase from .2% last quarter. Traffic on our network for the quarter increased by 1% sequentially and by 9% year over year. Some comments on foreign exchange. Our revenue earned outside of the United States reported in U.S. dollars, about 19% of our revenues this quarter. The average Euro to USD rate so far this quarter, so for the third quarter, is 117 and the Canadian dollar 73 cents. Should these average foreign exchange rates remain at the current levels for the remainder of this quarter, we estimate that the FX conversion impact on sequential revenues would be about a 1 million positive and year over year about 2 million positive. We believe that our revenue and customer base is not highly concentrated and our top 25 customers represent 17% of our revenues this quarter, essentially the same as last quarter. Some comments on capex and payments on capital leases. Our capex declined by 1.9 million sequentially and was 56.2 million this quarter. Our principal payments on capital leases slightly increased by half a million sequentially and were 8.5 million this quarter. We are continuing our network integration of the former sprint network and legacy cogent network into a unified network and converting former sprint switch sites into data centers. This program required capital spending from the first half of 2025, similar to the last half of 2024, and then our capital spending is expected to decline in the second half of this year. Our capital spending for the first half of 2025 was 114.3 million and for the fourth quarter was 105.3 million. Our principal payments on capital leases for the first half was 156.7 million. That included a buyout of an uneconomic lease for 114.6 million at a 12% discount. Comments on debt and debt ratios. Our total gross debt at par, including our 605.2 million, the finance lease obligations, was 2.3 billion at quarter end and our net debt, total net of our cash and our 244.8 million due from T-Mobile was 1.8 billion. Our leverage ratio as calculated under our more restrictive 2027 unsecured 750 million notes was 6.82 and our secured leverage ratio was 4.2 and our fixed coverage ratio was 2.43. Our leverage ratio as calculated under our newly issued 2032 secured 600 million notes indenture was 5.05, secured leverage ratio was 3.12, and fixed coverage was 3.27. The definition of consolidated cash flow under our 600 million secured notes that we issued this quarter includes cash payments under the IP transit services agreement with T-Mobile and these payments were 100 million for the last trailing 12 months. Lastly, our day sales was 31 days rather at quarter end, slight increase from 29 days last quarter due to the timing of cash receipts. Our bad debt expense was significantly less than 1% of revenues for the quarter. So great job there. And I will now turn the call back over to Dave.