Cogent Communications Holdings, Inc.

this conference call will be posted on the Cogent's website when it becomes available. Cogent's summary of financial and operational results attached to its press release can be downloaded 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 Holdings.

Hey, thank you, and good morning, everyone. Welcome to our third quarter 2025 earnings call. I'm Dave Schaefer, Cochran's Chief Executive Officer, and with me on today's call is Tad Weed, our Chief Financial Officer. I'd like to recognize a number of significant events in the quarter and discuss a few matters and then turn things over to Tad. First, our program of return of capital and our aggregate leverage. Following extensive discussions with our Board of Directors, and engagement with shareholders and bondholders, we have refined our capital allocation priorities to strengthen our financial flexibility and accelerate our de-levering strategy. The decision to reduce our quarterly dividend to two cents per share per quarter was made after careful evaluation It will allow us to redirect capital towards reducing leverage while remaining a disciplined approach to shareholder returns. Supported by our growth in EBITDA, recurring cash inflows under our IP transfer agreement, and continued operational efficiencies, we will reduce our net leverage ratios. These actions position us for long-term growth and enhance the financial resiliency of our business. We intend to maintain our updated dividend policy until we reach a net leverage target of four times EBITDA on a LTM basis. On our last earnings call, we stated that we believe our leverage had peaked on an LTM basis. We also indicated that amounts due to us under the T-Mobile payments in our transit agreement and purchase agreement should be considered in calculating our leverage ratios. We believe these amounts essentially represent both short-term and long-term cash amounts based on the credit quality of T-Mobile. Our total gross debt as adjusted for these amounts of T-Mobile for the last 12 months EBITDA as adjusted ratio was 7.74 last quarter and was reduced to 7.45 this quarter. Our net leverage ratio was 6.61 last quarter and 6.65 this quarter. T-Mobile pays us $25 million each quarter through the fourth quarter of 2027 under the IP Transit Services Agreement. These payments will reduce the total amount due to us each quarter from T-Mobile. We are also temporarily suspending our stock buyback program. Now for a couple of comments on our data center divestiture and monetization. In early October, we entered into a non-binding letter of intent with a credible counterparty to sell two of our larger data centers out of the 24 data centers that we had repurposed. This agreement calls for a cash payment of $144 million. The counterparty has demonstrated to us the ability to complete this transaction and is completing its due diligence. We are in the process of finalizing the asset purchase agreement. We intend to monetize all 24 of the data centers, either through outright sales as with this $144 million transaction for two facilities or by leasing the acquired space on a wholesale basis. We are in active discussions negotiating LOIs with other parties that we feel are credible to purchase or lease these facilities. Now for a couple of comments on our wavelength trajectory. At quarter end, We are offering Wavelength services in 996 data centers with the capability of provisioning 10 gig, 100 gig, and 400 gig services within a 30-day installation window. Our Wavelength services revenue in the quarter was $10.2 million. an increase by approximately 93% on a year-over-year basis, and on a quarterly sequential basis, our wavelength revenue increased 12%. At the end of the quarter, we had sold and provisioned waves in 454 locations, as opposed to the 418 locations data centers that we had installed waves in at the end of Q2. We currently have a backlog and funnel of wave opportunities of 5,221 opportunities. We intend to continue to capture market share and believe our goal of 25% of the highly concentrated long-haul wavelength market in North America in three years is achievable. Our EBITDA increased sequentially to $48.8 million and our EBITDA margin increased sequentially by 50 basis points to 20.2% from continued cost reductions and product optimization. Our EBITDA as adjusted increased to 73.8 million, and our EBITDA as adjusted margin increased sequentially by 70 basis points to 30.5%. Our IPv4 leasing activity materially accelerated. Our IPv4 leasing revenue increased by 14.1% to $17.5 million on a sequential basis. And on a year-over-year basis, revenues from IPv4 leasing increased 55.5%. Our average revenue per IPv4 leased in the quarter was $0.31 per address to some larger wholesale leasing activity. We were able to accelerate this growth by entering into these more flexible agreements. We were leasing 14.6 million addresses at the end of the quarter, a sequential increase in the number of leased addresses of 10.7%. we have in inventory a total universe of approximately 38 million addresses. We have essentially completed the integration of the Sprint network and the repurposing of the facilities that we deem appropriate for data center activity. As a result of this, there was a significant reduction in our capital expenditures in the quarter. At quarter end, we were providing services in 1,686 carrier neutral data centers and 186 cogent data centers. The cogent data centers have an aggregate of 214 megawatts of installed and available power. We anticipate our long-term annual revenue growth rates will be between 6% and 8% and an increase in our EBITDA as adjusted margins of approximately 200 basis points per year. Our updated revenue in the EBITDA guidance are intended to be multi-year goals and are not intended to be used as specific quarterly or annual guidance. Comment on our revenue. We are nearing the end of grooming of our low margin Sprint acquired contracts. As we have stated on our last earnings call, we expect to return to total revenue growth by mid third quarter 2025. However, our revenue for the quarter declined at 4.3 million or 1.7%. For the quarter, we experienced a $1.3 million decline in non-core revenues and an additional decline of $800,000 in USF revenues. Our high contribution on net services and wavelength services both increased in the quarter. Our on net revenues increased by 2.9 million sequentially, or 2.2% from last quarter. Our Wavelength Services revenue increased by 1.1 million, or 12.4% from last quarter. And our IPv4 leasing revenue increased by 2.12 million, or 14.1% from the previous quarter. We remain highly focused on selling products that deliver higher margins and allow our EBITDA margins to continue to expand. Now I'd like to turn it over to Tad to read our safe harbor language, provide some additional operational metrics, and then we'll close with a few closing remarks and then open the floor for questions and answers.

Thank you, Dave, and good morning, everyone. This earnings conference call includes forward-looking statements. These forward-looking statements are based on our current intent, beliefs, 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 can 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 reconciled to this corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com. Some comments on overall results. Our revenue for the quarter was $241.9 million. Our EBITDA as adjusted was $73.8 million for the quarter, an increase of $0.3 million, and our EBITDA as adjusted margin increased sequentially by 70 basis points to 30.5%. Our EBITDA as adjusted accounts for payments under our IP transit agreement with T-Mobile. Under this agreement, we received three monthly payments totaling $25 million this quarter and the same as last quarter. We will continue to receive an additional 26 monthly payments of 8.3 million until November of 2027. There are further cash payments related to lease obligations that we assumed at closing. That totals at least 28 million. This 28 million will be paid to us in four equal payments from December 27 to March 2028. We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength, and non-core. And we analyze our revenues based upon customer type. We classify our customers into three types, net-centric, corporate, and enterprise. Our corporate business represented 43.5% of our revenues for the quarter. Our corporate revenues decreased by 9.5% year over year. and sequentially by 3.5%. These decreases in corporate revenue are primarily due to the continued grooming of low-margin off-net customer connections and the continued elimination of acquired non-core products acquired with Sprint Wireline. Our net-centric business continues to benefit from the growth in video traffic, activity related to artificial intelligence, streaming, IP4, B4 leasing and wavelength sales. Our net centric business represented 41.4% of our revenues for the quarter. Our net centric revenues increased by 9.2% year over year and sequentially by 3.1%. Our enterprise business represented 15.1% of our revenues for the quarter. Our quarterly enterprise revenue decreased by 25.7% year-over-year and sequentially by 8.6% due to a reduction in acquired non-core and off-net low-margin enterprise revenues acquired with Sprint Wireline. On-net revenues. We serve our on-net customers in 3,537 total on-net buildings. Our on-net revenue was $135.3 million for the quarter, a small year-over-year decrease of 0.9%, but a sequential increase of $2.9 million or 2.2%. Off-net revenue. Our low-margin off-net revenue was $95.1 million for the quarter. That was a year-over-year decrease of 14.5% and a sequential decrease of 6.9%. It was $7.1 million of the decrease sequentially. We served these 25,518 off-net customers and 18,400 off-net buildings. Our off-net revenue results are impacted by our migration of off-net customers to on-net and the continued grooming and termination of acquired low-margin off-net contracts acquired with Sprint Wirelines. Some comments on pricing. Our average price per megabit for our installed base decreased sequentially by 10% to $0.16 and decreased by 31% year-over-year, both amounts in line with historical trends. Our average price per megabit for our new customer contracts for the quarter was $0.07, a sequential price per megabit decrease of 8% and 15% year-over-year. Our ARPUs for the quarter. Our ARPUs for the quarter were as follows. Our on-net ARPU was 515. Our off-net ARPU was 1,225. Our wavelength ARPU was 2,108. Our IPv4 ARPU was 31 cents per address for the quarter. Churn rates. Our on-net and off-net churn rates both improved marginally from last quarter. Our on-net unit churn rate was 1.3% compared to 1.4% last quarter, and our off-net churn rate was 2.1%, slight improvement from 2.3% last quarter. Traffic. Our IP network traffic growth accelerated for the quarter. Our network traffic increased by 5% sequentially and year-over-year by 9%. Rep productivity metrics. Our rep productivity was 4.6 this quarter. It was 4.8 last quarter and 4.0 in the third quarter of last year. Foreign exchange. Our revenue earned outside of the U.S. is about 20% of our revenues for the quarter. The average Euro to USD rate so far this quarter is 116 and the Canadian dollar rate is 72 cents. Using these average rates, we estimate that the FX conversion impact on our sequential quarterly revenues would be a negative $200,000, and the impact of the year-over-year quarterly revenues would be a positive $2.6 million. We believe that our revenue and customer base is not highly concentrated. Our top 25 customers represented about 16% of our revenues for the quarter. CapEx and payments on capital leases, principal payments. Our CapEx declined by 35.5% sequentially and was $36.3 million this quarter, down $20 million from $56.2 million last quarter, and down $23 million, or 38.8% decrease from the third quarter of last year. Our principal payments on capital lease We're $8.8 million this quarter, similar to $8.5 million last quarter. Some comments on debt and our debt ratios. Our total gross debt at par, including $601.8 million of finance lease obligations, was $2.3 billion at quarter end. And our net debt, total net debt of our cash and our $224.2 million due from T-Mobile was $1.9 billion. Our leverage ratio as calculated under our more restrictive covenants on our unsecured 750 million 2027 notes indenture was 5.66 and our secured leverage ratio was 3.49. Our fixed coverage ratio was 2.62. The definition of consolidated cash flow under our 600 million secured 2032 notes indenture includes payments, cash payments, under the IP Transit Services Agreement with T-Mobile in that definition and determination of consolidated cash flow. And those payments totaled $100 million for the last 12 months. As a result, our leverage ratio as calculated under the $600 million 2032 notes indenture was 4.39. Our secured leverage ratio was 2.7. and our fixed coverage ratio was 3.38. Lastly, some comments on bad debt and DSO. Our DSO improved. It was 30 days at quarter end compared to 31 days last quarter. Our bad debt expense was less than 1% of our revenues for the quarter. It did increase from last quarter about $1.2 million, which is not material, but it was only half percent of our revenues for the quarter. Last quarter, our bad debt expense was artificially low because we had some bad debt recoveries, which helped our SG&A expenses. But overall, our target and our historical rate is 1% of revenues, and our results are better than that historical rate. And with that, I will turn the call back over to Dave.