Cogent Communications Holdings, Inc.

Good morning and welcome to the Cogent Communication Holdings fourth quarter and full year 2035 earnings conference call. As a reminder, this conference call is being recorded and it will be available for replay at www.cogent.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 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. Please go ahead.

Hey, thank you and good morning to everyone. Welcome to our fourth quarter 2025 and full year 2025 conference call. I'm Dave Schaefer, Cogent's CEO, and with me on today's call is Tad Weed, our Chief Financial Officer. I'd like to highlight a few key events and significant matters in the quarter. I'd like to be able to go through these metrics to help you understand better our business. We are continuing to increase our margins. Our increase in gross margin and EBITDA margins have been driven by cost reductions and a rotation to more profitable on-net products. In the third quarter of 2023, The first full quarter cogent was combined with Sprint Wireline revenues. Our combined revenues by connection type for the third quarter versus this quarter have changed materially. Our on net revenues were 47% of our revenues in the third quarter of 2023. Our total on net revenues as a percentage of revenues has increased from 47% of revenues in the third quarter of 2023 to 61% of revenues this quarter. Our off net revenues were 48% of our total revenues in the third quarter of 2023, immediately after the combination of Sprint and Cogent. Our off-net revenues as a percentage of our total revenues have decreased from 48% of revenues down to 39% of total revenues this quarter. And our non-core revenues were 5% of total revenues in the third quarter of 2023. Our non-core revenues as a percentage of our total revenues had decreased to less than 1% of our revenues this quarter. I'd like to take a moment and outline our progress in our Wavelength sales. At year end, we're offering Wavelength services in 1,068 locations, all capable of 10 gigabit, 100 gigabit, and 400 gigabit services with provisioning intervals of approximately 30 days. As of today, we have actually increased that service footprint to 1,096 locations. Our Wavelength Revenue for the quarter was $12.1 million, a 74% year-over-year increase compared to the comparable quarter in 2024. Are sequential wavelength revenue growth accelerated and increased by 19%? That is better than the 12% sequential increase in Q3 over Q2. Or wavelength customers increased by 18% sequentially to 2064 connections at the end of the quarter. Our wavelength revenue for the full year 2025, which was the first full year we were selling wavelength services across our footprint, was $38.5 million, an increase of 100% from the 2024 number. Our wavelength customers during that period increased by 85%. As of the end of the quarter, we had sold wavelengths in 518 locations compared to 454 locations at the end of Q3. We continue to anticipate capturing 25% of the highly concentrated wavelength market in North America. Now for a few comments on margins. Our EBITDA is adjusted for the quarter increased by $3 million to 76.7 million. Our EBITDA's adjusted margins for the quarter increased sequentially by 140 basis points to 31.9%. Our increased margins continue to come from our cost reductions as well as our product optimization. Our EBITDA as adjusted for the full year 2025 was $55.6 million. Our EBITDA as adjusted, then adding back the payments under the T-Mobile transit agreement. Our decrease in EBITDA as adjusted was as a result of the $104.2 million reduction in our IP transit payments from T-Mobile and a reduction of $21.4 million for other reimbursable Sprint acquisition costs that we incurred in 2024. There were no Sprint acquisition costs in full year 2025. The 104.2 million reduction in scheduled payments at 21.4 million reduction in these acquisition costs more than offset the organic growth of $70 million in Cogent's EBITDA or EBITDA Classic for full year 2025. Our EBITDA Classic for 2025 was 192.8 million. For the full year of 2024, it was 122.8 million. Our EBITDA as adjusted margins were 30% for the full year 2025, down from the 33.6 for the full year 2024 because of the reductions that I just previously mentioned. or EBITDA classic margins, however, for full year 2025 were 19.8%, up from the 11.9% for full year 2024, or an improvement of approximately 840 basis points on a year-over-year basis. Under our IP transit agreement with T-Mobile, we will continue to receive an additional 23 monthly payments of $8.3 million per month until November of 2027. There are further cash payments related to lease obligations we assumed at closing of at minimum $28 million. This $28 million payment is to be made by T-Mobile in four equal monthly payments from December of 2027 through March of 2028. Now for a comment on our improvement and leverage. We have refined our capital allocation priorities and strengthened our financial flexibility and accelerated our de-levering strategy. Our leverage ratios have improved. Our gross debt leverage has adjusted for amounts due from T-Mobile for the last 12 months, EBITDA as adjusted ratio was 7.35 as compared to 7.45 in the previous quarter. Our net debt ratio was 6.64 in Q4 compared to 6.65 in Q3 of 2025. We believe that the amounts due from T-Mobile under our transit and purchase agreement should be considered in calculating our leverage ratios. We believe that these amounts essentially represent both long-term and short-term cash and are discounted appropriately on our balance sheet. And due to T-Mobile's credit rating and payment history, we are confident that these payments will be continue to be made in a timely manner. T-Mobile pays us $25 million a quarter through the fourth quarter of 2027 under this IP services agreement. The monthly payments from T-Mobile under the IP transit agreement reduces from the balances that are due each month as they are received. Now for a couple of comments on our improved IPv4 leasing activity. Our IPv4 leasing revenue increased 44% year over year to 64.5 million for full year 2025. We are currently leasing 15.3 million addresses at year end. This is an increase of 2.2 million incremental addresses, or 17%, on a year-over-year basis. We have titled to 37.8 million IPv4 addresses. Our capital expenditures. For the last half of 2025, once our data center modernization program had been completed, was $73.3 million as compared to $114.3 million for the first half of 2025. This $41 million decrease was due to the completion of a significant amount of reconfiguration work in our Sprint acquired facilities. We have converted these facilities into data centers in the first six months of 2025 as well as the last six months of 2024. we have converted a total of 125 facilities at year end we are providing facilities and providing services in 1715 carrier neutral data centers as well as the 187 cogent data centers the cogent data centers have an aggregate capacity of 213 megawatts of installed and available power now as many of you know we have intended to monetize and sell 24 of these facilities that we view as surplus we acquired these uh facilities through the acquisition of sprint and we intend to monetize them through either outright sale or leasing on a wholesale basis the non-binding letter of intent we mentioned on our last call was not finalized due to a change in the original terms not in price but a requirement by the purchaser for coaches to provide a portion of the purchase price in terms of owner financing, which we found unacceptable. We reverted to some of our backup agreements and our active discussions with multiple parties for multiple offers across a broad set of these data centers. We do expect several of these to result in multi-site acquisition offers. Now for a moment about our leverage and balance sheet strategy. Our 2027 June unsecured notes of $750 million are still roughly 18 months from maturity. but we have begun receiving proposals to refinance these notes. We intend to complete a refinancing transaction for new secured notes of $750 million as soon as the make-hold period expires in June of this year. Now for our long-term goals. We anticipate our revenue growth to continue to improve and be in the six to 8% range, we expect our rate of EBITDA margin to actually moderate to the roughly 200 basis points a year that we will be able to deliver over a multi-year period. You know, the nearly 800 basis points that we delivered this year was due to some extraordinary cost savings And while we will continue to deliver these results, we do expect the rate of margin expansion to moderate. Our revenue and EBITDA guidance are meant to be multi-year goals and not intended to either be quarterly or even annual guidance. Now I'd like to turn the call over to Tad. provide some further detail and provide our safe harbor language. TAB will also give a further breakout of the trends and the revenues acquired from the Sprint base versus the Cogent Classic base since our acquisition in 2023. I know this has been an area of focus of investors, and we have been able to disaggregate those revenues and now present them and with clear trends and metrics. With that, we'll then open the call off for questions and answers. Tad.

Thank you, Dave, and good morning to everyone. This earnings conference call includes forward-looking 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 reconciled to the corresponding gap measurement in our earnings releases that are posted on our website at cogentco.com. Some overall comments on results and revenues. Our total revenue for the quarter was $240.5 million and $975.8 million for the year. Our total revenue for the quarter declined sequentially by $1.4 million or by 0.6%. This was an improvement from the 4.3 million or 1.7% sequential quarterly revenue decline that we experienced last quarter. While our sequential revenue declined within our fourth quarter, our total revenue increased each month in the quarter. Our total monthly revenue increased from September to October, increased from October to November, and excluding a change in USF revenues increased from November to December. This month-to-month total revenue increase continued from December 2025 to January 2026. There was a negative FX impact on our quarter sequentially revenues of 0.2 million. So for the quarter, we experienced a 2.2 million sequential decline in off-net revenues, Our on-net revenues, including on-net wave revenues, increased by 0.9 million or 0.6%, and our non-core revenues decreased by 0.2 million, and now those revenues have declined to only 1.2 million. Sequential wavelength revenue growth, which is on-net, accelerated to 18.8% from 12.4% last quarter and increased sequentially by 1.9 million. Gross margin. Our gross margin for the quarter increased sequentially by 1.6 million to 112.5 million. Our gross margin increased sequentially by 100 basis points to 46.8% from continued cost reduction and product optimization, including our focus on our on-net products. Our gross margin for full year 2025 increased by 46.7 million $442.7 million. And our gross margin for full year 2025 increased by 720 basis points from 38.2% last year to 45.4% for full year 2025. EBIDA. Our EBIDA, not including payments under the IP Transit Agreement for the quarter, increased sequentially by $3 million to $51.7 million. And our EBITDA margin increased by 130 basis points to 21.5%. Our EBITDA for the full year, not including the IP transit agreement or sprint acquisition costs, increased by 70 million to 192.8 million from 122.8 million for full year 2024. And the EBITDA margin for this year increased by 790 basis points from 11.9% to 19.8% for full year 2025. We analyze and classify our revenues into four network connection types and three customer types. Our four network connection types are on-net, off-net, wavelength, and non-core. And our three customer types are net-centric customers, corporate customers, and enterprise customers. Dave mentioned we'll provide some information on Sprint Wireline acquired revenue and Cogent Classic revenue. We have been hesitant to separately disclose our revenue performance related to our acquired Sprint Wireline business and our Cogent Classic business once the operations have been fully integrated. However, we believe that the following analysis will be beneficial in understanding some of the changes in our total combined revenues. Substantial changes in the acquired Sprint Wireline revenue base have masked the underlying performance of our legacy Cogent Classic business. So in May 2023, when we closed the transaction, the Sprint Wireline revenue base had a run rate of $39.4 million per month, or $118 million per quarter. This acquired revenue base has decreased from that $118 million per quarter at the acquisition date to down to $43 million for this quarter. That's a $75 million quarterly revenue decline related to the Sprint Waterline revenue base, or a 64% decline since the deal closed. At deal closing, our Cogent Classic revenue run rate was $155 million per quarter. This quarterly revenue base has increased by 27%, or by $42 million, from that $155 million prior to close to $197 million for this quarter, the fourth quarter of 2025. Additionally, our cogent classic revenues increased sequentially by 1.5% from the third quarter of this year, increased year-over-year by 3.1% from the fourth quarter of 2024, and increased by 2.3% for full year 2025 over full year 2024. Our consolidated revenue declines have been largely attributed to the reduction in the acquired corporate and enterprise revenues from Sprint. At closing, the Sprint wireline revenues represented a total of 42% of our total revenues, and that percentage has materially dropped from 42% down to only 18% of our total revenues at year end. Our total corporate business was 42.7% of our revenues this quarter and 43.9% for the year. Our quarterly corporate revenues decreased by 9.1% year over year and sequentially by 2.3%. For the year, our total corporate revenues declined by 9.7%. At the closing of our acquisition of Sprint Wireline in May 2023, the Sprint Wireline corporate revenues were 30% of our total revenues. Those Sprint Wireline acquired corporate customers now represent only 10% of our total corporate revenues. The Sprint Wireline acquired corporate revenue base has decreased from a run rate of $13 million per month or $39 million per quarter at closing to a run rate of $2.7 million per month or $8.1 million per quarter at year-end 2025. The same analysis for net-centric. Our total net-centric business continues to increase and benefit from the growth in video traffic, activity related to artificial intelligence, streaming, IPV4 leasing, and wavelength sales. Our net-centric business was 43% of our revenues this quarter and 40.3% for the year. Our quarterly net-centric revenues increased by 10.4% year-over-year and sequentially by 3.1%. For the year, our total net-centric revenues increased by 6.8%. At the closing of our acquisition of Sprint Wireline, The Sprint Wireline net centric customers represented 20% of our total net centric revenues. Those Sprint Wireline acquired net centric customers now are representing only 7% of our total net centric revenues this quarter. The Sprint Wireline acquired net centric customer revenue base has decreased from a run rate of 6 million per month or 18 million per quarter at closing to a current run rate of $2.9 million per month or $8.7 million per quarter at year end 2025. Lastly, the enterprise business. Our total enterprise business was 14.3% of our revenues this quarter and 15.8% of our revenues for the year. Our quarterly enterprise revenue decreased by 24.7% year over year, and sequentially by 5.8%, primarily due to reduction in the acquired non-core enterprise and off-net low-margin enterprise revenues. For the year, total enterprise revenues declined by 20.3%. At the closing of our acquisition, the Sprint Wireline enterprise customers represented virtually 100% of our enterprise revenues, as this was a new line of customer or cogent. The Sprint Wireline acquired enterprise revenue base has decreased from a run rate of $20 million per month or $60 million per quarter at closing to a current run rate of $8.8 million per month or $26.4 million per quarter at year-end 2025. These substantial changes in the acquired wireline revenue base have masked the underlying performance of our legacy Cogent Classic business. Analysis on revenue by customer connection network type. On-net revenue. We serve our on-net customers in 3,579 total on-net buildings. For the year, we increased our on-net buildings by a total of 126 on-net buildings, similar to prior years. Our total on-net revenue, including on-net wave revenues, was 146.4 million for the quarter. a year-over-year increase of 7.8% and a sequential increase of 0.6%. Our total on-net revenues, including on-net wavelength revenues, increased as a percentage of our total revenue by 400 basis points to 58.4% for this year from 54.4% for full year 2024. Off-net revenue. Our low-margin off-net revenue was $92.9 million for the quarter, That was a year-over-year decrease of 17.9% and a sequential decrease of 2.3%. 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 acquired low-margin off-net contracts. Our total off-net revenues decreased to 40.7% of our revenues for this year from 43.8% for full year 2024. Some comments on pricing. Our average price per megabit for our installed base decreased sequentially by 12% to $0.14 and by 34% year over year, essentially in line with historical trends. Our average price per megabit for our new customer contracts was $0.06, a sequential decline of 18% and 46% year over year. ARPUs for the core. Our on-net IP ARPU was $509. Our off-net IP ARPU was $1,234. Our wavelength ARPU was $2,114. Our IPv4 ARPU was 30 cents per address. Churn rates. Our churn rates improved sequentially Our on net and off net churn rates improved from last quarter. Our on net unit monthly churn rate this quarter was 1.2% compared to 1.3% last quarter. Our off net unit monthly churn rate was 1.9% compared to 2.1% last quarter. And our wavelength monthly churn rate has been less than 0.5% to relatively insignificant. Traffic. Our year-over-year IP network traffic growth accelerated for the quarter. Our IP network traffic for the quarter increased sequentially by 4% and by 10% year-over-year. And for the total year, our traffic increased by 9%. Sales rep productivity. Our sales rep productivity was 4.1 units this quarter compared to 4.6 last quarter and 3.5 in the fourth quarter of 2024. That's compared to our long-term sales rep productivity average of 4.8. Foreign currency, our revenue earned outside of the United States was about 20% of our revenues this quarter, similar to prior quarters. Based upon the average Euro and Canadian conversion rates so far this quarter, so the first quarter of 2026, we estimate that the FX conversion impact on central revenues would be positive, about 0.4 million. And year over year, more significant, about $3.5 million. Customer concentration. Our revenue and customer base is not highly concentrated. Our top 25 customers were 17% of our revenues this quarter, similar to prior quarters. CapEx. Our CapEx was $37 million this quarter and $187.6 million for the year. And principal payments on capital leases were $8.5 million for the quarter and $33.8 million for the year. Combined, those amounts have declined year over year. Comments on debt and debt ratios. Our total gross debt at par, including $623.4 million of finance lease obligations under long-term IRUs, was $2.4 billion at year end. Our net debt, total net debt of our cash and our $203.1 million due from T-Mobile at year end was $1.9 billion. Our leverage ratio as calculated under our more restrictive covenants under our unsecured $750 million 2027 notes indenture was 6.13. The secured leverage ratio was 3.8. and the fixed coverage ratio was 2.38. The definition of consolidated cash flow, similar to EBITDA, under our $600 million secured 2032 notes indenture includes cash payments under our IP Transit Services Agreement with T-Mobile and the definition and determination of consolidated cash flow. Payments under our IP Transit Agreement were $100 million for the last 12 months, so that is added to the calculation. Our leverage ratio as calculated under the $600 million secured 2032 notes indenture was 4.67. Our secured leverage ratio was 2.9. And lastly, fixed coverage was 3.12. Bad debt and day sales. Our day sales outstanding was 30 days at year end, the same as last quarter. And our bad debt expense was less than 1% of our revenues for the quarter and for the year. And with that, I will turn the call back over to Dave.