CCOI Q1 2025: Wavelength Funnel Grows to 3,433 but Rev Rises Only 2.2%
- Robust wavelength growth and capacity – Management emphasized that Cogent’s rebuilt wavelength funnel, currently at 3,433 opportunities and expected to reach 10,000 by year-end, combined with installation capacity of 500 circuits per month and improved delivery timelines, underpins strong future revenue potential.
- Resumption of organic revenue growth – With the purge of undesirable Sprint legacy services, executives expect the corporate segment to move back to positive revenue growth by mid‐Q3 2025, positioning the company for improved EBITDA margins and achieving a target revenue growth rate of 6% to 8% over the long term.
- Promising data center monetization strategy – Ongoing efforts to convert surplus capacity in edge and core data centers—with discussions moving from letters of intent toward contract negotiations and anticipated completion by the end of Q2 2025—could generate significant cash flow that supports deleveraging and shareholder returns.
- Uncertainty in Wavelength Revenue Conversion: Despite building a funnel of 3,433 orders and having capacity to install 500 orders per month, installations are largely back‐loaded as customers wait for equipment readiness. This delay resulted in only a 2.2% revenue sequential growth despite 18% unit growth, suggesting that slower-than-expected service installations could continue to weigh on revenue realization.
- Increased Leverage Constraining Capital Returns: The company has slowed its dividend growth to $0.005 per share per quarter amid rising leverage—exacerbated by a significant decline in transit payments—which could impose financial constraints and negatively impact shareholder returns as the balance sheet remains under pressure.
- Episodic Revenue Headwinds from IP Address Disconnections: The disconnection of approximately 600,000 to 700,000 IP addresses due to violations of acceptable use policies presents a recurring risk. Such episodic events could lead to unpredictable revenue declines if similar disconnections occur in future periods.
| Metric | YoY Change | Reason |
|---|---|---|
Total Service Revenue | Declined from $252.29K in Q4 2024 to $247.048K in Q1 2025 (~2% drop) | A slight decline in revenue likely reflects a modest decrease in demand or pricing adjustments amid competitive market conditions compared to Q4 2024, suggesting early signs of margin pressure in the current period. |
Operating Loss | Widened from $(33,245)K in Q4 2024 to $(40,292)K in Q1 2025 (~21% deterioration) | The operating loss increased significantly despite only a minor drop in revenue, indicating that higher operating expenses and cost pressures (such as increased depreciation, interest, or SG&A costs) have outweighed revenue efforts relative to the previous period. |
Net Loss | Increased from $(43,317)K in Q4 2024 to $(52,042)K in Q1 2025 (about 20% increase) | A roughly 20% increase in net loss mirrors the growing operating deficits along with additional expense pressures such as higher interest expenses and non-cash charges, reinforcing the challenging environment compared to the previous quarter. |
Cash and Cash Equivalents | Declined from $198,486K in Q4 2024 to $153,805K in Q1 2025 | Liquidity weakened as the drop in cash reflects increased leveraging of funds, likely due to higher dividend payouts and capital expenditure activities in Q1 2025 relative to Q4 2024, which has reduced available cash. |
Total Stockholders' Equity | Dropped from $222,848K in Q4 2024 to $142,844K in Q1 2025 (36% decline) | A steep 36% decline in equity is driven by the cumulative impact of sustained net losses, dividend distributions, and possible share repurchase activities that eroded the capital base compared to the previous period, highlighting the financial strain on shareholder value. |
-
Wavelength Competition
Q: Any competitive changes in wavelength business?
A: Management noted that while competitors struggle with timely provisioning, Cogent’s rebuilt funnel—boasting about a 5% monthly conversion rate—underscores a strong competitive advantage; they view the Crown Castle-Zayo deal as a distant, roughly one-year threat. -
Dividend & Leverage
Q: Is dividend growth temporary?
A: Management explained that the current $0.005 per share quarter-on-quarter increase reflects higher leverage; as net leverage begins to decline in Q4, they expect additional capital returns through increased dividends and buybacks. -
Core Growth Targets
Q: What core growth rates are expected?
A: After resolving Sprint-related churn, management expects the core Corporate segment to grow by 4–5% and the NetCentric business by 6–7%, supporting a long-term revenue growth target of 6–8%. -
Wavelength ARPU & Data Centers
Q: How will ARPU and data center monetization trend?
A: Management forecast a stable wavelength ARPU near $1,900–$2,000 and noted that while data center conversion is progressing—with several letters of intent and work expected to conclude by end-Q2—the pricing details vary across negotiations. -
IP Address Disconnections
Q: How are IP disconnections influencing revenue?
A: They clarified that disconnections typically stem from customers violating acceptable use policies (e.g., copyright or disruptive activity) and, despite episodic declines, they expect a return to roughly 500,000 incremental addresses per quarter bolstered by price increases. -
Data Center Monetization Timing
Q: When will data center sales finalize?
A: While progress is evident with active contract negotiations, management conservatively expects that closing a sale will take more than three months, with potential completion by the end of Q2, although final pricing remains variable. -
Traffic & Tariffs
Q: What about Internet traffic and tariff effects?
A: Management observed 8% year-over-year traffic growth alongside stable, historically consistent price declines; while equipment tariffs can create temporary shocks, their overall cost impact is minimal. -
SG&A Seasonality
Q: Are SG&A increases seasonal in nature?
A: They explained that the sequential uplift in SG&A results from normally recurring items like vacation accruals, tax adjustments, and audit fees—reflecting seasonal patterns rather than structural cost increases.