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COGENT COMMUNICATIONS HOLDINGS, INC. (CCOI)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue fell 2.1% q/q to $247.0M and 7.2% y/y; GAAP gross margin improved to 13.6% and non-GAAP gross margin to 44.6% as cost of goods declined and mix (IPv4, wavelengths) helped margins .
  • Versus Wall Street consensus, the quarter missed on revenue (~$247.0M vs $250.8M), EPS (-$1.09 vs -$1.02), and was roughly in line/slightly below on adjusted EBITDA ($68.8M vs $69.9M); GAAP EBITDA was materially below consensus given definition differences (see Estimates Context) *.
  • Management raised long-term targets: 6–8% annual revenue growth and 150 bps per year adjusted EBITDA margin expansion; expects a return to revenue growth by mid-Q3 2025, supported by wavelength rollout and continued IPv4 monetization .
  • Dividend increased for the 51st consecutive quarter to $1.01 (Q2 2025), while the Board deliberately slowed the quarterly step-up to manage leverage as T-Mobile IP transit payments step down; data center monetization is a potential deleveraging catalyst .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP gross margin rose sharply to 44.6% (38.7% in Q4; 36.7% in Q1’24), reflecting cost reductions and mix improvement; GAAP gross margin also rose to 13.6% .
  • Wavelength momentum: connections +18.2% q/q to 1,322 and revenue +2.2% q/q; footprint expanded to 883 data centers with 10G/100G/400G capabilities and ~30-day provisioning times .
  • IPv4 monetization continued: revenue $14.4M (+14.8% q/q, +42% y/y); average revenue per address rose to $0.49 as pricing increased amid scarcity .

“Demonstrating the impact of these savings on our cost of goods sold… our gross margin increased by 790 bps from Q1 2024 to 44.6%.” — CEO David Schaeffer .

What Went Wrong

  • Top-line softness: service revenue declined to $247.0M (−2.1% q/q, −7.2% y/y), with off-net revenue down 5.2% q/q and continued corporate headwinds tied to office occupancy and intentional grooming of low-margin contracts .
  • Sequential wavelength revenue growth (2.2%) lagged unit growth; installs were back-end loaded (customers not ready), depressing in-period revenue realization .
  • Leverage increased (gross 6.69x; net 6.08x) as IP transit payments stepped down and capex remained elevated in H1; Board slowed dividend growth cadence to $0.005/qtr increases .

Financial Results

MetricQ1 2024Q3 2024Q4 2024Q1 2025
Service Revenue ($USD Millions)$266.17 $257.20 $252.29 $247.05
EBITDA (GAAP) ($USD Millions)$18.45 $35.86 $41.85 $43.76
EBITDA, as adjusted ($USD Millions)$114.99 $60.86 $66.85 $68.76
GAAP Gross Margin (%)9.9% 3.8% 11.8% 13.6%
Non-GAAP Gross Margin (%)36.7% 37.4% 38.7% 44.6%
Diluted EPS ($)$(1.38) $(1.33) $(0.91) $(1.09)

Segment revenue ($USD Millions):

SegmentQ1 2024Q3 2024Q4 2024Q1 2025
On-Net$138.62 $136.49 $128.76 $129.63
Off-Net$118.18 $111.29 $113.19 $107.27
Wavelength$3.33 $5.29 $6.97 $7.12
Non-Core$6.04 $4.14 $3.38 $3.03

KPIs and footprint:

KPIQ1 2024Q4 2024Q1 2025
IPv4 Revenue ($USD Millions)$10.15 $12.56 $14.41
IPv4 Addresses Billed12,213,414 13,033,248 12,879,749
Wavelength Customer Connections693 1,118 1,322
Total Customer Connections132,883 123,383 120,731
On-Net Buildings (Total)3,321 3,453 3,500
Carrier-Neutral DC Nodes1,586 1,646 1,668
Wave-Enabled Data Centers295 808 883

Additional Q1 2025 operating KPIs (single period):

  • ARPU: On-net $496; Off-net $1,266; Wavelength $1,945; IPv4 revenue per address $0.49 .
  • Monthly churn: On-net 1.4%; Off-net 2.2% .
  • Network traffic: flat q/q; +8% y/y .
  • DSO: 29 days; bad debt expense $2.1M (<1% of revenue) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Long-term revenue growthMulti-yearNot specified6–8% per year New
Annual adjusted EBITDA margin expansionMulti-yearNot specified+150 bps per year New
Return to revenue growthQ3 2025Not specifiedExpect positive growth by mid-Q3 2025 New
Dividend per shareQ2 2025$1.005 (Q1 2025) $1.01 (51st consecutive increase) Raised
CapEx cadence2025Not specifiedH1’25 similar to H2’24; decline in H2’25 Maintained/Clarified
Leverage trajectory2025Not specifiedPeak in Q3’25; begin declining in Q4’25 Clarified
T-Mobile IP Transit payments2025–2027Stepping down32 monthly payments of ~$8.3M through Nov 2027; plus ≥$28M in four payments Nov’27–Feb’28 Maintained
Wavelength installation capacity2025Targeted 500/monthProvisioning capacity 500/month; funnel conversion 4–5%/month; backlog to ~10k by YE25 Clarified
Tariffs impact2025MinimalNo material impact anticipated on business or CapEx Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 2024)Current Period (Q1 2025)Trend
Wavelength rolloutWave revenue ramp (Q3: $5.3M; Q4: $7.0M); 808 DCs live by Q4 883 DCs; 10G/100G/400G; ~30-day provisioning; 1,322 connections; backlog/funnel 3,433; aiming 10k by YE Accelerating footprint; improving provisioning cadence
AI/video demand in NetCentricNetCentric steady (Q4 rev $93.6M) NetCentric benefiting from AI, streaming, wavelength sales; traffic +8% y/y Positive demand driver
Corporate segment headwindsOffice occupancy pressure; slower sales (Q3/Q4) Continued grooming of low-margin/off-net contracts; expect growth resumption by mid-Q3 Nearing inflection post-grooming
Tariffs/macroNot highlighted previouslyMinimal tariff impact; corporate caution on macro; utility-like demand resilience Manageable
IPv4 monetizationSequential increases in Q3/Q4 Pricing strength; revenue per address $0.49; episodic address takedowns for AUP violations Strengthening pricing; unit volatility possible
Leverage/Capital allocationLeverage rising; dividends increasing Board slows dividend growth pace; buybacks opportunistic; data center monetization to delever Balancing returns vs deleveraging
Data center monetization808 DCs by Q4; plan conversion ~24 facilities earmarked; several LOIs advancing; potential leases/sales Advancing toward monetization

Management Commentary

  • “We are now offering wavelength services in 883 data centers… we intend to capture 25% of this highly concentrated North American market within 3 years.” — CEO David Schaeffer .
  • “Our IPv4 leasing revenue… increased sequentially by 14.8% to $14.4 million… average revenue per IPv4 address sold was $0.49 for the quarter.” — CEO David Schaeffer .
  • “We are adjusting our long-term annual revenue growth rate to 6% to 8%, and… anticipate our EBITDA as adjusted margin to expand annually to 150 basis points.” — CEO David Schaeffer .
  • “We will continue to receive an additional 32 monthly payments of $8.3 million each until November of 2027.” — CFO Thaddeus Weed .
  • “Our sequential on-net revenue results were negatively impacted by… the commercial services agreement with T-Mobile and… $0.9 million of negative FX.” — CFO Thaddeus Weed .

Q&A Highlights

  • Wavelength competition and cadence: Management sees provisioning advantage over competitors; expects more even installs intra-quarter, with capacity for 500 waves/month as funnel grows to ~10k by YE25 .
  • Dividend growth pacing and leverage: Board slowed step-ups to $0.005/qtr given leverage peak in Q3’25; plans to resume faster increases as deleveraging begins in Q4’25, alongside opportunistic buybacks .
  • Wavelength ARPU: Around $1,900–2,000 modeled; 82% of sales at 100G and ~8% at 400G—above industry mix; routes now nationwide .
  • IPv4 addresses: ~600–700k addresses reclaimed for acceptable-use violations; management expects gross adds to return north of 500k/quarter, though episodic churn can recur .
  • Traffic/pricing/macro: Internet traffic growth ~8% y/y; long-term price declines ~22–23% per year persist; tariffs modest; utility-like demand should limit macro drag .

Estimates Context

Quarterly consensus versus reported results:

MetricQ3 2024 Consensus*Q3 2024 ReportedQ4 2024 Consensus*Q4 2024 ReportedQ1 2025 Consensus*Q1 2025 Reported
Revenue ($USD Millions)259.0*257.2 258.5*252.3 250.8*247.0
Primary EPS ($)−1.133*−1.33 −1.226*−1.325 −1.024*−1.09
EBITDA ($USD Millions)64.8*60.9 (Adj.) 67.6*66.9 (Adj.) 69.9*68.8 (Adj.)

Values retrieved from S&P Global*. Company “Reported” EBITDA shown on an adjusted basis to align with typical sell-side consensus definitions; GAAP EBITDA was $35.9M (Q3’24), $41.9M (Q4’24), and $43.8M (Q1’25) .

Implications:

  • Revenue and EPS were consistent misses across the last three quarters; adjusted EBITDA was roughly in line to modestly below consensus in Q4/Q1 (definition alignment matters) *.
  • With management signaling a mid-Q3’25 revenue inflection and stronger wavelength throughput, estimates may shift modestly higher on H2’25 revenues and adjusted EBITDA margins, contingent on execution and data center monetization progress .

Key Takeaways for Investors

  • Margin execution offsetting revenue softness: Non-GAAP gross margin rose to 44.6% and adjusted EBITDA to $68.8M despite top-line declines; mix (IPv4, waves) and cost actions are working .
  • Wavelength is the growth engine: 883 DCs live, provisioning ~30 days, rising 100G/400G mix, and expanding funnel support multi-quarter acceleration; watch quarterly cadence normalization .
  • IPv4 pricing tailwind persists: $14.4M revenue and higher price per address ($0.49) provide durable contribution, but episodic address churn can create near-term volatility .
  • Nearing growth inflection: Management expects total revenue to turn positive by mid-Q3 2025 as grooming winds down and wave installs distribute more evenly in-quarter—monitor on-net/off-net trajectory .
  • Balance sheet and capital returns: Leverage peaking in Q3’25 then declining in Q4; dividend increases continue at a slower cadence; potential DC monetization is a key deleveraging catalyst .
  • Estimate setup: Recent revenue/EPS misses and adjusted EBITDA near-consensus suggest cautious models; H2’25 could see upward revisions if wave throughput and DC monetization materialize *.
  • FX and T-Mobile agreements: FX was a modest headwind; T-Mobile Commercial Agreement revenue is now small ($0.7M in Q1) and IP transit payments step down structurally—consider in forecasting .

Notes and Sources

  • Q1 2025 8-K and press release: revenue/margins, segment details, KPIs, dividend .
  • Q1 2025 earnings call: prepared remarks, long-term targets, cadence, ARPU/churn, leverage, capex .
  • Prior quarters: Q4 2024 8-K/PR; Q3 2024 PR for trend analysis .
  • Estimates: S&P Global consensus for Revenue, EPS, EBITDA (Q3’24, Q4’24, Q1’25). Values retrieved from S&P Global*.