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COGENT COMMUNICATIONS HOLDINGS, INC. (CCOI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 service revenue was $241.9M, down 1.7% q/q and 5.9% y/y; GAAP gross margin expanded sharply to 20.6% (13.6% in Q2, 3.8% y/y) on cost reduction and mix shift toward on‑net, wavelength and IPv4 leasing .
  • Management cut the quarterly dividend to $0.02 for Q4 2025 to accelerate deleveraging toward a 4x net leverage target; buybacks were paused on 11/6 and subsequently authorized to resume on 11/17 .
  • Strategic actions: entered LOI to sell 2 data centers for $144M cash; wavelength revenue grew 12.4% q/q and 92.5% y/y to $10.2M; IPv4 leasing revenue rose 14.1% q/q to $17.5M .
  • Versus S&P Global consensus, EPS beat (−$0.87 actual vs −$1.02 est), while revenue and EBITDA missed materially (note SPGI revenue excludes excise taxes; SPGI EBITDA uses a standard definition) *.
  • Stock narrative catalysts: capital allocation reset (dividend cut and buyback changes), visible deleveraging path, data center monetization, and accelerating wavelength/IPv4 leasing momentum .

What Went Well and What Went Wrong

What Went Well

  • Wavelength revenue grew to $10.2M (+12.4% q/q, +92.5% y/y); Cogent now offers waves in 996 data centers with 30‑day installs and targets 25% long‑haul share within three years (“$3.5B NA market; $2B long‑haul; $500M run rate”) .
  • IPv4 leasing accelerated: $17.5M revenue (+14.1% q/q, +55.5% y/y); leased addresses rose 10.7% q/q to 14.6M; ARPU $0.31 per address driven by wholesale agreements .
  • Margins expanded: GAAP gross margin 20.6% (from 13.6% q/q; 3.8% y/y) and EBITDA margin 20.2% (+50 bps q/q; +630 bps y/y) on cost reductions and product optimization .

Management quote: “Our EBITDA…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…margin increased…to 30.5%” .

What Went Wrong

  • Top line declined: service revenue −1.7% q/q and −5.9% y/y; off‑net revenue fell to $95.1M (−6.9% q/q; −14.5% y/y) due to grooming and churn in Sprint‑acquired, low‑margin contracts; enterprise revenue −8.6% q/q and −25.7% y/y .
  • Universal Service Fund headwind (~$0.8M q/q decline); non‑core revenue fell $1.3M q/q to $1.4M, limiting near‑term revenue inflection despite stronger on‑net and wavelength .
  • SPGI consensus missed on revenue and EBITDA (definitions differ from company’s “service revenue including excise” and “EBITDA as adjusted”). Sequential revenue growth expected in late Q3 did not materialize for the full quarter .

Financial Results

Consolidated Results vs Prior Periods

MetricQ3 2024Q2 2025Q3 2025
Service Revenue ($USD Millions)$257.2 $246.2 $241.9
GAAP Gross Margin (%)3.8% 13.6% 20.6%
Non-GAAP Gross Margin (%)37.4% 44.4% 45.8%
EBITDA ($USD Millions)$35.9 $48.5 $48.8
EBITDA Margin (%)13.9% 19.7% 20.2%
EBITDA (as adjusted) ($USD Millions)$60.9 $73.5 $73.8
EBITDA (as adjusted) Margin (%)23.7% 29.8% 30.5%
Net Loss Per Share (Basic & Diluted)$(1.33) $(1.21) $(0.87)

Segment Revenue

Segment Revenue ($USD Millions)Q3 2024Q2 2025Q3 2025
On‑net$136.5 $132.3 $135.3
Off‑net$111.3 $102.2 $95.1
Wavelength$5.3 $9.1 $10.2
Non‑core$4.1 $2.7 $1.4
Service Revenue – Total$257.2 $246.2 $241.9

Customer Mix (Revenue by Customer Type)

Customer Revenue ($USD Millions)Q3 2024Q2 2025Q3 2025
Corporate$116.2 $109.0 $105.2
Net‑centric$91.9 $97.3 $100.3
Enterprise$49.1 $39.9 $36.5

KPIs and Operating Metrics

KPIQ3 2024Q2 2025Q3 2025
IPv4 Revenue ($USD Millions)$11.2 $15.3 $17.5
IPv4 Addresses Billed12,943,590 13,187,109 14,600,974
On‑net Buildings (Total)3,424 3,529 3,537
Wave‑enabled Data Centers657 938 996
On‑net Customer Connections87,655 87,407 87,767
Off‑net Customer Connections32,420 26,239 25,518
Wavelength Customer Connections1,041 1,469 1,750
Non‑core Customer Connections5,217 3,615 3,244
CapEx ($USD Millions)$59.2 $56.2 $36.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per shareQ3 2025$1.015 declared (paid Sept 5) $0.02 declared for Q4 2025 (pay Dec 8) Lowered
Stock Buyback ProgramThrough 2026$100M increase authorized Aug 6, 2025; purchases in Q2 & July 2025 Temporarily paused 11/6; Board allowed resumption 11/17 Paused then resumed
Revenue trajectoryNear termReturn to positive revenue growth by mid‑Q3 (anticipated) Expect positive Q4 vs Q3; late Q3 inflection; USF/non‑core headwinds eased Clarified trajectory
Long‑term growth targetsMulti‑yearN/AAnnual revenue growth 6–8%; adj. EBITDA margin +~200 bps per year New multi‑year targets
Asset monetizationNear termN/ALOI to sell 2 data centers for $144M cash; plan to monetize all 24 facilities New initiative

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025, Q2 2025)Current Period (Q3 2025)Trend
Wavelength scale & mixWaves revenue growth (Q1: $7.1M; Q2: $9.1M); expanding DC footprint Waves $10.2M; 996 DCs; 79% of sales at 100Gb; <10% at 400Gb; backlog 5,221 Accelerating volumes, higher‑capacity mix
AI‑driven demandNot explicitly highlighted in PRsAI is the largest incremental driver for waves (Hyperscalers & “NeoClouds”) Strengthening secular tailwind
Off‑net groomingOngoing reductions in off‑net/enterprise revenue Off‑net −6.9% q/q; corporate off‑net −$7.1M; nearing end of grooming Headwind moderating
IPv4 leasing strategyGrowth and securitization; revenue $14.4M (Q1), $15.3M (Q2) Wholesale leases allowed; ARPU $0.31; 14.6M addresses; ABS financing optionality Accelerating monetization
Provisioning & competitionBuilding DC coverageCompeting provisioning speeds (e.g., Lumen) but Cogent highlights route diversity and lower cut rates on Sprint fiber Competitive but defensible
Capital allocation & leverageDividend increases and buybacks in Q1/Q2 Dividend cut to $0.02; buybacks paused then resumed; target net leverage 4x Shifted to deleveraging
Regulatory/USFUSF included in excise taxesUSF decline (~$0.8M) contributed to q/q revenue decline Minor headwind this quarter

Management Commentary

  • “The decision to reduce our quarterly dividend to $0.02 per share…will allow us to redirect capital towards reducing leverage…We intend to maintain our updated dividend policy until we reach a net leverage target of four times EBITDA on an LTM basis.” .
  • “We entered into a non‑binding letter of intent…to sell two of our larger data centers…for a cash payment of $144 million…We intend to monetize all 24 of the data centers…through outright sales or wholesale leasing.” .
  • “Our wavelength services revenue…was $10.2 million…we believe our goal of 25% of the highly concentrated long‑haul wavelength market in North America in three years is achievable.” .
  • “Our IPv4 leasing activity materially accelerated…average revenue per IPv4 leased in the quarter was $0.31 per address…we were leasing 14.6 million addresses at the end of the quarter.” .
  • “We anticipate our long‑term annual revenue growth rates will be between 6‑8%. An increase in our EBITDA as adjusted margins of approximately 200 basis points per year is expected.” .

Q&A Highlights

  • Dividend/buybacks: Board prioritized deleveraging after secured bonds sold off; committed to capital returns post 4x net leverage; buybacks paused episodically, then allowed to resume .
  • Waves run‑rate: Target exiting Q4 at monthly run rate implying $20–$25M quarterly pace depends on customer acceptance; installation‑to‑acceptance gap is shrinking .
  • Competitive positioning: Route diversity and Sprint’s deeper‑buried fiber drive materially lower cut rates (~7x fewer than IRU fiber base), supporting reliability vs peers .
  • IPv4 monetization: Pivot to wholesale leases to accelerate depletion; outright sales less attractive due to tax and buyer depth; ABS financing optionality reinforced .
  • Corporate/off‑net churn: Corporate off‑net −$7.1M q/q as intentional grooming sometimes causes collateral loss of acceptable‑margin locations; nearing completion of grooming .

Estimates Context

MetricS&P Global ConsensusActual (SPGI basis)Result
Primary EPS ($)−1.02*−0.87*Bold beat
Revenue ($USD Millions)246.1*222.7*Bold miss
EBITDA ($USD Millions)77.3*39.8*Bold miss

Notes:

  • Company reports “service revenue” including excise taxes ($241.9M); SPGI “Revenue” excludes excise taxes (company’s excise taxes were $19.2M), aligning SPGI actual ~$222.7M .
  • Company “EBITDA as adjusted” ($73.8M) includes IP Transit cash; SPGI EBITDA reflects a standard definition from financial statements .
  • Values retrieved from S&P Global.*

Where estimates may adjust:

  • Models should reflect persistent off‑net and non‑core contraction, USF headwinds, and stronger wavelength/IPv4 contributions; consider using SPGI net revenue definitions (ex‑excise) and differentiating EBITDA vs EBITDA (as adjusted) .

Key Takeaways for Investors

  • Deleveraging priority is now explicit; dividend reset ($0.02) and data center monetization (LOI $144M) provide a clearer path to 4x net leverage, with buybacks resuming opportunistically .
  • Wavelength momentum is strong and AI demand is tangible; scaling to 996 DCs, improving acceptance cadence, and higher‑capacity sales mix underpin medium‑term growth .
  • IPv4 leasing is an accelerating cash generator with ARPU $0.31 and wholesale arrangements expanding address monetization; securitization provides financing flexibility .
  • Revenue base is transitioning: off‑net/enterprise declines are intentional and near completion; on‑net and waves are offsetting but near‑term revenue can remain choppy; management expects Q4 growth vs Q3 .
  • Margins expanding: GAAP and non‑GAAP gross margins continue to rise; adj. EBITDA margin reached 30.5%—sustained expansion would support deleveraging and future capital returns .
  • Watch customer acceptance of pre‑installed waves and competitive provisioning responses; acceptance is the gating factor to hitting exit run‑rate targets .
  • Tactical trading: dividend cut headlines may pressure sentiment, but buyback resumption and asset monetization are near‑term offsets; medium‑term thesis centers on AI‑driven wavelength growth, IPv4 cash flows, and leverage reduction .