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COGENT COMMUNICATIONS HOLDINGS, INC. (CCOI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 service revenue declined 1.9% q/q to $252.3M and 7.3% y/y, but EBITDA improved 16.7% q/q to $41.9M and EBITDA margin expanded 270 bps to 16.6% on cost actions and mix; non-GAAP gross margin rose to 38.7% .
  • Wavelength revenue grew 31.8% q/q to $7.0M as wave-enabled sites reached 808, with provisioning times reduced to ~30 days and a target of ~2 weeks ahead; IPv4 leasing revenue rose 11.8% q/q to $12.6M on price and volume .
  • Corporate and enterprise segments are still being “groomed” (non-core and low-margin disconnects), pressuring top line but enhancing margins; management expects corporate to turn positive in 1–2 quarters and enterprise to stabilize into early 2026 .
  • Board raised the dividend to $1.005 for Q1 2025 (50th consecutive increase); 2024 dividends expected to be fully characterized as return of capital for U.S. tax purposes .
  • Management reiterated multi-year outlook: annual revenue growth driven by wavelengths, EBITDA(as-adjusted) margin expansion of 100 bps per year, and FY25 EBITDA(as-adjusted) around FY23–FY24 levels ($350M), with deleveraging expected to resume in late 2025; potential stock reaction catalysts include accelerating wave installs, asset monetization, and sustained dividend increases .

What Went Well and What Went Wrong

What Went Well

  • Wavelength momentum: revenue +31.8% q/q and +124% y/y; wave-enabled sites reached 808 across North America; provisioning reduced to ~30 days with a path to ~2 weeks. “We will be…down to the same 2-week average that we have in IP services” .
  • Margin improvements and cost discipline: EBITDA +16.7% q/q; SG&A -7.5% q/q and -25.6% y/y; management has “realized over 90% of our targeted $220 million in annual savings” from Sprint integration .
  • IPv4 leasing pricing power: ARPU per IPv4 address sold up 47% YTD to $0.44 per address; quarter revenue +11.8% q/q to $12.6M; “we will be increasing prices on…customers at lower rates over the next several months” .

What Went Wrong

  • Top-line softness from grooming and lower office occupancy: service revenue -1.9% q/q and -7.3% y/y; corporate revenue -2.7% q/q and -10.7% y/y due to non-core eliminations and off-net grooming amid still-challenged office markets .
  • Elevated leverage and interest expense: gross leverage 5.72x and net leverage 5.07x LTM EBITDA(as-adjusted); interest expense rose to $45.4M in Q4; management expects leverage to peak in 2025 before declining .
  • Wavelength order funnel reduced ~20% after grooming stale orders; backlog 2,700 orders remains, but some aged opportunities went elsewhere before provisioning capability was in place .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Service revenue ($USD Millions)$272.1 $260.4 $257.2 $252.3
EBITDA ($USD Millions)$6.0 $27.1 $35.9 $41.9
EBITDA Margin %2.2% 10.4% 13.9% 16.6%
GAAP Gross Margin %10.9% 11.6% 3.8% 11.8%
Non-GAAP Gross Margin %36.0% 40.2% 37.4% 38.7%
Diluted EPS ($USD)$4.17 $(0.68) $(1.33) $(0.91)
Cash from Operations ($USD Millions)$(48.7) $(22.2) $(20.2) $14.5
Capital Expenditure ($USD Millions)$43.6 $48.8 $59.2 $46.1
EBITDA, as adjusted ($USD Millions)$110.5 $106.2 $60.9 $66.9
EBITDA, as adjusted, Margin %40.6% 40.8% 23.7% 26.5%

Segment revenue breakdown:

SegmentQ4 2023Q2 2024Q3 2024Q4 2024
On-Net ($USD Millions)$138.1 $140.8 $136.5 $128.8
Off-Net ($USD Millions)$123.7 $111.5 $111.3 $113.2
Wavelength ($USD Millions)$3.1 $3.6 $5.3 $7.0
Non-Core ($USD Millions)$7.3 $4.6 $4.1 $3.4
Corporate ($USD Millions)$126.6 $119.6 $116.2 $113.1
NetCentric ($USD Millions)$93.1 $91.1 $91.9 $93.6
Enterprise ($USD Millions)$52.3 $49.8 $49.1 $45.6

KPIs and operational metrics:

KPIQ4 2023Q2 2024Q3 2024Q4 2024
Total customer connections137,603 128,782 126,333 123,383
On-net customer connections88,291 87,387 87,655 87,500
Off-net customer connections36,676 32,758 32,420 28,963
Wavelength customer connections661 754 1,041 1,118
On-net buildings3,277 3,386 3,424 3,453
Wave-enabled data centers265 516 657 808
Connected networks (AS’s)7,988 8,135 8,212 8,250
Sales rep productivity (units/FTE/month)3.3 3.8 4.0 3.5
On-net ARPU ($/month)N/AN/AN/A$490 (from $520, -5.7% q/q)
Off-net ARPU ($/month)N/AN/AN/A$1,229 (+8% q/q)
Wavelength ARPU ($/month)N/AN/A$1,964 $2,151 (+9.5% q/q)
Monthly churn (on-net / off-net)N/AN/A1.2% / 2.6% 1.3% / 2.6%
Gross leverage (x)4.07 4.06 4.94 5.72
Net leverage (x)3.75 3.14 4.13 5.07

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular quarterly dividend (per share)Q4 2024 → Q1 2025$0.995 (Q4 2024) $1.005 (Q1 2025) Raised
CapEx run-rateFY2025N/ASimilar to 2H24 in 1H25, then tail-off; run-rate ~$100M by Q3/Q4 2025 New framework
Wavelength provisioningQ3 2024 → Q4 2024 → Q1 2025~120 days (Q3 2024) ~90 days (Q4 2024) → ~30 days now; target ~2 weeks Improved materially
EBITDA (as adjusted) outlookFY2024 vs FY2023“FY24 ~ FY23” (delivered $348M vs $352M) FY2025 “effectively equivalent” to FY23/FY24 (~$350M) Maintained (multi‑year)
Revenue outlookFY2025N/ASlightly up, driven by wavelength sales New commentary
U.S. federal income taxFY2024N/ANo U.S. federal tax liability expected for FY2024 New
IP Transit payment cadence (T-Mobile)2023–2027Heavier 2023 payments ($29.2M x7) $8.3M/month for 35 months until Nov 2027 Step-down continues

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Wavelength buildout & provisioningWave revenue +9% q/q (Q2) and +45.8% q/q (Q3); enabling more DCs Revenue +31.8% q/q; 808 wave-enabled sites; provisioning ~30 days; targeting ~2 weeks Accelerating
IPv4 leasing monetizationQ2/Q3 revenue grew; address adds varied; pricing rising $12.6M revenue (+11.8% q/q); average price per address up 47% YTD; continued price hikes planned Positive pricing/mix
Corporate/enterprise groomingQ2/Q3: Non-core eliminations; office occupancy headwinds Corporate -2.7% q/q; mgmt sees 1–2 quarters to positive, enterprise stabilizing into early 2026 Nearing inflection
Data center monetizationProgram underway; enabling conversions (Q3) 23 large sites targeted; 3 converted, 20 in process; call for offers in 6–8 weeks; lease/purchase flexible Progressing
Leverage & interest expenseGross/net leverage rose with debt issuance (Q2/Q3) Gross 5.72x, net 5.07x; trough expected in 2025; deleveraging expected from Q4’25 onward Near-term peak
Dividend policySequential increases; Q3 to Q4 raised 50th consecutive increase; 2024 dividends expected to be ROC for U.S. tax Continued support

Management Commentary

  • Strategy and integration: “Our combined Cogent business had a good quarter… We have realized over 90% of our targeted $220 million in annual savings” .
  • Wavelength market positioning: “100% of our sites can support 10G, 100G and 400G waves… we will be aggressive… switching costs are trivial” .
  • Provisioning improvement: “In Q3 we were at ~120 days… by Q4 ~90… this quarter ~30 days… we feel comfortable… we can get down to…2 weeks” .
  • Outlook and capital discipline: “We anticipate annual growth of 5% to 7% and EBITDA, as adjusted, margins expanding by about 100 basis points per year” .
  • IPv4 pricing: “We will be increasing prices on…customers at lower rates over the next several months… can further raise prices for new sales” .

Q&A Highlights

  • Corporate and enterprise outlook: Corporate expected to turn positive in 1–2 quarters; enterprise decline to persist into early 2026, stabilizing thereafter as legal/commercial constructs shift in non-licensed countries .
  • Wavelength funnel grooming and installs: Backlog trimmed (about 1,500 orders groomed) as provisioning capability scaled; mgmt targeting ~500 installs/month after clearing aged orders .
  • Competitive positioning vs Lumen/Zayo: Cogent cites broader DC coverage, faster provisioning, accurate GIS, and lower cost base; expects share capture and market expansion .
  • IPv4 revenue reporting and audit: Prior disclosures were MRC totals rather than GAAP revenue; adjustments made during audit preparations; mgmt still expects multi-quarter average net adds ~0.5M addresses per quarter .
  • Asset monetization: Considering leases/sales for DC assets; may securitize lease cash flows; ~50 counterparties active; call for offers planned in 6–8 weeks .

Estimates Context

  • Consensus estimates for Q4 2024 EPS, revenue, and EBITDA from S&P Global were unavailable due to data access limits at the time of this analysis; as a result, we cannot quantify beats/misses versus Street for Q4 2024. Values would be retrieved from S&P Global once access is restored.
  • Implications: Given the sequential EBITDA improvement and margin expansion, and continued grooming headwind on corporate/enterprise, we would expect estimate revisions to focus on wavelength ramp and IPv4 pricing, while trimming near-term corporate growth.

Key Takeaways for Investors

  • Margin expansion despite revenue pressure reflects successful Sprint integration savings and mix shift; near-term revenue softness appears transitory as grooming concludes and waves scale .
  • Wavelength is a core growth engine: rapid provisioning, broad endpoint coverage, and multi-speed capability provide structural advantages; backlog grooming sets stage for accelerated conversions in 2025 .
  • IPv4 leasing is a meaningful lever: pricing power and continued inventory monetization support cash generation and offset headwinds; audit adjustments clarify GAAP timing .
  • Dividend durability: 50th sequential increase, with 2024 dividends expected to be return of capital; leverage near-term peak manageable given expected deleveraging trajectory .
  • Watch corporate/enterprise inflection: corporate trending to positive in ~1–2 quarters; enterprise stabilizing into early 2026; improvements in office occupancy could accelerate on-net demand .
  • Asset monetization optionality: DC conversions and potential lease/sale transactions provide balance sheet flexibility; securitization of leases could further optimize capital .
  • Near-term trading setup: Narrative catalysts include sustained wave revenue growth, provisioning improvements, IPv4 price actions, and dividend cadence; risk is revenue drag from grooming and leverage optics until deleveraging resumes .

Notes:

  • All financial and operational figures are sourced from the company’s Q4 2024 8-K and press release, and the Q4 2024 earnings call transcript as cited above.
  • S&P Global consensus estimates were unavailable at time of query due to API limits; beats/misses could not be determined. Values would be retrieved from S&P Global upon access restoration.