CCOI Q4 '24: Wavelength Provisioning Time Drops to 30d, Sees $500M Run
- Rapid Improvement in Wavelength Services: The management highlighted a dramatic reduction in provisioning times—from 120 days in Q3 to 30 days in Q4, with plans to reach a 2-week target. This, combined with minimal incremental CapEx (~$15,000 per additional data center) and accelerating installations (targeting 500 installs per month), suggests a strong capability to capture market share and drive revenue toward the $500 million annual run rate target over the next few years.
- Robust IPv4 Leasing Momentum: The company is aggressively raising prices on IPv4 addresses—current pricing approaching $0.44 per address—and expects to add nearly 0.5 million new addresses per quarter over multiple quarters. This move, supported by strong demand and enhanced leasing focus, creates a recurring revenue stream that now contributes almost 5% of total revenues, bolstering the bull case.
- Margin-Enhancing Customer Grooming and Sales Productivity: The ongoing grooming of non-core and low-margin corporate and enterprise segments is expected to result in a turnaround after a couple of negative quarters. Improvements include migrating off-net customers to on-net services and increasing sales force productivity from 3.5 to nearly 5 connections per rep per month. This strategy is set to drive healthier margins and, ultimately, positive revenue growth in the traditional corporate market.
- Corporate Revenue Concerns: Analysts questioned the sustainability of the corporate segment as revenues have been declining (with a 2.7% sequential drop) and only expected to rebound after additional grooming over the next one to two quarters.
- Wavelength Backlog Shrinkage: The reduction in the wavelength sales funnel from 3,400 to 2,700 orders suggests potential customer drop-offs or cancellations, raising concerns about future wavelength revenue momentum.
- IPv4 Leasing Volatility: The noted restatement issues and the lower-than-historically typical unit additions (just under 100,000 units versus previous quarters’ run rates of around 500,000 units) signal potential weakness and uncertainty in the IPv4 leasing segment.
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Full-Year Guidance
Q: What full-year EBITDA and revenue expectations?
A: Management expects EBITDA to remain near $350 million in 2025 with revenue slightly up, signaling stable operations after cost reductions and step‐downs in payments. -
Wavelength Revenue
Q: What are the prospects for wavelength sales?
A: They are targeting a run rate of $500 million in wavelength revenue by mid-2028, driven by rapid provisioning improvements and broad data center coverage. -
IPv4 Pricing
Q: How will IPv4 price hikes impact revenues?
A: Management is raising IPv4 prices—with incremental increases on about 10 million addresses potentially adding roughly $12 million in revenue—reflecting strong demand. -
Customer Segments
Q: How are your customer segments performing?
A: NetCentric business is robust and growing, while corporate and enterprise segments are undergoing deliberate grooming of non-core, low-margin services to ultimately boost margins and revenue. -
Corporate Revenue
Q: What’s driving corporate revenue trends?
A: Corporate revenue is declining in the short term due to the intentional removal of low-margin off-net products, with expectations of positive growth once on-net migration completes. -
Wavelength Investment
Q: What investments are driving faster wave installs?
A: Investments in network automation and enhanced sales processes have reduced provisioning from 90 days to 30 days, with plans to hit 2 weeks and support an install cadence of about 500 orders per month. -
Competitive Edge
Q: How does Cogent differentiate its wave services?
A: Cogent leverages a unified network and highly accurate fiber mapping to deliver rapid, low-cost provisioning, setting it apart from competitors like Lumen and Zayo. -
CapEx Outlook
Q: What is the CapEx expectation going forward?
A: After elevated spending on data center conversions earlier, the sustained CapEx is expected to level off to about $100 million annually by later in the year. -
IPv4 Unit Growth
Q: What’s the expected pace for new IPv4 addresses?
A: While recent new unit additions were around 100,000, management expects an average growth of roughly 500,000 addresses per quarter over the coming periods after adjustments. -
Wavelength Backlog
Q: What explains the wavelength order backlog decline?
A: The backlog fell from 3,400 to 2,700 orders due to a focused grooming of the funnel, with some orders converted to installations and others lost to competitors, while new orders continue to ramp up. -
Asset Monetization
Q: Leasing versus selling: what’s the preference?
A: For both IPv4 and data center assets, Cogent currently favors leasing to maximize revenue, though it remains open to selective sale if market conditions and asset pricing become more favorable. -
Housekeeping Metrics
Q: How many wavelength orders were groomed and any one-time expenses?
A: Management groomed about 1,500 orders from the funnel and incurred roughly $5 million of one-time non-capitalized expenses related to data center transitions. -
Customer Churn
Q: Can you provide a consolidated churn rate?
A: Given the mix of off-net disconnections, migrations, and purposeful service terminations, management explained that a single churn number is not feasible and each segment must be assessed separately.
Research analysts covering COGENT COMMUNICATIONS HOLDINGS.