Cogent Communications Targets Debt Refinance as Sprint Revenue Drag Nears End

Debt refinancing is Cogent’s primary near-term concern: $750 million of unsecured debt became current in the second quarter, and the company is pursuing a smaller, shorter-term secured refinancing to improve flexibility. The Sprint revenue drag is nearing an end: Sprint-related revenue has fallen to 15% of combined revenue after 12 quarters of declines, while cost reductions have helped expand EBITDA margins and Cogent expects about $50 million in additional EBITDA benefits next year. Growth opportunities are emerging in wavelength services: Wavelength revenue rose 68% year over year to $14.8 million, with 548 customers and roughly 2,500 wavelengths, while lower capital spending and potential data-center sales could support deleveraging. Chief Executive Officer Dave Schaeffer said investor concerns about the company’s debt refinancing and continued revenue declines in its acquired Sprint business were key factors behind recent pressure on its shares. Speaking at a TD Cowen conference, Schaeffer said $750 million of Cogent’s unsecured debt became current during the second quarter. The company is pursuing a refinancing that would likely involve a smaller amount of secured debt with a shorter maturity, giving Cogent more flexibility to call the debt. Schaeffer said Cogent’s reported revenue has declined for 12 quarters following its acquisition of Sprint assets, whose revenue had been falling at an annual rate of 10.9% in the three years before the transaction. Sprint represented 42% of the combined company’s revenue at the time of the acquisition, compared with 58% for legacy Cogent. Cogent intentionally accelerated the reduction of the acquired revenue base by removing unprofitable products and services, migrating access services to fiber where possible, and exiting services outside the 58 countries in which it is licensed, Schaeffer said. He said the Sprint-related revenue base now represents 15% of combined-company revenue. While revenue has declined, Schaeffer said EBITDA increased sequentially and year over year in 11 of the past 12 quarters, while combined EBITDA margins expanded by more than 2,000 basis points. He attributed most of that improvement to cost reductions. The company reports EBITDA that includes subsidy payments from T-Mobile, which are set to end in February 2028. Schaeffer said underlying EBITDA was $192 million last year, compared with reported EBITDA of $292 million. Cogent expects roughly $50 million in additional EBITDA tailwinds entering next year, including savings from its cost base, the sale of a portion of its data center footprint and lower integration-related headcount costs. The company reduced headcount by 6% and expects integration spending to fall to zero by year-end, he said. Cogent’s capital expenditures fell by $18 million sequentially in the second quarter. Schaeffer said the company still views approximately $25 million per quarter as its long-term capital spending run rate, though reaching that level may depend on the easing of supply-chain constraints. Before acquiring Sprint, Cogent’s annual capital expenditures were about $100 million, while Sprint’s were about $30 million. Cogent had expected network consolidation synergies to bring the combined run rate to roughly $100 million annually, in addition to about $40 million in annual principal paymen.