Cogent (CCOI) Q2 Revenue Falls 5.5%

Cogent Communications (CCOI -18.73%), a global provider of high-speed Internet access and private network services, reported its results for the quarter ended June 30, 2025, on August 7, 2025. The headline news was a continued year-over-year decline in GAAP revenue and earnings per share, both of which missed analysts’ expectations, even as the company made notable progress in boosting margins and cutting costs. GAAP revenue was $246.2 million, just below analyst estimates of $247.62 million. GAAP diluted earnings per share (EPS) were $(1.21), compared to consensus expectations of $(1.00) and last year’s GAAP net loss per share was $(0.68). EBITDA increased by 78.8% year-over-year to $48.5 million, but ongoing net losses and a rising debt load remain key concerns. Overall, the quarter reflected steady operational improvement in some areas, but top-line pressure and persistent losses remain as the company advances through the final stages of integrating its legacy Sprint business.

Source: Analyst estimates for the quarter provided by FactSet.

Business Model and Recent Strategic Focus

Cogent Communications is a specialist in providing affordable Internet connectivity and private networking for corporate, enterprise, and net-centric customers. Its business hinges on running a large, cost-efficient fibre optic network spanning more than 50 countries, with a heavy emphasis on delivering competitive prices. Key to its model is the disciplined use of Ethernet protocol and a mix of owned and leased dark fiber to contain costs and enable scale, helping it compete with much larger carriers.

Since acquiring the Sprint fiber network in 2023, Cogent Communications has placed special emphasis on network expansion, product innovation, and customer base growth. Its current success factors include advancing its Wavelength fiber services and growing its profitable IPv4 address leasing business. Ongoing integration of the Sprint assets remains crucial, particularly as the company "grooms" its customer roster by exiting less profitable, non-core business as it seeks to return to sustained revenue growth in the second half of 2025.

Quarterly Highlights and Operational Details

The quarter’s most notable development was the continued year-over-year revenue decline, driven by deliberate churn of non-core, low-margin business and continued runoff of legacy Sprint contracts. GAAP diluted EPS fell further negative to $(1.21), from $(0.68) in Q2 2024, with GAAP net losses expanding as cost savings were not enough to offset top-line declines.

However, Gross margins (GAAP and non-GAAP) improved year over year. Non-GAAP gross margin rose to 44.4%, up from 40.2% in Q2 2024. EBITDA was $48.5 million, an increase of 78.8% from Q2 2024. Year-over-year, network operations expense fell 12.0%. while SG&A dropped 8.4% sequentially. Management reported that the remainder of its targeted $220 million in Sprint-related cost savings were realized in Q1 2025. Headcount from the Sprint acquisition has dropped to 603 from 942 originally, with management expecting at least another $20 million in savings through Q2 2026.

Wavelength services, which involve high-capacity connections over optical fiber, stood out for accelerated growth, with revenue increasing by 27.2% sequentially and by 149.8% year-over-year. Wavelength revenue more than doubled year over year to $9.1 million, up 27.2% sequentially. Customer connections for this service hit 1,469, a 94.8% increase from the prior year. Management attributes this strength to the reach and provisioning speed enabled by the former Sprint network, targeting a 25% market share in North America over the next three years. The company’s pipeline of new Wavelength deals (“funnel”) reached 3,433, with an aim to expand to 10,000 by year-end 2025.

IPv4 address leasing, the monetization of legacy Internet Protocol version 4 addresses, continued to generate strong revenue growth. Revenue from IPv4 leasing grew 40.1% year over year to $15.3 million, even as the company reclaimed several hundred thousand addresses for policy violations. Management expects to add at least 500,000 addresses per quarter as churn normalizes. The segment benefits from price increases tied to rising scarcity of available addresses, with per-address lease rates now averaging $0.49 monthly.

Churn and customer trends reflected ongoing business “grooming.” Total customer connections declined to 118,730 as of June 30, 2025, a 7.8% drop from the prior year, as off-net and non-core business was wound down. Off-net customer connections dropped 19.9% year over year, while On-net connections remained essentially stable. Management noted that this intentional churn is nearly complete and stated that positive total revenue growth should resume by mid-Q3 2025. On a segment basis, on-net revenue fell 6.0% year-over-year but rose 2.1% sequentially. The net-centric business, focused on high-powered customers moving large data volumes, reported modest growth, in contrast to ongoing declines in the corporate and enterprise customer base.

Cogent Communications also continued to grow its network footprint, adding 29 on-net buildings from March 31, 2025 to June 30, 2025, and expanding coverage in carrier-neutral and wave-enabled data centers. A key longer-term goal is to monetize excess data center capacity through sales or long-term leases. Although several data center dispositions are in contract negotiation, no transactions have closed yet. Monetization is seen as vital to reducing the company’s high leverage, which now stands at 8.65 times trailing adjusted EBITDA. Debt reached $2.34 billion and cash and restricted cash totaled $306.7 million as of June 30, 2025. Net cash used in operating activities (GAAP) worsened, with $44.0 million in outflows compared to $22.2 million in outflows for Q2 2024. Capital expenditures held steady at $56.2 million, largely linked to network and data center upgrades.

The regular quarterly dividend was raised again to $1.015 per share, up 0.5% from the previous period and 3% from a year ago. This marks the fifty-second consecutive quarterly dividend increase, with the regular dividend approved at $1.015 per share. The company also repurchased $11.5 million of its stock during the quarter and $3.1 million in July 2025, with an additional $100 million buyback authorization announced. Management noted that dividend growth would slow as leverage peaks, reflecting a focus on maintaining financial flexibility until revenues and cash flow inflect upward.

Looking Ahead: Forecasts and Investor Watch Points

Management maintained its outlook for an inflection to positive total revenue growth later in the year as the exit from undesirable Sprint-derived business concludes, specifically indicating an expected return to total top line revenue growth by mid-Q3 2025. Leadership reiterated its new long-term annual growth targets of 6% to 8% for revenue and a 150 basis point improvement in adjusted EBITDA margin per year as multiyear goals. The Wavelength opportunity is expected to remain a primary driver, with the target of a 10,000 contract funnel by year’s end.

Management was explicit that Dividend growth will moderate until leverage trends downward, with the Board electing to slow the rate of dividend growth while leverage remains elevated and indicating that the pace of dividend increases will be re-evaluated as net leverage declines (management comments, Q1 2025 earnings call), pointing to financial discipline in the face of ongoing net losses. No additional formal forward guidance was offered for the upcoming quarter.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.