Cogent Communications (CCOI) J.P. Morgan 54th Annual Global Technology, Media and Communications Conference summary

Strategic transformation and operational progress

• Successfully converted the Sprint network into a wave-enabled network, expanding from 800 to 1,107 data centers, with AI training emerging as a new use case and higher-than-expected aggregate demand.

• Data center footprint increased to 185 facilities, with 24 large sites identified for divestiture; 10 under LOI for sale and 14 more earmarked, aiming to optimize asset utilization.

• Margin expansion has outpaced expectations, with annual EBITDA margin growth of about 800 basis points since the Sprint acquisition, though future expansion is guided at a more moderate 200 basis points per year.

• On-net sales have increased, with 83% of recent sales on-net, supporting higher incremental margins and improved capital efficiency.

• Organic revenue growth is expected to drive future performance as Sprint-related revenues decline and become a smaller portion of the business.

Financial strategy and capital allocation

• Proceeds from data center sales will be used to repurchase secured debt and refinance 2027 unsecured notes, with the goal of reducing net leverage from 6.7x to 4.0x.

• Minimal tax leakage is expected from the data center sale due to available NOLs and capital expenditures.

• Capital returns to shareholders, including dividends and buybacks, will resume as leverage targets are met, with the mechanism depending on market conditions.

• Historical capital return included $1.7 billion in dividends and $237 million in buybacks, with future returns contingent on achieving leverage goals.

Market trends and growth drivers

• Internet traffic growth has re-accelerated to 14% year-over-year, driven by AI inference and increased data storage for training, marking a new wave of industry growth.

• Wavelength business has grown from 0% to 3% market share in 18 months, with a long-term target of 25% based on competitive advantages in footprint, speed, reliability, and cost.

• AI-driven demand is primarily from hyperscalers, with a shift in data storage patterns and increased symmetry in network traffic.

• Supply chain constraints affecting customers' ability to accept new wave services, including power, server equipment, and optics shortages.

• Margin growth is supported by on-net mix, pricing discipline, remaining synergies from the Sprint acquisition, and ongoing integration efforts.