CCOI Q4 2025 Earnings Analysis

Thanks Alex. And wow, what a call this was - nearly 90 minutes of detailed financial breakdowns. Cogent really pulled back the curtain on their business transformation since acquiring Sprint's wireline assets back in 2023.

Right, and the margin story is really compelling here. Gross margins expanded by 720 basis points year-over-year to 45.4% for the full year. EBITDA margins for their core Cogent Classic business jumped from 11.9% to 19.8% - that's nearly 800 basis points of improvement. The margin expansion is being driven by this strategic shift toward higher-margin, on-net services.

That sounds terrible on the surface, but here's the fascinating part - while Sprint revenue was collapsing, their legacy Cogent Classic business grew by 27% over the same period, from $155 million quarterly to $197 million. So they essentially replaced a declining, low-margin business with growing, high-margin revenue.

Speaking of new products, let's talk about their wavelength business - this is their newest growth engine. Wavelength revenue hit $12.1 million in Q4, up 74% year-over-year and 19% sequentially. For the full year, wavelength revenue reached $38.5 million, doubling from 2024.

They're also expanding their footprint aggressively. They can now offer wavelength services in 1,068 locations with about 30-day provisioning - that's three to four times faster than industry averages. A third-party report ranked them number two for provisioning speed, and Schaeffer thinks they'll be number one soon.

That's a pretty firm line in the sand. And they have some potential catalysts to accelerate deleveraging. They're actively trying to sell about 24 data centers they acquired from Sprint. An initial letter of intent fell through because the buyer wanted Cogent to provide over 50% financing, which they rejected. But Schaeffer said they have backup offers and expect to announce something within a couple months.

Let's dig into the Q&A because there were some revealing moments. One analyst pressed Schaeffer on revenue guidance, noting that Street estimates might be too optimistic. Schaeffer was careful not to give specific quarterly guidance, but he did say he's "comfortable that quarterly reported revenues are going to grow" going forward.

The IPv4 address leasing business is another interesting angle. They generated $64.5 million in IPv4 revenue for 2025, up 44% year-over-year. They own 37.8 million IPv4 addresses and are currently leasing about 40% of them. As IPv4 addresses become scarcer, this becomes a nice recurring revenue stream.

What I find compelling about this story is the operational discipline. They've essentially cleaned house on low-margin Sprint customers while growing their core business. The 80% on-net sales mix in Q4 shows they're really focused on profitable growth over growth at any cost.

Of course, investors need to be patient. The deleveraging priority means limited capital returns until they hit that four times leverage target. But if they can maintain this margin expansion while growing the top line, the math works out pretty well for equity holders once that leverage comes down.

I'd watch sequential revenue growth, wavelength business momentum, and any updates on data center asset sales. Those are the key variables that could accelerate the deleveraging timeline and get them back to meaningful capital returns sooner.

That's right. Everything discussed today is AI-generated analysis for educational purposes only. Past performance doesn't guarantee future results. Please do your own due diligence and consult with qualified financial advisors before making any investment decisions.