Cogent Sells 10 Data Centers for $225M to Cut Leverage, but Wavelength Growth Remains Constrained
Net leverage drops to 6.23x; gross margin expands 260bps YoY; stock down 55% in 90 days.
CCOI · Earnings Call · 2026-08-06
A Quarter of Asset Sales and Deleveraging
Cogent's Q2 2026 report was dominated by the culmination of its Sprint data center monetization plan. The company closed the sale of 10 former Sprint facilities converted into data centers for $225 million in cash, generating a $130.7 million GAAP gain. “We intend to use the majority of these proceeds from the transaction to reduce both our gross leverage and our net leverage.” — David Schaeffer, Chief Executive Officer · 2026-08-06 As a result, net leverage fell to 6.23x EBITDA, down from 6.79x last quarter and 6.61x a year ago. The company also amended its 2032 secured note indenture to raise the maximum secured debt leverage from 4x to 4.75x and committed to using at least $175 million of proceeds to repurchase debt. Net leverage is now on a clear downward path, further supported by the completion of many integration projects and a 6% reduction in headcount. The sale of these Sprint facilities is just the first tranche; management expects to monetize additional sites over coming quarters.Revenue Mix Shift: On-Net Wins, Off-Net Fades
The bigger story is the ongoing transformation of the revenue base. On-net revenue, including wavelengths, rose to 64% of total revenue, up from 62.4% last quarter and 57.4% in Q2 2025. Meanwhile, off-net revenue fell 17.3% YoY to $84.5 million. This mix shift, coupled with aggressive cost discipline, pushed gross margin up 260 basis points YoY to 47%. “Our total on-net revenues, including on-net wavelengths, increased 63.8%. So close to 64% of our total revenues this quarter.” — Thaddeus Weed, Chief Financial Officer · 2026-08-06 Gross margin has climbed back to 46% in the latest filed quarter, up from a trough of 36% in late 2023, driven by the on-net shift and integration savings. The company also reduced headcount by 113 to 1,682, and expects further moderate reductions. This disciplined approach to costs, combined with the continued rotation toward higher-margin on-net services, is the key driver of EBITDA margin expansion.Wavelength Growth: Strong Demand, Stalled Installations
Wavelength revenue grew 63.8% YoY to $14.8 million, and the company now offers services in 1,137 locations. However, sequential growth was a mere 9.2%, and the company admitted that customer supply chain constraints are holding back acceptance of installed waves. “We have been frustrated by the fact that many customers struggle to have the ability to use the waves that they've ordered, whether it be equipment deliveries, power constraints, or data center space and cooling availability.” — David Schaeffer, Chief Executive Officer · 2026-08-06 This echoes concerns from prior quarters. “The wavelength install rate was not impacted by our supply constraints, but it was impacted by supply chain constraints of our customers.” — David Schaeffer, Chief Executive Officer · 2026-05-04 The company remains confident in its long-term goal of capturing 25% of the North American long-haul wavelength market, but the timeline may stretch. Indeed, wave demand remains strong, yet the pace of revenue recognition depends on customers' ability to take service.Refinancing and the Path Forward
Cogent is also in the process of refinancing its $750 million 2027 unsecured notes, likely with a new secured issue.The company expects the refinancing to complete in Q3 2026, albeit at a higher cost of capital given rising treasury yields. Long-term, management reiterated targets of 6-8% revenue growth and ~200bps of annual EBITDA margin expansion, but the near-term revenue decline continues as the Sprint legacy base fades. Despite the strong operational execution, the stock has been hit hard, falling 55% over the last 90 days and sitting 63% below its 2020 peak. Investors appear focused on the declining revenue and the refinancing risk, but the deleveraging story and margin expansion may be underappreciated.In many ways, your question may be the most important to our investors on this call. So I think we are expecting to try to raise less than the $750 million and use some of the proceeds to do that.