Cogent Communications (CCOI) Q4 2025: On-Net Revenue Mix Soars to 61%, Accelerating Margin Expansion

2026-02-20 | By EarningsIQ Research

Cogent Communications’ Q4 2025 marks a decisive business model shift as on-net revenue mix surges, driving margin expansion and setting the stage for sustainable growth. The company has largely completed the Sprint integration, with legacy revenue runoff now masked by robust growth in core and wavelength services. Management’s focus on deleveraging, asset monetization, and disciplined capital allocation signals a new phase of operational and financial discipline for 2026 and beyond.

Summary

• On-Net Revenue Transformation: On-net services now comprise the majority of Cogent’s business, structurally improving profitability.
• Wavelength and IPv4 Growth: Wavelength and IPv4 leasing are scaling rapidly, offsetting legacy Sprint revenue attrition.
• Deleveraging and Asset Monetization: Management is prioritizing debt reduction and data center sales, setting up for future capital returns.

Performance Analysis

Cogent delivered a quarter defined by mix shift and margin expansion, as the company’s on-net revenue rose to 61% of total revenue, up from 47% following the Sprint Wireline acquisition. This shift is critical: on-net, or directly connected, services deliver meaningfully higher margins than off-net, which requires third-party infrastructure. Gross margin improved to 46.8% for the quarter and 45.4% for the full year, up 720 basis points year-over-year, reflecting both cost reductions and product optimization.

The wavelength business, Cogent’s high-capacity optical transport offering, posted a 74% year-over-year revenue increase in Q4 and doubled full-year sales to $38.5 million. IPv4 leasing, which monetizes surplus internet address blocks, also grew 44% year-over-year. These growth engines are now offsetting the steep decline in low-margin Sprint-acquired revenue, which has shrunk by 64% since acquisition and now represents just 18% of the business. Legacy Cogent revenue grew 27% since the Sprint deal, demonstrating the resilience and scalability of the core business.

• Mix Shift Impact: The rise in on-net and wavelength revenues is structurally lifting margins and reducing exposure to low-margin, legacy Sprint contracts.
• Cost Rationalization: Integration and cost control efforts have largely played out, with $230 million of $240 million targeted savings achieved.
• Core Business Resilience: Net-centric and corporate segments are growing, while enterprise and non-core Sprint revenues continue to decline as expected.

Churn rates improved across both on-net and off-net segments, and sales rep productivity, though seasonally down, remains above prior-year levels. The company’s capital intensity is declining post-integration, and CapEx has normalized following data center conversions.

Executive Commentary

Strategic Positioning

1. On-Net and Wavelength Expansion

Cogent’s strategic pivot toward on-net and wavelength services is now the primary driver of margin and EBITDA growth. On-net revenue reached 61% of the mix, up from 47% post-Sprint, while wavelength revenue doubled in 2025. Management expects continued acceleration, given less than 2% market share in North American wavelength, and sees this as a multi-year growth lever.

2. Sprint Revenue Runoff and Mix Improvement

The rapid runoff of Sprint-acquired, low-margin revenue is nearly complete, with the remaining book now a small minority of total revenue. This has masked underlying growth in Cogent’s legacy business, which is now more visible and increasingly profitable as mix shifts to higher-margin on-net and net-centric customers.

3. Asset Monetization and Balance Sheet Discipline

Cogent is actively pursuing data center sales, with negotiations underway for multiple facilities. The company is unwilling to accept owner financing, prioritizing all-cash transactions to maximize proceeds and accelerate deleveraging. Management remains committed to reaching a four times net leverage target before increasing capital returns to shareholders.

4. Capital Allocation and Debt Refinancing

With $750 million in unsecured notes maturing in 2027, Cogent plans to refinance with new secured notes as soon as the make-whole period expires in June 2026. Data center sale proceeds are not assumed in the refinancing plan but could further bolster financial flexibility and support future buybacks or dividends once leverage targets are met.

5. Product Innovation and Market Share Opportunity

Cogent’s differentiated wavelength services, with rapid provisioning (30 days, among the fastest in the industry) and aggressive pricing, are gaining customer traction. The company’s large addressable market and underpenetrated share in wavelength and IPv4 leasing offer ample room for growth, even as legacy segments mature.

Key Considerations

This quarter underscores Cogent’s successful business model transition, with the integration of Sprint now largely complete and the focus shifting to growth, margin expansion, and capital discipline. Investors should note:

Key Considerations:

• Mix Shift Leverage: The shift to on-net and wavelength revenue is structurally raising margins and reducing volatility from legacy Sprint runoff.
• Wavelength and IPv4 Growth Engines: Both businesses are scaling rapidly, with significant market share opportunity remaining, particularly in North America.
• Data Center Monetization Path: Asset sales are progressing, with management prioritizing all-cash deals to accelerate deleveraging.
• Capital Allocation Discipline: Management will not materially increase capital returns until net leverage hits four times, signaling a prudent approach to balance sheet risk.
• Operational Execution: Integration costs are winding down, and CapEx is normalizing as data center conversions complete, supporting future free cash flow growth.

Risks

Sprint-acquired revenue continues to decline, and while largely run off, residual drag could persist if customer churn accelerates. Execution risk remains in monetizing data center assets, particularly if market conditions shift or counterparties require seller financing. Competitive pricing pressure in wavelength and IPv4 could moderate future growth rates, while refinancing risk looms ahead of the 2027 note maturity. Macroeconomic headwinds or delays in asset sales could slow deleveraging progress.

Forward Outlook

For Q1 2026, Cogent refrained from providing specific quarterly guidance but reiterated:

• Quarterly revenue growth is expected from this point forward, with a targeted multi-year average of 6% to 8%.
• EBITDA margin expansion will continue, though at a more moderate pace of approximately 200 basis points per year.

For full-year 2026, management maintained its multi-year outlook:

• 6% to 8% annual revenue growth target
• Ongoing margin expansion driven by mix shift and cost control

Management highlighted several factors that will influence 2026:

• Wavelength and IPv4 leasing momentum as growth drivers
• Continued runoff of low-margin Sprint-acquired revenue, with underlying core growth now visible

Takeaways

Cogent’s business model is now firmly anchored in high-margin, scalable on-net and wavelength services, with legacy Sprint drag nearly behind it. The company’s focus on deleveraging and capital discipline sets up for future capital returns once leverage targets are met.

• Structural Margin Improvement: The mix shift to on-net and wavelength is delivering sustainable margin gains, with further upside as market share grows.
• Asset Monetization Progress: Data center sales and disciplined capital allocation are key to unlocking balance sheet flexibility and future shareholder returns.
• Execution Watchpoint: Investors should monitor the pace of Sprint revenue runoff, asset sale closings, and refinancing progress as the next phase unfolds.

Conclusion

Cogent’s Q4 2025 results highlight a successful pivot to a higher-margin, growth-oriented business model, underpinned by strong execution in on-net, wavelength, and IPv4 leasing. With integration complete and deleveraging underway, the company is positioned for sustainable growth and future capital returns once leverage targets are achieved.

Industry Read-Through

Cogent’s results signal a broader industry trend: network providers that aggressively shift to on-net, high-margin services and monetize legacy assets are best positioned for margin expansion and capital return flexibility. The strong growth in wavelength and IPv4 leasing underscores ongoing demand for scalable, high-capacity connectivity and address resources, while the rapid runoff of legacy wireline revenue highlights the imperative for disciplined portfolio management. Peers with large off-net or legacy exposure face similar mix and margin pressures, and the ability to execute on asset monetization and balance sheet discipline will increasingly differentiate sector winners.

CCOI Communication Services Telecom Wavelength Deleveraging On-net IPv4 Leasing Data Centers