Cogent Communications (CCOI) Q3 2026 earnings review
Cogent cuts debt and costs, but sales fall and dividend ends
Cogent Communications lifted its operating profit through staff and network cuts, yet departing corporate customers kept total sales shrinking. The internet backbone provider reported $231 million in third-quarter revenue, down 4% from a year ago, as off-net customer losses nearly doubled from last quarter. Cutting 79 jobs and shedding leased fiber lines pushed adjusted EBITDA up 4% from last quarter to $74 million, while the company spent $156 million in cash to buy back debt.
| Service revenue | $231.2M -4.4% from a year ago (-4.2% in constant currency) |
|---|---|
| EBITDA, as adjusted | $73.9M +3.9% from last quarter (32.0% margin) |
| Wavelength revenue | $16.0M +57.0% from a year ago (+7.8% from last quarter) |
| Quarterly dividend outlook | Suspended cut from $0.02 per share on November 4 |
⚖️ Verdict: 🔴 Bearish
The story got worse because the June 2027 debt maturity arrived inside the one-year window without the refinancing management had planned for the third quarter. The board suspended the remaining two-cent dividend to conserve cash, and faster off-net revenue losses contradicted earlier claims that acquired Sprint churn was calming down. One bright spot: net new optical wavelength connections rose to 277 from 182 last quarter by our math, showing that data center customers are activating high-speed links faster.
The question now is whether Cogent can refinance its $700 million of June 2027 unsecured notes and close its new $100 million data center sale agreements before next summer without a steep jump in interest costs. One view is that its remaining data centers and rising wavelength sales provide enough collateral to secure manageable terms; the other is that negative free cash flow and the November 2027 end of T-Mobile subsidy payments will force expensive or restrictive debt terms. A binding refinancing deal and definitive data center sale contracts over the next two quarters will settle it.
🐂 Bull Case
Bond Buybacks Cut Total Debt by $177 Million
Cogent Communications promised bondholders in June that it would spend at least $175 million from its data center sales to buy back debt below face value. This quarter the internet network operator fulfilled that pledge by using its cash pile to retire both long-term and near-term bonds.
- 2032 secured notes bought in Q3: $118.4 million face value for $106.7 million cash
- 2027 unsecured notes bought in Q3: $50.0 million face value for $49.6 million cash
- Total 2026 debt buybacks: $188.8 million face value retired for $175.0 million cash by our math
- Gross debt ratio under bond rules: down to 5.35 times cash flow from 5.94 times in Q2
Buying the 2032 notes at roughly 90 cents on the dollar created an $11.3 million accounting gain and lowered total debt by $176.5 million to $2.16 billion. However, total cash dropped from $369.7 million to $181.3 million because the company spent those sale proceeds, so net debt slightly rose by $11.8 million.
What to watch: any further discounted bond purchases in the fourth quarter. Additional buybacks would reduce annual interest costs, which still consumed $42.1 million this quarter.
Staff and Network Cuts Lifted Operating Profit
Cogent has been trimming staff and leased lines acquired from Sprint to raise its profitability while sales decline. Those cuts lowered both day-to-day network running costs and corporate overhead this quarter.
- Network operations cost: $121.0 million, down 1.8 percentage points of revenue from a year ago by our math
- Gross margin excluding one-offs and depreciation: 47.6%, up 1.8 percentage points from a year ago
- Overhead expenses excluding stock pay: $61.3 million, down 5.1% from last quarter
- Total headcount: 1,603 employees, down 79 from last quarter and 279 from a year ago
The company also shed 23,011 leased metro fiber miles during the quarter, which helped push EBITDA, as adjusted for T-Mobile transit payments, up 3.9% from last quarter to $73.9 million. Because revenue shrank, cost reductions alone carried the 1.8 percentage point rise in adjusted EBITDA margin to 32.0%.
What to watch: overhead expenses excluding stock pay in the fourth quarter. Management previously committed to sequential overhead declines in both the third and fourth quarters as integration work ends.
Wavelength Connections Rebounded as AI Traffic Grew
Optical wavelengths are high-capacity fiber links between data centers that Cogent built over the former Sprint network. While buyers have been slow to activate installed lines and the company still omits its order backlog, active connections grew faster this quarter.
Cogent added 277 net new wavelength connections by our math, up from 182 in the second quarter, taking the total to 2,722 across 1,151 locations. Wavelength revenue rose 7.8% from last quarter and 57.0% from a year ago to $16.0 million, while total internet network traffic grew 14% from a year ago.
That rebound shows customers are turning on more circuits, but the $1.2 million quarterly revenue increase remains too small to offset the $7.9 million drop in off-net sales. At an annualized pace near $64 million, wavelength sales remain far from management's long-term $500 million goal.
What to watch: quarterly net new wavelength connections in the fourth quarter. Sustaining additions near 300 per quarter would show that data center power and equipment bottlenecks are easing.
🐻 Bear Case
June 2027 Debt Wall Remains Unrefinanced as Board Ends Dividend
Cogent has $700.0 million face value of unsecured notes maturing in June 2027, which management previously aimed to refinance during the third quarter. The quarter closed without a refinancing deal, and the balance sheet now lists $697.6 million of those notes as a current liability due within a year.
To preserve cash ahead of that maturity, "On November 4, 2026, Cogent’s Board voted to suspend its dividend program" after already cutting the payout from $1.015 to $0.02 per share late last year. Ending the token payout saves about $5 million a year, while total current liabilities now stand at $908.3 million against $436.0 million of current assets.
With $181.3 million in total cash and operations still burning cash after capital spending, the fiber carrier cannot pay off the June 2027 notes from internal funds. Securing a replacement loan or closing new asset sales before next summer is now the single largest financial hurdle for the business.
What to watch: a binding refinancing announcement for the $700 million of 2027 unsecured notes before year-end. The interest rate on the new debt will determine whether annual interest costs rise from the current $168 million annualized pace.
Off-Net Customer Losses Doubled and Kept Revenue Falling
Management has argued that customer losses from the acquired Sprint business are slowing and that its core on-net buildings will drive 6% to 8% long-term annual growth. On-net service — buildings connected directly to Cogent's own fiber — did grow 1.9% from last quarter to $137.9 million, lifting on-net and wavelength sales to 66.6% of total revenue by our math.
However, off-net service — where Cogent rents the final link from other phone companies — shrank much faster. Off-net revenue dropped 9.3%, or $7.9 million by our math, from last quarter to $76.6 million, nearly double the $4.5 million sequential drop in the second quarter. Enterprise sales fell 8.7% from last quarter and 26.1% from a year ago to $26.9 million.
That steeper drop pushed total service revenue down 1.8% from last quarter and 4.4% from a year ago to $231.2 million, marking a fifth straight quarterly contraction. On-net and wavelength gains of $3.7 million from last quarter covered less than half of the off-net and legacy losses.
What to watch: sequential off-net revenue attrition in the fourth quarter. Total sales cannot stabilize until quarterly off-net losses narrow back below $4 million.
Operations Still Burn Cash a Year Before T-Mobile Payments End
Cogent relies on a transition agreement with T-Mobile that pays $8.3 million a month ($25.0 million a quarter) through November 2027 to support its cash flow and leverage ratios. Because T-Mobile paid the July installment one day early on June 30, actual cash received under the pact dropped to $16.7 million this quarter, though Cogent still included the full $25.0 million in its $73.9 million adjusted EBITDA.
Without that subsidy, stand-alone EBITDA was $48.9 million, which barely exceeded the $42.1 million of interest expense and $36.3 million of capital expenditures. Operating cash flow was just $3.8 million, leaving free cash flow at minus $32.5 million by our math and minus $15.9 million even after adding the $16.7 million T-Mobile cash receipt.
What to watch: quarterly capital expenditures and unadjusted EBITDA over the next four quarters. Stand-alone EBITDA must rise above $80 million per quarter, or capital spending must fall sharply, before the T-Mobile payments stop in late 2027.
👓 Other Themes
Preliminary Deals Signed to Sell Four More Data Centers
After selling ten former Sprint data centers for $224.2 million in the second quarter, Cogent "entered into two non-binding letters of intent with two counter parties to sell four data centers" that it had acquired and repurposed, "for a total of approximately $100.0 million in cash". Because earlier preliminary deals fell through in 2025, these sales remain uncertain until the buyers sign binding contracts and close.
💲 Other KPIs
Revenue from leasing scarce internet protocol (IPv4) addresses to customers rose 1.8% from last quarter and 5.4% from a year ago, slowing from 43.8% annual growth in 2025. Billed addresses rose 0.6% from last quarter to 15.3 million, showing that past price increases have largely run their course.
Sales to net-centric customers — streaming services, cloud providers and other carriers that buy bulk internet transit — slipped 0.3% from last quarter after five straight quarters of sequential gains. Compared with a year ago, revenue grew 6.9% by our math, down from 10.4% annual growth in the second quarter.
The number of sales representatives carrying a sales quota fell by 35 from last quarter and by 146, or 23.7% by our math, from a year ago. Each full-time rep sold 4.6 customer connections per month, up from 4.5 last quarter and matching the rate a year ago.
🔮 Guidance
Withdrawn. The board suspended the quarterly dividend program on November 4 after cutting the payout from $1.015 to $0.02 per share in the fourth quarter of 2025. Future payouts remain at the board's discretion and depend on cash flow, capital needs and debt indenture limits.
❓ Key Questions
When will Cogent refinance the $700 million 2027 notes?
Management previously expected to refinance the June 2027 unsecured notes during the third quarter. With $697.6 million now sitting in current liabilities and cash down to $181.3 million, investors need the timeline, security package and expected interest rate.
Why did off-net revenue losses nearly double this quarter?
Sequential off-net revenue declines widened to $7.9 million from $4.5 million in the second quarter, contradicting management's earlier statement that Sprint customer attrition was moderating. Investors need to know whether a major enterprise contract ended or churn jumped.
How many installed wavelength circuits are awaiting customer billing?
Cogent stopped disclosing its wavelength order funnel in the second quarter, and the third-quarter release gives only billed connections. Disclosing the unbilled installed backlog would show whether the jump to 277 net adds came from new orders or clearing old bottlenecks.
When will the two $100 million data center deals become binding?
Cogent signed two non-binding letters of intent to sell four data centers for about $100 million. Because an earlier $144 million non-binding deal in 2025 did not close on its original terms, investors need the due-diligence timeline and whether proceeds will pay down the 2027 notes.