Cogent Communications’ Data Center Sale Targets Debt Relief and a Path Back to Shareholder Payouts
Cogent Communications (NASDAQ:CCOI) is moving to shed a sizable chunk of its data center portfolio in a bid to rein in debt and revive the kind of shareholder returns that investors have been waiting for. Speaking at the TD Cowen TMT Conference, CEO Dave Schaeffer laid out a clear rationale for the planned sale of 10 facilities to I Squared Capital for $225 million: reduce leverage, address anxiety around the company's 2027 notes, and eventually restart a more aggressive return-of-capital program.
The transaction comes at a pivotal time for the internet service provider, whose stock has been weighed down by several overhangs—including Schaeffer's own prior stock sales, slower-than-expected growth in the wavelength business, and mounting investor concerns over upcoming debt maturities. “The business has been more stable than the stock has been,” Schaeffer told TD Cowen Senior Analyst Greg Williams.
Cogent's net leverage spiked to 6.7 times after it acquired Sprint assets via T-Mobile, well above its historical target of roughly 4 times. Schaeffer said the data center sale should help the company move back toward that target. The deal involves 53 megawatts of installed inbound power, though the critical IT load is closer to 37 megawatts due to a power usage efficiency of about 1.5. The full 53 megawatts is backed up by generators.
Schaeffer expects “very de minimis tax friction” from the sale. Cogent holds roughly $1.1 billion in international net operating losses, which won't apply to the transaction, but it also has about $140 million in NOLs from 2025. Thanks to bonus depreciation and capital spent on network modernization, Schaeffer said the company likely won't be a federal cash taxpayer on the deal, though some states may treat it differently.
The sale price implies about $4.3 million per megawatt on a gross inbound power basis—a figure that climbs when measured against usable power. Schaeffer noted that Cogent's cost basis for the acquired Sprint network assets was $1, and the company has invested roughly $100 million across 125 modernized facilities, with about $30 million of that going directly into the 10 facilities now being sold.
Schaeffer said I Squared Capital moved quickly after a prior transaction with another buyer fell apart when that buyer asked Cogent for financing. The new buyer conducted diligence over about 90 days and expects to close the purchase by June 12.
Cogent originally put 24 of its largest data centers up for sale. With 10 now under contract, 14 remain, representing 56 megawatts of gross inbound power and roughly 40 megawatts of net usable power. Schaeffer said the company is open to a range of deal structures for the remaining assets—from single-property transactions to a full portfolio sale—and noted that some parties have expressed interest in data centers that Cogent hadn't initially planned to sell. “We're open to any or all reasonable transactions for this footprint,” he said.
Cogent currently operates 185 data centers with about 213 megawatts of inbound power and roughly 2.1 million square feet. Even after selling all 24 targeted facilities, it would retain 161 data centers. Space and power revenue accounts for only about 3% of total revenue, and data centers are not considered core to the business. In many facilities, Cogent uses only a small portion of the space for network equipment or sales offices, and Schaeffer said the company could continue operating in some sites as a tenant even after selling the data center space.
Beyond the sale, Schaeffer addressed several other investor focal points. First-quarter capital expenditures came in at $46 million, above expectations, though they declined $12 million year over year. Schaeffer identified three drivers of higher equipment costs: DRAM shortages and rising memory pricing, supply chain disruption and tariff-related effects, and a shift in demand as hyperscalers buy more telecom equipment for AI infrastructure. Cogent buys gear from Cisco, Ciena, and Arista. The company historically benefited from declining equipment costs and next-generation products priced near prior-generation levels, but recent months have brought sequential price increases—including five price hikes in five months from one vendor.
Asked whether Cogent’s previous target of $25 million in quarterly capex remains realistic, Schaeffer said, “I don’t think it’s realistic in this environment.” He described the cost pressures as temporary, while emphasizing that Cogent aims to remain as capital efficient as possible.
The wavelength business remains a growth story. Schaeffer said revenue grew 90% year over year in the most recent quarter, albeit from a small base, and that Cogent has captured about 3% market share in roughly a year and a half of actively selling the service. The company ended the quarter with 1,107 carrier-neutral data centers in North America enabled for wavelength services, offering speeds of 10-gig, 100-gig, and 400-gig. Some 492 unique customers now use Cogent's wavelengths, with services installed in 581 of its enabled data centers.
Schaeffer highlighted that Cogent’s network routes, many of which are unique and use infrastructure acquired from Sprint, provide a competitive advantage. The network is typically installed in armored cable under train tracks—more reliable and less prone to cuts than fiber built along public highway rights of way.
On AI demand, Schaeffer noted that hyperscalers use Cogent wavelengths for data center connectivity, content distribution, and AI training. He said training workloads favor wavelengths because they deliver defined latency, which helps maintain high GPU utilization. AI inference, by contrast, is likely to be more distributed and may occur over the public internet.
Cogent Communications (NASDAQ:CCOI) is a multinational internet service provider specializing in high-speed internet access and data transport services. It operates one of the largest Tier 1 IP networks in the world, offering wholesale and enterprise customers low-latency connectivity. Core services include dedicated internet access, Ethernet transport, wavelength services, and MPLS-based IP virtual private networks, delivered over its privately owned fiber-optic backbone. The company also provides data center colocation and managed services.
This article was originally published by MarketBeat. It has been edited for style and clarity.