Financial Data and Key Metrics Changes - The company's revenue for the quarter increased by 56.1% to $239.8 million, with a year-over-year increase of 61.5% [50] - Legacy EBITDA reached a record $61.7 million for the quarter, with an EBITDA margin of 38.1%, marking the first time the business exceeded $60 million in EBITDA [41] - The company recorded a gain on a bargain purchase of $1.2 billion, approximately $24 per share, due to the acquisition of Sprint's wireline business [42][49] - Operating cash flow was $82.7 million for the quarter, a 130% increase sequentially and a 140% increase year-over-year [62] Business Line Data and Key Metrics Changes - Legacy Cogent revenues grew by 5.3% sequentially and 9% year-over-year, while legacy NetCentric revenues grew by 11.1% sequentially and 19.3% year-over-year [47] - Corporate revenues experienced minimal growth of 0.007% sequentially and 0.006% year-over-year [47] - The acquired Sprint wireline business generated $78 million in revenue for the two-month period from May 1st to June 30th, 2023 [50] Market Data and Key Metrics Changes - The corporate business represented 46.3% of total revenues, with a year-over-year increase of 30.2% to $111 million [86] - The NetCentric business represented 36.5% of revenues, growing sequentially by 28.9% to $87.6 million, and 38.4% year-over-year [87] - The average price per megabit for the installed base increased sequentially by 12.3% to $0.28, while the average price for new customer contracts remained at $0.10 [58] Company Strategy and Development Direction - The company aims to achieve long-term annual revenue growth rates of 5% to 7% and expects EBITDA margin expansion of approximately 100 basis points annually [53] - The acquisition of Sprint significantly expanded the company's network, customer base, and employee talent, with an annualized revenue run rate exceeding $1 billion [77] - The company is committed to monetizing its assets, including selling dark fiber, and plans to better understand inventory and demand on a route-by-route basis [34] Management's Comments on Operating Environment and Future Outlook - Management noted that the corporate business is influenced by real estate activity in central business districts, which has seen some improvement but has not returned to pre-pandemic levels [86] - There is optimism regarding cash flow generation capabilities from the combined operations, with substantial cost savings expected in multiple areas [78] - The company is cautious about corporate revenue outlook due to the uncertain economic environment and challenges from the pandemic [86] Other Important Information - The company returned $44.9 million to shareholders through its quarterly dividend program, increasing the dividend by $0.01 per share [53] - The company plans to convert additional Sprint technical spaces into Cogent data centers, with a goal of selling wavelengths in over 800 carrier-neutral data centers by the end of 2024 [67] Q&A Session Summary Question: What was behind the decision to treat the transit payments in EBITDA? - Management explained that it was critical for investors to understand the cash flow impact of the payments, leading to recognition as received rather than billed [32] Question: Can you provide an update on pricing in the wave market? - Management indicated that they are pricing competitively in the wave market, leveraging a low-cost base [12] Question: What are the anticipated synergies and cost savings from the Sprint acquisition? - Management expects to achieve annual cost savings of approximately $180 million from network optimization, $25 million from Sprint's international wireline network, and $15 million from reduced operation and maintenance expenses [81]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements detail the Sprint Wireline Business acquisition, a $1.2 billion bargain purchase gain, and net income surge Condensed Consolidated Statements of Comprehensive Income (Three Months Ended June 30) | Indicator | 2023 (Unaudited) (in millions) | 2022 (Unaudited) (in millions) | | :--- | :--- | :--- | | **Service Revenue** | **$239.8** | **$148.5** | | Operating (Loss) Income | ($34.6) | $29.6 | | Gain on Bargain Purchase | $1,155.7 | $0 | | **Net Income** | **$1,123.9** | **$11.2** | | Diluted Net Income per Share | $23.65 | $0.24 | Condensed Consolidated Balance Sheets (As of) | Indicator | June 30, 2023 (Unaudited) (in millions) | December 31, 2022 (in millions) | | :--- | :--- | :--- | | **Total Assets** | **$3,162.7** | **$1,010.2** | | Total Liabilities | $2,623.5 | $1,528.8 | | **Total Stockholders' Equity (Deficit)** | **$539.2** | **($518.6)** | - The acquisition of the Sprint Wireline Business was accounted for as a business combination, resulting in a **$1.2 billion gain on bargain purchase** as the fair value of identifiable assets acquired exceeded liabilities assumed and net consideration paid[198](index=198&type=chunk) - In connection with the acquisition, T-Mobile USA, Inc. (TMUSA) will pay the company an aggregate of **$700.0 million** for IP transit services over 54 months, recorded at its discounted present value as part of the acquisition consideration[164](index=164&type=chunk)[194](index=194&type=chunk) [Notes to Interim Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Interim%20Condensed%20Consolidated%20Financial%20Statements) Details the Sprint Wireline Business acquisition, related agreements, debt structure, and dividend declaration - The Sprint Wireline Business acquisition closed on May 1, 2023, involving a purchase price of $1, a working capital adjustment payment of **$61.1 million** to the seller, and a future payment of **$57.1 million** from the seller for assumed lease obligations[162](index=162&type=chunk)[163](index=163&type=chunk) - A Transition Services Agreement (TSA) was established for up to two years, under which the company recorded **$118.8 million** due to the Seller and **$7.0 million** due from the Seller for the three and six months ended June 30, 2023[167](index=167&type=chunk)[195](index=195&type=chunk) - As of June 30, 2023, the company had **$450.0 million of 7.00% Senior Unsecured Notes** due 2027 and **$500.0 million of 3.50% Senior Secured Notes** due 2026, remaining in compliance with debt covenants[247](index=247&type=chunk)[224](index=224&type=chunk) - The company is party to an interest rate swap agreement converting the fixed-rate 2026 Notes to a variable rate, with a fair value of **$51.6 million net liability** as of June 30, 2023[248](index=248&type=chunk)[38](index=38&type=chunk) - On August 2, 2023, the Board of Directors approved a quarterly dividend of **$0.945 per common share**, an estimated payment of **$44.6 million**[252](index=252&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the transformative Sprint Wireline Business acquisition, its financial impact, strategic rationale, operational results, and liquidity [Overview, Strategy, and Competitive Advantages](index=37&type=section&id=Overview%2C%20Strategy%2C%20and%20Competitive%20Advantages) Outlines the Sprint Wireline Business acquisition, expanded offerings, and key competitive advantages like a low-cost operating model and dark fiber access - The acquisition of the Sprint Wireline Business on May 1, 2023, expanded the company's offerings to include optical wavelength and transport services, targeting larger enterprise customers[263](index=263&type=chunk)[325](index=325&type=chunk) - Key competitive advantages include a low-cost operating model, a single Ethernet network protocol, widespread access to dark fiber, and a large addressable market with **3,227 on-net buildings**[362](index=362&type=chunk)[6](index=6&type=chunk)[332](index=332&type=chunk) - The company's strategy focuses on growing its on-net corporate and net-centric customer base, expanding its off-net business, and leveraging newly acquired assets to offer wavelength services[363](index=363&type=chunk)[305](index=305&type=chunk)[10](index=10&type=chunk) [Results of Operations](index=50&type=section&id=Results%20of%20Operations) Analyzes operational results, highlighting significant revenue growth from the Wireline Business acquisition and a $1.2 billion gain on bargain purchase Key Operating Data Changes (Q2 2023 vs Q2 2022) | Indicator | Q2 2023 (in millions) | Q2 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Service Revenue** | **$239.8** | **$148.5** | **61.5%** | | On-net Revenue | $127.7 | $112.0 | 14.0% | | Off-net Revenue | $102.0 | $36.3 | 181.1% | | Network Operations Expenses | $137.5 | $56.5 | 143.3% | | SG&A Expenses | $83.7 | $39.4 | 112.4% | | Depreciation & Amortization | $52.5 | $23.1 | 127.6% | - Revenue from the newly acquired Wireline Business was **$78.0 million** from May 1, 2023, to June 30, 2023, primarily driving the **61.5% YoY increase** in total service revenue for the quarter[310](index=310&type=chunk) - For Q2 2023, off-net revenue grew **181.1% YoY**, primarily due to a **194.5% increase** in off-net customer connections, significantly boosted by **24,243 connections** from the Wireline Business[19](index=19&type=chunk) - A **$1.2 billion gain on bargain purchase** was recognized in Q2 2023, as the fair value of assets acquired from the Wireline Business exceeded the liabilities assumed and consideration paid[22](index=22&type=chunk)[353](index=353&type=chunk) - For the six months ended June 30, 2023, service revenue increased **32.2% YoY to $393.4 million**, also driven by the Wireline Business acquisition[321](index=321&type=chunk)[347](index=347&type=chunk) [Liquidity and Capital Resources](index=65&type=section&id=Liquidity%20and%20Capital%20Resources) Examines liquidity, capital resources, and cash flow activities, noting impacts from the Wireline Business acquisition and dividend payments Consolidated Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $118.5 | $83.8 | | Net cash used in investing activities | ($45.5) | ($35.4) | | Net cash used in financing activities | ($107.1) | ($24.1) | - As of June 30, 2023, the company had total cash, cash equivalents, and restricted cash of **$244.0 million** and total indebtedness of **$1.3 billion** (at par)[130](index=130&type=chunk) - Net cash from operating activities increased primarily due to changes in operating profit and a **$118.8 million payable** to the Seller under the Transition Services Agreement for vendor reimbursements[125](index=125&type=chunk) - Investing activities included **$60.7 million** for property and equipment purchases and a net payment of **$14.4 million** for the Wireline Business acquisition, alongside **$29.2 million** received under the IP Transit Services Agreement[128](index=128&type=chunk) - Financing activities primarily consisted of **$90.2 million** in dividend payments and **$17.2 million** in principal payments for finance lease obligations during the first six months of 2023[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Reports no material changes to market risk exposures since the 2022 annual report, except as disclosed in the Risk Factors section - The company reports no material changes to its market risk exposures since its 2022 annual report, directing readers to the Risk Factors section for any updates[88](index=88&type=chunk) [Item 4. Controls and Procedures](index=76&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms effective disclosure controls and procedures, with no material changes to internal control, excluding the Wireline Business for 2023 - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the reporting period[111](index=111&type=chunk) - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[112](index=112&type=chunk) - The company will exclude the acquired Wireline Business from its management report on internal control over financial reporting for the year ending December 31, 2023, in accordance with SEC guidance for acquired businesses[113](index=113&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=77&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings not expected to materially impact operations or financial results - The company is involved in legal proceedings in the ordinary course of business that are not expected to have a material impact on operations[48](index=48&type=chunk)[49](index=49&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) Highlights significant risks associated with integrating the Sprint Wireline Business, including operational challenges, customer retention, and cost management - The primary risk factor discussed is the successful integration of the acquired Wireline Business, involving numerous challenges such as achieving projected cost savings, retaining customers and personnel, and managing complex operational integration[257](index=257&type=chunk)[71](index=71&type=chunk) - Other than risks related to the Wireline acquisition, the company states there have been no material changes to risk factors from those disclosed in its annual report for the year ended December 31, 2022[80](index=80&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no common stock repurchases during the second quarter of 2023 under the authorized buyback program - There were no purchases of the company's common stock during the second quarter of 2023 under the authorized buyback program[81](index=81&type=chunk)[92](index=92&type=chunk) [Item 6. Exhibits](index=78&type=section&id=Item%206.%20Exhibits) Lists exhibits filed, including agreements related to the Sprint Wireline acquisition and various officer certifications - Key exhibits filed include agreements related to the Sprint Wireline acquisition, such as the Transition Services Agreement and the IP Transit Agreement, as well as executive certifications[52](index=52&type=chunk)

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q1 2023 Results Conference Call May 4, 2023 8:30 AM ET Company Participants Dave Schaeffer - Chairman and Chief Executive Officer Thad Weed - Chief Financial Officer Conference Call Participants David Barden - Bank of America Walter Piecyk - LightShed Walter Nick Del Deo - MoffettNathanson Michael Collins - Citi Frank Louthan - Raymond James Evan Young - KeyBanc Capital Markets Operator Good morning, and welcome to the Cogent Communications Holdings First Q ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for the quarterly period ended March 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $328,797 | $365,913 | | **Total Assets** | **$998,412** | **$1,010,182** | | **Total Current Liabilities** | $127,422 | $120,284 | | **Total Liabilities** | $1,546,959 | $1,528,814 | | **Total Stockholders' Deficit** | **($548,547)** | **($518,632)** | Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Service Revenue** | $153,588 | $149,175 | | Operating Income | $24,312 | $28,784 | | **Net Income** | **$6,148** | **$1,137** | | Comprehensive Income (Loss) | $7,936 | ($1,028) | | **Basic and Diluted EPS** | **$0.13** | **$0.02** | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,821 | $49,411 | | Net cash used in investing activities | ($23,204) | ($18,121) | | Net cash used in financing activities | ($54,616) | ($47,528) | | **Net decrease in cash, cash equivalents and restricted cash** | **($41,489)** | **($16,853)** | [Notes to Interim Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Notes%20to%20Interim%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Detailed notes accompany the financial statements, covering the Sprint acquisition, accounting policies, and segment information - The company is a facilities-based provider of high-speed Internet access, private network services, and data center colocation in 51 countries[227](index=227&type=chunk) - On May 1, 2023, the company closed its acquisition of the U.S. long-haul fiber network (Wireline Business) from Sprint[25](index=25&type=chunk)[53](index=53&type=chunk) - Revenue is recognized over time as services are rendered, with installation fees recognized over the contract term or estimated customer life[194](index=194&type=chunk)[234](index=234&type=chunk) Long-Term Debt Outstanding (at par, as of March 31, 2023) | Debt Instrument | Principal Amount | Interest Rate | Maturity Date | | :--- | :--- | :--- | :--- | | 2027 Senior Unsecured Notes | $450.0 million | 7.00% | June 15, 2027 | | 2026 Senior Secured Notes | $500.0 million | 3.50% | May 1, 2026 | - An interest rate swap agreement effectively converts the fixed interest rate on its 2026 Notes to a variable rate, with a **fair value net liability of $50.3 million** as of March 31, 2023[83](index=83&type=chunk)[217](index=217&type=chunk) Service Revenue by Geographic Region (in thousands, Q1 2023) | Region | On-net Revenue | Off-net Revenue | Total Revenue | | :--- | :--- | :--- | :--- | | North America | $88,697 | $32,876 | $121,709 | | Europe | $21,847 | $4,020 | $25,883 | | Oceania | $3,755 | $327 | $4,091 | | South America | $1,645 | $33 | $1,679 | | Africa | $199 | $27 | $226 | | **Total** | **$116,143** | **$37,283** | **$153,588** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial condition and operational results, focusing on the Sprint acquisition and Q1 2023 performance [Acquisition of Sprint Communications](index=27&type=section&id=Acquisition%20of%20Sprint%20Communications) The acquisition of Sprint's Wireline Business closed on May 1, 2023, including a $700 million IP transit services contract - The acquisition of Sprint's Wireline Business closed on May 1, 2023, with a **working capital adjustment resulting in a $61.1 million payment** from Cogent to the seller[36](index=36&type=chunk)[53](index=53&type=chunk)[91](index=91&type=chunk) - As part of the deal, T-Mobile will pay Cogent an aggregate of **$700 million for IP transit services** over 54 months[44](index=44&type=chunk)[54](index=54&type=chunk)[88](index=88&type=chunk) - A Transition Services Agreement (TSA) is in place for up to two years to manage the operational separation of IT, finance, and HR functions[37](index=37&type=chunk)[62](index=62&type=chunk)[151](index=151&type=chunk) - With the acquisition, Cogent will begin offering optical wavelength and transport services, expanding its product portfolio[61](index=61&type=chunk)[101](index=101&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Q1 2023 service revenue grew 3.0% YoY, driven by on-net customer growth, though offset by higher operating expenses Q1 2023 vs. Q1 2022 Financial Comparison (in thousands) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | **Service Revenue** | **$153,588** | **$149,175** | **3.0%** | | On-net Revenue | $116,143 | $112,634 | 3.1% | | Off-net Revenue | $37,283 | $36,387 | 2.5% | | SG&A Expenses | $45,078 | $40,627 | 11.0% | | Depreciation & Amortization | $25,160 | $22,688 | 10.9% | | Interest Expense | $19,005 | $14,168 | 34.1% | Key Operating Data (Q1 2023 vs. Q1 2022) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | On-net Customer Connections | 83,268 | 81,627 | 2.0% | | Off-net Customer Connections | 13,785 | 12,922 | 6.7% | | ARPU—on-net | $467 | $463 | 0.9% | | ARPU—off-net | $910 | $948 | (4.0)% | | Avg. Price per Megabit | $0.25 | $0.31 | (20.4)% | - Revenue from **net-centric customers increased by 7.8%** to $68.0 million, while revenue from corporate customers decreased by 0.6% to $85.6 million[105](index=105&type=chunk) - **SG&A expenses increased by 11.0%** primarily due to a 12.2% increase in total headcount, including a rise in sales force headcount from 620 to 714[109](index=109&type=chunk) - **Interest expense increased 34.1%** mainly due to higher interest rates on the new 7.00% 2027 Notes[111](index=111&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash and operations, supported by future cash inflows from the Sprint deal Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | | :--- | :--- | | Net cash provided by operating activities | $35,821 | | Net cash used in investing activities | ($23,204) | | Net cash used in financing activities | ($54,616) | - As of March 31, 2023, the company had total **cash, cash equivalents, and restricted cash of $234.4 million** and total indebtedness of $1.3 billion[125](index=125&type=chunk)[133](index=133&type=chunk) - The company **paid dividends of $45.3 million in Q1 2023** and approved a subsequent quarterly dividend of $0.935 per share[124](index=124&type=chunk)[128](index=128&type=chunk) - The stock buyback program has **$30.4 million available for repurchases** through December 31, 2023, with no shares repurchased in Q1 2023[127](index=127&type=chunk)[271](index=271&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk exposures remain materially unchanged from the 2022 Annual Report, except for newly disclosed risk factors - The company believes there have been **no material changes to its market risk exposures** since year-end 2022, apart from new risk factors mentioned in this report[138](index=138&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management, including the CEO and CFO, concluded that the company's **disclosure controls and procedures were effective** as of March 31, 2023[139](index=139&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[174](index=174&type=chunk) [PART II OTHER INFORMATION](index=48&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) Ordinary course legal proceedings are not expected to materially impact the company's financial results or operations - The company is involved in ordinary course legal proceedings that are **not expected to have a material impact** on its operations or results[140](index=140&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) Key risks include integration of the Sprint acquisition, economic instability, and challenges in employee retention - Key risks include difficulties integrating the Sprint Wireline Business, future economic instability, and the impact of the COVID-19 pandemic on corporate revenue growth[253](index=253&type=chunk)[265](index=265&type=chunk) - The company maintains cash in accounts that **exceed insured limits**, posing a risk in the event of a financial institution's failure[141](index=141&type=chunk)[168](index=168&type=chunk) - The company may face challenges retaining or hiring employees due to its requirement for all employees to **return to the office full-time** and be vaccinated[134](index=134&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's stock repurchase program remains authorized, with no shares repurchased during the first quarter of 2023 - The company's Board has authorized a common stock repurchase program through December 31, 2023[142](index=142&type=chunk) - There were **no purchases of common stock** during the first quarter of 2023[142](index=142&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including certifications and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Interactive Data Files (XBRL)[170](index=170&type=chunk)[180](index=180&type=chunk) [Signatures](index=50&type=section&id=SIGNATURES) - The report is duly signed on May 5, 2023, by David Schaeffer, Chief Executive Officer, and Thaddeus G. Weed, Chief Financial Officer[172](index=172&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q4 2022 increased sequentially by 1.3% to $152 million, a year-over-year increase of 3.2% [5] - Full year revenue for 2022 was $599.6 million, reflecting a 1.7% increase [5] - On a constant currency basis, quarterly revenue grew year-over-year by 5.5% and for the full year by 3.9% [5] - EBITDA for Q4 2022 decreased sequentially by $0.7 million and year-over-year by $0.3 million, while full year EBITDA increased by 1.2% to $230.6 million [24] Business Line Data and Key Metrics Changes - Corporate business revenue declined year-over-year by 1.2% to $85.8 million in Q4 2022, and for the full year, it decreased by 4.4% to $342.6 million [17] - NetCentric revenue grew sequentially by 2.6% to $66.2 million and year-over-year by 9.6% in Q4 2022, with full year growth of 11.1% to $257 million [19] - The number of corporate customer connections decreased by 1.3% year-over-year to 44,844 [18] - NetCentric customer connections increased by 7% year-over-year to 51,670 [20] Market Data and Key Metrics Changes - Corporate business represented 56.4% of revenues in Q4 2022, while NetCentric business accounted for 43.6% [17] - The average price per megabit for installed base declined year-over-year by 19.6%, but the decline was better than the historical average [21] - The churn rate for on-net connections was stable at 1%, while off-net churn was 1.1% [21] Company Strategy and Development Direction - The company is focused on closing the acquisition of Sprint's wireline business, expecting to achieve significant cost savings and revenue synergies post-merger [10][11] - The company anticipates an annual revenue growth rate of 5% to 7% and EBITDA margin expansion of approximately 100 basis points per year after the merger [13] - The company is expanding its product offerings, including wavelengths and optical transport networking services, to enhance its market position [34] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about corporate revenue growth due to the uncertain economic environment and slow recovery in central business districts [6] - Positive trends in corporate business are noted as companies adapt to hybrid work environments, leading to increased demand for higher bandwidth connections [40] - Management expects a gradual return to pre-pandemic growth rates, estimating it will take more than a year to achieve a 2% sequential growth rate in corporate business [60] Other Important Information - The company returned $44 million to shareholders through dividends in Q4 2022, marking the 42nd consecutive quarter of dividend growth [12] - The company incurred $2.2 million in professional fees related to the Sprint acquisition for the full year 2022 [10] - The company has a diverse set of IRU suppliers, with obligations totaling $304.2 million at year-end [28] Q&A Session Summary Question: Update on the Sprint acquisition timeline and revenue recognition - Management anticipates closing the acquisition in mid-quarter, with confidence in recognizing the majority of the $700 million revenue stream from T-Mobile [45][46] Question: Thoughts on revenue run rate post-acquisition - Management projects a stable revenue run rate of approximately $450 million at closing, with expectations for gradual growth thereafter [48][49] Question: SG&A expenses and sales rep hiring impact - Management noted a $1.5 million bonus to employees as a one-time expense, with plans to normalize hiring rates post-pandemic [52][53] Question: Update on wavelengths and dark fiber sales - Management has begun selling wavelengths through a commercial agreement with T-Mobile, with initial orders showing strong interest [56][58] Question: Corporate sales activity trends - Management reported improved corporate sales activity, though still below pre-pandemic levels, with expectations for continued sequential improvement [59][60] Question: Leverage expectations for 2023 - Management expects leverage to increase slightly but anticipates a rapid deleveraging due to new revenue streams from T-Mobile [62][63]

Network Infrastructure and Operations - The company's network consists of 3,155 on-net buildings and serves 219 metropolitan markets across North America, Europe, Asia, South America, Oceania, and Africa[38] - The company operates 54 data centers with over 606,000 square feet of floor space, directly connected to its network[70] - The company's inter-city network includes 61,292 terrestrial fiber route miles[38] - The company's network operations centers are located in Washington, D.C., and Madrid, Spain, with plans to add centers in Kansas City, Atlanta, Dallas, and Orlando[40] - The company operates 1,512 data centers globally, including 1,458 CNDCs and 54 data centers, supporting services in 219 metropolitan markets across 51 countries[72] - The company anticipates adding a similar number of on-net buildings to its network in the coming years, following an increase from 3,035 in 2021 to 3,155 in 2022[171] - Delays in obtaining network equipment from Cisco due to supply chain issues may hinder the company's ability to upgrade and expand its network[209] Data Centers and Connectivity - The company has 1,837 Multi-Tenant Office Buildings (MTOBs) providing access to bandwidth-intensive tenants[39] - The company has 1,458 Carrier Neutral Data Centers (CNDCs) located in 1,264 buildings, offering the largest portfolio of CNDCs in the industry[68] - The company's corporate customers primarily purchase internet access with speeds ranging from 100 Mbps to 10 Gbps, with a shift towards higher capacity circuits[41] - The company is contractually obligated to pay maintenance fees for inter-city and intra-city dark fiber, and failure to pay could result in service disruptions and potential loss of customers[208] Sales and Workforce - The company's sales force as of December 31, 2022, included 698 full-time employees, with 548 quota-bearing sales employees[48] - The company experienced a 21:1 ratio of sales representatives with less than 12 months of tenure to regional learning managers in 2022[45] - As of December 31, 2022, the company had 1,076 employees, with 82.2% located in the United States and Canada, 16.8% in Europe, and 0.9% in Asia[73] - The company faces challenges in retaining and hiring employees due to its full-time in-office work policy and COVID-19 vaccination mandate, particularly within the sales department[126][140] - SG&A expenses increased by 0.4% in 2022, with sales force headcount growing from 633 in 2021 to 698 in 2022[163] Financial Performance and Liquidity - The company had cash, cash equivalents, and restricted cash of $275.9 million as of December 31, 2022, maintaining a high level of liquidity despite the COVID-19 pandemic[137] - Net cash provided by operating activities for 2022 was $173.7 million, compared to $170.3 million in 2021 and $140.3 million in 2020[145] - Net cash used in investing activities for 2022 was $79.0 million, primarily for purchases of property and equipment, compared to $69.9 million in 2021 and $56.0 million in 2020[146] - Quarterly dividend payments increased to $169.9 million in 2022, up from $150.3 million in 2021 and $129.4 million in 2020[148] - The company redeemed $375.4 million of 2024 Notes in June 2022 and issued $450.0 million of 2027 Notes for net proceeds of $446.0 million[149] - The company expects to provide approximately $363 million to meet expected quarterly dividend payments over the next two years[175] - The company's total cash, cash equivalents, and restricted cash were $275.9 million as of December 31, 2022[191] - The company's total indebtedness was $1.3 billion as of December 31, 2022, including $304.2 million in finance lease obligations[192] - The company issued $500.0 million of 2027 Notes with a 7.00% interest rate in June 2022[194] - The company issued $500.0 million of 2026 Notes with a 3.50% interest rate in May 2021[195] Revenue and Customer Trends - Approximately 57.1% of the company's revenue for 2022 came from corporate customers, primarily located in MTOBs in the United States and Canada[83] - The company's corporate business growth depends on lower vacancy rates and increased leasing activity in MTOBs[100] - The company experienced a slowdown in new sales to corporate customers due to rising vacancy levels and falling lease initiations, negatively impacting corporate revenue growth[120][142] - The company's corporate customers have delayed new configurations and upgrades, and reduced demand for connecting smaller satellite offices due to the COVID-19 pandemic, leading to increased customer turnover[142] - On-net revenues increased by 2.2% from 2021 to 2022, driven by an increase in on-net customer connections[158] - The average price per megabit for net-centric customers declined by 19.4% from 2021 to 2022, with further declines expected[157] Risks and Challenges - The company is experiencing delays in the delivery of networking equipment and other services from certain vendors[87] - The company's net-centric business could be impacted by a decline in the development of new Internet-based applications and businesses[88] - The company faces risks from inflation, particularly in electricity costs, which may impact profitability if price increases continue[113] - The company's ability to maintain settlement-free peering relationships is crucial for providing high-performance, affordable, and reliable services[109] - The company's historical pricing patterns are under pressure due to deflationary industry trends and increasing competition[110] - The company may need to refinance its indebtedness or raise additional capital, which could result in dilution to existing stockholders or unforeseen contingent liabilities[131][135] - The company's growth is dependent on retaining existing customers and adding new customers, with potential risks from customer turnover and reduced purchases from significant customers[118] - The company's business model is vulnerable to changes in customer preferences, such as a shift towards services combining Internet access with voice and managed services, or the introduction of new technologies like satellite-based Internet or 5G[130] - The company's integration of the Wireline Business may face difficulties, potentially leading to delays in realizing anticipated benefits and adverse effects on profitability[117] - The company's reliance on the U.S. government's E-rate program for funding poses a risk, as the discontinuation of such programs could result in customer loss and impaired growth[119] - Cisco's potential litigation risks, including patent infringement claims, could require the company to seek non-infringing technology or licenses, which may not be available on acceptable terms[210] - International operations expose the company to regulatory, legal, and tax risks, including difficulties in enforcing contracts and managing foreign operations[213] - The company faces potential liabilities related to information carried on its network, which could require significant resources to mitigate or result in discontinued services[214] - Privacy regulations in various countries may require the company to adopt additional measures for data transmission, impacting its operations[215] - Changes in U.S. laws, such as the potential repeal of Section 230 of the Communications Decency Act, could adversely affect the company's customers and revenue[218] - Government-imposed content blocking requirements could lead to additional expenses or service cessation in certain countries[219] - Expansion of Internet service taxation in the U.S. could require significant resources to implement and may discourage customer adoption[220] - The company's substantial indebtedness may limit cash flow available for growth, capital expenditures, and acquisitions[224] Acquisitions and Strategic Initiatives - The company plans to expand its product offerings to include wavelength and optical transport services following the acquisition of the Wireline Business[67] - The company announced the acquisition of the Wireline Business of Sprint Communications in September 2022, with an expected closing in 2023[115] Swap Agreement and Financial Transactions - The company received $0.6 million in November 2021 and $1.2 million in May 2022 under the Swap Agreement, but paid $3.4 million in November 2022, resulting in a net cash interest cost[123] - The company received $0.6 million in net cash savings from the Swap Agreement settlement in November 2021[176] - The company received $1.2 million in net cash savings from the Swap Agreement settlement in May 2022[176] - The company paid $3.4 million in net cash interest cost from the Swap Agreement settlement in November 2022[176] - The fair value of the Swap Agreement was a liability of $52.1 million as of December 31, 2022[176] - The company made a $61.7 million deposit with the counterparty to the Swap Agreement[176] Operational Expenses and Costs - Network operations expenses increased by 0.8% from 2021 to 2022, primarily due to international expansion activities[160] - The company's revenue decreased by $3.1 million from 2021 to 2022 due to taxes including the Universal Service Fund[199]

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q3 2022 Results Earnings Conference Call November 6, 2022 8:30 AM ET Company Participants Dave Schaeffer - Founder and Chief Executive Officer Tad Weed - Chief Financial Officer Conference Call Participants James Breen - William Blair Frank Louthan - Raymond James Nick Del Deo - MoffettNathanson David Barden - Bank of America Merrill Lynch Brett Feldman - Goldman Sachs George Engroff - Credit Suisse Michael Rollins - Citigroup Global Markets Bora Lee - RBC ...

NASDAQ CCOI INVESTOR PRESENTATION Cautionary Note Regarding Forward-Looking Statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future, not past, events and are subject to risks and uncertainties. The forward-looking statements, which address the Company's expected business and financial performance, among other matters, contain words such as: "will", "expect", "believe", "continue ", "optimistic", "shou ...

PART I FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related disclosures [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of comprehensive (loss) income, and cash flows, along with detailed notes explaining the company's business, recent developments, accounting policies, debt structure, and segment information for the periods ended September 30, 2022 and 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents the company's financial position, including assets, liabilities, and stockholders' deficit, at specific reporting dates | Metric | September 30, 2022 (Unaudited) (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :------------------------------- | | Total Assets | $1,020,702 | $984,557 | | Total Liabilities | $1,512,467 | $1,357,655 | | Total Stockholders' Deficit | $(491,765) | $(373,098) | | Current Liabilities | $121,607 | $81,010 | | Senior unsecured 2027 notes | $446,200 | — | | Senior unsecured 2024 Euro notes | — | $394,112 | [Condensed Consolidated Statements of Comprehensive (Loss) Income (Three Months)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income%20(Three%20Months)) This table details the company's financial performance, including revenues, expenses, and net loss or income, for the three-month period | Metric | Three Months Ended September 30, 2022 (Unaudited) (in thousands) | Three Months Ended September 30, 2021 (Unaudited) (in thousands) | | :----------------------------------- | :------------------------------------------------- | :----------------------------------------------- | | Service revenue | $150,000 | $147,927 | | Operating income | $28,095 | $28,556 | | Interest expense | $(17,948) | $(14,273) | | Change in valuation – interest rate swap | $(16,923) | $(3,076) | | Foreign exchange gain – 2024 Euro Notes | — | $10,169 | | Net (loss) income | $(8,007) | $13,320 | | Basic net (loss) income per common share | $(0.17) | $0.29 | | Diluted net (loss) income per common share | $(0.17) | $0.28 | | Dividends declared per common share | $0.905 | $0.805 | [Condensed Consolidated Statements of Comprehensive (Loss) Income (Nine Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income%20(Nine%20Months)) This table details the company's financial performance, including revenues, expenses, and net income, for the nine-month period | Metric | Nine Months Ended September 30, 2022 (Unaudited) (in thousands) | Nine Months Ended September 30, 2021 (Unaudited) (in thousands) | | :----------------------------------- | :------------------------------------------------ | :---------------------------------------------- | | Service revenue | $447,625 | $442,584 | | Operating income | $86,440 | $83,055 | | Interest expense | $(45,594) | $(44,345) | | Change in valuation – interest rate swap | $(45,703) | $(3,076) | | Foreign exchange gain - 2024 Euro Notes | $31,561 | $23,759 | | Loss on debt extinguishment and redemption- 2024 Euro Notes | $(11,885) | — | | Net income | $4,294 | $29,678 | | Basic net income per common share | $0.09 | $0.64 | | Diluted net income per common share | $0.09 | $0.63 | | Dividends declared per common share | $2.64 | $2.34 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine-month period | Cash Flow Activity | Nine Months Ended September 30, 2022 (Unaudited) (in thousands) | Nine Months Ended September 30, 2021 (Unaudited) (in thousands) | | :------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | | Net cash provided by operating activities | $137,384 | $134,273 | | Net cash used in investing activities | $(59,380) | $(54,620) | | Net cash used in financing activities | $(76,548) | $(94,554) | | Effect of exchange rates changes on cash | $(6,416) | $(1,445) | | Net decrease in cash, cash equivalents and restricted cash | $(4,960) | $(16,346) | | Cash, cash equivalents and restricted cash, end of period | $323,664 | $354,955 | | Purchases of property and equipment | $(59,380) | $(54,620) | | Dividends paid | $(125,882) | $(110,736) | | Redemption and extinguishment – 2024 Euro Notes | $(375,354) | — | | Net proceeds from issuance of senior unsecured 2027 Notes | $446,010 | — | [Notes to Interim Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Interim%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the interim condensed consolidated financial statements [1. Description of the business and recent developments](index=7&type=section&id=1.%20Description%20of%20the%20business%20and%20recent%20developments) This section outlines the company's core business, service offerings, and significant recent events, including a major acquisition - Cogent Communications Holdings, Inc. is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space and power, serving customers in **51 countries**[24](index=24&type=chunk) - The company offers on-net services through its own network and off-net services using other carriers' 'last mile' connections. Post-Sprint acquisition, it will also provide optical wavelength services[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - On September 6, 2022, Cogent Infrastructure, Inc. agreed to acquire Sprint Communications' U.S. long-haul fiber network (Wireline Business) for **$1**, with T-Mobile paying **$700 million** for IP transit services over **4.5 years**. The transaction is expected to close in **H2 2023**[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - The company incurred **$2.0 million** in professional fees for the Sprint acquisition in **Q3 2022**[35](index=35&type=chunk) - The unaudited condensed consolidated financial statements are prepared under SEC rules and GAAP, relying on management estimates and assumptions[36](index=36&type=chunk)[39](index=39&type=chunk) | Instrument | Carrying Amount (in thousands) | Fair Value (in thousands) | | :------------------- | :----------------------------- | :------------------------ | | 2027 Senior Unsecured Notes | $446,200 | $426,400 | | 2026 Senior Secured Notes | $497,744 | $438,800 | | Interest Rate Swap Agreement | N/A | $54,700 (liability) | | Period | Basic EPS | Diluted EPS | | :-------------------------- | :-------- | :---------- | | 3 Months Ended Sep 30, 2022 | $(0.17) | $(0.17) | | 3 Months Ended Sep 30, 2021 | $0.29 | $0.28 | | 9 Months Ended Sep 30, 2022 | $0.09 | $0.09 | | 9 Months Ended Sep 30, 2021 | $0.64 | $0.63 | | Item | 9 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | | Balance at Dec 31, 2021 | $(373,098) | N/A | | Balance at Dec 31, 2020 | N/A | $(293,166) | | Equity-based compensation | $19,905 | $23,471 | | Foreign currency translation | $(17,410) | $(7,252) | | Dividends paid | $(125,882) | $(110,736) | | Net income | $4,294 | $29,678 | | Balance at Sep 30, 2022 | $(491,765) | N/A | | Balance at Sep 30, 2021 | N/A | $(356,767) | - Service revenue recognized from deferred revenue was **$1.8 million** for **Q3 2022** and **$4.4 million** for **9M 2022**. Amortization expense for contract costs was **$4.9 million** for **Q3 2022** and **$14.5 million** for **9M 2022**[53](index=53&type=chunk) | Lease Cost Type | 3 Months Ended Sep 30, 2022 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Finance lease cost | $7,188 | $6,847 | $21,186 | $19,571 | | Interest expense on finance lease liabilities | $5,382 | $4,977 | $15,579 | $14,888 | | Operating lease cost | $4,547 | $4,572 | $13,948 | $13,660 | | Total lease costs | $17,117 | $16,396 | $50,713 | $48,119 | | Period | Beginning Balance (in thousands) | Current-period Provision for Credit Losses (in thousands) | Write-offs Against Allowance (in thousands) | Ending Balance (in thousands) | | :-------------------------- | :------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------- | | 3 Months Ended Sep 30, 2022 | $1,717 | $1,054 | $(805) | $1,966 | | 9 Months Ended Sep 30, 2022 | $1,510 | $3,059 | $(2,603) | $1,966 | [2. Property and equipment](index=18&type=section&id=2.%20Property%20and%20equipment) This section details the company's property and equipment, including depreciation and amortization expenses and capitalized costs | Expense Type | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Depreciation and amortization expense | $22.9 | $22.6 | $68.7 | $66.7 | | Capitalized salaries and benefits | $3.0 | $3.1 | $9.3 | $10.4 | [3. Long-term debt](index=19&type=section&id=3.%20Long-term%20debt) This section describes the company's long-term debt obligations, including notes, interest rates, and compliance with debt covenants - As of September 30, 2022, the Company had **$450.0 million** in **7.00% Senior Unsecured Notes due 2027** and **$500.0 million** in **3.50% Senior Secured Notes due 2026**[65](index=65&type=chunk) - The **2024 Euro Notes (€350.0 million, 4.375%)** were redeemed in **June 2022** using proceeds from the 2027 Notes, resulting in an **$11.9 million loss** on debt extinguishment[65](index=65&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk) - The Company's consolidated leverage ratio was below **6.0**, secured leverage ratio below **4.0**, and fixed charge coverage ratio above **2.0** as of September 30, 2022, allowing **$207.4 million** for restricted payments[74](index=74&type=chunk) - An interest rate swap agreement converts the 2026 Notes to a variable rate based on SOFR. This non-hedge accounted swap resulted in an unrealized loss of **$16.9 million** for **Q3 2022** and **$45.7 million** for **9M 2022**, with a net liability fair value of **$54.7 million** as of September 30, 2022[76](index=76&type=chunk) [4. Commitments and contingencies](index=21&type=section&id=4.%20Commitments%20and%20contingencies) This section outlines the company's potential future obligations and legal exposures, including accrued liabilities and litigation - The Company accrues for contingent liabilities when probable and estimable. It faces potential losses of up to **$3.8 million** for leased circuits[78](index=78&type=chunk) - A Virginia litigation resulted in a **$0.4 million** payment in **October 2022** for alleged unpaid fees and early termination[78](index=78&type=chunk) [5. Income taxes](index=23&type=section&id=5.%20Income%20taxes) This section presents the company's income tax expense and its relationship to income before taxes for the reported periods | Period | Income Before Income Taxes (in thousands) | Income Tax Expense (in thousands) | | :-------------------------- | :-------------------------------------- | :-------------------------------- | | 3 Months Ended Sep 30, 2022 | $(7,038) | $(969) | | 3 Months Ended Sep 30, 2021 | $22,024 | $(8,704) | | 9 Months Ended Sep 30, 2022 | $14,357 | $(10,063) | | 9 Months Ended Sep 30, 2021 | $46,155 | $(16,477) | - The decrease in income tax expense is primarily related to the decrease in income before income taxes[140](index=140&type=chunk)[164](index=164&type=chunk) [6. Common stock buyback program](index=23&type=section&id=6.%20Common%20stock%20buyback%20program) This section details the company's authorized common stock repurchase plan and its execution status - The Board approved a common stock buyback program through **December 31, 2023**, with **$30.4 million** remaining as of **September 30, 2022**[82](index=82&type=chunk) - No common stock was purchased during the three or nine months ended September 30, 2022 or 2021[82](index=82&type=chunk) [7. Dividends on common stock](index=23&type=section&id=7.%20Dividends%20on%20common%20stock) This section reports on declared dividends per common share and the company's dividend policy - A quarterly dividend of **$0.915 per common share** was approved on **November 2, 2022**, estimated at **$42.8 million**, payable **December 2, 2022**[83](index=83&type=chunk) - Future dividends are discretionary and subject to financial position, results of operations, cash flow, capital requirements, and debt indenture limitations[84](index=84&type=chunk) [8. Related party transactions](index=23&type=section&id=8.%20Related%20party%20transactions) This section discloses financial transactions and arrangements with parties related to the company, such as its CEO - The Company leases its headquarters from Sodium LLC, owned by its CEO, for **$1.0 million annually** plus taxes and utilities[85](index=85&type=chunk) - Rent and related costs paid to Sodium LLC were **$0.5 million** for **Q3 2022** and **$1.4 million** for **9M 2022**[85](index=85&type=chunk) [9. Segment information](index=24&type=section&id=9.%20Segment%20information) This section provides a geographical breakdown of the company's service revenue and long-lived assets, indicating its single operating segment - The Company operates as one operating segment[87](index=87&type=chunk) | Region | On-net (in thousands) | Off-net (in thousands) | Non-core (in thousands) | Total (in thousands) | | :------------ | :-------------------- | :--------------------- | :---------------------- | :------------------- | | **3 Months Ended Sep 30, 2022** | | | | | | North America | $88,298 | $32,325 | $162 | $120,785 | | Europe | $19,853 | $3,929 | $8 | $23,790 | | Total | $113,219 | $36,611 | $170 | $150,000 | | **9 Months Ended Sep 30, 2022** | | | | | | North America | $261,427 | $95,873 | $475 | $357,775 | | Europe | $61,807 | $12,249 | $39 | $74,095 | | Total | $337,829 | $109,279 | $517 | $447,625 | | Region | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :------------- | :-------------------------- | :-------------------------- | | North America | $373,879 | $331,537 | | Europe and other | $129,892 | $126,355 | | Total | $503,771 | $457,892 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook. It covers business overview, competitive advantages, strategic initiatives, detailed analysis of operating results for the three and nine months ended September 30, 2022, liquidity and capital resources, and the impact of COVID-19 [General Overview](index=27&type=section&id=General%20Overview) This section provides a high-level description of the company's business model, service offerings, and operational scope - Cogent is a facilities-based provider of high-speed Internet access, private network services, and data center colocation in **51 countries**[93](index=93&type=chunk) - On-net services, delivered through its own network, accounted for **75.5% of revenues** for the three and nine months ended September 30, 2022. Off-net services, using third-party 'last mile' connections, accounted for **24.4% of revenues**[95](index=95&type=chunk)[96](index=96&type=chunk) - The company will begin providing optical wavelength services over its fiber network in connection with the Sprint acquisition[98](index=98&type=chunk) [Competitive Advantages](index=27&type=section&id=Competitive%20Advantages) This section highlights the company's key strengths, such as its low-cost operating model, network control, and market reach - The company maintains a low cost of operation through a single Ethernet network protocol, widespread access to cost-effective dark fiber leases, a narrow product set, and scalable network equipment[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) - Other advantages include greater control over service delivery, high-quality reliable service, a large addressable market (**3,126 buildings in 219 metro markets**), a balanced high-traffic network, and an experienced management team[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) [Our Strategy](index=30&type=section&id=Our%20Strategy) This section outlines the company's strategic objectives, including customer growth, market share expansion, and service diversification - Key strategic elements include growing the corporate customer base, increasing net-centric market share, developing a worldwide peering platform (Global Peer Connect), pursuing on-net customer growth, improving sales efforts, expanding off-net corporate internet access, and introducing optical wavelength services post-Sprint acquisition[110](index=110&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance by comparing revenues, expenses, and key metrics across different reporting periods [Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021](index=34&type=section&id=Three%20Months%20Ended%20September%2030,%202022%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030,%202021) This section provides a detailed comparative analysis of the company's financial results for the three-month periods | Metric | 2022 (in thousands) | 2021 (in thousands) | Percent Change | | :----------------------------------- | :------------------ | :------------------ | :------------- | | Service revenue | $150,000 | $147,927 | 1.4% | | On-net revenue | $113,219 | $111,099 | 1.9% | | Off-net revenue | $36,611 | $36,656 | (0.1)% | | Network operations expenses | $57,220 | $56,645 | 1.0% | | Selling, general, and administrative expenses | $39,114 | $40,117 | (2.5)% | | Depreciation and amortization expenses | $22,897 | $22,609 | 1.3% | | Interest expense | $17,948 | $14,273 | 25.7% | | Change in valuation – interest rate swap | $16,923 | $3,076 | NM | | Income tax expense | $969 | $8,704 | NM | | Metric | 2022 | 2021 | Percent Change | | :------------------------------------ | :--- | :--- | :------------- | | ARPU—on-net | $458 | $465 | (1.5)% | | ARPU—off-net | $920 | $982 | (6.3)% | | Average Price per Megabit — installed base | $0.27 | $0.34 | (20.8)% | | On-net Customer Connections—end of period | 82,614 | 80,162 | 3.1% | | Off-net Customer Connections—end of period | 13,359 | 12,495 | 6.9% | - Service revenue increased by **1.4%** but was negatively impacted by **$4.2 million** from exchange rates. Corporate revenue decreased by **4.0%** to **$85.5 million**, while net-centric revenue increased by **9.6%** to **$64.5 million**[121](index=121&type=chunk)[124](index=124&type=chunk) - Corporate revenue was negatively impacted by cautious customer behavior, reduced demand for satellite offices, and a deteriorating real estate market due to COVID-19[125](index=125&type=chunk) - Net-centric revenue growth was partly offset by a **20.8% decline** in average price per megabit due to significant pricing pressure[126](index=126&type=chunk) - Network operations expenses increased by **1.0%** due to network expansion, partly offset by tax reductions. SG&A expenses decreased by **2.5%** due to lower salaries, benefits, and bad debt expense, influenced by a reduction in headcount[130](index=130&type=chunk)[131](index=131&type=chunk) - Interest expense increased by **25.7%** primarily due to higher interest rates on the **7.0% 2027 Notes** compared to the **4.375% 2024 Euro Notes**. An unrealized loss of **$16.9 million** was recorded on the interest rate swap agreement[134](index=134&type=chunk)[135](index=135&type=chunk) [Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021](index=38&type=section&id=Nine%20Months%20Ended%20September%2030,%202022%20Compared%20to%20the%20Nine%20Months%20Ended%20September%2030,%202021) This section provides a detailed comparative analysis of the company's financial results for the nine-month periods | Metric | 2022 (in thousands) | 2021 (in thousands) | Percent Change | | :----------------------------------- | :------------------ | :------------------ | :------------- | | Service revenue | $447,625 | $442,584 | 1.1% | | On-net revenue | $337,829 | $332,087 | 1.7% | | Off-net revenue | $109,279 | $110,079 | (0.7)% | | Network operations expenses | $171,183 | $169,920 | 0.7% | | Selling, general, and administrative expenses | $119,129 | $122,952 | (3.1)% | | Depreciation and amortization expenses | $68,659 | $66,675 | 3.0% | | Foreign exchange gains – 2024 Notes | $31,561 | $23,759 | 32.8% | | Loss on debt extinguishment and redemption – 2024 Notes | $11,885 | — | NM | | Loss on debt extinguishment and redemption – 2022 Notes | — | $14,698 | NM | | Change in valuation expense - interest rate swap | $45,703 | $3,076 | NM | | Interest expense | $45,594 | $44,345 | 2.8% | | Income tax expense | $10,063 | $16,477 | (38.9)% | | Metric | 2022 | 2021 | Percent Change | | :------------------------------------ | :--- | :--- | :------------- | | ARPU—on-net | $460 | $469 | (1.9)% | | ARPU—off-net | $933 | $1,000 | (6.7)% | | Average Price per Megabit — installed base | $0.29 | $0.36 | (19.4)% | | On-net Customer Connections—end of period | 82,614 | 80,162 | 3.1% | | Off-net Customer Connections—end of period | 13,359 | 12,495 | 6.9% | - Service revenue increased by **1.1%** but was negatively impacted by **$9.7 million** from exchange rates. Corporate revenue decreased by **5.4%** to **$256.8 million**, while net-centric revenue increased by **11.6%** to **$190.8 million**[147](index=147&type=chunk)[149](index=149&type=chunk) - Net-centric revenue growth was partly offset by a **19.4% decline** in average price per megabit due to market pricing pressure[151](index=151&type=chunk) - Network operations expenses increased by **0.7%** due to network expansion, partly offset by price reductions in leased circuits and tax reductions. SG&A expenses decreased by **3.1%** due to lower salaries, benefits, and bad debt expense, influenced by a reduction in headcount[155](index=155&type=chunk)[156](index=156&type=chunk) - Interest expense increased by **2.8%**. Losses on debt extinguishment included **$11.9 million** for **2024 Notes** and **$14.7 million** for **2022 Notes**. An unrealized loss of **$45.7 million** was recorded on the interest rate swap agreement[159](index=159&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations and fund its operations - The Company assesses liquidity based on cash balances, receivables, payables, capital commitments, and debt payments. It anticipates significant cash outlays for dividends (**$358 million over two years**), debt obligations, and capital expenditures[166](index=166&type=chunk)[167](index=167&type=chunk) - As of September 30, 2022, total indebtedness was **$1.2 billion** (including **$287.9 million** in finance lease obligations), with total cash, cash equivalents, and restricted cash at **$323.7 million**[180](index=180&type=chunk) - The Company believes its cash on hand and operating cash flow will be adequate for the next twelve months, but future acquisitions or unplanned costs may require additional financing, potentially leading to dilution[188](index=188&type=chunk)[189](index=189&type=chunk) - The Company does not engage in off-balance sheet arrangements, structured finance, or special purpose entities, thus avoiding related risks[192](index=192&type=chunk) - COVID-19 has not materially impacted the company's credit rating or cost of capital, but has led to cautious corporate customer behavior, increased turnover, and supply chain slowdowns, potentially affecting future revenue and profitability[193](index=193&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - Employee departures increased due to vaccine mandates and return-to-office policies[196](index=196&type=chunk) [Cash Flows](index=44&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and utilization from operating, investing, and financing activities | Cash Flow Activity | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $137,384 | $134,273 | | Net cash used in investing activities | $(59,380) | $(54,620) | | Net cash used in financing activities | $(76,548) | $(94,554) | | Net decrease in cash, cash equivalents and restricted cash | $(4,960) | $(16,346) | - Purchases of property and equipment were **$59.4 million** for **9M 2022**, up from **$54.6 million** in **9M 2021**[177](index=177&type=chunk) - Dividends paid totaled **$125.9 million** for **9M 2022**, an increase from **$110.7 million** in **9M 2021**[178](index=178&type=chunk) - Financing activities included **$375.4 million** for **2024 Notes redemption** and **$446.0 million** net proceeds from **2027 Notes issuance** in **June 2022**[179](index=179&type=chunk) [Cash Position and Indebtedness](index=46&type=section&id=Cash%20Position%20and%20Indebtedness) This section details the company's cash balances and total debt obligations at the end of the reporting period - Total indebtedness at September 30, 2022, was **$1.2 billion**, including **$287.9 million** in finance lease obligations. Total cash, cash equivalents, and restricted cash were **$323.7 million**[180](index=180&type=chunk) [Summarized Financial Information of Holdings](index=46&type=section&id=Summarized%20Financial%20Information%20of%20Holdings) This section presents key financial data for the parent company, Holdings, as a guarantor - Holdings, as a guarantor, reported **$84.7 million** in total assets and total equity as of **September 30, 2022**[181](index=181&type=chunk)[182](index=182&type=chunk) - For the nine months ended September 30, 2022, Holdings recorded a net loss of **$19.4 million**[184](index=184&type=chunk) [Common Stock Buyback Program](index=47&type=section&id=Common%20Stock%20Buyback%20Program) This section provides an update on the company's common stock repurchase authorization and activity - The Board authorized a common stock repurchase plan through **December 31, 2023**, with **$30.4 million** remaining. No shares were purchased in **Q3 or 9M 2022**[185](index=185&type=chunk)[218](index=218&type=chunk) [Dividends on Common Stock and Return of Capital Program](index=47&type=section&id=Dividends%20on%20Common%20Stock%20and%20Return%20of%20Capital%20Program) This section discusses the company's dividend declarations and overall capital return strategy - A quarterly dividend of **$0.915 per common share** was approved for **December 2, 2022**, totaling an estimated **$42.8 million**[186](index=186&type=chunk) - Future dividends and capital returns are discretionary and subject to financial performance and debt indenture limitations[187](index=187&type=chunk) [Future Capital Requirements](index=47&type=section&id=Future%20Capital%20Requirements) This section outlines the company's anticipated capital needs and potential financing strategies - The Company expects sufficient cash for the next twelve months but may need additional financing for acquisitions or unplanned costs, which could lead to dilution[188](index=188&type=chunk)[189](index=189&type=chunk) - Refinancing of indebtedness at or before maturity may be necessary, and terms are not assured[190](index=190&type=chunk) [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the company's lack of involvement in off-balance sheet financial structures - The Company does not engage in off-balance sheet arrangements or trading non-exchange traded contracts, thus avoiding related financial risks[192](index=192&type=chunk) [Impact of COVID-19 on Our Liquidity and Operating Performance](index=48&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Liquidity%20and%20Operating%20Performance) This section assesses the effects of the COVID-19 pandemic on the company's financial stability and operational results - The Company maintains high liquidity (**$323.7 million cash** as of **Sep 30, 2022**) and believes COVID-19 has not materially impacted its credit rating or cost of capital[193](index=193&type=chunk) - COVID-19 has led to cautious corporate customer behavior, reduced demand for satellite offices, a deteriorating real estate market, increased customer turnover, and a slowdown in equipment and fiber delivery[198](index=198&type=chunk)[199](index=199&type=chunk) - Employee departures increased due to vaccine mandates and return-to-office policies, potentially impacting sales, revenue, and profitability[196](index=196&type=chunk) [Critical Accounting Policies and Significant Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) This section confirms the consistency of the company's critical accounting policies and estimates with prior disclosures - Management states there have been no material changes to critical accounting policies and significant estimates from those disclosed in the annual Form 10-K for the year ended December 31, 2021[201](index=201&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Management asserts that there have been no material changes to the Company's market risk exposures as of September 30, 2022, compared to those reported in its previous annual filing - Management believes there have been no material changes to the Company's exposures to market risk from those disclosed in Item 7A of its annual report on Form 10-K for the year ended December 31, 2021[202](index=202&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) The Company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022. No material changes in internal control over financial reporting occurred during the most recent fiscal quarter - The Company's management, including the principal executive officer and principal financial officer, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022[205](index=205&type=chunk) - There has been no material change in internal control over financial reporting during the most recent fiscal quarter[206](index=206&type=chunk) PART II OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity security sales, and required exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in routine legal proceedings not expected to materially impact operations. A recent Virginia litigation concluded with a $0.4 million payment in October 2022 - The Company is involved in legal proceedings in the ordinary course of business that are not expected to have a material impact on operations or results[208](index=208&type=chunk) - A litigation in Virginia resulted in an order for the Company to pay approximately **$0.4 million** in damages, which was paid in **October 2022**[78](index=78&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) New risk factors primarily relate to the proposed Sprint Communications acquisition, including potential delays, failure to close, or adverse regulatory conditions. Integration risks encompass challenges in achieving financial goals, operational disruptions, retaining personnel and customers, and exposure to litigation - Regulatory approvals for the Sprint Communications acquisition may be delayed, not received, or impose adverse conditions, potentially impacting the combined company[209](index=209&type=chunk)[211](index=211&type=chunk) - Integration risks for the Sprint acquisition include inability to achieve financial and strategic goals, difficulty in integrating operations and personnel, inability to retain key employees, customers, and vendors, and exposure to litigation[212](index=212&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - Management believes there have been no other material changes to risk factors from those disclosed in the annual Form 10-K for the year ended December 31, 2021[217](index=217&type=chunk) [Risks Relating to Our Proposed Acquisition of Sprint Communications](index=51&type=section&id=Risks%20Relating%20to%20Our%20Proposed%20Acquisition%20of%20Sprint%20Communications) This section details the specific risks associated with the proposed acquisition of Sprint Communications, including regulatory, integration, and operational challenges - The acquisition of Sprint Communications is subject to regulatory approvals, which may take longer than expected or impose conditions that could adversely affect the combined company[209](index=209&type=chunk)[211](index=211&type=chunk) - Integration risks include the inability to achieve anticipated benefits and cost savings, difficulties in combining operations and personnel, challenges in new markets, and potential disruption to ongoing business[212](index=212&type=chunk)[213](index=213&type=chunk) - Other integration risks involve retaining key personnel, customers, and vendors, managing acquisition-related costs, and potential exposure to litigation[215](index=215&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board of Directors authorized a common stock repurchase plan through December 31, 2023. No shares were purchased during the third quarter of 2022 - The Board of Directors authorized a plan to repurchase common stock in negotiated and open market transactions through **December 31, 2023**[218](index=218&type=chunk) - No shares of common stock were purchased during the third quarter of 2022[218](index=218&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Membership Interest Purchase Agreement for the Sprint acquisition, the related Guaranty, and certifications from the CEO and CFO - Exhibit 2.1*: Membership Interest Purchase Agreement, dated as of **September 6, 2022**, for the Sprint Communications acquisition[222](index=222&type=chunk) - Exhibit 10.1: Guaranty, dated as of **September 6, 2022**, by and between Cogent Communications Holdings, Inc. and Sprint LLC[222](index=222&type=chunk) - Exhibits 31.1 and 31.2: Certifications of the Chief Executive Officer and Chief Financial Officer, respectively[222](index=222&type=chunk) [SIGNATURES](index=40&type=section&id=SIGNATURES) The report is duly signed by David Schaeffer, Chief Executive Officer, and Thaddeus G. Weed, Chief Financial Officer and Treasurer, on November 4, 2022 - The report was signed by David Schaeffer, Chief Executive Officer, and Thaddeus G. Weed, Chief Financial Officer and Treasurer, on **November 4, 2022**[226](index=226&type=chunk)[227](index=227&type=chunk)

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q2 2022 Earnings Conference Call August 4, 2022 4:30 PM ET Company Participants Dave Schaeffer - Chairman & Chief Executive Officer Tad Weed - Chief Financial Officer Conference Call Participants Gregory Williams - Cowen Nic Del Deo - MoffettNathanson Timothy Horan - Oppenheimer Walter Piecyk - LightShed Partners David Barden - Bank of America Michael Rollins - Citi Operator Welcome to the Cogent Communications Holdings Second Quarter 2022 Earnings Conferen ...