Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-51829 COGENT COMMUNICATIONS HOLDINGS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 46-5706863 (State of Incorporation) (I.R.S. Employer ...

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q1 2022 Results Conference Call May 5, 2022 8:30 AM ET Company Participants Dave Schaeffer - Chairman & Chief Executive Officer Sean Wallace - Former Chief Financial Officer Tad Weed - Returning Chief Financial Officer Conference Call Participants Phil Cusick - JPMorgan Brett Feldman - Goldman Sachs Walter Piecyk - LightShed James Breen - William Blair Nick Del Deo - MoffettNathanson Brandon Nispel - KeyBanc Capital Markets Tim Horan - Oppenheimer Operator ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-51829 COGENT COMMUNICATIONS HOLDINGS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 46-5706863 (State of Incorporation) (I.R.S. Employe ...

Financial Data and Key Metrics Changes - For full year 2021, the company's revenues increased by 3.8% year-over-year to $589.8 million, while fourth quarter revenues slightly declined to $147.2 million primarily due to foreign exchange impacts and USF tax reductions [8][12] - Non-GAAP gross profit increased by 4.5% to $366 million, with a gross margin improvement of 50 basis points to 62.1% [11] - EBITDA increased by 6.5% year-over-year to $227.9 million, with an EBITDA margin for the full year increasing by 90 basis points to 38.6% [11] Business Line Data and Key Metrics Changes - Corporate business revenues declined by 7.4% year-over-year and 2.5% sequentially, representing 59% of total revenues [26] - NetCentric business, which accounts for 41% of revenues, grew by 25.3% year-over-year and 2.6% sequentially, benefiting from increased demand for streaming services [31][27] - The number of corporate customer connections decreased by 3.7% year-over-year, while NetCentric customer connections increased by 13.9% [32][36] Market Data and Key Metrics Changes - The company experienced a 7% sequential growth in network traffic, with a year-over-year increase of 17% [7] - The average price per megabit for installed customers decreased by 19.5% year-over-year, reflecting competitive pricing pressures [40] - The corporate business is highly correlated with vacancy rates in commercial real estate, with an 84% correlation noted [94] Company Strategy and Development Direction - The company aims for long-term EBITDA margin expansion of 200 basis points per year and a constant currency revenue growth rate of approximately 10% [25] - The focus is on enhancing the corporate business as employees return to offices, with expectations of regaining historical growth rates [71][80] - The company plans to continue increasing its dividend, reflecting confidence in future cash flow and growth [15][82] Management's Comments on Operating Environment and Future Outlook - Management noted that the corporate business remains below historical averages due to the pandemic, but signs of improvement are evident with increased leasing activity [5][21] - The company is optimistic about returning to positive growth in 2022 as the corporate environment stabilizes [96] - Management acknowledged the impact of COVID-19 on operations but expressed confidence in the ability to adapt and grow [20][100] Other Important Information - The company returned $39.6 million to shareholders through dividends in the fourth quarter, with a total of $150.3 million for the year [12] - Cash at year-end was $328.6 million, providing a cushion for future investments and shareholder returns [59] - The company has a diverse customer base, with the top 25 customers representing less than 6% of total revenues [54] Q&A Session Summary Question: Are you seeing any cannibalization within larger ports? - Management indicated that there is no significant cannibalization occurring as customers upgrade to larger ports, with a trend towards higher capacity services [86][90] Question: Can you elaborate on customer interest in return-to-office? - Management noted a correlation between vacancy rates and customer losses, with improved leasing activity in markets like San Francisco and New York expected to drive corporate growth [94][95] Question: What is the outlook on leverage and dividend policy? - Management expressed comfort with being slightly above target leverage levels, anticipating growth in free cash flow and revenue, while continuing to return capital to shareholders [99][100]

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) The company provides high-speed internet, private network, and data center colocation services globally using a low-cost, fiber-based network model [Overview](index=4&type=section&id=Overview) - Cogent is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space across North America, Europe, Asia, South America, Australia, and Africa[8](index=8&type=chunk) - The company offers on-net services (**100 Mbps to 400 Gbps**) to customers in buildings physically connected to its network, avoiding reliance on local telephone or cable companies for the last mile[8](index=8&type=chunk) - Customers are categorized as corporate (small to medium-sized businesses in multi-tenant office buildings) and net-centric (bandwidth-intensive users like OTT media providers, ISPs, and mobile operators)[8](index=8&type=chunk) [Competitive Advantages](index=4&type=section&id=Competitive%20Advantages) - Cogent's low-cost operating strategy is driven by using a single network protocol (Ethernet), leasing long-term dark fiber, offering a narrow product set, and employing scalable network configurations, resulting in a **23.3% compounded annual decline** in the cost of goods sold per bit over the last five fiscal years[9](index=9&type=chunk) - The company has direct control over its on-net service delivery, including the "last mile" and in-building wiring, enabling faster provisioning (typically under two weeks) compared to competitors[11](index=11&type=chunk) - The network connects to **3,035 buildings** in **216 metropolitan markets**, including 1,817 multi-tenant office buildings and 1,359 carrier-neutral data centers, positioning it to attract high-volume internet traffic[11](index=11&type=chunk) - As a Tier 1 ISP, Cogent interconnects with **7,569 networks** and has settlement-free peering arrangements with 24 other major ISPs, which broadens geographic delivery and reduces network costs[12](index=12&type=chunk)[22](index=22&type=chunk) [Our Strategy](index=8&type=section&id=Our%20Strategy) - Grow the corporate customer base by providing high-speed dedicated internet access and private network services, capitalizing on the increasing integration of off-site data centers and cloud services[14](index=14&type=chunk) - Increase market share in the net-centric segment by leveraging geographic breadth, high capacity (up to 400 Gbps), a large salesforce, and competitive pricing to meet growing demand from applications like OTT media and online gaming[14](index=14&type=chunk) - Expand the off-net corporate internet access business by utilizing agreements with national carriers that provide last-mile access to over **4.0 million commercial buildings** in North America[17](index=17&type=chunk) - Prioritize on-net customer growth due to higher profit margins and greater control over service levels, quality, and installation times[14](index=14&type=chunk)[15](index=15&type=chunk) [Our Network](index=10&type=section&id=Our%20Network) Network Statistics as of Dec 31, 2021 | Component | Statistic | | :--- | :--- | | Total On-Net Buildings | 3,035 | | Metropolitan Markets Served | 216 | | Multi-Tenant Office Buildings | 1,817 | | Carrier Neutral Data Centers | 1,359 | | Cogent Data Centers | 54 | | Intra-city Fiber Miles | 39,559 | | Inter-city Fiber Route Miles | 60,676 | - The network is built by leasing long-term dark optical fiber and connecting Internet routers to it, a strategy that positions the company for revenue growth with limited incremental capital expenditures[18](index=18&type=chunk) - Cogent is a Tier 1 ISP, directly connecting with **7,569 networks**, and exchanges traffic with 24 other Tier 1 ISPs on a settlement-free basis, reducing operating costs as it does not purchase transit services or paid peering[22](index=22&type=chunk) [Our Customers](index=13&type=section&id=Our%20Customers) - The company serves two main customer sets: corporate customers (small and medium-sized businesses) and net-centric customers (content providers, application service providers, and access networks)[25](index=25&type=chunk) - Corporate customers primarily purchase direct internet access (**100 Mbps to 10 Gbps**) and private network services, either on-net or off-net[25](index=25&type=chunk) - Net-centric customers purchase high-capacity IP connectivity (**10 Gbps to 400 Gbps**) in 1,413 data centers across 216 markets and can purchase contractual capacity, metered service, or burst capacity[25](index=25&type=chunk) [Human Capital Management](index=13&type=section&id=Human%20Capital%20Management) Employee Statistics as of Dec 31, 2021 | Metric | Value | | :--- | :--- | | Total Employees | 1,001 | | Employees in US & Canada | 81.0% | | Employees in Europe | 18.0% | | Quota-bearing Sales Reps | 49% | | Sales Management/Support | 14% | | Operational/Admin | 37% | - In 2021, the company experienced a **7.0% average monthly churn rate** among sales representatives, attributed to performance goals and the mandate to return to the office and be vaccinated against COVID-19[30](index=30&type=chunk) - The company mandated that all US and Canadian employees be vaccinated against COVID-19 by October 2021 and return to the office full-time, though this was later modified due to the Omicron variant[32](index=32&type=chunk) [Sales and Marketing](index=17&type=section&id=Sales%20and%20Marketing) - The company employs a direct sales force of **633 full-time employees** as of December 31, 2021, down from 712 at year-end 2020, including 490 quota-bearing sales representatives[33](index=33&type=chunk) - Marketing efforts focus on direct contact and lead generation through building events and public relations, rather than traditional television, radio, or print advertising[33](index=33&type=chunk) [Competition](index=17&type=section&id=Competition) - Cogent faces competition from larger incumbent telephone and cable companies with greater financial resources, established brand names, and large customer bases[34](index=34&type=chunk) - Competition is based on price, speed, reliability, and service availability, and competitors are upgrading their networks with optical fiber to match Cogent's speed and quality[36](index=36&type=chunk) [Regulation](index=19&type=section&id=Regulation) - As a provider of Internet access and private networks to businesses, the company is not subject to significant regulation, which provides flexibility and ease of entry into new markets[37](index=37&type=chunk) - The company must comply with regulations concerning licensing, data privacy, law enforcement interception, and website blocking in the various jurisdictions where it operates[37](index=37&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic's impact on corporate demand, employee retention, competition, and its substantial indebtedness [Market Risks](index=19&type=section&id=Market%20Risks) - The COVID-19 pandemic has adversely impacted the business, particularly corporate revenue, due to remote work policies, office closures, and rising vacancy rates in multi-tenant office buildings[39](index=39&type=chunk)[41](index=41&type=chunk) - The company's mandate for employees to be vaccinated and return to the office full-time has led to increased employee departures, particularly in the sales department, and may make it difficult to retain and hire new employees[42](index=42&type=chunk)[45](index=45&type=chunk) - The company is experiencing delays in the delivery of networking equipment and services from vendors, which may impact its ability to expand and augment its network[46](index=46&type=chunk) [Business Risks](index=23&type=section&id=Business%20Risks) - A long-term shift to remote work may negatively impact revenue growth, cash flows, and profitability by increasing corporate customer turnover and reducing demand for new services and upgrades[53](index=53&type=chunk) - The company's rapid growth places significant strains on its management, operational, and financial infrastructure, requiring effective expansion of its sales force and systems to manage growth[55](index=55&type=chunk)[57](index=57&type=chunk) [Competitive Risks](index=25&type=section&id=Competitive%20Risks) - Maintaining settlement-free peering relationships is critical to avoiding higher costs and ensuring high network performance, and a failure to maintain or expand these relationships could materially harm the business[60](index=60&type=chunk) - The company faces significant competition from incumbent carriers and ISPs that have greater financial resources, larger customer bases, and more diverse service offerings[61](index=61&type=chunk) [Operational Risks](index=26&type=section&id=Operational%20Risks) - The company's network is a potential target for cyber-attacks (like DDOS), which could lead to service interruptions, compromise of customer data, and material adverse effects on the business[64](index=64&type=chunk) - Reliance on complex information systems for sales, billing, and financial reporting poses a risk, as system failures could adversely affect sales, collections, and the ability to prepare timely financial statements[65](index=65&type=chunk) [Network Augmentation and Maintenance Risks](index=28&type=section&id=Network%20Augmentation%20and%20Maintenance%20Risks) - The network relies on leased optical fiber and building access from numerous vendors, and a failure to renew these leases on attractive terms could impact the network and customer base[68](index=68&type=chunk) - Substantially all network infrastructure equipment is purchased from a single vendor, **Cisco Systems, Inc**, and delays or failures from this vendor could disrupt service and network expansion[71](index=71&type=chunk) [International Operations Risks](index=30&type=section&id=International%20Operations%20Risks) - Operations in **50 countries** expose the company to risks including currency fluctuations (particularly the Euro), regulatory requirements, political and economic conditions, and diverse tax regimes[75](index=75&type=chunk) [Regulatory and Tax Risks](index=30&type=section&id=Regulatory%20and%20Tax%20Risks) - The unsettled legal landscape for ISPs could lead to new liabilities for content disseminated through the network, requiring costly measures to reduce exposure[76](index=76&type=chunk) - Changes in laws, such as those related to net neutrality, data privacy (GDPR, CCPA), and ISP liability (Section 230), could adversely affect the business and its customers[77](index=77&type=chunk)[80](index=80&type=chunk) - Governments may impose new taxes on Internet services, similar to those on telephone services, which could increase costs and discourage customer growth[82](index=82&type=chunk) [Risk Factors Related to Our Indebtedness](index=34&type=section&id=Risk%20Factors%20Related%20to%20Our%20Indebtedness) - As of December 31, 2021, the company had **$1.1 billion in total indebtedness**, including senior notes and finance lease obligations, which could make it difficult to satisfy financial obligations[85](index=85&type=chunk)[86](index=86&type=chunk) - An interest rate swap agreement on the 2026 Notes exposes the company to risks associated with variable interest rates based on the Secured Overnight Financing Rate (SOFR)[88](index=88&type=chunk) - Debt agreements impose significant restrictions on the business, limiting the ability to incur additional debt, pay dividends, make certain investments, and enter into transactions with affiliates[90](index=90&type=chunk) [Item 1B. Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[94](index=94&type=chunk) [Item 2. Properties](index=36&type=section&id=Item%202.%20Properties) The company leases approximately 748,000 square feet for its operations, including its headquarters from an entity controlled by its CEO - The company leases its headquarters facility of **43,117 square feet** in Washington, D.C. from an entity controlled by its CEO, with a lease expiring in May 2025 that is cancellable on 60 days' notice[95](index=95&type=chunk) - In total, the company leases approximately **748,000 square feet** of space for its data centers, offices, and operations centers[95](index=95&type=chunk) [Item 3. Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings not expected to have a material adverse effect on its business - The company is involved in legal proceedings in the ordinary course of business, which are not expected to have a material adverse effect, with details in Note 6 to the consolidated financial statements[96](index=96&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[97](index=97&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on NASDAQ as "CCOI" and a stock repurchase plan is authorized through December 2022 - The company's common stock trades on the NASDAQ Global Select Market under the symbol "**CCOI**"[100](index=100&type=chunk) - A stock repurchase program authorized up to **$50.0 million** is in place through December 31, 2022, with **$30.4 million** remaining available as of December 31, 2021[104](index=104&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2021 revenue grew 3.8% driven by net-centric customers, offsetting a corporate decline, while net income was significantly impacted by foreign exchange gains [Results of Operations](index=39&type=section&id=Results%20of%20Operations) Financial Performance Comparison (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Service Revenue | $589,797 | $568,103 | 3.8% | | On-net Revenues | $442,838 | $419,454 | 5.6% | | Off-net Revenues | $146,383 | $148,128 | (1.2)% | | Network Operations Expenses | $226,337 | $219,157 | 3.3% | | SG&A Expenses | $162,380 | $158,476 | 2.5% | | Depreciation & Amortization | $89,240 | $83,477 | 6.9% | | Income Tax Expense | $23,235 | $4,096 | 467.3% | - Corporate customer revenue decreased by **6.5%** to **$358.4 million** in 2021, attributed to the COVID-19 pandemic's impact, while net-centric customer revenue increased by **25.3%** to **$231.4 million**[110](index=110&type=chunk) - The average price per megabit for the installed customer base declined by **24.2%** from 2020 to 2021, a trend expected to continue[111](index=111&type=chunk) - The number of on-net customer connections grew by **4.4%** and off-net connections grew by **5.8%** from year-end 2020 to 2021[113](index=113&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) Consolidated Cash Flows (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $170,257 | $140,320 | $148,809 | | Net cash used in investing activities | ($69,916) | ($55,952) | ($46,958) | | Net cash (used in) provided by financing activities | ($140,825) | ($116,002) | $22,020 | - As of December 31, 2021, the company had cash, cash equivalents, and restricted cash of **$328.6 million**[120](index=120&type=chunk) - The company paid **$150.3 million** in dividends in 2021, up from $129.4 million in 2020, reflecting regular quarterly increases in the dividend per share[128](index=128&type=chunk) - The company believes cash on hand and cash from operations will be adequate to meet working capital, capital expenditure, debt service, and dividend payment requirements for the next twelve months[139](index=139&type=chunk) [Indebtedness](index=50&type=section&id=Indebtedness) - Total indebtedness at December 31, 2021, was **$1.1 billion** at par value, including **$500.0 million** of 3.50% senior secured notes due 2026, **€350.0 million** of 4.375% senior unsecured notes due 2024, and **$245.9 million** of finance lease obligations[85](index=85&type=chunk)[129](index=129&type=chunk) - In May 2021, the company issued **$500.0 million** of 2026 Notes and used the proceeds to redeem its remaining 2022 Notes[130](index=130&type=chunk)[213](index=213&type=chunk) - Debt indentures limit the company's ability to make restricted payments, such as dividends and stock purchases, with **$185.5 million** unrestricted and available for such payments as of December 31, 2021[133](index=133&type=chunk) [Critical Accounting Policies and Significant Estimates](index=53&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) - A critical accounting policy involves finance lease obligations, where management must make significant judgments regarding renewal options, useful lives of assets, and the incremental borrowing rate[144](index=144&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk from a swap agreement and foreign currency risk from its Euro-denominated notes and international operations - The company is exposed to variable interest rate risk on its **$500.0 million** 2026 Notes due to an interest rate swap agreement tied to SOFR, where a 1.0% change in rates would impact annual interest expense by approximately **$20.4 million**[146](index=146&type=chunk) - Foreign currency exchange risk exists due to the **€350.0 million** 2024 Notes and international operations, which generated **25.5%** of consolidated revenue in 2021, where a 1.0% change in exchange rates would impact annual revenue by approximately **$1.2 million**[148](index=148&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements and the independent auditor's report for the fiscal year ended December 31, 2021 [Report of Independent Registered Public Accounting Firm](index=58&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2021, stating they are presented fairly in conformity with U.S. GAAP[152](index=152&type=chunk) - The audit identified a Critical Audit Matter related to the classification of Indefeasible Right of Use (IRU) lease agreements, which involved subjective judgment in determining the economic life of the underlying optical fiber assets[155](index=155&type=chunk) [Consolidated Financial Statements](index=60&type=section&id=Consolidated%20Financial%20Statements) Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $984,557 | $1,000,477 | | Total Liabilities | $1,357,655 | $1,293,643 | | Total Stockholders' Equity (Deficit) | ($373,098) | ($293,166) | Consolidated Income Statement Data (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Service Revenue | $589,797 | $568,103 | $546,159 | | Operating Income | $119,233 | $106,922 | $100,257 | | Net Income | $48,185 | $6,216 | $37,520 | Earnings Per Share (Diluted) | Year | Diluted EPS | | :--- | :--- | | 2021 | $1.03 | | 2020 | $0.13 | | 2019 | $0.81 | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=92&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None[255](index=255&type=chunk) [Item 9A. Controls and Procedures](index=92&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[256](index=256&type=chunk) - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[256](index=256&type=chunk) - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified report on the company's internal control over financial reporting as of December 31, 2021[259](index=259&type=chunk)[262](index=262&type=chunk) [Item 9B. Other Information](index=95&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[266](index=266&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=95&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[267](index=267&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=95&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Required information is incorporated by reference from the company's 2022 definitive proxy statement - Information is incorporated by reference from the registrant's 2022 definitive proxy statement[269](index=269&type=chunk) [Item 11. Executive Compensation](index=95&type=section&id=Item%2011.%20Executive%20Compensation) Required information is incorporated by reference from the company's 2022 definitive proxy statement - Information is incorporated by reference from the registrant's 2022 definitive proxy statement[270](index=270&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=95&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Required information is incorporated by reference from the company's 2022 definitive proxy statement - Information is incorporated by reference from the registrant's 2022 definitive proxy statement[271](index=271&type=chunk) [Item 13. Certain Relationships and Related Transactions and Director Independence](index=95&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Required information is incorporated by reference from the company's 2022 definitive proxy statement - Information is incorporated by reference from the registrant's 2022 definitive proxy statement[272](index=272&type=chunk) [Item 14. Principal Accountant Fees and Services](index=95&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Required information is incorporated by reference from the company's 2022 definitive proxy statement - Information is incorporated by reference from the registrant's 2022 definitive proxy statement[273](index=273&type=chunk) Part IV [Item 15. Exhibit and Financial Statement Schedules](index=96&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section lists the financial statements, financial statement schedules, and exhibits filed with the report[276](index=276&type=chunk)[277](index=277&type=chunk) [Item 16. Form 10-K Summary](index=102&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for this item - None[288](index=288&type=chunk)

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q3 2021 Results Conference Call November 4, 2021 8:30 AM ET Company Participants Dave Schaeffer - Chairman and CEO Sean Wallace - CFO Conference Call Participants George Engroff - Credit Suisse Phil Cusick - JP Morgan Colby Synesael - Cowen Nick Del Deo - MoffettNathanson Walter Piecyk - LightShed Michael Rollins - Citi Evan Young - KeyBanc Capital Markets Operator Good morning, and welcome to the Cogent Communications Holdings Third Quarter 2021 Earnings C ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-51829 COGENT COMMUNICATIONS HOLDINGS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 46-5706863 (State of Incorporation) (I.R.S. Emp ...

Financial Data and Key Metrics Changes - For Q2 2021, the company's revenue grew sequentially by 0.8% to $117.9 million, representing a year-over-year increase of 4.9% [6][10] - EBITDA increased by 2.9% sequentially and by 7.2% year-over-year, with an EBITDA margin of 38.7%, up 90 basis points from the previous quarter and year [8][45] - The company returned $37 million to shareholders through dividends, marking the 36th consecutive increase in quarterly dividends, now at $0.805 per share, a 14.2% year-over-year growth [9][71] Business Line Data and Key Metrics Changes - Corporate segment revenues declined by 1.6% sequentially and by 6.7% year-over-year, accounting for 61.2% of total revenues [20][25] - NetCentric business revenues increased by 4.8% sequentially and by 30.5% year-over-year, representing 38.8% of total revenues [21][30] - Customer connections in the corporate segment decreased by 2% sequentially and by 5.2% year-over-year, while NetCentric customer connections increased by 4.2% sequentially and by 15.7% year-over-year [29][30] Market Data and Key Metrics Changes - Approximately 25.6% of total quarterly revenues were generated outside the U.S., with 18% from Europe and 7% from other regions [46][47] - The average price per megabit for the installed base declined by 6.1% sequentially and by 24.8% year-over-year, indicating continued pricing pressure in the market [36][37] Company Strategy and Development Direction - The company aims for a long-term EBITDA margin expansion of 200 basis points per year and a constant currency revenue growth target of approximately 10% [19][70] - The focus remains on enhancing the NetCentric business, leveraging the growth in streaming subscriptions and international traffic [4][59] - The company plans to continue expanding its network, adding approximately 100 carrier-neutral data centers annually [60] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the economic outlook due to the ongoing pandemic and the emergence of the Delta variant, despite signs of improvement in the corporate segment [5][63] - There is optimism about the return of corporate customers to offices, which is expected to drive a recovery in corporate revenues [63][88] - The company remains focused on maintaining strong credit quality and operational efficiency, with improvements in customer churn and bad debt metrics [9][70] Other Important Information - The company issued $500 million in senior secured notes, which will save approximately $6.5 million in interest expenses and provide $55 million in additional liquidity [11][13] - Cash held at the end of the quarter totaled $374 million, with $148.2 million unrestricted for dividends or stock buybacks [10][53] Q&A Session Summary Question: Composition of NetCentric customer base and its impact - Management noted that the NetCentric customer base is evolving, with a significant portion of traffic remaining on the Cogent network, which is driving profitability [74][76] Question: Interest rate savings and refinancing opportunities - The difference in interest savings was attributed to incremental capital raised and plans for a fixed versus variable swap to reduce rates further [79][80] Question: Corporate customer return to office commentary - Management indicated that corporate customers remain cautious due to the Delta variant, but there is a general expectation for increased office activity post-Labor Day [81][83] Question: Corporate revenue visibility and leverage targets - Management believes corporate on-net growth will improve sequentially, but visibility on timing remains uncertain due to the pandemic [102][104] Question: Streaming services contract terms and pricing - The majority of contracts with NetCentric customers are three years, with pricing models favoring longer commitments and higher volumes [95][98]

[PART I FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents unaudited condensed consolidated financial statements and detailed notes on business, accounting, debt, and other financial aspects [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric (in thousands) | June 30, 2021 (Unaudited) | December 31, 2020 | | :-------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $373,963 | $371,301 | | Total current assets | $454,555 | $456,337 | | Total assets | $1,010,747 | $1,000,477 | | Total current liabilities | $93,726 | $94,443 | | Total liabilities | $1,346,888 | $1,293,643 | | Total stockholders' deficit | $(336,141) | $(293,166) | - Total assets increased by **$10.27 million** from December 31, 2020, to June 30, 2021, reaching **$1,010,747 thousand**[8](index=8&type=chunk) - Total liabilities increased by **$53.245 million**, leading to an increased stockholders' deficit of **$(336,141) thousand** as of June 30, 2021[8](index=8&type=chunk) [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 statement details the company's financial performance, including revenues, expenses, and net loss or income, over a three-month period | Metric (in thousands, except per share) | Three Months Ended June 30, 2021 (Unaudited) | Three Months Ended June 30, 2020 (Unaudited) | Change (%) | | :-------------------------------------- | :------------------------------------------- | :------------------------------------------- | :--------- | | Service revenue | $147,879 | $140,990 | 4.9% | | Total operating expenses | $119,668 | $113,621 | 5.3% | | Operating income | $28,211 | $27,574 | 2.3% | | Net (loss) income | $(2,493) | $8,564 | -129.1% | | Basic net (loss) income per common share | $(0.05) | $0.19 | -126.3% | | Diluted net (loss) income per common share | $(0.05) | $0.18 | -127.8% | | Dividends declared per common share | $0.78 | $0.68 | 14.7% | - The company reported a **net loss of $2.493 million** for the three months ended June 30, 2021, a significant decline from a **net income of $8.564 million** in the prior-year period, primarily due to a **$10.830 million loss** on debt extinguishment and redemption of 2022 Notes[12](index=12&type=chunk) - Service revenue increased by **4.9%** year-over-year, reaching **$147.879 million**[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Six Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Six%20Months)) This statement details the company's financial performance, including revenues, expenses, and net income, over a six-month period | Metric (in thousands, except per share) | Six Months Ended June 30, 2021 (Unaudited) | Six Months Ended June 30, 2020 (Unaudited) | Change (%) | | :-------------------------------------- | :----------------------------------------- | :----------------------------------------- | :--------- | | Service revenue | $294,656 | $281,904 | 4.5% | | Total operating expenses | $240,171 | $228,721 | 5.0% | | Operating income | $54,503 | $53,427 | 2.0% | | Net income | $16,358 | $17,791 | -8.1% | | Basic net income per common share | $0.35 | $0.39 | -10.3% | | Diluted net income per common share | $0.35 | $0.38 | -7.9% | | Dividends declared per common share | $1.535 | $1.340 | 14.6% | - Net income for the six months ended June 30, 2021, decreased by **8.1%** to **$16.358 million**, primarily impacted by a **$14.698 million loss** on debt extinguishment and redemption of 2022 Notes[15](index=15&type=chunk) - Service revenue for the six-month period increased by **4.5%** to **$294.656 million**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over a period | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2021 (Unaudited) | Six Months Ended June 30, 2020 (Unaudited) | Change (%) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | :--------- | | Net cash provided by operating activities | $86,855 | $69,769 | 24.5% | | Net cash used in investing activities | $(32,661) | $(26,796) | 21.9% | | Net cash used in financing activities | $(50,874) | $(25,257) | 101.4% | | Net increase in cash and cash equivalents | $2,662 | $17,604 | -84.9% | - Net cash provided by operating activities increased by **24.5%** to **$86.855 million** for the six months ended June 30, 2021[19](index=19&type=chunk) - Net cash used in financing activities more than doubled to **$50.874 million**, primarily due to significant debt redemption activities (**$459.317 million** for 2022 Notes) offset by new debt issuance (**$496.933 million** for 2026 Notes)[19](index=19&type=chunk)[163](index=163&type=chunk) [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 as a high-speed internet provider and recent accounting standard adoptions - Cogent Communications Holdings, Inc. is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation, serving businesses and communication service providers in 48 countries[22](index=22&type=chunk) - The company offers 'on-net' services through its own facilities and 'off-net' services using other carriers' 'last mile' circuits, with non-core services also supported from acquisitions[23](index=23&type=chunk)[25](index=25&type=chunk) - The company adopted ASU 2016-13 (ASC 326) for credit losses on January 1, 2020, which did not materially impact its consolidated financial statements[51](index=51&type=chunk) [2. Property and equipment](index=16&type=section&id=2.%20Property%20and%20equipment) This section details the company's property and equipment, including depreciation expenses and financing arrangements | Expense (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Depreciation and amortization | $22,100 | $19,900 | $44,100 | $39,400 | | Capitalized salaries and benefits | $4,200 | $3,000 | $7,400 | $5,900 | - Depreciation and amortization expense increased by **11.1%** for the three months and **11.8%** for the six months ended June 30, 2021, compared to the prior year, reflecting increased deployed fixed assets[53](index=53&type=chunk) - The company has an installment payment agreement (IPA) for network equipment, with **$3.4 million** outstanding as of June 30, 2021, down from **$7.7 million** at December 31, 2020[54](index=54&type=chunk) [3. Long-term debt](index=16&type=section&id=3.%20Long-term%20debt) This section outlines the company's long-term debt instruments, including new issuances, redemptions, and foreign exchange impacts | Debt Instrument | Principal Amount | Interest Rate | Maturity Date | | :-------------- | :--------------- | :------------ | :------------ | | Senior Secured Notes | $500.0 million | 3.50% | May 1, 2026 | | Senior Unsecured Euro Notes | €350.0 million ($415.8 million USD) | 4.375% | June 30, 2024 | - In May 2021, the company issued **$500.0 million** of 3.50% Senior Secured Notes due 2026, with net proceeds of **$496.9 million**[57](index=57&type=chunk)[58](index=58&type=chunk) - The proceeds from the 2026 Notes were used to redeem and extinguish all outstanding 2022 Notes, resulting in a total loss on debt extinguishment and redemption of **$14.7 million** for the six months ended June 30, 2021[58](index=58&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - The 2024 Euro Notes are subject to foreign exchange fluctuations, resulting in an unrealized gain of **$13.6 million** for the six months ended June 30, 2021, compared to a loss of **$0.5 million** in the prior year[66](index=66&type=chunk) [4. Commitments and contingencies](index=21&type=section&id=4.%20Commitments%20and%20contingencies) This section details potential financial obligations and legal disputes, including estimated losses from leased circuits and arbitration - The company estimates a reasonably possible loss of up to **$3.5 million** in excess of accrued amounts related to obligations for leased circuits[70](index=70&type=chunk) - An arbitration proceeding in Spain involves a former optical fiber provider seeking approximately **$9 million** for early termination of leases, which the company is contesting[71](index=71&type=chunk) [5. Income taxes](index=21&type=section&id=5.%20Income%20taxes) This section provides an overview of the company's income tax provisions and the factors influencing them | (Loss) Income Before Income Taxes (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Domestic | $828 | $14,113 | $29,330 | $31,902 | | Foreign | $(2,899) | $(2,814) | $(5,199) | $(7,770) | | Total | $(2,071) | $11,299 | $24,131 | $24,132 | - The income tax provision decreased significantly for the three months ended June 30, 2021, to **$0.4 million** from **$2.7 million**, primarily due to a decrease in income before income taxes[126](index=126&type=chunk) - For the six months ended June 30, 2021, the income tax provision increased to **$7.8 million** from **$6.3 million**, mainly due to an increase in certain non-deductible expenses[148](index=148&type=chunk) [6. Common stock buyback program](index=23&type=section&id=6.%20Common%20stock%20buyback%20program) This section details the company's common stock buyback program, including remaining authorization and recent activity - As of June 30, 2021, approximately **$30.4 million** remained authorized for purchases under the Buyback Program, which extends through December 31, 2021[75](index=75&type=chunk) - No common stock was purchased during the three or six months ended June 30, 2021, or the corresponding periods in 2020[75](index=75&type=chunk) [7. Dividends on common stock](index=23&type=section&id=7.%20Dividends%20on%20common%20stock) This section outlines recent dividend declarations and the factors influencing future dividend payments - The Board of Directors approved a quarterly dividend of **$0.805 per common share** on August 4, 2021, estimated at **$37.2 million**, payable on September 3, 2021[76](index=76&type=chunk) - Future dividend payments are at the Board's discretion and subject to financial position, cash flow, capital requirements, and limitations under debt indentures and Delaware law[77](index=77&type=chunk) [8. Related party transactions](index=23&type=section&id=8.%20Related%20party%20transactions) This section discloses transactions with related parties, specifically the lease of the company's headquarters - The company leases its headquarters from Sodium LLC, an entity owned by its CEO, with an annual rent of **$1.0 million** plus taxes and utilities[78](index=78&type=chunk) | Rent and Related Costs (in millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Paid to Sodium LLC | $0.5 | $0.5 | $0.8 | $0.8 | [9. Segment information](index=24&type=section&id=9.%20Segment%20information) This section provides details on the company's single operating segment and revenue breakdown by geographic region and product class - The company operates as a single operating segment[80](index=80&type=chunk) | Revenue by Geographic Region (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $117,140 | $115,131 | $233,537 | $230,745 | | Europe | $26,880 | $23,573 | $53,910 | $46,847 | | Latin America | $1,054 | $436 | $1,882 | $766 | | Asia Pacific | $2,712 | $1,850 | $5,156 | $3,546 | | Africa | $93 | N/A | $171 | N/A | | Total | $147,879 | $140,990 | $294,656 | $281,904 | | Revenue by Product Class (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | On-net | $111,041 | $103,800 | $220,989 | $207,256 | | Off-net | $36,699 | $37,044 | $73,422 | $74,364 | | Non-core | $139 | $146 | $245 | $284 | [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) This section discusses the company's financial condition, operational results, competitive landscape, strategic initiatives, and liquidity, including COVID-19 impacts [General Overview](index=25&type=section&id=General%20Overview) This section provides an overview of the company's business model as a high-speed internet provider and its revenue composition - The company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation, serving small and medium-sized businesses and communication service providers globally[83](index=83&type=chunk) | Revenue Type | Q2 2021 Revenue Share | Q2 2020 Revenue Share | H1 2021 Revenue Share | H1 2020 Revenue Share | | :----------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | On-net | 75.1% | 73.6% | 75.0% | 73.5% | | Off-net | 24.8% | 26.3% | 24.9% | 26.4% | | Non-core | ~0.1% | ~0.1% | ~0.1% | ~0.1% | - On-net services, delivered through the company's own facilities, constitute the majority of revenue, while off-net services, relying on third-party 'last mile' connections, represent a significant portion[85](index=85&type=chunk)[87](index=87&type=chunk) [Competitive Advantages](index=27&type=section&id=Competitive%20Advantages) This section highlights the company's operational efficiencies, network design, market reach, and experienced management team - The company maintains a low cost of operation through a single Ethernet network protocol, broad access to dark fiber leases, a narrow and focused product set, and scalable network equipment and hub configurations[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[93](index=93&type=chunk) - Key advantages include greater control over service delivery, high-quality and reliable service due to optimized network design, a large addressable market with **2,975 on-net buildings** in **210 metropolitan markets**, and a balanced, high-traffic network enabling settlement-free interconnection[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - The senior management team possesses extensive experience in the telecommunications industry, with many members working together at the company since 2000[98](index=98&type=chunk) [Our Strategy](index=31&type=section&id=Our%20Strategy) This section outlines the company's strategic goals, including customer base expansion, market share growth, and new product introductions - The company aims to grow its corporate customer base by leveraging superior speeds and rapid installation times, especially for dedicated internet access and private network services[100](index=100&type=chunk) - It plans to increase its share of the net-centric market by offering attractive features like geographic breadth (**48 countries, 1,309 CNDCs**), high capacity (**100 Mbps to 100 Gbps**), a balanced customer base, a large salesforce, and competitive pricing[101](index=101&type=chunk) - A new product, Global Peer Connect (GPC), was introduced in late 2020 to allow net-centric customers to dynamically peer traffic anywhere on its global platform, offering ubiquity, attractive economics (usage-based, no fixed port charges), and greater customer control[102](index=102&type=chunk) - Other strategic elements include pursuing on-net customer growth in existing and new buildings, expanding and improving sales efforts (**30% increase in salesforce over five years**), and growing the off-net corporate business through agreements with national carriers[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [Results of Operations (Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020)](index=33&type=section&id=Results%20of%20Operations%20(Three%20Months%20Ended%20June%2030,%202021%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030,%202020)) This section analyzes the company's financial performance for the three months ended June 30, 2021, compared to the prior-year period | Metric (in thousands) | Q2 2021 | Q2 2020 | % Change | | :-------------------- | :---------- | :---------- | :------- | | Service revenue | $147,879 | $140,990 | 4.9% | | On-net revenue | $111,041 | $103,800 | 7.0% | | Off-net revenue | $36,699 | $37,044 | (0.9)% | | Network operations expenses | $56,180 | $53,886 | 4.3% | | SG&A expenses | $41,392 | $39,839 | 3.9% | | Depreciation and amortization | $22,096 | $19,896 | 11.1% | | Interest expense | $14,236 | $15,499 | (8.1)% | | Loss on debt extinguishment – 2022 Notes | $10,830 | — | NM | | Income tax provision | $422 | $2,735 | (84.6)% | | Operating Data | Q2 2021 | Q2 2020 | % Change | | :------------- | :------ | :------ | :------- | | ARPU—on-net | $470 | $458 | 2.6% | | ARPU—off-net | $994 | $1,048 | (5.1)% | | Average Price per Megabit | $0.36 | $0.47 | (24.8)% | | On-net Customer Connections | 79,146 | 75,927 | 4.2% | | Off-net Customer Connections | 12,386 | 11,846 | 4.6% | - Service revenue increased by **4.9%**, positively impacted by **$3.0 million** from exchange rates and **$1.5 million** from gross receipts taxes and Universal Service Fund fees[112](index=112&type=chunk)[113](index=113&type=chunk) - Corporate customer revenue decreased by **6.7%** due to COVID-19 related caution and a deteriorating real estate market, while net-centric customer revenue increased by **30.5%** despite a **24.8% decline** in average price per megabit[114](index=114&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) - Interest expense decreased by **8.1%** due to lower interest rates on the newly issued 2026 Notes compared to the extinguished 2022 Notes, but a significant loss on debt extinguishment of **$10.830 million** was incurred[123](index=123&type=chunk) [Results of Operations (Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020)](index=38&type=section&id=Results%20of%20Operations%20(Six%20Months%20Ended%20June%2030,%202021%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030,%202020)) This section analyzes the company's financial performance for the six months ended June 30, 2021, compared to the prior-year period | Metric (in thousands) | H1 2021 | H1 2020 | % Change | | :-------------------- | :---------- | :---------- | :------- | | Service revenue | $294,656 | $281,904 | 4.5% | | On-net revenue | $220,989 | $207,256 | 6.6% | | Off-net revenue | $73,422 | $74,364 | (1.3)% | | Network operations expenses | $113,272 | $109,806 | 3.2% | | SG&A expenses | $82,834 | $79,513 | 4.2% | | Depreciation and amortization | $44,065 | $39,402 | 11.8% | | Interest expense | $30,071 | $30,720 | (2.1)% | | Loss on debt extinguishment – 2022 Notes | $14,698 | — | NM | | Income tax provision | $7,773 | $6,341 | 22.6% | | Operating Data | H1 2021 | H1 2020 | % Change | | :------------- | :------ | :------ | :------- | | ARPU—on-net | $479 | $459 | 4.4% | | ARPU—off-net | $1,018 | $1,055 | (3.5)% | | Average Price per Megabit | $0.37 | $0.50 | (26.5)% | | On-net Customer Connections | 79,146 | 75,927 | 4.2% | | Off-net Customer Connections | 12,386 | 11,846 | 4.6% | - Service revenue increased by **4.5%**, with foreign exchange rates contributing **$5.6 million** and taxes/surcharges adding **$2.3 million**[134](index=134&type=chunk)[135](index=135&type=chunk) - Corporate customer revenue decreased by **5.9%** to **$182.5 million**, while net-centric customer revenue increased by **27.6%** to **$112.2 million**, despite a **26.5% decline** in average price per megabit[136](index=136&type=chunk)[138](index=138&type=chunk) - Network operations expenses increased by **3.2%**, driven by network expansion and equity-based compensation, partially offset by leased circuit price reductions[142](index=142&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet short-term and long-term financial obligations and its capital management strategies - Management assesses liquidity by reviewing cash balances, receivables, payables, capital expenditure commitments, and debt payments[150](index=150&type=chunk) - Significant contractual cash outlays include expected quarterly dividend payments of approximately **$330 million** over the next two years and annual interest payments of **$17.5 million** on 2026 Notes and **€15.3 million** on 2024 Notes[151](index=151&type=chunk)[152](index=152&type=chunk) - The company may need to refinance debt at or before maturity and may seek additional capital for liquidity, acquisitions, or general corporate purposes, with potential for dilution if equity is issued[153](index=153&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) [Cash Flows](index=46&type=section&id=Cash%20Flows) This section analyzes the company's cash flow activities from operations, investing, and financing for the six-month period | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $86,855 | $69,769 | | Net cash used in investing activities | $(32,661) | $(26,796) | | Net cash used in financing activities | $(50,874) | $(25,257) | | Net increase in cash and cash equivalents | $2,662 | $17,604 | - Operating cash flow increased due to changes in operating profit and interest payments, with **$32.9 million** in interest payments on note obligations in H1 2021[160](index=160&type=chunk) - Investing activities primarily involved property and equipment purchases, increasing to **$32.7 million** in H1 2021 due to network expansion[161](index=161&type=chunk) - Financing activities included **$73.1 million** in dividend payments and **$459.3 million** for 2022 Notes redemption, offset by **$496.9 million** from 2026 Notes issuance[162](index=162&type=chunk)[163](index=163&type=chunk) [Cash Position and Indebtedness](index=46&type=section&id=Cash%20Position%20and%20Indebtedness) This section summarizes the company's cash and cash equivalents and total indebtedness as of June 30, 2021 | Metric (in millions) | June 30, 2021 | | :------------------- | :------------ | | Total indebtedness (at par) | $1.1 | | Cash and cash equivalents | $374.0 | - Total indebtedness includes **$224.6 million** of finance lease obligations for dark fiber under long-term IRU agreements[164](index=164&type=chunk) [Summarized Financial Information of Holdings](index=48&type=section&id=Summarized%20Financial%20Information%20of%20Holdings) This section provides a summary of the financial position and performance of the Holdings entity | Metric (in thousands) | June 30, 2021 (Unaudited) | | :-------------------- | :------------------------ | | Cash and cash equivalents | $148,217 | | Total assets | $148,219 | | Total equity | $148,219 | | Net loss (Six Months Ended June 30, 2021) | $(16,252) | - Holdings, as a guarantor under the 2024 and 2026 Notes, reported a net loss of **$16.252 million** for the six months ended June 30, 2021[166](index=166&type=chunk)[167](index=167&type=chunk) [Common Stock Buyback Program](index=48&type=section&id=Common%20Stock%20Buyback%20Program) This section details the common stock buyback program, including remaining authorization and recent activity - The Board of Directors authorized a common stock buyback program through December 31, 2021, with **$30.4 million** remaining as of June 30, 2021[168](index=168&type=chunk) - No shares were repurchased during the three or six months ended June 30, 2021, or the corresponding periods in 2020[168](index=168&type=chunk) [Dividends on Common Stock and Return of Capital Program](index=48&type=section&id=Dividends%20on%20Common%20Stock%20and%20Return%20of%20Capital%20Program) This section outlines recent dividend declarations and the factors influencing future capital return decisions - A quarterly dividend of **$0.805 per common share** was approved on August 4, 2021, for an estimated **$37.2 million** payment[169](index=169&type=chunk) - Future dividends and capital returns are subject to Board discretion, financial performance, cash flow, capital needs, and debt indenture limitations[170](index=170&type=chunk) [Future Capital Requirements](index=48&type=section&id=Future%20Capital%20Requirements) This section discusses the company's anticipated capital needs and potential financing strategies for future operations and growth - Management believes current cash and operating cash flows will be sufficient for working capital, capital expenditures, debt service, and dividends for the next twelve months[171](index=171&type=chunk) - Future acquisitions or significant unplanned costs may necessitate additional debt or equity financing, which could lead to substantial dilution for existing stockholders[173](index=173&type=chunk) - The company may refinance existing indebtedness or seek additional capital to improve liquidity or fund strategic initiatives, evaluating transactions based on market conditions[174](index=174&type=chunk) [Off-Balance Sheet Arrangements](index=49&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements and related financial risks - The company does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[175](index=175&type=chunk) - It is not materially exposed to financing, liquidity, market, or credit risks from such arrangements[175](index=175&type=chunk) [Impact of COVID-19 on Our Liquidity and Operating Performance](index=49&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Liquidity%20and%20Operating%20Performance) This section assesses the impact of the COVID-19 pandemic on the company's liquidity, operational adjustments, and sales performance - As of June 30, 2021, the company maintained a high level of liquidity with **$374.0 million** in cash and cash equivalents, with no material impact on its credit rating or cost of capital from COVID-19[176](index=176&type=chunk) - Operational adjustments included mandatory work-from-home policies, curtailed business travel, and new safety procedures, which allowed effective continued operation[177](index=177&type=chunk) - The pandemic led to a slowdown in new sales to corporate customers due to cautious approaches to new configurations, reduced demand for satellite offices, and a deteriorating real estate market[181](index=181&type=chunk) - The company cannot predict the full impact of new COVID-19 variants on the global economy or its operations[182](index=182&type=chunk) [Critical Accounting Policies and Significant Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) This section confirms that there have been no material changes to the company's critical accounting policies and estimates - Management believes there have been no material changes to critical accounting policies and significant estimates as of June 30, 2021, compared to the annual report on Form 10-K for December 31, 2020[184](index=184&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=50&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section confirms no material changes to the company's market risk exposures since the last annual report - Management believes there have been no material changes to the company's exposures to market risk as of June 30, 2021, from those disclosed in its annual report on Form 10-K for December 31, 2020[185](index=185&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=50&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of disclosure controls and reports no material changes in internal control over financial reporting - The company's disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of the end of the reporting period[187](index=187&type=chunk) - There has been no material change in the company's internal control over financial reporting during the most recent fiscal quarter[188](index=188&type=chunk) [PART II OTHER INFORMATION](index=51&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report [ITEM 1. LEGAL PROCEEDINGS](index=51&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section confirms the company's involvement in ordinary course legal proceedings not expected to materially impact operations - The company is involved in legal proceedings in the ordinary course of business, which are not expected to have a material impact on its operations or results[191](index=191&type=chunk) - Further information on these proceedings is included in Note 4 of the interim condensed consolidated financial statements[191](index=191&type=chunk) [ITEM 1A. RISK FACTORS](index=51&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section indicates no material changes to the company's risk factors since its last annual report - Management believes there have been no material changes to the company's risk factors as of June 30, 2021, from those disclosed in its annual report on Form 10-K for December 31, 2020[192](index=192&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=51&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the common stock buyback program and confirms no purchases were made during the second quarter of 2021 - The Board of Directors authorized a plan for common stock repurchases in negotiated and open market transactions through December 31, 2021[193](index=193&type=chunk) - No common stock purchases were made during the second quarter of 2021[193](index=193&type=chunk) [ITEM 6. EXHIBITS.](index=52&type=section&id=ITEM%206.%20EXHIBITS.) This section lists the exhibits filed with the Form 10-Q, including indentures, forms of notes, incentive plans, and certifications - Exhibits include the Indenture related to the 3.500% Senior Secured Notes due 2026, the Form of 3.500% Senior Secured Notes due 2026, and the Amended and Restated Cogent Communications Holdings, Inc. 2017 Incentive Award Plan[195](index=195&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer are also filed as exhibits[195](index=195&type=chunk) [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the duly authorized signatures of the registrant's Chief Executive Officer and Chief Financial Officer [SIGNATURES](index=53&type=section&id=SIGNATURES) This section contains the duly authorized signatures of the registrant's Chief Executive Officer and Chief Financial Officer - The report is signed by David Schaeffer, Chief Executive Officer, and Sean Wallace, Chief Financial Officer, on August 5, 2021[199](index=199&type=chunk)[200](index=200&type=chunk)

Financial Data and Key Metrics Changes - Revenues grew sequentially by 2% to $146.8 million, an increase of 4.2% year-over-year [7] - Non-GAAP gross profit increased by 2.7% sequentially and 7.6% year-over-year [9] - Non-GAAP gross margin improved by 40 basis points sequentially to 62.5% and by 200 basis points year-over-year [10] - Quarterly EBITDA grew by 10.2% year-over-year, with a margin increase of 200 basis points to 37.8% [10][49] - Cash flow from operations increased sequentially by 25.4% to $47.1 million, representing the largest amount in the company's history [59] Business Line Data and Key Metrics Changes - Corporate business, representing 62.7% of revenues, declined by 5.1% year-over-year and 1.8% sequentially [25] - NetCentric business, accounting for 37.3% of revenues, grew by 24.6% year-over-year and 9.2% sequentially [26] - Corporate customer connections decreased by 1% sequentially and 3.7% year-over-year, totaling 46,719 connections [35] - NetCentric customer connections increased by 4.2% sequentially and 14.2% year-over-year, totaling 44,206 connections [36] Market Data and Key Metrics Changes - Revenue from international markets increased to approximately 25% of total quarterly revenues, up from 24% in the previous quarter [51] - The average price per megabit for the installed base declined by 6.8% sequentially and 28.1% year-over-year, while the price for new customer contracts increased to $0.20 [41] Company Strategy and Development Direction - The company aims for a long-term EBITDA margin expansion of approximately 200 basis points per year and a constant currency revenue growth rate of about 10% [24] - The focus remains on increasing corporate customer connection sizes to larger and symmetric connections, adapting to the work-from-home environment [68] - The company plans to optimize its balance sheet and take advantage of the current interest rate environment, anticipating a reduction in cash interest expense by over $10 million annually [78] Management's Comments on Operating Environment and Future Outlook - Management noted improving business conditions as COVID-19 cases decline and businesses reopen, leading to lower churn rates in the corporate segment [5] - There is cautious optimism regarding the NetCentric business, driven by increased streaming subscriptions and international demand [6][64] - Management expects continued improvement in corporate revenues as companies adapt to hybrid work models [94] Other Important Information - The Board of Directors increased the quarterly dividend to $0.78 per share, marking the 35th consecutive increase [16] - The company repurchased $115.9 million of senior secured notes due in March 2022, optimizing its capital structure [78] Q&A Session Summary Question: Were there any one-time items in the quarter, particularly within the NetCentric business? - Management confirmed there were no extraordinary items in the NetCentric business, with broad customer utilization increasing [85] Question: How should we think about the sustainability of the momentum and growth in the NetCentric business? - Management believes the growth reflects a shift from linear video to streaming video, which is expected to continue benefiting the NetCentric business [88] Question: What improvements are seen in the corporate sales funnel? - Management noted a decline in churn rates and increased activity levels in the sales force, indicating a positive trend in corporate sales [93] Question: Can the corporate business maintain flat revenue in the June quarter? - Management anticipates continued improvement, with a potential for reduced revenue decline, but visibility on achieving flat revenue is still uncertain [96] Question: Can you provide the corporate customer connection total this quarter and last? - Corporate connections totaled 46,719 this quarter, down from 47,175 last quarter, reflecting a 1% decline [111]