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, 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. Employe ...

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q4 2020 Results Earnings Conference Call February 25, 2021 8:30 AM ET Company Participants Dave Schaeffer - Chairman and CEO Sean Wallace - Chief Financial Officer Conference Call Participants Walter Piecyk - LightShed Frank Louthan - Raymond James James Breen - William Blair Mike Funk - Bank of America Michael Srour - MoffettNathanson Evan Young - KeyBanc Capital Markets Michael Bunyaner - Tlf Capital Amir Razban - JPMorgan Operator Good morning. And welco ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to Commission file number 000-51829 COGENT COMMUNICATIONS HOLDINGS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State ...

Start Time: 08:00 January 1, 0000 9:24 AM ET Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q3 2020 Earnings Conference Call November 05, 2020, 08:30 AM ET Company Participants Dave Schaeffer - Founder and CEO Sean Wallace - CFO Conference Call Participants Philip Cusick - JPMorgan Frank Louthan - Raymond James Colby Synesael - Cowen & Company Walter Piecyk - LightShed Partners Michael Rollins - Citi Nick Del Deo - MoffettNathanson Timothy Horan - Oppenheimer Operator Good morning, and welcome to the C ...

Revenue Performance - Service revenue for the three months ended September 30, 2020, was $142.3 million, representing a 3.9% increase from $136.9 million in the same period of 2019[104] - On-net revenue increased by 5.7% to $105.1 million compared to $99.4 million in the prior year[104] - Off-net revenue slightly decreased by 0.9% to $37.1 million from $37.4 million year-over-year[104] - Service revenue increased by 4.5% to $424.2 million for the nine months ended September 30, 2020, compared to $405.9 million for the same period in 2019[124] - On-net revenue rose by 6.2% to $312.3 million, while off-net revenue remained stable at $111.5 million[124] - Revenues from corporate customers rose by 1.3% to $95.7 million, while revenues from net-centric customers increased by 9.6% to $46.6 million[109] Expenses - Network operations expenses decreased by 1.3% to $54.5 million from $55.3 million in the previous year[104] - Selling, general, and administrative expenses rose by 10.4% to $39.7 million compared to $36.0 million in the same quarter of 2019[104] - Depreciation and amortization expenses increased by 8.1% to $21.6 million from $20.0 million year-over-year[104] - Interest expense rose by 3.7% to $15.8 million compared to $15.2 million in the same period of 2019[104] - Network operations expenses increased by 0.3% to $164.3 million, driven by a 3.3% increase in customer connections[133] - Selling, General, and Administrative (SG&A) expenses rose by 8.0% to $119.2 million, attributed to increased salaries and a larger sales force[135] - Interest expense increased by 10.0% to $46.5 million, primarily due to higher finance lease obligations and the issuance of new senior unsecured notes[137] Tax and Income - Income tax benefit for the quarter was $1.6 million, compared to a provision of $5.3 million in the same quarter of 2019[104] - Income tax provision decreased by 60.0% to $4.7 million, down from $11.9 million in the prior year[139] Cash Flow and Indebtedness - As of September 30, 2020, the company had cash and cash equivalents of approximately $394.8 million, indicating a high level of liquidity[149] - For the nine months ended September 30, 2020, net cash provided by operating activities was $102.7 million, compared to $102.7 million for the same period in 2019[153] - The company experienced a net cash used in investing activities of $40.1 million for the nine months ended September 30, 2020, up from $37.1 million in 2019[154] - Principal payments under finance lease obligations increased to $19.4 million for the nine months ended September 30, 2020, compared to $7.0 million in 2019[155] - Total indebtedness at September 30, 2020, was $1.1 billion, which includes $212.9 million of finance lease obligations[157] Shareholder Returns - The company has returned over $858 million to shareholders through share repurchases and dividends since its initial public offering[141] - The company plans to continue its current dividend policy despite economic uncertainties due to the COVID-19 pandemic[145] - On November 4, 2020, the company approved a quarterly dividend of $0.73 per common share, totaling an estimated $33.5 million[163] - The company purchased 4,567 shares of its common stock for $0.3 million under the buyback program during the three and nine months ended September 30, 2020[161] Network Operations - The company operates a network connected to 2,884 buildings, including 1,783 large multi-tenant office buildings totaling 968.4 million square feet of office space[93] - The company connected 2,884 on-net buildings as of September 30, 2020, up from 2,771 in 2019, reflecting ongoing network expansion efforts[122] - The number of on-net customer connections grew by 3.3% to 76,338, and off-net connections increased by 3.0% to 11,849[112] - The average price per megabit for the installed base declined by 26.5% from the previous year, indicating significant pricing pressure in the net-centric market[111] - The average price per megabit for the installed base declined by 24.4%, impacting revenue growth from net-centric customers[130] Financial Controls and Risks - The company does not have relationships with unconsolidated entities or financial partnerships, minimizing exposure to financing, liquidity, market, or credit risks[174] - As of September 30, 2020, there have been no material changes to critical accounting policies and significant estimates since the last annual report[175] - There have been no material changes to market risk exposures as of September 30, 2020, compared to the previous annual report[176] - The company maintains effective disclosure controls and procedures, ensuring timely reporting of required information[178] - An evaluation confirmed that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the reporting period[179] - There has been no change in internal control over financial reporting that materially affects the company's financial reporting[180]

Financial Data and Key Metrics Changes - The company achieved sequential quarterly revenue growth of 0.2% and year-over-year revenue growth of 5.1% on a constant currency basis [4][45] - Gross margins reached a record 62%, improving by 150 basis points sequentially and 220 basis points year-over-year [6] - EBITDA margin improved to 37.8%, up 200 basis points sequentially and 290 basis points year-over-year [6][41] - Cash flow from operations grew sequentially by 45% and increased by 1.7% year-over-year, totaling $41.3 million for the quarter [7][50] Business Line Data and Key Metrics Changes - Corporate business, representing 69% of revenues, grew year-over-year by 5.1% and sequentially by 1% [22][27] - NetCentric business grew 3.6% year-over-year but was flat sequentially [22][29] - On-net revenue increased by 6.5% year-over-year, while off-net revenue decreased by 0.4% year-over-year [31][32] Market Data and Key Metrics Changes - The company experienced a 49% year-over-year growth in network traffic, driven by increased streaming applications and remote work [8][59] - Customer connections for corporate customers decreased by 0.4% sequentially but increased by 1.4% year-over-year [28] - NetCentric customer connections increased by 9.3% year-over-year [29] Company Strategy and Development Direction - The company remains focused on Internet connectivity and data center co-locations, targeting small and medium-sized businesses [68] - The company is optimistic about its position in emerging markets, particularly in Africa, and continues to expand its network globally [55][68] - The Board authorized a 32nd consecutive increase in the quarterly dividend, reflecting confidence in cash-generating capabilities [12][71] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the underlying strength of the business despite uncertainties from the COVID-19 pandemic [4][17] - The company noted that while sales cycles have lengthened, there is an increase in customer conversations and opportunities [80][94] - Management believes that the demand for Internet connectivity will remain strong as businesses adapt to new operational models [68][98] Other Important Information - The company returned $31.7 million to shareholders through dividends and has $34.9 million remaining in its stock buyback authorization [9][72] - The company’s cash balance at quarter-end was $417 million, with gross leverage ratio increasing to 5.08 [11][51] - The average price per megabit for the installed customer base decreased by 10.2% sequentially, while new customer contracts saw an increase of 17.2% [34] Q&A Session Summary Question: Should the increase in quarterly dividend be expected as a target going forward? - The Board decided to increase the dividend growth rate to $0.025 due to accelerating free cash flow, and this will be evaluated each quarter [75] Question: What is the impact of COVID on corporate customer sales? - COVID has led to increased bandwidth needs for remote work, but also a reduction in VPN sales due to shuttered offices, resulting in longer sales cycles [76][80] Question: What drove the increase in new customer contracts' average price per megabit? - The increase is attributed to a higher proportion of gigabit connections being sold compared to lower bandwidth options, which raises ARPU [82] Question: What is the outlook for IRUs and their impact on costs? - The renewal of a significant IRU agreement resulted in a reduction of COGS and is expected to benefit EBITDA going forward [87][88] Question: Concerns about the trend of large commercial buildings and VPN services? - There is a concern about reduced office connectivity needs, but management believes this is a temporary trend as offices will eventually reopen [86][92]

PART I FINANCIAL INFORMATION [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 income, and cash flows, along with detailed notes explaining the company's business, accounting policies, debt, commitments, and segment information for the periods ended June 30, 2020 and December 31, 2019 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets provide a snapshot of the company's financial position as of June 30, 2020, and December 31, 2019, detailing assets, liabilities, and stockholders' equity (deficit) | Metric | June 30, 2020 (Unaudited) (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,005,401 | $932,124 | | Total Liabilities | $1,240,951 | $1,135,803 | | Total Stockholders' Deficit | $(235,550) | $(203,679) | - Total assets increased by **$73.277 million (7.86%)** from December 31, 2019, to June 30, 2020, primarily driven by increases in cash and cash equivalents, property and equipment, and right-of-use leased assets[8](index=8&type=chunk) - Total liabilities increased by **$105.148 million (9.26%)** over the same period, largely due to increases in senior unsecured 2024 Euro notes and finance lease obligations[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Three Months)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Three%20Months)) This statement details the company's financial performance for the three months ended June 30, 2020, compared to the same period in 2019, showing revenue, expenses, net income, and comprehensive income | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $140,990 | $134,789 | 4.6% | | Operating income | $27,574 | $22,022 | 25.2% | | Net income | $8,564 | $7,136 | 20.0% | | Basic net income per common share | $0.19 | $0.16 | 18.8% | | Diluted net income per common share | $0.18 | $0.16 | 12.5% | | Dividends declared per common share | $0.68 | $0.60 | 13.3% | - Operating income increased significantly by **25.2%** year-over-year, driven by revenue growth and relatively stable operating expenses[12](index=12&type=chunk) - Interest expense increased by **14.0% to $15.499 million**, partly offset by a realized foreign exchange gain of **$2.547 million** on the issuance of 2024 Euro Notes[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 provides a cumulative view of the company's financial performance for the six months ended June 30, 2020, compared to the same period in 2019, highlighting revenue, expenses, net income, and comprehensive income trends | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $281,904 | $268,930 | 4.8% | | Operating income | $53,427 | $46,427 | 15.1% | | Net income | $17,791 | $16,353 | 8.8% | | Basic net income per common share | $0.39 | $0.36 | 8.3% | | Diluted net income per common share | $0.38 | $0.36 | 5.6% | | Dividends declared per common share | $1.34 | $1.18 | 13.6% | - Service revenue increased by **4.8%** for the six months ended June 30, 2020, compared to the prior year, contributing to an **8.8%** increase in net income[15](index=15&type=chunk) - Interest expense rose by **13.6% to $30.720 million**, influenced by increased finance lease obligations and the issuance of 2024 Notes[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020, and 2019, showing the overall change in cash and cash equivalents | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $69,769 | $69,269 | +$500 | | Net cash used in investing activities | $(26,796) | $(25,008) | -$(1,788) | | Net cash (used in) provided by financing activities | $(25,257) | $88,961 | -$(114,218) | | Net increase in cash and cash equivalents | $17,604 | $133,186 | -$(115,582) | | Cash and cash equivalents, end of period | $417,026 | $409,279 | +$7,747 | - Net cash provided by operating activities remained stable, increasing slightly by **$0.5 million** year-over-year[18](index=18&type=chunk) - Net cash used in financing activities shifted from a significant inflow in 2019 to an outflow in 2020, primarily due to the redemption of 2021 Notes (**$189.225 million**) and higher dividend payments (**$62.295 million**), partially offset by proceeds from 2024 Euro Notes issuance (**$240.285 million**)[18](index=18&type=chunk) [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 for the interim condensed consolidated financial statements, covering business description, accounting policies, debt, commitments, and segment information - The Company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space, serving businesses and communications service providers in **46 countries**[21](index=21&type=chunk) - On-net services are delivered through the company's own facilities, providing greater control over service quality and pricing, and are offered at speeds from **100 Mbps to 100 Gbps**[22](index=22&type=chunk) - The company adopted ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses) effective January 1, 2019, and January 1, 2020, respectively, with no material impact from the latter[45](index=45&type=chunk)[53](index=53&type=chunk) [1. Description of the business and recent developments](index=7&type=section&id=1.%20Description%20of%20the%20business%20and%20recent%20developments) This note describes the company's business as a facilities-based provider of high-speed Internet access, private network services, and data center colocation, operating in 46 countries. It also details the basis of financial statement presentation, use of estimates, financial instruments, revenue recognition policies, and recent accounting pronouncements adopted [Reorganization and merger](index=7&type=section&id=Reorganization%20and%20merger) On May 15, 2014, Cogent Communications Group, Inc. adopted a new holding company structure, becoming a wholly-owned subsidiary of Cogent Communications Holdings, Inc., which is now the 'successor issuer' - Cogent Communications Holdings, Inc. became the successor issuer to Cogent Communications Group, Inc. on **May 15, 2014**, following a reorganization into a new holding company structure[20](index=20&type=chunk) [Description of business](index=7&type=section&id=Description%20of%20business) The company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation, primarily serving small and medium-sized businesses and bandwidth-intensive organizations across 46 countries - The company provides on-net Internet access and private network services through its own facilities, reducing dependence on third-party carriers for the 'last mile'[22](index=22&type=chunk) - Customers include corporate clients in multi-tenant office buildings and net-centric clients (e.g., OTT media, web hosting, other ISPs) in carrier-neutral colocation facilities and the company's own data centers[23](index=23&type=chunk) - Off-net services are provided to corporate customers using other carriers' circuits for the 'last mile', and certain non-core services from acquisitions are supported but not actively sold[24](index=24&type=chunk) [Basis of presentation](index=8&type=section&id=Basis%20of%20presentation) The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules, reflecting normal recurring adjustments, and should be read in conjunction with the annual Form 10-K - Interim financial statements are unaudited and include all wholly-owned subsidiaries, with inter-company accounts eliminated[26](index=26&type=chunk)[27](index=27&type=chunk) [Use of estimates](index=8&type=section&id=Use%20of%20estimates) The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, and actual results may differ - Management's estimates and assumptions are crucial for reported asset, liability, revenue, and expense amounts, with actual results potentially varying[28](index=28&type=chunk) [Financial instruments](index=8&type=section&id=Financial%20instruments) The carrying amounts of short-term financial instruments approximate fair value. Long-term debt instruments, such as senior secured and unsecured notes, are measured at fair value based on trading prices | Financial Instrument | Carrying Amount (June 30, 2020, in millions) | Fair Value (June 30, 2020, in millions) | | :--- | :--- | :--- | | Senior secured notes | $445.0 | $456.1 | | Senior unsecured 2024 Euro notes | $393.0 | $393.5 | [Gross receipts taxes, universal service fund and other surcharges](index=8&type=section&id=Gross%20receipts%20taxes,%20universal%20service%20fund%20and%20other%20surcharges) The company records certain excise taxes and surcharges, such as Universal Service Fund fees, on a gross basis, including them in both revenues and network operations expenses | Period | Excise Taxes and Surcharges (in millions) | | :--- | :--- | | Three months ended June 30, 2020 | $3.3 | | Three months ended June 30, 2019 | $3.2 | | Six months ended June 30, 2020 | $7.0 | | Six months ended June 30, 2019 | $6.6 | [Basic and diluted net income per common share](index=8&type=section&id=Basic%20and%20diluted%20net%20income%20per%20common%20share) Basic EPS excludes common stock equivalents and is computed by dividing net income by weighted-average common shares outstanding. Diluted EPS adjusts for the dilutive effect of common stock equivalents, including restricted stock and stock options, using the treasury stock method | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Weighted average common shares - basic | 45,754,880 | 45,354,327 | 45,760,302 | 45,349,397 | | Dilutive effect of stock options | 205,823 | 35,895 | 128,477 | 30,972 | | Dilutive effect of restricted stock | 725,962 | 522,069 | 703,666 | 458,549 | | Weighted average common shares - diluted | 46,686,665 | 45,912,291 | 46,592,445 | 45,838,918 | - Dilutive effects from stock options and restricted stock increased significantly in **2020** compared to **2019** for both three and six-month periods, indicating more potential dilution[33](index=33&type=chunk) [Stockholder's Deficit](index=10&type=section&id=Stockholder's%20Deficit) This section details the changes in stockholder's deficit, including common stock, additional paid-in capital, accumulated other comprehensive income, and accumulated deficit, for the three and six months ended June 30, 2020 and 2019 | Metric (in thousands) | Balance at Dec 31, 2019 | Balance at June 30, 2020 | | :--- | :--- | :--- | | Common Stock Amount | $47 | $47 | | Additional Paid-in Capital | $493,178 | $506,391 | | Accumulated Other Comprehensive Income (Loss) | $(12,326) | $(12,906) | | Accumulated Deficit | $(684,578) | $(729,082) | | Total Stockholder's Equity (Deficit) | $(203,679) | $(235,550) | - Total stockholder's deficit increased from **$(203.679) million** at December 31, 2019, to **$(235.550) million** at June 30, 2020, primarily due to dividends paid (**$62.295 million**) and an increase in accumulated deficit, partially offset by equity-based compensation and net income[36](index=36&type=chunk) [Revenue recognition](index=11&type=section&id=Revenue%20recognition) The company recognizes revenue under ASC 606, deferring installation fees over the contract term or estimated customer life, and capitalizing certain contract acquisition costs - Service revenue recognized from deferred revenue (contract liabilities) was **$1.8 million** for Q2 2020 (vs. **$1.7 million** in Q2 2019) and **$3.0 million** for H1 2020 (vs. **$3.4 million** in H1 2019)[41](index=41&type=chunk) - Amortization expense for contract costs was **$4.2 million** for Q2 2020 (vs. **$4.3 million** in Q2 2019) and **$8.4 million** for H1 2020 (vs. **$8.7 million** in H1 2019)[41](index=41&type=chunk) [Recent Accounting Pronouncements— Adopted](index=14&type=section&id=Recent%20Accounting%20Pronouncements%E2%80%94%20Adopted) The company adopted ASU 2016-02 (Leases) effective January 1, 2019, recording right-of-use assets and lease liabilities, and ASU 2016-13 (Credit Losses) effective January 1, 2020, with no material impact - ASU 2016-02 (Leases) resulted in a cumulative-effect adjustment on **January 1, 2019**, recording **$97.3 million** in right-of-use assets and operating lease liabilities[45](index=45&type=chunk) | Lease Cost (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Finance lease cost (Amortization of ROU assets) | $4,973 | $4,917 | $9,735 | $9,888 | | Finance lease cost (Interest expense) | $4,517 | $4,415 | $8,990 | $8,816 | | Operating lease cost | $4,405 | $3,486 | $8,592 | $6,780 | | Total lease costs | $13,895 | $12,818 | $27,317 | $25,484 | - Net bad debt expense for the three months ended June 30, 2020, was **$1.3 million** (net of **$0.2 million** recoveries), and for the six months, it was **$2.3 million** (net of **$0.4 million** recoveries)[54](index=54&type=chunk) [Finance leases—fiber lease agreements](index=15&type=section&id=Finance%20leases%E2%80%94fiber%20lease%20agreements) The company has finance lease agreements for dark fiber under indefeasible-right-of-use (IRU) agreements, typically with 15-20 year terms, recorded as finance lease obligations and IRU assets | Future Minimum Finance Lease Payments (in thousands) | Amount | | :--- | :--- | | For the twelve months ending June 30, 2021 | $32,568 | | 2022 | $31,800 | | 2023 | $30,772 | | 2024 | $30,051 | | 2025 | $29,710 | | Thereafter | $214,604 | | Total minimum finance lease obligations | $369,505 | | Less—amounts representing interest | $(165,727) | | Present value of minimum finance lease obligations | $203,778 | | Current maturities | $(14,734) | | Finance lease obligations, net of current maturities | $189,044 | - As of June 30, 2020, the company committed to an additional **$17.6 million** in dark fiber IRU lease agreements[48](index=48&type=chunk) [Operating leases](index=15&type=section&id=Operating%20leases) The company leases office space, data center facilities, and short-term dark fiber under operating leases, recognizing right-of-use assets and liabilities based on the present value of lease payments | Future Minimum Operating Lease Payments (in thousands) | Amount | | :--- | :--- | | For the twelve months ending June 30, 2021 | $16,725 | | 2022 | $16,108 | | 2023 | $14,918 | | 2024 | $13,833 | | 2025 | $12,097 | | Thereafter | $101,672 | | Total minimum operating lease obligations | $175,353 | | Less—amounts representing interest | $(64,910) | | Present value of minimum operating lease obligations | $110,443 | | Current maturities | $(11,292) | | Operating lease liabilities, net of current maturities | $99,151 | - The weighted-average remaining lease term for operating leases is **20.4 years**, with a weighted-average discount rate of **5.4%** as of June 30, 2020[46](index=46&type=chunk) [2. Property and equipment](index=16&type=section&id=2.%20Property%20and%20equipment) This note details depreciation and amortization expenses related to property and equipment, capitalized salaries for network construction, and information on equipment exchange agreements, installment payment agreements, and future purchase commitments | Expense (in millions) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Depreciation and amortization | $19.9 | $20.0 | $39.4 | $40.2 | | Capitalized salaries and benefits | $3.0 | $2.7 | $5.9 | $5.3 | [Exchange agreement](index=18&type=section&id=Exchange%20agreement) The company exchanged used network equipment and cash for new equipment, resulting in gains of $0.2 million for the three months and $0.2 million for the six months ended June 30, 2020 | Period | Gain on Equipment Transactions (in millions) | | :--- | :--- | | Three months ended June 30, 2020 | $0.2 | | Three months ended June 30, 2019 | $0.1 | | Six months ended June 30, 2020 | $0.2 | | Six months ended June 30, 2019 | $0.7 | [Installment payment agreement](index=18&type=section&id=Installment%20payment%20agreement) The company has an installment payment agreement (IPA) with a vendor for network equipment, with $12.8 million in note obligations outstanding as of June 30, 2020, secured by the related equipment - Outstanding note obligations under the IPA were **$12.8 million** at June 30, 2020, and **$12.5 million** at December 31, 2019[58](index=58&type=chunk) [Purchase agreement](index=18&type=section&id=Purchase%20agreement) In July 2020, the company entered an agreement to purchase $35.0 million of network equipment annually from a vendor for three years, with $20.0 million already ordered and $6.8 million shipped [3. Long-term debt](index=18&type=section&id=3.%20Long-term%20debt) This note details the company's long-term debt, including senior secured 2022 Notes and senior unsecured 2024 Euro Notes, their issuances, redemption of 2021 Notes, and limitations imposed by debt indentures | Debt Instrument | Principal Amount | Interest Rate | Maturity Date | | :--- | :--- | :--- | :--- | | Senior Secured 2022 Notes | $445.0 million | 5.375% | March 1, 2022 | | Senior Unsecured 2024 Euro Notes | €350.0 million ($393.0 million USD) | 4.375% | June 30, 2024 | [2024 Notes issuances](index=18&type=section&id=2024%20Notes%20issuances) In June 2020, the company issued €215.0 million of 2024 Euro Notes, generating $240.3 million in net proceeds, following a €135.0 million issuance in June 2019. These notes bear 4.375% interest and mature on June 30, 2024 - A realized foreign exchange gain of **$2.5 million** resulted from the June 2020 issuance of **€215.0 million** 2024 Notes due to favorable Euro to USD exchange rate changes between issuance and receipt of proceeds[62](index=62&type=chunk) - Unrealized foreign exchange loss on 2024 Euro Notes was **$(3.4) million** for the three months ended June 30, 2020, compared to a gain of **$0.2 million** in the prior year[62](index=62&type=chunk) - The 2024 Notes are senior unsecured obligations, guaranteed by the company's material domestic subsidiaries, and are effectively subordinated to secured indebtedness[67](index=67&type=chunk) [Debt extinguishment and redemption 2021 Notes](index=22&type=section&id=Debt%20extinguishment%20and%20redemption%202021%20Notes) In June 2020, the company redeemed its entire $189.2 million principal amount of 5.625% senior unsecured 2021 Notes using proceeds from the 2024 Notes issuance, incurring a $0.6 million loss on debt extinguishment - The redemption of 2021 Notes at par value plus accrued interest resulted in a **$0.6 million** loss on debt extinguishment and redemption[71](index=71&type=chunk) [Limitations under the indentures](index=22&type=section&id=Limitations%20under%20the%20indentures) The indentures for the 2022 and 2024 Notes impose restrictions on incurring indebtedness, paying dividends, making investments, and creating liens. Dividend payments are restricted if the consolidated leverage ratio exceeds 4.25 - As of June 30, 2020, the company's consolidated leverage ratio was above **4.25**, limiting certain payments like dividends and stock purchases, though **$165.5 million** was permitted for investment payments[72](index=72&type=chunk) [4. Commitments and contingencies](index=22&type=section&id=4.%20Commitments%20and%20contingencies) This note outlines the company's current and potential legal proceedings, including an arbitration in Spain for early termination of optical fiber leases, and other routine claims - The company is involved in an arbitration in Spain, where a former fiber provider seeks approximately **$9.0 million** for early lease termination, an amount accrued in **2015**[74](index=74&type=chunk) - It is reasonably possible that the company could incur a loss of up to **$3.2 million** in excess of accrued amounts for certain leased circuit obligations[73](index=73&type=chunk) [Current and potential litigation](index=22&type=section&id=Current%20and%20potential%20litigation) The company accrues contingent liabilities when probable and estimable, reviewing accruals quarterly. Management believes other routine legal actions will not materially impact financial condition - The company accrues contingent liabilities at the low end of the estimated range when no single amount is more likely[73](index=73&type=chunk) [5. Income taxes](index=23&type=section&id=5.%20Income%20taxes) This note presents the components of income before income taxes, broken down by domestic and foreign sources, for the three and six months ended June 30, 2020 and 2019 | Component (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Domestic | $14,113 | $16,332 | $31,902 | $35,084 | | Foreign | $(2,814) | $(6,152) | $(7,770) | $(12,136) | | Total Income before Income Taxes | $11,299 | $10,180 | $24,132 | $22,948 | - Foreign income before income taxes showed a larger loss in the six months ended June 30, 2020, compared to the prior year, while domestic income also decreased[77](index=77&type=chunk) [6. Common stock buyback program stock option and award plan](index=23&type=section&id=6.%20Common%20stock%20buyback%20program%20stock%20option%20and%20award%20plan) The company's Board of Directors approved a common stock buyback program with $34.9 million remaining as of June 30, 2020. The company also granted 455,030 shares of common stock to employees and directors in the first two quarters of 2020 - No common stock purchases were made under the buyback program during the three and six months ended June 30, 2020 and 2019[78](index=78&type=chunk) - In Q1 2020, **319,750 shares ($23.7 million)** were granted, including performance shares. In Q2 2020, **135,280 shares ($10.6 million)** were granted[79](index=79&type=chunk) [7. Dividends on common stock](index=23&type=section&id=7.%20Dividends%20on%20common%20stock) The Board approved a quarterly dividend of $0.705 per common share, payable September 4, 2020. Future dividends are discretionary and subject to financial position, cash flow, and debt indenture limitations - A quarterly dividend of **$0.705 per common share ($32.2 million estimated)** was approved on **August 5, 2020**[80](index=80&type=chunk) - Debt indentures and Delaware General Corporate Law restrict the company's ability to return cash to stockholders, including dividends and stock buybacks[81](index=81&type=chunk) [8. Related party transactions](index=23&type=section&id=8.%20Related%20party%20transactions) The company leases its headquarters from Sodium LLC, owned by its CEO. The lease was extended to May 2025, with annual rent of $1.0 million plus taxes and utilities | Period | Rent and Related Costs Paid to Sodium LLC (in millions) | | :--- | :--- | | Three months ended June 30, 2020 | $0.5 | | Three months ended June 30, 2019 | $0.5 | | Six months ended June 30, 2020 | $0.8 | | Six months ended June 30, 2019 | $0.9 | [9. Segment information](index=24&type=section&id=9.%20Segment%20information) The company operates as a single segment, with service revenue broken down by geographic region (North America, Europe, Latin America, Asia Pacific) and product class (on-net, off-net, non-core) | Service Revenue (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | North America | $115,131 | $111,459 | $230,745 | $222,158 | | Europe | $23,573 | $21,917 | $46,847 | $44,149 | | Latin America | $436 | $74 | $766 | $109 | | Asia Pacific | $1,850 | $1,339 | $3,546 | $2,514 | | Total | $140,990 | $134,789 | $281,904 | $268,930 | | Long Lived Assets, net (in thousands) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | North America | $301,187 | $269,364 | | Europe and other | $105,576 | $99,582 | | Total | $406,763 | $368,946 | - North America remains the largest revenue contributor and holds the majority of long-lived assets, showing growth across all regions[84](index=84&type=chunk) [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 provides management's perspective on the company's financial condition, results of operations, and liquidity, including a general overview of the business, competitive advantages, strategic initiatives, and a detailed analysis of financial performance for the three and six months ended June 30, 2020, compared to the prior year - The discussion includes forward-looking statements and highlights risks such as the COVID-19 pandemic, foreign exchange rate impacts, competition, and debt obligations[86](index=86&type=chunk) [General Overview](index=25&type=section&id=General%20Overview) The company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation, serving businesses and bandwidth-intensive organizations across 46 countries - On-net services are delivered through the company's own facilities, providing high-speed Internet access and private network services from **100 Mbps to 100 Gbps**[88](index=88&type=chunk) - Corporate customers are typically in multi-tenant office buildings, while net-centric customers (e.g., OTT media, web hosting, other ISPs) in carrier-neutral colocation facilities leverage the network for content delivery or access[89](index=89&type=chunk) - Off-net services are provided to corporate customers using third-party circuits for the 'last mile', and non-core services from acquisitions are supported but not actively sold[90](index=90&type=chunk) [Competitive Advantages](index=27&type=section&id=Competitive%20Advantages) The company leverages its network design, operating strategy, and product offerings to maintain a low cost of operation, offering high-quality, reliable, and fast services. Its extensive network and customer base enable it to be a Tier One network with settlement-free peering - Competitive advantages include low cost of operation due to single network design and acquired optical fiber, greater control over service delivery for on-net services, and high-quality, reliable service optimized for packet-switched traffic[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - The company's network connects to **2,854 buildings**, including **1,771 multi-tenant office buildings** and **1,029 carrier-neutral colocation/data center buildings**, strategically positioning it for high Internet traffic[95](index=95&type=chunk) - Serving over **7,100 access networks** and **48,300 corporate customers**, the company's balanced, high-traffic network enables settlement-free peering as a Tier One network, reducing costs and enhancing delivery[96](index=96&type=chunk) [Low Cost of Operation](index=27&type=section&id=Low%20Cost%20of%20Operation) The company's network design, operating strategy, and product offerings are optimized for low operational costs, benefiting from a single network protocol, acquired optical fiber, and streamlined product sets - Utilizing a single network protocol and acquiring optical fiber from excess inventory reduces capital intensity and operating costs[92](index=92&type=chunk) [Greater Control and Superior Delivery](index=27&type=section&id=Greater%20Control%20and%20Superior%20Delivery) On-net services provide the company with full control over the network, including the 'last mile' and in-building wiring, enabling faster and more efficient service provisioning - The on-net service structure provides more control over service quality and pricing, allowing quicker and more efficient provisioning than third-party carrier networks[93](index=93&type=chunk) [High Quality, Reliable Service](index=27&type=section&id=High%20Quality,%20Reliable%20Service) The network's design is optimized for packet-switched traffic, ensuring high technical performance, increased speed, and reduced data packet loss compared to traditional circuit-switched networks - The network's optimization for packet-switched traffic results in high technical performance, increased speed, and reduced data packet loss[94](index=94&type=chunk) [Large Addressable Market](index=27&type=section&id=Large%20Addressable%20Market) The company's network strategically connects to 2,854 buildings, including multi-tenant office buildings and carrier-neutral data centers, maximizing revenue opportunities and profitability - The network connects to **2,854 buildings**, including **1,771 multi-tenant office buildings** and **1,029 carrier-neutral colocation/data center buildings**, with **54 data centers** operated by the company[95](index=95&type=chunk) [Balanced, High Traffic Network](index=27&type=section&id=Balanced,%20High%20Traffic%20Network) The network serves over 7,100 access networks and 48,300 corporate customers, with the majority of traffic originating and terminating on its network, enhancing reliability, speed, and margins - The extensive customer base and traffic volume enable the company to be a Tier One network, interconnected on a settlement-free basis, which broadens geographic delivery and reduces network costs[96](index=96&type=chunk) [Proven and Experienced Management Team](index=29&type=section&id=Proven%20and%20Experienced%20Management%20Team) The senior management team possesses over 20 years of telecommunications industry experience, having designed and built the network, integrated acquisitions, and managed business expansion - The senior management team has an average of over **20 years** of experience, with many members working together since **2000**, leading network design, integration of **13 acquisitions**, and business growth[98](index=98&type=chunk) [Our Strategy](index=29&type=section&id=Our%20Strategy) The company aims to be a leading provider of high-quality, high-speed Internet access and private network services by growing its corporate and net-centric customer bases, expanding its on-net footprint, enhancing sales efforts, and pursuing selective acquisition opportunities - Strategy focuses on growing corporate customers in multi-tenant office buildings and carrier-neutral data centers by offering dedicated internet access and private network services with faster speeds and rapid installation[99](index=99&type=chunk) - The company plans to increase its share of the net-centric market by leveraging its high-capacity network to meet demand from bandwidth-intensive applications such as OTT media, online gaming, and IoT[100](index=100&type=chunk) - On-net customer growth is emphasized due to higher profit margins, greater control over service levels, and faster provisioning, achieved by adding customers in existing buildings and expanding network connections[101](index=101&type=chunk) [Grow our Corporate Customer Base](index=29&type=section&id=Grow%20our%20Corporate%20Customer%20Base) The company aims to expand its corporate customer base by providing dedicated internet access and private network services to businesses in multi-tenant office buildings and data centers, capitalizing on the increasing integration of data centers into IT infrastructure - Corporate customers benefit from significantly faster speeds and rapid installation times compared to competitors, driving growth in this segment[99](index=99&type=chunk) [Increase our Share of the Net-centric Market](index=29&type=section&id=Increase%20our%20Share%20of%20the%20Net-centric%20Market) The company intends to increase its share of the net-centric market by loading its high-capacity network to meet growing demand for high-speed internet access from bandwidth-intensive applications, expanding geographic reach, and offering competitive pricing - The company plans to broaden its geographic reach and continue offering competitive pricing to grow its share in the net-centric market[100](index=100&type=chunk) [Pursue On-Net Customer Growth](index=29&type=section&id=Pursue%20On-Net%20Customer%20Growth) The company prioritizes on-net customer growth to leverage its high-capacity network with minimal incremental costs, focusing on increasing penetration in existing buildings and connecting more multi-tenant office buildings and carrier-neutral data centers - On-net services generate greater profit margins and offer more control over service levels, quality, and pricing, with faster provisioning times[101](index=101&type=chunk) [Grow and Improve our Sales Efforts](index=29&type=section&id=Grow%20and%20Improve%20our%20Sales%20Efforts) The company plans to continue increasing its sales efforts by expanding its sales force, optimizing sales productivity, and broadening its on-net addressable market to gain market share - The quota-bearing salesforce increased by **37%** over the past five years to **572**, with efforts to maintain productivity[102](index=102&type=chunk) [Selectively Pursue Acquisition Opportunities](index=29&type=section&id=Selectively%20Pursue%20Acquisition%20Opportunities) The company will selectively pursue acquisitions that expand its customer base, footprint, and generate positive cash flow, including off-net and on-net customers, complementary businesses, or network assets - The company has not completed an acquisition in over a decade, indicating a highly selective approach to M&A[103](index=103&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2020, versus the same periods in 2019, analyzing service revenue, operating expenses, interest expense, and income tax provision [Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019](index=31&type=section&id=Three%20Months%20Ended%20June%2030,%202020%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030,%202019) For the three months ended June 30, 2020, service revenue increased by 4.6%, driven by growth in corporate customers and on-net connections, despite a decline in average price per megabit for net-centric services. Operating expenses remained relatively stable, leading to a significant increase in operating income | Metric | Q2 2020 (in thousands) | Q2 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $140,990 | $134,789 | 4.6% | | On-net revenue | $103,800 | $97,472 | 6.5% | | Off-net revenue | $37,044 | $37,191 | (0.4)% | | Network operations expenses | $53,886 | $54,407 | (1.0)% | | Selling, general, and administrative expenses | $39,839 | $38,566 | 3.3% | | Depreciation and amortization expenses | $19,896 | $19,979 | (0.4)% | | Interest expense | $15,499 | $13,595 | 14.0% | | Realized gain on foreign exchange – 2024 Notes | $2,547 | — | NM | | Unrealized (loss) gain on 2024 Notes | $(3,420) | $177 | NM | | Income tax provision | $2,735 | $3,044 | (10.2)% | | Other Operating Data | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | ARPU—on net | $458 | $453 | 1.1% | | ARPU—off-net | $1,048 | $1,104 | (5.1)% | | Average Price per Megabit — installed base | $0.47 | $0.63 | (25.1)% | | Customer Connections—end of period (On-net) | 75,927 | 72,415 | 4.8% | | Customer Connections—end of period (Off-net) | 11,846 | 11,321 | 4.6% | | Buildings On-net | 2,854 | 2,737 | 4.3% | [Service Revenue](index=31&type=section&id=Service%20Revenue_Q2) Service revenue increased by 4.6% to $140.990 million, primarily due to growth in corporate customers and on-net connections, despite a $0.7 million negative impact from exchange rates. Corporate revenue increased by 5.1% to $97.0 million, while net-centric revenue grew 3.6% to $44.0 million, impacted by a 25.1% decline in average price per megabit for net-centric services - The impact of exchange rates resulted in a **$0.7 million** decrease in revenues for Q2 2020[107](index=107&type=chunk) - Corporate customers represented **68.8%** of total service revenue in Q2 2020, up from **68.5%** in Q2 2019, reflecting a shift in revenue mix[110](index=110&type=chunk) - On-net revenues increased **6.5%** with a **4.8%** increase in on-net customer connections, while off-net revenues decreased **0.4%** despite a **4.6%** increase in off-net customer connections, due to a **5.1%** decrease in off-net ARPU[112](index=112&type=chunk)[113](index=113&type=chunk) [Network Operations Expenses](index=33&type=section&id=Network%20Operations%20Expenses_Q2) Network operations expenses decreased by 1.0% to $53.886 million, despite an increase in customer connections and on-net buildings. This decrease was primarily due to price reductions in circuit costs and the capitalization of an IRU fiber lease agreement - The decrease in network operations expense was primarily due to price reductions in circuit costs, fewer operating leases for fiber, and the capitalization of a **$34.0 million** IRU fiber lease renewal as a finance lease[114](index=114&type=chunk)[115](index=115&type=chunk) [Selling, General, and Administrative ("SG&A") Expenses](index=35&type=section&id=Selling,%20General,%20and%20Administrative%20(%22SG%26A%22)%20Expenses_Q2) SG&A expenses increased by 3.3% to $39.839 million, driven by higher salaries and related costs to support expansion and increased sales efforts, including a larger sales force - Sales force headcount increased from **656 to 716**, and quota-bearing sales force increased from **519 to 572**, contributing to higher SG&A expenses[117](index=117&type=chunk) [Depreciation and Amortization Expenses](index=35&type=section&id=Depreciation%20and%20Amortization%20Expenses_Q2) Depreciation and amortization expense decreased slightly by 0.4% to $19.896 million, mainly due to certain fixed assets becoming fully depreciated - The decrease is primarily attributed to certain deployed fixed assets reaching full depreciation[118](index=118&type=chunk) [Interest Expense and Loss on Debt Extinguishment & Redemption](index=35&type=section&id=Interest%20Expense%20and%20Loss%20on%20Debt%20Extinguishment%20%26%20Redemption_Q2) Interest expense increased by 14.0% to $15.499 million, primarily due to increased finance lease obligations and the issuance of 2024 Notes. A $0.6 million loss on debt extinguishment was incurred from redeeming the 2021 Notes - The redemption of **$189.2 million** of 2021 Notes in June 2020 resulted in a **$0.6 million** loss on debt extinguishment[119](index=119&type=chunk) [Realized gain and unrealized (loss) gain on foreign exchange – 2024 Notes](index=35&type=section&id=Realized%20gain%20and%20unrealized%20(loss)%20gain%20on%20foreign%20exchange%20%E2%80%93%202024%20Notes_Q2) The company recognized a $2.5 million realized foreign exchange gain from the June 2020 issuance of 2024 Euro Notes. However, an unrealized foreign exchange loss of $(3.4) million was recorded for the three months ended June 30, 2020 - The realized gain was due to the Euro to USD rate changing from **$1.112** at issuance to **$1.133** at receipt of proceeds[120](index=120&type=chunk) - The company does not hedge its foreign currency obligations[120](index=120&type=chunk) [Income Tax Provision](index=35&type=section&id=Income%20Tax%20Provision_Q2) The income tax provision decreased by 10.2% to $2.735 million, primarily due to changes in taxable income - The change in income tax provision is primarily related to changes in taxable income[121](index=121&type=chunk) [Buildings On-net](index=35&type=section&id=Buildings%20On-net_Q2) The number of on-net buildings connected to the network increased by 117 (4.3%) to 2,854 as of June 30, 2020, reflecting the company's disciplined network expansion program - The company anticipates adding a similar number of buildings to its network in the coming years[122](index=122&type=chunk) [Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019](index=36&type=section&id=Six%20Months%20Ended%20June%2030,%202020%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030,%202019) For the six months ended June 30, 2020, service revenue increased by 4.8%, driven by corporate customer growth and on-net connections. Operating expenses saw moderate increases, while interest expense rose due to new debt and finance leases. Net income increased by 8.8% | Metric | H1 2020 (in thousands) | H1 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $281,904 | $268,930 | 4.8% | | On-net revenue | $207,256 | $194,656 | 6.5% | | Off-net revenue | $74,364 | $74,036 | 0.4% | | Network operations expenses | $109,806 | $108,557 | 1.2% | | Selling, general, and administrative expenses | $79,513 | $74,427 | 6.8% | | Depreciation and amortization expenses | $39,402 | $40,240 | (2.1)% | | Interest expense | $30,720 | $27,051 | 13.6% | | Realized gain on foreign exchange – 2024 Notes | $2,547 | — | NM | | Unrealized (loss) gain on 2024 Notes | $(512) | $177 | NM | | Income tax provision | $6,341 | $6,595 | (3.9)% | | Other Operating Data | H1 2020 | H1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | ARPU—on net | $459 | $460 | (0.1)% | | ARPU—off-net | $1,055 | $1,107 | (4.7)% | | Average Price per Megabit — installed base | $0.50 | $0.65 | (23.4)% | | Customer Connections—end of period (On-net) | 75,927 | 72,415 | 4.8% | | Customer Connections—end of period (Off-net) | 11,846 | 11,321 | 4.6% | | Buildings On-net | 2,854 | 2,737 | 4.3% | [Service Revenue](index=36&type=section&id=Service%20Revenue_H1) Service revenue increased by 4.8% to $281.904 million for the six months ended June 30, 2020. Corporate customer revenue grew by 6.3% to $194.0 million, while net-centric revenue increased by 1.7% to $87.9 million, impacted by a 23.4% decline in average price per megabit and a $1.4 million negative impact from exchange rates - The impact of exchange rates resulted in a **$1.4 million** decrease in revenues for H1 2020[126](index=126&type=chunk) - Corporate customers represented **68.8%** of total service revenue in H1 2020, up from **67.9%** in H1 2019, indicating a continued shift towards corporate services[128](index=128&type=chunk) - On-net ARPU decreased by **0.1%**, partly due to volume and term-based pricing discounts and new customers having lower ARPU than canceling customers[129](index=129&type=chunk) [Network Operations Expenses](index=37&type=section&id=Network%20Operations%20Expenses_H1) Network operations expenses increased by 1.2% to $109.806 million, driven by more customer connections and on-net buildings, partially offset by circuit cost reductions and the capitalization of an IRU fiber lease agreement - The increase in expenses was partially offset by price reductions in certain circuit costs and the capitalization of a **$34.0 million** IRU fiber lease renewal as a finance lease[131](index=131&type=chunk) [Selling, General, and Administrative ("SG&A") Expenses](index=37&type=section&id=Selling,%20General,%20and%20Administrative%20(%22SG%26A%22)%20Expenses_H1) SG&A expenses increased by 6.8% to $79.513 million, primarily due to higher salaries and related costs supporting expansion and increased sales efforts, with total headcount rising to 1,083 - Equity-based compensation expense included in SG&A was **$10.6 million** for H1 2020, up from **$8.3 million** in H1 2019[132](index=132&type=chunk) [Depreciation and Amortization Expenses](index=39&type=section&id=Depreciation%20and%20Amortization%20Expenses_H1) Depreciation and amortization expense decreased by 2.1% to $39.402 million, mainly due to certain fixed assets becoming fully depreciated - The decrease is primarily due to certain deployed fixed assets becoming fully depreciated[134](index=134&type=chunk) [Interest Expense and Loss on Debt Extinguishment & Redemption](index=39&type=section&id=Interest%20Expense%20and%20Loss%20on%20Debt%20Extinguishment%20%26%20Redemption_H1) Interest expense increased by 13.6% to $30.720 million, driven by higher finance lease obligations and the issuance of 2024 Notes. A $0.6 million loss on debt extinguishment was recorded from the redemption of 2021 Notes - The redemption of 2021 Notes in June 2020 at par value resulted in a **$0.6 million** loss on debt extinguishment[135](index=135&type=chunk) [Realized gain and unrealized gain (loss) on foreign exchange – 2024 Notes](index=39&type=section&id=Realized%20gain%20and%20unrealized%20gain%20(loss)%20on%20foreign%20exchange%20%E2%80%93%202024%20Notes_H1) The company recorded a $2.5 million realized foreign exchange gain from the June 2020 issuance of 2024 Euro Notes. An unrealized foreign exchange loss of $(0.5) million was recorded for the six months ended June 30, 2020 - The realized gain was due to the Euro to USD rate changing from **$1.112** at issuance to **$1.133** at receipt of proceeds[136](index=136&type=chunk) - The company does not enter into hedges for its foreign currency obligations[136](index=136&type=chunk) [Income Tax Provision](index=39&type=section&id=Income%20Tax%20Provision_H1) The income tax provision decreased by 3.9% to $6.341 million, primarily due to changes in taxable income - The change in income tax provision is primarily related to changes in taxable income[137](index=137&type=chunk) [Buildings On-net](index=39&type=section&id=Buildings%20On-net_H1) The number of on-net buildings connected to the network increased by 117 (4.3%) to 2,854 as of June 30, 2020, as part of the company's network expansion program - The company anticipates adding a similar number of buildings to its network for the next several years[138](index=138&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with growing operating cash flow and access to capital markets, enabling distributions to shareholders. Management actively monitors cash balances, receivables, payables, and debt obligations, while also assessing the impact of the COVID-19 pandemic on its financial position - The company has returned over **$820 million** to shareholders through share repurchases and dividends since its IPO[139](index=139&type=chunk) - Management continuously reviews cash balances, accounts receivable, accounts payable, accrued liabilities, capital expenditure commitments, and debt payments to assess liquidity[140](index=140&type=chunk) - The company may retire or purchase outstanding debt through various transactions, which could be material[141](index=141&type=chunk) [Impact of COVID-19 on Our Liquidity and Operating Performance](index=41&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Liquidity%20and%20Operating%20Performance) The COVID-19 pandemic had a limited impact on the company's business in Q2 2020, with effective remote work policies and mitigated building access disruptions. While sales productivity decreased, network traffic grew. The company maintained high liquidity and repaid a PPP loan - The company adopted a mandatory work-from-home policy and implemented safety procedures for on-site personnel, mitigating operational disruptions[145](index=145&type=chunk) - Despite some delays in new service installations and decreased sales representative productivity, network traffic continued to grow at an accelerated rate[146](index=146&type=chunk)[148](index=148&type=chunk) - The company maintained **$417.0 million** in cash and cash equivalents as of June 30, 2020, and repaid a Paycheck Protection Program (PPP) loan received in April 2020[149](index=149&type=chunk) [Cash Flows](index=41&type=section&id=Cash%20Flows) Operating cash flows remained stable, while investing activities increased due to property and equipment purchases. Financing activities shifted to a net cash outflow, primarily due to debt redemption and dividend payments, partially offset by new debt issuance | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,769 | $69,269 | | Net cash used in investing activities | $(26,796) | $(25,008) | | Net cash (used in) provided by financing activities | $(25,257) | $88,961 | | Net increase in cash and cash equivalents | $17,604 | $133,186 | - Interest payments on note obligations were **$27.5 million** in H1 2020, up from **$17.3 million** in H1 2019[153](index=153&type=chunk) - Financing activities included **$62.3 million** in dividends paid, **$189.2 million** for 2021 Notes redemption, and **$240.3 million** net proceeds from 2024 Euro Notes issuance in H1 2020[155](index=155&type=chunk) [Cash Position and Indebtedness](index=43&type=section&id=Cash%20Position%20and%20Indebtedness) As of June 30, 2020, the company held $417.0 million in cash and cash equivalents and had total indebtedness of $1.1 billion, including $203.8 million in finance lease obligations - The company's liquidity position of **$417.0 million** in cash and cash equivalents reduces refinancing risk and enhances its ability to pursue acquisitions or operating opportunities[156](index=156&type=chunk) - Total indebtedness at par value was **$1.1 billion** as of June 30, 2020[157](index=157&type=chunk) [Summarized Financial Information of Holdings](index=43&type=section&id=Summarized%20Financial%20Information%20of%20Holdings) Holdings, as a guarantor under the 2022 and 2024 Notes, reported $166.510 million in total assets and total equity as of June 30, 2020, with a net loss of $(11.766) million for the six months ended June 30, 2020 | Metric (in thousands) | June 30, 2020 (Unaudited) | | :--- | :--- | | Cash and cash equivalents | $166,497 | | Total assets | $166,510 | | Total equity | $166,510 | | Equity-based compensation expense (H1 2020) | $12,224 | | Net loss (H1 2020) | $(11,766) | [Common Stock Buyback Program](index=45&type=section&id=Common%20Stock%20Buyback%20Program) The Board of Directors authorized a common stock buyback program, with $34.9 million remaining available as of June 30, 2020. No shares were repurchased during the three and six months ended June 30, 2020 or 2019 - The buyback program is authorized through **December 31, 2020**[161](index=161&type=chunk) [Dividends on Common Stock and Return of Capital Program](index=45&type=section&id=Dividends%20on%20Common%20Stock%20and%20Return%20of%20Capital%20Program) The Board approved a quarterly dividend of $0.705 per common share, payable September 4, 2020. Future dividends and capital returns are discretionary and subject to financial performance, cash flow, and debt indenture limitations - The estimated dividend payment is **$32.2 million**[162](index=162&type=chunk) - Debt indentures limit the company's ability to return cash to stockholders[163](index=163&type=chunk) [Contractual Obligations and Commitments](index=45&type=section&id=Contractual%20Obligations%20and%20Commitments) Material changes to contractual obligations include the June 2020 issuance of €215.0 million 2024 Notes, the redemption of $189.2 million 2021 Notes, and a new agreement to purchase $35.0 million of network equipment annually for three years - Net proceeds from the June 2020 2024 Notes offering were **$240.3 million**, used to repay 2021 Notes and for general corporate purposes[165](index=165&type=chunk) - The redemption of 2021 Notes resulted in a **$0.6 million** loss on debt extinguishment[166](index=166&type=chunk) - A new agreement requires purchasing **$35.0 million** of network equipment annually from a vendor for three years, starting July 2020[167](index=167&type=chunk) [Future Capital Requirements](index=45&type=section&id=Future%20Capital%20Requirements) The company believes that its cash on hand and cash generated from operating activities will be adequate to meet its working capital, capital expenditure, debt service, dividend payments, and other cash requirements for the next twelve months. However, future acquisitions or unplanned costs may necessitate additional debt or equity financing, which could lead to dilution or impact business plans - Insufficient funds could lead to delays in network expansion, reduced sales and marketing efforts, or other adverse effects on the business[169](index=169&type=chunk) - The company may refinance existing debt or seek additional capital for liquidity, acquisitions, or general corporate purposes, potentially through new debt or open market purchases of outstanding debt[171](index=171&type=chunk) [Off-Balance Sheet Arrangements](index=47&type=section&id=Off-Balance%20Sheet%20Arrangements) The company does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements and is not materially exposed to related financing, liquidity, market, or credit risks - The company does not engage in trading activities involving non-exchange traded contracts[172](index=172&type=chunk) [Critical Accounting Policies and Significant Estimates](index=47&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) Management confirms no material changes to critical accounting policies and significant estimates from those disclosed in the annual report on Form 10-K for the year ended December 31, 2019 - No material changes to critical accounting policies and significant estimates as of June 30, 2020[173](index=173&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Management states that there have been no material changes to the company's exposures to market risk as of June 30, 2020, compared to those disclosed in the annual report on Form 10-K for the year ended December 31, 2019 - No material changes to market risk exposures as of June 30, 2020[174](index=174&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2020. No material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020[176](index=176&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[177](index=177&type=chunk) PART II OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings that are not expected to have a material impact on its operations or financial results. Further details are provided in Note 4 of the financial statements - Legal proceedings in the ordinary course of business are not expected to have a material impact[180](index=180&type=chunk) [ITEM 1A. RISK FACTORS](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section supplements previously disclosed risk factors, emphasizing the significant and unpredictable uncertainties posed by the COVID-19 pandemic on the company's business, financial condition, and results of operations, including potential impacts on demand, customer payments, supply chain, and operational plans - The COVID-19 pandemic creates significant uncertainty, impacting demand for services, customer payment ability, third-party reliance, and operational plans across **46 countries**[181](index=181&type=chunk)[183](index=183&type=chunk) - Uncertainties include the pandemic's duration and scope, governmental responses (e.g., travel bans, lockdowns, re-opening policies), and impacts on global economic conditions[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) [The impact of the spread of COVID-19 continues to create significant uncertainty for our business, financial condition and results of operations.](index=48&type=section&id=The%20impact%20of%20the%20spread%20of%20COVID-19%20continues%20to%20create%20significant%20uncertainty%20for%20our%20business,%20financial%20condition%20and%20results%20of%20operations.) The COVID-19 pandemic's impact on the company's business, financial results, and operations remains highly uncertain and unpredictable, depending on factors like the pandemic's duration, governmental actions, and global economic conditions - The pandemic's impact varies by market and could affect demand, customer payments, supplier capabilities, network expansion, and the implementation of strategic plans[182](index=182&type=chunk)[186](index=186&type=chunk) [Protective measures we have implemented to protect for our workforce from the COVID-19 virus may not be effective and may expose us to additional risks.](index=50&type=section&id=Protective%20measures%20we%20have%20implemented%20to%20protect%20for%20our%20workforce%20from%20the%20COVID-19%20virus%20may%20not%20be%20effective%20and%20may%20expose%20us%20to%20additional%20risks.) Measures like remote work and safety procedures have led to increased costs and amplified risks, including strain on IT resources, increased cybersecurity threats, and potential operational impacts if a significant portion of the workforce is unable to work - Increased costs incurred due to COVID-19 include one-time expenses for laptops and recurring costs for sanitizing equipment[189](index=189&type=chunk) - Remote work amplifies risks such as increased demand on IT resources, higher cybersecurity attack vulnerability, and potential operational disruption from workforce illness or restrictions[191](index=191&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=50&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, 2020. No common stock was purchased during the second quarter of 2020 - No common stock purchases were made during the second quarter of 2020 under the authorized buyback plan[192](index=192&type=chunk) [ITEM 6. EXHIBITS.](index=51&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including various indentures related to senior notes, certifications from the CEO and CFO, and XBRL formatted financial statements - Exhibits include indentures for **4.375% Senior Notes due 2024**, certifications (**31.1, 31.2, 32.1, 32.2**), and financial statements in iXBRL format[194](index=194&type=chunk) [SIGNATURES](index=52&type=section&id=Signatures) The report is duly signed on behalf of Cogent Communications Holdings, Inc. by its Chief Executive Officer, David Schaeffer, and Chief Financial Officer, Sean Wallace, on August 6, 2020 - The report was signed by David Schaeffer (CEO) and Sean Wallace (CFO) on **August 6, 2020**[197](index=197&type=chunk)[198](index=198&type=chunk)

Financial Data and Key Metrics Changes - The quarterly gross margin reached a record high of 60.5%, increasing sequentially by 20 basis points and year-over-year by 70 basis points [4] - EBITDA margin for the quarter increased by 30 basis points year-over-year to 35.8% [5] - Quarterly revenue growth was 5.6% year-over-year, with a sequential growth of 0.6% on a constant currency basis [5][34] - Cash held at Cogent Holdings at quarter end was $80.5 million, with total combined cash of $375.1 million [7][38] - Basic and diluted income per share was $0.20 for the quarter, compared to $0.16 last quarter and $0.20 for Q1 2019 [32] Business Line Data and Key Metrics Changes - Corporate business, representing 69% of total revenues, grew 7.5% year-over-year and 0.2% sequentially [17][21] - NetCentric business was flat year-over-year but improved by 1% sequentially [18] - On-net revenue was $103.5 million, a sequential increase of 0.8% and a year-over-year increase of 6.5% [24] - Off-net revenue was $37.3 million, a sequential decrease of 0.4% but a year-over-year increase of 1.3% [25] - Average price per megabit for installed base declined by 8.4% sequentially and 21.8% year-over-year [26] Market Data and Key Metrics Changes - Year-over-year traffic growth was 36% for the quarter, with sequential traffic growth of 12% [6][43] - Approximately 23% of total quarterly revenues were earned outside the United States, with 17% based in Europe [33] - The average euro to U.S. dollar rate for the quarter was $1.09, with an estimated negative foreign exchange impact on revenue of $600,000 for the current quarter [35] Company Strategy and Development Direction - The company aims for a long-term EBITDA annual margin expansion of about 200 basis points per year and a multiyear constant currency growth objective of 10% per year [19][47] - The company remains focused on Internet and IP connectivity services, as well as data center co-location, viewing these as necessary utilities for customers [47] - The Board approved a sequential increase in the quarterly dividend, reflecting confidence in cash flow and revenue-generating capabilities [48] Management's Comments on Operating Environment and Future Outlook - The impact of the COVID-19 pandemic was limited in Q1 2020, but uncertainty remains regarding future effects on operations and customer orders [11][12] - Management noted a significant uptick in bandwidth demand from corporate customers, despite many employees working from home [54] - The company expects a rebound to traditional levels of corporate growth as stay-at-home orders are lifted [55] Other Important Information - The company returned $30.6 million to shareholders through dividends and had $34.9 million remaining in its stock buyback program [6][48] - The company experienced a slight increase in net leverage ratio to 2.92 from 2.86 [7] Q&A Session Summary Question: What has been seen regarding the slowdown in corporate installs and expectations for recovery? - Management indicated that corporate revenue grew but not at historical rates, impacted by changes in USF revenue and inability to access certain buildings due to COVID-19 [52][53] Question: How has churn been affected since the quarter closed? - Management reported no increase in churn and continued monitoring of collections, noting that the customer base tends to be resilient [58][60] Question: What is the expected traffic growth for 2020 compared to 2019? - Management expects traffic growth to be above 34% year-over-year, driven primarily by NetCentric [84] Question: What percentage of corporate customers took advantage of the bandwidth upgrade offer? - About 2% of the corporate customer base has taken the upgrade offer, with expectations for continued uptake as companies adapt to new work environments [73][74] Question: Will there be changes in how revenue is reported? - Management stated that they classify revenue in multiple ways but are cautious about adding too much detail that could confuse investors [75]

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, 2020 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 ...

PART I [Business Overview](index=5&type=section&id=ITEM%201.%20BUSINESS) Cogent provides low-cost, high-speed Internet access, private network services, and data center colocation, focusing on on-net growth and strategic acquisitions - Cogent is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation, optimized for packet-switched data[10](index=10&type=chunk) - The company's services are delivered primarily to small and medium-sized businesses, communications service providers, and other bandwidth-intensive organizations globally[10](index=10&type=chunk) - Key competitive advantages include a low cost of operation due to streamlined products and integrated network design, direct control over service quality for on-net customers, and a high-traffic network footprint in major multi-tenant office buildings and carrier-neutral data centers[11](index=11&type=chunk)[13](index=13&type=chunk) - Strategic priorities include focusing on low-cost, high-speed Internet access, pursuing on-net customer growth by increasing sales efforts and expanding network connections, and selectively acquiring businesses or network assets that enhance customer base and cash flow[14](index=14&type=chunk)[15](index=15&type=chunk) - The network encompasses **1,767** multi-tenant office buildings, **980** carrier-neutral data centers, **873** intra-city networks (**35,526 fiber miles**), an inter-city network (**57,600 fiber route miles**), and **54 data centers** (**over 609,000 sq ft**)[18](index=18&type=chunk)[23](index=23&type=chunk) - Sales and marketing rely on a direct sales force (**686 employees** as of Feb 1, 2020, with **548 quota-bearing**) and an indirect sales program through master agents, with limited web-based advertising[29](index=29&type=chunk) - The company faces significant competition from incumbent telephone and cable companies and facilities-based network operators, many with greater financial resources and established brand names[30](index=30&type=chunk) - Regulation for Internet access and private networks to businesses is generally light, but evolving laws, data privacy requirements (GDPR, CCPA), and potential new taxes could impact operations[33](index=33&type=chunk) [Risk Factors](index=15&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks in maintaining peering relationships, customer retention, managing growth, vendor dependence, high indebtedness, and foreign currency fluctuations - Inability to maintain or increase settlement-free peering relationships with other Internet access providers could lead to higher costs, reduced performance, and loss of customers[38](index=38&type=chunk) - Failure to retain existing customers and add new ones, especially as large customers may build their own networks or switch providers, could impair growth and profitability[39](index=39&type=chunk)[41](index=41&type=chunk) - Rapid growth strains management, operational, and financial infrastructure, requiring effective expansion of sales force, maintenance of service quality, and enhancement of internal controls and information systems[43](index=43&type=chunk) - Operating in countries outside the U.S., Canada, and Western Europe presents difficulties such as lack of dark fiber, regulatory issues, and slower revenue growth rates[44](index=44&type=chunk) - Dependence on a single network infrastructure vendor (Cisco Systems, Inc.) for routers and transmission equipment creates risks related to timely provision, performance, and potential litigation[53](index=53&type=chunk) - Substantial debt (**$967.9 million** at Dec 31, 2019) could make it difficult to meet financial obligations, limit funds for growth, and restrict corporate actions due to debt covenants[95](index=95&type=chunk)[96](index=96&type=chunk)[100](index=100&type=chunk) - Fluctuations in foreign currency exchange rates, particularly between the US dollar and the Euro/Canadian dollar, can adversely affect financial position and results of operations, as **22% of 2019 revenue** was from foreign activities[57](index=57&type=chunk)[168](index=168&type=chunk) - The company has negative stockholders' equity and its ability to pay future dividends is subject to asset valuations and limitations under debt indentures and Delaware law[79](index=79&type=chunk) [Unresolved Staff Comments](index=41&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the SEC - No unresolved staff comments[104](index=104&type=chunk) [Properties](index=41&type=section&id=ITEM%202.%20PROPERTIES) The company leases offices, data centers, and colocation facilities for its operations, including its Washington D.C. headquarters, with the lease extended to May 2025 - The company leases space for offices, data centers, colocation facilities, and points-of-presence[104](index=104&type=chunk) - Headquarters facility: **43,117 square feet** in Washington, D.C.; lease extended to **May 2025**[105](index=105&type=chunk) - Total leased space: Approximately **760,000 square feet** for data centers, offices, and operations centers[105](index=105&type=chunk) [Legal Proceedings](index=41&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in routine legal proceedings not expected to materially impact its business or financial condition - Involved in legal proceedings in the ordinary course of business[106](index=106&type=chunk) - These proceedings are not expected to have a material adverse effect on the business, financial condition, or results of operations[106](index=106&type=chunk) - Significant proceedings are discussed in Note 6 to the consolidated financial statements[106](index=106&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company's operations - Not applicable[107](index=107&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=42&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock (CCOI) is traded on NASDAQ, with a **$50.0 million** buyback program authorized through December 2020 - Common stock (CCOI) is traded on the NASDAQ Global Select Market[110](index=110&type=chunk) - As of February 1, 2020, there were **135 holders of record** holding **45,629,938 shares** of common stock[110](index=110&type=chunk) Common Stock Performance (12/31/2014 - 12/31/2019) | Index | 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | |:---|:---|:---|:---|:---|:---|:---| | Cogent Communications Holdings | $100.00 | $102.53 | $127.23 | $145.44 | $151.55 | $230.20 | | S&P 500 | $100.00 | $101.38 | $113.51 | $138.29 | $132.23 | $173.86 | | NASDAQ Telecommunications | $100.00 | $97.52 | $102.36 | $127.62 | $127.16 | $142.60 | - The Board of Directors authorized a plan to repurchase up to **$50.0 million** of common stock through December 31, 2020. As of December 31, 2019, **$34.9 million** remained available, and no shares were purchased in 2019[113](index=113&type=chunk)[117](index=117&type=chunk) [Selected Financial Data](index=44&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides a five-year summary of the company's audited consolidated financial statements, offering a concise overview of financial performance and position Consolidated Statement of Operations Data (2015-2019, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---|\ | Service revenue | $546,159 | $520,193 | $485,175 | $446,900 | $404,234 | | Total operating expenses | $446,961 | $434,617 | $413,119 | $390,010 | $358,140 | | Operating income | $100,257 | $86,558 | $75,918 | $64,042 | $53,036 | | Net income | $37,520 | $28,667 | $5,876 | $14,929 | $4,896 | | Net income per common share—basic | $0.82 | $0.63 | $0.13 | $0.33 | $0.11 | | Dividends declared per common share | $2.44 | $2.12 | $1.80 | $1.51 | $1.46 | Consolidated Balance Sheet Data (2015-2019, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---|\ | Total assets | $932,124 | $739,850 | $710,588 | $737,892 | $665,860 | | Long-term debt (including finance leases and current portion) | $964,341 | $806,032 | $728,544 | $707,080 | $601,839 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, liquidity, and capital resources, detailing revenue growth, expense changes, debt management, and critical accounting policies - The company is a leading facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation, emphasizing on-net services for higher profit margins[121](index=121&type=chunk)[123](index=123&type=chunk) - Key growth opportunities are driven by its high-capacity network, allowing for significant customer additions with minimal incremental costs, and strategic acquisitions[123](index=123&type=chunk) - Industry trends include continued long-term growth in Internet traffic and a decline in Internet access prices on a per-megabit basis, impacting revenue growth and profitability[123](index=123&type=chunk) Key Financial and Operating Data (2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Percent Change | |:---|:---|:---|:---|\ | Service revenue | $546,159 | $520,193 | 5.0% | | On-net revenues | $396,753 | $374,555 | 5.9% | | Off-net revenues | $148,931 | $145,004 | 2.7% | | Network operations expenses | $219,801 | $219,526 | 0.1% | | Selling, general, and administrative expenses | $146,913 | $133,858 | 9.8% | | Depreciation and amortization expenses | $80,247 | $81,233 | (1.2)% | | Interest expense | $57,453 | $51,056 | 12.5% | | Income tax expense | $15,154 | $12,715 | 19.2% | | ARPU—on-net | $461 | $480 | (3.8)% | | ARPU—off-net | $1,097 | $1,155 | (5.0)% | | Average price per megabit | $0.62 | $0.82 | (23.9)% | | On-net customer connections (end of period) | 74,554 | 68,770 | 8.4% | | Off-net customer connections (end of period) | 11,660 | 10,974 | 6.3% | | Buildings On-net | 2,801 | 2,676 | 4.7% | Key Financial and Operating Data (2018 vs. 2017) | Metric | 2018 (in thousands) | 2017 (in thousands) | Percent Change | |:---|:---|:---|:---|\ | Service revenue | $520,193 | $485,175 | 7.2% | | On-net revenues | $374,555 | $346,445 | 8.1% | | Off-net revenues | $145,004 | $137,892 | 5.2% | | Network operations expenses | $219,526 | $209,278 | 4.9% | | Selling, general, and administrative expenses | $133,858 | $127,915 | 4.6% | | Depreciation and amortization expenses | $81,233 | $75,926 | 7.0% | | Interest expense | $51,056 | $48,467 | 5.3% | | Income tax expense | $12,715 | $25,242 | (49.6)% | | ARPU—on-net | $480 | $506 | (5.1)% | | ARPU—off-net | $1,155 | $1,239 | (6.8)% | | Average price per megabit | $0.82 | $1.11 | (25.9)% | | On-net customer connections (end of period) | 68,770 | 61,334 | 12.1% | | Off-net customer connections (end of period) | 10,974 | 9,949 | 10.3% | | Buildings On-net | 2,676 | 2,506 | 6.8% | Consolidated Cash Flows (in thousands) | Metric | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net cash provided by operating activities | $148,809 | $133,921 | $111,702 | | Net cash used in investing activities | ($46,958) | ($49,937) | ($45,801) | | Net cash provided by (used in) financing activities | $22,020 | ($52,545) | ($97,267) | | Net increase (decrease) in cash and cash equivalents | $123,329 | $29,082 | ($27,308) | - Total indebtedness at December 31, 2019, was **$967.9 million** (at par, excluding operating lease liabilities), including **$169.8 million** in finance lease obligations. Cash and cash equivalents were **$399.4 million**[139](index=139&type=chunk) - Debt obligations include **€135.0 million** of **4.375%** senior unsecured notes due 2024, **$189.2 million** of **5.625%** senior unsecured notes due 2021, and **$445.0 million** of **5.375%** senior secured notes due 2022[95](index=95&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - Indentures governing debt impose restrictions on incurring additional debt, paying dividends, and making investments, with a consolidated leverage ratio threshold of **4.25** for certain payments. As of December 31, 2019, **$110.3 million** was permitted for investment payments, including dividends and stock purchases[145](index=145&type=chunk)[241](index=241&type=chunk) Contractual Cash Obligations and Other Commercial Commitments (as of Dec 31, 2019, in thousands) | Type | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |:---|:---|:---|:---|:---|:---|\ | Debt | $903,696 | $50,601 | $691,748 | $161,347 | — | | Finance lease obligations | $340,188 | $25,459 | $48,693 | $45,311 | $220,725 | | Operating leases, colocation and data center obligations | $205,087 | $36,119 | $42,344 | $26,138 | $100,486 | | Unconditional purchase obligations | $27,885 | $12,154 | $1,346 | $1,307 | $13,078 | | **Total** | **$1,476,856** | **$124,333** | **$784,131** | **$234,103** | **$334,289** | [Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks primarily from interest rate and foreign currency fluctuations, with significant foreign currency risk from Euro and Canadian dollar - Cash flow exposure to interest rate changes is limited as note obligations have fixed interest rates[167](index=167&type=chunk) - Operations outside the United States and Euro-denominated notes expose the company to foreign currency exchange risk, particularly with the Euro and Canadian dollar[168](index=168&type=chunk) - Foreign activities accounted for **22% of consolidated revenue in 2019**; a **1% change** in foreign exchange rates would impact consolidated annual revenue by approximately **$1.1 million**[168](index=168&type=chunk) [Financial Statements and Supplementary Data](index=71&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements for 2017-2019, including the independent auditor's unqualified report and a critical audit matter regarding IRU lease assets - The report includes audited consolidated financial statements: Balance Sheets, Statements of Comprehensive Income, Statements of Changes in Stockholders' Equity (Deficit), and Statements of Cash Flows for the three years ended **December 31, 2019**[170](index=170&type=chunk)[172](index=172&type=chunk) - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended **December 31, 2019**[172](index=172&type=chunk) - A critical audit matter identified was 'Determining the Initial Carrying Amount for Indefeasible Right of Use Lease Assets and Liabilities,' due to the subjectivity in management's assumptions for lease term and incremental borrowing rate[175](index=175&type=chunk)[177](index=177&type=chunk) Consolidated Balance Sheets (as of December 31, in thousands) | Metric | 2019 | 2018 | |:---|:---|:---|\ | Total assets | $932,124 | $739,850 | | Total liabilities | $1,135,803 | $888,852 | | Total stockholders' deficit | ($203,679) | ($149,002) | Consolidated Statements of Comprehensive Income (for each of the three years ended December 31, in thousands) | Metric | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Service revenue | $546,159 | $520,193 | $485,175 | | Operating income | $100,257 | $86,558 | $75,918 | | Net income | $37,520 | $28,667 | $5,876 | | Basic net income per common share | $0.82 | $0.63 | $0.13 | | Diluted net income per common share | $0.81 | $0.63 | $0.13 | | Dividends declared per common share | $2.44 | $2.12 | $1.80 | Consolidated Statements of Cash Flows (for each of the three years ended December 31, in thousands) | Metric | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net cash provided by operating activities | $148,809 | $133,921 | $111,702 | | Net cash used in investing activities | ($46,958) | ($49,937) | ($45,801) | | Net cash provided by (used in) financing activities | $22,020 | ($52,545) | ($97,267) | | Cash and cash equivalents, end of year | $399,422 | $276,093 | $247,011 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=110&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 independent accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure[274](index=274&type=chunk) [Controls and Procedures](index=110&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management assessed disclosure controls and internal control over financial reporting as effective, with an unqualified report from Ernst & Young LLP - Disclosure controls and procedures were effective at the reasonable assurance level as of **December 31, 2019**[274](index=274&type=chunk) - Internal control over financial reporting was effective as of **December 31, 2019**, based on COSO criteria[277](index=277&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[274](index=274&type=chunk) - Ernst & Young LLP issued an unqualified report on the company's internal control over financial reporting[280](index=280&type=chunk) [Other Information](index=113&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reports no other information required to be disclosed under this item - No other information to report[284](index=284&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=114&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - Information incorporated by reference from the 2020 Proxy Statement[287](index=287&type=chunk) [Executive Compensation](index=114&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information concerning executive compensation is incorporated by reference from the 2020 Proxy Statement - Information incorporated by reference from the 2020 Proxy Statement[288](index=288&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=114&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership of beneficial owners, management, and equity compensation plans is incorporated by reference from the 2020 Proxy Statement - Information incorporated by reference from the 2020 Proxy Statement[289](index=289&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=114&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%20AND%20DIRECTOR%20INDEPENDENCE) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement - Information incorporated by reference from the 2020 Proxy Statement[290](index=290&type=chunk) [Principal Accountant Fees and Services](index=114&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information concerning principal accountant fees and services is incorporated by reference from the 2020 Proxy Statement - Information incorporated by reference from the 2020 Proxy Statement[291](index=291&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=115&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists financial statements, schedules, and comprehensive exhibits filed as part of the Form 10-K report, including organizational documents and debt indentures - Financial statements are listed in Item 8[294](index=294&type=chunk) - Financial Statement Schedule II—Valuation and Qualifying Accounts is filed as part of the report[295](index=295&type=chunk) - Exhibits include organizational documents, debt indentures (e.g., 2024, 2022, 2021 Notes), employment agreements, restricted stock awards, consents, and certifications[296](index=296&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) [Form 10-K Summary](index=122&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company indicates that no Form 10-K summary is provided - No Form 10-K Summary is provided[305](index=305&type=chunk) [Signatures](index=123&type=section&id=SIGNATURES) This section contains the required signatures of the registrant's authorized officers and directors, certifying the Form 10-K report - The report is signed by the Chairman and Chief Executive Officer, David Schaeffer, and the Chief Financial Officer, Thaddeus G. Weed, along with other directors[309](index=309&type=chunk)