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)

Call Start: 08:30 January 1, 0000 10:03 AM ET Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q4 2019 Earnings Conference Call February 27, 2020, 8:30 am ET Company Participants Dave Schaeffer - Chairman & CEO Tad Weed - CFO Conference Call Participants Sami Badri - Credit Suisse Philip Cusick - JPMorgan Colby Synesael - Cowen Walter Piecyk - LightShed Frank Louthan - Raymond James Nick Del Deo - MoffettNathanson James Breen - William Blair Michael Rollins - Citi Tim Horan - Oppenheimer Bora Lee - RBC Op ...

Financial Data and Key Metrics Changes - The EBITDA margin increased by 200 basis points to 36.9% from the second quarter of 2019, marking the highest margin in the company's 20-year history [4] - The adjusted EBITDA margin increased by 190 basis points to 37.0% [4] - SG&A expenses declined sequentially by $2 million or 6.1% from the second quarter of 2019 [4] - Gross margin for the quarter increased year-over-year by 170 basis points to 59.9% [4] - Year-over-year revenue growth was 6%, with a sequential revenue growth of 1.7% on a constant currency basis [4][22] - Quarterly cash flow from operations increased 5.3% year-over-year, but decreased sequentially by 17.7% due to increased interest payments [25] Business Line Data and Key Metrics Changes - Corporate customer revenue grew sequentially by 2.3% to $94.4 million and year-over-year by 10.4% [13] - NetCentric customer revenue increased sequentially by 0.1% to $42.5 million but declined year-over-year by 4.7% [13] - On-net revenue was $99.4 million, a sequential increase of 2% and a year-over-year increase of 6% [14] - Off-net revenue was $37.4 million, with a sequential increase of 0.6% and a year-over-year increase of 3.4% [14] - The average price per megabit for the installed base declined sequentially by 4% to $0.61 and by 22.2% year-over-year [16] Market Data and Key Metrics Changes - Approximately 22% of total revenues were reported in U.S. dollars and earned outside the United States, with 16% based in Europe [21] - The foreign exchange impact on reported quarterly revenue was negative $1.1 million year-over-year [22] - The company operates in over 954 million square feet of multi-tenant office space in North America [29] Company Strategy and Development Direction - The company remains focused on Internet access, IP connectivity, and data center co-location services, with a long-term revenue growth target of approximately 10% [31] - The company plans to continue returning capital to shareholders through dividends and stock buybacks, with a recent increase in the quarterly dividend to $0.64 per share [32] - The company is committed to maintaining its position as a low-cost provider in the industry [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the underlying strength of the business and the outlook for the remainder of 2019 and beyond [3] - The company anticipates continued traffic growth driven by over-the-top streaming services and expects the NetCentric business to return to historical growth rates [35] - Management noted that the competitive environment for NetCentric services is improving, while the corporate side remains mixed depending on specific competitors [47] Other Important Information - The company returned $28.6 million to shareholders through dividends during the quarter [4] - The total gross debt at par, including capital lease obligations, was $962.5 million at quarter end [26] - The company has a total of $34.9 million available for its buyback program, which is authorized to continue through December 2020 [32] Q&A Session All Questions and Answers Question: Visibility in NetCentric business and USF rates impact - Management indicated that traffic is expected to grow driven by over-the-top streaming services, with a mix shift in the NetCentric business being transitory [35] - The increase in USF rates primarily affects corporate products, with the charge not applying to Internet services [36] Question: Split between corporate and NetCentric revenues - Approximately 40% of corporate revenues are affected by the slowdown in off-net growth, with over 90% of layer two services subject to USF being to corporate customers [40] Question: Sales productivity and pricing environment - Management noted that lower productivity is largely due to increased hiring and a less mature sales force, with pricing declines in line with historical averages [41][47] Question: Impact of loop costs on margins - Management explained that while gross revenue may decrease with lower loop costs, margins remain stable as they capture benefits from negotiated discounts [50] Question: Strategic opportunities and market positioning - The company sees itself as strategically positioned in the evolving cloud and Internet landscape, focusing on Internet access and VPN services [53] Question: Traffic growth and international markets - Management reported that approximately 47% of NetCentric traffic is outside the U.S., with ongoing expansion into international markets [55]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Cogent Communications' unaudited condensed consolidated financial statements for Q3 2019, covering financial position, performance, and cash flows [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Summary (in thousands) | Metric | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $396,271 | $276,093 | | Total current assets | $474,373 | $350,337 | | Total assets | $932,344 | $739,850 | | Total current liabilities | $86,225 | $75,307 | | Total liabilities | $1,122,845 | $888,852 | | Total stockholders' deficit | $(190,501) | $(149,002) | - The company adopted new lease accounting standards (ASU 2016-02), resulting in the recognition of **$72.6 million** in Right-of-use leased assets and corresponding operating lease liabilities of **$95.6 million** ($10.3 million current, $85.3 million non-current) on the balance sheet as of September 30, 2019, which were not present at year-end 2018[9](index=9&type=chunk)[45](index=45&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Q3 2019 vs Q3 2018 Performance (in thousands, except per share data) | Metric | Q3 2019 (Unaudited) | Q3 2018 (Unaudited) | Change | | :--- | :--- | :--- | :--- | | Service revenue | $136,942 | $130,139 | +5.2% | | Operating income | $25,799 | $22,255 | +15.9% | | Net income | $13,701 | $8,231 | +66.5% | | Diluted EPS | $0.30 | $0.18 | +66.7% | Nine Months 2019 vs 2018 Performance (in thousands, except per share data) | Metric | Nine Months 2019 (Unaudited) | Nine Months 2018 (Unaudited) | Change | | :--- | :--- | :--- | :--- | | Service revenue | $405,866 | $388,144 | +4.6% | | Operating income | $72,221 | $64,250 | +12.4% | | Net income | $30,054 | $21,567 | +39.4% | | Diluted EPS | $0.65 | $0.47 | +38.3% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2019 (Unaudited) | 2018 (Unaudited) | | :--- | :--- | :--- | | Net cash provided by operating activities | $102,712 | $93,195 | | Net cash used in investing activities | $(37,059) | $(39,000) | | Net cash provided by (used in) financing activities | $56,144 | $(15,035) | | Net increase in cash and cash equivalents | $120,178 | $37,547 | - The significant increase in cash from financing activities in 2019 was primarily driven by the net proceeds of **$152.1 million** from the issuance of senior unsecured 2024 Euro notes, partially offset by **$82.9 million** in dividend payments[20](index=20&type=chunk) [Notes to Interim Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Interim%20Condensed%20Consolidated%20Financial%20Statements) - The company is a facilities-based provider of high-speed Internet access, private network services, and data center colocation, serving customers in North America, Europe, Asia, Australia, and Brazil[24](index=24&type=chunk)[25](index=25&type=chunk) - On June 25, 2019, the company issued **€135.0 million** of 4.375% senior unsecured notes due 2024, receiving net proceeds of approximately **$152.1 million**[59](index=59&type=chunk) - The Board of Directors approved a quarterly dividend of **$0.64 per common share**, expected to be paid on December 9, 2019[77](index=77&type=chunk) Revenue by Geography - Nine Months Ended Sep 30, 2019 (in thousands) | Region | On-net | Off-net | Non-core | Total | | :--- | :--- | :--- | :--- | :--- | | North America | $236,636 | $98,670 | $300 | $335,606 | | Europe | $53,889 | $12,192 | $45 | $66,126 | | Latin America | $244 | $8 | — | $252 | | Asia Pacific | $3,300 | $582 | — | $3,882 | | **Total** | **$294,069** | **$111,452** | **$345** | **$405,866** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2019 financial performance, highlighting revenue growth, pricing pressure, SG&A increase, and liquidity from new notes and dividends [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q3 2019 vs Q3 2018 Key Metrics | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Service Revenue | $136,942 | $130,139 | 5.2% | | On-net Revenue | $99,416 | $93,790 | 6.0% | | Off-net Revenue | $37,418 | $36,202 | 3.4% | | SG&A Expenses | $35,971 | $33,409 | 7.7% | | On-net Customer Connections | 73,870 | 67,370 | 9.6% | | Average Price per Megabit | $0.61 | $0.78 | (22.2)% | - Revenue from corporate customers grew **10.4%** in Q3 2019 YoY, while revenue from net-centric customers decreased by **4.7%**, primarily due to a significant decline in the average price per megabit and foreign exchange impacts[106](index=106&type=chunk) - The increase in SG&A expenses was primarily driven by an expansion of the sales force, with headcount growing from **583 to 667** between September 2018 and September 2019[110](index=110&type=chunk) - Interest income and other, net, increased substantially in Q3 2019 to **$8.3 million** from **$1.9 million** in Q3 2018, mainly due to a **$6.1 million** unrealized foreign exchange gain on the company's new Euro-denominated notes[115](index=115&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Financial Position as of September 30, 2019 (in millions) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $396.3 | | Total indebtedness (at par) | $962.5 | - In June 2019, the company raised approximately **$152.1 million** in net proceeds from an offering of **€135.0 million** of 2024 Notes[141](index=141&type=chunk)[152](index=152&type=chunk) - The company paid **$82.9 million** in dividends during the first nine months of 2019 and approved a Q4 dividend of **$0.64 per share**[141](index=141&type=chunk)[148](index=148&type=chunk) - As of September 30, 2019, **$34.9 million** remained available under the company's stock buyback program, which is authorized through December 31, 2020. No shares were repurchased in Q3 2019[147](index=147&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its market risk exposures as of September 30, 2019, compared to its 2018 Annual Report on Form 10-K - There have been no material changes to the company's exposures to market risk from those disclosed in the annual report on Form 10-K for the year ended December 31, 2018[160](index=160&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period[162](index=162&type=chunk) - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[163](index=163&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company states that it is involved in legal proceedings in the ordinary course of business, which are not expected to have a material impact on its operations or financial results - The company is involved in legal proceedings in the ordinary course of business that are not expected to have a material impact on its operations or results[177](index=177&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's Board of Directors has authorized a stock repurchase plan through December 31, 2020, with no shares repurchased during the third quarter of 2019 - The company's stock repurchase program is authorized through December 31, 2020. No shares were purchased during the third quarter of 2019[178](index=178&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) This section discloses recent changes to the Board of Directors, including resignations and new appointments with committee assignments - On November 4, 2019, Messrs. Richard Liebhaber and Timothy Weingarten resigned from the Board of Directors[164](index=164&type=chunk) - Effective November 5, 2019, Sheryl Kennedy and Carolyn Katz were appointed to the Board of Directors[164](index=164&type=chunk) - New committee appointments include Ms. Kennedy to the Audit Committee and Ms. Katz to the Compensation and the Nominating and Corporate Governance Committees[165](index=165&type=chunk)[166](index=166&type=chunk) [Item 6. Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include certifications from the Chief Executive Officer and Chief Financial Officer, as well as financial data formatted in iXBRL - The exhibits filed with the report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and iXBRL formatted financial statements (Exhibit 101.1)[175](index=175&type=chunk)

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) Q2 2019 Results Earnings Conference Call August 8, 2019 8:30 AM ET Company Participants Dave Schaeffer - Chairman and Chief Executive Officer Tad Weed - Chief Financial Officer Conference Call Participants Reed Kern - J.P. Morgan Colby Synesael - Cowen and Company Nick Del Deo - MoffettNathanson Frank Louthan - Raymond James Michael Rollins - Citi Brandon Nispel - KeyBanc Capital James Breen - William Blair Operator Good morning, and welcome to the C ...

Revenue Performance - Service revenue increased by 4.2% to $134.789 million for the three months ended June 30, 2019, compared to $129.296 million for the same period in 2018[104] - On-net revenue rose by 4.8% to $97.472 million, while off-net revenue increased by 3.0% to $37.191 million during the same period[104] - Revenues from corporate customers increased by 10.8% to $92.3 million, while revenues from net-centric customers decreased by 7.7% to $42.5 million[110] - Service revenue increased by 4.2% for the six months ended June 30, 2019, totaling $268.9 million, despite a $3.6 million negative impact from exchange rates[128] - On-net revenue grew by 5.0% for the six months ended June 30, 2019, with a 10.7% increase in on-net customer connections[131] - Off-net revenue increased by 2.5% for the six months ended June 30, 2019, with an 8.0% rise in off-net customer connections[134] Customer Connections - The number of on-net customer connections increased by 10.7% to 72,415, while off-net customer connections grew by 8.0% to 11,321[106] - The total number of on-net buildings connected to the network increased to 2,737 as of June 30, 2019, from 2,599 in 2018, reflecting a disciplined network expansion program[142] Pricing and ARPU - Average Revenue Per Unit (ARPU) for on-net services decreased by 6.0% to $453, and off-net ARPU declined by 5.0% to $1,104[106] - The average price per megabit for the installed base decreased by 27.1% to $0.63, reflecting pricing pressures in the market[106] - Average price per megabit for the installed base decreased by 26.1% from the six months ended June 30, 2018, to the same period in 2019[130] Expenses - Network operations expenses remained relatively stable, increasing by only 0.1% to $54.407 million[104] - Selling, general, and administrative expenses rose by 14.4% to $38.566 million, indicating increased investment in sales and marketing efforts[104] - Network operations expenses increased by 0.1% for the three months ended June 30, 2019, due to a 10.3% increase in customer connections and 138 more on-net buildings compared to the same period in 2018[113] - SG&A expenses rose by 14.4% for the three months ended June 30, 2019, primarily due to increased salaries and related costs, with non-cash equity-based compensation expense at $5.1 million[114] Financial Position - Net cash provided by operating activities for the six months ended June 30, 2019, was $69.3 million, up from $61.5 million in 2018[149] - Cash used in investing activities was $25.0 million for the six months ended June 30, 2019, compared to $26.9 million in 2018, primarily due to the timing and scope of network expansion activities[146] - Principal payments under finance lease obligations were $5.0 million for the six months ended June 30, 2019, down from $6.1 million in 2018[147] - The company paid $54.3 million in quarterly dividends during the six months ended June 30, 2019, compared to $46.6 million in 2018[147] - Total indebtedness as of June 30, 2019, was $967.9 million, with total cash and cash equivalents of $409.3 million[148] Future Outlook - The company plans to continue expanding its network and increasing the number of on-net buildings served, focusing on profitable customer acquisition strategies[101] - The company expects cash on hand and cash generated from operating activities to be adequate for working capital, capital expenditures, and debt service for the next twelve months[159] - Future acquisitions or significant unplanned costs may require raising additional funds through debt or equity issuance, which could dilute existing stockholders[160] Interest and Tax - Interest expense rose by 9.2% for the six months ended June 30, 2019, primarily due to the issuance of $70.0 million of senior secured notes and the 2024 Notes[139] - The income tax provision increased to $3.0 million for the three months ended June 30, 2019, from $2.6 million in the same period in 2018, due to higher taxable income[120] - The income tax provision increased to $6.6 million for the six months ended June 30, 2019, compared to $5.8 million for the same period in 2018, primarily due to an increase in taxable income[140] Equipment Transactions - Gains on equipment transactions were $0.7 million for the six months ended June 30, 2019, compared to $0.5 million for the same period in 2018[137] - The company completed an offering of €135.0 million ($153.7 million) of 2024 Notes on June 25, 2019, with net proceeds of approximately $152.1 million[158]

Financial Data and Key Metrics Changes - The EBITDA margin for Q1 2019 increased by 120 basis points to 35.5% compared to Q1 2018 [4] - Gross margin for the quarter reached an all-time high of 59.8%, increasing by 230 basis points year-over-year and by 180 basis points sequentially [5] - Quarterly cash flow grew by 16.2% from Q1 2018, driven by excellent operating leverage [15] - Basic and diluted income per share was $0.20, a 25% increase from the previous quarter and a 33% increase year-over-year [28] Business Line Data and Key Metrics Changes - Corporate business, representing 67% of total revenues, grew year-over-year by 11.2%, outperforming the long-term growth target of 10% [14] - NetCentric business declined by 8% year-over-year, with a constant currency decline of 3% [14] - Revenue from Corporate customers grew sequentially by 2.6% to $90.2 million [18] - Quarterly revenue from NetCentric customers declined by 7.6% year-over-year to $44 million [19] Market Data and Key Metrics Changes - On-net revenue was $97.2 million, with a year-over-year increase of 5.2% [20] - Off-net revenue was $36.8 million, reflecting a year-over-year increase of 1.9% [21] - The average price per megabit for the installed base decreased by 24.4% year-over-year to $0.68 [22] - On-net ARPU decreased by 0.8% to $463, while off-net ARPU decreased by 1.2% to $1,111 [23] Company Strategy and Development Direction - The company remains focused on Internet, IP connectivity, and data center colocation services, which are essential utilities for customers [42] - Long-term growth target is set at 10% with an EBITDA margin expansion of approximately 200 basis points over the next several years [43] - The company plans to utilize its balance sheet opportunistically for stock buybacks and dividends, with $34.9 million remaining under the current buyback authorization [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of the business and its cash flow generating capabilities [9] - The company anticipates a return to historical NetCentric revenue growth rates of about 9.5% year-over-year [47] - Management noted that the decline in NetCentric revenue is expected to improve as traffic patterns normalize [66] Other Important Information - The company returned $26.6 million to shareholders through dividends in the quarter [6] - Cash held at Cogent Holdings was $106 million at the end of the quarter, available for dividends or buybacks [6] - The total gross debt at par was $811.3 million, with a net debt of $552.2 million [36] Q&A Session Summary Question: Can you expand on the pressure on the NetCentric side? - Management noted a slowdown in traffic due to net neutrality violations, but expects a return to historical growth rates as traffic patterns normalize [46] Question: Is there an intention to trend lower productivity per rep? - Management clarified that the decline in productivity was due to an increase in new hires, which typically take time to reach full productivity [50] Question: What is the expectation for Corporate growth going forward? - Management expects consistent Corporate growth in the range of 11% to 13% [64] Question: Can you discuss the improvement in gross margin? - Management attributed the improvement to operating leverage and a higher proportion of on-net sales, which carry a 100% gross margin contribution [73] Question: What is the outlook for shareholder returns? - Management is committed to increasing shareholder returns and will consider using excess cash for larger dividends or opportunistic buybacks based on market conditions [78]

Table of Contents Title of Each Class Trading Symbol Name of Each Exchange on which Registered Common Stock, par value $0.001 per share CCOI NASDAQ Global Select Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2019 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-51829 C ...

Financial Data and Key Metrics Changes - The EBITDA margin for the year increased by 230 basis points to 35.5%, the highest annual EBITDA margin in the company's history [3][21] - EBITDA for the full year increased by $23.2 million, a 14.4% increase from the previous year [3][21] - Gross margin for the full year increased by 100 basis points to 58.0% [3] - Cash held at Cogent Holdings was $131 million at quarter end, unrestricted and available for dividends and buybacks [5][28] - The company returned $26.5 million to shareholders through dividends and repurchased 148,000 shares for $6.6 million [4][34] Business Line Data and Key Metrics Changes - Revenue from corporate customers grew sequentially by 2.8% to $87.9 million and year-over-year by 11.7% [14] - Revenue from NetCentric customers declined sequentially by 1% to $44.1 million and year-over-year by 5.1% [15] - On-net revenue was $95.4 million for the quarter, a sequential increase of 1.7% and a year-over-year increase of 6.7% [16] - Off-net revenue was $36.6 million for the quarter, a sequential increase of 1% and a year-over-year increase of 2.5% [16] Market Data and Key Metrics Changes - The company achieved quarterly revenue growth of 1.8% sequentially and 6.2% year-over-year on a constant currency basis [3][26] - Approximately 22% of total revenues were earned outside the United States, with 17% based in Europe [25] - The average price per megabit for the installed base declined by 7.1% sequentially and 26.4% year-over-year [17] Company Strategy and Development Direction - The company is focused on internet, IP connectivity, and data center co-location, with a long-term revenue growth target of approximately 10% due to the slowdown in the NetCentric business [33] - The company plans to continue enhancing its sales force and has opened new offices to support growth [40] - The long-term EBITDA margin expansion target is approximately 200 basis points per year [10][49] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the underlying strength of the business and cash flow generation capabilities [3][34] - The NetCentric business is expected to improve and return to its long-term average growth rate of about 9.5% year-over-year [37] - The company anticipates continued cash flow growth at similar rates in the future [11][49] Other Important Information - The company added 170 buildings to its network in 2018, with a total of 944 million square feet of multi-tenant office space in North America [31] - The sales force turnover was approximately 5%, better than the long-term average [32] - The company has a total gross debt of $809.2 million at year-end, with a net debt of $533.2 million [28] Q&A Session Summary Question: Changes in long-term growth potential for the NetCentric business - Management believes the NetCentric business will improve and return to its long-term average growth rate of about 9.5% year-over-year, despite recent underperformance [37] Question: Sales force churn and strategy - The company has implemented a rigorous training program that has reduced churn and expects to grow the sales force by 7% to 10% annually [40] Question: Update on the NetCentric sales force - The company has 141 of its 487 sales reps focused on the NetCentric market and expects to grow both Corporate and NetCentric sales forces at similar rates [42] Question: Drivers of margin expansion - Approximately 100 basis points of margin expansion came from COGS efficiency, with better utilization of the sales infrastructure contributing to SG&A efficiency [48] Question: Update on SD-WAN offering - The company has seen customer interest in SD-WAN, with many MPLS customers frustrated with high costs and lack of flexibility, indicating a potential market shift [50]

Network Operations and Services - The company operates a network that includes 1,735 multi-tenant office buildings and 889 carrier-neutral data centers across North America and Europe, maximizing revenue opportunities [25]. - The on-net services are offered at speeds ranging from 100 Megabits per second to 100 Gigabits per second, primarily targeting small and medium-sized businesses and bandwidth-intensive organizations [17]. - The company has a total of 52 data centers with over 587,000 square feet of floor space, directly connected to its network [41]. - The company serves 2,676 on-net buildings, with the most popular service being Internet access at 100 Megabits per second [48]. - The company emphasizes on-net services due to their higher profit margins and quicker provisioning times compared to off-net services [29]. - The company has strategically chosen locations for its network to ensure high levels of Internet traffic, enhancing its service offerings and profit margins [25]. - The company has established settlement-free peering arrangements with over 6,580 networks globally, enhancing its operational efficiency [45]. - The company has established an indirect sales program through master agents, enabling access to thousands of sub-agents for corporate customer sales [52]. - The company has expanded its network into Eastern Europe, Mexico, and select Asian markets, facing regulatory and operational challenges in these regions [76]. - The company plans to continue expanding its network and increasing the number of on-net buildings served, including multi-tenant office buildings and carrier-neutral data centers [202]. Financial Performance - Service revenue for 2018 was $520.2 million, an increase from $485.2 million in 2017, representing a growth of approximately 7.0% [187]. - Net income for 2018 was $28.7 million, compared to $5.9 million in 2017, indicating a significant increase of approximately 386.4% [187]. - Total assets at the end of 2018 were $739.9 million, up from $710.6 million in 2017, reflecting a growth of about 4.0% [187]. - Long-term debt as of the end of 2018 was $806.0 million, an increase from $728.5 million in 2017, representing a rise of approximately 10.6% [187]. - The company declared dividends of $2.12 per common share in 2018, up from $1.80 in 2017, marking an increase of approximately 17.8% [187]. - Operating income for 2018 was $86.6 million, compared to $75.9 million in 2017, showing an increase of approximately 14.8% [187]. - Interest expense for 2018 was $51.1 million, compared to $48.5 million in 2017, reflecting an increase of approximately 5.4% [187]. - The company authorized a stock repurchase plan of up to $50.0 million, with $34.9 million remaining available as of December 31, 2018 [183]. - Service revenue increased by 7.2% from $485.2 million in 2017 to $520.2 million in 2018, with foreign exchange rates contributing approximately $4.0 million to this increase [208]. - On-net revenues rose by 8.1% from $346.4 million in 2017 to $374.6 million in 2018, driven by a 12.1% increase in on-net customer connections [211]. - Off-net revenues increased by 5.2% from $137.9 million in 2017 to $145.0 million in 2018, with off-net customer connections growing by 10.3% [212]. Debt and Financial Risks - Total indebtedness as of December 31, 2018, was $809.2 million, including $189.2 million of 5.625% senior unsecured notes and $445.0 million of 5.375% senior secured notes [153]. - Annual interest payments required for the $189.2 million senior unsecured notes total $10.6 million, while the $445.0 million senior secured notes require $23.9 million [153]. - The company has negative shareholders equity, which may affect its ability to pay dividends in the future [129]. - The company’s debt agreements impose restrictions on incurring additional indebtedness and making certain distributions, which could limit operational flexibility [130]. - The company may not have sufficient funds to meet interest and principal obligations, potentially leading to bankruptcy [155]. - The substantial level of indebtedness could hinder the company’s ability to satisfy financial obligations and limit access to additional financing [157]. - Future operating performance and external economic factors will significantly impact the company’s ability to meet debt obligations [158]. Operational Challenges and Competition - The company faces competition from larger incumbent telephone and cable companies, which have greater financial resources and established customer bases [54]. - The company’s growth is contingent on retaining existing customers and acquiring new ones, with challenges posed by customer turnover and competitive pricing pressures [69]. - The competitive landscape is intensifying, leading to declining prices and margins for communications services, which could impact the company's market position [124]. - The company may face difficulties in managing rapid growth, particularly in maintaining operational quality and expanding its sales force [73]. - The company may experience delays and issues due to reliance on "last mile" providers, which could affect customer acquisition and operational results [99]. - Cyber-attacks and security breaches pose significant risks to the company's network availability and could lead to financial losses and reputational damage [101]. - The company is subject to various regulatory and legal risks as it expands operations outside the U.S., which could adversely affect its business [96]. - The exit of the United Kingdom from the European Union may adversely affect the company’s operations and sales [146]. Compliance and Regulatory Issues - Compliance with GDPR and other privacy regulations may require additional resources and could impact service provision [135]. - The company relies on long-term leases for dark fiber, which may limit its control over network maintenance and service quality [55]. - The company has experienced congestion issues with peering connections, particularly with major U.S. and European carriers, impacting service quality [66]. - The company’s ability to maintain relationships with carrier neutral data center operators is crucial for growth, and any deterioration in these relationships could harm sales efforts [114]. - The company may face challenges in obtaining or maintaining access agreements with building owners for its in-building networks, which are essential for service delivery [116]. Expenses and Cost Management - Network operations expenses rose by 4.9% from $209.3 million in 2017 to $219.5 million in 2018, while selling, general, and administrative expenses increased by 4.6% [204]. - The increase in SG&A expenses was driven by higher salaries and related costs due to expansion and increased sales efforts, alongside a 7.8% increase in sales force headcount from 574 to 619 [215]. - Selling, General, and Administrative (SG&A) expenses rose by 4.6% from 2017 to 2018, with non-cash equity-based compensation expense totaling $16.8 million in 2018 compared to $12.7 million in 2017 [215]. - A $1.1 million decrease in legal fees was noted, primarily related to U.S. net neutrality and interconnection regulatory matters [215]. - Commission expenses decreased by $1.3 million due to the new revenue accounting standard requiring capitalization of certain commissions [215].