Cogent(CCOI) - 2022 Q4 - Annual Report

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