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Item 1. Financial Statements

2021-08-05 compared with 2021-04-28 · 748 added, 117 removed, 296 unchanged (75% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

AS OF JUNE 30, 2021 AND DECEMBER 31, 2020

(IN THOUSANDS, EXCEPT SHARE DATA)

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Accrued and other current liabilities

Senior secured 2022 Notes, net of unamortized debt costs of $ 733 and including premium of $ 430

Installment payment agreement, current portion, net of discount of $ 80 and $ 136 , respectively

Installment payment agreement, current portion, net of discounts of $ 41 and $ 136 , respectively

Current maturities, operating lease liabilities

1 unchanged sentence

Total current liabilities

Senior unsecured 2024 Euro Notes, net of unamortized debt costs of $ 2,751 and $ 2,961 , respectively, and net of discount of $ 1,020 and $ 1,142 , respectively

Senior secured 2022 Notes, net of unamortized debt costs of $ 1,052 and including premium of $ 544

Senior secured 2022 notes, net of unamortized debt costs of $ 1,052 and including premiums of $ 544

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $ 2,538 and $ 2,961 , respectively and net of discounts of $ 959 and $ 1,142 , respectively

Senior secured 2026 notes, net of unamortized debt costs of $ 1,277 and discount of $ 1,698

Operating lease liabilities, net of current maturities

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

June 30, 2021

June 30, 2020

Service revenue

Operating expenses:

Network operations (including $ 136 and $ 305 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

Selling, general, and administrative (including $ 6,738 and $ 5,778 of equity-based compensation expense, respectively)

Depreciation and amortization

Total operating expenses

Gains on equipment transactions

Operating income

Interest expense

Realized foreign exchange gain on issuance on 2024 Euro Notes

Unrealized foreign exchange losses on 2024 Euro Notes

Loss on debt extinguishment and redemption – 2021 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Interest income and other, net

(Loss) income before income taxes

Income tax provision

Net (loss) income

Comprehensive (loss) income:

Net (loss) income

Foreign currency translation adjustment

Comprehensive (loss) income

Net (loss) income per common share:

Basic net (loss) income per common share

Diluted net (loss) income per common share

Dividends declared per common share

Weighted-average common shares - basic

Weighted-average common shares - diluted

The accompanying notes are an integral part of these condensed consolidated financial statements.

COGENT COMMUNICATIONS HOLDINGS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND MARCH 31, 2020

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Service revenue

7 unchanged sentences

Interest expense

Unrealized foreign exchange gain on 2024 Euro Notes

Loss on debt extinguishment and repurchase - 2022 Notes

Realized foreign exchange gain on issuance of 2024 Euro Notes

Unrealized gain (loss) on foreign exchange on 2024 Euro Notes

Interest income and other, net

Loss on debt extinguishment and redemption- 2021 Notes

Loss on debt extinguishment and redemption- 2022 Notes

Income before income taxes

4 unchanged sentences

Net income per common share:

Basic and diluted net income per common share

Basic net income per common share

Diluted net income per common share

Dividends declared per common share

1 unchanged sentence

Weighted-average common shares - diluted

The accompanying notes are an integral part of these condensed consolidated statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

COGENT COMMUNICATIONS HOLDINGS, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND MARCH 31, 2020

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND JUNE 30, 2020

(IN THOUSANDS)

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Amortization of debt discount and premium

Amortization of debt costs, discounts and premiums

Equity-based compensation expense (net of amounts capitalized)

Loss on debt extinguishment and redemption – 2021 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Unrealized (gains) losses on foreign exchange – 2024 Notes

Realized foreign exchange gain on issuance of 2024 Notes

Gains - equipment transactions and other, net

Unrealized foreign currency exchange gain on 2024 Euro Notes

Loss on extinguishment of 2022 Notes

Deferred income taxes

10 unchanged sentences

Dividends paid

Repurchase and extinguishment of 2022 Notes

Proceeds from exercises of stock options

Redemption and extinguishment of 2021 Notes

Redemption and extinguishment of 2022 Notes

Net proceeds from issuance of senior unsecured 2024 Euro Notes - net of debt costs of $ 2,137

Net proceeds from issuance of senior secured 2026 Notes - net of debt costs of $ 1,317

Principal payments on installment payment agreement

Principal payments of finance lease obligations

Proceeds from exercises of stock options

Net cash used in financing activities

Effect of exchange rates changes on cash

Net decrease in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosure of non-cash financing activities:

Supplemental disclosure of non-cash investing and financing activities:

Non-cash component of network equipment obtained in exchange transactions

1 unchanged sentence

Finance lease obligations incurred

The accompanying notes are an integral part of these condensed consolidated statements.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

The accompanying notes are an integral part of these condensed consolidated financial statements.

COGENT COMMUNICATIONS HOLDINGS, INC.

AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Description of the business:

Description of the business and recent developments:

Reorganization and merger

9 unchanged sentences

Description of business

The Company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space.

The Company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space and power.

The Company’s network is specifically designed and optimized to transmit packet switched data.

29 unchanged sentences

Financial instruments

At March 31, 2021 the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because of the short-term nature of these instruments.

At June 30, 2021, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of these instruments.

The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1).

Based upon recent trading prices (Level 2— market approach) at March 31, 2021 the fair value of the Company’s remaining $ 329.1 million senior secured notes due in 2022 (“2022 Notes”) was $ 337.3 million and the fair value of the Company’s € 350.0 million ($ 410.5 million) senior unsecured notes due in 2024 (“2024 Notes”) was $ 419.7 million.

Based upon recent trading prices (Level 2— market approach) at June 30, 2021 the fair value of the Company’s $ 500.0 million senior secured notes was $ 510.0 million and the fair value of the Company’s € 350.0 million Euro ($ 415.8 million USD) senior unsecured notes was $ 424.1 million.

Gross receipts taxes, universal service fund and other surcharges

1 unchanged sentence

Such charges may be presented gross or net based upon the Company’s accounting policy election.

The Company records certain excise taxes and surcharges on a gross basis and includes them in its revenue and network operations expense.

Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense)were $ 4.5 million and $ 3.7 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

The Company records certain excise taxes and surcharges on a gross basis and includes them in its revenues and costs of network operations.

Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense)were $ 4.8 million and $ 3.3 million for the three months ended June 30, 2021 and 2020, respectively, and $ 9.3 million and $ 7.0 million for the six months ended June 30, 2021 and 2020, respectively.

Basic and diluted net income per common share

5 unchanged sentences

Three Months Ended

March 31, 2021

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Weighted average common shares - basic

3 unchanged sentences

The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock options and restricted stock awards outstanding:

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Unvested shares of restricted common stock

1 unchanged sentence

Anti-dilutive shares of restricted common stock

Stockholders’ Deficit

The following details the changes in stockholders’ deficit for the three months ended March 31, 2021 and March 31, 2020 (in thousands except share amounts):

Stockholder’s Deficit

The following details the changes in stockholder’s deficit for the three and six months ended June 30, 2021 and June 30, 2020 (in thousands except share amounts):

Comprehensive

Stockholders’

Stockholder’s

Income (Loss)

Equity (Deficit)

Balance at December 31, 2020

Balance at March 31, 2020

Forfeitures of shares granted to employees

4 unchanged sentences

Dividends paid

Balance at June 30, 2020

Comprehensive

Stockholder’s

Income (Loss)

Equity (Deficit)

Balance at March 31, 2021

Forfeitures of shares granted to employees

Equity-based compensation

Foreign currency translation

Issuances of common stock

Exercises of options

Dividends paid

Balance at June 30, 2021

Comprehensive

Stockholders’

Stockholder’s

Income (Loss)

7 unchanged sentences

Dividends paid

Balance at March 31, 2020

Balance at June 30, 2020

Comprehensive

Stockholder's

Income (Loss)

Equity (Deficit)

Balance at December 31, 2020

Forfeitures of shares granted to employees

Equity-based compensation

Foreign currency translation

Issuances of common stock

Exercises of options

Dividends paid

Balance at June 30, 2021

Revenue recognition

1 unchanged sentence

2014-09, Revenue from Contracts with Customers (“ASC 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

Under ASC 606 the Company recognizes installation fees for contracts with terms longer than month-to-month over the contract term.

The Company believes that for contracts with terms longer than month-to-month the installation fee does not give rise to a material right as defined by ASC 606.

The Company recognizes revenue over the estimated average customer life for installation fees associated with month-to-month contracts, because the installation fee represents a material right as defined by ASC 606.

Under ASC 606 installation fees for contracts with terms longer than month-to-month are recognized over the contract term.

The Company believes that the installation fee does not give rise to a material right as defined by ASC 606 for contracts with terms longer than month-to-month.

The Company recognizes revenue over the estimated average customer life for installation fees associated with month-to-month contracts, because the fee represents a material right as defined by ASC 606.

The Company capitalizes certain contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and sales agents and amortizes these costs on straight-line basis over the period the services are transferred to the customer for commissions paid to its sales team (estimated customer life) and over the remaining original contract term for agent commissions.

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Fixed fees are billed monthly in advance and usage fees are billed monthly in arrears.

Amounts billed are due upon receipt and contract lengths range from month to month to 60 months .

Amounts billed are due upon receipt and contract lengths range from one month to 60 months .

The Company satisfies its performance obligations to provide services to customers over time as the services are rendered.

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4) Allocation of the transaction price to the performance obligations in the contract

5) Recognition of revenue when, or as, the Company satisfies its performance obligations

5) Recognition of revenue when, or as, we satisfy a performance obligation

Fees billed in connection with customer installations are deferred (as deferred revenue) and recognized as noted above.

To the extent a customer contract is terminated prior to its contractual end the customer is subject to termination fees.

The Company vigorously seeks payment of these termination fees.

The Company recognizes revenue for termination fees as they are collected.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the three months ended March 31, 2021 was $ 1.8 million and during the three months ended March 31, 2020 was $ 1.6 million.

Amortization expense for contract costs was $ 4.6 million for the three months ended March 31, 2021 and $ 4.2 million for the three months ended March 31, 2020.

If a customer contract is terminated prior to its contractual end, the customer is subject to termination fees.

The Company vigorously seeks payment of these amounts.

The Company recognizes revenue for these amounts as they are collected.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the three months ended June 30, 2021 was $ 1.8 million and during the three months ended June 30, 2020 was $ 1.8 million.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the six months ended June 30, 2021 was $ 3.1 million and during the six months ended June 30, 2020 was $ 3.0 million.

Amortization expense for contract costs was $ 4.6 million for the three months ended June 30, 2021 and $ 4.2 million for the three months ended June 30, 2020.

Amortization expense for contract costs was $ 9.2 million for the six months ended June 30, 2021 and $ 8.4 million for the six months ended June 30, 2020.

In February 2016, the FASB issued ASU No.

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ASU 2016-02 was effective for the Company beginning on January 1, 2019 and required the Company to record a right-of-use asset and a lease liability for most of its facilities leases.

These leases were previously treated as operating leases.

Leases that were previously treated as operating leases.

The effect of ASU 2016-02 was to record a cumulative-effect adjustment on January 1, 2019 as a right-of-use asset and an operating lease liability totaling $ 97.3 million.

1 unchanged sentence

The Company has made an accounting policy election to not apply the recognition requirements of ASU 2016-02 to its short-term leases - leases with a term of one year or less.

The Company has also elected to apply certain practical expedients under ASU 2016-02 including not separating lease and nonlease components on its finance and operating leases.

March 31, 2021

March 31, 2020

Finance lease costs

The Company has also elected to apply certain practical expedients under ASU 2016-02 including not separating lease and non-lease components on its finance and operating leases.

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Finance lease cost

Amortization of right-of-use assets

2 unchanged sentences

Total lease costs

June 30, 2021

June 30, 2020

Other lease information

10 unchanged sentences

Finance leases—fiber lease agreements

The Company has entered into lease agreements with numerous providers of dark fiber under indefeasible-right-of use agreements (“IRUs”).

These IRUs typically have initial terms of 15 - 20 years and include renewal options after the initial lease term.

The Company has entered into lease agreements with numerous providers of dark fiber under indefeasible-right-of use agreements (“IRU’s”).

These IRU’s typically have initial terms of 15 - 20 years and include renewal options after the initial lease term.

The Company establishes the number of renewal option periods used in determining the lease term based upon its assessment at the inception of the lease of the number of option periods for which failure to renew the lease imposes a penalty in such amount that renewal appears to be reasonably certain.

2 unchanged sentences

The interest rate used in determining the present value of the aggregate future minimum lease payments is the Company’s incremental borrowing rate for the reasonably certain lease term.

The Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors including level of collateralization and term to align with the term of the lease.

The determination of the Company's incremental borrowing rate requires judgment.

Finance lease assets are included in property and equipment in the Company’s consolidated balance sheets.

As of March 31, 2021, the Company had committed to additional dark fiber IRU lease agreements totaling $ 25.4 million in future payments to be paid over periods of up to 20 years .

As of June 30, 2021, the Company had committed to additional dark fiber IRU lease agreements totaling $ 29.5 million in future payments to be paid over periods of up to 20 years .

These obligations begin when the related fiber is accepted, which is generally expected to occur in the next 12 months.

The future minimum payments (principal and interest) under these finance leases are as follows (in thousands):

For the twelve months ending March 31,

Total minimum finance lease obligations

Less—amounts representing interest

Present value of minimum finance lease obligations

Current maturities

Finance lease obligations, net of current maturities

Operating leases

The Company leases office space and data center facilities under operating leases.

The Company leases office space and certain data center facilities under operating leases.

In certain cases the Company also enters into short-term operating leases for dark fiber.

2 unchanged sentences

The implicit rates within the Company’s operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of its lease payments.

The determination of the Company’s incremental borrowing rate requires judgment.

Certain of the Company’s leases include options to extend or terminate the lease.

1 unchanged sentence

The option to renew may be automatic, at the option of the Company or mutually agreed to between the landlord or dark fiber provider and the Company.

Once the Company has accepted the related fiber route or the facility lease term has begun, the present value of the aggregate future minimum operating lease payments is recorded as an operating lease liability and a right-of-use leased asset.

Lease incentives and deferred rent liabilities for facilities operating leases are presented with, and netted against, the right-of-use leased asset.

Once the Company has accepted the related fiber route or the facility lease term has begun, the present value of the aggregate future minimum operating lease payments are recorded as an operating lease liability and a right-of-use leased asset.

Lease incentives and deferred rent liabilities for facilities operating leases are presented with the right-of-use leased asset.

Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.

The future minimum payments under these operating lease agreements are as follows (in thousands):

For the twelve months ending March 31,

Total minimum operating lease obligations

The future minimum payments under these operating lease and finance lease agreements are as follows (in thousands):

For the twelve months ending June 30,

Total minimum lease obligations

Less—amounts representing interest

Present value of minimum operating lease obligations

Present value of minimum lease obligations

Current maturities

3 unchanged sentences

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") later codified as Accounting Standards Codification ("ASC") 326 ("ASC 326"), using the modified retrospective transition approach.

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") later codified as Accounting Standards Codification 326 ("ASC 326"), using the modified retrospective transition approach.

This guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses.

9 unchanged sentences

Allowance for credit losses (deducted from accounts receivable)

Three months ending March 31, 2021

Three months ending March 31, 2020

Net bad debt expense for the three months ended March 31, 2021 was $ 0.8 million which is net of bad debt recoveries of $ 1.2 million.

Net bad debt expense for the three months ended March 31, 2020 was $ 1.1 million which is net of bad debt recoveries of $ 0.2 million.

Three months ending June 30, 2021

Three months ending June 30, 2020

Six months ending June 30, 2021

Six months ending June 30, 2020

Net bad debt expense for the three and six months ended June 30, 2021 was $ 0.8 million and $ 1.6 million, respectively, which is net of bad debt recoveries of $ 0.4 million and $ 1.6 million respectively.

Net bad debt expense for the three and six months ended June 30, 2020 was $ 1.3 million and $ 2.3 million, respectively, which is net of bad debt recoveries of $ 0.2 million and $ 0.4 million respectively .

Property and equipment:

Depreciation and amortization expense related to property and equipment and finance leases was $ 22.0 million and $ 19.5 million for the three months ended March 31, 2021 and 2020, respectively.

The Company capitalized salaries and related benefits of employees working directly on the construction and build-out of its network of $ 3.2 million and $ 2.9 million for the three months ended March 31, 2021 and 2020, respectively.

Depreciation and amortization expense related to property and equipment and finance leases was $ 22.1 million and $ 19.9 million for the three months ended June 30, 2021 and 2020 respectively, and $ 44.1 million and $ 39.4 million for the six months ended June 30, 2021 and 2020, respectively.

The Company capitalized salaries and related benefits of employees working directly on the construction and build-out of its network of $ 4.2 million and $ 3.0 million for the three months ended June 30, 2021 and 2020, respectively, and $ 7.4 million and $ 5.9 million for the six months ended June 30, 2021 and 2020, respectively.

Installment payment agreement

2 unchanged sentences

There were no payments under each note obligation for the first six months followed by eighteen equal installment payments for the remaining eighteen month term until July 2020 when additional borrowings under the IPA expired.

As of March 31, 2021 and December 31, 2020 there was $ 5.3 million and $ 7.7 million, respectively, of note obligations outstanding under the IPA, secured by the related equipment.

As of June 30, 2021 and December 31, 2020 there was $ 3.4 million and $ 7.7 million, respectively, of note obligations outstanding under the IPA, secured by the related equipment.

The Company recorded the assets purchased and the net present value of the note obligation utilizing an imputed interest rate.

The resulting discounts totaling $ 0.1 million and $ 0.1 million as of March 31, 2021 and December 31, 2020, respectively, are being amortized over the note term using the effective interest rate method.

The resulting discounts totaling $ 41,000 and $ 141,000 as of June 30, 2021 and December 31, 2020, respectively, are being amortized over the note term using the effective interest rate method.

Long-term debt:

As of June 30, 2021, the Company had outstanding $ 500.0 million aggregate principal amount of Senior Secured Notes due 2026 (the “2026 Notes”) and € 350.0 million ($ 415.8 million USD) aggregate principal amount of Senior Unsecured Euro Notes due 2024 (the “2024 Notes”).

The 2026 Notes are due on May 1, 2026 and bear interest at a rate of 3.50 % per year.

Interest on the 2026 Notes is paid semi-annually on May 1 and November 1 of each year.

The 2024 Notes are due on June 30, 2024 and bear interest at a rate of 4.375 % per year.

Interest on the 2024 Notes is paid semi-annually on June 30 and December 30 of each year.

Issuance of the 2026 Notes

On May 7, 2021 (the “Closing Date”), Group completed an offering of $ 500.0 million aggregate principal amount of its 2026 Notes for issuance in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).

The 2026 Notes were offered and sold only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S.

persons in transactions outside the United States in compliance with Regulation S under the Securities Act.

The net proceeds from the 2026 Notes offering were $ 496.9 million after deducting the $ 1.8 million discount and $ 1.3 million of offering expenses.

In May 2021 and prior to the consummation of the offering of the 2026 Notes, Group completed the redemption of $ 45.0 million aggregate principal amount of its 5.375 % Senior Secured Notes due 2022 (the “2022 Notes”), following which $ 284.1 million aggregate principal amount of 2022 Notes remained outstanding.

On the Closing Date, Group issued a notice of full redemption to holders of its remaining 2022 Notes, specifying December 1, 2021 as the redemption date.

On the Closing Date, Group used the net proceeds from the offering of the 2026 Notes to satisfy and discharge its obligations under the remaining 2022 Notes by depositing with the trustee the funds necessary to pay the $ 284.1 million aggregate principal amount and $ 11.5 million of interest due on the 2022 Notes through December 1, 2021.

Under the indenture governing the 2022 Notes (the “2022 Notes Indenture”), Group could redeem the 2022 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2022 Notes, plus accrued and unpaid interest beginning on December 1, 2021.

Prior to December 1, 2021 any redemption of the 2022 Notes would have included a “make-whole” premium as set forth in the 2022 Notes indenture.

The Company expects to use the remaining net proceeds from the 2026 Notes offering for general corporate purposes, to repay debt obligations, to repurchase the Company’s common stock or for special or recurring dividends to the Company’s stockholders.

The 2026 Notes were issued pursuant to, and are governed by, an indenture (the 2026 Notes Indenture”), dated the Closing Date by and among Group, Holdings, the other guarantors named therein, the trustee and the collateral agent.

The 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by Group’s material domestic subsidiaries, subject to certain exceptions (the “Subsidiary Guarantors”).

In addition, the 2026 Notes are guaranteed on a senior unsecured basis by Holdings (together with the Subsidiary Guarantors, the “Guarantors”).

Under certain circumstances, the Guarantors may be released from these guarantees without the consent of the holders of the 2026 Notes.

The 2026 Notes and the guarantees of the Subsidiary Guarantors (the “subsidiary guarantees”) are Group’s and the Subsidiary Guarantors’ senior obligations, secured by a first priority lien on substantially all of Group’s and the Subsidiary Guarantors’ assets, subject to certain exceptions, limitations and permitted liens.

The 2026 Notes and the subsidiary guarantees are effectively senior to any of Group’s and the Subsidiary Guarantors’ existing and future senior unsecured indebtedness and future indebtedness secured by liens on the collateral securing the 2026 Notes that are junior to the liens on the collateral securing the 2026 Notes, in each case, to the extent of the value of the collateral securing the 2026 Notes.

The 2026 Notes and the subsidiary guarantees rank pari passu in right of payment with Group’s and the Subsidiary Guarantors’ existing and future indebtedness that is not subordinated in right of payment to the 2026 Notes or the subsidiary guarantees.

The 2026 Notes and the subsidiary guarantees are effectively subordinated to any of Group’s and the Subsidiary Guarantors’ indebtedness that is secured by assets that do not constitute collateral or that is secured by liens on the collateral securing the 2026 Notes that are senior to the liens securing the 2026 Notes, in each case, to the extent of the value of the collateral securing such indebtedness.

In addition, the 2026 Notes and the subsidiary guarantees thereof rank contractually senior in right of payment to all of Group’s and the Subsidiary Guarantors’ future subordinated indebtedness and are structurally subordinated to the liabilities of the non-guarantor subsidiaries.

Holdings’ guarantee is its senior unsecured obligation, and ranks equally in right of payment with all of Holdings’ existing and future senior indebtedness and senior in right of payment to all of Holdings’ future subordinated indebtedness.

Holdings’ guarantee is effectively subordinated to its secured indebtedness to the extent of the value of the collateral securing such indebtedness.

The 2026 Notes bear interest at a rate of 3.50 % per annum.

Interest began to accrue on the 2026 Notes on May 7, 2021 and will be paid semi-annually in arrears on May 1 and November 1 of each year, commencing November 1, 2021.

Unless earlier redeemed or repurchased, the Notes will mature on May 1, 2026.

Group may redeem some or all of the 2026 Notes at any time prior to February 1, 2026 at a price equal to 100 % of the principal amount of the 2026 Notes, plus a “make-whole” premium as set forth in the 2026 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

Thereafter, Group may redeem the 2026 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2026 Notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

Debt extinguishment and redemption of 2022 Notes

In March 2021, Group redeemed $ 115.9 million aggregate principal amount of its 2022 Notes at an average price of 103.2 % of the principal amount plus $ 0.4 million of accrued and unpaid interest.

As a result of this transaction, the Company incurred a loss on debt extinguishment and redemption of $ 3.9 million from the premium payment above par value, the amortization of the remaining unamortized notes cost and certain transaction expenses.

On April 6, 2021 Group issued a notice of conditional partial redemption for $ 45.0 million aggregate principal amount of its 2022 Notes.

Group redeemed the $ 45.0 million aggregate principal amount of its 2022 Notes on May 6, 2021 at par plus the “make-whole amount” as defined in the 2022 Notes indenture of $ 1.9 million ($ 41.41533 per $1,000 aggregate principal amount) plus accrued interest to, but excluding, the redemption date of $ 0.4 million ($ 9.70486 per aggregate principal amount).

Following this $ 45.0 million redemption there was $ 284.1 million aggregate principal amount of 2022 Notes remaining.

On the Closing Date of the issuance of the 2026 Notes, Group used the net proceeds from the offering of the 2026 Notes to satisfy and discharge its remaining obligations under its 2022 Notes.

As a result of these transactions, the Company incurred a loss on debt extinguishment and redemption of $ 10.8 million from the payment of $ 11.5 million of interest on the 2022 Notes through December 1, 2021 and the amortization of the remaining unamortized notes costs and debt premium.

2024 Notes issuances

In June 2020, Group completed an offering of € 215.0 million aggregate principal amount of its 2024 Notes.

The net proceeds from the June 2020 offering, after deducting offering expenses, were $ 240.3 million.

In June 2019, Group completed an offering of € 135.0 million aggregate principal amount of its 2024 Notes.

The net proceeds from the June 2019 offering, after deducting offering expenses, were $ 152.1 million.

The Company expects to use , and has used, some of the proceeds from these offerings for general corporate purposes, to repay debt obligations, to repurchase the Company’s common stock or for special or recurring dividends to the Company’s stockholders.

The 2024 Notes bear interest at a rate of 4.375 % per annum.

Interest began to accrue on the 2024 Notes issued in June 2020 on June 4, 2020 and interest began to accrue on the 2024 Notes issued in June 2019 on June 25, 2019.

Interest is paid semi-annually in arrears on June 30 and December 30 of each year.

Unless earlier redeemed, the 2024 Notes will mature on June 30, 2024.

The June 2020 issuance of € 215.0 million aggregate principal amount 2024 Notes were issued at a price of 99.5 % for € 213.9 million ($ 240.0 million USD) on June 3, 2020 at a Euro to USD exchange rate of $ 1.112 .

The discount is amortized to interest expense to the maturity date under the effective interest rate method.

The Company received proceeds in USD on the 2024 Notes issued in June 2020 on June 9, 2020 at a Euro to USD rate of $ 1.133 resulting in a realized gain on foreign exchange of $ 2.5 million.

The June 2019 issuance of 2024 Notes were issued at par for € 135.0 million on June 25, 2019.

The issuances of the 2024 Notes were in Euros and are reported in the Company’s reporting currency – US Dollars.

As of June 30, 2021 the 2024 Notes were valued at $ 415.8 million.

The unrealized (loss) gain on foreign exchange on the Company’s 2024 Notes from converting the 2024 Notes into USD was $( 5.3 ) million for the three months ended June 30, 2021 and $( 3.4 ) million for the three months ended June 30, 2020 and was $ 13.6 million for the six months ended June 30, 2021 and $( 0.5 ) million for the six months ended June 30, 2020.

Debt extinguishment and redemption of 2021 Notes

In June 2020, Group redeemed its 5.625 % senior unsecured notes due in 2021 (the "2021 Notes") with the proceeds from its June 2020 issuance of € 215.0 million aggregate principal amount of 2024 Notes.

Group redeemed the entire outstanding amount of the 2021 Notes at a redemption price of 100 % of the $ 189.2 million aggregate principal amount plus $ 1.6 million of accrued and unpaid interest.

As a result of this transaction the Company incurred a loss on debt extinguishment and redemption of $ 0.6 million from the amortization of the remaining unamortized notes cost and certain transaction expenses.

Limitations under the indentures

The indentures governing the Company's 2024 Notes and 2022 Notes, among other things, limit the Company’s ability to incur indebtedness;

The indentures governing the 2024 Notes and 2026 Notes, among other things, limit the Company’s ability to incur indebtedness;

to pay dividends or make other distributions;

1 unchanged sentence

to create liens;

consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

to consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

to incur restrictions on the ability of a subsidiary to pay dividends or make other payments;

and to enter into certain transactions with its affiliates.

Limitations on the ability to incur additional indebtedness (excluding IRU agreements incurred in the normal course of business) include a restriction on incurring additional indebtedness if the Company’s consolidated leverage ratio, as defined in the indentures, is greater than 6.0 for the 2024 Notes and greater than 5.0 for the 2022 Notes.

Limitations on the ability to incur additional secured indebtedness include a restriction on incurring additional secured indebtedness if the Company’s consolidated secured leverage ratio, as defined in the indentures, is greater than 4.0 for the 2024 Notes and greater than 3.5 for the 2022 Notes.

The indentures prohibit certain payments, such as dividends and stock purchases, when the Company’s consolidated leverage ratio, as defined by the indentures, is greater than 4.25 .

A certain amount of such unrestricted payments is permitted notwithstanding this prohibition.

The unrestricted payment amount may be increased by the Company’s accumulated consolidated cash flow, as defined in the indentures, as long as the Company’s consolidated leverage ratio is less than 4.25 .

The Company’s consolidated leverage ratio was above 4.25 as of March 31, 2021.

As of March 31, 2021, a total of $ 57.9 million was unrestricted and permitted for investment payments including dividends and stock purchases.

Debt extinguishment and repurchase of 2022 Notes

In March 2021, Group repurchased $ 115.9 million of its 2022 Notes at a price of 103.2 % of the principal amount plus $ 0.4 million of accrued interest.

On April 6, 2021 Group issued a notice of conditional partial redemption for $ 45.0 million of its 2022 Notes.

Subject to the satisfaction of conditions precedent stated therein, Group will redeem the $ 45.0 million of 2022 Notes on May 6, 2021.

The notes will be redeemed at par plus the “make-whole amount” as defined in the 2022 Notes indenture of $ 41.41533 per $1,000 aggregate principal amount plus accrued interest up to the redemption date of $ 9.70486 per aggregate principal amount.

Following this $ 45.0 million redemption there will be $ 284.1 million of 2022 Notes remaining.

There are certain exceptions to the limitations on the Company’s ability to incur indebtedness under the indentures governing the 2024 Notes and the 2026 Notes, including IRU agreements incurred in the normal course of business and any additional indebtedness if (i) under the indenture governing the 2024 Notes (the “2024 Notes Indenture”), the Company’s consolidated leverage ratio, as defined in 2024 Notes Indenture, is less than 6.0 to 1.0 and (ii) under the 2026 Notes Indenture, either the Company’s consolidated leverage ratio, as defined in 2026 Notes Indenture, is less than 6.0 to 1.0 or the Company’s fixed charge coverage ratio, as defined in the 2026 Notes Indenture, is greater than 2.0 to 1.0 .

The Company can also incur unlimited liens (which can be used, together with capacity under the debt covenant, to incur additional secured indebtedness) if the Company’s consolidated secured leverage ratio, as defined in the indentures, is less than 4.0 to 1.0 .

The 2024 Notes Indenture permits restricted payments, such as dividends and stock purchases, using accumulated consolidated cash flow, as defined in the 2024 Notes indenture, when the Company’s consolidated leverage ratio, as defined by the 2024 Notes Indenture, is less than 4.25 to 1.00 .

Under the 2026 Notes Indenture, such accumulated consolidated cash flow, as defined therein, can be used to make such restricted payments if the Company is able to incur $ 1 of debt, as defined (i.e., either its consolidated leverage ratio is less than 6.0 to 1.0 or its fixed charge coverage ratio is greater than 2.0 to 1.0 ).

The Company’s consolidated leverage ratio was above 4.25 as of June 30, 2021 and the Company’s fixed charge coverage ratio was above 2.0 as of June 30, 2021.

As of June 30, 2021, a total of $ 263.9 million was unrestricted and permitted for restricted payments including dividends and stock purchases.

Commitments and contingencies :

3 unchanged sentences

The Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible could result in a loss of up to $ 3.4 million in excess of the amount accrued at March 31, 2021.

The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible could result in a loss of up to $ 3.5 million in excess of the amount accrued at June 30, 2021.

The Company is engaged in an arbitration proceeding in Spain in which a former provider of optical fiber to the Company is seeking approximately $ 9 million for the Company’s early termination of the optical fiber leases, which amount the Company accrued in 2015.

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Income taxes:

The components of income before income taxes consist of the following (in thousands):

The components of (loss) income before income taxes consist of the following (in thousands):

Three Months Ended

March 31, 2021

March 31, 2020

Common stock buyback program and stock options and award plan:

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Common stock buyback program:

The Company’s Board of Directors has approved purchases of the Company’s common stock under a buyback program (the “Buyback Program”) through December 31, 2021.

At March 31, 2021, there was approximately $ 30.4 million remaining for purchases under the Buyback Program.

There were no purchases of common stock during the three months ended March 31, 2021 and three months ended March 31, 2020.

During the three months ended March 31, 2021 the Company granted 323,700 shares of common stock to its executive employees and directors valued at $ 19.5 million that primarily vest over periods ending in December 2024.

The vesting of 129,000 of these shares is subject to certain performance conditions.

Of the 129,000 total performance shares granted, the vesting of up to 35,000 performance shares granted to the Company’s CEO is subject to the total shareholder return of the Company’s common stock compared to the total shareholder return of the Nasdaq Telecommunications Index.

At June 30, 2021, there was approximately $ 30.4 million remaining for purchases under the Buyback Program.

There were no purchases of common stock during the three or six months ended June 30, 2021 and three or six months ended June 30, 2020.

Dividends on common stock:

On April 28, 2021, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.78 per common share.

This estimated $ 35.9 million dividend payment is expected to be made on May 28, 2021.

On August 4, 2021, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.805 per common share.

This estimated $ 37.2 million dividend payment is expected to be made on September 3, 2021.

The payment of any future dividends and any other returns of capital, including stock buybacks will be at the discretion of the Company’s Board of Directors and may be reduced, eliminated or increased and will be dependent upon the Company’s financial position, results of operations, available cash, cash flow, capital requirements, limitations under the Company’s debt indentures and other factors deemed relevant by the Company’s Board of Directors.

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The fixed annual rent for the headquarters building is $ 1.0 million per year plus an allocation of taxes and utilities.

The lease began in May 2015 and the lease term was for five years .

The lease began in May 2015 and the lease term is for five years which is cancellable by the Company upon 60 days ' notice.

In February 2020 the lease term was extended to May 2025.

The lease is cancellable by the Company at no cost upon 60 days' notice.

The Company’s audit committee reviews and approves all transactions with related parties.

The Company paid $ 0.4 million and $ 0.4 million in the three months ended March 31, 2021 and 2020, respectively, for rent and related costs (including taxes and utilities) to Sodium LLC for this lease.

The Company paid $ 0.5 million and $ 0.5 million in the three months ended June 30, 2021 and 2020, respectively, and $ 0.8 million and $ 0.8 million in the six months ended June 30, 2021 and 2020, respectively, for rent and related costs (including taxes and utilities) to Sodium LLC for this lease.

Segment information:

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The Company’s service revenue by geographic region and product class and long lived assets by geographic region are as follows (in thousands):

Three months Ended March 31, 2021

Three months Ended June 30, 2021

North America

Latin America

Three months Ended March 31, 2020

Three months Ended June 30, 2020

North America

Latin America

Six months Ended June 30, 2021

North America

Latin America

Six months Ended June 30, 2020

North America

Latin America

Long lived assets, net

2 unchanged sentences

The majority of North American revenue consists of services delivered within the United States.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes included in this report.

The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.

The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report.

Our actual results could differ materially from those discussed here.

Factors that could cause or contribute to these differences include, but are not limited to:

The impact of the COVID-19 pandemic and the related government policies worldwide;

future economic instability in the global economy or a contraction of the capital markets, which could affect spending on Internet services and our ability to engage in financing activities;

the impact of changing foreign exchange rates (in particular the Euro to US dollar and Canadian dollar to US dollar exchange rates) on the translation of our non-US dollar denominated revenues, expenses, assets and liabilities into US dollars;

legal and operational difficulties in new markets;

the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue;

changes in government policy and/or regulation, including rules regarding data protection, cyber security and net neutrality;

cyber-attacks or security breaches of our network;

increasing competition leading to lower prices for our services;

our ability to attract new customers and to increase and maintain the volume of traffic on our network;

the ability to maintain our Internet interconnection arrangements on favorable terms;

our ability to renew certain leases of optical fiber that comprise our network;

our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment;

the dependence of our network on the quality and dependability of third-party fiber providers;

our ability to retain certain customers that comprise a significant portion of our revenue base;

our ability to make payments on our indebtedness as they become due;

the management of network failures and/or disruptions;

and outcomes in litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our annual report on Form 10-K for the year ended December 31, 2020.

General Overview

We are a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space.

Our network is specifically designed and optimized to transmit packet switched data.

We deliver our services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 48 countries across North America, Europe, Asia, South America, Australia and Africa.

We are a Delaware corporation, and we are headquartered in Washington, DC.

We offer on-net Internet access services exclusively through our own facilities, which run from our network to our customers' premises.

We offer our on-net services to customers located in buildings that are physically connected to our network.

As a result, we are not dependent on local telephone companies or cable TV companies to serve our customers for our on-net Internet access and private network service.

Our on-net service consists of high-speed Internet access and private network services offered at speeds ranging from 100 megabits per second ("Mbps") to 100 gigabits per second ("Gbps").

Our on-net revenues represented 75.1% of our revenues for the three months ended June 30, 2021, 73.6% of our revenues for the three months ended June 30, 2020, 75.0% of our revenues for the six months ended June 30, 2021 and 73.5% of our revenues for the six months ended June 30, 2020.

We provide our on-net Internet access and private network services to our corporate and net-centric customers.

Our corporate customers are located in multi-tenant office buildings and typically include law firms, financial services firms, advertising and marketing firms, as well as health care providers, educational institutions and other professional services businesses.

Our net-centric customers include bandwidth-intensive users that leverage our network to either deliver content to end users or to provide access to residential or commercial internet users.

Content delivery customers include over the top (“OTT”) media service providers, content delivery networks, web hosting companies, and commercial content and application software providers.

Our net-centric customers include 7,530 access networks comprised of other Internet service providers (“ISPs”), telephone companies, mobile phone operators and cable television companies that collectively provide internet access to a substantial number of broadband subscribers and mobile phone subscribers across the world.

These net-centric customers generally receive our services in carrier neutral colocation facilities and in our data centers.

We operate data centers throughout North America and Europe that allow our customers to collocate their equipment and access our network.

In addition to providing our on-net services, we provide Internet access and private network services to customers that are not located in buildings directly connected to our network.

We provide these off-net services primarily to corporate customers using other carriers’ circuits to provide the “last mile” portion of the link from the customers’ premises to our network.

Our off-net revenues represented 24.8% of our revenues for the three months ended June 30, 2021, 26.3% of our revenues for the three months ended June 30, 2020, 24.9% of our revenues for the six months ended June 30, 2021 and 26.4% of our revenues for the six months ended June 30, 2020.

We also provide certain non-core services that resulted from acquisitions.

We continue to support but do not actively sell these non-core services.

We expect revenue from non-core services to continue to decline or to remain flat.

Our non-core revenues represented approximately 0.1% of our revenues for all periods presented herein.

Competitive Advantages

We believe we address many of the data communications needs of small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-speed Internet access and private network services at attractive prices.

We believe that our organization has the following competitive advantages:

Low Cost of Operation:

We believe that the wireline telecom industry is undergoing, and will continue to face, significant price deflation for its applications and services.

This price deflation is a result of a variety of factors including increased competition, enhanced substitutability of certain products and services and the continued impact of Moore’s Law, which has driven down the cost of technology, particularly for customer premise, fiber optics and networking equipment.

Faced with the backdrop of continued price deflation in our industry, we have made a series of discreet choices around our network design, operating strategy and product offering that are consistent with our objective of becoming the low cost operator in our industry.

Since our initiation of operations, this strategy has resulted in a rapid decline in our cost to transmit bits, which has increased our margins and decreased our capital intensity as measured by our capital expenditures per total revenues.

Over the last five fiscal years, our cost of goods sold per bit delivered for our customers has declined at a compounded annual rate of 22.5%.

Important components of our low cost operating strategy includes:

● One Network Protocol .

Upon our founding, we selected to operate our network solely using Ethernet protocol.

We made this selection in order to take advantage of the significantly greater installed base and lower cost of Ethernet network equipment versus other protocols, the substantially lower costs associated with operating and maintaining one network protocol and the continued benefits of the rapid price performance ratio improvements of Ethernet-related equipment.

Our single network design allows us to avoid many of the costs that our competitors who operate circuit-switched, TDM and hybrid fiber coaxial networks incur related to provisioning, monitoring and maintaining multiple transport protocols.

Selecting one operating protocol has also had positive effects in terms of our operating overhead and the simplicity of our organization.

We believe the vast majority of our competition currently operates their networks with multiple protocols and we believe that attempts to upgrade their networks to one protocol would be operationally challenging and costly.

● Broad Access to Fiber on a Cost Effective, Long-Term Basis .

We have acquired a large portfolio of dark fiber leases from around the world sourced from the excess inventory of existing networks.

This choice to lease rather than build reduces our capital intensity and the operating costs of our intercity and metro networks.

The nature of this portfolio and the individual leases provides us long-term access to dark fiber at attractive rates and the opportunity in many cases to extend these leases for multiple terms.

On average, a modest number of our dark fiber leases come up for renewal each year.

We have relationships with 282 dark fiber vendors across the globe enabling us to lease dark fiber on a long-term, cost-effective basis to virtually any geographic route or facility we require.

● Narrow and Focused Product Set .

Since our founding, we have strategically focused on delivering a very narrow product set to our customers.

The vast majority of our revenue is driven or related to our high-capacity, bi-directional, symmetric internet access services which can be accessed on-net in multi-tenant office buildings and carrier neutral data centers or off-net through other carriers’ “last mile” connections to customer facilities.

There are significant cost advantages as a result of this narrow product set.

We believe the relative size of our salesforce training, support and overhead is lower than comparable telecom providers which tend to offer a broader, one-stop shopping product set to their client base.

● Scalable Network Equipment and Hub Configurations .

Due to our single network protocol and narrow product set, our transmission and network operations rely mainly on two sets of equipment for operation.

In order to further scale our operating leverage, we have systematically reused older equipment in less dense portions of our network.

Due to interoperability between the generations of products, we are able to transfer older equipment from our core, high-traffic areas to newer, less congested routes.

The result of this dynamic grooming process is that we are able to utilize our equipment for materially longer time frames than the expected life of this equipment thereby reducing our capital investment in our network.

We design and build all of our network hubs to the same standards and configurations.

This replication strategy provides us scale benefits in equipment purchases, training, and maintenance.

Greater Control and Superior Delivery.

Our on-net service does not rely on circuits that must be provisioned by a third-party carrier.

In on-net multi-tenant office buildings (“MTOBs”) we provide our customers the entire network, including the “last mile” and the in-building wiring connecting to our customer’s suite.

In carrier neutral data centers (“CNDCs”) we are collocated with our customers.

As a result, only a cross-connection within the data center is required to provide our services.

The structure of our on-net service provides us more control over our service, quality and pricing.

It also allows us to provision services more quickly and efficiently than provisioning services on a third-party carrier network.

The vast majority of our on-net services can be installed in less than two weeks versus a materially longer time for incombent competitors.

High-Quality, Reliable Service.

We are able to offer high-quality Internet service due to our network design and composition.

We believe that we deliver a high level of technical performance because our network is optimized for packet switched traffic.

Its design increases the speed and throughput of our network and reduces the number of data packets dropped during transmission compared to traditional circuit-switched networks.

We believe that our network is more reliable and carries traffic at lower cost than networks built as overlays to traditional circuit-switched, or TDM networks.

Large Addressable Market.

We have systematically evaluated and chosen our network extensions to buildings, data centers and markets based upon a rigorous set of criteria to evaluate the economic opportunity of network locations.

Additional factors relevant to our pursuit of new buildings include the willingness of building owners to grant us access rights, the availability of optical fiber networks to serve those buildings, the costs to connect buildings to our network and equipment availability.

Our network is connected to 2,975 total buildings located in 210 metropolitan markets.

These buildings include 1,802 large MTOBs (totaling 979.9 million square feet of office space) in major North American cities where we offer our services to a diverse set of high-quality corporate customers within close physical proximity of each other.

These buildings also include 1,309 CNDCs located in 1,119 buildings in North America, Europe, Asia, South America, Australia and Africa where our net-centric customers directly interconnect with our network.

We also operate 54 of our own data centers across the United States and in Europe which comprise over 600,000 square feet of floor space and are directly connected to our network.

We believe that these network points of presence strategically position our network to attract high levels of Internet traffic and maximize our revenue opportunities and profitability.

Balanced, High-Traffic Network.

Since its inception, our network has grown significantly in terms of its geographic reach, customer connections, and traffic.

We currently serve 7,530 access networks as well as numerous large and small content providers and 45,803 corporate customer connections.

As a result of these growing bases of customers who distribute (content providers) and receive (access networks) content on our network, we believe that the majority of all the traffic on our network originates and terminates on our network.

This control of traffic increases our reliability and speed of delivery and enhances our margins.

The breadth of our network, extensive size of our customer base, and volume of our traffic enables us to be one of a handful of Tier One networks that are interconnected on a settlement free basis.

This interconnection status broadens our geographic delivery capability and materially reduces our network costs.

Proven and Experienced Management Team.

Our senior management team is composed of seasoned executives with extensive expertise in the telecommunications industry as well as knowledge of the markets in which we operate.

The members of our senior management team have an average of over 20 years of experience in the telecommunications industry and many have been working together at the Company for several years.

Several members of the senior management team have been working together at the Company since 2000.

Our senior management team has designed and built our network and, during our formative years, led the integration of network assets we acquired through 13 significant acquisitions and managed the expansion and growth of our business.

We intend to become the leading provider of high-quality, high-speed Internet access and private network services and to continue to improve our profitability and cash flow.

The principal elements of our strategy include:

Grow our Corporate Customer Base.

Our on-net corporate customers are typically small- to medium-sized businesses connected to our network through our multi-tenant office buildings or connected to our network through one of our carrier neutral data centers.

We generally sell two types of services to our corporate customers:

dedicated internet access and private network services.

We typically sell dedicated internet access at the same price per connection as our competitors, but our clients benefit from our significantly faster speeds and rapid installation times.

These customers are increasingly integrating off-site data centers and cloud services into their IT infrastructure in order to take advantage of the safety, security and redundancy that is offered by locating company processing power, storage and software at a data center.

An important part of this new infrastructure is a high-speed, dedicated internet connection from the corporate premises to the data center and the Internet and from one corporate premises to another corporate premises.

We believe that the importance of data centers will increasingly lead tenants to reconfigure their communications infrastructure to include dedicated internet access across their locations.

Increase our Share of the Net-Centric Market.

We are currently one of the leading providers of high-speed internet access to a variety of content providers and access networks across the world.

We intend to further load our high-capacity network as a result of the growing demand for high-speed internet access generated by these types of bandwidth-intensive applications such as over-the-top (“OTT”) media services, online gaming, video, Internet of Things (“IoT”), voice over IP (“VOIP”), remote data storage, and other services.

We expect that we will continue to grow our shares of these segments by offering our customers a series of attractive features including:

● Geographic breadth – We have the broadest carrier neutral data center footprint in the industry and currently offer network services in 48 countries;

● High capacity and reliability – We offer 100 Mbps to 100 Gbps ports in all of the carrier neutral data centers on our network, which differentiates the capacity choices we provide our net-centric clients;

● Balanced customer base – Our leading share of content providers and access networks increases the amount of traffic that originates and terminates on our network thereby reducing latency and enhancing reliability;

● Large and dedicated salesforce – Our team of 238 net-centric sales professionals is one of the largest salesforces in this industry segment and enables us to better serve this customer segment while also identifying new sales opportunities and gaining new business and customers;

● Competitive pricing – We aggressively discount our services to customers in order to attract new customers and drive volume.

Develop a Worldwide Peering Platform.

In late 2020 we introduced a new product, Global Peer Connect (“GPC”), targeted at the growing demand for certain net-centric customers to dynamically peer traffic anywhere on our global platform.

Our GPC product provides access to our Global Peer Exchange (“GPE”) which is a worldwide connectivity platform for the exchange of peering traffic destined for the Internet.

Similar product offerings in the marketplace offer a materially smaller geographic footprint configuration and require a higher fixed cost for customers.

We believe our product offering provides the following unique advantages over other private peer exchanges or public Internet exchange points:

● Ubiquity through Leading CNDC Connectivity:

We are collocated in 1,309 CNDCs in 48 countries and we operate 54 of our own data centers.

We believe this portfolio provides us a significant advantage over regional peer exchanges that typically have substantially fewer CNDC collocations and countries served.

In order to take advantage of this footprint, we enable GPC customers to peer with any other member of our GPE regardless of location thereby significantly broadening the reach for potential customers.

● Attractive Economics and Terms:

Our GPC product offers economics and terms which should make it attractive for potential users to switch to us.

Customers only pay for direct usage and there are no fixed port charges or distance based fees.

Our contracts have no minimum terms.

These terms reduce the hurdle for new customers to join the GPE and should drive participation.

● Greater Customer Control and Selectivity:

As our GPC offering provides direct connectivity to anywhere in our network, customers will be able to have greater control and reliability over their traffic as this eliminates intermediate networks and enables customers to selectively bypass certain regions due to regulatory or censorship concerns.

Pursue On-Net Customer Growth.

Our high-capacity network provides us with the ability to add a significant number of customers to our network with minimal direct incremental costs.

We intend to increase usage of our network and operational infrastructure by adding customers in our existing on-net buildings, as well as developing additional markets and connecting more multi-tenant office buildings and carrier neutral data centers to our network.

We emphasize our on-net services because they generate greater profit margins and we have more control over service levels, quality, pricing and our on-net services are provisioned in considerably less time than our off-net services.

Our fiber network connects directly to our on-net customers’ premises and we pay no local access (“last mile”) charges to other carriers to provide our on-net services.

Grow and Improve our Sales Efforts.

A critical factor in our success has been our growing investment and focus on our sales and marketing efforts.

Over the past five years, we have increased the size of our quota bearing salesforce by 30% from 397 to 565 employees.

We seek to pair this growth in the size of our salesforce with a consistent level of productivity as measured by the number of connections sold per salesperson per month, taking into account adjustments to the changing mix of products sold and installed.

In order to gain market share in our targeted businesses, we expect to continue to increase our sales efforts, including increasing the number of sales representatives and introducing strategies and tools to optimize sales productivity.

Expand our Off-Net Corporate Business.

We have agreements with national carriers providing us last mile network access to over 4.0 million commercial buildings across North America that are lit by fiber optic cable and that are not currently served by our network.

We have developed an automated process to enable our salesforce to identify opportunities in the off-net market and to quickly offer pricing proposals to potential customers.

We believe these agreements broaden our addressable market for corporate dedicated internet access and enable us to better leverage the skills and capacity of our direct salesforce.

The carrier agreements also provide for discounts related to volume purchases thereby enabling us to reduce our cost of service if we are able to increase our pool of off-net customers.

Results of Operations

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

The following summary table presents a comparison of our results of operations with respect to certain key financial measures.

The comparisons illustrated in the table are discussed in greater detail below.

Three Months Ended

(in thousands)

Service revenue

On-net revenue

Off-net revenue

Network operations expenses (1)

Selling, general, and administrative expenses (2)

Depreciation and amortization expenses

Realized foreign exchange gain on 2024 Notes

Unrealized foreign exchange loss on 2024 Euro Notes

Loss on debt extinguishment and redemption – 2021 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Interest expense

Income tax provision

(1) Includes equity-based compensation expenses of $136 and $305 in the three months ended June 30, 2021 and 2020, respectively.

(2) Includes equity-based compensation expenses of $6,738 and $5,778 in the three months ended June 30, 2021 and 2020, respectively.

NM – not meaningful

Three Months Ended

Other Operating Data

Average Revenue Per Unit (ARPU)

Average Price per Megabit — installed base

Customer Connections—end of period

Service Revenue.

We continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network.

We do this by investing capital to expand the geographic footprint of our network and by increasing the number of buildings that we are connected to, including carrier neutral data centers and multi-tenant office buildings.

These efforts broaden the global reach of our network and increase the size of our potential addressable market.

We also seek to grow our service revenue by investing in our sales and marketing team.

Over the last five years we have grown our quota bearing salesforce by 30% to 565 full time equivalent salespeople.

We typically sell corporate connections at similar pricing to our competitors, but our clients benefit from our significantly faster speeds, enhanced service level agreements and rapid installation times.

In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.

Our service revenue increased by 4.9% from the three months ended June 30, 2020 to the three months ended June 30, 2021.

Exchange rates positively impacted our increase in service revenue by $3.0 million.

All foreign currency comparisons herein reflect results for the three months ended June 30, 2021 translated at the average foreign currency exchange rates for the three months ended June 30, 2020.

We increased our total service revenue by increasing the number of sales representatives selling our services, by expanding our network, by adding additional buildings to our network, by increasing our penetration into the buildings connected to our network and by gaining market share by offering our services at lower prices than our competitors.

Revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, gross receipts taxes, Universal Service Fund fees and certain state regulatory fees.

We record these taxes billed to our customers on a gross basis (as service revenue and network operations expense) in our consolidated statements of operations.

The impact of these taxes including the Universal Service Fund resulted in an increase to our revenues from the three months ended June 30, 2020 to the three months ended June 30, 2021 of $1.5 million.

Our corporate customers purchase their services on a price per connection basis.

Our net-centric customers generally purchase their services on a price per megabit basis.

Revenues from our corporate and net-centric customers represented 61.2% and 38.8% of total service revenue, respectively, for the three months ended June 30, 2021 and represented 68.8% and 31.2% of total service revenue, respectively, for the three months ended June 30, 2020.

Revenues from corporate customers decreased by 6.7% to $90.5 million for the three months ended June 30, 2021 from $97.0 million for the three months ended June 30, 2020.

Revenues from our net-centric customers increased by 30.5% to $57.4 million for the three months ended June 30, 2021 from $44.0 million for the three months ended June 30, 2020.

Our corporate customers take advantage of our superior speeds, service levels and installation times versus our competitors.

The growing trend of customers installing second lines for redundancy and in order to supplement their VPN capabilities has also led to our growing corporate revenues.

However, beginning in March 2020, we saw corporate customers take a more cautious approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite offices as a result of the challenges and uncertainties of the COVID-19 pandemic.

We also witnessed a deteriorating real estate market in and around the buildings we service, with rising vacancy levels and falling lease initiations or renewals resulting in fewer sales opportunities for our salesforce.

As a result, we have experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue results.

While we believe that demand for office space in the buildings in which we operate will remain among the strongest in our markets, we may experience increased corporate customer turnover, fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities which would negatively impact our corporate revenue growth.

Our revenue from our net-centric customers increased primarily due to an increase in our number of net-centric customers and growth in network traffic from these customers partly offset by a decline in our average price per megabit.

A significant portion of our net-centric customers purchase our services on a price per megabit basis.

The net-centric market exhibits significant pricing pressure due to the continued introduction of new technology which lowers the marginal cost of transmitting bytes, and the commodity nature of the service where price is typically the only differentiating factor for these customers.

Our average price per megabit declined by 24.8% from the three months ended June 30, 2020 to the three months ended June 30, 2021.

We expect that our average price per megabit will continue to decline at similar rates.

The impact of foreign exchange rates has a more significant impact on our net-centric revenues.

Our on-net revenues increased by 7.0% from the three months ended June 30, 2020 to the three months ended June 30, 2021.

Our on-net revenues increased as we increased the number of our on-net customer connections by 4.2% at June 30, 2021 from June 30, 2020.

On-net revenues increased at a greater rate than on-net customer connections primarily due to an increase in our on-net ARPU from the three months ended June 30, 2020 to the three months ended June 30, 2021 and the positive impact of foreign exchange.

ARPU is determined by dividing revenue for the period by the average customer connections for that period.

Our off-net revenues decreased by 0.9% from the three months ended June 30, 2020 to the three months ended June 30, 2021.

Our off-net revenues decreased as the 5.1% decrease in our off-net ARPU more than offset the 4.6% increase in the number of our off-net customer connections from June 30, 2020 to June 30, 2021.

Network Operations Expenses.

Network operations expenses include the costs of personnel associated with service delivery, network management and customer support, network facilities costs, fiber and equipment maintenance fees, leased circuit costs, access and facilities fees paid to building owners and excise taxes billed to our customers and recorded on a gross basis.

Non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee’s salary and other compensation and was $0.1 million for the three months ended June 30, 2021 and $0.3 million for the three months ended June 30, 2020.

Our network operations expenses, including non-cash equity-based compensation expense, increased by 4.3% for the three months ended June 30, 2021 from the three months ended June 30, 2020.

The increase in network operations expense is primarily attributable to an increase in costs related to our network and facilities expansion activities, partly offset by price reductions obtained in certain of our leased circuit costs and fewer operating leases for dark fiber.

Selling, General, and Administrative (“SG&A”) Expenses.

Our SG&A expenses, including non-cash equity-based compensation expense, increased by 3.9% for the three months ended June 30, 2021 from the three months ended June 30, 2020.

Non-cash equity-based compensation expense is included in SG&A expenses consistent with the classification of the employee’s salary and other compensation and was $6.7 million for the three months ended June 30, 2021 and $5.8 million for the three months ended June 30, 2020.

SG&A expenses increased primarily from an increase in salaries and related costs required to support our expansion and increases in our sales efforts, partly offset by a reduction in sales meeting and travel costs related to the COVID-19 pandemic and a reduction in bad debt expense.

Our sales force headcount decreased from 716 at June 30, 2020 to 710 at June 30, 2021 and our total headcount increased from 1,083 at June 30, 2020 to 1,087 at June 30, 2021.

Depreciation and Amortization Expenses.

Our depreciation and amortization expense increased by 11.1% for the three months ended June 30, 2021 from the three months ended June 30, 2020.

The increase is primarily due to the depreciation expense associated with the increase in deployed fixed assets.

Interest Expense and Losses on Debt Extinguishment and Redemption.

Our interest expense resulted from interest incurred on our senior secured notes due 2022 (“2022 Notes”) until these notes were fully redeemed in May 2021, interest incurred on our $189.2 million of senior unsecured notes due 2021 (“2021 Notes") until these notes were redeemed in June 2020, interest incurred on our €350.0 million senior unsecured notes due 2024 (“2024 Notes”), interest incurred on our $500.0 million senior secured notes due in 2026 (“2026 Notes”), interest incurred on our installment payment agreement and interest incurred on our finance lease obligations.

We issued €215.0 million of our 2024 Notes in June 2020 and €135.0 million of our 2024 Notes were issued in June 2019.

In June 2020, we redeemed and extinguished our 2021 Notes at par value.

In March 2021, we redeemed and extinguished $115.9 million of our 2022 Notes at 103.24% of par value resulting in a loss on debt extinguishment and redemption of $3.9 million and reduced the par value from $445.0 million to $329.1 million.

In May 2021, we redeemed and extinguished the remaining $329.1 million of our 2022 Notes at par value and by paying $11.5 million of interest through December 1, 2021 resulting in a loss on debt extinguishment and redemption of $10.8 million.

In May 2021 we issued $500.0 million of our 3.50% 2026 Notes.

Our interest expense decreased by 8.1% for the three months ended June 30, 2021 from the three months ended June 30, 2020 primarily due to the lower interest rate on our 2026 Notes as compared to our 2022 Notes that we extinguished.

Realized gain and unrealized gain (loss) on foreign exchange – 2024 Notes .

In June 2020 our €215.0 million 2024 Notes were issued at a Euro to USD rate of $1.112.

We received proceeds in USD on the 2024 Notes on June 9, 2020 at a Euro to USD rate of $1.133 resulting in a realized gain on foreign exchange of $2.5 million.

Our 2024 Notes were issued in Euros and are reported in our reporting currency – US Dollars.

As of June 30, 2021 our 2024 Notes were valued at $415.8 million.

Our unrealized loss on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was $5.3 million for the three months ended June 30, 2021 and $3.4 million for the three months ended June 30, 2020.

We do not enter into hedges for our foreign currency obligations.

Income Tax Provision.

Our income tax provision was $0.4 million for the three months ended June 30, 2021 and $2.7 million for the three months ended June 30, 2020.

The decrease in our income tax provision is primarily related to the decrease in our income before income taxes.

Buildings On-net.

As of June 30, 2021 and 2020, we had a total of 2,975 and 2,854 on-net buildings connected to our network, respectively.

The increase in our on-net buildings was a result of our disciplined network expansion program.

We anticipate adding a similar number of buildings to our network for the next several years.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

The following summary table presents a comparison of our results of operations with respect to certain key financial measures.

The comparisons illustrated in the table are discussed in greater detail below.

Six Months Ended

(in thousands)

Service revenue

On-net revenue

Off-net revenue

Network operations expenses (1)

Selling, general, and administrative expenses (2)

Depreciation and amortization expenses

Realized foreign exchange gain on 2024 Notes

Unrealized foreign exchange gain (loss) on 2024 Euro Notes

Loss on debt extinguishment and redemption – 2021 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Interest expense

Income tax provision

(1) Includes equity-based compensation expenses of $2,212 and $557 in the six months ended June 30, 2021 and 2020, respectively.

(2) Includes equity-based compensation expenses of $11,969 and $10,600 in the six months ended June 30, 2021 and 2020, respectively.

NM – not meaningful

Six Months Ended

Other Operating Data

Average Revenue Per Unit (ARPU)

Average Price per Megabit — installed base

Customer Connections—end of period

Service Revenue.

We continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network.

These efforts broaden the global reach of our network and increase the size of our potential addressable market.

We also seek to grow our service revenue by investing in our sales and marketing team.

Over the last five years we have grown our quota bearing salesforce by 30% to 565 full time equivalent salespeople.

In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.

Our service revenue increased by 4.5% from the six months ended June 30, 2020 to the six months ended June 30, 2021.

Exchange rates positively impacted our increase in service revenue by $5.6 million.

All foreign currency comparisons herein reflect results for the six months ended June 30, 2021 translated at the average foreign currency exchange rates for the six months ended June 30, 2020.

We record these taxes billed to our customers on a gross basis (as service revenue and network operations expense) in our consolidated statements of operations.

The impact of these taxes including the Universal Service Fund resulted in an increase to our revenues from the six months ended June 30, 2020 to the six months ended June 30, 2021 of $2.3 million.

Our corporate customers purchase their services on a price per connection basis.

Our net-centric customers generally purchase their services on a price per megabit basis.

Revenues from our corporate and net-centric customers represented 61.9% and 38.1% of total service revenue, respectively, for the six months ended June 30, 2021 and represented 68.8% and 31.2% of total service revenue, respectively, for the six months ended June 30, 2020.

Revenues from corporate customers decreased by 5.9% to $182.5 million for the six months ended June 30, 2021 from $194.0 million for the six months ended June 30, 2020.

Revenues from our net-centric customers increased by 27.6% to $112.2 million for the six months ended June 30, 2021 from $87.9 million for the six months ended June 30, 2020.

Our corporate customers take advantage of our superior speeds, service levels and installation times versus our competitors.

The growing trend of customers installing second lines for redundancy and in order to supplement their VPN capabilities has also led to our growing corporate revenues.

As a result, we have experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue results.

Our net-centric customers purchase our services on a price per megabit basis.

The net-centric market exhibits significant pricing pressure due to the continued introduction of new technology which lowers the marginal cost of transmitting bits, and the commodity nature of the service where price is typically the only differentiating factor for these customers.

Our average price per megabit declined by 26.5% from the six months ended June 30, 2020 to the six months ended June 30, 2021.

We expect that our average price per megabit will continue to decline at similar rates.

The impact of foreign exchange rates has a more significant impact on our net-centric revenues.

Our on-net revenues increased by 6.6% from the six months ended June 30, 2020 to the six months ended June 30, 2021.

Our on-net revenues increased as we increased the number of our on-net customer connections by 4.2% at June 30, 2021 from June 30, 2020.

On-net revenues increased at a greater rate than on-net customer connections primarily due to an increase in our on-net ARPU from the six months ended June 30, 2020 to the six months ended June 30, 2021 and the positive impact of foreign exchange.

ARPU is determined by dividing revenue for the period by the average customer connections for that period.

Our off-net revenues decreased by 1.3% from the six months ended June 30, 2020 to the six months ended June 30, 2021.

Our off-net revenues decreased primarily from the 3.5% decrease in our off-net ARPU from June 30, 2020 to June 30, 2021.

Network Operations Expenses.

Non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee’s salary and other compensation and was $2.2 million for the six months ended June 30, 2021 and $0.6 million for the six months ended June 30, 2020.

Our network operations expenses, including non-cash equity-based compensation expense, increased by 3.2% for the six months ended June 30, 2021 from the six months ended June 30, 2020.

The increase in network operations expense is primarily attributable to an increase in costs related to our network and facilities expansion activities and an increase in equity-based compensation expense from the vesting of restricted employee shares, partly offset by price reductions obtained in certain of our leased circuit costs, fewer operating leases for dark fiber and the impact of a renewal of an IRU fiber lease agreement in the second quarter of 2020.

We adopted Leases (“ASU 2016-02”) on January 1, 2019.

When we adopted ASU 2016-02 we elected to apply certain practical expedients under ASU 2016-02 including not separating the lease and non-lease components of our finance and operating leases.

As a result of accounting for this IRU renewal under ASU 2016-02, the present value of $1.8 million of quarterly maintenance and co-location fees (non-lease components) that were previously accounted for as network operations expenses prior to the second quarter of 2020, were capitalized as a finance lease liability and right-of-use leased asset totaling $34.0 million.

Amortization of the right-of-use asset is recorded as depreciation and amortization expense and the payments that are made toward the finance lease liability are recorded as a reduction of the finance lease liability and interest expense.

Selling, General, and Administrative (“SG&A”) Expenses.

Our SG&A expenses, including non-cash equity-based compensation expense, increased by 4.2% for the six months ended June 30, 2021 from the six months ended June 30, 2020.

Non-cash equity-based compensation expense is included in SG&A expenses consistent with the classification of the employee’s salary and other compensation and was $12.0 million for the six months ended June 30, 2021 and $10.6 million for the six months ended June 30, 2020.

Our sales force headcount was 716 at June 30, 2020 and 710 at June 30, 2021 and our total headcount increased from 1,083 at June 30, 2020 to 1,087 at June 30, 2021.

Depreciation and Amortization Expenses.

Our depreciation and amortization expense increased by 11.8% for the six months ended June 30, 2021 from the six months ended June 30, 2020.

The increase is primarily due to the depreciation expense associated with the increase in deployed fixed assets and the impact of a renewal of an IRU fiber lease agreement in the second quarter of 2020.

Interest Expense and Losses on Debt Extinguishment and Repurchases.

Our interest expense resulted from interest incurred on our senior secured notes due 2022 (“2022 Notes”) until these notes were fully repurchased in May 2021, interest incurred on our $189.2 million of senior unsecured notes due 2021 (“2021 Notes") until these notes were redeemed in June 2020, interest incurred on our €350.0 million senior unsecured notes due 2024 (“2024 Notes”), interest incurred on our $500.0 million senior secured 3.50% notes due 2026 (“2026” Notes”) that we issued in May 2021, interest incurred on our installment payment agreement and interest incurred on our finance lease obligations.

We issued €215.0 million of our 2024 Notes in June 2020 and €135.0 million of our 2024 Notes were issued in June 2019.

In June 2020, we redeemed and extinguished our 2021 Notes at par value.

Our interest expense decreased by 2.1% for the six months ended June 30, 2021 from the six months ended June 30, 2020 primarily due to the lower interest rate on our 2026 Notes as compared to our 2022 Notes that we extinguished.

Realized gain and unrealized gain (loss) on foreign exchange – 2024 Notes .

In June 2019, we completed an offering of our €135.0 million principal amount of 2024 Notes.

In June 2020 our €215.0 million 2024 Notes were issued at a Euro to USD rate of $1.112.

We received proceeds in USD on the 2024 Notes on June 9, 2020 at a Euro to USD rate of $1.133 resulting in a realized gain on foreign exchange of $2.5 million.

Our 2024 Notes were issued in Euros and are reported in our reporting currency – US Dollars.

As of June 30, 2021 our 2024 Notes were valued at $415.8 million.

Our unrealized (loss) gain on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was $13.6 million for the six months ended June 30, 2021 and $(0.5) million for the six months ended June 30, 2020.

We do not enter into hedges for our foreign currency obligations.

Income Tax Provision.

Our income tax provision was $7.8 million for the six months ended June 30, 2021 and $6.3 million for the six months ended June 30, 2020.

The increase in our income tax provision is primarily related to an increase in certain non-deductible expenses.

Buildings On-net.

As of June 30, 2021 and 2020, we had a total of 2,975 and 2,854 on-net buildings connected to our network, respectively.

The increase in our on-net buildings was a result of our disciplined network expansion program.

We anticipate adding a similar number of buildings to our network for the next several years.

Liquidity and Capital Resources

In assessing our liquidity, management reviews and analyzes our current cash balances, accounts receivable, accounts payable, accrued liabilities, capital expenditure commitments, and required finance lease and debt payments and other obligations.

Over the next several years we have significant contractual and anticipated cash outlays including our indicative dividend payments on our common stock, our maturing debt obligations, interest payments on our debt obligations and our projected capital expenditure requirements in order to help execute our business plan.

Based upon our historical growth rate of our dividend, we expect that we would have to provide approximately $330 million in order to meet our expected quarterly dividend payments over the next two years.

In March 2021, we redeemed and extinguished $115.9 million of our 2022 Notes.

In April, 2021 we redeemed $45.0 million of our 2022 Notes and in May 2021 we redeemed the remaining $284.1 million of our 2022 Notes with the proceeds from our issuance of $500.0 million of our 2026 Notes.

Our 2022 Notes accrued interest at 5.375% and our 2026 Notes accrue interest at 3.50%.

Our $500.0 million of 2026 Notes mature in May 2026 and include annual interest payments of $17.5 million until maturity.

Our €350 million of 2024 Notes mature in June 2024 and include annual interest payments of €15.3 million until maturity.

Our 2024 Notes are denominated in Euros and expose us to potentially unfavorable adverse movements in foreign currency rate changes.

Our overseas operations provides us access to Euros, however these amounts may be insufficient to fund our obligations under our 2024 Notes.

Additionally, we have not entered into forward exchange contracts related to our foreign currency exposure.

We may need to or elect to refinance all or a portion of our indebtedness at or before maturity and we cannot provide assurances that we will be able to refinance any such indebtedness on commercially reasonable terms or at all.

In addition, we may elect to secure additional capital in the future, at acceptable terms, to improve our liquidity or fund acquisitions or for general corporate purposes.

In addition, in an effort to reduce future cash interest payments as well as future amounts due at maturity or to extend debt maturities, we may, from time to time, issue new debt, enter into debt for debt, or cash transactions to purchase our outstanding debt securities in the open market or through privately negotiated transactions.

We will evaluate any such transactions in light of the existing market conditions.

The amounts involved in any such transaction, individually or in the aggregate, may be material.

We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.

Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

The amounts involved may be material.

Any future acquisitions or other significant unplanned costs or cash requirements in excess of amounts we currently hold may require that we raise additional funds through the issuance of debt or equity.

We cannot assure you that such financing will be available on terms acceptable to us or our stockholders, or at all.

Insufficient funds may require us to delay or scale back the number of buildings and markets that we add to our network, reduce our planned increase in our sales and marketing efforts, or require us to otherwise alter our business plan or take other actions that could have a material adverse effect on our business, results of operations and financial condition.

If issuing equity securities raises additional funds, substantial dilution to existing stockholders may result.

In light of the economic uncertainties associated with the COVID-19 pandemic, our executive officers and Board of Directors have continued to carefully monitor our liquidity and cash requirements.

Based on current circumstances, we plan to continue our current dividend policy.

Given uncertainties regarding the duration of the pandemic and timing for economic recovery, we will continue to monitor our capital spending.

As we do each year, we will continue to monitor our future sources and uses of cash, and anticipate that we will make adjustments to our capital allocation strategies when, as and if determined by our Board of Directors.

The following table sets forth our consolidated cash flows.

Six Months Ended June 30,

(in thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rates changes on cash

Net increase in cash and cash equivalents

Net Cash Provided by Operating Activities.

Our primary source of operating cash is receipts from our customers who are billed on a monthly basis for our services.

Our primary uses of operating cash are payments made to our vendors, employees and interest payments made to our finance lease vendors and our note holders.

Our changes in cash provided by operating activities are primarily due to changes in our operating profit and changes in our interest payments.

Cash provided by operating activities for the six months ended June 30, 2021 and 2020 includes interest payments on our note obligations of $32.9 million and $27.5 million, respectively.

Net Cash Used In Investing Activities.

Our primary use of cash for investing activities is for purchases of property and equipment.

Purchases of property and equipment were $32.7 million and $26.8 million for the six months ended June 30, 2021 and 2020, respectively.

The changes in purchases of property and equipment are primarily due to the timing and scope of our network expansion activities including geographic expansion and adding buildings to our network.

Net Cash Used In Financing Activities.

Our primary uses of cash for financing activities are payments to redeem and extinguish our debt, dividend payments, principal payments under our finance lease obligations and our installment payment agreement, and for purchases of our common stock.

Our primary sources of cash for financing activities are proceeds from our debt offerings.

During the six months ended June 30, 2021 and 2020 we paid $73.1 million and $62.3 million, respectively, for our quarterly dividend payments.

Our quarterly dividend payments have increased due to increases in our quarterly dividend per share amounts.

Principal payments under our finance lease obligations were $11.9 million and $9.9 million for the six months ended June 30, 2021 and 2020, respectively.

The changes in our principal payments under our finance lease obligations are primarily due to the timing and scope of our network expansion activities including geographic expansion and adding buildings to our network.

Principal payments under our installment payment agreement were $4.3 million and $5.1 million for the six months ended June 30, 2021 and 2020, respectively.

There were no purchases of our common stock in the six months ended June 30, 2021 and 2020.

We completed a series of debt redemptions and issuances in the six months ended June 30, 2021 and the six months ended June 30, 2020.

In June 2020 we redeemed our $189.2 million of our 2021 Notes at par value.

In March 2021, we paid $119.7 million to redeem and extinguish $115.9 million of our 2022 Notes at 103.24% of par value.

In May 2021, we redeemed and extinguished the remaining $329.1 million of our 2022 Notes at par value and by paying $11.5 million of interest through December 1, 2021.

The total payments to redeem our 2022 Notes were $459.3 million.

In June 2020 we completed an offering of €215.0 million of our 2024 Notes for net proceeds of $240.3 million.

In May 2021 we issued $500.0 million of our 2026 Notes for net proceeds of $496.9 million.

Cash Position and Indebtedness

Our total indebtedness, at par, at June 30, 2021 was $1.1 billion and our total cash and cash equivalents were $374.0 million.

Our total indebtedness at June 30, 2021 includes $224.6 million of finance lease obligations for dark fiber under long-term IRU agreements.

Summarized Financial Information of Holdings

Holdings is not a restricted subsidiary as defined under the indentures governing our 2024 Notes and our 2026 Notes.

Holdings is a guarantor under these notes.

Under the indentures we are required to disclose financial information of Holdings including its assets, liabilities and its operating results (“Holdings Financial Information”).

The Holdings Financial Information is detailed below (in thousands).

June 30, 2021

Cash and cash equivalents

Accrued interest receivable

Investment from subsidiaries

Accumulated deficit

June 30, 2021

Equity‑based compensation expense

Interest income

Common Stock Buyback Program

Our Board of Directors has approved purchases of our common stock under a buyback program (the “Buyback Program”).

There were no purchases of our common stock in the three or six months ended June 30, 2021 and 2020.

As of June 30, 2021, there was a total of $30.4 million available under the Buyback Program which is authorized to continue through December 31, 2021.

Dividends on Common Stock and Return of Capital Program

On August 4, 2021, our Board of Directors approved the payment of our quarterly dividend of $0.805 per common share.

This estimated $37.2 million dividend payment is expected to be made on September 3, 2021.

The payment of any future dividends and any other returns of capital, including stock buybacks, will be at the discretion of our Board of Directors and may be reduced, eliminated or increased and will be dependent upon our financial position, results of operations, available cash, cash flow, capital requirements, limitations under our debt indentures and other factors deemed relevant by the our Board of Directors.

We are a Delaware corporation and under the General Corporate Law of the State of Delaware distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware Law.

The indentures governing our notes limit our ability to return cash to our stockholders.

See Note 3 of our interim condensed consolidated financial statements for additional discussion of limitations on distributions.

Future Capital Requirements

We believe that our cash on hand and cash generated from our operating activities will be adequate to meet our working capital, capital expenditure, debt service, dividend payments and other cash requirements for the next twelve months if we execute our business plan.

We cannot assure you that such financing will be available on terms acceptable to us or our stockholders, or at all.

If issuing equity securities raises additional funds, substantial dilution to existing stockholders may result.

In addition, we may elect to secure additional capital in the future, at acceptable terms, to improve our liquidity or fund acquisitions or for general corporate purposes.

We will evaluate any such transactions in light of the existing market conditions.

The amounts involved in any such transaction, individually or in the aggregate, may be material.

Off-Balance Sheet Arrangements

We do not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In addition, we do not engage in trading activities involving non-exchange traded contracts.

As such, we are not materially exposed to any financing, liquidity, market or credit risks that could arise if we had engaged in these relationships.

Impact of COVID-19 on Our Liquidity and Operating Performance

We continue to operate with a high level of liquidity and as of June 30, 2021 we had cash and cash equivalents of $374.0 million.

The COVID-19 pandemic has not impacted our credit rating to date, nor do we believe that it has materially changed our cost of capital.

We believe we are able to timely service our debt obligations and will not require any concessions to do so.

We believe we will have access to additional capital from a variety of sources and the public capital markets for debt and equity.

In late March 2020, we adopted a mandatory policy through which we required all employees to work from home and follow shelter in place guidelines issued by state and local authorities.

We believe we have been able to continue to operate effectively with the use of laptops, remote connectivity and the continued support of our critical support employees.

Further, we severely curtailed all business travel and adopted new safety procedures for our on-site technical personnel and customers accessing our data centers.

We believe the policies followed by our workforce and the support provided by our IT and other groups has enabled our employees to continue to perform tasks and activities that are essential for the operation of our network, our sales and marketing efforts and other support functions.

In July 2021, we allowed all employees to return voluntarily to all offices in the United States, and we are planning to require our employees in the United States to return to full-time in-office work in September 2021, although the timing of this return may vary depending on the situation in the United States with respect to the pandemic.

We experienced some delays with respect to the installation of new services in March and April of 2020 when certain multi-tenant office buildings were closed to our personnel.

We worked with local authorities and building owners to categorize our employees as essential workers who need priority access to buildings.

We believe that our disruption in access to buildings was effectively mitigated since then.

In April and May 2020, we waived late fees for customers who were unable to pay their bills due to the pandemic.

We have not encountered any material change in the payment profile of our customers or seen any significant increase in customer turnover since the beginning of the pandemic.

There can be no assurance that we will continue to experience normal operations as economic dislocations may adversely affect our customers and may lead to higher customer turnover, bad debt expense and lower revenue and profitability.

We have experienced certain corporate customers taking a more cautious approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite offices as a result of the challenges and uncertainties of the COVID-19 pandemic.

We also have witnessed a deteriorating real estate market in and around the buildings we service with rising vacancy levels and falling lease initiations or renewals which resulted in fewer sales opportunities for our salesforce.

As a result, we experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue growth.

While we believe that demand for office space in the buildings in which we operate will remain among the strongest in our markets, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities.

These trends may negatively impact our revenue growth, cash flows and profitability.

In the summer of 2021, the Delta variant of COVID-19 began spreading widely in the United States and in other countries in which we operate.

We cannot predict the impact of the spread of the Delta variant or other new COVID-19 variants on the global economy, how national and local governments may react to the spread of new variants nor predict the impact the variants and any measures taken in response may have on our operations.

Shortly after COVID-19 began its rapid spread around the world, domestic and worldwide capital markets ceased operating for a short period.

While worldwide capital markets have remained unstable or unpredictable since then, particularly for non-investment grade issuers, legislative bodies and reserve banks have taken various actions in response to the pandemic that have impacted the capital markets, and we expect that these efforts may continue.

Critical Accounting Policies and Significant Estimates

Management believes that as of June 30, 2021, there have been no material changes to our critical accounting policies and significant estimates from those listed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2020.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management believes that as of June 30, 2021, there have been no material changes to our exposures to market risk from those disclosed in Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” of our annual report on Form 10-K for the year ended December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements