What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-26 · 141 added, 109 removed, 199 unchanged (56% of the section changed)

3 unchanged sentences

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

Factors that could cause or contribute to these differences include those discussed in "Item 1A.

Risk Factors,"

as well as those discussed elsewhere.

You should read "Item 1A.

Risk Factors"

and "Special Note Regarding Forward-Looking Statements."

Factors that could cause or contribute to these differences include those discussed in “Item 1A.

Risk Factors, ” as well as those discussed elsewhere.

You should read “Item 1A.

Risk Factors ” and “Special Note Regarding Forward-Looking Statements.

” Our actual results could differ materially from those discussed here.

1 unchanged sentence

The COVID-19 pandemic and accompanying government policies worldwide;

future economic instability in the global economy, which could affect spending on Internet services;

vaccination and in-office requirements, delays in the delivery of network equipment and optical fiber, future economic instability in the global economy, which could affect spending on Internet services;

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;

10 unchanged sentences

the management of network failures and/or disruptions;

our ability to make payments on our indebtedness as they become due 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, this Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

our ability to make payments on our indebtedness as they become due and outcomes in litigation, risks associated with variable interest rates under our interest rate Swap Agreement as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, this Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

Results of Operations

1 unchanged sentence

In this section, we discuss the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020.

For a discussion of the year ended December 31, 2019 compared to the year ended December 31, 2018, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"

in our Annual Report on Form 10-K for the year ended December 31, 2019.

For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 .

Our management reviews and analyzes several key financial measures in order to manage our business and assess the quality and variability of our service revenue, operating results and cash flows.

8 unchanged sentences

Depreciation and amortization expenses

Gain (loss) on lease terminations

Realized gain on foreign exchange – 2024 Notes

Unrealized (loss) gain on foreign exchange - 2024 Notes

Unrealized gain (loss) on foreign exchange - 2024 Notes

Loss on debt extinguishment and redemption – 2021 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Interest expense

2 unchanged sentences

(2) Includes non-cash equity-based compensation expense of $24,301 and $22,306 for 2021 and 2020, respectively.

Page 25 of 70

NM - not meaningful

5 unchanged sentences

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.

We do this by investing capital to expand the geographic footprint of our network, by increasing the number of buildings that we are connected to, including carrier neutral data centers and multi-tenant office buildings, and by increasing our penetration rate into our existing 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 34% to 569 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.

3 unchanged sentences

All foreign currency comparisons herein reflect results for 2021 translated at the average foreign currency exchange rates for 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.

We increased our total service revenue 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.

1 unchanged sentence

The impact of these taxes including the Universal Service Fund resulted in an increase to our revenues from 2020 to 2021 of $3.4 million.

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

Our corporate customers generally 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 60.8% and 39.2% of total service revenue, respectively, for 2021 and represented 67.5% and 32.5% of total service revenue, respectively, for 2020.

Revenues from corporate customers increased by 2.6% to $383.4 million for 2020 from 2019.

Revenues from corporate customers decreased by 6.5% to $358.4 million for 2021 from 2020.

Revenues from our net-centric customers increased by 25.3% to $231.4 million for 2021 from 2020.

Our revenue from our corporate customers has increased as 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, in 2020, we saw corporate customers take a 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.

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 in order to construct VPNs has also led to our ability to increase our corporate revenues.

However, beginning in the second quarter of 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, during 2020, we experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue growth.

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 partly offset by a decline in our average price per megabit.

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.

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 25.5% from 2019 to 2020.

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

Our average price per megabit of our installed base of customers declined by 24.2% from 2020 to 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.

Page 26 of 70

Our on-net revenues increased by 5.6% from 2020 to 2021.

Our on-net revenues increased as we increased the number of our on-net customer connections by 4.4% at December 31, 2021 from December 31, 2020.

On-net revenues increased at a greater rate than on-net customer connections primarily due to an increase in our usage based revenues, a relatively stable on-net ARPU from 2019 to

2020 and the positive impact of foreign exchange.

On-net revenues increased at a greater rate than on-net customer connections primarily due to an increase in our on-net ARPU from 2020 to 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 1.2% from 2020 to 2021.

Our off-net revenues decreased as the 4.7% decrease in our off-net ARPU more than offset the 2.7% increase in the number of our off-net customer connections from December 31, 2019 to December 31, 2020.

Our off-net revenues decreased primarily from the 5.2% decrease in our off-net ARPU from 2020 to 2021 offsetting the 5.8% increase in the number of our off-net customer connections from December 31, 2020 to December 31, 2021.

Network Operations Expenses.

1 unchanged sentence

Non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee’s salary and other compensation.

Our network operations expenses, including non-cash equity-based compensation expense, decreased by 0.3% from 2019 to 2020.

The decrease in network operations expense is primarily attributable to an increase in costs related to our network and facilities expansion activities, 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 lease and nonlease components on our finance and operating leases.

Our network operations expenses, including non-cash equity-based compensation expense, increased by 3.3% for 2021 from 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 and the impact of a renewal of an IRU fiber lease agreement in the second quarter of 2020.

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 Expenses (“SG&A”).

Our SG&A expenses, including non-cash equity-based compensation expense, increased by 7.9% from 2019 to 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 $22.3 million for 2020 and $17.5 million for 2019.

SG&A expenses increased primarily from an increase in salaries and related costs required to support our expansion and increases in our sales efforts and an increase in our headcount.

Our sales force headcount increased by 3.8% from 686 at December 31, 2019 to 712 at December 31, 2020 and our total headcount increased by 2.7% from 1,055 at December 31, 2019 to 1,083 at December 31, 2020.

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

Our SG&A expenses, including non-cash equity-based compensation expense, increased by 2.5% for 2021 from 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.

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 was 712 at December 31, 2020 and 633 at December 31, 2021, and our total headcount was 1,083 at December 31, 2020 and 1,001 at December 31, 2021.

We experienced an increase in both voluntary and involuntary employee departures, particularly within our sales department, in the third and fourth quarters of 2021.

We believe that this rise in departures was attributable both to an increased focus on monitoring sales productivity and to the unwillingness of some employees to be vaccinated and/or to return to a full-time, in-office environment.

Depreciation and Amortization Expenses.

Our depreciation and amortization expenses increased by 4.0% from 2019 to 2020.

The increase is primarily due to the depreciation expense associated with the increase related to newly deployed fixed assets associated with our network expansion activities and the impact of the renewal of an IRU lease as discussed above.

Interest Expense.

Our interest expense resulted from interest incurred on our $445.0 million of senior secured notes due 2022 (“2022 Notes”), interest incurred on our $189.2 million of senior unsecured notes due 2021 (“2021 Notes") until these notes were redeemed in June 2020, interest on our installment payment agreement, interest on our finance lease obligations and interest incurred on our €350.0 million aggregate principal amount of 4.375% senior unsecured notes due 2024 (“2024 Notes”).

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

In June 2020, we redeemed and extinguished our 2021 Notes at par value resulting in a loss on debt extinguishment and redemption of $0.6 million.

Our interest expense increased by 8.8% for 2020 from 2019 primarily due to an increase in our finance lease obligations and the issuances of our 2024 Notes, partly offset by the redemption of our 2021 Notes.

Realized Gain and Unrealized (Loss) Gain on Foreign Exchange on 2024 Notes.

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

As of December 31, 2020, the carrying value of our 2024 Notes was $429.3 million and as of December 31, 2019, the carrying value of our 2024 Notes was $151.4 million.

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

Our depreciation and amortization expense increased by 6.9% for 2021 from 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 Redemptions.

Our interest expense resulted from interest incurred on our $445.0 million of our 2022 Notes until these notes were fully extinguished in May 2021, interest incurred on our €350.0 million of 2024 Notes, interest incurred on our $500.0 million of 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 $189.2 million of 2021 Notes at par value resulting in a loss on debt extinguishment and redemption of $0.6 million for the year ended December 31, 2020.

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 extinguished the remaining $329.1 million of our 2022 Notes at par value and deposited funds with the trustee to pay $11.5 million of interest through December 1, 2021 resulting in a loss on debt extinguishment and redemption of $10.8 million for the year ended December 31, 2021.

Page 27 of 70

In August 2021 we entered into our Swap Agreement that has the economic effect of modifying the fixed interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on SOFR so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR.

The Swap Agreement is recorded at its fair value at each reporting period, and we incurs gains and losses due to changes in market interest rates.

The values that we report for the Swap Agreement as of each reporting date are recognized as non-cash interest expense with the corresponding amounts included in assets or liabilities in our consolidated balance sheets.

As of December 31, 2021 the fair value of our Swap Agreement was a net liability of $9.0 million and we recorded an unrealized loss as interest expense related to our Swap Agreement of $9.0 million in 2021.

We did not elect hedge accounting for our Swap Agreement.

Our interest expense increased by 7.3% from 2020 to 2021.

This increase was primarily due to the reduction in interest expense from the lower interest rate on our new 2026 Notes as compared to our extinguished 2022 Notes being offset by the additional $9.0 million of additional non-cash interest expense we recorded related to our Swap Agreement.

Realized Gain and Unrealized Gain (Loss) on Foreign Exchange – 2024 Notes .

In June 2020, our €215.0 million of 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 unrealized (loss) gain on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was an unrealized loss of $(37.0) million for 2020 and an unrealized gain of $2.3 million for 2019.

We have not entered into hedges for our foreign currency obligations.

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

As of December 31, 2021, our 2024 Notes were valued at $397.0 million.

Our unrealized gain (loss) on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was $32.5 million for 2021 and $(37.0) million for 2020.

We have not entered into hedging arrangements for our foreign currency obligations.

Income Tax Expense.

Our income tax expense was $23.2 million for 2021 and $4.1 million for 2020.

The reduction in our income tax expense is primarily related to a reduction in our income before income taxes.

The increase in our income tax expense is primarily related to an increase in certain non-deductible expenses and the increase in our income before income taxes.

Buildings On-net.

As of December 31, 2021 and 2020, we had a total of 3,035 and 2,914 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.

As our business has grown as a result of an increasing customer base, broader geographic coverage and increased traffic, we have produced a growing level of operating cash flow.

As a result of the operating leverage of our network, our annual capital expenditures as

measured as a percentage of revenues has fallen over the last decade.

As our business has grown as a result of an increasing customer base, broader geographic coverage and increased traffic on our network, we have produced a growing level of operating cash flow.

As a result of the operating leverage of our network, our annual capital expenditures as measured as a percentage of revenues has fallen over the last decade.

Increasing our operating cash flow is in part dependent upon expanding our geographic footprint and increasing our network capacity.

Recent supply chain issues may adversely impact our ability to grow our network and revenue.

We have also had increasing success in raising capital by issuing notes and arranging financing and leases that have had a lower cost and more flexible terms.

The combination of this improved operating performance and access to capital has enhanced our financial flexibility and increased our ability to make distributions to shareholders in the form of cash dividends or through share repurchases.

Since our initial public offering, we have returned over $894 million to our shareholders through share repurchases and dividends.

Since our initial public offering, we have returned over $1.0 billion to our shareholders through share repurchases and dividends.

We will continue to assess our capital and liquidity needs and, where appropriate, return capital to shareholders.

1 unchanged sentence

Based upon our historical growth rate of our dividend, we expect that we would have to provide approximately $353 million in order to meet our quarterly dividend payments over the next two years.

Our $445.0 million of Senior Secured Notes mature in March 2022 and include annual interest payments of $23.9 million until maturity.

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

Our €350 million of Senior Unsecured 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 Senior Unsecured Notes.

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

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

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

Our €350 million of Senior Unsecured Euro 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 Senior Unsecured Euro Notes.

Additionally, we have not entered into foreign currency hedging arrangements which would seek to reduce our risks related to foreign exchange volatility.

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.

2 unchanged sentences

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

Page 28 of 70

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.

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 interest rate swap agreements, 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.

8 unchanged sentences

Impact of COVID-19 on Our Liquidity and Operating Performance

In late March 2020, we adopted a mandatory work-from-home 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.

While we are contemplating a voluntary return to in-office presence for a small number of our offices, we expect to continue to have the vast majority of our workforce to work remotely for the foreseeable future.

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.

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 throughout our second and third quarters.

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 continue to operate with a high level of liquidity and as of December 31, 2020 we had cash and cash equivalents of approximately $371.3 million.

We have recently 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.

Rising vacancy levels and falling lease initiations or renewals meant 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 in 2020.

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.

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.

In June 2020, we issued an additional €215 million of our 4.375% Senior Unsecured Notes due 2024.

We continue to operate with a high level of liquidity, and as of December 31, 2021, we had cash, cash equivalents and restricted cash of $328.6 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.

1 unchanged sentence

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.

In July 2021, we allowed all employees to return voluntarily to all offices in the United States.

In August 2021, we notified our employees that they would be required to return to the office on a full time basis in the United States beginning in September 2021 and that they would be required to attest that they were fully vaccinated against the COVID-19 virus to do so.

Employees had until October 11, 2021 to provide their vaccine self-attestation.

Fully vaccinated employees in the United States returned to our offices on a full-time basis in early September 2021.

In October 2021, we opened most of our non-US offices for employees to return on a voluntary basis and, where permitted, on a mandatory basis in November 2021.

The spread of the Omicron variant around the world in December 2021 caused us to modify further our office environment.

First, we mandated that all U.S.

employees receive a COVID-19 booster vaccine no later than six weeks after first becoming eligible for such vaccine.

Second, we mandated that all U.S.

employees provide proof of vaccination to us.

Third, for offices around the world that had not been closed by government order, we shifted much of our workforce to fully remote status on a temporary basis at the end of 2021 in order to reduce the density of our offices.

Sales representatives with less than 12 months tenure, sales representative on performance improvement plans and their managers are currently still working in our offices on a full-time basis, as we believe that the training and coaching required by new and underperforming sales representatives is significantly more effective when provided in an in-office environment.

Our employees have largely complied with our vaccine mandate in the United States.

However, we experienced an increase in both voluntary and involuntary employee departures, particularly within our sales department, in the third and fourth quarters of 2021.

We believe this rise in departures is attributable both to an increased focus on managing underperforming sales representatives and to the unwillingness of some employees to be vaccinated and/or to return to a full time, in office environment.

As a result of our decisions to mandate COVID vaccination and to require employees to return to our offices on a full time basis, we may find it difficult to retain existing employees or hire new employees.

If this occurs, we may experience lower sales, revenue and profitability.

Page 29 of 70

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 and a reduction in VPN opportunities.

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

Moreover, with the spread of the Delta variant of COVID-19 in the summer of 2021 and then the Omicron variant in December of 2021, we believe many companies delayed the return of their employees to in-office work.

As the pandemic has continued, and the return of employees to their offices has been delayed, a greater number of corporate customers with contracts that reached their termination date have elected not to renew their service with us.

As such, we began to see increased corporate customer turnover.

We also experienced a reduction in new sales to corporate customers.

While we believe that demand for office space in the buildings in which we operate will remain among the strongest in our markets, and that most employers will eventually require their employees to return to their offices, 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.

We have seen a slight slowdown in the availability and delivery of networking equipment and optical fiber.

While we believe we can adequately manage the operation, maintenance, upgrading and growth of our network, a worsening or prolonged slowdown may impact our ability to expand and augment our network.

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

We cannot predict whether new COVID-19 variants will arise and spread widely, the impact of the spread of 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, employee retention, revenue growth, cash flows and our profitability.

The following table sets forth our consolidated cash flows.

5 unchanged sentences

Effect of exchange rates on cash

Net (decrease) increase in cash and cash equivalents during the year

Net (decrease) increase in cash, cash equivalents and restricted cash during the year

Net Cash Provided By Operating Activities.

7 unchanged sentences

The annual 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.

In 2020, 2019 and 2018 we obtained $5.8 million, $11.3 million and $9.9 million, respectively, of network equipment and software in non-cash exchanges for notes payable under an installment payment agreement.

In 2020 and 2019 we obtained $5.8 million and $11.3 million, respectively, of network equipment and software in non-cash exchanges for notes payable under an installment payment agreement.

There was no network equipment and software obtained under the installment payment agreement in 2021.

Page 30 of 70

Net Cash (Used In) Provided By Financing Activities.

2 unchanged sentences

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

Amounts paid under our stock buyback program were $4.5 million for 2020 and $6.6 million for 2018.

There were no stock purchases during 2019.

Amounts paid under our stock buyback program were $4.5 million for 2020.

There were no stock purchases during 2021 or 2019.

Principal payments under our finance lease obligations were $23.1 million, $24.0 million and $9.1 million for 2021, 2020 and 2019, respectively, and are impacted by the timing and extent of our network expansion activities.

Total installment payment agreement principal payments were $6.9 million, $10.5 million and $10.0 million for 2021, 2020 and 2019, respectively.

Our financing activities also include proceeds from and repayments of our debt offerings.

In June 2020, we received net proceeds of $240.3 million from the issuance of €215.0 million of our 2024 Notes and we redeemed $189.2 million of our 2021 Notes at par value, thereby extinguishing the remaining principal amount owed.

We completed a series of debt redemptions and issuances in 2021, 2020 and 2019.

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 deposited funds with the trustee to pay $11.5 million of interest through December 1, 2021.

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

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

In June 2020, we redeemed our $189.2 million of our 2021 Notes at par value and completed an offering of €215.0 million of our 2024 Notes for net proceeds of $240.3 million.

In June 2019 we received net proceeds of $152.1 million from the issuance of €135.0 million of our 2024 Notes.

In August 2018 we received net proceeds of $69.9 million from the issuance of $70.0 million of our 2022 Notes.

Our total cash and cash equivalents at December 31, 2020 were $371.3 million.

Our total cash, cash equivalents and restricted cash at December 31, 2021 were $328.6 million.

We believe this level of liquidity reduces our exposure to refinancing risk, potential underperformance of the business or other unforeseen challenges and enhances our ability to pursue acquisitions or operating opportunities.

5 unchanged sentences

Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the Exchange Act.

Senior secured notes—$500.0 million

In May 2021, Group issued $500.0 million of 2026 Notes.

The 2026 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and mature on May 1, 2026.

Interest accrues at 3.50% and is paid semi-annually in arrears on May 1 and November 1 of each year.

Holdings provided a guarantee of the 2026 Notes but Holdings is not subject to the covenants under the indenture.

Senior unsecured notes—€350.0 million

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

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

In June 2019, Group completed an offering of €135.0 million of 2024 Notes.

In June 2020, Group completed an offering of €215.0 million of 2024 Notes.

The 2024 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and mature on June 30, 2024.

1 unchanged sentence

Holdings provided a guarantee of the 2024 Notes but Holdings is not subject to the covenants under the indenture.

Senior secured notes—$445.0 million

In February 2015, Group issued $250.0 million of 5.375% senior secured notes due 2022 (the “2022 Notes”).

In December 2016, we issued an additional $125.0 million of our 2022 Notes at a premium of 100.365%.

In August 2018, we issued an additional $70.0 million of our 2022 Notes at a premium of 101.75%.

The 2022 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and mature on March 1, 2022.

Interest accrues at 5.375% and is paid semi-annually in arrears on March 1 and September 1 of each year.

Holdings provided a guarantee of the 2022 Notes but Holdings is not subject to the covenants under the indenture.

Page 31 of 70

Limitations under the indentures

The indentures governing the 2024 Notes and 2022 Notes, among other things, limits our ability to incur indebtedness;

The indenture governing the 2024 Notes (the “2024 Notes Indenture”) and the 2026 Notes (the “2026 Notes Indenture”), 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 our 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 our 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 our 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 our consolidated cash flow, as defined in the indentures, as long as our consolidated leverage ratio is less than 4.25.

Our consolidated leverage ratio was above 4.25 as of December 31, 2020.

As of December 31, 2020, a total of $94.0 million was permitted for investment payments including dividends and stock purchases.

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

We can also incur unlimited liens (which can be used, together with capacity under the debt covenant, to incur additional secured indebtedness) if our consolidated secured leverage ratio, as defined in each of the 2024 Notes Indenture and the 2026 Notes Indenture, 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 our 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 we are able to incur $1 of debt, as defined (i.e., either its consolidated leverage ratio is less than 6.0 to 1.0 or our fixed charge coverage ratio is greater than 2.0 to 1.0).

Our consolidated leverage ratio was above 4.25 as of December 31, 2021, and our fixed charge coverage ratio was above 2.0 as of December 31, 2021.

As of December 31, 2021, a total of $185.5 million was unrestricted and permitted for restricted payments including dividends and stock purchases.

Summarized Financial Information of Holdings

12 unchanged sentences

Our Board of Directors has approved through December 31, 2022, purchases of our common stock under a buyback program (the “Buyback Program”).

We purchased 79,056 shares of our common stock for $4.5 million during the year ended December 31, 2020 and 147,995 shares of our common stock for $6.6 million during the year ended December 31, 2018.

There were no purchases of common stock during the year ended December 31, 2019.

We purchased 79,056 shares of our common stock for $4.5 million during the year ended December 31, 2020 at an average price per share of $56.85.

There were no purchases of common stock during the years ended December 31, 2021 and December 31, 2019.

As of December 31, 2021 there was a total of $30.4 million available under the Buyback Program.

6 unchanged sentences

This estimated $39.7 million dividend payment is expected to be made on March 25, 2022.

Page 32 of 70

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.

25 unchanged sentences

The accounting policies we believe to be most critical to understanding our financial results and condition or that require complex, significant and subjective management judgments are discussed below.

Page 33 of 70

Finance Lease Obligations

5 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis