COGENT COMMUNICATIONS HOLDINGS, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2022 AND DECEMBER 31, 2021 (IN THOUSANDS, EXCEPT SHARE DATA) ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2022 ​ 2021 ​ ​ (Unaudited) ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 281,485 ​ $ 319,609 Restricted cash ​ ​ 30,286 ​ ​ 9,015 Accounts receivable, net of allowance for credit losses of $ 1,476 and $ 1,510 , respectively ​ 41,662 ​ ​ 41,938 Prepaid expenses and other current assets ​ 41,757 ​ ​ 39,015 Total current assets ​ 395,190 ​ ​ 409,577 Property and equipment, net ​ ​ 456,419 ​ ​ 457,880 Right-of-use leased assets ​ 100,909 ​ ​ 101,687 Deposits and other assets ​ 17,251 ​ ​ 15,413 Total assets ​ $ 969,769 ​ $ 984,557 Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 13,808 ​ $ 11,923 Accrued and other current liabilities ​ 48,314 ​ ​ 39,057 Installment payment agreement, current portion ​ ​ 218 ​ ​ 785 Current maturities, operating lease liabilities ​ ​ 12,118 ​ ​ 12,197 Current maturities, finance lease obligations ​ ​ 17,147 ​ ​ 17,048 Total current liabilities ​ 91,605 ​ ​ 81,010 Senior unsecured 2024 Euro Notes, net of unamortized debt costs of $ 1,917 and $ 2,121 , respectively, and net of discount of $ 684 and $ 772 , respectively ​ ​ 386,418 ​ ​ 394,112 Senior secured 2026 Notes, net of unamortized debt costs of $ 1,094 and $ 1,156 , respectively, and net of discount of $ 1,454 and $ 1,536 , respectively ​ ​ 497,452 ​ ​ 497,308 Operating lease liabilities, net of current maturities ​ ​ 111,656 ​ ​ 111,794 Finance lease obligations, net of current maturities ​ 228,102 ​ ​ 228,822 Other long-term liabilities ​ 63,142 ​ ​ 44,609 Total liabilities ​ 1,378,375 ​ ​ 1,357,655 Commitments and contingencies: ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Common stock, $ 0.001 par value; 75,000,000 shares authorized; 47,926,580 and 47,674,189 shares issued and outstanding , respectively ​ 48 ​ ​ 48 Additional paid-in capital ​ 554,552 ​ ​ 547,734 Accumulated other comprehensive income — foreign currency translation ​ ( 13,168 ) ​ ​ ( 11,003 ) Accumulated deficit ​ ( 950,038 ) ​ ​ ( 909,877 ) Total stockholders’ deficit ​ ( 408,606 ) ​ ​ ( 373,098 ) Total liabilities and stockholders’ deficit ​ $ 969,769 ​ $ 984,557 ​ The accompanying notes are an integral part of these condensed consolidated balance sheets. ​ 3 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Three Months Ended ​ ​ March 31, 2022 ​ March 31, 2021 ​ (Unaudited) (Unaudited) Service revenue ​ $ 149,175 ​ $ 146,777 Operating expenses: ​ ​ ​ ​ ​ ​ Network operations (including $ 144 and $ 2,076 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below) ​ 57,449 ​ ​ 57,092 Selling, general, and administrative (including $ 5,912 and $ 5,231 of equity-based compensation expense, respectively) ​ 40,627 ​ ​ 41,442 Depreciation and amortization ​ 22,688 ​ ​ 21,970 Total operating expenses ​ 120,764 ​ ​ 120,504 Gains on equipment transactions ​ ​ — ​ ​ 18 Gains on lease terminations ​ ​ 373 ​ ​ — Operating income ​ ​ 28,784 ​ ​ 26,291 Interest expense ​ ( 35,439 ) ​ ​ ( 15,836 ) Unrealized foreign exchange gain on 2024 Euro Notes ​ ​ 8,014 ​ ​ 18,870 Loss on debt extinguishment and repurchase – 2022 Notes ​ ​ — ​ ​ ( 3,868 ) Interest income and other, net ​ ​ 319 ​ ​ 744 Income before income taxes ​ 1,678 ​ ​ 26,201 Income tax expense ​ ( 541 ) ​ ​ ( 7,350 ) Net income ​ $ 1,137 ​ $ 18,851 ​ ​ ​ ​ ​ ​ ​ Comprehensive (loss) income: ​ ​ ​ ​ ​ ​ Net income ​ $ 1,137 ​ $ 18,851 Foreign currency translation adjustment ​ ( 2,165 ) ​ ​ ( 5,210 ) Comprehensive (loss) income ​ $ ( 1,028 ) ​ $ 13,641 ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ ​ ​ ​ Basic and diluted net income per common share ​ $ 0.02 ​ $ 0.41 Dividends declared per common share ​ $ 0.855 ​ $ 0.755 ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares - basic ​ ​ 46,575,848 ​ ​ 46,067,096 ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares - diluted ​ 46,929,191 ​ ​ 46,507,258 ​ The accompanying notes are an integral part of these condensed consolidated statements. ​ 4 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021 (IN THOUSANDS) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months ​ ​ Ended ​ Ended ​ ​ March 31, 2022 ​ March 31, 2021 ​ ​ (Unaudited) ​ (Unaudited) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 1,137 ​ $ 18,851 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 22,688 ​ ​ 21,970 Amortization of debt discount and premium ​ 417 ​ ​ 441 Equity-based compensation expense (net of amounts capitalized) ​ 6,056 ​ ​ 7,307 Gains – lease transactions ​ ​ ( 373 ) ​ ​ — Gains - equipment transactions and other, net ​ ​ 525 ​ ​ 371 Unrealized foreign currency exchange gain on 2024 Euro Notes ​ ​ ( 8,014 ) ​ ​ ( 18,870 ) Loss on debt extinguishment and repurchase of 2022 Notes ​ ​ — ​ ​ 3,868 Deferred income taxes ​ ​ ( 58 ) ​ ​ 4,497 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 76 ​ ​ 2,420 Prepaid expenses and other current assets ​ ​ ( 2,953 ) ​ ​ 2,826 Accounts payable, accrued liabilities and other long-term liabilities ​ ​ 31,317 ​ ​ 2,951 Deposits and other assets ​ ( 1,407 ) ​ ​ 474 Net cash provided by operating activities ​ 49,411 ​ ​ 47,106 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 18,121 ) ​ ​ ( 15,444 ) Net cash used in investing activities ​ ( 18,121 ) ​ ​ ( 15,444 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Dividends paid ​ ( 41,298 ) ​ ​ ( 36,081 ) Repurchase and extinguishment of 2022 Notes ​ ​ — ​ ​ ( 119,679 ) Proceeds from exercises of stock options ​ ​ 204 ​ ​ 215 Principal payments on installment payment agreement ​ ​ ( 571 ) ​ ​ ( 2,378 ) Principal payments of finance lease obligations ​ ​ ( 5,863 ) ​ ​ ( 5,744 ) Net cash used in financing activities ​ ( 47,528 ) ​ ​ ( 163,667 ) Effect of exchange rates changes on cash ​ ( 615 ) ​ ​ ( 1,316 ) Net decrease in cash, cash equivalents and restricted cash ​ ( 16,853 ) ​ ( 133,321 ) Cash, cash equivalents and restricted cash, beginning of period ​ 328,624 ​ ​ 371,301 Cash, cash equivalents and restricted cash, end of period ​ $ 311,771 ​ $ 237,980 Supplemental disclosure of non-cash financing activities: ​ ​ ​ ​ ​ ​ Finance lease obligations incurred ​ $ 6,982 ​ $ 6,336 ​ The accompanying notes are an integral part of these condensed consolidated statements. ​ 5 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ​ 1. Description of the business: ​ Reorganization and merger ​ On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and among Cogent Communications Group, Inc. (“Group”), a Delaware corporation, Cogent Communications Holdings, Inc., a Delaware corporation (“Holdings”) and Cogent Communications Merger Sub, Inc., a Delaware corporation, Group adopted a new holding company organizational structure whereby Group is now a wholly owned subsidiary of Holdings. Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). References to the “Company” for events that occurred prior to May 15, 2014 refer to Cogent Communications Group, Inc. and its subsidiaries and on and after May 15, 2014 the “Company” refers to Cogent Communications Holdings, Inc. and its subsidiaries. Cogent Communications, Inc. is wholly owned by Group and the vast majority of Cogent’s assets, contractual arrangements, and operations are executed by Cogent Communications, Inc. ​ 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 and power. The Company’s network is specifically designed and optimized to transmit packet switched data. The Company delivers its services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 50 countries across North America, Europe, Asia, South America, Australia and Africa. The Company is a Delaware corporation and is headquartered in Washington, DC. ​ The Company offers on-net Internet access services exclusively through its own facilities, which run from its network to its customers’ premises. The Company offers its on-net services to customers located in buildings that are physically connected to its network. As a result, the Company is not dependent on local telephone companies or cable TV companies to serve its customers for its on-net Internet access and private network services. The Company’s on-net service consists of high-speed Internet access and private network services offered at speeds ranging from 100 megabits per second to 400 gigabits per second. ​ The Company provides its on-net Internet access and private network services to its corporate and net-centric customers. The Company’s 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. The Company’s net-centric customers include bandwidth-intensive users that leverage its 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. Access customers include 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 the Company’s services in carrier neutral colocation facilities and in the Company’s own data centers. The Company operates data centers throughout North America and Europe that allow its customers to collocate their equipment and access the Company’s network. ​ In addition to providing on-net services, the Company provides Internet access and private network services to customers that are not located in buildings directly connected to its network. The Company provides 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 the Company’s network. The Company also provides certain non-core services that resulted from acquisitions. The Company continues to support but does not actively sell these non-core services. 6 Table of Contents Basis of presentation ​ The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. While the Company believes that the disclosures are adequate to not make the information misleading, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in its annual report on Form 10-K for the year ended December 31, 2021. ​ The accompanying unaudited condensed consolidated financial statements include all wholly owned subsidiaries. All inter-company accounts and activity have been eliminated. ​ Use of estimates ​ The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. ​ Financial instruments ​ At March 31, 2022 and December 31, 2021, the carrying amount of cash and cash equivalents, restricted cash, 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 and restricted cash 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, 2022 the fair value of the Company’s $ 500.0 million senior secured notes due 2026 was $ 476.3 million, the fair value of the Company’s € 350.0 million ($ 389.0 million) senior unsecured notes due 2024 was $ 387.1 million and the estimated liability fair value of the Company’s interest rate swap agreement was $ 30.3 million. ​ Restricted cash and interest rate swap agreement ​ Restricted cash represents amounts held in a segregated bank accounts by our clearing broker as margin in support of our interest rate swap agreement as discussed in Note 3 and was $ 30.3 million as of March 31, 2022. Additional cash may be further restricted to maintain our interest rate swap instrument as interest rates fluctuate and margin requirements change. The Company does not use derivative financial instruments for trading purposes. ​ Gross receipts taxes, universal service fund and other surcharges ​ Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state regulatory fees. 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 $ 3.7 million and $ 4.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively. ​ Basic and diluted net income per common share ​ Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income or (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common stock equivalents. Shares of restricted stock are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury stock method. 7 Table of Contents The following details the determination of diluted weighted average shares: ​ ​ ​ ​ ​ ​ ​ Three Months Ended Three Months Ended ​ ​ March 31, ​ March 31, ​ ​ 2022 ​ 2021 Weighted average common shares - basic ​ 46,575,848 46,067,096 Dilutive effect of stock options ​ 21,310 26,065 Dilutive effect of restricted stock ​ 332,033 414,097 Weighted average common shares - diluted ​ 46,929,191 46,507,258 ​ 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, 2022 March 31, 2021 Unvested shares of restricted common stock ​ 1,352,439 ​ 1,454,033 Anti-dilutive options for common stock ​ 85,921 ​ 77,832 Anti-dilutive shares of restricted common stock ​ 479,655 ​ 392,410 ​ Stockholders’ Deficit ​ The following details the changes in stockholders’ deficit for the three months ended March 31, 2022 and March 31, 2021 (in thousands except share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Income (Loss) Deficit Equity (Deficit) Balance at December 31, 2020 ​ 47,214,077 ​ $ 47 ​ $ 515,867 ​ $ ( 1,306 ) ​ $ ( 807,774 ) ​ $ ( 293,166 ) Forfeitures of shares granted to employees ( 19,676 ) ​ — ​ — ​ — ​ — ​ — Equity-based compensation — ​ — ​ 7,831 ​ — ​ — ​ 7,831 Foreign currency translation — ​ — ​ — ​ ( 5,210 ) ​ — ​ ( 5,210 ) Issuances of common stock 323,700 ​ 1 ​ — ​ — ​ — ​ 1 Exercises of options 4,571 ​ — ​ 215 ​ — ​ — ​ 215 Dividends paid — ​ — ​ — ​ — ​ ( 36,081 ) ​ ( 36,081 ) Net income — ​ — ​ — ​ — ​ 18,851 ​ 18,851 Balance at March 31, 2021 47,522,672 ​ $ 48 ​ $ 523,913 ​ $ ( 6,516 ) ​ $ ( 825,004 ) ​ $ ( 307,559 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Income (Loss) Deficit Equity (Deficit) Balance at December 31, 2021 47,674,189 $ 48 $ 547,734 $ ( 11,003 ) $ ( 909,877 ) $ ( 373,098 ) Forfeitures of shares granted to employees ( 9,582 ) ​ — ​ — ​ — ​ — ​ — Equity-based compensation — ​ — ​ 6,614 ​ — ​ — ​ 6,614 Foreign currency translation — ​ — ​ — ​ ( 2,165 ) ​ — ​ ( 2,165 ) Issuances of common stock 256,800 ​ — ​ — ​ — ​ — ​ — Exercises of options 5,173 ​ — ​ 204 ​ — ​ — ​ 204 Dividends paid — ​ — ​ — ​ — ​ ( 41,298 ) ​ ( 41,298 ) Net income — ​ — ​ — ​ — ​ 1,137 ​ 1,137 Balance at March 31, 2022 47,926,580 ​ $ 48 ​ $ 554,552 ​ $ ( 13,168 ) ​ $ ( 950,038 ) ​ $ ( 408,606 ) ​ 8 Table of Contents Revenue recognition ​ The Company recognizes revenue under ASU No. 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. 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. Management assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. ​ The Company’s service offerings consist of on-net and off-net telecommunications services. 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 . The Company satisfies its performance obligations to provide services to customers over time as the services are rendered. In accordance with ASC 606, revenue is recognized when a customer obtains the promised service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company has adopted the practical expedient related to certain performance obligation disclosures since it has a right to consideration from its customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. ​ To achieve this core principle, the Company follows the following five steps: 1) Identification of the contract, or contracts with a customer 2) Identification of the performance obligations in the contract 3) Determination of the transaction price 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 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, 2022 was $ 1.9 million and during the three months ended March 31, 2021 was $ 1.8 million. Amortization expense for contract costs was $ 4.7 million for the three months ended March 31, 2022 and $ 4.6 million for the three months ended March 31, 2021. 9 Table of Contents Leases ​ In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced most existing lease accounting guidance. The operating lease liability under ASU 2016-02 is not considered a liability under the consolidated leverage ratio calculations in the indentures governing the Company’s senior unsecured and senior secured note obligations. 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 non-lease components on its finance and operating leases. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months ​ ​ ​ Ended Ended ​ ​ March 31, 2022 March 31, 2021 ​ Finance lease costs ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 6,998 ​ $ 6,346 ​ Interest expense on finance lease liabilities ​ 5,081 ​ ​ 5,226 ​ Operating lease cost ​ 4,773 ​ ​ 4,417 ​ Total lease costs ​ ​ 16,852 ​ ​ 15,989 ​ Other lease information ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash flows from finance leases ​ ​ ( 6,621 ) ​ ​ ( 5,396 ) ​ Operating cash flows from operating leases ​ ​ ( 4,811 ) ​ ​ ( 4,993 ) ​ Financing cash flows from finance leases ​ ​ ( 5,863 ) ​ ​ ( 5,744 ) ​ Right-of-use assets obtained in exchange for new finance lease liabilities ​ ​ 6,982 ​ ​ 6,336 ​ Right-of-use assets obtained in exchange for new operating lease liabilities ​ ​ 4,841 ​ ​ 2,720 ​ Weighted-average remaining lease term — finance leases (in years) ​ ​ 12.6 ​ ​ 12.4 ​ Weighted-average remaining lease term — operating leases (in years) ​ ​ 18.5 ​ ​ 19.9 ​ Weighted average discount rate — finance leases ​ ​ 8.9 % ​ 10.1 % Weighted average discount rate — operating leases ​ ​ 5.4 % ​ 5.6 % ​ 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 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. The option to renew may be automatic, at the option of the Company or mutually agreed to between the dark fiber provider and the Company. Once the Company has accepted the related fiber route, leases that meet the criteria for treatment as finance leases are recorded as a finance lease obligation and an IRU asset. 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 implicit rates within the Company’s operating leases are generally not determinable and 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, 2022, the Company had committed to additional dark fiber IRU lease agreements totaling $ 30.3 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. 10 Table of Contents Operating leases The Company leases office space and data center facilities under operating leases. In certain cases the Company also enters into short-term operating leases for dark fiber. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments under the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the reasonably certain lease term. 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 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. Certain of the Company’s leases include options to extend or terminate the lease. The Company establishes the number of renewal option periods used in determining the operating lease term based upon its assessment at the inception of the operating 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. 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. 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 and finance lease agreements are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Finance For the Twelve Months Ending March 31, ​ Leases ​ Leases 2022 $ 17,795 ​ $ 36,157 2023 ​ ​ 18,263 ​ ​ 35,470 2024 ​ ​ 17,161 ​ ​ 35,999 2025 ​ ​ 14,325 ​ ​ 28,815 2026 ​ ​ 12,601 ​ ​ 28,349 Thereafter ​ ​ 110,462 ​ ​ 250,421 Total minimum lease obligations ​ ​ 190,607 ​ ​ 415,211 Less—amounts representing interest ​ ​ ( 66,833 ) ​ ​ ( 169,962 ) Present value of minimum lease obligations ​ ​ 123,774 ​ ​ 245,249 Current maturities ​ ​ ( 12,118 ) ​ ​ ( 17,147 ) Lease obligations, net of current maturities ​ $ 111,656 ​ $ 228,102 ​ Allowance for credit losses ​ As of January 1, 2020, the Company maintained an allowance for credit losses to cover its current expected credit losses on its trade receivables arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables based on historical information combined with current conditions that may affect a customer's ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables. Based on the Company's experience, the customer's delinquency status is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current-period ​ ​ ​ ​ ​ ​ ​ Provision for ​ Write offs ​ ​ ​ ​ ​ Beginning ​ Expected Credit ​ Charged Against ​ Ending Description Balance Losses Allowance Balance Allowance for credit losses (deducted from accounts receivable) ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, 2022 ​ $ 1,510 ​ $ 946 ​ $ ( 980 ) ​ $ 1,476 Three months ended March 31, 2021 ​ $ 1,921 ​ $ 2,012 ​ $ ( 2,476 ) ​ $ 1,457 ​ Net bad debt expense for the three months ended March 31, 2022 was $ 0.3 million which is net of bad debt recoveries of $ 0.6 million. 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. ​ 11 Table of Contents 2. Property and equipment: ​ Depreciation and amortization expense related to property and equipment and finance leases was $ 22.7 million and $ 22.0 million for the three months ended March 31, 2022 and 2021, 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 $ 3.2 million for the three months ended March 31, 2022 and 2021, respectively. ​ 3. Long-term debt: ​ As of March 31, 2022, the Company had outstanding $ 500.0 million aggregate principal amount of Senior Secured Notes due 2026 (the “2026 Notes”) and € 350.0 million ($ 389.0 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. ​ Limitations under the indentures ​ The indentures 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; to make certain investments and other restricted payments; to create liens; 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. There are certain exceptions to the limitations on the Company’s 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, the Company’s consolidated leverage ratio, as defined in the 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 the 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 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 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 ). As of March 31, 2022 the Company’s consolidated leverage ratio was above 4.25 and the Company’s fixed charge coverage ratio was above 2.0 . As of March 31, 2022, a total of $ 145.5 million was unrestricted and permitted for restricted payments including dividends and stock purchases. ​ Interest rate swap agreement ​ As of March 31, 2022, the Company was party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with its 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”) so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR. The critical terms of the Swap Agreement match the terms of the 2026 Notes, including the notional amount and the optional redemption date on February 1, 2026. The Company did not elect hedge accounting for the Swap Agreement. The Swap Agreement is recorded at its fair value at each reporting period, and the Company incurs gains and losses due to changes in market interest rates. By entering into the Swap Agreement, the Company has assumed the risk associated with variable interest rates. Changes in interest rates affect the interest expense that the Company recognizes in its consolidated statements of comprehensive income. The values that the Company reports for the Swap Agreement as of each reporting date are recognized as interest expense with the corresponding amounts included in assets or liabilities in the Company’s consolidated balance sheets. As of March 31, 2022 the fair value of the Swap Agreement was a net liability of $ 30.3 million of which $ 0.6 million is presented with accrued and other current liabilities and $ 29.7 million is presented with other long-term liabilities. The Company recorded an unrealized loss related to the Swap Agreement of $ 21.3 million in the three months ended March 31, 2022 which is presented in interest expense in the consolidated statement of comprehensive income. The Company has made a $ 35.0 million deposit with the counterparty to the Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $ 35.0 million the Company will be required to deposit additional funds with the counterparty equal to the net liability fair value in excess of $ 35.0 million. As of March 31, 2022, $ 30.3 million of the deposit was restricted and $ 4.7 million was unrestricted. 12 Table of Contents Under the Swap Agreement, the Company pays the counterparty a semi-annual payment based upon overnight SOFR plus a contractual interest rate spread, and the counterparty pays the Company a semi-annual fixed 3.50 % interest payment. The settlement payment is made each November and May until the Swap Agreement expires in February 2026. Under the first Swap Agreement settlement payment the Company received a payment of $ 0.6 million from the counterparty for a net cash savings of $ 0.6 million for the period from August 9, 2021 (the Swap Agreement inception date) to October 31, 2021. Under the settlement payment made on May 4, 2022, the Company received a payment of $ 1.2 million from the counterparty for a net cash savings of $ 1.2 million for the period from November 1, 2021 to April 30, 2022. ​ Debt extinguishment and repurchase of 2022 Notes ​ In March 2021, Group repurchased $ 115.9 million of its 5.375 % Senior Secured Notes due 2022 (“2022 Notes’) at a price of 103.2 % of the principal amount plus $ 0.4 million of accrued interest. As a result of this transaction, the Company incurred a loss on debt extinguishment and repurchase 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 of the 2022 Notes. On May 6, 2021, Group redeemed the $ 45.0 million aggregate principal amount of the 2022 Notes 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 the redemption, there was $ 284.1 million aggregate principal amount of the 2022 Notes remaining. On May 7, 2021, Group used the net proceeds from the offering of its 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. ​ 4. Commitments and contingencies : ​ Current and potential litigation ​ In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a contingent liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no amount in the range is more likely than any other amount, the Company accrues at the low end of the range. 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 $ 3.6 million in excess of the amount accrued at March 31, 2022. The Company is also engaged in litigation in Virginia in which a former provider of transoceanic capacity to the Company is seeking approximately $ 0.6 million for alleged unpaid fees and the Company’s early termination of the arrangement. The complaint was filed in December 2021 in the Circuit Court of Fairfax County, Virginia. The Company is contesting its obligation to pay these amounts. ​ In the ordinary course of business the Company is involved in other legal activities and claims. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the liability related to these legal actions and claims cannot be determined with certainty. Management does not believe that such claims and actions will have a material impact on the Company’s financial condition or results of operations. Judgment is required in estimating the ultimate outcome of any dispute resolution process, as well as any other amounts that may be incurred to conclude the negotiations or settle any litigation. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material. ​ 5. Income taxes: ​ The components of income before income taxes consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Three Months Ended ​ March 31, 2022 ​ March 31, 2021 Domestic ​ $ 3,352 ​ $ 28,502 Foreign ​ ( 1,674 ) ​ ( 2,301 ) Total ​ $ 1,678 ​ $ 26,201 ​ ​ 13 Table of Contents 6. Common stock buyback program and stock options and award plan: ​ 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, 2022. As of March 31, 2022, there was $ 30.4 million remaining for purchases under the Buyback Program. There were no purchases of common stock during both the three months ended March 31, 2022 and March 31, 2021. ​ During the three months ended March 31, 2022 the Company granted 256,800 shares of restricted stock to its executive employees valued at $ 17.8 million that primarily vest over periods ending in December 2025. The vesting of 104,800 of these shares is subject to certain performance conditions. Of the 104,800 total performance shares granted, the vesting of up to 29,334 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. ​ 7. Dividends on common stock: On April 29, 2022, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.88 per common share. This estimated $ 41.0 million dividend payment is expected to be made on May 27, 2022. ​ 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. The Company is 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 the Company’s notes limit the Company’s ability to return cash to its stockholders. ​ 8. Related party transactions: ​ Office leases ​ The Company’s headquarters is located in an office building owned by Sodium LLC whose owner is the Company’s Chief Executive Officer. 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 . 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 $ 0.5 million and $ 0.4 million in the three months ended March 31, 2022 and 2021, respectively, for rent and related costs (including taxes and utilities) to Sodium LLC for this lease. ​ 14 Table of Contents 9. Segment information: ​ The Company operates as one operating segment. 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, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues On-net Off-net Non-core Total North America ​ $ 86,442 ​ $ 31,710 ​ $ 140 ​ $ 118,292 Europe ​ 21,496 ​ 4,274 ​ 10 ​ 25,780 Asia Pacific ​ ​ 3,141 ​ ​ 337 ​ ​ 3 ​ ​ 3,481 Latin America ​ ​ 1,392 ​ ​ 58 ​ ​ 1 ​ ​ 1,451 Africa ​ ​ 163 ​ ​ 8 ​ ​ — ​ ​ 171 Total ​ $ 112,634 ​ $ 36,387 ​ $ 154 ​ $ 149,175 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues On-net Off-net Non-core Total North America ​ $ 84,464 ​ $ 31,843 ​ $ 89 ​ $ 116,396 Europe ​ ​ 22,420 ​ ​ 4,592 ​ ​ 18 ​ ​ 27,030 Asia Pacific ​ ​ 2,173 ​ ​ 271 ​ ​ — ​ ​ 2,444 Latin America ​ ​ 812 ​ ​ 16 ​ ​ — ​ ​ 828 Africa ​ ​ 78 ​ ​ 1 ​ ​ — ​ ​ 79 Total ​ $ 109,947 ​ $ 36,723 ​ $ 107 ​ $ 146,777 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2022 2021 Long-lived assets, net ​ ​ ​ ​ ​ ​ North America ​ $ 330,769 ​ $ 331,537 Europe and other ​ 125,661 ​ ​ 126,355 Total ​ $ 456,430 ​ $ 457,892 ​ The majority of North American revenue consists of services delivered within the United States. ​ ​ 15 Table of Contents