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Item 1. Financial Statements

2022-08-05 compared with 2022-05-05 · 236 added, 119 removed, 295 unchanged (55% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021

AS OF JUNE 30, 2022 AND DECEMBER 31, 2021

(IN THOUSANDS, EXCEPT SHARE DATA)

8 unchanged sentences

Deposits and other assets

Liabilities and stockholders’ equity

Liabilities and stockholders’ deficit

Current liabilities:

1 unchanged sentence

Accrued and other current liabilities

Installment payment agreement, current portion

Installment payment agreement, current portion, net of discount of $ 6

Current maturities, operating lease liabilities

1 unchanged sentence

Total current liabilities

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

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

Senior unsecured 2027 notes, net of unamortized debt costs of $ 1,283 and net of discount of $ 2,686

Senior secured 2026 notes, net of unamortized debt costs of $ 1,032 and $ 1,156 , respectively, and net of discounts of $ 1,371 and $ 1,536 , respectively

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $ 2,121 and net of discount of $ 772

Operating lease liabilities, net of current maturities

3 unchanged sentences

Commitments and contingencies:

Stockholders’ equity:

Stockholders’ deficit:

Common stock, $ 0.001 par value;

2 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income — foreign currency translation

Accumulated other comprehensive loss — foreign currency translation

Accumulated deficit

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1 unchanged sentence

Three Months Ended

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Service revenue

4 unchanged sentences

Total operating expenses

Gains on lease transactions

Operating income

Interest expense

Change in valuation – interest rate swap

Foreign exchange gain (loss) – 2024 Euro Notes

Loss on debt extinguishment and redemption – 2024 Euro Notes

Loss on debt extinguishment and redemption – 2022 Notes

Interest income and other expenses, net

Income (loss) before income taxes

Income tax expense

Net income (loss)

Comprehensive income (loss):

Net income (loss)

Foreign currency translation adjustment

Comprehensive income (loss)

Net income (loss) per common share:

Basic net income (loss) per common share

Diluted net income (loss) per common share

Dividends declared per common share

Weighted-average common shares - basic

Weighted-average common shares - diluted

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

COGENT COMMUNICATIONS HOLDINGS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

June 30, 2022

June 30, 2021

Service revenue

Operating expenses:

Network operations (including $ 289 and $ 2,212 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

Selling, general, and administrative (including $ 11,674 and $ 11,969 of equity-based compensation expense, respectively)

Depreciation and amortization

Total operating expenses

Gains on equipment transactions

Gains on lease terminations

Operating income

Interest expense

Unrealized foreign exchange gain on 2024 Euro Notes

Loss on debt extinguishment and repurchase – 2022 Notes

Interest income and other, net

Change in valuation – interest rate swap

Foreign exchange gain - 2024 Euro Notes

Loss on debt extinguishment and redemption- 2024 Euro Notes

Loss on debt extinguishment and redemption- 2022 Notes

Interest income and other expenses, net

Income before income taxes

Income tax expense

Comprehensive (loss) income:

Comprehensive income:

Foreign currency translation adjustment

Comprehensive (loss) income

Comprehensive income

Net income per common share:

Basic and diluted net income per common share

Basic net income per common share

Diluted net income per common share

Dividends declared per common share

1 unchanged sentence

Weighted-average common shares - diluted

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

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

COGENT COMMUNICATIONS HOLDINGS, INC.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND MARCH 31, 2021

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021

(IN THOUSANDS)

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Amortization of debt discount and premium

Amortization of debt costs, discounts and premiums

Equity-based compensation expense (net of amounts capitalized)

Gains – lease transactions

Loss on debt extinguishment and redemption – 2024 Euro Notes

Loss on debt extinguishment and redemption – 2022 Notes

Gains on foreign exchange – 2024 Euro Notes

Gains - equipment transactions and other, net

Unrealized foreign currency exchange gain on 2024 Euro Notes

Loss on debt extinguishment and repurchase of 2022 Notes

Deferred income taxes

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Dividends paid

Repurchase and extinguishment of 2022 Notes

Proceeds from exercises of stock options

Redemption and extinguishment – 2024 Euro Notes

Redemption and extinguishment – 2022 Notes

Net proceeds from issuance of senior unsecured 2027 Notes - net of debt costs of $ 1,290

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

Principal payments on installment payment agreement

Principal payments of finance lease obligations

Proceeds from exercises of stock options

Net cash used in financing activities

Effect of exchange rates changes on cash

Net decrease in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Supplemental disclosure of non-cash financing activities:

Supplemental disclosure of non-cash investing and financing activities:

Fair value of equipment acquired in lease

Finance lease obligations incurred

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

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

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

COGENT COMMUNICATIONS HOLDINGS, INC.

AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Description of the business:

Description of the business and recent developments:

Reorganization and merger

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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.

is wholly owned by Group and the vast majority of Group’s assets, contractual arrangements, and operations are executed by Cogent Communications, Inc.

and its subsidiaries.

Description of business

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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.

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.

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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.

The preparation of consolidated financial statements in conformity with 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.

At June 30, 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.

Based upon recent trading prices (Level 2—market approach) at June 30, 2022 the fair value of the Company’s $ 450.0 million senior unsecured notes due 2027 was $ 430.9 million, the fair value of the Company’s $ 500.0 million senior secured notes due 2026 was $ 453.8 million, and the estimated liability fair value of the Company’s interest rate swap agreement was $ 37.8 million.

Gross receipts taxes, universal service fund and other surcharges

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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.

The Company records certain excise taxes and surcharges on a gross basis and includes them in its revenues 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 $ 3.4 million and $ 4.8 million for the three months ended June 30, 2022 and 2021, respectively, and $ 7.2 million and $ 9.3 million for the six months ended June 30, 2022 and 2021, respectively.

Basic and diluted net income per common share

3 unchanged sentences

The following details the determination of diluted weighted average shares:

Three Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Weighted average common shares - basic

2 unchanged sentences

Weighted average common shares - diluted

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

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

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Unvested shares of restricted common stock

2 unchanged sentences

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):

The following details the changes in stockholders’ deficit for the three and six months ended June 30, 2022 and June 30, 2021 (in thousands except share amounts):

Comprehensive

2 unchanged sentences

Equity (Deficit)

Balance at December 31, 2020

Balance at March 31, 2022

Forfeitures of shares granted to employees

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Dividends paid

Balance at June 30, 2022

Comprehensive

Stockholders’

Income (Loss)

Equity (Deficit)

Balance at March 31, 2021

Forfeitures of shares granted to employees

Equity-based compensation

Foreign currency translation

Issuances of common stock

Exercises of options

Dividends paid

Balance at June 30, 2021

Comprehensive

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Dividends paid

Balance at March 31, 2022

Balance at June 30, 2022

Comprehensive

Stockholders’

Income (Loss)

Equity (Deficit)

Balance at December 31, 2020

Forfeitures of shares granted to employees

Equity-based compensation

Foreign currency translation

Issuances of common stock

Exercises of options

Dividends paid

Balance at June 30, 2021

Revenue recognition

The Company recognizes revenue under ASU No.

The Company recognizes revenue under Accounting Standards Update (“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.

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

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

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

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

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

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

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

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

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

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

5) Recognition of revenue when, or as, the Company satisfies a performance obligation

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

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

The Company vigorously seeks payment of these termination fees.

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

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the three months ended March 31, 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.

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

The Company vigorously seeks payment of these amounts.

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

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the three months ended June 30, 2022 was $ 1.9 million and during the three months ended June 30, 2021 was $ 1.8 million.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the six months ended June 30, 2022 was $ 3.4 million and during the six months ended June 30, 2021 was $ 3.1 million.

Amortization expense for contract costs was $ 4.9 million for the three months ended June 30, 2022 and $ 4.6 million for the three months ended June 30, 2021.

Amortization expense for contract costs was $ 9.7 million for the six months ended June 30, 2022 and $ 9.2 million for the six months ended June 30, 2021.

In February 2016, the FASB issued ASU No.

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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.

March 31, 2022

March 31, 2021

Finance lease costs

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Finance lease cost

Amortization of right-of-use assets

2 unchanged sentences

Total lease costs

June 30, 2022

June 30, 2021

Other lease information

19 unchanged sentences

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 .

As of June 30, 2022, the Company had committed to additional dark fiber IRU lease agreements totaling $ 172.5 million in future payments to be paid over periods of up to 22 years .

These obligations begin when the related fiber is accepted, which is generally expected to occur in the next 24 months.

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

For the Twelve Months Ending March 31,

For the Twelve Months Ending June 30,

Total minimum lease obligations

4 unchanged sentences

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 maintains 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.

6 unchanged sentences

Allowance for credit losses (deducted from accounts receivable)

Three months ended March 31, 2022

Three months ended March 31, 2021

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.

Three months ended June 30, 2022

Three months ended June 30, 2021

Six months ended June 30, 2022

Six months ended June 30, 2021

Net bad debt expense for the three and six months ended June 30, 2022 was $ 0.7 million and $ 1.0 million, respectively, which is net of bad debt recoveries of $ 0.4 million and $ 1.0 million respectively.

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

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.

Depreciation and amortization expense related to property and equipment and finance leases was $ 23.1 million and $ 22.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 45.8 million and $ 44.1 million for the six months ended June 30, 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 $ 3.1 million and $ 4.2 million for the three months ended June 30, 2022 and 2021, respectively, and $ 6.3 million and $ 7.4 million for the six months ended June 30, 2022 and 2021, respectively.

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.

As of June 30, 2022, the Company had outstanding $ 450.0 million aggregate principal amount of Senior Unsecured Notes due 2027 (the “2027 Notes”) and $ 500.0 million aggregate principal amount of Senior Secured Notes due 2026 (the “2026 Notes”).

The 2027 Notes were issued in June 2022, are due on June 15, 2027 and bear interest at a rate of 7.00 % per year.

Interest on the 2027 Notes is paid semi-annually on June 15 and December 15 of each year.

The 2026 Notes were issued in May 2021, 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.

In June 2022 the Company redeemed and extinguished its € 350.0 million aggregate principal amount of Senior Unsecured Euro Notes due 2024 (the “2024 Notes”).

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

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

Issuance of 2027 Notes and redemption of 2024 Notes

On June 22, 2022 (the “2027 Notes Closing Date”), Group completed its offering of $ 450.0 million aggregate principal amount of its 2027 Notes for issuance in a private placement not registered under the Securities Act of 1933, as amended (the “Securities Act”).

The 2027 Notes were offered and sold only to persons reasonably believed to be qualified institutional buyers in an unregistered offering pursuant to Rule 144A under the Securities Act and to certain non-U.S.

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

The 2027 Notes were issued pursuant to, and are governed by, an indenture (the “2027 Notes Indenture”), dated the 2027 Notes Closing Date by and among Group, Holdings, the other guarantors named therein and the trustee.

The 2027 Notes are jointly and severally guaranteed on a senior unsecured basis by each of the Company’s existing and future material domestic subsidiaries, subject to certain exceptions, and by the Company.

Under certain circumstances, the Guarantors may be released from these Guarantees without the consent of the holders of the 2027 Notes.

The net proceeds from the 2027 Notes offering were $ 446.0 million after deducting the $ 2.7 million discount and $ 1.3 million of offering expenses.

The Company used a portion of the net proceeds from the 2027 Notes offering to redeem its 2024 Notes.

In connection with full redemption of its 2024 Notes, Group issued a conditional notice of full redemption to holders of the 2024 Notes, specifying June 30, 2022 as the redemption date (the “Redemption Date”).

On the issue date of the 2027 Notes, Group satisfied and discharged its obligations under the 2024 Notes by depositing with a designee of the trustee for the 2024 Notes sufficient funds to pay the principal of, the Premium (defined below) and accrued and unpaid interest on the Euro Notes to the Redemption Date – June 30, 2022.

The 2024 Notes were issued in Euros and were reported in the Company’s reporting currency - US Dollars - until they were extinguished and redeemed.

The gain on foreign exchange on the Company’s 2024 Notes from converting the 2024 Notes into US Dollars was a gain of $ 23.5 million for the three months ended June 30, 2022 and a loss of $ 5.3 million for the three months ended June 30, 2021.

The gain on foreign exchange was $ 31.6 million for the six months ended June 30, 2022 and $ 13.6 million for the six months ended June 30, 2021.

The Company expects to use the remaining net proceeds from the 2027 Notes offering for general corporate purposes, and/or to repurchase the Company’s common stock or for special or recurring dividends to the Company’s stockholders.

Unless earlier redeemed or repurchased, the 2027 Notes will mature on June 15, 2027.

Group may redeem some or all of the 2027 Notes at any time prior to June 15, 2024 at a price equal to 100 % of the principal amount of the 2027 Notes, plus a “make-whole” premium, as set forth in the 2027 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, or may redeem up to 40.0 % of the 2027 Notes using proceeds of certain equity offerings completed prior to June 15, 2024 at 107.0 % of the principal amount plus accrued and unpaid interest, if any.

Thereafter, Group may redeem the 2027 Notes, in whole or in part, at a redemption price ranging from 103.5 % of the aggregate principal amount of the 2027 Notes redeemed to par (depending on the year), in each case, as set forth in the 2027 Notes Indenture, plus accrued and unpaid interest, if any.

On the Redemption Date, Group redeemed its € 350.0 million of 2024 Notes at a price of 101.094 % (€ 353.8 million or $ 375.2 million) of the principal amount (the “Premium”) plus € 7.7 million ($ 8.1 million) of interest paid through June 30, 2022, the Redemption Date where the Premium reduced to 101.094 %, for a total payment of € 361.5 million ($ 383.4 million).

Group entered into a short-term USD to Euro forward purchase agreement to mitigate the risk of foreign currency fluctuations.

As a result of these transactions, the Company incurred a loss on debt extinguishment and redemption of $ 11.9 million.

Issuance of the 2026 Notes and redemption of 2022 Notes

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

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

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

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

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

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

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

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

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

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

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

In March 2021, Group redeemed $ 115.9 million aggregate principal amount of its 5.375 % Senior Secured Notes due 2022 (the “2022 Notes at an average price of 103.2 % of the principal amount plus $ 0.4 million of accrued and unpaid interest.

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

In May 2021, Group redeemed $ 45.0 million aggregate principal amount of its 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 $ 115.9 million and the $ 45.0 million redemptions there was $ 284.1 million aggregate principal amount of 2022 Notes remaining.

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

As a result of these transactions, the Company incurred an additional 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.

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;

The 2027 Notes Indenture and the 2026 Notes Indenture (the “Indentures”), among other things, limit the Company’s ability to incur indebtedness;

to pay dividends or make other distributions;

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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.

There are certain exceptions to the limitations on the Company’s ability to incur indebtedness under the Indentures, including IRU agreements incurred in the normal course of business and any additional indebtedness if the Company’s consolidated leverage ratio, as defined in the Indentures, is less than 6.0 to 1.0 or the Company’s fixed charge coverage ratio, as defined in the Indentures, is 2.0 to 1.0 or greater.

Under the Indentures, the Company can pay dividends, make other distributions, make certain investments and make other restricted payments under certain circumstances, including if, after giving pro forma effect to such restricted payment, the Company could still incur $ 1 of indebtedness, as defined (i.e., either its consolidated leverage ratio is less than 6.0 to 1.0 or its fixed charge coverage ratio is 2.0 to 1.0 or greater).

The Company’s consolidated leverage ratio was below 6.0 , the Company’s consolidated secured leverage ratio was below 4.0 and the Company’s fixed charge coverage ratio was above 2.0 as of June 30, 2022.

As of June 30, 2022, a total of $ 286.5 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.

As of June 30, 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.

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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.

Changes in interest rates affect the valuation of the Swap Agreement 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 “change in valuation – interest rate swap” with the corresponding amounts included in assets or liabilities in the Company’s consolidated balance sheets.

As of June 30, 2022 the fair value of the Swap Agreement was a net liability of $ 37.8 million of which $ 9.7 million is presented with accrued and other current liabilities and $ 28.1 million is presented with other long-term liabilities.

The Company recorded an unrealized loss related to the Swap Agreement of $ 7.5 million and $ 28.8 million in the three months and six months ended June 30, 2022, respectively.

The Company has made a $ 48.5 million deposit with the counterparty to the Swap Agreement.

If the fair value of the Swap Agreement exceeds a net liability of $ 48.5 million the Company will be required to deposit additional funds with the counterparty equal to the net liability fair value in excess of $ 48.5 million.

As of March 31, 2022, $ 30.3 million of the deposit was restricted and $ 4.7 million was unrestricted.

As of June 30, 2022, $ 37.8 million of the deposit was restricted and $ 10.7 million was unrestricted.

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.

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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.

Under the settlement payment made in May 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.

Commitments and contingencies :

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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.

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 has taken certain positions related to its obligations for leased circuits for which it is reasonably possible to result in a loss of up to $ 3.7 million in excess of the amount accrued at June 30, 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.

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Income taxes:

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

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

Three Months Ended

March 31, 2022

March 31, 2021

Common stock buyback program and stock options and award plan:

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Common stock buyback program:

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

At June 30, 2022, there was approximately $ 30.4 million remaining for purchases under the Buyback Program.

There were no purchases of common stock during the three or six months ended June 30, 2022 and the three or six months ended June 30, 2021.

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.

On August 4, 2022, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.905 per common share.

This estimated $ 42.3 million dividend payment is expected to be made on August 31, 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 Company is a Delaware corporation and under the General Corporation 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.

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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.

In February 2020 the lease term was extended to May 2025 and is cancellable by the Company 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.

The Company paid $ 0.3 million and $ 0.5 million in the three months ended June 30, 2022 and 2021, respectively, and $ 0.9 million and $ 0.8 million in the six months ended June 30, 2022 and 2021, respectively, for rent and related costs (including taxes and utilities) to Sodium LLC for this lease.

Segment information:

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

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

North America

Latin America

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

North America

Latin America

Six Months Ended June 30, 2022

North America

Latin America

Six Months Ended June 30, 2021

North America

Latin America

Long lived assets, net

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

What changed 10-Q

Item 1. Financial Statements