COGENT COMMUNICATIONS HOLDINGS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ ​ ​ ​ Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) ​ 41 Consolidated Balance Sheets as of December 31, 2022 and 2021 ​ 43 Consolidated Statements of Comprehensive Income for Each of the Three Years Ended December 31, 2022 ​ 44 Consolidated Statements of Changes in Stockholders’ Deficit for Each of the Three Years Ended December 31, 2022 ​ 45 Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 2022 ​ 46 Notes to Consolidated Financial Statements ​ 47 ​ ​ Page 40 of 75 Table of Contents Report of Ernst & Young LLP, Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Cogent Communications Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cogent Communications Holdings, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive (loss) income, shareholders’ deficit and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Page 41 of 75 Table of Contents ​ ​ ​ ​ ​ Determining the presentation and disclosure requirements for Indefeasible Right of Use Lease Assets and Liabilities Description of the Matter ​ As described in Notes 1 and 2 to the consolidated financial statements, as of December 31, 2022, the Company has $345.1 million and $304.2 million of indefeasible right of use (IRU) finance lease assets, net, and liabilities, respectively, and recorded $107.9 million of IRU finance lease assets and liabilities additions during the year ended December 31, 2022. The Company makes certain judgments and estimates to determine whether a lease is classified as an operating lease versus a financing lease at the lease commencement date. Auditing the classification of IRU lease agreements involved subjectivity due to the application of judgment in management’s determination of the economic life of the underlying asset (the optical fiber) because there is relatively limited publicly available information about the optical fiber market on which to base those judgements. Changes in this assumption may have a material effect on the presentation and disclosure of the Company’s leasing activities within the financial statements due to the volume of the IRU lease agreements executed each period. How We Addressed the Matter in Our Audit ​ We tested the design and operating effectiveness of the Company’s controls over the process to determine the economic life of the underlying asset (the optical fiber) of the IRU leases. To test the classification of IRU lease agreements, our audit procedures included among others, assessing the Company’s assumptions by evaluating industry practices and the Company’s experience as a lessee of IRU leases, in estimating the economic life of optical fiber, compared to those assumptions selected by management. ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002 Tysons, VA February 24, 2023 ​ Page 42 of 75 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2022 AND 2021 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 223,783 ​ $ 319,609 Restricted cash ​ ​ 52,129 ​ ​ 9,015 Accounts receivable, net of allowance for credit losses of $ 2,303 and $ 1,510 , respectively ​ 44,123 ​ ​ 41,938 Prepaid expenses and other current assets ​ 45,878 ​ ​ 39,015 Total current assets ​ 365,913 ​ ​ 409,577 Property and equipment: ​ ​ ​ ​ ​ ​ Property and equipment ​ 1,714,906 ​ ​ 1,619,515 Accumulated depreciation and amortization ​ ( 1,170,476 ) ​ ​ ( 1,161,635 ) Total property and equipment, net ​ 544,430 ​ ​ 457,880 Right-of-use leased assets ​ ​ 81,601 ​ ​ 101,687 Deposits and other assets ​ 18,238 ​ ​ 15,413 Total assets ​ $ 1,010,182 ​ $ 984,557 Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 27,208 ​ $ 11,923 Accrued and other current liabilities ​ 63,889 ​ ​ 39,057 Current maturities, operating lease liabilities ​ ​ 12,005 ​ ​ 12,197 Installment payment agreement, current portion, net of discount of $ 6 ​ ​ — ​ ​ 785 Finance lease obligations, current maturities ​ 17,182 ​ ​ 17,048 Total current liabilities ​ 120,284 ​ ​ 81,010 Senior unsecured 2024 notes, net of unamortized debt costs of $ 2,121 and net of discount of $ 772 ​ ​ — ​ ​ 394,112 Senior secured 2026 notes, net of unamortized debt costs of $ 905 and $ 1,156 , respectively, and discount of $ 1,203 and $ 1,536 , respectively ​ ​ 497,892 ​ ​ 497,308 Senior unsecured 2027 notes, net of unamortized debt costs of $ 1,173 and discount of $ 2,456 ​ 446,371 ​ ​ — Operating lease liabilities, net of current maturities ​ ​ 94,587 ​ ​ 111,794 Finance lease obligations, net of current maturities ​ 287,044 ​ ​ 228,822 Other long-term liabilities ​ 82,636 ​ ​ 44,609 Total liabilities ​ 1,528,814 ​ ​ 1,357,655 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ ​ ​ ​ Common stock, $ 0.001 par value; 75,000,000 shares authorized; 48,013,330 and 47,674,189 shares issued and outstanding , respectively ​ 48 ​ ​ 48 Additional paid-in capital ​ 575,064 ​ ​ 547,734 Accumulated other comprehensive loss ​ ( 19,156 ) ​ ​ ( 11,003 ) Accumulated deficit ​ ( 1,074,588 ) ​ ​ ( 909,877 ) Total stockholders’ deficit ​ ( 518,632 ) ​ ​ ( 373,098 ) Total liabilities and stockholders’ deficit ​ $ 1,010,182 ​ $ 984,557 ​ The accompanying notes are an integral part of these consolidated balance sheets. ​ Page 43 of 75 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2022 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Service revenue ​ $ 599,604 ​ $ 589,797 ​ $ 568,103 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Network operations (including $ 553 , $ 2,521 and $ 1,219 of equity-based compensation expense, respectively), exclusive of amounts shown separately ​ 228,154 ​ ​ 226,337 ​ ​ 219,157 Selling, general, and administrative (including $ 23,886 , $ 24,301 and $ 22,306 of equity-based compensation expense, respectively) ​ 163,021 ​ ​ 162,380 ​ ​ 158,476 Acquisition costs – Sprint (T-Mobile Wireline) (Note 1) ​ ​ 2,248 ​ ​ — ​ ​ — Depreciation and amortization ​ 92,222 ​ ​ 89,240 ​ ​ 83,477 Total operating expenses ​ 485,645 ​ ​ 477,957 ​ ​ 461,110 Gains on equipment transactions ​ ​ — ​ ​ 18 ​ ​ 352 Gains (losses) on lease terminations ​ — ​ 7,375 ​ ( 423 ) Operating income ​ ​ 113,959 ​ ​ 119,233 ​ ​ 106,922 Interest expense ​ ( 67,584 ) ​ ​ ( 58,059 ) ​ ​ ( 62,486 ) Change in valuation – interest rate swap ​ ​ ( 43,113 ) ​ ​ ( 9,015 ) ​ ​ — Realized foreign exchange gain on 2024 Notes ​ ​ — ​ ​ — ​ ​ 2,533 Foreign exchange gain (loss) on 2024 Notes ​ ​ 31,561 ​ ​ 32,522 ​ ​ ( 36,997 ) Loss on debt extinguishment and redemption – 2021 Notes ​ ​ — ​ ​ — ​ ​ ( 638 ) Loss on debt extinguishment and redemption – 2022 Notes ​ ​ — ​ ​ ( 14,698 ) ​ ​ — Loss on debt extinguishment and redemption – 2024 Notes ​ ​ ( 11,885 ) ​ ​ — ​ ​ — Interest income and other ​ ​ 3,438 ​ ​ 1,437 ​ ​ 978 Income before income taxes ​ 26,376 ​ ​ 71,420 ​ ​ 10,312 Income tax expense ​ ( 21,230 ) ​ ​ ( 23,235 ) ​ ​ ( 4,096 ) Net income ​ $ 5,146 ​ $ 48,185 ​ $ 6,216 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive (loss) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 5,146 ​ $ 48,185 ​ $ 6,216 Foreign currency translation adjustment ​ ( 8,153 ) ​ ​ ( 9,697 ) ​ ​ 11,020 Comprehensive (loss) income ​ $ ( 3,007 ) ​ $ 38,488 ​ $ 17,236 Basic net income per common share ​ $ 0.11 ​ $ 1.04 ​ $ 0.14 Diluted net income per common share ​ $ 0.11 ​ $ 1.03 ​ $ 0.13 Dividends declared per common share ​ $ 3.555 ​ $ 3.170 ​ $ 2.780 Weighted-average common shares-basic ​ ​ 46,875,992 ​ ​ 46,419,180 ​ ​ 45,947,772 Weighted-average common shares -diluted ​ 47,207,298 ​ ​ 46,963,920 ​ ​ 46,668,198 ​ The accompanying notes are an integral part of these consolidated statements. ​ Page 44 of 75 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2022 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholder’s ​ Shares Amount Capital Income (Loss) Deficit Deficit Balance at December 31, 2019 46,840,434 ​ $ 47 ​ $ 493,178 ​ $ ( 12,326 ) ​ $ ( 684,578 ) ​ $ ( 203,679 ) Forfeitures of shares granted to employees ( 53,428 ) ​ — ​ — ​ — ​ — ​ — Equity-based compensation — ​ — ​ 25,802 ​ — ​ — ​ 25,802 Foreign currency translation — ​ — ​ — ​ 11,020 ​ — ​ 11,020 Issuances of common stock 476,030 ​ — ​ — ​ — ​ — ​ — Exercises of options 30,097 ​ — ​ 1,382 ​ — ​ — ​ 1,382 Common stock purchases and retirement ​ ( 79,056 ) ​ ​ — ​ ​ ( 4,495 ) ​ ​ — ​ ​ — ​ ​ ( 4,495 ) Dividends paid — ​ — ​ — ​ — ​ ( 129,412 ) ​ ( 129,412 ) Net income — ​ — ​ — ​ — ​ 6,216 ​ 6,216 Balance at December 31, 2020 47,214,077 ​ $ 47 ​ $ 515,867 ​ $ ( 1,306 ) ​ $ ( 807,774 ) ​ $ ( 293,166 ) Forfeitures of shares granted to employees ( 47,436 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity-based compensation — ​ ​ — ​ ​ 30,044 ​ ​ — ​ ​ — ​ ​ 30,044 Foreign currency translation — ​ ​ — ​ ​ — ​ ​ ( 9,697 ) ​ ​ — ​ ​ ( 9,697 ) Issuances of common stock 471,080 ​ ​ 1 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1 Exercises of options 36,468 ​ ​ — ​ ​ 1,823 ​ ​ — ​ ​ — ​ ​ 1,823 Dividends paid ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 150,288 ) ​ ​ ( 150,288 ) Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 48,185 ​ ​ 48,185 Balance at December 31, 2021 47,674,189 ​ $ 48 ​ $ 547,734 ​ $ ( 11,003 ) ​ $ ( 909,877 ) ​ $ ( 373,098 ) Forfeitures of shares granted to employees ( 77,079 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity-based compensation — ​ ​ — ​ ​ 26,716 ​ ​ — ​ ​ — ​ ​ 26,716 Foreign currency translation — ​ ​ — ​ ​ — ​ ​ ( 8,153 ) ​ ​ — ​ ​ ( 8,153 ) Issuances of common stock 401,036 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exercises of options 15,184 ​ ​ — ​ ​ 614 ​ ​ — ​ ​ — ​ ​ 614 Dividends paid — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 169,857 ) ​ ​ ( 169,857 ) Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,146 ​ ​ 5,146 Balance at December 31, 2022 ​ 48,013,330 ​ $ 48 ​ $ 575,064 ​ $ ( 19,156 ) ​ $ ( 1,074,588 ) ​ $ ( 518,632 ) ​ ​ Page 45 of 75 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2022 (IN THOUSANDS) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 5,146 ​ $ 48,185 ​ $ 6,216 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 92,222 ​ ​ 89,240 ​ ​ 83,477 Amortization of debt discount and premium ​ 1,464 ​ ​ 1,759 ​ ​ 1,894 Equity-based compensation expense (net of amounts capitalized) ​ 24,439 ​ ​ 26,822 ​ ​ 23,525 Foreign currency exchange (gain) loss on 2024 Notes ​ ​ ( 31,561 ) ​ ​ ( 32,522 ) ​ ​ 36,997 Realized foreign currency exchange gain on 2024 Notes ​ ​ — ​ ​ — ​ ​ ( 2,533 ) Loss on extinguishment & redemption of 2024 notes ​ ​ 11,885 ​ ​ — ​ ​ — Loss on extinguishment & redemption of 2022 notes ​ ​ — ​ ​ 14,698 ​ ​ — Loss on extinguishment & redemption of 2021 notes ​ ​ — ​ ​ — ​ ​ 638 Gain – lease termination ​ ​ — ​ ​ ( 7,375 ) ​ ​ — Gains—equipment transactions and other, net ​ ​ 372 ​ ​ 69 ​ ​ ( 546 ) Deferred income taxes ​ ​ 16,539 ​ ​ 18,159 ​ ​ 282 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 2,838 ) ​ ​ 1,385 ​ ​ ( 2,702 ) Prepaid expenses and other current assets ​ ( 7,427 ) ​ ​ ( 17 ) ​ ​ ( 2,771 ) Change in valuation – interest rate swap agreement ​ ​ 43,113 ​ ​ 9,015 ​ ​ — Deposits and other assets ​ ( 282 ) ​ ​ ( 12 ) ​ ​ ( 873 ) Accounts payable, accrued liabilities and other long-term liabilities ​ ​ 20,635 ​ ​ 851 ​ ​ ( 3,284 ) Net cash provided by operating activities ​ 173,707 ​ ​ 170,257 ​ ​ 140,320 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 78,971 ) ​ ​ ( 69,916 ) ​ ​ ( 55,952 ) Net cash used in investing activities ​ ( 78,971 ) ​ ​ ( 69,916 ) ​ ​ ( 55,952 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net proceeds from issuance of 2027 Notes, net of debt costs of $ 1,290 ​ ​ 446,010 ​ ​ — ​ ​ — Net proceeds from issuance of 2026 Notes, net of debt costs of $ 1,317 ​ ​ — ​ ​ 496,933 ​ ​ — Net proceeds from issuance of 2024 Notes, net of debt costs of $ 2,137 ​ ​ — ​ ​ — ​ ​ 240,285 Redemption and extinguishment of 2024 Notes ​ ​ ( 375,354 ) ​ ​ — ​ ​ — Redemption and extinguishment of 2022 Notes ​ ​ — ​ ​ ( 459,317 ) ​ ​ — Redemption and extinguishment of 2021 Notes ​ ​ — ​ ​ — ​ ​ ( 189,225 ) Dividends paid ​ ( 169,857 ) ​ ​ ( 150,288 ) ​ ( 129,412 ) Principal payments of finance lease obligations ​ ​ ( 45,472 ) ​ ​ ( 23,054 ) ​ ​ ( 23,990 ) Principal payments of installment payment agreement ​ ​ ( 790 ) ​ ​ ( 6,922 ) ​ ​ ( 10,547 ) Purchases of common stock ​ ​ — ​ ​ — ​ ​ ( 4,495 ) Proceeds from exercises of common stock options ​ ​ 614 ​ ​ 1,823 ​ ​ 1,382 Net cash used in financing activities ​ ( 144,849 ) ​ ​ ( 140,825 ) ​ ​ ( 116,002 ) Effect of exchange rate changes on cash ​ ( 2,599 ) ​ ​ ( 2,193 ) ​ ​ 3,513 Net decrease in cash and cash equivalents & restricted cash ​ ( 52,712 ) ​ ( 42,677 ) ​ ​ ( 28,121 ) Cash and cash equivalents & restricted cash, beginning of year ​ 328,624 ​ ​ 371,301 ​ ​ 399,422 Cash and cash equivalents & restricted cash, end of year ​ $ 275,912 ​ $ 328,624 ​ $ 371,301 Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 66,479 ​ $ 59,497 ​ $ 62,917 Cash paid for income taxes ​ ​ 7,156 ​ ​ 4,452 ​ ​ 3,446 Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance lease obligations incurred ​ ​ 107,875 ​ ​ 50,831 ​ ​ 71,622 PP&E obtained for installment payment agreement ​ ​ — ​ ​ — ​ ​ 5,771 Fair value of equipment acquired in leases ​ ​ 1,969 ​ ​ — ​ ​ 536 Non-cash component of network equipment obtained in exchange transactions ​ ​ — ​ ​ — ​ ​ 320 ​ ​ ​ ​ Page 46 of 75 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of the business and summary of significant accounting policies: 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” or the “Company”) 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”). 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 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 51 countries across North America, Europe, Asia, South America, Oceania 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 (“MTOBs”) 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. In connection with the Company’s Sprint acquisition (discussed below), the Company will begin to provide optical wavelength services over the Company’s fiber network. The Company will sell these wavelength services to its existing customers, Sprint customers and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. Page 47 of 75 Table of Contents Acquisition of Sprint Communications On September 6, 2022, Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Sprint Communications LLC, a Kansas limited liability company (“Sprint Communications”) and an indirect wholly owned subsidiary of T-Mobile US, Inc., a Delaware corporation (“T-Mobile”), and Sprint LLC, a Delaware limited liability company and a direct wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company will acquire the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”). The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Company will purchase from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of a Delaware limited liability company that holds Sprint Communications’ assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”). The parties have agreed to a $ 1 purchase price in consideration for the Purchased Interests, subject to customary adjustments set forth in the Purchase Agreement. In addition, at the consummation of the Transaction (the “Closing”), a T-Mobile affiliate will enter into an agreement for IP transit services, pursuant to which T-Mobile will pay the Company an aggregate of $ 700 million, consisting of (i) $ 350 million in equal monthly installments during the first year after the Closing and (ii) $ 350 million in equal monthly installments over the subsequent 42 months. The Purchase Agreement includes customary representations, warranties, indemnities and covenants, including regarding the conduct of the Wireline Business prior to the Closing. In addition, the Closing is subject to customary closing conditions, including as to the receipt of certain required regulatory approvals and consents. Subject to the satisfaction or waiver of certain conditions and the other terms and conditions of the Purchase Agreement, the Transaction is expected to close in 2023. The Purchase Agreement contains certain termination rights for the Buyer and Seller, including that, subject to certain limitations, either the Buyer or the Seller may terminate the Purchase Agreement if the Transaction is not consummated by September 6, 2023, subject to two automatic six-month extensions if certain regulatory approvals have not been obtained. The Purchase Agreement also provides that each party may specifically enforce the other party’s obligations under the Purchase Agreement. The Company has agreed to guarantee the obligations of the Buyer under the Purchase Agreement pursuant to the terms of a Guaranty, dated as of September 6, 2022, by and between the Company and the Seller (the “Parent Guaranty”). The Parent Guaranty contains customary representations, warranties and covenants of the Company and the Seller. Acquisition Related Costs In connection with the Transaction and negotiation of the Purchase Agreement, the Company incurred $ 2.2 million of professional fees in the year ended December 31, 2022. Principles of consolidation The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of estimates The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles 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. Page 48 of 75 Table of Contents Allowance for credit losses The Company establishes an allowance for credit losses and other sales credit adjustments related to its trade receivables. Trade receivables are recorded at the invoiced amount and can bear interest. Allowances for sales credits are established through a reduction of revenue, while allowances for credit losses are established through a charge to selling, general, and administrative expenses as bad debt expense. The Company assesses the adequacy of these reserves by evaluating factors, such as the length of time individual receivables are past due, historical collection experience, and changes in the credit worthiness of its customers. The Company also assesses the ability of specific customers to meet their financial obligations and establishes specific allowances related to these customers. If circumstances relating to specific customers change or economic conditions change such that the Company’s past collection experience and assessment of the economic environment are no longer appropriate, the Company’s estimate of the recoverability of its trade receivables could be impacted. Accounts receivable balances are written off against the allowance for credit losses after all means of internal collection activities have been exhausted and the potential for recovery is considered remote. The Company uses third-party collection services to continue to seek collection for it’s written off accounts receivable. Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) later codified as Accounting Standards Codification (“ASC”) 326 (“ASC 326”), using the modified retrospective transition approach. This guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. 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. Adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures, and no cumulative adjustment was recorded. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current-period ​ ​ ​ ​ ​ ​ ​ ​ Balance at ​ Provision for ​ Write offs ​ Balance at ​ Beginning Expected Credit Charged Against End of Description of Period Losses Allowance Period Allowance for credit losses (deducted from accounts receivable) ​ ​ ​ ​ ​ ​ ​ ​ Year ending December 31, 2022 $ 1,510 ​ $ 4,318 ​ $ ( 3,525 ) ​ $ 2,303 Year ending December 31, 2021 $ 1,921 ​ $ 5,595 ​ $ ( 6,006 ) ​ $ 1,510 Year ending December 31, 2020 $ 1,771 ​ $ 4,997 ​ $ ( 4,847 ) ​ $ 1,921 ​ The current-period provision for expected credit losses is net of bad debt recoveries of $ 1.9 million, $ 2.2 million and $ 1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced most existing lease accounting guidance. In July 2018, the FASB approved an Accounting Standards Update which, among other changes, allowed a company to elect to adopt ASU 2016-02 using the modified retrospective method applying the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these financial statements. ASU 2016-02 was effective for the Company beginning on January 1, 2019 and required the Company to record a right-of-use asset and a lease liability for most of its facilities leases. These leases were previously treated as operating leases. The Company adopted ASU 2016-02 using the optional transition method whereby the new lease requirements under ASU 2016-02 were recorded through a cumulative-effect adjustment, which after completing the implementation analysis, did not result in an adjustment to the Company’s January 1, 2019 beginning retained earnings balance. The effect of ASU 2016-02 was to record a cumulative-effect adjustment on January 1, 2019 as a right-of-use asset and an operating lease liability totaling $ 97.3 million. The operating lease liability 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, Page 49 of 75 Table of Contents not reassessing whether any existing contracts contained leases, not reconsidering lease classification, not reassessing initial direct costs and using hindsight in determining the lease reasonably certain term of its leases. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ​ ​ Year ​ ​ ​ ​ Ended ​ ​ Ended ​ ​ December 31, 2022 December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance lease cost amortization of right-of-use assets ​ $ 28,915 ​ $ 26,424 ​ Interest expense on finance lease liabilities ​ ​ 23,317 ​ ​ 19,419 ​ Operating lease cost ​ ​ 18,331 ​ ​ 18,382 ​ Total lease costs ​ ​ 70,563 ​ ​ 64,225 ​ Other lease information ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash flows from finance leases ​ ​ ( 23,317 ) ​ ​ ( 17,366 ) ​ Operating cash flows from operating leases ​ ​ ( 18,836 ) ​ ​ ( 20,194 ) ​ Financing cash flows from finance leases ​ ​ ( 45,472 ) ​ ​ ( 23,054 ) ​ Right-of-use assets obtained in exchange for new finance lease liabilities ​ ​ 107,875 ​ ​ 50,831 ​ Right-of-use assets obtained in exchange for new operating lease liabilities ​ ​ 11,168 ​ ​ 17,853 ​ Weighted-average remaining lease term — finance leases (in years) ​ ​ 13.5 ​ ​ 12.6 ​ Weighted-average remaining lease term — operating leases (in years) ​ ​ 16.6 ​ ​ 18.7 ​ Weighted average discount rate — finance leases ​ ​ 8.6 % ​ 9.0 % Weighted average discount rate — operating leases ​ ​ 5.4 % ​ 5.4 % ​ 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 determination of the Company’s incremental borrowing rate requires some judgment. Finance lease assets are included in property and equipment in the Company’s consolidated balance sheets. As of December 31, 2022, the Company had committed to additional dark fiber IRU lease agreements totaling $ 70.3 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. Operating leases The Company leases office space and certain data center facilities under operating leases. In certain cases the Company also enters into short-term operating leases for dark fiber. 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 determination of the Company’s incremental borrowing rate requires some judgment. 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. 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. Page 50 of 75 Table of Contents The future minimum payments under these operating lease and finance lease agreements are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Finance For the twelve months ending December 31, ​ Leases ​ Leases 2023 $ 17,181 ​ $ 40,425 2024 ​ ​ 16,658 ​ ​ 42,686 2025 ​ ​ 14,255 ​ ​ 37,458 2026 ​ ​ 12,285 ​ ​ 34,685 2027 ​ ​ 10,900 ​ ​ 35,521 Thereafter ​ ​ 87,702 ​ ​ 333,836 Total minimum lease obligations ​ ​ 158,981 ​ ​ 524,611 Less—amounts representing interest ​ ​ ( 52,389 ) ​ ​ ( 220,385 ) Present value of minimum lease obligations ​ ​ 106,592 ​ ​ 304,226 Current maturities ​ ​ ( 12,005 ) ​ ​ ( 17,182 ) Lease obligations, net of current maturities ​ $ 94,587 ​ $ 287,044 ​ 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 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 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. These contract costs were $ 23.7 million as of December 31, 2022 and were $ 21.4 million as of December 31, 2021. 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; and 5) Recognition of revenue when, or as, the Company satisfies a performance obligation. Page 51 of 75 Table of Contents 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 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 years ended December 31, 2022, 2021 and 2020 was $ 5.0 million, $ 4.6 million and $ 4.4 million, respectively. Amortization expense for contract costs for the years ended December 31, 2022, 2021 and 2020 was $ 19.4 million, $ 18.4 million and $ 17.1 million, respectively. 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 revenues and costs of network operations. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $ 15.4 million, $ 18.5 million, and $ 15.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. Network operations Network operations expenses include the costs of personnel and related operating expenses associated with service delivery, network management, and customer support, network facilities costs, fiber and equipment maintenance fees, leased circuit costs, access fees paid to building owners and certain excise taxes and surcharges recorded on a gross basis. The Company estimates its accruals for any disputed leased circuit obligations based upon the nature and age of the dispute. Network operations costs are impacted by the timing and amounts of disputed circuit costs. The Company generally records these disputed amounts when billed by the vendor and reverses these amounts when the vendor credit has been received or the dispute has otherwise been resolved. The Company does not allocate depreciation and amortization expense to its network operations expense. Foreign currency translation adjustment and comprehensive income The consolidated financial statements of the Company’s non-US operations are translated into US dollars using the period-end foreign currency exchange rates for assets and liabilities and the average foreign currency exchange rates for revenues and expenses. Gains and losses on translation of the accounts are accumulated and reported as a component of other comprehensive income in stockholders’ equity. The Company’s only components of “other comprehensive income” are currency translation adjustments for all periods presented. The Company considers the majority of its investments in its foreign subsidiaries to be long-term in nature. The Company’s foreign exchange transaction gains (losses) are included within interest income and other on the consolidated statements of comprehensive income. Financial instruments The Company considers all highly liquid investments with an original maturity of three months or less at purchase to be cash equivalents. The Company determines the appropriate classification of its investments at the time of purchase and evaluates such designation at each balance sheet date. At December 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 December 31, 2022, the fair value of the Company’s $ 500.0 million senior secured notes due 2026 was $ 452.5 million, the fair value of the Company’s $ 450.0 million senior unsecured notes due 2027 was $ 441.0 million and the estimated fair value of the Company’s Swap Agreement was $ 52.1 million. Restricted cash and interest rate swap agreement Restricted cash represents amounts held in segregated bank accounts by our clearing broker as margin in support of our Swap Agreement, as discussed in Note 4, and was $ 52.1 million as of December 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. Page 52 of 75 Table of Contents Concentrations of credit risk The Company’s assets that are exposed to credit risk consist of its cash and cash equivalents, other assets and accounts receivable. As of December 31, 2022 and 2021, the Company’s cash equivalents were invested in demand deposit accounts, overnight investments and money market funds. The Company places its cash equivalents in instruments that meet high-quality credit standards as specified in the Company’s investment policy guidelines. Accounts receivable are due from customers located in major metropolitan areas in the United States, Europe, Canada, Mexico, Asia, South America, Oceania and Africa. Receivables from the Company’s net-centric (wholesale) customers are generally subject to a higher degree of credit risk than the Company’s corporate customers. The Company relies upon an equipment vendor for the majority of its network equipment and is also dependent upon many third-party fiber providers for providing its services to its customers. Property and equipment Property and equipment are recorded at cost and depreciated once deployed using the straight-line method over the estimated useful lives of the assets. Useful lives are determined based on historical usage with consideration given to technological changes and trends in the industry that could impact the asset utilization. System infrastructure costs include the capitalized compensation costs of employees directly involved with construction activities and costs incurred by third-party contractors. Assets and liabilities under finance leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. Leasehold improvements include costs associated with building improvements and customer installation costs. The Company determines the number of renewal option periods, if any, included in the lease term for purposes of amortizing leasehold improvements and the lease term of its finance leases based upon its assessment at the inception of the lease for which the failure to renew the lease imposes a penalty on the Company in such amount that a renewal appears to be reasonably assured. Expenditures for maintenance and repairs are expensed as incurred. Depreciation and amortization periods are as follows: ​ ​ ​ ​ Type of asset Depreciation or amortization period Indefeasible rights of use (IRUs) Shorter of useful life or the IRU lease agreement; generally 15 to 20 years Network equipment 3 to 8 years Leasehold improvements Shorter of lease term, including reasonably assured renewal periods, or useful life Software 5 years Owned buildings 40 years Office and other equipment 3 to 7 years System infrastructure 5 to 10 years ​ Long-lived assets The Company’s long-lived assets include property and equipment. These long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is determined by comparing the carrying value of these long-lived assets to management’s probability weighted estimate of the future undiscounted cash flows expected to result from the use of the assets. In the event an impairment exists, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset, which would be determined by using quoted market prices or valuation techniques such as the discounted present value of expected future cash flows, appraisals, or other pricing models. In the event there are changes in the planned use of the Company’s long-term assets or the Company’s expected future undiscounted cash flows are reduced significantly, the Company’s assessment of its ability to recover the carrying value of these assets could change. Equity-based compensation The Company recognizes compensation expense for its share-based payments granted to its employees based on their grant date fair values with the expense being recognized on a straight-line basis over the requisite service period. The Company begins recording equity-based compensation expense related to performance awards when it is considered probable that the performance conditions will be met and for market-based awards compensation cost is recognized if the service condition is satisfied even if the market condition is not satisfied. Equity-based compensation expense is recognized in the statements of comprehensive income in a manner consistent with the classification of the employee’s salary and other compensation. Page 53 of 75 Table of Contents Income taxes The Company’s deferred tax assets or liabilities are computed based upon the differences between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based upon the changes in the assets or liability from period to period. At each balance sheet date, the Company assesses the likelihood that it will be able to realize its deferred tax assets. Valuation allowances are established when management determines that it is “more likely than not” that some portion or all of the deferred tax asset may not be realized. The Company considers all available positive and negative evidence in assessing the need for a valuation allowance including its historical operating results, ongoing tax planning, and forecasts of future taxable income, on a jurisdiction by jurisdiction basis. The Company reduces its valuation allowance if the Company concludes that it is “more likely than not” that it would be able to realize its deferred tax assets. Management determines whether a tax position is more likely than not to be sustained upon examination based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the financial statements. The Company adjusts its estimated liabilities for uncertain tax positions periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of its income tax expense. 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. The following details the determination of the diluted weighted average shares: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Year Ended ​ Year Ended ​ ​ December 31, ​ December 31, ​ December 31, ​ 2022 2021 2020 Weighted average common shares—basic ​ 46,875,992 46,419,180 ​ 45,947,772 Dilutive effect of stock options ​ 16,064 34,007 ​ 80,849 Dilutive effect of restricted stock ​ 315,242 510,733 ​ 639,577 Weighted average common shares—diluted ​ 47,207,298 46,963,920 ​ 46,668,198 ​ The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock options and restricted stock awards outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, December 31, ​ ​ 2022 ​ 2021 ​ 2020 Unvested shares of restricted common stock ​ 1,164,021 ​ 1,253,321 ​ 1,339,596 Anti-dilutive options for common stock ​ 105,556 ​ 45,809 ​ 32,324 Anti-dilutive shares of restricted common stock ​ 541,608 ​ 86,619 ​ 223,118 ​ ​ Page 54 of 75 Table of Contents 2. Property and equipment: Property and equipment consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Owned assets: ​ ​ ​ ​ ​ ​ Network equipment ​ $ 673,479 ​ $ 650,634 Leasehold improvements ​ 263,861 ​ ​ 250,623 System infrastructure ​ 171,694 ​ ​ 160,376 Software ​ 11,277 ​ ​ 11,028 Office and other equipment ​ 22,071 ​ ​ 20,999 Building ​ 6,140 ​ ​ 1,273 Land ​ 101 ​ ​ 107 ​ ​ 1,148,623 ​ ​ 1,095,040 Less—Accumulated depreciation and amortization ​ ( 949,277 ) ​ ​ ( 912,579 ) ​ ​ 199,346 ​ ​ 182,461 Assets under finance leases: ​ ​ ​ ​ ​ ​ IRUs ​ 566,283 ​ ​ 524,475 Less—Accumulated depreciation and amortization ​ ( 221,199 ) ​ ​ ( 249,056 ) ​ ​ 345,084 ​ ​ 275,419 Property and equipment, net ​ $ 544,430 ​ $ 457,880 ​ Depreciation and amortization expense related to property and equipment and finance leases was $ 92.2 million, $89.2 million and $83.5 million, for 2022, 2021 and 2020, respectively. The Company capitalizes the compensation cost of employees directly involved with its construction activities. In 2022, 2021 and 2020, the Company capitalized compensation costs of $ 12.6 million, $ 13.4 million and $ 12.1 million, respectively. These amounts are included in system infrastructure costs. Installment payment agreement The Company had entered into an installment payment agreement (“IPA”) with a vendor. Under the IPA the Company was able to purchase network equipment in exchange for interest free note obligations each with a twenty-four month term. There were no payments under each note obligation for the first six months followed by eighteen equal installment payments for the remaining eighteen month term. As of December 31, 2021, there was $ 0.8 million of note obligations outstanding under the IPA, secured by the related equipment. The Company recorded the assets purchased and the present value of the note obligation utilizing an imputed interest rate. The resulting discounts under the note obligations were amortized over the note term using the effective interest rate method. The IPA was fully repaid in 2022. 3. Accrued and other liabilities: Accrued and other current liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 2021 Operating accruals ​ $ 19,488 ​ $ 16,360 Interest rate swap agreement - current portion ​ ​ 20,267 ​ ​ — Deferred revenue—current portion ​ 4,911 ​ ​ 4,894 Payroll and benefits ​ 11,880 ​ ​ 8,466 Taxes—non-income based ​ 2,687 ​ ​ 4,291 Interest ​ 4,656 ​ ​ 5,046 Total ​ $ 63,889 ​ $ 39,057 ​ ​ Page 55 of 75 Table of Contents 4. Long-term debt: As of December 31, 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. 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. 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 2027 Notes Closing Date, 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. The 2024 Notes were issued in Euros and were reported in the Company’s reporting currency, US dollars, until they were extinguished and redeemed. Prior to the redemption of the 2024 Notes, the gain (loss) on foreign exchange on the 2024 Notes from converting Euros into US dollars was $ 31.6 million, $ 32.5 million and ($ 37.0 ) million for 2022, 2021 and 2020, respectively. 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. On the Redemption Date the 2024 Notes were valued at $ 365.8 million, resulting in a gain on foreign exchange of $ 31.6 million for the year ended December 31, 2022. 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 Page 56 of 75 Table of Contents 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. Senior unsecured notes - €350.0 million 2024 Notes In June 2019, Group completed an offering of € 135.0 million of 2024 Notes. The net proceeds from the June 2019 offering, after deducting offering expenses, were $ 152.1 million. In June 2020, Group completed an offering of € 215.0 million of 2024 Notes. The net proceeds from the June 2020 offering, after deducting offering expenses, was $ 240.3 million. The 2024 Notes were guaranteed (the “Guarantees”) on a senior unsecured basis, jointly and severally, by the Company’s material domestic subsidiaries, subject to certain exceptions, and by the Company (collectively, the “Guarantors”). Under certain circumstances, the Guarantors could be released from these Guarantees without the consent of the holders of the 2024 Notes. The 2024 Notes bore interest at a rate of 4.375 % per annum and was paid semi-annually in arrears on June 30 and December 30 of each year. The 2024 Notes were scheduled to mature on June 30, 2024. The 2024 Notes were issued in Euros and were reported in the Company’s reporting currency — US dollars. As of December 31, 2020, the Company’s € 350.0 million of 2024 Notes were valued at $ 429.3 million resulting in a loss on foreign exchange of $ 37.0 million for the year ended December 31, 2020. As of December 31, 2021, the 2024 Notes were valued at $ 397.0 million, resulting in a gain on foreign exchange of $ 32.5 million for the year ended December 31, 2021. In June 2022, Group redeemed the 2024 Notes, as noted above. Senior secured notes - $445.0 million 2022 Notes In February 2015, Group issued $ 250.0 million of 2022 Notes. In December 2016, the Company issued an additional $ 125.0 million par value of its 2022 Notes at a premium of 100.375 % of par value. In August 2018, the Company issued an additional $ 70.0 million par value of its 2022 Notes at a premium of 101.75 % of par value. The 2022 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and were scheduled to mature on March 1, 2022. Interest accrued at 5.375 % and was paid semi-annually in arrears on March 1 and September 1 of each year. The 2022 Notes were redeemable prior to December 1, 2021 (three months prior to the maturity date of the Notes) in whole or from time to time in part, at a redemption price equal to the sum of (1) 100 % of the principal amount plus accrued and unpaid interest, if any, to, but not including, the redemption date, and (2) a make-whole premium, if any. The make-whole premium is the excess of (1) the net present value, on the redemption date, of the principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable if such redemption had not been made, over (2) the aggregate Page 57 of 75 Table of Contents principal amount of the notes being redeemed or paid. Net present value shall be determined by discounting, on a semi-annual basis, such principal and interest at the reinvestment rate (as determined in the indenture governing the 2022 Notes) from the respective dates on which such principal and interest would have been payable if such redemption had not been made. In May 2021, Group redeemed the 2022 Notes, as noted above. Senior unsecured notes—$189.2 million 2021 Notes On April 9, 2014, Cogent Communications Finance, Inc. ( “Cogent Finance”), a newly formed financing subsidiary of Group, completed an offering at par of $ 200.0 million of 5.625 % Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A, accrued interest at a rate of 5.625 % and were scheduled to mature on April 15, 2021. Interest was paid semi-annually on April 15 and October 15. Cogent Finance merged with Group, with Group continuing as the surviving corporation (the “Finance Merger”). At the time of consummation of the Finance Merger, Group assumed the obligations of Cogent Finance under the 2021 Notes and the indenture governing the 2021 Notes (the “Indenture”) and Group and each of Group’s domestic subsidiaries became party to the Indenture pursuant to a supplemental indenture to the Indenture and the obligations under the Indenture became obligations solely of Group and each of Group’s domestic subsidiaries. Holdings also provided a guarantee of the 2021 Notes, but Holdings was not subject to the covenants under the Indenture. In the second quarter of 2016, the Company paid $ 10.9 million for the purchase of $ 10.8 million of par value and accrued interest on its 2021 Notes reducing the principal amount to $ 189.2 million. In June 2020, Group redeemed the 2021 Notes with the proceeds from its June 2020 issuance of its 2024 Notes. The Company redeemed the 2021 Notes at a redemption price of 100.00 % of the $ 189.2 million principal amount plus $ 1.6 million of accrued interest. As a result of this transaction, the Company incurred a loss on debt extinguishment and redemption of $ 0.6 million from the amortization of the remaining unamortized notes cost and certain transaction expenses. Limitations under the indentures The 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; 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 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. The Company can also incur unlimited liens (which can be used, together with capacity under the debt covenant, to incur additional secured indebtedness) if the Company’s consolidated secured leverage ratio, as defined in the Indentures, is less than 4.0 to 1.0 . 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). As of December 31, 2022, 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 December 31, 2022, a total of $ 442.4 million (inclusive of a $ 250.0 general basket) was unrestricted and permitted for restricted payments, including dividends and stock purchases. The aggregate future contractual maturities of long-term debt were as follows as of December 31, 2022 (in thousands): ​ ​ ​ ​ ​ For the year ending December 31, ​ ​ 2023 ​ $ — 2024 ​ — 2025 ​ — 2026 ​ 500,000 2027 ​ 450,000 Thereafter ​ — Total ​ $ 950,000 ​ ​ Page 58 of 75 Table of Contents Interest rate swap agreement As of December 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 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 December 31, 2022 the fair value of the Swap Agreement was a net liability of $ 52.1 million of which $ 20.3 million is presented with accrued and other current liabilities and $ 31.9 million is presented with other long-term liabilities. In 2022 and 2021, the Company recorded an unrealized loss related to the Swap Agreement of $ 43.1 million and $ 9.0 million, respectively. The Company has made a $ 61.7 million deposit with the counterparty to the Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $ 61.7 million the Company will be required to deposit additional funds with the counterparty equal to the net liability fair value. As of December 31, 2022, $ 52.1 million of the deposit was restricted and $ 9.6 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. The settlement payment is made each November and May until the Swap Agreement expires in February 2026. Under the first Swap Agreement settlement in November 2021, 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 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. Under the settlement payment made in November 2022, the Company made a payment of $ 3.4 million to the counterparty for a net cash interest cost of $ 3.4 million for the period from May 1, 2022 to October 31, 2022. ​ 5. Income taxes: The components of income before income taxes consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Domestic ​ $ 34,784 ​ $ 73,753 ​ $ 23,808 Foreign ​ ( 8,408 ) ​ ​ ( 2,333 ) ​ ​ ( 13,496 ) Total income before income taxes ​ $ 26,376 ​ $ 71,420 ​ $ 10,312 ​ The income tax expense is comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Current: ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ — ​ $ — ​ $ 32 State ​ ( 4,195 ) ​ ( 3,116 ) ​ ( 2,908 ) Foreign ​ ( 496 ) ​ ( 1,833 ) ​ ( 947 ) Deferred: ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ ( 16,299 ) ​ ( 17,959 ) ​ ( 1,867 ) State ​ ( 143 ) ​ ( 2,348 ) ​ 1,241 Foreign ​ ( 97 ) ​ 2,021 ​ 353 Total income tax expense ​ $ ( 21,230 ) ​ $ ( 23,235 ) ​ $ ( 4,096 ) ​ Page 59 of 75 Table of Contents Our consolidated temporary differences comprising our net deferred tax assets are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Deferred Tax Assets: ​ ​ ​ ​ ​ ​ Net operating loss carry-forwards ​ $ 226,625 ​ $ 246,276 Tax credits ​ 1,936 ​ ​ 2,119 Equity-based compensation ​ ​ 3,951 ​ ​ 3,976 Operating leases ​ ​ 32,769 ​ ​ 40,627 Total gross deferred tax assets ​ 265,281 ​ ​ 292,998 Valuation allowance ​ ​ ( 140,895 ) ​ ​ ( 132,800 ) ​ ​ ​ 124,386 ​ ​ 160,198 Deferred Tax Liabilities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 61,761 ​ ​ 46,642 Accrued liabilities and other ​ 77,690 ​ ​ 103,705 Right-of-use assets ​ ​ 29,710 ​ ​ 37,784 Gross deferred tax liabilities ​ 169,161 ​ ​ 188,131 Net deferred tax liabilities ​ $ 44,775 ​ $ 27,933 ​ At each balance sheet date, the Company assesses the likelihood that it will be able to realize its deferred tax assets. The Company considers all available positive and negative evidence in assessing the need for a valuation allowance. The Company maintains a full valuation allowance against certain of its deferred tax assets consisting primarily of net operating loss carryforwards related to its foreign operations in Europe, Asia, South America, Oceania and Africa. As of December 31, 2022, the Company has combined net operating loss carry-forwards of $ 943.0 million. This amount includes federal net operating loss carry-forwards in the United States of $ 19.2 million, net operating loss carry-forwards related to its European operations of $ 913.7 million and $ 10.1 million related to its other international operations. Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. The Company has performed an analysis of its Section 382 ownership changes and has determined that the utilization of certain of its net operating loss carryforwards in the United States is limited based on the annual Section 382 limitation and remaining carryforward period. Of the net operating losses available at December 31, 2022 in the United States $ 19.2 million are limited for use under Section 382. Net operating loss carryforwards outside of the United States totaling $ 923.8 million are not subject to limitations similar to Section 382. The net operating loss carryforwards in the United States will expire, if unused, in 2026. The net operating loss carry-forwards related to the Company’s European operations include $ 780.5 million that do not expire and $ 133.2 million that expire between 2023 and 2038. The Company has not provided for United States deferred income taxes or foreign withholding taxes on its undistributed earnings for certain non-US subsidiaries earnings or cumulative translation adjustments because these earnings and adjustments are intended to be permanently reinvested in operations outside the United States. It is not practical to determine the amount of the unrecognized deferred tax liability on such undistributed earnings or cumulative translation adjustments. In the normal course of business the Company takes positions on its tax returns that may be challenged by taxing authorities. The Company evaluates all uncertain tax positions to assess whether the position will more likely than not be sustained upon examination. If the Company determines that the tax position is not more likely than not to be sustained, the Company records a liability for the amount of the benefit that is not more likely than not to be realized when the tax position is settled. The Company does not have a material liability for uncertain tax positions at December 31, 2022 and does not expect that its liability for uncertain tax positions will materially increase during the twelve months ended December 31, 2023, however, actual changes in the liability for uncertain tax positions could be different than currently expected. If recognized, changes in the Company’s total unrecognized tax benefits would impact the Company’s effective income tax rate. The Company or one of its subsidiaries files income tax returns in the US federal jurisdiction and various state and foreign jurisdictions. The Company is subject to US federal tax and state tax examinations for years 2005 to 2022. The Company is subject to tax examinations in its foreign jurisdictions generally for years 2005 to 2022. Page 60 of 75 Table of Contents The following is a reconciliation of the Federal statutory income taxes to the amounts reported in the financial statements (in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Federal income tax expense at statutory rates ​ $ ( 5,537 ) ​ $ ( 14,999 ) ​ $ ( 2,166 ) Effect of: ​ ​ ​ ​ ​ ​ ​ ​ ​ State income taxes, net of federal benefit ​ ( 1,700 ) ​ ​ ( 4,123 ) ​ ​ ( 1,091 ) Impact of foreign operations ​ ( 651 ) ​ ​ 715 ​ ​ ( 365 ) Non-deductible expenses ​ ( 2,679 ) ​ ​ ( 1,365 ) ​ ​ ( 411 ) Tax effect of TCJA from foreign earnings ​ ( 360 ) ​ ​ ( 389 ) ​ ​ ( 66 ) Other ​ — ​ ​ — ​ ​ 32 Changes in valuation allowance ​ ( 10,303 ) ​ ​ ( 3,074 ) ​ ​ ( 29 ) Income tax expense ​ $ ( 21,230 ) ​ $ ( 23,235 ) ​ $ ( 4,096 ) ​ ​ 6. 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 to result in a loss of up to $ 3.8 million in excess of the amount accrued at December 31, 2022. The Company was engaged in litigation in Virginia in which a former provider of transoceanic capacity to the Company was 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 trial took place in July 2022, and in August 2022, the Circuit Court issued an order requiring the Company to pay approximately $ 0.4 million in damages, inclusive of attorneys’ fees. The Company paid a final payment of approximately $ 0.4 million, reflecting accumulated interest and additional attorneys’ fees, in October 2022. 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. Network equipment sites and data center facilities The Company enters into leases for network equipment sites and for space in data center facilities. Future minimum annual payments under these arrangements are as follows (in thousands): ​ ​ ​ ​ ​ For the year ending December 31, ​ ​ 2023 ​ $ 28,038 2024 ​ 16,711 2025 ​ 12,937 2026 ​ 11,104 2027 ​ 3,065 Thereafter ​ 1,164 ​ ​ $ 73,019 ​ Expenses related to these arrangements were $ 21.8 million in 2022, $ 22.0 million in 2021 and $ 21.0 million in 2020. Page 61 of 75 Table of Contents Unconditional purchase obligations Unconditional purchase obligations for equipment and services totaled $ 33.6 million at December 31, 2022. As of December 31, 2022, the Company had also committed to additional dark fiber IRU finance and operating lease agreements totaling $ 70.3 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 2023. Future minimum payments under these obligations are $ 6.2 million, $ 4.1 million, $ 2.8 million, $ 2.8 million and $ 3.2 million for the years ending December 31, 2023 to December 31, 2027, respectively, and $ 51.2 million, thereafter. Defined contribution plan The Company sponsors a 401(k) defined contribution plan that provides for a Company matching payment. The Company matching payments were paid in cash and were $ 0.9 million for 2022, $ 0.9 million for 2021 and $ 0.9 million for 2020. ​ 7. Stockholders’ equity: Authorized shares The Company has 75.0 million shares of authorized $ 0.001 par value common stock and 10,000 authorized but unissued shares of $ 0.001 par value preferred stock. The holders of common stock are entitled to one vote per common share and, subject to any rights of any series of preferred stock, dividends may be declared and paid on the common stock when determined by the Company’s Board of Directors. Common stock buybacks The Company’s Board of Directors has approved $ 50.0 million for purchases of the Company’s common stock under a buyback program (the “Buyback Program”). At December 31, 2022, there was $ 30.4 million remaining for purchases under the Buyback Program. During 2020, the Company purchased 79,056 shares of its common stock for $ 4.5 million. These shares of common stock were subsequently retired.There were no purchases of common stock in 2022 or 2021. Dividends on common stock Dividends are recorded as a reduction to retained earnings. Dividends on unvested restricted shares of common stock are paid as the awards vest. 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. Page 62 of 75 Table of Contents 8. Stock option and award plan: Incentive award plan The Company grants restricted stock and options for common stock under its award plan, as amended (the “Award Plan”). Stock options granted under the Award Plan generally vest over a four-year period and have a term of ten years . Grants of shares of restricted stock granted under the Award Plan generally vest over periods ranging from three to four years . Compensation expense for all awards is recognized on a straight-line basis over the service period. Awards with graded vesting terms that are subject only to service conditions are recognized on a straight-line basis. Certain option and share grants provide for accelerated vesting if there is a change in control, as defined. For grants of restricted stock, when an employee terminates prior to full vesting the employee retains their vested shares and the employees’ unvested shares are returned to the Award Plan. For grants of options for common stock, when an employee terminates prior to full vesting, the employee may elect to exercise their vested options for a period of ninety days and any unvested options are returned to the Award Plan. Shares issued to satisfy awards are provided from the Company’s authorized shares. The vesting of certain shares granted to the Company’s executives is subject to certain performance conditions determined by the Company’s Board of Directors. The vesting of certain 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, the Company’s growth rate in revenue and the Company’s growth rate in cash flow from operating activities, with each portion of the CEO’s performance-based equity award subject to a cap and no shares earned if performance with respect to a target is less than zero. The accounting for equity-based compensation expense requires the Company to make estimates and judgments that affect its financial statements. These estimates for stock options include the following. Expected Dividend Yield—The Company uses an expected dividend yield based upon expected annual dividends and the Company’s stock price. Expected Volatility—The Company uses its historical volatility for a period commensurate with the expected term of the option. Risk-Free Interest Rate—The Company uses the zero coupon US Treasury rate during the quarter having a term that most closely resembles the expected term of the option. Expected Term of the Option—The Company estimates the expected life of the option term by analyzing historical stock option exercises. Forfeiture Rates—The Company estimates its forfeiture rate based on historical data with further consideration given to the class of employees to whom the options or shares were granted. The weighted-average per share grant date fair value of options was $ 10.73 in 2022, $ 12.22 in 2021 and $ 13.21 in 2020. The following assumptions were used for determining the fair value of options granted in the three years ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ ​ December 31, ​ Black-Scholes Assumptions 2022 2021 2020 Dividend yield 5.9 % 4.6 % 3.4 % Expected volatility 33.1 % 33.4 % 31.5 % Risk-free interest rate 3.0 % 0.6 % 1.1 % Expected life of the option term (in years) 4.1 ​ 4.2 ​ 4.2 ​ ​ Page 63 of 75 Table of Contents Stock option activity under the Company’s Award Plan during the year ended December 31, 2022, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ Number of Weighted-Average ​ Options Exercise Price Outstanding at December 31, 2021 148,535 ​ $ 58.24 Granted 84,476 ​ $ 61.28 Cancelled and expired ( 49,836 ) ​ $ 66.77 Exercised—intrinsic value $ 0.3 million; cash received $ 0.6 million ( 15,184 ) ​ $ 40.44 Outstanding at December 31, 2022—$ 0.7 million intrinsic value and 7.3 years weighted-average remaining contractual term 167,991 ​ $ 58.85 Exercisable at December 31, 2022—$ 0.7 million intrinsic value and 5.7 years weighted-average remaining contractual term 91,351 ​ $ 55.11 Expected to vest—$ 0.7 million intrinsic value and 6.9 years weighted-average remaining contractual term 144,268 ​ $ 58.29 ​ A summary of the Company’s non-vested restricted stock awards as of December 31, 2022 and the changes during the year ended December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Grant Date Non-vested awards Shares Fair Value Non-vested at December 31, 2021 1,253,321 ​ $ 61.66 Granted 401,036 ​ $ 66.08 Vested ( 413,257 ) ​ $ 51.63 Forfeited ( 77,079 ) ​ $ 69.72 Non-vested at December 31, 2022 1,164,021 ​ $ 66.22 ​ The weighted average per share grant date fair value of restricted stock granted was $ 66.08 in 2022 ( 0.4 million shares), $ 64.59 in 2021 ( 0.5 million shares) and $ 75.18 in 2020 ( 0.5 million shares). The fair value was determined using the quoted market price of the Company’s common stock on the date of grant. Valuations were obtained to determine the fair value for the shares granted to the Company’s CEO that are subject to the total shareholder return of the Company’s common stock compared to the total shareholder return of the Nasdaq Telecommunications Index. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ December 31, Additional Award Plan Information – Related to Stock Options & Restricted Stock (thousands) 2022 2021 2020 Equity-based compensation expense ​ $ 24,439 ​ $ 26,822 ​ $ 23,525 Income tax benefit related to stock options and restricted stock ​ 2,489 ​ 6,314 ​ 4,211 Capitalized compensation expense related to stock options and restricted stock ​ 2,277 ​ 3,222 ​ 2,275 Intrinsic value of stock options exercised ​ 305 ​ 881 ​ 841 Fair value of shares of restricted stock vested ​ 25,792 ​ 35,749 ​ 25,439 ​ As of December 31, 2022, there was $ 35.3 million of total unrecognized compensation cost related to non-vested equity-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.0 years. ​ 9. 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 at no cost by the Company upon 60 days ’ notice. The Company’s audit committee reviews and approves all transactions with related parties. The Company paid $ 1.7 million in 2022, $ 1.7 million in 2021 and $ 1.7 million in 2020 for rent and related costs (including taxes and utilities) for this lease. ​ Page 64 of 75 Table of Contents On January 6, 2023, the Company entered into two lease agreements (the “New Leases”), one with Thorium LLC and one with Germanium LLC, entities owned by the Company’s Chief Executive Officer, David Schaeffer. The Company’s Audit Committee, which is responsible for reviewing any related party transactions, reviewed and approved the Company’s entry into the New Leases. The first of the New Leases is with Thorium LLC for approximately 54,803 square feet of office space, which will serve as office space for the Company replacing a portion of its current office space in the Northern Virginia area (“Office Lease”). The second of the New Leases is with Germanium LLC for approximately 1,587 square feet of technical space, in the building which will serve as network operations space for the Company (“Network Operations Lease”). The term for each of the New Leases is five years beginning March 1, 2023 (or an actual later date of occupancy). Both of the New Leases are cancellable by the Company without penalty upon 60 days written notice. The amount of fixed annual rent during the term of the Office Lease will be $ 1.2 million, and the Company is also responsible for paying its proportionate share of the building’s operating expenses that exceed a 2023 base year. The amount of fixed annual rent during the term of the Network Operations Lease will be $ 34,914 , and the Company is also responsible for paying its metered utility costs and a proportionate share of the building’s other operating expenses that exceed a 2023 base year. ​ 10. Geographic information: Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing the Company’s performance. The Company has one operating segment. Revenues are attributed to regions based on where the services are provided. Below are the Company’s service revenues and long lived assets by geographic region (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 On-net Off-net Non-core Total North America ​ $ 350,256 ​ $ 128,486 ​ $ 619 ​ $ 479,361 Europe ​ ​ 82,451 ​ ​ 16,144 ​ ​ 49 ​ ​ 98,644 Oceania ​ 13,689 ​ ​ 1,271 ​ ​ 3 ​ ​ 14,963 South America ​ ​ 5,656 ​ ​ 174 ​ ​ 2 ​ ​ 5,832 Africa ​ ​ 727 ​ ​ 77 ​ ​ — ​ ​ 804 Total ​ $ 452,779 ​ $ 146,152 ​ $ 673 ​ $ 599,604 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 On-net Off-net Non-core Total North America ​ $ 340,107 ​ $ 127,383 ​ $ 502 ​ $ 467,992 Europe ​ 87,929 ​ ​ 17,729 ​ ​ 72 ​ ​ 105,730 Oceania ​ 10,197 ​ ​ 1,094 ​ ​ 1 ​ ​ 11,292 South America ​ ​ 4,102 ​ ​ 173 ​ ​ 1 ​ ​ 4,276 Africa ​ ​ 503 ​ ​ 4 ​ ​ — ​ ​ 507 Total ​ $ 442,838 ​ $ 146,383 ​ $ 576 ​ $ 589,797 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 On-net Off-net Non-core Total North America ​ $ 330,924 ​ $ 129,879 ​ $ 474 ​ $ 461,277 Europe ​ 79,568 ​ ​ 17,252 ​ ​ 47 ​ ​ 96,867 Oceania ​ 6,834 ​ ​ 949 ​ ​ — ​ ​ 7,783 South America ​ ​ 2,056 ​ ​ 48 ​ ​ — ​ ​ 2,104 Africa ​ ​ 72 ​ ​ — ​ ​ — ​ ​ 72 Total ​ $ 419,454 ​ $ 148,128 ​ $ 521 ​ $ 568,103 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Long lived assets, net ​ ​ ​ ​ ​ ​ North America ​ $ 397,434 ​ $ 331,537 Europe and other ​ 147,005 ​ ​ 126,355 Total ​ $ 544,439 ​ $ 457,892 ​ ​ Page 65 of 75 Table of Contents 11. Quarterly financial information (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ ​ March 31, ​ June 30, ​ September 30, ​ December 31, ​ 2022 2022 2022 2022 ​ ​ (in thousands, except share and per share amounts) Service revenue ​ $ 149,175 ​ $ 148,450 ​ $ 150,000 ​ $ 151,979 Network operations, including equity-based compensation expense ​ 57,449 ​ 56,514 ​ 57,220 ​ 56,972 Operating income ​ 28,784 ​ 29,566 ​ 28,095 ​ 27,311 Net income (loss) (1) ​ 1,137 ​ 11,164 ​ ( 8,007 ) ​ 851 Net income (loss) per common share - basic ​ 0.02 ​ 0.24 ​ ( 0.17 ) ​ 0.02 Net income (loss) per common share - diluted ​ 0.02 ​ 0.24 ​ ( 0.17 ) ​ 0.02 Weighted-average number of common shares—basic ​ ​ 46,575,848 ​ ​ 46,691,142 ​ ​ 46,736,742 ​ ​ 46,885,512 Weighted-average number of common shares—diluted ​ 46,929,191 ​ 47,029,446 ​ 46,736,742 ​ 47,196,890 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ ​ March 31, ​ June 30, ​ September 30, ​ December 31, ​ 2021 2021 2021 2021 ​ ​ (in thousands, except share and per share amounts) Service revenue ​ $ 146,777 ​ $ 147,879 ​ $ 147,927 ​ $ 147,208 Network operations, including equity-based compensation expense ​ 57,092 ​ 56,180 ​ 56,645 ​ 56,418 Operating income ​ 26,291 ​ 28,211 ​ 28,556 ​ 36,165 Net income ( loss) (2) ​ 18,851 ​ ( 2,493 ) ​ 13,320 ​ 18,507 Net income (loss) per common share - basic ​ ​ 0.41 ​ ( 0.05 ) ​ 0.29 ​ 0.40 Net income (loss) per common share - diluted ​ 0.41 ​ ( 0.05 ) ​ 0.28 ​ 0.39 Weighted-average number of common shares—basic ​ ​ 46,067,096 ​ ​ 46,229,603 ​ ​ 46,293,524 ​ ​ 46,420,168 Weighted-average number of common shares—diluted ​ ​ 46,507,258 ​ 46,229,603 ​ 46,866,929 ​ 46,992,639 (1) Included in net income for the three months ended March 31, 2022 and June 30, 2022, are unrealized gains on foreign exchange on the 2024 Notes of $ 8.0 million and $ 23.5 million, respectively. Included in net income (loss) for the three months ended June 30, 2022, is a loss on debt extinguishment and redemption on the 2024 Notes of $ 11.9 million. Included in net income (loss) for the three months ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 are non-cash charges (benefit) from changes in the valuation of the Swap Agreement of $ 21.3 million, $ 7.5 million, $ 16.9 million and ( $ 2.6 ) million, respectively. (2) Included in net income (loss) for the three months ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021 are unrealized gains (losses) on foreign exchange on the 2024 Notes of $ 18.9 million, ( $ 5.3 ) million, $ 10.2 million and $ 8.8 million, respectively. Included in net income (loss) for the three months ended March 31, 2021 and June 30, 2021, are losses on debt extinguishment and redemption on the 2022 Notes of $ 3.9 million and $ 10.8 million, respectively. Included in net income for the three months ended December 31, 2021 is a gain on lease termination of $ 7.4 million. Included in net income for the three months ended September 30, 2021 and December 31, 2021 are non-c ash charges from changes in the valuation of the Swap Agreement of $ 3.1 million and $ 5.9 million, respectively. ​ 12. Subsequent Events: Dividend On February 22, 2023, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.925 per common share. The dividend for the first quarter of 2023 will be paid to holders of record on March 10, 2023. This estimated $ 43.3 million dividend payment is expected to be made on March 24, 2023. ​ ​ Page 66 of 75 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.