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Item 1. Financial Statements

2024-08-08 compared with 2024-05-09 · 340 added, 211 removed, 447 unchanged (55% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2024 AND DECEMBER 31, 2023

AS OF JUNE 30, 2024 AND DECEMBER 31, 2023

(IN THOUSANDS, EXCEPT SHARE DATA)

23 unchanged sentences

Accrued and other current liabilities

Accrued dividend payable

Due to T-Mobile – Transition Services Agreement

5 unchanged sentences

Senior unsecured 2027 notes, net of unamortized debt costs of $ 2,163 and $ 941 , respectively, and discounts of $ 8,332 and $ 1,970 , respectively

Secured IPv4 notes, net of debt costs of $ 7,323

Operating lease liabilities, net of current maturities

17 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023

FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1 unchanged sentence

Three Months Ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

Service revenue

5 unchanged sentences

Total operating expenses

Operating (loss) income

Interest expense

Reduction to gain on bargain purchase – Sprint Business

Change in valuation – interest rate swap agreement

Gain on lease termination

Operating loss

Interest expense, including change in valuation interest rate swap agreement

Gain on bargain purchase – Sprint Business

Interest income – IP Transit Services Agreement

1 unchanged sentence

Interest income and other, net

Income before income taxes

Income tax benefit (expense)

(Loss) income before income taxes

Income tax benefit

Net (loss) income

12 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Six Months Ended

June 30, 2024

June 30, 2023

Service revenue

Operating expenses:

Network operations (including $ 385 and $ 380 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

Selling, general, and administrative (including $ 10,131 and $ 12,450 of equity-based compensation expense, respectively)

Acquisition costs – Sprint Business

Depreciation and amortization

Total operating expenses

Gain on lease termination

Operating loss

Interest expense, including change in valuation interest rate swap agreement

Gain on bargain purchase – Sprint Business

Interest income – IP Transit Services Agreement

Interest income – Purchase Agreement

Interest income and other, net

(Loss) income before income taxes

Income tax benefit

Net (loss) income

Comprehensive (loss) income:

Net (loss) income

Foreign currency translation adjustment

Comprehensive (loss) income

Net (loss) income per common share:

Basic net (loss) income per common share

Diluted net (loss) income per common share

Dividends declared per common share

Weighted-average common shares - basic

Weighted-average common shares - diluted

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

COGENT COMMUNICATIONS HOLDINGS, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023

(IN THOUSANDS)

Three Months Ended

March 31, 2024

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Amortization of debt discounts

Amortization of debt costs and discounts

Amortization of discounts, due from T-Mobile, IP Transit Services & Purchase Agreements

Equity-based compensation expense (net of amounts capitalized)

Reduction to gain on bargain purchase – Sprint Business

Gains – lease transactions

Gain on bargain purchase – Sprint Business

( 1,155,719 )

Gains – lease terminations and other, net

Deferred income taxes

2 unchanged sentences

Prepaid expenses and other current assets

Change in valuation – interest rate swap agreement

Due to T-Mobile – Transition Services Agreement

3 unchanged sentences

Deposits and other assets

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Cash receipts - IP Transit Services Agreement – T-Mobile

Acquisition of Sprint Business – severance reimbursement

Cash payments - IP Transit Services Agreement – T-Mobile

Acquisition of Sprint Business, net of $ 47.1 million of cash acquired in 2023

Purchases of property and equipment

2 unchanged sentences

Dividends paid

Purchases of common stock

Net proceeds from issuance of senior unsecured 2027 Notes - net of discount of $ 6.8 million and debt costs of $ 1.4 million

Net proceeds from issuance of secured IPv4 notes – net of debt costs of $ 7.6 million

Proceeds from exercises of stock options

Principal payments of finance lease obligations

Net cash used in financing activities

Settlement of finance lease – at a discount

Net cash provided by (used in) financing activities

Effect of exchange rates changes on cash

40 unchanged sentences

Acquisition of Sprint Communications

On September 6, 2022, Cogent Infrastructure, LLC (formerly Cogent Infrastructure, Inc.), a Delaware corporation (the “Buyer”) and a direct 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 an indirect wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company acquired the U.S.

On September 6, 2022, Cogent Infrastructure, LLC (formerly Cogent Infrastructure, Inc.), a Delaware corporation (the “Buyer” and “Cogent Infrastructure”) and a direct 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 an indirect wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company acquired the U.S.

long-haul fiber network (including the non-U.S.

extensions thereof) of Sprint Communications and its subsidiaries (the “Sprint Business”).

The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Company purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of Wireline Network Holdings LLC, a Delaware limited liability company that, following an internal restructuring and divisive merger, holds Sprint Communications’ assets and liabilities relating to the Sprint Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).

Pursuant to the Purchase Agreement, the Company purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of Wireline Network Holdings LLC, a Delaware limited liability company that, following an internal restructuring and divisive merger, holds Sprint Communications’ assets and liabilities relating to the Sprint Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).

The Purchase Agreement includes customary representations, warranties, indemnities and covenants, including regarding the conduct of the Sprint Business prior to the closing of the Transaction (the “Closing”).

In addition, the Closing was subject to customary closing conditions, including as to the receipt of certain required regulatory approvals and consents, all of which have been received.

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.

In addition, the Closing was subject to customary closing conditions, including the receipt of certain required regulatory approvals and consents.

The Company believes it is in a unique position to monetize the Sprint Business and its network and management expects to achieve significant cost reduction synergies and revenue synergies from the Transaction.

Revenue and pre-tax loss for the Sprint Business included in the Company’s condensed consolidated statements of comprehensive income for the year ended December 31, 2023 were $ 283.3 million and $ 234.5 million, respectively.

Revenue and pre-tax loss for the Sprint Business included in the Company’s condensed consolidated statements of comprehensive income for both the three- and six-month periods ended June 30, 2023 were $ 78.0 million and $ 65.6 million, respectively.

Purchase Price

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During the third quarter of 2023, an additional Working Capital Adjustment of $ 5.0 million was accrued due to the Seller.

The Purchase Agreement also includes an estimated payment of $ 28.1 million ($ 19.8 million net of discount) from Seller to Buyer related to acquired short-term lease obligations (the “Short-term Lease Payment”).

Short-term leases

The Purchase Agreement also provides for an estimated payment of $ 28.1 million ($ 19.8 million net of discount) from Seller to the Buyer related to acquired short-term lease obligations (the “Short-term Lease Payment”).

The Short-term Lease Payment will be paid from the Seller to the Company in four equal payments in months 55 to 58 after the Closing Date.

3 unchanged sentences

During the third quarter of 2023, the Short-term Lease Payment was reduced by $ 4.8 million and in the first quarter of 2024 the Short - term Lease Payment was reduced by an additional $ 17.0 million, net of discount of $ 7.2 million.

Including the cumulative impact of the first quarter 2024 adjustment, the amortization of the discount resulted in interest expense of $ 0.5 million for the three months ended March 31, 2024.

The Purchase Agreement also includes reimbursement from Seller to Buyer for qualifying severance expenses incurred, which were $ 4.3 million in the three months ended March 31, 2024 and $ 16.2 million in the year ended December 31, 2023.

Including the cumulative impact of the first quarter 2024 adjustment, the amortization of the discount resulted in interest income (expense) of $ 0.4 and $ 0.5 million for the three months ended June 30, 2024 and 2023, respectively and ($ 0.1 ) and $ 0.5 million for the six months ended June 30, 2024 and 2023, respectively.

Severance reimbursement

The Purchase Agreement also provides for reimbursement from the Seller to the Buyer for qualifying severance expenses incurred.

Total qualifying severance expenses were $ 28.6 million of which $ 8.0 million and $ 12.3 million were recorded in the three and six months ended June 30, 2024, respectively.

No reimbursement amounts were recorded in the three and six months ended June 30, 2023.

The final determination of the Working Capital Adjustment and the Short-term Lease Payment was completed in April 2024 and the Company paid the Seller $ 5.0 million for the remaining Working Capital Adjustment.

1 unchanged sentence

On the Closing Date, Cogent Communications, LLC (formerly Cogent Communications, Inc.), and T-Mobile USA, Inc., a Delaware corporation and direct subsidiary of T-Mobile (“TMUSA”), entered into an agreement for IP transit services (“IP Transit Services Agreement”), pursuant to which TMUSA will pay an affiliate of the Company an aggregate of $ 700.0 million, consisting of (i) $ 350.0 million in equal monthly installments of $ 29.2 million per month during the first year after the Closing Date and (ii) $ 350.0 million in equal monthly installments of $ 8.3 million per month over the subsequent 42 months.

During the three months ended March 31, 2024, TMUSA paid the Company $ 87.5 million under the IP Transit Services Agreement.

The Company accounted for the Transaction as a business combination under ASC Topic 805 Business Combinations (“ASC 805”).

The Company evaluated what elements are part of the business combination and the consideration exchanged to complete the acquisition.

Under ASC 805, the Company has concluded that the $ 700.0 million of payments to be made represent consideration received from T-Mobile to complete the acquisition of a distressed business.

The Company also evaluated whether the IP Transit Services Agreement was in the scope of ASU No.

2014-09 Revenue from Contracts with Customers (“ASC 606”).

The Company has concluded that T-Mobile did not represent a “customer” as defined by ASC 606, the stated contract price did not represent consideration for services to be delivered, and the transaction did not satisfy the definition of revenue, which excluded this arrangement from the scope of ASC 606.

As a result, and considering statements made by T-Mobile, the IP Transit Services Agreement was recorded in connection with the Transaction at its discounted present value resulting in a discount of $ 79.6 million.

Under the IP Transit Services Agreement., TMUSA paid the Company $ 66.7 million and $ 29.2 million, during the three months ended June 30, 2024 and 2023, respectively, and $ 154.2 million and $ 29.2 million during six months ended June 30, 2024 and 2023, respectively.

The IP Transit Services Agreement was recorded in connection with the Transaction at its discounted present value resulting in a discount of $ 79.6 million.

The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with comparable durations, amongst other market factors.

The determination of the discount rate requires some judgment.

The amortization of the discount resulted in interest income of $ 7.3 million for the three months ended March 31, 2024.

The amortization of the discount resulted in interest income of $ 5.9 million and $ 7.7 million for the three months ended June 30, 2024 and 2023, respectively, and $ 13.3 million and $ 7.7 million for the six months ended June 30, 2024 and 2023, respectively.

Transition Services Agreement

On the Closing Date, the Buyer entered into a transition services agreement (the “TSA”) with the Seller, pursuant to which the Seller will provide to the Buyer, and the Buyer will provide to the Seller on an interim basis following the Closing Date, certain specified services (the “Transition Services”) to ensure an orderly transition following the separation of the Sprint Business from Sprint Communications.

The services to be provided by the Seller to the Buyer include, among others, information technology support, back office and finance, real estate and facilities, vendor and supply chain management, including the payment and processing of vendor invoices for the Company and human resources.

The services to be provided by the Buyer to the Seller include, among others, information technology and network support, finance and back office and other wireless business support.

7 unchanged sentences

Amounts billed under the TSA are due 30 days from receipt of the related invoice.

During the three months ended March 31, 2024, the Company was billed $ 16.7 million as due to the Seller under the TSA, respectively, primarily for reimbursement at cost of payments to vendors of the Sprint Business.

During the three months ended March 31, 2024, the Company paid $ 78.5 million to the Seller under the TSA that included payments for amounts billed in 2023.

As of March 31, 2024, the Company owed $ 5.8 million to the Seller and the Seller owed $ 3.2 million to the Company under the TSA.

The amounts due to the Seller are primarily reimbursements for payments to Sprint Business vendors paid by the Seller for the Company until these vendors are fully transitioned to the Company.

Amounts billed to the Company under the TSA are primarily for reimbursement at cost of payments to vendors of the Sprint Business until these vendors are fully transitioned to the Company.

The amounts due from the Seller are primarily reimbursements for severance costs related to Sprint Business employees and services provided by the Company for the Seller.

During the three and six months ended June 30, 2024, the Company was billed $ 6.7 million and $ 23.3 million as due to the Seller under the TSA, respectively.

During the three and six months ended June 30, 2023, the Company was billed $ 116.8 million and $ 116.8 million as due to the Seller under the TSA, respectively.

During the three and six months ended June 30, 2024, the Company paid the Seller $ 9.8 million and $ 88.2 million, respectively, under the TSA.

There were no amounts paid under the TSA for the three and six months ended June 30, 2023 since no payments were due until July 2023.

As of June 30, 2024, the Company owed $ 2.3 million to the Seller and the Seller owed $ 3.9 million to the Company under the TSA.

As of December 31, 2023, the Company owed $ 66.9 million to the Seller and the Seller owed $ 4.5 million to the Company under the TSA.

Other Services Provided to Seller

In addition, on the Closing Date, the Buyer and TMUSA entered into a commercial agreement (the “Commercial Agreement”) for colocation and connectivity services, pursuant to which the Company will provide such services to TMUSA for a per service monthly fee plus certain third-party costs incurred in providing the services.

During the three months ended March 31, 2024, the Company recorded $ 3.2 million from TMUSA as service revenue under the Commercial Agreement.

As of March 31, 2024, TMUSA owed $ 20.0 million to the Company under the Commercial Agreement.

Under the Commercial Agreement, the Company recorded revenue of $ 5.9 million and $ 7.3 million during the three months ended June 30, 2024 and 2023, respectively, and $ 9.1 million and $ 7.3 million during the six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024, and December 31, 2023, TMUSA owed $ 7.3 million and $ 1.6 million, respectively, to the Company under the Commercial Agreement.

These amounts are included in accounts receivable.

Acquisition-Related Costs

In connection with the Transaction and negotiation of the Purchase Agreement, the Company has incurred a total of $ 9.2 million of professional fees and other acquisition related costs and $ 20.6 million of reimbursed severance costs.

For the three months ended March 31, 2024, such professional fees and other acquisition related costs and reimbursed severance costs were $ 4.7 million and $ 4.3 million, respectively.

For the three months ended March 31, 2023 such professional fees were $ 0.4 million.

In connection with the Transaction and negotiation of the Purchase Agreement, the Company incurred professional fees and other acquisition related costs, including $ 12.4 million and $ 0.7 million incurred in the three months ended June 30, 2024 and 2023, respectively, and $ 21.4 million and $ 1.1 million incurred in the six months ended June 30, 2024 and 2023, respectively.

Consideration

The acquisition-date fair value of consideration to be received from the Transaction totaled $ 594.6 million and comprised of the following:

The acquisition-date fair value of consideration to be received from the Transaction comprised of the following:

(In thousands)

Estimated working capital payments made to the Seller, net of severance reimbursements (a)

Estimated Purchase Agreement payment to be received from the Seller, net of discount of $ 8,392 (b)

Working capital payments made to the Seller, net of severance reimbursements (a)

Purchase Agreement payment to be received from the Seller, net of discount of $ 8,392 (b)

Amounts due from the Seller – IP Transit Services Agreement, net of discount of $ 79,610 (c)

1 unchanged sentence

Total net consideration to be received from the Seller (d)

(a) Includes $ 61.1 million paid to the Seller on the Closing Date and an accrual of $ 5.0 million due to the Seller that was paid in April 2024.

Additionally, includes an offsetting $ 20.6 million in total severance reimbursement payments received from the Seller recorded as measurement period adjustments during the fourth quarter of 2023 ($ 16.2 million) and $ 4.3 million recorded as a measurement period adjustment during the first quarter of 2024.

(a) Includes $ 61.1 million paid to the Seller on the Closing Date and $ 5.0 million that was paid in April 2024.

Additionally, includes an offsetting $ 28.6 million in total severance reimbursement payments received from the Seller recorded as measurement period adjustments of

$ 16.2 million during the fourth quarter of 2023,

$ 4.3 million during the three months ended March 31, 2024, and

$ 8.0 million during the three months ended June 30, 2024.

(b) Under the Purchase Agreement, 50 % of the assumed short-term operating lease liabilities totaling $ 28.1 million is to be paid to the Company from the Seller in four equal installments in months 55 - 58 from the Closing Date and is recorded at its present value resulting in a discount of $ 8.4 million.

During the first quarter of 2024, the Working Capital Adjustment was adjusted by $ 17.0 million, net of discount of $ 7.2 million to reflect the conclusion of the determination of amounts due from the Seller from the Short - term Lease Payment.

During the first quarter of 2024, the Working Capital Adjustment net of discount, was adjusted by $ 17.0 million to reflect the conclusion of the determination of amounts due from the Seller from the Short-term Lease Payment.

(c) The IP Transit Services Agreement payments totaling $ 700.0 million are recorded at their present value resulting in a discount of $ 79.6 million.

1 unchanged sentence

(d) Cash consideration was $ 1

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Fair Value of Assets Acquired and Liabilities Assumed and Gain on Bargain Purchase

The Company accounted for the Transaction as a business combination under ASC 805.

The Company accounted for the Transaction as a business combination under ASC Topic 805 Business Combination (“ASC 805”).

Under ASC 805, the identifiable assets acquired and liabilities assumed were recorded at their fair values as of the Closing Date.

2 unchanged sentences

The fair value of the identifiable assets acquired (including amounts due under the IP Transit Services Agreement) were in excess of the liabilities assumed and the net consideration to be paid resulting in a gain on bargain purchase of $ 1.4 billion.

During the first quarter of 2024, the Company recorded a measurement period adjustment resulting in a reduction to the gain on bargain purchase of $ 5.5 million which includes;

The Transaction is considered an asset purchase for income tax purposes.

The tax basis of the acquired business is the consideration paid ($ 1 ) plus the tax basis of certain liabilities assumed, with adjustments for cash acquired in excess of the purchase price.

Deferred income taxes are recorded based upon the difference between the book and tax basis of the acquired assets and assumed liabilities at the Company’s marginal effective income tax rate on the Closing Date.

During the first quarter of 2024, the Company recorded a measurement period adjustment resulting in a reduction to the gain on bargain purchase of $ 5.5 million which included;

● A reduction to the Short-term Lease Receivable of $ 24.2 million ( $ 17.0 million net of discount).

3 unchanged sentences

● A reduction to deferred income tax liabilities resulting from the adjustments noted above of $ 1.9 million

The Transaction is considered an asset purchase for income tax purposes.

The tax basis of the acquired business is the consideration paid ($ 1 ) plus the tax basis of certain liabilities assumed, with adjustments for cash acquired in excess of the purchase price.

During the second quarter of 2024, the Company recorded measurement period adjustments resulting in an increase to the gain on bargain purchase of $ 27.7 million including

● Additional reimbursed severance costs of $ 8.0 million, and

● An adjustment to net deferred income tax liabilities of $ 19.7 million

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The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the Closing Date.

The Company retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.

The amounts presented are provisional and are subject to change as the Company refines the estimates and inputs used in the calculations of the assets acquired and liabilities assumed.

The Company believes that estimates that are potentially subject to change include additional reimbursable severance costs and modification to the effective income tax rate.

Current assets:

24 unchanged sentences

Gain on bargain purchase

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Acquired Property & Equipment

The Company acquired property and equipment of $ 965.7 million.

This is primarily comprised of the legacy Sprint network and consists of optical fiber, related equipment, and owned real estate which were valued using a combination of the cost and market approaches.

This is primarily comprised of the legacy Sprint network and consists of optical fiber, related equipment, and owned real estate that were valued using a combination of the cost and market approaches.

Management intends to operate the acquired business;

however, management valued these assets using factors that represent an orderly liquidation value, to approximate the highest and best use of assets acquired in a distressed business.

The estimated fair value of the optical fiber on the Transaction date was $ 369.2 million.

The estimated fair value of the optical fiber on the Closing Date was $ 369.2 million.

The valuation requires the estimation of the total replacement cost per mile of fiber and a factor to reflect the orderly liquidation value.

7 unchanged sentences

Unfavorable lease liabilities are presented net of the corresponding right of use assets.

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Acquired Intangible Assets

Intangible assets acquired include $ 458.0 million of IPv4 address intangible assets and $ 16.0 million of acquired customer relationships.

Intangible assets acquired include $ 458.0 million of IPv4 addresses and $ 16.0 million of acquired customer relationships.

The fair value measurement of the IPv4 addresses was based on recent auction prices and a factor to incorporate the uncertainty for how the market for IPv4 addresses will function in the future.

1 unchanged sentence

The Company evaluates these assets for impairment on the first day of the fourth quarter.

There was no impairment recorded during the period from May 1, 2023 through March 31, 2024.

There was no impairment recorded during the period from May 1, 2023 through June 30, 2024.

During the fourth quarter of 2023, the Company recorded a reduction to acquired customer relationships, totaling $ 41.0 million from revisions to certain assumptions.

The acquired customer relationships have an estimated useful life of nine years and the estimated fair value was determined using a market-based income approach.

Amortization expense for the three months ended March 31, 2024 was $ 0.4 million.

Amortization expense was $ 0.4 and $ 1.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 0.9 million and $ 1.1 million for the six months ended June 30, 2024 and 2023, respectively.

Future amortization expense of the customer relationships is $ 1.8 million per year for eight years .

2 unchanged sentences

The obligations and corresponding asset retirement assets are being accreted and amortized over approximately four years .

Accretion of the asset retirement obligations (recorded as an increase to network operations expenses) and amortization of the asset retirement assets (recorded as depreciation and amortization expenses) for the three months ended March 31, 2024 were $ 0.6 million and $ 1.9 million, respectively.

Accretion of the asset retirement obligations is recorded as an increase to network operations expenses and amortization of the asset retirement assets is recorded as depreciation and amortization expenses, as shown in the table below.

In accordance with ASC 410, the Company has not recorded an asset retirement obligation related to the removal of the acquired optical fiber because a settlement date for which to remove the fiber is indeterminable and therefore a reasonable estimation of fair value cannot be made.

(in thousands)

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Depreciation and amortization expense

Network operations expense

Reassessment of Bargain Purchase Gain

1 unchanged sentence

Consequently, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed in accordance with ASC 805-30-25-4 and concluded that all acquired assets and assumed liabilities were recognized and that the valuation procedures and resulting measures were appropriate.

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Pro Forma Information

2 unchanged sentences

The pro forma results do not include anticipated synergies or other expected benefits of the acquisition.

The pro forma results for the six months ended June 30, 2023 include the historical results of the Sprint Business through April 30, 2023 and the combined results of the Company and the Sprint Business for the two months ended June 30, 2023.

The unaudited pro forma information is based upon available information and certain assumptions that the Company believes are reasonable under the circumstances.

Actual results may differ materially from the assumptions within the accompanying unaudited pro forma financial information.

The purchase adjustments are preliminary and subject to change as additional analyses are performed and finalized.

The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transaction actually occurred on January 1, 2023, nor do they purport to project the future consolidated results of operations.

(In thousands) (unaudited)

March 31, 2023

The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what

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the actual consolidated results of operations would have been had the Transaction actually occurred on January 1, 2023, nor do they purport to project the future consolidated results of operations.

(In thousands)

June 30, 2023

Service revenue

Operating loss from continuing operations

The pro forma results for the three months ended March 31, 2023 include:

● The gain on bargain purchase related to the Transaction of $ 1.4 billion,

● Interest income from the amortization of the discount recorded under the IP Transit Services Agreement of $ 11.3 million,

● A net increase to historical depreciation expense based on the fair value of property and equipment and the impact of a finance lease of $ 20.5 million,

● Amortization expense related to the customer relationship intangible assets of $ 0.4 million,

● Amortization of unfavorable lease liabilities of $ 1.4 million,

● An increase to interest expense of $ 3.0 million and a reduction to network operations expense of $ 12.6 million from the impact of a finance lease adjustment;

● The impact to income tax expense from the pro-forma adjustments of $ 0.3 million.

The pro forma results for the six months ended June 30, 2023 include the gain on bargain purchase related to the Transaction of $ 1.4 billion, interest income from the amortization of the discount recorded under the IP Transit Services Agreement of $ 14.7 million, a net increase to historical depreciation expense based on the fair value of property and equipment and the impact of a finance lease adjustment of $ 28.3 million, amortization expense related to the customer relationship intangible assets of $ 0.6 million, amortization of unfavorable lease liabilities of $ 1.0 million, a reduction to network operations expense of $ 16.8 million and an increase to interest expense of $ 3.9 million from the impact of a finance lease adjustment and the impact to income tax expense from the pro-forma adjustments of $ 2.3 million.

Basis of presentation

8 unchanged sentences

All inter-company accounts and activity have been eliminated.

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Use of estimates

2 unchanged sentences

Financial instruments

At March 31, 2024 and December 31, 2023, the carrying amount of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because of the short-term nature of these instruments.

At June 30, 2024 and December 31, 2023, the carrying amount of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because of the short-term nature of these instruments.

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

Based upon recent trading prices (Level 2—market approach) at March 31, 2024, the fair value of the Company’s $ 450.0 million aggregate principal amount of 7.00 % Senior Unsecured Notes due 2027 (the “2027 Notes”) was $ 446.6 million, the fair value of the Company’s $ 500.0 million aggregate principal amount of 3.50 % Senior Secured Notes due 2026 (the “2026 Notes”) was $ 475.0 million and the estimated liability fair value of the Company’s interest rate swap agreement was $ 44.8 million.

Based upon recent trading prices (Level 2—market approach) at June 30, 2024,

● the fair value of the Company’s $ 450.0 million aggregate principal amount of 7.00 % Senior Unsecured Notes due 2027 (the “2027 Notes”) was $ 443.3 million,

● the fair value of the Company’s $ 300.0 million aggregate principal amount of 7.00 % Senior Unsecured Mirror Notes due 2027 (the “2027 Mirror Notes”) was $ 295.5 million,

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● the fair value of the Company’s $ 500.0 million aggregate principal amount of 3.50 % Senior Secured Notes due 2026 (the “2026 Notes”) was $ 475.0 million,

● the fair value of the Company’s $ 206.0 million aggregate principal amount of secured IPv4 notes (the “IPv4 Notes”) was $ 210.1 million and

● the fair value of the Company’s interest rate swap agreement was $ 35.5 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 3 and was $ 44.8 million as of March 31, 2024.

Additional cash may be further restricted to maintain our Swap Agreement as interest rates fluctuate and margin requirements change.

Restricted cash includes amounts held in segregated bank accounts by our clearing broker as margin in support of our Swap Agreement as discussed in Note 3 and was $ 35.5 million as of June 30, 2024.

Additional restricted cash related to the IPv4 Notes, as discussed in Note 3, was $ 6.3 million as of June 30, 2024.

Additional cash may be further restricted to maintain our Swap Agreement as interest rates fluctuate and margin requirements change and under the provisions of our IPv4 Note indenture.

The Company does not use derivative financial instruments for trading purposes.

3 unchanged sentences

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

Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $ 20.5 million and $ 4.2 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $ 19.2 million and $ 11.0 million for the three months ended June 30, 2024 and 2023, respectively, and $ 39.7 million and $ 15.2 million for the six months ended June 30, 2024 and 2023, respectively.

Basic and diluted net income per common share

3 unchanged sentences

The following details the determination of diluted weighted-average shares:

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Weighted average common shares - basic

2 unchanged sentences

Weighted average common shares - diluted

Page 13 of 45

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

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Unvested shares of restricted common stock

1 unchanged sentence

Anti-dilutive shares of restricted common stock

Page 15 of 56

Stockholders’ (Deficit) Equity

The following details the changes in stockholders’ (deficit) equity for the three and three months ended March 31, 2024 and March 31, 2023, respectively (in thousands except share data):

The following details the changes in stockholders’ (deficit) equity for the three and six months ended June 30, 2023 and June 30, 2024, respectively (in thousands except share data):

Comprehensive

Stockholders’

Income (Loss)

Balance at December 31, 2022

(Deficit) Equity

Balance at March 31, 2023

( 1,113,751 )

5 unchanged sentences

Dividends paid

Balance at June 30, 2023

Comprehensive

Stockholders’

Balance at March 31, 2024

Forfeitures of shares granted to employees

Equity-based compensation

Foreign currency translation

Issuances of common stock

Exercises of options

Common stock purchases & retirement

Dividends paid

Balance at June 30, 2024

Page 16 of 56

Comprehensive

Stockholders’

(Deficit) Equity

Balance at December 31, 2022

( 1,074,588 )

Forfeitures of shares granted to employees

Equity-based compensation

Foreign currency translation

Issuances of common stock

Exercises of options

Dividends paid

Balance at June 30, 2023

Comprehensive

Stockholders’

Income (Loss)

Equity (Deficit)

Balance at December 31, 2023

4 unchanged sentences

Exercises of options

Common stock purchases & retirement

Dividends paid

Balance at March 31, 2024

Balance at June 30, 2024

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.

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The Company’s service offerings consist primarily 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 customers in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

To achieve this core principle, the Company follows the following five steps:

1) Identification of the contract, or contracts with a customer

2) Identification of the performance obligations in the contract

3) Determination of the transaction price

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

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

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

Fees billed in connection with customer installations are recorded as deferred revenue.

Installation fees for contracts with terms longer than month-to-month are recognized over the contract term.

The Company recognizes revenue over the estimated average customer life for installation fees associated with month-to-month contracts.

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

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

Deferred revenue recognized and contract cost amortization were as follows:

(in thousands)

March 31, 2024

March 31, 2023

Service revenue recognized from balance at beginning of period

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Service revenue recognized from deferred revenue balance at beginning of period

Amortization expense for contract costs

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In February 2016, the FASB issued ASU No.

5 unchanged sentences

(Amounts in thousands)

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Finance lease cost

3 unchanged sentences

Total lease costs

Page 15 of 45

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

Other lease information (amounts in thousands)

9 unchanged sentences

Weighted average discount rate — operating leases

Finance leases—fiber lease agreements

Operating leases and finance leases

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 condensed consolidated balance sheets.

As of March 31, 2024, the Company had committed to additional dark fiber IRU lease agreements totaling $ 267.9 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, rights-of-way and certain data center facilities under operating leases.

The majority of these leases are finance leases.

The Company also leases office space, rights-of-way and certain data center facilities under operating leases.

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 the 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, deferred rent liabilities and unfavorable lease 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.

As of June 30, 2024, the Company had committed to additional IRU agreements totaling $ 301.4 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.

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

For the Twelve Months Ending March 31,

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

For the Twelve Months Ending June 30,

Total minimum lease obligations

6 unchanged sentences

The liability is classified with the corresponding right-of-use lease assets and is being amortized into the condensed consolidated statement of comprehensive (loss) income in the same line items as the activity for the corresponding right-of-use lease assets.

For the three months ended March 31, 2024 the Company amortized $ 2.4 million as a reduction to network operations expenses and $ 8.9 million as a reduction to depreciation expense.

Amortization totaling $ 1.4 million and $ 6.5 million for the three months ended June 30, 2024 and 2023, respectively and $ 3.8 million and $ 6.5 million for the six months ended June 30, 2024 and 2023, respectively was recorded as a reduction to network operations expense.

Amortization totaling $ 9.0 million and $ 18.0 million for the three and six months ended June 30, 2024, respectively, was recorded as a reduction to depreciation expense.

During the third quarter of 2023, the Company recorded a measurement period adjustment to reclassify $ 24.9 million from right-of-use leased assets (net of related unfavorable lease liability amount) to finance lease assets (presented within property and equipment) and a measurement period adjustment to reclassify $ 160.9 million from operating lease liabilities to finance lease liability.

Allowance for credit losses

As of January 1, 2020, the Company maintained an allowance for credit losses to cover its current expected credit losses on its trade receivables arising from the failure of customers to make contractual payments.

The Company estimates credit losses expected over the life of its trade receivables based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts.

6 unchanged sentences

Allowance for credit losses (deducted from accounts receivable) (in thousands)

Three months ended March 31, 2024

Three months ended March 31, 2023

Three months ended June 30, 2024

Three months ended June 30, 2023

Six months ended June 30, 2024

Six months ended June 30, 2023

(in thousands)

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Net bad debt expense

4 unchanged sentences

(in thousands)

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Depreciation and amortization expense

Capitalized compensation cost

IRU Finance Lease Termination – Discount and Gain on Lease Termination

In June 2024, the Company elected to exercise a contractual option to prepay in full at a 12.0 % discounted rate an IRU finance lease agreement (the “IRU Lease”) for $ 114.6 million.

At the payment date, the present value of the IRU finance lease liability was $ 117.9 million and the remaining 31 monthly principal payments of $ 4.2 million each totaled $ 130.2 million.

The prepayment resulted in a gain on lease termination of $ 3.3 million related to the difference between the book value of $ 117.9 million and the cash payment of $ 114.6 million.

The Company is continuing to use the related IRU asset.

Long-term debt:

As of March 31, 2024, the Company had outstanding $ 450.0 million aggregate principal amount of 2027 Notes and $ 500.0 million aggregate principal amount of 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.

Issuance of $ 300.0 Million Principal Amount of 2027 Mirror Notes

On June 11, 2024, Group and Cogent Finance, Inc.

(the “Co-Issuer” and, together with Group, the “Issuers”), two wholly owned subsidiaries of the Company, completed an offering of $ 300.0 million aggregate principal amount of 7.00 % senior unsecured notes due 2027 (the “2027 Mirror Notes”) for issuance in a private placement not registered under the U.S.

Securities Act of 1933, as amended (the “Securities Act”).

The 2027 Mirror 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 Mirror Notes have the same maturity date and call protection, bear interest at the same rate and otherwise have substantially the same terms as the Issuers’ 2027 Notes;

however, the 2027 Mirror Notes are not fungible (from a trading or tax perspective) with the 2027 Notes and are a separate series of notes from the 2027 Notes.

The 2027 Mirror Notes were issued at a price equal to 98.50 % of their face value.

The net proceeds from the offering were approximately $ 291.9 million after deducting the discount and offering expenses.

Group used $ 114.6 million of the net proceeds from the offering to exercise a contractual option to prepay in full in the IRU Lease noted above.

Group expects to use the remainder of the net proceeds for general corporate purposes and/or to make special or recurring dividends to the Company.

The 2027 Mirror Notes were issued pursuant to, and are governed by, an indenture, dated June 11, 2024 (the “2027 Mirror Notes Indenture”), among the Issuers, the Company, the other guarantors named therein and Wilmington Trust, National Association, as trustee.

The 2027 Mirror Notes are jointly and severally guaranteed (the “Guarantees”) on a senior unsecured basis by each of Group’s existing and future material domestic subsidiaries (other than the Co-Issuer), subject to certain exceptions (collectively, the “Subsidiary Guarantors”), and by the Company (together with the Subsidiary Guarantors, the “Guarantors”).

However, the Company is not subject to the covenants under the 2027 Mirror Notes Indenture.

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

The 2027 Mirror Notes and the Guarantees are the Issuers’ and the Guarantors’ senior unsecured obligations.

The 2027 Mirror Notes and the Guarantees are effectively subordinated to all of the Issuers’ and the Guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to all indebtedness and other liabilities of subsidiaries that are not Guarantors.

Without giving effect to collateral arrangements, the 2027 Mirror Notes and the Guarantees rank pari passu in right of payment with all of the Issuers’ and the Guarantors’ existing and future senior indebtedness, including the Issuers’ 2026 Notes and the 2027 Notes.

The 2027 Mirror Notes and the Guarantees rank contractually senior in right of payment to all of the Issuers’ and the Guarantors’ subordinated indebtedness and are structurally subordinated to any existing and future indebtedness and other liabilities of the Issuers’ non-guarantor subsidiaries.

Page 20 of 56

The 2027 Mirror Notes bear interest at a rate of 7.00 % per annum.

Interest began to accrue on the 2027 Mirror Notes on June 11, 2024 and will be paid semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2024.

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

After June 15, 2024, the Issuers may redeem the 2027 Mirror Notes, in whole or in part, at a redemption price ranging from 103.5 % of the aggregate principal amount of the 2027 Mirror Notes redeemed to par (depending on the year), in each case, as set forth in the 2027 Mirror Notes Indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

If Group undergoes specific kinds of change in control accompanied by certain ratings events, the Issuers will be required to offer to repurchase the 2027 Mirror Notes from holders at a price equal to 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

Additionally, if Group or any of its restricted subsidiaries sells assets and does not apply the proceeds from such sale in a certain manner or certain other events have not occurred, under certain circumstances, the Issuers will be required to use the net proceeds to make an offer to purchase the 2027 Mirror Notes at an offer price in cash equal to 100 % of the principal amount of the 2027 Mirror Notes, plus accrued and unpaid interest, if any, to, but not including, the repurchase date.

In connection with any offer to purchase all or any of the 2027 Mirror Notes (including a change of control offer, asset sale offer or any tender offer), if holders of no less than 90 % of the aggregate principal amount of the outstanding 2027 Mirror Notes validly tender their 2027 Mirror Notes, the Issuers or a third party is entitled to redeem any remaining 2027 Mirror Notes at the price paid to each holder.

The 2027 Mirror Notes Indenture includes covenants that restrict Group and its restricted subsidiaries’ (including the Co-Issuer’s) ability to, among other things;

incur indebtedness;

issue certain preferred stock or similar equity securities;

pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;

make certain investments and other restricted payments, such as prepayment, redemption or repurchase of certain indebtedness;

create liens;

consolidate, merge, sell or otherwise dispose of all or substantially all of the properties and assets of Group and its restricted subsidiaries taken as a whole;

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

or to enter into transactions with affiliates.

The covenants provide for certain exceptions to these restrictions, and the Company is not subject to the covenants under the 2027 Mirror Notes Indenture.

Certain covenants will cease to apply to the 2027 Mirror Notes if, and for so long as, the 2027 Mirror Notes have investment grade ratings from any two of Moody’s Investors Service, Inc., Fitch Ratings, Inc.

and S&P Global Ratings and so long as no default or event of default under the 2027 Mirror Notes Indenture has occurred and is continuing.

Upon suspension of the covenants, the Guarantees will be released until such time as the covenants are no longer suspended.

The principal amount of the 2027 Mirror Notes would become immediately due and payable upon the occurrence of certain bankruptcy or insolvency events involving Group, the Co-Issuer or certain of Group’s subsidiaries, and may be declared immediately due and payable by the 2027 Notes Trustee or the holders of at least 25 % of the aggregate principal amount of the then-outstanding 2027 Mirror Notes upon the occurrence of certain events of default under the 2027 Mirror Notes Indenture.

Events of default include the following with respect to the Issuers and Group’s significant subsidiaries:

(i) failure to pay principal, premium or interest at required times;

(ii) failure to comply with any other agreements in the 2027 Mirror Notes Indenture;

(iii) default on certain material indebtedness that is caused by a failure to make a payment within any applicable grace period when due at maturity or results in the acceleration of such indebtedness prior to its express maturity;

(iv) failure to pay certain material judgments;

(v) a Guarantee being held unenforceable or invalid or ceasing for any reason to be in full force and effect or a Guarantor denying or disaffirming its obligations under its Guarantee;

and (vi) certain events of bankruptcy or insolvency.

Issuance of $ 206.0 Million Principal Amount of IPv4 Notes

On May 2, 2024, Cogent IPv4 LLC (the “IPv4 Issuer”), a special-purpose, bankruptcy remote, indirect wholly owned subsidiary of the Company, issued $ 206.0 million aggregate principal amount of 7.924 % IPv4 Notes (the “IPv4 Notes”), with an anticipated term ending in May 2029 (such anticipated repayment date, the “ARD”), in an offering exempt from registration under the Securities Act.

The net proceeds from the offering, after debt offering costs, were $ 198.4 million and are expected to be used for general corporate purposes.

The IPv4 Notes were issued pursuant to an indenture, dated as of May 2, 2024 (the “IPv4 Base Indenture”), as supplemented by the Series 2024-1 Supplement thereto, dated as of May 2, 2024 (the “Series 2024-1 Supplement”), in each case entered into by and between the IPv4 Issuer and Wilmington Trust, National Association, as the trustee for the IPv4 Notes (the “IPv4 Trustee”).

The IPv4 Base Indenture allows the IPv4 Issuer to issue additional series of notes subject to certain conditions set forth therein, and the IPv4

Page 21 of 56

Base Indenture, together with the Series 2024-1 Supplement, and any other series supplements to the IPv4 Base Indenture, is referred to herein as the “IPv4 Indenture.”

The IPv4 Notes were issued as part of a securitization transaction, pursuant to which certain IPv4 addresses, customer IPv4 address leases, customer accounts receivable and other IPv4 address assets (collectively, “IPv4 Address Assets”) were contributed to the IPv4 Issuer and are included as collateral for the IPv4 Notes.

While the IPv4 Notes are outstanding, scheduled payments of interest are required to be made on a monthly basis.

From and after the ARD, principal payments will also be required to be made on the IPv4 Notes on a monthly basis.

No principal payments will be due on the IPv4 Notes prior to the ARD, unless certain rapid amortization or acceleration triggers are activated.

Cogent Communications LLC (in such capacity, the “Manager”) performs certain monthly services related to the IPv4 Address Assets and IPv4 Notes including billing customers, collecting amounts paid by customers, forwarding payments to the IPv4 Trustee related to the IPv4 Assets and other administrative services.

Amounts paid by the Manager to the IPv4 Trustee are reconciled on a monthly basis and the Trustee pays the monthly interest on the IPv4 Notes and other expenses from the accumulated customer payments on the IPv4 Assets.

Amounts held by the IPv4 Trustee before the monthly reconciliation is completed are considered restricted cash.

After the IPv4 Trustee pays the monthly interest and other IPv4 Asset related costs, including monthly fees paid to the Manager for its services, the residual cash is paid to the Company and is unrestricted.

The legal final maturity date of the IPv4 Notes is in May of 2054 .

If the IPv4 Issuer has not repaid or refinanced the IPv4 Notes prior to the monthly payment date in May of 2029, additional interest will accrue thereon in an amount equal to the greater of (i) 5.0 % per annum and (ii) the excess amount, if any, by which the sum of the following exceeds the interest rate for such IPv4 Note:

(A) the yield to maturity (adjusted to a “mortgage-equivalent basis” pursuant to the standards and practices of the Securities Industry and Financial Markets Association) on the ARD for such IPv4 Note of the United States Treasury Security having a remaining term closest to 10 years;

plus (B) 5.0 %;

plus (C) the post-ARD note spread of 3.400 % applicable to such IPv4 Note.

The IPv4 Notes are obligations only of the IPv4 Issuer pursuant to the indenture (the IPv4 Indenture”), and are secured by a security interest in substantially all of the IPv4 Address Assets pursuant to the IPv4 Indenture.

The IPv4 Notes are guaranteed by Cogent IPv4 Holdco LLC, a special-purpose entity and an indirect wholly owned subsidiary of the Company, as the guarantor (in such capacity, the “IPv4 Guarantor”), pursuant to a guaranty, dated as of May 2, 2024 (the “Guaranty”) by the IPv4 Guarantor in favor of the trustee, pursuant to which the IPv4 Guarantor has granted a security interest in the equity interests of the IPv4 Issuer as collateral security for its obligations under the Guaranty.

Except as described below, neither the Company nor any subsidiary of the Company, other than the IPv4 Issuer and the IPv4 Guarantor, will guarantee or in any way be liable for the obligations of the IPv4 Issuer under the IPv4 Indenture or the IPv4 Notes.

The IPv4 Notes are subject to a series of covenants and restrictions customary for transactions of this type.

These covenants and restrictions include (i) that the IPv4 Issuer maintains a liquidity reserve account to be used to make required payments in respect of the IPv4 Notes such amount considered restricted cash, (ii) provisions relating to optional and mandatory prepayments, including specified make-whole payments in the case of certain optional prepayments of the IPv4 Notes prior to the monthly payment date in May of 2028, (iii) certain indemnification payments in the event, among other things, that the transfers of the assets pledged as collateral for the IPv4 Notes are in stated ways defective or ineffective and (iv) covenants relating to recordkeeping, access to information and similar matters.

As provided in the IPv4 Base Indenture, the IPv4 Notes are also subject to rapid amortization in the event of a failure to maintain a stated debt service coverage ratio as defined in the IPv4 Indenture.

A rapid amortization may be cured if the debt service coverage ratio exceeds a certain threshold for a certain period of time, upon which cure, regular amortization, if any, will resume.

In addition, if certain utilization thresholds are not met (i.e., the proportion of IP addresses which are leased to the total number of IP addresses owned by the IPv4 Issuer falls below certain thresholds), the IPv4 Issuer will be required to apply collections to the repayment of the IPv4 Notes and in certain circumstances, the noteholders will have the ability to direct a sale of the IP Address Assets, in whole or in part, pursuant to the terms set forth in the IPv4 Indenture.

The IPv4 Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to

Page 22 of 56

the IPv4 Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective and certain judgments.

Limitations Under the Indentures

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

The indentures governing the 2027 Notes, the 2027 Mirror Notes and the 2026 Notes (the “Indentures”), among other things, limit the ability of Group and its restricted subsidiaries to incur indebtedness;

to pay dividends or make other distributions;

4 unchanged sentences

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 March 31, 2024, 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 March 31, 2024, a total of $ 460.1 million (inclusive of a $ 250.0 million general basket) was unrestricted and permitted for restricted payments, including dividends and stock purchases.

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

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

Under the Indentures, Group and its restricted subsidiaries 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, Group could still incur $ 1 of “Ratio Debt,”, as defined (i.e., either its consolidated leverage ratio is less than 6.0 to 1.0 or its fixed charge coverage ratio is 2.0 to 1.0 or greater).

As of June 30, 2024, Group’s consolidated leverage ratio was below 6.0 , Group’s consolidated secured leverage ratio was below 4.0 and Group’s fixed charge coverage ratio was above 2.0 .

As of June 30, 2024, a total of $ 300.0 million (inclusive of a $ 250.0 million general basket) was unrestricted and permitted for restricted payments, including dividends and stock purchases.

Interest Rate Swap Agreement

As of March 31, 2024, the Company was party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with its 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”) so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR.

As of June 30, 2024, 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.

2 unchanged sentences

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 (loss) 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 condensed consolidated balance sheets.

As of March 31, 2024, the fair value of the Swap Agreement was a net liability of $ 44.8 million, of which $ 23.2 million is presented with accrued and other current liabilities and $ 21.6 million is presented with other long-term liabilities.

Changes in interest rates affect the valuation of the Swap Agreement that the Company recognizes in its condensed consolidated statements of comprehensive income.

The values that the Company reports for the Swap Agreement as of each reporting date are recognized as “interest expense including change in valuation – interest rate swap agreement” with the corresponding amounts included in assets or liabilities in the Company’s condensed consolidated balance sheets.

As of June 30, 2024, the fair value of the Swap Agreement was a net liability of $ 35.5 million, of which $ 22.4 million is presented with accrued and other current liabilities and $ 13.1 million is presented with other long-term liabilities.

As of December 31, 2023, the fair value of the Swap Agreement was a net liability of $ 38.7 million of which $ 21.6 million is presented with accrued and other current liabilities and $ 17.1 million is presented with other long-term liabilities.

In the three months ended March 31, 2024 and three months ended March 31, 2023, the Company recorded an unrealized (loss) gain related

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to the Swap Agreement of ($ 6.2 ) million and $ 1.8 million, respectively.

In the three months ended June 30, 2024 and 2023, the Company recorded unrealized gains (losses) related to the Swap Agreement, that are included in interest expense.

The Company has made a $ 37.3 million deposit with the counterparty to the Swap Agreement.

If the fair value of the Swap Agreement exceeds a net liability of $ 37.3 million, the Company will be required to deposit additional funds with the counterparty equal to the net liability fair value.

As of March 31, 2024, $ 44.8 million of the deposit was restricted and $ 1.0 million was unrestricted.

As of June 30, 2024, $ 35.5 million of the deposit was restricted and $ 1.8 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 settlement payment made in May 2023, the Company made a payment of $ 9.5 million to the counterparty for a net cash interest cost of $ 9.5 million for the period from November 1, 2022 to April 30, 2023.

Under the settlement payment made in November 2023, the Company made a payment of $ 12.0 million to the counterparty for a net cash interest cost of $ 12.0 million for the period from May 1, 2023 to October 31, 2023.

Under the settlement payment made in May 2024, the Company made a payment of $ 12.1 million to the counterparty for a net cash interest cost of $ 12.1 million for the period from November 1, 2023 to April 30, 2024.

Under the settlement for May 2023, the Company paid $ 9.5 million to the counterparty for a net cash interest cost of $ 9.5 million for the period from November 1, 2022 to April 30, 2023.

Under the settlement for May 2024, the Company paid $ 12.1 million to the counterparty for a net cash interest cost of $ 12.1 million for the period from November 1, 2023 to April 30, 2024.

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Commitments and contingencies :

3 unchanged sentences

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

The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible to result in a loss of up to $ 4.1 million in excess of the amount accrued at March 31, 2024.

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 $ 4.2 million in excess of the amount accrued at June 30, 2024.

In the ordinary course of business, the Company is involved in other legal activities and claims.

4 unchanged sentences

Income taxes:

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

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

Three Months Ended

March 31, 2024

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Common stock buyback program and stock options and award plan:

The Company’s Board of Directors has approved purchases of shares of the Company’s common stock under a buyback program (the “Buyback Program”) through December 31, 2024.

As of March 31, 2024, there was $ 30.4 million remaining for purchases under the Buyback Program.

There were no purchases of common stock in the three months ended March 31, 2024 or 2023.

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As of June 30, 2024, there was $ 22.4 million remaining for purchases under the Buyback Program.

In June 2024, the Company purchased 153,322 shares of its common stock for $ 8.0 million at an average share price of $ 51.97 .

There were no purchases of common stock in the three months or the six months ended June 30, 2023.

Dividends on common stock:

On February 28, 2024, our Board of Directors approved the payment of our first quarter 2024 dividend of $ 0.965 per share of common stock to holders of record as of March 15, 2024.

This $ 45.8 million dividend payment was paid on April 9, 2024 and is accrued on our condensed consolidated balance sheet as of March 31, 2024.

On May 8, 2024, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.975 per share of common stock.

This estimated $ 46.3 million dividend payment is expected to be paid on June 7, 2024.

On August 7, 2024 , the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.985 per common share.

This estimated $ 46.8 million dividend payment is expected to be made on September 6, 2024 .

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.

1 unchanged sentence

The Indentures limit the Company’s ability to return cash to its stockholders.

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Related party transactions:

17 unchanged sentences

The Amendment provides for $ 162,118 of additional fixed annual rent during the term of the Network Operations Lease, plus a proportionate share of real estate taxes and operating expenses and separately metered utilities expense.

The Company paid $ 0.8 million during the three months ended March 31, 2024 and $ 0.4 million during the three months ended March 31, 2023 for rent and related costs (including taxes and utilities) for these leases.

The Company paid $ 0.9 million and $ 0.8 million in the three months ended June 30, 2024 and 2023, respectively, and $ 1.6 million and $ 1.2 million in the six months ended June 30, 2024 and 2023, respectively, for rent and related costs (including taxes and utilities) for these leases.

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2 unchanged sentences

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

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

North America

South America

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

North America

South America

Six Months Ended June 30, 2024

North America

South America

Six Months Ended June 30, 2023

North America

South America

Long-lived assets, net

2 unchanged sentences

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

Subsequent events:

On May 2, 2024, Cogent IPv4 LLC, a special-purpose, bankruptcy remote, indirect wholly owned subsidiary of the Company (the “Securitization Issuer”), completed a financing transaction pursuant to which it issued $ 206.0 million aggregate principal amount of secured Internet Protocol version 4 (“IPv4”) address revenue notes (the “Securitization”), consisting of 7.924 % Series 2024-1, Class A-2 term notes with a term ending in May 2029, in an offering exempt from registration under the Securities Act of 1933, as amended.

In connection with the consummation of the Securitization, the Company:

transferred or assigned to Group, the co-issuer of the Company’s existing senior notes, or its subsidiaries (a) certain IPv4 addresses (which IPv4 addresses are not included as collateral for the Securitization) held by the Company’s direct subsidiary, Cogent Infrastructure, LLC (formerly Cogent Infrastructure, Inc.) (“Cogent Infrastructure”), or its subsidiaries, (b) certain customer contracts that are unrelated to the Securitization and (c) the equity interests of Cogent Infrastructure’s indirect subsidiary, Sprint Solutions Wireline LLC, including all liabilities and obligations associated therewith;

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entered into (a) leases on behalf of Cogent Infrastructure or its subsidiaries, as lessor, and Group or its subsidiaries, as lessee, for the use of certain premises held by Cogent Infrastructure of its subsidiaries, and (b) a dark fiber indefeasible right of use agreement in favor of Cogent Group or its subsidiaries for the use of certain fiber optic routes owned by Cogent Infrastructure or its subsidiaries;

prior to the transfer of the equity of the Securitization Issuer from Group or its subsidiaries, transferred or assigned to the Securitization Issuer (a) certain IPv4 addresses held by Cogent Group or its subsidiaries and (b) any related customer contracts;

transferred the equity of the Securitization Issuer from Group or one of its subsidiaries to Cogent Infrastructure or one of its subsidiaries;

following the transfer of the equity of the Securitization Issuer to Cogent Infrastructure or one of its subsidiaries, transferred or assigned to the Securitization Issuer (a) certain IPv4 addresses held by Cogent Infrastructure or its subsidiaries and (b) any related customer contracts;

in each case, in amounts of substantially equivalent value and delivered by the Company to Group or Cogent Infrastructure, as applicable, as a contribution to capital.

For the avoidance of doubt, following the consummation of the foregoing, the Securitization Issuer became an indirect subsidiary of Cogent Infrastructure and holds the IPv4 addresses contributed to it by Group, Cogent Infrastructure and/or their respective subsidiaries in connection with the foregoing.

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

What changed 10-Q

Item 1. Financial Statements