COGENT COMMUNICATIONS HOLDINGS, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2024 AND DECEMBER 31, 2023 (IN THOUSANDS, EXCEPT SHARE DATA) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, ​ ​ 2024 ​ 2023 ​ ​ (Unaudited) ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 384,419 ​ $ 75,092 Restricted cash ​ ​ 41,822 ​ ​ 38,689 Accounts receivable, net of allowance for credit losses of $ 6,382 and $ 3,677 , respectively ​ 111,676 ​ ​ 135,475 Due from T-Mobile, IP Transit Services Agreement, current portion, net of discount of $ 19,992 and $ 24,898 , respectively ​ ​ 80,008 ​ ​ 179,269 Due from T-Mobile, Transition Services Agreement ​ ​ 3,862 ​ ​ 4,514 Prepaid expenses and other current assets ​ 67,688 ​ ​ 80,588 Total current assets ​ 689,475 ​ ​ 513,627 Property and equipment: ​ ​ ​ ​ ​ ​ Property and equipment ​ ​ 3,103,518 ​ ​ 2,947,376 Accumulated depreciation and amortization ​ ​ ( 1,522,908 ) ​ ​ ( 1,409,559 ) Total property and equipment, net ​ ​ 1,580,610 ​ ​ 1,537,817 Right-of-use leased assets ​ 332,065 ​ ​ 361,587 IPv4 intangible assets ​ ​ 458,000 ​ ​ 458,000 Other intangible assets, net ​ ​ 13,926 ​ ​ 14,815 Deposits and other assets ​ 26,455 ​ ​ 23,438 Due from T-Mobile, IP Transit Services Agreement, net of discount of $ 19,558 and $ 27,916 , respectively ​ ​ 222,108 ​ ​ 263,750 Due from T-Mobile, Purchase Agreement, net of discount of $ 6,581 and $ 13,725 , respectively ​ ​ 21,534 ​ ​ 38,585 Total assets ​ $ 3,344,173 ​ $ 3,211,619 Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 38,510 ​ $ 48,356 Accrued and other current liabilities ​ ​ 189,131 ​ ​ 120,523 Due to T-Mobile – Transition Services Agreement ​ ​ 2,286 ​ ​ 66,908 Due to T-Mobile – Purchase Agreement ​ ​ — ​ ​ 4,981 Current maturities, operating lease liabilities ​ ​ 61,780 ​ ​ 67,962 Finance lease obligations, current maturities ​ ​ 21,253 ​ ​ 64,594 Total current liabilities ​ 312,960 ​ ​ 373,324 Senior secured 2026 notes, net of unamortized debt costs of $ 511 and $ 645 , respectively, and discounts of $ 680 and $ 857 , respectively ​ 498,809 ​ ​ 498,498 Senior unsecured 2027 notes, net of unamortized debt costs of $ 2,163 and $ 941 , respectively, and discounts of $ 8,332 and $ 1,970 , respectively ​ ​ 739,505 ​ ​ 447,088 Secured IPv4 notes, net of debt costs of $ 7,323 ​ ​ 198,677 ​ ​ — Operating lease liabilities, net of current maturities ​ ​ 309,055 ​ ​ 330,095 Finance lease obligations, net of current maturities ​ 405,176 ​ ​ 419,921 Deferred income tax liabilities ​ ​ 406,335 ​ ​ 471,498 Other long-term liabilities ​ 58,133 ​ ​ 61,639 Total liabilities ​ 2,928,650 ​ ​ 2,602,063 Commitments and contingencies: ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Common stock, $ 0.001 par value; 75,000,000 shares authorized; 48,990,760 and 48,608,569 shares issued and outstanding , respectively ​ 49 ​ ​ 49 Additional paid-in capital ​ 610,905 ​ ​ 606,755 Accumulated other comprehensive loss ​ ( 21,141 ) ​ ​ ( 14,385 ) Accumulated (deficit) earnings ​ ( 174,290 ) ​ ​ 17,137 Total stockholders’ equity ​ 415,523 ​ ​ 609,556 Total liabilities and stockholders’ equity ​ $ 3,344,173 ​ $ 3,211,619 ​ The accompanying notes are an integral part of these condensed consolidated balance sheets. ​ Page 3 of 56 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Three Months Ended ​ June 30, 2024 ​ June 30, 2023 ​ ​ (Unaudited) (Unaudited) Service revenue ​ $ 260,443 ​ $ 239,806 Operating expenses: ​ ​ ​ ​ Network operations (including $ 350 and $ 231 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below) ​ 156,167 ​ 137,502 Selling, general, and administrative (including $ 3,215 and $ 6,018 of equity-based compensation expense, respectively) ​ 68,345 ​ 83,658 Acquisition costs – Sprint Business ​ 12,370 ​ 739 Depreciation and amortization ​ 74,036 ​ 52,511 Total operating expenses ​ 310,918 ​ 274,410 Gain on lease termination ​ 3,332 ​ — Operating loss ​ ( 47,143 ) ​ ( 34,604 ) Interest expense, including change in valuation interest rate swap agreement ​ ( 29,541 ) ​ ( 29,958 ) Gain on bargain purchase – Sprint Business ​ 27,673 ​ 1,155,719 Interest income – IP Transit Services Agreement ​ 5,934 ​ 7,669 Interest income – Purchase Agreement ​ 402 ​ 506 Interest income and other, net ​ 2,484 ​ 200 (Loss) income before income taxes ​ ( 40,191 ) ​ 1,099,532 Income tax benefit ​ 7,853 ​ 24,331 Net (loss) income ​ $ ( 32,338 ) ​ $ 1,123,863 ​ ​ ​ ​ Comprehensive (loss) income: ​ ​ Net (loss) income ​ $ ( 32,338 ) ​ $ 1,123,863 Foreign currency translation adjustment ​ ( 1,722 ) ​ 1,741 Comprehensive (loss) income ​ $ ( 34,060 ) ​ $ 1,125,604 ​ ​ ​ ​ ​ ​ ​ Net (loss) income per common share: ​ ​ Basic net (loss) income per common share ​ $ ( 0.68 ) ​ $ 23.84 Diluted net (loss) income per common share ​ $ ( 0.68 ) ​ $ 23.65 Dividends declared per common share ​ $ 0.975 ​ $ 0.935 ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares - basic ​ 47,511,613 ​ 47,137,822 ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares - diluted ​ 47,511,613 ​ 47,526,207 ​ The accompanying notes are an integral part of these condensed consolidated statements. ​ Page 4 of 56 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC. 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 Six Months Ended ​ ​ June 30, 2024 ​ June 30, 2023 ​ (Unaudited) (Unaudited) Service revenue ​ $ 526,613 ​ $ 393,395 Operating expenses: ​ ​ ​ ​ ​ ​ Network operations (including $ 385 and $ 380 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below) ​ 324,752 ​ ​ 196,140 Selling, general, and administrative (including $ 10,131 and $ 12,450 of equity-based compensation expense, respectively) ​ 145,392 ​ ​ 128,736 Acquisition costs – Sprint Business ​ ​ 21,407 ​ ​ 1,139 Depreciation and amortization ​ 144,930 ​ ​ 77,669 Total operating expenses ​ 636,481 ​ ​ 403,684 Gain on lease termination ​ ​ 3,332 ​ ​ — Operating loss ​ ​ ( 106,536 ) ​ ​ ( 10,289 ) Interest expense, including change in valuation interest rate swap agreement ​ ​ ( 58,703 ) ​ ​ ( 47,116 ) Gain on bargain purchase – Sprint Business ​ ​ 22,202 ​ ​ 1,155,719 Interest income – IP Transit Services Agreement ​ ​ 13,264 ​ ​ 7,669 Interest income – Purchase Agreement ​ ​ ( 78 ) ​ ​ 506 Interest income and other, net ​ ​ 5,226 ​ ​ 3,695 (Loss) income before income taxes ​ ​ ( 124,625 ) ​ ​ 1,110,184 Income tax benefit ​ 26,980 ​ ​ 19,827 Net (loss) income ​ $ ( 97,645 ) ​ $ 1,130,011 ​ ​ ​ ​ ​ ​ Comprehensive (loss) income: ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 97,645 ) ​ $ 1,130,011 Foreign currency translation adjustment ​ ( 6,756 ) ​ ​ 3,529 Comprehensive (loss) income ​ $ ( 104,401 ) ​ $ 1,133,540 ​ ​ ​ ​ ​ ​ Net (loss) income per common share: ​ ​ ​ ​ ​ ​ Basic net (loss) income per common share ​ $ ( 2.06 ) ​ $ 23.97 Diluted net (loss) income per common share ​ $ ( 2.06 ) ​ $ 23.79 Dividends declared per common share ​ $ 1.940 ​ $ 1.860 ​ ​ ​ ​ ​ ​ Weighted-average common shares - basic ​ ​ 47,408,786 ​ ​ 47,142,074 ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares - diluted ​ ​ 47,408,786 ​ ​ 47,508,334 ​ The accompanying notes are an integral part of these condensed consolidated statements. ​ Page 5 of 56 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023 (IN THOUSANDS) ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended Six Months Ended ​ June 30, 2024 June 30, 2023 ​ ​ (Unaudited) ​ (Unaudited) Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 97,645 ) ​ $ 1,130,011 Adjustments to reconcile net (loss) income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 144,930 ​ ​ 77,669 Amortization of debt costs and discounts ​ 1,106 ​ ​ 652 Amortization of discounts, due from T-Mobile, IP Transit Services & Purchase Agreements ​ ​ ( 13,186 ) ​ ​ ( 8,175 ) Equity-based compensation expense (net of amounts capitalized) ​ 10,516 ​ ​ 12,830 Gain on bargain purchase – Sprint Business ​ ​ ( 22,202 ) ​ ​ ( 1,155,719 ) Gains – lease terminations and other, net ​ ​ ( 3,332 ) ​ ​ ( 608 ) Deferred income taxes ​ ​ ( 43,554 ) ​ ​ ( 27,190 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 23,799 ​ ​ ( 4,918 ) Prepaid expenses and other current assets ​ ​ 12,900 ​ ​ ( 14,140 ) Due to T-Mobile – Transition Services Agreement ​ ​ ( 64,622 ) ​ ​ 118,777 Due from T-Mobile – Transition Services Agreement ​ ​ ( 11,671 ) ​ ​ ( 7,015 ) Unfavorable lease liabilities ​ ​ ( 3,843 ) ​ ​ ( 6,469 ) Accounts payable, accrued liabilities and other long-term liabilities ​ ​ 66,541 ​ ​ 2,637 Deposits and other assets ​ ( 2,688 ) ​ ​ 133 Net cash (used in) provided by operating activities ​ ( 2,951 ) ​ ​ 118,475 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Cash payments - IP Transit Services Agreement – T-Mobile ​ ​ 154,167 ​ ​ 29,167 Acquisition of Sprint Business, net of $ 47.1 million of cash acquired in 2023 ​ ​ 12,323 ​ ​ ( 14,034 ) Purchases of property and equipment ​ ​ ( 89,650 ) ​ ​ ( 60,653 ) Net cash provided by (used in) investing activities ​ 76,840 ​ ​ ( 45,520 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Dividends paid ​ ( 93,782 ) ​ ​ ( 90,218 ) Purchases of common stock ​ ​ ( 7,968 ) ​ ​ — Net proceeds from issuance of senior unsecured 2027 Notes - net of discount of $ 6.8 million and debt costs of $ 1.4 million ​ ​ 291,879 ​ ​ — Net proceeds from issuance of secured IPv4 notes – net of debt costs of $ 7.6 million ​ 198,420 ​ ​ — Proceeds from exercises of stock options ​ ​ 204 ​ ​ 385 Principal payments of finance lease obligations ​ ​ (42,131) ​ ​ ( 17,247 ) Settlement of finance lease – at a discount ​ ( 114,576 ) ​ ​ — Net cash provided by (used in) financing activities ​ 232,046 ​ ​ ( 107,080 ) Effect of exchange rates changes on cash ​ 6,525 ​ ​ 2,166 Net increase (decrease) in cash, cash equivalents and restricted cash ​ ​ 312,460 ​ ​ ( 31,959 ) Cash, cash equivalents and restricted cash, beginning of period ​ ​ 113,781 ​ ​ 275,912 Cash, cash equivalents and restricted cash, end of period ​ $ 426,241 ​ $ 243,953 Supplemental disclosure of non-cash financing activities: ​ ​ ​ ​ ​ ​ Fair value of equipment acquired in leases ​ $ — ​ $ 171 Finance lease obligations incurred ​ $ 96,606 ​ $ 42,639 ​ The accompanying notes are an integral part of these condensed consolidated statements. ​ Page 6 of 56 Table of Contents COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Description of the business: Reorganization and merger On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and among Cogent Communications Group, LLC (formerly Cogent Communications Group, Inc.) (“Group”), a Delaware corporation, Cogent Communications Holdings, Inc., a Delaware corporation (“Holdings”) and Cogent Communications Merger Sub, Inc., a Delaware corporation, Group adopted a new holding company organizational structure whereby Group is now a wholly owned subsidiary of Holdings. Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). References to the “Company” for events that occurred prior to May 15, 2014 refer to Cogent Communications Group, LLC (formerly Cogent Communications Group, Inc.) and its subsidiaries and on and after May 15, 2014 the “Company” refers to Cogent Communications Holdings, Inc. and its subsidiaries. Cogent Communications, LLC (formerly Cogent Communications, Inc.) is wholly owned by Group, Sprint Communications Company LP is indirectly wholly owned by Holdings, and the vast majority of the Company’s assets, contractual arrangements, and operations are executed by Sprint Communications Company LP and Cogent Communications, LLC. 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 routed data. The Company delivers its services primarily to businesses, large and small, communications service providers and other bandwidth-intensive organizations in 54 countries across North America, Europe, 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, net-centric and enterprise customers. The Company’s corporate customers are located in multi-tenant office buildings that 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 either to deliver content to end users or to provide access to residential or commercial Internet users. Content delivery customers include over the top media service providers, content delivery networks, web hosting companies, and commercial content and application software providers. The Company’s net-centric customers include access networks comprised of other Internet Service Providers, 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, including the acquisition of Sprint Communications (as discussed below). The Company continues to support but does not actively sell these non-core services. Page 7 of 56 Table of Contents In connection with the Company’s acquisition of Sprint Communications (as discussed below), the Company began to provide optical wavelength services and optical transport services over its fiber network. The Company is selling these wavelength services to its existing customers, customers of Sprint Communications and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. Additionally, the Sprint Business (as defined below) customers include a number of companies larger than the Company’s historical customer base. In connection with the acquisition of Sprint Communications, the Company expanded selling services to these larger “Enterprise” customers. Acquisition of Sprint Communications 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”). 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 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 both the three- and six-month periods ended June 30, 2023 were $ 78.0 million and $ 65.6 million, respectively. Purchase Price The Transaction closed on May 1, 2023 (the “Closing Date”). On the Closing Date, the Buyer consummated the Transaction pursuant to the terms of the Purchase Agreement, providing a purchase price of $ 1 payable to the Seller for the Purchased Interests, subject to customary adjustments, including working capital (the “Working Capital Adjustment”), as set forth in the Purchase Agreement. As consideration for the Purchased Interests, the Working Capital Adjustment (primarily related to acquired cash and cash equivalents of an estimated $ 43.4 million at the Closing Date in order to fund the international operations of the Sprint Business) resulted in the Buyer making a payment to the Seller of $ 61.1 million on the Closing Date. During the third quarter of 2023, an additional Working Capital Adjustment of $ 5.0 million was accrued due to the Seller. 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. The Short-term Lease Payment was recorded at its present value resulting in a discount of $ 8.4 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. 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 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. Page 8 of 56 Table of Contents 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. IP Transit Services Agreement 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. 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 $ 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 services. 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. The Transition Services are generally intended to be provided for a period of up to two years following the Closing Date, although such period may be extended for an additional one-year term by either party upon 30 days ’ prior written notice. The fees for the Transition Services are calculated using either a per service monthly fee or an hourly rate for the employees allocated to provide such services. Any third-party costs incurred in providing the Transition Services are passed on to the party receiving such services at cost for the two-year period. Amounts paid for the Sprint Business by T-Mobile are reimbursed at cost. Either party to the TSA may terminate the agreement (i) with respect to any individual service in full for convenience upon 30 days ’ prior written notice for certain services and reduced for other services after a 90-day period. The TSA may be terminated in its entirety if the other party has failed to perform any of its material obligations and such failure is not cured within 30 days. The TSA provides for customary indemnification and limits on liability. Amounts billed under the TSA are due 30 days from receipt of the related invoice. 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. Page 9 of 56 Table of Contents 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. 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 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 comprised of the following: ​ ​ ​ ​ ​ (In thousands) May 1, 2023 Working capital payments made to the Seller, net of severance reimbursements (a) ​ $ 37,532 Purchase Agreement payment to be received from the Seller, net of discount of $ 8,392 (b) ​ 19,723 Amounts due from the Seller – IP Transit Services Agreement, net of discount of $ 79,610 (c) ​ 620,390 Total to be received from the Seller ​ 640,113 Total net consideration to be received from the Seller (d) ​ 602,581 (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 a. $ 16.2 million during the fourth quarter of 2023, b. $ 4.3 million during the three months ended March 31, 2024, and c. $ 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 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. The $ 700.0 million is to be paid to the Company from the Seller in equal monthly payments of $ 29.2 million in months 1-12 and $ 8.3 million in months 13-54. (d) Cash consideration was $ 1 Page 10 of 56 Table of Contents 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 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. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, the Company used the cost, income and market approaches, including market participant assumptions. 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. 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). ● Additional reimbursed severance costs of $ 4.3 million ● An increase to unfavorable lease liabilities of $ 6.0 million ● A reduction to accrued liabilities of $ 11.3 million; and ● A reduction to deferred income tax liabilities resulting from the adjustments noted above of $ 1.9 million 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 Page 11 of 56 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ May 1, 2023 Assets ​ Current assets: ​ Cash and cash equivalents ​ $ 47,074 Accounts receivable ​ 39,948 Prepaid expenses and other current assets ​ 22,777 Total current assets ​ 109,799 Total property and equipment ​ 965,715 Right-of-use leased assets ​ 304,982 IPv4 intangible assets ​ 458,000 Other intangible assets ​ ​ 16,000 Deposits and other assets ​ 7,521 Total assets ​ $ 1,862,017 Liabilities ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 13,313 Accrued and other current liabilities ​ 25,344 Current maturities, operating lease liabilities ​ 74,562 Current maturities, finance lease liabilities ​ ​ 39,559 Total current liabilities ​ 152,778 Operating lease liabilities, net of current maturities ​ 251,573 Finance lease liabilities, net of current maturities ​ ​ 121,342 Deferred income tax liabilities ​ 474,891 Other long-term liabilities ​ 35,366 Total liabilities ​ 1,035,950 Fair value of net assets acquired ​ $ 826,067 Gain on bargain purchase ​ ​ ​ Fair value of net assets acquired ​ $ 826,067 Total net consideration to be received from the Seller, net of discounts - see table above ​ ​ 602,581 Gain on bargain purchase ​ $ 1,428,648 ​ 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 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 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. There is not active market data for these assumptions and these assumptions are inherently subjective. Market participants could have differing views on these assumptions, which could result in a materially different fair value of the optical fiber. Acquired Leases The Company acquired a portfolio of lease arrangements for the lease of dark fiber, rights-of-way and facilities. In accordance with ASC 805 and ASC 842, the acquired leases are accounted for as if the leases are new at the acquisition date however, the Company will retain the lease classification from the Seller. The Company followed its historical policies with respect to evaluating the renewal periods of the acquired leases and estimating the incremental borrowing rate. The Company also evaluated the leases for unfavorable terms and recorded an adjustment for unfavorable market terms of $ 157.2 million that was valued using the income approach. Unfavorable lease liabilities are presented net of the corresponding right of use assets. Page 12 of 56 Table of Contents Acquired Intangible Assets 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. The Company believes that these IPv4 addresses have an indefinite useful live and are not being amortized. 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 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 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 . Acquired Asset Retirement Obligations In connection with the Transaction, the Company assumed $ 32.0 million of asset retirement obligations primarily related to restoration obligations for acquired leases that was valued using the income approach. The obligations and corresponding asset retirement assets are being accreted and amortized over approximately four years . 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months ​ Three Months ​ Six Months ​ Six Months ​ ​ Ended ​ Ended ​ Ended ​ Ended (in thousands) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Depreciation and amortization expense ​ $ 1,908 ​ $ 1,272 ​ $ 3,817 ​ $ 1,272 Network operations expense ​ 654 ​ 405 ​ 1,296 ​ 405 ​ Reassessment of Bargain Purchase Gain Because the fair value of the identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration transferred, the Company recorded a material bargain purchase gain. 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. Pro Forma Information The following unaudited pro forma financial information gives effect to the Transaction as if it had been completed on January 1, 2023. The pro forma adjustments are based on historically reported transactions by the respective companies. 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 selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what Page 13 of 56 Table of Contents 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. ​ ​ ​ ​ ​ ​ Six Months ​ ​ Ended (In thousands) ​ June 30, 2023 Service revenue ​ $ 574,153 Operating loss from continuing operations ​ ( 196,525 ) Net income ​ 1,229,943 ​ 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 The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. While the Company believes that the disclosures are adequate to not make the information misleading, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in its annual report on Form 10-K for the year ended December 31, 2023. Certain prior year amounts have been reclassified to conform to current year presentation. The accompanying unaudited condensed consolidated financial statements include all wholly owned subsidiaries. All inter-company accounts and activity have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. Financial instruments At 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 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, Page 14 of 56 Table of Contents ● 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 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. Gross receipts taxes, universal service fund and other surcharges Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state regulatory fees. Such charges may be presented gross or net based upon the Company’s accounting policy election. The Company records certain excise taxes and surcharges on a gross basis and includes them in its revenue and network operations expense. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $ 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 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 diluted weighted-average shares: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months Six Months Six Months ​ ​ Ended ​ Ended ​ Ended ​ Ended ​ June 30, 2024 June 30, 2023 ​ June 30, 2024 ​ June 30, 2023 Weighted average common shares - basic ​ 47,511,613 ​ 47,137,822 ​ 47,408,786 ​ 47,142,074 Dilutive effect of stock options ​ — ​ 16,147 ​ — ​ 16,223 Dilutive effect of restricted stock ​ — ​ 372,238 ​ — ​ 350,037 Weighted average common shares - diluted ​ 47,511,613 ​ 47,526,207 ​ 47,408,786 ​ 47,508,334 ​ The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock options and restricted stock awards outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months ​ Three Months ​ Six Months ​ Six Months ​ ​ Ended ​ Ended ​ Ended ​ Ended ​ June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Unvested shares of restricted common stock ​ 1,624,434 ​ 1,476,049 ​ 1,624,434 ​ 1,476,049 Anti-dilutive options for common stock ​ 185,211 ​ 107,898 ​ 152,867 ​ 104,468 Anti-dilutive shares of restricted common stock ​ 384,098 ​ 104,086 ​ 373,452 ​ 153,978 ​ Page 15 of 56 Table of Contents Stockholders’ (Deficit) Equity 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Loss Deficit (Deficit) Equity Balance at March 31, 2023 ​ 48,296,882 ​ $ 48 ​ $ 582,524 ​ $ ( 17,368 ) ​ $ ( 1,113,751 ) ​ $ ( 548,547 ) Forfeitures of shares granted to employees ​ ( 5,321 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity-based compensation ​ — ​ ​ — ​ ​ 6,809 ​ ​ — ​ ​ — ​ ​ 6,809 Foreign currency translation ​ — ​ ​ — ​ ​ — ​ ​ 1,741 ​ ​ — ​ ​ 1,741 Issuances of common stock ​ 320,430 ​ ​ 1 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1 Exercises of options ​ 5,171 ​ ​ — ​ ​ 240 ​ ​ — ​ ​ — ​ ​ 240 Dividends paid ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 44,907 ) ​ ​ ( 44,907 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,123,863 ​ ​ 1,123,863 Balance at June 30, 2023 ​ 48,617,162 ​ $ 49 ​ $ 589,573 ​ $ ( 15,627 ) ​ $ ( 34,795 ) ​ $ 539,200 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Loss Deficit Equity Balance at March 31, 2024 ​ 49,013,487 ​ $ 49 ​ $ 614,535 ​ $ ( 19,419 ) ​ $ ( 94,521 ) ​ $ 500,644 Forfeitures of shares granted to employees ( 73,166 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity-based compensation — ​ ​ — ​ ​ 4,298 ​ ​ — ​ ​ — ​ ​ 4,298 Foreign currency translation — ​ ​ — ​ ​ — ​ ​ ( 1,722 ) ​ ​ — ​ ​ ( 1,722 ) Issuances of common stock 202,692 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exercises of options 1,069 ​ ​ — ​ ​ 40 ​ ​ — ​ ​ — ​ ​ 40 Common stock purchases & retirement ​ ( 153,322 ) ​ ​ — ​ ​ ( 7,968 ) ​ ​ — ​ ​ — ​ ​ ( 7,968 ) Dividends paid — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 47,431 ) ​ ​ ( 47,431 ) Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 32,338 ) ​ ​ ( 32,338 ) Balance at June 30, 2024 48,990,760 ​ $ 49 ​ $ 610,905 ​ $ ( 21,141 ) ​ $ ( 174,290 ) ​ $ 415,523 ​ Page 16 of 56 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ ​ Shares Amount ​ Capital ​ Loss ​ Deficit ​ (Deficit) Equity Balance at December 31, 2022 48,013,330 ​ $ 48 $ 575,064 $ ( 19,156 ) $ ( 1,074,588 ) $ ( 518,632 ) Forfeitures of shares granted to employees ( 11,830 ) ​ — ​ — ​ — ​ — ​ — Equity-based compensation — ​ — ​ 14,124 ​ — ​ — ​ 14,124 Foreign currency translation — ​ — ​ — ​ 3,529 ​ — ​ 3,529 Issuances of common stock 607,192 ​ 1 ​ — ​ — ​ — ​ 1 Exercises of options 8,470 ​ — ​ 385 ​ — ​ — ​ 385 Dividends paid — ​ — ​ — ​ — ​ ( 90,218 ) ​ ( 90,218 ) Net income — ​ — ​ — ​ — ​ 1,130,011 ​ 1,130,011 Balance at June 30, 2023 48,617,162 ​ $ 49 ​ $ 589,573 ​ $ ( 15,627 ) ​ $ ( 34,795 ) ​ $ 539,200 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Comprehensive ​ Accumulated ​ Stockholders’ ​ ​ Shares Amount ​ Capital ​ Loss ​ Deficit ​ Equity Balance at December 31, 2023 48,608,569 ​ $ 49 ​ $ 606,755 ​ $ ( 14,385 ) ​ $ 17,137 ​ $ 609,556 Forfeitures of shares granted to employees ( 110,545 ) ​ — ​ — ​ — ​ — ​ — Equity-based compensation — ​ — ​ 11,914 ​ — ​ — ​ 11,914 Foreign currency translation — ​ — ​ — ​ ( 6,756 ) ​ — ​ ( 6,756 ) Issuances of common stock 641,782 ​ — ​ — ​ — ​ — ​ — Exercises of options 4,276 ​ — ​ 204 ​ — ​ — ​ 204 Common stock purchases & retirement ( 153,322 ) ​ — ​ ( 7,968 ) ​ — ​ — ​ ( 7,968 ) Dividends paid — ​ — ​ — ​ — ​ ( 93,782 ) ​ ( 93,782 ) Net loss — ​ — ​ — ​ — ​ ( 97,645 ) ​ ( 97,645 ) Balance at June 30, 2024 48,990,760 ​ $ 49 ​ $ 610,905 ​ $ ( 21,141 ) ​ $ ( 174,290 ) ​ $ 415,523 ​ Revenue recognition 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. The Company vigorously seeks payment of these termination fees. The Company recognizes revenue for termination fees as they are collected. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months Six Months Six Months ​ ​ Ended ​ Ended ​ Ended ​ Ended (in thousands) ​ June 30, 2024 ​ June 30, 2023 ​ June 30, 2024 ​ June 30, 2023 Service revenue recognized from deferred revenue balance at beginning of period ​ $ 2,042 ​ $ 3,562 ​ $ 4,663 ​ $ 4,621 Amortization expense for contract costs ​ 5,017 ​ ​ 4,728 ​ ​ 9,913 ​ ​ 9,551 ​ Page 17 of 56 Table of Contents Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced most existing lease accounting guidance. The operating lease liability under ASU 2016-02 is not considered a liability under the consolidated leverage ratio calculations in the indentures governing the Company’s senior unsecured and senior secured note obligations. The Company has made an accounting policy election to not apply the recognition requirements of ASU 2016-02 to its short-term leases - leases with a term of one year or less. The Company has also elected to apply certain practical expedients under ASU 2016-02 including not separating lease and non-lease components on its finance and operating leases. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months Six Months Six Months ​ ​ ​ Ended Ended ​ Ended Ended ​ (Amounts in thousands) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 ​ Finance lease cost ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 12,204 ​ $ 8,411 ​ $ 23,768 ​ $ 17,426 ​ Interest expense on finance lease liabilities ​ 9,919 ​ ​ 6,565 ​ ​ 20,330 ​ ​ 12,995 ​ Operating lease cost ​ 22,716 ​ ​ 27,730 ​ ​ 46,967 ​ ​ 32,312 ​ Total lease costs ​ $ 44,839 ​ $ 42,706 ​ $ 91,065 ​ $ 62,733 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Six Months ​ ​ ​ Ended ​ Ended ​ ​ ​ June 30, 2024 ​ June 30, 2023 ​ Other lease information (amounts in thousands) ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ Operating cash flows from finance leases ​ $ ( 16,562 ) ​ $ ( 11,268 ) ​ Operating cash flows from operating leases ​ ​ ( 47,671 ) ​ ​ ( 32,957 ) ​ Financing cash flows from finance leases ​ ​ (156,707) ​ ​ ( 17,247 ) ​ Right-of-use assets obtained in exchange for new finance lease liabilities ​ ​ 96,606 ​ ​ 42,639 ​ Right-of-use assets obtained in exchange for new operating lease liabilities ​ ​ 8,265 ​ ​ 8,027 ​ Weighted-average remaining lease term — finance leases (in years) ​ ​ 16.3 ​ ​ 13.7 ​ Weighted-average remaining lease term — operating leases (in years) ​ ​ 12.5 ​ ​ 9.9 ​ Weighted average discount rate — finance leases ​ ​ 8.4 % ​ 8.5 % Weighted average discount rate — operating leases ​ ​ 8.0 % ​ 7.3 % ​ 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 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. 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. Page 18 of 56 Table of Contents The future minimum payments under operating lease and finance lease agreements are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Operating Finance For the Twelve Months Ending June 30, ​ Leases ​ Leases 2025 $ 70,312 ​ $ 54,783 2026 ​ ​ 58,510 ​ ​ 49,786 2027 ​ ​ 54,314 ​ ​ 46,382 2028 ​ ​ 49,545 ​ ​ 47,095 2029 ​ ​ 46,952 ​ ​ 45,162 Thereafter ​ ​ 304,000 ​ ​ 551,037 Total minimum lease obligations ​ ​ 583,633 ​ ​ 794,245 Less—amounts representing interest ​ ​ ( 212,798 ) ​ ​ ( 367,816 ) Present value of minimum lease obligations ​ ​ 370,835 ​ ​ 426,429 Current maturities ​ ​ ( 61,780 ) ​ ​ ( 21,253 ) Lease obligations, net of current maturities ​ $ 309,055 ​ $ 405,176 ​ Unfavorable lease liabilities In connection with the Transaction, the Company recorded $ 157.2 million of unfavorable lease liabilities for leases with terms greater than current market rates. 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. 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 The Company estimates credit losses expected over the life of its trade receivables based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables. Based on the Company’s experience, the customer’s delinquency status is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current-period ​ ​ ​ ​ ​ ​ ​ ​ Provision for ​ Write offs ​ ​ ​ ​ ​ Beginning ​ Expected Credit ​ Charged Against ​ Ending Description Balance Losses Allowance Balance Allowance for credit losses (deducted from accounts receivable) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, 2024 ​ $ 5,588 ​ $ 2,920 ​ $ ( 2,126 ) ​ $ 6,382 Three months ended June 30, 2023 ​ ​ 2,675 ​ ​ 5,014 ​ ​ ( 2,807 ) ​ ​ 4,882 Six months ended June 30, 2024 ​ ​ 3,677 ​ ​ 5,514 ​ ​ ( 2,809 ) ​ ​ 6,382 Six months ended June 30, 2023 ​ ​ 2,303 ​ ​ 6,562 ​ ​ ( 3,983 ) ​ ​ 4,882 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months Six Months Six Months ​ ​ Ended ​ Ended ​ Ended ​ Ended (in thousands) ​ June 30, 2024 ​ June 30, 2023 ​ June 30, 2024 ​ June 30, 2023 Net bad debt expense ​ $ 2,920 ​ $ 4,719 ​ $ 5,514 ​ $ 5,934 Bad debt recoveries ​ 828 ​ ​ 349 ​ ​ 1,125 ​ ​ 700 ​ ​ Page 19 of 56 Table of Contents 2. Property and equipment: Depreciation and amortization expense related to property and equipment and finance leases and capitalized compensation costs of employees directly involved with construction activities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Three Months Six Months Six Months ​ ​ Ended ​ Ended ​ Ended ​ Ended (in thousands) ​ June 30, 2024 ​ June 30, 2023 ​ June 30, 2024 ​ June 30, 2023 Depreciation and amortization expense ​ $ 74,065 ​ $ 51,153 ​ $ 144,907 ​ $ 76,306 Capitalized compensation cost ​ 11,232 ​ ​ 8,723 ​ ​ 22,929 ​ ​ 12,441 ​ 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. ​ ​ 3. Long-term debt: 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 Table of Contents 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 Table of Contents 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 Table of Contents 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, 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; 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 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 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. 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 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 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 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 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. Page 23 of 56 Table of Contents 4. Commitments and contingencies : Current and potential litigation In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a contingent liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no amount in the range is more likely than any other amount, the Company accrues at the low end of the range. The Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible 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. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the liability related to these legal actions and claims cannot be determined with certainty. Management does not believe that such claims and actions will have a material impact on the Company’s financial condition or results of operations. Judgment is required in estimating the ultimate outcome of any dispute resolution process, as well as any other amounts that may be incurred to conclude the negotiations or settle any litigation. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material. ​ 5. Income taxes: The components of (loss) income before income taxes consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Three Months Ended Six Months Ended Six Months Ended ​ June 30, 2024 ​ June 30, 2023 ​ June 30, 2024 ​ June 30, 2023 Domestic ​ $ ( 37,199 ) ​ $ 1,112,947 ​ $ ( 116,203 ) ​ $ 1,115,925 Foreign ​ ​ ( 2,992 ) ​ ​ ( 13,415 ) ​ ​ ( 8,422 ) ​ ​ ( 5,741 ) Total ​ $ ( 40,191 ) ​ $ 1,099,532 ​ $ ( 124,625 ) ​ $ 1,110,184 ​ ​ 6. 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 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. ​ 7. Dividends on common stock: 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. The Company is a Delaware corporation and under the General Corporation Law of the State of Delaware, distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware law. The Indentures limit the Company’s ability to return cash to its stockholders. ​ Page 24 of 56 Table of Contents 8. Related party transactions: Office leases The Audit Committee of the Company’s Board of Directors (the “Audit Committee”) reviews and approves all transactions with related parties. The Company’s headquarters is located in an office building owned by Sodium LLC whose owner is the Company’s Chief Executive Officer, David Schaeffer. 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. On January 6, 2023, the Company entered into two lease agreements (the “New Leases”), one with Thorium LLC (“Thorium”) and one with Germanium LLC (“Germanium”), entities owned by the Company’s Chief Executive Officer, David Schaeffer. The first of the New Leases is with Thorium for 54,803 square feet of office space, which serves as office space for the Company replacing a portion of its office space in the Northern Virginia area (“Office Lease”). The second of the New Leases is with Germanium LLC for 1,587 square feet of technical space which serves as network operations space for the Company (“Network Operations Lease”). The term for each of the New Leases is five years beginning on April 1, 2023. Both of the New Leases are cancellable by the Company without penalty upon 60 days written notice. The Company took occupancy of the office space and network operations space in April 2023. The amount of fixed annual rent during the term of the Office Lease is $ 1.2 million, and the Company is responsible for paying its proportionate share of the building’s operating expenses that exceed a 2023 base year. The amount of fixed annual rent for the Network Operations Lease is $ 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. On July 25, 2023 the Company entered into a Second Amendment to the lease agreement (the “Amendment”), with Germanium which amends the Network Operations Lease to lease an additional 7,369 square feet on the first floor of the building, beginning on August 1, 2023, in connection with the planned expansion of the technical space. This includes 4,987 square feet for an auditorium suitable for training and 2,382 square feet for the data center in the building. The amended Network Operations Lease remains cancellable by the Company without penalty upon 60 days written notice. 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 $ 0.9 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. ​ Page 25 of 56 Table of Contents 9. Segment information: The Company operates as one operating segment. The Company’s service revenue by geographic region and product class and long-lived assets by geographic region are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues On-net Off-net Wavelength Non-core Total North America ​ $ 111,360 ​ $ 104,734 ​ $ 3,625 ​ $ 4,468 ​ $ 224,187 Europe ​ 23,142 ​ ​ 5,220 ​ ​ — ​ ​ 104 ​ ​ 28,466 South America ​ ​ 1,721 ​ ​ 221 ​ ​ — ​ ​ 17 ​ ​ 1,959 Oceania ​ ​ 4,395 ​ ​ 1,252 ​ ​ — ​ ​ 21 ​ ​ 5,668 Africa ​ ​ 139 ​ ​ 24 ​ ​ — ​ ​ — ​ ​ 163 Total ​ $ 140,757 ​ $ 111,451 ​ $ 3,625 ​ $ 4,610 ​ $ 260,443 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues On-net Off-net Wavelength Non-core Total North America ​ $ 99,822 ​ $ 95,239 ​ $ 1,585 ​ $ 8,531 ​ $ 205,177 Europe ​ ​ 22,120 ​ ​ 5,070 ​ ​ — ​ ​ 22 ​ ​ 27,212 South America ​ ​ 1,652 ​ ​ 203 ​ ​ — ​ ​ — ​ ​ 1,855 Oceania ​ ​ 3,894 ​ ​ 1,447 ​ ​ — ​ ​ 19 ​ ​ 5,360 Africa ​ ​ 177 ​ ​ 25 ​ ​ — ​ ​ — ​ ​ 202 Total ​ $ 127,665 ​ $ 101,984 ​ $ 1,585 ​ $ 8,572 ​ $ 239,806 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues On-net Off-net Wavelength Non-core Total North America ​ $ 220,054 ​ $ 215,753 $ 6,952 ​ $ 10,348 ​ $ 453,107 Europe ​ 46,783 ​ 10,559 — ​ 225 ​ 57,567 South America ​ 3,469 ​ 456 — ​ 26 ​ 3,951 Oceania ​ 8,776 ​ 2,812 — ​ 52 ​ 11,640 Africa ​ 300 ​ 48 — ​ — ​ 348 Total ​ $ 279,382 ​ $ 229,628 $ 6,952 ​ $ 10,651 ​ $ 526,613 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues On-net Off-net Wavelength Non-core Total North America ​ $ 188,519 ​ $ 128,115 $ 1,585 ​ $ 8,669 ​ $ 326,888 Europe ​ 43,967 ​ 9,090 — ​ 38 ​ 53,095 South America ​ 3,297 ​ 236 — ​ 1 ​ 3,534 Oceania ​ 7,649 ​ 1,774 — ​ 28 ​ 9,451 Africa ​ 376 ​ 51 — ​ — ​ 427 Total ​ $ 243,808 ​ $ 139,266 $ 1,585 ​ $ 8,736 ​ $ 393,395 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ 2024 2023 Long-lived assets, net ​ ​ ​ ​ ​ ​ North America ​ $ 1,983,436 ​ $ 1,959,704 Europe and other ​ 163,290 ​ ​ 163,034 Total ​ $ 2,146,726 ​ $ 2,122,738 ​ The majority of North American revenue consists of services delivered within the United States. ​ ​ Page 26 of 56 Table of Contents