What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 198 added, 445 removed, 367 unchanged (64% of the section changed)

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Factors that could cause or contribute to these differences include, but are not limited to:

Risks related to the COVID-19 pandemic;

vaccination and in office requirements;

delays in the delivery of networking equipment and other services from certain vendors;

economic risks;

reductions in our prices in an inflationary economy;

events beyond our control that result in an inability to provide services to customers or increase the costs or reduce the profitability of providing services;

our ability to realize the anticipated benefits of the acquisition of the Sprint Business (as defined below) and difficulty integrating the Sprint Business;

our ability to retain existing customers and continue to add new customers;

shifts to remote work impacting our ability to retain and add customers;

vacancy rates in our buildings;

our ability to efficiently manage growth;

our ability to retain existing enterprise customers, maintain the level of services provided to enterprise customers or attract new enterprise customers;

reduction of the attractiveness of our business due to certain employees desiring to work remotely;

our ability to successfully make or integrate acquisitions or enter into strategic alliances;

risks related to data center expansions;

risks related to environmental, social and governance matters;

our ability to maintain relationships with other network providers;

competition in our industry;

the potential for the telephone companies and cable companies to provide better delivery of certain Internet content;

cybersecurity risks;

the ability of our information systems to support our customers, network operations, sales, billing and financial reporting;

our insurance coverage may be insufficient;

the lack of a Legacy Registration Services Agreement with the American Registry for Internet Numbers or any other regional Internet registry with respect to a substantial portion of our IPv4 addresses;

our ability to obtain or maintain the agreements necessary to augment or maintain our network;

delays and problems of our off-net business;

interruptions of services from fiber providers;

increased reliance on agreements with landowners;

risks related to climate change;

risks related to maintaining and repairing our owned fiber network;

risks related to our network infrastructure equipment being manufactured or provided by a limited number of network infrastructure vendors;

risks related to international operations;

liabilities for the content disseminated through our network or for network failures, delays or errors in transmissions;

risks related to privacy regulations and changes in laws, rules and enforcement;

difficulties in censoring content on the Internet;

our ability to make payments on our indebtedness as they become due;

our ability to incur more debt, restrictions on our business contained in the agreements governing our debt obligations;

our ability to service our indebtedness;

and risks related to our cash and cash equivalents held at financial institutions in amounts in excess of insured limits, as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, this report and our quarterly reports on Form 10-Q for the quarterly periods ended March 31, 2024 and June 30.

2024, and our annual report on Form 10-K for the year ended December 31, 2023.

Our acquisition of Sprint Communications (as defined below), including difficulties integrating our business with the Sprint Business, which may result in the combined company not operating as effectively and efficiently as expected;

transition services required to support the Sprint Business and the related costs continuing for a period longer than expected, government policies worldwide;

vaccination and in-office requirements, delays in the delivery of network equipment or optical fiber, loss of key right-of-way agreements, future economic instability in the global economy, including the risk of economic recession and recent bank failures and liquidity concerns at certain other banks, which could affect spending on Internet services;

the impact of changing foreign exchange rates (in particular the Euro to US dollar and Canadian dollar to US dollar exchange rates) on the translation of our non-US dollar denominated revenues, expenses, assets and liabilities into US dollars;

legal and operational difficulties in new markets;

our ability to maintain our regulatory licenses that are required in the markets in which we operate;

the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue;

changes in government policy and/or regulation, including rules regarding data protection, cyber security and net neutrality;

increasing competition leading to lower prices for our services;

our ability to attract new customers and to increase and maintain the volume of traffic on our network;

the ability to maintain our Internet peering and right-of-way arrangements on favorable terms;

our ability to renew our long-term leases of optical fiber and right-of-way agreements that comprise our network;

our reliance on a limited number of equipment vendors, and the potential for hardware or software problems associated with such equipment;

tariffs imposed on equipment we purchase for our network or other similar government-imposed fees and charges;

the dependence of our network on the quality and dependability of third-party fiber and right-of-way providers;

our ability to retain certain customers that comprise a significant portion of our revenue base;

the management of network failures and/or disruptions;

our ability to make payments on our indebtedness as they become due and outcomes in litigation, risks associated with variable interest rates under our Swap Agreement as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2024 and our Quarterly Reports on Form 10-Q.

Acquisition of Sprint Communications

On May 1, 2023 (the “Closing Date”), Cogent Infrastructure, LLC (formerly Cogent Infrastructure, Inc.), a Delaware corporation and our direct wholly owned subsidiary, closed on its acquisition of the U.S.

On May 1, 2023 (the “Closing Date”), Cogent Infrastructure, Inc.

(now Cogent Infrastructure, LLC), a Delaware corporation and our direct wholly owned subsidiary (the “Buyer” or “Cogent Infrastructure”, “we” or “us”), closed on its acquisition of the U.S.

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

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Short-term Lease Payment

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

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

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

The final determination of the Short - term Lease Payment was completed in April 2024.

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

The determination of the discount rate requires some judgment.

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On the Closing Date, we entered into an agreement for IP transit services (“IP Transit Services Agreement”), pursuant to which TMUSA will pay us 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 us $25.0 million and $87.5 million, during the three months ended September 30, 2024 and 2023, respectively, and $179.2 million and $116.7 million during the nine months ended September 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.

Under the IP Transit Services Agreement.

TMUSA paid us $25.0 million and $87.5 million during the three months ended March 31, 2025 and 2024, respectively.

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

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

Under ASC 805, we 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.

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

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

We 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.

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

The determination of the discount rate requires some judgment.

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.

On the Closing Date, the Buyer entered into a transition services agreement (the “TSA”) with the Seller, pursuant to which the Seller provides to the Buyer, and the Buyer provides 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 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 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.

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

During the three and nine months ended September 30, 2024, we were billed $3.0 million and $26.3 million, respectively, as due to the Seller under the TSA.

During the three and nine months ended September 30, 2023, we were billed $101.2 million and $218.0 million, respectively as due to the Seller under the TSA.

During the three and nine months ended September 30, 2024, we paid to the Seller $3.7 and $91.9 million, respectively, under the TSA.

During the three and nine months ended September 30, 2023 we paid $153.1 million to the Seller under the TSA.

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

As of September 30, 2024, we owed $1.6 million to the Seller under the TSA.

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 $12.3 million were recorded in the nine months ended September 30, 2024.

No reimbursement amounts were recorded in the three and nine months ended September 30, 2023 or three months ended September 30, 2024.

Acquisition-Related Costs

In connection with the Transaction and negotiation of the Purchase Agreement, we incurred a total of $13.6 million of professional fees and other acquisition related costs (not including severance costs).

Acquisition related costs were $0.4 million for the three months ended September 30, 2023 and $21.4 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

There were no acquisition related costs in the three months ended September 30, 2024.

Severance Reimbursements

The Purchase Agreement also provided for reimbursement from the Seller to us for qualifying severance expenses incurred.

Total qualifying severance expenses were $28.6 million of which $4.3 million were recorded in the three months ended March 31, 2024.

These severance payments ended in the second quarter of 2024.

Other Services Provided to the Seller

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

Under the CSA, we recorded service revenue of $4.1 million and $8.0 million during the three months ended September 30, 2024 and 2023, respectively, and $13.2 million and $15.3 million during the nine months ended September 30, 2023, respectively.

In addition, on the Closing Date, we entered into a commercial agreement (the “Commercial Agreement”) with TMUSA for colocation and connectivity services, pursuant to which we 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, we recorded revenue of $0.7 million and $3.2 million during the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, and December 31, 2024, TMUSA owed $0.1 million and $2.6 million, respectively, to us under the Commercial Agreement.

Acquisition-Related Costs

In connection with the Transaction and negotiation of the Purchase Agreement, we incurred a total of $13.6 million of professional fees and other acquisition-related costs (not including severance costs) since the acquisition date.

Acquisition-related costs (not including severance costs) were $9.0 million for the three months ended March 31, 2024.

There were no acquisition-related costs incurred in the three months ended March 31, 2025.

Competitive Advantages

We believe we address many of the data communications needs of businesses large and small, communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-speed Internet access and private network services at attractive prices.

We believe we address many of the data communications needs of businesses large and small, communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-speed Internet access, optical transport and optical wave services, and private network services at attractive prices.

After our acquisition of the Sprint Business, we began offering services to larger enterprise customers.

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Our single network protocol allows us to avoid many of the costs that our competitors who operate circuit-switched, time-division multiplexing (“TDM”) and hybrid fiber coaxial networks incur related to provisioning, monitoring and maintaining multiple transport protocols.

Selecting one operating protocol has also had positive effects in terms of our operating overhead and the simplicity of our organization.

Selecting one operating protocol has positively impacted our operating overhead and the simplicity of our organization.

We believe the vast majority of our competitors currently operate their networks with multiple protocols and we believe that attempts to upgrade their networks to one protocol would be operationally challenging and costly.

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This strategic combination of owned and leased dark fiber will help to ensure a robust and reliable network and enables us to connect via dark fiber to virtually any geographic route or facility we require on a long-term, cost-effective basis.

● Optical Wave Network - Acquiring the Sprint Network also has allowed us to construct a wavelength network using the predominantly owned fiber.

● Optical Wave Network - Acquiring the Sprint Network has also allowed us to construct a wavelength network using the predominantly owned fiber.

This enables us to expand our product offerings to include optical wavelength and optical transport services.

We are selling these services to our existing customers, customers acquired with the Sprint Business and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure.

We intend to offer this service in approximately 800 data centers in the United States, Mexico and Canada by the end of 2024.

As of March 31, 2025, we offered this service in 883 data centers in the United States, Mexico and Canada.

We believe our wavelength service has the advantages of unique routes, ubiquitous service locations, faster provisioning times and lower prices.

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The vast majority of our revenue is driven by or related to our high-capacity, bi-directional, symmetric Internet access services which can be accessed on-net in multi-tenant office buildings (“MTOBs”) and carrier neutral data centers (“CNDCs”) or off-net through other carriers’ “last mile” connections to customer facilities.

The addition of optical wave and optical transport services and our decision to continue to support MPLS virtual private network (“VPN”) services for our acquired customers are consistent with this strategy.

There are significant cost advantages as a result of this narrow product set.

The addition of optical wave and optical transport services, our direct, VPN connection to cloud providers services and our decision to continue to support MPLS virtual private network (“VPN”) services for our acquired customers are consistent with this strategy.

Consistent with this strategy, we have pared, and continue to pare, non-core services acquired with the Sprint Business.

There are significant cost advantages because of this narrow product set.

We believe that the relative size of our salesforce training, support and overhead is lower than comparable telecom providers that tend to offer a broader, one-stop shop product set to their client base.

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● Scalable Network Equipment and Hub Configurations .

Due to our single network protocol and narrow product set, our transmission and network operations rely mainly on two sets of equipment for operation.

The addition of optical waves and optical transport services to our product set has not altered this configuration.

We have begun the process of optimizing our network for historical IP-based Internet services and optical wave (optical transport services).

This process has not altered our primary reliance on two sets of equipment for operation, nor has the addition of optical waves (optical transport services) to our product set altered this equipment configuration.

In order to further scale our operating leverage, we have systematically reused older equipment in less dense portions of our network.

Due to interoperability between the generations of products, we are able to transfer older equipment from our core, high-traffic areas to less congested portions of our network.

The result of this dynamic grooming process is that we are able to utilize our equipment for materially longer periods than the expected life of this equipment, thereby reducing our capital investment in our network.

The result of this dynamic grooming process is that we are able to utilize our equipment for materially longer periods than our competitors, thereby reducing our capital investment in our network.

We design and build all of our network hubs, points of presence, and data centers to the same standards and configurations.

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Our on-net service does not rely on circuits that must be provisioned by a third-party carrier.

In our on-net MTOBs, we provide our customers the entire network, including the “last mile” and the in-building wiring connecting to our customer’s suite.

In our on-net MTOBs, we provide our customers the entire network, including the “last mile” and the in-building fiber optic connections to our customer’s suite.

In our CNDCs, we are collocated with our customers.

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We have also begun to evaluate the sustainability of new locations by evaluating the LEED Green Rating of Buildings, the potential to source renewable energy at locations and the potential impact of climate change on a location including proximity to water and the risk of flooding.

Our network is connected to 3,424 total buildings located in 260 metropolitan markets globally.

These buildings include 1,870 large MTOBs (totaling over 1.0 billion square feet of office space) in major North American cities where we offer our services to a diverse set of high-quality corporate customers within close physical proximity of each other.

These buildings also include 1,627 CNDCs located in 1,459 buildings in North America, Europe, South America, Oceania and Africa where our net-centric customers directly interconnect with our network.

We also operate 95 of our own data centers 43 of which were converted from facilities acquired with the Sprint Business) across the United States and in Europe, which comprise over 1.8 million square feet of floor space, offer 169 MW of power and are directly connected to our network.

Our network is connected to a total of 3,500 buildings that are located in 292 metropolitan markets globally.

These buildings include 1,867 large MTOBs (totaling over 1.0 billion square feet of office space) 1,668 CNDCs located in 1,453 buildings, 101 of our own Cogent data centers and 79 of our smaller Cogent edge data centers.

Our MTOB’s are in major North American cities where we offer our services to a diverse set of high-quality corporate customers within close physical proximity of each other.

Our CNDCs are located in North America, Europe, South America, Oceania and Africa where our net-centric customers directly interconnect with our network.

Our Cogent data centers operate across the United States and in Europe, comprise over 1.9 million square feet of floor space, offer 183 MW of power and are directly connected to our network.

We believe that these network points of presence strategically position our network to attract high levels of Internet traffic and maximize our revenue opportunities and profitability.

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Our senior management team has designed and built our network and, during our formative years, led the integration of network assets we acquired through 13 significant acquisitions prior to our acquisition of the Sprint Business and managed the expansion and growth of our business.

A number of the members of senior management who joined us as part of our acquisition of the Sprint Business have similar experience and tenure in both the telecommunications industry and at the Sprint Business.

We anticipate that our management team will successfully manage the integration of the Sprint Business into our current operations.

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With our acquisition of the Sprint Business, we acquired a number of larger enterprise customers.

While we are in the process of terminating certain non-core services to these customers at the end of their current term, we have continued to provide our core services to enterprise customers and elected to provide MPLS services, a new service for the Company, as well.

We have not previously focused our sales efforts on larger enterprise customers.

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● High capacity and reliability – We offer 100 Mbps to 100 Gbps ports in all of the CNDCs and 400 Gbps in selected locations on our network, which differentiates the capacity choices we provide our net-centric clients;

● Balanced customer base – Our leading share of content providers and access networks increases the amount of traffic that originates and terminates on our network thereby reducing latency and enhancing reliability;

● Balanced customer base for IP services – Our leading share of content providers and access networks increases the amount of traffic that originates and terminates on our network thereby reducing latency and enhancing reliability;

● Large and dedicated salesforce – Our team of net-centric sales professionals is one of the largest salesforces in this industry segment and enables us to better serve this customer segment while also identifying new sales opportunities and gaining new business and customers;

● Wave and optical transport services – We began offering wave and optical transport services to our net-centric customers who require these high bandwidth services.

● Wave (optical transport services) - We began offering wave (optical transport services) to our net - centric customers who require these high bandwidth dedicated point - to - point services.

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We continue to negotiate reduced pricing under our numerous carrier agreements that enable us to reduce our cost of off-net services, which enhances our competitive position in the marketplace.

Expand our Product Offerings to Include Wavelength and Optical Transport Services .

In connection with our acquisition of the Sprint Business, we expanded our offerings of optical wavelength and optical transport services over our fiber network.

Expand our Product Offerings to Include Wavelength - Optical Transport Services .

In connection with our acquisition of the Sprint Business, we expanded our offerings of optical wavelength - optical transport services over our fiber network.

We currently offer wavelength services in 657 data centers and intend to offer this service in approximately 800 data centers in the United States and Mexico by the end of 2024.

We currently offer wavelength services in 883data centers in the United States, Mexico and Canada.

We believe our wavelength service has the advantages of unique routes, ubiquitous service locations, faster provisioning times and lower prices.

Expand our Data Center Footprint .

We currently operate 95 of our own data centers across the United States and Europe.

As part of our acquisition of the Sprint Business, we acquired multiple Sprint facilities that previously housed Sprint equipment.

We currently operate a total of 180 Cogent data centers across the United States and Europe.

These include 101 larger Cogent “classic” data centers and 79 smaller Cogent edge data centers As part of our acquisition of the Sprint Business, we acquired multiple Sprint facilities that previously housed Sprint equipment.

We evaluated the suitability of these facilities for conversion to commercial data center space and began repurposing suitable facilities.

Repurposing these facilities included removing unused, obsolete equipment and racks, and upgrading or installing new HVAC systems, uninterruptable power supplies (“UPS”), backup generators and fire suppression systems as well as other structural changes.

By September 30, 2024, we had converted 43 former Sprint facilities.

In connection with this conversion process we expect to decommission certain legacy Cogent data centers.

By March 31, 2025, we had converted the former Sprint facilities into 52 Cogent data centers and 79 Cogent edge data centers.

In connection with this conversion process, we are decommissioning certain legacy Cogent data centers.

Increase our Leasing of IPv4 Address Space .

We lease IPv4 address space to our customers, both on a standalone basis and as a complement to a customer’s Internet access services with us.

We provide a small number of free IPv4 addresses to our dedicated Internet access customer as well.

We provide a small number of free IPv4 addresses to our dedicated Internet access customers as well.

We currently own approximately 38 million IPv4 addresses, of which 9.9 million were recently acquired at the closing of the Sprint Business acquisition.

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Results of Operations

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Our management reviews and analyzes several key financial measures in order to manage our business and assess the quality and variability of our service revenue, operating results and cash flows.

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Three Months Ended

September 30,

(in thousands)

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Income tax benefit

(1) Includes non-cash equity-based compensation expenses of $469 and $370 in the three months ended September 30, 2024 and 2023, respectively.

(2) Includes non-cash equity-based compensation expenses of $7,406 and $7,041 in the three months ended September 30, 2024 and 2023, respectively.

(1) Includes non-cash equity-based compensation expenses of $490 and $385 in the three months ended March 31, 2025 and 2024, respectively.

(2) Includes non-cash equity-based compensation expenses of $7,523 and $6,565 in the three months ended March 31, 2025 and 2024, respectively.

NM – not meaningful

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In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.

Our service revenue decreased by 6.7% from the three months ended September 30, 2023 to the three months ended September 30, 2024.

Our service revenue decreased by 7.2% from the three months ended March 31, 2024 to the three months ended March 31, 2025.

Exchange rates positively impacted our service revenue by $0.2 million.

All foreign currency comparisons herein reflect results for the three months ended September 30, 2024 translated at the average foreign currency exchange rates for the three months ended September 30, 2023.

Our total service revenue decreased from the cancellation of low margin and non-core customers we acquired with the Sprint Business, and a reduction in revenue under the CSA agreement with TMUSA, more than offsetting the growth in customers from expanding our network, adding additional buildings to our network, increasing our penetration into the buildings connected to our network and gaining market share by offering our services at lower prices than our competitors.

All foreign currency comparisons herein reflect results for the three months ended March 31, 2025 translated at the average foreign currency exchange rates for the three months ended March 31, 2024.

Our total service revenue decreased from the cancellation of low margin and non-core customers we acquired with the Sprint Business, and a reduction in revenue under the Commercial Agreement with TMUSA, partially offset by the growth in customers from expanding our network, adding additional buildings to our network, increasing our penetration into the buildings connected to our network and gaining market share by offering our services at lower prices than our competitors.

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We record these taxes billed to our customers on a gross basis (as service revenue and network operations expense) in our condensed consolidated statements of comprehensive income.

The impact of these taxes including the Universal Service Fund resulted in an increase to our revenues of $5.2 million from the three months ended September 30, 2023 to the three months ended September 30, 2024.

The impact of these taxes including the Universal Service Fund resulted in a decrease to our revenues of $0.3 million from the three months ended March 31, 2024 to the three months ended March 31, 2025.

Three Months Ended

September 30,

Other Operating Data

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We classified the $39.5 million of May 2023 Sprint Business revenue as $20.1 million of monthly recurring revenue as enterprise revenue, $12.9 million of monthly recurring revenue as corporate revenue and $6.5 million of monthly recurring revenue as net-centric revenue.

Revenues from our corporate, net-centric and enterprise customers represented 45.2%, 35.7% and 19.1% of total service revenue, respectively, for the three months ended September 30, 2024 and represented 43.7%, 34.5% and 21.8% of total service revenue, respectively, for the three months ended September 30, 2023.

Revenues from our corporate, net-centric and enterprise customers represented 44.8%, 37.5% and 17.7% of total service revenue, respectively, for the three months ended March 31, 2025 and represented 46.9%, 34.6% and 18.5% of total service revenue, respectively, for the three months ended March 31, 2024.

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Our revenue from our corporate customers decreased primarily due to cancellations of low margin and non-core corporate customers acquired with the Sprint Business.

Our corporate customers take advantage of our superior speeds, greater aggregate throughput, service levels and installation times versus our competitors.

The growing trend of customers installing second lines for redundancy in order to construct virtual private networks (“VPNs”) has also led to our ability to increase our corporate revenues.

Beginning with and throughout the COVID-19 pandemic, we witnessed a deteriorating real estate market in and around the buildings we service in central business districts in North America.

Because of the rising vacancy levels and falling lease initiations or renewals, we experienced a slowdown in new sales to our corporate customers, which negatively affected our corporate revenue results.

During the three months ended September 30, 2024, we continued to see gradual declines in vacancy rates and rising office occupancy rates.

In addition, we continued to see positive trends in our corporate business.

Our corporate customers take advantage of our superior speeds, greater aggregate throughput, service levels and installation times versus our competitors During the three months ended March 31, 2025, we continued to see declining vacancy rates compared to their peak during the COVID-19 pandemic and rising office occupancy rates in certain markets in which we operate continuing a trend that began following the end of the COVID-19 pandemic.

Other markets, particularly those in California, Washington D.C.

and the Pacific Northwest, continue to see markedly higher vacancy rates.

These higher vacancy rates may represent a long-term change in office attendance and occupancy rates in these markets.

Despite this overall environment, we are seeing some positive trends in our corporate business.

As the option to fully or partially work from home becomes permanently established at many companies, our corporate customers are integrating some of the new applications that became part of the remote work environment, which benefits our corporate business as these customers upgrade their Internet access infrastructure to higher capacity connections.

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However, the exact timing and path of these positive trends remains uncertain.

Our revenue from our net-centric customers decreased primarily due to a reduction in the CSA with TMUSA offsetting growth in network traffic from our legacy net-centric customers and from net-centric customers acquired with the Sprint Business.

Our revenue from our net-centric customers increased, primarily due to growth in network traffic from our legacy net-centric customers partly offset by a reduction in revenue under the Commercial Agreement with TMUSA and from net-centric customers acquired with the Sprint Business.

Our net-centric customers purchase our services on a price per megabit basis.

The net-centric market exhibits significant pricing pressure due to the continued introduction of new technology, which lowers the marginal cost of transmission and routing, and the commodity nature of the service where price is typically the only differentiating factor for these customers.

Our average price per megabit of our installed base of customers decreased by 23.9% from the three months ended September 30, 2023 to the three months ended September 30, 2024.

Our average price per megabit of our installed base of customers decreased by 25.1% from the three months ended March 31, 2024 to the three months ended March 31, 2025.

The impact of foreign exchange rates has a more significant impact on our net-centric revenues.

Our revenue from our enterprise customers decreased primarily due to a reduction from low-margin and non-core enterprise customers acquired with the Sprint Business.

Service revenue classified as on-net revenue and enterprise revenue from a low margin resale customer acquired in connection with the Sprint Business was $1.7 million for the three months ended September 30, 2024 and $3.4 million for the three months ended September 30, 2023.

Our revenue from our enterprise customers decreased primarily due to a reduction in revenue from low-margin and non-core enterprise customers acquired with the Sprint Business.

Service revenue classified as on-net revenue and enterprise revenue from a low margin resale customer acquired in connection with the Sprint Business was $5.1 million for the three months ended March 31, 2024.

The resale customer cancelled its service on July 31, 2024.

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Additionally, on the Closing Date, we classified the total 46,743 Sprint Business customer connections as 1,560 on-net customer connections, 24,667 off-net customer connections and 20,516 non-core customer connections.

Revenues from our on - net, off - net, wavelength and non - core customers represented 53.0%, 43.3%, 2.1% and 1.6% of total service revenue, respectively, for the three months ended September 30, 2024 and represented 46.9%, 47.4%, 1.1% and 4.7% of total service revenue, respectively, for the three months ended September 30, 2023.

Our on-net revenues increased from the three months ended September 30, 2023 to the three months ended September 30, 2024 primarily from customers acquired with the Sprint Business and an increase in revenues from our legacy Cogent customers.

Revenues from our on-net, off-net, wavelength and non-core customers represented 52.5%, 43.4%, 2.9% and 1.2% of total service revenue, respectively, for the three months ended March 31, 2025 and represented 52.1%, 44.4%, 1.2% and 2.3% of total service revenue, respectively, for the three months ended March 31, 2024.

Our on-net revenues increased from the three months ended March 31, 2024 to the three months ended March 31, 2025, primarily from customers acquired with the Sprint Business and an increase in revenues from our legacy Cogent customers, partially offset by cancellation of service from one customer.

The resale customer cancelled its service on July 31, 2024.

Our off-net revenues decreased from the three months ended September 30, 2023 to the three months ended September 30, 2024 primarily from cancellations of low-margin off-net customers acquired with the Sprint Business.

Our off-net revenues decreased from the three months ended March 31, 2024 to the three months ended March 31, 2025 primarily from cancellations of low-margin off-net customers and off-net customers in unlicensed markets that we acquired with the Sprint Business.

In connection with our acquisition of the Sprint Business, we expanded our offerings of optical wavelength and optical transport services over our fiber network.

Wavelength revenue was $5.3 million for the three months ended September 30, 2024 and $3.0 million for the three months ended September 30, 2023.

Our non-core revenues decreased from the three months ended September 30, 2023 to the three months ended September 30, 2024 from the cancellation of non-core revenues acquired in the Sprint Business.

Wavelength revenue was $7.1 million for the three months ended March 31, 2025 and $3.3 million for the three months ended March 31, 2024.

Our non-core revenues decreased from the three months ended March 31, 2024 to the three months ended March 31, 2025 from the cancellation of non-core revenues acquired in the Sprint Business.

Non-core services are services, which we acquired and continue to support but do not actively sell.

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Non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee’s salary and other compensation.

Our decrease in network operations expense is primarily attributable to our efforts to reduce the network operations costs related to our acquisition of the Sprint Business, including leased circuit costs and facilities costs.

Our 18.6% decrease in network operations expense is primarily attributable to our efforts to reduce the network operations costs related to our acquisition of the Sprint Business.

These costs primarily include leased circuit costs, including the reduction of the related “tail-circuit” costs for the reduction in off-net revenue and facilities costs.

Selling, General, and Administrative (“SG&A”) Expenses.

Our SG&A expenses, including non - cash equity - based compensation expense, increased by 3.6% from the three months ended September 30, 2023 to the three months ended September 30, 2024.

Our SG&A expenses, including non-cash equity-based compensation expense, decreased by 3.7% from the three months ended March 31, 2024 to the three months ended March 31, 2025.

Our decrease in SG&A operations expense is primarily attributable to our efforts to reduce SG&A costs related to our acquisition of the Sprint Business.

These costs primarily include compensation and related costs and third-party services costs.

Non-cash equity-based compensation expense is included in SG&A expenses consistent with the classification of the employee’s salary and other compensation.

SG&A expenses increased primarily from an increase in bad debt expense associated with the Sprint Business.

Acquisition-Related Costs.

In connection with the Transaction and negotiation of the Purchase Agreement, we incurred cumulative professional fees, other acquisition related costs totaling $42.1 million, including $28.6 million of reimbursed severance costs.

Such fees totaled $0.4 million for the three months ended September 30, 2023.

There were no acquisition related costs recorded in the three months ended September 30, 2024.

Such fees totaled $9.0 million for the three months ended March 31, 2024.

There were no acquisition related costs recorded in the three months ended March 31, 2025.

Depreciation and Amortization Expenses.

Our depreciation and amortization expense decreased by 1.1% primarily due to the depreciation expense associated assets acquired with the Sprint Business and an increase in deployed fixed assets offset by a change in estimated useful life for owned fiber acquired in the Sprint Business.

Effective July 1, 2024, we changed our estimate of the useful life of our owned fiber to better reflect the estimated periods during which these assets will remain in service.

The estimated useful life of the owned fiber that previously averaged 14 years was increased to an average of 40 years.

The effect of this change in estimate on the three months ended September 30, 2024 was to reduce depreciation expense by $4.4 million.

Gain on Bargain Purchase.

Our depreciation and amortization expense increased by 7.3% primarily due to the depreciation expense associated assets acquired with the Sprint Business and an increase in deployed fixed assets.

Reduction to Gain on Bargain Purchase.

We accounted for the Transaction as a business combination.

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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.

In the three months ended September 30, 2023 we reduced the gain on bargain purchase by $3.3 million.

In the three months ended March 31, 2024 we reduced the gain on bargain purchase by $5.5 million.

The total bargain purchase gain from the Transaction was $1.4 billion.

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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 amortization of the discount resulted in interest income of $5.4 million for the three months ended September 30, 2024 and $10.3 million for the three months ended September 30, 2023.

The amortization of the discount resulted in interest income of $4.7 million for the three months ended March 31, 2025 and $7.3 million for the three months ended March 31, 2024.

Interest Expense.

Our interest expense resulted from interest incurred on our $500.0 million aggregate principal amount of 3.50% Senior Secured Notes due 2026 that we issued in May 2021 (the “2026 Notes”), interest incurred on our $450.0 million aggregate principal amount of 7.00% Senior Unsecured Notes due 2027 that we issued in June 2022 (the “2027 Notes”), interest incurred on $206.0 million aggregate principal amount of 7.924% IPv4 secured notes that we issued in May 2024 (the “IPv4 Notes”), interest incurred on our $300.0 million aggregate principal amount of 7.00% Senior Unsecured Notes due 2027 that we issued in June 2024 (the “2027 Mirror Notes”) and interest on our Swap Agreement and interest incurred on our finance lease obligations.

As of September 30, 2024, the fair value of our Swap Agreement was a net liability of $29.9 million Changes in the valuation of the Swap Agreement are related changes in interest rates and are included in interest expense.

Our interest expense decreased primarily due to the change in the valuation of the swap agreement offsetting the increase from the issuance of our IPv4 Notes in May 2024 and the issuance of our 2027 Mirror Notes in June 2024.

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As of March 31, 2025, the fair value of our Swap Agreement was a net liability of $22.5 million Changes in the valuation of the Swap Agreement are related changes in interest rates and are included in interest expense.

Our interest expense increased by 17.3% from the three months ended March 31, 2024 to the three months ended March 31, 2025, primarily due to the issuance of our IPv4 Notes in May 2024 and the issuance of our 2027 Mirror Notes in June 2024.

Income Tax Benefit.

Our income tax benefit was $16.9 million for the three months ended September 30, 2024 and $13.6 million for the three months ended September 30, 2023.

Our income tax benefit was $18.2 million for the three months ended March 31, 2025 and $19.1 million for the three months ended March 31, 2024.

The change in our income tax benefit is primarily related to projected operating results related to the Sprint Business acquisition and the reversal of deferred tax liabilities acquired with the Sprint Business.

Buildings On-net.

As of September 30, 2024 and 2023, we had a total of 3,424 and 3,257 on-net buildings connected to our network, respectively.

As of March 31, 2025 and 2024, we had a total of 3,500 and 3,321 on-net buildings connected to our network, respectively.

The increase in our on-net buildings was a result of our disciplined network expansion program.

We anticipate adding a similar number of buildings to our network for the next several years.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Our management reviews and analyzes several key financial measures in order to manage our business and assess the quality and variability of our service revenue, operating results and cash flows.

The following summary tables present a comparison of our results of operations with respect to certain key financial measures.

The comparisons illustrated in the tables are discussed in greater detail below.

Nine Months Ended

September 30,

(in thousands)

Service revenue

Network operations expenses (1)

Selling, general, and administrative (“SG&A) expenses (2)

Sprint acquisition costs

Depreciation and amortization expenses

Gain on bargain purchase – Sprint Business

Gain on lease termination

Interest income – IP Transit Services Agreement

Interest expense, including change in valuation of swap agreement

Income tax benefit

(1) Includes non-cash equity-based compensation expenses of $1,204 and $750 in the nine months ended September 30, 2024 and 2023, respectively.

(2) Includes non-cash equity-based compensation expenses of $17,186 and $19,491 in the nine months ended September 30, 2024 and 2023, respectively.

NM – not meaningful

Service Revenue .

We continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network.

We do this by investing capital to expand the geographic footprint of our network, increasing the number of buildings that we are connected to, including CNDCs and MTOBs, and increasing our penetration rate into our existing buildings.

These efforts broaden the global reach of our network and increase the size of our potential addressable market.

We also seek to grow our service revenue by investing in our sales and marketing team.

We typically sell corporate connections at similar pricing to our competitors, but our customers benefit from our significantly faster speeds, greater aggregate throughput, enhanced service level agreements and rapid installation times.

In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.

Our service revenue increased by 17.2% from the nine months ended September 30, 2023 to the nine months ended September 30, 2024.

Exchange rates had a positive impact on our increase in service revenue by $0.2 million.

All foreign currency comparisons herein reflect results for the nine months ended September 30, 2024 translated at the average foreign currency exchange rates for the nine months ended September 30, 2023.

We increased our total service revenue by the acquisition of Sprint Business customers, expanding our network, adding additional buildings to our network, increasing our penetration into the buildings connected to our network and gaining market share by offering our services at lower prices than our competitors.

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Revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, gross receipts taxes, Universal Service Fund fees and certain state regulatory fees.

We record these taxes billed to our customers on a gross basis (as service revenue and network operations expense) in our condensed consolidated statements of comprehensive income.

The impact of these taxes including the Universal Service Fund resulted in an increase to our revenues of $29.7 million from the nine months ended September 30, 2023 to the nine months ended September 30, 2024.

Nine Months Ended

September 30,

Other Operating Data

Revenue by Customer Type – (thousands)

Customer Connections by Customer Type - End of Period

Revenue – by Network Connection Type – (thousands)

Customer Connections – by Network Connection Type - End of Period

Average Revenue Per Unit (ARPU)

ARPU - on-net

ARPU - off-net

ARPU - wavelength

Average Price per Megabit — installed base

Revenue and customer connections by customer type .

Our corporate customers generally purchase their services on a price per connection basis.

Our net-centric customers generally purchase their services on a price per megabit-metered basis.

We began to serve enterprise customers in connection with our acquisition of the Sprint Business.

We define “enterprise” customers as large corporations (typically, Fortune 500 companies with greater than $5 billion in annual revenue) running WAN with several dozen to several hundred sites.

Our enterprise customers generally purchase our services on a price per location basis.

On the Closing Date, we acquired 17,823 corporate customer connections, 5,711 net-centric customer connections and 23,209 enterprise customer connections with the Sprint Business.

Revenues from our corporate, net - centric and enterprise customers represented 46.0%, 35.1% and 18.9% of total service revenue, respectively, for the nine months ended September 30, 2024 and represented 47.4%, 37.5% and 15.1% of total service revenue, respectively, for the nine months ended September 30, 2023.

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Our revenue from our corporate customers increased primarily due to corporate customers acquired with the Sprint Business.

Our corporate customers take advantage of our superior speeds, greater aggregate throughput, service levels and installation times versus our competitors.

The growing trend of customers installing second lines for redundancy in order to construct VPNs has also led to our ability to increase our corporate revenues.

Beginning with and throughout the COVID-19 pandemic, we witnessed a deteriorating real estate market in and around the buildings we service in central business districts in North America.

During the nine months ended September 30, 2024, we continued to see gradual declines in vacancy rates and rising office occupancy rates.

In addition, we continued to see positive trends in our corporate business.

Further, if and when companies eventually return to the buildings in which we operate, we believe it will present an opportunity for increased sales.

However, the exact timing and path of these positive trends remains uncertain.

Our revenue from our net-centric customers increased primarily due to the net-centric customers acquired with the Sprint Business and growth in network traffic from our customers.

Our net-centric customers purchase our services on a price per megabit basis.

Our average price per megabit of our installed base of customers decreased by 10.4% from the nine months ended September 30, 2023 to the nine months ended September 30, 2024.

The impact of foreign exchange rates has a more significant impact on our net-centric revenues.

Our revenue from our enterprise customers increased primarily due to enterprise customers acquired with the Sprint Business.

Service revenue classified as on-net revenue and enterprise revenue from a low margin resale customer acquired in connection with the Sprint Business was $11.9 million for the nine months ended September 30, 2024 and $8.5 million for the nine months ended September 30, 2023.

The resale customer cancelled its service on July 31, 2024.

Revenue and customer connections by network connection type.

On the Closing Date, we classified the total $39.5 million of monthly Sprint Business revenue as $2.5 million of on-net revenue, $32.3 million of off-net revenue and $4.7 million of non-core revenue.

Revenues from our on-net, off-net, wavelength and non-core customers represented 53.0%, 43.5%, 1.6% and 1.9% of total service revenue, respectively, for the nine months ended September 30, 2024 and represented 55.7%, 40.3%, 0.7% and 3.2% of total service revenue, respectively, for the nine months ended September 30, 2023.

Our on-net revenues increased from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 primarily from customers acquired with the Sprint Business.

On-net revenue increased at a greater rate than on-net customer connections primarily due to an increase in our on-net ARPU from the nine months ended September 30, 2023 to the nine months ended September 30, 2024.

ARPU is determined by dividing on-net revenue for the period by the average on-net customer connections for that period.

The resale customer cancelled its service on July 31, 2024.

Our off-net revenues increased from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 from customers acquired with the Sprint Business.

In connection with our acquisition of the Sprint Business, we expanded our offerings of optical wavelength and optical transport services over our fiber network.

Wavelength revenue was $12.2 million for the nine months ended September 30, 2024 and was $4.6 million for the nine months ended September 30, 2023.

Our non-core revenues decreased from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 primarily from reductions in non-core revenues from customers acquired in the Sprint Business.

Non-core services are services, which we acquired and continue to support but do not actively sell.

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Network Operations Expenses.

Network operations expenses include the costs of personnel associated with service delivery, network management and customer support, network facilities costs, right-of-way fees, fiber and equipment maintenance fees, leased circuit costs, access and facilities fees paid to building owners and excise taxes billed to our customers and recorded on a gross basis.

Non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee’s salary and other compensation.

Our increase in network operations expense is primarily attributable to an increase in costs related to our network and facilities expansion activities, an increase in network operations expense from our acquisition of the Sprint Business.

Selling, General, and Administrative (“SG&A”) Expenses.

Our SG&A expenses, including non-cash equity-based compensation expense, increased by 9.6% from the nine months ended September 30, 2023 to the nine months ended September 30, 2024.

Non-cash equity-based compensation expense is included in SG&A expenses consistent with the classification of the employee’s salary and other compensation.

SG&A expenses increased primarily from an increase in salaries and benefits from 942 employees added to our headcount from our acquisition of the Sprint Business on the Closing Date and costs associated with the Sprint acquisition including TSA costs.

Our total headcount was 1,908 at September 30, 2024 and 1,990 at September 30, 2023.

Acquisition-Related Costs.

In connection with the Transaction and negotiation of the Purchase Agreement, we incurred professional fees, other acquisition related costs totaling $42.1 million, including $28.6 million of reimbursed severance costs.

Such fees totaled $1.5 million for the nine months ended September 30, 2023 and $21.4 million for the nine months ended September 30, 2024.

Depreciation and Amortization Expenses.

Our depreciation and amortization expense increased by 40.4% primarily due to the depreciation expense associated assets acquired with the Sprint Business and an increase in deployed fixed assets, partly offset by the impact of an increase in the estimated useful life for our owned fiber acquired with the Sprint Business.

Effective July 1, 2024, we changed our estimate of the useful life of our owned fiber to better reflect the estimated periods during which these assets will remain in service.

The estimated useful life of the owned fiber that previously averaged 14 years was increased to an average of 40 years.

The effect of this change in estimate on the nine months ended September 30, 2024 was to reduce depreciation expense by $4.4 million.

Gain on Lease Termination.

In June 2024, we elected to exercise a contractual option to prepay in full at a 12.0% discounted rate an IRU finance lease agreement between a us and a vendor we assumed with the Sprint Business for $114.6 million.

At the payment date, the present value of the IRU finance lease liability was $117.9 million and the remaining thirty-one $4.2 million monthly principal payments 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.

We are continuing to use the related IRU asset.

Gain on Bargain Purchase.

We accounted for our acquisition of the Sprint Business as a business combination.

The identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition 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.

As of September 30, 2023, the fair value of the identifiable assets acquired was $1.5 billion (including amounts due under the IP Transit Services Agreement) and was in excess of the $1.0 billion liabilities assumed and the $0.6 billion net consideration to be received from the Seller resulting in a gain on bargain purchase of $1.2 billion.

During the nine months ended September 30, 2024, we made certain adjustments to our estimates of the fair market value of the assets acquired and liabilities assumed resulting in increase to the gain on bargain purchase of $22.2 million for the nine months ended September 30, 2024.

The total bargain purchase gain was from the Transaction was $1.4 billion.

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Interest Income - IP Transit Services Agreement.

Under the IP Transit Services Agreement, TMUSA will pay us an aggregate of $700.0 million, consisting of (i) $350.0 million in equal monthly installments during the first year after the Closing Date and (ii) $350.0 million in equal monthly installments over the subsequent 42 months.

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 amortization of the discount resulted in interest income of $18.7 million for the nine months ended September 30, 2024 and $18.0 million for the nine months ended September 30, 2023.

Interest Expense.

Our interest expense resulted from interest incurred on our 2026 Notes, interest incurred on our 2027 Notes, interest incurred on our 2027 Mirror Notes, interest incurred on our IPv4 Notes, interest on our Swap Agreement and interest incurred on our finance lease obligations.

As of September 30, 2024, the fair value of our Swap Agreement was a net liability of $29.9 million.

Changes in the valuation of the Swap Agreement are related to semi-annual interest payments in May and November and changes in interest rates, and included in interest expense.

Under the Swap Agreement settlement payment made in May 2023, we 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 Swap Agreement settlement payment made in May 2024, we 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.

Our interest expense increased primarily due to the issuance of our IPv4 Notes in May 2024 and the issuance of our 2027 Mirror Notes in June 2024.

Income Tax Benefit.

Our income tax benefit was $43.9 million for the nine months ended September 30, 2024 and $33.6 million for the nine months ended September 30, 2023.

Buildings On-net.

As of September 30, 2024, and 2023, we had a total of 3,424 and 3,257 on-net buildings connected to our network, respectively.

The increase in our on-net buildings was a result of our disciplined network expansion program.

We anticipate adding a similar number of buildings to our network for the next several years.

Acquisition of Sprint Communications

Liquidity and Capital Resources

Acquisition of Sprint Communications – Cash Flow

The Sprint Business’s cash flow was negative at the time of negotiations and during its recent history.

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Under the IP Transit Services Agreement, TMUSA will pay us 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.

Through September 30, 2024, we received monthly payments totaling $383.3 million under the IP Transit Services Agreement, reflected as cash flows from investing activities in our consolidated statements of cash flows.

Through March 31, 2025, we received monthly payments totaling $433.3 million under the IP Transit Services Agreement, reflected as cash flows from investing activities in our condensed consolidated statements of cash flows.

As our business has grown as a result of an increasing customer base, the Transaction, broader geographic coverage and increased traffic on our network, we have historically produced a growing level of cash provided by operating activities.

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Increasing our cash provided by operating activities is, in part, dependent upon our ability to reduce the operating costs of the Sprint Business while retaining its revenue, expanding our geographic footprint and increasing our network capacity.

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During the first nine months of 2024, we have received a total of $179.2 million under the IP Transit Services Agreement.

During the first three months of 2025, we have received a total of $25.0 million under the IP Transit Services Agreement.

During the remainder of 2025 we expect to receive a total of $75.0 million under the monthly payments under the IP Transit Services Agreement.

This includes three monthly payments of $8.3 million each.

Increasing our cash provided by operating activities is, in part, dependent upon our ability to reduce the operating costs of the Sprint Business while retaining its revenue.

Issuance of $300.0 Million Principal Amount of 2027 Mirror Notes

On June 11, 2024, Cogent Communications Group, LLC (“Group”) and Cogent Finance, Inc.

(the “Co – Issuer” and, together with Group, the “Issuers”), two wholly owned subsidiaries of Cogent Communications Holdings, Inc.

(“Holdings”), completed the offering of our 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 our 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.

We used $114.6 million of the net proceeds from the offering to exercise a contractual option to prepay in full in June 2024 an existing indefeasible right-of-use agreement consisting of 31 remaining monthly recurring payments of $4.2 million, at a 12.0% discounted rate.

We expect to use the remainder of the net proceeds for general corporate purposes and/or to make special or recurring dividends to Holdings.

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, Holdings, the other guarantors named therein and Wilmington Trust, National Association, as trustee (the “2027 Notes 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 Holdings (together with the Subsidiary Guarantors, the “Guarantors”).

However, the Holdings 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 Subsidiary 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 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.

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.

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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, we 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, are 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 enter into transactions with affiliates.

The covenants provide for certain exceptions to these restrictions, and Holdings 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 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”), our special-purpose, bankruptcy remote, indirect wholly owned subsidiary, issued $206.0 million aggregate principal amount of 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 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 Internet Protocol version 4 (“IPv4”) addresses, customer IPv4 address leases, customer accounts receivables and other IPv4 address assets (collectively, “IPv4 Address Assets”) were contributed or sold 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.

This includes nine monthly payments of $8.3 million each.

Increasing our cash provided by operating activities is, in part, dependent upon our ability to continue to reduce the operating costs of the Sprint Business while retaining its profitable revenue.

Issuance of $174.4 Million New IPv4 Notes

On April 11, 2025 (the “Closing Date”), Cogent IPv4 LLC (the “IPv4 Issuer”), a special-purpose, bankruptcy remote, indirect wholly owned subsidiary of the Company, completed the issuance of $174.4 million aggregate principal amount of 6.646% secured IPv4 address revenue notes, Series 2025-1 Class A-2 (collectively, the “New IPv4 Notes”), with an anticipated term ending in April 2030 (such anticipated repayment date, the “ARD”), in an offering exempt from registration under the Securities Act of 1933, as amended.

The New IPv4 Notes were issued pursuant to an indenture, dated as of May 2, 2024 (as amended and supplemented to date, the “Base Indenture”), entered into by and between the IPv4 Issuer and Wilmington Trust, National Association, as the indenture trustee (the “Trustee”), as supplemented by the Series 2025-1 Supplement thereto, dated as of the Closing Date (the “Series 2025-1 Supplement”), by and between the IPv4 Issuer and the Trustee, and as acknowledged by the Guarantor (as defined below).

The Base Indenture allows the IPv4 Issuer to issue additional series of notes subject to certain conditions set forth therein, and the Base Indenture, together with the Series 2024-1 Supplement thereto, dated as of May 2, 2024, and the Series 2025-1 Supplement, and any other series supplements to the Base Indenture, is referred to as the “Indenture.”

While the New 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 New IPv4 Notes on a monthly basis.

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

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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 IPv4 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 us 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;

The legal final maturity date of the New IPv4 Notes is in April of 2055.

If the IPv4 Issuer has not repaid or refinanced any New IPv4 Note prior to the monthly payment date in April of 2030, 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 New 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 New 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 Note.

The IPv4 Notes are obligations only of the IPv4 Issuer pursuant to 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 our indirect wholly owned subsidiary, as the guarantor (the “IPv4 Guarantor”), pursuant to a guaranty dated as of May 2, 2024 (the “Guaranty”) by the IPv4 Guarantor in favor of the IPv4 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 we nor any of our subsidiaries, 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.

plus (C) the post-ARD note spread of 3.00% applicable to such New IPv4 Note.

Collateral and Guarantee

The New IPv4 Notes are obligations only of the IPv4 Issuer pursuant to the Indenture, and are secured by a security interest in substantially all of the Internet Protocol version 4 (“IPv4”) addresses (the “Contributed IP Addresses”), customer IPv4 address leases, customer accounts receivable and other IPv4 address assets (collectively, “IPv4 Address Assets”) pursuant to the Indenture.

The New IPv4 Notes are guaranteed by Cogent IPv4 Holdco LLC, a special-purpose entity and an indirect wholly owned subsidiary of the Company (the “Guarantor”), pursuant to a guaranty, dated as of May 2, 2024 (the “Guaranty”) by the Guarantor in favor of the Trustee, pursuant to which the 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 Guarantor, will guarantee or in any way be liable for the obligations of the IPv4 Issuer under the Indenture or the New IPv4 Notes.

Covenants and Restrictions

The New 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 New IPv4 Notes, (ii) provisions relating to optional and mandatory prepayments, including specified make-whole payments in the case of certain optional prepayments of the New 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 New 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 Base Indenture, the New IPv4 Notes are also subject to rapid amortization in the event of a failure to maintain a stated debt service coverage ratio.

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 that 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 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.

Liquidity and Capital Resources

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

The New 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 the New 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.

Supplement to Base Indenture

In connection with the issuance of the New IPv4 Notes, the IPv4 Issuer obtained consents from noteholders representing more than 50% of the Voting Rights (as defined in the Base Indenture) of the secured IPv4 address revenue term notes, Series 2024-1 Class A-2, to adopt amendments to the Base Indenture to, among other things, permit the IPv4 Issuer to (i) issue additional Class A Notes (as defined in the Base Indenture) (provided that the Class A Leverage Ratio (as defined in the Base Indenture) is less than or equal to 7.25 to 1.00) (as opposed to 6.10 to 1.00 under the Base Indenture as previously in effect), (ii) dispose of IPv4 addresses owned by the IPv4 Issuer (provided that the pro forma Leverage Ratio (as defined in the Base Indenture) is less than or equal to 7.25 to 1.00) (as opposed to the greater of (x) 7.10 to 1.00 and (y) the Leverage Ratio as of the date of the most recent issuance of Additional Notes (as defined in the Base Indenture) (after giving effect to the issuance of such Additional Notes) under the Base Indenture as previously in effect) and (iii) substitute new IPv4 addresses (including Non-Contributed IP Addresses (as defined in the Base Indenture)) to be owned by the IPv4 Issuer for the Contributed IP Addresses then owned by the IPv4 Issuer (provided that the pro forma Leverage Ratio is not greater than 7.25 to 1.00) (as opposed to 6.10 to 1.00 under the Base Indenture as previously in effect), in each case, among other applicable requirements (collectively, the “Amendments”).

Accordingly, on the Closing Date, prior to the issuance of the New IPv4 Notes, the IPv4 Issuer entered into a second amendment to the Base Indenture (the “Second Amendment”) with the Trustee giving effect to the Amendments.

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Liquidity and cash obligations

In assessing our liquidity, management reviews and analyzes our current cash balances, payments under the IP Transit Services Agreement, accounts receivable, accounts payable, accrued liabilities, capital expenditure commitments, and required finance lease and debt payments and other obligations.

We have also had increasing success in raising capital by issuing notes and arranging financing and leases that have had a lower cost and more flexible terms.

The combination of this improved operating performance and access to capital has enhanced our financial flexibility and increased our ability to make distributions to stockholders in the form of cash dividends or through share repurchases.

We have had increasing success in raising capital by issuing notes and arranging financing and entering into leases that have had a lower cost and more flexible terms.

The combination of our operating performance and access to capital has enhanced our financial flexibility and increased our ability to make distributions to stockholders in the form of cash dividends or through share repurchases.

Since our initial public offering, we have returned $1.6 billion to our stockholders through share repurchases and dividends.

We will continue to assess our capital and liquidity needs and, where appropriate, return capital to stockholders.

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Over the next several years, we have significant contractual and anticipated cash outlays including our indicative dividend payments on our common stock, our maturing debt obligations, interest payments on our debt obligations and Swap Agreement and our projected capital expenditure requirements in order to help execute our business plan including the integration of Sprint Business.

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Our $206.0 million of IPv4 Notes effectively mature in May 2029 and include annual interest payments of $16.3 million until maturity (which amount increases if the IPv4 Notes are not repaid prior to May 2029).

Our $174.4 million of New IPv4 Notes effectively mature in April 2030 and include annual interest payments of $11.6 million until maturity (which amount increases if the New IPv4 Notes are not repaid prior to April 2030).

Under our Swap Agreement, we pay the counterparty a semi-annual payment based upon overnight SOFR plus a contractual interest rate spread, and the counterparty pays us a semi-annual fixed 3.50% interest payment.

These settlement payments are made in November and May of each year until the Swap Agreement expires in February 2026.

As of September 30, 2024, $29.9 million of our cash and cash equivalents are restricted for use under our Swap Agreement.

As of March 31, 2025, $22.5 million of our cash and cash equivalents are restricted for use under our Swap Agreement.

We have made a $23.6 million deposit with the counterparty to the Swap Agreement.

If the fair value of the Swap Agreement exceeds a net liability of $23.6 million, we will be required to deposit additional funds with the counterparty equal to the net liability fair value.

As of September 30, 2024, $29.9 million of the deposit was restricted and $1.9 million was unrestricted.

As of March 31, 2025, $22.5 million of the deposit was restricted and $1.1 million was unrestricted.

In June 2024, we elected to exercise a contractual option to prepay in full at a 12.0% discounted rate an IRU finance lease agreement between us and a vendor we assumed with the Sprint Business for $114.6 million.

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The amounts involved may be material.

In light of the economic uncertainties associated with the global recessionary economy, the cash flow requirements of the Sprint Business, the lingering impact of the COVID-19 pandemic and recent bank failures and liquidity concerns at certain other banks, our executive officers and Board of Directors have continued to carefully monitor our liquidity and cash requirements.

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In light of the economic uncertainties associated with the global economy, including due to the impact from tariffs and trade restrictions, the cash flow requirements of the Sprint Business, the lingering impact of the COVID-19 pandemic and recent bank failures and liquidity concerns at certain other banks, our executive officers and Board of Directors have continued to carefully monitor our liquidity and cash requirements.

Based on current circumstances, we currently plan to continue our current dividend policy.

Given uncertainties regarding the lingering business impact of the pandemic, the cash flow requirements of the Sprint Business and the timing for economic recovery, we will continue to monitor our capital spending.

Given uncertainties regarding the potential impact of tariffs and trade restrictions, the global economy, lingering business impact of the pandemic, and the cash flow requirements of the Sprint Business, we will continue to monitor our capital spending.

As we do each year, we will continue to monitor our future sources and uses of cash, and anticipate that we will adjust our capital allocation strategies when, as and if determined by our Board of Directors.

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As of September 30, 2024, we had cash, cash equivalents and restricted cash of $316.1 million.

The COVID-19 pandemic has not impacted our credit rating to date, nor do we believe that it has materially changed our cost of capital.

As of March 31, 2025, we had cash, cash equivalents and restricted cash of $184.0 million.

The net proceeds, of the New IPv4 Notes, after offering expenses were $170.5 million.

At the Closing Date $72.6 million of the $170.5 million net proceeds were restricted and $97.9 million of the net proceeds were unrestricted.

The restricted net proceeds will become available based upon improvements in our monthly leverage ratio and our debt service coverage ratio (as defined in the Base Indenture) under our combined $380.4 million of IPv4 notes.

We believe we are able to timely service our debt obligations and will not require any concessions to do so.

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Continued Impact of Changing Office Occupancy Rates

Since the onset of the COVID-19 pandemic in 2020, we have experienced certain corporate customers taking a more cautious approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite offices as a result of the challenges and uncertainties of the remote work environment that resulted initially from the pandemic.

We also witnessed a deteriorating real estate market in and around the buildings we service with rising vacancy levels and falling lease initiations or renewals which resulted in fewer sales opportunities for our salesforce and a reduction in VPN opportunities.

As a result, we experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue growth.

During the three months ended September 30, 2024, we continued to see declining vacancy rates and rising office occupancy rates in certain markets in which we operate continuing a trend that began following the end of the pandemic.

Other markets, particularly those in California and the Pacific Northwest, continue to see markedly higher vacancy rates.

These higher vacancy rates may represent a long-term change in office attendance and occupancy rates.

Despite this overall environment, we are seeing some positive trends in our corporate business.

This was due partially to the increase in office occupancy rates and leasing activity in some markets but also to new demands for services from corporate customers.

Further, if and when companies eventually return to the buildings in which we operate, whether as existing or new tenants, we believe it will present an opportunity for increased sales.

While we believe that demand for office space in the buildings in which we operate will remain among the strongest in the markets in which they are located, and that most employers will eventually require their employees to return to their offices on at least a hybrid basis, the timing and scope of a return to office, particularly in a number of key markets we serve, remains uncertain.

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The following table sets forth our consolidated cash flows.

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Net cash (used in) provided by operating activities

Net cash provided by investing activities

Net cash provided by (used in) financing activities

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

Effect of exchange rates changes on cash

Net increase (decrease) in cash and cash equivalents and restricted cash

Net Cash (Used in) Provided by Operating Activities.

Net (decrease) increase in cash and cash equivalents and restricted cash

Net Cash Provided by Operating Activities.

Our primary source of operating cash is receipts from our customers who are billed on a monthly basis for our services.

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

During the nine months ended September 30, 2024, and 2023 we were billed $26.3 million and $218.0 million, respectively, under the TSA, primarily for reimbursement at cost of payments to vendors of the Sprint Business.

During the nine months ended

During the three months ended March 31, 2025 and 2024, we were billed $0.4 million and $16.7 million as due to the Seller under the TSA, respectively.

During the three months ended March 31, 2025 and 2024, we paid $0.7 million and $78.5 million to the Seller under the TSA, respectively.

During the three months ended March 31, 2025 and 2024, we billed the Seller $15,126 and $0.5 million as due from the Seller under the TSA, respectively.

During the three months ended March 31, 2025 and 2024, the Seller paid us $76,870 and $0.5 million under the TSA, respectively.

As of March 31, 2025, we owed $0.2 million to the Seller under the TSA.

As of December 31, 2024, we owed $0.5 million to the Seller and the Seller owed $0.1 million to us under the TSA.

Amounts recorded and paid as due to the Seller under the TSA resulted in a use of cash in operating activities of $0.3 million for the three months ended March 31, 2025 and $61.1 million for the three months ended March 31, 2024.

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September 30, 2024 we paid $91.9 million to the Seller under the TSA.

During the nine months ended September 30, 2023 we paid $153.1 million to the seller under the TSA.

As of September 30, 2024, we owed $1.6 million to the Seller under the TSA.

Amounts due and paid to the Seller under the TSA resulted in $65.3 million of net cash used in operating activities for the nine months ended September 30, 2024.

As of September 30, 2023, we owed $69.6 million to the Seller and the Seller owed us $16.8 million under the TSA.

Amounts due to the Seller under the TSA contributed $69.6 million to net cash provided by operating activities for the nine months ended September 30, 2023.

Net Cash Provided by Investing Activities.

Net Cash (Used in) Provided by Investing Activities.

Our primary use of cash for investing activities is for purchases of property and equipment.

Purchases of property and equipment were $148.9 million and $86.0 million for the nine months ended September 30, 2024 and 2023, respectively.

The changes in purchases of property and equipment were primarily due to the timing and scope of our network expansion activities including geographic expansion, purchases related to our acquisition of the Sprint Business, costs associated with providing wave services, conversion costs related to acquired data centers and adding buildings to our network.

Purchases of property and equipment were $58.1 million and $40.9 million for the three months ended March 31, 2025 and 2024, respectively.

The changes in purchases of property and equipment were primarily due to the timing and scope of our network expansion and reconfiguration activities including geographic expansion, purchases related to our acquisition of the Sprint Business, costs associated with providing wave services, conversion costs related to acquired data centers and adding buildings to our network.

On the Closing Date, we entered into the IP Transit Services Agreement pursuant to which TMUSA will pay us an aggregate of $700.0 million, consisting of (i) $350.0 million in equal monthly installments during the first year after the Closing Date and (ii) $350.0 million in equal monthly installments over the subsequent 42 months.

During the nine months ended September 30, 2024 we were paid $179.2 million under the IP Transit Services Agreement.

During the nine months ended September 30, 2023, we were paid $116.7 million under the IP Transit Services Agreement.

In the nine months ended September 30, 2023, we paid $61.1 million, net of $47.1 million of cash acquired, for a net total of $14.0 million paid for our acquisition of the Sprint Business.

Net Cash Provided By (Used In) Financing Activities.

During the three months ended March 31, 2025 and 2024 we were paid $25.0 million and $87.5 million under the IP Transit Services Agreement, respectively.

Net Cash Used in Financing Activities.

Our primary uses of cash for financing activities are for dividend payments, purchases of our common stock and principal payments under our finance lease obligations.

Our primary sources of cash for financing activities are issuances of note obligations.

During the nine months ended September 30, 2024 and 2023 we paid $141.0 million and $135.4 million for our quarterly dividend payments, respectively.

Our quarterly dividend payments have increased due to increases in our quarterly dividend per share amounts.

Principal payments under our finance lease obligations were $161.2 million and $58.5 million for the nine months ended September 30, 2024 and 2023, respectively.

At the payment date, the present value of the IRU finance lease liability was $117.9 million and the remaining thirty-one $4.2 million monthly principal payments 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 and the cash payment.

The other changes in our principal payments under our finance lease obligations were primarily due to the timing and extent of our network expansion activities including geographic expansion, purchases related to our acquisition of the Sprint Business purchases associated with providing wave services and adding buildings to our network.

During the nine months ended September 30, 2024 we purchased 153,322 shares of our common stock for $8.0 million.

There were no purchases of our common stock in the nine months ended September 30, 2023.

We completed a series of debt issuances in the nine months ended September 30, 2024.

On May 2, 2024, we issued $206.0 million aggregate principal amount of our IPv4 Notes, with an anticipated term ending in May 2029.

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

Interest on the IPv4 Notes is paid on a monthly basis.

From and after May 2029, 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 May 2029, unless certain rapid amortization or acceleration triggers are activated.

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On June 11, 2024, we completed our offering of $300.0 million aggregate principal amount of our 2027 Mirror 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.

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 on December 15, 2024.

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

During the three months ended March 31, 2025 and 2024 we paid $0.5 million and $49.1 million for our quarterly dividend payments, respectively.

Our first quarter 2024 dividend payment totaling $45.8 million was paid in April 2024 and accrued at March 31, 2024.

Our quarterly dividends payments have increased due to increases in our quarterly dividend per share amounts.

Principal payments under our finance lease obligations were $8.0 million and $23.2 million for the three months ended March 31, 2025 and 2024, respectively.

Changes in our principal payments under our finance lease obligations were primarily due to the timing and extent of our network expansion and reconfiguration activities including geographic expansion, purchases related to our acquisition of the Sprint Business associated with providing wave services and adding buildings to our network.

Cash Position and Indebtedness

At September 30, 2024, our total indebtedness, at par, was $1.9 billion and our total cash, cash equivalents and restricted cash ($36.9 million) was $316.1 million.

Our total indebtedness at September 30, 2024 includes $482.6 million of finance lease obligations for dark fiber under long-term IRU agreements.

At March 31, 2025, our total indebtedness, at par, was $2.0 billion and our total cash, cash equivalents and restricted cash ($30.2 million) was $184.0 million.

Our total indebtedness at March 31, 2025 includes $568.5 million of finance lease obligations for dark fiber under long-term IRU agreements.

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Summarized Financial Information of Holdings

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Under the Indentures, we are required to disclose certain reasonably related information of Holdings and its subsidiaries that is not attributable to Group and its subsidiaries, relating to Holdings’ assets, liabilities and operating results (“Holdings Financial Information”).

The Holdings Financial Information as of and for the three and nine months ended September 30, 2024 is detailed below (in thousands):

As of September 30, 2024

The Holdings Financial Information as of and for the three months ended March 31, 2025 is detailed below (in thousands):

As of March 31, 2025

Cash and cash equivalents

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Intangible assets, net

Deposits and other assets

Due from T-Mobile - Purchase Agreement

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Operating lease liabilities

Unfavorable lease liabilities

Due to Cogent Communications LLC

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Total liabilities and stockholders’ deficit

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Three Months Ended

September 30, 2024

Service revenue

Operating expenses:

Network operations

Selling, general, and administrative

Equity-based compensation expense

Depreciation and amortization

Total operating expenses

Operating loss

Interest expense

Interest income - Purchase Agreement

Interest income and other, net

Nine Months Ended

September 30, 2024

March 31, 2025

Service revenue

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Interest expense

Gain on lease termination

Gain on bargain purchase – Sprint Business

Interest income - Purchase Agreement

Interest income and other, net

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Common Stock Buyback Program

Our Board of Directors has approved purchases of shares of our common stock under a buyback program (the “Buyback Program”).

During the nine months ended September 30, 2024, we purchased 153,322 shares of our common stock for $8.0 million.

There were no purchases of our common stock in the three and nine months ended September 30, 2023.

As of September 30, 2024, there was a total of $22.4 million available under the Buyback Program that is authorized to continue through December 31, 2025.

There were no purchases of our common stock in the three months ended March 31, 2025 or March 31, 2024.

As of March 31, 2025, there was a total of $22.4 million available under the Buyback Program that is authorized to continue through December 31, 2025.

In April 2025, we purchased 94,856 shares of our common stock for $5.0 million at an average price of $53.07 per share under the Buyback Program.

Dividends on Common Stock and Return of Capital Program

On November 6, 2024, our Board of Directors approved the payment of our quarterly dividend of $0.995 per common share.

This estimated $47.2 million dividend payment is expected to be made on December 6, 2024.

On May 7, 2025, our Board of Directors approved the payment of our quarterly dividend of $1.01 per common share.

This estimated $48.2 million dividend payment is expected to be made on June 6, 2025.

The payment of any future dividends and any other returns of capital, including stock buybacks, will be at the discretion of our Board of Directors and may be reduced, eliminated or increased and will be dependent upon our financial position, results of operations, available cash, cash flow, capital requirements, limitations under our debt indentures and other factors deemed relevant by our Board of Directors.

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See Note 3 of our interim condensed consolidated financial statements for additional discussion of limitations on distributions.

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Future Capital Requirements

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Any future acquisitions or other significant unplanned costs or cash requirements in excess of amounts we currently hold may require that we raise additional funds through the issuance of debt or equity.

In addition, our 2026 Notes will mature in May 2026.

At that time or earlier, we may elect to refinance or repay our 2026 Notes which may require us to issue additional indebtedness.

We cannot assure you that such financing will be available on terms acceptable to us or our stockholders, or at all.

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As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Critical Accounting Estimates

Management believes that as of September 30, 2024, there have been no material changes to our critical accounting policies and significant estimates from those listed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2023.

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Critical Accounting Estimates

Management believes that as of March 31, 2025, there have been no material changes to our critical accounting policies and significant estimates from those listed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2024.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management believes that as of September 30, 2024, there have been no material changes to our exposures to market risk from those disclosed in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our annual report on Form 10-K for the year ended December 31, 2023.

Management believes that as of March 31, 2025, there have been no material changes to our exposures to market risk from those disclosed in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our annual report on Form 10-K for the year ended December 31, 2024.

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 2. Management’s Discussion and Analysis