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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-51829
COGENT COMMUNICATIONS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
2450 N Street N.W.
Washington, D.C.
(Address of Principal Executive Offices)
46-5706863
(I.R.S. Employer
Identification No.)
20037
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act
(202) 295-4200
Registrant’s Telephone Number, Including Area Code
Title of each class
Trading Symbol
Name of exchange on which registered:
Common Stock, par value $0.001 per share
CCOI
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ◻ No ⌧
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer", “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧
Accelerated filer ◻
Non-accelerated filer ◻
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant's common stock, par value $0.001 per share, as of January 31, 2020 was 46,850,718.
The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price of $59.36 per share on June 28,
2019 as reported by the NASDAQ Global Select Market was approximately $2.5 billion.
Portions of the registrant's definitive proxy statement on Schedule 14A for the registrant's 2020 annual shareholders meeting are incorporated by
reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
COGENT COMMUNICATIONS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Part III
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Item 16
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are not statements of historical facts, but rather
reflect our current expectations concerning future results and events. You can identify these forward-looking
statements by our use of words such as “anticipates,” “believes,” “continues,” “expects,” “intends,” “likely,” “may,”
“opportunity,” “plans,” “potential,” “project,” “will,” and similar expressions to identify forward-looking statements,
whether in the negative or the affirmative. We cannot guarantee that we actually will achieve these plans, intentions
or expectations. These forward-looking statements are subject to risks and uncertainties including those discussed in
Item 1A “Risk Factors” and other factors, some of which are beyond our control, which could cause actual results to
differ materially from those forecasts or anticipated in such forward-looking statements.
You should not place undue reliance on these forward-looking statements, which reflect our view only as of the
date of this report. We undertake no obligation to update these statements or publicly release the result of any
revisions to these statements to reflect events or circumstances after the date of this report or to reflect the occurrence
of unanticipated events.
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ITEM 1. BUSINESS
PART I
We are a facilities-based provider of low-cost, high-speed Internet access, private network services, and data
center colocation space. Our network is specifically designed and optimized to transmit packet switched data. We
deliver our services primarily to small and medium-sized businesses, communications service providers and other
bandwidth-intensive organizations in North America, Europe, Asia, Latin America and Australia. We are a Delaware
corporation and we are headquartered in Washington, DC.
We offer on-net Internet access services exclusively through our own facilities, which run from our network to
our customers’ premises. We are not dependent on local telephone companies or cable TV companies to serve our
customers for our on-net Internet access and private network services because of our integrated network architecture.
We offer our on-net services to customers located in buildings that are physically connected to our network. Our on-
net service consists of high-speed Internet access and private network services offered at speeds ranging from 100
Megabits per second to 100 Gigabits per second. We provide our on-net Internet access and private network services
to our corporate and net-centric customers. Our corporate customers are located in multi-tenant office buildings and
typically include law firms, financial services firms, advertising and marketing firms and other professional services
businesses. Our net-centric customers include bandwidth-intensive users such as other Internet access providers,
telephone companies, cable television companies, web hosting companies, content delivery network companies and
commercial content and application service providers. These net-centric customers obtain our services in carrier
neutral data centers and in our data centers. We operate data centers throughout North America and Europe that allow
our customers to collocate their equipment and access our network.
In addition to providing our on-net services, we provide Internet access and private network services to
customers that are not located in buildings directly connected to our network. We provide this off-net service
primarily to corporate customers using other carriers’ circuits to provide the “last mile” portion of the link from the
customers’ premises to our network. We also provide certain non-core services that resulted from acquisitions. We
continue to support but do not actively sell these non-core services.
Competitive Advantages
We believe we address many of the data communications needs of small and medium-sized businesses,
communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-
speed Internet access and private network services at attractive prices.
Low Cost of Operation. We offer a streamlined set of products on an integrated network. Our network design
allows us to avoid many of the costs that our competitors incur associated with circuit-switched, TDM and hybrid
fiber coaxial networks related to provisioning, monitoring and maintaining multiple transport protocols. We believe
that our low cost of operation also gives us greater pricing flexibility and a significant advantage in a competitive
environment characterized by falling Internet access prices. We believe our value proposition is equal or superior to
our competitors’ in all of the on-net multi-tenant office buildings and carrier neutral data centers in which we operate.
Network. Our on-net service does not rely on circuits terrestrially that must be provisioned by a third party
carrier. In on-net multi-tenant office buildings we provide our customers the entire network, including the “last mile”
and the in-building wiring connecting to our customer’s suite. In carrier neutral data centers we are collocated with
our customers so only a connection, known as a cross connect, within the data center is required to provide our
services. This gives us more control over our service, quality and pricing. It also allows us to provision services more
quickly and efficiently than provisioning services on a third-party carrier network. We are typically able to activate
service to our customers in one of our on-net buildings in approximately thirteen business days.
High Quality, Reliable Service. We are able to offer high-quality Internet service due to our metro and intercity
network. Its design increases the speed and throughput of our network and reduces the number of data packets
dropped during transmission compared to traditional circuit-switched networks. We believe that we
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deliver a high level of technical performance because our network is optimized for packet switched traffic. We
believe that our network is more reliable and carries traffic at lower cost than networks built as overlays to traditional
circuit-switched, or TDM networks.
High Traffic Network Footprint. We have strategically chosen locations, such as 1,767 large multi-tenant office
buildings in major North American cities and 980 carrier neutral data center buildings in North America and Europe
with high levels of Internet traffic, to maximize our revenue opportunities and expand our margins. Our network is
connected to our on-net multi-tenant office buildings where we offer our services to a diverse set of high-quality, low
churn corporate customers within close physical proximity of each other. Our network is directly connected to 980
carrier neutral colocation and unique data center buildings where our net-centric customers directly interconnect with
our network. We also operate 54 data centers across the United States and in Europe which comprise over 609,000
square feet of floor space and are directly connected to our network.
Low Capital Cost to Grow Our Business. We have a history of efficient network expansion and integration
execution. We believe that we have incurred relatively lower costs in growing our business than our competitors
because we use Internet routers without additional legacy equipment, we offer a streamlined set of products, and we
have acquired optical fiber from the excess inventory in existing networks.
Proven and Experienced Management Team. Our senior management team is composed of seasoned executives
with extensive expertise in the telecommunications industry as well as knowledge of the markets in which we operate.
The members of our senior management team have an average of over 20 years of experience in the
telecommunications industry and many have been working together at Cogent for several years. Several members of
the senior management team have been working together at Cogent since 2000. Our senior management team has
designed and built our network and led the integration of our network assets we acquired through 13 significant
acquisitions and managed the expansion and growth of our business.
Our Strategy
We intend to become the leading provider of high-quality, high-speed Internet access and private network
services and to continue to improve our profitability and cash flow. The principal elements of our strategy include:
Focus on Providing Low-Cost, High-Speed Internet Access and Private Network Services. We intend to further
load our high-capacity network to respond to the growing demand for high-speed Internet access generated by
bandwidth-intensive applications such as streaming media, online gaming, video, voice over IP (VOIP), remote data
storage, distributed computing, cloud services and virtual private networks. We intend to do so by continuing to offer
our high-speed and high-capacity services at competitive prices.
Pursuing On-Net Customer Growth. We intend to increase usage of our network and operational infrastructure
by adding customers in our existing on-net buildings, as well as connecting more multi-tenant office buildings and
carrier neutral data centers to our network. We emphasize our on-net service because our on-net services generate
greater profit margins and we have more control over service levels, quality, pricing and our on-net services are
provisioned in considerably less time than our off-net services. Our fiber network connects directly to our on-net
customers’ premises and we pay no local access (“last mile”) charges to other carriers to provide our on-net services.
We are responding to this on-net revenue opportunity by increasing our sales and marketing efforts including
increasing our number of sales representatives, implementing strategies to optimize sales productivity and expanding
our on-net addressable market by adding service locations to our network.
Selectively Pursuing Acquisition Opportunities. In addition to adding customers through our sales and marketing
efforts, we will continue to seek out acquisition opportunities that increase our customer base, allowing us to take
advantage of the unused capacity on our network and to add revenues with minimal incremental costs. We may
pursue acquisition opportunities that we believe expand our footprint, and generate positive cash flow. These
acquisition opportunities may include off-net as well as on-net customers and complementary businesses including
those offering over the top applications such as VOIP. We may also make opportunistic acquisitions of network
assets. Given our record of successful asset integration, we believe we can
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continue to successfully integrate new businesses as they are acquired. We are very selective in reviewing acquisition
opportunities and have not completed an acquisition in over a decade.
Our Network
Our network is comprised of in-building riser facilities, metropolitan optical networks, metropolitan traffic
aggregation points and inter-city transport facilities. We believe that we deliver a high level of technical performance
because our network is optimized for packet switched traffic. We believe that our network is more reliable and carries
packet switched traffic at lower cost than networks built as overlays to traditional circuit-switched telephone
networks.
Our network serves over 200 metropolitan markets in North America, Europe, Asia, Latin America and Australia
and encompasses:
● 1,767 multi-tenant office buildings strategically located in commercial business districts;
● 980 carrier-neutral Internet aggregation facilities, data center buildings and single-tenant buildings;
● 873 intra-city networks consisting of 35,526 fiber miles;
● an inter-city network of 57,600 fiber route miles; and
● multiple high-capacity transoceanic circuits that connect the North American, European, Asian, Latin
American and Australian portions of our network.
We have created our network by acquiring optical fiber from carriers with large amounts of unused fiber and
directly connecting Internet routers to our existing optical fiber national backbone. We have expanded our network
through key acquisitions of financially distressed companies or their assets at a significant discount to their original
cost. Due to our network design and acquisition strategy, we believe we are positioned to grow our revenue and
increase our profitability with limited incremental capital expenditures.
Inter-city Networks
Our inter-city network consists of optical fiber connecting major cities in North America, Europe, Asia, Latin
America and Australia. The North American, European, Asian, Latin American and Australian portions of our
network are connected by transoceanic circuits. Our network was built by acquiring from various owners of fiber
optic networks the right to use typically two strands of optical fiber out of the multiple fibers owned by the cable
operator. We install the optical and electronic equipment necessary to amplify, regenerate, and route the optical
signals along these networks. We have the right to use the optical fiber under long term agreements. We pay these
providers our pro rata fees for the maintenance of the optical fiber and provide our own equipment maintenance.
Intra-city Networks
In each metropolitan area in which we provide our high-speed on-net Internet access services, our backbone
network is connected to one or more routers that are connected to one or more of our metropolitan optical networks.
We created our intra-city networks by obtaining the right to use optical fiber from carriers with optical fiber networks
in those cities. These metropolitan networks consist of optical fiber that runs from the central router in a market into
routers located in our on-net buildings. In most cases the metropolitan fiber runs in a ring architecture, which provides
redundancy so that if the fiber is cut, data can still be transmitted to the central router by directing traffic in the
opposite direction around the ring. The router in the building provides the connection to each of our on-net customers.
Within the cities where we offer our off-net Internet access services, we lease circuits from telecommunications
carriers, primarily local telephone companies and cable TV companies, to provide the last mile connection to our
customer’s premises. Typically, these circuits are aggregated at various locations in those cities onto higher-capacity
leased circuits that ultimately connect the local aggregation router to our network.
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In-building Networks
In office buildings where we provide service to multiple tenants we connect our routers to a cable typically
containing 12 to 288 optical fiber strands that run from our equipment in the basement of the building through the
building riser to the customer location. Our service is initiated by connecting a fiber optic cable from our customer’s
local area network to the infrastructure in the building riser giving our customer dedicated and secure access to our
network using an Ethernet connection. We believe that Ethernet is the lowest cost network connection technology and
is almost universally used for the local area networks that businesses operate.
Data Centers
We operate 54 data centers across the United States and in Europe. These facilities comprise over 609,000 square
feet of floor space and are directly connected to our network. Each location is equipped with secure access,
uninterruptable power supplies (UPS), and backup generators. Our customers typically purchase bandwidth, rack
space, and power within these facilities.
Internetworking
The Internet is an aggregation of interconnected networks. We interconnect with the networks of our customers,
which represent the majority of our interconnections, and with other Internet service providers, or ISPs. The majority
of our traffic travels between our customers. We have settlement-free interconnections between our network and most
major ISPs who are not our customers. We interconnect our network to other ISP networks predominantly through
private peering arrangements facilitated with direct connections with networks who are not customers of the ISP.
Larger ISPs exchange traffic and interconnect their networks by means of direct private connections referred to as
private peering.
Peering agreements between ISPs are necessary in order for them to exchange traffic. Without peering
agreements, each ISP would have to buy Internet access from every other ISP in order for its customer’s traffic, such
as email, to reach and be received from customers of other ISPs. We are considered a Tier 1 ISP with a large
customer base and, as a result, we have settlement-free peering arrangements with other providers. We do not
purchase transit services or paid peering to reach any portion of the Internet. This allows us to exchange traffic with
those ISPs without payment by either party. In such arrangements, each party exchanging traffic bears its own cost of
delivering traffic to the point at which it is handed off to the other party. We do not treat our settlement-free peering
arrangements as generating revenue or expense related to the traffic exchanged. We do not sell or purchase paid
peering. We directly connect with over 6,920 total networks of which approximately 30 networks are settlement-free
peers, the remaining networks are customers, whom we charge for Internet access.
Network Management and Customer Care
Our primary network operations centers are located in Washington, D.C. and Madrid, Spain. These facilities
provide continuous operational support for our network. Our network operations centers are designed to immediately
respond to any problems in our network. Our customer care call centers are located in Washington D.C., Herndon
Virginia, Madrid Spain, Paris France, and Frankfurt Germany. To ensure the quick replacement of faulty equipment
in the intra-city and long-haul networks, we have deployed field engineers across North America and Europe. In
addition, we have maintenance contracts with third-party vendors that specialize in maintaining optical and routed
networks.
Our Services
We offer our high-speed Internet access and IP connectivity services primarily to small and medium-sized
businesses, communications providers and other bandwidth-intensive organizations located in North America,
Europe, Asia, Latin America and Australia.
We offer on-net services in over 200 metropolitan markets. We serve 2,801 on-net buildings. Our most popular
on-net service in North America is Internet access at 100 megabits per second. We typically offer this service to small
and medium-sized business customers. We also offer Internet access at higher speeds of up to 100 gigabits per
second. These services are generally used by bandwidth intensive customers that have
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businesses, such as web hosting, Internet access, and video delivery, predicated upon the Internet. These services are
generally delivered at our data centers and carrier neutral data centers. We believe that, on a per-megabit basis, this
service offering is one of the lowest priced in the marketplace. We also offer colocation services in our data centers.
This service offers Internet access combined with rack space and power in our facility, allowing the customer to
locate a server or other equipment at that location and connect to our Internet access service. Our final on-net service
offering is our private network service. This service provides point-to-point and point to multi-point connectivity.
This service allows customers to connect geographically dispersed local area networks in a seamless manner. We
offer lower prices for longer term and volume commitments. We emphasize the sale of our on-net services because
we believe that we have a competitive advantage in providing these services and these services generate gross profit
margins that are greater than our off-net services.
We offer our off-net services to customers that are not located in our on-net buildings. These services are
primarily provided in the metropolitan markets in North America and Europe in which we offer on-net services.
These services are generally provided to small and medium-sized corporate customers in over 6,870 off-net buildings.
Sales and Marketing
Direct Sales. We employ a direct sales and marketing approach. As of February 1, 2020, our sales force included
686 full-time employees. Our quota bearing sales force includes 548 employees with 364 employees focused
primarily on the corporate market and 184 employees focused primarily on the net-centric market. Our sales
personnel work through direct contact with potential customers in, or intending to locate in, our on-net buildings.
Through agreements with building owners, we are able to initiate and maintain personal contact with our customers
by staging various promotional and social events in our multi-tenant office buildings and carrier neutral data centers.
Sales personnel are compensated with a base salary plus quota-based commissions and incentives. We use a customer
relationship management system to efficiently track sales activity levels and sales productivity.
Indirect Sales. We also have an indirect sales program. Our indirect sales program includes several master agents
with whom we have a direct relationship. Through our agreements with our master agents we are able to sell through
thousands of sub agents. All agents have access to selling to potential corporate customers and may sell all of our
products. We have hired an indirect channel team who manages these indirect relationships. The indirect channel
team is compensated with a base salary plus quota-based commissions and incentives. We use our customer
relationship management system to efficiently track indirect sales activity levels and the sales productivity of our
agents under our indirect sales program.
Marketing. Because of our historical focus on a direct sales force that utilizes direct contact, we have not spent
funds on television, radio or print advertising. We use a limited amount of web based advertising. Our marketing
efforts are designed to drive awareness of our products and services, to identify qualified leads through various direct
marketing campaigns and to provide our sales force with product brochures, collateral materials, in building
marketing events and relevant sales tools to improve the overall effectiveness of our sales organization. In addition,
we conduct building events and public relations efforts focused on cultivating industry analyst and media
relationships with the goal of securing media coverage and public recognition of our Internet access and private
network services.
Competition
We face competition from incumbent telephone and cable companies, and facilities-based network operators,
many of whom are much larger than us, have significantly greater financial resources, better-established brand names
and large, existing installed customer bases in the markets in which we compete. We also face competition from new
entrants to the communications services market. Many of these companies offer products and services that are similar
to our products and services.
Unlike some of our competitors, we generally do not have title to most of the dark fiber that makes up our
network. Our interests in that dark fiber are in the form of long-term leases under indefeasible rights of use, or IRUs,
with providers, some of which also compete with us. We rely on the owner of the fiber to maintain the
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fiber. We are also dependent on third party providers, some of which compete with us, to provide both intracity fiber
and the lateral fiber connections required to add buildings to our network and to provide the local loop facilities for
the provision of connections to our off-net customers.
We believe that competition is based on many factors, including price, transmission speed, ease of access and
use, length of time to provision service, breadth of service availability, reliability of service, customer support and
brand recognition. Because our fiber optic networks have been recently installed compared to those of the incumbent
carriers, our state-of-the-art technology may provide us with cost, capacity, and service quality advantages over some
existing incumbent carrier networks; however, our network may not support some of the services supported by these
legacy networks, such as circuit-switched voice, ATM, frame relay, wireless and shared hybrid fiber coax networks.
While the Internet access speeds offered by traditional ISPs serving multi-tenant office buildings using DSL or cable
modems typically do not match our on-net offerings in terms of throughput or quality, these slower services are
usually priced lower than our offerings and thus provide competitive pressure on pricing, particularly for more price-
sensitive customers. These and other downward pricing pressures particularly in carrier neutral data centers have
diminished, and may further diminish, the competitive advantages that we have enjoyed as the result of the pricing of
our services. Increasingly, traditional ISPs are upgrading their services using optical fiber and cable technology so
that they can match our transmission speed and quality.
Regulation
Our services are subject to the regulatory authority of various agencies in the jurisdictions in which we operate.
As a provider of only Internet access and private networks to businesses regulation is generally light. This benefits us
in that we have flexibility in offering our services and ease of entry into new markets. However, this light regulation
generally extends to our competitors, some of whom are incumbent telephone and cable companies with whom we
need to interconnect and from whom we acquire circuits for our off-net services. The extent of regulation can change.
For example, the U.S. Federal Communications Commission ("FCC") recently rescinded regulations applicable to
mass market Internet access providers. In all jurisdictions regulations continue to evolve. We also enter into new
markets with their own regulations. The regulations with which we need to comply include licenses to provide our
services, data privacy, interception of communications by law enforcement, blocking of web sites, and others. We
believe that we comply with all regulations in the jurisdictions in which we operate.
The laws related to Internet telecommunications are unsettled and there may be new legislation and court
decisions that may affect our services and expose us to burdensome requirements and liabilities.
Employees
As of February 1, 2020, we had 1,051 employees. Unions represent 29 of our employees in France. We believe
that we have a satisfactory relationship with our employees.
Available Information
We were incorporated in Delaware in 1999. We maintain an Internet website at www.cogentco.com. We make
available free of charge through our Internet website our annual report on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act. The reports are made available through a link to the SEC’s Internet
website at www.sec.gov. You can find these reports and request a copy of our Code of Conduct on our website at
www.cogentco.com under the “About Cogent” tab at the “Investor Relations” link.
ITEM 1A. RISK FACTORS
Our connections to the Internet require us to establish and maintain relationships with other providers, which we
may not be able to maintain.
The Internet is composed of various network providers who operate their own networks that interconnect at
public and private interconnection points. Our network is one such network. In order to obtain Internet
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connectivity for our network, we must establish and maintain relationships with other Internet access providers and
certain of our larger customers. These providers may be customers (who connect their network to ours by buying
Internet access from us) or may be other large Internet access providers to whom we connect on a settlement-free
peering basis as described below. Both customers and settlement-free peers may be competitors of ours.
By entering into what are known as settlement-free peering arrangements, providers agree to exchange traffic
between their respective networks without charging each other. Our ability to avoid the higher costs of acquiring paid
dedicated network capacity (transit or paid peering) and to maintain high network performance is dependent upon our
ability to establish and maintain settlement-free peering relationships and to increase the capacity of the
interconnections provided by these relationships. The terms and conditions of our settlement-free peering
relationships may also be subject to adverse changes, which we may not be able to control. For example, several
network operators with large numbers of individual users are arguing that they should be able to charge or charge
more to network operators and businesses that deliver the large volumes of traffic requested by their users. If we are
not able to maintain or increase our settlement-free peering relationships in all of our markets on favorable terms or to
upgrade the capacity of our existing settlement-free peering relationships, we may not be able to provide our
customers with high performance or affordable or reliable services, which could cause us to lose existing and
potential customers, damage our reputation and have a material adverse effect on our business. We have in the past
had peering disputes with other network providers that resulted in a temporary disruption of the exchange of traffic
between our network and the network of the other carrier. We have resolved the majority of such disputes through
negotiations. In 2013 the major incumbent telephone and cable companies in the United States began to refuse to
upgrade our peering connections. This refusal caused congestion at our existing peering connections with these
networks as our connections were unable to handle the large volume of traffic requested by the customers of these
incumbent telephone and cable companies. This congestion impacted our network and our services to our other
customers. Following issuance by the FCC of its Open Internet Order we were able to enter into agreements with
most of these carriers that have alleviated the congestion we were experiencing. We cannot assure you that the
upgrade commitments in those agreements will be sufficient to accommodate the growth of Internet traffic on our
network. In December 2017 the FCC rescinded the protections of the Open Internet Order. This may impact the
willingness of telephone and cable companies to continue our current agreements or to enter into agreements to
augment interconnections as traffic grows and to continue current agreements.
We have experienced the same congestion problem in Europe with incumbent telephone companies. As the use
of streaming video increases this problem is exacerbated. Recently, several European incumbent telephone companies
have increased the capacity of our interconnections. We do not know if they will continue to do so. The major carrier
in Germany, Deutsche Telekom, continues to limit our interconnection capacity.
We cannot assure you that we will be able to continue to establish and maintain relationships with other
Internet access providers, favorably resolve disputes with such providers, or increase the capacity of our
interconnections with such providers.
We need to retain existing customers and continue to add new customers in order to become consistently profitable
and cash flow positive.
In order to become consistently profitable and consistently cash flow positive, we need to both retain existing
customers and continue to add a large number of new customers. The precise number of additional customers
required is dependent on a number of factors, including the turnover of existing customers, the pricing of our product
offerings and the revenue mix among our customers. We may not succeed in adding customers if our sales and
marketing efforts are unsuccessful. In addition, many of our targeted customers are businesses that are already
purchasing Internet access services from one or more providers, often under a contractual commitment. It has been
our experience that such targeted customers are often reluctant to switch providers due to costs and effort associated
with switching providers. Further, as some of our customers grow larger they may decide to build their own Internet
backbone networks or enter into direct connection agreements with telephone and cable companies that provide
Internet service to consumers. A migration of a few very large Internet users to their own networks, or to special
networks that may be offered by major telephone and cable providers of last
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mile broadband connections to consumers, or the loss or reduced purchases from several significant customers could
impair our growth, cash flow and profitability.
We have customers who depend on the U.S. government’s E-rate program for funding. There can be no
assurance that the E-rate program will continue or that other governmental programs that fund governments and
organizations that are or might become customers will continue. A failure of such programs to continue could result
in a loss of customers and impair our growth, cash flow and profitability.
Our growth and financial health are subject to a number of economic risks.
A downturn in the world economy, especially the economies of North America and Europe would negatively
impact our growth. We would be particularly impacted by a decline in the development of new applications and
businesses that make use of the Internet. Our revenue growth is predicated on growth in the use of the Internet that
makes up for the declining prices of Internet service. An economic downturn could impact the Internet business more
significantly than other businesses that are less dependent on new applications and growth in the use of those
applications because of the retrenchment by consumers and businesses that typically occurs in an economic downturn.
Our business and operations are growing rapidly and we may not be able to efficiently manage our growth.
We have grown our company rapidly through network expansion and by obtaining new customers through our
sales efforts. Our expansion places significant strains on our management, operational and financial infrastructure.
Our ability to manage our growth will be particularly dependent upon our ability to:
● expand, develop and retain an effective sales force and qualified personnel, especially in light of the tight job
market in the U.S.;
● maintain the quality of our operations and our service offerings;
● maintain and enhance our system of internal controls to ensure timely and accurate compliance with our
financial and regulatory reporting requirements; and
● expand our accounting and operational information systems in order to support our growth.
If we fail to implement these measures successfully, our ability to manage our growth will be impaired.
We may experience difficulties operating in countries outside of the United States, Canada and Western Europe.
We have expanded our network into Eastern Europe, Mexico and on a limited basis to Tokyo, Hong Kong,
Singapore, Latin America and Australia. We have experienced difficulties, ranging from lack of dark fiber to
regulatory issues to slower revenue growth rates in operating in these markets. If we are not successful in developing
our market presence in these regions our operating results and revenue growth could be adversely impacted.
We may experience delays and additional costs in expanding our on-net buildings.
We plan on continuing to increase the number of carrier-neutral data centers and multi-tenant office buildings
that are connected to our network. We may be unsuccessful at identifying appropriate buildings or negotiating
favorable terms for acquiring access to such buildings, and we may be unable to procure dark fiber to connect such
buildings to our network or to procure such fiber on favorable terms. Consequently, we may experience difficulty in
adding customers to our network and fully using our network’s available capacity.
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We may be required to censor content on the Internet, which we may find difficult to do and which may impact our
ability to provide our services in some countries as well as impact the growth of Internet usage, upon which we
depend.
Some governments attempt to limit access to certain content on the Internet. It is impossible for us (and other
providers as far as we know) to filter all content that flows across the Internet connections we provide. For example,
some content is encrypted when a secure web site is accessed. It is difficult to limit access to web sites by blocking a
fixed set of Internet addresses when the website operators engage in practices that make it difficult to block them.
Should any government require us to perform these types of blocking procedures we could experience difficulties
ranging from incurring additional expenses to ceasing to provide service in that country. We could also be subject to
penalties if we fail to implement the censorship.
We may not successfully make or integrate acquisitions or enter into strategic alliances.
As part of our growth strategy, we may pursue selected acquisitions and strategic alliances. To date, we have
completed 13 significant acquisitions. However, we are very selective with respect to such acquisitions and alliances
and we have not undertaken either for more than 15 years. We compete with other companies for acquisition
opportunities and we cannot assure you that we will be able to execute future acquisitions or strategic alliances on
commercially reasonable terms, or at all. Even if we enter into these transactions, we may experience:
● delays in realizing or a failure to realize the benefits we anticipate;
● difficulties or higher-than-anticipated costs associated with integrating any acquired companies, products or
services into our existing business;
● attrition of key personnel from acquired businesses;
● unexpected costs or charges; and
● unforeseen operating difficulties that require significant financial and managerial resources that would
otherwise be available for the ongoing development or expansion of our existing operations.
In the past, our acquisitions have often included assets, service offerings and financial obligations that are not
compatible with our core business strategy. We have expended management attention and other resources to the
divestiture of assets, modification of products and systems as well as restructuring financial obligations of acquired
operations. In most acquisitions, we have been successful in renegotiating the agreements that we have acquired. If
we are unable to satisfactorily renegotiate such agreements in the future or with respect to future acquisitions, we may
be exposed to large claims for payment for services and facilities we do not need.
Consummating these transactions could also result in the incurrence of additional debt and related interest
expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business,
financial condition and results of operations. Because we have purchased financially distressed companies or their
assets, and may continue to do so in the future, we have not had, and may not have, the opportunity to perform
extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in
acquisitions. As a result, we may face unexpected contingent liabilities arising from these acquisitions. We may also
issue additional equity in connection with these transactions, which would dilute our existing shareholders.
Following an acquisition, we have experienced a decline in revenue attributable to acquired customers as these
customers’ contracts have expired and they have entered into our standard customer contracts at generally lower rates
or have chosen not to renew service with us. We anticipate that we would experience similar revenue declines with
respect to customers we may acquire in the future.
We depend upon our key employees and may be unable to attract or retain sufficient qualified personnel.
Our future performance depends upon the continued contribution of our executive management team and other
key employees, in particular, our Chairman and Chief Executive Officer, Dave Schaeffer. As founder of our
company, Mr. Schaeffer’s knowledge of our business and our industry combined with his deep involvement in
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every aspect of our operations and planning make him particularly well-suited to lead our company and difficult to
replace. In addition, our senior management team has been in place for many years and has deep experience with our
operations and abilities that would make them difficult to replace.
We will need to renew the long-term leases of the optical fiber that composes our network.
Our network is composed of optical fiber that we have leased from many carriers. Most of the leases are long-
term, i.e. 15 years with renewal rights. These leases are generally referred to as indefeasible rights of use (IRU). In
coming years we will need to renew certain of these leases either pursuant to the renewal terms of the lease or by
negotiating an extension of the term. In particular, the lease for a large portion of our U.S. intercity network will need
to be renewed in 2020. We have exercised our renewal right as provided in the lease. However, the owner of the fiber
has the right to abandon the fiber rather than renew the lease. We do not expect the owner to abandon the fiber but if
the owner did so we would experience substantial disruption and expense in replacing our U.S. backbone network
with fiber from other providers. We face similar risks with respect to the other portions of our network.
Substantially all of our network infrastructure equipment is manufactured or provided by a single network
infrastructure vendor.
We purchase from Cisco Systems, Inc. (Cisco) the routers and transmission equipment used in our network. If
Cisco fails to provide equipment on a timely basis or fails to meet our performance expectations, including in the
event that Cisco fails to enhance, maintain, upgrade or improve its products, hardware or software we purchase from
them when and how we need them, we may be delayed or unable to provide services as and when requested by our
customers. We also may be unable to upgrade our network and face greater difficulty maintaining and expanding our
network.
Transitioning from Cisco to another vendor would be disruptive because of the time and expense required to
learn to install, maintain and operate the new vendor’s equipment and to operate a multi-vendor network. Any such
disruption could increase our costs, decrease our operating efficiencies and have an adverse effect on our business,
results of operations and financial condition.
Cisco may also be subject to litigation with respect to the technology on which we depend, including litigation
involving claims of patent infringement. Such claims have been growing rapidly in the communications industry.
Regardless of the merit of these claims, they can result in the diversion of technical and management personnel, or
require us to obtain non-infringing technology or enter into license agreements for the technology on which we
depend. There can be no assurance that such non-infringing technology or licenses will be available on acceptable
terms and conditions, if at all.
Our business could suffer because telephone companies and cable companies may provide better delivery of
certain Internet content, including content originating on their own networks, than content on the public Internet.
Broadband connections provided by cable TV and telephone companies have become the predominant means by
which consumers connect to the Internet. The providers of these broadband connections may treat Internet content or
other broadband content delivered from different sources differently. The possibility of this has been characterized as
an issue of “net neutrality.” As many of our customers operate websites and services that deliver content to consumers
our ability to sell our services would be negatively impacted if Internet content delivered by us was less easily
received by consumers than Internet content delivered by others. The FCC had promulgated rules that would have
banned practices such as blocking and throttling of Internet traffic but those rules were rescinded by the FCC in
December 2017. The European Union has issued similar net neutrality rules but they remain untested. We also do not
know the extent to which the providers of broadband Internet access to consumers may favor certain content or
providers in ways that may disadvantage us.
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Our operations outside of the United States expose us to economic, regulatory and other risks.
The nature of our operations outside of the United States involve a number of risks, including:
● fluctuations in currency exchange rates;
● exposure to additional regulatory and legal requirements, including import restrictions and controls, exchange
controls, tariffs and other trade barriers and privacy and data protection regulations;
● difficulties in staffing and managing our foreign operations;
● changes in political and economic conditions; and
● exposure to additional and potentially adverse tax regimes.
As we continue to expand into other countries, our success will depend, in part, on our ability to anticipate and
effectively manage these and other risks. Our failure to manage these risks and grow our operations outside the
United States may have a material adverse effect on our business and results of operations.
Fluctuations in foreign exchange rates may adversely affect our financial position and results of operations.
Our operations outside the United States expose us to currency fluctuations and exchange rate risk. For example,
while we record revenues and the financial results of our European operations in Euros, these results are reflected in
our consolidated financial statements in US dollars. Therefore, our reported results are exposed to fluctuations in the
exchange rates between the US dollar and the Euro. We may fund certain of our cash flow requirements of our
operations outside of the United States in US dollars. Accordingly, in the event that the foreign currency strengthens
against the US dollar to a greater extent than we anticipate, the cash flow requirements associated with these
operations may be significantly greater in US dollar terms than planned.
Our business could suffer delays and problems due to the actions of “last mile” providers on whom we are partially
dependent.
Our off-net customers are connected to our network by means of communications lines that are provided as
services by local telephone and cable companies and others. We may experience problems with the installation,
maintenance and pricing of these lines which could adversely affect our results of operations and our plans to add
additional customers to our network using such services. We have historically experienced installation and
maintenance delays when the network provider is devoting resources to other services, such as traditional telephony,
cable TV services and private network services. We have also experienced pricing problems when a lack of
alternatives allows a provider to charge high prices for services in a particular area. We attempt to reduce this
problem by using many different providers so that we have alternatives for linking a customer to our network.
Competition among the providers tends to improve installation intervals, maintenance and pricing. Additionally, these
providers are often competing with us for the same customers, and have marketed their own service to our customers
when our initial contract with our customer nears the end of its term.
Our network may be the target of potential cyber-attacks and other security breaches that could have significant
negative consequences.
Our business depends on our ability to limit and mitigate interruptions or degradation to our network availability.
Our network, including our routers, may be vulnerable to unauthorized access, computer viruses, cyber-attacks,
distributed denial of service (DDOS), and other security breaches. An attack on or security breach of our network
could result in interruption or cessation of services, our inability to meet our service level commitments, and
potentially compromise customer data transmitted over our network. Cyber-attacks of increasing sophistication and
breadth suggest an increase in cyber-attacks that may be state-sponsored or conducted by other well-financed
organizations. Moreover, as cyber warfare becomes a tool in asymmetric conflicts between the United States and
other nations, we, as a US provider, may be targeted with increasing frequency. We cannot guarantee that our security
measures will not be circumvented, thereby resulting in network failures or interruptions that could impact our
network availability and have a material adverse effect on our business, financial condition and operational results.
We may be required to expend significant resources to
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protect against such threats, and may experience a reduction in revenues, litigation, and a diminution in goodwill,
caused by a breach. Although our customer contracts limit our liability, affected customers and third parties may seek
to recover damages from us under various legal theories.
Our network could suffer serious disruption if certain locations experience serious damage.
There are certain locations through which a large amount of our Internet traffic passes. Examples are facilities in
which we exchange traffic with other carriers, the facilities through which our transoceanic traffic passes, and certain
of our network hub sites. If any of these facilities were destroyed or seriously damaged a significant amount of our
network traffic could be disrupted. Because of the large volume of traffic passing through these facilities our ability
(and the ability of carriers with whom we exchange traffic) to quickly restore service would be challenged. There
could be parts of our network or the networks of other carriers that could not be quickly restored or that would
experience substantially reduced service for a significant time. If such a disruption occurs, our reputation could be
negatively impacted which may cause us to lose customers and adversely affect our ability to attract new customers,
resulting in an adverse effect on our business and operating results.
We may have difficulty and experience disruptions as we add features and upgrade our network
When we upgrade our network this process involves reconfiguring our network and making changes to software
including our operating systems. In doing so we may experience disruptions that affect our customers, our revenue,
and our ability to grow. We may require additional resources to accomplish this work in a timely manner. That could
cause us to incur unexpected expenses or delay portions of this effort to the detriment of our ability to provide service
to our customers.
If the information systems that we depend on to support our customers, network operations, sales, billing and
financial reporting do not perform as expected, our operations and our financial results may be adversely affected.
We rely on complex information systems to operate our network and support our other business functions. Our
ability to track sales leads, close sales opportunities, provision services, bill our customers for our services and
prepare our financial statements depends upon the effective integration of our various information systems. If our
information systems, individually or collectively, fail or do not perform as expected, our ability to process and
provision orders, to make timely payments to vendors, to ensure that we collect amounts owed to us and prepare and
file our financial statements would be adversely affected. Such failures or delays could result in increased capital
expenditures, customer and vendor dissatisfaction, loss of business or the inability to add new customers or additional
services, and the inability to prepare accurate and timely financial statements all of which would adversely affect our
business and results of operations.
The U.S. Tax Cuts and Jobs Act will impact us.
The Tax Cuts and Jobs Act (the “Act”) significantly changed U.S. tax law by reducing the U.S. corporate tax
rate, making certain changes to U.S. taxation of income earned abroad, the deduction of capital expenditures, and the
deduction of interest expense. Although we generally believe the impact of the Act will be favorable to us, it is
complex and there may be aspects that will negatively affect us.
Tax audits could adversely affect us.
We are subject to audit of our tax compliance in numerous jurisdictions. These may result in the assessment of
amounts due that are material and therefore would have an adverse effect on us.
The utilization of certain of our net operating loss carryforwards is limited and depending upon the amount of our
taxable income we may be subject to paying income taxes earlier than planned.
Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when
ownership changes, as defined by that section, occur. We have performed an analysis of our Section 382
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ownership changes and have determined that the utilization of certain of our net operating loss carryforwards in the
United States is limited. Further, recent changes to the tax law in the United States may impact our utilization of our
net operating losses.
Our business could suffer from an interruption of service from our fiber providers.
The optical fiber cable owners from whom we have obtained our inter-city and intra-city dark fiber maintain that
dark fiber. We are contractually obligated under the agreements with these carriers to pay maintenance fees, and if we
are unable to continue to pay such fees we would be in default under these agreements. If these carriers fail to
maintain the fiber or disrupt our fiber connections due to our default or for other reasons, such as business disputes
with us, bankruptcy, and governmental takings, our ability to provide service in the affected markets or parts of
markets would be impaired unless we have or can obtain alternative fiber routes. Some of the companies that maintain
our inter-city dark fiber and some of the companies that maintain our intra-city dark fiber are also competitors of ours.
Consequently, they may have incentives to act in ways unfavorable to us. While we have successfully mitigated the
effects of prior service interruptions and business disputes in the past, we may incur significant delays and costs in
restoring service to our customers in connection with future service interruptions, and as a result we may lose
customers.
Our business depends on agreements with carrier neutral data center operators, which we could fail to obtain or
maintain.
Our business depends upon access to customers in carrier neutral data centers, which are facilities in which many
users of the Internet house the computer servers that deliver content and applications to users by means of the Internet
and provide access to multiple Internet access networks. Most carrier neutral data centers allow any carrier to operate
within the facility (for a standard fee). We expect to enter into additional agreements with carrier neutral data center
operators as part of our growth plan. Current government regulations do not require carrier neutral data center
operators to allow all carriers access on terms that are reasonable or nondiscriminatory. We have been successful in
obtaining agreements with these operators in the past and have generally found that the operators want to have us
located in their facilities because we offer low-cost, high-capacity Internet service to their customers. Any
deterioration in our existing relationships with these operators could harm our sales and marketing efforts and could
substantially reduce our potential customer base. Increasing concentration in this industry could negatively impact us
if any such combined entities decide to discontinue operation of their facilities in a carrier neutral fashion.
Our ability to serve customers in multi-tenant office buildings depends on access agreements with building owners
and managers, which we could fail to obtain or maintain.
Our on-net business depends upon our in-building networks. Our in-building networks depend on access
agreements with building owners or managers allowing us to install our in-building networks and provide our services
in these buildings. These agreements typically have terms of five to ten years, with one or more renewal options. Any
deterioration in our existing relationships with building owners or managers could harm our sales and marketing
efforts and could substantially reduce our potential customer base. We expect to enter into additional access
agreements as part of our growth plan. Current federal and state regulations do not require building owners to make
space available to us or to do so on terms that are reasonable or nondiscriminatory. While the FCC has adopted
regulations that prohibit common carriers (subject to regulation under Title II of the Communications Act) from
entering into exclusive arrangements with owners of multi-tenant commercial office buildings, these regulations do
not require building owners to offer us access to their buildings. Building owners or managers may decide not to
permit us to install our networks in their buildings or they may elect not to renew or amend our access agreements.
Most of these agreements have one or more automatic renewal periods and others may be renewed at the option of the
landlord. Some of these access agreements have or will have exhausted all automatic renewal periods and, as such,
will be coming up for renewal in the near future. While we have historically been successful in renewing these
agreements and no single building access agreement is material to our success, the failure to obtain or maintain a
number of these agreements would reduce our revenue, and we might not recover our costs of procuring building
access and installing our in-building networks in those locations.
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We may not be able to obtain or construct additional building laterals to connect new buildings to our network.
In order to connect a new building to our network we need to obtain or construct a lateral from our metropolitan
network to the building. We may not be able to obtain fiber in an existing lateral at an attractive price from a provider
and may not be able to construct our own lateral due to the cost of construction or municipal regulatory restrictions.
Failure to obtain fiber in an existing lateral or to construct a new lateral could keep us from adding new buildings to
our network and negatively impact our growth opportunities.
Impairment of our proprietary property and our alleged infringement on other companies’ intellectual property
rights could harm our business.
We cannot assure you that the steps taken by us to protect our proprietary property will be adequate to deter
misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate
steps to enforce our rights. We also are subject to the risk of litigation alleging infringement of third party intellectual
property rights. Any such claims could require us to spend significant sums in litigation, pay damages, develop non-
infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged
infringement.
We are aware of other companies in our and other industries that use the word “Cogent” in their corporate names.
Consequently, we do not have rights to the name “Cogent”. This may weaken our ability to market our services.
The sector in which we operate is highly competitive, and we may not be able to compete effectively.
We face significant competition from incumbent carriers, Internet service providers and facilities-based network
operators. Relative to us, many of these providers have significantly greater financial resources, more well-established
brand names, larger customer bases, and more diverse strategic plans and service offerings.
Intense competition from these traditional and new communications companies has led to declining prices and
margins for many communications services, and we expect this trend to continue as competition intensifies in the
future. Decreasing prices for high-speed Internet services have somewhat diminished the competitive advantage that
we have enjoyed as a result of our service pricing.
Our business is premised on the idea that customers want simple Internet access and private networks rather than
a combination of such services with other services such as VOIP and complex enterprise services. Our competitors
offer such services. Should the market come to favor such services our ability to acquire and keep customers would
be impaired. Our competitors may also upgrade their existing services or introduce new technologies or services, such
as satellite-based Internet or 5G services, that could make our services less attractive to potential customers.
We issue projected results and estimates for future periods from time to time, and such projections and estimates
are subject to inherent uncertainties and may prove to be inaccurate.
Financial information, results of operations and other projections that we may issue from time to time are based
upon our assumptions and estimates. While we believe these assumptions and estimates to be reasonable when they
are developed, they are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. You should understand that certain unpredictable factors could
cause our actual results to differ from our expectations and those differences may be material. No independent expert
participates in the preparation of these estimates. These estimates should not be regarded as a representation by us as
to our results of operations during such periods as there can be no assurance that any of these estimates will be
realized. In light of the foregoing, we caution you not to place undue reliance on these estimates. These estimates
constitute forward-looking statements.
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We have negative stockholders’ equity and may not be able to pay dividends in the future.
We have negative stockholders equity. Our Board of Directors has declared dividends based upon an independent
expert valuation of our assets that determined sufficient funds existed to pay a dividend under Delaware Law. We
cannot assure you that a future valuation of our assets will reach the same conclusion. In the future if we do not
receive a similar valuation of our assets and we continue to have negative stockholders equity, we will not be able to
pay dividends.
The indentures governing our debt agreements, among other things, limits our ability to incur indebtedness; to
pay dividends or make other distributions; to make certain investments and other restricted payments; to create liens;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; to incur restrictions on the ability
of a subsidiary to pay dividends or make other payments; and to enter into certain transactions with our affiliates.
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 the our Board of Directors. We are a Delaware Corporation as are
our U.S subsidiaries and under the General Corporate Law of the State of Delaware distributions may be restricted
including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a
corporation’s capital, as defined under Delaware Law.
Network failure or delays and errors in transmissions expose us to potential liability.
Our network is part of the Internet which is a network of networks. Our network uses a collection of
communications equipment, software, operating protocols and proprietary applications for the high-speed
transportation of large quantities of data among multiple locations. Given the complexity of our network, it is possible
that data will be lost or distorted. Delays in data delivery may cause significant losses to one or more customers using
our network. Our network may also contain undetected design faults and software bugs that, despite our testing, may
not be discovered in time to prevent harm to our network or to the data transmitted over it. The failure of any
equipment or facility on our network could result in the interruption of customer service until we affect the necessary
repairs or install replacement equipment. Network failures, delays and errors could also result from natural disasters,
power losses, security breaches, computer viruses, distributed denial of service attacks, fiber cuts, and other natural or
man-made events. Our off-net services are dependent on the network facilities of other providers or on local
telephone companies or cable companies. Network failures, faults or errors could cause delays or service
interruptions, require us to provide increased service credits to our customers, expose us to customer liability or
require expensive modifications that could have a material adverse effect on our business.
As an Internet access provider, we may incur liabilities for information disseminated through our network.
The law relating to the liabilities of Internet access providers and on-line services companies for information
carried on or disseminated through their networks is unsettled. As the law in this area develops and as we expand our
international operations, the potential imposition of liabilities upon us for the behavior of our customers or the
information carried on and disseminated through our network could require us to implement measures to reduce our
exposure to such liabilities, which may require the expenditure of substantial resources or the discontinuation of
certain products or service offerings. Any costs that are incurred as a result of such measures or the imposition of
liabilities could have a material adverse effect on our business.
Privacy requirements in the EU may impact our business.
The General Data Protection Regulation (“GDPR”) came into force in May 2018 in the European Union. The
GDPR creates significant new requirements regarding the protection of personal data and significantly increases the
financial penalties for noncompliance. We believe we are in compliance with GDPR, and we do not believe that
GDPR will have a significant impact on our provision of services to our customers. However, in the
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absence of precedence and guidance from EU regulators, the application of GDPR to the provision of internet
services remains unsettled, and we may be required to adopt additional measures in the future.
In addition to the new requirements imposed upon us by GDPR, the privacy requirements and expectations
created in the EU by GDPR are stricter than those in the US. These requirements include rules restricting the flow of
data across borders. These restrictions may cause companies to localize data, decline to make use of services provided
by our customers in the US, and otherwise impact the use of our services. Notwithstanding the existence of programs
such as the Privacy Shield program in place between the US and EU and other means of compliance created by
GDPR, European companies and individuals may be reluctant to use US companies, which could negatively impact
our business.
Proposed privacy requirements in the United States and other countries may impact our business.
Many countries, including the United States, are considering adopting privacy regulations or laws that would
govern the way an Internet user's data is used. On January 1, 2020, the California Consumer Privacy Act (“CCPA”)
came into effect. The primary impact of these rules are on businesses that collect personal information about
consumer users of their services. We do not provide services to consumers and do not collect such personal
information. However, we transmit data across the Internet, which data may include personal information collected
by our customers. We believe we are in compliance with the CCPA, and we do not believe our transmission of this
information creates any separate obligations under the CCPA. Nevertheless, as the application of the CCPA is novel
and unsettled, interpretation and enforcement of the CCPA will develop over time, and we may be required to adopt
additional measures in the future. In addition to the CCPA, numerous other states are contemplating similar privacy
regulation. Some of these proposed privacy rules could impose obligations on us that could negatively impact our
business. Although our customer contracts limit our liability, affected customers and third parties may seek to
recover damages from us under various legal theories.
Changes in laws, rules, and enforcement could adversely affect us.
We are not subject to substantial regulation by the FCC or the state public utilities commissions in the United
States. Internet service is also subject to minimal regulation in Western Europe and in Canada. Elsewhere the
regulation is greater, though not as extensive as the regulation for providers of voice services. If we decide to offer
traditional voice services or otherwise expand our service offerings to include services that would cause us to be
deemed a common carrier, we will become subject to additional regulation. Additionally, if we offer voice service
using IP (VOIP) or offer certain other types of data services, we may become subject to additional regulation. This
regulation could impact our business because of the costs and time required to obtain necessary authorizations, the
additional taxes that we may become subject to or may have to collect from our customers, and the additional
administrative costs of providing these services, and other costs. Even if we do not decide to offer additional services,
governmental authorities may decide to impose additional regulation and taxes upon providers of Internet access and
private network services. All of these matters could inhibit our ability to remain a low-cost carrier and could have a
material adverse effect on our business, financial condition and our results of operations.
As with the privacy laws described earlier, much of the law related to the liability of Internet service providers
for content on the network and the behavior of our customers and their end users remains unsettled. Some
jurisdictions have laws, regulations, or court decisions that impose obligations upon Internet access providers to
restrict access to certain content. Other legal issues, such as the sharing of copyrighted information, data protection,
trans-border data flow, unsolicited commercial email (“spam”), universal service, and liability for software viruses
could become subjects of additional legislation and legal development and changes in enforcement policies. Laws that
could subject us to claims or otherwise impact our business include, among others:
● The Canadian Anti-Spam Legislation (“CASL”) implemented in 2015. The full implementation of CASL was
delayed in 2017, and changes may be made to the legislation in the future. We believe we are currently in
compliance with CASL.
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● Statutory safe harbors, such as the Digital Millennium Copyright Act in the United States, upon which we rely
with respect to copyright liability for transitory communications. Any changes to these safe harbors may
adversely impact us.
● The United States Communications Assistance for Law Enforcement Act and similar laws of other countries
require that we be able to intercept communications when required to do so by law enforcement agencies. We
may experience difficulties and incur significant costs in complying with these laws. If we are unable to
comply with the laws we could be subject to fines in the United States of up to $1.0 million per event and
equal or greater fines in other countries.
We cannot predict the impact of these changes on us. They could have a material adverse effect on our business,
financial condition and our results of operations.
Governments may assert that we are liable for taxes which we have not collected from our customers and we may
have to begin collecting a multitude of taxes if Internet services become subject to taxation similar to the taxation
of telephone service.
In the United States Internet services are generally not subject to taxes. Consequently, in the United States we
collect few taxes from our customers even though most telecommunications services are subject to numerous taxes.
Various local jurisdictions have asserted or may assert that some of our operations or services should be subject to
local taxes. If such jurisdictions assess taxes on prior years we may be subject to a liability for unpaid taxes that we
may be unable to collect from our customers or former customers. If the taxation of Internet service is expanded we
will need to collect those taxes from our customers. The process of implementing a system to properly bill and collect
such taxes may require significant resources. In addition, the FCC is considering changes to its Universal Services
Fund that could result in its application to Internet services. This too would require that we expend resources to
collect this tax. Finally, the cumulative effect of these taxes levied on Internet services could discourage potential
customers from using Internet services to replace traditional telecommunication services and negatively impact our
ability to grow our business.
Our private network services are subject to taxes and fees in various jurisdictions. We believe we collect all
required taxes, however, a jurisdiction may assert we have failed to collect certain taxes. The expense of paying any
unpaid taxes could be substantial and we might not be able to collect such back taxes from our customers.
The exit of the United Kingdom from the European Union may adversely affect us.
We operate in the EU, including the United Kingdom. The exit of the United Kingdom from the EU could
adversely affect our operations and sales in unknown ways.
Terrorist activity throughout the world, military action to counter terrorism and natural disasters could adversely
impact our business.
The continued threat of terrorist activity and other acts of war or hostility have had, and may continue to have, an
adverse effect on business, financial and general economic conditions internationally. Effects from these events and
any future terrorist activity, including cyber terrorism, may, in turn, increase our costs due to the need to provide
enhanced security, which would adversely affect our business and results of operations. These circumstances may
also damage or destroy the Internet infrastructure and may adversely affect our ability to attract and retain customers,
our ability to raise capital and the operation and maintenance of our network access points. We are particularly
vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is
located in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have
historically been targets for pandemics and/or terrorist attacks. We are also susceptible to other catastrophic events
such as major natural disasters, extreme weather, fire or similar events that could affect our headquarters, other
offices, our network, infrastructure or equipment or our customers and prospective customers, which could adversely
affect our business.
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If we do not comply with laws regarding corruption and bribery, we may become subject to monetary or criminal
penalties.
The United States Foreign Corrupt Practices Act generally prohibits companies and their intermediaries from
bribing foreign officials for the purpose of obtaining or keeping business. Other countries have similar laws to which
we are subject. We take precautions to comply with these laws. However, these precautions may not protect us
against liability, particularly as a result of actions that may be taken in the future by agents and other intermediaries
through whom we have exposure under these laws even though we may have limited or no ability to control such
persons. Our competitors include foreign entities that are not subject to the United States Foreign Corrupt Practices
Act or laws of similar stringency, and hence we may be at a competitive disadvantage.
Allegations that the United States Government has intercepted Internet traffic may discourage use of the Internet
and the use of United States based Internet service providers.
Allegations have been made that the United States Government (through its National Security Agency) and other
governments have allegedly intercepted Internet traffic on a massive scale. It has also been alleged that user
information has been collected from various Internet-based services with and without the cooperation of the
companies providing those services. Such allegations may discourage individuals and organizations from making use
of Internet-based services due to privacy concerns and concerns that proprietary data can be compromised, This could
impact our ability to grow our business, especially because we and other companies headquartered in the United
States may be less favored by customers that perceive a connection between the activities of the United States
Government and United States companies.
Risk Factors Related to Our Indebtedness
We have substantial debt which we may not be able to repay when due.
Our total indebtedness, at par, at December 31, 2019 was $967.9 million and included $189.2 million of our
5.625% senior unsecured notes, $445.0 million of our 5.375% senior secured notes and €135.0 million of our 4.375%
senior unsecured notes. Our $189.2 million of senior unsecured notes are due in 2021 and require interest payments
totaling $10.6 million per year. Our $445.0 million senior secured notes are due in March 2022 and require annual
interest payments of $23.9 million per year. Our €135.0 million of senior unsecured notes are due in 2024 and require
annual interest payments of €5.9 million per year. All of our noteholders have the right to be paid the principal upon
default and upon certain designated events, such as certain changes of control. Our total indebtedness at December
31, 2019 included $169.8 million of finance lease obligations for dark fiber primarily under 15 — 20 year IRUs and
$12.5 million due under an installment payment agreement with a vendor. Our total indebtedness at December 31,
2019 excludes $96.8 million of operating lease liabilities which we were required to record as a right-to-use asset and
operating lease liabilities in connection with the adoption of ASU No. 2016-02 Leases on January 1, 2019. The
amount of our IRU finance lease obligations may be impacted due to our expansion activities, the timing of payments
and fluctuations in foreign currency rates. The amount of US dollars required to fund our interest and principal
obligations for our Euro-denominated notes may be impacted due to fluctuations in the Euro to US Dollar exchange
rate. We may not have sufficient funds to pay the interest and principal related to these obligations at the time we are
obligated to do so, which could result in bankruptcy, or we may only be able to raise the necessary funds on
unfavorable terms.
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling
our obligations under our notes and our other indebtedness.
We have substantial indebtedness. Our substantial debt may have important consequences. For instance, it could:
● make it more difficult for us to satisfy our financial obligations, including those relating to our debt;
● require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and
principal due under our debt, which will reduce funds available for other business purposes, including the
growth of our operations, capital expenditures and acquisitions;
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● place us at a competitive disadvantage compared with some of our competitors that may have less debt and
better access to capital resources; and
● limit our ability to obtain additional financing required to fund working capital and capital expenditures, for
strategic acquisitions and for other general corporate purposes.
Our ability to satisfy our obligations including our debt depends on our future operating performance and on
economic, financial, competitive and other factors, many of which are beyond our control. Our business may not
generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet
these obligations or to successfully execute our business strategy.
Despite our leverage we may still be able to incur more debt. This could further exacerbate the risks that we and
our subsidiaries face.
We and our subsidiaries may incur additional indebtedness, including additional secured indebtedness, in the
future. The terms of our debt indentures restrict, but do not completely prohibit, us from doing so. In addition, the
indentures allow us to issue additional notes and other indebtedness secured by the collateral under certain
circumstances. Moreover, we are not prevented from incurring other liabilities that do not constitute indebtedness as
defined in the indentures, including additional finance lease obligations in the form of IRUs. These liabilities may
represent claims that are effectively prior to the claims of our note holders. If new debt or other liabilities are added to
our debt levels the related risks that we and our subsidiaries now face could intensify.
The agreements governing our various debt obligations impose restrictions on our business and could adversely
affect our ability to undertake certain corporate actions.
The agreements governing our various debt obligations include covenants imposing significant restrictions on our
business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage
of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other
things:
● incur additional debt;
● create liens;
● make certain investments;
● enter into certain transactions with affiliates;
● declare or pay dividends, redeem stock or make other distributions to stockholders; and
● consolidate, merge or transfer or sell all or substantially all of our assets.
Our ability to comply with these agreements may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. These covenants could have an adverse effect on our business by
limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities. The
breach of any of these covenants or restrictions could result in a default under the agreements governing our debt
obligations.
To service our indebtedness, we will require a significant amount of cash. However, our ability to generate cash
depends on many factors many of which are beyond our control.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will
depend on our ability to generate cash in the future, which, in turn, is subject to general economic, financial,
competitive, regulatory and other factors, many of which are beyond our control.
Our business may not generate sufficient cash flow from operations and we may not have available to us future
borrowings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In these
circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be
able to refinance any of our indebtedness on commercially reasonable terms or at all.
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Without this financing, we could be forced to sell assets or secure additional financing to make up for any shortfall in
our payment obligations under unfavorable circumstances. However, we may not be able to secure additional
financing on terms favorable to us or at all and, in addition, the terms of the indentures governing our notes limit our
ability to sell assets and also restrict the use of proceeds from such a sale. We may not be able to sell assets quickly
enough or for sufficient amounts to enable us to meet our obligations, including our obligations under our notes.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease space for offices, data centers, colocation facilities, and points-of-presence.
Our headquarters facility consists of 43,117 square feet located in Washington, D.C. The lease for our
headquarters is with an entity controlled by our Chief Executive Officer. The lease was scheduled to expire in May
2020. In February 2020, the lease was extended to expire in May 2025. The lease may be cancelled by us upon 60
days' notice.
We lease a total of approximately 760,000 square feet of space for our data centers, offices and operations
centers. We believe that these facilities are generally in good condition and suitable for our operations.
ITEM 3. LEGAL PROCEEDINGS
We are involved in legal proceedings in the ordinary course of our business that we do not expect to have a
material adverse effect on our business, financial condition or results of operations. For a discussion of the significant
proceedings in which we are involved, see Note 6 to our consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our sole class of common equity is our common stock, par value $0.001, which is currently traded on the
NASDAQ Global Select Market under the symbol “CCOI.” Prior to March 6, 2006, our common stock traded on the
American Stock Exchange under the symbol “COI.” Prior to February 5, 2002, no established public trading market
for our common stock existed.
As of February 1, 2020, there were 135 holders of record of shares of our common stock holding 45,629,938
shares of our common stock.
Performance Graph
Our common stock currently trades on the NASDAQ Global Select Market. The chart below compares the
relative changes in the cumulative total return of our common stock for the period from December 31, 2014 to
December 31, 2019, against the cumulative total return for the same period of the (1) The Standard & Poor’s 500
(S&P 500) Index and (2) the NASDAQ Telecommunications Index. The comparison below assumes $100 was
invested on December 31, 2014 in our common stock, the S&P 500 Index and the NASDAQ Telecommunications
Index, with dividends, if any, reinvested.
Cogent Communications Holdings
S&P 500
NASDAQ Telecommunications
12/14
$ 100.00
$ 100.00
$ 100.00
12/15
$ 102.53
$ 101.38
$ 97.52
12/16
$ 127.23
$ 113.51
$ 102.36
12/17
$ 145.44
$ 138.29
$ 127.62
12/18
$ 151.55
$ 132.23
$ 127.16
12/19
$ 230.20
$ 173.86
$ 142.60
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
Issuer Purchases of Equity Securities
Our Board of Directors authorized a plan to permit the repurchase of up to $50.0 million of our common stock in
negotiated and open market transactions through December 31, 2020. We did not purchase shares of our common
stock in the year ended December 31, 2019. As of December 31, 2019, $34.9 million remained
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available for such negotiated and open market transactions concerning our common stock. We may purchase shares
from time to time depending on market, economic, and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The annual financial information set forth below has been derived from our audited consolidated financial
statements. The information should be read in connection with, and is qualified in its entirety by reference to, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the consolidated
financial statements and notes included elsewhere in this report and in our SEC filings.
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Service revenue
Operating expenses:
Network operations
Equity-based compensation
expense—network operations
Selling, general, and administrative
Equity-based compensation expense—SG&A
Depreciation and amortization
Total operating expenses
Losses on debt redemption and extinguishment
Gains—lease obligation restructurings and
releases
Gains on equipment exchanges
Operating income
Interest expense
Interest income and other, net
Income before income taxes
Income tax expense
Net income
Net income per common share—basic
Net income per common share—diluted
Dividends declared per common share
Weighted-average common shares—basic
Weighted-average common shares—diluted
CONSOLIDATED BALANCE SHEET
DATA (AT PERIOD END):
Total assets
Long-term debt (including finance leases and
current portion) (net of unamortized
discount of $392, $446, $385, $257 and
$817, respectively, including unamortized
premium of $985, $1,405, $382, $462 and
$0, respectively, and net of unamortized
debt costs of $4,164, $4,171, $3,930,
$4,832, and $4,557, respectively)
2019
2018
Years Ended December 31,
2017
(dollars in thousands)
2016
2015
$
546,159
$
520,193
$
485,175
$
446,900
$
404,234
218,807
218,631
208,674
193,493
173,926
994
129,447
17,466
80,247
446,961
—
895
117,045
16,813
81,233
434,617
—
604
115,229
12,686
75,926
413,119
—
573
110,547
10,162
75,235
390,010
(587)
584
102,172
10,931
70,527
358,140
(10,144)
—
1,059
100,257
(57,453)
9,870
52,674
(15,154)
37,520
0.82
0.81
2.44
45,542,315
46,080,395
$
$
$
$
—
982
86,558
(51,056)
5,880
41,382
(12,715)
28,667
0.63
0.63
2.12
45,280,161
45,780,954
$
$
$
$
—
3,862
75,918
(48,467)
3,667
31,118
(25,242)
5,876
0.13
0.13
1.80
44,855,263
45,184,203
$
$
$
$
—
7,739
64,042
(40,803)
1,021
24,260
(9,331)
14,929
0.33
0.33
1.51
44,641,805
44,873,830
$
$
$
$
11,643
5,443
53,036
(41,280)
956
12,712
(7,816)
4,896
0.11
0.11
1.46
44,888,723
45,159,849
$
$
$
$
$
932,124
$
739,850
$
710,588
$
737,892
$
665,860
964,341
806,032
728,544
707,080
601,839
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis together with “Item 6. Selected Consolidated Financial
Data” and our consolidated financial statements and related notes included in this report. The discussion in this
report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to
all related forward-looking statements wherever they appear in this report. Factors that could cause or contribute to
these differences include those discussed in “Item 1A. Risk Factors,” as well as those discussed elsewhere. You
should read “Item 1A. Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Our actual results
could differ materially from those discussed here. Factors that could cause or contribute to these differences include,
but are not limited to:
Future economic instability in the global economy, 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; legal and
operational difficulties in new markets; the imposition of a requirement that we contribute to the United States
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 arrangements on favorable terms; our ability to renew our long-
term leases of optical fiber that comprise our network; our reliance on an equipment vendor, Cisco Systems Inc., and
the potential for hardware or software problems associated with such equipment; the dependence of our network on
the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a
significant portion of our revenue base; the management of network failures and/or disruptions; and outcomes in
litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange
Commission, including, without limitation, this annual report on Form 10-K.
General Overview
We are a leading facilities-based provider of low-cost, high-speed Internet access, private network services and
data center colocation space. Our network is specifically designed and optimized to transmit packet routed data. We
deliver our services primarily to small and medium-sized businesses, communications service providers and other
bandwidth-intensive organizations in North America, Europe, Asia, Latin America and Australia.
Our on-net service consists of high-speed Internet access and private network services provided at speeds ranging
from 100 megabits per second to 100 gigabits per second. We offer our on-net services to customers located in
buildings that are physically connected to our network. We provide on-net Internet access and private network
services to corporate customers and net-centric customers. Our corporate customers are located in multi-tenant office
buildings and in our data centers and typically include law firms, financial services firms, advertising and marketing
firms and other professional services businesses. Our net-centric customers include bandwidth-intensive users such as
other Internet access providers, telephone companies, cable television companies, web hosting companies, content
delivery networks and commercial content and application service providers. These net-centric customers generally
receive our services in carrier neutral colocation facilities and in our data centers.
Our off-net services are sold to businesses that are connected to our network primarily by means of “last mile”
access service lines obtained from other carriers, primarily in the form of metropolitan Ethernet circuits. Our non-core
services, which consist primarily of legacy services of companies whose assets or businesses we have acquired,
primarily include voice services (only provided in Toronto, Canada). We do not actively market these non-core
services, are actively discontinuing providing certain of these services and expect the service revenue associated with
them to continue to decline.
Our network is comprised of in-building riser facilities, metropolitan optical fiber networks, metropolitan traffic
aggregation points and inter-city transport facilities. Our network is physically connected entirely through
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our facilities to 2,801 buildings in which we provide our on-net services, including 1,767 multi-tenant office
buildings. We also provide on-net services in carrier-neutral data centers, Cogent controlled data centers and single-
tenant office buildings. We operate 54 Cogent controlled data centers totaling over 609,000 square feet. Because of
our integrated network architecture, we are not dependent on local telephone companies or cable companies to serve
our on-net customers. We emphasize the sale of our on-net services because we believe we have a competitive
advantage in providing these services and these services generate gross profit margins that are greater than the gross
profit margins of our off-net services.
We believe our key growth opportunity is provided by our high-capacity network, which provides us with the
ability to add a significant number of customers to our network with minimal direct incremental costs. Our focus is to
add customers to our network in a way that maximizes its use and at the same time provides us with a profitable
customer mix. We are responding to this opportunity by increasing our sales and marketing efforts including
increasing our number of sales representatives and expanding our network to locations that we believe can be
economically integrated and represent significant concentrations of Internet traffic. One of our keys to developing a
profitable business will be to carefully match the cost of extending our network to reach new customers with the
revenue expected to be generated by those customers. In addition, we may add customers to our network through
strategic acquisitions.
We believe some of the most important trends in our industry are the continued long-term growth in Internet
traffic and a decline in Internet access prices on a per megabit basis. The effective price per megabit for our corporate
customers is declining as the bandwidth utilization and connection size of our corporate customer connections
increases. As Internet traffic continues to grow and prices per unit of traffic continue to decline, we believe we can
continue to load our network and gain market share from less efficient network operators. However, continued
erosion in Internet access prices will likely have a negative impact on the rate at which we can increase our revenues
and our profitability. Our revenue may also be negatively affected if we are unable to grow our Internet traffic or if
the rate of growth of Internet traffic does not offset an expected decline in pricing. We do not know if Internet traffic
will increase or decrease, or the rate at which it will increase or decrease. Changes in Internet traffic will be a function
of the number of Internet users, the amount of time users spend on the Internet, the applications for which the Internet
is used, the bandwidth intensity of these applications and the pricing of Internet services, and other factors.
The growth in Internet traffic has a more significant impact on our net-centric customers who represent the vast
majority of the traffic on our network and who tend to consume the majority of their allocated bandwidth on their
connections. Net-centric customers tend to purchase their service on a price per megabit basis. Our corporate
customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their
service on a per connection basis. Over the past several years, our revenue from corporate customers has grown faster
than our revenue from our net-centric customers.
We are a facilities-based provider of Internet access and communications services. Facilities-based providers
require significant physical assets, or network facilities, to provide their services. Typically when a facilities-based
network services provider begins providing its services in a new jurisdiction losses are incurred for several years until
economies of scale have been achieved. Our foreign operations are in Europe, Canada, Mexico, Asia, Latin America
and Australia. Europe accounts for roughly 75% of our foreign operations. Our European operations have incurred
losses and will continue to do so until our European customer base and revenues have grown enough to achieve
sufficient economies of scale.
Due to our strategic acquisitions of network assets and equipment, we believe we are well positioned to grow our
revenue base. We continue to purchase and deploy network equipment to parts of our network to maximize the
utilization of our assets and to expand and increase the capacity of our network. Our future capital expenditures will
be based primarily on the expansion of our network and the addition of on-net buildings. We plan to continue to
expand our network and to increase the number of on-net buildings we serve including multi-tenant office buildings,
carrier neutral data centers and Cogent controlled data centers. Many factors can affect our ability to add buildings to
our network. These factors include the willingness of building owners to grant us access rights, the availability of
optical fiber networks to serve those buildings, the cost to connect buildings to our network and equipment
availability.
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Results of Operations
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Our management reviews and analyzes several key financial measures in order to manage our business and assess
the quality of 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.
Service revenue
On-net revenues
Off-net revenues
Network operations expenses(1)
Selling, general, and administrative expenses(2)
Depreciation and amortization expenses
Gains on equipment transactions
Interest expense
Income tax expense
Year Ended
December 31,
2019
2018
(in thousands)
$ 546,159
396,753
148,931
219,801
146,913
80,247
1,059
57,453
15,154
$ 520,193
374,555
145,004
219,526
133,858
81,233
982
51,056
12,715
Percent
Change
5.0 %
5.9 %
2.7 %
0.1 %
9.8 %
(1.2)%
7.8 %
12.5 %
19.2 %
(1) Includes non-cash equity-based compensation expense of $994 and $895 for 2019 and 2018,
respectively.
(2) Includes non-cash equity-based compensation expense of $17,466 and $16,813 for 2019 and 2018,
respectively.
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU—on-net
ARPU—off-net
Average price per megabit
Customer Connections—end of period
On-net
Off-net
Year Ended
December 31,
2019
2018
Percent
Change
461
$
$ 1,097
0.62
$
480
$
$ 1,155
0.82
$
(3.8)%
(5.0)%
(23.9)%
74,554
11,660
68,770
10,974
8.4 %
6.3 %
Service Revenue. Our service revenue increased 5.0% from 2018 to 2019. Exchange rates negatively impacted
our increase in service revenue by approximately $5.3 million. All foreign currency comparisons herein reflect results
for 2019 translated at the average foreign currency exchange rates for 2018. We increased our total service revenue by
increasing the number of sales representatives selling our services, by expanding our network, by adding additional
buildings to our network, by increasing our penetration into the buildings connected to our network and by gaining
market share by offering our services at lower prices than our competitors.
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 consolidated
statements of operations. The impact of these taxes including the Universal Service Fund resulted in an increase to
our revenues from 2018 to 2019 of approximately $2.4 million.
Our net-centric customers tend to purchase their service on a price per megabit basis. Our corporate customers
tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a
per connection basis. Revenues from our corporate and net-centric customers represented
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68.4% and 31.6% of total service revenue, respectively, for 2019 and represented 64.9% and 35.1% of total service
revenue, respectively, for 2018. Revenues from corporate customers increased 10.6% to $373.7 million for 2019 from
$337.8 million for 2018 primarily due to an increase in our number of our corporate customers. Revenues from our
net-centric customers decreased by 5.4% to $172.5 million for 2019 from $182.3 million for 2018 primarily due to an
increase in our number of net-centric customers being offset by a decline in our average price per megabit. Our
revenue from our net-centric customers has declined as a percentage of our total revenue and grew at a slower rate
than our corporate customer revenue because net-centric customers purchase our services based upon a price per
megabit basis and our average price per megabit declined by 23.9% from 2018 to 2019. Additionally, the net-centric
market experiences a greater level of pricing pressure than the corporate market and net-centric customers who renew
their service with us expect their renewed service to be at a lower price than their current price. We expect that our
average price per megabit will continue to decline at similar rates which would result in our corporate revenues
continuing to represent a greater portion of our total revenues and our net-centric revenues continuing to grow at a
lower rate than our corporate revenues. Additionally, the impact of foreign exchange rates has a more significant
impact on our net-centric revenues.
Our on-net revenues increased 5.9% from 2018 to 2019. We increased the number of our on-net customer
connections by 8.4% at December 31, 2019 from December 31, 2018. On-net customer connections increased at a
greater rate than on-net revenues primarily due to the 3.8% decline in our on-net ARPU, primarily from a decline in
ARPU for our net-centric customers. ARPU is determined by dividing revenue for the period by the average customer
connections for that period. Our average price per megabit for our installed base of customers is determined by
dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for
the same customers. The decline in on-net ARPU is partly attributed to volume and term based pricing discounts.
Additionally, on-net customers who cancel their service from our installed base of customers, in general, have an
ARPU that is greater than the ARPU for our new customers due to declining prices primarily for our on-net services
sold to our net-centric customers. These trends resulted in the reduction to our on-net ARPU and a 23.9% decline in
our average price per megabit for our installed base of customers.
Our off-net revenues increased 2.7% from 2018 to 2019. Our off-net revenues increased as we increased the
number of our off-net customer connections by 6.3% at December 31, 2019 from December 31, 2018. Our off-net
customer connections increased at a greater rate than our off-net revenue primarily due to the 5.0% decrease in our
off-net ARPU.
Network Operations Expenses. Network operations expenses include the costs of personnel associated with
service delivery, network management, and customer support, network facilities costs, 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 network
operations expenses, including non-cash equity-based compensation expense, increased 0.1% from 2018 to 2019 as
we were connected to 8.0% more customer connections and we were connected to 125 more on-net buildings as of
December 31, 2019 compared to December 31, 2018. The increase in network operations expense is primarily
attributable to an increase in costs related to our network and facilities expansion activities, the increase in our off-net
revenues and the increase in taxes recorded on a gross basis partly offset by price reductions obtained in certain of our
circuit costs and fewer fiber operating leases. When we provide off-net services we also assume the cost of the
associated tail circuits.
Selling, General, and Administrative Expenses (“SG&A”). Our SG&A expenses, including non-cash equity-
based compensation expense, increased 9.8% from 2018 to 2019. Non-cash equity-based compensation expense is
included in SG&A expenses consistent with the classification of the employee's salary and other compensation and
was $17.5 million for 2019 and $16.8 million for 2018. SG&A expenses increased primarily from an increase in
salaries and related costs required to support our expansion and increases in our sales efforts and an increase in our
headcount. Our sales force headcount increased by 10.8% from 619 at December 31, 2018 to 686 at December 31,
2019 and our total headcount increased by 8.3% from 974 at December 31, 2018 to 1,055 at December 31, 2019.
Depreciation and Amortization Expenses. Our depreciation and amortization expenses decreased 1.2% from 2018
to 2019. The decrease is primarily due to the depreciation expense associated with the increase related to
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newly deployed fixed assets being offset by the decline in depreciation expense from fully depreciated fixed assets.
Gains on Equipment Transactions. We exchanged certain used network equipment and cash consideration for
new network equipment resulting in gains of $1.1 million for 2019 and $1.0 million for 2018. The gains are based
upon the excess of the estimated fair value of the new network equipment over the carrying amount of the returned
used network equipment and the cash paid. The increase in gains from 2018 to 2019 was due to purchasing more
equipment under the exchange program in 2019 than we purchased in 2018.
Interest Expense. Interest expense results from interest incurred on our $445.0 million of senior secured notes,
interest incurred on our $189.2 million of senior unsecured notes, interest on our installment payment agreement,
interest on our finance lease obligations and interest incurred on our €135.0 million of 2024 Notes that we issued on
June 25, 2019. Our interest expense increased by 12.5% for 2019 from 2018 primarily due to the issuance of $70.0
million of senior secured notes we issued in August 2018, the issuance of €135.0 million of senior unsecured notes we
issued in June 2019 and an increase in our finance lease obligations. The 2024 Notes were issued at par for €135.0
million ($153.7 million) on June 25, 2019. The 2024 Notes were issued in Euros and are reported in our reporting
currency — US Dollars. As of December 31, 2019 the 2024 Notes were valued at $151.4 million resulting in an
unrealized gain on foreign exchange of $2.3 million in 2019.
Income Tax Expense. Our income tax expense was $15.1 million for 2019 and $12.7 million for 2018. The
increase in our income tax expense was primarily related to an increase in our income before income taxes.
Buildings On-net. As of December 31, 2019 and 2018 we had a total of 2,801 and 2,676 on-net buildings
connected to our network, respectively.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Our management reviews and analyzes several key financial measures in order to manage our business and assess
the quality of 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.
Service revenue
On-net revenues
Off-net revenues
Network operations expenses(1)
Selling, general, and administrative expenses(2)
Depreciation and amortization expenses
Gains on equipment transactions
Interest expense
Income tax expense
Year Ended
December 31,
2018
2017
(in thousands)
$ 520,193
374,555
145,004
219,526
133,858
81,233
982
51,056
12,715
$ 485,175
346,445
137,892
209,278
127,915
75,926
3,862
48,467
25,242
Change
Percent
7.2 %
8.1 %
5.2 %
4.9 %
4.6 %
7.0 %
(74.6)%
5.3 %
(49.6)%
(1) Includes non-cash equity-based compensation expense of $895 and $604 for 2018 and 2017,
respectively.
(2) Includes non-cash equity-based compensation expense of $16,813 and $12,686 for 2018 and 2017,
respectively.
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Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU—on-net
ARPU—off-net
Average price per megabit
Customer Connections—end of period
On-net
Off-net
Year Ended
December 31,
2018
2017
Percent
Change
$
480
$ 1,155
0.82
$
$
506
$ 1,239
1.11
$
(5.1)%
(6.8)%
(25.9)%
68,770
10,974
61,334
9,953
12.1 %
10.3 %
Service Revenue. Our service revenue increased 7.2% from 2017 to 2018. Exchange rates positively impacted
our increase in service revenue by approximately $4.0 million. All foreign currency comparisons herein reflect results
for 2018 translated at the average foreign currency exchange rates for 2017. We increased our total service revenue by
increasing the number of sales representatives selling our services, by expanding our network, by adding additional
buildings to our network, by increasing our penetration into the buildings connected to our network and by gaining
market share by offering our services at lower prices than our competitors.
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 consolidated
statements of operations. The impact of these taxes including the Universal Service Fund resulted in an increase to
our revenues from 2017 to 2018 of approximately $1.6 million.
Our net-centric customers tend to purchase their service on a price per megabit basis. Our corporate customers
tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a
per connection basis. Revenues from our corporate and net-centric customers represented 64.9% and 35.1% of total
service revenue, respectively, for 2018 and represented 62.3% and 37.7% of total service revenue, respectively, for
2017. Revenues from corporate customers increased 11.8% to $337.8 million for 2018 from $302.1 million for 2017
primarily due to an increase in our number of our corporate customers. Revenues from our net-centric customers
decreased by 0.4% to $182.3 million for 2018 from $183.1 million for 2017 primarily due to an increase in our
number of net-centric customers being offset by a decline in our average price per megabit. Our revenue from our net-
centric customers has declined as a percentage of our total revenue and grew at a slower rate than our corporate
customer revenue because net-centric customers purchase our services based upon a price per megabit basis and our
average price per megabit declined by 25.9% from 2017 to 2018. Additionally, the net-centric market experiences a
greater level of pricing pressure than the corporate market and net-centric customers who renew their service with us
expect their renewed service to be at a lower price than their current price. We expect that our average price per
megabit will continue to decline at similar rates which would result in our corporate revenues continuing to represent
a greater portion of our total revenues and our net-centric revenues continuing to grow at a lower rate than our
corporate revenues. Additionally, the impact of foreign exchange rates has a more significant impact on our net-
centric revenues.
Our on-net revenues increased 8.1% from 2017 to 2018. We increased the number of our on-net customer
connections by 12.1% at December 31, 2018 from December 31, 2017. On-net customer connections increased at a
greater rate than on-net revenues primarily due to the 5.1% decline in our on-net ARPU, primarily from a decline in
ARPU for our net-centric customers. ARPU is determined by dividing revenue for the period by the average customer
connections for that period. Our average price per megabit for our installed base of customers is determined by
dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for
the same customers. The decline in on-net ARPU is partly attributed to volume and term based pricing discounts.
Additionally, on-net customers who cancel their service from our installed base of customers, in general, have an
ARPU that is greater than the ARPU for our new customers due to declining prices primarily for our on-net services
sold to our net-centric customers. These trends resulted in the reduction to our on-net ARPU and a 25.9% decline in
our average price per megabit for our installed base of customers.
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Our off-net revenues increased 5.2% from 2017 to 2018. Our off-net revenues increased as we increased the
number of our off-net customer connections by 10.3% at December 31, 2018 from December 31, 2017. Our off-net
customer connections increased at a greater rate than our off-net revenue primarily due to the 6.8% decrease in our
off-net ARPU.
Network Operations Expenses. Network operations expenses include the costs of personnel associated with
service delivery, network management, and customer support, network facilities costs, 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 network
operations expenses, including non-cash equity-based compensation expense, increased 4.9% from 2017 to 2018 as
we were connected to 11.9% more customer connections and we were connected to 170 more on-net buildings as of
December 31, 2018 compared to December 31, 2017. The increase in network operations expense is primarily
attributable to an increase in costs related to our network and facilities expansion activities and the increase in our off-
net revenues. When we provide off-net services we also assume the cost of the associated tail circuits.
Selling, General, and Administrative Expenses (“SG&A”). Our SG&A expenses, including non-cash equity-
based compensation expense, increased 4.6% from 2017 to 2018. Non cash equity-based compensation expense is
included in SG&A expenses consistent with the classification of the employee's salary and other compensation and
was $16.8 million for 2018 and $12.7 million for 2017. SG&A expenses increased primarily from an increase in
salaries and related costs required to support our expansion and increases in our sales efforts and an increase in our
headcount partly offset by a $1.1 million decrease in our legal fees primarily associated with U.S. net neutrality and
interconnection regulatory matters and by the $1.3 million reduction in commission expense from the impact of the
new revenue accounting standard which requires us to capitalize certain commissions paid to our sales agents and
sales employees. Our sales force headcount increased by 7.8% from 574 at December 31, 2017 to 619 at December
31, 2018 and our total headcount increased by 4.8% from 929 at December 31, 2017 to 974 at December 31, 2018.
Depreciation and Amortization Expenses. Our depreciation and amortization expenses increased 7.0% from
2017 to 2018. The increase is primarily due to the depreciation expense associated with the increase related to newly
deployed fixed assets more than offsetting the decline in depreciation expense from fully depreciated fixed assets.
Gains on Equipment Transactions. We exchanged certain used network equipment and cash consideration for
new network equipment resulting in gains of $1.0 million for 2018 and $3.9 million for 2017. The gains are based
upon the excess of the estimated fair value of the new network equipment over the carrying amount of the returned
used network equipment and the cash paid. The reduction in gains from 2017 to 2018 was due to purchasing more
equipment under the exchange program in 2017 than we purchased in 2018.
Interest Expense. Interest expense results from interest incurred on our $445.0 million of senior secured notes,
interest incurred on our $189.2 million of senior unsecured notes, interest on our installment payment agreement and
interest on our finance lease obligations. Our interest expense increased by 5.3% for 2018 from 2017 primarily due to
the issuance of $70.0 million of senior secured notes in August 2018 and an increase in our finance lease obligations.
Income Tax Expense. Our income tax expense was $12.7 million for 2018 and $25.2 million for 2017. The
decrease in our income tax expense was primarily related to an increase in deferred income tax expense for 2017
primarily due to the impact of the Tax Cuts and Jobs Act (the "Act"). On December 22, 2017, the President of the
United States signed into law the Act. The Act amended the Internal Revenue Code and reduced the corporate tax rate
from a maximum rate of 35% to a flat 21% rate. The rate reduction was effective on January 1, 2018 and may reduce
our future income taxes payable once we become a cash taxpayer in the United States. As a result of the reduction in
the corporate income tax rate and other provisions under the Act, we were required to revalue our net deferred tax
asset at December 31, 2017 resulting in a reduction in our net deferred tax asset of $9.0 million and we also recorded
a transition tax of $2.3 million related to our foreign operations for a total income tax expense of approximately $11.3
million, which was recorded as additional noncash income tax expense in 2017.
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Buildings On-net. As of December 31, 2018 and 2017 we had a total of 2,676 and 2,506 on-net buildings
connected to our network, respectively.
Liquidity and Capital Resources
In assessing our short term and long term liquidity, management reviews and analyzes our current cash balances,
short-term investments, accounts receivable, accounts payable, accrued liabilities, capital expenditure and operating
expense commitments, and required finance lease, interest and debt payments and other obligations.
The following table sets forth our consolidated cash flows.
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash and cash equivalents
during the year
2017
2019
Year Ended December 31,
2018
(in thousands)
$ 133,921
(49,937)
(52,545)
(2,357)
$ 148,809
(46,958)
22,020
(542)
$ 111,702
(45,801)
(97,267)
4,058
$ 123,329
$ 29,082
$ (27,308)
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. Our primary uses of operating cash are payments made to our
vendors, employees and interest payments made to our finance lease vendors and our note holders. Our changes in
cash provided by operating activities are primarily due to changes in our operating profit and changes in our interest
payments. Cash provided by operating activities for 2019, 2018 and 2017 includes interest payments on our note
obligations of $38.0 million, $32.7 million and $30.8 million, respectively.
Net Cash Used In Investing Activities. Our primary use of investing cash is for purchases of property and
equipment. These amounts were $47.0 million, $49.9 million and $45.8 million for 2019, 2018 and 2017,
respectively. The annual changes in purchases of property and equipment are primarily due to the timing and scope of
our network expansion activities including geographic expansion and adding buildings to our network. In 2019, 2018
and 2017 we obtained $11.3 million, $9.9 million and $9.0 million, respectively, of network equipment and software
in non-cash exchanges for notes payable under an installment payment agreement.
Net Cash Provided By (Used In) Financing Activities. Our primary uses of cash for financing activities are for
dividend payments, stock purchases and principal payments under our finance lease obligations. Amounts paid under
our stock buyback program were $6.6 million for 2018 and $1.8 million for 2017. There were no stock purchases for
2019. During 2019, 2018 and 2017 we paid $112.6 million, $97.9 million and $81.7 million, respectively, for our
quarterly dividend payments. Our quarterly dividend payments have increased due to regular quarterly increases in
our quarterly dividend per share amounts. Principal payments under our finance lease obligations were $9.1 million,
$10.3 million and $11.2 million for 2019, 2018 and 2017, respectively, and are impacted by the timing and extent of
our network expansion activities. Our financing activities also include proceeds from and repayments of our debt
offerings. In June 2019 we received net proceeds of $152.1 million from the issuance of our €135.0 million of 2024
Notes. In August 2018 we received net proceeds of $69.9 million from the issuance of our $70.0 million of senior
secured notes. Total installment payment agreement principal payments were $10.0 million, $9.4 million and $3.8
million for 2019, 2018 and 2017, respectively.
Indebtedness
Our total indebtedness, at par and excluding operating lease liabilities, at December 31, 2019 was $967.9 million.
Our total indebtedness at December 31, 2019 includes $169.8 million of finance lease obligations for dark fiber
primarily under 15-20 year IRUs. Our total cash and cash equivalents were $399.4 million at December 31, 2019.
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On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and
among Cogent Communications Group, Inc. (“Group”), a Delaware corporation, Cogent Communications
Holdings, Inc., a Delaware corporation (“Holdings”) and Cogent Communications Merger Sub, Inc., a Delaware
corporation (“Merger Sub”), Group adopted a new holding company organizational structure whereby Group is now a
wholly owned subsidiary of Holdings. Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Senior unsecured notes—€135.0 million
On June 25, 2019, Group completed an offering of €135.0 million aggregate principal amount of 4.375% senior
unsecured notes due on June 30, 2024 (the “2024 Notes”). The 2024 Notes were sold in private offerings for resale to
qualified institutional buyers pursuant to SEC Rule 144A and mature on June 30, 2024. Interest accrues at 4.375%
and is paid semi-annually in arrears on June 30 and December 30 of each year. Holdings provided a guarantee of the
2024 Notes but Holdings is not subject to the covenants under the indenture.
Senior unsecured notes—$189.2 million
Group is obligor on our $189.2 million (originally $200.0 million) of 5.625% senior unsecured notes due 2021
(the “2021 Notes”). The 2021 Notes were sold in private offerings for resale to qualified institutional buyers pursuant
to SEC Rule 144A and mature on April 15, 2021. Interest accrues at 5.625% and is paid semi-annually in arrears on
April 15 and October 15 of each year. Holdings provided a guarantee of the 2021 Notes but Holdings is not subject to
the covenants under the indenture. In the second quarter of 2016, we paid $10.9 million for the purchase of
$10.8 million of par value and accrued interest on our 2021 Notes reducing the principal amount to $189.2 million.
Senior secured notes—$445.0 million
In February 2015, Group issued $250.0 million of 5.375% senior secured notes due 2022 (the “2022 Notes”). In
December 2016, we issued an additional $125.0 million of our 2022 Notes at a premium of 100.365%. In
August 2018, we issued an additional $70.0 million of our 2022 Notes at a premium of 101.75%. The 2022
Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and mature
on March 1, 2022. Interest accrues at 5.375% and is paid semi-annually in arrears on March 1 and September 1 of
each year. Holdings provided a guarantee of the 2022 Notes but Holdings is not subject to the covenants under the
indenture.
Limitations under the indentures
The indentures governing the 2024 Notes, 2022 Notes and 2021 Notes, among other things, limits our ability to
incur indebtedness; to pay dividends or make other distributions; to make certain investments and other restricted
payments; to create liens; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; to incur
restrictions on the ability of a subsidiary to pay dividends or make other payments; and to enter into certain
transactions with its affiliates. Limitations on the ability to incur additional indebtedness (excluding IRU agreements
incurred in the normal course of business) include a restriction on incurring additional indebtedness if our
consolidated leverage ratio, as defined in the indentures, is greater than 6.0 for the 2024 Notes and greater than 5.0 for
the 2022 Notes and 2021 Notes. Limitations on the ability to incur additional secured indebtedness include a
restriction on incurring additional secured indebtedness if our consolidated secured leverage ratio, as defined in the
indentures, is greater than 4.0 for the 2024 Notes and greater than 3.5 for the 2022 Notes and 2021 Notes. The
indentures prohibit certain payments, such as dividends and stock purchases, when our consolidated leverage ratio, as
defined by the indentures, is greater than 4.25. A certain amount of such unrestricted payments is permitted
notwithstanding this prohibition. The unrestricted payment amount may be increased by our consolidated cash flow,
as defined in the indentures, as long as our consolidated leverage ratio is less than 4.25. Our consolidated leverage
ratio was above 4.25 as of December 31, 2019. As of December 31, 2019, a total of $110.3 million (primarily held by
Holdings in cash and cash equivalents) was permitted for investment payments including dividends and stock
purchases.
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Summarized Financial Information of Holdings
Holdings is a guarantor under the 2024, 2021 and 2022 Notes. Under the indentures we are required to disclose
financial information of Holdings including its assets, liabilities and its operating results (“Holdings Financial
Information”). The Holdings Financial Information as of and for the year ended December 31, 2019 is detailed below
(in thousands).
Cash and cash equivalents
Accrued interest receivable
Total assets
Investment from subsidiaries
Common stock
Accumulated deficit
Total equity
Equity-based compensation expense
Interest income
Net loss
Common Stock Buyback Program
December 31, 2019
(Unaudited)
$
$
$
$
110,265
65
110,330
260,537
47
(150,254)
110,330
Year Ended
December 31, 2019
(Unaudited)
$
$
20,212
3,069
(17,143)
Our Board of Directors has approved through December 31, 2020, purchases of our common stock under a
buyback program (the “Buyback Program”). We purchased 0.1 million shares of our common stock for $6.6 million
during the year ended December 31, 2018 and 0.1 million shares of our common stock for $1.8 million during
the year ended December 31, 2017. There were no purchases of common stock during the year ended December 31,
2019. As of December 31, 2019 there was a total of $34.9 million available under the Buyback Program.
Dividends on Common Stock
Dividends are recorded as a reduction to retained earnings. Dividends on unvested restricted shares of common
stock are paid as the awards vest. Our initial quarterly dividend payment was made in the third quarter of 2012. On
February 26, 2020, our Board of Directors approved the payment of our quarterly dividend of $0.66 per common
share. The dividend for the first quarter of 2020 will be paid to holders of record on March 13, 2020. This estimated
$30.1 million dividend payment is expected to be made on March 27, 2020.
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 the our Board of Directors. We are a Delaware Corporation and
under the General Corporate Law of the State of Delaware distributions may be restricted including a restriction that
distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as
defined under Delaware Law. The indentures governing our notes limit our ability to return cash to our stockholders.
See Note 4 to our consolidated financial statements for additional discussion of limitations on distributions.
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Contractual Obligations and Commitments
The following table summarizes our contractual cash obligations and other commercial commitments as of
December 31, 2019.
Debt(1)
Finance lease obligations(2)
Operating leases, colocation and data center
obligations(3)
Unconditional purchase obligations(4)
Total contractual cash obligations
Payments due by period
Total
Less than
1 year
903,696
340,188
50,601
25,459
1 - 3 years
(in thousands)
691,748
48,693
3 - 5 years
After
5 years
161,347
45,311
—
220,725
205,087
27,885
$ 1,476,856
36,119
12,154
$ 124,333
42,344
1,346
$ 784,131
26,138
1,307
$ 234,103
100,486
13,078
$ 334,289
(1) These amounts include interest and principal payment obligations on our €135.0 million of 2024 Notes through
the maturity date of June 30, 2024, interest and principal payments on our $445.0 million of 2022 Notes through
the maturity date of March 1, 2022, interest and principal payments on our $189.2 million of 2021 Notes through
the maturity date of April 15, 2021 and $12.5 million due under an installment payment agreement with a vendor.
(2) The amounts include principal and interest payments under our finance lease obligations. Our finance lease
obligations were incurred in connection with IRUs for inter-city and intra-city dark fiber underlying substantial
portions of our network. These finance leases are presented on our balance sheet at the net present value of the
future minimum lease payments, or $169.8 million at December 31, 2019. These leases generally have initial
terms of 15 to 20 years.
(3) These amounts include amounts due under our facilities, operating leases, colocation obligations and carrier
neutral data center obligations. Certain of these operating lease liabilities are presented on our balance sheet at
the net present value of the future minimum lease payments, or $96.8 million at December 31, 2019.
(4) These amounts include amounts due under unconditional purchase obligations including dark fiber IRU operating
and finance lease agreements entered into but not delivered and accepted prior to December 31, 2019.
Future Capital Requirements
We believe that our cash on hand and cash generated from our operating activities will be adequate to meet our
working capital, capital expenditure, debt service, dividend payments and other cash requirements for the next
twelve months if we execute our business plan.
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. We cannot assure
you that such financing will be available on terms acceptable to us or our stockholders, or at all. Insufficient funds
may require us to delay or scale back the number of buildings and markets that we add to our network, reduce our
planned increase in our sales and marketing efforts, or require us to otherwise alter our business plan or take other
actions that could have a material adverse effect on our business, results of operations and financial condition. If
issuing equity securities raises additional funds, substantial dilution to existing stockholders may result.
We may need to or elect to refinance all or a portion of our indebtedness at or before maturity and we cannot
provide assurances that we will be able to refinance any such indebtedness on commercially reasonable terms or at
all. In addition, we may elect to secure additional capital in the future, at acceptable terms, to improve our liquidity or
fund acquisitions or for general corporate purposes. In addition, in an effort to reduce future cash interest payments as
well as future amounts due at maturity or to extend debt maturities, we may, from time to time, issue new debt, enter
into debt for debt, or cash transactions to purchase our outstanding debt securities in the open market or through
privately negotiated transactions. We will evaluate any such transactions in light of
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the existing market conditions. The amounts involved in any such transaction, individually or in the aggregate, may
be material.
Off-Balance Sheet Arrangements
We do not have relationships with unconsolidated entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in
trading activities involving non-exchange traded contracts. 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.
Income Taxes
Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when
ownership changes, as defined by that section, occur. We have performed an analysis of our Section 382 ownership
changes and have determined that the utilization of certain of our net operating loss carryforwards in the United States
is limited.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The accounting policies we believe to be most critical to understanding our financial results and condition or that
require complex, significant and subjective management judgments are discussed below.
Revenue recognition
Our service offerings consist of on-net and off-net telecommunications services. Fixed fees are billed monthly in
advance and usage fees are billed monthly in arrears. Amounts billed are due upon receipt and contract lengths range
from month to month to 60 months. We satisfy our performance obligations to provide services to customers over
time as the services are rendered. Revenue is recognized when a customer obtains the promised service. The amount
of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these
services.
To achieve this core principle, we follow the following five steps:
1)
2)
Identification of the contract, or contracts with a customer
Identification of the performance obligations in the contract
3) Determination of the transaction price
4) Allocation of the transaction price to the performance obligations in the contract
5) Recognition of revenue when, or as, we satisfy a performance obligation
Installation fees for contracts with terms longer than month-to-month are recognized over the contract term.
Installation fees associated with month-to-month contracts are recognized over the estimated average customer life.
To the extent a customer contract is terminated prior to its contractual end the customer is subject to termination fees.
We vigorously seek payment of these amounts. We recognize revenue for these amounts as they are collected.
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Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental
authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may
include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state
regulatory fees. Such charges may be presented gross or net based upon our accounting policy election. We record
certain excise taxes and surcharges on a gross basis and includes them in our service revenue and cost of network
operations.
Finance Lease Obligations
We record assets and liabilities under finance leases at the lesser of the present value of the aggregate future
minimum lease payments or the fair value of the assets under lease. We establish the number of renewal option
periods used in determining the lease term, if any, based upon our assessment at the inception of the lease of the
number of option periods for which failure to renew the lease imposes a penalty on us in such amount that renewal
appears to be reasonably assured. Useful lives are determined based on historical usage with consideration given to
technological changes and trends in the industry that could impact the asset utilization. We estimate the fair value of
leased assets primarily using estimated replacement cost data for similar assets. We determine the incremental
borrowing rate for each lease using our current borrowing rate adjusted for various factors including the level of
collateralization and term to align with the term of the lease.
Recent Accounting Pronouncements
Recent Accounting Pronouncements—to be Adopted
In June 2016, the FASB issued No. ASU No. 2016-13, “Financial Instruments—Credit Losses: Measurement of
Credit Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the recognition
and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred
losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and
early adoption is permitted. We do not believe that the adoption of ASU No. 2016-13 will have a material impact on
or financial statements or disclosures.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks. These risks, which include interest rate risk and foreign currency
exchange risk, arise in the normal course of business rather than from trading activities.
Interest Rate Risk
Our cash flow exposure due to changes in interest rates related to our debt is limited as our note obligations have
fixed interest rates. The fair value of our note obligations may increase or decrease for various reasons, including
fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general
economic conditions. A decline in interest rates in the future will not generally benefit us with respect to our fixed
rate debt due to the terms and conditions of the indentures relating to that debt that would require us to repurchase the
debt at specified premiums if redeemed early. Our interest income is sensitive to changes in the general level of
interest rates. However, based upon the nature and current level of our investments, which consist of cash and cash
equivalents, we believe that there is no material interest rate exposure related to our investments.
Foreign Currency Exchange Risk
Our operations outside of the United States and our 2024 Notes expose us to potentially unfavorable adverse
movements in foreign currency rate changes. We have not entered into forward exchange contracts related to our
foreign currency exposure. While we record financial results and assets and liabilities from our international
operations in the functional currency, which is generally the local currency, these results are reflected in our
consolidated financial statements in US dollars. Therefore, our reported results are exposed to fluctuations in the
exchange rates between the US dollar and the local currencies, in particular the Euro and the Canadian dollar. In
addition, we may fund certain cash flow requirements of our international operations including the interest and
principal payment obligations, while due in Euros, on our 2024 notes in US dollars. Accordingly, in the event that the
local currencies strengthen versus the US dollar to a greater extent than planned, the revenues, expenses and cash
flow requirements associated with our international operations may be significantly higher in US-dollar terms than
planned. During the year ended December 31, 2019, our foreign activities accounted for 22% of our consolidated
revenue. A 1% change in foreign exchange rates would impact our consolidated annual revenue by approximately
$1.1 million. Changes in foreign currency rates could adversely and materially affect our operating results.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Comprehensive Income for Each of the Three Years Ended December 31, 2019
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for Each of the Three Years Ended
December 31, 2019
Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 2019
Notes to Consolidated Financial Statements
Page
41
43
44
45
46
47
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Cogent Communications Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cogent Communications Holdings, Inc. and
subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive
income (loss), changes in stockholders’ equity (deficit) and cash flows for each of the three years in the period ended
December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)2
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) and our report dated February 28, 2020 expressed an unqualified
opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting
for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which
it relates.
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Description of the
Matter
How We
Addressed the
Matter in Our
Audit
Determining the Initial Carrying Amount for Indefeasible Right of Use Lease Assets and
Liabilities
As described in Notes 1, 2 and 6 to the consolidated financial statements, as of December 31,
2019, the Company has recorded $408.2 million and $169.8 million of indefeasible right of use
(IRU) finance lease assets and liabilities, respectively. The Company makes certain judgments
and estimates to determine the initial carrying amount of the asset and lease liabilities at the
lease commencement date, which include, among others, the lease term and the incremental
borrowing rate.
Auditing the initial carrying amount of IRU lease assets and liabilities involved subjectivity due
to the application of judgment in management’s determination of the lease term and the
incremental borrowing rate. For example, management’s determination of the lease term
included assumptions related to the useful life of IRUs and the expectations regarding exercise
or non-exercise of renewal options contained in certain IRU lease agreements. Management’s
determination of the interest rate used in determining the present value of the aggregate future
minimum lease payments is based on the Company’s estimated incremental borrowing rate at
the lease inception date. Changes in those assumptions may have a material effect on the initial
carrying amount of the right-of-use asset or lease liabilities due to the volume of the IRU
agreements executed each period.
We tested the design and operating effectiveness of the Company’s controls over the process to
determine the carrying amount of its IRU leases. This included testing controls related to
management’s assumptions regarding the lease term and the incremental borrowing rate.
To test the initial carrying amount of right-of-use assets and lease liabilities, our audit
procedures included among others, assessing the Company’s historical lease option renewals
compared to management’s assumptions, evaluating industry practice in estimating useful lives
compared to those selected by management, and comparing market information to the
estimated incremental borrowing rates.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002
Tysons, VA
February 28, 2020
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $1,771 and $1,263,
respectively
Prepaid expenses and other current assets
Total current assets
Property and equipment:
Property and equipment
Accumulated depreciation and amortization
Total property and equipment, net
Right-of-use leased assets
Deferred tax assets
Deposits and other assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
Accrued and other current liabilities
Current maturities, operating lease liabilities
Installment payment agreement, current portion, net of discount of $350 and $395,
respectively
Finance lease obligations, current maturities
Total current liabilities
Senior unsecured 2024 Euro notes, net of unamortized debt costs of $1,410
Senior secured 2022 notes, net of unamortized debt costs of $1,897 and $2,695
2019
2018
$
399,422
$
276,093
40,484
35,822
475,728
1,366,782
(997,853)
368,929
73,460
335
13,672
932,124
11,075
51,301
10,101
9,063
8,154
89,694
150,001
$
$
41,709
32,535
350,337
1,300,503
(925,178)
375,325
—
2,733
11,455
739,850
8,519
51,431
—
8,283
7,074
75,307
—
$
$
respectively and including premium of $985 and $1,405, respectively
444,088
443,710
Senior unsecured 2021 notes, net of unamortized debt costs of $857 and $1,476,
respectively
Operating lease liabilities, net of current maturities
Finance lease obligations, net of current maturities
Other long term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 46,840,434 and
46,336,499 shares issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' deficit
Total liabilities and stockholders' equity
188,368
86,690
161,635
15,327
1,135,803
187,749
—
156,706
25,380
888,852
47
493,178
(12,326)
(684,578)
(203,679)
932,124
46
471,331
(10,928)
(609,451)
(149,002)
739,850
$
$
The accompanying notes are an integral part of these consolidated balance sheets.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2019
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Service revenue
Operating expenses:
Network operations (including $994, $895 and $604 of equity-based
compensation expense, respectively), exclusive of amounts shown
separately
Selling, general, and administrative (including $17,466, $16,813 and
$12,686 of equity-based compensation expense, respectively)
Depreciation and amortization
Total operating expenses
Gains on equipment transactions
Operating income
Interest income and other
Interest expense
Income before income taxes
Income tax expense
Net income
Comprehensive income:
Net income
Foreign currency translation adjustment
Comprehensive income
Basic net income per common share
Diluted net income per common share
Dividends declared per common share
Weighted-average common shares—basic
Weighted-average common shares—diluted
2019
546,159
$
2018
520,193
$
2017
485,175
$
219,801
219,526
209,278
146,913
80,247
446,961
1,059
100,257
9,870
(57,453)
52,674
(15,154)
37,520
37,520
(1,398)
36,122
0.82
0.81
2.44
45,542,315
46,080,395
$
$
$
$
$
$
133,858
81,233
434,617
982
86,558
5,880
(51,056)
41,382
(12,715)
28,667
28,667
(6,328)
22,339
0.63
0.63
2.12
45,280,161
45,780,954
$
$
$
$
$
$
127,915
75,926
413,119
3,862
75,918
3,667
(48,467)
31,118
(25,242)
5,876
5,876
12,593
18,469
0.13
0.13
1.80
44,855,263
45,184,203
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated statements.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2019
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance at December 31, 2016
Forfeitures of shares granted to employees
Equity-based compensation
Foreign currency translation
Issuances of common stock
Exercises of options
Common stock purchases and retirement
Dividends paid
Net income
Balance at December 31, 2017
Cumulative effect adjustment from adoption of
ASC 606
Forfeitures of shares granted to employees
Equity-based compensation
Foreign currency translation
Issuances of common stock
Exercises of options
Common stock purchases and retirement
Dividends paid
Net income
Balance at December 31, 2018
Forfeitures of shares granted to employees
Equity-based compensation
Foreign currency translation
Issuances of common stock
Exercises of options
Dividends paid
Net income
Balance at December 31, 2019
Additional
Paid-in
Capital
$ 442,799
—
14,504
—
—
1,222
(1,829)
—
—
$ 456,696
—
—
19,431
—
—
1,768
(6,564)
—
—
$ 471,331
—
20,210
—
—
1,637
—
—
$ 493,178
Common Stock
Shares
45,478,787
(10,181)
—
—
499,654
39,289
(46,750)
—
—
45,960,799
—
(24,973)
—
—
496,228
52,440
(147,995)
—
—
46,336,499
(12,632)
—
—
473,550
43,017
—
—
46,840,434
Amount
45
$
—
—
—
1
—
—
—
—
46
$
—
—
—
—
—
—
—
—
—
46
—
—
—
1
—
—
—
47
45
$
$
Accumulated
Other
$
Comprehensive Accumulated
Income (Loss)
(17,193)
$
—
—
12,593
—
—
—
—
—
(4,600)
Deficit
(478,905)
—
—
—
—
—
—
(81,657)
5,876
(554,686)
$
$
Total
Stockholder’s
Equity (Deficit)
(53,254)
$
—
14,504
12,593
1
1,222
(1,829)
(81,657)
5,876
(102,544)
$
—
—
—
(6,328)
—
—
—
—
—
(10,928)
—
—
(1,398)
—
—
—
—
(12,326)
$
$
14,455
—
—
—
—
—
—
(97,887)
28,667
(609,451)
—
—
—
—
—
(112,647)
37,520
(684,578)
$
$
14,455
—
19,431
(6,328)
—
1,768
(6,564)
(97,887)
28,667
(149,002)
—
20,211
(1,398)
1
1,636
(112,647)
37,520
(203,679)
$
$
Table of Contents
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2019
(IN THOUSANDS)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt discount and premium
Equity-based compensation expense (net of amounts capitalized)
Unrealized foreign currency exchange gain on 2024 Euro notes
Gains—equipment transactions and other, net
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Deposits and other assets
Accounts payable, accrued liabilities and other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from issuance of senior unsecured 2024 Euro notes — net of debt costs of $1,556
Net proceeds from issuance of 2022 secured notes-net of debt costs of $1,364
Dividends paid
Principal payments of finance lease obligations
Principal payments of installment payment agreement
Purchases of common stock
Proceeds from exercises of common stock options
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Non-cash investing and financing activities:
Finance lease obligations incurred
PP&E obtained for installment payment agreement
Fair value of equipment acquired in leases
Non-cash component of network equipment obtained in exchange transactions
2019
2018
2017
$
37,520
$
28,667
$
5,876
80,247
1,807
18,460
(2,273)
(358)
12,158
1,067
(3,730)
(1,131)
5,042
148,809
(46,958)
(46,958)
152,134
—
(112,647)
(9,097)
(10,007)
—
1,637
22,020
(542)
123,329
276,093
399,422
56,022
3,409
14,307
11,255
1,207
978
$
$
81,233
1,533
17,708
(1,109)
11,117
(3,204)
(438)
(1,490)
(96)
133,921
(49,937)
(49,937)
—
69,861
(97,887)
(10,286)
(9,437)
(6,564)
1,768
(52,545)
(2,357)
29,082
247,011
276,093
48,918
2,444
20,050
9,925
—
968
75,926
1,239
13,290
(4,833)
24,679
(4,161)
1,146
1,111
(2,571)
111,702
(45,801)
(45,801)
—
—
(81,657)
(11,201)
(3,802)
(1,829)
1,222
(97,267)
4,058
(27,308)
274,319
247,011
47,032
441
22,595
9,027
—
3,861
$
$
$
$
The accompanying notes are an integral part of these consolidated statements.
46
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the business and summary of significant accounting policies:
Reorganization and merger
On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and
among Cogent Communications Group, Inc. (“Group”), a Delaware corporation, Cogent Communications Holdings,
Inc., a Delaware corporation (“Holdings”) and Cogent Communications Merger Sub, Inc., a Delaware corporation,
Group adopted a new holding company organizational structure whereby Group is now a wholly owned subsidiary of
Holdings. Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). References to the “Company” for events that occurred prior to May 15,
2014 refer to Cogent Communications Group, Inc. and its subsidiaries and on and after May 15, 2014 the
“Company” refers to Cogent Communications Holdings, Inc. and its subsidiaries.
Description of business
The Company is a Delaware corporation and is headquartered in Washington, DC. The Company is a facilities-
based provider of low-cost, high-speed Internet access services, private network services and data center colocation
space. The Company’s network is specifically designed and optimized to transmit packet routed data. The Company
delivers its services primarily to small and medium-sized businesses, communications service providers and other
bandwidth-intensive organizations in North America, Europe, Asia, Latin America and Australia.
The Company offers on-net Internet access and private network services exclusively through its own facilities,
which run from its network to its customers’ premises. The Company is not dependent on local telephone companies
or cable TV companies to serve its customers for its on-net Internet access services because of its integrated network
architecture. The Company offers its on-net services to customers located in buildings that are physically connected to
its network. The Company’s on-net service consists of high-speed Internet access and private network services
offered at speeds ranging from 100 megabits per second to 100 gigabits per second of bandwidth. The Company
provides its on-net Internet access services and private network services to its corporate and net-centric customers.
The Company’s corporate customers are located in multi-tenant office buildings and typically include law firms,
financial services firms, advertising and marketing firms and other professional services businesses. The Company’s
net-centric customers include bandwidth-intensive users such as other Internet service providers, telephone
companies, cable television companies, web hosting companies, content delivery network companies and commercial
content and application service providers. These net-centric customers obtain the Company’s services in colocation
facilities and in the Company’s data centers. The Company operates data centers throughout North America and
Europe that allow its customers to collocate their equipment and access the Company’s network.
In addition to providing its on-net services, the Company provides Internet connectivity and private network
services to customers that are not located in buildings directly connected to its network. The Company provides this
off-net service primarily to corporate customers using other carriers’ facilities to provide the “last mile” portion of the
link from the customers’ premises to the Company’s network. The Company also provides certain non-core services
that resulted from acquisitions. The Company continues to support but does not actively sell these non-core services.
Principles of consolidation
The consolidated financial statements have been prepared in accordance with United States generally accepted
accounting principles and include the accounts of the Company and all of its wholly-owned and majority-owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
47
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Use of estimates
The preparation of consolidated financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ
from these estimates.
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts and other sales credit adjustments related to its
trade receivables. Trade receivables are recorded at the invoiced amount and can bear interest. Allowances for sales
credits are established through a reduction of revenue, while allowances for doubtful accounts are established through
a charge to selling, general, and administrative expenses as bad debt expense. The Company assesses the adequacy of
these reserves by evaluating factors, such as the length of time individual receivables are past due, historical
collection experience, and changes in the credit worthiness of its customers. The Company also assesses the ability of
specific customers to meet their financial obligations and establishes specific allowances related to these customers. If
circumstances relating to specific customers change or economic conditions change such that the Company’s past
collection experience and assessment of the economic environment are no longer appropriate, the Company’s
estimate of the recoverability of its trade receivables could be impacted. Accounts receivable balances are written-off
against the allowance for doubtful accounts after all means of internal collection activities have been exhausted and
the potential for recovery is considered remote. The Company recognized bad debt expense, net of recoveries, of
$4.1 million, $3.3 million and $3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
48
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Recent Accounting Pronouncements— Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced most
existing lease accounting guidance. In July 2018 the FASB approved an Accounting Standards Update which, among
other changes, allowed a company to elect to adopt ASU 2016-02 using the modified retrospective method applying
the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest
comparative period presented in these financial statements. ASU 2016-02 was effective for the Company beginning
on January 1, 2019 and required the Company to record a right-of-use asset and a lease liability for most of its
facilities leases. These leases were previously treated as operating leases. The Company adopted ASU 2016-02 using
the optional transition method whereby the new lease requirements under ASU 2016-02 were recorded through a
cumulative-effect adjustment, which after completing the implementation analysis, resulted in no adjustment to the
Company's January 1, 2019 beginning retained earnings balance. The effect of ASU 2016-02 was to record a
cumulative-effect adjustment on January 1, 2019 as a right-of-use asset and an operating lease liability totaling $97.3
million. The operating lease liability is not considered a liability under the consolidated leverage ratio calculations in
the indentures governing the Company’s senior unsecured and senior secured note obligations. The Company has
made an accounting policy election to not apply the recognition requirements of ASU 2016-02 to its short-term leases
— leases with a term of one year or less. The Company has also elected to apply certain practical expedients under
ASU2016-02 including not separating lease and nonlease components on its finance and operating leases, not
reassessing whether any existing contracts contained leases, not reconsidering lease classification, not reassessing
initial direct costs and using hindsight in determining the lease reasonably certain term of its leases.
Finance lease cost amortization of right-of-use assets
Interest expense on finance lease liabilities
Operating lease cost
Total lease costs
Other lease information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term — finance leases (in years)
Weighted-average remaining lease term — operating leases (in years)
Weighted average discount rate — finance leases
Weighted average discount rate — operating leases
49
Year
Ended
December 31, 2019
$
19,823
17,709
15,688
53,220
(17,959)
(17,106)
(9,097)
14,307
9,754
14.3
21.9
11.0 %
5.6 %
Table of Contents
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Finance leases—fiber lease agreements
The Company has entered into lease agreements with numerous providers of dark fiber under indefeasible-right-
of use agreements (“IRUs). These IRUs typically have initial terms of 15-20 years and include renewal options after
the initial lease term. The Company establishes the number of renewal option periods used in determining the lease
term based upon its assessment at the inception of the lease of the number of option periods for which failure to renew
the lease imposes a penalty in such amount that renewal appears to be reasonably certain. The option to renew may be
automatic, at the option of the Company or mutually agreed to between the dark fiber provider and the Company.
Once the Company has accepted the related fiber route, leases that meet the criteria for treatment as finance leases are
recorded as a finance lease obligation and an IRU asset. The interest rate used in determining the present value of the
aggregate future minimum lease payments is the Company’s incremental borrowing rate for the reasonably certain
lease term. The determination of the Company's incremental borrowing rate requires judgment. The Company
determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors
including level of collateralization and term to align with the term of the lease. Finance lease assets are included in
property and equipment in the Company’s consolidated balance sheets. As of December 31, 2019, the Company had
committed to additional dark fiber IRU lease agreements totaling $20.3 million in future payments to be paid over
periods of up to 20 years. These obligations begin when the related fiber is accepted, which is generally expected to
occur in the next 12 months.
The future minimum payments (principal and interest) under these finance leases are as follows (in thousands):
For the Twelve Months Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total minimum finance lease obligations
Less—amounts representing interest
Present value of minimum finance lease obligations
Current maturities
$
25,459
24,993
23,700
22,596
22,715
220,725
340,188
(170,399)
169,789
(8,154)
Finance lease obligations, net of current maturities
$
161,635
50
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Operating leases
The Company leases office space and certain data center facilities under operating leases. In certain cases the
Company also enters into short term operating leases for dark fiber. Right-of-use assets represent the Company’s right
to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments under
the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on
the present value of lease payments over the reasonably certain lease term. The implicit rates within the Company’s
operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease
commencement date to determine the present value of its lease payments. The determination of the Company’s
incremental borrowing rate requires judgment. The Company determines its incremental borrowing rate for each lease
using its current borrowing rate, adjusted for various factors including level of collateralization and term to align with
the term of the lease. The determination of the Company's incremental borrowing rate requires judgment. The
Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for
various factors including level of collateralization and term to align with the term of the lease. Certain of the
Company’s leases include options to extend or terminate the lease. The Company establishes the number of renewal
option periods used in determining the operating lease term based upon its assessment at the inception of the
operating lease of the number of option periods for which failure to renew the lease imposes a penalty in such amount
that renewal appears to be reasonably certain. The option to renew may be automatic, at the option of the Company or
mutually agreed to between the landlord or dark fiber provider and the Company. Once the Company has accepted the
related fiber route or the facility lease term has begun, the present value of the aggregate future minimum operating
lease payments is recorded as an operating lease liability and a right-of-use leased asset. Lease incentives and deferred
rent liabilities for facilities operating leases are presented with the right-of-use leased asset. Lease expense for lease
payments is recognized on a straight-line basis over the term of the lease.
The future minimum payments under these operating lease agreements are as follows (in thousands):
For the Twelve Months Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total minimum operating lease obligations
Less—amounts representing interest
Present value of minimum operating lease obligations
Current maturities
$
15,075
13,788
12,211
11,376
9,903
98,542
160,895
(64,104)
96,791
(10,101)
Lease obligations, net of current maturities
$
86,690
51
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Revenue recognition
The Company recognizes revenue under ASU No. 2014-09, Revenue from Contracts with Customers (“ASC
606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. Under ASC 606 installation fees for contracts with terms longer than
month-to-month are recognized over the contract term. The Company believes that the installation fee does not give
rise to a material right as defined by ASC 606 for contracts with terms longer than month-to-month. The Company
recognizes revenue over the estimated average customer life for installation fees associated with month-to-month
contracts, because the fee represents a material right as defined by ASC 606. The Company capitalizes certain
contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and
sales agents and amortizes these costs on straight-line basis over the period the services are transferred to the
customer for commissions paid to its sales team (estimated customer life) and over the remaining original contract
term for agent commissions. Management assesses these costs for impairment at least quarterly and as "triggering"
events occur that indicate it is more likely than not that an impairment exists. These contract costs were $18.7 million
as of December 31, 2019 and were $18.5 million as of December 31, 2018.
The Company’s service offerings consist of on-net and off-net telecommunications services. Fixed fees are billed
monthly in advance and usage fees are billed monthly in arrears. Amounts billed are due upon receipt and contract
lengths range from month to month to 60 months. The Company satisfies its performance obligations to provide
services to customers over time as the services are rendered. In accordance with ASC 606, revenue is recognized
when a customer obtains the promised service. The amount of revenue recognized reflects the consideration to which
the Company expects to be entitled to receive in exchange for these services. The Company has adopted the practical
expedient related to certain performance obligation disclosures since it has a right to consideration from its customer
in an amount that corresponds directly with the value to the customer of the Company’s performance completed to
date.
To achieve this core principle, the Company follows the following five steps:
1)
2)
Identification of the contract, or contracts with a customer
Identification of the performance obligations in the contract
3) Determination of the transaction price
4) Allocation of the transaction price to the performance obligations in the contract
5) Recognition of revenue when, or as, we satisfy a performance obligation
Fees billed in connection with customer installations are deferred (as deferred revenue) and recognized as noted
above. To the extent a customer contract is terminated prior to its contractual end the customer is subject to
termination fees. The Company vigorously seeks payment of these amounts. The Company recognizes revenue for
these amounts as they are collected.
Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period
during the year ended December 31, 2019 was $4.4 million and during the year ended December 31, 2018 was $5.0
million. Amortization expense for contract costs was $17.3 million for the year ended December 31, 2019 and $16.8
million for the year ended December 31, 2018.
52
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Gross receipts taxes, universal service fund and other surcharges
Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental
authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may
include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state
regulatory fees. Such charges may be presented gross or net based upon the Company’s accounting policy election.
The Company records certain excise taxes and surcharges on a gross basis and includes them in its revenues and costs
of network operations. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service
revenue and network operations expense) were $14.9 million, $12.5 million, and $10.9 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
Network operations
Network operations expenses include the costs of personnel and related operating expenses associated with
service delivery, network management, and customer support, network facilities costs, fiber and equipment
maintenance fees, leased circuit costs, access fees paid to building owners and certain excise taxes and surcharges
recorded on a gross basis. The Company estimates its accruals for any disputed leased circuit obligations based upon
the nature and age of the dispute. Network operations costs are impacted by the timing and amounts of disputed
circuit costs. The Company generally records these disputed amounts when billed by the vendor and reverses these
amounts when the vendor credit has been received or the dispute has otherwise been resolved. The Company does not
allocate depreciation and amortization expense to its network operations expense.
Foreign currency translation adjustment and comprehensive income
The consolidated financial statements of the Company’s non-US operations are translated into US dollars using
the period-end foreign currency exchange rates for assets and liabilities and the average foreign currency exchange
rates for revenues and expenses. Gains and losses on translation of the accounts are accumulated and reported as a
component of other comprehensive income in stockholders’ equity. The Company’s only components of “other
comprehensive income” are currency translation adjustments for all periods presented. The Company considers the
majority of its investments in its foreign subsidiaries to be long-term in nature. The Company’s foreign exchange
transaction gains (losses) are included within interest income and other on the consolidated statements of
comprehensive income.
Financial instruments
The Company considers all highly liquid investments with an original maturity of three months or less at
purchase to be cash equivalents. The Company determines the appropriate classification of its investments at the time
of purchase and evaluates such designation at each balance sheet date.
At December 31, 2019 and December 31, 2018, the carrying amount of cash and cash equivalents, accounts
receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because
of the short-term nature of these instruments. The Company measures its cash equivalents at amortized cost, which
approximates fair value based upon quoted market prices (Level 1). Based upon recent trading prices (Level
2—market approach) at December 31, 2019 the fair value of the Company’s $189.2 million senior unsecured notes
was $191.8 million , the fair value of the Company's $445.0 million senior secured notes was $466.1 million and the
fair value of the Company’s €135.0 million ($151.4 million) senior unsecured notes was $155.4 million.
53
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Concentrations of credit risk
The Company's assets that are exposed to credit risk consist of its cash and cash equivalents, other assets and
accounts receivable. As of December 31, 2019 and 2018, the Company's cash equivalents were invested in demand
deposit accounts, overnight investments and money market funds. The Company places its cash equivalents in
instruments that meet high-quality credit standards as specified in the Company's investment policy guidelines.
Accounts receivable are due from customers located in major metropolitan areas in the United States, Europe,
Canada, Mexico, Asia, Latin America and Australia. Receivables from the Company's net-centric (wholesale)
customers are generally subject to a higher degree of credit risk than the Company's corporate customers.
The Company relies upon an equipment vendor for the majority of its network equipment and is also dependent
upon many third-party fiber providers for providing its services to its customers.
Property and equipment
Property and equipment are recorded at cost and depreciated once deployed using the straight-line method over
the estimated useful lives of the assets. Useful lives are determined based on historical usage with consideration given
to technological changes and trends in the industry that could impact the asset utilization. System infrastructure costs
include the capitalized compensation costs of employees directly involved with construction activities and costs
incurred by third party contractors.
Assets and liabilities under finance leases are recorded at the lesser of the present value of the aggregate future
minimum lease payments or the fair value of the assets under lease. Leasehold improvements include costs associated
with building improvements. The Company determines the number of renewal option periods, if any, included in the
lease term for purposes of amortizing leasehold improvements and the lease term of its finance leases based upon its
assessment at the inception of the lease for which the failure to renew the lease imposes a penalty on the Company in
such amount that a renewal appears to be reasonably assured. Expenditures for maintenance and repairs are expensed
as incurred.
Depreciation and amortization periods are as follows:
Type of asset
Indefeasible rights of use (IRUs)
Network equipment
Leasehold improvements
Software
Owned buildings
Office and other equipment
System infrastructure
Depreciation or amortization period
Shorter of useful life or the IRU lease agreement;
generally 15 to 20 years
3 to 8 years
Shorter of lease term, including reasonably assured
renewal periods, or useful life
5 years
40 years
3 to 7 years
5 to 10 years
54
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Long-lived assets
The Company’s long-lived assets include property and equipment. These long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment is determined by comparing the carrying value of these long-lived assets to management’s probability
weighted estimate of the future undiscounted cash flows expected to result from the use of the assets. In the event an
impairment exists, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the
asset, which would be determined by using quoted market prices or valuation techniques such as the discounted
present value of expected future cash flows, appraisals, or other pricing models. In the event there are changes in the
planned use of the Company’s long-term assets or the Company’s expected future undiscounted cash flows are
reduced significantly, the Company’s assessment of its ability to recover the carrying value of these assets could
change.
Equity-based compensation
The Company recognizes compensation expense for its share-based payments granted to its employees based on
their grant date fair values with the expense being recognized on a straight-line basis over the requisite service period.
The Company begins recording equity-based compensation expense related to performance awards when it is
considered probable that the performance conditions will be met and for market based awards compensation cost is
recognized if the service condition is satisfied even if the market condition is not satisfied. Equity-based
compensation expense is recognized in the statement of operations in a manner consistent with the classification of
the employee's salary and other compensation.
Income taxes
The Company’s deferred tax assets or liabilities are computed based upon the differences between financial
statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax
expenses or benefits are based upon the changes in the assets or liability from period to period. At each balance sheet
date, the Company assesses the likelihood that it will be able to realize its deferred tax assets. Valuation allowances
are established when management determines that it is “more likely than not” that some portion or all of the deferred
tax asset may not be realized. The Company considers all available positive and negative evidence in assessing the
need for a valuation allowance including its historical operating results, ongoing tax planning, and forecasts of future
taxable income, on a jurisdiction by jurisdiction basis. The Company reduces its valuation allowance if the Company
concludes that it is “more likely than not” that it would be able to realize its deferred tax assets.
Management determines whether a tax position is more likely than not to be sustained upon examination based
on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the
position is measured to determine the amount of benefit to be recognized in the financial statements. The Company
adjusts its estimated liabilities for uncertain tax positions periodically because of ongoing examinations by, and
settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The
Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of
its income tax expense.
Basic and diluted net income per common share
Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing
net income or (loss) available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock
outstanding during each period, adjusted for the effect of dilutive common stock equivalents.
55
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Description of the business and summary of significant accounting policies: (Continued)
Shares of restricted stock are included in the computation of basic EPS as they vest and are included in diluted
EPS, to the extent they are dilutive, determined using the treasury stock method.
The following details the determination of the diluted weighted average shares:
Weighted average common shares—basic
Dilutive effect of stock options
Dilutive effect of restricted stock
Weighted average common shares—diluted
Year Ended
December 31,
2019
45,542,315
32,222
505,858
46,080,395
Year Ended
December 31,
2018
45,280,161
33,134
467,659
45,780,954
Year Ended
December 31,
2017
44,855,263
31,534
297,406
45,184,203
The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock
options and restricted stock awards outstanding:
Unvested shares of restricted common stock
Anti-dilutive options for common stock
Anti-dilutive shares of restricted common stock
Recent Accounting Pronouncements—to be Adopted
December 31, December 31, December 31,
2018
1,187,586
53,114
3,545
2019
1,283,281
39,608
348
2017
1,112,151
47,513
201
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses: Measurement of
Credit Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the recognition
and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred
losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and
early adoption is permitted. The Company has determined that the impact of ASU No. 2016-13 will not have a
material impact on its financial statements or disclosures.
2. Property and equipment:
Property and equipment consisted of the following (in thousands):
Owned assets:
Network equipment
Leasehold improvements
System infrastructure
Software
Office and other equipment
Building
Land
Less—Accumulated depreciation and amortization
Assets under finance leases:
IRUs
Less—Accumulated depreciation and amortization
Property and equipment, net
56
December 31,
2019
2018
$ 566,936
227,388
134,726
10,035
18,169
1,252
106
958,612
(790,033)
168,579
$ 538,761
214,495
124,018
9,963
16,711
1,277
108
905,333
(736,356)
168,977
408,170
(207,820)
200,350
$ 368,929
395,170
(188,822)
206,348
$ 375,325
Table of Contents
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Property and equipment: (Continued)
Depreciation and amortization expense related to property and equipment and finance leases was $80.2 million,
$81.2 million and $75.9 million, for 2019, 2018 and 2017, respectively.
The Company capitalizes the compensation cost of employees directly involved with its construction activities.
In 2019, 2018 and 2017, the Company capitalized compensation costs of $10.7 million, $10.5 million and
$9.7 million respectively. These amounts are included in system infrastructure costs.
Exchange agreement
In 2019, 2018 and 2017 the Company exchanged certain used network equipment and cash consideration for new
network equipment. The fair value of the new network equipment received was estimated to be $3.3 million, $3.2
million and $9.1 million resulting in gains of $1.0 million, $1.0 million and $3.9 million respectively. The estimated
fair value of the equipment received was based upon the cash consideration price the Company pays for the new
network equipment on a standalone basis (Level 3).
Installment payment agreement
The Company has entered into an installment payment agreement (“IPA”) with a vendor. Under the IPA the
Company may purchase network equipment in exchange for interest free note obligations each with a twenty-four
month term. There are no payments under each note obligation for the first six months followed by eighteen equal
installment payments for the remaining eighteen month term. As of December 31, 2019 and December 31, 2018,
there was $12.5 million and $11.2 million, respectively, of note obligations outstanding under the IPA, secured by
the related equipment. The Company recorded the assets purchased and the present value of the note obligation
utilizing an imputed interest rate. The resulting discounts totaling $0.4 million and $0.4 million as of December 31,
2019 and December 31, 2018, respectively, under the note obligations are being amortized over the note term using
the effective interest rate method.
3. Accrued and other liabilities:
Accrued and other current liabilities consist of the following (in thousands):
Operating accruals
Deferred revenue—current portion
Payroll and benefits
Taxes—non-income based
Interest
Total
4. Long-term debt:
Issuance of 2024 Notes
December 31,
2019
$ 23,695
4,316
6,613
6,053
10,624
$ 51,301
2018
$ 24,020
4,504
7,695
4,212
11,000
$ 51,431
On June 25, 2019, Group completed an offering of €135.0 million aggregate principal amount of 4.375% senior
unsecured notes ("The 2024 Notes") due on June 30, 2024. The net proceeds from the offering, after deducting
offering expenses, were approximately $152.1 million. The Company expects to use the proceeds for general
corporate purposes and/or to repurchase the Company’s common stock or for special or recurring dividends to the
Company’s stockholders. The 2024 Notes are guaranteed (the “Guarantees”) on a senior unsecured basis, jointly and
severally, by the Company’s material domestic subsidiaries, subject to certain exceptions, and by the Company
(collectively, the “Guarantors”). Under certain circumstances, the Guarantors may be released from these Guarantees
without the consent of the holders of the 2024 Notes.
57
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Long-term debt: (Continued)
The 2024 Notes and the Guarantees are Group’s and the Guarantors’ senior unsecured obligations. The 2024
Notes and the Guarantees are effectively subordinated to all of Group’s and the Guarantors’ existing and future
secured indebtedness to the extent of the value of the collateral securing such indebtedness, and are structurally
subordinated to all indebtedness and other liabilities of subsidiaries that are not Guarantors. Without giving effect to
collateral arrangements, the 2024 Notes and the Guarantees rank pari passu in right of payment with Group’s and the
Guarantors’ existing and future senior indebtedness. The 2024 Notes and the Guarantees rank contractually senior in
right of payment to all of Group’s and the Guarantors’ existing and future subordinated indebtedness.
The 2024 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 of 1933, as amended (the “Act”), and to
certain non-U.S. persons in transactions outside the United States in compliance with Regulation S under the Act. The
2024 Notes have not been registered under the Act, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. The 2024 Notes are listed on the Official List
of The International Stock Exchange; however, there can be no assurance that the listing will be maintained.
The 2024 Notes bear interest at a rate of 4.375% per annum. Interest began to accrue on the 2024 Notes on June
25, 2019 and will be paid semi-annually in arrears on June 30 and December 30 of each year, commencing on
December 30, 2019. Unless earlier redeemed, the 2024 Notes will mature on June 30, 2024. The 2024 Notes were
issued by Group, a subsidiary with a US dollar functional currency, and issued at par for €135.0 million ($153.7
million) on June 25, 2019. The 2024 Notes were issued in Euros and are reported in the Company’s reporting
currency — US Dollars. As of December 31, 2019 the 2024 Notes were valued at $151.4 million resulting in an
unrealized gain on foreign exchange of $2.3 million for the year ended December 31, 2019.
Group may redeem some or all of the 2024 Notes at any time prior to June 30, 2021 at a price equal to 100% of
the principal amount of the 2024 Notes, plus a “make-whole” premium as set forth in the indenture, plus accrued and
unpaid interest, if any, to, but not including, the date of redemption. Thereafter, Group may redeem the 2024 Notes, in
whole or in part, at a redemption price ranging from 102.188% to par (depending on the year), as set forth in the
indenture. Group may also redeem up to 35% of the principal amount of the 2024 Notes using proceeds of certain
equity offerings completed prior to June 30, 2021 at a redemption price equal to 104.375%, plus accrued and unpaid
interest, if any, to, but not including, the date of redemption, subject to certain exceptions. Group may also redeem the
2024 Notes, in whole but not in part, in the event of certain changes in the tax laws of the United States (or any taxing
authority in the United States). This redemption would be at 100% of the principal amount of the 2024 Notes to be
redeemed (plus any accrued interest and additional amounts then payable with respect to the 2024 Notes to, but not
including, the redemption date).
If Group undergoes specific kinds of change in control accompanied by certain ratings events, it will be required
to offer to repurchase the 2024 Notes from holders at a price equal to 101% of the 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, Group will be required to use the excess net proceeds to make
an offer to purchase the 2024 Notes at an offer price in cash equal to 100% of the principal amount of the 2024 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 2024 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 2024 Notes
validly tender their 2024 Notes, Group or a third party is entitled to redeem any remaining 2024 Notes at the price
offered to each holder.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Long-term debt: (Continued)
The 2024 notes indenture includes covenants that restrict Group and its restricted subsidiaries’ 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 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; and enter into
transactions with affiliates. However, the covenants provide for certain exceptions to these restrictions and the
Company is not subject to the covenants under the 2024 Notes indenture. Certain covenants will cease to apply to the
2024 Notes if, and for so long as, the 2024 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
Indenture has occurred and is continuing.
The principal amount of the 2024 Notes would become immediately due and payable upon the occurrence of
certain bankruptcy or insolvency events involving Group or certain of its subsidiaries, and may be declared
immediately due and payable by the trustee or the holders of at least 25% of the aggregate principal amount of the
then-outstanding 2024 Notes upon the occurrence of certain events of default under the indenture.
Senior secured notes -$445.0 million 2022 Notes
In February 2015, Group issued $250.0 million of 5.375% senior secured notes due 2022 (the “2022 Notes”). The
net proceeds from the offering were $248.6 million after deducting discounts and commissions and offering expenses.
In December 2016, the Company issued an additional $125.0 million par value of its 2022 Notes at a premium of
100.375% of par value. The Company received net proceeds of $124.3 million after deducting offering costs. In
August 2018, the Company issued an additional $70.0 million par value of its 2022 Notes at a premium of 101.75%
of par value. The Company received net proceeds of $69.9 million after deducting offering costs. The premium and
offering costs are amortized to interest expense to the maturity date using the effective interest rate method. The net
proceeds from these offerings are intended to be used for general corporate purposes.
The 2022 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule
144A and mature on March 1, 2022. Interest accrues at 5.375% and is paid semi-annually in arrears on March 1 and
September 1 of each year. The indenture governing the 2022 Notes provides that the Company and each of the
Company’s existing domestic subsidiaries and future material domestic subsidiaries guarantee the 2022 Notes, subject
to certain exceptions and permitted liens. The 2022 Notes are also secured by a pledge of all of the equity interests in
Group’s domestic subsidiaries and 65% of the equity interests in Group’s first-tier foreign subsidiaries. The 2022
Notes and the subsidiary guarantees will be the Company’s and the subsidiary guarantors’ senior indebtedness and
will rank pari passu in right of payment with all of the Company’s and the subsidiary guarantors’ existing and future
senior indebtedness, effectively senior to Group’s senior unsecured indebtedness to the extent of the value of the
collateral securing the 2022 Notes and the subsidiary guarantees, including Group’s 2021 Notes that were issued on
April 9, 2014, described below, and senior to any of the Company’s and the subsidiary guarantors’ future
subordinated indebtedness. The 2022 Notes are structurally subordinated to the liabilities of the non-guarantor
subsidiaries and are effectively subordinated to the Company’s and the subsidiary guarantors’ secured indebtedness to
the extent of the value of the collateral securing such indebtedness on a basis senior to the 2022 Notes and the
subsidiary guarantees. Holdings is also a guarantor of the 2022 Notes; however Holdings’ guarantee is unsecured and
thus its guarantee is not secured by any of Holdings assets. Holdings is also not subject to the covenants under the
indenture governing the 2022 Notes.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Long-term debt: (Continued)
The 2022 Notes may be redeemed prior to December 1, 2021 (three months prior to the maturity date of the
Notes) in whole or from time to time in part, at a redemption price equal to the sum of (1) 100% of the principal
amount plus accrued and unpaid interest, if any, to, but not including, the redemption date, and (2) a make-whole
premium, if any. The make-whole premium is the excess of (1) the net present value, on the redemption date, of the
principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption)
that would have been payable if such redemption had not been made, over (2) the aggregate principal amount of the
notes being redeemed or paid. Net present value shall be determined by discounting, on a semi-annual basis, such
principal and interest at the reinvestment rate (as determined in the indenture governing the 2022 Notes) from the
respective dates on which such principal and interest would have been payable if such redemption had not been made.
In addition, at any time on or after December 1, 2021 (three months prior to the maturity date of the 2022 Notes), the
Issuer may redeem the 2022 Notes, in whole and or in part, at a redemption price equal to 100% of the principal
amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the
redemption date.
Senior unsecured notes—$189.2 million 2021 Notes
On April 9, 2014, Cogent Communications Finance, Inc. ( “Cogent Finance”), a newly formed financing
subsidiary of Group, completed an offering at par of $200.0 million in aggregate principal amount of 5.625% Senior
Notes due 2021 (the “2021 Notes”). The 2021 Notes were sold in private offerings for resale to qualified institutional
buyers pursuant to SEC Rule 144A and will mature on April 15, 2021. Interest is paid semi-annually on April 15 and
October 15. Cogent Finance merged with Group, with Group continuing as the surviving corporation (the “Finance
Merger”). At the time of consummation of the Finance Merger, Group assumed the obligations of Cogent Finance
under the 2021 Notes and the indenture governing the 2021 Notes (the “Indenture”) and Group and each of Group’s
domestic subsidiaries became party to the Indenture pursuant to a supplemental indenture to the Indenture and the
obligations under the Indenture became obligations solely of Group and each of Group’s domestic subsidiaries.
Holdings also provided a guarantee of the 2021 Notes but Holdings is not subject to the covenants under the
Indenture. The net proceeds from the offering were $195.8 million after deducting commissions and offering
expenses. The net proceeds from the offering are intended to be used for general corporate purposes.
In the second quarter of 2016, the Company paid $10.9 million for the purchase of $10.8 million of par value and
accrued interest on its 2021 Notes reducing the principal amount to $189.2 million and resulting in a loss on
extinguishment of $0.2 million. The loss resulted from the write off of the remaining unamortized debt issuance costs
related to the purchased notes.
The 2021 Notes bear interest at a rate of 5.625% per year and will mature on April 15, 2021. Interest is paid
semi-annually on April 15 and October 15. The 2021 Notes are senior unsecured obligations of Group and are
guaranteed on a senior unsecured basis by Holdings. The 2021 Notes are effectively subordinated in right of payment
to all of Group’s and each guarantor’s secured indebtedness and future secured indebtedness, if any, to the extent of
the value of the assets securing such indebtedness. The 2021 Notes are equal in right of payment with Group’s and
each guarantor’s unsecured indebtedness that is not subordinated in right of payment to the 2021 Notes. The 2021
Notes rank senior in right of payment to Group’s and each guarantor’s future subordinated debt, if any; and are
structurally subordinated in right of payment to all indebtedness and other liabilities of any of the Group’s
subsidiaries that are not guarantors, which only consist of immaterial subsidiaries and foreign subsidiaries that do not
guarantee other indebtedness of Group.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Long-term debt: (Continued)
Group may also redeem the 2021 Notes, in whole or in part, at any time on or after April 15, 2017 at the
applicable redemption prices specified under the indenture governing the 2021 Notes plus accrued and unpaid
interest, if any, to the date of redemption. The redemption prices (expressed as a percentage of the principal amount)
are 104.219% during the 12-month period beginning on April 15, 2017, 102.813% during the 12-month period
beginning on April 15, 2018, 101.406% during the 12-month period beginning on April 15, 2019 and 100.0% during
the 12-month period beginning on April 15, 2020 and thereafter. If Group experiences specific kinds of changes of
control, Group must offer to repurchase all of the 2021 Notes at a purchase price of 101.0% of their principal amount,
plus accrued and unpaid interest, if any, to the repurchase date.
Limitations under the indentures
The indentures governing the 2024 Notes, 2022 Notes and 2021 Notes, among other things, limit the Company’s
ability to incur indebtedness; to pay dividends or make other distributions; to make certain investments and other
restricted payments; to create liens; consolidate, merge, sell or otherwise dispose of all or substantially all of its
assets; to incur restrictions on the ability of a subsidiary to pay dividends or make other payments; and to enter into
certain transactions with its affiliates. Limitations on the ability to incur additional indebtedness (excluding IRU
agreements incurred in the normal course of business) include a restriction on incurring additional indebtedness if the
Company’s consolidated leverage ratio, as defined in the indentures, is greater than 6.0 for the 2024 Notes and greater
than 5.0 for the 2022 Notes and 2021 Notes. Limitations on the ability to incur additional secured indebtedness
include a restriction on incurring additional secured indebtedness if the Company’s consolidated secured leverage
ratio, as defined in the indentures, is greater than 4.0 for the 2024 Notes and greater than 3.5 for the 2022 Notes and
2021 Notes. The indentures prohibit certain payments, such as dividends and stock purchases, when the Company’s
consolidated leverage ratio, as defined by the indentures, is greater than 4.25. A certain amount of such unrestricted
payments is permitted notwithstanding this prohibition. The unrestricted payment amount may be increased by the
Company’s consolidated cash flow, as defined in the indentures, as long as the Company’s consolidated leverage ratio
is less than 4.25. The Company’s consolidated leverage ratio was above 4.25 as of December 31, 2019. As of
December 31, 2019, a total of $110.3 million (primarily held by Holdings in cash and cash equivalents) was permitted
for investment payments including dividends and stock purchases.
Long-term debt maturities
The aggregate future contractual maturities of long-term debt were as follows as of December 31, 2019 (in
thousands):
For the year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
61
$
9,413
192,299
445,000
—
151,411
—
$ 798,123
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5. Income taxes:
COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the
"TCJA"). The TCJA amended the Internal Revenue Code and reduced the corporate tax rate from a maximum of 35%
to a flat 21% rate. The rate reduction was effective on January 1, 2018. The Company's net deferred tax assets
represent a decrease in corporate taxes expected to be paid in the future. Under generally accepted accounting
principles deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The Company's net deferred tax
asset was determined based on the current enacted federal tax rate of 35% prior to the passage of the Act. As a result
of the reduction in the corporate income tax rate from 35% to 21% and other provisions under the TCJA, the
Company made reasonable estimates of the effects of the TCJA and revalued its net deferred tax asset at December
31, 2017 resulting in a reduction in the value of its net deferred tax asset of approximately $9.0 million and recorded a
transition tax of $2.3 million related to its foreign operations for a total of $11.3 million, which was recorded as
additional noncash income tax expense in the year ended December 31, 2017. As of December 31, 2018, the
Company had collected all of the necessary data to complete its analysis of the effect of the TCJA on its underlying
deferred income taxes and recorded a $0.1 million reduction in the value to its net deferred tax asset. The TCJA
subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign
subsidiaries. FASB Staff Q&A, Topic 740, No. 5, "Accounting for Global Intangible Low-Taxed Income", states that
the Company is permitted to make an accounting policy election to either recognize deferred income taxes for
temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for
the income tax expense related to such income in the year the income tax is incurred. The Company has made an
accounting policy to record these income taxes as a period cost in the year the income tax in incurred.
The components of income (loss) before income taxes consist of the following (in thousands):
Domestic
Foreign
Total income before income taxes
Years Ended December 31,
2018
$ 63,878
(22,496)
$ 41,382
2017
$ 52,250
(21,132)
$ 31,118
2019
$ 72,773
(20,099)
$ 52,674
The income tax expense is comprised of the following (in thousands):
Years Ended December 31,
2018
2017
2019
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total income tax expense
62
$
— $
— $
(2,647)
(370)
(1,522)
(75)
—
(353)
(209)
(10,899)
(1,285)
47
(24,150)
(430)
(100)
$ (15,154) $ (12,715) $ (25,242)
(9,746)
(802)
(570)
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Income taxes: (Continued)
Our consolidated temporary differences comprising our net deferred tax assets are as follows (in thousands):
Deferred Tax Assets:
Net operating loss carry-forwards
Tax credits
Equity-based compensation
Operating leases
Total gross deferred tax assets
Valuation allowance
Deferred Tax Liabilities:
Depreciation and amortization
Accrued liabilities and other
Right-of-use assets
Gross deferred tax liabilities
Net deferred tax (liabilities) assets
December 31,
2019
2018
$ 255,269
2,261
4,116
32,289
293,935
(131,069)
162,866
$ 255,235
2,458
3,322
—
261,015
(126,579)
134,436
34,884
107,711
29,670
172,265
$
(9,399) $
29,769
101,934
—
131,703
2,733
At each balance sheet date, the Company assesses the likelihood that it will be able to realize its deferred tax
assets. The Company considers all available positive and negative evidence in assessing the need for a valuation
allowance. The Company maintains a full valuation allowance against certain of its deferred tax assets consisting
primarily of net operating loss carryforwards related to its foreign operations in Canada, Europe, Asia, Latin America
and Australia and net operating losses in the United States that are limited for use under Section 382 of the Internal
Revenue Code.
As of December 31, 2019, the Company has combined net operating loss carry-forwards of $994.0 million. This
amount includes federal net operating loss carry-forwards in the United States of $97.6 million, net operating loss
carry-forwards related to its European, Mexican, Canadian and Asian operations of $890.1 million, $3.3 million, $1.8
million and $1.0 million, respectively. Section 382 of the Internal Revenue Code in the United States limits the
utilization of net operating losses when ownership changes, as defined by that section, occur. The Company has
performed an analysis of its Section 382 ownership changes and has determined that the utilization of certain of its net
operating loss carryforwards in the United States is limited based on the annual Section 382 limitation and remaining
carryforward period. Of the net operating losses available at December 31, 2019 in the United States $38.4 million are
limited for use under Section 382. Net operating loss carryforwards outside of the United States totaling $896.4
million are not subject to limitations similar to Section 382. The net operating loss carryforwards in the United States
will expire, if unused, between 2025 and 2036. The net operating loss carry-forwards related to the Company's
Mexican, Asian and Canadian operations will expire if unused, between 2020 and 2029. The net operating loss carry-
forwards related to the Company's European operations include $744.6 million that do not expire and $145.5 million
that expire between 2020 and 2035.
Other than the $2.3 million transition tax recorded in the year ended December 31, 2017 as a result of its foreign
earnings the Company has not provided for United States deferred income taxes or foreign withholding taxes on its
undistributed earnings for certain non-US subsidiaries earnings or cumulative translation adjustments because these
earnings and adjustments are intended to be permanently reinvested in operations outside the United States. It is not
practical to determine the amount of the unrecognized deferred tax liability on such undistributed earnings or
cumulative translation adjustments.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Income taxes: (Continued)
In the normal course of business the Company takes positions on its tax returns that may be challenged by taxing
authorities. The Company evaluates all uncertain tax positions to assess whether the position will more likely than not
be sustained upon examination. If the Company determines that the tax position is not more likely than not to be
sustained, the Company records a liability for the amount of the benefit that is not more likely than not to be realized
when the tax position is settled. The Company does not have a liability for uncertain tax positions at December 31,
2019 and does not expect that its liability for uncertain tax positions will materially increase during the twelve months
ended December 31, 2020, however, actual changes in the liability for uncertain tax positions could be different than
currently expected. If recognized, changes in the Company's total unrecognized tax benefits would impact the
Company's effective income tax rate.
The Company or one of its subsidiaries files income tax returns in the US federal jurisdiction and various state
and foreign jurisdictions. The Company is subject to US federal tax and state tax examinations for years 2004 to
2019. The Company is subject to tax examinations in its foreign jurisdictions generally for years 2005 to 2019.
The following is a reconciliation of the Federal statutory income taxes to the amounts reported in the financial
statements (in thousands).
Federal income tax expense at statutory rates
Effect of:
State income taxes, net of federal benefit
Impact of foreign operations
Non-deductible expenses
Federal tax rate change
Tax effect of TCJA from foreign earnings
Other
Changes in valuation allowance
Income tax expense
6. Commitments and contingencies:
Current and potential litigation
Years Ended December 31,
2018
$ (11,061) $ (8,690) $ (10,892)
2019
2017
(2,973)
(11)
(592)
—
(28)
(581)
92
(2,244)
74
(1,350)
(9,046)
(2,296)
239
273
$ (15,154) $ (12,715) $ (25,242)
(2,665)
(146)
(1,274)
—
(130)
(645)
835
In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a contingent
liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no
amount in the range is more likely than any other amount, the Company accrues at the low end of the range. The
Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements,
rulings, advice of legal counsel, and other information and events pertaining to a particular matter. The Company has
taken certain positions related to its obligations for leased circuits for which it is reasonably possible could result in a
loss of up to $3.1 million in excess of the amount accrued at December 31, 2019.
The Company is engaged in an arbitration proceeding in Spain in which a former provider of optical fiber to the
Company is seeking approximately $9.0 million for Company’s early termination of the optical fiber leases, which
amount the Company accrued in 2015. The Company has counterclaimed for damages and is contesting its obligation
to pay the termination liability. The arbitration is being conducted by the Civil and Commercial Arbitration Court
(CIMA) in Madrid, Spain.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Commitments and contingencies: (Continued)
In the ordinary course of business the Company is involved in other legal activities and claims. Because such
matters are subject to many uncertainties and the outcomes are not predictable with assurance, the liability related to
these legal actions and claims cannot be determined with certainty. Management does not believe that such claims
and actions will have a material impact on the Company’s financial condition or results of operations. Judgment is
required in estimating the ultimate outcome of any dispute resolution process, as well as any other amounts that may
be incurred to conclude the negotiations or settle any litigation. Actual results may differ from these estimates under
different assumptions or conditions and such differences could be material.
Leases
The Company enters into leases for network equipment sites and data center facilities. Future minimum annual
payments under these arrangements are as follows (in thousands):
For the year ending December 31,
2020
2021
2022
2023
2024
Thereafter
$ 21,044
10,983
5,362
3,348
1,511
1,944
$ 44,192
Expenses related to these arrangements were $20.6 million in 2019, $20.8 million in 2018 and $19.2 million in
2017. Short-term lease expense as required to be disclosed under ASU 2016-02 was $0.9 million for the year ended
December 31, 2019.
Unconditional purchase obligations
Unconditional purchase obligations for equipment and services totaled $7.6 million at December 31, 2019. As of
December 31, 2019, the Company had also committed to additional dark fiber IRU capital and operating lease
agreements totaling $20.3 million in future payments to be paid over periods of up to 20 years. These obligations
begin when the related fiber is accepted, which is generally expected to occur in 2020. Future minimum payments
under these obligations are $4.6 million, $0.6 million, $0.7 million, $0.7 million and $0.6 million for the years ending
December 31, 2020 to December 31, 2024, respectively, and $13.0 million, thereafter.
Defined contribution plan
The Company sponsors a 401(k) defined contribution plan that provides for a Company matching payment. The
Company matching payments were paid in cash and were $0.8 million for 2019, $0.8 million for 2018 and
$0.7 million for 2017.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stockholders’ equity:
Authorized shares
The Company has 75.0 million shares of authorized $0.001 par value common stock and 10,000 authorized but
unissued shares of $0.001 par value preferred stock. The holders of common stock are entitled to one vote per
common share and, subject to any rights of any series of preferred stock, dividends may be declared and paid on the
common stock when determined by the Company’s Board of Directors.
Common stock buybacks
The Company’s Board of Directors has approved $50.0 million for purchases of the Company’s common stock
under a buyback program (the “Buyback Program”). At December 31, 2019, there was $34.9 million remaining for
purchases under the Buyback Program. During 2018 and 2017 the Company purchased 147,995 and 46,750 shares of
its common stock for $6.6 million and $1.8 million, respectively. These shares of common stock were subsequently
retired.There were no purchases of common stock in 2019.
Dividends on common stock
Dividends are recorded as a reduction to retained earnings. Dividends on unvested restricted shares of common
stock are paid as the awards vest. The Company’s initial quarterly dividend payment was made in the third quarter of
2012.
The payment of any future dividends and any other returns of capital, including stock buybacks, will be at the
discretion of the Company’s Board of Directors and may be reduced, eliminated or increased and will be dependent
upon the Company’s financial position, results of operations, available cash, cash flow, capital requirements,
limitations under the Company’s debt indentures and other factors deemed relevant by the Company’s Board of
Directors. The Company is a Delaware Corporation and under the General Corporate Law of the State of Delaware
distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do
not result in an impairment of a corporation’s capital, as defined under Delaware Law. The indentures governing the
Company’s notes limit the Company’s ability to return cash to its stockholders.
8. Stock option and award plan:
Incentive award plan
The Company grants restricted stock and options for common stock under its award plan, as amended (the
“Award Plan”). Stock options granted under the Award Plan generally vest over a four-year period and have a term of
ten years. Grants of shares of restricted stock granted under the Award Plan generally vest over periods ranging from
three to four years. Compensation expense for all awards is recognized on a straight-line basis over the service period.
Awards with graded vesting terms that are subject only to service conditions are recognized on a straight-line basis.
Certain option and share grants provide for accelerated vesting if there is a change in control, as defined. For grants of
restricted stock, when an employee terminates prior to full vesting the employee retains their vested shares and the
employees’ unvested shares are returned to the plan. For grants of options for common stock, when an employee
terminates prior to full vesting, the employee may elect to exercise their vested options for a period of ninety days and
any unvested options are returned to the plan. Shares issued to satisfy awards are provided from the Company’s
authorized shares. The vesting of certain shares granted to the Company’s executives in 2017,2018 and 2019 as
defined under the award agreements are subject to certain performance conditions and the vesting of certain shares
granted to the Company’s CEO in 2017,2018 and 2019 is subject to the total shareholder return of the Company’s
common stock compared to the total shareholder return of the Nasdaq Telecommunications Index.
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stock option and award plan: (Continued)
The accounting for equity-based compensation expense requires the Company to make estimates and judgments
that affect its financial statements. These estimates for stock options include the following.
Expected Dividend Yield—The Company uses an expected dividend yield based upon expected annual dividends
and the Company’s stock price.
Expected Volatility—The Company uses its historical volatility for a period commensurate with the expected
term of the option.
Risk-Free Interest Rate—The Company uses the zero coupon US Treasury rate during the quarter having a term
that most closely resembles the expected term of the option.
Expected Term of the Option—The Company estimates the expected life of the option term by analyzing
historical stock option exercises.
Forfeiture Rates—The Company estimates its forfeiture rate based on historical data with further consideration
given to the class of employees to whom the options or shares were granted.
The weighted-average per share grant date fair value of options was $8.92 in 2019, $8.45 in 2018 and $7.06 in
2017. The following assumptions were used for determining the fair value of options granted in the three years ended
December 31, 2019:
Black-Scholes Assumptions
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of the option term (in years)
Years Ended
December 31,
2018
2017
2019
4.5 % 4.6 %
4.1 %
28.3 % 28.7 % 27.1 %
2.0 %
2.5 % 2.5 %
4.5
4.3
4.4
Stock option activity under the Company’s Award Plan during the year ended December 31, 2019, was as
follows:
Number of Weighted-Average
Outstanding at December 31, 2018
Granted
Cancelled and expired
Exercised—intrinsic value $0.8 million; cash received
$1.6 million
Outstanding at December 31, 2019—$3.1 million intrinsic
value and 7.5 years weighted-average remaining
contractual term
Exercisable at December 31, 2019—$2.2 million intrinsic value
and 6.3 years weighted-average remaining contractual term
Expected to vest—$2.9 million intrinsic value and
7.3 years weighted-average remaining contractual term
Options
$
168,547
68,552
$
(37,416) $
(43,017) $
156,666
88,377
138,392
$
$
$
Exercise Price
41.01
55.44
49.11
38.06
46.21
41.27
45.21
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stock option and award plan: (Continued)
A summary of the Company’s non-vested restricted stock awards as of December 31, 2019 and the changes
during the year ended December 31, 2019 are as follows:
Non-vested awards
Non-vested at December 31, 2018
Granted
Vested
Forfeited
Non-vested at December 31, 2019
Weighted-Average
Grant Date
Fair Value
41.12
53.53
41.83
50.49
45.40
Shares
$
1,187,586
473,550
$
(365,223) $
(12,632) $
$
1,283,281
The weighted average per share grant date fair value of restricted stock granted was $53.53 in 2019 (0.5 million
shares) $44.02 in 2018 (0.5 million shares) and $40.52 in 2017 (0.5 million shares). The fair value was determined
using the quoted market price of the Company’s common stock on the date of grant. Valuations were obtained to
determine the fair value for the shares granted to the Company’s CEO that are subject to the total shareholder return
of the Company’s common stock compared to the total shareholder return of the Nasdaq Telecommunications Index.
The fair value of shares of restricted stock vested in 2019, 2018 and 2017 was $20.8 million, $19.1 million and
$12.6 million, respectively.
Equity-based compensation expense related to stock options and restricted stock was $18.5 million,
$17.7 million, and $13.3 million for 2019, 2018, and 2017, respectively. The income tax benefit related to stock
options and restricted stock was $3.0 million, $1.8 million, and $2.5 million for 2019, 2018, and 2017, respectively.
The Company capitalized compensation expense related to stock options and restricted stock for 2019, 2018, and
2017 of $1.8 million, $1.7 million and $1.2 million, respectively. As of December 31, 2019, there was $31.7 million
of total unrecognized compensation cost related to non-vested equity-based compensation awards. That cost is
expected to be recognized over a weighted average period of 1.9 years.
9. Related party transactions:
Office lease
The Company’s headquarters is located in an office building owned by Sodium LLC whose owner is the
Company’s Chief Executive Officer. The fixed annual rent for the headquarters building is $1.0 million per year plus
an allocation of taxes and utilities. The lease began in May 2015 and the lease term was for five years. In February
2020 the lease term was extended to May 2025. The lease is cancellable by the Company upon 60 days’ notice. The
Company’s audit committee reviews and approves all transactions with related parties. The Company paid
$1.7 million in 2019, $1.7 million in 2018 and $1.6 million in 2017 for rent and related costs (including taxes and
utilities) for this lease.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Geographic information:
Operating segments are defined as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and
in assessing the Company’s performance. The Company has one operating segment. Revenues are attributed to
regions based on where the services are provided. Below are the Company’s service revenues and long lived assets by
geographic region (in thousands):
Year Ended December 31, 2019 Revenues
North America
Europe
Asia Pacific
Latin America
Total
Year Ended December 31, 2018 Revenues
North America
Europe
Asia Pacific
Latin America
Total
Year Ended December 31, 2017 Revenues
North America
Europe
Asia Pacific
Total
Long lived assets, net
North America
Europe and other
Total
On-net
Off-net
$ 319,330 $ 131,815
16,323
778
15
$ 396,753 $ 148,931
72,320
4,615
488
On-net
$ 299,021
72,958
2,562
14
$ 374,555
On-net
$ 278,714
66,588
1,143
$ 346,445
Off-net
$ 128,510
15,918
576
—
$ 145,004
Off-net
$ 122,683
14,867
342
$ 137,892
Non-core
422
$
53
—
—
475
$
Non-core
572
$
62
—
—
634
$
Non-core
797
$
41
—
838
$
Total
$ 451,567
88,696
5,393
503
$ 546,159
Total
$ 428,103
88,938
3,138
14
$ 520,193
Total
$ 402,194
81,496
1,485
$ 485,175
December 31, December 31,
2019
2018
$ 269,364
99,582
$ 368,946
$ 275,367
99,978
$ 375,345
11. Quarterly financial information (unaudited):
Service revenue
Network operations, including equity-based
compensation expense
Gains on equipment transactions
Operating income
Net income (1)
Net income per common share—basic and diluted
Weighted-average number of common
shares—basic
Weighted-average number of common
shares—diluted
Three months ended
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
(in thousands, except share and per share amounts)
$
134,137
$
134,789
$
136,942
$
140,292
54,150
536
24,400
9,217
0.20
54,407
185
22,022
7,136
0.16
55,253
87
25,799
13,701
0.30
55,990
251
28,033
7,465
0.16
45,223,157
45,354,327
45,438,656
45,553,727
45,644,236
45,912,291
46,019,691
46,145,970
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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Quarterly financial information (unaudited): (Continued)
Service revenue
Network operations, including equity-based
compensation expense
Gains on equipment transactions
Operating income
Net income
Net income per common share—basic and diluted
Weighted-average number of common
shares—basic
Weighted-average number of common
shares—diluted
Three months ended
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
(in thousands, except share and per share amounts)
$
128,706
$
129,296
$
130,139
$
132,049
54,875
117
20,637
6,784
0.15
54,379
357
21,354
6,552
0.15
54,615
416
22,255
8,231
0.18
55,660
92
22,311
7,100
0.16
44,923,973
45,016,767
45,105,830
45,284,481
45,294,697
45,536,473
45,699,635
45,803,418
(1) Included in net income for the three months ended September 30, 2019 and December 31, 2019 are an unrealized
gain and (loss) on foreign exchange on the Company’s 2024 Notes of $6.1 million and ($4.0) million,
respectively.
12. Subsequent Events:
Dividend
On February 26,2020, the Company’s Board of Directors approved the payment of its quarterly dividend of $0.66
per common share. The dividend for the first quarter of 2020 will be paid to holders of record on March 13,2020. This
estimated $30.1 million dividend payment is expected to be made on March 27,2020.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures.
As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the
participation of our management, including our principal executive officer and our principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon
that evaluation, our management, including our principal executive officer and our principal financial officer,
concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable
assurance level.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
We are responsible for the preparation and integrity of our published financial statements. The financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of
America and, accordingly, include amounts based on judgments and estimates made by our management. We also
prepared the other information included in the annual report and are responsible for its accuracy and consistency with
the financial statements.
We are responsible for establishing and maintaining a system of internal control over financial reporting, which
is intended to provide reasonable assurance to our management and Board of Directors regarding the reliability of our
financial statements. The system includes but is not limited to:
● a documented organizational structure and division of responsibility;
● established policies and procedures, including a code of conduct to foster a strong ethical climate which is
communicated throughout the company;
● regular reviews of our financial statements by qualified individuals; and
● the careful selection, training and development of our people.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of
human error and the circumvention or overriding of controls. Also, the effectiveness of an internal control system
may change over time. We have implemented a system of internal control that was designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance
with generally accepted accounting principles.
As required by Rule 13a-15(d) of the Exchange Act, we have assessed our internal control system in relation to
criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework”
issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework).
Based upon these criteria, we believe that, as of December 31, 2019, our system of internal control over financial
reporting was effective.
The independent registered public accounting firm, Ernst & Young LLP, has audited our 2019 financial
statements. Ernst & Young LLP was given unrestricted access to all financial records and related data, including
minutes of all meetings of stockholders, the Board of Directors and committees of the Board. Ernst & Young LLP has
issued an unqualified report on our 2019 financial statements as a result of the audit and also has issued an
unqualified report on our internal control over financial reporting which is attached hereto.
Cogent Communications Holdings, Inc.
February 28,2020
By:
/s/ DAVID SCHAEFFER
David Schaeffer
Chief Executive Officer
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Cogent Communications Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Cogent Communications Holdings, Inc. and subsidiaries’ internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In
our opinion, Cogent Communications Holdings, Inc. and subsidiaries (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Cogent Communications Holdings, Inc. and
subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss),
changes in stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31,
2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to
as the “consolidated financial statements”) and our report dated February 28,2020 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, VA
February 28,2020
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated in this report by reference to the information set forth
under the captions entitled “Proposal No. 1- Election of Directors,” “Executive Officers and Significant Employees,”
“The Board of Directors and Committees,” and, if applicable, ”Delinquent Section 16(a) Reports” in our Proxy
Statement for the 2020 Annual Meeting of Stockholders, which is expected to be filed with the Securities and
Exchange Commission within 120 days after the close of our fiscal year(the “2020 Proxy Statement”).
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report by reference to the information set forth
under the captions entitled “The Board of Directors and Committees,” “Compensation Discussion and Analysis
“Employment Agreements and Other Potential Post-Employment Compensation Arrangements”, “Compensation
Committee Report on Executive Compensation,” and “Compensation Committee Interlocks and Insider Participation”
in our 2020 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated in this report by reference to the information set forth
under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized
for Issuance Under Equity Compensation Plans” in our 2020 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 is incorporated in this report by reference to the information set forth
under the caption “Certain Relationships and Related Transactions” and “The Board of Directors and Committees” in
our 2020 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated in this report by reference to the information set forth
under the caption “Relationship With Independent Registered Public Accountants” in our 2020 Proxy Statement.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
1.
2.
Financial Statements. A list of financial statements included herein is set forth in the Index to Financial
Statements appearing in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”
Financial Statement Schedules. The Financial Statement Schedule described below is filed as part of the
report.
Description
Schedule II—Valuation and Qualifying Accounts.
All other financial statement schedules are not required under the relevant instructions or are inapplicable and
therefore have been omitted.
(b) Exhibits
2.1 Agreement and Plan of Reorganization, dated as of May 15, 2014, by and among Cogent Communications
Group, Inc., Cogent Communications Holdings, Inc. and Merger Sub (previously filed as Exhibit 2.1 to our
Current Report on Form 8-K, filed on May 15, 2014, and incorporated herein by reference).
3.1 Certificate of Incorporation of Cogent Communications Holdings, Inc. (previously filed as Exhibit 3.1 to our
Current Report on Form 8-K, filed on May 15, 2014, and incorporated herein by reference).
3.2 Bylaws of Cogent Communications Holdings, Inc., as amended and restated on September 10, 2018
(previously filed as Exhibit 3.2 to our Current Report on Form 8-K/A, filed on September 10, 2018, and
incorporated herein by reference).
4.1
Indenture to the 5.625% Senior Notes due 2021, dated as of April 9, 2014, between Cogent Communications
Finance, Inc. (to which Cogent Communications Group, Inc. is successor by merger) and Wilmington Trust,
National Association, as trustee (filed as Exhibit 4.1 to our Current Report on Form 8-K, filed on April 10,
2014, and incorporated herein by reference).
4.2 Form of 5.625% Senior Notes due 2021 (previously filed as Exhibit A to the Exhibit 4.1 to our Current
Report on Form 8-K, filed on April 10, 2014, and incorporated herein by reference)
4.3 First Supplemental Indenture related to the 5.625% Senior Notes due 2021, dated as of June 23, 2014, among
Cogent Communications Group, Inc., Cogent Communications Holdings, Inc., the subsidiary guarantors
named therein and Wilmington Trust, National Association, as trustee (previously filed as Exhibit 4.1 to our
Current Report on Form 8-K, filed on June 26, 2014, and incorporated herein by reference).
4.4
Indenture related to the 5.375% Senior Secured Notes due 2022, dated as of February 20, 2015, among
Cogent Communications Group, Inc., the guarantors named therein and Wilmington Trust, National
Association, as trustee and collateral agent (previously filed as Exhibit 4.1 to our Current Report on
Form 8-K, filed on February 20, 2015 and incorporated herein by reference).
4.5 Form of 5.375% Senior Secured Notes due 2022 (previously filed as Exhibit A to the Exhibit 4.1 to our
Current Report on Form 8-K, filed on February 20, 2015 and incorporated herein by reference).
4.6 First Supplemental Indenture related to the 5.375% Senior Secured Notes due 2022, dated as of December 2,
2016, among Cogent Communications Group, Inc., the guarantors named therein and Wilmington Trust,
National Association, as trustee and collateral agent (previously filed as Exhibit 4.1 to our Current Report on
Form 8-K, filed on December 2, 2016 and incorporated herein by reference).
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4.7 Second Supplemental Indenture related to the 5.375% Senior Secured Notes due 2022, dated as of August 20,
2018, among Cogent Communications Group, Inc., the guarantors named therein and Wilmington Trust,
National Association, as trustee and collateral agent (previously filed as Exhibit 4.1 to our Current Report on
Form 8-K, filed on August 20, 2018 and incorporated herein by reference).
4.8
Indenture related to the 4.375% Senior Notes due 2024, dated as of June 25, 2019, among Cogent
Communications Group, Inc., the guarantors named therein, Wilmington Trust, National Association, as
trustee, Deutsche Bank AG, London Branch, as paying agent, and Deutsche Bank Luxembourg S.A., as
authentication agent and registrar (previously filed as Exhibit 4.1 to our Current Report on Form 8-K, filed
on June 25, 2019, and incorporated herein by reference).
4.9 Form of 4.375% Senior Notes due 2024 (previously filed as Exhibit A to the Exhibit 4.1 to our Current
Report on Form 8-K, filed on June 25, 2019, and incorporated herein by reference).
4.10 Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed
herewith)
10.1 Dark Fiber IRU Agreement, dated April 14, 2000, between WilTel Communications, Inc. and Cogent
Communications, Inc., as amended June 27, 2000, December 11, 2000, January 26, 2001, and February 21,
2001 (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-4, Commission File
No. 333-71684, filed on October 16, 2001)*
10.2 David Schaeffer Employment Agreement with Cogent Communications Group, Inc., dated February 7, 2000
(incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-4, Commission File
No. 333-71684, filed on October 16, 2001)
10.3 Robert N. Beury, Jr. Employment Agreement with Cogent Communications Group, Inc., dated June 15, 2000
(incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K, filed on March 31, 2003).
10.4 Timothy G. O’Neill Employment Agreement with Cogent Communications Group, Inc., dated as of
September 25, 2003 (previously filed as Exhibit 10.29 to our Annual Report on Form 10-K, filed on
February 27, 2012, and incorporated herein by reference).
10.5 Brad Kummer Employment Agreement with Cogent Communications Group, Inc., dated January 11, 2000,
(incorporated by reference to Exhibit 10.23 to our Registration Statement on Form S-1, Commission File
No. 333-122821, filed on February 14, 2005).
10.6 David Schaeffer Amendment No. 2 to Employment Agreement with Cogent Communications Group, Inc.,
dated as of March 12, 2007 (previously filed as Exhibit 10.26 to our Annual Report on Form 10-K, filed on
March 14, 2007, and incorporated herein by reference).
10.7 Robert N. Beury, Jr. Employment Agreement with Cogent Communications Group, Inc., dated as of
March 12, 2007 (previously filed as Exhibit 10.27 to our Annual Report on Form 10-K, filed on March 14,
2007, and incorporated herein by reference).
10.8 Thaddeus G. Weed Employment Agreements, dated September 25, 2003 through October 26, 2006
(previously filed as Exhibit 10.28 to our Annual Report on Form 10-K, filed on March 14, 2007, and
incorporated herein by reference).
10.9 Amendment No. 3 to Employment Agreement of Dave Schaeffer, dated as of August 7, 2007 (previously
filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed on August 8, 2007, and incorporated herein
by reference).
10.10 Amendment No. 4 to Employment Agreement of Dave Schaeffer, dated as of February 26, 2010 (previously
filed as Exhibit 10.25 to our Annual Report on Form 10-K, filed on March 1, 2010, and incorporated herein
by reference).
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10.11 Amendment No. 5 to Employment Agreement of Dave Schaeffer, dated April 7, 2010 (previously filed as
Exhibit 10.1 to our Current Report on Form 8-K, filed on April 7, 2010, and incorporated herein by
reference).
10.12 Cogent Communications Holdings, Inc. 2004 Incentive Award Plan (as amended through April 17, 2014)
(previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed April 18, 2014, and incorporated
herein by reference).
10.13 Assignment and Assumption Agreement, dated as of May 15, 2014, by and between Cogent Communications
Group, Inc. and Cogent Communications Holdings, Inc. assuming the obligations of the 2004 Incentive
Award Plan (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on May 15, 2014, and
incorporated herein by reference).
10.14 Amendment No. 6 to Employment Agreement of Dave Schaeffer, dated August 6, 2014 (previously filed as
Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed on August 7, 2014, and incorporated herein by
reference).
10.15 Restricted Stock Award to Mr. Schaeffer dated August 6, 2014—monthly vest (previously filed as
Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed on August 7, 2014, and incorporated herein by
reference).
10.16 Restricted Stock Award to Mr. Schaeffer dated August 6, 2014—cliff vest (previously filed as Exhibit 10.6 to
our Quarterly Report on Form 10-Q, filed on August 7, 2014, and incorporated herein by reference).
10.17 Restricted Stock Award, dated as of November 3, 2014, between the Company and Thaddeus (“Tad”) Weed
(previously filed Exhibit 10.1 to our Current Report on Form 8-K, filed on November 5, 2014, and
incorporated herein by reference).
10.18 Restricted Stock Award, dated as of November 3, 2014, between the Company and Robert Beury (previously
filed Exhibit 10.3 to our Current Report on Form 8-K, filed on November 5, 2014, and incorporated herein by
reference).
10.19 Restricted Stock Award, dated as of November 3, 2014, between the Company and Timothy O’Neill
(previously filed Exhibit 10.4 to our Current Report on Form 8-K, filed on November 5, 2014, and
incorporated herein by reference).
10.20 Restricted Stock Award to James Bubeck dated September 28, 2015 (previously filed Exhibit 10.1 to our
Current Report on Form 8-K, filed on October 1, 2015, and incorporated herein by reference).
10.21 Restricted Stock Award to James Bubeck dated December 1, 2014 (previously filed Exhibit 10.2 to our
Current Report on Form 8-K, filed on October 1, 2015, and incorporated herein by reference).
10.22 Restricted Stock Award, dated as of May 4, 2016, between the Company and David Schaeffer (previously
filed Exhibit 10.1 to our Current Report on Form 8-K, filed on May 5, 2016, and incorporated herein by
reference).
10.23 Form of Restricted Stock Award, dated as of May 4, 2016, between the Company and the Vice President
named executive officers (previously filed Exhibit 10.2 to our Current Report on Form 8-K, filed on May 5,
2016, and incorporated herein by reference).
10.24 Lease Agreement, dated April 16, 2015, between Sodium LLC and Cogent Communications, Inc. (previously
filed Exhibit 10.1 to our Current Report on Form 8-K, filed on April 17, 2015, and incorporated herein by
reference).
10.25 Restricted Stock Award, dated as of May 3, 2017, between the Company and David Schaeffer (previously
filed Exhibit 10.1 to our Current Report on Form 8-K, filed on May 3, 2017, and incorporated herein by
reference).
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10.26 Form of Restricted Stock Award, dated as of May 3, 2017, between the Company and the Vice President
named executive officers (previously filed Exhibit 10.2 to our Current Report on Form 8-K, filed on May 3,
2017, and incorporated herein by reference).
10.27 Amendment No. 7 to Employment Agreement of David Schaeffer, dated November 17, 2017 (previously
filed Exhibit 10.1 to our Current Report on Form 8-K, filed on November 20, 2017, and incorporated herein
by reference).
10.28 Cogent Communications Holdings, Inc. 2017 Incentive Award Plan (incorporated by reference to
Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed March 15, 2019).
10.29 First Amendment to Cogent Communications Holdings, Inc. 2017 Incentive Award Plan (incorporated by
reference to Appendix B of the Company’s Definitive Proxy Statement on Schedule 14A filed March 15,
2019).
10.30 Amendment No. 8 to Employment Agreement of David Schaeffer, dated February 14, 2020 (previously filed
as Exhibit 10.1 to our Current Report on Form 8-K, filed on February 19, 2020, and incorporated herein by
reference).
10.31 Restricted Stock Award, dated as of February 14, 2020, between the Company and David Schaeffer
(previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on February 19, 2020, and
incorporated herein by reference).
21.1 Subsidiaries (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
31.1 Certification of Chief Executive Officer (filed herewith)
31.2 Certification of Chief Financial Officer (filed herewith)
32.1 Certification of Chief Executive Officer (furnished herewith)
32.2 Certification of Chief Financial Officer (furnished herewith)
99.1 Policy Against Excise Tax Gross-ups on “Golden Parachute” Payments, with effect from April 7, 2010
(previously filed as Exhibit 99.1 to our Current Report on Form 8-K, filed on April 7, 2010, and incorporated
herein by reference).
101 The following materials from the Annual Report on Form 10-K of Cogent Communications Group, Inc. for
the year ended December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language);
(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (Loss),
(iii) Consolidated Statements of Changes in Stockholders’ Equity (Deficit), (iv) Consolidated Statements of
Cash Flows and (v) Notes to Consolidated Financial Statements.
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document).
* Confidential treatment requested and obtained as to certain portions. Portions have been omitted pursuant to this
request where indicated by an asterisk.
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Schedule II
COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description
Allowance for doubtful service accounts receivable (deducted
from accounts receivable)(a)
Year ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2019
Deferred tax valuation allowance
Year ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2019
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
(Deductions)
Balance at
End of
Period
$
$
$
1,734
1,499
1,263
$
$
$
4,835
4,115
6,190
$ 110,194
$ 129,673
$ 126,579
$ 20,102
2,138
$
5,785
$
$
$
$
$
$
$
(5,070) $
(4,351) $
(5,682) $
1,499
1,263
1,771
(623) $ 129,673
(5,232) $ 126,579
(1,295) $ 131,069
(a) Bad debt expense, net of recoveries, was approximately $4.1 million for the year ended December 31, 2019,
$3.3 million for the year ended December 31, 2018 and $3.7 million for the year ended December 31, 2017.
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ITEM 16. FORM 10-K SUMMARY
None
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
COGENT COMMUNICATIONS HOLDINGS, INC.
Dated: February 28,2020
By: /s/ DAVID SCHAEFFER
Name: David Schaeffer
Title: Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DAVID SCHAEFFER
David Schaeffer
Chairman and Chief Executive Officer
(Principal Executive Officer)
February 28, 2020
/s/ THADDEUS G. WEED
/s/ CAROLYN KATZ
Carolyn Katz
/s/ STEVEN BROOKS
Steven Brooks
/s/ SHERYL KENNEDY
Sheryl Kennedy
/s/ DAVID BLAKE BATH
David Blake Bath
/s/ MARC MONTAGNER
Marc Montagner
/s/ LEWIS H. FERGUSON III
Lewis H. Ferguson III
Thaddeus G. Weed Chief Financial Officer
(Principal
Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
82
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
DESCRIPTION OF THE COMPANY’S COMMON STOCK
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.10
Cogent Communications Holdings, Inc. (“our,” “we” or the “Company”) has one class of securities registered under Section 12
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our common stock, par value $0.001 per share (“Common
Stock”).
Description of Common Stock
The following description of our Common Stock is a summary and does not purport to be complete. It is subject to, and qualified
in its entirety by, reference to our Certificate of Incorporation (the “Certificate of Incorporation”) and our Amended and Restated Bylaws
(the “Bylaws”), each of which are incorporated by reference as an exhibit to our Annual Report on Form 10-K. We encourage you to read
our Certificate of Incorporation, our Bylaws and the applicable provisions of the General Corporation Law of the State of Delaware,
particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, for additional information.
Authorized Capital Shares
Our authorized capital shares consist of 75,000,000 shares of Common Stock and 10,000 shares of preferred stock, par value
$0.001 per share (“Preferred Stock”). The outstanding shares of our Common Stock are fully paid and nonassessable.
Voting Rights
Holders of Common Stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of
directors. Our Common Stock does not have cumulative voting rights with respect to the election of directors.
Dividend Rights
Subject to the rights of holders of any outstanding shares of Preferred Stock, the holders of Common Stock are entitled to receive
dividends, if any, as may be declared from time to time by our Board of Directors in its discretion out of funds lawfully available for the
payment of dividends.
Liquidation Rights
Upon liquidation or dissolution of the Company, subject to any preferential rights of outstanding shares of Preferred Stock,
holders of Common Stock will share ratably in all assets legally available for distribution to our stockholders after the payment of all debts
and obligations .
Other Rights and Preferences
Our Common Stock has no sinking fund or redemption provisions or preemptive, conversion or exchange rights. Holders of
Common Stock having not less than the minimum number of votes that would be necessary to authorize or take action at a meeting at
which all shares entitled to vote thereof were present and voted may act by written consent.
Listing
The Common Stock is traded on The NASDAQ Global Select Market under the trading symbol “CCOI.”
In Effect as of February 1, 2020
Legal Entity
COGENT COMMUNICATIONS HOLDINGS, INC.
subsidiaries:
COGENT COMMUNICATIONS GROUP, INC.
COGENT COMMUNICATIONS, INC.
COGENT COMMUNICATIONS OF CALIFORNIA, INC.
COGENT IH, LLC
COGENT WG, LLC
COGENT RB, LLC
COGENT TW, LLC
COGENT COMMUNICATIONS OF D.C., INC.
COGENT COMMUNICATIONS OF FLORIDA, INC.
COGENT COMMUNICATIONS OF MARYLAND, INC.
COGENT COMMUNICATIONS OF TEXAS USA, INC.
COGENT CANADA, INC.
CCM COMMUNICATIONS S. de R.L. de C.V.
COGENT ARGENTINA S.R.L.
COGENT BRASIL HOLDINGS LTDA.
COGENT BRASIL TELECOMUNICAÇÕES LTDA.
COGENT COMMUNICATIONS CHILE LIMITADA
COGENT COLOMBIA S.A.S.
COGENT PERU S.R.L.
COGENT COMMUNICATIONS AUSTRALIA PTY LTD
COGENT COMMUNICATIONS HONG KONG LIMITED
COGENT JAPAN G.K.
COGENT KOREA, LLC
COGENT INTERNET SINGAPORE PTE. LTD.
COGENT TAIWAN LIMITED
COGENT SOUTH AFRICA PTY. LTD.
COGENT EUROPE, S.À.R.L.
COGENT ALBANIA SH.P.K.
COGENT COMMUNICATIONS BELGIUM SPRL
COGENT COMMUNICATIONS BULGARIA EOOD
COGENT INTERNET d.o.o.
COGENT COMMUNICATIONS CZECH REPUBLIC, s.r.o.
COGENT COMMUNICATIONS DENMARK ApS
COGENT COMMUNICATIONS ESTONIA, OÜ
COGENT COMMUNICATIONS FINLAND OY
COGENT COMMUNICATIONS FRANCE, SAS
C.C.D. COGENT COMMUNICATIONS DEUTSCHLAND GMBH
(this entity has branch operations in Austria and Sweden)
COGENT HELLAS INTERNET SERVICES SOLE MEMBER LLC
COGENT COMMUNICATIONS HUNGARY, KFT.
CCE COGENT INTERNET SERVICES LIMITED
COGENT COMMUNICATIONS ITALIA S.R.L.
COGENT LATVIA SIA
COGENT LITHUANIA UAB
COMPANY FOR INTERNET SERVICES COGENT MACEDONIA DOOEL SKOPJE
Î.C.S. COGENT INTERNET MLD S.R.L.
COGENT COMMUNICATIONS MONTENEGRO d.o.o.
COGENT COMMUNICATIONS NETHERLANDS B.V.
COGENT MANAGEMENT BV
Exhibit 21.1
Jurisdiction
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Delaware)
(Nova Scotia)
(Mexico)
(Argentina)
(Brazil)
(Brazil)
(Chile)
(Colombia)
(Peru)
(Australia)
(Hong Kong)
(Japan)
(South Korea)
(Singapore)
(Taiwan)
(South Africa)
(Luxembourg)
(Albania)
(Belgium)
(Bulgaria)
(Croatia)
(Czech Republic)
(Denmark)
(Estonia)
(Finland)
(France)
(Germany)
(Greece)
(Hungary)
(Ireland)
(Italy)
(Latvia)
(Lithuania)
(Macedonia)
(Moldova)
(Montenegro)
(The Netherlands)
(The Netherlands)
COGENT NORWAY AS
COGENT COMMUNICATIONS POLAND Sp. zo. o.
COGENT COMMUNICATIONS PORTUGAL, LDA.
COGENT COMMUNICATIONS ROMANIA SRL
COGENT SERB d.o.o. BEOGRAD
COGENT COMMUNICATIONS SLOVAKIA s.r.o.
COGENT ADRIA, KOMUNIKACIJE , d.o.o.
COGENT COMMUNICATIONS ESPAÑA S.L.
COGENT INTERNET SWITZERLAND LLC
COGENT COMMUNICATIONS INTERNET SERVICES LLC
TOV COGENT COMMUNICATIONS UKRAINE
COGENT COMMUNICATIONS UK LTD
(Norway)
(Poland)
(Portugal)
(Romania)
(Serbia)
(Slovak Republic)
(Slovenia)
(Spain)
(Switzerland)
(Turkey)
(Ukraine)
(United Kingdom)
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-231145) pertaining to the Cogent Communications Holdings, Inc. 2017 Incentive Award
Plan.
(2) Registration Statement (Form S-8 No. 333-217608) pertaining to the Cogent Communications Holdings, Inc. 2017 Incentive Award
Plan.
(3) Registration Statement (Form S-8 No. 333-196528) pertaining to the Cogent Communications Holdings, Inc. 2004 Incentive Award
Plan.
(4) Registration Statement (Form S-8 No. 333-181195) pertaining to the Cogent Communications Holdings, Inc. 2004 Incentive Award
Plan.
(5) Registration Statement (Form S-8 No. 333-166615) pertaining to the Cogent Communications Holdings, Inc. 2004 Incentive Award
Plan.
(6) Registration Statement (Form S-8 No. 333-142759) pertaining to the Cogent Communications Holdings, Inc. 2004 Incentive Award
Plan.
(7) Registration Statement (Form S-8 No. 333-126676) pertaining to the Cogent Communications Holdings, Inc. 2004 Incentive Award
Plan.
of our reports dated February 28, 2020, with respect to the consolidated financial statements and schedule listed in the Index at Item 15(a)2
of Cogent Communications Holdings, Inc. and the effectiveness of internal control over financial reporting of Cogent Communications
Holdings, Inc. included in this Annual Report (Form 10-K) of Cogent Communications Holdings, Inc. for the year ended December 31,
2019.
/s/ Ernst & Young LLP
Tysons, VA
February 28, 2020
Exhibit 31.1
Certification of Chief Executive Officer
I, David Schaeffer, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cogent Communications Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2020
/s/ DAVID SCHAEFFER
Name: David Schaeffer
Title:
Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer
I, Thaddeus Weed, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cogent Communications Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 28, 2020
/s/ THADDEUS WEED
Name:
Title:
Thaddeus Weed
Chief Financial Officer
Certification of Chief Executive Officer
Exhibit 32.1
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Cogent
Communications Holdings, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2019 (the “Report”) fully
complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: February 28, 2020
/s/ DAVID SCHAEFFER
David Schaeffer
Chief Executive Officer
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Certification of Chief Financial Officer
Exhibit 32.2
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Cogent
Communications Holdings, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2019 (the “Report”)
fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 28, 2020
/s/ THADDEUS WEED
Thaddeus Weed
Chief Financial Officer
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the
Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.