Cogent Communications Holdings, Inc. Annual Report 2020

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FY2020 Annual Report · Cogent Communications Holdings, Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the transition period from

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)

(202) 295-4200
Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock, par value $0.001 per share

Trading Symbol

CCOI

Name of exchange on which registered:

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 ☒

Non-accelerated filer ☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of

its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐

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, 2021 was 47,224,589.

The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price of $77.36 per share on

June 30, 2020 as reported by the NASDAQ Global Select Market was approximately $3.3 billion.

Portions of the registrant’s definitive proxy statement on Schedule 14A for the registrant’s 2021 annual shareholders meeting are

incorporated by reference in Part III of this Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

COGENT COMMUNICATIONS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020

TABLE OF CONTENTS

Part I

Item 1

Item 1A

Item 1B

Item 2

Item 3

Item 4

Part II

Item 5

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A

Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .

Item 8

Item 9

Item 9A

Item 9B

Part III

Item 10

Item 11

Item 12

Item 13

Item 14

Part IV

Item 15

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibit and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 16
Signatures

Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79
80

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K of Cogent Communications Holdings, Inc. (the “Company,”
“Cogent,” “we,” “our” or “us”) may contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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.

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 47 countries across North America, Europe, Asia,
South America, Australia and Africa. 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 offer our on-net services to customers located in buildings that are
physically connected to our network. As a result, 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 service. Our on-
net service consists of high-speed Internet access and private network services offered at speeds ranging from
100 megabits per second (“Mbps”) to 100 gigabits per second (“Gbps”). 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 , as well as health care providers, educational institutions and other professional services
businesses. Our net-centric customers include bandwidth-intensive users that leverage our network to
either deliver content to end users or to provide access to residential or commercial internet users. Content
delivery customers include over the top (“OTT”) media service providers, content delivery networks, web
hosting companies, and commercial content and application software providers. Our access customers
include over 7,330 access networks comprised of other Internet service providers (“ISPs”), telephone
companies, mobile phone operators and cable television companies that collectively provide internet access
to a substantial number of broadband subscribers and mobile phone subscribers across the world. These net-
centric customers generally receive our services in carrier neutral colocation facilities 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 these off-net
services primarily to corporate customers using other carriers’ circuits to provide the “last mile” portion of
the link from the customers’ premises to 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. We believe that our organization
has the following competitive advantages:

Low Cost of Operation. We have made a series of choices around our network design, operating

strategy and product offering designed to provide us with a lower cost of operation. Our single network
design allows us to avoid many of the costs that our competitors who operate, circuit-switched, TDM and
hybrid fiber coaxial networks incur related to provisioning, monitoring and maintaining multiple transport
protocols. Utilizing only one network protocol enables us to benefit from the continued rapid improvement in
price and performance of our key network equipment and creates scale advantages in the installation and
maintenance of that equipment. We have acquired optical fiber from the excess inventory of existing networks
which reduces the capital intensity and operating costs of our intercity and metro networks. Our streamlined
set of products reduces our service delivery costs in terms of customer and product support and the
investment required to train our sales representatives. We believe that our low cost of operation gives us
greater pricing flexibility and a significant advantage in a competitive environment characterized by falling
Internet access prices. (See “Our Key Operating Advantages”)

Greater Control and Superior Delivery. Our on-net service does not rely on circuits that must be
provisioned by a third-party carrier. In our on-net multi-tenant office buildings (“MTOBs”) we provide our
customers the entire network, including the “last mile” and the in-building wiring connecting to our
customer’s suite. In our carrier neutral data centers (“CNDCs”) we are collocated with our customers so
only a cross-connection within the data center is required to provide our services. The structure of our on-
net service provides 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.

High-Quality, Reliable Service. We are able to offer high-quality Internet service due to our network

design and composition. We believe that we deliver a high level of technical performance because our network
is optimized for packet switched traffic. 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 our network is more reliable and carries traffic at lower cost than networks built
as overlays to traditional circuit-switched, or TDM networks.

Large Addressable Market. We have systematically evaluated and chosen our network extensions to
buildings, data centers and markets based upon a rigorous set of criteria to evaluate the economic opportunity
of network locations. Additional factors relevant to our pursuit of new buildings include the willingness of
building owners to grant us access rights, the availability of optical fiber networks to serve those buildings, the
costs to connect buildings to our network and equipment availability. Our network is connected to 2,914
total buildings located in 202 metropolitan markets. These buildings include 1,792 large MTOBs (totaling
976.8 million square feet of office space) in major North American cities where we offer our services to a
diverse set of high-quality, low churn corporate customers within close physical proximity of each other.
These buildings also include 1,252 CNDCs located in 1,068 buildings in North America, Europe, Asia,
South America, Australia and Africa where our net-centric customers directly interconnect with our network.
We also operate our own 54 data centers across the United States and in Europe which comprise over
606,000 square feet of floor space and are directly connected to our network. We believe that these network
points of presence strategically position our network to attract high levels of Internet traffic and maximize
our revenue opportunities and profitability.

Balanced, High-Traffic Network. Since its inception, our network has grown significantly in terms of

its geographic reach, customer connections, and traffic. We currently serve over 7,330 access networks as
well as numerous large and small content providers and over 47,100 corporate customer connections. As a
result of these growing bases of customers who distribute (content providers) and receive (access networks)
content on our network, we believe that the majority of all the traffic on our network originates and
terminates on our network. This control of traffic increases our reliability and speed of delivery and enhances
our margins. The breadth of our network, extensive size of our customer base, and volume of our traffic
enables us to be one of a handful of Tier One networks that are interconnected on a settlement free basis. This
internetworking status broadens our geographic delivery capability and materially reduces our network
costs.

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 the Company for
several years. Several members of the senior management team have been working together at the Company
since 2000. Our senior management team has designed and built our network and, during our formative years,
led the integration of network assets we acquired through 13 significant acquisitions 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:

Grow our Corporate Customer Base. Our on-net corporate customers are typically small- to medium-

sized businesses connected to our network through our multi-tenant office buildings or connected to our

network through one of our carrier neutral data centers. We generally sell two types of services to our
corporate customers: dedicated internet access and private network services. We typically sell dedicated
internet access at the same price per connection as our competitors, but our clients benefit from our
significantly faster speeds and rapid installation times. These customers are increasingly integrating off-site
data centers and cloud services into their IT infrastructure in order to take advantage of the safety, security
and redundancy that is offered by locating company processing power, storage and software at a data
center. An important part of this new infrastructure is a high-speed, dedicated internet connection from the
corporate premises to the data center and the Internet and from one corporate premises to another
corporate premises. We believe that the importance of data centers will increasingly lead tenants to
reconfigure their communications infrastructure to include dedicated internet access across their locations.

Increase our Share of the Net-Centric Market. We are currently one of the leading providers of high-
speed internet access to a variety of content providers and over 7,330 access networks across the world. We
intend to further load our high-capacity network as a result of the growing demand for high-speed internet
access generated by these types of bandwidth-intensive applications such as OTT media services, online
gaming, video, Internet of Things (IoT), voice over IP (VOIP), remote data storage, and other services. We
expect that we will continue to grow our shares of these segments by offering our customers a series of
attractive features including:

• Geographic breadth—We have the broadest carrier neutral data center footprint in the industry and

currently offer network services in 47 countries;

• High capacity and reliability—We offer 1 Gbps to 100 Gbps ports in all of the carrier neutral data
centers on our network, which differentiates the capacity choices we provide our net-centric clients;

• Balanced customer base—Our leading share of content providers and access networks increases the

amount of traffic that originates and terminates on our network thereby reducing latency and
enhancing reliability;

• Large and dedicated salesforce—Our team of 236 net-centric sales professionals is one of the largest
salesforces in this industry segment and enables us to better serve this customer segment while also
identifying new sales opportunities and gaining new business and customers; and

• Competitive pricing—We aggressively discount our services to customers in order to attract new

customers and drive volume.

Develop a Worldwide Peering Platform.

In late 2020 we introduced a new product, Global Peer

Connect (“GPC”), targeted at the growing demand for certain net-centric customers to dynamically peer
traffic anywhere on our global platform. Our GPC product provides access to our Global Peer Exchange
(“GPE”) which is a worldwide connectivity platform for the exchange of peering traffic destined for the
Internet. Similar product offerings in the marketplace offer a materially smaller geographic footprint
configuration and require a higher fixed cost for customers. We believe our product offering provides the
following unique advantages over other private peer exchanges or public Internet exchange points:

• Ubiquity through Leading CNDC Connectivity: We are collocated in 1,252 CNDCs in 47 countries.

We believe this portfolio provides us a significant advantage over regional peer exchanges that
typically have substantially fewer CNDC collocations and countries served. In order to take advantage
of this footprint, we enable GPC customers to peer with any other member of our GPE regardless
of location thereby significantly broadening the reach for potential customers.

• Attractive Economics and Terms: Our GPC product offers economics and terms which should

make it attractive for potential users to switch their service to us. Customers only pay for direct usage
and there are no fixed port charges or distance based fees. Our contracts have no minimum terms.
These terms reduce the hurdle for new customers to join the GPE and should drive participation.

• Greater Customer Control and Selectivity: As our GPC offering provides direct connectivity to

anywhere in our network, customers will be able to have greater control and reliability over their traffic
as this eliminates intermediate networks and enables customers to selectively bypass certain regions
due to regulatory or censorship concerns.

Pursue On-Net Customer Growth. Our high-capacity network provides us with the ability to add a
significant number of customers to our network with minimal direct incremental costs. We intend to increase
usage of our network and operational infrastructure by adding customers in our existing on-net buildings,
as well as developing additional markets and connecting more multi-tenant office buildings and carrier neutral
data centers to our network. We emphasize our on-net services because they 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.

Grow and Improve our Sales Efforts. A critical factor in our success has been our growing investment

and focus on our sales and marketing efforts. Over the past five years, we have increased the size of our quota
bearing salesforce by 34% from 378 to 569 employees. We seek to pair this growth in the size of our
salesforce with a consistent level of productivity as measured by the number of connections sold per
salesperson per month, taking into account adjustments to the changing mix of products sold and installed.
In order to gain market share in our targeted businesses, we expect to continue to increase our sales
efforts, including increasing the number of sales representatives and introducing strategies and tools to
optimize sales productivity.

Expand our Off-Net Corporate Business. We have agreements with national carriers providing us “last
mile” network access to over 4 million commercial buildings across North America that are lit by fiber optic
cable and that are not currently served by our network. We have developed an automated process to enable
our salesforce to identify opportunities in the off-net market and to quickly offer pricing proposals to potential
customers. We believe these agreements broaden our addressable market for corporate dedicated internet
access and enable us to better leverage the skills and capacity of our direct salesforce. Our carrier agreements
also provide for discounts related to volume purchases thereby enabling us to reduce our cost of service if
we are able to increase our pool of off-net customers.

Our Key Operational Advantages

We believe that the wireline telecom industry is undergoing, and will continue to face, significant price

deflation for its applications and services. This price deflation is a result of a variety of factors including
increased competition, enhanced substitutability of certain products and services and the continued impact
of Moore’s Law, which has driven down the cost of technology, particularly for customer premise, fiber
optics and networking equipment. Faced with the backdrop of continued price deflation in our industry, we
have made a number of discreet choices around our network design and operating structures that are
consistent with our objective of becoming the low cost operator in our industry. Since our initiation of
operations, this strategy has resulted in a rapid decline in our cost to transmit bits, which has increased
margins and decreased capital intensity as measured by capital expenditures per total revenues. Over the last
five years, our cost of goods sold per bit delivered for our customers has declined at a compounded annual
rate of 22.5%. Important components of our key operating advantages include:

One Network Protocol. Upon our founding, we selected to operate our network solely using Ethernet

protocol. We made this selection in order to take advantage of the significantly greater installed base and
lower cost of Ethernet network equipment versus other protocols, the substantially lower costs associated
with operating and maintaining one network protocol and the continued benefits of the rapid price
performance ratio improvements of Ethernet-related equipment. Selecting one operating protocol has also
had positive affects in terms of our operating overhead and the simplicity of our organization. We believe the
vast majority of our competition currently operates their networks with multiple protocols and we believe
that attempts to upgrade their networks to one protocol would be operationally challenging and costly.

Broad Access to Fiber on a Cost Effective, Long Term Basis. We currently maintain a large portfolio

of dark fiber leases around the world that supports our network operation. The nature of this portfolio and
the individual leases provides us long-term access to dark fiber at attractive rates and the opportunity in
many cases to extend these leases for multiple renewal terms.

On average, a modest number of our dark fiber leases come up for renewal each year. We have
relationships with 269 dark fiber vendors across the globe enabling us to lease dark fiber on a long-term,
cost-effective basis to virtually any geographic route or facility we require.

Narrow and Focused Product Set. Since our founding, we have strategically focused on delivering a
very narrow product set to our customers. The vast majority of our revenue is driven or related to our high-
capacity, bi-directional, symmetric internet access services which can be accessed on-net in multi-tenant
office buildings and carrier neutral data centers or off-net through other carriers’ “last mile” connections to
customer facilities. There are significant cost advantages as a result of this narrow product set. We believe
the relative size of our salesforce training, support and overhead is lower than comparable telecom providers
which tend to offer a broader product set to their client base.

Scalable Network Equipment and Hub Configurations. Due to our single network protocol and narrow

product set, our transmission and network operations rely mainly on two sets of equipment for operation.
In order to further scale our operating leverage, we have systematically reused older equipment in less dense
portions of our network. Due to interoperability between the generations of products, we are able to
transfer older equipment from our core, high-traffic areas to newer, less congested routes. The result of this
dynamic grooming process is that we are able to utilize our equipment for materially longer time frames
than the expected life of this equipment thereby reducing our capital investment in our network. We design
and build all of our network hubs to the same standard and configuration. This replication strategy provides
us scale benefits in equipment purchases, training, and maintenance.

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 is comprised of 2,914 buildings which are on net and we serve 202 metropolitan markets
in North America, Europe, Asia, South America, Australia and Africa. Important strategic components of
our Network include:

• 1,792 multi-tenant office buildings strategically located in commercial business districts;

• 1,252 carrier neutral data centers located in 1,068 buildings offering our customers the largest

portfolio of CNDCs of any carrier;

• 54 Cogent Data Centers;

• 955 intra-city networks consisting of 37,567 fiber miles;

• an inter-city network of 58,285 fiber route miles; and

• multiple high-capacity transoceanic circuits that connect the North American, European, Asian,

South American, Australian and African 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, including transoceanic fiber circuits for undersea
portions, connecting major cities in North America, Europe, Asia, South America, Australia and Africa.
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 annual
pro rata fees for the operation and maintenance of the optical fiber and we 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. Our 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.

Multi-Tenant Office Buildings (“MTOBs”). We have network access to a portfolio of 1,792 MTOBs

which provide us access to a highly attractive base of bandwidth intensive tenants. In MTOBs 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 that is generally located 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.

Carrier Neutral Data Centers (“CNDCs”). Our network is collocated in and can provide connectivity

to customers in 1,252 CNDCs located in 1,068 buildings across our footprint. CNDCs are an integral
component of the Internet Infrastructure where Content Providers, Application Service Providers, Carriers
and Corporates locate their server and service infrastructure. CNDCs offer highly reliable, secure, cost
effective and convenient space for these operators to access important services including connectivity, power,
rack space and security all on a 24 hour basis in order to support their Internet activities. We believe we
are connected to more CNDCs than any other IP transit provider enabling us to offer greater coverage, more
network configuration choices and increased reliability for our net-centric customers.

Cogent Data Centers. We operate 54 data centers across the United States and in Europe. These
facilities comprise over 606,000 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.

Tier 1 ISP Status. We directly connect with over 7,330 total networks of which 24 networks are

settlement-free peers. The remaining networks are customers whom we charge for Internet access. We
believe our standing as a Tier 1 ISP provides us with a reputation for size, breadth and reliability. These
relationships also reduce our cost of operating the network versus non-Tier 1 ISP Peer Networks who must
compensate other networks in order to deliver a significant portion of their traffic. Peering agreements
between ISPs enable them to exchange traffic.Without peering agreements, each ISP backbone would have
to buy Internet access from every other ISP backbone in order for its customer’s traffic, such as email, to reach
and be received from customers of other ISP backbones. 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 on our transit network. We facilitate peering between
other networks but not to our transit network, on our Global Peer Exchange.

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 Customers

We offer our high-speed Internet access and IP connectivity services to two sets of customers: corporates

customers, which primarily include small and medium-sized businesses located in North America, and net-
centric customers, which include, content providers, applications service providers and access networks,
comprised of ISPs, cable operators, mobile operators and phone companies located in North America,
Europe, Asia, South America, Australia and Africa.

Our corporate customers primarily purchase direct internet access from us on-net in multi-tenant office
buildings and carrier neutral data centers or off-net through other carriers’ “last mile” connections to those
customer facilities in metropolitan markets in North America. This service enables these customers to
access the Internet with a high-speed, bi-directional, symmetric circuit with a very high degree of reliability
and 100% access to that contractual capacity at all times. Depending upon the geographic breadth of our
customers’ footprint and their communications requirements, we also sell these corporate customers
private network services. Private network services provide connectivity on a point to point or point to multi-
point basis. This service allows customers to connect geographically dispersed local area networks in a
seamless manner. We primarily offer these corporate customers speeds ranging from 100 Mbps per second
to 1 Gbps per second and in some cases up to 10 Gbps per second. The continued growth in demand for
increased bandwidth has led to a rapid shift towards higher capacity circuits. In 2020, our 1 Gbps product
surpassed our 100 megabit product as our most popular product in terms of revenues and connections, as
existing corporate customers upgraded to the faster 1 gigabit service, and new customers preferred the faster
connection. We expect that this shift will continue. We also sell our corporate customers other products
including rack and power in our data centers.

Our net-centric customers purchase IP connectivity and other services in our 1,252 carrier neutral data

centers as well as our data centers. We support these services in 202 metropolitan markets in 47 countries
across the world. These bandwidth intensive organizations typically purchase circuits ranging from 10 Gbps
up to 100 Gbps, designed to provide them high-speed, bi-directional, symmetric circuits with a high degree
of reliability and 100% access to the contractual capacity at all times. In addition to contractual capacity,
certain net-centric customers also purchase metered service that enables customers to pay for actual
volume of bits delivered on a per bit basis. We also offer a burst product that allows net-centric customers
to utilize capacity when they exceed their contractual capacity. The per bit charge for this burst capacity
typically exceeds the rate for contractual services. Overall, we believe that, on a per megabit basis, our 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 facilities, allowing
the customer to locate a server or other equipment at that location and connect to our Internet access service.

We offer lower prices for longer term and volume commitments. We emphasize the sale of our on-net

services over our off-net services, as on-net services generate higher gross margins, and we believe we can
offer faster installation and greater reliability with our on-net offerings.

We have agreements with multiple national carriers providing us “last mile” network access to over
4 million buildings across North America that are not currently served by our network. We believe these

agreements broaden our addressable market for corporate dedicated internet access and VPN services and
enable us to better leverage the skills and capacity of our direct salesforce. Our carrier agreements also provide
for discounts related to volume purchases thereby enabling us to reduce our cost of service if we are able
to increase our pool of off-net customers.

Our People—Human Capital Management

We strive to become a leading employer in our industry by creating a workplace where employees have

the tools and resources they need to hone their talents, advance in their careers and be rewarded for their
hard work. We also seek to create a diverse workplace that is respectful of all employees, as we believe this is
critical to fostering an employee culture that can deliver the best service in our industry to our customers.
Our human capital objectives and initiatives are overseen by the Compensation Committee of our Board of
Directors.

Workforce. As of December 31, 2020, we had 1,083 employees located in 15 different countries in a

variety of different roles. Approximately 82.5% of our employees are located in the United States and Canada,
16.8% are located in Europe and 0.7% are located in Asia. As of December 31, 2020, 53% of our employees
were quota-bearing sales representatives, 13% were in sales management or sales support roles and 34%
were in operational or administrative functions. Unions represent 30 of our employees in France. We believe
that we have a satisfactory relationship with our employees.

Diversity and Inclusion. We strive to maintain a diverse and inclusive workforce everywhere we
operate. We recruit the best people for the job without regard to gender, race, ethnicity or other protected
traits, and it is our policy to comply fully with all domestic, foreign and local laws relating to discrimination
in the workplace. In 2020, at the direction of our Board of Directors, we mandated training for all of our
employees on topics of diversity and inclusion. All employees were required to complete online training in
unconscious bias, and managers were further required to complete additional training in inclusion. We intend
to continually reinforce our commitment to global inclusion and diversity.

Employee Retention. We compete in an industry that is highly competitive for talent. Attracting,
developing and retaining skilled people in sales, technical and other positions is crucial to executing our
strategy and our ability to compete effectively. While we monitor overall employee retention, we focus in
particular on sales representative retention, as our new sales and revenue growth are driven almost entirely
by the sales generated by our direct sales force. As a complement to our sales representative retention metric,
we also closely track the pace of hiring new sales representatives.

Our sales representatives comprise 53% of our employees. For the year ending December 31, 2020, we

averaged 4.9% monthly churn within our sales representatives. This churn was caused primarily by an
individual’s failure to meet sales performance goals. During 2020, we hired 357 new sales representatives and
ended the year with 569 sales representatives, a net increase of 21 sales representatives, or 3.8% from our
total sales representatives at the beginning of 2020. Our ability to recruit and retain all of our employees
depends on a number of factors, including professional development, compensation and benefits, and
employee engagement.

Professional Development. We recognize the importance of retaining our sales personnel, and we

continually strive to improve the performance of our sales personnel to reduce turnover. To that end, we
have invested heavily in professional development as a means for improving performance.

As part of our commitment to professional development, we established a sales training and enablement

department that provides both online and in-person training. Our 14 regional learning managers and
management development trainers are located around the world and are available for intensive, in-person
group training as well as individual training with sales representatives who may need extra assistance. In 2020,
our average ratio of sales representatives with less than 12 months of tenure to regional learning managers
was 23 to 1.

Our training group includes two additional trainers dedicated exclusively to training sales management.
Our trainers also conduct training at our annual sales meeting, during which our entire sales force gathers to
learn new skills and reinforce existing skills.

All sales personnel receive four weeks of live, inter-active training during their first month, which

training is on developing both general and Cogent-specific sales skills. New sales personnel are also
encouraged to, and rewarded for, completing a self-paced, online curriculum led by their manager during
their first six months. Both recent and tenured sales personnel have access to online, on-demand training
modules and the opportunity to obtain certification in specialized services.

Compensation and Benefits. We are committed to rewarding, supporting, and developing our

employees. To that end, we offer a comprehensive compensation program that includes market-competitive
pay, stock options or restricted stock grants to all employees, healthcare benefits, retirement savings plans, and
paid time off and family leave.

Employee Engagement. To foster and reinforce a company culture where employee concerns are
heard, our Chief Executive Officer conducts biweekly town hall meetings to respond to employee questions,
which may be submitted anonymously. On alternate weeks, we conduct online town hall chats during
which a rotating member of the executive team is available to answer questions from employees. We believe
these open and unfiltered channels of communication lead to honest feedback from our employees to our
management team.

Health and Safety. The health and safety of our employees is of utmost important to us. We safeguard
our people by striving for zero employee injuries and illnesses. While nearly all of our employees work solely
in office environments, for our field personnel, we provide safety gear as appropriate given employee job
duties.

During the COVID-19 pandemic, we invested heavily to help ensure the health of our employees.
Beginning in March 2020, we closed all of our offices worldwide, requiring our entire workforce to work
remotely whenever possible. We procured additional computer equipment to permit all employees to work
remotely. While our offices have largely remained closed, we believe that it is important to our company
culture and employee productivity to return to an in-office environment when it is safe to do so. To this
end, a cross-functional team within Cogent has established safety procedures for a return to office, including
training and additional safety and sanitation supplies.

Sales and Marketing

Direct Sales. We employ a direct sales and marketing approach. As of December 31, 2020, our sales

force included 712 full-time employees. Our quota bearing sales force includes 569 employees with 333
employees focused primarily on the corporate market and 236 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 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 fiber. We are also dependent on third-party providers, some of which compete with us, to provide
intercity and intracity fiber as well as 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 obtaining the proper licenses to provide our services,
data privacy, interception of communications by law enforcement, blocking of websites, and other regulations.
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.

Available Information

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

Market Risks

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business, financial
condition and results of operations.

We serve 47 countries, most of which were significantly impacted by the COVID-19 pandemic. The

extent of the impact of the COVID-19 pandemic on our business and financial results will continue to
depend on numerous evolving factors that we are not able to accurately predict and which will vary by market.
Such future uncertain and unpredictable developments include the ultimate duration and scope of the
pandemic, the availability and efficacy of vaccines and therapeutic treatments, governmental actions that
have been taken, or may be taken in the future, in response to the pandemic, and global economic conditions
during and after the pandemic.

Approximately 67.5% of our revenue for the year ended December 31, 2020 was from our corporate
customers. Corporate customers are located in multi-tenant office buildings, almost exclusively in the United
States and Canada. Authorities in many of these markets have implemented numerous measures in
response to the pandemic, such as travel bans and restrictions, quarantines, curfews, shelter-in-place and stay-
at-home orders and business shutdowns and closures, and have also implemented multi-step polices with
the goal of re-opening these markets. These measures have impacted, and continue to impact, us and our
employees, customers, suppliers and other third parties with whom we do business. The geographic areas in
which we operate are in varying stages of restrictions or re-opening. Some jurisdictions have re-opened,
while other jurisdictions began re-opening only to return to restrictions in the face of increases in new
COVID-19 cases. Considerable uncertainty exists regarding how current and future health and safety measures
implemented in response to the pandemic will impact our business, including whether such measures will
result in further changes in demand for our services, impair our ability to access buildings to install our
services or maintain our network or impact our supply chain. The continuing impact of existing or new
mandates, restrictions, laws or regulations could have a material adverse impact on our operations and
the operations of our customers or others with whom we do business.

In addition, a significant number of our corporate customers have continued remote work policies
instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed
offices due to global economic conditions. As a result, through much of 2020, we saw corporate customers
take a cautious approach to adding new services and upgrading existing services as well as reduced demand
for connecting smaller satellite offices. We also witnessed a deteriorating real estate market in and around the
buildings we service, with rising vacancy levels and falling lease initiations or renewals resulting in fewer
sales opportunities for our salesforce. As a result, we experienced a slowdown in new sales to our corporate
customers which negatively impacted our corporate revenue growth. In the future, these trends may continue.

We have taken measures to protect our workforce and minimize their exposure to COVID-19 such as
requiring our entire workforce to work remotely whenever possible, establishing safety procedures for our
on-site technical personnel and severely curtailing all business travel. In addition to the associated costs
incurred, these measures may be insufficient in protecting our employees. If a significant percentage of our
workforce is unable to work due to the impact of COVID-19, our operations will be negatively impacted.
As we consider a future return to our offices, even on a strictly voluntary basis, compliance with governmental
measures imposed in response to COVID-19 has caused, and will continue to cause, us to incur additional
costs, and any inability to comply with such measures may subject us to restrictions on our business activities,
fines, and other penalties, any of which can adversely affect our business.

In addition, the shift of our workforce to working remotely has amplified certain risks to our business,
including increased demand on our information technology resources and systems, increased phishing and
other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19
pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices
(both of which are now being used in increased numbers), to be secured. Any failure to effectively manage
these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely
affect our business.

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.

Events beyond our control may impact our ability to provide our services to our customers or increase the costs
or reduce the profitability of providing our services

Catastrophic events, such as major natural disasters, extreme weather, fire, flooding or similar events as
well as the continued threat of terrorist activity and other acts of war or hostility have had, and may continue
to have, an adverse effect on our headquarters, other offices, our network, infrastructure or equipment or
our customers and prospective customers, which could adversely affect our business. These events may also
have an adverse impact on business, financial and general economic conditions around the world. We have
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. 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 terrorist
attacks and vulnerable to pandemics.

If these or any other of our key 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.

Business Risks

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 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.

A substantial and long-term shift to remote work may impact our ability to add new customers and to retain
existing customers.

Through much of 2020, we saw corporate customers institute remote work policies and take a cautious
approach to new services and upgrades, as well as a reduced demand for connecting smaller satellite offices.
We also witnessed a deteriorating real estate market in and around the buildings we service, with rising
vacancy levels and falling lease initiations or renewals resulting in fewer sales opportunities for our salesforce.
As a result, we experienced a slowdown in new sales to our corporate customers which negatively impacted
our corporate revenue growth. If, after the end of the COVID-19 pandemic, a significant number of our
corporate customers or potential customers decide to retain remote work policies, we may experience
increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant
opportunities. These trends may negatively impact our revenue growth, cash flows and profitability.

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, by obtaining new customers
through our sales efforts and through increasing the number of our sales personnel. 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;

• 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.

Competitive Risks

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 connectivity for our network, we must establish and maintain relationships with other ISPs
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 ISPs 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. 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, 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 cannot assure you that we will be able to continue to establish and maintain relationships with
other ISPs, favorably resolve disputes with such providers, or increase the capacity of our interconnections
with such providers.

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.
A number of these providers also have large bases of consumers, which makes their networks particularly
attractive to content providers as they can provide a direct connection to their customers.

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.

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. Some US states have either
issued or are trying to issue their own net neutrality rules. Also, the European Union and other countries in
which we operate, have issued similar net neutrality rules. 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.

Operational Risks

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 to or degradation of the
security of our network. We are considered a critical infrastructure provider and therefore may be more
likely to be the target of cyber-attacks. Our network, systems, applications, and routers may be vulnerable
to unauthorized access, computer viruses, cyber-attacks, distributed denial of service (DDOS), and other
security breaches. We experience such cyber-attacks and other security incidents of varying degrees from time
to time, though none which individually or in the aggregate has led to costs or consequences which have
materially impacted our operations or business. An attack on or security breach of our network could result
in theft of trade secrets, intellectual property, or other company confidential information, the interruption,
degradation, or cessation of services, an inability to meet our service level commitments or our financial
reporting obligations, and potentially compromise customer data stored on or transmitted over our
network. We have experienced cyber-attacks of increasing sophistication which 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 security events, network failures or interruptions that could
impact our network security or availability and have a material adverse effect on our business, our ability
to meet our financial reporting obligations, financial condition and operational results. We may be required

to expend significant resources to protect against such threats, and may experience a reduction in revenues,
litigation, and a diminution in goodwill, caused by a compromise of our cybersecurity. Although our customer
contracts limit our liability, affected customers and third parties may seek to recover damages from us
under various legal theories. In response to past attacks, we have implemented further controls and taken
and planned for other preventative actions to further strengthen our systems against future attacks. However,
we cannot assure you that such measures will provide absolute security, that we will be able to react in a
timely manner, or that our remediation efforts following any past or future attacks will be successful.

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. In 2020, we developed and deployed our own customer relationship management
software for our sales force. We may have difficulty maintaining this software and adding features that our
sales representatives require. If our information systems, individually or collectively, fail or do not perform as
expected, our ability to make sales, 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.

Network Augmentation and Maintenance Risks

Our network is comprised of a number of separate pieces, and we may be unable to obtain or maintain the
agreements necessary to augment or maintain our network.

Our network is primarily composed of (i) leased capacity on transoceanic optical fiber; (ii) terrestrial inter-

city optical fiber; (iii) intra-city optical fiber; and (iv) the buildings that we serve and the associated optical
fiber connecting those buildings. We lease our optical fiber and obtain access to the buildings on our network,
both carrier neutral data centers and multi-tenant office buildings, from a number of vendors. A number
of our leases, both for fiber and building access, are up for renewal in any given year. A deterioration in our
existing relationship with these operators could impact our network, harm our sales and marketing efforts
and could substantially reduce our potential customer base. In addition, portions of our long-haul optical
fiber and metro optical fiber are nearing the end of their original projected useful life. While we believe
that this fiber will remain usable beyond the projected end date, we face the risk that portions of our network
may need to be replaced in the future.

We expect to enter additional agreements with carriers and operators to obtain additional facilities,

whether optical fiber or buildings, for our network in order to add capacity to our network and to expand
our addressable market. However, we cannot assure you that we will be able to enter into such agreements in
the future, be able to do so on economically attractive terms or find an adequate substitute if we are
unable to reach an agreement. Failure to acquire new facilities to augment our network could keep us from
adding new markets, capacity or buildings to our network and negatively impact our growth opportunities.

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 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.

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.

International Operations Risks

Our international operations expose us to numerous risks.

We have expanded our network into 47 countries worldwide on every continent other than Antarctica.

We continue to explore expansion opportunities. We have experienced difficulties, ranging from lack of dark
fiber, to regulatory issues, to slower revenue growth rates from our operations 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.

Our international operations involve a number of risks, including:

• fluctuations in currency exchange rates, particularly those involving the Euro as we are required to
fund certain of our cash flow requirements of our operations outside of the United States and our
€350.0 million senior unsecured notes in Euros;

• 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;

• compliance with laws regarding corruption and bribery, including the United States Foreign Corrupt

Practices Act;

• difficulties in staffing and managing our foreign operations;

• changes in political and economic conditions, such as the exit of the United Kingdom from the

European Union, 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.

Litigation Risks

As an Internet service provider, we may incur liabilities for the content disseminated through our network or
for network failures, delays or errors in transmissions

The law relating to the liabilities of ISPs 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.

Regulatory Risks

Existing and proposed privacy regulations may impact our business

Many countries, including the United States, are considering adopting, or have already adopted,
privacy regulations or laws that would govern the way an Internet user’s data is used. 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. As the
applicability of privacy regulations to the types of services we provide remains unsettled, we may be required
to adopt additional measures in the future.

Privacy regulations, such as the General Data Protection Regulation (“GDPR”) in the European
Union and the California Consumer Privacy Act (“CCPA”) in California vary in scope and in the obligations
they impose on us. As new laws are implemented or existing structures are declared insufficient, such as
the Privacy Shield program in place between the US and EU, we may find it difficult to comply with such
regulations or find it costly to do so. Moreover, for our customers who collect personal information, increased
regulation of the collection, processing and use of personal data may impact their business and their use of
services in unknown ways.

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.
However, 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 laws 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 ISPs 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. 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.

Changes in laws, rules and enforcement may also adversely affect our customers. For example, a
possible repeal or curtailing of Section 230 of the Communications Decency Act in the United States could
have an adverse impact on our customers and, consequently, on us. While our top 25 customers reprented
less than 5.5% of our revenue for the year ended December 31, 2020, several large net-centric customers are
or may be the subject of increased regulatory scrutiny, which may impact their businesses and, consequently,
their use of our services in unknown ways.

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 to

filter all content that flows across the Internet connections we provide. For example, some content is
encrypted when a secure website is accessed. It is difficult to limit access to websites 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.

Tax Risks

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, such as our VPN 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.

We are also 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 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
and changes to tax laws in other jurisdictions in which we operate may impact our utilization of our net
operating losses.

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, 2020 was $1.1 billion and included $445.0 million of
our 5.375% senior secured notes and €350.0 million of our 4.375% senior unsecured notes. Our $445.0 million
senior secured notes are due in March 2022 and require annual interest payments of $23.9 million per year—
paid semi-annually. Our €350.0 million of senior unsecured notes are due in June 2024 and require annual
interest payments of €15.3 million per year—paid semi-annually. 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, 2020 included $219.1 million of finance lease obligations for dark
fiber primarily under 15 – 20 year IRUs and $7.7 million due under an installment payment agreement with
a vendor. Our total indebtedness at December 31, 2020 excludes $122.5 million of operating lease liabilities
which we were required to be recorded as right-to-use assets 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, dividends, purchases of our
common stock and acquisitions;

• 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. 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.

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, 2021, there were 127 holders of record of shares of our common stock holding

46,042,876 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,
2015 to December 31, 2020, 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, 2015 in our common stock, the S&P 500 Index and the NASDAQ
Telecommunications Index, with dividends, if any, reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Cogent Communications Holdings, the S&P 500 Index
and the NASDAQ Telecommunications Index

$250

$200

$150

$100

$50

12/15

12/16

12/17

12/18

12/19

12/20

Cogent Communications Holdings

S&P 500

NASDAQ Telecommunications

$100 invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending
December 31.

Cogent Communications Holdings . . . . . . . . . . . .

100.00

124.10

141.85

147.82

224.53

212.68

S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.00

111.96

136.40

130.42

171.49

203.04

NASDAQ Telecommunications

. . . . . . . . . . . . . .

100.00

112.56

135.96

125.10

158.73

192.30

12/15

12/16

12/17

12/18

12/19

12/20

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, 2021. As of December 31,
2020, $30.4 million remained 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.

The following table summarizes our common stock repurchases during the fourth quarter of 2020

made pursuant to this authorization. During the quarter, we did not purchase shares outside of this
program, and all purchases were made by or on behalf of the Company and not by any “affiliated purchaser”
(as defined by Rule 10b-18 under the Exchange Act).

Issuer Purchases of Equity Securities

Period
October 1 - 31, 2020 . . . . . . . . . . . .
November 1 - 30, 2020 . . . . . . . . . .
December 1 - 31, 2020 . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Total

Total
Number of
Shares
Purchased
51,016
20,000
3,473
74,489

Average Price
Paid per Share
$57.37
$55.08
$56.60
$56.72

Total Number
of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
51,016
20,000
3,473
74,489

Approximate
Dollar Value of
Shares
that May Yet Be Purchased
Under the Plans or Programs
$31,708,066
$30,606,473
$30,409,902

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis together with 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:

The COVID-19 pandemic and accompanying government policies worldwide; 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 into US dollars; legal and
operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal
Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including
rules regarding data protection, cyber security and net neutrality; increasing competition leading to lower prices
for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our
network; the ability to maintain our Internet peering 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; our ability to make payments on our indebtedness as they become due 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 and our Quarterly Reports on
Form 10-Q.

Results of Operations

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

In this section, we discuss the results of our operations for the year ended December 31, 2020 compared

to the year ended December 31, 2019. For a discussion of the year ended December 31, 2019 compared to
the year ended December 31, 2018, please refer to Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended
December 31, 2019.

Our management reviews and analyzes several key financial measures in order to manage our business
and assess the quality and variability of our service revenue, operating results and cash flows. The following
summary tables present a comparison of our results of operations with respect to certain key financial
measures. The comparisons illustrated in the tables are discussed in greater detail below.

Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$568,103

$546,159

Year
Ended
December 31,

2020

2019

(in thousands)

On-net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Off-net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Network operations expenses(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selling, general, and administrative expenses(2) . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization expenses

. . . . . . . . . . . . . . . . . . . . . . . .

Realized gain on foreign exchange—2024 Notes . . . . . . . . . . . . . . . . . . .

419,454

148,128

219,157

158,476

83,477

2,533

396,753

148,931

219,801

146,913

80,247

Percent
Change

4.0%

5.7%

(0.5)%

(0.3)%

7.9%

4.0%

— NM

Unrealized (loss) gain on foreign exchange—2024 Notes . . . . . . . . . . . . .

(36,997)

2,271

Loss on debt extinguishment and redemption—2021 Notes . . . . . . . . . . .

(638)

— NM

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62,486

4,096

57,453

15,154

8.8%

(73.0)%

(1)

(2)

Includes non-cash equity-based compensation expense of $1,219 and $994 for 2020 and 2019,
respectively.

Includes non-cash equity-based compensation expense of $22,306 and $17,466 for 2020 and 2019,
respectively.

NM—not meaningful

Year Ended
December 31,

2020

2019

Percent
Change

Other Operating Data
Average Revenue Per Unit (ARPU)

ARPU—on-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARPU—off-net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Average price per megabit
Customer Connections—end of period

$
460
$ 1,045
$ 0.46

$
461
$ 1,097
0.62
$

(0.2)%
(4.7)%
(25.5)%

On-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Off-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77,305

11,970

74,554

11,660

3.7%

2.7%

Service Revenue. We continually work to grow our total service revenue by increasing the number of

potential customers that we can reach on our network. We do this by investing capital to expand the

geographic footprint of our network and by increasing the number of buildings that we are connected to,
including carrier neutral data centers and multi-tenant office buildings. These efforts broaden the global reach
of our network and increase the size of our potential addressable market. We also seek to grow our service
revenue by investing in our sales and marketing team. Over the last five years we have grown our quota bearing
salesforce by 34% to 569 full time equivalent salespeople. We typically sell corporate connections at similar
pricing to our competitors, but our clients benefit from our significantly faster speeds, enhanced service level
agreements and rapid installation times. In the net-centric market, we offer comparable services in terms of
capacity but typically at significantly lower prices.

Our service revenue increased by 4.0% from 2019 to 2020. Exchange rates positively impacted our
increase in service revenue by $1.5 million. All foreign currency comparisons herein reflect results for 2020
translated at the average foreign currency exchange rates for 2019. 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 2019 to 2020 of $0.2 million.

Our corporate customers purchase their services on a price per connection basis. Our net-centric

customers generally purchase their services on a price per megabit basis. Revenues from our corporate and net-
centric customers represented 67.5% and 32.5% of total service revenue, respectively, for 2020 and
represented 68.4% and 31.6% of total service revenue, respectively, for 2019. Revenues from corporate
customers increased by 2.6% to $383.4 million for 2020 from 2019. Revenues from our net-centric customers
increased by 7.1% to $184.7 million for 2020 from 2019.

Our revenue from our corporate customers has increased as our corporate customers take advantage of

our superior speeds, service levels and installation times versus our competitors. The growing trend of
customers installing second lines for redundancy and in order to supplement their VPN capabilities has also
led to our growing corporate revenues. However, in 2020, we saw corporate customers take a cautious
approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite
offices as a result of the challenges and uncertainties of the COVID-19 pandemic. We also witnessed a
deteriorating real estate market in and around the buildings we service, with rising vacancy levels and falling
lease initiations or renewals resulting in fewer sales opportunities for our salesforce. As a result, during
2020, we experienced a slowdown in new sales to our corporate customers which negatively impacted our
corporate revenue growth. While we believe that demand for office space in the buildings in which we operate
will remain among the strongest in our markets, we may experience increased corporate customer turnover,
fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities which
would negatively impact our corporate revenue growth.

Our revenue from our net-centric customers increased primarily due to an increase in our number of net-

centric customers partly offset by a decline in our average price per megabit. Our net-centric customers
purchase our services on a price per megabit basis. The net-centric market exhibits significant pricing pressure
due to the continued introduction of new technology which lowers the marginal cost of transmitting bits,
and the commodity nature of the service where price is typically the only differentiating factor for these
customers. Our average price per megabit declined by 25.5% from 2019 to 2020. We expect that our average
price per megabit will continue to decline at similar rates. The impact of foreign exchange rates has a
more significant impact on our net-centric revenues.

Our on-net revenues increased by 5.7% from 2019 to 2020. Our on-net revenues increased as we

increased the number of our on-net customer connections by 3.7% at December 31, 2020 from December 31,
2019. On-net revenues increased at a greater rate than on-net customer connections primarily due to an
increase in our usage based revenues, a relatively stable on-net ARPU from 2019 to 2020 and the positive

impact of foreign exchange. ARPU is determined by dividing revenue for the period by the average
customer connections for that period.

Our off-net revenues decreased by 0.5% from 2019 to 2020. Our off-net revenues decreased as the 4.7%

decrease in our off-net ARPU more than offset the 2.7% increase in the number of our off-net customer
connections from December 31, 2019 to December 31, 2020.

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, decreased by 0.3% from 2019 to 2020. The decrease in network operations expense is primarily
attributable to an increase in costs related to our network and facilities expansion activities, offset by price
reductions obtained in certain of our leased circuit costs, fewer operating leases for dark fiber and the impact
of a renewal of an IRU fiber lease agreement in the second quarter of 2020. We adopted Leases
(“ASU 2016-02”) on January 1, 2019. When we adopted ASU 2016-02 we elected to apply certain practical
expedients under ASU 2016-02 including not separating lease and nonlease components on our finance and
operating leases. As a result of accounting for this IRU renewal under ASU 2016-02, the present value of
$1.8 million of quarterly maintenance and co-location fees (non-lease components) that were previously
accounted for as network operations expenses prior to the second quarter of 2020, were capitalized as a
finance lease liability and right-of-use leased asset totaling $34.0 million. Amortization of the right-of-use
asset is recorded as depreciation and amortization expense and the payments that are made toward the finance
lease liability are recorded as a reduction of the finance lease liability and interest expense.

Selling, General, and Administrative Expenses (“SG&A”). Our SG&A expenses, including non-cash

equity-based compensation expense, increased by 7.9% from 2019 to 2020. 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 $22.3 million for 2020 and $17.5 million for 2019. 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
3.8% from 686 at December 31, 2019 to 712 at December 31, 2020 and our total headcount increased by
2.7% from 1,055 at December 31, 2019 to 1,083 at December 31, 2020.

Depreciation and Amortization Expenses. Our depreciation and amortization expenses increased by
4.0% from 2019 to 2020. The increase is primarily due to the depreciation expense associated with the increase
related to newly deployed fixed assets associated with our network expansion activities and the impact of
the renewal of an IRU lease as discussed above.

Interest Expense. Our interest expense resulted from interest incurred on our $445.0 million of senior

secured notes due 2022 (“2022 Notes”), interest incurred on our $189.2 million of senior unsecured notes
due 2021 (“2021 Notes”) until these notes were redeemed in June 2020, interest on our installment payment
agreement, interest on our finance lease obligations and interest incurred on our €350.0 million aggregate
principal amount of 4.375% senior unsecured notes due 2024 (“2024 Notes”). We issued €215.0 million of our
2024 Notes in June 2020 and €135.0 million of our 2024 Notes in June 2019. In June 2020, we redeemed
and extinguished our 2021 Notes at par value resulting in a loss on debt extinguishment and redemption of
$0.6 million. Our interest expense increased by 8.8% for 2020 from 2019 primarily due to an increase in our
finance lease obligations and the issuances of our 2024 Notes, partly offset by the redemption of our 2021
Notes.

Realized Gain and Unrealized (Loss) Gain on Foreign Exchange on 2024 Notes. Our 2024 Notes were

issued in Euros and are reported in our reporting currency—US Dollars. As of December 31, 2020, the
carrying value of our 2024 Notes was $429.3 million and as of December 31, 2019, the carrying value of our
2024 Notes was $151.4 million. In June 2020, we issued our €215.0 million 2024 Notes at a Euro to USD
rate of $1.112. We received proceeds in USD on the 2024 Notes on June 9, 2020 at a Euro to USD rate of
$1.133 resulting in a realized gain on foreign exchange of $2.5 million. Our unrealized (loss) gain on foreign

exchange on our 2024 Notes from converting our 2024 Notes into USD was an unrealized loss of $(37.0)
million for 2020 and an unrealized gain of $2.3 million for 2019. We have not entered into hedges for our
foreign currency obligations.

Income Tax Expense. Our income tax expense was $4.1 million for 2020 and $15.2 million for 2019.

The reduction in our income tax expense is primarily related to a reduction in our income before income
taxes.

Buildings On-net. As of December 31, 2020 and 2019 we had a total of 2,914 and 2,801 on-net

buildings connected to our network, respectively.

Liquidity and Capital Resources

In assessing our liquidity, management reviews and analyzes our current cash balances, accounts

receivable, accounts payable, accrued liabilities, capital expenditure commitments, and required finance
lease and debt payments and other obligations. As our business has grown as a result of an increasing
customer base, broader geographic coverage and increased traffic, we have produced a growing level of
operating cash flow. As a result of the operating leverage of our network, our annual capital expenditures as
measured as a percentage of revenues has fallen over the last decade. We have also had increasing success
in raising capital by issuing notes and arranging financing and leases that have had a lower cost and more
flexible terms. The combination of this improved operating performance and access to capital has enhanced
our financial flexibility and increased our ability to make distributions to shareholders in the form of cash
dividends or through share repurchases. Since our initial public offering, we have returned over $894 million
to our shareholders through share repurchases and dividends. We will continue to assess our capital and
liquidity needs and, where appropriate, return capital to shareholders.

Over the next several years we have significant contractual and anticipated cash outlays including our
indicative dividend payments on our common stock, our maturing debt obligations, interest payments on
our debt obligations and our projected capital expenditure requirements in order to help execute our business
plan. Based upon our historical growth rate of our dividend, we expect that we would have to provide
approximately $310 million in order to meet our quarterly dividend payments over the next two years. Our
$445.0 million of Senior Secured Notes mature in March 2022 and include annual interest payments of
$23.9 million until maturity. Our €350 million of Senior Unsecured Notes mature in June 2024 and
include annual interest payments €15.3 million until maturity. Our €350 million of Senior Unsecured Notes
are denominated in Euros and expose us to potentially unfavorable adverse movements in foreign currency
rate changes. Our overseas operations provides us access to Euros, however these amounts may be insufficient
to fund our obligations under our Senior Unsecured Notes. Additionally, we have not entered into forward
exchange contracts related to our foreign currency exposure.

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 the existing market conditions. The amounts involved in any such
transaction, individually or in the aggregate, may be material.

We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding

debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately
negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at
such prices as we may determine, and will depend on prevailing market conditions, our liquidity
requirements, contractual restrictions and other factors. The amounts involved may be material.

In light of the economic uncertainties associated with the COVID-19 pandemic, our executive officers

and Board have continued to carefully monitor our liquidity and cash requirements. Based on current
circumstances, we plan to continue our current dividend policy. Given uncertainties regarding the duration
of the pandemic and timing for economic recovery, we will continue to monitor our capital spending. As we
do each year, we will continue to monitor our future sources and uses of cash, and anticipate that we will
make adjustments to our capital allocation strategies when, as and if determined by our Board of Directors.

Impact of COVID-19 on Our Liquidity and Operating Performance

In late March 2020, we adopted a mandatory work-from-home policy through which we required all
employees to work from home and follow shelter in place guidelines issued by state and local authorities.
We believe we have been able to continue to operate effectively with the use of laptops, remote connectivity
and the continued support of our critical support employees. Further, we severely curtailed all business travel
and adopted new safety procedures for our on-site technical personnel and customers accessing our data
centers. While we are contemplating a voluntary return to in-office presence for a small number of our offices,
we expect to continue to have the vast majority of our workforce to work remotely for the foreseeable
future. We believe the policies followed by our workforce and the support provided by our IT and other
groups has enabled our employees to continue to perform tasks and activities that are essential for the
operation of our network, our sales and marketing efforts and other support functions.

We experienced some delays with respect to the installation of new services in March and April of 2020

when certain multi-tenant office buildings were closed to our personnel. We worked with local authorities
and building owners to categorize our employees as essential workers who need priority access to buildings.
We believe that our disruption in access to buildings was effectively mitigated throughout our second and
third quarters.

In April and May 2020, we waived late fees for customers who were unable to pay their bills due to the

pandemic. We have not encountered any material change in the payment profile of our customers or seen
any significant increase in customer turnover since the beginning of the pandemic. There can be no assurance
that we will continue to experience normal operations as economic dislocations may adversely affect our
customers and may lead to higher customer turnover, bad debt expense and lower revenue and profitability.

We continue to operate with a high level of liquidity and as of December 31, 2020 we had cash and
cash equivalents of approximately $371.3 million. We have recently experienced certain corporate customers
taking a more cautious approach to new configurations and upgrades as well as a reduction in demand for
connecting smaller satellite offices as a result of the challenges and uncertainties of the COVID-19 pandemic.
We also have witnessed a deteriorating real estate market in and around the buildings we service with rising
vacancy levels and falling lease initiations or renewals. Rising vacancy levels and falling lease initiations or
renewals meant fewer sales opportunities for our salesforce. As a result, we experienced a slowdown in new
sales to our corporate customers which negatively impacted our corporate revenue growth in 2020. While we
believe that demand for office space in the buildings in which we operate will remain among the strongest
in our markets, we may experience increased customer turnover, fewer upgrades of existing customer
configurations and fewer new tenant opportunities. These trends may negatively impact our revenue growth,
cash flows and profitability.

Shortly after COVID-19 began its rapid spread around the world, domestic and worldwide capital

markets ceased operating for a short period. While worldwide capital markets have remained unstable or
unpredictable since then, particularly for non-investment grade issuers, legislative bodies and reserve banks
have taken various actions in response to the pandemic that have impacted the capital markets, and we expect
that these efforts may continue. In June 2020, we issued an additional €215 million of our 4.375% Senior
Unsecured Notes due 2024. The COVID-19 pandemic has not impacted our credit rating to date, nor do we
believe that it has materially changed our cost of capital. We believe we are able to timely service our debt

obligations and will not require any concessions to do so. We believe we will have access to additional
capital from a variety of sources and the public capital markets for debt and equity.

Cash Flows

The following table sets forth our consolidated cash flows.

Net cash provided by operating activities . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities
. . . . . . . .
Effect of exchange rates on cash . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents during

2018

2020

Year Ended December 31,
2019
(in thousands)
$148,809
(46,958)
22,020
(542)

$ 140,320
(55,952)
(116,002)
3,513

$133,921
(49,937)
(52,545)
(2,357)

the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (28,121) $123,329

$ 29,082

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 2020, 2019
and 2018 included interest payments on our note obligations of $48.8 million, $38.0 million and $32.7 million,
respectively.

Net Cash Used In Investing Activities. Our primary use of investing cash is for purchases of property

and equipment. These amounts were $56.0 million, $47.0 million and $49.9 million for 2020, 2019 and 2018,
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 2020, 2019 and 2018 we obtained $5.8 million, $11.3 million and $9.9 million, respectively, of
network equipment and software in non-cash exchanges for notes payable under an installment payment
agreement.

Net Cash (Used In) Provided By Financing Activities. Our primary uses of cash for financing
activities are for dividend payments, stock purchases and principal payments under our debt and finance
lease obligations. During 2020, 2019 and 2018 we paid $129.4 million, $112.6 million and $97.9 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. Amounts paid under our stock
buyback program were $4.5 million for 2020 and $6.6 million for 2018. There were no stock purchases
during 2019. Principal payments under our finance lease obligations were $24.0 million, $9.1 million and
$10.3 million for 2020, 2019 and 2018, respectively, and are impacted by the timing and extent of our network
expansion activities. Total installment payment agreement principal payments were $10.5 million,
$10.0 million and $9.4 million for 2020, 2019 and 2018, respectively. Our financing activities also include
proceeds from and repayments of our debt offerings. In June 2020, we received net proceeds of $240.3 million
from the issuance of €215.0 million of our 2024 Notes and we redeemed $189.2 million of our 2021 Notes
at par value, thereby extinguishing the remaining principal amount owed. In June 2019 we received net
proceeds of $152.1 million from the issuance of €135.0 million of our 2024 Notes. In August 2018 we
received net proceeds of $69.9 million from the issuance of $70.0 million of our 2022 Notes.

Indebtedness

Our total cash and cash equivalents at December 31, 2020 were $371.3 million. We believe this level of

liquidity reduces our exposure to refinancing risk, potential underperformance of the business or other
unforeseen challenges and enhances our ability to pursue acquisitions or operating opportunities. We intend
upon holding levels of cash and cash equivalents sufficient to maintain our ability to fund operations,
refinance indebtedness and make dividend payments to our shareholders.

Our total indebtedness at December 31, 2020, at par value, was $1.1 billion. Our total indebtedness at
December 31, 2020 includes $219.1 million of finance lease obligations for dark fiber under long-term IRU
agreements.

On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”)

Senior unsecured notes—€350.0 million

In June 2019, Group completed an offering of €135.0 million aggregate principal amount of 2024

Notes. In June 2020, Group completed an offering of €215.0 million aggregate principal amount of 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 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 and 2022 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. 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. 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,
2020. As of December 31, 2020, a total of $94.0 million was permitted for investment payments including
dividends and stock purchases.

Summarized Financial Information of Holdings

Holdings is a guarantor under the 2024 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,
2020 is detailed below (in thousands).

December 31, 2020

(Unaudited)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 93,986

Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 93,987

Investment from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 246,722

Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(152,782)

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 93,987

Year Ended
December 31, 2020

(Unaudited)

Equity-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 25,800

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

584

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(25,216)

Common Stock Buyback Program

Our Board of Directors has approved through December 31, 2021, purchases of our common stock
under a buyback program (the “Buyback Program”). We purchased 79,056 shares of our common stock for
$4.5 million during the year ended December 31, 2020 and 147,995 shares of our common stock for
$6.6 million during the year ended December 31, 2018. There were no purchases of common stock during
the year ended December 31, 2019. As of December 31, 2020 there was a total of $30.4 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 24, 2021, our Board of Directors approved the payment of our quarterly
dividend of $0.755 per common share. The dividend for the first quarter of 2021 will be paid to holders of
record on March 12, 2021. This estimated $34.6 million dividend payment is expected to be made on March 26,
2021.

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.

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.

We may need to or elect to refinance all or a portion of our indebtedness at or before maturity and we

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.

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 certain. 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.

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,
2020, our foreign activities accounted for 23% of our consolidated revenue. A 1% change in foreign
exchange rates would impact our consolidated annual revenue by approximately $1.1 million. A 1% change
in foreign exchange rates as of December 31, 2020 would impact the reported value of our 2024 Notes by
approximately $4.3 million. Changes in foreign currency rates could adversely and materially affect our
operating results and cash flow.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

Consolidated Statements of Comprehensive Income for Each of the Three Years Ended

December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for Each of the Three Years

Ended December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 2020 . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2020, 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,
2020, 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 26,
2021 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.

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, 2020, the Company has recorded $254.3 million and $219.1 million of
indefeasible right of use (IRU) finance lease assets, net, and liabilities, respectively and
recorded $71.6 million of finance lease assets and liabilities additions during the year
ended December 31, 2020. 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.

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. 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. Changes in
this assumption may have a material effect on the initial carrying amount of the
right-of-use assets 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.

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 and evaluating industry practice in
estimating useful lives compared to those selected by management.

We have served as the Company’s auditor since 2002
Tysons, VA
February 26, 2021

/s/ Ernst & Young LLP

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 AND 2019
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for credit losses of $1,921 and $1,771,

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 $136 and

$350, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease obligations, current maturities . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior unsecured 2024 Euro notes, net of unamortized debt costs of $2,961 and

2020

2019

371,301

$ 399,422

44,185
40,851
456,337

40,484
35,822
475,728

1,515,867
(1,085,532)
430,335
99,666
14,139
$ 1,000,477

1,366,782
(997,853)
368,929
73,460
14,007
$ 932,124

9,775
51,029
11,151

6,786
15,702
94,443

11,075
51,301
10,101

9,063
8,154
89,694

$1,410, respectively and net of discount of $1,142 and $0, respectively . . . . . . .

425,160

150,001

Senior secured 2022 notes, net of unamortized debt costs of $1,052 and $1,897

respectively and including premium of $544 and $985, respectively . . . . . . . . .
Senior unsecured 2021 notes, net of unamortized debt costs of $857 . . . . . . . . . .
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; 47,214,077 and
46,840,434 shares issued and outstanding, respectively . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .

444,492
—
111,318
203,438
14,792
1,293,643

444,088
188,368
86,690
161,635
15,327
1,135,803

47
515,867
(1,306)
(807,774)
(293,166)
$ 1,000,477

47
493,178
(12,326)
(684,578)
(203,679)
$ 932,124

The accompanying notes are an integral part of these consolidated balance sheets.
40

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2020
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

568,103

546,159

520,193

2020

2019

2018

Operating expenses:

Network operations (including $1,219, $994 and $895 of

equity-based compensation expense, respectively), exclusive
of amounts shown separately . . . . . . . . . . . . . . . . . . . . . .

Selling, general, and administrative (including $22,306, $17,466

and $16,813 of equity-based compensation expense,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gains on equipment transactions . . . . . . . . . . . . . . . . . . . . . .

Losses on lease terminations . . . . . . . . . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Realized foreign exchange gain on 2024 Euro Notes . . . . . . . . .

Unrealized foreign exchange (loss) gain on 2024 Euro Notes

. . .

Loss on debt extinguishment and redemption—2021 Notes

. . . .

Interest income and other . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . .

219,157

219,801

219,526

158,476

83,477

461,110

352

(423)

106,922

(62,486)

2,533

(36,997)

(638)

978

10,312

(4,096)

6,216

11,020

17,236

0.14

0.13

2.78

146,913

80,247

446,961

1,059

—

100,257

(57,453)

—

2,271

—

7,599

52,674

(15,154)

37,520

(1,398)

36,122

0.82

0.81

2.44

133,858

81,233

434,617

982

—

86,558

(51,056)

—

5,880

41,382

(12,715)

28,667

(6,328)

22,339

0.63

2.12

Weighted-average common shares—basic . . . . . . . . . . . . . . . .

45,947,772

45,542,315

45,280,161

Weighted-average common shares—diluted . . . . . . . . . . . . . . .

46,668,198

46,080,395

45,780,954

The accompanying notes are an integral part of these consolidated statements.
41

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2020
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Common Stock

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Accumulated
Deficit

Total
Stockholder’s
Equity (Deficit)

Balance at December 31, 2017 . . . . . . . . . . . . . .

45,960,799

$46

$456,696

$ (4,600)

$(554,686)

$(102,544)

Cumulative effect adjustment from adoption of

ASC 606 . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Forfeitures of shares granted to employees . . . . .

(24,973) —

Equity-based compensation . . . . . . . . . . . . . . . .

Foreign currency translation . . . . . . . . . . . . . . .

Issuances of common stock . . . . . . . . . . . . . . . .

Exercises of options . . . . . . . . . . . . . . . . . . . . .

—

496,228

52,440

—

Common stock purchases and retirement

. . . . . .

(147,995) —

Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

19,431

—

1,768

(6,564)

—

(6,328)

—

14,455

—

(97,887)

28,667

14,455

—

19,431

(6,328)

—

1,768

(6,564)

(97,887)

28,667

Balance at December 31, 2018 . . . . . . . . . . . . . .

46,336,499

$46

$471,331

$(10,928)

$(609,451)

$(149,002)

Forfeitures of shares granted to employees . . . . .

(12,632) —

Equity-based compensation . . . . . . . . . . . . . . . .

Foreign currency translation . . . . . . . . . . . . . . .

Issuances of common stock . . . . . . . . . . . . . . . .

Exercises of options . . . . . . . . . . . . . . . . . . . . .

Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

473,550

43,017

—

20,210

—

1,637

—

(1,398)

—

20,210

(1,398)

1,637

(112,647)

37,520

Balance at December 31, 2019 . . . . . . . . . . . . . .

46,840,434

$47

$493,178

$(12,326)

$(684,578)

$(203,679)

Forfeitures of shares granted to employees . . . . .

(53,428) —

Equity-based compensation . . . . . . . . . . . . . . . .

Foreign currency translation . . . . . . . . . . . . . . .

Issuances of common stock . . . . . . . . . . . . . . . .

Exercises of options . . . . . . . . . . . . . . . . . . . . .

—

476,030

30,097

—

Common stock purchases and retirement
. . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .

(79,056) —
—
—

—
—

—

25,802

—

1,382

(4,495)
—
—

—

11,020

—

—
—
—

—

25,802

11,020

—

1,382

—
(129,412)
6,216

(4,495)
(129,412)
6,216

Balance at December 31, 2020 . . . . . . . . . . . . . .

47,214,077

$47

$515,867

$ (1,306)

$(807,774)

$(293,166)

The accompanying notes are an integral part of these consolidated statements.
42

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2020
(IN THOUSANDS)

Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

6,216 $ 37,520 $ 28,667

2020

2019

2018

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 loss (gain) on 2024 Euro Notes . .

83,477

1,894

23,525

36,997

Realized foreign currency exchange gain on 2024 Euro Notes . . . . . . . .

(2,533)

Loss on extinguishment of 2021 notes . . . . . . . . . . . . . . . . . . . . . . . .

Gains—equipment transactions and other, net . . . . . . . . . . . . . . . . . .

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

638

(546)

282

80,247

81,233

1,807

1,533

18,460

17,708

(2,271)

—

(358)

(1,109)

12,158

11,117

Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .

Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,702)

(2,771)

(873)

1,067

(3,204)

(3,730)

(1,131)

(438)

(1,490)

Accounts payable, accrued liabilities and other long-term

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3,284)

5,040

(96)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .

140,320

148,809

133,921

Cash flows from investing activities:

Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .

(55,952)

(46,958)

(49,937)

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

(55,952)

(46,958)

(49,937)

Cash flows from financing activities:

Net proceeds from issuance of senior 2024 Euro Notes, net of debt costs

of $2,137 and $1,556, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .

240,285

152,134

—

Net proceeds from issuance of 2022 Notes, net of debt costs of $1,364 . . .

—

— 69,861

Redemption and extinguishment of 2021 Notes . . . . . . . . . . . . . . . . . . .

(189,225)

—

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 . . . . . . . . . . . . . . . . .

(129,412)
(23,990)
(10,547)
(4,495)
1,382

(112,647)
(9,097)
(10,007)

(97,887)
(10,286)
(9,437)
— (6,564)
1,768

1,637

Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . .

(116,002)

22,020

(52,545)

Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . .

3,513

(542)

(2,357)

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

(28,121)

123,329

29,082

Cash and cash equivalents, beginning of year

. . . . . . . . . . . . . . . . . . . . .

399,422

276,093

247,011

Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 371,301 $ 399,422 $276,093

The accompanying notes are an integral part of these consolidated statements.
43

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2020
(IN THOUSANDS) (Continued)

2020

2019

2018

Supplemental disclosures of cash flow information:

Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62,917 $56,022 $48,918

Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,446

3,409

2,444

Non-cash investing and financing activities:

Finance lease obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71,622

14,307

20,050

PP&E obtained for installment payment agreement . . . . . . . . . . . . . . . . . .

5,771

11,255

9,925

Fair value of equipment acquired in leases . . . . . . . . . . . . . . . . . . . . . . . .

536

1,207

—

Non-cash component of network equipment obtained in exchange

transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

320

978

968

The accompanying notes are an integral part of these consolidated statements.
44

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. Cogent Communications, Inc. is wholly owned by
Group and the vast majority of Cogent’s assets, contractual arrangements, and operations are executed by
Cogent Communications, Inc.

Description of business

The Company is a facilities-based provider of low-cost, high-speed Internet access, private network
services, and data center colocation space. The Company’s network is specifically designed and optimized to
transmit packet switched data. The Company delivers its services primarily to small and medium-sized
businesses, communications service providers and other bandwidth-intensive organizations in 47 countries
across North America, Europe, Asia, South America, Australia and Africa. The Company is a Delaware
corporation and is headquartered in Washington, DC.

The Company offers on-net Internet access services exclusively through its own facilities, which run
from its network to its customers’ premises. The Company offers its on-net services to customers located in
buildings that are physically connected to its network. As a result, the Company is not dependent on local
telephone companies or cable TV companies to serve its customers for its on-net Internet access and
private network service. 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.

The Company provides its on-net Internet access and private network services to its corporate and net-

centric customers. The Company’s corporate customers are located in multi-tenant office buildings and
typically include law firms, financial services firms, advertising and marketing firms, as well as health care
providers, educational institutions and other professional services businesses. The Company’s net-centric
customers include bandwidth-intensive users that leverage its network to either deliver content to end users or
to provide access to residential or commercial internet users. Content delivery customers include over the
top (“OTT”) media service providers, content delivery networks, web hosting companies, and commercial
content and application software providers. Access customers include access networks comprised of other
ISPs, telephone companies, mobile phone operators and cable television companies that collectively
provide internet access to a substantial number of broadband subscribers and mobile phone subscribers
across the world. These net-centric customers generally receive the Company’s services in carrier neutral
colocation facilities and in its data centers. The Company operates data centers throughout North America
and Europe that allow its customers to collocate their equipment and access the Company’s network.

In addition to providing on-net services, the Company provides Internet access and private network

services to customers that are not located in buildings directly connected to its network. The Company
provides these off-net services primarily to corporate customers using other carriers’ circuits to provide the
“last mile” portion of the link from the customers’ premises to the Company’s network. The Company also
provides certain non-core services that resulted from acquisitions. The Company continues to support but
does not actively sell these non-core services.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

Principles of consolidation

The consolidated financial statements have been prepared in accordance with United States generally
accepted accounting principles and include the accounts of the Company and all of its wholly-owned and
majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with United States generally

accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results may differ from these estimates.

Allowance for credit losses

The Company establishes an allowance for credit losses and other sales credit adjustments related to its

trade receivables. Trade receivables are recorded at the invoiced amount and can bear interest. Allowances
for sales credits are established through a reduction of revenue, while allowances for credit losses are established
through a charge to selling, general, and administrative expenses as bad debt expense. The Company
assesses the adequacy of these reserves by evaluating factors, such as the length of time individual receivables
are past due, historical collection experience, and changes in the credit worthiness of its customers. The
Company also assesses the ability of specific customers to meet their financial obligations and establishes
specific allowances related to these customers. If circumstances relating to specific customers change or
economic conditions change such that the Company’s past collection experience and assessment of the
economic environment are no longer appropriate, the Company’s estimate of the recoverability of its trade
receivables could be impacted. Accounts receivable balances are written-off against the allowance for credit
losses after all means of internal collection activities have been exhausted and the potential for recovery is
considered remote.

Recent accounting pronouncements—adopted

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13,

Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”) later codified as Accounting Standards Codification (“ASC”) 326 (“ASC 326”), using the
modified retrospective transition approach. This guidance introduces a revised approach to the recognition
and measurement of credit losses, emphasizing an updated model based on expected losses rather than
incurred losses. As of January 1, 2020, the Company maintained an allowance for credit losses to cover its
current expected credit losses on its trade receivables arising from the failure of customers to make contractual
payments. The Company estimates credit losses expected over the life of its trade receivables based on
historical information combined with current conditions that may affect a customer’s ability to pay and
reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily
monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables.
Based on the Company’s experience, the customer’s delinquency status is the strongest indicator of the credit
quality of the underlying trade receivables, which is analyzed monthly. Adoption of ASU 2016-13 did not
have a material impact on the Company’s consolidated financial statements and related disclosures, and no
cumulative adjustment was recorded.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

Description

Allowance for credit losses (deducted from accounts

receivable)

Balance at
Beginning
of Period

Current-period
Provision for
Expected Credit
Losses

Write offs
Charged Against
Allowance

Balance at
End of
Period

Year ending December 31, 2020 . . . . . . . . . . . . . . .

Year ending December 31, 2019 . . . . . . . . . . . . . . .

Year ending December 31, 2018 . . . . . . . . . . . . . . .

$1,771

$1,263

$1,499

$4,997

$6,190

$4,115

$(4,847)

$(5,682)

$(4,351)

$1,921

$1,771

$1,263

The current-period provision for expected credit losses is net of bad debt recoveries of $1.2 million,

$1.9 million and $0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced
most existing lease accounting guidance. In July 2018, the FASB approved an Accounting Standards Update
which, among other changes, allowed a company to elect to adopt ASU 2016-02 using the modified
retrospective method applying the transition provisions at the beginning of the period of adoption, rather
than at the beginning of the earliest comparative period presented in these financial statements. ASU 2016-02
was effective for the Company beginning on January 1, 2019 and required the Company to record a right-
of-use asset and a lease liability for most of its facilities leases. These leases were previously treated as operating
leases. The Company adopted ASU 2016-02 using the optional transition method whereby the new lease
requirements under ASU 2016-02 were recorded through a cumulative-effect adjustment, which after
completing the implementation analysis, did not result in an adjustment to the Company’s January 1, 2019
beginning retained earnings balance. The effect of ASU 2016-02 was to record a cumulative-effect adjustment
on January 1, 2019 as a right-of-use asset and an operating lease liability totaling $97.3 million. The
operating lease liability is not considered a liability under the consolidated leverage ratio calculations in the
indentures governing the Company’s senior unsecured and senior secured note obligations. The Company has
made an accounting policy election to not apply the recognition requirements of ASU 2016-02 to its
short-term leases—leases with a term of one year or less. The Company has also elected to apply certain
practical expedients under ASU 2016-02 including not separating lease and 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.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

Year Ended
December 31, 2020

Year Ended
December 31, 2019

Finance lease cost amortization of right-of-use assets . . . . . . . . . . . . .

$ 22,850

$ 19,823

Interest expense on finance lease liabilities . . . . . . . . . . . . . . . . . . .

Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18,892

17,362

59,104

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 . . . . . . . . . . . . . . . . . . . .

(19,121)

(18,664)

(23,990)

17,709

15,688

53,220

(17,959)

(17,106)

(9,097)

Right-of-use assets obtained in exchange for new finance lease

liabilities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71,622

14,307

Right-of-use assets obtained in exchange for new operating lease

liabilities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35,659

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 . . . . . . . . . . . . . . . .

12.4

20.2

10.3%

5.6%

9,754

14.3

21.9

11.0%

5.6%

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,
2020, the Company had committed to additional dark fiber IRU lease agreements totaling $21.0 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.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

The future minimum payments (principal and interest) under these finance leases are as follows

(in thousands):

For the Twelve Months Ending December 31,

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 34,246

2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total minimum finance lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .

33,269

32,353

32,614

27,399

232,145

392,026

Less—amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(172,886)

Present value of minimum finance lease obligations . . . . . . . . . . . . . . . . .

219,140

Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(15,702)

Finance lease obligations, net of current maturities . . . . . . . . . . . . . . . . . .

$ 203,438

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.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

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

For the Twelve Months Ending December 31,

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,755

2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,391

16,490

15,007

12,554

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

118,157

Total minimum operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . .

196,354

Less—amounts representing interest

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

(73,885)

Present value of minimum operating lease obligations . . . . . . . . . . . . . . . .

122,469

Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11,151)

Lease obligations, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . .

$111,318

Revenue recognition

The Company recognizes revenue under ASU No. 2014-09, Revenue from Contracts with Customers
(“ASC 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. Under ASC 606 installation fees for contracts
with terms longer than month-to-month are recognized over the contract term. The Company believes
that the installation fee does not give rise to a material right as defined by ASC 606 for contracts with terms
longer than month-to-month. The Company recognizes revenue over the estimated average customer life
for installation fees associated with month-to-month contracts, because the installation fee represents a
material right as defined by ASC 606. The Company capitalizes certain contract acquisition costs that relate
directly to a customer contract, including commissions paid to its sales team and sales agents and amortizes
these costs on straight-line basis over the period the services are transferred to the customer for commissions
paid to its sales team (estimated customer life) and over the remaining original contract term for agent
commissions. Management assesses these costs for impairment at least quarterly and as “triggering” events
occur that indicate it is more likely than not that an impairment exists. These contract costs were $20.6 million
as of December 31, 2020 and were $18.7 million as of December 31, 2019.

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:

Identification of the contract, or contracts with a customer

Identification of the performance obligations in the contract

3) Determination of the transaction price

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

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 years ended December 31,
2020, 2019 and 2018 was $4.4 million, $4.4 million and $5.0 million, respectively. Amortization expense for
contract costs for the years ended December 31, 2020, 2019 and 2018 was $17.1 million, $17.3 million and
$16.8 million , respectively.

Gross receipts taxes, universal service fund and other surcharges

Revenue recognition standards include guidance relating to taxes or surcharges assessed by a

governmental authority that are directly imposed on a revenue-producing transaction between a seller and a
customer and may include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund
fees and certain state regulatory fees. Such charges may be presented gross or net based upon the Company’s
accounting policy election. The Company records certain excise taxes and surcharges on a gross basis and
includes them in its revenues and costs of network operations. Excise taxes and surcharges billed to customers
and recorded on a gross basis (as service revenue and network operations expense) were $15.1 million,
$14.9 million, and $12.5 million for the years ended December 31, 2020, 2019 and 2018, 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.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Description of the business and summary of significant accounting policies: (Continued)

At December 31, 2020 and December 31, 2019, 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, 2020 the fair value of the Company’s
$445.0 million senior secured notes due 2022 was $458.4 million and the fair value of the Company’s
€350.0 million ($429.3 million) senior unsecured notes due 2024 was $437.8 million.

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, 2020 and 2019, the Company’s cash equivalents were
invested in demand deposit accounts, overnight investments and money market funds. The Company places
its cash equivalents in instruments that meet high-quality credit standards as specified in the Company’s
investment policy guidelines. Accounts receivable are due from customers located in major metropolitan areas
in the United States, Europe, Canada, Mexico, Asia, South America, Australia and Africa. Receivables
from the Company’s net-centric (wholesale) customers are generally subject to a higher degree of credit risk
than the Company’s corporate customers.

The Company relies upon an equipment vendor for the majority of its network equipment and is also

dependent upon many third-party fiber providers for providing its services to its customers.

Property and equipment

Property and equipment are recorded at cost and depreciated once deployed using the straight-line

method over the estimated useful lives of the assets. Useful lives are determined based on historical usage
with consideration given to technological changes and trends in the industry that could impact the asset
utilization. System infrastructure costs include the capitalized compensation costs of employees directly
involved with construction activities and costs incurred by third-party contractors.

Assets and liabilities under finance leases are recorded at the lesser of the present value of the aggregate
future minimum lease payments or the fair value of the assets under lease. Leasehold improvements include
costs associated with building improvements. 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

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

Software . . . . . . . . . . . . . . . . . . . . . . . .

5 years

Owned buildings . . . . . . . . . . . . . . . . . .

40 years

Office and other equipment

. . . . . . . . . .

3 to 7 years

System infrastructure . . . . . . . . . . . . . . .

5 to 10 years

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.

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:

Year Ended
December 31,
2020

Year Ended
December 31,
2019

Year Ended
December 31,
2018

Weighted average common shares—basic . . . . .

45,947,772

45,542,315

45,280,161

Dilutive effect of stock options . . . . . . . . . . . .

Dilutive effect of restricted stock . . . . . . . . . .

80,849

639,577

32,222

505,858

33,134

467,659

Weighted average common shares—diluted . . .

46,668,198

46,080,395

45,780,954

The following details unvested shares of restricted common stock as well as the anti-dilutive effects of

stock options and restricted stock awards outstanding:

December 31,
2020

December 31,
2019

December 31,
2018

Unvested shares of restricted common stock . .

1,339,596

1,283,281

1,187,586

Anti-dilutive options for common stock . . . . .

32,324

39,608

53,114

Anti-dilutive shares of restricted common

stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .

223,118

348

3,545

2. Property and equipment:

Property and equipment consisted of the following (in thousands):

December 31,

2020

2019

Owned assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Network equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 611,265

$ 566,936

Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . .

System infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and other equipment
. . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

241,379

148,533

10,609
19,611
1,376
116

227,388

134,726

10,035
18,169
1,252
106

1,032,889

958,612

Less—Accumulated depreciation and amortization . . . . . . . .

(856,859)

(790,033)

Assets under finance leases:

IRUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

482,978

408,170

Less—Accumulated depreciation and amortization . . . . . . . .

(228,673)

(207,820)

176,030

168,579

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . .

$ 430,335

$ 368,929

254,305

200,350

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

$83.5 million, $80.2 million and $81.2 million, for 2020, 2019 and 2018, respectively.

The Company capitalizes the compensation cost of employees directly involved with its construction
activities. In 2020, 2019 and 2018, the Company capitalized compensation costs of $12.1 million, $10.7 million
and $10.5 million, respectively. These amounts are included in system infrastructure costs.

Exchange agreement

In 2020, 2019 and 2018 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
$1.1 million, $3.3 million and $3.2 million, respectively, resulting in gains of $0.3 million, $1.0 million and
$1.0 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 was able to 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,
2020 and December 31, 2019, there was $7.7 million and $12.5 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 $0.1 million and $0.4 million as of December 31, 2020 and December 31, 2019, 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):

December 31,

2020

2019

Operating accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,168

$23,695

Deferred revenue—current portion . . . . . . . . . . . . . . . . . . . . . . .

Payroll and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes—non-income based . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,651

8,024
5,918
8,268

4,316

6,613
6,053
10,624

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$51,029

$51,301

4. Long-term debt:

Issuance of 2024 Notes

In June 2020, Group completed an offering of €215.0 million aggregate principal amount of 4.375%

senior unsecured notes due 2024 (“2024 Notes”). The net proceeds from the June 2020 offering, after
deducting offering expenses, were $240.3 million. In June 2019, Group completed an offering of €135.0 million
aggregate principal amount of 2024 Notes. The net proceeds from the June 2019 offering, after deducting
offering expenses, were $152.1 million. The Company expects to use the proceeds from these offerings for
general corporate purposes , to repay debt obligations, to repurchase the Company’s common stock or for

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Long-term debt: (Continued)

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.

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 and will be paid semi-annually in arrears

on June 30 and December 30 of each year. Unless earlier redeemed, the 2024 Notes will mature on June 30,
2024. 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. As of December 31, 2020, the
2024 Notes were valued at $429.3 million resulting in an unrealized loss on foreign exchange of $37.0 million
for the year ended December 31, 2020.

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.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Long-term debt: (Continued)

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.

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 offering
costs. 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, 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

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Long-term debt: (Continued)

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.

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, accrued interest at a rate of 5.625%
and were to mature on April 15, 2021. Interest was paid semi-annually on April 15 and October 15. Cogent
Finance merged with Group, with Group continuing as the surviving corporation (the “Finance Merger”).
At the time of consummation of the Finance Merger, Group assumed the obligations of Cogent Finance
under the 2021 Notes and the indenture governing the 2021 Notes (the “Indenture”) and Group and each
of Group’s domestic subsidiaries became party to the Indenture pursuant to a supplemental indenture to the
Indenture and the obligations under the Indenture became obligations solely of Group and each of
Group’s domestic subsidiaries. Holdings also provided a guarantee of the 2021 Notes but Holdings was not
subject to the covenants under the Indenture. In the second quarter of 2016, the Company paid
$10.9 million for the purchase of $10.8 million of par value and accrued interest on its 2021 Notes reducing
the principal amount to $189.2 million.

Debt extinguishment and redemption 2021 Notes

In June 2020, Group redeemed the 2021 Notes with the proceeds from its June 2020 issuance of 2024
Notes. The Company redeemed the entire outstanding amount of the 2021 Notes at a redemption price of
100.00% of the $189.2 million principal amount plus $1.6 million of accrued interest. As a result of this
transaction, the Company incurred a loss on debt extinguishment and redemption of $0.6 million from
the amortization of the remaining unamortized notes cost and certain transaction expenses.

Limitations under the indentures

The indentures governing the 2024 Notes and 2022 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

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Long-term debt: (Continued)

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. 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. 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, 2020. As of December 31, 2020,
a total of $94.0 million 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, 2020

(in thousands):

For the year ending December 31,

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,922

2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

445,790

2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

429,263

2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$881,975

5. Income taxes:

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

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 23,808

$ 72,773

$ 63,878

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13,496)

(20,099)

(22,496)

Total income before income taxes . . . . . . . . . . . . . . .

$ 10,312

$ 52,674

$ 41,382

Years Ended December 31,

2020

2019

2018

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Income taxes: (Continued)

The income tax expense is comprised of the following (in thousands):

Years Ended December 31,

2020

2019

2018

Current:

Federal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— $

—

State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,908)

(2,647)

(1,522)

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(947)

(370)

(75)

Deferred:

Federal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,867)

(10,899)

(9,746)

State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,241

353

(1,285)

(802)

(570)

Total income tax expense . . . . . . . . . . . . . . . . . . . . .

$(4,096) $(15,154) $(12,715)

Our consolidated temporary differences comprising our net deferred tax assets are as follows (in

thousands):

December 31,

2020

2019

Deferred Tax Assets:

Net operating loss carry-forwards . . . . . . . . . . . . . . . . . . .

$ 273,999

$ 255,269

Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity-based compensation . . . . . . . . . . . . . . . . . . . . . . .

1,965

4,901

2,261

4,116

Operating leases

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,081

32,289

Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . .

320,946

293,935

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .

(150,589)

(131,069)

170,357

162,866

Deferred Tax Liabilities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .

Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross deferred tax liabilities

. . . . . . . . . . . . . . . . . . . . .

37,364

105,554
37,097

180,015

34,884

107,711
29,670

172,265

Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

9,658

9,399

At each balance sheet date, the Company assesses the likelihood that it will be able to realize its

deferred tax assets. The Company considers all available positive and negative evidence in assessing the need
for a valuation allowance. The Company maintains a full valuation allowance against certain of its deferred
tax assets consisting primarily of net operating loss carryforwards related to its foreign operations in Europe,
Asia, South America, Australia and Africa 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, 2020, the Company has combined net operating loss carry-forwards of $1.1 billion.

This amount includes federal net operating loss carry-forwards in the United States of $60.3 million, net
operating loss carry-forwards related to its European operations of $1.0 billion and $5.3 million related to

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Income taxes: (Continued)

its other international operations. Section 382 of the Internal Revenue Code in the United States limits the
utilization of net operating losses when ownership changes, as defined by that section, occur. The Company
has performed an analysis of its Section 382 ownership changes and has determined that the utilization of
certain of its net operating loss carryforwards in the United States is limited based on the annual Section 382
limitation and remaining carryforward period. Of the net operating losses available at December 31, 2020
in the United States $32.0 million are limited for use under Section 382. Net operating loss carryforwards
outside of the United States totaling $1.0 billion 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 European operations include $870.0 million that do
not expire and $153.9 million that expire between 2021 and 2036.

The Company has not provided for United States deferred income taxes or foreign withholding taxes
on its undistributed earnings for certain non-US subsidiaries earnings or cumulative translation adjustments
because these earnings and adjustments are intended to be permanently reinvested in operations outside
the United States. It is not practical to determine the amount of the unrecognized deferred tax liability on
such undistributed earnings or cumulative translation adjustments.

In the normal course of business the Company takes positions on its tax returns that may be challenged
by taxing authorities. The Company evaluates all uncertain tax positions to assess whether the position will
more likely than not be sustained upon examination. If the Company determines that the tax position is
not more likely than not to be sustained, the Company records a liability for the amount of the benefit that
is not more likely than not to be realized when the tax position is settled. The Company does not have a
material liability for uncertain tax positions at December 31, 2020 and does not expect that its liability for
uncertain tax positions will materially increase during the twelve months ended December 31, 2021, 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 2020. The Company is subject to tax examinations in its foreign jurisdictions generally
for years 2005 to 2020.

The following is a reconciliation of the Federal statutory income taxes to the amounts reported in the

financial statements (in thousands).

Years Ended December 31,

2020

2019

2018

Federal income tax expense at statutory rates

. . . . . . .

$(2,166) $(11,061) $ (8,690)

Effect of:

State income taxes, net of federal benefit . . . . . . . . .
Impact of foreign operations . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . .
Tax effect of TCJA from foreign earnings . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in valuation allowance . . . . . . . . . . . . . . .

(1,091)
(365)
(411)
(66)

(29)

(2,973)
(505)
(491)
(28)

(32)

(64)

(2,665)
(694)
(1,218)
(130)

—

682

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . .

$(4,096) $(15,154) $(12,715)

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Commitments and contingencies:

Current and potential litigation

In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a

contingent liability when it is both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. Where it is probable that a liability has been incurred and there is a range of
expected loss for which no amount in the range is more likely than any other amount, the Company accrues
at the low end of the range. The Company reviews its accruals at least quarterly and adjusts them to
reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and
events pertaining to a particular matter. The Company has taken certain positions related to its obligations
for leased circuits for which it is reasonably possible could result in a loss of up to $3.3 million in excess of the
amount accrued at December 31, 2020.

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.

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

such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the
liability related to these legal actions and claims cannot be determined with certainty. Management does not
believe that such claims and actions will have a material impact on the Company’s financial condition or
results of operations. Judgment is required in estimating the ultimate outcome of any dispute resolution
process, as well as any other amounts that may be incurred to conclude the negotiations or settle any litigation.
Actual results may differ from these estimates under different assumptions or conditions and such
differences could be material.

Network equipment sites and data center facilities

The Company enters into leases for network equipment sites and for space in data center facilities.

Future minimum annual payments under these arrangements are as follows (in thousands):

For the year ending December 31,

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$19,235

2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

8,531

5,586
3,119
1,240
1,690

$39,401

Expenses related to these arrangements were $21.0 million in 2020, $20.6 million in 2019 and

$20.8 million in 2018.

Unconditional purchase obligations

Unconditional purchase obligations for equipment and services totaled $10.6 million at December 31,
2020. As of December 31, 2020, the Company had also committed to additional dark fiber IRU capital and
operating lease agreements totaling $21.0 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 2021.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Commitments and contingencies: (Continued)

Future minimum payments under these obligations are $2.5 million, $0.8 million, $0.7 million, $0.7 million
and $0.7 million for the years ending December 31, 2021 to December 31, 2025, respectively, and
$15.6 million, thereafter.

Defined contribution plan

The Company sponsors a 401(k) defined contribution plan that provides for a Company matching
payment. The Company matching payments were paid in cash and were $0.9 million for 2020, $0.8 million
for 2019 and $0.8 million for 2018.

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, 2020, there was
$30.4 million remaining for purchases under the Buyback Program. During 2020 and 2018 the Company
purchased 79,056 and 147,995 shares of its common stock for $4.5 million and $6.6 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 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

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Stock option and award plan: (Continued)

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 is subject to certain performance
conditions and the vesting of certain shares granted to the Company’s CEO is subject to the total shareholder
return of the Company’s common stock compared to the total shareholder return of the Nasdaq
Telecommunications Index and, for the shares granted to the Company’s CEO in 2020, equal portions of
the shares are also subject to the Company’s growth rate in revenue and the Company’s growth rate in cash
flow from operating activities, with each portion of the performance-based equity award subject to a cap and
no shares earned if performance with respect to a target is less than zero.

The accounting for equity-based compensation expense requires the Company to make estimates and

judgments that affect its financial statements. These estimates for stock options include the following.

Expected Dividend Yield—The Company uses an expected dividend yield based upon expected annual

dividends and the Company’s stock price.

Expected Volatility—The Company uses its historical volatility for a period commensurate with the

expected term of the option.

Risk-Free Interest Rate—The Company uses the zero coupon US Treasury rate during the quarter

having a term that most closely resembles the expected term of the option.

Expected Term of the Option—The Company estimates the expected life of the option term by

analyzing historical stock option exercises.

Forfeiture Rates—The Company estimates its forfeiture rate based on historical data with further

consideration given to the class of employees to whom the options or shares were granted.

The weighted-average per share grant date fair value of options was $13.21 in 2020, $8.92 in 2019 and
$8.45 in 2018. The following assumptions were used for determining the fair value of options granted in the
three years ended December 31, 2020:

Black-Scholes Assumptions

Years Ended
December 31,

2020

2019

2018

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4% 4.5% 4.6%

Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of the option term (in years) . . . . . . . . . . . . . . . . . .

31.5% 28.3% 28.7%
1.1% 2.5% 2.5%
4.3
4.2

4.4

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Stock option and award plan: (Continued)

Stock option activity under the Company’s Award Plan during the year ended December 31, 2020, was

as follows:

Number of
Options

Weighted-Average
Exercise Price

Outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . .

156,666

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73,148

Cancelled and expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

(39,837)

$46.21

$74.90

$67.45

Exercised—intrinsic value $0.8 million; cash received

$1.4 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(30,097)

$45.94

Outstanding at December 31, 2020—$1.7 million intrinsic

value and 6.9 years weighted-average remaining
contractual term . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercisable at December 31, 2020—$1.5 million intrinsic

value and 5.9 years weighted-average remaining
contractual term . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expected to vest—$1.6 million intrinsic value and 6.7 years

159,880

$54.09

100,050

$47.63

weighted-average remaining contractual term . . . . . . . . .

144,490

$52.71

A summary of the Company’s non-vested restricted stock awards as of December 31, 2020 and the

changes during the year ended December 31, 2020 are as follows:

Non-vested awards

Weighted-Average
Grant Date
Fair Value

Non-vested at December 31, 2019 . . . . . . . . . . . . . . . . . .

1,283,281

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

476,030

Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(366,287)

Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(53,428)

Non-vested at December 31, 2020 . . . . . . . . . . . . . . . . . .

1,339,596

$45.40

$75.18

$46.13

$47.55

$55.70

The weighted average per share grant date fair value of restricted stock granted was $75.18 in 2020
(0.5 million shares), $53.53 in 2019 (0.5 million shares) and $44.02 in 2018 (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
2020, 2019 and 2018 was $25.4 million, $20.8 million and $19.1 million, respectively.

Equity-based compensation expense related to stock options and restricted stock was $23.5 million,
$18.5 million, and $17.7 million for 2020, 2019, and 2018, respectively. The income tax benefit related to
stock options and restricted stock was $4.2 million, $3.0 million, and $1.8 million for 2020, 2019, and 2018,
respectively. The Company capitalized compensation expense related to stock options and restricted stock
for 2020, 2019, and 2018 of $2.3 million, $1.8 million and $1.7 million, respectively. As of December 31, 2020,
there was $40.7 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 2.0 years.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 at no cost
by the Company upon 60 days’ notice. The Company’s audit committee reviews and approves all transactions
with related parties. The Company paid $1.7 million in 2020, $1.7 million in 2019 and $1.7 million in 2018
for rent and related costs (including taxes and utilities) for this lease.

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, 2020
North America . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . .
South America . . . . . . . . . . . . . . . . . . . .
Africa . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

On-net
$330,924
79,568
6,834
2,056
72
$419,454

Off-net
$129,879
17,252
949
48
—
$148,128

Non-core
$474
47
—
—
—
$521

Total
$461,277
96,867
7,783
2,104
72
$568,103

Year Ended December 31, 2019

On-net

Off-net

Non-core

Total

North America . . . . . . . . . . . . . . . . . . .

$319,330

$131,815

$422

$451,567

Europe . . . . . . . . . . . . . . . . . . . . . . . . .

Asia Pacific . . . . . . . . . . . . . . . . . . . . . .

South America . . . . . . . . . . . . . . . . . . . .

72,320

4,615

488

16,323

778

—

88,696

5,393

503

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

$396,753

$148,931

$475

$546,159

Year Ended December 31, 2018

On-net

Off-net

Non-core

Total

North America . . . . . . . . . . . . . . . . . . .

$299,021

$128,510

$572

$428,103

Europe . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . .
South America . . . . . . . . . . . . . . . . . . . .

72,958
2,562
14

15,918
576
—

62
—
—

88,938
3,138
14

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

$374,555

$145,004

$634

$520,193

Long lived assets, net
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

$306,652
123,699
$430,351

$269,364
99,582
$368,946

December 31,
2020

December 31,
2019

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Quarterly financial information (unaudited):

Three months ended

March 31,
2020

June 30,
2020

September 30,
2020

December 31,
2020

(in thousands, except share and per share amounts)

Service revenue . . . . . . . . . . . . . . . . . . . . . . .

140,915

140,990

142,302

143,901

Network operations, including equity-based

compensation expense . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . .

Net income (loss)(1) . . . . . . . . . . . . . . . . . . . .

Net income (loss) per common share—basic . . .

Net income (loss) per common share—diluted . .

Weighted-average number of common shares—

55,921

25,850

9,227

0.20

53,886

27,574

8,564

0.19

0.18

54,519

26,036

(6,555)

(0.11)

54,829

27,384

(6,620)

(0.14)

basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,658,565

45,754,880

45,815,718

45,904,943

Weighted-average number of common shares—

diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

46,391,066

46,686,665

45,815,718

45,904,943

Three months ended

March 31,
2019

June 30,
2019

September 30,
2019

December 31,
2019

(in thousands, except share and per share amounts)

Service revenue . . . . . . . . . . . . . . . . . . . . . . .

134,137

134,789

136,942

140,292

Network operations, including equity-based

compensation expense . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . .

Net income(2) . . . . . . . . . . . . . . . . . . . . . . . .

Net income per common share—basic and

54,150

24,400

9,217

54,407

22,022

7,136

55,253

25,799

13,701

55,990

28,033

7,465

diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.20

0.16

0.30

0.16

Weighted-average number of common shares—

basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,223,157

45,354,327

45,438,656

45,553,727

Weighted-average number of common shares—

diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,644,236

45,912,291

46,019,691

46,145,970

(1)

Included in net income (loss) for the three months ended March 31, 2020, June 30, 2020, September 30,
2020 and December 31, 2020 are unrealized gains and (losses) on foreign exchange on the Company’s
2024 Notes of $2.9 million, ($3.4) million, ($17.3) million and $(19.2) million, respectively. Included in
net income for the three months ended June 30, 2020 was a realized gain on foreign exchange on the
Company’s 2024 Notes of $2.5 million.

(2)

Included in net income for the three months ended September 30, 2019 and December 31, 2019 are an
unrealized gain (loss) on foreign exchange on the Company’s 2024 Notes of $6.1 million and ($4.0)
million, respectively.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Subsequent Events:

Dividend

On February 24, 2021, the Company’s Board of Directors approved the payment of a quarterly
dividend of $0.755 per common share. The dividend for the first quarter of 2021 will be paid to holders of
record on March 12, 2021. This estimated $34.6 million dividend payment is expected to be made on March 26,
2021.

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 Exchange Act, 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 Exchange Act) 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.

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, 2020, our
system of internal control over financial reporting was effective.

The independent registered public accounting firm, Ernst & Young LLP, has audited our 2020
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 2020 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 26, 2021

By:

/s/ DAVID SCHAEFFER
David Schaeffer
Chief Executive Officer

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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, 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 26, 2021 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.

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 26, 2021

ITEM 9B. OTHER INFORMATION

None.

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 2021 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 “2021 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 Potential Post-Employment Compensation Arrangements,”
“Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in
our 2021 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 Plan” in our 2021 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 2021 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 2021
Proxy Statement.

PART IV

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

(a) 1. 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.”

2. 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

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

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).

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).

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).

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).

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).

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).

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).

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).
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).

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).

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).

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).

First Supplemental Indenture to the Base Indenture, dated as of June 10, 2020, among Cogent
Communications Group, Inc., the guarantors named therein and Wilmington Trust, National
Association, as trustee (previously filed as Exhibit 4.4 to our Current Report on Form 8-K, filed on
June 10, 2020, and incorporated herein by reference).

Indenture related to the 4.375% Senior Notes due 2024, dated as of June 3, 2020, among Cogent
Communications Finance, Inc., Wilmington Trust, National Association, as trustee, Deutsche Bank
AG, London Branch, as paying agent, and Deutsche Bank Trust Company Americas, as
authentication agent and registrar (previously filed as Exhibit 4.1 to our Current Report on
Form 8-K, filed on June 9, 2020, and incorporated herein by reference).

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 9, 2020, and incorporated herein by reference).

First Supplemental Indenture to the Temporary Indenture, dated as of June 10, 2020, between
Cogent Communications Group, Inc. and Wilmington Trust, National Association, as trustee
(previously filed as Exhibit 4.1 to our Current Report on Form 8-K, filed on June 10, 2020, and
incorporated herein by reference).

Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934
(previously filed as Exhibit 4.10 to our Annual Report on Form 10-K for the year ended
December 31, 2019, filed on February 28, 2020, and incorporated herein by reference).

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 (previously filed as Exhibit 10.2 to our Registration Statement on Form S-4,
Commission File No. 333-71684, filed on October 16, 2001, and incorporated herein by reference).*

David Schaeffer Employment Agreement with Cogent Communications Group, Inc., dated
February 7, 2000 (previously filed as Exhibit 10.6 to our Registration Statement on Form S-4,
Commission File No. 333-71684, filed on October 16, 2001, and incorporated herein by reference).

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).

Brad Kummer Employment Agreement with Cogent Communications Group, Inc., dated
January 11, 2000, (previously filed as Exhibit 10.23 to our Registration Statement on Form S-1,
Commission File No. 333-122821, filed on February 14, 2005, and incorporated herein by
reference).

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).
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).

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).

4.8

4.9

4.10

4.11

4.12

4.13

4.14

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8 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).

10.9 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).

10.10 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).

10.11 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).

10.12 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).

10.13 Lease Agreement, dated April 16, 2015, between Sodium LLC and Cogent Communications, Inc.
(previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on April 17, 2015, and
incorporated herein by reference).

10.14 First Amendment to Lease Agreement, dated February 28, 2020, between Sodium LLC and Cogent

Communications, Inc. (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed
on March 2, 2020, and incorporated herein by reference).

10.15 Restricted Stock Award, dated as of May 3, 2017, between the Company and David Schaeffer

(previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on May 3, 2017, and
incorporated herein by reference).

10.16 Form of Restricted Stock Award, dated as of May 3, 2017, between the Company and the Vice

President named executive officers (previously filed as Exhibit 10.2 to our Current Report on Form
8-K, filed on May 3, 2017, and incorporated herein by reference).

10.17 Amendment No. 7 to Employment Agreement of David Schaeffer, dated November 17, 2017

(previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on November 20, 2017,
and incorporated herein by reference).

10.18 Cogent Communications Holdings, Inc. 2017 Incentive Award Plan (previously filed as Appendix A
to the Company’s Definitive Proxy Statement on Schedule 14A filed March 15, 2019, and
incorporated herein by reference).

10.19 First Amendment to Cogent Communications Holdings, Inc. 2018 Incentive Award Plan

(previously filed as Appendix B of the Company’s Definitive Proxy Statement on Schedule 14A
filed March 15, 2019, and incorporated herein by reference).

10.20 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).

10.21 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).

10.22 Employment Letter between the Company and Sean Wallace, effective April 22, 2020 (previously

filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on May 11, 2020, and incorporated
herein by reference).

10.23 Restricted Stock Award, dated May 11, 2020, between the Company and Sean Wallace (previously
filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on May 11, 2020, and incorporated
herein by reference).

10.24

Severance Agreement, dated May 11, 2020, between the Company and Sean Wallace (previously
filed as Exhibit 10.3 to our Current Report on Form 8-K, filed on May 11, 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, 2020, 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.

Schedule II
COGENT COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Description

Deferred tax valuation allowance

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

(Deductions)

Balance at
End of
Period

Year ended December 31, 2018 . . . . . . . . . . . . . . . . . . .

$129,673

$ 2,138

$(5,232)

$126,579

Year ended December 31, 2019 . . . . . . . . . . . . . . . . . . .

$126,579

$ 5,785

$(1,295)

$131,069

Year ended December 31, 2020 . . . . . . . . . . . . . . . . . . .

$131,069

$20,599

$(1,079)

$150,589

ITEM 16. FORM 10-K SUMMARY

None

SIGNATURES

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.

COGENT COMMUNICATIONS HOLDINGS, INC.

Dated: February 26, 2021

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 26, 2021

Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Principal
Accounting Officer)

February 26, 2021

/s/ SEAN WALLACE
Sean Wallace

/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

Director

/s/ LEWIS H. FERGUSON III
Lewis H. Ferguson III

Director

February 26, 2021