UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

x~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

Commission File No. 000-51829

COGENT COMMUNICATIONS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		46-5706863
(State of Incorporation)		(I.R.S. Employer
		Identification Number)

2450 N Street N.W.

Washington, ~~D.C.~~ D.C. 20037

(Address of Principal Executive Offices and Zip Code)

~~(202)~~ (202) 295-4200

(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class		Trading Symbol		Name of Each Exchange on which Registered
Common Stock, par value $0.001 per share		CCOI		NASDAQ Global Select Market

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 x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T ~~(232.405~~(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

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,”~~filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filerx	☒	Accelerated filero	☐
Non-accelerated filer	☐	Smaller reporting company	☐
~~Non-accelerated filer~~ o		~~Smaller reporting company~~ o
~~(Do not check if a smaller reporting company)~~		Emerging growth companyo	☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.001 par value ~~45,954,976~~48,884,279 Shares Outstanding as of ~~October~~July 31, ~~2017~~2023

Table of Contents

INDEX

~~INDEX~~

~~PART��~~PART I ~~FINANCIAL INFORMATION~~
~~Item 1.~~FINANCIAL INFORMATION

Item 1.	Financial Statements		3
	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets of Cogent Communications Holdings, Inc., and Subsidiaries as of ~~September~~June 30, ~~2017~~2023 (Unaudited) and December 31, ~~2016~~2022		3
	Condensed Consolidated Statements of Comprehensive Income of Cogent Communications Holdings, Inc., and Subsidiaries for the Three Months Ended ~~September~~June 30, ~~2017~~2023 and ~~September~~June 30, ~~2016 (Unaudited)~~2022(Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income of Cogent Communications Holdings, Inc., and Subsidiaries for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~September~~June 30, ~~2016 (Unaudited)~~2022(Unaudited)		5
	Condensed Consolidated Statements of Cash Flows of Cogent Communications Holdings, Inc., and Subsidiaries for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~September~~June 30, ~~2016 (Unaudited)~~2022(Unaudited)		6
	Notes to Interim Condensed Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19	45
Item 4.	Controls and Procedures	19	46
Item 5.	Other Information		47
~~PART II~~ ~~OTHER INFORMATION~~
PART II
~~Item 1.~~OTHER INFORMATION		~~Legal Proceedings~~	19
~~Item 2.~~
Item 1.	Legal Proceedings		47
Item 1A.	Risk Factors		47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19	47
Item 6.	Exhibits	19	48
SIGNATURES			2149
CERTIFICATIONS

Page 2 of 49

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~SEPTEMBER~~JUNE 30, ~~2017~~2023 AND DECEMBER 31, ~~2016~~2022

(IN THOUSANDS, EXCEPT SHARE DATA)

September 30,
2017

December 31,
2016

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$
250,765

$
274,319

Accounts receivable, net of allowance for doubtful accounts of $2,044 and $1,734, respectively

39,118

33,598

Prepaid expenses and other current assets

20,427

19,706

Total current assets

310,310

327,623

Property and equipment, net

381,010

361,641

Deferred tax assets, net

32,668

42,241

Deposits and other assets - $727 and $128 restricted, respectively

5,872

6,387

Total assets

$
729,860

$
737,892

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$
12,314

$
11,551

Accrued and other current liabilities

47,449

47,149

Installment payment agreement, current portion, net of discount of $309 and $204, respectively

7,090

2,587

Current maturities, capital lease obligations

6,698

6,626

Total current liabilities

73,551

67,913

Senior secured 2022 notes, net of unamortized debt costs of $1,969 and $2,257, respectively and including premium of $402 and $462, respectively

373,433

373,205

Senior unsecured 2021 notes, net of unamortized debt costs of $2,200 and $2,575, respectively

187,025

186,650

Capital lease obligations, net of current maturities

147,623

135,335

Other long term liabilities

28,351

28,043

Total liabilities

809,983

791,146

Commitments and contingencies:

Stockholders’ equity:

Common stock, $0.001 par value; 75,000,000 shares authorized; 45,946,226 and 45,478,787 shares issued and outstanding, respectively

46

45

Additional paid-in capital

452,369

442,799

Accumulated other comprehensive income — foreign currency translation

(5,912
)
(17,193
)
Accumulated deficit

(526,626
)
(478,905
)
Total stockholders’ deficit

(80,123
)
(53,254
)
Total liabilities and stockholders’ deficit

$
729,860

$
737,892


	June 30,		December 31,
	2023		2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	192,366	$	223,783
Restricted cash		51,587		52,129
Accounts receivable, net of allowance for credit losses of $4,882 and $2,303, respectively		89,207		44,123
Due from T-Mobile, IP Transit Services Agreement, current portion, net of discount of $32,391		291,160		—
Due from T-Mobile, Transition Services Agreement		7,015		—
Prepaid expenses and other current assets		81,854		45,878
Total current assets		713,189		365,913
Property and equipment:
Property and equipment		2,856,108		1,714,906
Accumulated depreciation and amortization		(1,248,667)		(1,170,476)
Total property and equipment, net		1,607,441		544,430
Right-of-use leased assets		415,602		81,601
Intangible assets, net		56,070		—
Deposits and other assets		22,169		18,238
Due from T-Mobile, IP Transit Services Agreement, net of discount of $39,550		307,732		—
Due from T-Mobile, Purchase Agreement, net of discount of $16,526		40,534		—
Total assets	$	3,162,737	$	1,010,182
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	30,278	$	27,208
Accrued and other current liabilities		117,612		63,889
Due to T-Mobile – Transition Services Agreement		118,777		—
Due to T-Mobile – Purchase Agreement		3,492		—
Current maturities, operating lease liabilities		125,551		12,005
Finance lease obligations, current maturities		20,114		17,182
Total current liabilities		415,824		120,284
Senior secured 2026 notes, net of unamortized debt costs of $776 and $905, respectively, and discount of $1,032 and $1,203, respectively		498,192		497,892
Senior unsecured 2027 notes, net of unamortized debt costs of $1,059 and $1,173, respectively, and discount of $2,218 and $2,456, respectively		446,723		446,371
Operating lease liabilities, net of current maturities		455,713		94,587
Finance lease obligations, net of current maturities		311,405		287,044
Deferred income tax liabilities		424,507		—
Other long-term liabilities		71,173		82,636
Total liabilities		2,623,537		1,528,814
Commitments and contingencies:
Stockholders’ equity (deficit):
Common stock, $0.001 par value; 75,000,000 shares authorized; 48,617,162 and 48,013,330 shares issued and outstanding, respectively		49		48
Additional paid-in capital		589,573		575,064
Accumulated other comprehensive loss		(15,627)		(19,156)
Accumulated deficit		(34,795)		(1,074,588)
Total stockholders’ equity (deficit)		539,200		(518,632)
Total liabilities and stockholders’ equity (deficit)	$	3,162,737	$	1,010,182

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

Page 3 of 49

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2023 AND ~~SEPTEMBER~~JUNE 30, ~~2016~~2022

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE ~~AMOUNTS)~~DATA)

Three Months
Ended
September 30, 2017

Three Months
Ended
September 30, 2016

(Unaudited)

(Unaudited)

Service revenue

$
122,969

$
113,057

Operating expenses:

Network operations (including $179 and $161 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

53,584

48,827

Selling, general, and administrative (including $3,555 and $2,830 of equity-based compensation expense, respectively)

32,915

30,050

Depreciation and amortization

19,147

18,804

Total operating expenses

105,646

97,681

Gains on equipment transactions

397

687

Operating income

17,720

16,063

Interest income and other, net

1,632

207

Interest expense

(12,266
)
(9,891
)
Income before income taxes

7,086

6,379

Income tax provision

(3,436
)
(2,920
)
Net income

$
3,650

$
3,459

Comprehensive income:

Net income

$
3,650

$
3,459

Foreign currency translation adjustment

3,790

688

Comprehensive income

$
7,440

$
4,147

Net income per common share:

Basic and diluted net income per common share

$
0.08

$
0.08

Dividends declared per common share

$
0.46

$
0.38

Weighted-average common shares — basic

44,767,163

44,574,583

Weighted-average common shares - diluted

45,118,607

44,816,860


	Three Months Ended		Three Months Ended
	June 30, 2023		June 30, 2022
	(Unaudited)		(Unaudited)
Service revenue	$	239,806	$	148,450
Operating expenses:
Network operations (including $231 and $145 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)		137,502		56,514
Selling, general, and administrative (including $6,018 and $5,762 of equity-based compensation expense, respectively)		83,658		39,386
Acquisition costs – Sprint Wireline Business		739		—
Depreciation and amortization		52,511		23,071
Total operating expenses		274,410		118,971
Gains on lease terminations		—		87
Operating (loss) income		(34,604)		29,566
Interest expense		(28,653)		(13,478)
Gain on bargain purchase – Sprint Wireline Business		1,155,719		—
Change in valuation – interest rate swap agreement		(1,305)		(7,510)
Unrealized foreign exchange gain on 2024 Euro Notes		—		23,547
Loss on debt extinguishment and redemption – 2024 Euro Notes		—		(11,885)
Interest income – IP Transit Services Agreement		7,669		—
Interest income – Purchase Agreement		506		—
Interest income and other, net		200		(522)
Income before income taxes		1,099,532		19,718
Income tax benefit (expense)		24,331		(8,554)
Net income	$	1,123,863	$	11,164


Comprehensive income:
Net income	$	1,123,863	$	11,164
Foreign currency translation adjustment		1,741		(7,493)
Comprehensive income	$	1,125,604	$	3,671

Net income per common share:
Basic net income per common share	$	23.84	$	0.24
Diluted net income per common share	$	23.65	$	0.24
Dividends declared per common share	$	0.935	$	0.88

Weighted-average common shares - basic		47,137,822		46,691,142

Weighted-average common shares - diluted		47,526,207		47,029,446

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

Page 4 of 49

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2023 AND ~~SEPTEMBER~~JUNE 30, ~~2016~~2022

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE ~~AMOUNTS)~~DATA)

Nine Months
Ended
September 30, 2017

Nine Months
Ended
September 30, 2016

(Unaudited)

(Unaudited)

Service revenue

$
359,949

$
331,304

Operating expenses:

Network operations (including $431 and $427 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

155,362

143,976

Selling, general, and administrative (including $9,175 and $7,432 of equity-based compensation expense, respectively)

96,165

89,403

Depreciation and amortization

56,583

55,161

Total operating expenses

308,110

288,540

Losses on debt purchases and installment loan repayment

—

(587
)
Gains on equipment transactions

3,543

7,071

Operating income

55,382

49,248

Interest income and other, net

3,502

677

Interest expense

(36,245
)
(30,200
)
Income before income taxes

22,639

19,725

Income tax provision

(10,536
)
(8,688
)
Net income

$
12,103

$
11,037

Comprehensive income:

Net income

$
12,103

$
11,037

Foreign currency translation adjustment

11,281

2,795

Comprehensive income

$
23,384

$
13,832

Net income per common share:

Basic and diluted net income per common share

$
0.27

$
0.25

Dividends declared per common share

$
1.32

$
1.11

Weighted-average common shares - basic

44,787,067

44,563,279

Weighted-average common shares - diluted

45,083,765

44,796,259


	Six Months Ended		Six Months Ended
	June 30, 2023		June 30, 2022
	(Unaudited)		(Unaudited)
Service revenue	$	393,395	$	297,622
Operating expenses:
Network operations (including $380 and $289 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)		196,140		113,963
Selling, general, and administrative (including $12,450 and $11,674 of equity-based compensation expense, respectively)		128,736		80,013
Acquisition costs – Sprint Wireline Business		1,139		—
Depreciation and amortization		77,669		45,762
Total operating expenses		403,684		239,738
Gains on lease terminations		—		460
Operating (loss) income		(10,289)		58,344
Interest expense		(47,658)		(27,648)
Gain on bargain purchase – Sprint Wireline Business		1,155,719		—
Change in valuation – interest rate swap agreement		542		(28,781)
Unrealized foreign exchange gain on 2024 Euro Notes		—		31,561
Loss on debt extinguishment and redemption- 2024 Euro Notes		—		(11,885)
Interest income – IP Transit Services Agreement		7,669		—
Interest income – Purchase Agreement		506		—
Interest income and other, net		3,695		(195)
Income before income taxes		1,110,184		21,396
Income tax benefit (expense)		19,827		(9,095)
Net income	$	1,130,011	$	12,301

Comprehensive income:
Net income	$	1,130,011	$	12,301
Foreign currency translation adjustment		3,529		(9,658)
Comprehensive income	$	1,133,540	$	2,643

Net income per common share:
Basic net income per common share	$	23.97	$	0.26
Diluted net income per common share	$	23.79	$	0.26
Dividends declared per common share	$	1.860	$	1.735

Weighted-average common shares - basic		47,142,074		46,705,088

Weighted-average common shares - diluted		47,508,334		47,050,911

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

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2023 AND ~~SEPTEMBER~~JUNE 30, ~~2016~~2022

(IN THOUSANDS)

Nine months
Ended
September 30, 2017

Nine months
Ended
September 30, 2016

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$
12,103

$
11,037

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

56,583

55,161

Amortization of debt discount and premium

899

879

Equity-based compensation expense (net of amounts capitalized)

9,606

7,859

Losses on debt purchases and installment loan repayment

—

587

Gains — equipment transactions and other, net

(4,394
)
(7,124
)
Deferred income taxes

9,835

8,453

Changes in operating assets and liabilities:

Accounts receivable

(4,317
)
(2,478
)
Prepaid expenses and other current assets

645

(3,256
)
Accounts payable, accrued liabilities and other long-term liabilities

(1,411
)
4,499

Deposits and other assets

793

(1,529
)
Net cash provided by operating activities

80,342

74,088

Cash flows from investing activities:

Purchases of property and equipment

(35,183
)
(38,039
)
Net cash used in investing activities

(35,183
)
(38,039
)
Cash flows from financing activities:

Dividends paid

(59,824
)
(50,011
)
Purchases of common stock

(1,829
)
(1,666
)
Purchases of senior secured 2021 notes

—

(10,775
)
Proceeds from exercises of stock options

919

894

Principal payments on installment payment agreement

(2,183
)
(21,203
)
Principal payments of capital lease obligations

(9,368
)
(9,658
)
Net cash used in financing activities

(72,285
)
(92,419
)
Effect of exchange rates changes on cash

3,572

930

Net decrease in cash and cash equivalents

(23,554
)
(55,440
)
Cash and cash equivalents, beginning of period

274,319

203,591

Cash and cash equivalents, end of period

$
250,765

$
148,151

Supplemental disclosure of non-cash financing activities:

Non-cash component of network equipment obtained in exchange transactions

$
3,509

$
7,071

PP&E obtained for installment payment agreement

$
6,577

$
2,746

Fair value of equipment acquired in leases

$
—

$
1,744

Capital lease obligations incurred

$
18,105

$
13,120


	Six Months Ended		Six Months Ended
	June 30, 2023		June 30, 2022
	(Unaudited)		(Unaudited)
Cash flows from operating activities:
Net income	$	1,130,011	$	12,301
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		77,669		45,762
Amortization of debt discount and premium		652		829
Amortization of discounts, Due from T-Mobile, IP Transit Services & Purchase Agreements		(8,175)		—
Equity-based compensation expense (net of amounts capitalized)		12,830		11,963
Gain on bargain purchase – Sprint Wireline Business		(1,155,719)		—
Gains - equipment transactions and other, net		(608)		1,308
Loss on debt extinguishment and redemption – 2024 Euro Notes		—		11,885
Unrealized foreign currency exchange gain on 2024 Euro Notes		—		(31,561)
Deferred income taxes		(27,190)		3,138
Changes in operating assets and liabilities:
Accounts receivable		(4,918)		(3,529)
Prepaid expenses and other current assets		(14,140)		(5,150)
Change in valuation – interest rate swap agreement		(542)		28,781
Due to T-Mobile – Transition Services Agreement		118,777		—
Due from T-Mobile – Transition Services Agreement		(7,015)		—
Unfavorable lease liabilities		(6,469)		—
Accounts payable, accrued liabilities and other long-term liabilities		3,179		8,233
Deposits and other assets		133		(146)
Net cash provided by operating activities		118,475		83,814
Cash flows from investing activities:
Cash payments - IP Transit Agreement – T-Mobile		29,167		—
Acquisition of Sprint Wireline Business, net of 47.1 million of cash acquired		(14,034)		—
Purchases of property and equipment		(60,653)		(35,409)
Net cash used in investing activities		(45,520)		(35,409)
Cash flows from financing activities:
Dividends paid		(90,218)		(83,153)
Redemption and extinguishment – 2024 Euro Notes		—		(375,354)
Net proceeds from issuance of senior unsecured 2027 Notes - net of debt costs of $1,290		—		446,010
Proceeds from exercises of stock options		385		334
Principal payments on installment payment agreement		—		(790)
Principal payments of finance lease obligations		(17,247)		(11,099)
Net cash used in financing activities		(107,080)		(24,052)
Effect of exchange rates changes on cash		2,166		(3,130)
Net (decrease) increase in cash, cash equivalents and restricted cash		(31,959)		21,223
Cash, cash equivalents and restricted cash, beginning of period		275,912		328,624
Cash, cash equivalents and restricted cash, end of period	$	243,953	$	349,847
Supplemental disclosure of non-cash financing activities:
Fair value of equipment acquired in leases	$	171	$	1,088
Finance lease obligations incurred	$	42,639	$	23,685

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

Page 6 of 49

Table of Contents

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Description of the ~~business and recent developments:~~business:

Reorganization and merger

On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and among Cogent Communications Group, Inc. (“Group”), a Delaware corporation, Cogent Communications Holdings, Inc., a Delaware corporation (“Holdings”) and Cogent Communications Merger Sub, Inc., a Delaware corporation, ~~(“Merger Sub”),~~ Group adopted a new holding company organizational structure whereby Group is now a wholly owned subsidiary of Holdings. Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). ~~In connection with the succession, the common stock of Holdings is deemed to be registered under Section 12(b) of the Exchange Act by operation of law.~~

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 the Company’s assets, contractual arrangements, and operations are executed by Sprint Communications Company LP and Cogent Communications, Inc.

Description of business

~~The Company is a Delaware corporation and is headquartered in Washington, DC.~~ The Company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and ~~Internet Protocol (“IP”) communications services.~~data center colocation space and power. The Company’s network is specifically designed and optimized to transmit ~~data using IP.~~packet switched data. The Company delivers its services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 54 countries across North America, Europe, South America, Oceania and ~~Asia.~~

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 ~~is not dependent on local telephone companies to serve its customers for its on-net Internet access services because of its integrated network architecture. The Company~~ offers its on-net services to customers located in buildings that are physically connected to its network. As a result, the Company is not dependent on local telephone companies or cable TV companies to serve its customers for its on-net Internet access and private network services. The Company’s on-net service consists of high-speed Internet access and ~~IP connectivity~~private network services offered at speeds ranging from 100 ~~Megabits~~megabits per second to ~~100 Gigabits~~400 gigabits per ~~second of bandwidth.~~ second.

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

In addition to providing ~~its~~ on-net services, the Company provides Internet ~~connectivity~~access and private network services to customers that are not located in buildings directly connected to its network. The Company provides ~~this~~these off-net ~~service~~services primarily to corporate customers using other carriers’ ~~facilities~~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.~~acquisitions, including the acquisition of the Wireline Business of Sprint Communications (as discussed below). The Company continues to support but does not actively sell these non-core services.

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In connection with the Company’s acquisition of the Wireline Business of Sprint Communications (as discussed below), the Company began to provide optical wavelength services and optical transport services over its fiber network. The Company is selling these wavelength services to its existing customers, customers of Sprint Communications and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. Additionally, the Wireline Business customers include a number of companies larger than the Company’s historical customer base. In connection with the acquisition of the Wireline Business of Sprint Communications, the Company expanded selling services to these larger “Enterprise” customers.

Acquisition of Sprint Communications

On September 6, 2022, Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a direct wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Sprint Communications LLC, a Kansas limited liability company (“Sprint Communications”) and an indirect wholly owned subsidiary of T-Mobile US, Inc., a Delaware corporation (“T-Mobile”), and Sprint LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company acquired the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”). The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Company purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of Wireline Network Holdings LLC, a Delaware limited liability company that, following an internal restructuring and divisive merger, holds Sprint Communications’ assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”). The Purchase Agreement includes customary representations, warranties, indemnities and covenants, including regarding the conduct of the Wireline Business prior to the closing of the Transaction (the “Closing”). In addition, the Closing was subject to customary closing conditions, including as to the receipt of certain required regulatory approvals and consents, all of which have been received. The Company has agreed to guarantee the obligations of the Buyer under the Purchase Agreement pursuant to the terms of a Guaranty, dated as of September 6, 2022, by and between the Company and the Seller (the “Parent Guaranty”). The Parent Guaranty contains customary representations, warranties and covenants of the Company and the Seller. The Company believes it is in a unique position to monetize the Wireline Business and its network and management expects to achieve significant cost reduction synergies and revenue synergies from the Transaction. Revenue and pre-tax loss for the Wireline Business included in the Company’s condensed consolidated statements of comprehensive income for both the three and six month periods ended June 30, 2023 were $78.0 million and $65.6 million, respectively.

Purchase Price

The Transaction closed on May 1, 2023 (the “Closing Date”). On the Closing Date, the Buyer consummated the Transaction pursuant to the terms of the Purchase Agreement, providing a purchase price of $1 payable to the Seller for the Purchased Interests, subject to customary adjustments, including working capital (the “Working Capital Adjustment”), as set forth in the Purchase Agreement. As consideration for the Purchased Interests, the Working Capital Adjustment (primarily related to acquired cash and cash equivalents of an estimated $43.4 million at the Closing Date in order to fund the international operations of the Wireline Business) resulted in the Buyer making a payment to the Seller of $61.1 million on the Closing Date. After an update to the estimated working capital, an additional payment of $3.5 million is due to the Seller 90 days from the Closing Date. The Purchase Agreement also includes an estimated payment of $57.1 million from Seller to Buyer related to acquired short-term lease obligations. This amount will be paid from the Seller to the Company in four equal payments in months 55 to 58 after the Closing Date. This amount was recorded at its present value resulting in a discount of $17.0 million. The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with comparable durations, amongst other market factors. The determination of the discount rate requires some judgment. The amortization of the discount resulted in interest income of $0.5 million for the three and six months ended June 30, 2023. A final determination of the Working Capital Adjustment and the assumed short-term operating lease liabilities is expected by the end of 2023.

IP Transit Services Agreement

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

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The Company accounted for the Transaction as a business combination under ASC Topic 805 Business Combinations (“ASC 805”). The Company evaluated what elements are part of the business combination and the consideration exchanged to complete the acquisition. Under ASC 805, the Company has concluded that the $700.0 million of payments to be made represent consideration received from T-Mobile to complete the acquisition of a distressed business. The Company also evaluated whether the IP Transit Services Agreement was in the scope of ASU No. 2014-09 Revenue from Contracts with Customers (“ASC 606”). The Company has concluded that T-Mobile did not represent a “customer” as defined by ASC 606, the stated contract price did not represent consideration for services to be delivered, and the transaction did not satisfy the definition of revenue, which excluded this arrangement from the scope of ASC 606. As a result, and considering statements made by T-Mobile, the IP Transit Services Agreement was recorded in connection with the Transaction at its discounted present value resulting in a discount of $79.6 million. The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with comparable durations, amongst other market factors. The determination of the discount rate requires some judgment. The amortization of the discount resulted in interest income of $7.7 million for the three and six months ended June 30, 2023.

Transition Services Agreement

On the Closing Date, the Buyer entered into a transition services agreement (the “TSA”) with the Seller, pursuant to which the Seller will provide to the Buyer, and the Buyer will provide to the Seller on an interim basis following the Closing Date, certain specified services (the “Transition Services”) to ensure an orderly transition following the separation of the Wireline Business from Sprint Communications. The services to be provided by the Seller to the Buyer include, among others, information technology support, back office and finance, real estate and facilities, vendor and supply chain management, the payment and processing of vendor invoices for the Company and human resources. The services to be provided by the Buyer to the Seller include, among others, information technology and network support, finance and back office and other wireless business support.

The Transition Services are generally intended to be provided for a period of up to two years following the Closing Date, although such period may be extended for an additional one-year term by either party upon 30 days’ prior written notice. The fees for the Transition Services are calculated using either a per service monthly fee or an hourly rate for the employees allocated to provide such services. Any third-party costs incurred in providing the Transition Services are passed on to the party receiving such services at cost for the two-year period and at cost plus 20 percent, if the TSA is extended. Amounts paid for the Wireline Business by T-Mobile are reimbursed at cost.

Either party to the TSA may terminate the agreement (i) with respect to any individual service in full for convenience upon 30 days’ prior written notice for certain services and reduced for other services after a 90-day period. The TSA may be terminated in its entirety if the other party has failed to perform any of its material obligations and such failure is not cured within 30 days. The TSA provides for customary indemnification and limits on liability. During the three and six months ended June 30, 2023 the Company recorded $118.8 million due to the Seller under the TSA and recorded $7.0 million as due from the Seller under the TSA. Amounts billed under the TSA are due 30 days from receipt of the related invoice. As of June 30, 2023, the Company owed $118.8 million to the Seller and the Seller owed $7.0 million to the Buyer under the TSA agreement. The amounts due to the Seller are primarily reimbursements for costs related to Wireline Business vendors paid by the Seller for the Company until these vendors are fully transitioned to the Company.

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Other Services Provided to Seller

In addition, on the Closing Date, the Buyer and TMUSA entered into a commercial agreement (“Commercial Agreement”) for colocation and connectivity services, pursuant to which the Company will provide such services to TMUSA for a per service monthly fee plus certain third-party costs incurred in providing the services. During the three and six months ended June 30, 2023 the Company recorded $7.3 million from TMUSA under the Commercial Agreement. As of June 30, 2023, TMUSA owed $7.3 million to the Company under the Commercial Agreement. These amounts are included in accounts receivable.

Acquisition-Related Costs

In connection with the Transaction and negotiation of the Purchase Agreement, the Company has incurred a total of $3.4 million in professional fees, including $0.7 million and $1.1 million incurred in the three and six months ended June 30, 2023, respectively.

Consideration

The acquisition-date fair value of consideration to be received from the Transaction totaled $595.8 million and comprised of the following:


(In thousands)	May 1, 2023
Estimated working capital payments made to the Seller (a)	$	64,604
Estimated Purchase Agreement payment to be received from the Seller, net of discount of $17,032 (b)		40,028
Amounts due from the Seller – IP Transit Services Agreement, net of discount of $79,610 (c)		620,390
Total to be received from the Seller		660,419
Total net consideration to be received from the Seller (d)		595,814

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

The Company accounted for the Transaction as a business combination under ASC 805. Under ASC 805, the identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, the Company used the cost, income and market approaches, including market participant assumptions. The fair value of the identifiable assets acquired (including amounts due under the IP Transit Services Agreement) were in excess of the liabilities assumed and the net consideration to be paid resulting in a gain on bargain purchase of $1.2 billion.

The Transaction is considered an asset purchase for income tax purposes. The tax basis of the acquired business is the consideration paid ($1) plus the tax basis of certain liabilities assumed, with adjustments for cash acquired in excess of the purchase price. Deferred income taxes are recorded based upon the difference between the book and tax basis of the acquired assets and assumed liabilities at the Company’s marginal effective income tax rate on the Closing Date.

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The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the acquisition date. The Company retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities. The amounts presented are provisional and are subject to change as the Company refines the estimates and inputs used in the calculations of the assets acquired and liabilities assumed.


	May 1, 2023
Assets
Current assets:
Cash and cash equivalents	$	47,074
Accounts receivable		39,948
Prepaid expenses and other current assets		21,288
Total current assets		108,310
Total property and equipment		1,030,200
Right-of-use leased assets		339,533
Intangible assets		57,000
Deposits and other assets		7,191
Total assets	$	1,542,234
Liabilities
Current liabilities:
Accounts payable	$	13,312
Accrued and other current liabilities		36,629
Current maturities, operating lease liabilities		114,121
Total current liabilities		164,062
Operating lease liabilities, net of current maturities		372,915
Deferred income tax liabilities		407,000
Other long-term liabilities		38,352
Total liabilities		982,329
Fair value of net assets acquired	$	559,905
Gain on bargain purchase
Fair value of net assets acquired	$	559,905
Total net consideration to be received from the Seller, net of discounts (b) (c) (d)		595,814
Gain on bargain purchase	$	1,155,719

(a) Includes a payment of $61.1 million paid to the Seller on the Closing Date. After updating the estimated working capital, an additional payment of $3.5 million is due to the Seller 90 days from the Closing Date. A final determination of the Working Capital Adjustment is expected by the end of 2023.

IP Transit Services Agreement

(b) Under the Purchase Agreement, 50% of the assumed short-term operating lease liabilities totaling $57.1 million is to be paid to the Company from the Seller in four equal installments in months 55-58 from the Closing Date and is recorded at its present value resulting in a discount of $17.0 million. A final determination of the assumed short-term operating lease liabilities is expected by the end of 2023.

(c) The IP Transit Services Agreement payments totaling $700.0 million are recorded at their present value resulting in a discount of $79.6 million. The $700.0 million is to be paid to the Company from the Seller in equal monthly payments of $29.2 million in months 1-12 and $8.3 million in months 13-54.

(d) Cash consideration was $1

Intangible Assets

Intangible assets include $57.0 million of acquired customer relationships with an estimated useful life of nine years and were determined using the income approach. This fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820: Fair Value Measurement. The key assumptions in applying

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the income approach include the discount rate, projected revenue from existing customers, customer attrition rate and projected capital and operating expenditures. Future amortization expense of the customer relationships is $6.3 million per year for nine years.

Asset Retirement Obligations

In connection with the Transaction, the Company assumed $35.0 million of asset retirement obligations related to restoration obligations for acquired leases. The obligations and corresponding asset retirement assets are being accreted and amortized over approximately four years. Accretion of the asset retirement obligations (recorded as an increase to network operations expenses) and amortization of the asset retirement assets (recorded as depreciation and amortization expenses) for the three and six months ended June 30, 2023 were $0.4 million and $1.4 million, respectively.

Pro Forma Information

The following unaudited pro forma financial information gives effect to the Transaction as if it had been completed on January 1, 2022. The pro forma adjustments are based on historically reported transactions by the respective companies. The pro forma results do not include anticipated synergies or other expected benefits of the acquisition. The pro forma results for the six months ended June 30, 2023 include the historical results of the Wireline Business through April 30, 2023 and the combined results of the Company and the Wireline Business for the two months ended June 30, 2023. The unaudited pro forma information is based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma financial information. The purchase adjustments are preliminary and subject to change as additional analyses are performed and finalized. The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transaction actually occurred on January 1, 2022, nor do they purport to project the future consolidated results of operations.


	Six Months		Six Months
	Ended		Ended
(In thousands)	June 30, 2023		June 30, 2022
Service revenue	$	574,153	$	587,850
Operating loss from continuing operations		(177,476)		(670,166)
Net income		974,731		443,802

The pro forma results for the six months ended June 30, 2022 include estimates for the gain on bargain purchase related to the Transaction of $1.2 billion, interest income from the amortization of the discount recorded under the IP Transit Services Agreement of $21.1 million, a net reduction to historical depreciation expense based on the fair value of property and equipment of $8.0 million, amortization expense related to the customer relationship intangible assets of $3.2 million, the elimination of amounts charged from the parent company to the Wireline Business as autonomous entity expense adjustments of $24.9 million, amortization of unfavorable lease liabilities of $19.4 million and the impact to income tax expense from the pro-forma and autonomous entity adjustments of $17.8 million. The historical results of the Sprint Wireline Business for the six months ended June 30, 2022 include a loss on impairment of $477.3 million and a gain on the sale of IP addresses of $4.0 million.

The pro forma results for the six months ended June 30, 2023 include estimates for the gain on bargain purchase related to the Transaction of $1.2 billion, interest income from the amortization of the discount recorded under the IP Transit Services Agreement of $14.7 million, a net increase to historical depreciation expense based on the fair value of property and equipment of $14.9 million, amortization expense related to the customer relationship intangible assets of $2.1 million, amortization of unfavorable lease liabilities of $12.9 million and the impact to income tax expense from the pro-forma adjustments of $3.0 million.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”) have

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been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. While the Company believes that the disclosures are adequate to not make the information misleading, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in its annual report on Form 10-K for the year ended December 31, ~~2016.~~

2022.

The accompanying unaudited condensed consolidated financial statements include all ~~wholly-owned~~wholly owned subsidiaries. All inter-company accounts and activity have been eliminated.

Use of estimates

The preparation of consolidated financial statements in conformity with ~~United States generally accepted accounting principles~~US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

Financial instruments

At ~~September~~June 30, ~~2017,~~2023 and December 31, 2022, the carrying amount of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because of the short-term nature of these instruments. The Company measures its cash equivalents and restricted cash at amortized cost, which approximates fair value based upon quoted market prices (Level 1). Based upon recent trading prices (Level ~~2 —~~ 2—market approach) at ~~September~~June 30, ~~2017~~2023, the fair value of the Company’s ~~$189.2~~$450.0 million ~~senior unsecured notes~~aggregate principal amount of 7.00% Senior Unsecured Notes due 2027 (the “2027 Notes”) was ~~$194.9~~$433.1 million, ~~and~~ the fair value of the Company’s ~~$375.0~~$500.0 million ~~senior secured notes~~aggregate principal amount of 3.50% Senior Secured Notes due 2026 (the “2026 Notes”) was ~~$396.6~~$461.3 million and the estimated liability fair value of the Company’s interest rate swap agreement was $51.6 million.

Restricted cash and interest rate swap agreement

~~The Company~~Restricted cash represents amounts held in segregated bank accounts by our clearing broker as margin in support of our Swap Agreement as discussed in Note 3 and was ~~party to letters of credit totaling $0.7~~$51.6 million as of ~~September~~June 30, ~~2017~~2023. Additional cash may be further restricted to maintain our swap agreement as interest rates fluctuate and ~~$0.1 million as of December 31, 2016. These letters of credit are secured by investments that are restricted and included in other assets.~~

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

Gross receipts taxes, universal service fund and other surcharges

Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state regulatory fees. Such charges may be presented gross or net based upon the Company’s accounting policy election. The Company records certain excise taxes and surcharges on a gross basis and includes them in its ~~service~~ revenue and ~~cost of~~ network ~~operations.~~operations expense. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and costs of network ~~operations expense)~~operations) were ~~$2.7~~$11.0 million and ~~$2.4~~$3.4 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~September~~June 30, ~~2016,~~2022, respectively, and ~~$8.0~~$15.2 million and ~~$6.5~~$7.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~September~~June 30, ~~2016,~~2022, respectively.

Basic and diluted net income per common share

Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income or (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common stock equivalents. Shares of restricted stock are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury stock method. The Company’s employees exercised options for 12,743 and 10,995 common shares for the three months ended September 30, 2017 and 2016, respectively, and exercised options for 30,656 and 39,473 common shares for the nine months ended September 30, 2017 and 2016, respectively.

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The following details the determination of diluted weighted average shares:

	Three Months Ended September 30, 2017	Three Months Ended September 30, 2016	Nine Months Ended September 30, 2017	Nine Months Ended September 30, 2016

					Three Months	Three Months	Six Months	Six Months
					Ended	Ended	Ended	Ended
					June 30, 2023	June 30, 2022	June 30, 2023	June 30, 2022
Weighted average common shares - basic	44,767,163	44,574,583	44,787,067	44,563,279	47,137,822	46,691,142	47,142,074	46,705,088
Dilutive effect of stock options	32,399	29,400	29,061	33,792	16,147	17,686	16,223	19,498
Dilutive effect of restricted stock	319,045	212,877	267,637	199,188	372,238	320,618	350,037	326,325
Weighted average common shares - diluted	45,118,607	44,816,860	45,083,765	44,796,259	47,526,207	47,029,446	47,508,334	47,050,911

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

	Three Months Ended September 30, 2017	Three Months Ended September 30, 2016	Nine Months Ended September 30, 2017	Nine Months Ended September 30, 2016


					Three Months	Three Months	Six Months	Six Months
					Ended	Ended	Ended	Ended
					June 30, 2023	June 30, 2022	June 30, 2023	June 30, 2022
Unvested shares of restricted common stock	1,175,235	999,464	1,175,235	999,464	1,476,049	1,326,873	1,476,049	1,326,873
Anti-dilutive options for common stock	54,908	75,687	52,064	87,611	107,898	98,682	104,468	92,060
Anti-dilutive shares of restricted common stock	195	—	99,737	126,993	104,086	459,641	153,978	465,420

~~Recent Accounting Pronouncements—to be Adopted~~Stockholders’ (Deficit) Equity

~~In February 2016,~~The following details the ~~FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(“ASU 2016-02”). This ASU will replace most existing lease accounting guidance when it becomes effective. The new standard is effective~~changes in stockholders’ (deficit) equity for the Company beginning on January 1, 2019. Early application is permitted. ASU 2016-02 must be adopted using the modified retrospective approach for all leases that exist at or commence after the beginningthree and six months ended June 30, 2023 and June 30, 2022, respectively (in thousands except share data):


						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at March 31, 2022	47,926,580	$	48	$	554,552	$	(13,168)	$	(950,038)	$	(408,606)
Forfeitures of shares granted to employees	(42,783)		—		—		—		—		—
Equity-based compensation	—		—		6,479		—		—		6,479
Foreign currency translation	—		—		—		(7,493)		—		(7,493)
Issuances of common stock	116,480		—		—		—		—		—
Exercises of options	3,447		—		130		—		—		130
Dividends paid	—		—		—		—		(41,855)		(41,855)
Net income	—		—		—		—		11,164		11,164
Balance at June 30, 2022	48,003,724	$	48	$	561,161	$	(20,661)	$	(980,729)	$	(440,181)


						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at March 31, 2023	48,296,882	$	48	$	582,524	$	(17,368)	$	(1,113,751)	$	(548,547)
Forfeitures of shares granted to employees	(5,321)		—		—		—		—		—
Equity-based compensation	—		—		6,809		—		—		6,809
Foreign currency translation	—		—		—		1,741		—		1,741
Issuances of common stock	320,430		1		—		—		—		1
Exercises of options	5,171		—		240		—		—		240
Dividends paid	—		—		—		—		(44,907)		(44,907)
Net income	—		—		—		—		1,123,863		1,123,863
Balance at June 30, 2023	48,617,162	$	49	$	589,573	$	(15,627)	$	(34,795)	$	539,200

Page 14 of the earliest comparative period presented (with the option to apply certain practical expedients), which for the Company will be the period beginning January 1, 2017. ASU 2016-02 will require the Company to record a right to use asset and a lease liability for most49

Table of ~~its leases, including its leases currently treated as operating leases.~~ Contents


						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at December 31, 2021	47,674,189	$	48	$	547,734	$	(11,003)	$	(909,877)	$	(373,098)
Forfeitures of shares granted to employees	(52,365)		—		—		—		—		—
Equity-based compensation	—		—		13,093		—		—		13,093
Foreign currency translation	—		—		—		(9,658)		—		(9,658)
Issuances of common stock	373,280		—		—		—		—		—
Exercises of options	8,620		—		334		—		—		334
Dividends paid	—		—		—		—		(83,153)		(83,153)
Net income	—		—		—		—		12,301		12,301
Balance at June 30, 2022	48,003,724	$	48	$	561,161	$	(20,661)	$	(980,729)	$	(440,181)


						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at December 31, 2022	48,013,330	$	48	$	575,064	$	(19,156)	$	(1,074,588)	$	(518,632)
Forfeitures of shares granted to employees	(11,830)		—		—		—		—		—
Equity-based compensation	—		—		14,124		—		—		14,124
Foreign currency translation	—		—		—		3,529		—		3,529
Issuances of common stock	607,192		1		—		—		—		1
Exercises of options	8,470		—		385		—		—		385
Dividends paid	—		—		—		—		(90,218)		(90,218)
Net income	—		—		—		—		1,130,011		1,130,011
Balance at June 30, 2023	48,617,162	$	49	$	589,573	$	(15,627)	$	(34,795)	$	539,200

Revenue recognition

The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures and will elect to apply certain practical expedients. The Company has not yet determined the effect of ASU 2016-02 on its ongoing financial reporting or quantified the impact to its balance sheet, however it does expect that the right to use asset and lease liability recorded will be material. The Company does not expect to early adopt ASU 2016-02.

~~In May 2014, the FASB issued~~recognizes revenue under ASU No. 2014-09, Revenue from Contracts with Customers (“~~ASU 2014-09”~~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, and also requires~~

~~enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from~~customers. Under ASC 606, installation fees for contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for the Company on January 1, 2018. Early application is permitted for annual periods beginning after December 15, 2016. ASU 2014-09 permits the use of either the full retrospective or modified retrospective transition method. The Company anticipates adopting ASU 2014-09 using the modified retrospective transition method on January 1, 2018. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial application. The Company does not expect to early adopt ASU 2014-09.

The Company has not quantified the effect of adopting ASU 2014-09, however it anticipates that the period for which it recognizes revenue for fees billed in connection with customer installations will change. The Company expects that revenues will beterms longer than month-to-month are recognized over the contract ~~term for~~term. The Company believes that the installation ~~fees associated with customer contracts with terms that are longer than month-to-month, which may be a shorter period than the average customer life currently used, because the~~ fee does not give rise to a material right as defined by ~~ASU 2014-09.~~ASC 606 for contracts with terms longer than month-to-month. The Company ~~expects that revenues will be recognized~~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 ~~ASU 2014-09.~~ASC 606. The ~~impact of adopting ASU 2014-09 on the Company’s total service revenue and operating income is not expected to be material. Additionally, the~~ Company ~~will be required to capitalize~~capitalizes certain contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and sales agents, and ~~to amortize~~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.

The Company’s service offerings consist primarily of on-net and off-net telecommunications services. Fixed fees are billed monthly in advance and usage fees are billed monthly in arrears. Amounts billed are due upon receipt and contract lengths range from month to month to 60 months. The Company ~~currently expenses~~satisfies its performance obligations to provide services to customers over time as the services are rendered. In accordance with ASC 606, revenue is recognized when a customer obtains the promised service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company has adopted the practical expedient related to certain performance obligation disclosures since it has a right to consideration from its customers in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

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

Identification of the contract, or contracts with a customer

Identification of the performance obligations in the contract

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Determination of the transaction price

Allocation of the transaction price to the performance obligations in the contract

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

Fees billed in connection with customer installations are deferred (as deferred revenue) and recognized as noted above. To the extent a customer contract ~~acquisition costs~~is terminated prior to its contractual end the customer is subject to termination fees. The Company vigorously seeks payment of these termination fees. The Company recognizes revenue for termination fees as ~~incurred.~~they are collected.


	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Service revenue recognized from balance at beginning of period	$	3,562	$	1,332	$	4,621	$	2,310
Amortization expense for contract costs		4,728		4,907		9,551		9,656

Leases

In ~~June~~February 2016, the FASB issued ASU ~~2016-13, “~~No. 2016-02, ~~Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments”.~~Leases ~~This guidance~~(“ASU 2016-02”). ASU 2016-02 replaced most existing lease accounting guidance. The operating lease liability under ASU 2016-02 is ~~intended~~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 ~~introduce a revised approach 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 ~~measurement~~non-lease components on its finance and operating leases.


	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(Amounts in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Finance lease cost
Amortization of right-of-use assets	$	8,411	$	7,000	$	17,426	$	13,998
Interest expense on finance lease liabilities		6,565		5,116		12,995		10,197
Operating lease cost		27,730		4,628		32,312		9,401
Total lease costs	$	42,706	$	16,744	$	62,733	$	33,596


	Six Months			Six Months
	Ended			Ended
	June 30, 2023			June 30, 2022
Other lease information (amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	(11,268)		$	(11,083)
Operating cash flows from operating leases		(32,957)			(9,543)
Financing cash flows from finance leases		(17,247)			(11,099)
Right-of-use assets obtained in exchange for new finance lease liabilities		42,639			23,685
Right-of-use assets obtained in exchange for new operating lease liabilities		8,027			9,429
Weighted-average remaining lease term — finance leases (in years)		13.7			12.7
Weighted-average remaining lease term — operating leases (in years)		9.9			18.1
Weighted average discount rate — finance leases		8.5	%		8.7	%
Weighted average discount rate — operating leases		7.3	%		5.4	%

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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 implicit rates within the Company’s operating leases are generally not determinable and the Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors including the level of collateralization and term to align with the term of the lease. The determination of the Company’s incremental borrowing rate requires some judgment. Finance lease assets are included in property and equipment in the Company’s consolidated balance sheets. As of June 30, 2023, the Company had committed to additional dark fiber IRU lease agreements totaling $132.2 million in future payments to be paid over periods of up to 20 years. These obligations begin when the related fiber is accepted, which is generally expected to occur in the next 12 months.

Operating leases

The Company leases office space 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 some judgment. The Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors, including the level of collateralization and term, to align with the term of the lease. Certain of the Company’s leases include options to extend or terminate the lease. The Company establishes the number of renewal option periods used in determining the operating lease term based upon its assessment at the inception of the operating lease of the number of option periods for which failure to renew the lease imposes a penalty in such amount that renewal appears to be reasonably certain. The option to renew may be automatic, at the option of the Company or mutually agreed to between the landlord or dark fiber provider and the Company. Once the Company has accepted the related fiber route or the facility lease term has begun, the present value of the aggregate future minimum operating lease payments is recorded as an operating lease liability and a right-of-use leased asset. Lease incentives, deferred rent liabilities and unfavorable lease liabilities for facilities operating leases are presented with, and netted against, the right-of-use leased asset. Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.

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


	Operating		Finance
For the Twelve Months Ending June 30,	Leases		Leases
2024	$	138,924	$	45,511
2025		123,723		45,307
2026		108,816		38,138
2027		78,498		38,021
2028		48,563		38,800
Thereafter		324,602		367,639
Total minimum lease obligations		823,126		573,416
Less—amounts representing interest		(241,862)		(241,897)
Present value of minimum lease obligations		581,264		331,519
Current maturities		(125,551)		(20,114)
Lease obligations, net of current maturities	$	455,713	$	311,405

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Unfavorable lease liabilities

In connection with the Transaction, the Company recorded $147.5 million of unfavorable lease liabilities for leases with terms greater than current market rates. The liability is classified with the corresponding right-of-use lease assets and is being amortized to network operations expenses over the related lease terms. For the three and six months ended June 30, 2023 the Company amortized $6.5 million as a reduction to network operations expenses.

Allowance for credit losses ~~emphasizing~~

As of January 1, 2020, the Company maintained an ~~updated model~~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 ~~expected losses rather than incurred losses. This new standard is effective for annual~~historical information combined with current conditions that may affect a customer’s ability to pay and ~~interim reporting periods beginning after December 15, 2019~~reasonable and ~~early adoption is permitted. The~~supportable forecasts. While the Company ~~is currently evaluating~~uses various credit quality metrics, it primarily monitors collectability by reviewing the ~~impact that this guidance may have~~duration of collection pursuits on its ~~financial statements and related disclosures.~~delinquent trade receivables. Based on the Company’s experience, the customer’s delinquency status is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly.


			Current-period
			Provision for		Write offs
	Beginning		Expected Credit		Charged Against		Ending
Description	Balance		Losses (a)		Allowance		Balance
Allowance for credit losses (deducted from accounts receivable) (in thousands)
Three months ended June 30, 2023	$	2,675	$	5,014	$	(2,807)	$	4,882
Three months ended June 30, 2022		1,476		1,059		(818)		1,717
Six months ended June 30, 2023		2,303		6,562		(3,983)		4,882
Six months ended June 30, 2022		1,510		2,005		(1,798)		1,717


	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net bad debt expense (a)	$	4,719	$	333	$	5,934	$	980
Bad debt recoveries		349		608		700		1,011

(a)

Net bad debt expense related to the Wireless Business to reestablish an allowance for credit losses was $3.0 million for the three and six months ended June 30, 2023. Under ASC 805, accounts receivable are recorded at their book value representing the fair value of accounts receivable at the acquisition date.

2. Property and equipment:

Depreciation and amortization expense related to property and equipment and ~~capital~~finance leases ~~was $19.1 million~~ and $18.8 million for the three months ended September 30, 2017, and 2016 respectively, and $56.6 million and $55.2 million for the nine months ended September 30, 2017 and 2016, respectively. The Company capitalized ~~salaries and related benefits~~compensation costs of employees ~~working~~ directly ~~on the~~involved with construction ~~and build-out~~activities were as follows (in thousands):


	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Depreciation and amortization expense	$	51,153	$	23,071	$	76,306	$	45,762
Capitalized compensation cost		8,723		3,112		12,441		6,290

3. Long-term debt:

As of ~~its network of $2.5 million and $2.2 million for the three months ended September~~June 30, ~~2017 and 2016, respectively, and $7.2 million and $6.6 million for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Exchange agreement~~

~~In the three and nine months ended September 30, 2017 and 2016,~~2023, the Company ~~exchanged certain used network equipment~~had outstanding $450.0 million aggregate principal amount of 2027 Notes and ~~cash consideration for new network equipment.~~$500.0 million aggregate principal amount of 2026 Notes. The fair value of the equipment received was estimated to be $1.0 million and $1.6 million for the three months ended September 30, 2017 and 2016, respectively, and $7.9 million and $14.1 million for the nine months ended September 30, 2017 and 2016, respectively and after considering the cash component the transactions resulted2027 Notes were issued in gains of $0.4 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $3.5 million and $7.1 million for the nine months ended September 30, 2017 and 2016, 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~~

In March 2015, the Company 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 September 30, 2017, and December 31, 2016 there was $9.9 million and $5.5 million, respectively, of note obligations outstanding under the IPA, secured by the related equipment. The Company recorded the net present value of the note obligation utilizing an imputed interest rate. The resulting discount was $0.3 million and $0.3 million as of September 30, 2017 and December 31, 2016, respectively, and is being amortized over the note term using the effective interest rate method.

~~3. Long-term debt:~~

~~Limitations under the indentures~~

~~The Company has $189.2 million of senior notes and $375.0 million of senior secured notes outstanding. The~~ ~~$189.2 million of senior notes~~June 2022, are due on ~~April~~June 15, ~~2021 (the “2021 Notes”)~~2027 and bear interest at a rate of ~~5.625%~~7.00% per year. Interest on the 2027 Notes is paid semi-annually on ~~April~~June 15 and ~~October 15. In the second quarter~~December 15 of ~~2016, the Company paid $10.9 million for the purchase of $10.8 million of par value and accrued interest on its~~each year. The 2026 Notes were issued in May 2021, Notes reducing the principal amount to $189.2 million (from the original principal amount of $200.0 million) resulting in a loss of $0.2 million. The loss resulted from the write off of the remaining unamortized debt issuance costs related to the purchased notes. The $375.0 million of senior secured notes are due on ~~March~~May 1, ~~2022 (the “2022 Notes”)~~2026 and bear interest at a rate of ~~5.375%~~3.50% per year. Interest on the 2026 Notes is paid semi-annually on ~~March~~May 1 and ~~September 1.~~November 1 of each year. In June 2022, the Company redeemed and extinguished its €350.0 million aggregate principal amount of Senior Unsecured Euro Notes due 2024 (the “2024 Notes”). The 2024 Notes were due on June

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30, 2024 and bore interest at a rate of 4.375% per year. Interest on the 2024 Notes was paid semi-annually on June 30 and December 30 of each year.

Limitations under the indentures

The indentures governing the ~~2022~~2027 Notes and ~~2021~~the 2026 Notes (the “Indentures”), 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; to consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; to incur restrictions on the ability of a subsidiary to pay dividends or make other payments; and to enter into certain transactions with its affiliates. ~~Limitations~~There are certain exceptions to the limitations on the Company’s ability to incur ~~additional~~ indebtedness ~~(excluding~~under the Indentures, including IRU agreements incurred in the normal course of ~~business) include a restriction on incurring~~business and any additional indebtedness if the Company’s consolidated leverage ratio, as defined in the ~~indentures,~~Indentures, is ~~greater~~less than ~~5.0. The indentures prohibit certain payments, such as dividends and stock purchases, when~~6.0 to 1.0 or the Company’s fixed charge coverage ratio, as defined in the Indentures, is 2.0 to 1.0 or greater. The Company can also incur unlimited liens (which can be used, together with capacity under the debt covenant, to incur additional secured indebtedness) if the Company’s consolidated secured leverage ratio, as defined byin the ~~indentures,~~Indentures, is ~~greater~~less than ~~4.25. A~~4.0 to 1.0. Under the Indentures, the Company can pay dividends, make other distributions, make certain ~~amount~~investments and make other restricted payments under certain circumstances, including if, after giving pro forma effect to such restricted payment, the Company could still incur $1 of ~~such unrestricted payments is permitted notwithstanding this prohibition. The unrestricted payment amount may be increased by the Company’s consolidated cash flow,~~indebtedness, as defined ~~in the indentures, as long as the Company’s~~(i.e., either its consolidated leverage ratio is less than ~~4.25. The~~6.0 to 1.0 or its fixed charge coverage ratio is 2.0 to 1.0 or greater). As of June 30, 2023, the Company’s consolidated leverage ratio iswas below 6.0, the Company’s consolidated secured leverage ratio was below 4.0 and the Company’s fixed charge coverage ratio was above ~~4.25 as of September 30, 2017.~~2.0. As of ~~September~~June 30, ~~2017,~~2023, a total of ~~$86.1~~$391.5 million ~~($84.2 million held by Holdings)~~(inclusive of a $250.0 general basket) was unrestricted and permitted for ~~investment~~restricted payments, including dividends and stock purchases.

Interest rate swap agreement

As of June 30, 2023, the Company was party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with its 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”) so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR. The critical terms of the Swap Agreement match the terms of the 2026 Notes, including the notional amount and the optional redemption date on February 1, 2026. The Company did not elect hedge accounting for the Swap Agreement. The Swap Agreement is recorded at its fair value at each reporting period, and the Company incurs gains and losses due to changes in market interest rates. By entering into the Swap Agreement, the Company has assumed the risk associated with variable interest rates. Changes in interest rates affect the valuation of the Swap Agreement that the Company recognizes in its consolidated statements of comprehensive income. The values that the Company reports for the Swap Agreement as of each reporting date are recognized as “change in valuation – interest rate swap” with the corresponding amounts included in assets or liabilities in the Company’s consolidated balance sheets. As of June 30, 2023, the fair value of the Swap Agreement was a net liability of $51.6 million, of which $23.3 million is presented with accrued and other current liabilities and $28.2 million is presented with other long-term liabilities. In the three months ended June 30, 2023 and 2022, the Company recorded unrealized losses related to the Swap Agreement of $1.3 million and $7.5 million, respectively, and in the six months ended June 30, 2023 and 2022, the Company recorded an unrealized gain (loss) related to the Swap Agreement of $0.5 million and ($28.8) million, respectively. The Company has made a $51.7 million deposit with the counterparty to the Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $51.7 million, the Company will be required to deposit additional funds with the counterparty equal to the net liability fair value. As of June 30, 2023, $51.6 million of the deposit was restricted and $0.1 million was unrestricted.

Under the Swap Agreement, the Company pays the counterparty a semi-annual payment based upon overnight SOFR plus a contractual interest rate spread, and the counterparty pays the Company a semi-annual fixed 3.50% interest payment. The settlement payment is made each November and May until the Swap Agreement expires in February 2026. Under the settlement payment made in May 2022, the Company received a payment of $1.2 million from the counterparty for a net cash savings of $1.2 million for the period from November 1, 2021 to April 30, 2022. Under the settlement payment made in November 2022, the Company made a payment of $3.4 million to the counterparty for a net cash interest cost of $3.4 million for the period from May 1, 2022 to October 31, 2022. Under the settlement payment made in May 2023, the Company made a payment of $9.5 million to the counterparty for a net cash interest cost of $9.5 million for the period from November 1, 2022 to April 30, 2023.

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4. Commitments and contingencies:

Current and potential litigation

In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a contingent liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no amount in the range is more likely than any other amount, the Company accrues at the low end of the range. The Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible could result in a loss of up to ~~$2.6~~$3.9 million in excess of the amount accrued at ~~September~~June 30, ~~2017.~~

In December 2011, certain former sales employees of the Company filed a collective action against the Company in the United States District Court, Southern District of Texas, Houston Division alleging misclassification of the Company’s sales employees throughout the United States in violation of the Fair Labor Standards Act. The lawsuit sought to recover pay for allegedly unpaid overtime and other damages, including attorney’s fees. In March 2014, the judge de-certified the collective action. Each of the former employees that opted-in to the collective action retained the right to file an individual action. Approximately 70 former employees did so. The Company has settled a number of the cases that were filed and made the required settlement payments. Currently, only one case in California remains (Ambrosia v. Cogent Communications, Inc. in the U. S. District Court for the Northern District of California). The parties have agreed to a settlement under which the Company will pay $3.1 million to settle the claims. The $3.1 million settlement, which was recorded in the fourth quarter of 2016 and was accrued at September 30, 2017, was paid in October 2017.

In March 2015 the Company elected to terminate certain IRU capital lease obligations in Spain with a vendor. Under its estimate of the termination provisions of the related contracts the Company has recorded an estimated termination liability of $8.9 million included in accrued and other current liabilities. The Company has disputed the amount of termination liability with the vendor. This vendor filed arbitration proceedings in Civil and Commercial Arbitration Court (CIMA) in Madrid, Spain against the Company to recover the amount of termination liability. In September 2017 the Arbitral Tribunal was established to decide this dispute.

2023.

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

5.Income taxes:

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

	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016


													Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
													June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Domestic	$	12,210		$	11,971		$	37,266		$	36,589		$	1,112,947	$	22,984	$	1,115,925	$	26,335
Foreign	(5,124		)	(5,592		)	(14,627		)	(16,864		)		(13,415)		(3,266)		(5,741)		(4,939)
Total	$	7,086		$	6,379		$	22,639		$	19,725		$	1,099,532	$	19,718	$	1,110,184	$	21,396

6. Common stock buyback ~~program:~~program and stock options and award plan:

The Company’s Board of Directors has approved purchases of shares of the Company’s common stock under a buyback program (the “Buyback Program”) through December 31, ~~2018. At September~~2023. As of June 30, ~~2017,~~2023, there was ~~$41.5~~$30.4 million remaining for purchases under the Buyback Program. There were no purchases of common stock in the three months or the six months ended June 30, 2023 and 2022.

During the three months ended ~~September 30, 2016~~March 31, 2023, the Company ~~purchased 46,983~~granted 258,762 shares of restricted stock primarily to its executive employees valued at $16.0 million that primarily vest over periods ending in December 2026. The vesting of 104,850 of these shares is subject to certain performance conditions. Of the total performance shares granted, the vesting of up to 29,334 performance shares granted to the Company’s CEO is subject to the total shareholder return of the Company’s common stock ~~for $1.7 million. There were no purchases during~~compared to the ~~three months ended September 30, 2017. During~~total shareholder return of the ~~nine months ended September 30, 2017 and September 30, 2016~~Nasdaq Telecommunications Index. In connection with the Transaction, the Company ~~purchased 46,750 and 46,983~~granted 308,782 shares of restricted stock to former employees of the Wireline Business and to its ~~common stock for $1.8~~employees valued at $19.5 million and ~~$1.7~~that generally vest over a 2-3 year period.

In May 2023, the Company’s stockholders approved an increase of available shares for issuance under its 2017 Incentive Award Plan of 1.2 million ~~respectively.~~shares.

7. 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.~~ On ~~November 1, 2017,~~August 2, 2023, the Company’s Board of Directors approved the payment of ~~its~~a quarterly dividend of ~~$0.48~~$0.945 per common share. This ~~dividend for the fourth quarter of 2017 will be paid to holders of record on November 17, 2017. This~~ estimated ~~$21.5~~$44.6 million dividend payment is expected to be made on ~~December 4, 2017.~~September 8, 2023.

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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~~corporation and under the General ~~Corporate~~Corporation Law of the State of Delaware, distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware ~~Law.~~law. The ~~indentures governing the Company’s notes~~Indentures limit the Company’s ability to return cash to its stockholders.

8. Related party transactions:

Office leases

The Company’s headquarters is located in an office building owned by Sodium LLC whose ~~two owners are~~owner is the Company’s Chief Executive Officer, ~~who has a 51% interest in Sodium LLC and his wife who has a 49% interest.~~David Schaeffer. The fixed annual rent for the headquarters building is $1.0 million per year plus an allocation of taxes and utilities. The lease began in May 2015, and the lease term iswas for five ~~years which~~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 Audit Committee of the Company’s ~~audit committee~~Board of Directors (the “Audit Committee”) reviews and approves all transactions with related parties.

On January 6, 2023, the Company entered into two lease agreements (the “New Leases”), one with Thorium LLC and one with Germanium LLC (“Geranium”), entities owned by the Company’s Chief Executive Officer, David Schaeffer. The Audit Committee, which is responsible for reviewing any related party transactions, reviewed and approved the Company’s entry into the New Leases. The first of the New Leases is with Thorium LLC for approximately 54,803 square feet of office space, which will serve as office space for the Company replacing a portion of its current office space in the Northern Virginia area (“Office Lease”). The second of the New Leases is with Germanium LLC for approximately 1,587 square feet of technical space, in the building that will serve as network operations space for the Company (“Network Operations Lease”). The term for each of the New Leases is five years beginning April 1, 2023 (or an actual later date of occupancy). Both of the New Leases are cancellable by the Company without penalty upon 60 days written notice. The amount of fixed annual rent during the term of the Office Lease is $1.2 million, and the Company is responsible for paying its proportionate share of the building’s operating expenses that exceed a 2023 base year. The Company took occupancy of the space in April 2023. The amount of fixed annual rent during the term of the Network Operations Lease is $34,914, and the Company is also responsible for paying its metered utility costs and a proportionate share of the building’s other operating expenses that exceed a 2023 base year. The Company took occupancy of this space in April 2023.

The Company paid ~~$0.4~~$0.8 million and ~~$0.5~~$0.3 million in the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and $1.2 million and ~~$1.3~~$0.9 million in the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, for rent and related costs (including taxes and utilities) ~~to these lessors~~ for these leases.

On July 25, 2023 the Company entered into a Second Amendment to the lease agreement (the “Amendment”), with Germanium which amends the lease for technical space under the Network Operations Lease. The Amendment amends the Network Operations Lease to lease an additional 7,369 square feet on the first floor of the building, beginning on August 1, 2023, in connection with the planned expansion of the technical space. This includes 4,987 square feet for an auditorium suitable for training and 2,382 square feet for the data center in the building. The amended Network Operations Lease remains cancellable by the Company without penalty upon 60 days written notice. The Amendment provides for $162,118 of additional fixed annual rent during the term of the Network Operations Lease, plus a proportionate share of real estate taxes and operating expenses and separately metered utilities expense.

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9. Segment information:

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

	Three Months Ended September 30, 2017		Three Months Ended September 30, 2016		Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
Service revenue

Three Months Ended June 30, 2023
Revenues									On-net		Off-net		Wavelength	Non-core		Total
North America	$	101,450	$	94,597	$	298,942	$	276,080	$	99,822	$	95,239	1,585	$	8,531	$	205,177
Europe	21,519		18,460		61,007		55,224			22,120		5,070	—		22		27,212
South America										1,652		203	—		—		1,855
Oceania										3,894		1,447	—		19		5,360
Africa										177		25	—		—		202
Total	$	122,969	$	113,057	$	359,949	$	331,304	$	127,665	$	101,984	1,585	$	8,572	$	239,806

	September 30, 2017		December 31, 2016
Long lived assets, net

Three Months Ended June 30, 2022
Revenues					On-net		Off-net		Wavelength	Non-core		Total
North America	$	284,296	$	285,651	$	86,686	$	31,839	—	$	173	$	118,698
Europe	96,739		76,014			20,458		4,046	—		20		24,524
South America						1,330		57	—		—		1,387
Oceania						3,321		320	—		—		3,641
Africa						180		20	—		—		200
Total	$	381,035	$	361,665	$	111,975	$	36,282	—	$	193	$	148,450


Six Months Ended June 30, 2023
Revenues	On-net		Off-net		Wavelength	Non-core		Total
North America	$	188,519	$	128,115	1,585	$	8,669	$	326,888
Europe		43,967		9,090	—		38		53,095
South America		3,297		236	—		1		3,534
Oceania		7,649		1,774	—		28		9,451
Africa		376		51	—		—		427
Total	$	243,808	$	139,266	1,585	$	8,736	$	393,395


Six Months Ended June 30, 2022
Revenues	On-net		Off-net		Wavelength	Non-core		Total
North America	$	173,128	$	63,548	—	$	312	$	236,988
Europe		41,954		8,320	—		29		50,303
South America		2,722		115	—		1		2,838
Oceania		6,462		657	—		3		7,122
Africa		343		28	—		—		371
Total	$	224,609	$	72,668	—	$	345	$	297,622


	June 30,		December 31,
	2023		2022
Long-lived assets, net
North America	$	1,505,413	$	397,434
Europe and other		158,095		147,005
Total	$	1,663,508	$	544,439

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

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ITEM 1A. RISK FACTORS

We may not realize the anticipated benefits of the acquisition of the Wireline Business of Sprint Communications, and the integration of the Wireline Business of Sprint Communications may disrupt our business and management.

The success of our acquisition of the Wireline Business of Sprint Communications, including the realization of anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine our business and the Wireline Business. The integration may be more difficult, costly or time consuming than expected. The integration process involves numerous risks. These risks include:

●

inability to achieve the financial and strategic goals for the Wireline Business and the combined businesses;

●

inability to achieve the projected cost savings for the Wireline Business and the combined businesses and the resulting impact on profitability;

●

difficulty in, and the cost of, effectively integrating the operations, technologies, products or services, and personnel of the Wireline Business;

●

entry into markets in which we have minimal prior experience and where competitors in such markets have stronger market positions;

●

disruption of our ongoing business and distraction of our management and other employees from other opportunities and challenges;

●

inability to retain personnel of the Wireline Business;

●

inability to retain key customers, vendors and other business partners of the Wireline Business or to migrate customers from legacy services;

●

any non-occurrence of anticipated tax benefits or potential for adverse tax consequences;

●

the effects of complex accounting requirements on our reported results;

●

incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

●

elevated delinquency or bad debt write-offs related to receivables of the Wireline Business we assume;

●

difficulty in maintaining internal controls, procedures and policies during the transition and integration;

●

impairment of our relationships with employees, customers, partners, distributors or third-party providers of our technologies, products or services;

●

failure of our due diligence processes to identify significant problems, liabilities or other challenges of the Wireline Business or technology;

●

exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, the Transaction, such as claims from terminated employees, customers, or other third parties;

●

inability to conclude that our internal control over financial reporting is effective;

●

delay in customer purchasing decisions due to uncertainty about the direction of our product and service offerings;

●

Transition Services costs for longer than anticipated;

●

increased accounts receivables collection times and working capital requirements associated with business models of the Wireline Business; and

●

incompatibility of business cultures.

If we experience difficulties during the integration process and are unable to integrate the Wireline Business successfully or in a timely manner, we may not realize the benefits of the Transaction to the extent anticipated. These integration matters could have

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an adverse effect on us during the transition period and on the combined company for an undetermined period after completion of the Transaction.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our condensed 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. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include, but are not limited to:

~~Future~~Our acquisition of the Wireline Business of Sprint Communications (as defined below), including difficulties integrating our business with the Wireline Business, which may result in the combined company not operating as effectively and efficiently as expected; transition services required to support the Wireline Business and the related costs continuing for a period longer than expected, the COVID-19 pandemic and accompanying government policies worldwide; vaccination and in-office requirements, delays in the delivery of network equipment, optical fiber and right-of-way agreements, future economic instability in the global economy, including the risk of economic recession and recent bank failures and liquidity concerns at certain other banks, which could affect spending on Internet services; the impact of changing foreign exchange rates (in particular the Euro to US dollar and Canadian dollar to US dollar exchange rates) on the translation of our non-US dollar denominated revenues, expenses, assets and ~~liabilities;~~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

and right-of-way arrangements on favorable terms; our ability to renew our long-term leases of optical fiber and right-of-way agreements that comprise our network; our reliance on ana limited number of equipment ~~vendor, Cisco Systems Inc.,~~vendors, 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 and right-of-way providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; our ability to make payments on our indebtedness as they become due and outcomes in litigation, risks associated with variable interest rates under our interest rate swap agreement (the “Swap Agreement”) as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, this report and our quarterly l report on Form 10-Q for the quarter ended March 31, 2023 and our annual report on Form 10-K for the year ended December 31, ~~2016.~~2022.

Ukraine & Russia

Following the Russian invasion of Ukraine in February 2022, we terminated services to customers based in Russia and linked to the Russian government. These customers represented less than 0.1% of our consolidated revenues for the six months ended June 30, 2022. We do not provide service within Russia but we do provide services in Ukraine via our Ukrainian subsidiary, TOV Cogent Communications Ukraine (“Cogent Ukraine”). Because of the damage to facilities caused by the war, our services in Ukraine have experienced periodic outages, which our third-party fiber provider repairs for us. We have taken steps to enhance our network security, provide financial flexibility to our Ukrainian customers and assist our Ukrainian employees. We do not believe that the termination of services to certain Russian customers or the impact of the war on our ability to provide services in Ukraine will have, taken together, a material impact on our network, financial statements or operating results. Cogent Ukraine represented less than 0.1% of our consolidated revenues for the six months ended June 30, 2023 and less than 0.2% of our consolidated assets as of June 30, 2023.

General Overview

We are a ~~leading~~ facilities-based provider of low-cost, high-speed Internet access, private network services, and ~~IP communications services.~~data center colocation space and power. Our network is specifically designed and optimized to transmit ~~data using IP.~~packet switched data. We deliver our services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 54 countries across North America, Europe, South America, Oceania and Africa. We are a Delaware corporation, and we are headquartered in ~~Asia.~~Washington, DC.

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We offer on-net Internet access ~~and IP connectivity ranging~~services exclusively through our own facilities, which run from ~~100 Megabits per second~~our network to ~~100 Gigabits per second of bandwidth.~~our customers’ premises. We offer our on-net services to customers located in buildings that are physically connected to our network. ~~We provide~~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 400 gigabits per second (“Gbps”).

Our on-net revenues represented 53.2% of our revenues for the three months ended June 30, 2023, 75.4% of our revenues for the three months ended June 30, 2022, 62.0% of our revenues for the six months ended June 30, 2023 and 75.5% of our revenues for the six months ended June 30, 2022. We provide our on-net Internet access and private network services to our corporate, ~~customers~~net-centric and ~~net-centric~~enterprise customers. Our corporate customers are located in multi-tenant office buildings ~~and in our data centers and~~(“MTOB’s”) which 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 ~~such as consortiums of universities, Internet~~that leverage our network either to deliver content to end users or to provide access to residential or commercial internet users. Content delivery customers include over the top (“OTT”) media service providers, ~~telephone companies, cable television companies,~~content delivery networks, web hosting companies, ~~content delivery networks~~ and commercial content and application software providers. Our net-centric customers include 7,891 access networks comprised of other Internet service ~~providers.~~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 expanded selling our services to enterprise customers in connection with our acquisition of the Wireline Business. We define “enterprise” customers as large corporations (typically, Fortune 500 companies with greater than $5 billion in annual revenue) running Wide Area Networks (“WAN”) with several dozen to several hundred sites. Our enterprise customers generally purchase our services on a price per location basis. We operate data centers throughout North America and Europe that allow our customers to collocate their equipment and access our network.

~~Our off-net~~In addition to providing our on-net services, ~~are sold~~we provide Internet access and private network services to ~~businesses~~customers that are not located in buildings directly connected to our ~~network~~network. We provide these off-net services primarily ~~by means of~~to corporate customers using other carriers’ circuits to provide the “last mile” ~~access service lines obtained~~portion of the link from ~~other carriers, primarily in~~ the ~~form~~customers’ premises to our network. Our off-net revenues represented 42.5% of ~~metropolitan Ethernet circuits. Our~~our revenues for the three months ended June 30, 2023, 24.4% of our revenues for the three months ended June 30, 2022, 35.4% of our revenues for the six months ended June 30, 2023 and 24.4% of our revenues for the six months ended June 30, 2022.

Wavelength and Optical Transport Services

In connection with our acquisition of the Wireline Business, we expanded our offerings of optical wavelength services and optical transport services over our fiber network. We are selling these wavelength services to our existing customers, customers of Sprint Communications and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. Revenues related to our optical wavelength services were $1.6 million for the three and six months ended June 30, 2023.

We also provide certain non-core services ~~which consist primarily~~because of ~~legacy services~~certain acquisitions, including our acquisition of ~~companies whose assets or businesses we have acquired, primarily include voice services (only provided in Toronto, Canada).~~the Wireline Business. We continue to support but do not actively ~~market~~sell these non-core services. We expect that our revenues from non-core services will decline. Our non-core revenues represented 3.6% of our revenues for the three months ended June 30, 2023, 0.1% of our revenues for the three months ended June 30, 2022, 2.2% of our revenues for the six months ended June 30, 2023 and 0.1% of our revenues for the six months ended June 30, 2022.

Acquisition of Sprint Communications

On May 1, 2023 (the “Closing Date”), Cogent Infrastructure, Inc., a Delaware corporation and our direct wholly owned subsidiary, closed on its acquisition of the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”) in accordance with the terms and conditions of the Membership Interest Purchase Agreement (the “Purchase Agreement”), dated September 6, 2022, by and among us, Sprint Communications LLC, a Kansas limited liability company (“Sprint Communications”) and an indirect wholly owned subsidiary of T-Mobile US, Inc., a Delaware corporation (“T-Mobile”), and Sprint LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of T-Mobile (the “Seller”). On the Closing Date, we purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of Wireline Network Holdings LLC, a Delaware limited liability company that, following an internal

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restructuring and divisive merger, holds Sprint Communications’ assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).

Purchase Price

On the Closing Date, we consummated the Transaction pursuant to the terms of the Purchase Agreement, providing a purchase price of $1 payable to the Seller for the Purchased Interests, subject to customary adjustments, including working capital (the “Working Capital Adjustment”), as set forth in the Purchase Agreement. As consideration for the Purchased Interests, the Working Capital Adjustment (primarily related to acquired cash and cash equivalents of an estimated $43.4 million at the Closing Date in order to fund the international operations of the Wireline Business) resulted in us making a payment of $61.1 million to the Seller on the Closing Date. After updating the estimated working capital, an additional payment of $3.5 million is due to the Seller 90 days from the Closing Date. A final determination of the Working Capital Adjustment is expected by the end of 2023.The Purchase Agreement also includes an estimated payment of $57.1 million from Seller to us related to acquired short-term lease obligations. This amount will be paid from the Seller to us in four equal payments in months 55 to 58 after the Closing Date. A final determination of the assumed short-term operating lease liabilities is expected by the end of 2023.

IP Transit Services Agreement

On the Closing Date, we entered into an agreement T-Mobile USA, Inc., a Delaware corporation and direct subsidiary of T-Mobile (“TMUSA”), for IP transit services (“IP Transit Services Agreement”), pursuant to which TMUSA will pay us an aggregate of $700.0 million, consisting of (i) $350.0 million in equal monthly installments during the first year after the Closing Date and (ii) $350.0 million in equal monthly installments over the subsequent 42 months. We concluded that the $700.0 million cash consideration was not separately identifiable from the business combination. As a result, the IP Transit Services Agreement was recorded in connection with the Transaction.

Transition Services Agreement

On the Closing Date, we entered into a transition services agreement (the “TSA”) with the Seller, pursuant to which the Seller will provide to us, and we will provide to the Seller on an interim basis following the Closing Date, certain specified services (the “Transition Services”) to ensure an orderly transition following the separation of the Wireline Business from Sprint Communications. The services to be provided by the Seller to us include, among others, information technology support, back office and finance, real estate and facilities, vendor and supply chain management including payments to vendors of the Wireline Business for us reimbursed at cost and human resources. The services to be provided by us to the Seller include, among others, information technology and network support, finance and back office and other wireless business support.

Either party to the TSA may terminate the agreement (i) with respect to any individual service in full for convenience upon 30 days’ prior written notice for certain services and ~~expect~~reduced for other services after a 90-day period. The TSA may be terminated in its entirety if the other party has failed to perform any of its material obligations and such failure is not cured within 30 days. The TSA provides for customary indemnification and limits on liability. During the three and six months ended June 30, 2023 we recorded $118.8 million due to the Seller under the TSA, primarily for reimbursement at cost of payment to vendors of the Wireline Business, and recorded $7.0 million as due from the Seller under the TSA for Transition Services. Amounts billed under the TSA are due 30 days from receipt of the related invoice. As of June 30, 2023, we owed $118.8 million to the Seller and the Seller owed $7.0 million to us under the TSA agreement.

Other Services Provided to Seller

In addition, on the Closing Date, we entered into a commercial agreement with TMUSA (“Commercial Agreement”) for colocation and connectivity services, pursuant to which we will provide such services to TMUSA for a per service ~~revenue associated with~~monthly fee plus certain third-party costs incurred in providing the services. During the three and six months ended June 30, 2023 we recorded $7.3

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million from TMUSA under the Commercial Agreement. As of June 30, 2023, TMUSA owed $7.3 million to us under the Commercial Agreement.

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. With our acquisition of the Wireline Business, we will be offering services to larger enterprise customers. We believe that our organization has the following competitive advantages:

Low Cost of Operation: We believe that the wireline telecom industry is undergoing, and will continue to ~~decline.~~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 fiber optic Wavelength Division Multiplexing (“WDM”) equipment and optically interfaced routers. Faced with the backdrop of continued price deflation in our industry, we have made a series of discreet choices around our network design, operating strategy and product offerings 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 our margins and decreased our capital intensity as measured by our capital expenditures per total revenues. Over the last five fiscal years, our cost of goods sold per bit delivered for our customers has declined at a compounded annual rate of 20.0%. Important components of our low cost operating strategy 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. Our single network design allows us to avoid many of the costs that our competitors who operate circuit-switched, time-division multiplexing (“TDM”) and hybrid fiber coaxial networks incur related to provisioning, monitoring and maintaining multiple transport protocols. Selecting one operating protocol has also had positive effects in terms of our operating overhead and the simplicity of our organization. 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.

●

Widespread Access to Fiber on a Cost Effective, Long-Term Basis. We have acquired a large portfolio of dark fiber leases from around the world sourced from the excess inventory of existing networks. This choice to lease rather than build reduces our capital intensity and the operating costs of our intercity and metro networks. The nature of this portfolio and the individual leases provide us long-term access to dark fiber at attractive rates and, in many cases the opportunity to extend these leases for multiple terms. On average, a modest number of our dark fiber leases come up for renewal each year. We have relationships with over 320 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 by or related to our high-capacity, bi-directional, symmetric internet access services which can be accessed on-net in MTOBs and carrier neutral data centers (“CNDCs”) 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 that the relative size of our salesforce training, support and overhead is lower than comparable telecom providers that tend to offer a broader, one-stop shop product set to their client base.

●

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 periods 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 standards and configurations. This replication strategy provides us scale benefits in equipment purchases, training, and maintenance.

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●

Low cost right-of-way agreements. In connection with our acquisition of the Wireline Business, we acquired numerous right-of-way agreements. Many of these right-of-way agreements are at favorable rates and these agreements would be difficult to obtain.

Greater Control and Superior Delivery. Our network is comprised of in-building riser facilities, metropolitan optical fiber networks, metropolitan traffic aggregation points and inter-city transport facilities. Our network is physically connected entirely throughon-net service does not rely on circuits that must be provisioned by a third-party carrier. In our ~~facilities to 2,472 buildings in which~~on-net MTOBs we provide our ~~on-net~~customers the entire network, including the “last mile” and the in-building wiring connecting to our customer’s suite. In our CNDCs we are collocated with our customers. As a result, only a cross-connection within the data center is required to provide our services including 1,635 multi-tenant office buildings with 881.2 million square feet of office space. We also provide on-net services in carrier-neutral data centers, Cogent controlled data centers and single-tenant office buildings. We operate 53 Cogent controlled data centers totaling 603,000 square feet. Becauseto our customers. The structure of our ~~integrated network architecture, we are not dependent~~on-net service provides us with more control over our service, quality and pricing. It also allows us to provision services more quickly and efficiently than provisioning services on ~~local telephone companies or cable companies to serve our on-net customers. We emphasize the sale~~a third-party carrier network. The vast majority of our on-net services ~~because we believe we have a competitive advantage~~can be installed in ~~providing these services and these services generate gross profit margins that are greater~~less than two weeks, which is materially faster than the ~~gross profit margins~~installation times for some of our ~~off-net services.~~incumbent competitors.

High-Quality, Reliable Service.We ~~believe our key growth opportunity is provided by our high-capacity network, which provides us with the ability~~are able to ~~add a significant number of customers~~offer high-quality Internet service due to our network ~~with minimal direct incremental costs. Our focus is to add customers to~~design and composition. We believe that we deliver a high level of technical performance because our network ~~in a way that maximizes its use~~is optimized for packet switched traffic. Its design increases the speed and at the same time provides us with a profitable customer mix. We are responding to this opportunity by increasing our sales and marketing efforts including increasing our number of sales representatives and expanding our network to locations that we believe can be economically integrated and represent significant concentrations of Internet traffic. One of our keys to developing a profitable business will be to carefully match the cost of extending our network to reach new customers with the revenue expected to be generated by those customers. In addition, we may add customers to our network through strategic acquisitions.

We believe some of the most important trends in our industry are the continued long-term growth in Internet traffic and a decline in Internet access prices on a per megabit basis. The effective price per megabit for our corporate customers is declining as the bandwidth utilization and connection size of our corporate customer connections increases. As Internet traffic continues to grow and prices per unit of traffic continue to decline, we believe we can continue to load our network and gain market share from less efficient network operators. However, continued erosion in Internet access prices will likely have a negative impact on the rate at which we can increase our revenues and our profitability. Our revenue may also be negatively affected if we are unable to grow our Internet traffic or if the rate of growth of Internet traffic does not offset an expected decline in our per unit pricing. We do not know if Internet traffic will increase or decrease, or the rate at which it will increase or decrease. Changes in Internet traffic will be a function of the number of Internet users, the amount of time users spend on the Internet, the applications for which the Internet is used, the bandwidth intensity of these applications and the pricing of Internet services, and other factors.

The growth in Internet traffic has a more significant impact on our net-centric customers who represent the vast majority of the traffic on our network and who tend to consume the majority of their allocated bandwidth on their connections. Net-centric customers tend to purchase their service on a price per megabit basis. Our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis.

We are a facilities-based provider of Internet access and communications services. Facilities-based providers require significant physical assets, or network facilities, to provide their services. Typically when a facilities-based network services provider begins providing its services in a new jurisdiction losses are incurred for several years until economies of scale have been achieved. Our foreign operations are in Europe, Canada, Mexico and Asia. Europe accounts for roughly 75% of our foreign operations. Our European operations have incurred losses and will continue to do so until our European customer base and revenues have grown enough to achieve sufficient economies of scale.

Due to our strategic acquisitions of network assets and equipment, we believe we are well positioned to grow our revenue base. We continue to purchase and deploy network equipment to parts of our network to maximize the utilization of our assets and to expand and increase the capacity of our network. Our future capital expenditures will be based primarily on the expansionthroughput of our network and ~~the addition of on-net~~

~~buildings. We plan to continue to expand our network and to increase~~reduces the number of ~~on-net~~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, ~~we serve including multi-tenant office buildings, carrier neutral~~ data centers and ~~Cogent controlled data centers. Many~~markets based upon a rigorous set of criteria to evaluate the economic opportunity of network locations. Additional factors ~~can affect our ability to add buildings~~relevant to our ~~network. These factors~~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 ~~cost~~costs to connect buildings to our network and equipment availability.

We have also begun to evaluate the sustainability of new locations by evaluating the LEED Green Rating of Buildings, the potential to source renewable energy at potential locations and the potential impact of climate change on a location including access to water and the risk of flooding. Our network is connected to 3,227 total buildings located in 227 metropolitan markets. These buildings include 1,844 large MTOBs (totaling 1.0 billion square feet of office space) in major North American cities where we offer our services to a diverse set of high-quality corporate customers within close physical proximity of each other. These buildings also include 1,526 CNDCs located in 1,327 buildings in North America, Europe, South America, Oceania and Africa where our net-centric customers directly interconnect with our network. We also operate 56 of our own data centers (one of which converted from facilities acquired with the Wireline Business) across the United States and in Europe, which comprise over 683,000 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 7,891 access networks as well as numerous large and small content providers and 61,284 corporate customer connections. Because 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 remains “on-net” by both originating and terminating on our network. This control of traffic is an important differentiator as it increases our service reliability and speed of traffic delivery. The increasing share of traffic delivered from content providers to access networks also enhances our margins as we are compensated by both the originating customer and terminating customer. The breadth of our network, extensive size of our customer base, and the volume of our traffic enables us to be one of a handful of Tier 1 networks that are interconnected on a settlement-free basis. This Tier 1 network peering 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 previous acquisitions and managed the expansion and growth of our business. We anticipate that our management team will successfully manage the integration of the Wireline Business into our current operations.

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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 MTOBs or connected to our network through one of our CNDCs. 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 customers 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 other 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. With our acquisition of Wireline Business, we will be offering services to larger enterprise customers.

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 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 over-the-top (“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 CNDC footprint in the industry and currently offer network services in 54 countries – as net-centric customers seek a more international audience this footprint is a significant advantage;

●

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

●

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

●

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

●

The customers of the Wireline Business will include a number of large enterprise customers, a type of customer that we have not traditionally served.

Develop a Worldwide Peering Platform. In late 2020 we introduced a new product, Global Peer Connect, targeted at the growing demand for certain net-centric customers to dynamically peer traffic anywhere on our global platform. Our Global Peer Connect product provides access to our Global Peer Exchange 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 currently serve over 420 connections via our Global Peer Exchange.

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 MTOBs and CNDCs to our network. We emphasize our on-net services because they generate greater profit margins and we have more control over service levels, quality and 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.

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Continue to Improve our Sales Efforts and Productivity. A critical factor in our success has been our investment and focus on our sales and marketing efforts. We seek to maintain a consistent level of sales 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 our sales efforts including introducing strategies and tools to optimize and improve our sales productivity. We have developed several training programs that are directed toward increasing our sales representative tenure and increasing our sales representative productivity. In addition, we have required all of our employees to work in the office on a full-time basis, thereby providing additional opportunities for management coaching and oversight in order to increase productivity.

Expand our Off-net Corporate Internet Access Business. We have agreements with over 500 national and international carriers providing us last mile network access to over 5 million commercial buildings that are lit by fiber optic cable across North America and that are not currently served by our network. We believe these agreements broaden our addressable market for corporate dedicated internet access and enhances our competitive position through the ability to provide enterprise-wide connectivity for corporate customers. In order to take advantage of this large set of commercial buildings we have developed an automated process to enable our salesforce to identify opportunities in the off-net market for dedicated internet access and to quickly offer pricing proposals to potential customers. We continue to negotiate reduced pricing under our numerous carrier agreements that enable us to reduce our cost of off-net services, which enhances our competitive position in the marketplace.

Expand our Product Offerings to Include Wavelength and Optical Transport Services. In connection with the Transaction, we expanded our offerings of optical wavelength and optical transport services over our fiber network. We are selling these services to our existing customers, customers of Sprint Communications and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. We operate data centers throughout North America and Europe that allow our customers to collocate their equipment and access our network. In connection with the Transaction, we will also expand our colocation offerings.

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Results of Operations

Three Months Ended ~~September~~June 30, ~~2017~~2023 Compared to the Three Months Ended ~~September~~June 30, ~~2016~~2022

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 ~~table presents~~tables present a comparison of our results of operations with respect to certain key financial measures. The comparisons illustrated in the ~~table~~tables are discussed in greater detail below.

Three months ended
September 30,

Percent

2017

2016

Change

(in thousands)

Service revenue

$
122,969

$
113,057

8.8
%
On-net revenue

87,898

81,846

7.4
%
Off-net revenue

34,865

30,972

12.6
%
Network operations expenses (1)

53,584

48,827

9.7
%
Selling, general, and administrative expenses (2)

32,915

30,050

9.5
%
Gains on equipment transactions

397

687

(42.2
)%
Depreciation and amortization expenses

19,147

18,804

1.8
%
Interest expense

12,266

9,891

24.0
%
Income tax provision

3,436

2,920

17.7
%


	Three Months Ended
	June 30,				Percent
	2023		2022		Change

	(in thousands)
Service revenue	$	239,806	$	148,450	61.5	%
On-net revenue		127,665		111,975	14.0	%
Off-net revenue		101,984		36,282	181.1	%
Wavelength revenue		1,585		—	NM
Non-core revenue		8,572		193	NM
Network operations expenses (1)		137,502		56,514	143.3	%
Selling, general, and administrative (“SG&A) expenses (2)		83,658		39,386	112.4	%
Depreciation and amortization expenses		52,511		23,071	127.6	%
Gain on bargain purchase – Sprint Wireline Business		1,155,719		—	NM
Unrealized foreign exchange gain on 2024 Notes		—		23,547	NM
Loss on debt extinguishment and redemption – 2024 Notes		—		11,885	NM
Change in valuation – interest rate swap agreement		1,305		7,510	NM
Interest income – IP Transit Services Agreement		7,669		—	NM
Interest expense		28,653		13,478	112.6	%
Income tax (benefit) expense		(24,331)		8,554	NM

(1)	Includes non-cash equity-based compensation expenses of $231 and $145 in the three months ended June 30, 2023 and 2022, respectively.

(2)	Includes non-cash equity-based compensation expenses of $6,018 and $5,762 in the three months ended June 30, 2023 and 2022, respectively.

~~(1)~~ ~~Includes equity-based compensation expenses~~NM – not meaningful


	June 30,				Percent
	2023		2022		Change
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU - on-net	$	483	$	455	6.1	%
ARPU - off-net	$	1,294	$	927	39.5	%
ARPU - wavelengths	$	2,552	$	—	NM
Average Price per Megabit — installed base	$	0.28	$	0.29	(4.6)	%
Customer Connections—end of period
On-net		92,846		82,277	12.8	%
Off-net		38,762		13,160	194.5	%
Wavelengths		414		—	NM
Non-core		19,408		340	NM

Page 31 of ~~$179 and $161 in the three months ended September 30, 2017 and 2016, respectively.~~49

~~(2)~~ ~~Includes equity-based compensation expenses~~Table of ~~$3,555 and $2,830 in the three months ended September 30, 2017 and 2016, respectively.~~Contents

Three Months Ended
September 30,

Percent

2017

2016

Change

Other Operating Data

Average Revenue Per Unit (ARPU)

ARPU—on net

$
502

$
544

(7.6
)%
ARPU—off-net

$
1,220

$
1,272

(4.1
)%
Average Price per Megabit — installed base

$
1.08

$
1.28

(15.7
)%
Customer Connections—end of period

On-net

59,357

51,079

16.2
%
Off-net

9,724

8,259

17.7
%

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, increasing the number of buildings that we are connected to, including CNDC’s and MTOB’s, and increasing our penetration rate into our existing buildings. These efforts broaden the global reach of our network and increase the size of our potential addressable market. We also seek to grow our service revenue by investing in our sales and marketing team. We typically sell corporate connections at similar pricing to our competitors, but our clients benefit from our significantly faster speeds, greater aggregate throughput, enhanced service level agreements and rapid installation times. In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.

Our service revenue increased ~~8.8% for the three months ended September 30, 2017~~by 61.5% from the three months ended ~~September~~June 30, ~~2016. The impact of exchange rates resulted in an increase of revenues for~~2022 to the three months ended ~~September~~June 30, ~~2017 of approximately $1.3~~2023. Exchange rates positively affected our increase in service revenue by $0.3 million. All foreign currency comparisons herein reflect ~~our third quarter 2017~~ results for the three months ended June 30, 2023 translated at the average foreign currency exchange rates for the ~~third quarter of 2016.~~ three months ended June 30, 2022. We increased our total service revenue by expanding our network, adding additional buildings to our network, increasing our penetration into the buildings connected to our network and gaining market share by offering our services at lower prices than our competitors. Revenue from the Wireline Business was $78.0 million from May 1, 2023 (the closing date) to June 30, 2023.

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.~~comprehensive income. The impact of these taxes including the Universal Service Fund resulted in an increase ofto our revenues ~~for the three months ended September 30, 2017~~of $7.6 million from the three months ended ~~September~~June 30, ~~2016~~2022 to the three months ended June 30, 2023. Excise taxes from the Wireline Business were $7.0 million from May 1, 2023 (the closing date) to June 30, 2023.

Revenue and customer connections by customer type

Our corporate customers generally purchase their services on a price per connection basis. Our net-centric customers generally purchase their services on a price per megabit-metered basis. We began to serve enterprise customers in connection with our acquisition of ~~approximately $0.3 million.~~

the Wireless Business. We define “enterprise” customers as large corporations (typically, Fortune 500 companies with greater than $5 billion in annual revenue) running Wide Area Networks (“WAN”) with several dozen to several hundred sites. Our enterprise customers generally purchase our services on a price per location basis. Revenues from our corporate, net-centric customers and ~~net centric~~enterprise customers represented ~~62.2%~~46.3%, 36.5% and ~~37.8%~~17.2% of total service revenue, respectively, for the three months ended ~~September~~June 30, ~~2017~~2023. Revenues from our corporate and net-centric customers represented ~~60.6%~~57.4% and ~~39.4%~~42.6% of total service revenue, respectively, for the three months ended ~~September~~June 30, ~~2016.~~2022. Revenues from corporate customers increased ~~11.7%~~by 30.3% to ~~$76.5~~$111.0 million for the three months ended ~~September~~June 30, ~~2017 from $68.5 million for~~2023 compared to the three months ended ~~September~~June 30, ~~2016.~~2022. Revenues from our net-centric customers increased by ~~4.3%~~38.4% to ~~$46.4~~$87.6 million for the three months ended ~~September~~June 30, ~~2017 from $44.5 million for~~2023 compared to the three months ended ~~September~~June 30, ~~2016.~~2022. Revenues from our enterprise customers represented $41.2 million, from May 1, 2023 (the closing date) to June 30, 2023. Certain of our historical corporate and net-centric customers (in total approximately 400 customers representing approximately $0.3 million in monthly recurring revenue) have been reclassified from our legacy net-centric and corporate revenue and customer connections to enterprise revenue and customer connections. Certain of the customer connections we acquired in the Wireline Business were classified as corporate and net-centric revenue and customer connections. We acquired 17,823 corporate customer connections, 5,711 net-centric customer connections and 23,209 enterprise customer connections with the Wireline Business. In connection with our acquisition of the Wireline business, we classified the Wireline Business revenue as $20.1 million of monthly recurring revenue as enterprise revenue, $12.9 million of monthly recurring revenue as corporate revenue and $6.5 million of monthly recurring revenue as net-centric revenue.

Our revenue from our corporate customers increased primarily due to an increase in our number of corporate customers and from 17,823 corporate customer connections acquired with the Wireline Business. Our corporate customers take advantage of our superior speeds, greater aggregate throughput, service levels and installation times versus our competitors. The growing trend of customers installing second lines for redundancy in order to construct virtual private networks (“VPNs”) has also led to our ability to increase our corporate revenues. Beginning with and throughout the COVID-19 pandemic, we witnessed a deteriorating real estate market in and around the buildings we service in central business districts in North America. Because of the rising vacancy levels and falling lease initiations or renewals, we experienced a slowdown in new sales to our corporate customers, which negatively affected our legacy corporate revenue results. During the three months ended June 30, 2023, we slowly began to see declining vacancy rates

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and rising office occupancy rates. In addition, we began to see positive trends in our corporate business. As the option to fully or partially work from home becomes permanently established at many companies, our corporate customers are integrating some of the new applications that became part of the remote work environment, which benefits our corporate business as these customers upgrade their Internet access infrastructure to higher capacity connections. Further, if and when companies eventually return to the buildings in which we operate, we believe it will present an opportunity for increased sales. However, the exact timing and path of these positive trends remains uncertain, and as the after effects of the COVID-19 pandemic linger, we may continue to see increased corporate customer turnover, fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities, which would negatively affect our corporate revenue growth.

Our revenue from our net-centric customers increased primarily due to an increase in our number of net-centric customers and growth in network traffic from these customers and from 5,711 net-centric customer connections acquired with the Wireline Business 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 transmission and routing, and the commodity nature of the service where price is typically the only differentiating factor for these customers. Our average price per megabit of our installed base of customers declined by 4.6% from the three months ended June 30, 2022 to the three months ended June 30, 2023. We expect that our average price per megabit will continue to decline. The impact of foreign exchange rates has a more significant impact on our net-centric revenues.

Revenue and customer connections by network connection type

Our on-net revenues increased ~~7.4% for the three months ended September 30, 2017~~by 14.0% from the three months ended ~~September~~June 30, ~~2016. We~~2022 to the three months ended June 30, 2023. Our on-net revenues increased as we increased the number of our on-net customer connections by ~~16.2%~~12.8% at ~~September~~June 30, ~~2017~~2023 from ~~September~~June 30, ~~2016.~~2022. On-net ~~customer connections~~revenue increased at a greater rate than on-net ~~revenues~~customer connections primarily due to on-net customer connections acquired in our acquisition of the ~~7.6% decline~~Wireline Business and an increase in our on-net ARPU ~~primarily~~ from ~~a decline in ARPU for our net centric customers.~~the three months ended June 30, 2022 to the three months ended June 30, 2023. ARPU is determined by dividing revenue for the period by the average customer connections for that period. ~~Our average price per megabit for our installed base of~~On-net revenues from customers is determined by dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for the same customers. The decline in on-net ARPU is partly attributed to volume and term based pricing discounts. Additionally, on-net customers who cancel their service from our installed base of customers, in general, have an ARPU that is greater than the ARPU for our new customers due to declining prices primarily for our on-net services sold to our net-centric customers.

~~These trends resulted~~acquired in the ~~reduction~~Wireline Business was $4.1 million from May 1, 2023 (the closing date) to ~~our on-net ARPU and a 15.7% decline in our average price per megabit for our installed base~~June 30, 2023. On-net customer connections from the Wireline Business were 2,546 as of ~~customers.~~

June 30, 2023.

Our off-net revenues increased ~~12.6% for the three months ended September 30, 2017~~by 181.1% from the three months ended ~~September~~June 30, ~~2016.~~2022 to the three months ended June 30, 2023. Our off-net revenues increased ~~as we increased~~primarily from the 194.5% increase in the number of our off-net customer connections ~~by 17.7% at September~~from June 30, ~~2017~~2022 to June 30, 2023. Off-net revenues from ~~September~~customers acquired in the Wireline Business was $63.9 million from May 1, 2023 (the closing date) to June 30, ~~2016. Our off-net~~2023. Off-net customer connections from the Wireline Business were 24,243 as of June 30, 2023.

In connection with our acquisition of the Wireline Business, we expanded our offering of optical wavelength and optical transport services over our fiber network. Wavelength customer connections from the Wireline Business were 402 as of June 30, 2023. Wavelength revenues from customers acquired in the Wireline Business was $1.6 million from May 1, 2023 (the closing date) to June 30, 2023.

Our non-core revenues increased ~~at a greater rate than our off-net revenue primarily due~~from the three months ended June 30, 2022 to the ~~4.1% decrease~~three months ended June 30, 2023 primarily from the acquisition of non-core revenues from customers acquired in ~~our off-net ARPU.~~

the Wireline Business. Non-core revenues from customers acquired in the Wireline Business were $8.4 million from May 1, 2023 (the closing date) to June 30, 2023. Non-core customer connections from the Wireline Business were 19,021 as of June 30, 2023.

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. Our network operations expenses, including non-cash equity-based compensation expense, increased by 143.3% from the three months ended June 30, 2022 to the three months ended June 30, 2023. 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~~The increase in network operations ~~expenses, including non-cash equity-based compensation~~ expense ~~increased 9.7% for the three months ended September 30, 2017 from the three months ended September 30, 2016. The increase~~ is primarily attributable to an increase in costs related to our network and facilities expansion activities, ~~and the~~an increase in power costs and $72.4 million of network operations expense from our ~~off-net revenues. When we provide off-net services we also assume the cost~~acquisition of the ~~associated tail circuits.~~Wireline Business from May 1, 2023 (the closing date) to June 30, 2023.

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Selling, General, and Administrative (“SG&A”) Expenses. Our SG&A expenses, including non-cash equity-based compensation expense, increased ~~9.5% for the three months ended September 30, 2017~~by 112.4% from the three months ended ~~September~~June 30, ~~2016.~~2022 to the three months ended June 30, 2023. 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 $3.6 million for the three months ended September 30, 2017 and $2.8 million for the three months ended September 30, 2016.~~compensation. SG&A expenses increased primarily from an increase in salaries and ~~related costs required to support our expansion and the~~benefits from a 104.5% increase in our ~~sales efforts partly offset by a $0.8 million decrease in~~total headcount, including 942 employees added to our ~~legal and economic analysis fees primarily associated with U.S. net neutrality and interconnection regulatory matters.~~headcount from our acquisition of the Wireline Business. Our sales force headcount ~~increased by 9.5% from 516~~was 841 at ~~September~~June 30, ~~2016 to 565~~2023 and 619 at ~~September~~June 30, ~~2017~~2022, and our total headcount ~~increased by 7.1%~~was 2,020 at June 30, 2023 and 988 at June 30, 2022. The Wireline Business added 114 employees to our sales force headcount. SG&A expense from ~~858 at September 30, 2016 to 919 at September 30, 2017.~~

~~Gains on Equipment Transactions.~~ In the three months ended September 30, 2017 and September 30, 2016, we exchanged certain used network equipment and cash consideration for new network equipment resulting in gains of $0.4 million and $0.7 million, respectively, based upon the estimated fair valueour acquisition of the ~~new network equipment less the carrying amount of the returned used network equipment and the cash paid.~~

Wireline Business was $43.2 million from May 1, 2023 (the closing date) to June 30, 2023.

Depreciation and Amortization Expenses. Our depreciation and amortization expense increased by ~~1.8% for the three months ended September 30, 2017~~127.6% from the three months ended ~~September~~June 30, ~~2016.~~2022 to the three months ended June 30, 2023. The increase is primarily due to the depreciation expense associated with the increase in deployed fixed ~~assets.~~

assets and $27.1 of depreciation and amortization expense from assets acquired with the Wireline Business.

Gain on Bargain Purchase

We accounted for our acquisition of the Wireline Business as a business combination. The identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions. The fair value of the identifiable assets acquired was $1.5 billion (including amounts due under the IP Transit Services Agreement) and was in excess of the $1.0 billion liabilities assumed and the $0.6 billion net consideration to be received from the Seller resulting in a gain on bargain purchase of $1.2 billion.

Interest ~~Expense.~~Income - IP Transit Services Agreement

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

We accounted for the Transaction as a business combination under ASC Topic 805 Business Combinations (“ASC 805”). Under ASC 805, we concluded that the $700.0 million of payments to be made represent consideration received to complete the acquisition of a distressed business. We also evaluated whether the IP Transit Services Agreement was in the scope of ASU No. 2014-09 Revenue from Contracts with Customers (“ASC 606”). We concluded that TMUSA did not represent a “customer” as defined by ASC 606, the stated contract price did not represent consideration for services to be delivered, and the transaction did not satisfy the definition of revenue, which excluded this arrangement from the scope of ASC 606. As a result, the IP Transit Services Agreement was recorded in connection with the Transaction at its discounted present value resulting in a discount of $79.6 million. The amortization of the discount resulted in interest income of $7.7 million for the three months ended June 30, 2023.

Unrealized Gain on Foreign Exchange – 2024 Notes. Our 2024 Notes were issued in Euros and were reported in our reporting currency – US Dollars until they were fully extinguished in June 2022. The unrealized gain on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was $23.5 million for the three months ended June 30, 2022.

Interest Expense and Loss on Debt Extinguishment and Redemption. Our interest expense ~~results~~resulted from interest incurred on our ~~$375.0~~€350.0 million aggregate principal amount of ~~senior secured~~Senior Unsecured Euro Notes due 2024 (the “2024 Notes”) until these notes were fully extinguished in June 2022, interest incurred on our ~~$189.2~~$500.0 million aggregate principal amount of ~~senior unsecured notes,~~3.50% Senior Secured Notes due 2026 that we issued in May 2021 (the “2026 Notes”), interest incurred on our ~~installment payment agreement~~$450.0 million aggregate principal amount of 7.00% Senior Unsecured Notes due 2027 that we issued in June 2022 (the “2027 Notes”) and interest incurred on our ~~capital~~finance lease obligations. Our interest expense increased by ~~24.0% for the three months ended September 30, 2017~~112.6% from the three months ended ~~September~~June 30, ~~2016~~2022 to the three months ended June 30, 2023. The increase was primarily due to the increase in interest rates on our ~~issuance of $125.0~~2027 Notes as compared to the 2024 Notes and from $9.5 million of ~~senior secured notes~~interest expense paid in ~~December 2016.~~May 2023 associated with our Swap Agreement. In June 2022, we extinguished our 2024 Notes at 101.094% of par value resulting in a loss on debt extinguishment and redemption of $11.9 million.

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Change in Valuation - Interest Rate Swap Agreement. As of June 30, 2023, the fair value of our Swap Agreement was a net liability of $52.1 million, and we recorded unrealized losses for the non-cash change in the valuation of the Swap Agreement of $1.3 million in the three months ended June 30, 2023 and $7.5 million in the three months ended June 30, 2022

Under the Swap Agreement settlement payment made in November 2021, we received $0.6 million from the counterparty for a net cash savings of $0.6 million for the period from August 9, 2021 (the Swap Agreement inception date) to October 31, 2021, in May 2022, we received $1.2 million from the counterparty for a net cash savings of $1.2 million for the period from November 1, 2021 to April 30, 2022. Under the Swap Agreement settlement payment made in November 2022, we paid $3.4 million to the counterparty for a net cash interest cost of $3.4 million for the period from May 1, 2022 to October 31, 2022. Under the Swap Agreement settlement payment made in May 2023, we paid $9.5 million to the counterparty for a net cash interest cost of $9.5 million for the period from November 1, 2022 to April 30, 2023.

Income Tax ~~Provision.~~ (Benefit) Expense.Our income tax ~~provision~~benefit was ~~$3.4~~$24.3 million for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~$2.9~~our income tax expense was $8.6 million for the three months ended ~~September~~June 30, ~~2016.~~2022. The ~~increase~~decrease in our income tax ~~provision was~~expense is primarily related to ~~an increase in~~projected operating results related to the Sprint Wireline business acquisition and the reversal of a valuation allowance on our business interest expense deferred ~~income~~ tax ~~expense due to an increase in income before taxes in the United States.~~

asset.

Buildings On-net. As of ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, we had a total of ~~2,472~~3,227 and ~~2,334~~3,095 on-net buildings connected to our network, respectively. The increase in our on-net buildings was a result of our disciplined network expansion program. We anticipate adding a similar number of buildings to our network for the next several years.

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~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2022

Nine months ended
September 30,

Percent

2017

2016

Change

(in thousands)

Service revenue

$
359,949

$
331,304

8.6
%
On-net revenue

257,071

240,091

7.1
%
Off-net revenue

102,230

90,476

13.0
%
Network operations expenses (1)

155,362

143,976

7.9
%
Selling, general, and administrative expenses (2)

96,165

89,403

7.6
%
Gains on equipment transactions

3,543

7,071

(49.9
)%
Depreciation and amortization expenses

56,583

55,161

2.6
%
Interest expense

36,245

30,200

20.0
%
Income tax provision

10,536

8,688

21.3
%


	Six Months Ended
	June 30,				Percent
	2023		2022		Change

	(in thousands)
Service revenue	$	393,395	$	297,622	32.2	%
On-net revenue		243,808		224,609	8.5	%
Off-net revenue		139,266		72,668	91.6	%
Wavelength revenue		1,585		—	NM
Non-core revenue		8,736		345	NM
Network operations expenses (1)		196,140		113,963	72.1	%
Selling, general, and administrative (“SG&A) expenses (2)		128,736		80,013	60.9	%
Depreciation and amortization expenses		77,669		45,762	69.7	%
Unrealized foreign exchange gain on 2024 Notes		—		31,561	NM
Loss on debt extinguishment and redemption – 2024 Notes		—		11,885
Change in valuation – interest rate swap agreement		(542)		28,781	NM
Interest income – IP Transit Services Agreement		7,669		—	NM
Interest expense		47,658		27,648	72.4	%
Income tax (benefit) expense		(19,827)		9,095	NM

(1)	Includes non-cash equity-based compensation expenses of $380 and $289 in the six months ended June 30, 2023 and 2022, respectively.

(2)	Includes non-cash equity-based compensation expenses of $12,450 and $11,674 in the six months ended June 30, 2023 and 2022, respectively.

~~(1)~~ ~~Includes equity-based compensation expenses~~NM – not meaningful


	Six Months Ended
	June 30,				Percent
	2023		2022		Change
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU—on-net	$	463	$	459	0.8	%
ARPU—off-net	$	888	$	938	(5.3)	%
ARPU – Wavelengths	$	2,552	$	—	NM
Average Price per Megabit — installed base	$	0.26	$	0.30	(12.7)	%
Customer Connections—end of period
On-net		92,846		82,277	12.8	%
Off-net		38,762		13,160	194.5	%
Wavelengths		414		—	NM
Non-core		19,408		340	NM

Page 36 of ~~$431 and $427 in the nine months ended September 30, 2017 and 2016, respectively.~~49

~~(2)~~ ~~Includes equity-based compensation expenses~~Table of ~~$9,175 and $7,432 in the nine months ended September 30, 2017 and 2016, respectively.~~Contents

Nine Months Ended
September 30,

Percent

2017

2016

Change

Other Operating Data

Average Revenue Per Unit (ARPU)

ARPU—on net

$
509

$
553

(7.9
)%
ARPU—off-net

$
1,240

$
1,294

(4.2
)%
Average Price per Megabit — installed base

$
1.15

$
1.37

(16.3
)%
Customer Connections—end of period

On-net

59,357

51,079

16.2
%
Off-net

9,724

8,259

17.7
%

Our service revenue increased ~~8.6% for~~by 32.2% from the ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2022 to the ~~nine~~six months ended ~~September~~June 30, ~~2016. The impact of exchange~~2023. Exchange rates ~~resulted~~negatively affected our increase in ~~a decrease of revenues for the nine months ended September 30, 2017 of approximately $0.1~~service revenue by $1.2 million. All foreign currency comparisons herein reflect ~~our 2017~~ results for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 translated at the average foreign currency exchange rates for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2022. We increased our total service revenue by expanding our network, adding additional buildings to our network, increasing our penetration into the buildings connected to our network and gaining market share by offering our services at lower prices than our competitors. Revenue from the Wireline Business was $78.0 million from May 1, 2023 (the closing date) to June 30, 2023.

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.~~comprehensive income. The impact of these taxes including the Universal Service Fund resulted in an increase ofto our revenues ~~for~~of $8.0 million from the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 to the six months ended June 30, 2023. Excise taxes from the ~~nine months ended September~~Wireline Business were $7.0 million from May 1, 2023 (the closing date) to June 30, ~~2016~~2023.

Revenue and customer connections by customer type

the Wireline business. We define “enterprise” customers as large corporations (typically, Fortune 500 companies with greater than $5 billion in annual revenue) running Wide Area Networks (“WAN”) with several dozen to several hundred sites. Our enterprise customers generally purchase our services on a price per location basis. Revenues from our corporate, net-centric customers and ~~net centric~~enterprise customers represented ~~62.0%~~50.0%, 39.5% and ~~38.0%~~10.5% of total service revenue, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023. Revenues from our corporate and net-centric customers represented ~~60.3%~~57.6% and ~~39.7%~~42.4% of total service revenue, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. Revenues from corporate customers increased ~~11.9%~~by 14.8% to ~~$223.3~~$196.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 from $199.7 million for~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. Revenues from our net-centric customers increased by ~~3.8%~~23.1% to ~~$136.6~~$155.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 from $131.6 million for~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. Revenues from our enterprise customers represented $41.2 million, from May 1, 2023 (the closing date) to June 30, 2023. Certain of our historical corporate and net-centric customers (in total approximately 400 customers representing approximately $0.3 million in monthly recurring revenue) have been reclassified from our legacy net-centric and corporate revenue and customer connections to enterprise revenue and customer connections. Certain of the customer connections we acquired in the Wireline Business were classified as corporate and net-centric revenue and customer connections. We acquired 17,823 corporate customer connections, 5,711 net-centric customer connections and 23,209 enterprise customer connections with the Wireline Business. In connection with our acquisition of the Wireline business, we classified the Wireline Business revenue as $20.1 million of monthly recurring revenue as enterprise revenue, $12.9 million of monthly recurring revenue as corporate revenue and $6.5 million of monthly recurring revenue as net-centric revenue.

Our revenue from our corporate customers increased primarily due to an increase in our number of corporate customers and from 17,823 corporate customer connections acquired with the Wireline Business. Our corporate customers take advantage of our superior speeds, greater aggregate throughput, service levels and installation times versus our competitors. The ~~negative~~growing trend of customers installing second lines for redundancy in order to construct virtual private networks (“VPNs”) has also led to our ability to increase our corporate revenues. Beginning with and throughout the COVID-19 pandemic, we witnessed a deteriorating real estate market in and around the buildings we service in central business districts in North America. Because of the rising vacancy levels and falling lease initiations or renewals, we experienced a slowdown in new sales to our corporate customers, which negatively affected our corporate revenue results. During the six months ended June 30, 2023, we slowly began to see declining vacancy rates and rising office occupancy rates. In addition, we began to see positive trends in our corporate business. As the option to fully or partially work from home becomes permanently established at many companies, our corporate customers are integrating some of the new

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applications that became part of the remote work environment, which benefits our corporate business as these customers upgrade their Internet access infrastructure to higher capacity connections. Further, if and when companies eventually return to the buildings in which we operate, we believe it will present an opportunity for increased sales. However, the exact timing and path of these positive trends remains uncertain, and as the after effects of the COVID-19 pandemic linger, we may continue to see increased corporate customer turnover, fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities, which would negatively affect our corporate revenue growth.

Our revenue from our net-centric customers increased primarily due to an increase in our number of net-centric customers and growth in network traffic from these customers and from 5,711 net-centric customers acquired with the Wireline Business. Our net-centric customers purchase our services on a price per megabit basis. The net-centric market exhibits significant pricing pressure due to the continued introduction of new technology, which lowers the marginal cost of transmission and routing, and the commodity nature of the service where price is typically the only differentiating factor for these customers. Our average price per megabit of our installed base of customers decreased by 12.7% from the six months ended June 30, 2022 to the six months ended June 30, 2023. The impact of foreign exchange rates has a more significant impact on our net-centric revenues.

Revenue and customer connections by network connection type

Our on-net revenues increased ~~7.1% for~~by 8.5% from the ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2022 to the ~~nine~~six months ended ~~September~~June 30, ~~2016. We~~2023. Our on-net revenues increased as we increased the number of our on-net customer connections by ~~16.2%~~12.8% at ~~September~~June 30, ~~2017~~2023 from ~~September~~June 30, ~~2016.~~2022. On-net customer connections increased at a greater rate than on-net ~~revenues~~customer revenue primarily due to on-net customers acquired in our acquisition of the ~~7.9% decline~~Wireline Business and partly offset by an increase in our on-net ARPU ~~primarily~~ from ~~a decline in ARPU for our net centric customers.~~the six months ended June 30, 2022 to the six months ended June 30, 2023. ARPU is determined by dividing revenue for the period by the average customer connections for that period. ~~Our average price per megabit for our installed base of~~On-net revenues from customers is determined by dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for the same customers. The decline in on-net ARPU is partly attributed to volume and term based pricing discounts. Additionally, on-net customers who cancel their service from our installed base of customers, in general, have an ARPU that is greater than the ARPU for our new customers due to declining prices primarily for our on-net services sold to our net-centric customers. These trends resultedacquired in the ~~reduction~~Wireline Business was $4.1 million from May 1, 2023 (the closing date) to ~~our on-net ARPU and a 16.3% decline in our average price per megabit for our installed base~~June 30, 2023. On-net customer connections from the Wireline Business were 2,546 as of ~~customers.~~

June 30, 2023.

Our off-net revenues increased ~~13.0% for~~by 91.6% from the ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2022 to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2023. Our off-net revenues increased ~~as we increased~~primarily from the 194.5% increase in the number of our off-net customer connections ~~by 17.7% at September~~from June 30, ~~2017~~2022 to June 30, 2023. Off-net revenues from ~~September~~customers acquired in the Wireline Business was $63.9 million from May 1, 2023 (the closing date) to June 30, ~~2016. Our off-net~~2023. Off-net customer connections from the Wireline Business were 24,243 as of June 30, 2023.

Our non-core revenues increased ~~at a greater rate than our off-net revenue primarily due~~from the six months ended June 30, 2022 to the ~~4.2% decrease~~six months ended June 30, 2023 primarily from the acquisition of non-core revenues from customers acquired in ~~our off-net ARPU.~~

Network Operations Expenses. Network operations expenses include the costs of personnel associated with service delivery, network management and customer support, network facilities costs, fiber and equipment maintenance fees, leased circuit costs, access and facilities fees paid to building owners and excise taxes billed to our customers and recorded on a gross basis. Our network operations expenses, including non-cash equity-based compensation expense, increased by 72.1% from the six months ended June 30, 2022 to the six months ended June 30, 2023. 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~~The increase in network operations ~~expenses, including non-cash equity-based compensation~~ expense ~~increased 7.9% for the nine months ended September 30, 2017 from the nine months ended September 30, 2016. The increase~~ is primarily attributable to an increase in costs related to our network and facilities expansion activities, ~~a $1.4 million~~an increase in ~~taxes billed to our customers recorded on a gross basis (in service revenue~~power costs and ~~cost~~$72.4 million of network operations ~~expense) and the increase in~~expense from our ~~off-net revenues. When we provide off-net services we also assume the cost~~acquisition of the ~~associated tail circuits.~~

Wireline Business from May 1, 2023 (the closing date) to June 30, 2023.

Selling, General, and Administrative (“SG&A”) Expenses. Our SG&A expenses, including non-cash equity-based compensation expense, increased ~~7.6% for~~by 60.9% from the ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2022 to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2023. 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 $9.2 million for the nine months ended September 30, 2017 and $7.4 million for the nine months ended September 30, 2016.~~compensation. SG&A expenses increased primarily from an increase in salaries and ~~related costs required to support our expansion and the~~benefits from a 104.5% increase in our ~~sales efforts partly~~

~~offset by a $2.5 million decrease in~~total headcount, including 942 employees added to our ~~legal and economic analysis fees primarily associated with U.S. net neutrality and interconnection regulatory matters.~~headcount from our acquisition of the Wireline Business. Our sales force headcount ~~increased by 9.5% from 516~~

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was 841 at ~~September~~June 30, ~~2016 to 565~~2023 and 619 at ~~September~~June 30, ~~2017~~2022, and our total headcount ~~increased by 7.1%~~was 2,020 at June 30, 2023 and 988 at June 30, 2022. The Wireline Business added 114 employees to our sales force headcount. SG&A expense from ~~858 at September 30, 2016 to 919 at September 30, 2017.~~

~~Gains on Equipment Transactions.~~ In the nine months ended September 30, 2017 and September 30, 2016, we exchanged certain used network equipment and cash consideration for new network equipment resulting in gains of $3.5 million and $7.1 million, respectively, based upon the estimated fair valueour acquisition of the ~~new network equipment less the carrying amount of the returned used network equipment and the cash paid.~~

Wireline Business was $43.2 million from May 1, 2023 (the closing date) to June 30, 2023.

Depreciation and Amortization Expenses. Our depreciation and amortization expense increased by ~~2.6% for~~69.7% from the ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2022 to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2023. The increase is primarily due to the depreciation expense associated with the increase in deployed fixed ~~assets.~~

assets and $27.1 of depreciation and amortization expense from assets acquired with the Wireline Business.

Gain on Bargain Purchase

Interest ~~Expense.~~Income - IP Transit Services Agreement

Unrealized Gain on Foreign Exchange – 2024 Notes. Our 2024 Notes were issued in Euros and were reported in our reporting currency – US Dollars until they were fully extinguished in June 2022. The unrealized gain on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was $31.6 million for the six months ended June 30, 2022.

Interest Expense and Loss on Debt Extinguishment and Redemption. Our interest expense ~~results~~resulted from interest incurred on our ~~$375.0~~€350.0 million aggregate principal amount of ~~senior secured~~Senior Unsecured Euro Notes due 2024 (the “2024 Notes”) until these notes were fully extinguished in June 2022, interest incurred on our ~~$189.2~~$500.0 million aggregate principal amount of ~~senior unsecured notes,~~3.50% Senior Secured Notes due 2026 that we issued in May 2021 (the “2026 Notes”), interest incurred on our ~~installment payment agreement~~$450.0 million aggregate principal amount of 7.00% Senior Unsecured Notes due 2027 that we issued in June 2022 (the “2027 Notes”) and interest incurred on our ~~capital~~finance lease obligations. Our interest expense increased by ~~20.0% for~~72.4% from the ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2022 to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2023. The increase was primarily due to the increase in interest rates on our ~~issuance of $125.0~~2027 Notes as compared to the 2024 Notes and from $9.5 million of ~~senior secured notes~~interest expense paid in ~~December 2016.~~

May 2023 associated with our Swap Agreement. In ~~the second quarter of 2016,~~June 2022, we ~~paid $10.9 million for the purchase of $10.8 million~~extinguished our 2024 Notes at 101.094% of par value ~~and accrued interest of our $200.0 million senior unsecured notes reducing the principal to $189.2 million and~~ resulting in a loss on debt extinguishment and redemption of ~~$0.2~~$11.9 million. ~~The loss resulted from~~

Change in Valuation - Interest Rate Swap Agreement. As of June 30, 2023, the ~~write off~~fair value of our Swap Agreement was a net liability of $52.1 million, and we recorded an unrealized gain (loss) for the non-cash change in the valuation of the ~~remaining unamortized debt issuance costs related to~~Swap Agreement of $0.5 million in the ~~purchased notes. In September 2016,~~six months ended June 30, 2023 and ($28.8) million in the six months ended June 30, 2022

Under the Swap Agreement settlement payment made in November 2021, we ~~elected to repay the outstanding $17.1 million principal balance of the installment payment agreement before its maturity date resulting in a loss of $0.4~~received $0.6 million from the ~~remaining unamortized discount.~~counterparty for a net cash savings of $0.6 million for the period from August 9, 2021 (the Swap Agreement inception date) to October 31, 2021, in May 2022, we received $1.2 million from the counterparty for a net cash savings of $1.2 million for the period from November 1,

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2021 to April 30, 2022. Under the Swap Agreement settlement payment made in November 2022, we paid $3.4 million to the counterparty for a net cash interest cost of $3.4 million for the period from May 1, 2022 to October 31, 2022. Under the Swap Agreement settlement payment made in May 2023, we paid $9.5 million to the counterparty for a net cash interest cost of $9.5 million for the period from November 1, 2022 to April 30, 2023.

Income Tax ~~Provision.~~ (Benefit) Expense.Our income tax ~~provision~~benefit was ~~$10.5~~$19.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~$8.7~~our income tax expense was $9.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. The ~~increase~~decrease in our income tax ~~provision was~~expense is primarily related to ~~an increase in~~projected operating results related to the Sprint Wireline business acquisition and the reversal of a valuation allowance on our business interest expense deferred ~~income~~ tax ~~expense due to an increase in income before taxes in the United States.~~

asset.

Buildings On-net. As of ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, we had a total of ~~2,472~~3,227 and ~~2,334~~3,095 on-net buildings connected to our network, respectively.

The increase in our on-net buildings was a result of our disciplined network expansion program. We anticipate adding a similar number of buildings to our network for the next several years.

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 ~~capital~~finance lease and debt payments and other obligations. As our business has grown as a result of an increasing customer base, the Transaction, broader geographic coverage and increased traffic on our network, we have produced a growing level of cash provided by operating activities. Because of the operating leverage of our network, our annual capital expenditures measured as a percentage of revenues has fallen over the last decade. Increasing our cash provided by operating activities is, in part, dependent upon expanding our geographic footprint and increasing our network capacity. Supply chain issues may adversely affect our ability to grow our network and revenue.

We have also had increasing success in raising capital by issuing notes and arranging financing and leases that have had a lower cost and more flexible terms. The combination of this improved operating performance and access to capital has enhanced our financial flexibility and increased our ability to make distributions to stockholders in the form of cash dividends or through share repurchases. Since our initial public offering, we have returned over $1.4 billion to our stockholders through share repurchases and dividends. We will continue to assess our capital and liquidity needs and, where appropriate, return capital to stockholders.

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 including the acquisition of the Wireline Business. Based upon the historical growth rate of our dividend, we expect that we would have to provide approximately $370 million in order to meet our expected quarterly dividend payments over the next two years, inclusive of payments under the IP Transit Services Agreement. Our $500.0 million of 2026 Notes accrue interest at 3.50%, mature in May 2026 and include annual interest payments of $17.5 million until maturity. In June 2022, we redeemed our 2024 Notes with the proceeds from our issuance of $450.0 million of our 2027 Notes. Our 2024 Notes accrued interest at 4.375% and our 2027 Notes accrue interest at 7.00%. Our $450.0 million of 2027 Notes mature in June 2027 and include annual interest payments of $31.5 million until maturity.

Under our Swap Agreement, we pay the counterparty a semi-annual payment based upon overnight SOFR plus a contractual interest rate spread, and the counterparty pays us a semi-annual fixed 3.50% interest payment. These settlement payments are made in November and May of each year until the Swap Agreement expires in February 2026. As of June 30, 2023, $51.6 million of our cash and cash equivalents are restricted for use under our Swap Agreement. We have made a $51.7 million deposit with the counterparty to the Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $51.7 million, we will be required to deposit additional funds with the counterparty equal to the net liability fair value. As of June 30, 2023, $51.6 million of the deposit was restricted and $0.1 million was unrestricted.

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 interest rate swap agreements, 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

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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.

Acquisition of Sprint Communications

The Wireline Business’s cash flow was negative at the time of negotiations and during its recent history. Due to the dire financial condition of the Wireline Business, it was understood that a payment from T-Mobile to any potential buyer would be required to execute a transaction to give a buyer sufficient cash inflows to offset losses that would be expected until a buyer could optimize the business. Based on management’s internal modeling at the culmination of the due diligence process, management determined this cash payment to be $700.0 million. Management intends to reduce the negative cash flow of the Wireline Business through the payments from the IP Transit Services Agreement, reducing operating costs and increasing revenue primarily by providing optical wavelength and optical transport services over our fiber network, including the owned network we acquired with the Wireline Business. We are selling these services to our existing customers, customers we acquired with the Wireline Business and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure. As part of the Transaction, we will be incurring costs associated with the TSA agreement. The amount of these costs will be dependent upon our ability to integrate the operations of the Wireline Business into our operations. Our cash flow requirements related to the acquisition of the Wireline Business will be dependent upon our ability to reduce the acquired operating costs, our success in retaining the acquired customers and our ability to sell optical wavelength and optical transport services over our fiber network.

In light of the economic uncertainties associated with the global recessionary economy, the cash flow requirements of the Wireline Business, the COVID-19 pandemic and recent bank failures and liquidity concerns at certain other banks, our executive officers and Board of Directors have continued to carefully monitor our liquidity and cash requirements. Based on current circumstances, we currently plan to continue our current dividend policy. Given uncertainties regarding the duration of the pandemic, the cash flow requirements of the Wireline Business and the 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.

Cash Flows

The following table sets forth our consolidated cash flows.

	Nine months ended September 30,

							Six Months Ended June 30,
(in thousands)	2017			2016			2023		2022
Net cash provided by operating activities	$	80,342		$	74,088		$	118,475	$	83,814
Net cash used in investing activities	(35,183		)	(38,039		)		(45,520)		(35,409)
Net cash used in financing activities	(72,285		)	(92,419		)		(107,080)		(24,052)
Effect of exchange rates on cash	3,572			930
Net decrease in cash and cash equivalents during period	$	(23,554	)	$	(55,440	)
Effect of exchange rates changes on cash								2,166		(3,130)
Net (decrease) increase in cash and cash equivalents and restricted cash							$	(31,959)	$	21,223

Net Cash Provided by Operating Activities.Our primary ~~sources~~source of operating cash ~~are~~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 ~~capital~~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~~On the Closing Date, we entered into a TSA with the Seller, pursuant to which the Seller will provide to us, and we will provide to the Seller on an interim basis following the Closing Date, Transition Services to ensure an orderly transition following the separation of the Wireline Business from Sprint Communications. During the three and six months ended June 30, 2023 we recorded $118.8 million due to the Seller under the TSA, primarily for reimbursement of payment to vendors of the Wireline Business, and recorded $7.0 million as due from the Seller under the TSA. Amounts billed under the TSA are due 30 days from receipt of the related invoice. As of June 30, 2023, we owed $118.8 million to the Seller and the Seller owed $7.0 million to us under the TSA agreement resulting in an increase in cash provided by operating ~~activities for the nine months ended September 30, 2017 and 2016 includes interest payments on our note obligations~~activities.

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Net Cash Used Inin Investing Activities.Our primary use of cash for investing activities is for purchases of property and equipment. Purchases of property and equipment were ~~$35.2~~$60.7 million and ~~$38.0~~$35.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively. The changes in purchases of property and equipment are primarily due to the timing and scope of our network expansion activities including geographic expansion, purchases in anticipation of the closing of our acquisition of the Wireline Business and adding buildings to our network. InWe paid $61.1 million, net of $47.1 million of cash acquired, for a net total of $14.4 million paid for our acquisition of the ~~nine~~Wireline Business. On the Closing Date, we entered into the IP Transit Services Agreement pursuant to which TMUSA will pay us an aggregate of $700.0 million, consisting of (i) $350.0 million in equal monthly installments during the first year after the Closing Date and (ii) $350.0 million in equal monthly installments over the subsequent 42 months. During the six months ended ~~September~~June 30, ~~2017 and 2016~~2023, we ~~obtained $6.6~~billed $58.3 million and ~~$2.7~~were paid $29.2 million ~~respectively, of network equipment in exchange for a note payable~~ under ~~an installment payment agreement.~~

the IP Transit Services Agreement.

Net Cash Used In Financing Activities.Our primary uses of cash for financing activities are for payments to redeem and extinguish our debt, dividend payments and principal payments under our ~~capital~~finance lease obligations and ~~our installment payment agreement,~~for purchases of our common ~~stock~~stock. During the six months ended June 30, 2023 and ~~dividend payments. Principal payments under our capital lease were $9.4~~2022, we paid $90.2 million and ~~$9.7 million for the nine months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017 and 2016 we paid $59.8 million and $50.0~~$83.2 million, respectively, for our quarterly dividend payments. ~~Purchases~~Our quarterly dividend payments have increased due to increases in our quarterly dividend per share amounts. Principal payments under our finance lease obligations were $17.2 million and $11.1 million for the six months ended June 30, 2023 and 2022, respectively. The changes in our principal payments under our finance lease obligations are primarily due to the timing and extent of our network expansion activities including geographic expansion, purchases in anticipation of the closing of our acquisition of the Wireline Business and adding buildings to our network. There were no purchases of our common stock ~~totaled $1.8 million during~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~$1.7 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2016 we paid $10.9 million for the purchase of $10.8 million of par value and accrued interest~~

of our $200.0 million senior unsecured notes and we elected to repay the outstanding $17.1 million principal balance of our installment payment agreement prior to its maturity date. Total installment payment agreement principal payments were $2.2 million and $21.2 million for the nine months ended September 30, 2017 and 2016, respectively.

2022.

Cash Position and Indebtedness

~~Our~~At June 30, 2023, our total indebtedness, at ~~September 30, 2017~~par, was ~~$728.5 million~~$1.3 billion and our total cash, ~~and~~ cash equivalents ~~were $250.8~~and restricted cash ($51.6 million) was $244.0 million. Our total indebtedness at ~~September~~June 30, ~~2017~~2023 includes ~~$154.3~~$331.5 million of ~~capital~~finance lease obligations for dark fiber under ~~long term~~long-term IRU agreements.

Summarized Financial Information of Holdings

Holdings is not a restricted subsidiary as defined under the indentures governing our ~~2021~~2026 Notes and our ~~2022 Notes.~~2027 Notes (the “Indentures”). Holdings is a guarantor under these notes. Under the ~~indentures~~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 six months ended June 30, 2023 is detailed below (in thousands).

	As of September 30, 2017
	(Unaudited)

				June 30, 2023
				(Unaudited)
Cash and cash equivalents	$	84,232		$	1,170
Accrued interest receivable					3
Total assets	$	84,232		$	1,173

Investment from subsidiaries	$	236,427		$	515,070
Common stock	46				49
Accumulated deficit	(152,241		)		(513,946)
Total equity	$	84,232		$	1,173

Nine Months
Ended
September 30, 2017

(Unaudited)

Equity-based compensation expense

10,481

Interest income

652

Net loss

$
(9,829
)


	Six Months
	Ended
	June 30, 2023
	(Unaudited)
Equity‑based compensation expense		14,125
Interest income		536
Net loss	$	(13,589)

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Common Stock Buyback Program

Our Board of Directors has approved purchases of shares of our common stock under a buyback program (the “Buyback Program”). ~~During the three months ended September 30, 2016 we purchased 46,983~~There were no purchases of shares of our common stock ~~for $1.7 million. There were no purchases during~~in the three or six months ended ~~September~~June 30, ~~2017. During the nine months ended September 30, 2017~~2023 and ~~September 30, 2016 we purchased 46,750 and 46,983 shares of our common stock for $1.8 million and $1.7 million, respectively.~~2022. As of ~~September~~June 30, ~~2017,~~2023, there was a total of ~~$41.5~~$30.4 million available under the Buyback Program ~~which~~that is authorized to continue through December 31, ~~2018.~~

2023.

Dividends on Common Stock and Return of Capital Program

~~Dividends are recorded as a reduction to retained earnings. Dividends on unvested restricted shares of common stock are paid as the awards vest.~~ On ~~November 1, 2017,~~August 2, 2023, our Board of Directors approved the payment of our quarterly dividend of ~~$0.48~~$0.945 per common share. This ~~dividend for the fourth quarter of 2017 will be paid to holders of record on November 17, 2017. This~~ estimated ~~$21.5~~$44.6 million dividend payment is expected to be made on ~~December 4, 2017.~~

September 8, 2023.

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~~corporation and under the General ~~Corporate~~Corporation Law of the State of Delaware, distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware Law. The indentures governing our notes limit our ability to return cash to our stockholders. See Note 3 of our interim condensed consolidated financial statements for additional discussion of limitations on distributions.

~~Contractual Obligations and Commitments~~

There have been no material changes to our contractual obligations and commitments included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2016.

Future Capital Requirements

We believe that our cash on hand and cash generated from our operating activities will be adequate to meet our working capital, capital expenditure, debt service, dividend payments and other cash requirements for the next twelve months if we execute our business plan.

Any future acquisitions or other significant unplanned costs or cash requirements in excess of amounts we currently hold may require that we raise additional funds through the issuance of debt or equity. We cannot assure you that such financing will be available on terms acceptable to usour stockholders, or ~~our stockholders,~~us 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.

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 ~~risks~~risk that could arise if we had engaged in these relationships.

Impact of COVID-19 on Our Liquidity and Operating Performance

We continue to operate with a high level of liquidity, and as of June 30, 2023, we had cash, cash equivalents and restricted cash ($51.6 million) totaling $244.0 million. The COVID-19 pandemic has not affected our credit rating to date, nor do we believe

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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.

Beginning with and throughout the COVID-19 pandemic, we witnessed a deteriorating real estate market in and around the buildings we service in central business districts in North America. Because of the rising vacancy levels and falling lease initiations or renewals, we experienced a slowdown in new sales to our corporate customers, which negatively affected our legacy corporate revenue results. As the option to fully or partially work from home becomes permanently established at many companies, our corporate customers are integrating some of the new applications that became part of the remote work environment, which benefits our corporate business as these customers upgrade their Internet access infrastructure to higher capacity connections. Further, if and when companies eventually return to the buildings in which we operate, we believe it will present an opportunity for increased sales. However, the exact timing and path of these positive trends remains uncertain, and as the after effects of the COVID-19 pandemic linger, we may continue to see increased corporate customer turnover, fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities, which would negatively affect our corporate revenue growth.

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. We cannot predict whether new COVID-19 variants will arise and spread widely, the impact of the spread of new COVID-19 variants on the global economy, how national and local governments may react to the spread of new variants nor predict the impact the variants and any measures taken in response may have on our operations, employee retention, revenue growth, cash flows and our profitability.

Critical Accounting ~~Policies and Significant~~ Estimates

Management believes that as of ~~September~~June 30, ~~2017,~~2023, there have been no material changes to our critical accounting policies and significant estimates from those listed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, ~~2016.~~

~~Recent Accounting Pronouncements~~

2022, except as noted below.

~~Recent Accounting Pronouncements—to be Adopted~~Acquisition of Wireline Business

In ~~February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (“ASU 2016-02”). ASU 2016-02 will replace most existing lease accounting guidance when it becomes effective. ASU 2016-02 is effective for us beginning on January 1, 2019. Early application is permitted. ASU 2016-02 must be adopted using the modified retrospective approach for all leases that exist at or commence after the beginningconnection with our acquisition of the ~~earliest comparative period presented (with~~Wireline Business we made the option to apply certain practical expedients), which for us will be the period beginning January 1, 2017. ASU 2016-02 will require us to record a right to use asset and a lease liability for most of our leases, including our leases currently treated as operating leases. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures and we will elect to apply certain practical expedients. We have not yet determined the effect of ASU 2016-02 on our ongoing financial reporting or quantified the impactfollowing significant changes to our ~~balance sheet, however we do expect~~critical accounting policies and significant estimates.

In connection with the ~~right~~Transaction, the identifiable assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. Assigning fair market values to ~~use asset~~the assets acquired and ~~lease liability recorded will be material. We do not expect to early adopt ASU 2016-02.~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, (“ASU 2014-09”) 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, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for us on January 1, 2018. Early application is permitted for annual periods beginning after December 15, 2016. ASU 2014-09 permits the use of either the full retrospective or modified retrospective transition method. We anticipate adopting ASU 2014-09 using the modified retrospective transition method on January 1, 2018. Under the modified retrospective method, the cumulative effect of applying the standard would be recognizedliabilities assumed at the date of ~~initial application.~~an acquisition requires the use of significant judgment regarding estimates and assumptions. For the fair values of the assets acquired and liabilities assumed, we used the cost, income and market approaches, including market participant assumptions.

In connection with the Transaction, we acquired customer relationship intangible assets the value of which were determined using an income approach. This fair value measurement was based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement. The key assumptions in applying the income approach include the discount rate, projected revenue from existing customers, customer attrition rate and projected capital and operating expenditures.

The Purchase Agreement includes an estimated payment from Seller to Buyer related to short-term lease obligations. This amount was recorded at its present value resulting in a discount. The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with comparable durations, amongst other market factors. The determination of the discount rate requires some judgment.

On the Closing Date, we entered into the IP Transit Services Agreement. We doevaluated what elements were part of the business combination and the consideration exchanged to complete the acquisition. We concluded that the payments to be made represent consideration received from T-Mobile to complete the acquisition of a distressed business. We concluded that T-Mobile did not ~~expect~~represent a customer, the stated contract price did not represent consideration for services to ~~early adopt ASU 2014-09.~~

be delivered, and the transaction did not satisfy the definition of revenue. We ~~have~~also considered whether the IP Transit Services Agreement would be considered separable from the business combination. We concluded that the cash consideration was not ~~quantified~~separately identifiable from the ~~effect~~business combination and was therefore not meant to be in exchange for a distinct good or service. As a result, the IP Transit Services

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Agreement was recorded in connection with ~~customer installations will change. We expect that revenues will be recognized over~~ the ~~contract term for installation fees associated~~Transaction at its discounted present value resulting in a discount. The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with ~~customer contracts with terms that are longer than month-to-month, which may be a shorter period than~~comparable durations, amongst other market factors. The determination of the ~~average customer life currently used, because~~discount rate and the fee does not give rise to a material right as defined by ASU 2014-09. We expect that revenues will be recognized over the estimated average customer life for installation fees associated with month-to-month contracts, because the fee represents a material right. The impact of adopting ASU 2014-09 on our total service revenue and operating income is not expected to be material. Additionally, we will be required to capitalize certain contract acquisition costs, including commissions paid to our sales team and agents, and to amortize these costs over the period the services are transferredconclusions reached related to the ~~customer for commission paid to our sales team and over the remaining contract term for agent commissions. We currently expense these contract acquisition costs as incurred.~~IP Transit Services Agreement required significant judgment.

~~In June 2016, the FASB issued ASU 2016-13, “~~~~Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments~~”. This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management believes that as of ~~September~~June 30, ~~2017,~~2023, there have been no material changes to our exposures to market risk from those disclosed in Item 7A “Quantitative and Qualitative Disclosures About Market ~~Risk,”~~Risk” of our annual report on Form 10-K for the year ended December 31, ~~2016.~~2022, except as disclosed below under Item 1A “Risk Factors”.

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ITEM 4.CONTROLS AND ~~PROCEDURES.~~PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes 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 our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) 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 our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.

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.

SOX Exemption

In accordance with guidance issued by the Securities and Exchange Commission, registrants are permitted to exclude acquired businesses from management’s report on internal control over financial reporting for a period not to extend beyond one year from the date of acquisition or beyond more than one annual management report on internal control over financial reporting. The Company is in the process of assessing and integrating the internal control, compliance and operations over financial reporting of the Wireline Business. Given the significance of the Transaction and complexity of its systems and business processes, we intend to exclude the acquired business from our assessment and report on internal control over financial reporting for the year ending December 31, 2023.

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PART II OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

We are involved in legal proceedings in the ordinary course of our business that we do not expect to have a material impact on our operations or results of operations. Note 4 of our interim condensed consolidated financial statements includes information on these proceedings.

ITEM 1A. RISK FACTORS

We maintain our cash and cash equivalents at financial institutions in amounts in excess of insured limits.

The Company maintains the majority of its cash and cash equivalents in accounts with U.S. and multi-national financial institutions, and our deposits at certain of these institutions, including the counterparty to our Swap Agreement, exceed insured limits. Market conditions can affect the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

Management believes that as of June 30, 2023, except as set forth herein there have been no material changes to our risk factors from those disclosed in Item 1A “Risk Factors,” of our annual report on Form 10-K for the year ended December 31, 2022, except as disclosed in Item 1A - Risk Factors.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our Board of Directors has authorized a plan to permit the repurchase of our common stock in negotiated and open market transactions through December 31, ~~2018.~~2023. We may purchase shares from time to time depending on market, economic, and other factors. ~~As of September 30, 2017 there was $41.5 million remaining under the authorization.~~ There were no purchases of shares of our common stock during the ~~three months ended September 30, 2017.~~second quarter of 2023.

ITEM 5. OTHER INFORMATION

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ITEM 6. EXHIBITS~~EXHIBITS.~~.

~~(a) Exhibits~~

~~Exhibit Number~~

(a)

~~Description~~

Exhibits


Exhibit Number		Description
10.1*†		Transition Services Agreement, dated as of May 1, 2023, by and between Cogent Infrastructure, Inc. and Sprint LLC (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on May 1, 2023, and incorporated herein by reference).
10.2		IP Transit Agreement, dated as of May 1, 2023, by and between Cogent Communications, Inc. and T-Mobile USA, Inc. (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on May 1, 2023, and incorporated herein by reference).
10.3*†		Customer Subscriber Agreement, dated as of May 1, 2023, by and between Cogent Infrastructure, Inc. and T-Mobile USA, Inc. (previously filed as Exhibit 10.3 to our Current Report on Form 8-K, filed on May 1, 2023, and incorporated herein by reference).
10.4#		Restricted Stock Award, dated as of May 3, 2023, between the Company and Greg W. O’Connor (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on May 4, 2023, and incorporated herein by reference).
10.5#		Amended and Restated Cogent Communications Holdings, Inc. 2017 Incentive Award Plan (previously filed as Annex A to our Definitive Proxy Statement on Schedule 14A, filed March 15, 2023, and incorporated herein by reference).
10.6		First Amendment to Lease Agreement, dated February 20, 2023, between Germanium LLC and Cogent Communications, Inc., for early access to technical space at 196 Van Buren Street, Herndon, VA. (filed herewith)
10.7		Second Amendment to Lease Agreement, dated July 25, 2023, between Germanium LLC and Cogent Communications, Inc., for technical space at 196 Van Buren Street, Herndon, VA (filed as Exhibit 10.1 to our periodic report on Form 8-K dated July 27, 2023 and incorporated herein by reference).
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)
101.1		The following materials from the ~~Registrant’s~~Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2023, formatted in Inline Extensible Business Reporting Language (XBRL), include: (i) the Condensed Consolidated Statements of Comprehensive Income (Loss), (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes (filed herewith).

~~Exhibit~~104
~~Number~~		~~Description~~

~~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)~~
~~101.1~~		~~The following materials from~~Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Condensed Consolidated Statements of Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes (filed herewith)iXBRL document).

*	In accordance with Item 601(a)(5) of Regulation S-K, certain schedules (or similar attachments) to this exhibit have been omitted from this filing. The Company will provide a copy of any omitted schedule to the Securities and Exchange Commission or its staff upon request.

†	In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain information (indicated by “[***]”) has been excluded from this exhibit. The Company will provide an unredacted copy of the exhibit on a supplemental basis to the Securities and Exchange Commission or its staff upon request.

#	Indicates a management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.

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SIGNATURES

Pursuant to the requirements 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.

Date: ~~November 2, 2017~~	August 9, 2023	COGENT COMMUNICATIONS HOLDINGS, INC.

		By:	/s/ David Schaeffer
			Name:	David Schaeffer
			Title:	Chief Executive Officer

Date: ~~November 2, 2017~~	August 9, 2023	By:	/s/ Thaddeus G. Weed
			Name:	Thaddeus G. Weed
			~~Title:~~	~~Chief Financial Officer (Principal Accounting Officer)~~

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