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What changed in COGENT COMMUNICATIONS HOLDINGS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of COGENT COMMUNICATIONS HOLDINGS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+489 added−364 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-24)

Top changes in COGENT COMMUNICATIONS HOLDINGS, INC.'s 2023 10-K

489 paragraphs added · 364 removed · 293 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

107 edited+41 added−10 removed36 unchanged
Biggest changeAcquisition of Sprint Communications On September 6, 2022, Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a 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 a direct wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company will acquire the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”).
Biggest changeAcquisition of the Sprint Business On May 1, 2023 (the “Closing Date”), Cogent Infrastructure, Inc., a Delaware corporation and our direct wholly owned subsidiary (“Cogent Infrastructure”), 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 “Sprint 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”).
Our net-centric customers include bandwidth-intensive users that leverage our network to either deliver content to end users or to provide access to residential or commercial Internet users. Content delivery customers include over the top (“OTT”) media service providers, content delivery networks, web hosting companies, and commercial content and application software providers.
Our net-centric customers include bandwidth-intensive users 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, content delivery networks, web hosting companies, and commercial content and application software providers.
Additional factors relevant to our pursuit of new buildings include the willingness of building owners to grant us access rights, the availability of optical fiber networks to serve those buildings, the costs to connect buildings to our network and equipment availability.
Additional factors relevant to our pursuit of new buildings include the willingness of building owners to grant us access rights, the availability of optical fiber networks to serve those buildings, and the costs to connect buildings to our network and equipment availability.
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.
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 on-net CNDCs. We generally sell two types of services to our corporate customers: dedicated internet access and private network services.
We are able to offer high-quality Internet service due to our network design and composition. We believe that we deliver a high level of technical performance because our network is optimized for packet switched traffic. Its design increases the speed and throughput of our network and reduces the number of data packets dropped during transmission compared to traditional circuit-switched networks.
We are able to offer high-quality Internet service due to our network design and composition. We believe that we deliver a high level of technical performance because our network is optimized for packet routed traffic. Its design increases the speed and throughput of our network and reduces the number of data packets dropped during transmission compared to traditional circuit-switched networks.
These and other downward pricing pressures particularly CNDCs have diminished, and may further diminish, the competitive advantages that we have enjoyed as the result of the pricing of our services. Increasingly, traditional ISPs are upgrading their services using optical fiber and cable technology so that they can match our transmission speed and quality.
These and other downward pricing pressures, particularly in CNDCs, have diminished, and may further diminish, the competitive advantages that we have enjoyed as the result of the pricing of our services. Increasingly, traditional ISPs are upgrading their services using optical fiber and cable technology so that they can match our transmission speed and quality.
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.
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 equipment and optically interfaced routers.
We believe that the relative size of our salesforce training, support and overhead is lower than comparable telecom providers which tend to offer a broader, one-stop shop product set to their client base. ● Scalable Network Equipment and Hub Configurations.
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 .
We believe that we deliver a high level of technical performance because our network is optimized for packet switched traffic. We believe that our network is more reliable and carries packet switched traffic at lower cost than networks built as overlays to traditional circuit-switched telephone networks.
We believe that we deliver a high level of technical performance because our network is optimized for packet routed traffic. We believe that our network is more reliable and carries packet routed traffic at lower cost than networks built as overlays to traditional circuit-switched telephone networks.
Our net-centric customers include 7,792 access networks comprised of other Internet service providers (“ISPs”), telephone companies, mobile phone operators and cable television companies that collectively provide internet access to a substantial number of broadband subscribers and mobile phone subscribers across the world. These net-centric customers generally receive our services in carrier neutral colocation facilities and in our data centers.
Our net-centric customers include 7,988 access networks comprised of other Internet service providers (“ISPs”), telephone companies, mobile phone operators and cable television companies that collectively provide internet access to a substantial number of broadband subscribers and mobile phone subscribers across the world. These net-centric customers generally receive our services in carrier neutral colocation facilities and in our data centers.
We believe these agreements broaden our addressable market for corporate dedicated internet access and VPN services and enable us to better leverage the skills and capacity of our direct salesforce. As our sales of off-net services has increased, the pricing in our carrier agreements has commensurately decreased in light of our increased volume.
We believe these agreements broaden our addressable market for corporate dedicated internet access, VPN services and/or MPLS and enable us to better leverage the skills and capacity of our direct salesforce. As our sales of off-net services has increased, the pricing in our carrier agreements has commensurately decreased in light of our increased volume.
An important part of this new infrastructure is a high-speed, dedicated internet connection from the corporate premises to the data center and the Internet and from one corporate premises to another corporate premises. We believe that the importance of data centers will increasingly lead tenants to reconfigure their communications infrastructure to include dedicated internet access across their locations.
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.
At the direction of our Board of Directors, we mandated training for all of our employees on topics of diversity and inclusion. All employees were required to complete online training in unconscious bias, and managers were further required to complete additional training in inclusion. We intend to continually reinforce our commitment to global inclusion and diversity. Employee Retention.
At the direction of our Board of Directors, we mandated training for all of our employees on topics of diversity and inclusion. All employees are required to complete online training in unconscious bias, and managers are further required to complete additional training in inclusion. We intend to continually reinforce our commitment to global inclusion and diversity. Employee Retention.
Our corporate customers primarily purchase direct internet access from us on-net in MTOBs and CNDCs or off-net through other carriers’ “last mile” connections to those customer facilities in metropolitan markets in North America.
Our corporate customers primarily purchase dedicated internet access from us on-net in MTOBs and CNDCs or off-net through other carriers’ “last mile” connections to those customer facilities in metropolitan markets in North America.
Professional Development . We recognize the importance of retaining our sales personnel, and we continually strive to improve the performance of our sales personnel to reduce turnover. To that end, we have invested heavily in professional development as a means for improving performance.
Professional Development . We recognize the importance of retaining our employees, and we continually strive to improve the performance of our personnel to reduce turnover. To that end, we have invested heavily in professional development as a means for improving performance.
CNDCs offer highly reliable, secure, cost effective and convenient space for these operators to access important services including connectivity, power, rack space and security all on a 24-hour basis in order to support their Internet activities, and after our anticipated acquisition of the Wireline Business, wavelength services.
CNDCs offer highly reliable, secure, cost effective and convenient space for these operators to access important services including connectivity, power, rack space and security all on a 24-hour basis in order to support their Internet activities, and after our acquisition of the Sprint Business, wavelength services.
We provide our on-net Internet access and private network services to our corporate and net-centric customers. Our corporate customers are located in multi-tenant office buildings (“MTOBs”) and typically include law firms, financial services firms, advertising and marketing firms, as well as health care providers, educational institutions and other professional services businesses.
We provide our on-net Internet access, private network services and MPLS services to our corporate, net-centric and enterprise customers. Our corporate customers are located in multi-tenant office buildings (“MTOBs”), 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.
Compensation and Benefits . We are committed to rewarding, supporting, and developing our employees. To that end, we offer a comprehensive compensation program that includes market-competitive pay, stock options or restricted stock grants to all employees, healthcare benefits, a retirement savings plan, and paid time off and family leave. Employee Engagement .
Compensation and Benefits . We are committed to rewarding, supporting, and developing our employees. To that end, we offer a comprehensive compensation program that includes market-competitive pay, stock options or restricted stock grants to all eligible employees, healthcare benefits, life insurance, a retirement savings plan, and paid time off and family leave. Employee Engagement .
These buildings include 1,837 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 include 1,862 large MTOBs (totaling over 1.0 billion square feet of office space) in major North American cities where we offer our services to a diverse set of high-quality corporate customers within close physical proximity of each other.
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.
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 private network services and to quickly offer pricing proposals to potential customers.
We are also dependent on third-party providers, some of which compete with us, to provide intercity and intracity fiber as well as the lateral fiber connections required to add buildings to our network and to provide the local loop facilities for the provision of connections to our off-net customers.
We also depend on third-party providers, some of which compete with us, to provide intercity and intracity fiber as well as the lateral fiber connections required to add buildings to our network and to provide the local loop facilities for the provision of connections to our off-net customers.
We make available free of charge through our Internet website our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
We make available through a link on our Internet website our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
ITEM 1. BUSINESS We are a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space. Our network is specifically designed and optimized to transmit packet switched data.
ITEM 1. BUSINESS We are a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space and power. Our network is specifically designed and optimized to transmit packet routed data.
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. Page 7 of 75 Table of Contents Expand our Product Offerings to Include Wavelength and Optical Transport Services .
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. Page 8 of 90 Table of Contents Expand our Product Offerings to Include Wavelength and Optical Transport Services .
While we monitor overall employee retention, we focus in particular on sales representative retention, as our new sales and revenue growth are driven almost entirely by the sales generated by our direct sales force. As a complement to our sales representative retention metric, we also closely track the pace of hiring new sales representatives.
While we monitor overall employee retention, we focus in particular on sales representative retention with objective performance criteria, as our new sales and revenue growth are driven almost entirely by the sales generated by our direct sales force. As a complement to our sales representative retention metric, we also closely track the pace of hiring new sales representatives.
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.
We believe these agreements broaden our addressable market for corporate dedicated internet access and private network services and enhances our competitive position through the ability to provide enterprise-wide connectivity for corporate customers.
We anticipate that our management team will successfully manage the integration of the Wireline Business into our current operations. 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.
We anticipate that our management team will successfully manage the integration of the Sprint Business into our current operations. Our Strategy We intend to remain a 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.
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 intend to further load our high-capacity network as a result of the growing demand for high-speed internet access generated by these types of bandwidth-intensive applications such as OTT media services, online gaming, video, Internet of Things, voice over IP, remote data storage, and other services.
We believe that Ethernet is the lowest cost network connection technology and is almost universally used for the local area networks that businesses operate. Carrier Neutral Data Centers (“CNDCs”). Our network is collocated in and can provide connectivity to customers in 1,458 CNDCs located in 1,264 buildings across our footprint.
We believe that Ethernet is the lowest cost network connection technology and is almost universally used for the local area networks that businesses operate. Carrier Neutral Data Centers. Our network is collocated in and can provide connectivity to customers in 1,558 CNDCs located in 1,347 buildings across our footprint.
As a result of the size and breadth of our customer base and the extensive footprint and scale of our network we are a Tier 1 ISP. We currently exchange traffic with 23 other Tier 1 ISPs on a settlement free basis. The remaining networks are customers whom we charge for Internet access.
We directly connect with 7,988 total networks. As a result of the size and breadth of our customer base and the extensive footprint and scale of our network, we are a Tier 1 ISP. We currently exchange traffic with 23 other Tier 1 ISPs on a settlement free basis. The remaining networks are customers whom we charge for Internet access.
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.
This control of traffic is an important differentiator as it Page 6 of 90 Table of Contents 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 reports are also made available through a link to the SEC’s Internet website at www.sec.gov . You can find these reports and request a copy of our Code of Conduct on our website at www.cogentco.com under the “About Cogent” tab at the “Investor Relations” link. ​
The reports are also made available through a link to the SEC’s Internet website at www.sec.gov . You can find these reports and request a copy of our Code of Conduct on our website at www.cogentco.com under the “About Cogent” tab at the “Investor Relations” link under “Reports” and under “Governance” at “Corporate Governance Documents”. ​
Our single network design allows us to avoid many of the costs that our competitors who operate circuit-switched, TDM and hybrid fiber coaxial networks incur related to provisioning, monitoring and maintaining multiple transport protocols. Selecting one operating protocol has also had positive effects in terms of our operating overhead and the simplicity of our organization.
Our single network protocol allows us to avoid many of the costs that our competitors who operate circuit-switched, time-division multiplexing (“TDM”) and hybrid fiber coaxial networks incur related to provisioning, monitoring and maintaining multiple transport protocols. Selecting one operating protocol has also had positive effects in terms of our operating overhead and the simplicity of our organization.
Our customer care call centers are located in Washington, D.C., Herndon, Virginia, Madrid, Spain, Paris, France, and Frankfurt, Germany. To ensure the quick replacement of faulty equipment in the intra-city and long-haul networks, we have deployed field engineers across North America and Europe. In addition, we have maintenance contracts with third-party vendors that specialize in maintaining optical and routed networks.
Our customer care call centers are located in Washington, D.C., Herndon, Virginia, Atlanta, Georgia, and Madrid, Spain. To ensure the quick replacement of faulty equipment in the intra-city and long-haul networks, we have deployed field engineers across North America and Europe. In addition, we have maintenance contracts with third-party vendors that specialize in maintaining optical and routed networks. Field Services.
Peering agreements between ISPs enable them to exchange traffic.Without settlement-free peering agreements, each ISP backbone would have to buy Internet access from every other ISP backbone in order for its customer’s traffic to reach and be received from customers of other ISP backbones.
Page 10 of 90 Table of Contents Peering agreements between ISPs enable them to exchange traffic.Without settlement-free peering agreements, each ISP backbone would have to buy Internet access from every other ISP backbone in order for its customer’s traffic to reach and be received from customers of other ISP backbones.
It also allows us to provision services more quickly and efficiently than provisioning services on a third-party carrier network. The vast majority of our on-net services can be installed in less than two weeks, which is materially faster than the installation times for some of our incumbent competitors. Page 5 of 75 Table of Contents High-Quality, Reliable Service.
It also allows us to provision services more quickly and efficiently than provisioning services on a third-party carrier network. The vast majority of our on-net internet and VPN services can be installed in less than two weeks, which is materially faster than the installation times for some of our incumbent competitors. High-Quality, Reliable Service .
These buildings also include 1,458 CNDCs located in 1,264 buildings in North America, Europe, Asia, South America, Oceania and Africa where our net-centric customers directly interconnect with our network.
These buildings also include 1,558 CNDCs located in 1,347 buildings in North America, Europe, Asia, South America, Oceania and Africa where our net-centric customers directly interconnect with our network.
We believe that our organization has the following competitive advantages: Page 4 of 75 Table of Contents Low Cost of Operation: We believe that the wireline telecom industry is undergoing, and will continue to face, significant price deflation for its applications and services.
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 face, significant price deflation for its applications and services.
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 3,155 total buildings located in 219 metropolitan markets.
We have also begun to evaluate the sustainability of new locations by evaluating the LEED Green Rating of Buildings, the potential to source renewable energy at locations and the potential impact of climate change on a location including proximity to water and the risk of flooding. Our network is connected to 3,277 total buildings located in 228 metropolitan markets globally.
Competition We face competition from incumbent telephone and cable companies, and facilities-based network operators, many of whom are much larger than us, have significantly greater financial resources, sales and marketing capabilities, better-established brand names and large, existing installed customer bases in the markets in which we compete. We also face competition from new entrants to the communications services market.
Competition We face competition from incumbent telephone and cable companies, and facilities-based network operators, many of whom are much larger than us, have significantly greater financial resources, sales and marketing capabilities, better-established brand names and large, existing installed customer bases in the markets in which we compete.
Our network is comprised of 3,155 buildings which are on-net and we serve 219 metropolitan markets in North America, Europe, Asia, South America, Oceania and Africa.
Our network is comprised of 3,277 buildings which are on-net, and we serve 228 metropolitan markets in North America, Europe, Asia, South America, Oceania and Africa.
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 to our customers. The structure of our on-net service provides us more control over our service, quality and pricing.
In the CNDCs, we are collocated with our customers. As a result, only a cross-connection within the data center is required to provide our services to our customers, including our newer optical wave and optical transport offerings. The structure of our on-net service provides us with more control over our service, its quality and pricing.
In addition, we conduct building events and public relations efforts focused on cultivating industry analyst and media relationships with the goal of securing media coverage and public recognition of our Internet access and private network services.
In addition, we conduct building events and public relations efforts focused on cultivating Page 13 of 90 Table of Contents industry analyst and media relationships with the goal of securing media coverage and public recognition of our Internet access, colocation and private network services.
The result of this dynamic grooming process is that we are able to utilize our equipment for materially longer time frames than the expected life of this equipment, thereby reducing our capital investment in our network. We design and build all of our network hubs to the same standards and configurations.
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, points of presence (“PoP”s), and data centers to the same standards and configurations.
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 51 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 216 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.
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; and Page 7 of 90 Table of Contents ● Wave and optical transport services – We began offering wave and optical transport services to our net-centric customers who require these high bandwidth services Pursue On-net Customer Growth.
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. After our acquisition of the Wireline Business we will be offering services to larger enterprise customers.
Competitive Advantages We believe we address many of the data communications needs of businesses, large and small, communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-speed Internet access and private network services at attractive prices. With our acquisition of the Sprint Business, we began offering services to larger enterprise customers.
Page 9 of 75 Table of Contents Our Customers We offer our high-speed Internet access and IP connectivity services to two sets of customers: corporates customers, which primarily include small and medium-sized businesses located in North America, and net-centric customers, which include, content providers, applications service providers and access networks, comprised of ISPs, cable operators, mobile operators and phone companies located in North America, Europe, Asia, South America, Oceania and Africa.
Our Customers We offer our high-speed Internet access and IP transit connectivity services to three sets of customers: corporate customers, which primarily include small and medium-sized businesses located in North America, enterprise customers, and net-centric customers, which include, content providers, applications service providers and access networks, comprised of ISPs, cable operators, mobile operators and phone companies located in North America, Europe, Asia, South America, Oceania and Africa.
We deliver our services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 51 countries across North America, Europe, Asia, South America, Oceania and Africa. We are a Delaware corporation, and we are headquartered in Washington, DC.
We deliver our services on our network to businesses, large and small, communications service providers and other bandwidth-intensive organizations in 54 countries across North America, Europe, Asia, South America, Oceania and Africa. We are a Delaware corporation, and we are headquartered in Washington, DC.
With respect to our decision to require all employees to work in an in-office environment, we continue to mandate that all employees in the United States and Canada, except those with legal exemptions, be vaccinated against the against the COVID-19 virus. Page 11 of 75 Table of Contents Sales and Marketing Direct Sales.
With respect to our decision to require all employees to work in an in-office environment, we continue to mandate that all employees in the United States and Canada, except those with legal exemptions, be vaccinated against the against the COVID-19 virus. Sales and Marketing Direct Sales. We employ a direct sales and marketing approach.
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.
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. Important components of our low cost operating strategy include: One Network Protocol.
Our net-centric customers purchase IP connectivity and other services in our 1,458 CNDCs as well as our 54 data centers for a total of 1,512 data centers. We support these services in 219 metropolitan markets in 51 countries across the world.
Our net-centric customers purchase IP connectivity and other services in our 1,558 CNDCs as well as our 68 data centers for a total of 1,626 data centers. We support these services in 228 metropolitan markets in 54 countries across the world.
We emphasize the sale of our on-net services over our off-net services, as on-net services generate higher gross margins, and we believe we can offer faster installation and greater reliability with our on-net offerings.
We offer lower prices for longer term and volume commitments. We emphasize the sale of our on-net services over our off-net services, as on-net services generate higher gross margins, and we believe we can offer faster installation and greater reliability with our on-net offerings.
As of December 31, 2021, our sales force included 633 full-time employees including 490 quota bearing sales force employees with 283 employees focused primarily on the corporate market and 207 employees focused primarily on the net-centric market. Our sales personnel work through direct contact with potential customers in, or intending to locate in, our on-net buildings.
As of December 31, 2022, our sales force included 698 full-time employees, including 548 quota bearing sales force employees with 332 employees focused primarily on the corporate market and 216 employees focused primarily on the net-centric market. Our sales personnel work through direct contact with potential customers in, or intending to locate in, our on-net buildings.
This service offers Internet access combined with rack space and power in our facilities, allowing the customer to locate a server or other equipment at that location and connect to our Internet access service. We offer lower prices for longer term and volume commitments.
This service offers Internet access combined with rack space and power in our facilities, allowing the customer to locate a server or other equipment at that location and connect to our Internet access service.
The continued growth in demand for increased bandwidth has led to a rapid shift towards higher capacity circuits. We have agreements with multiple national, international and regional carriers providing us “last mile” network access to over 4 million buildings across North America that are not currently served by our network.
The continued growth in demand for increased bandwidth has led to a rapid shift towards higher capacity circuits. We have agreements with multiple national, international and regional carriers providing us “last mile” network access to over 6 million buildings.
Our sales and marketing organization comprises 66% of our employees and our sales representatives comprise 51% of our employees. For the year ending December 31, 2022, we averaged a 5.8% monthly churn rate within our sales representatives.
Our sales and marketing organization comprises 39% of our employees and our sales representatives comprise 34% of our employees. For the year ending December 31, 2023, we averaged a 5.0% monthly churn rate within our sales representatives.
The regulations with which we need to comply include obtaining the proper licenses to provide our services, data privacy, and interception of communications by law enforcement, blocking of websites, net-neutrality in California and other states in the U.S. and other regulations. We believe that we comply with all regulations in the jurisdictions in which we operate.
In all jurisdictions regulations continue to evolve. We also enter into new markets with their own regulations. The regulations with which we need to comply include obtaining the proper licenses to provide our services, data privacy, and interception of communications by law enforcement, blocking of websites, net-neutrality in California and other states in the U.S. and other regulations.
Larger ISPs exchange traffic and interconnect their networks by means of direct private connections referred to as private peering. We interconnect with the networks of our customers, which represents the majority of our interconnections and network traffic, through the sale of our transit services. We currently interconnect with 7,769 networks who pay to exchange traffic with us as customers.
The Internet is an aggregation of interconnected networks. Larger ISPs exchange traffic and interconnect their networks by means of direct private connections referred to as private peering. We interconnect with the networks of our customers, which represents the majority of our interconnections and network traffic, through the sale of our transit services.
Our trainers also conduct training at our annual sales meeting, during which our entire sales force gathers to learn new skills and reinforce existing skills. All sales personnel receive four weeks of live, interactive training during their first month, which focuses on developing both general and Cogent-specific sales skills.
Our trainers also conduct training in our offices to learn new skills and reinforce existing skills. All sales personnel receive live, interactive training during their first month of employment, which focuses on developing both general and Cogent-specific sales skills.
Through agreements with building owners, we are able to initiate and maintain personal contact with our customers by staging various promotional and social events in our MTOBs and CNDCs. Sales personnel are compensated with a base salary plus quota-based commissions and incentives. We use a customer relationship management system to efficiently track sales activity levels and sales productivity. Indirect Sales.
Through agreements with building owners and CNDC operators, we are able to initiate and maintain personal contact with our customers by staging various promotional and social events in our MTOBs and CNDCs. Sales personnel are compensated with a base salary plus quota-based commissions and incentives.
Network Management and Customer Care. Our primary network operations centers are located in Washington, D.C. and Madrid, Spain. These facilities provide continuous operational support for our network. Our network operations centers are designed to immediately respond to any problems in our network.
Network Management and Customer Care. Following our acquisition of the Sprint Business, our primary network operations centers are located in Washington, D.C., Herndon, Virginia, Overland Park, Kansas and Madrid, Spain. These facilities provide continuous operational support for our network. Our network operations centers are designed to immediately respond to any problems in our network.
The vast majority of our revenue is driven or related to our high-capacity, bi-directional, symmetric internet access services which can be accessed on-net in 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.
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.
We believe we are connected to more CNDCs than any other IP transit provider, enabling us to offer greater coverage, more network configuration choices and increased reliability for our net-centric customers. Cogent Data Centers. We operate 54 data centers across the United States and in Europe.
We believe we are connected to more CNDCs than any other IP transit provider, enabling us to offer greater coverage, more network configuration choices and increased reliability for our net-centric customers. We operate an intra-city fiber network to CNDCs optimized for IP services and optical wavelength services in the US and Mexico. Cogent Data Centers.
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 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. 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.
We are also upgrading our network and operational infrastructure to provide wave and optical transport services in more of our on-net buildings. 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.
Important strategic components of our network include: ● 1,837 MTOBs strategically located in commercial business districts; ● 1,458 CNDCs located in 1,264 buildings offering our customers the largest portfolio of CNDCs of any carrier; ● 54 Cogent Data Centers; ● 1,120 intra-city networks, or rings, consisting of 42,491 fiber miles and 17,616 fiber route miles; ● an inter-city network of 61,292 terrestrial fiber route miles; and ● 197 high-capacity transoceanic circuits that connect the North American, European, Asian, South American, Oceanic and African portions of our network.
Important strategic components of our network include: ● 1,862 MTOBs strategically located in commercial business districts; ● 1,558 CNDCs located in 1,347 buildings offering our customers the largest portfolio of CNDCs of any carrier; ● 68 Cogent Data Centers; ● 1,251 intra-city networks, or rings, consisting of 77,365 fiber miles and 24,779 fiber route miles; ● an inter-city network of 72,552 terrestrial fiber route miles; and ● 244 high-capacity transoceanic circuits that connect the North American, European, Asian, South American, Oceanic and African portions of our network.
In 2022, our average ratio of sales representatives with less than 12 months of tenure to regional learning managers was 21 to 1. Our training group includes two additional trainers dedicated exclusively to training sales management, one technical trainer and one on-line curriculum trainer.
For the year ended December 31, 2023, our ratio of sales representatives with less than 12 months of tenure to regional learning managers was 22 to 1. Our training group includes two additional trainers dedicated exclusively to training sales management, one trainer dedicated exclusively to our field services team, one technical trainer and one on-line curriculum trainer.
These metropolitan networks consist of optical fiber that runs from the central router in a market into routers located in our on-net buildings. Our metropolitan fiber runs in a ring architecture, which provides redundancy so that if the fiber is cut, data can still be transmitted to the central router by directing traffic in the opposite direction around the ring.
Our metropolitan fiber runs in a ring architecture, which provides redundancy so that if the fiber is cut, data in our IP network can still be transmitted to the central router by directing traffic in the opposite direction around the ring. The router in the building provides the connection to each of our on-net customers.
In each metropolitan area in which we provide our high-speed on-net Internet access services, our backbone network is connected to one or more routers that are connected to one or more of our metropolitan optical networks. We created our intra-city networks by obtaining the right to use optical fiber from carriers with optical fiber networks in those cities.
In each metropolitan area in which we provide our high-speed on-net Internet access services, our backbone network is connected to one or more routers that are connected to one or more of our metropolitan optical networks.
We supplement our customer network interconnections with settlement-free peering to our non-customer ISPs. We have settlement-free private peering interconnections between our network and 23 other major ISPs who are not our customers. Tier 1 ISP Status. We directly connect with 7,792 total networks.
We currently interconnect with 7,988 networks that pay us to exchange traffic as our customers. We supplement our customer network interconnections with settlement-free peering to our non-customer tier one global ISPs. We have settlement-free private peering interconnections between our network and 23 other major ISPs who are not our customers. Tier 1 ISP Status.
As part of our commitment to professional development, we established a sales training and enablement department that provides both online and in-person training. Our 13 regional learning managers and management development trainers are located around the world and are available for intensive, in-person group training as well as individual training with sales representatives who may need extra assistance.
Our 14 regional learning managers and management development trainers are located around the world and are available for intensive, in-person group training as well as individual training with sales representatives who may need extra assistance.
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.
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.
As of December 31, 2022, we had 1,076 employees located in 16 different countries in a variety of different roles. Approximately 82.2% of our employees are located in the United States and Canada, 16.8% are located in Europe and 0.9% are located in Asia.
As of December 31, 2023, we had 1,947 employees located in 25 different countries in a variety of different roles. Approximately 87% of our employees are located in the United States, Canada and Mexico, 11.2% are located in Europe and 1.6% are located in Asia and 0.2% in South America.
We currently serve 7,792 access networks as well as numerous large and small content providers and 44,844 corporate customer connections. As a result of these growing bases of customers who distribute (content providers) and receive (access networks) content on our network, we believe that the majority of all the traffic remains “on-net” by both originating and terminating on our network.
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.
Several members of the senior management team have been working together at the Company since 2000. Our senior management team has designed and built our network and, during our formative years, led the integration of network assets we acquired through 13 significant acquisitions, excluding the pending acquisition of the Wireline Business, and managed the expansion and growth of our business.
Our senior management team has designed and built our network and, during our formative years, led the integration of network assets we acquired through the 13 significant acquisitions prior to our acquisition of the Sprint Business and managed the expansion and growth of our business.
In connection with our pending acquisition of the Wireline Business, we will begin to provide optical wavelength services over our fiber network. We will sell 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.
We are selling these services to our existing customers, customers acquired with the Sprint Business and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure.
Because of our historical focus on a direct sales force that utilizes direct contact, we have not spent funds on television, radio or print advertising. We use a limited amount of web-based advertising.
We use our customer relationship management system to efficiently track indirect sales activity levels and the sales productivity of our agents under our indirect sales program. Marketing. Because of our historical focus on a direct sales force that utilizes direct contact, we have not spent funds on television, radio or print advertising. We use a limited amount of web-based advertising.
We also have an indirect sales program. Our indirect sales program includes several master agents with whom we have a direct relationship. Through our agreements with our master agents we are able to sell through thousands of sub agents. All agents have access to selling to potential corporate customers and may sell all of our products.
We use a customer relationship management system to efficiently track sales activity levels and sales productivity. Indirect Sales. We also have an indirect sales program. Our indirect sales program includes several master agents with whom we have a direct relationship. Through our agreements with our master agents, we are able to sell through thousands of sub agents.
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.
In order to further scale our operating leverage, we have systematically reused older equipment in less dense portions of our network. Due to interoperability between the generations of products, we are able to transfer older equipment from our core, high-traffic areas to less congested portions of our network.
We have agreements with over 500 national and international carriers providing us last mile network access to over 4 million commercial buildings that are lit by fiber optic cable across North America and that are not currently served by our network.
Expand our Off-net Corporate and Enterprise Internet Access and VPN Business. We have agreements with over 620 national and international carriers providing us last mile network access to over 6 million commercial buildings that are lit by fiber optic cable in the 54 countries we serve and that are not currently served by our network.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe do not provide services to individual consumers and do not collect such personal information. However, we transmit data across the Internet, which data may include personal information collected by our customers. As the applicability of privacy regulations to the types of services we provide remains unsettled, we may be required to adopt additional measures in the future.
Biggest changeThese regulations, among other things, require us to make certain disclosures about our privacy policies, limit our ability to process, retain and transfer such information and provide employees with certain rights in relation to the information we collect about them. We also transmit data across the Internet, which data may include personal information collected by our customers.
As with the privacy laws described earlier, much of the laws related to the liability of Internet service providers for content on the network and the behavior of our customers and their end users remains unsettled. Some jurisdictions have laws, regulations, or court decisions that impose obligations upon ISPs to restrict access to certain content.
As with the privacy laws described earlier, much of the law related to the liability of Internet service providers for content on the network and the behavior of our customers and their end users remains unsettled. Some jurisdictions have laws, regulations, or court decisions that impose obligations upon ISPs to restrict access to certain content.
Additionally, certain of our current customers may seek to become settlement-free peers with us. We cannot assure you that we will be able to continue to establish and maintain relationships with other ISPs, favorably resolve disputes with such providers, or increase the capacity of our interconnections with such providers.
Additionally, certain of our current customers may seek to become settlement-free peers with us. We cannot assure you that we will be able to continue to establish and maintain relationships with other ISPs, favorably resolve disputes with such providers, or increase the capacity of our settlement-free peering interconnections with such providers.
If we are not able to maintain or increase our settlement-free peering relationships in all of our markets on favorable terms or to upgrade the capacity of our existing settlement-free peering relationships, we may not be able to provide our customers with high performance, affordable or reliable services, which could cause us to lose existing and potential customers, damage our reputation and have a material adverse effect on our business.
If we are not able to maintain or increase our settlement-free peering relationships in all of our markets on favorable terms or to upgrade the capacity of our existing settlement-free peering relationships, customers may not upgrade their connections with us or we may not be able to provide our customers with high performance, affordable or reliable services, which could cause us to lose existing and potential customers, damage our reputation and have a material adverse effect on our business.
Any such disruption could increase our costs, decrease our operating efficiencies and have an adverse effect on our business, results of operations and financial condition. Cisco may also be subject to litigation with respect to the technology on which we depend, including litigation involving claims of patent infringement. Such claims have been growing rapidly in the communications industry.
Any such disruption could increase our costs, decrease our operating efficiencies and have an adverse effect on our business, results of operations and financial condition. Cisco or Ciena may also be subject to litigation with respect to the technology on which we depend, including litigation involving claims of patent infringement. Such claims have been growing rapidly in the communications industry.
A migration of a few very large Internet users to their own networks, or to special networks that may be offered by major telephone and cable providers of last mile broadband connections to consumers, or the loss or reduced purchases from several significant customers could impair our growth, cash flow and profitability.
A migration of a few very large Internet users to their own networks, or to closed networks that may be offered by major telephone and cable providers of last mile broadband connections to consumers, or the loss or reduced purchases from several significant customers could impair our growth, cash flow and profitability.
We are particularly vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is located in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have historically been targets for terrorist attacks and vulnerable to pandemics.
We are particularly vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is located in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have historically been targets for terrorist attacks and may be vulnerable to pandemics.
While we have negotiated contracts that cap price increases due to inflation or that have fixed the price of electricity, we may experience increases in the costs of electricity and other services that we cannot pass on to our customers or may only be able to pass on partially to our customers.
While we have negotiated contracts that cap price increases due to inflation or that have fixed the price of electricity, we have experienced and may continue to experience increases in the costs of electricity and other services that we cannot pass on to our customers or may only be able to pass on partially to our customers.
Even if we enter into these transactions, we may experience: ● delays in realizing or a failure to realize the benefits we anticipate; ● difficulties or higher-than-anticipated costs associated with integrating any acquired companies, products or services into our existing business; ● attrition of key personnel from acquired businesses; ● unexpected costs or charges; and ● unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations.
Even if we enter into these transactions, we may experience: ● delays in realizing or a failure to realize the benefits we anticipate; ● difficulties or higher-than-anticipated costs associated with integrating any acquired companies, products or services into our existing business; ● attrition of key personnel from acquired businesses; ● unexpected costs or charges; and ● unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations. ● unforeseen difficulties or costs associated with the repurposing of the Sprint Network and buildings acquired with the Sprint Business.
We lease our optical fiber and obtain access to the buildings on our network, both CNDCs and MTOBs, from a number of vendors. A number of our leases, both for fiber and building access, are up for renewal in any given year.
We both own and lease portions of our optical fiber and obtain access to the buildings on our network, both CNDCs and MTOBs, from a number of vendors. A number of our leases, both for fiber and building access, are up for renewal in any given year.
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.
If we experience difficulties during the integration process and are unable to integrate the Sprint Business successfully or in a timely manner, we may not realize the benefits of the Transaction to the extent anticipated.
However, we are very selective with respect to such acquisitions and alliances and, prior to the acquisition of the Wireline Business, we had not undertaken either for more than 17 years.
However, we are very selective with respect to such acquisitions and alliances and, prior to the acquisition of the Sprint Business, we had not undertaken either for more than 17 years.
Our international operations involve a number of risks, including: ● fluctuations in currency exchange rates, particularly those involving the Euro as we are required to fund certain of our cash flow requirements of our operations outside of the United States; ● exposure to additional regulatory and legal requirements, including laws that may make it difficult or costly to enforce our contracts, import restrictions and controls, exchange controls, tariffs and other trade barriers and privacy and data protection regulations; ● compliance with laws regarding corruption and bribery, including the United States Foreign Corrupt Practices Act; ● difficulties in staffing and managing our foreign operations; ● changes in political and economic conditions; and ● exposure to additional and potentially adverse tax regimes.
Page 25 of 90 Table of Contents Our international operations involve a number of risks, including: ● fluctuations in currency exchange rates, particularly those involving the Euro as we are required to fund certain of our cash flow requirements of our operations outside of the United States; ● exposure to additional regulatory and legal requirements, including laws that may make it difficult or costly to enforce our contracts, import restrictions and controls, exchange controls, tariffs and other trade barriers and privacy and data protection regulations; ● compliance with laws regarding privacy, trade restrictions, economic sanctions, and corruption and bribery, including the United States Foreign Corrupt Practices Act; ● difficulties in staffing and managing our foreign operations; ● changes in political and economic conditions; and ● exposure to additional and potentially adverse tax regimes.
Our ability to manage our growth will be particularly dependent upon our ability to: ● expand, develop and retain an effective sales force and qualified personnel; ● maintain the quality of our operations and our service offerings; Page 17 of 75 Table of Contents ● maintain and enhance our system of internal controls to ensure timely and accurate compliance with our financial and regulatory reporting requirements; and ● expand our accounting and operational information systems in order to support our growth.
Our ability to manage our growth will be particularly dependent upon our ability to: ● expand, develop and retain an effective sales force and qualified personnel; ● maintain the quality of our operations and our service offerings; ● maintain and enhance our system of internal controls to ensure timely and accurate compliance with our financial and regulatory reporting requirements; and Page 18 of 90 Table of Contents ● expand our accounting and operational information systems in order to support our growth.
Our total indebtedness, at par, at December 31, 2022 was $1.3 billion and includes $500.0 million of our 3.50% senior secured notes due in May 2026 (“2026 Notes”) and $450.0 million of our 7.00% senior unsecured notes due in June 2027 (“2027 Notes”).
Our total indebtedness, at par, at December 31, 2023 was $1.5 billion and includes $500.0 million of our 3.50% senior secured notes due in May 2026 (“2026 Notes”) and $450.0 million of our 7.00% senior unsecured notes due in June 2027 (“2027 Notes”).
These integration matters could have an adverse effect on us during the transition period and on the combined company for an undetermined period after completion of the Transaction. Page 16 of 75 Table of Contents Business Risks We need to retain existing customers and continue to add new customers in order to become consistently profitable and cash flow positive.
These integration matters could have an adverse effect on us during the transition period and on the combined company for an undetermined period after completion of the Transaction. Page 17 of 90 Table of Contents Business Risks We need to retain existing customers and continue to add new customers in order to become consistently profitable and cash flow positive.
We may be required to expend significant resources to protect against such threats, and may experience a reduction in revenues, litigation, and a diminution in goodwill, caused by a compromise of our cybersecurity. Although our customer contracts limit our liability, affected customers and third parties may seek to recover damages from us under various legal theories.
We may be required to expend significant resources to protect against such threats, and may experience a reduction in revenues, litigation (including class action lawsuits), and a diminution in goodwill, caused by a compromise of our cybersecurity. Although our customer contracts limit our liability, affected customers and third parties may seek to recover damages from us under various legal theories.
If Cisco fails to provide equipment on a timely basis or fails to meet our performance expectations, including in the event that Cisco fails to enhance, maintain, upgrade or improve its products, hardware or software we purchase from them when and how we need them, we may be delayed or unable to provide services as and when requested by our customers.
If Cisco or Ciena fails to provide equipment on a timely basis or fails to meet our performance expectations, including in the event that either vendor fails to enhance, maintain, upgrade or improve the hardware or software products we purchase from them when and how we need them, we may be delayed or unable to provide services as and when requested by our customers.
For instance, it could: ● make it more difficult for us to satisfy our financial obligations, including those relating to our debt; ● require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, including the growth of our operations, capital expenditures, dividends, purchases of our common stock and acquisitions; Page 24 of 75 Table of Contents ● place us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources; and ● limit our ability to obtain additional financing required to fund working capital and capital expenditures, for strategic acquisitions and for other general corporate purposes.
For instance, it could: ● make it more difficult for us to satisfy our financial obligations, including those relating to our debt; ● require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, including the growth of our operations, integration of the Sprint Business, capital expenditures, dividends, purchases of our common stock and acquisitions; ● place us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources; and ● limit our ability to obtain additional financing required to fund working capital and capital expenditures, for strategic acquisitions and for other general corporate purposes.
We also do not know the extent to which the providers of broadband Internet access to consumers may favor certain content or providers in ways that may disadvantage us. Page 19 of 75 Table of Contents Operational Risks Our network may be the target of potential cyber-attacks and other security breaches that could have significant negative consequences.
We also do not know the extent to which the providers of broadband Internet access to consumers may favor certain content or providers in ways that may disadvantage us. Operational Risks Our network may be the target of potential cyber-attacks and other security breaches that could have significant negative consequences.
The possibility of this has been characterized as an issue of “net neutrality.” As many of our customers operate websites and services that deliver content to consumers our ability to sell our services would be negatively impacted if Internet content delivered by us was less easily received by consumers than Internet content delivered by others.
The possibility of this has been characterized as an issue of “net Page 21 of 90 Table of Contents neutrality.” As many of our customers operate websites and services that deliver content to consumers, our ability to sell our services would be negatively impacted if Internet content delivered by us was less easily received by consumers than Internet content delivered by others.
These covenants place restrictions on our ability to, among other things: ● incur additional debt; ● create liens; ● make certain investments; ● enter into certain transactions with affiliates; ● declare or pay dividends, redeem stock or make other distributions to stockholders; and ● consolidate, merge or transfer or sell all or substantially all of our assets.
These covenants place restrictions on our ability to, among other things: ● incur additional debt; ● create liens; ● make certain investments; ● enter into certain transactions with affiliates; ● declare or pay dividends, redeem stock or make other distributions to stockholders; and Page 29 of 90 Table of Contents ● consolidate, merge or transfer or sell all or substantially all of our assets.
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; ● 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; ● increased accounts receivables collection times and working capital requirements associated with business models of the Wireline Business; and ● incompatibility of business cultures.
These risks include: ● inability to achieve the financial and strategic goals for the Sprint Business and the combined businesses; Page 16 of 90 Table of Contents ● inability to achieve the projected cost savings for the Sprint 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 Sprint 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 key personnel of the Sprint Business; ● inability to retain key customers, vendors and other business partners of the Sprint Business or to migrate customers from legacy the Sprint Business 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 Sprint Business; ● 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 Sprint 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 (as defined below) costs for longer than anticipated; ● increased accounts receivables collection times and working capital requirements associated with business models of the Sprint Business; and ● incompatibility of business cultures.
In addition, a significant number of our corporate customers have continued remote work policies instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed offices due to global economic conditions.
A significant number of our corporate and enterprise customers in the United States have continued remote work policies instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed offices due to global economic conditions.
Further, a resurgence of COVID-19 due to immunity-resistant variants may cause employees to be more reluctant to continue in, or make new employees more reluctant to accept, a full-time, in-office position due to concerns about COVID-19. If this occurs, this may impact our revenue growth and profitability.
Further, a resurgence of COVID-19 due to Page 15 of 90 Table of Contents immunity-resistant variants may cause employees to be more reluctant to continue in, or make new employees more reluctant to accept, a full-time, in-office position due to concerns about COVID-19. If this occurs, this may impact our revenue growth and profitability.
Our network is primarily composed of (i) leased capacity on transoceanic optical fiber; (ii) terrestrial inter-city dark optical fiber; (iii) intra-city dark optical fiber; and (iv) the buildings that we serve and the associated optical fiber connecting those buildings.
Our network is primarily composed of (i) leased capacity on transoceanic optical fiber; (ii) terrestrial inter-city dark optical fiber; (iii) intra-city dark optical fiber; (iv) right-of+-way agreements; and (v) the buildings that we serve and the associated optical fiber connecting those buildings.
Should any government require us to perform these types of blocking procedures we could experience difficulties ranging from incurring additional expenses to ceasing to provide service in that country. We could also be subject to penalties if we fail to implement the censorship.
Should any government require us to perform these types of blocking procedures we could experience Page 27 of 90 Table of Contents difficulties ranging from incurring additional expenses to ceasing to provide service in that country. We could also be subject to penalties if we fail to implement the censorship.
As a result, through much of 2022, we saw corporate customers continue to take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices. Since the beginning of the pandemic, we have experienced a deteriorating real estate market in the buildings we serve.
As a result, through much of the year ended December 31, 2023, we saw corporate customers continue to take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices. Since the beginning of the pandemic, we have experienced a deteriorating real estate market in the buildings we serve.
Consummating these transactions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, financial condition and results of operations.
Page 19 of 90 Table of Contents Consummating these transactions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, financial condition and results of operations.
If, after the end of the COVID-19 pandemic, a significant number of our corporate customers or potential customers decide to retain remote work policies, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities. These trends may negatively impact our revenue growth, cash flows and profitability.
If a significant number of our corporate customers or potential customers decide to retain remote work policies, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities. These trends may negatively impact our revenue growth, cash flows and profitability.
Any costs that are incurred as a result of such measures or the imposition of liabilities could have a material adverse effect on our business. Regulatory Risks Existing and proposed privacy regulations may impact our business.
Any costs that are incurred as a result of such measures or the imposition of liabilities could have a material adverse effect on our business. Page 26 of 90 Table of Contents Regulatory Risks Existing and proposed privacy regulations may impact our business.
While our top 25 customers represented approximately 6.0% of our revenue for the year ended December 31, 2022, several large net-centric customers are or may be the subject of increased regulatory scrutiny, which may impact their businesses and, consequently, their use of our services in unknown ways.
While our top 25 customers represented approximately 15.2% of our revenue for the year ended December 31, 2023, several large net-centric customers are or may be the subject of increased regulatory scrutiny, which may impact their businesses and, consequently, their use of our services in unknown ways.
An attack on or security breach of our network could result in theft of trade secrets, intellectual property, or other company confidential information, the interruption, degradation, or cessation of services, an inability to meet our service level commitments or our financial reporting obligations, and potentially compromise customer data stored on or transmitted over our network.
An attack on or security breach of our network could result in theft Confidential Information, the interruption, degradation, or cessation of services, an inability to meet our service level commitments or our financial reporting obligations, and potentially compromise customer data stored on or transmitted over our network.
We also may be unable to upgrade our network and face greater difficulty maintaining and expanding our network. Transitioning from Cisco to another vendor would be disruptive because of the time and expense required to learn to install, maintain and operate the new vendor’s equipment and to operate a multi-vendor network.
We also may be unable to upgrade our network and face greater difficulty maintaining and expanding our network. Transitioning from Cisco or Ciena to another vendor for the types of equipment each provides would be disruptive because of the time and expense required to learn to install, maintain and operate the new vendor’s equipment and to operate a multi-vendor network.
We have expanded our network into 51 countries worldwide on every continent other than Antarctica. We continue to explore expansion opportunities. We have experienced difficulties, ranging from lack of dark fiber, to regulatory issues, to slower revenue growth rates from our operations in these markets.
International Operations Risks Our international operations expose us to numerous risks. We have expanded our network into 54 countries worldwide on every continent other than Antarctica. We continue to explore expansion opportunities. We have experienced difficulties, ranging from lack of dark fiber, to regulatory issues, to slower revenue growth rates from our operations in these markets.
We may not successfully make or integrate acquisitions or enter into strategic alliances. As part of our growth strategy, we may pursue selected acquisitions and strategic alliances. To date, we have completed 13 significant acquisitions, not including our pending acquisition of the Wireline Business.
We may not successfully make or integrate acquisitions or enter into strategic alliances. As part of our growth strategy, we may pursue selected acquisitions and strategic alliances. To date, we have completed 14 significant acquisitions, including our recent acquisition of the Sprint Business.
Network Augmentation and Maintenance Risks Our network is comprised of a number of separate components, and we may be unable to obtain or maintain the agreements necessary to augment or maintain our network.
Page 23 of 90 Table of Contents Network Augmentation and Maintenance Risks Our network is comprised of a number of separate components, and we may be unable to obtain or maintain the agreements necessary to augment or maintain our network.
In addition, the prevalence of hybrid or fully remote work environments during the pandemic has caused some companies to transition to such environments on a permanent basis, and we do not know what impact this may have on demand for commercial office space and for our services.
In 2023 more corporate customers increased their in-office requirements, nevertheless, the prevalence of hybrid or fully remote work environments during the pandemic has caused some companies to transition to such environments on a permanent basis, and we do not know what impact this may have on demand for commercial office space and for our services.
In addition, the shift of our office workers working remotely at certain times during the past few years has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured.
In addition, the shift of our own employees to working remotely at certain times during the past few years has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured.
While we have successfully mitigated the effects of prior service interruptions and business disputes in the past, we may incur significant delays and costs in restoring service to our customers in connection with future service interruptions, and as a result we may lose customers.
While we have successfully mitigated the effects of prior service interruptions and business disputes in the past, we may incur significant delays and costs in restoring service to our customers in connection with future service interruptions, and as a result we may lose customers. With the Sprint Business acquisition, our reliance on agreements with landowners has increased.
Page 14 of 75 Table of Contents Our historical reductions in our prices are expected to continue in an inflationary economy even as our costs may increase. Many of the regions in which we operate are experiencing an increase in inflation rates.
Our historical reductions in our prices are expected to continue in an inflationary economy even as our costs may increase. Many of the regions in which we operate continue to experience an increase in inflation rates.
Page 20 of 75 Table of Contents We expect to enter additional agreements with carriers and operators to obtain additional facilities, whether optical fiber or buildings, for our network in order to add capacity to our network and to expand our addressable market.
We expect to enter additional agreements with carriers and operators to obtain additional facilities, whether optical fiber, leased transoceanic capacity or buildings, for our network in order to add capacity to our network and to expand our addressable market.
Because we have typically purchased financially distressed companies or their assets, and may continue to do so in the future, we have not had, and may not have, the opportunity to perform extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in acquisitions. As a result, we may face unexpected contingent liabilities arising from these acquisitions.
Because we have typically purchased financially distressed companies or their assets, and may continue to do so in the future, we have largely not had, and may not in the future have, the opportunity to perform extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in acquisitions.
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.
Risks Relating to Our Acquisition of the Sprint Business We may not realize the anticipated benefits of the acquisition of the Sprint Business, and the integration of the Sprint Business 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 Page 15 of 75 Table of Contents integration may be more difficult, costly or time consuming than expected.
The success of our acquisition of the Sprint Business, including the realization of anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine our business and the Sprint Business. The integration may be more difficult, costly or time consuming than expected. The integration process involves numerous risks.
We may also issue additional equity in connection with these transactions, which would dilute our existing shareholders. Following an acquisition, we have experienced a decline in revenue attributable to acquired customers as these customers’ contracts have expired and they have entered into our standard customer contracts at generally lower rates or have chosen not to renew service with us.
Following an acquisition, we have experienced a decline in revenue attributable to acquired customers as these customers’ contracts have expired and they have entered into our standard customer contracts at generally lower rates or have chosen not to renew service with us.
If we continue to require employees to work in the office on a full-time basis and/or to mandate COVID-19 vaccinations in the United States, we may find it difficult to retain existing employees or hire new employees.
In the United States, we believe the rise in departures was also attributable to the unwillingness of some employees to be vaccinated. If we continue to require employees to work in the office on a full-time basis and/or to mandate COVID-19 vaccinations in the United States, we may find it difficult to retain existing employees or hire new employees.
A substantial and long-term shift to remote work may impact our ability to add new customers and to retain existing customers. Through much of 2021 and 2022, we saw corporate customers continue their remote work policies and take a cautious approach to new services and upgrades, as well as a reduced demand for connecting smaller satellite offices.
Through much of 2021, 2022, and 2023, we saw corporate customers continue their remote work policies and take a cautious approach to new services and upgrades, as well as a reduced demand for connecting smaller satellite offices.
Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. We have performed an analysis of our Section 382 ownership changes and have determined that the utilization of certain of our net operating loss carryforwards in the United States is limited.
We have performed an analysis of our Section 382 ownership changes and have determined that the utilization of certain of our net operating loss carryforwards in the United States is limited.
ITEM 1A. RISK FACTORS Market Risks The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business, financial condition and results of operations. We offer our services in 51 countries, most of which were significantly impacted by the COVID-19 pandemic.
ITEM 1A. RISK FACTORS Market Risks The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business, financial condition and results of operations.
The settlement payment is made each November and May until the Swap Agreement expires in February 2026. By entering into the Swap Agreement, we have assumed the risk associated with variable interest rates. Changes in interest rates affect the valuation of the Swap Agreement that we recognize in our consolidated statements of comprehensive income.
By entering into the Swap Agreement, we have assumed the risk associated with variable interest rates. Changes in interest rates affect the valuation of the Swap Agreement that we recognize in our consolidated statements of comprehensive income.
Without this financing, we could be forced to sell assets or secure additional financing to make up for any shortfall in our payment obligations under unfavorable circumstances.
We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. Without this financing, we could be forced to sell assets or secure additional financing to make up for any shortfall in our payment obligations under unfavorable circumstances.
The expense of paying any unpaid taxes could be substantial and we might not be able to collect such back taxes from our customers. We are subject to value-added taxes and other taxes in many jurisdictions outside of the United States. We are also subject to audit of our tax compliance in numerous jurisdictions.
We believe we collect all required taxes; however, a jurisdiction may assert we have failed to collect certain taxes. The expense of paying any unpaid taxes could be substantial and we might not be able to collect such back taxes from our customers. We are subject to value-added taxes and other taxes in many jurisdictions outside of the United States.
If the information systems that we depend on to support our customers, network operations, sales, billing and financial reporting do not perform as expected, our operations and our financial results may be adversely affected. We rely on complex information systems to operate our network and support our other business functions.
Any or all of the foregoing could materially adversely affect our business, operating results, and financial condition. If the information systems that we depend on to support our customers, network operations, sales, billing and financial reporting do not perform as expected, our operations and our financial results may be adversely affected.
Page 25 of 75 Table of Contents Our business may not generate sufficient cash flow from operations and we may not have available to us future borrowings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
Our business may not generate sufficient cash flow from operations, and we may not have available to us future borrowings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity.
We may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations, including our obligations under our notes.
We may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations, including our obligations under our notes. We maintain our cash and cash equivalents at financial institutions in amounts in excess of insured limits.
Many countries, including the United States, are considering adopting, or have already adopted, privacy regulations or laws that would govern the way an Internet user’s data is used. The primary impact of these rules are on businesses that collect personal information about consumer users of their services.
Many countries in which we operate, including the United States, are considering adopting, or have already adopted, privacy regulations, laws, rules or industry standards that that apply generally to the handling of information about individuals. The primary impact of these rules is on businesses that collect personal information about consumer users of their services.
Finally, the cumulative effect of these taxes levied on Internet services could discourage potential customers from using Internet services to replace traditional telecommunication services and negatively impact our ability to grow our business.
Finally, the cumulative effect of these taxes levied on Internet services could discourage potential customers from using Internet services to replace traditional telecommunication services and negatively impact our ability to grow our business. Our private network services, such as our VPN services, are subject to taxes and fees in various jurisdictions including the Universal Service Contribution tax in the US.
However, governmental authorities may decide to impose additional regulation and taxes upon providers of Internet access and private network services. All of these matters could inhibit our ability to remain a low-cost carrier and could have a material adverse effect on our business, financial condition and our results of operations.
All of these matters could inhibit our ability to remain a low-cost carrier and could have a material adverse effect on our business, financial condition and our results of operations.
We have grown our Company rapidly through network expansion and by obtaining new customers through our sales efforts. Our expansion places significant strains on our management, operational and financial infrastructure.
Our business and operations are growing rapidly, and we may not be able to efficiently manage our growth. We have grown our Company rapidly through network expansion, by obtaining new customers through our sales efforts and by our acquisition of the Sprint Business. Our expansion places significant strains on our management, operational and financial infrastructure.
We may have difficulty maintaining this software and adding features that our sales representatives require.
In 2020, we developed and deployed our own customer relationship management software for our sales force. We may have difficulty maintaining this software and adding features that our sales representatives require.
We are not subject to substantial regulation by the FCC or the state public utilities commissions in the United States. Internet service is also subject to minimal regulation in Western Europe and in Canada. Elsewhere the regulation is greater, though not as extensive as the regulation for providers of voice services.
Changes in laws, rules, and enforcement could adversely affect us. We are not subject to substantial regulation by the FCC or the state public utilities commissions in the United States. Internet service is also subject to minimal regulation in Western Europe and in Canada.
Our ability to track sales leads, close sales opportunities, provision services, bill our customers for our services and prepare our financial statements depends upon the effective integration of our various information systems. In 2020, we developed and deployed our own customer relationship management software for our sales force.
We rely on complex information systems to operate our network and support our other business functions. Our ability to track sales leads, close sales opportunities, provision services, bill our customers for our services and prepare our financial statements depends upon the effective integration of our various information systems.
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. Under the 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.
Under the 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. The settlement payment is made each November and May until the Swap Agreement expires in February 2026.
In the fall of 2021, we began to implement an in-office work policy designed to return the vast majority of our employees to an in-office work environment. Except for a brief return to remote work at the beginning of 2022 for a portion of our workforce, we have maintained our requirement that all employees work in our offices wherever possible.
Except for a brief return to remote work at the beginning of 2022 for a portion of our workforce, we have, with the exception of a limited number of employees who become eligible for hybrid work on a quarterly basis, maintained our requirement that all employees work in our offices wherever possible.
If we fail to implement these measures successfully, our ability to manage our growth will be impaired. Demand from certain employees to work remotely may reduce the attractiveness of our business as an employer versus some competitors who are allowing employees to work remotely.
Demand from certain employees to work remotely may reduce the attractiveness of our business as an employer versus some competitors who are allowing employees to work remotely. In the fall of 2021, we began to implement an in-office work policy designed to return the vast majority of our employees to an in-office work environment.
Page 22 of 75 Table of Contents Privacy regulations, such as the General Data Protection Regulation (“GDPR”) in the European Union and the California Consumer Privacy Act (“CCPA”) in California vary in scope and in the obligations they impose on us.
As the applicability of privacy regulations to the types of services we provide remains unsettled, we may be required to adopt additional measures in the future. Privacy regulations, such as the General Data Protection Regulation in the European Union and the California Consumer Privacy Act in California vary in scope and in the obligations they impose on us.
Except for a brief period at the beginning of 2022 when we temporarily shifted a portion of our workforce to remote work, by the end of the spring of 2022, the overwhelming majority of all employees were working full-time in our offices.
As other countries relaxed their COVID regulations, our employees in those countries returned to the office as well. Except for a brief period at the beginning of 2022 when we temporarily shifted a portion of our workforce to remote work, we have maintained our requirement that all employees work in our offices.
These may result in the assessment of amounts due that are material and therefore would have an adverse effect on us. The utilization of certain of our net operating loss carryforwards is limited and depending upon the amount of our taxable income we may be subject to paying income taxes earlier than planned.
We are also subject to audit of our tax compliance in numerous jurisdictions. These may result in the assessment of amounts due that are material and therefore would have an adverse effect on us.
There can be no assurance that the E-rate program will continue or that other governmental programs that fund governments and organizations that are or might become customers will continue. A failure of such programs to continue could result in a loss of customers and impair our growth, cash flow and profitability.
We have customers who depend on the U.S. government’s E-rate program for funding. There can be no assurance that the E-rate program will continue or that other governmental programs that fund governments and organizations that are or might become customers will continue.
Vacancy rates for many of our MTOBs have risen as a result of many tenants terminating leases and exiting buildings and as a result Page 13 of 75 Table of Contents of lower new leasing activity.
Vacancy rates for many of our MTOBs have risen as a result of many tenants terminating leases and exiting buildings and as a result of lower new leasing activity. The impact of this greater level of vacancy rates was more pronounced in certain cities, particularly in California and the Pacific Northwest and less impactful elsewhere.
As new laws are implemented or existing structures are declared insufficient, such as the Privacy Shield program in place between the US and EU, we may find it difficult to comply with such regulations or find it costly to do so.
As new laws are implemented or existing structures are declared insufficient, we may find it difficult to comply with such regulations or find it costly to do so. Moreover, for our customers who collect personal information, increased regulation of the collection, processing and use of personal data may impact their business and their use of services in unknown ways.
Our total indebtedness at December 31, 2022 included $304.2 million of finance lease obligations for dark fiber primarily under 15 to 44 year IRUs.
Our total indebtedness at December 31, 2023 included $484.5 million of finance lease obligations for dark fiber primarily under 15 to 43 year IRUs. Our total indebtedness at December 31, 2023 excludes $398.1 million of operating lease liabilities which were required to be recorded as right-to-use assets and operating lease liabilities.
We will require also that the employees of the Wireline Business also attest that they are fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption. Certain of these employees are not vaccinated against the COVID-19 virus and as a result, may elect not to join our organization.
We required that the employees of the Sprint Business in the United States attest and provide proof that they are fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption. Our employees have largely complied with our vaccine mandate in the United States.
The FCC had promulgated rules that would have banned practices such as blocking and throttling of Internet traffic, but those rules were rescinded by the FCC in December 2017. Some US states have either issued or are considering their own net neutrality rules. Also, the European Union and other countries in which we operate have issued similar net neutrality rules.
The proposal would reclassify broadband as a telecommunications service, a designation that allows the FCC to regulate ISPs under the common-carrier provisions in Title II of the Communications Act. Some US states have either issued or are considering their own net neutrality rules. Also, the European Union and other countries in which we operate have issued similar net neutrality rules.
We have experienced cyber-attacks of increasing sophistication which suggest an increase in cyber-attacks that may be state-sponsored or conducted by other well-financed organizations. Moreover, as cyber warfare becomes a tool in asymmetric conflicts between the United States and other nations, we, as a US provider, may be targeted with increasing frequency.
As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or avoid a material adverse impact to our IT Systems, Confidential Information or business. Moreover, as cyber warfare becomes a tool in asymmetric conflicts between the United States and other nations, we, as a US provider, may be targeted with increasing frequency.
Our employees have largely complied with our vaccine mandate in the United States. However, we experienced an increase in employee departures, particularly within our sales department, beginning in the second half of 2021 and continuing into 2022.
However, we experienced an increase in employee departures, particularly within our sales department, beginning in the second half of 2021 and continuing into 2022. The departure rate returned to our long-term historical rates in 2023. We believe that the rise in departures was attributable, in part, to the unwillingness of some employees to work in a full-time, in-office environment.
Substantially all of our network infrastructure equipment is manufactured or provided by a single network infrastructure vendor. We purchase from Cisco Systems, Inc. (“Cisco”) the routers and transmission equipment used in our network. We have recently experienced delays in obtaining certain network equipment from Cisco due to supply chain issues.
We purchase our network infrastructure equipment from a small circle of vendors. Historically, we purchased from Cisco Systems, Inc. (“Cisco”) all of the routers and transmission equipment used in our network. We have added a new provider for certain types of IP transport equipment but Cisco remains our primary vendor for IP transport equipment.
We anticipate that we would experience similar revenue declines with respect to customers we may acquire in the future. Page 18 of 75 Table of Contents Competitive Risks Our connections to the Internet require us to establish and maintain relationships with other providers, which we may not be able to maintain.
We anticipate that we would experience similar revenue declines with respect to customers we may acquire in the future. Our data center expansions could involve significant risks to our business.
The customers of the Wireline Business include a number of large enterprise customers, a type of customer that we have not traditionally served. We may encounter difficulties retaining such customers or in converting such customers from their legacy services to newer technologies.
We may encounter difficulties retaining such customers, in converting such customers from their legacy services to newer technologies or in attracting new enterprise customers. Our inability to retain or attract such customers or to convert them to our services, could impair our growth, cash flow and profitability.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBoth of the New Leases are cancellable by us without penalty upon 60 days written notice. We lease a total of approximately 755,000 square feet of space for our data centers, offices and operations centers. Certain of these leases are with entities controlled by our Chief Executive Officer.
Biggest changeWe lease space for offices, data centers, colocation facilities, and points-of-presence. We lease a total of approximately 1.1 million square feet of space for our data centers, offices and operations centers. Certain of these leases are with entities controlled by our Chief Executive Officer. We believe that our facilities, both owned and leased are generally in good condition.
On January 6, 2023, we entered into two lease agreements (the “New Leases”), one with Thorium LLC and one with Germanium LLC, entities owned by our Chief Executive Officer.
On January 6, 2023, we entered into two lease agreements (the “New Leases”), one with Thorium LLC ('Thorium") and one with Germanium LLC (“Germanium”), entities owned by our Chief Executive Officer, David Schaeffer.
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 replacing a portion of our current office space in the Northern Virginia area.
The first of the New Leases is with Thorium for approximately 54,803 square feet of office space, which serves as office space replacing a portion of its office space in the Northern Virginia area (“Office Lease”).
The second of the New Leases is with Germanium LLC for approximately 1,587 square feet of technical space, in the building which will serve as network operations space. The term for each of the New Leases is five years beginning March 1, 2023 (or an actual later date of occupancy).
The second of the New Leases is with Germanium LLC for approximately 1,587 square feet of technical space which serves as network operations space (“Network Operations Lease”). The term for each of the New Leases is five years beginning on April 1, 2023.
ITEM 2. PROPERTIES We lease space for offices, data centers, colocation facilities, and points-of-presence. Our headquarters facility consists of 43,117 square feet located in Washington, D.C. The lease for our headquarters is with an entity controlled by our Chief Executive Officer and expires in May 2025. The lease may be cancelled by us upon 60 days’ notice.
The lease for our headquarters is with an entity controlled by our Chief Executive Officer and expires in May 2025. The lease may be cancelled by us upon 60 days’ notice.
Removed
We believe that these facilities are generally in good condition and suitable for our operations.
Added
ITEM 2. PROPERTIES As part of the acquisition of the Sprint Business, we acquired a portfolio of owned properties totaling approximately 1.9 million square feet. The properties are made up of technical facilities in the United States, including core switch facilities, PoP sites, regeneration and fiber pass through locations as well as warehouse buildings that support the acquired Sprint Network.
Added
The largest 45 properties, which are in the process of being evaluated and/or converted to commercial data centers, range in size from 5,000 to 110,000 square feet and total approximately 1.3 million square feet and are in the process of being evaluated and converted to commercial data centers. We also own two data centers in Paris, France and Grenoble, France.
Added
Our leased properties and the vast majority of our owned properties are generally suitable for our operations, and we are in the process of repurposing any owned properties as necessary. Our headquarters facility consists of 43,117 square feet located in Washington, D.C.
Added
Both of the New Leases are cancellable by us without penalty upon 60 days written Page 31 of 90 Table of Contents notice. We took occupancy of the office space and network operations space in April 2023.
Added
We are responsible for paying our proportionate share of the building’s operating expenses that exceed a 2023 base year and we are also responsible for paying our metered utility costs and a proportionate share of the building’s other operating expenses that exceed a 2023 base year.
Added
On July 25, 2023 we entered into a Second Amendment to the lease agreement (the “Amendment”), with Germanium which amends the Network Operations Lease to lease an additional 7,369 square feet on the first floor of the building, beginning on August 1, 2023, in connection with the planned expansion of the technical space.
Added
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 us without penalty upon 60 days written notice. We are responsible for paying a proportionate share of real estate taxes and operating expenses and separately metered utilities expense.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe comparison below assumes $100 was invested on December 31, 2017 in our common stock, the S&P 500 Index and the NASDAQ Telecommunications Index, with dividends, if any, reinvested. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/17 12/18 12/19 12/20 12/21 12/22 Cogent Communications Holdings $ 100.00 $ 104.21 $ 158.28 $ 149.93 $ 191.49 ​ $ 158.59 S&P 500 ​ 100.00 ​ 95.62 ​ 125.72 ​ 148.85 ​ ​ 191.58 ​ ​ 156.89 NASDAQ Telecommunications ​ 100.00 ​ 77.39 ​ 91.90 ​ 101.16 ​ 103.32 ​ ​ 75.55 ​ The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Biggest changeThe comparison below assumes $100 was invested on December 31, 2018 in our common stock, the S&P 500 Index and the NASDAQ Telecommunications Index, with dividends, if any, reinvested. ​ Page 32 of 90 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12/18 12/19 12/20 12/21 12/22 12/23 Cogent Communications Holdings $ 100.00 $ 151.89 $ 143.88 $ 183.76 $ 152.19 ​ $ 214.92 S&P 500 ​ 100.00 ​ 131.49 ​ 155.68 ​ 200.37 ​ ​ 164.08 ​ ​ 207.21 NASDAQ Telecommunications ​ 100.00 ​ 118.74 ​ 130.71 ​ 133.51 ​ 97.62 ​ ​ 108.00 ​ The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Issuer Purchases of Equity Securities Our Board of Directors authorized a plan to permit the repurchase of up to $50.0 million of our common stock in negotiated and open market transactions through December 31, 2023. As of December 31, 2022, $30.4 million remained available for such negotiated and open market transactions concerning our common stock.
Issuer Purchases of Equity Securities Our Board of Directors authorized a plan to permit the repurchase of up to $50.0 million of our common stock in negotiated and open market transactions through December 31, 2024. As of December 31, 2023, $30.4 million remained available for such negotiated and open market transactions concerning our common stock.
The chart below compares the relative changes in the cumulative total return of our common stock for the period from December 31, 2017 to December 31, 2022, against the cumulative total return for the same period of the (1) The Standard & Poor’s 500 (S&P 500) Index and (2) the NASDAQ Telecommunications Index.
The chart below compares the relative changes in the cumulative total return of our common stock for the period from December 31, 2018 to December 31, 2023, against the cumulative total return for the same period of the (1) The Standard & Poor’s 500 (S&P 500) Index and (2) the NASDAQ Telecommunications Index.
As of February 1, 2023, there were 127 holders of record of shares of our common stock holding 47,028,650 shares of our common stock. Performance Graph Our common stock currently trades on the NASDAQ Global Select Market.
As of February 1, 2024, there were 112 holders of record of shares of our common stock holding 47,425,367 shares of our common stock. Performance Graph Our common stock currently trades on the NASDAQ Global Select Market.
We may purchase shares from time to time depending on market, economic, and other factors. We did not purchase shares of our common stock during 2022. ​ Page 27 of 75 Table of Contents
We may purchase shares from time to time depending on market, economic, and other factors. We did not purchase shares of our common stock during the year ended December 31, 2023. ​ Page 33 of 90 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe comparisons illustrated in the tables are discussed in greater detail below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ Percent ​ 2022 2021 Change ​ ​ (in thousands) ​ ​ ​ Service revenue ​ $ 599,604 ​ $ 589,797 1.7 % On-net revenues ​ 452,779 ​ 442,838 2.2 % Off-net revenues ​ 146,152 ​ 146,383 (0.2) % Network operations expenses (1) ​ 228,154 ​ 226,337 0.8 % Selling, general, and administrative expenses (2) ​ 163,021 ​ 162,380 0.4 % Acquisition costs - Sprint (T-Mobile Wireline) ​ ​ 2,248 ​ ​ — ​ NM ​ Depreciation and amortization expenses ​ 92,222 ​ 89,240 3.3 % Gains on foreign exchange - 2024 Notes ​ ​ 31,561 ​ ​ 32,522 ​ (3.0) % Loss on debt extinguishment and redemption – 2024 Notes ​ ​ (11,885) ​ ​ — ​ NM ​ Loss on debt extinguishment and redemption – 2022 Notes ​ ​ — ​ ​ (14,698) ​ NM ​ Change in valuation expense - interest rate swap agreement ​ ​ (43,113) ​ ​ (9,015) ​ 378.2 % Interest expense ​ 67,584 ​ 58,059 16.4 % Income tax expense ​ 21,230 ​ 23,235 (8.6) % (1) Includes non-cash equity-based compensation expense of $553 and $2,521 for 2022 and 2021, respectively.
Biggest changeThe comparisons illustrated in the tables are discussed in greater detail below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ Percent ​ 2023 2022 Change ​ ​ (in thousands) ​ ​ ​ Service revenue ​ $ 940,922 ​ $ 599,604 56.9 % On-net revenues ​ 518,588 ​ 452,779 14.5 % Off-net revenues ​ 393,494 ​ 146,152 169.2 % Non-core revenues ​ ​ 28,840 ​ ​ 673 ​ NM ​ Network operations expenses (1) ​ 544,232 ​ 228,154 138.5 % Selling, general, and administrative expenses (2) ​ 275,318 ​ 163,021 68.9 % Acquisition costs - Sprint Business ​ ​ 18,492 ​ ​ 2,248 ​ 722.6 % Depreciation and amortization expenses ​ 232,209 ​ 92,222 151.8 % Gain on foreign exchange - 2024 Notes ​ ​ — ​ ​ 31,561 ​ NM ​ Loss on debt extinguishment and redemption – 2024 Notes ​ ​ — ​ ​ 11,885 ​ NM ​ Change in valuation expense - interest rate swap agreement ​ ​ 13,439 ​ ​ (43,113) ​ NM ​ Interest expense ​ 106,783 ​ 67,584 58.0 % Gain on bargain purchase – Sprint Business ​ ​ 1,406,435 ​ ​ — ​ NM ​ Interest income – IP Transit Services Agreement ​ ​ 26,796 ​ ​ — ​ NM ​ Income tax benefit (expense) ​ 53,964 ​ (21,230) NM ​ (1) Includes non-cash equity-based compensation expense of $1,069 and $553 for 2023 and 2022, respectively.
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, 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.
We will evaluate any such transactions in light of the existing market conditions. The amounts involved in any such transaction, individually or in the aggregate, may be material.
We will evaluate any such transactions in light of the existing market conditions. The amounts involved in any such transaction, individually or in the aggregate, may be material.
We are a Delaware Corporation and under the General Corporate Law of the State of Delaware distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware Law. The indentures governing our notes limit our ability to return cash to our stockholders.
We are a Delaware Corporation and under the General Corporation Law of the State of Delaware distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware Law. The indentures governing our notes limit our ability to return cash to our stockholders.
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.
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, reduce our planned dividend payments, 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.
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.
Network operations expenses include the costs of personnel associated with service delivery, network management and customer support, network facilities costs, right-of-way fees, fiber and equipment maintenance fees, leased circuit costs, access and facilities fees paid to building owners and excise taxes billed to our customers and recorded on a gross basis.
For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.
For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
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 $1.2 billion to our stockholders through share repurchases and dividends.
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 $1.4 billion to our stockholders through share repurchases and dividends.
Our primary source of operating cash is receipts from our customers who are billed on a monthly basis for our services. Our primary uses of operating cash are payments made to our vendors and employees and interest payments made to our finance lease vendors and our note holders.
Our primary source of operating cash is receipts from our customers who are billed on a monthly basis for our services. Our primary uses of operating cash are payments made to our vendors, payments under the TSA, payments to employees and interest payments made to our finance lease vendors and our note holders.
Page 35 of 75 Table of Contents Limitations under the Indentures The 2027 Notes Indenture and the 2026 Notes Indenture (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 under the Indentures The 2027 Notes Indenture and the 2026 Notes Indenture (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.
We continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network. We do this by investing capital to expand the geographic footprint of our network, increasing the number of buildings that we are connected to, including CNDCs and MTOBs, and increasing our penetration rate into our existing buildings.
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.
As of December 31, 2022 and 2021, we had a total of 3,155 and 3,035 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.
As of December 31, 2023 and 2022, we had a total of 3,277 and 3,155 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.
Any future acquisitions or other significant unplanned costs or cash requirements in excess of amounts we currently hold may require that we raise additional funds through the issuance of debt or equity. We cannot assure you that such financing will be available on terms acceptable to us or our stockholders, or at all.
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 Page 45 of 90 Table of Contents available on terms acceptable to us or our stockholders, or at all.
We typically sell corporate connections at similar pricing to our competitors, but our clients benefit from our significantly faster speeds, enhanced service level agreements and rapid installation times. In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.
We typically sell corporate connections at similar pricing to our competitors, but our customers benefit from our significantly faster speeds, greater aggregate throughput, enhanced service level agreements and rapid installation times. In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.
We intend to hold levels of cash and cash equivalents sufficient to maintain our ability to fund operations, refinance indebtedness and make dividend payments to our stockholders. Our total indebtedness at December 31, 2022, at par value, was $1.3 billion.
We intend to hold levels of cash and cash equivalents sufficient to maintain our ability to fund operations, refinance indebtedness and make dividend payments to our stockholders. ​ Our total indebtedness at December 31, 2023, at par value, was $1.5 billion.
We increased our total service revenue by expanding our network, by adding additional buildings to our network, by increasing our penetration into the buildings connected to our network and by gaining market share by offering our services at lower prices than our competitors.
We increased our total service revenue by our acquisition of the Sprint Business, 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.
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.
Over the next several years, we have significant contractual and anticipated cash outlays including our indicative dividend payments on our common stock, our maturing debt obligations, interest payments on our debt obligations and Swap Agreement and our projected capital expenditure requirements in order to help execute our business plan including the integration of Sprint Business.
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.
Future Capital Requirements We believe that our cash on hand and cash generated from our operating activities and cash from the IP Transit Services Agreement will be adequate to meet our working capital, capital expenditure, debt service, dividend payments and other cash requirements for the next twelve months and beyond the next twelve months if we execute our business plan.
Our $500.0 million of 2026 Notes 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%.
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.
Fully vaccinated employees in the United States returned to our offices on a full-time basis in early September 2021. In October 2021, we opened most of our non-US offices for employees to return on a voluntary basis and, where permitted, on a mandatory basis in November 2021.
Fully vaccinated Page 41 of 90 Table of Contents employees in the United States returned to our offices on a full-time basis in early September 2021. In October 2021, we opened most of our non-US offices for employees to return on a voluntary basis and, where permitted, on a mandatory basis in November 2021.
Our total indebtedness at December 31, 2022 includes $304.2 million of finance lease obligations for dark fiber under long-term IRU agreements. On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and among Cogent Communications Group, Inc.
Our total indebtedness at December 31, 2023 includes $484.5 million of finance lease obligations for dark fiber under long-term IRU agreements. On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and among Cogent Communications Group, Inc.
Page 37 of 75 Table of Contents Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
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.
Page 36 of 90 Table of Contents 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.
See Note 4 to our consolidated financial statements for additional discussion of limitations on distributions.
See Note 4 “Long-term Debt” to our consolidated financial statements for additional discussion of limitations on distributions.
Page 32 of 75 Table of Contents 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.
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.
While we believe that demand for office space in the buildings in which we operate will remain among the strongest in our markets, and that most employers will eventually require their employees to return to their offices, the timing and scope of a return to office, particularly in a number of key markets we serve, remains uncertain.
While we believe that demand for office space in the buildings in which we operate will remain among the strongest in the markets in which they are located, and that most employers will eventually require their employees to return to their offices on at least a hybrid basis, the timing and scope of a return to office, particularly in a number of key markets we serve, remains uncertain.
Factors that could cause or contribute to these differences include, but are not limited to: Our pending acquisition of the Wireline Business of Sprint Communications, including delays in or conditions on obtaining necessary regulatory approvals, our failure to close the Transaction or difficulties integrating our business with the acquired Sprint Communications business; the COVID-19 pandemic and accompanying government policies worldwide; vaccination and in-office requirements, delays in the delivery of network equipment and optical fiber; future economic instability in the global economy, including the risk of economic recession, which could affect spending on Internet services; the impact of changing foreign exchange rates (in particular the Euro to US dollar and Canadian dollar to US dollar exchange rates) on the translation of our non-US dollar denominated revenues, expenses, assets and liabilities into US dollars; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including rules regarding data protection, cyber security and net neutrality; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; the ability to maintain our Internet peering arrangements on favorable terms; our ability to renew our long-term leases of optical fiber that comprise our network; our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; our ability to make payments on our indebtedness as they become due and outcomes in litigation, risks associated with variable interest rates under our Swap Agreement, as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, this Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.
Factors that could cause or contribute to these differences include, but are not limited to: Our acquisition of Sprint Communications (as defined below), including difficulties integrating our business with the Sprint Business, which may result in the combined company not operating as effectively and efficiently as expected; transition services required to support the Sprint Business and the related costs continuing for a period longer than expected, the COVID-19 pandemic and accompanying government policies worldwide; vaccination and in-office requirements, delays in the delivery of network equipment or optical fiber, loss of key right-of-way agreements, future economic instability in the global economy, including the risk of economic recession and recent bank failures and liquidity concerns at certain other banks, which could affect spending on Internet services; the impact of changing foreign exchange rates (in particular the Euro to US dollar and Canadian dollar to US dollar exchange rates) on the translation of our non-US dollar denominated revenues, expenses, assets and liabilities into US dollars; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the US Universal Service Fund on the basis of our Internet revenue; changes in government policy and/or regulation, including rules regarding data protection, cyber security and net neutrality; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; the ability to maintain our Internet peering and right-of-way arrangements on favorable terms; our ability to renew our long-term leases of optical fiber and right-of-way agreements that comprise our network; our reliance on a limited number of equipment vendors, and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber and right-of-way providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; our ability to make payments on our indebtedness as they become due and outcomes in litigation, risks associated with variable interest rates under our Swap Agreement as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, this Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.
Page 28 of 75 Table of Contents Results of Operations Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 In this section, we discuss the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Page 35 of 90 Table of Contents Results of Operations Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 In this section, we discuss the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Page 33 of 75 Table of Contents We have experienced certain corporate customers taking a more cautious approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite offices as a result of the challenges and uncertainties of the COVID-19 pandemic.
We have experienced certain corporate customers taking a more cautious approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite offices as a result of the challenges and uncertainties of the remote work environment that resulted from the COVID-19 pandemic.
Impact of COVID-19 on Our Liquidity and Operating Performance We continue to operate with a high level of liquidity, and as of December 31, 2022, we had cash, cash equivalents and restricted cash of $275.9 million. The COVID-19 pandemic has not impacted our credit rating to date, nor do we believe that it has materially changed our cost of capital.
Impact of COVID-19 on Our Liquidity and Operating Performance As of December 31, 2023, we had cash, cash equivalents and restricted cash of $113.8 million. The COVID-19 pandemic has not impacted our credit rating to date, nor do we believe that it has materially changed our cost of capital.
Summarized Financial Information of Holdings Holdings is a guarantor under the 2027 and 2026 Notes. Under the Indentures, we are required to disclose financial information of Holdings including its assets, liabilities and its operating results (“Holdings Financial Information”).
Under the Indentures, we are required to disclose financial information of Holdings including its assets, liabilities and its operating results (“Holdings Financial Information”).
Non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee’s salary and other compensation. Our network operations expenses, including non-cash equity-based compensation expense, increased by 0.8% from 2021 to 2022.
Our network operations expenses, including non-cash equity-based compensation expense, increased by 138.5% from the year ended December 31, 2022 to the year ended December 31, 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.
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. Gains on Foreign Exchange – 2024 Notes.
Under the Swap Agreement settlement payment made in November 2022, we paid $3.4 million to the counterparty for Page 39 of 90 Table of Contents a net cash interest cost of $3.4 million for the period from May 1, 2022 to October 31, 2022.
We record these taxes billed to our customers on a gross basis (as service revenue and network operations expense) in our consolidated statements of comprehensive income. The impact of these taxes including the Universal Service Fund resulted in a decrease to our revenues from 2021 to 2022 of $3.1 million.
We record these taxes billed to our customers on a gross basis (as service revenue and network operations expense) in our consolidated statements of comprehensive income. The impact of these taxes including the Universal Service Fund resulted in an increase to our revenues of $34.8 million from the year ended December 31, 2022 to the year ended December 31, 2023.
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 19.4% from 2021 to 2022.
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.
Given uncertainties regarding the duration of the pandemic and timing for economic recovery, we will continue to monitor our capital spending. As we do each year, we will continue to monitor our future sources and uses of cash, and anticipate that we will make adjustments to our capital allocation strategies when, as and if determined by our Board of Directors.
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.
(2) Includes non-cash equity-based compensation expense of $23,886 and $24,301 for 2022 and 2021, respectively.
(2) Includes non-cash equity-based compensation expense of $25,855 and $23,886 for 2023 and 2022, respectively.
As our business has grown as a result of an increasing customer base, broader geographic coverage and increased traffic on our network, we have produced a growing level of cash provided by operating activities.
As our business has grown as a result of an increasing customer base, the Transaction, broader geographic coverage and increased traffic on our network, we have historically produced a growing level of cash provided by operating activities. During 2023, we experienced a $140.1 million reduction of cash provided by operating activities from the impact of the Transaction.
Under the Swap Agreement settlement payment made 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 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.
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.
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.
Sprint Acquisition On September 6, 2022, Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a 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 a direct wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company will acquire the U.S. long-haul fiber network (including the non-U.S. extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”).
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 “Sprint 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”).
The accounting policies we believe to be most critical to understanding our financial results and condition or that require complex, significant and subjective management judgments are discussed below.
The accounting policies we believe to be most critical to understanding our financial results and condition or that require complex, significant and subjective management judgments are discussed below. Acquisition accounting In connection with our acquisition of the Wireline Business we made the following significant changes to our critical accounting policies and significant estimates.
Cash Flows The following table sets forth our consolidated cash flows. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 173,707 ​ $ 170,257 ​ $ 140,320 Net cash used in investing activities ​ (78,971) ​ (69,916) ​ ​ (55,952) Net cash used in financing activities ​ (144,849) ​ (140,825) ​ ​ (116,002) Effect of exchange rates on cash ​ (2,599) ​ (2,193) ​ ​ 3,513 Net decrease in cash, cash equivalents and restricted cash during the year ​ $ (52,712) ​ $ (42,677) ​ $ (28,121) ​ Net Cash Provided By Operating Activities.
Page 42 of 90 Table of Contents Cash Flows The following table sets forth our consolidated cash flows. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 17,345 ​ $ 173,707 ​ $ 170,257 Net cash provided by (used in) investing activities ​ 76,726 ​ (78,971) ​ ​ (69,916) Net cash used in financing activities ​ (257,851) ​ (144,849) ​ ​ (140,825) Effect of exchange rates on cash ​ 1,649 ​ (2,599) ​ ​ (2,193) Net decrease in cash, cash equivalents and restricted cash during the year ​ $ (162,131) ​ $ (52,712) ​ $ (42,677) ​ Net Cash Provided By Operating Activities.
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 partly offset by a decline in our average price per megabit. Our net-centric customers purchase our services on a price per megabit basis.
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 net-centric customer connections acquired with the Sprint Business. Our net-centric customers purchase our services on a price per megabit basis.
In June 2022, we paid $375.4 million to redeem and extinguish our 2024 Notes at 101.094% of par value, and we issued $450.0 million of our 2027 Notes for net proceeds of $446.0 million. In March 2021, we paid $119.7 million to redeem and extinguish $115.9 million of our 2022 Notes at 103.24% of par value.
We completed a series of debt redemptions and issuances in 2022 and 2021. In June 2022, we paid $375.4 million to redeem and extinguish our 2024 Notes at 101.094% of par value, and we issued $450.0 million of our 2027 Notes for net proceeds of $446.0 million.
In May 2021, we redeemed and extinguished the remaining $329.1 million of our 2022 Notes at par value and deposited funds with the trustee to pay $11.5 million of interest through December 1, 2021. The total payments to redeem our 2022 Notes were $459.3 million.
In March 2021, we paid $119.7 million to redeem and extinguish $115.9 million of our 2022 Notes at 103.24% of par value. In May 2021, we redeemed and extinguished the remaining $329.1 million of our 2022 Notes at par value and deposited funds with the trustee to pay $11.5 million of interest through December 1, 2021.
Change in Valuation – Interest Rate Swap Agreement. As of December 31, 2022, the fair value of our Swap Agreement was a net liability of $52.1 million, and we recorded an unrealized loss for the non-cash change in the valuation of the Swap Agreement of $43.1 million in 2022 and $9.0 million in 2021.
As of December 31, 2023, the fair value of our Swap Agreement was a net liability of $38.7 million. We recorded an unrealized gain for the non-cash change in the valuation of the Swap Agreement of $13.4 million in the year ended December 31, 2023 and an unrealized loss of $43.1 million in the year ended December 31, 2022.
Indebtedness Our total cash, cash equivalents and restricted cash at December 31, 2022 were $275.9 million. We believe this level of liquidity reduces our exposure to refinancing risk, potential underperformance of the business or other unforeseen challenges and enhances our ability to pursue acquisitions or operating opportunities.
We believe this level of liquidity reduces our exposure to refinancing risk, potential underperformance of the business or other unforeseen challenges and enhances our ability to pursue acquisitions or operating opportunities.
Page 31 of 75 Table of Contents Liquidity and Capital Resources In assessing our liquidity, management reviews and analyzes our current cash balances, accounts receivable, accounts payable, accrued liabilities, capital expenditure commitments, and required finance lease and debt payments and other obligations.
In assessing our liquidity, management reviews and analyzes our current cash balances, payments under the IP Transit Services Agreement, accounts receivable, accounts payable, accrued liabilities, capital expenditure commitments, and required finance lease and debt payments and other obligations.
Principal payments under our finance lease obligations were $45.5 million, $23.1 million and $24.0 million for 2022, 2021 and 2020, respectively, and are impacted by the timing and extent of our network expansion activities, including geographic expansion and adding buildings to our network.
Principal payments under our finance lease obligations were $77.4 million, $45.5 million and $23.1 million for the years ending December 31, 2023, 2022 and 2021, respectively, and are impacted by the timing and extent of our network expansion activities, including geographic expansion and adding buildings to our network and purchases in anticipation of the closing of our acquisition of the Sprint Business.
The Holdings Financial Information as of and for the year ended December 31, 2022 is detailed below (in thousands). ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ (Unaudited) Cash and cash equivalents ​ $ 42,298 Accrued interest receivable ​ 40 Total assets ​ $ 42,338 ​ ​ ​ ​ Investment from subsidiaries ​ $ 469,551 Common stock ​ 48 Accumulated deficit ​ (427,261) Total equity ​ $ 42,338 ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2022 ​ ​ (Unaudited) Equity‑based compensation expense ​ $ 26,716 Interest income ​ 1,040 Net loss ​ $ (25,676) ​ Common Stock Buyback Program Our Board of Directors has approved through December 31, 2023, purchases of our common stock under a buyback program (the “Buyback Program”).
The Holdings Financial Information as of and for the year ended December 31, 2023 is detailed below (in thousands). ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ (Unaudited) Cash and cash equivalents ​ $ 420 Accrued interest receivable ​ 2 Total assets ​ $ 422 ​ ​ ​ ​ Investment from subsidiaries ​ $ 603,314 Common stock ​ 49 Accumulated deficit ​ (602,941) Total equity ​ $ 422 ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2023 ​ ​ (Unaudited) Equity‑based compensation expense ​ $ 30,466 Interest income ​ 565 Net loss ​ $ (29,901) ​ Common Stock Buyback Program Our Board of Directors has approved through December 31, 2024, purchases of our common stock under a buyback program (the “Buyback Program”).
NM - not meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ Percent ​ 2022 2021 Change Other Operating Data ​ ​ ​ ​ ​ ​ ​ ​ Average Revenue Per Unit (ARPU) ​ ​ ​ ARPU—on-net ​ $ 462 ​ $ 467 (1.1) % ARPU—off-net ​ $ 930 ​ $ 990 (6.1) % Average price per megabit ​ $ 0.28 ​ $ 0.35 (19.4) % Customer Connections—end of period ​ ​ ​ ​ ​ ​ On-net ​ 82,620 ​ 80,723 2.4 % Off-net ​ 13,531 ​ 12,669 6.8 % ​ Service Revenue.
NM - not meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ Percent ​ 2023 2022 Change Other Operating Data ​ ​ ​ ​ ​ ​ ​ ​ Average Revenue Per Unit (ARPU) ​ ​ ​ ARPU—on-net ​ $ 504 ​ $ 462 9.2 % ARPU—off-net ​ $ 1,301 ​ $ 930 39.9 % Average price per megabit ​ $ 0.27 ​ $ 0.28 (3.6) % Customer Connections—end of period ​ ​ ​ ​ ​ ​ On-net ​ 88,733 ​ 82,620 7.4 % Off-net ​ 36,895 ​ 13,531 172.7 % Non-core ​ ​ 11,975 ​ ​ 363 ​ NM ​ ​ NM - not meaningful Service Revenue.
On-net customers increased at a greater rate than on-net revenues primarily due to a decrease in our on-net ARPU from 2021 to 2022 and the negative impact of foreign exchange. ARPU is determined by dividing revenue for the period by the average customer connections for that period. Our off-net revenues decreased by 0.2% from 2021 to 2022.
Off-net customer revenues increased at a greater rate than off-net customer connections primarily due to an increase in our off-net ARPU from the year ended December 31, 2022 to the year ended December 31, 2023. Off-net ARPU is determined by dividing off-net revenue for the period by the average off-net customer connections for that period.
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.
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 a result, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities.
In some markets, office occupancy rates may never return to pre-pandemic levels. As a result, we may continue to experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities.
The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Company will purchase from the Seller all of the issued and outstanding membership interests of a Delaware limited liability company that holds Sprint Communications’ assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).
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 restructuring and divisive merger, holds Sprint Communications’ assets and liabilities relating to the Sprint Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).
We have made a $61.7 million deposit with the counterparty to our Swap Agreement. If the fair value of our Swap Agreement exceeds a liability of $61.7 million we will be required to deposit additional funds with the counterparty equal to the liability fair value.
If the fair value of the Swap Agreement exceeds a net liability of $38.8 million, we will be required to deposit additional funds with the counterparty equal to the net liability fair value. As of December 31, 2023, $38.7 million of the deposit was restricted and $0.1 million was unrestricted.
As of December 31, 2022, there was a total of $30.4 million available under the Buyback Program. Page 36 of 75 Table of Contents 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.
There were no purchases of common stock during the years ended December 31, 2023, December 31, 2022 and December 31, 2021. As of December 31, 2023, there was a total of $30.4 million available under the Buyback Program. Dividends on Common Stock Dividends are recorded as a reduction to retained earnings.
Our interest expense resulted from interest incurred on our $445.0 million of 5.375% 2022 Notes until these notes were fully extinguished in May 2021, interest incurred on our €350.0 million of 4.375% 2024 Notes until these notes were fully extinguished in June 2022, interest incurred on our $500.0 million of 3.50% 2026 Notes that we issued in May 2021, interest incurred on our $450.0 million of 7.00% 2027 Notes that we issued in June 2022, interest incurred on our finance lease obligations and net interest paid on our Swap Agreement.
Our interest expense resulted from interest incurred on our 2024 Notes until these notes were fully extinguished in June 2022, interest incurred on our $500.0 million aggregate principal amount of our 2026 Notes, interest incurred on our $450.0 million aggregate principal amount of our 2027 Notes and interest incurred on our finance lease obligations.
During 2022, 2021 and 2020, we paid $169.9 million, $150.3 million and $129.4 million, respectively, for our quarterly dividend payments. Our quarterly dividend payments have increased due to regular increases in our quarterly dividend per share amounts. Amounts paid under our stock buyback program were $4.5 million for 2020. There were no stock purchases during 2022 or 2021.
During the years ending December 31, 2023, 2022 and 2021, we paid $181.7 million, $169.9 million and $150.3 million, respectively, for our quarterly dividend payments. Our quarterly dividend payments have increased due to regular increases in our quarterly dividend per share amounts.
Page 30 of 75 Table of Contents Selling, General, and Administrative (“SG&A”) Expenses. Our SG&A expenses, including non-cash equity-based compensation expense, increased by 0.4% for 2022 from 2021. Non-cash equity-based compensation expense is included in SG&A expenses consistent with the classification of the employee’s salary and other compensation.
Our SG&A expenses, including non-cash equity-based compensation expense, increased by 68.9% from the year ended December 31, 2022 to the year ended December 31, 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.
Recent supply chain issues may adversely impact 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.
Page 40 of 90 Table of Contents 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.
Based upon our historical growth rate of our dividend, we expect that we would have to provide approximately $363 million in order to meet our expected quarterly dividend payments over the next two years. In March 2021, we redeemed and extinguished $115.9 million of our 2022 Notes.
Based upon the historical growth rate of our dividend, we expect that we would have to provide approximately $379 million in order to meet our expected quarterly dividend payments over the next two years. 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.
Under the Swap Agreement the settlement payment made in November 2022, the Company 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. As of December 31, 2022, the fair value of the Swap Agreement was a liability of $52.1 million.
Under the Swap Agreement settlement payment made in November 2023, we paid $12.0 million to the counterparty for a net cash interest cost of $12.0 million for the period from May 1, 2023 to October 31, 2023. The valuation of the Swap Agreement changes from payments made and changes in interest rates. Income Tax (Benefit) Expense.
Page 29 of 75 Table of Contents Our service revenue increased by 1.7% from 2021 to 2022. Exchange rates negatively impacted our increase in service revenue by $13.1 million. All foreign currency comparisons herein reflect results for 2022 translated at the average foreign currency exchange rates for 2021.
Exchange rates positively affected our increase in service revenue by $2.1 million. All foreign currency comparisons herein reflect results for the year ended December 31, 2023 translated at the average foreign currency exchange rates for the year ended December 31, 2022.
Page 34 of 75 Table of Contents 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, stock purchases and principal payments under our debt and finance lease obligations.
During the year ended December 31, 2023 we were paid $204.2 million under 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 debt and finance lease obligations.
Our corporate customers take advantage of our superior speeds, service levels and installation times versus our competitors. The growing trend of customers installing second lines for redundancy in order to construct virtual private networks (“VPNs”) has also led to our ability to increase our corporate revenues.
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.
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 basis. Revenues from our corporate and net-centric customers represented 57.1% and 42.9% of total service revenue, respectively, for 2022 and represented 60.8% and 39.2% of total service revenue, respectively, for 2021.
Our enterprise customers generally purchase our services on a price per location basis. Revenues from our corporate, net-centric customers and enterprise customers represented 47.2%, 36.5% and 16.3% of total service revenue, respectively, for the year ended December 31, 2023.
Our primary use of investing cash is for purchases of property and equipment. These amounts were $79.0 million, $69.9 million and $56.0 million for 2022, 2021 and 2020, respectively. The annual changes in purchases of property and equipment are primarily due to the timing and scope of our network expansion activities, including geographic expansion and adding buildings to our network.
The annual changes in purchases of property and equipment are primarily due to the timing and scope of our network expansion activities, including geographic expansion and adding buildings to our network and purchases in anticipation of the closing of our acquisition of the Sprint Business.
Our initial quarterly dividend payment was made in the third quarter of 2012. On February 22, 2023, our Board of Directors approved the payment of our quarterly dividend of $0.925 per common share. The dividend for the first quarter of 2023 will be paid to holders of record on March 10, 2023.
Dividends on unvested restricted shares of common stock are paid as the awards vest. Our initial quarterly dividend payment was made in the third quarter of 2012. On February 28, 2024, our Board of Directors approved the payment of our quarterly dividend of $0.965 per common share.
We expect that our average price per megabit will continue to decline at similar rates. The impact of foreign exchange rates has a more significant impact on our net-centric revenues. Our on-net revenues increased by 2.2% from 2021 to 2022. Our on-net revenues increased as we increased the number of our on-net customer connections.
Our average price per megabit of our installed base of customers decreased by 3.6% from the year ended December 31, 2022 to the year ended December 31, 2023. The impact of foreign exchange rates has a more significant impact on our net-centric revenues.
As of December 31, 2022, the Company’s consolidated leverage ratio was below 6.0, the Company’s consolidated secured leverage ratio was below 4.0, and the Company’s fixed charge coverage ratio was above 2.0. As of December 31, 2022, a total of $442.2 million (inclusive of a $250.0 general basket) was unrestricted and permitted for restricted payments, including dividends and stock purchases.
As of December 31, 2023, the Company’s consolidated leverage ratio was below 6.0, the Company’s Page 44 of 90 Table of Contents consolidated secured leverage ratio was below 4.0, and the Company’s fixed charge coverage ratio was above 2.0.
In May 2021, we extinguished the remaining $329.1 million of our 2022 Notes at par value resulting in a loss on debt extinguishment and redemption of $10.8 million. In June 2022, we extinguished our 4.375% 2024 Notes at 101.094% of par value resulting in a loss on debt extinguishment and redemption of $11.9 million.
Our finance leases include a lease totaling $160.9 million being amortized over forty-four months, acquired with the Sprint Business. 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. Change in Valuation - Interest Rate Swap Agreement.
Our changes in cash provided by operating activities are primarily due to changes in our operating profit and changes in our interest payments. Cash provided by operating activities for 2022, 2021 and 2020 included interest payments on our note obligations of $40.6 million, $50.1 million and $48.8 million, respectively. Net Cash Used In Investing Activities.
Our changes in cash provided by operating activities are primarily due to changes in our operating profit and changes in our interest payments.
Our off-net revenues decreased primarily from the decrease in our off-net ARPU from 2021 to 2022, partly offset by the increase in the number of our off-net customer connections. Network Operations Expenses.
Our off-net revenues increased by 169.2% from the year ended December 31, 2022 to the year ended December 31, 2023. Our off-net revenues increased primarily from the increase in the number of our off-net customer connections from December 31, 2022 to December 31, 2023 including off-net customer connections acquired with the Sprint Business.
Our interest expense increased by 16.4% from 2021 to 2022.
Our interest expense increased by 58.0% from the year ended December 31, 2022 to the year ended December 31, 2023.
Our 2024 Notes were issued in Euros and were reported in our reporting currency, US dollars, until they were extinguished and redeemed in June 2022.
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 gain on foreign exchange on our 2024 Notes from converting our 2024 Notes into USD was $31.6 million for the year ended December 31, 2022. Interest Expense and Loss on Debt Extinguishment and Redemption.
We also witnessed a deteriorating real estate market in and around the buildings we service, with rising vacancy levels and falling lease initiations or renewals resulting in fewer sales opportunities for our salesforce. As a result, we have experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue results.
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 year ended December 31, 2023, we slowly began to see declining vacancy rates and rising office occupancy rates.
As a result of the operating leverage of our network, our annual capital expenditures as measured as a percentage of revenues has fallen over the last decade. Increasing our cash provided by operating activities is, in part, dependent upon expanding our geographic footprint and increasing our network capacity.
Because of the operating leverage of our network, our annual capital expenditures measured as a percentage of revenues has fallen over the last decade but increased in 2023 to 13.8% from 13.2% for 2022, from capital expenditures associated with the Transaction.
The increase was primarily due to the increase in interest rates on our 7.00% 2027 Notes as compared to our 4.375% 2024 Notes, net interest paid in 2022 under our Swap Agreement, partially offset by the reduction in interest expense from the lower interest rate on our 3.50% 2026 Notes as compared to our 5.375% 2022 Notes.
The increase was primarily due to the increase in interest rates on our 2027 Notes as compared to the 2024 Notes, $21.5 million of interest expense paid in May 2023 and November 2023 associated with our Swap Agreement and the impact of the finance lease acquired with the Sprint Business.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed7 unchanged
Biggest changeAs of December 31, 2022, the fair value of the Swap Agreement was a liability of $52.1 million, as a result, $52.1 million of the $61.7 million deposit was restricted and $9.6 million was unrestricted.
Biggest changeAs of December 31, 2023, the fair value of the Swap Agreement was a liability of $38.8 million, and as a result, $38.8 million of the $38.9 million deposit was restricted and $0.1 million was unrestricted.
The values that we report for the Swap Agreement as of each reporting date are recognized as additional non-cash interest expense or a reduction to interest expense with the corresponding amount included in liabilities or assets, respectively, in our consolidated balance sheets.
The values that we report for the Swap Agreement as of each reporting date are recognized as an additional non-cash expense or a reduction to expense with the corresponding amount included in liabilities or assets, respectively, in our consolidated balance sheets.
As of December 31, 2022, we were counterparty to our Swap Agreement that has the economic effect of modifying our fixed-interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on SOFR.
As of December 31, 2023, we were counterparty to our Swap Agreement that has the economic effect of modifying our fixed-interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on SOFR.
Page 38 of 75 Table of Contents Foreign Currency Exchange Risk Our operations outside of the United States expose us to potentially unfavorable adverse movements in foreign currency rate changes. We have not entered into forward exchange contracts related to our foreign currency exposure.
Page 47 of 90 Table of Contents Foreign Currency Exchange Risk Our operations outside of the United States expose us to potentially unfavorable adverse movements in foreign currency rate changes. We have not entered into forward exchange contracts related to our foreign currency exposure.
We have a $61.7 million interest-bearing deposit with the counterparty to the Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $61.7 million, we will be required to deposit additional funds with the counterparty equal to the net liability that is in excess of $61.7 million.
We have a $38.9 million interest-bearing deposit with the counterparty to a Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $38.9 million, we will be required to deposit additional funds with the counterparty equal to the net liability that is in excess of $38.9 million.
Accordingly, in the event that the local currencies strengthen versus the US dollar to a greater extent than planned, the revenues, expenses and cash flow requirements associated with our international operations may be significantly higher in US-dollar terms than planned. During the year ended December 31, 2022, our foreign activities accounted for 24.7% of our consolidated revenue.
Accordingly, in the event that the local currencies strengthen versus the US dollar to a greater extent than planned, the revenues, expenses and cash flow requirements associated with our international operations may be significantly higher in US-dollar terms than planned. During the year ended December 31, 2023, our foreign activities accounted for 17.9% of our consolidated revenue.
A 1.0% change in foreign exchange rates would impact our consolidated annual revenue by approximately $1.2 million. Changes in foreign currency rates could adversely and materially affect our operating results and cash flow. ​ Page 39 of 75 Table of Contents
A 1.0% change in foreign exchange rates would impact our consolidated annual revenue by approximately $1.3 million. Changes in foreign currency rates could adversely and materially affect our operating results and cash flow. ​ Page 48 of 90 Table of Contents
A 1.0% change in interest rates as of December 31, 2022 would impact the change in our valuation of our Swap Agreement by approximately $15.3 million. Interest Income Our interest income is sensitive to changes in the general level of interest rates.
A 1.0% change in interest rates as of December 31, 2023 would impact the change in our valuation of our Swap Agreement by approximately $10.9 million. Interest Income Our interest income is sensitive to changes in the general level of interest rates.

Other CCOI 10-K year-over-year comparisons