You should read the following discussion and analysis together with "Item 6.
Selected Consolidated Financial Data" and our consolidated financial statements
and related notes included in this report. The discussion in this report
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. The
cautionary statements made in this report should be read as applying to all
related forward-looking statements wherever they appear in this report. Factors
that could cause or contribute to these differences include those discussed in
"Item 1A. Risk Factors," as well as those discussed elsewhere. You should read
"Item 1A. Risk Factors" and "Special Note Regarding Forward-Looking Statements."
Our actual results could differ materially from those discussed here. Factors
that could cause or contribute to these differences include, but are not limited
to:

Future economic instability in the global economy, which could affect spending
on Internet services; the impact of changing foreign exchange rates (in
particular the Euro to US dollar and Canadian dollar to US dollar exchange
rates) on the translation of our non-US dollar denominated revenues, expenses,
assets and liabilities; legal and operational difficulties in new markets; the
imposition of a requirement that we contribute to the United States Universal
Service Fund on the basis of our Internet revenue; changes in government policy
and/or regulation, including rules regarding data protection, cyber security and
net neutrality; increasing competition leading to lower prices for our services;
our ability to attract new customers and to increase and maintain the volume of
traffic on our network; the ability to maintain our Internet peering
arrangements on favorable terms; our ability to renew our long-term leases of
optical fiber that comprise our network; our reliance on an equipment vendor,
Cisco Systems Inc., and the potential for hardware or software problems
associated with such equipment; the dependence of our network on the quality and
dependability of third-party fiber providers; our ability to retain certain
customers that comprise a significant portion of our revenue base; the
management of network failures and/or disruptions; and outcomes in litigation as
well as other risks discussed from time to time in our filings with the
Securities and Exchange Commission, including, without limitation, this annual
report on Form 10-K.

General Overview


We are a leading facilities-based provider of low-cost, high-speed Internet
access, private network services and data center colocation space. Our network
is specifically designed and optimized to transmit packet routed data. We
deliver our services primarily to small and medium-sized businesses,
communications service providers and other bandwidth-intensive organizations in
North America, Europe, Asia, Latin America and Australia.

Our on-net service consists of high-speed Internet access and private network
services provided at speeds ranging from 100 megabits per second to 100 gigabits
per second. We offer our on-net services to customers located in buildings that
are physically connected to our network. We provide on-net Internet access and
private network services to corporate customers and net-centric customers. Our
corporate customers are located in multi-tenant office buildings and in our data
centers and typically include law firms, financial services firms, advertising
and marketing firms and other professional services businesses. Our net-centric
customers include bandwidth-intensive users such as other Internet access
providers, telephone companies, cable television companies, web hosting
companies, content delivery networks and commercial content and application
service providers. These net-centric customers generally receive our services in
carrier neutral colocation facilities and in our data centers.

Our off-net services are sold to businesses that are connected to our network
primarily by means of "last mile" access service lines obtained from other
carriers, primarily in the form of metropolitan Ethernet circuits. Our non-core
services, which consist primarily of legacy services of companies whose assets
or businesses we have acquired, primarily include voice services (only provided
in Toronto, Canada). We do not actively market these non-core services, are
actively discontinuing providing certain of these services and expect the
service revenue associated with them to continue to decline.

Our network is comprised of in-building riser facilities, metropolitan optical
fiber networks, metropolitan traffic aggregation points and inter-city transport
facilities. Our network is physically connected entirely through

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our facilities to 2,801 buildings in which we provide our on-net services,
including 1,767 multi-tenant office buildings. We also provide on-net services
in carrier-neutral data centers, Cogent controlled data centers and
single-tenant office buildings. We operate 54 Cogent controlled data centers
totaling over 609,000 square feet. Because of our integrated network
architecture, we are not dependent on local telephone companies or cable
companies to serve our on-net customers. We emphasize the sale of our on-net
services because we believe we have a competitive advantage in providing these
services and these services generate gross profit margins that are greater than
the gross profit margins of our off-net services.

We believe our key growth opportunity is provided by our high-capacity network,
which provides us with the ability to add a significant number of customers to
our network with minimal direct incremental costs. Our focus is to add customers
to our network in a way that maximizes its use and at the same time provides us
with a profitable customer mix. We are responding to this opportunity by
increasing our sales and marketing efforts including increasing our number of
sales representatives and expanding our network to locations that we believe can
be economically integrated and represent significant concentrations of Internet
traffic. One of our keys to developing a profitable business will be to
carefully match the cost of extending our network to reach new customers with
the revenue expected to be generated by those customers. In addition, we may add
customers to our network through strategic acquisitions.

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

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

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

Due to our strategic acquisitions of network assets and equipment, we believe we
are well positioned to grow our revenue base. We continue to purchase and deploy
network equipment to parts of our network to maximize the utilization of our
assets and to expand and increase the capacity of our network. Our future
capital expenditures will be based primarily on the expansion of our network and
the addition of on-net buildings. We plan to continue to expand our network and
to increase the number of on-net buildings we serve including multi-tenant
office buildings, carrier neutral data centers and Cogent controlled data
centers. Many factors can affect our ability to add buildings to our network.
These factors include the willingness of building owners to grant us access
rights, the availability of optical fiber networks to serve those buildings, the
cost to connect buildings to our network and equipment availability.

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Results of Operations

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018


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


                                                          Year Ended
                                                         December 31,         Percent
                                                      2019         2018       Change
                                                         (in thousands)
Service revenue                                     $ 546,159    $ 520,193        5.0 %
On­net revenues                                       396,753      374,555        5.9 %
Off­net revenues                                      148,931      145,004        2.7 %

Network operations expenses(1)                        219,801      219,526        0.1 %
Selling, general, and administrative expenses(2)      146,913      133,858        9.8 %
Depreciation and amortization expenses                 80,247       81,233      (1.2) %
Gains on equipment transactions                         1,059          982 

      7.8 %
Interest expense                                       57,453       51,056       12.5 %
Income tax expense                                     15,154       12,715       19.2 %

(1) Includes non-cash equity-based compensation expense of $994 and $895 for 2019

and 2018, respectively.

(2) Includes non-cash equity-based compensation expense of $17,466 and $16,813


     for 2019 and 2018, respectively.



                                           Year Ended
                                          December 31,        Percent
                                        2019        2018      Change
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU-on­net                           $    461    $    480      (3.8) %
ARPU-off­net                          $  1,097    $  1,155      (5.0) %
Average price per megabit             $   0.62    $   0.82     (23.9) %
Customer Connections-end of period
On­net                                  74,554      68,770        8.4 %
Off­net                                 11,660      10,974        6.3 %




Service Revenue. Our service revenue increased 5.0% from 2018 to 2019. Exchange
rates negatively impacted our increase in service revenue by approximately
$5.3 million. All foreign currency comparisons herein reflect results for 2019
translated at the average foreign currency exchange rates for 2018. We increased
our total service revenue by increasing the number of sales representatives
selling our services, by expanding our network, by adding additional buildings
to our network, by increasing our penetration into the buildings connected to
our network and by gaining market share by offering our services at lower prices
than our competitors.

Revenue recognition standards include guidance relating to any tax assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction between a seller and a customer and may include, but is not limited
to, gross receipts taxes, Universal Service Fund fees and certain state
regulatory fees. We record these taxes billed to our customers on a gross basis
(as service revenue and network operations expense) in our consolidated
statements of operations. The impact of these taxes including the Universal
Service Fund resulted in an increase to our revenues from 2018 to 2019 of
approximately $2.4 million.

Our net-centric customers tend to purchase their service on a price per megabit
basis. Our corporate customers tend to utilize a small portion of their
allocated bandwidth on their connections and tend to purchase their service on a
per connection basis. Revenues from our corporate and net-centric customers

represented

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68.4% and 31.6% of total service revenue, respectively, for 2019 and represented
64.9% and 35.1% of total service revenue, respectively, for 2018. Revenues from
corporate customers increased 10.6% to $373.7 million for 2019 from
$337.8 million for 2018 primarily due to an increase in our number of our
corporate customers. Revenues from our net-centric customers decreased by 5.4%
to $172.5 million for 2019 from $182.3 million for 2018 primarily due to an
increase in our number of net-centric customers being offset by a decline in our
average price per megabit. Our revenue from our net-centric customers has
declined as a percentage of our total revenue and grew at a slower rate than our
corporate customer revenue because net-centric customers purchase our services
based upon a price per megabit basis and our average price per megabit declined
by 23.9% from 2018 to 2019. Additionally, the net-centric market experiences a
greater level of pricing pressure than the corporate market and net-centric
customers who renew their service with us expect their renewed service to be at
a lower price than their current price. We expect that our average price per
megabit will continue to decline at similar rates which would result in our
corporate revenues continuing to represent a greater portion of our total
revenues and our net-centric revenues continuing to grow at a lower rate than
our corporate revenues. Additionally, the impact of foreign exchange rates has a
more significant impact on our net-centric revenues.

Our on-net revenues increased 5.9% from 2018 to 2019. We increased the number of
our on-net customer connections by 8.4% at December 31, 2019 from December 31,
2018. On-net customer connections increased at a greater rate than on-net
revenues primarily due to the 3.8% decline in our on-net ARPU, primarily from a
decline in ARPU for our net-centric customers. ARPU is determined by dividing
revenue for the period by the average customer connections for that period. Our
average price per megabit for our installed base of customers is determined by
dividing the aggregate monthly recurring fixed charges for those customers by
the aggregate committed data rate for the same customers. The decline in on-net
ARPU is partly attributed to volume and term based pricing discounts.
Additionally, on-net customers who cancel their service from our installed base
of customers, in general, have an ARPU that is greater than the ARPU for our new
customers due to declining prices primarily for our on-net services sold to our
net-centric customers. These trends resulted in the reduction to our on-net ARPU
and a 23.9% decline in our average price per megabit for our installed base of
customers.

Our off-net revenues increased 2.7% from 2018 to 2019. Our off-net revenues
increased as we increased the number of our off-net customer connections by 6.3%
at December 31, 2019 from December 31, 2018. Our off-net customer connections
increased at a greater rate than our off-net revenue primarily due to the 5.0%
decrease in our off-net ARPU.

Network Operations Expenses. Network operations expenses include the costs of
personnel associated with service delivery, network management, and customer
support, network facilities costs, fiber and equipment maintenance fees, leased
circuit costs, access and facilities fees paid to building owners and excise
taxes billed to our customers and recorded on a gross basis. Non-cash
equity-based compensation expense is included in network operations expenses
consistent with the classification of the employee's salary and other
compensation. Our network operations expenses, including non-cash equity-based
compensation expense, increased 0.1% from 2018 to 2019 as we were connected to
8.0% more customer connections and we were connected to 125 more on-net
buildings as of December 31, 2019 compared to December 31, 2018. The increase in
network operations expense is primarily attributable to an increase in costs
related to our network and facilities expansion activities, the increase in our
off-net revenues and the increase in taxes recorded on a gross basis partly
offset by price reductions obtained in certain of our circuit costs and fewer
fiber operating leases. When we provide off-net services we also assume the cost
of the associated tail circuits.

Selling, General, and Administrative Expenses ("SG&A"). Our SG&A expenses,
including non-cash equity-based compensation expense, increased 9.8% from 2018
to 2019. Non-cash equity-based compensation expense is included in SG&A expenses
consistent with the classification of the employee's salary and other
compensation and was $17.5 million for 2019 and $16.8 million for 2018. SG&A
expenses increased primarily from an increase in salaries and related costs
required to support our expansion and increases in our sales efforts and an
increase in our headcount. Our sales force headcount increased by 10.8% from 619
at December 31, 2018 to 686 at December 31, 2019 and our total headcount
increased by 8.3% from 974 at December 31, 2018 to 1,055 at December 31, 2019.

Depreciation and Amortization Expenses. Our depreciation and amortization expenses decreased 1.2% from 2018 to 2019. The decrease is primarily due to the depreciation expense associated with the increase related to



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newly deployed fixed assets being offset by the decline in depreciation expense from fully depreciated fixed assets.



Gains on Equipment Transactions. We exchanged certain used network equipment and
cash consideration for new network equipment resulting in gains of $1.1 million
for 2019 and $1.0 million for 2018. The gains are based upon the excess of the
estimated fair value of the new network equipment over the carrying amount of
the returned used network equipment and the cash paid. The increase in gains
from 2018 to 2019 was due to purchasing more equipment under the exchange
program in 2019 than we purchased in 2018.

Interest Expense. Interest expense results from interest incurred on our
$445.0 million of senior secured notes, interest incurred on our $189.2 million
of senior unsecured notes, interest on our installment payment agreement,
interest on our finance lease obligations and interest incurred on our €135.0
million of 2024 Notes that we issued on June 25, 2019. Our interest expense
increased by 12.5% for 2019 from 2018 primarily due to the issuance of $70.0
million of senior secured notes we issued in August 2018, the issuance of €135.0
million of senior unsecured notes we issued in June 2019 and an increase in our
finance lease obligations. The 2024 Notes were issued at par for €135.0 million
($153.7 million) on June 25, 2019. The 2024 Notes were issued in Euros and are
reported in our reporting currency - US Dollars. As of December 31, 2019 the
2024 Notes were valued at $151.4 million resulting in an unrealized gain on
foreign exchange of $2.3 million in 2019.

Income Tax Expense. Our income tax expense was $15.1 million for 2019 and $12.7 million for 2018. The increase in our income tax expense was primarily related to an increase in our income before income taxes.

Buildings On-net. As of December 31, 2019 and 2018 we had a total of 2,801 and 2,676 on-net buildings connected to our network, respectively.

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017


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


                                                          Year Ended
                                                         December 31,         Change
                                                      2018         2017       Percent
                                                        (in thousands)
Service revenue                                     $ 520,193    $ 485,175        7.2 %
On­net revenues                                       374,555      346,445        8.1 %
Off­net revenues                                      145,004      137,892        5.2 %

Network operations expenses(1)                        219,526      209,278        4.9 %
Selling, general, and administrative expenses(2)      133,858      127,915        4.6 %
Depreciation and amortization expenses                 81,233       75,926        7.0 %
Gains on equipment transactions                           982        3,862 

   (74.6) %
Interest expense                                       51,056       48,467        5.3 %
Income tax expense                                     12,715       25,242     (49.6) %

(1) Includes non-cash equity-based compensation expense of $895 and $604 for 2018

and 2017, respectively.

(2) Includes non-cash equity-based compensation expense of $16,813 and $12,686


     for 2018 and 2017, respectively.


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  Table of Contents


                                           Year Ended
                                          December 31,        Percent
                                        2018        2017      Change
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU-on­net                           $    480    $    506      (5.1) %
ARPU-off­net                          $  1,155    $  1,239      (6.8) %
Average price per megabit             $   0.82    $   1.11     (25.9) %
Customer Connections-end of period
On­net                                  68,770      61,334       12.1 %
Off­net                                 10,974       9,953       10.3 %




Service Revenue. Our service revenue increased 7.2% from 2017 to 2018. Exchange
rates positively impacted our increase in service revenue by approximately $4.0
million. All foreign currency comparisons herein reflect results for 2018
translated at the average foreign currency exchange rates for 2017. We increased
our total service revenue by increasing the number of sales representatives
selling our services, by expanding our network, by adding additional buildings
to our network, by increasing our penetration into the buildings connected to
our network and by gaining market share by offering our services at lower prices
than our competitors.

Revenue recognition standards include guidance relating to any tax assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction between a seller and a customer and may include, but is not limited
to, gross receipts taxes, Universal Service Fund fees and certain state
regulatory fees. We record these taxes billed to our customers on a gross basis
(as service revenue and network operations expense) in our consolidated
statements of operations. The impact of these taxes including the Universal
Service Fund resulted in an increase to our revenues from 2017 to 2018 of
approximately $1.6 million.

Our net-centric customers tend to purchase their service on a price per megabit
basis. Our corporate customers tend to utilize a small portion of their
allocated bandwidth on their connections and tend to purchase their service on a
per connection basis. Revenues from our corporate and net-centric customers
represented 64.9% and 35.1% of total service revenue, respectively, for 2018 and
represented 62.3% and 37.7% of total service revenue, respectively, for 2017.
Revenues from corporate customers increased 11.8% to $337.8 million for 2018
from $302.1 million for 2017 primarily due to an increase in our number of our
corporate customers. Revenues from our net-centric customers decreased by 0.4%
to $182.3 million for 2018 from $183.1 million for 2017 primarily due to an
increase in our number of net-centric customers being offset by a decline in our
average price per megabit. Our revenue from our net-centric customers has
declined as a percentage of our total revenue and grew at a slower rate than our
corporate customer revenue because net-centric customers purchase our services
based upon a price per megabit basis and our average price per megabit declined
by 25.9% from 2017 to 2018. Additionally, the net-centric market experiences a
greater level of pricing pressure than the corporate market and net-centric
customers who renew their service with us expect their renewed service to be at
a lower price than their current price. We expect that our average price per
megabit will continue to decline at similar rates which would result in our
corporate revenues continuing to represent a greater portion of our total
revenues and our net-centric revenues continuing to grow at a lower rate than
our corporate revenues. Additionally, the impact of foreign exchange rates has a
more significant impact on our net-centric revenues.

Our on-net revenues increased 8.1% from 2017 to 2018. We increased the number of
our on-net customer connections by 12.1% at December 31, 2018 from December 31,
2017. On-net customer connections increased at a greater rate than on-net
revenues primarily due to the 5.1% decline in our on-net ARPU, primarily from a
decline in ARPU for our net-centric customers. ARPU is determined by dividing
revenue for the period by the average customer connections for that period. Our
average price per megabit for our installed base of customers is determined by
dividing the aggregate monthly recurring fixed charges for those customers by
the aggregate committed data rate for the same customers. The decline in on-net
ARPU is partly attributed to volume and term based pricing discounts.
Additionally, on-net customers who cancel their service from our installed base
of customers, in general, have an ARPU that is greater than the ARPU for our new
customers due to declining prices primarily for our on-net services sold to our
net-centric customers. These trends resulted in the reduction to our on-net ARPU
and a 25.9% decline in our average price per megabit for our installed base

of
customers.

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Our off-net revenues increased 5.2% from 2017 to 2018. Our off-net revenues increased as we increased the number of our off-net customer connections by 10.3% at December 31, 2018 from December 31, 2017. Our off-net customer connections increased at a greater rate than our off-net revenue primarily due to the 6.8% decrease in our off-net ARPU.


Network Operations Expenses. Network operations expenses include the costs of
personnel associated with service delivery, network management, and customer
support, network facilities costs, fiber and equipment maintenance fees, leased
circuit costs, access and facilities fees paid to building owners and excise
taxes billed to our customers and recorded on a gross basis. Non-cash
equity-based compensation expense is included in network operations expenses
consistent with the classification of the employee's salary and other
compensation. Our network operations expenses, including non-cash equity-based
compensation expense, increased 4.9% from 2017 to 2018 as we were connected to
11.9% more customer connections and we were connected to 170 more on-net
buildings as of December 31, 2018 compared to December 31, 2017. The increase in
network operations expense is primarily attributable to an increase in costs
related to our network and facilities expansion activities and the increase in
our off-net revenues. When we provide off-net services we also assume the cost
of the associated tail circuits.

Selling, General, and Administrative Expenses ("SG&A"). Our SG&A expenses,
including non-cash equity-based compensation expense, increased 4.6% from 2017
to 2018. Non cash equity-based compensation expense is included in SG&A expenses
consistent with the classification of the employee's salary and other
compensation and was $16.8 million for 2018 and $12.7 million for 2017. SG&A
expenses increased primarily from an increase in salaries and related costs
required to support our expansion and increases in our sales efforts and an
increase in our headcount partly offset by a $1.1 million decrease in our legal
fees primarily associated with U.S. net neutrality and interconnection
regulatory matters and by the $1.3 million reduction in commission expense from
the impact of the new revenue accounting standard which requires us to
capitalize certain commissions paid to our sales agents and sales employees. Our
sales force headcount increased by 7.8% from 574 at December 31, 2017 to 619 at
December 31, 2018 and our total headcount increased by 4.8% from 929 at December
31, 2017 to 974 at December 31, 2018.

Depreciation and Amortization Expenses. Our depreciation and amortization
expenses increased 7.0% from 2017 to 2018. The increase is primarily due to the
depreciation expense associated with the increase related to newly deployed
fixed assets more than offsetting the decline in depreciation expense from fully
depreciated fixed assets.

Gains on Equipment Transactions. We exchanged certain used network equipment and
cash consideration for new network equipment resulting in gains of $1.0 million
for 2018 and $3.9 million for 2017. The gains are based upon the excess of the
estimated fair value of the new network equipment over the carrying amount of
the returned used network equipment and the cash paid. The reduction in gains
from 2017 to 2018 was due to purchasing more equipment under the exchange
program in 2017 than we purchased in 2018.

Interest Expense. Interest expense results from interest incurred on our
$445.0 million of senior secured notes, interest incurred on our $189.2 million
of senior unsecured notes, interest on our installment payment agreement and
interest on our finance lease obligations. Our interest expense increased by
5.3% for 2018 from 2017 primarily due to the issuance of $70.0 million of senior
secured notes in August 2018 and an increase in our finance lease obligations.

Income Tax Expense. Our income tax expense was $12.7 million for 2018 and
$25.2 million for 2017. The decrease in our income tax expense was primarily
related to an increase in deferred income tax expense for 2017 primarily due to
the impact of the Tax Cuts and Jobs Act (the "Act"). On December 22, 2017, the
President of the United States signed into law the Act. The Act amended the
Internal Revenue Code and reduced the corporate tax rate from a maximum rate of
35% to a flat 21% rate. The rate reduction was effective on January 1, 2018 and
may reduce our future income taxes payable once we become a cash taxpayer in the
United States. As a result of the reduction in the corporate income tax rate and
other provisions under the Act, we were required to revalue our net deferred tax
asset at December 31, 2017 resulting in a reduction in our net deferred tax
asset of $9.0 million and we also recorded a transition tax of $2.3 million
related to our foreign operations for a total income tax expense of
approximately $11.3 million, which was recorded as additional noncash income tax
expense in 2017.

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Buildings On-net. As of December 31, 2018 and 2017 we had a total of 2,676 and 2,506 on-net buildings connected to our network, respectively.

Liquidity and Capital Resources


In assessing our short term and long term liquidity, management reviews and
analyzes our current cash balances, short-term investments, accounts receivable,
accounts payable, accrued liabilities, capital expenditure and operating expense
commitments, and required finance lease, interest and debt payments and other
obligations.

The following table sets forth our consolidated cash flows.




                                                         Year Ended December 31,
                                                     2019          2018          2017
                                                              (in thousands)

Net cash provided by operating activities $ 148,809 $ 133,921

   $  111,702
Net cash used in investing activities               (46,958)      (49,937)

(45,801)


Net cash provided by (used in) financing
activities                                            22,020      (52,545)

(97,267)


Effect of exchange rates on cash                       (542)       (2,357)

4,058


Net increase (decrease) in cash and cash
equivalents during the year                       $  123,329    $   29,082    $ (27,308)
Net Cash Provided By Operating Activities. Our primary source of operating cash
is receipts from our customers who are billed on a monthly basis for our
services. Our primary uses of operating cash are payments made to our vendors,
employees and interest payments made to our finance lease vendors and our note
holders. Our changes in cash provided by operating activities are primarily due
to changes in our operating profit and changes in our interest payments. Cash
provided by operating activities for 2019, 2018 and 2017 includes interest
payments on our note obligations of $38.0 million, $32.7 million and
$30.8 million, respectively.

Net Cash Used In Investing Activities. Our primary use of investing cash is for
purchases of property and equipment. These amounts were $47.0 million,
$49.9 million and $45.8 million for 2019, 2018 and 2017, respectively. The
annual changes in purchases of property and equipment are primarily due to the
timing and scope of our network expansion activities including geographic
expansion and adding buildings to our network. In 2019, 2018 and 2017 we
obtained $11.3 million, $9.9 million and $9.0 million, respectively, of network
equipment and software in non-cash exchanges for notes payable under an
installment payment agreement.

Net Cash Provided By (Used In) Financing Activities. Our primary uses of cash
for financing activities are for dividend payments, stock purchases and
principal payments under our finance lease obligations. Amounts paid under our
stock buyback program were $6.6 million for 2018 and $1.8 million for 2017.
There were no stock purchases for 2019. During 2019, 2018 and 2017 we paid
$112.6 million, $97.9 million and $81.7 million, respectively, for our quarterly
dividend payments. Our quarterly dividend payments have increased due to regular
quarterly increases in our quarterly dividend per share amounts. Principal
payments under our finance lease obligations were $9.1 million, $10.3 million
and $11.2 million for 2019, 2018 and 2017, respectively, and are impacted by the
timing and extent of our network expansion activities. Our financing activities
also include proceeds from and repayments of our debt offerings. In June 2019 we
received net proceeds of $152.1 million from the issuance of our €135.0 million
of 2024 Notes. In August 2018 we received net proceeds of $69.9 million from the
issuance of our $70.0 million of senior secured notes. Total installment payment
agreement principal payments were $10.0 million, $9.4 million and $3.8 million
for 2019, 2018 and 2017, respectively.

Indebtedness



Our total indebtedness, at par and excluding operating lease liabilities, at
December 31, 2019 was $967.9 million. Our total indebtedness at December 31,
2019 includes $169.8 million of finance lease obligations for dark fiber
primarily under 15-20 year IRUs. Our total cash and cash equivalents were
$399.4 million at December 31, 2019.

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On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the
"Merger Agreement") by and among Cogent Communications Group, Inc. ("Group"), a
Delaware corporation, Cogent Communications Holdings, Inc., a Delaware
corporation ("Holdings") and Cogent Communications Merger Sub, Inc., a Delaware
corporation ("Merger Sub"), Group adopted a new holding company organizational
structure whereby Group is now a wholly owned subsidiary of Holdings. Holdings
is a "successor issuer" to Group pursuant to Rule 12g-3(a) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").

Senior unsecured notes-€135.0 million


On June 25, 2019, Group completed an offering of €135.0 million aggregate
principal amount of 4.375% senior unsecured notes due on June 30, 2024 (the
"2024 Notes"). The 2024 Notes were sold in private offerings for resale to
qualified institutional buyers pursuant to SEC Rule 144A and mature on June 30,
2024. Interest accrues at 4.375% and is paid semi-annually in arrears on June 30
and December 30 of each year. Holdings provided a guarantee of the 2024 Notes
but Holdings is not subject to the covenants under the indenture.

Senior unsecured notes-$189.2 million



Group is obligor on our $189.2 million (originally $200.0 million) of 5.625%
senior unsecured notes due 2021 (the "2021 Notes"). The 2021 Notes were sold in
private offerings for resale to qualified institutional buyers pursuant to SEC
Rule 144A and mature on April 15, 2021. Interest accrues at 5.625% and is paid
semi-annually in arrears on April 15 and October 15 of each year. Holdings
provided a guarantee of the 2021 Notes but Holdings is not subject to the
covenants under the indenture. In the second quarter of 2016, we paid
$10.9 million for the purchase of $10.8 million of par value and accrued
interest on our 2021 Notes reducing the principal amount to $189.2 million.

Senior secured notes-$445.0 million



In February 2015, Group issued $250.0 million of 5.375% senior secured notes due
2022 (the "2022 Notes"). In December 2016, we issued an additional
$125.0 million of our 2022 Notes at a premium of 100.365%. In August 2018, we
issued an additional $70.0 million of our 2022 Notes at a premium of 101.75%.
The 2022 Notes were sold in private offerings for resale to qualified
institutional buyers pursuant to SEC Rule 144A and mature on March 1, 2022.
Interest accrues at 5.375% and is paid semi-annually in arrears on March 1 and
September 1 of each year. Holdings provided a guarantee of the 2022 Notes but
Holdings is not subject to the covenants under the indenture.

Limitations under the indentures



The indentures governing the 2024 Notes, 2022 Notes and 2021 Notes, among other
things, limits our ability to incur indebtedness; to pay dividends or make other
distributions; to make certain investments and other restricted payments; to
create liens; consolidate, merge, sell or otherwise dispose of all or
substantially all of its assets; to incur restrictions on the ability of a
subsidiary to pay dividends or make other payments; and to enter into certain
transactions with its affiliates. Limitations on the ability to incur additional
indebtedness (excluding IRU agreements incurred in the normal course of
business) include a restriction on incurring additional indebtedness if our
consolidated leverage ratio, as defined in the indentures, is greater than 6.0
for the 2024 Notes and greater than 5.0 for the 2022 Notes and 2021 Notes.
Limitations on the ability to incur additional secured indebtedness include a
restriction on incurring additional secured indebtedness if our consolidated
secured leverage ratio, as defined in the indentures, is greater than 4.0 for
the 2024 Notes and greater than 3.5 for the 2022 Notes and 2021 Notes. The
indentures prohibit certain payments, such as dividends and stock purchases,
when our consolidated leverage ratio, as defined by the indentures, is greater
than 4.25. A certain amount of such unrestricted payments is permitted
notwithstanding this prohibition. The unrestricted payment amount may be
increased by our consolidated cash flow, as defined in the indentures, as long
as our consolidated leverage ratio is less than 4.25. Our consolidated leverage
ratio was above 4.25 as of December 31, 2019. As of December 31, 2019, a total
of $110.3 million (primarily held by Holdings in cash and cash equivalents) was
permitted for investment payments including dividends and stock purchases.

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Summarized Financial Information of Holdings



Holdings is a guarantor under the 2024, 2021 and 2022 Notes. Under the
indentures we are required to disclose financial information of Holdings
including its assets, liabilities and its operating results ("Holdings Financial
Information"). The Holdings Financial Information as of and for the year ended
December 31, 2019 is detailed below (in thousands).


                                 December 31, 2019
                                    (Unaudited)
Cash and cash equivalents       $           110,265
Accrued interest receivable                      65
Total assets                    $           110,330
Investment from subsidiaries    $           260,537
Common stock                                     47
Accumulated deficit                       (150,254)
Total equity                    $           110,330





                                         Year Ended
                                      December 31, 2019
                                         (Unaudited)
Equity­based compensation expense    $            20,212
Interest income                                    3,069
Net loss                             $          (17,143)




Common Stock Buyback Program


Our Board of Directors has approved through December 31, 2020, purchases of our
common stock under a buyback program (the "Buyback Program"). We purchased
0.1 million shares of our common stock for $6.6 million during the year ended
December 31, 2018 and 0.1 million shares of our common stock for $1.8 million
during the year ended December 31, 2017. There were no purchases of common stock
during the year ended December 31, 2019. As of December 31, 2019 there was a
total of $34.9 million available under the Buyback Program.

Dividends on Common Stock



Dividends are recorded as a reduction to retained earnings. Dividends on
unvested restricted shares of common stock are paid as the awards vest. Our
initial quarterly dividend payment was made in the third quarter of 2012. On
February 26, 2020, our Board of Directors approved the payment of our quarterly
dividend of $0.66 per common share. The dividend for the first quarter of 2020
will be paid to holders of record on March 13, 2020. This estimated
$30.1 million dividend payment is expected to be made on March 27, 2020.

The payment of any future dividends and any other returns of capital, including
stock buybacks, will be at the discretion of our Board of Directors and may be
reduced, eliminated or increased and will be dependent upon our financial
position, results of operations, available cash, cash flow, capital
requirements, limitations under our debt indentures and other factors deemed
relevant by the our Board of Directors. We are a Delaware Corporation and under
the General Corporate Law of the State of Delaware distributions may be
restricted including a restriction that distributions, including stock purchases
and dividends, do not result in an impairment of a corporation's capital, as
defined under Delaware Law. The indentures governing our notes limit our ability
to return cash to our stockholders. See Note 4 to our consolidated financial
statements for additional discussion of limitations on distributions.

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Contractual Obligations and Commitments

The following table summarizes our contractual cash obligations and other commercial commitments as of December 31, 2019.




                                                               Payments due by period
                                                     Less than                                         After
                                         Total         1 year       1 - 3 years      3 - 5 years      5 years
                                                                    (in

thousands)


Debt(1)                                   903,696        50,601          691,748          161,347            -
Finance lease obligations(2)              340,188        25,459           48,693           45,311      220,725
Operating leases, colocation and
data center obligations(3)                205,087        36,119           42,344           26,138      100,486
Unconditional purchase
obligations(4)                             27,885        12,154            1,346            1,307       13,078

Total contractual cash obligations $ 1,476,856 $ 124,333 $ 784,131 $ 234,103 $ 334,289

These amounts include interest and principal payment obligations on our

€135.0 million of 2024 Notes through the maturity date of June 30, 2024, (1) interest and principal payments on our $445.0 million of 2022 Notes through

the maturity date of March 1, 2022, interest and principal payments on our

$189.2 million of 2021 Notes through the maturity date of April 15, 2021 and

$12.5 million due under an installment payment agreement with a vendor.

The amounts include principal and interest payments under our finance lease

obligations. Our finance lease obligations were incurred in connection with

IRUs for inter-city and intra-city dark fiber underlying substantial portions (2) of our network. These finance leases are presented on our balance sheet at

the net present value of the future minimum lease payments, or $169.8 million

at December 31, 2019. These leases generally have initial terms of 15 to 20

years.

These amounts include amounts due under our facilities, operating leases,

colocation obligations and carrier neutral data center obligations. Certain (3) of these operating lease liabilities are presented on our balance sheet at

the net present value of the future minimum lease payments, or $96.8 million

at December 31, 2019.

These amounts include amounts due under unconditional purchase obligations (4) including dark fiber IRU operating and finance lease agreements entered into

but not delivered and accepted prior to December 31, 2019.

Future Capital Requirements

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



Any future acquisitions or other significant unplanned costs or cash
requirements in excess of amounts we currently hold may require that we raise
additional funds through the issuance of debt or equity. We cannot assure you
that such financing will be available on terms acceptable to us or our
stockholders, or at all. Insufficient funds may require us to delay or scale
back the number of buildings and markets that we add to our network, reduce our
planned increase in our sales and marketing efforts, or require us to otherwise
alter our business plan or take other actions that could have a material adverse
effect on our business, results of operations and financial condition. If
issuing equity securities raises additional funds, substantial dilution to
existing stockholders may result.

We may need to or elect to refinance all or a portion of our indebtedness at or
before maturity and we cannot provide assurances that we will be able to
refinance any such indebtedness on commercially reasonable terms or at all. In
addition, we may elect to secure additional capital in the future, at acceptable
terms, to improve our liquidity or fund acquisitions or for general corporate
purposes. In addition, in an effort to reduce future cash interest payments as
well as future amounts due at maturity or to extend debt maturities, we may,
from time to time, issue new debt, enter into debt for debt, or cash
transactions to purchase our outstanding debt securities in the open market or
through privately negotiated transactions. We will evaluate any such
transactions in light of

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

Off-Balance Sheet Arrangements



We do not have relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. In addition, we do not engage in trading activities involving
non-exchange traded contracts. As such, we are not materially exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged
in these relationships.

Income Taxes

Section 382 of the Internal Revenue Code in the United States limits the
utilization of net operating losses when ownership changes, as defined by that
section, occur. We have performed an analysis of our Section 382 ownership
changes and have determined that the utilization of certain of our net operating
loss carryforwards in the United States is limited.

Critical Accounting Policies and Significant Estimates



Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and the related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

The accounting policies we believe to be most critical to understanding our financial results and condition or that require complex, significant and subjective management judgments are discussed below.

Revenue recognition



Our service offerings consist of on-net and off-net telecommunications services.
Fixed fees are billed monthly in advance and usage fees are billed monthly in
arrears. Amounts billed are due upon receipt and contract lengths range
from month to month to 60 months. We satisfy our performance obligations to
provide services to customers over time as the services are rendered. Revenue is
recognized when a customer obtains the promised service. The amount of revenue
recognized reflects the consideration to which we expect to be entitled to
receive in exchange for these services.

To achieve this core principle, we follow the following five steps:

1) Identification of the contract, or contracts with a customer

2) Identification of the performance obligations in the contract

3) Determination of the transaction price

4) Allocation of the transaction price to the performance obligations in the

contract

5) Recognition of revenue when, or as, we satisfy a performance obligation




Installation fees for contracts with terms longer than month-to-month are
recognized over the contract term. Installation fees associated
with month-to-month contracts are recognized over the estimated average customer
life. To the extent a customer contract is terminated prior to its contractual
end the customer is subject to termination fees. We vigorously seek payment of
these amounts. We recognize revenue for these amounts as they are collected.

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Revenue recognition standards include guidance relating to taxes or surcharges
assessed by a governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer and may include,
but are not limited to, gross receipts taxes, excise taxes, Universal Service
Fund fees and certain state regulatory fees. Such charges may be presented gross
or net based upon our accounting policy election. We record certain excise taxes
and surcharges on a gross basis and includes them in our service revenue and
cost of network operations.

Finance Lease Obligations


We record assets and liabilities under finance leases at the lesser of the
present value of the aggregate future minimum lease payments or the fair value
of the assets under lease. We establish the number of renewal option periods
used in determining the lease term, if any, based upon our assessment at the
inception of the lease of the number of option periods for which failure to
renew the lease imposes a penalty on us in such amount that renewal appears to
be reasonably assured. Useful lives are determined based on historical usage
with consideration given to technological changes and trends in the industry
that could impact the asset utilization. We estimate the fair value of leased
assets primarily using estimated replacement cost data for similar assets. We
determine the incremental borrowing rate for each lease using our current
borrowing rate adjusted for various factors including the level of
collateralization and term to align with the term of the lease.

Recent Accounting Pronouncements

Recent Accounting Pronouncements-to be Adopted



In June 2016, the FASB issued No. ASU No. 2016-13, "Financial Instruments-Credit
Losses: Measurement of Credit Losses on Financial Instruments." This guidance is
intended to introduce a revised approach to the recognition and measurement of
credit losses, emphasizing an updated model based on expected losses rather than
incurred losses. This new standard is effective for annual and interim reporting
periods beginning after December 15, 2019 and early adoption is permitted. We do
not believe that the adoption of ASU No. 2016-13 will have a material impact on
or financial statements or disclosures.



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