COGENT COMMUNICATIONS HOLDINGS, INC. You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes included in this report. The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include, but are not limited to:
The impact of the COVID-19 pandemic and the related government policies
worldwide; future economic instability in the global economy or a contraction of
the capital markets, which could affect spending on Internet services and our
ability to engage in financing activities; 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
General Overview
We are a facilities-based provider of low-cost, high-speed Internet access,
private network services, and data center colocation space. Our network is
specifically designed and optimized to transmit packet switched data. We deliver
our services primarily to small and medium-sized businesses, communications
service providers and other bandwidth-intensive organizations in 48 countries
across
We offer on-net Internet access services exclusively through our own facilities, which run from our network to our customers' premises. We offer our on-net services to customers located in buildings that are physically connected to our network. As a result, we are not dependent on local telephone companies or cable TV companies to serve our customers for our on-net Internet access and private network service. Our on-net service consists of high-speed Internet access and private network services offered at speeds ranging from 100 megabits per second ("Mbps") to 100 gigabits per second ("Gbps").
Our on-net revenues represented 75.1% of our revenues for the three months ended
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In addition to providing our on-net services, we provide Internet access and
private network services to customers that are not located in buildings directly
connected to our network. We provide these off-net services primarily to
corporate customers using other carriers' circuits to provide the "last mile"
portion of the link from the customers' premises to our network. Our off-net
revenues represented 24.8% of our revenues for the three months ended
We also provide certain non-core services that resulted from acquisitions. We continue to support but do not actively sell these non-core services. We expect revenue from non-core services to continue to decline or to remain flat. Our non-core revenues represented approximately 0.1% of our revenues for all periods presented herein.
Competitive Advantages
We believe we address many of the data communications needs of small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-speed Internet access and private network services at attractive prices. We believe that our organization has the following competitive advantages:
Low Cost of Operation: We believe that the wireline telecom industry is undergoing, and will continue to face, significant price deflation for its applications and services. This price deflation is a result of a variety of factors including increased competition, enhanced substitutability of certain products and services and the continued impact of Moore's Law, which has driven down the cost of technology, particularly for customer premise, fiber optics and networking equipment. Faced with the backdrop of continued price deflation in our industry, we have made a series of discreet choices around our network design, operating strategy and product offering that are consistent with our objective of becoming the low cost operator in our industry. Since our initiation of operations, this strategy has resulted in a rapid decline in our cost to transmit bits, which has increased our margins and decreased our capital intensity as measured by our capital expenditures per total revenues. Over the last five fiscal years, our cost of goods sold per bit delivered for our customers has declined at a compounded annual rate of 22.5%. Important components of our low cost operating strategy includes:
One Network Protocol. Upon our founding, we selected to operate our network
solely using Ethernet protocol. We made this selection in order to take
advantage of the significantly greater installed base and lower cost of
Ethernet network equipment versus other protocols, the substantially lower
costs associated with operating and maintaining one network protocol and the
continued benefits of the rapid price performance ratio improvements of
Ethernet-related equipment. Our single network design allows us to avoid many
? of the costs that our competitors who operate circuit-switched, TDM and hybrid
fiber coaxial networks incur related to provisioning, monitoring and
maintaining multiple transport protocols. Selecting one operating protocol has
also had positive effects in terms of our operating overhead and the simplicity
of our organization. We believe the vast majority of our competition currently
operates their networks with multiple protocols and we believe that attempts to
upgrade their networks to one protocol would be operationally challenging and
costly.
Broad Access to Fiber on a Cost Effective, Long-Term Basis. We have acquired a
large portfolio of dark fiber leases from around the world sourced from the
excess inventory of existing networks. This choice to lease rather than build
reduces our capital intensity and the operating costs of our intercity and
metro networks. The nature of this portfolio and the individual leases provides
? us long-term access to dark fiber at attractive rates and the opportunity in
many cases to extend these leases for multiple terms. On average, a modest
number of our dark fiber leases come up for renewal each year. We have
relationships with 282 dark fiber vendors across the globe enabling us to lease
dark fiber on a long-term, cost-effective basis to virtually any geographic
route or facility we require.
Narrow and Focused Product Set. Since our founding, we have strategically
focused on delivering a very narrow product set to our customers. The vast
majority of our revenue is driven or related to our high-capacity,
bi-directional, symmetric internet access services which can be accessed on-net
? in multi-tenant office buildings and carrier neutral data centers or off-net
through other carriers' "last mile" connections to customer facilities. There
are significant cost advantages as a result of this narrow product set. We
believe the relative size of our salesforce training, support and overhead is
lower than comparable telecom providers which tend to offer a broader, one-stop
shopping product set to their client base.
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Scalable Network Equipment and Hub Configurations. Due to our single network
protocol and narrow product set, our transmission and network operations rely
mainly on two sets of equipment for operation. In order to further scale our
operating leverage, we have systematically reused older equipment in less dense
portions of our network. Due to interoperability between the generations of
? products, we are able to transfer older equipment from our core, high-traffic
areas to newer, less congested routes. The result of this dynamic grooming
process is that we are able to utilize our equipment for materially longer time
frames than the expected life of this equipment thereby reducing our capital
investment in our network. We design and build all of our network hubs to the
same standards and configurations. This replication strategy provides us scale
benefits in equipment purchases, training, and maintenance.
Greater Control and Superior Delivery. Our on-net service does not rely on circuits that must be provisioned by a third-party carrier. In on-net multi-tenant office buildings ("MTOBs") we provide our customers the entire network, including the "last mile" and the in-building wiring connecting to our customer's suite. In carrier neutral data centers ("CNDCs") we are collocated with our customers. As a result, only a cross-connection within the data center is required to provide our services. The structure of our on-net service provides us more control over our service, quality and pricing. It also allows us to provision services more quickly and efficiently than provisioning services on a third-party carrier network. The vast majority of our on-net services can be installed in less than two weeks versus a materially longer time for incombent competitors.
High-Quality, Reliable Service. We are able to offer high-quality Internet service due to our network design and composition. We believe that we deliver a high level of technical performance because our network is optimized for packet switched traffic. Its design increases the speed and throughput of our network and reduces the number of data packets dropped during transmission compared to traditional circuit-switched networks. We believe that our network is more reliable and carries traffic at lower cost than networks built as overlays to traditional circuit-switched, or TDM networks.
Large Addressable Market. We have systematically evaluated and chosen our
network extensions to buildings, data centers and markets based upon a rigorous
set of criteria to evaluate the economic opportunity of network locations.
Additional factors relevant to our pursuit of new buildings include the
willingness of building owners to grant us access rights, the availability of
optical fiber networks to serve those buildings, the costs to connect buildings
to our network and equipment availability. Our network is connected to 2,975
total buildings located in 210 metropolitan markets. These buildings include
1,802 large MTOBs (totaling 979.9 million square feet of office space) in major
North American cities where we offer our services to a diverse set of
high-quality corporate customers within close physical proximity of each other.
These buildings also include 1,309 CNDCs located in 1,119 buildings in
Balanced, High-Traffic Network. Since its inception, our network has grown significantly in terms of its geographic reach, customer connections, and traffic. We currently serve 7,530 access networks as well as numerous large and small content providers and 45,803 corporate customer connections. As a result of these growing bases of customers who distribute (content providers) and receive (access networks) content on our network, we believe that the majority of all the traffic on our network originates and terminates on our network. This control of traffic increases our reliability and speed of delivery and enhances our margins. The breadth of our network, extensive size of our customer base, and volume of our traffic enables us to be one of a handful of Tier One networks that are interconnected on a settlement free basis. This interconnection status broadens our geographic delivery capability and materially reduces our network costs.
Proven and Experienced Management Team. Our senior management team is composed of seasoned executives with extensive expertise in the telecommunications industry as well as knowledge of the markets in which we operate. The members of our senior management team have an average of over 20 years of experience in the telecommunications industry and many have been working together at the Company for several years. Several members of the senior management team have been working together at the Company since 2000. Our senior management team has designed and built our network and, during our formative years, led the integration of network assets we acquired through 13 significant acquisitions and managed the expansion and growth of our business.
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Our Strategy
We intend to become the leading provider of high-quality, high-speed Internet access and private network services and to continue to improve our profitability and cash flow. The principal elements of our strategy include:
Grow our Corporate Customer Base. Our on-net corporate customers are typically small- to medium-sized businesses connected to our network through our multi-tenant office buildings or connected to our network through one of our carrier neutral data centers. We generally sell two types of services to our corporate customers: dedicated internet access and private network services. We typically sell dedicated internet access at the same price per connection as our competitors, but our clients benefit from our significantly faster speeds and rapid installation times. These customers are increasingly integrating off-site data centers and cloud services into their IT infrastructure in order to take advantage of the safety, security and redundancy that is offered by locating company processing power, storage and software at a data center. An important part of this new infrastructure is a high-speed, dedicated internet connection from the corporate premises to the data center and the Internet and from one corporate premises to another corporate premises. We believe that the importance of data centers will increasingly lead tenants to reconfigure their communications infrastructure to include dedicated internet access across their locations.
Increase our Share of the Net-Centric Market. We are currently one of the leading providers of high-speed internet access to a variety of content providers and access networks across the world. We intend to further load our high-capacity network as a result of the growing demand for high-speed internet access generated by these types of bandwidth-intensive applications such as over-the-top ("OTT") media services, online gaming, video, Internet of Things ("IoT"), voice over IP ("VOIP"), remote data storage, and other services. We expect that we will continue to grow our shares of these segments by offering our customers a series of attractive features including:
? Geographic breadth - We have the broadest carrier neutral data center footprint
in the industry and currently offer network services in 48 countries;
High capacity and reliability - We offer 100 Mbps to 100 Gbps ports in all of
? the carrier neutral data centers on our network, which differentiates the
capacity choices we provide our net-centric clients;
Balanced customer base - Our leading share of content providers and access
? networks increases the amount of traffic that originates and terminates on our
network thereby reducing latency and enhancing reliability;
Large and dedicated salesforce - Our team of 238 net-centric sales
? professionals is one of the largest salesforces in this industry segment and
enables us to better serve this customer segment while also identifying new
sales opportunities and gaining new business and customers; and
? Competitive pricing - We aggressively discount our services to customers in
order to attract new customers and drive volume.
Develop a Worldwide Peering Platform. In late 2020 we introduced a new product, Global Peer Connect ("GPC"), targeted at the growing demand for certain net-centric customers to dynamically peer traffic anywhere on our global platform. Our GPC product provides access to our Global Peer Exchange ("GPE") which is a worldwide connectivity platform for the exchange of peering traffic destined for the Internet. Similar product offerings in the marketplace offer a materially smaller geographic footprint configuration and require a higher fixed cost for customers. We believe our product offering provides the following unique advantages over other private peer exchanges or public Internet exchange points:
Ubiquity through Leading CNDC Connectivity: We are collocated in 1,309 CNDCs in
48 countries and we operate 54 of our own data centers. We believe this
portfolio provides us a significant advantage over regional peer exchanges that
? typically have substantially fewer CNDC collocations and countries served. In
order to take advantage of this footprint, we enable GPC customers to peer with
any other member of our GPE regardless of location thereby significantly
broadening the reach for potential customers.
Attractive Economics and Terms: Our GPC product offers economics and terms
which should make it attractive for potential users to switch to us. Customers
? only pay for direct usage and there are no fixed port charges or distance based
fees. Our contracts have no minimum terms. These terms reduce the hurdle for
new customers to join the GPE and should drive participation.
Greater Customer Control and Selectivity: As our GPC offering provides direct
connectivity to anywhere in our network, customers will be able to have greater
? control and reliability over their traffic as this eliminates intermediate
networks and enables customers to selectively bypass certain regions due to
regulatory or censorship concerns.
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Pursue On-Net Customer Growth. Our high-capacity network provides us with the ability to add a significant number of customers to our network with minimal direct incremental costs. We intend to increase usage of our network and operational infrastructure by adding customers in our existing on-net buildings, as well as developing additional markets and connecting more multi-tenant office buildings and carrier neutral data centers to our network. We emphasize our on-net services because they generate greater profit margins and we have more control over service levels, quality, pricing and our on-net services are provisioned in considerably less time than our off-net services. Our fiber network connects directly to our on-net customers' premises and we pay no local access ("last mile") charges to other carriers to provide our on-net services.
Grow and Improve our Sales Efforts. A critical factor in our success has been our growing investment and focus on our sales and marketing efforts. Over the past five years, we have increased the size of our quota bearing salesforce by 30% from 397 to 565 employees. We seek to pair this growth in the size of our salesforce with a consistent level of productivity as measured by the number of connections sold per salesperson per month, taking into account adjustments to the changing mix of products sold and installed. In order to gain market share in our targeted businesses, we expect to continue to increase our sales efforts, including increasing the number of sales representatives and introducing strategies and tools to optimize sales productivity.
Expand our Off-Net Corporate Business. We have agreements with national carriers
providing us last mile network access to over 4.0 million commercial buildings
across
Results of Operations
Three Months Ended
The following summary table presents a comparison of our results of operations with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.
Three Months Ended
June 30, Percent
2021 2020 Change
(in thousands)
Service revenue $ 147,879 $ 140,990 4.9 %
On-net revenue 111,041 103,800 7.0 %
Off-net revenue 36,699 37,044 (0.9) %
Network operations expenses (1) 56,180 53,886 4.3 %
Selling, general, and administrative expenses (2) 41,392 39,839 3.9 % Depreciation and amortization expenses
22,096 19,896 11.1 %
Realized foreign exchange gain on 2024 Notes - 2,547 NM
Unrealized foreign exchange loss on 2024 Euro
Notes 5,280 3,420 NM
Loss on debt extinguishment and redemption - 2021
Notes - 638 NM
Loss on debt extinguishment and redemption - 2022
Notes 10,830 - NM
Interest expense 14,236 15,499 (8.1) %
Income tax provision 422 2,735 (84.6) %
(1) Includes equity-based compensation expenses of
months ended
(2) Includes equity-based compensation expenses of
months ended June 30, 2021 and 2020, respectively.
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NM - not meaningful
Three Months Ended
June 30, Percent
2021 2020 Change
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU-on-net $ 470 $ 458 2.6 %
ARPU-off-net $ 994 $ 1,048 (5.1) %
Average Price per Megabit - installed base $ 0.36 $ 0.47 (24.8) %
Customer Connections-end of period
On-net 79,146 75,927 4.2 %
Off-net 12,386 11,846 4.6 %
Service Revenue. We continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network. We do this by investing capital to expand the geographic footprint of our network and by increasing the number of buildings that we are connected to, including carrier neutral data centers and multi-tenant office buildings. These efforts broaden the global reach of our network and increase the size of our potential addressable market. We also seek to grow our service revenue by investing in our sales and marketing team. Over the last five years we have grown our quota bearing salesforce by 30% to 565 full time equivalent salespeople. We typically sell corporate connections at similar pricing to our competitors, but our clients benefit from our significantly faster speeds, enhanced service level agreements and rapid installation times. In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.
Our service revenue increased by 4.9% from the three months ended
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,
Our corporate customers purchase their services on a price per connection basis.
Our net-centric customers generally purchase their services on a price per
megabit basis. Revenues from our corporate and net-centric customers represented
61.2% and 38.8% of total service revenue, respectively, for the three months
ended
Our corporate customers take advantage of our superior speeds, service levels
and installation times versus our competitors. The growing trend of customers
installing second lines for redundancy and in order to supplement their VPN
capabilities has also led to our growing corporate revenues. However, beginning
in
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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. A significant portion of our net-centric customers purchase our
services on a price per megabit basis. The net-centric market exhibits
significant pricing pressure due to the continued introduction of new technology
which lowers the marginal cost of transmitting bytes, and the commodity nature
of the service where price is typically the only differentiating factor for
these customers. Our average price per megabit declined by 24.8% from the three
months ended
Our on-net revenues increased by 7.0% from the three months ended
Our off-net revenues decreased by 0.9% from the three months ended
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 and was
Selling, General, and Administrative ("SG&A") Expenses. Our SG&A expenses,
including non-cash equity-based compensation expense, increased by 3.9% for the
three months ended
Depreciation and Amortization Expenses. Our depreciation and amortization
expense increased by 11.1% for the three months ended
Interest Expense and Losses on Debt Extinguishment and Redemption. Our interest
expense resulted from interest incurred on our senior secured notes due 2022
("2022 Notes") until these notes were fully redeemed in
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Realized gain and unrealized gain (loss) on foreign exchange - 2024 Notes. In
Income Tax Provision. Our income tax provision was
Buildings On-net. As of
Six Months Ended
The following summary table presents a comparison of our results of operations with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.
Six Months Ended
June 30, Percent
2021 2020 Change
(in thousands)
Service revenue $ 294,656 $ 281,904 4.5 %
On-net revenue 220,989 207,256 6.6 %
Off-net revenue 73,422 74,364 (1.3) %
Network operations expenses (1) 113,272 109,806 3.2 %
Selling, general, and administrative expenses (2) 82,834 79,513 4.2 % Depreciation and amortization expenses
44,065 39,402 11.8 %
Realized foreign exchange gain on 2024 Notes - 2,547 NM
Unrealized foreign exchange gain (loss) on 2024 Euro Notes
13,590 (512) NM
Loss on debt extinguishment and redemption - 2021
Notes - 638 NM
Loss on debt extinguishment and redemption - 2022
Notes 14,698 - NM
Interest expense 30,071 30,720 (2.1) %
Income tax provision 7,773 6,341 22.6 %
(1) Includes equity-based compensation expenses of
months ended
(2) Includes equity-based compensation expenses of
months ended
NM - not meaningful
Six Months Ended
June 30, Percent
2021 2020 Change
Other Operating Data
Average Revenue Per Unit (ARPU)
ARPU-on-net $ 479 $ 459 4.4 %
ARPU-off-net $ 1,018 $ 1,055 (3.5) %
Average Price per Megabit - installed base $ 0.37 $ 0.50 (26.5) %
Customer Connections-end of period
On-net 79,146 75,927 4.2 %
Off-net 12,386 11,846 4.6 %
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Service Revenue. We continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network. We do this by investing capital to expand the geographic footprint of our network and by increasing the number of buildings that we are connected to, including carrier neutral data centers and multi-tenant office buildings. These efforts broaden the global reach of our network and increase the size of our potential addressable market. We also seek to grow our service revenue by investing in our sales and marketing team. Over the last five years we have grown our quota bearing salesforce by 30% to 565 full time equivalent salespeople. We typically sell corporate connections at similar pricing to our competitors, but our clients benefit from our significantly faster speeds, enhanced service level agreements and rapid installation times. In the net-centric market, we offer comparable services in terms of capacity but typically at significantly lower prices.
Our service revenue increased by 4.5% from the six months ended
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,
Our corporate customers purchase their services on a price per connection basis.
Our net-centric customers generally purchase their services on a price per
megabit basis. Revenues from our corporate and net-centric customers represented
61.9% and 38.1% of total service revenue, respectively, for the six months ended
Our corporate customers take advantage of our superior speeds, service levels
and installation times versus our competitors. The growing trend of customers
installing second lines for redundancy and in order to supplement their VPN
capabilities has also led to our growing corporate revenues. However, beginning
in
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. The net-centric market exhibits significant pricing pressure due to the
continued introduction of new technology which lowers the marginal cost of
transmitting bits, and the commodity nature of the service where price is
typically the only differentiating factor for these customers. Our average price
per megabit declined by 26.5% from the six months ended
Our on-net revenues increased by 6.6% from the six months ended
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Our off-net revenues decreased by 1.3% from the six months ended
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 and was
Selling, General, and Administrative ("SG&A") Expenses. Our SG&A expenses,
including non-cash equity-based compensation expense, increased by 4.2% for the
six months ended
Depreciation and Amortization Expenses. Our depreciation and amortization
expense increased by 11.8% for the six months ended
Interest Expense and Losses on Debt Extinguishment and Repurchases. Our interest
expense resulted from interest incurred on our senior secured notes due 2022
("2022 Notes") until these notes were fully repurchased in
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Realized gain and unrealized gain (loss) on foreign exchange - 2024 Notes. In
Income Tax Provision. Our income tax provision was
Buildings On-net. As of
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.
Over the next several years we have significant contractual and anticipated cash
outlays including our indicative dividend payments on our common stock, our
maturing debt obligations, interest payments on our debt obligations and our
projected capital expenditure requirements in order to help execute our business
plan. Based upon our historical growth rate of our dividend, we expect that we
would have to provide approximately
Our €350 million of 2024 Notes mature in
We may need to or elect to refinance all or a portion of our indebtedness at or before maturity and we cannot provide assurances that we will be able to refinance any such indebtedness on commercially reasonable terms or at all. In addition, we may elect to secure additional capital in the future, at acceptable terms, to improve our liquidity or fund acquisitions or for general corporate purposes. In addition, in an effort to reduce future cash interest payments as well as future amounts due at maturity or to extend debt maturities, we may, from time to time, issue new debt, enter into debt for debt, or cash transactions to purchase our outstanding debt securities in the open market or through privately negotiated transactions. We will evaluate any such transactions in light of the existing market conditions. The amounts involved in any such transaction, individually or in the aggregate, may be material.
We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
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.
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In light of the economic uncertainties associated with the COVID-19 pandemic, our executive officers and Board of Directors have continued to carefully monitor our liquidity and cash requirements. Based on current circumstances, we plan to continue our current dividend policy. Given uncertainties regarding the duration of the pandemic and timing for economic recovery, we will continue to monitor our capital spending. As we do each year, we will continue to monitor our future sources and uses of cash, and anticipate that we will make adjustments to our capital allocation strategies when, as and if determined by our Board of Directors.
Cash Flows
The following table sets forth our consolidated cash flows.
Six Months Ended June 30,
(in thousands) 2021 2020
Net cash provided by operating activities
(32,661) (26,796)
Net cash used in financing activities (50,874) (25,257)
Effect of exchange rates changes on cash (658) (112)
Net increase in cash and cash equivalents
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 the six months ended
We completed a series of debt redemptions and issuances in the six months ended
Cash Position and Indebtedness
Our total indebtedness, at par, at
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Summarized Financial Information of Holdings
Holdings is not a restricted subsidiary as defined under the indentures
governing our 2024 Notes and our 2026 Notes. Holdings is a guarantor under these
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 is detailed below
(in thousands).
June 30, 2021
(Unaudited)
Cash and cash equivalents $ 148,217
Accrued interest receivable 2
Total assets $ 148,219
Investment from subsidiaries $ 336,061
Common stock 48
Accumulated deficit (187,890)
Total equity $ 148,219
Six Months
Ended
June 30, 2021
(Unaudited)
Equitybased compensation expense 16,308
Interest income 56
Net loss $ (16,252)
Common Stock Buyback Program
Our Board of Directors has approved purchases of our common stock under a
buyback program (the "Buyback Program"). There were no purchases of our common
stock in the three or six months ended
Dividends on Common Stock and Return of Capital Program
On
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
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.
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Any future acquisitions or other significant unplanned costs or cash requirements in excess of amounts we currently hold may require that we raise additional funds through the issuance of debt or equity. We cannot assure you that such financing will be available on terms acceptable to us or our stockholders, or at all. Insufficient funds may require us to delay or scale back the number of buildings and markets that we add to our network, reduce our planned increase in our sales and marketing efforts, or require us to otherwise alter our business plan or take other actions that could have a material adverse effect on our business, results of operations and financial condition. If issuing equity securities raises additional funds, substantial dilution to existing stockholders may result.
We may need to or elect to refinance all or a portion of our indebtedness at or before maturity and we cannot provide assurances that we will be able to refinance any such indebtedness on commercially reasonable terms or at all. In addition, we may elect to secure additional capital in the future, at acceptable terms, to improve our liquidity or fund acquisitions or for general corporate purposes. In addition, in an effort to reduce future cash interest payments as well as future amounts due at maturity or to extend debt maturities, we may, from time to time, issue new debt, enter into debt for debt, or cash transactions to purchase our outstanding debt securities in the open market or through privately negotiated transactions. We will evaluate any such transactions in light of the existing market conditions. The amounts involved in any such transaction, individually or in the aggregate, may be material.
Off-Balance Sheet Arrangements
We do not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risks that could arise if we had engaged in these relationships.
Impact of COVID-19 on Our Liquidity and Operating Performance
We continue to operate with a high level of liquidity and as of
In late
We experienced some delays with respect to the installation of new services in March and April of 2020 when certain multi-tenant office buildings were closed to our personnel. We worked with local authorities and building owners to categorize our employees as essential workers who need priority access to buildings. We believe that our disruption in access to buildings was effectively mitigated since then.
In April and
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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 also have witnessed a deteriorating real estate market in and around the buildings we service with rising vacancy levels and falling lease initiations or renewals which resulted in fewer sales opportunities for our salesforce. As a result, we experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue growth. While we believe that demand for office space in the buildings in which we operate will remain among the strongest in our markets, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities. These trends may negatively impact our revenue growth, cash flows and profitability.
In the summer of 2021, the Delta variant of COVID-19 began spreading widely in
Shortly after COVID-19 began its rapid spread around the world, domestic and worldwide capital markets ceased operating for a short period. While worldwide capital markets have remained unstable or unpredictable since then, particularly for non-investment grade issuers, legislative bodies and reserve banks have taken various actions in response to the pandemic that have impacted the capital markets, and we expect that these efforts may continue.
Critical Accounting Policies and Significant Estimates
Management believes that as of
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