Table of Contents

​

Table of Contents

COGENT COMMUNICATIONS HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 20192021

TABLE OF CONTENTS

​

​

​

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This reportAnnual Report on Form 10-K of Cogent Communications Holdings, Inc. (the “Company,” “Cogent,” “we,” “our” or “us”) may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future results and events. You can identify these forward-looking statements by our use of words such as “anticipates,” “believes,” “continues,” “expects,” “intends,” “likely,” “may,” “opportunity,” “plans,” “potential,” “project,” “will,” and similar expressions to identify forward-looking statements, whether in the negative or the affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. These forward-looking statements are subject to risks and uncertainties including those discussed in Item 1A “Risk Factors” and other factors, some of which are beyond our control, which could cause actual results to differ materially from those forecasts or anticipated in such forward-looking statements.

You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this report. We undertake no obligation to update these statements or publicly release the result of any revisions to these statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

​

Table of Contents

PART I

ITEM 1. BUSINESS

We are a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space. Our network is specifically designed and optimized to transmit packet switched data. We deliver our services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 50 countries across North America, Europe, Asia, LatinSouth America, Australia and Australia.Africa. We are a Delaware corporation, and we are headquartered in Washington, DC.

We offer on-net Internet access services exclusively through our own facilities, which run from our network to our customers’ premises. We offer our on-net services to customers located in buildings that are physically connected to our network. As a result, we are not dependent on local telephone companies or cable TV companies to serve our customers for our on-net Internet access and private network services because of our integrated network architecture. We offer our on-net services to customers located in buildings that are physically connected to our network.service. Our on-net service consists of high-speed Internet access and private network services offered at speeds ranging from 100 Megabitsmegabits per second (“Mbps”) to 100 Gigabits400 gigabits per second. second (“Gbps”).

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

In addition to providing our on-net services, we provide Internet access and private network services to customers that are not located in buildings directly connected to our network. We provide thisthese off-net serviceservices primarily to corporate customers using other carriers’ circuits to provide the “last mile” portion of the link from the customers’ premises to our network. We also provide certain non-core services that resulted from acquisitions. We continue to support but do not actively sell these non-core services.

Competitive Advantages

We believe we address many of the data communications needs of small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations by offering them high-quality, high-speed Internet access and private network services at attractive prices. We believe that our organization has the following competitive advantages:

Low Cost of Operation. Operation:We offer a streamlined set of products on an integrated network. Our network design allows us to avoid many of the costs that our competitors incur associated with circuit-switched, TDM and hybrid fiber coaxial networks related to provisioning, monitoring and maintaining multiple transport protocols. 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 fiber optic Wavelength Division Multiplexing (“WDM”) equipment and optically interfaced routers. Faced with the backdrop of continued price deflation in our industry, we have made a series of discreet choices around our network design, operating strategy and product offering that are consistent with our objective of becoming the low cost operator in our industry. Since we initiated 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 23.3.%. Important components of our low cost operating strategy include:

Table of Contents

Greater Control and a significant advantage in a competitive environment characterized by falling Internet access prices. We believe our value proposition is equal or superior to our competitors’ in all of the on-net multi-tenant office buildings and carrier neutral data centers in which we operate.

Network.Superior Delivery. Our on-net service does not rely on circuits terrestrially that must be provisioned by a third partythird-party carrier. In our on-net multi-tenant office buildings (“MTOBs”) we provide our customers the entire network, including the “last mile” and the in-building wiring connecting to our customer’s suite. In our carrier neutral data centers (“CNDCs”) we are collocated with our customers socustomers. As a result, only a connection, known as a cross connect,cross-connection within the data center is required to provide our services. This givesservices to our customers. 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. We are typically able to activate service to our customers in oneThe vast majority of our on-net buildingsservices can be installed in approximately thirteen business days.less than two weeks which is materially faster than the installation times for some of our incumbent competitors.

High Quality,High-Quality, Reliable Service. We are able to offer high-quality Internet service due to our metronetwork design and intercity network.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 we

Table of Contents

and the volume of our network traffic enables us to be one of a streamlined sethandful of products,Tier 1 networks that are interconnected on a settlement-free basis. This Tier 1 interconnection status broadens our geographic delivery capability and we have acquired optical fiber from the excess inventory in existing networks.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 Cogentthe Company for several years. Several members of the senior management team have been working together at Cogentthe Company since 2000. Our senior management team has designed and built our network and, during our formative years, led the integration of our network assets we acquired through 13 significant acquisitions and managed the expansion and growth of our business.

Our Strategy

We intend to become the leading provider of high-quality, high-speed Internet access and private network services and to continue to improve our profitability and cash flow. The principal elements of our strategy include:

Focus on Providing Low-Cost, High-Grow our Corporate Customer Base.Speed Our on-net corporate customers are typically small to medium-sized businesses connected to our network through 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 customers benefit from our significantly faster speeds and rapid installation times. These customers are increasingly integrating off-site data centers and cloud services into their IT infrastructure in order to take advantage of the safety, security and redundancy that is offered by locating company processing power, storage and software at a data center. An important part of this new infrastructure is a high-speed, dedicated internet connection from the corporate premises to the data center and the Internet Access and Private Network Services. 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 to respond toas a result of the growing demand for high-speed Internetinternet access generated by these types of bandwidth-intensive applications such as streamingover-the-top (“OTT”) media services, online gaming, video, Internet of Things (“IoT”), voice over IP (VOIP)(“VOIP”), remote data storage, distributed computing, cloud services and virtual private networks.other services. We intendexpect that we will continue to do sogrow our shares of these segments by continuingoffering our customers a series of attractive features including:

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 our high-speeda materially smaller geographic footprint configuration and high-capacity services at competitive prices.require a higher fixed cost for customers.

Pursuing On-NetPursue 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 serviceservices because our on-net servicesthey 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. We are responding to this on-net revenue opportunity by increasing our sales and marketing efforts including increasing our number of sales representatives, implementing strategies to optimize sales productivity and expanding our on-net addressable market by adding service locations to our network.

Selectively Pursuing Acquisition Opportunities. In addition to adding customers through our sales and marketing efforts, we will continue to seek out acquisition opportunities that increase our customer base, allowing us to take advantage of the unused capacity on our network and to add revenues with minimal incremental costs. We may pursue acquisition opportunities that we believe expand our footprint, and generate positive cash flow. These acquisition opportunities may include off-net as well as on-net customers and complementary businesses including those offering over the top applications such as VOIP. We may also make opportunistic acquisitions of network assets. Given our record of successful asset integration, we believe we can

Table of Contents

Continue to Improve our Sales Efforts and Productivity. A critical factor in our success has been our investment and focus on our sales and marketing efforts. We seek to maintain a consistent level of sales productivity as measured by the number of connections sold per salesperson per month, taking into account adjustments to the changing mix of products sold and installed. In order to gain market share in our targeted businesses, we expect to continue our sales efforts including introducing strategies and tools to optimize and improve our sales productivity.

Expand our Off-Net Corporate Internet Access Business. We have agreements with national carriers providing us last mile network access to over 4.0 million commercial buildings across North America that are lit by fiber optic cable and that are not currently served by our network. We believe these agreements broaden our addressable market for corporate dedicated internet access and enhances our competitive position through the ability to provide enterprise-wide connectivity for corporate customers. In order to take advantage of this large set of commercial buildings we have developed an automated process to enable our salesforce to identify opportunities in the off-net market for dedicated internet access and to quickly offer pricing proposals to potential customers. We continue to successfully integrate new businesses as they are acquired. We are very selectivenegotiate reduced pricing under our numerous carrier agreements that enable us to reduce our cost of off-net services which enhances our competitive position in reviewing acquisition opportunities and have not completed an acquisition in over a decade.the marketplace.

Our Network

Our network is comprised of in-building riser facilities, metropolitan optical networks, metropolitan traffic aggregation points and inter-city transport facilities. We believe that we deliver a high level of technical performance because our network is optimized for packet switched traffic. We believe that our network is more reliable and carries packet switched traffic at lower cost than networks built as overlays to traditional circuit-switched telephone networks.

Our network serves over 200is comprised of 3,035 buildings which are on net and we serve 216 metropolitan markets in North America, Europe, Asia, LatinSouth America, and Australia and encompasses:Africa. Important strategic components of our Network include:

We have created our network by acquiringleasing on a long-term basis optical fiber from carriers with large amounts of unused fiber and directly connecting Internet routers to our existing optical fiber national backbone. We have expanded our network through key acquisitions of financially distressed companies or their assets at a significant discount to their original cost. Due to our network design and acquisition strategy, we believe we are positioned to grow our revenue and increase our profitability with limited incremental capital expenditures.

Inter-city NetworksNetworks.

Our inter-city network consists of optical fiber, including transoceanic capacity circuits for undersea portions, connecting major cities in North America, Europe, Asia, LatinSouth America, Australia and Australia. The North American, European, Asian, Latin American and Australian portions of our network are connected by transoceanic circuits.Africa. Our network was built by acquiring from various owners of fiber optic networks the right to use typically two strands of optical fiber out of the multiple fibers owned by the cable operator. We install the optical and electronic equipment necessary to amplify, regenerate, and route the optical signals along these networks. We have the right to use the optical fiber under long termlong-term agreements. We pay these providers our annual pro rata fees for the operation and maintenance of the optical fiber and we provide our own equipment maintenance.

Table of Contents

Intra-city NetworksNetworks.

In each metropolitan area in which we provide our high-speed on-net Internet access services, our backbone network is connected to one or more routers that are connected to one or more of our metropolitan optical networks. We created our intra-city networks by obtaining the right to use optical fiber from carriers with optical fiber networks in those cities. These metropolitan networks consist of optical fiber that runs from the central router in a market into routers located in our on-net buildings. In most cases theOur metropolitan fiber runs in a ring architecture, which provides redundancy so that if the fiber is cut, data can still be transmitted to the central router by directing traffic in the opposite direction around the ring. The router in the building provides the connection to each of our on-net customers.

Within the cities where we offer our off-net Internet access services, we lease circuits from telecommunications carriers, primarily local telephone companies and cable TV companies, to provide the last mile“last mile” connection to our customer’s premises. Typically, these circuits are aggregated at various locations in those cities onto higher-capacity leased circuits that ultimately connect the local aggregation router to our network.

Table of Contents

Network Management and Customer Care

Care. Our primary network operations centers are located in Washington, D.C. and Madrid, Spain. These facilities provide continuous operational support for our network. Our network operations centers are designed to immediately respond to any problems in our network. Our customer care call centers are located in Washington D.C., Herndon Virginia, Madrid Spain, Paris France, and Frankfurt Germany. To ensure the quick replacement of faulty equipment in the intra-city and long-haul networks, we have deployed field engineers across North America and Europe. In addition, we have maintenance contracts with third-party vendors that specialize in maintaining optical and routed networks.

Our ServicesCustomers

We offer our high-speed Internet access and IP connectivity services to two sets of customers: corporates customers, which primarily toinclude small and medium-sized businesses communicationslocated in North America, and net-centric customers, which include, content providers, applications service providers and other bandwidth-intensive organizationsaccess networks, comprised of ISPs, cable operators, mobile operators and phone companies located in North America, Europe, Asia, LatinSouth America, Australia and Australia.Africa.

We offerOur corporate customers primarily purchase direct internet access from us on-net services in over 200 metropolitan markets. We serve 2,801 on-net buildings. Our most popular on-net service in North America is Internet access at 100 megabits per second. We typically offer this service to small and medium-sized business customers. We also offer Internet access at higher speeds of up to 100 gigabits per second. These services are generally used by bandwidth intensive customers that have

Table of Contents

Diversity and these services generate gross profit margins that are greater thanInclusion. We strive to maintain a diverse and inclusive workforce everywhere we operate. We recruit the best people for the job without regard to gender, race, ethnicity or other protected traits, and it is our off-net services.

We offer our off-net servicespolicy to customers that are not located in our on-net buildings. These services are primarily providedcomply fully with all domestic, foreign and local laws relating to discrimination in the metropolitan marketsworkplace. At the direction of our Board of Directors, we mandated training for all of our employees on topics of diversity and inclusion. All employees were required to complete online training in unconscious bias, and managers were further required to complete additional training in inclusion. We intend to continually reinforce our commitment to global inclusion and diversity.

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

Our sales and marketing organization comprises 63% of our employees and our sales representatives comprise 49% of our employees. For the year ending December 31, 2021, we averaged a 7.0% monthly churn rate within our sales representatives. This churn was caused primarily by failures to meet sales performance goals as well as departures precipitated, we believe, by our decision to return to a full-time, in office work environment and a requirement to be fully vaccinated against COVID-19 in the fall of 2021. During 2021, we hired 371 new sales representatives and ended the year with 490 sales representatives, a net decrease of 79 sales representatives from our total sales representatives at the beginning of 2021. Our ability to recruit and retain all of our employees depends on a number of factors, including professional development, compensation and benefits, and employee engagement.

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

As part of our commitment to professional development, we established a sales training and enablement department that provides both online and in-person training. Our 13 regional learning managers and management development trainers are located around the world and are available for intensive, in-person group training as well as individual training with sales representatives who may need extra assistance. In 2021, our average ratio of sales representatives with less than 12 months of tenure to regional learning managers was 19 to 1.

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

All sales personnel receive four weeks of live, inter-active training during their first month, which focuses on developing both general and Cogent-specific sales skills. New sales personnel are also encouraged to, and rewarded for, completing a self-paced, online curriculum led by their manager during their first six months. Both recent and tenured sales personnel have access to online, on-demand training modules and the opportunity to obtain certification in specialized services. Our CEO addresses each new hire class in an interactive training session.

Compensation and Benefits. We are committed to rewarding, supporting, and developing our employees. To that end, we offer a comprehensive compensation program that includes market-competitive pay, stock options or restricted stock grants to all employees, healthcare benefits, a retirement savings plan, and paid time off and family leave.

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

Health and Safety. The health and safety of our employees is of utmost important to us, and we take all necessary precautions to safeguard our employees. While nearly all of our employees work solely in office environments, for our field personnel, we provide safety gear as appropriate given employee job duties.

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

Table of Contents

In the summer of 2021, we began the process of transitioning back to an in-office environment. As part of this process, we mandated that all employees in the United States and Canada, except those with legal exemptions, be vaccinated against the COVID-19 virus no later than October 2021. In September 2021, all fully-vaccinated employees returned to our offices in the United States and Canada on a full-time basis. All employees in the United States and Canada, regardless of vaccination status, returned to our offices in October 2021. Similar to our efforts in North America, we also undertook efforts to return our employees in Europe and EuropeAsia to their offices, subject to local laws and regulations. In November 2021, a majority of our employees outside of North America returned to the office full-time.

The spread of the Omicron variant around the world in whichDecember 2021 caused us to further modify our in-office environment. First, we offer on-net services. These servicesmandated that all U.S. employees receive a COVID-19 booster vaccine no later than six weeks after first becoming eligible for such vaccine. Second, we mandated that all US employees provide proof of vaccination to us. Third, for offices around the world that had not been closed by government order, we shifted much of our workforce to a fully remote status at the end of 2021 in order to reduce the density of our offices. Sales representatives with less than 12 months tenure, sales representative on performance improvement plans and their managers are generallycurrently still working in our offices on a full-time basis in the US, as we believe that the training and coaching required by new sales representatives is significantly more effective when provided to small and medium-sized corporate customers in over 6,870 off-net buildings.an in-office environment.

Sales and Marketing

Direct Sales. We employ a direct sales and marketing approach. As of February 1, 2020,December 31, 2021, our sales force included 686633 full-time employees. Our quota bearing sales force includes 548490 employees with 364283 employees focused primarily on the corporate market and 184207 employees focused primarily on the net-centric market. As of December 31, 2020, our sales force included 712 full-time employees including 569 quota bearing sales force employees with 333 employees focused primarily on the corporate market and 236 employees focused primarily on the net-centric market. Our sales personnel work through direct contact with potential customers in, or intending to locate in, our on-net buildings. Through agreements with building owners, we are able to initiate and maintain personal contact with our customers by staging various promotional and social events in our multi-tenant office buildings and carrier neutral data centers. Sales personnel are compensated with a base salary plus quota-based commissions and incentives. We use a customer relationship management system to efficiently track sales activity levels and sales productivity.

Indirect Sales. We also have an indirect sales program. Our indirect sales program includes several master agents with whom we have a direct relationship. Through our agreements with our master agents we are able to sell through thousands of sub agents. All agents have access to selling to potential corporate customers and may sell all of our products. We have hired an indirect channel team who manages these indirect relationships. The indirect channel team is compensated with a base salary plus quota-based commissions and incentives. We use our customer relationship management system to efficiently track indirect sales activity levels and the sales productivity of our agents under our indirect sales program.

Marketing. Because of our historical focus on a direct sales force that utilizes direct contact, we have not spent funds on television, radio or print advertising. We use a limited amount of web basedweb-based advertising. Our marketing efforts are designed to drive awareness of our products and services, to identify qualified leads through various direct marketing campaigns and to provide our sales force with product brochures, collateral materials, in building marketing events and relevant sales tools to improve the overall effectiveness of our sales organization. In addition, we conduct building events and public relations efforts focused on cultivating industry analyst and media relationships with the goal of securing media coverage and public recognition of our Internet access and private network services.

Competition

We face competition from incumbent telephone and cable companies, and facilities-based network operators, many of whom are much larger than us, have significantly greater financial resources, sales and marketing capabilities, better-established brand names and large, existing installed customer bases in the markets in which we compete. We also face competition from new entrants to the communications services market. Many of these companies offer products and services that are similar to our products and services.

Unlike some of our competitors, we generally do not have title to most of the dark fiber that makes up our network. Our interests in that dark fiber are in the form of long-term leases under indefeasible rights of use, or IRUs, with providers, some of which also compete with us. We rely on the owner of the fiber to maintain the

Table of Contents

We believe that competition is based on many factors, including price, transmission speed, ease of access and use, length of time to provision service, breadth of service availability, reliability of service, customer support, billing simplicity and brand recognition. Because our fiber optic networks have been recently installed compared to those of the incumbent carriers, our state-of-the-art technology may provide us with cost, capacity, and service quality advantages over some existing incumbent carrier networks; however, our network may not support some of the services supported by these legacy networks, such as circuit-switched voice, ATM, MPLS, frame relay, wireless and shared hybrid fiber coax networks. While the Internet access speeds offered by traditional ISPs serving multi-tenant office buildings using DSL or cable modems typically do not match our on-net offerings in terms of throughput or quality, these slower services are usually priced lower than our offerings and thus provide competitive pressure on pricing, particularly for more price-sensitive customers. These and other downward pricing pressures particularly in carrier neutral data centers have diminished, and may further diminish, the competitive advantages that we have enjoyed as the result of the pricing of our services. Increasingly, traditional ISPs are upgrading their services using optical fiber and cable technology so that they can match our transmission speed and quality.

Regulation

Our services are subject to the regulatory authority of various agencies in the jurisdictions in which we operate. As a provider of only Internet access and private networks to businesses, regulation is generally light.not significant. This benefits us in that we have flexibility in offering our services and ease of entry into new markets. However, this lightlevel of regulation generally extends to our competitors, some of whom are incumbent telephone and cable companies with whom we need to interconnect and from whom we acquire circuits for our off-net services. The extent of regulation can change. For example, the U.S. Federal Communications Commission ("FCC"(“FCC”) recentlyin 2017 rescinded regulations applicable to mass market Internet access providers. In all jurisdictions regulations continue to evolve. We also enter into new markets with their own regulations. The regulations with which we need to comply include obtaining the proper licenses to provide our services, data privacy, interception of communications by law enforcement, blocking of web sites,websites, and others.other regulations. We believe that we comply with all regulations in the jurisdictions in which we operate.

The laws related to Internet telecommunications are unsettled and there may be new legislation and court decisions that may affect our services and expose us to burdensome requirements and liabilities.

Employees

As of February 1, 2020, we had 1,051 employees. Unions represent 29 of our employees in France. We believe that we have a satisfactory relationship with our employees.

Available Information

We were incorporated in Delaware in 1999. We maintain an Internet website at www.cogentco.com. We make available free of charge through our Internet website our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. The reports are made available through a link to the SEC’s Internet website at www.sec.gov. You can find these reports and request a copy of our Code of Conduct on our website at www.cogentco.com under the “About Cogent” tab at the “Investor Relations” link.

​

Table of Contents

connectivityApproximately 60.8% of our revenue for the year ended December 31, 2021 was from our corporate customers. Corporate customers are located in multi-tenant office buildings, almost exclusively in the United States and Canada. Authorities in many of these markets implemented numerous measures in response to the pandemic, such as travel bans and restrictions, quarantines, curfews, shelter-in-place and stay-at-home orders and business shutdowns and closures, and also implemented multi-step polices with the goal of re-opening these markets. These measures have impacted, and continue to impact, us and our employees, customers, suppliers and other third parties with whom we do business. The geographic areas in which we operate are in varying stages of restrictions or re-opening. Many jurisdictions have re-opened, while other jurisdictions began re-opening only to return to restrictions in the face of increases in new COVID-19 cases. Considerable uncertainty exists regarding how current and future health and safety measures implemented in response to the pandemic will impact our business, including whether such measures will result in further changes in demand for our network, we must establish and maintain relationships with other Internet access providers and certain of our larger customers. These providers may be customers (who connect their network to ours by buying Internet access from us) or may be other large Internet access providers to whom we connect on a settlement-free peering basis as described below. Both customers and settlement-free peers may be competitors of ours.

By entering into what are known as settlement-free peering arrangements, providers agree to exchange traffic between their respective networks without charging each other. Our ability to avoid the higher costs of acquiring paid dedicated network capacity (transit or paid peering) and to maintain high network performance is dependent uponservices, impair our ability to establish andaccess buildings to install our services or maintain settlement-free peering relationships and to increase the capacityour network or impact our supply chain. The continuing impact of the interconnections provided by these relationships. The terms and conditions of our settlement-free peering relationships may also be subject to adverse changes, which we may not be able to control. For example, several network operators with large numbers of individual users are arguing that they should be able to chargeexisting or charge more to network operators and businesses that deliver the large volumes of traffic requested by their users. If we are not able to maintainnew mandates, restrictions, laws or increase our settlement-free peering relationships in all of our markets on favorable terms or to upgrade the capacity of our existing settlement-free peering relationships, we may not be able to provide our customers with high performance or affordable or reliable services, whichregulations could cause us to lose existing and potential customers, damage our reputation and have a material adverse effectimpact on our operations and the operations of our customers or others with whom we do business.

In addition, a significant number of our corporate customers have continued remote work policies instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed offices due to global economic conditions. We believe the rapid spread of the Delta and Omicron variants during 2021 further exacerbated the unwillingness of corporate customers to end their remote work policies. In addition, the prevalence of hybrid or fully remote work environments during the pandemic has caused some companies to transition to such environments on a permanent basis, and we do not know what impact this may have on demand for commercial office space and for our services. As a result, through much of 2021, we saw corporate customers take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices. Since the beginning of the pandemic we have experienced a deteriorating real estate market in the buildings we serve. Vacancy rates for many of our multi-tenant office buildings have risen as a result of many tenants terminating leases and exiting buildings and as a result of lower new leasing activity. The impact of this greater level of vacancy rates was more pronounced in Northern cities and in the California market and less impactful in our Southern markets

Where permitted, we will require our employees to return to the office on a full-time basis. We have taken measures to protect our workforce and minimize their exposure to COVID-19, such as requiring our entire workforce to get vaccinated and wear masks in the past had peering disputesoffice, establishing safety procedures in the event an employee tests positive for COVID-19 and severely curtailing all business travel. In addition to the associated costs incurred, these measures may be insufficient in protecting our employees. If a significant percentage of our workforce is unable to work due to the impact of COVID-19, our operations will be negatively impacted. In December 2021, with other network providers that resulted in a temporary disruptionthe rapid spread of the exchangeOmicron variant, a number of traffic between our networkoffices were required to close by local order and the network of the other carrier. We have resolved thewe voluntarily shifted a majority of our workforce to fully remote status. We intend to return to full-time, in-office status when permitted and when we deem it to be safe. As we consider this return, the impact of COVID-19, our response to the pandemic, and compliance with governmental measures imposed in response to COVID-19 has caused, and will continue to cause us to incur additional costs and any inability to comply with such disputes through negotiations. measures may subject us to restrictions on our business activities, fines, and other penalties, any of which may adversely affect our business.

In 2013addition, the major incumbent telephoneshift of our workforce to working remotely has amplified certain risks to our business, including increased demand on our information technology resources and cable companiessystems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured. Any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.

We may find it difficult to retain existing employees or to hire new employees because we have required all employees in the United States to receive the COVID-19 vaccine and boosters and to return to the office on a full-time basis.

In August 2021, we notified our employees in the United States that they would be required to return to the office on a full-time basis beginning in September 2021 and that they would be required to attest that they were fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption. Fully vaccinated employees in the United States began returning to refuseour offices on a full-time basis in early September 2021. Employees had until October 11, 2021 to upgradeprovide their vaccine self-attestation.

In October 2021, we opened most of our peering connections. This refusalnon-US offices for employees to return on a voluntary basis and in November 2021, wherever permitted by local law, we required our employees outside of the United States to return to full-time, in-office work. Where permitted by, and subject to, local laws, we will require employees outside of the United States to be fully vaccinated against the COVID-19 virus.

Table of Contents

The spread of the Omicron variant around the world in December 2021 caused congestionus to further modify our office environment. First, we mandated that all U.S. employees receive a COVID-19 booster vaccine no later than six weeks after first becoming eligible for such vaccine. Second, we mandated that all U.S. employees provide proof of vaccination to us. Third, for offices around the world that had not been closed by government order, we shifted much of our workforce to fully remote status on a temporary basis at the end of 2021 in order to reduce the density of our offices. Sales representatives with less than 12 months tenure, sales representative on performance improvement plans and their managers are currently still working in our offices on a full-time basis, as we believe that the training and coaching required by new sales representatives is significantly more effective when provided in an in-office environment.

Our employees have largely complied with our vaccine mandate in the United States and Canada. However, we experienced an increase in employee departures, particularly within our sales department in the third and fourth quarters of 2021. We believe that this rise in departures was attributable in part to the unwillingness of some employees to be vaccinated and/or to return to a full-time, in-office environment. If we continue to mandate COVID-19 vaccinations and require employees to return to our offices on a full-time basis, we may find it difficult to retain existing peering connectionsemployees or hire new employees. If this occurs, this may impact our revenue growth and profitability.

We are experiencing delays in the delivery of networking equipment and other services from certain of our vendors.

We have seen a slowdown in the delivery of network equipment and delays in the projected delivery time of network equipment orders. In addition, vendors who supply us with dark fiber or lit circuits are being impacted by the spread of COVID-19 in their workforce, and this may slow the delivery of services from these networks asvendors to us. While we believe that we can adequately manage the operation, maintenance, upgrading and growth of our connections werenetwork, a worsening or prolonged slowdown of the delivery of network equipment, dark fiber and lit circuits may impact our ability to expand and augment our network and service offerings. If this occurs, this may impact our revenue growth and profitability.

Our growth and financial health are subject to a number of economic risks.

A downturn in the world economy, especially the economies of North America and Europe would negatively impact our growth. Our net-centric business would be particularly impacted by a decline in the development of new applications and businesses that make use of the Internet. Our corporate business would be particularly impacted by an increase in vacancy rates in the multi-tenant office buildings that we serve. Our total revenue growth is predicated on growth in the use of the Internet that makes up for the declining prices of Internet service. An economic downturn could impact the Internet business more significantly than other businesses that are less dependent on new applications and growth in the use of those applications and an increase in office vacancy rates because of the retrenchment by consumers and businesses that typically occurs in an economic downturn.

Our historical reductions in our prices are expected to continue in an inflationary economy.

Many of the regions in which we operate are experiencing an increase in inflation rates. Due to the nature of our product offerings and the industry in which we operate, which is deflationary, we may be unable to handleraise our prices. We expect that our historical pricing patterns will continue for the foreseeable future.

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

Catastrophic events, such as major natural disasters, extreme weather, fire, flooding or similar events as well as the continued threat of terrorist activity and other acts of war or hostility have had, and may continue to have, an adverse effect on our headquarters, other offices, our network, infrastructure or equipment or our customers and prospective customers, which could adversely affect our business. These events may also have an adverse impact on business, financial and general economic conditions around the world. We have certain locations through which a large amount of our Internet traffic passes. Examples are facilities in which we exchange traffic with other carriers, the facilities through which our transoceanic traffic passes, and certain of our network hub sites. We are particularly vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is located in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have historically been targets for terrorist attacks and vulnerable to pandemics.

Table of Contents

If these or any other of our key facilities were destroyed or seriously damaged, a significant amount of our network traffic could be disrupted. Because of the large volume of traffic requested bypassing through these facilities our ability (and the customersability of these incumbent telephone and cable companies. This congestion impactedcarriers with whom we exchange traffic) to quickly restore service would be challenged. There could be parts of our network and our services to ouror the networks of other customers. Following issuance by the FCC of its Open Internet Order we were able to enter into agreements with most of these carriers that have alleviated the congestion we were experiencing. We cannot assure youcould not be quickly restored or that the upgrade commitmentswould experience substantially reduced service for a significant time. If such a disruption occurs, our reputation could be negatively impacted which may cause us to lose customers and adversely affect our ability to attract new customers, resulting in those agreements will be sufficient to accommodate the growth of Internet traffican adverse effect on our network. In December 2017 the FCC rescinded the protections of the Open Internet Order. This may impact the willingness of telephonebusiness and cable companies to continue our current agreements or to enter into agreements to augment interconnections as traffic grows and to continue current agreements.

We have experienced the same congestion problem in Europe with incumbent telephone companies. As the use of streaming video increases this problem is exacerbated. Recently, several European incumbent telephone companies have increased the capacity of our interconnections. We do not know if they will continue to do so. The major carrier in Germany, Deutsche Telekom, continues to limit our interconnection capacity.operating results.

We cannot assure you that we will be able to continue to establish and maintain relationships with other Internet access providers, favorably resolve disputes with such providers, or increase the capacity of our interconnections with such providers.Business Risks

We need to retain existing customers and continue to add new customers in order to become consistently profitable and cash flow positive.

In order to becomebe consistently profitable and consistently cash flow positive, we need to both retain existing customers and continue to add a large number of new customers. The precise number of additional customers required is dependent on a number of factors, including the turnover of existing customers, the pricing of our product offerings and the revenue mix among our customers. We may not succeed in adding customers if our sales and marketing efforts are unsuccessful. In addition, many of our targeted customers are businesses that are already purchasing Internet access services from one or more providers, often under a contractual commitment. It has been our experience that such targeted customers are often reluctant to switch providers due to costs and effort associated with switching providers. Further, as some of our customers grow larger they may decide to build their own Internet backbone networks or enter into direct connection agreements with telephone and cable companies that provide Internet service to consumers. A migration of a few very large Internet users to their own networks, or to special networks that may be offered by major telephone and cable providers of last

Table of Contents

If we fail to implement these measures successfully, our ability to manage our growth will be impaired.

Demand from certain employees to work remotely may reduce the attractiveness of our business as an employer versus some competitors who are allowing employees to work remotely.

In the fall of 2021 we began to implement an in-office work policy designed to return the vast majority of our employees to an in-office work environment. A small minority of our workforce declined to return to full time in-office employment and left our employment. We are experiencing modest competitive challenges versus some competitors who are offering some employees a hybrid work option. Increasing demands to work in a hybrid work style may experience difficulties operatingreduce our ability to attract and retain employees, in countries outsideparticular attracting and retaining salespeople.

Competitive Risks

Our connections to the Internet require us to establish and maintain relationships with other providers, which we may not be able to maintain.

The Internet is composed of various network providers who operate their own networks that interconnect at public and private interconnection points. Our network is one such network. In order to obtain Internet connectivity for our network, we must establish and maintain relationships with other ISPs and certain of our larger customers. These providers may be customers (who connect their network to ours by buying Internet access from us) or may be other large ISPs to whom we connect on a settlement-free peering basis as described below. Both customers and settlement-free peers may be competitors of ours.

By entering into what are known as settlement-free peering arrangements, providers agree to exchange traffic between their respective networks without charging each other. Our ability to avoid the higher costs of acquiring paid dedicated network capacity (transit or paid peering) and to maintain high network performance is dependent upon our ability to establish and maintain settlement-free peering relationships and to increase the capacity or to add additional locations of the United States, Canadainterconnections provided by these relationships. The terms and Western Europe.

We have expandedconditions of our network into Eastern Europe, Mexico and on a limited basissettlement-free peering relationships may also be subject to Tokyo, Hong Kong, Singapore, Latin America and Australia. We have experienced difficulties, ranging from lack of dark fiberadverse changes, which we may not be able to regulatory issues to slower revenue growth rates in operating in these markets.control. If we are not successfulable to maintain or increase our settlement-free peering relationships in developingall of our market presence in these regionsmarkets on favorable terms or to upgrade the capacity of our operating resultsexisting settlement-free peering relationships, we may not be able to provide our customers with high performance, affordable or reliable services, which could cause us to lose existing and revenue growth could be adversely impacted.potential customers, damage our reputation and have a material adverse effect on our business. Additionally, certain of our current customers may seek to become settlement-free peers with us.

We may experience delayscannot assure you that we will be able to continue to establish and additional costs in expanding our on-net buildings.

We plan on continuing tomaintain relationships with other ISPs, favorably resolve disputes with such providers, or increase the numbercapacity of carrier-neutral data centers and multi-tenant office buildings that are connected to our network. We may be unsuccessful at identifying appropriate buildings or negotiating favorable terms for acquiring access tointerconnections with such buildings,providers.

The sector in which we operate is highly competitive, and we may not be unableable to procure dark fibercompete effectively.

We face significant competition from incumbent carriers, Internet service providers and facilities-based network operators. Relative to connectus, many of these providers have significantly greater financial resources, more well established brand names, larger customer bases, and more diverse strategic plans and service offerings. A number of these providers also have large bases of consumers, which makes their networks particularly attractive to content providers as they can provide a direct connection to their customers.

Intense competition from these traditional and new communications companies has led to declining prices and margins for many communications services, and we expect this trend to continue as competition intensifies in the future. Decreasing prices for high-speed Internet services have somewhat diminished the competitive advantage that we have enjoyed as a result of our service pricing.

Our business is premised on the idea that customers want simple Internet access and private networks rather than a combination of such buildingsservices with other services such as voice services and complex managed services. Our competitors offer such services. Should the market come to favor such services our networkability to acquire and keep customers would be impaired. Our competitors may also upgrade their existing services or introduce new technologies or services, such as satellite-based Internet or 5G services that could make our services less attractive to procure such fiber on favorable terms. Consequently, we may experience difficulty in adding customers to our network and fully using our network’s available capacity.potential customers.

Table of Contents

We may be required to censor content on the Internet, which we may find difficult to do and which may impact our ability to provide our services in some countries as well as impact the growth of Internet usage, upon which we depend.

Some governments attempt to limit access to certain content on the Internet. It is impossible for us (and other providers as far as we know) to filter all content that flows across the Internet connections we provide. For example, some content is encrypted when a secure web site is accessed. It is difficult to limit access to web sites by blocking a fixed set of Internet addresses when the website operators engage in practices that make it difficult to block them. Should any government require us to perform these types of blocking procedures we could experience difficulties ranging from incurring additional expenses to ceasing to provide service in that country. We could also be subject to penalties if we fail to implement the censorship.

We may not successfully make or integrate acquisitions or enter into strategic alliances.

As part of our growth strategy, we may pursue selected acquisitions and strategic alliances. To date, we have completed 13 significant acquisitions. However, we are very selective with respect to such acquisitions and alliances and we have not undertaken either for more than 15 years. We compete with other companies for acquisition opportunities and we cannot assure you that we will be able to execute future acquisitions or strategic alliances on commercially reasonable terms, or at all. Even if we enter into these transactions, we may experience:

In the past, our acquisitions have often included assets, service offerings and financial obligations that are not compatible with our core business strategy. We have expended management attention and other resources to the divestiture of assets, modification of products and systems as well as restructuring financial obligations of acquired operations. In most acquisitions, we have been successful in renegotiating the agreements that we have acquired. If we are unable to satisfactorily renegotiate such agreements in the future or with respect to future acquisitions, we may be exposed to large claims for payment for services and facilities we do not need.

Consummating these transactions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, financial condition and results of operations. Because we have purchased financially distressed companies or their assets, and may continue to do so in the future, we have not had, and may not have, the opportunity to perform extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in acquisitions. As a result, we may face unexpected contingent liabilities arising from these acquisitions. We may also issue additional equity in connection with these transactions, which would dilute our existing shareholders.

Following an acquisition, we have experienced a decline in revenue attributable to acquired customers as these customers’ contracts have expired and they have entered into our standard customer contracts at generally lower rates or have chosen not to renew service with us. We anticipate that we would experience similar revenue declines with respect to customers we may acquire in the future.

We depend upon our key employees and may be unable to attract or retain sufficient qualified personnel.

Our future performance depends upon the continued contribution of our executive management team and other key employees, in particular, our Chairman and Chief Executive Officer, Dave Schaeffer. As founder of our company, Mr. Schaeffer’s knowledge of our business and our industry combined with his deep involvement in

Table of Contents

ownership changesNetwork Augmentation and Maintenance Risks

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

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

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

Our off-net business could suffer delays and problems due to the actions of “last mile” providers on whom we are partially dependent.

Our off-net customers are connected to our network by means of fiber optic capacity that are provided as services by local telephone and cable companies and others. We may experience problems with the installation, maintenance and pricing of these lines which could adversely affect our results of operations and our plans to add additional off-net customers to our network using such services. We have historically experienced installation and maintenance delays when the network provider is devoting resources to other services, such as traditional telephony, cable TV services and private network services. We have also experienced pricing problems when a lack of alternatives allows a provider to charge high prices for capacity in a particular area or to a particular building. We attempt to reduce this problem by using many different providers so that we have alternatives for linking an off-net customer to our network. Competition among the providers tends to improve installation intervals, maintenance and pricing. Additionally, these providers are often competing with us for the same customers, and have determined thatmarketed their own service to our off-net customers when our initial contract with our customer nears the utilizationend of certain of our net operating loss carryforwards in the United States is limited. Further, recent changes to the tax law in the United States may impact our utilization of our net operating losses.its term.

Our business could suffer from an interruption of service from our fiber providers.

The optical fiber cable owners from whom we have obtained our inter-city and intra-city dark fiber maintain that dark fiber. We are contractually obligated under the agreements with these carriers to pay maintenance fees, and if we are unable to continue to pay such fees we would be in default under these agreements. If these carriers fail to maintain the fiber or disrupt our fiber connections due to our default or for other reasons, such as business disputes with us, bankruptcy, and governmental takings, our ability to provide service in the affected markets or parts of markets would be impaired unless we have or can obtain alternative fiber routes. Some of the companies that maintain our inter-city dark fiber and some of the companies that maintain our intra-city dark fiber are also competitors of ours.ours in portions of our business. Consequently, they may have incentives to act in ways unfavorable to us. While we have successfully mitigated the effects of prior service interruptions and business disputes in the past, we may incur significant delays and costs in restoring service to our customers in connection with future service interruptions, and as a result we may lose customers.

Our business dependsSubstantially all of our network infrastructure equipment is manufactured or provided by a single network infrastructure vendor.

We purchase from Cisco Systems, Inc. (“Cisco”) the routers and transmission equipment used in our network. We have recently experienced delays in obtaining certain network equipment from Cisco due to supply chain issues. If Cisco fails to provide equipment on agreements with carrier neutral data center operators, whicha timely basis or fails to meet our performance expectations, including in the event that Cisco fails to enhance, maintain, upgrade or improve its products, hardware or software we could failpurchase from them when and how we need them, we may be delayed or unable to obtain or maintain.provide services as and when requested by our customers. We also may be unable to upgrade our network and face greater difficulty maintaining and expanding our network.

Our business depends upon accessTransitioning from Cisco to customers in carrier neutral data centers, which are facilities in which many usersanother vendor would be disruptive because of the Internet housetime and expense required to learn to install, maintain and operate the computer servers that deliver contentnew vendor’s equipment and applications to users by means of the Internet and provide access to multiple Internet access networks. Most carrier neutral data centers allow any carrier to operate within the facility (for a standard fee). We expect to enter into additional agreements with carrier neutral data center operators as part ofmulti-vendor network. Any such disruption could increase our growth plan. Current government regulations do not require carrier neutral data center operators to allow all carriers access on terms that are reasonable or nondiscriminatory. We have been successful in obtaining agreements with these operators in the pastcosts, decrease our operating efficiencies and have generally found that the operators want to have us located in their facilities because we offer low-cost, high-capacity Internet service to their customers. Any deterioration inan adverse effect on our existing relationships with these operators could harm our salesbusiness, results of operations and marketing efforts and could substantially reduce our potential customer base. Increasing concentration in this industry could negatively impact us if any such combined entities decide to discontinue operation of their facilities in a carrier neutral fashion.

Our ability to serve customers in multi-tenant office buildings depends on access agreements with building owners and managers, which we could fail to obtain or maintain.

Our on-net business depends upon our in-building networks. Our in-building networks depend on access agreements with building owners or managers allowing us to install our in-building networks and provide our services in these buildings. These agreements typically have terms of five to ten years, with one or more renewal options. Any deterioration in our existing relationships with building owners or managers could harm our sales and marketing efforts and could substantially reduce our potential customer base. We expect to enter into additional access agreements as part of our growth plan. Current federal and state regulations do not require building owners to make space available to us or to do so on terms that are reasonable or nondiscriminatory. While the FCC has adopted regulations that prohibit common carriers (subject to regulation under Title II of the Communications Act) from entering into exclusive arrangements with owners of multi-tenant commercial office buildings, these regulations do not require building owners to offer us access to their buildings. Building owners or managers may decide not to permit us to install our networks in their buildings or they may elect not to renew or amend our access agreements. Most of these agreements have one or more automatic renewal periods and others may be renewed at the option of the landlord. Some of these access agreements have or will have exhausted all automatic renewal periods and, as such, will be coming up for renewal in the near future. While we have historically been successful in renewing these agreements and no single building access agreement is material to our success, the failure to obtain or maintain a number of these agreements would reduce our revenue, and we might not recover our costs of procuring building access and installing our in-building networks in those locations.financial condition.

Table of Contents

WeCisco may notalso be ablesubject to obtain or construct additional building laterals to connect new buildings to our network.

In order to connect a new building to our network we need to obtain or construct a lateral from our metropolitan networklitigation with respect to the building. We may not be able to obtain fibertechnology on which we depend, including litigation involving claims of patent infringement. Such claims have been growing rapidly in an existing lateral at an attractive price from a providerthe communications industry. Regardless of the merit of these claims, they can result in the diversion of technical and may not be able to construct our own lateral due to the cost of constructionmanagement personnel, or municipal regulatory restrictions. Failure to obtain fiber in an existing lateral or to construct a new lateral could keep us from adding new buildings to our network and negatively impact our growth opportunities.

Impairment of our proprietary property and our alleged infringement on other companies’ intellectual property rights could harm our business.

We cannot assure you that the steps taken by us to protect our proprietary property will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our rights. We also are subject to the risk of litigation alleging infringement of third party intellectual property rights. Any such claims could require us to spend significant sums in litigation, pay damages, developobtain non-infringing intellectual propertytechnology or acquire licenses toenter into license agreements for the intellectual property that is the subject of the alleged infringement.

We are aware of other companies in our and other industries that use the word “Cogent” in their corporate names. Consequently, we do not have rights to the name “Cogent”. This may weaken our ability to market our services.

The sector intechnology on which we operate is highly competitive, and we may not be able to compete effectively.

We face significant competition from incumbent carriers, Internet service providers and facilities-based network operators. Relative to us, many of these providers have significantly greater financial resources, more well-established brand names, larger customer bases, and more diverse strategic plans and service offerings.

Intense competition from these traditional and new communications companies has led to declining prices and margins for many communications services, and we expect this trend to continue as competition intensifies in the future. Decreasing prices for high-speed Internet services have somewhat diminished the competitive advantage that we have enjoyed as a result of our service pricing.

Our business is premised on the idea that customers want simple Internet access and private networks rather than a combination of such services with other services such as VOIP and complex enterprise services. Our competitors offer such services. Should the market come to favor such services our ability to acquire and keep customers would be impaired. Our competitors may also upgrade their existing services or introduce new technologies or services, such as satellite-based Internet or 5G services, that could make our services less attractive to potential customers.

We issue projected results and estimates for future periods from time to time, and such projections and estimates are subject to inherent uncertainties and may prove to be inaccurate.

Financial information, results of operations and other projections that we may issue from time to time are based upon our assumptions and estimates. While we believe these assumptions and estimates to be reasonable when they are developed, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. You should understand that certain unpredictable factors could cause our actual results to differ from our expectations and those differences may be material. No independent expert participates in the preparation of these estimates. These estimates should not be regarded as a representation by us as to our results of operations during such periods as theredepend. There can be no assurance that any of these estimatessuch non-infringing technology or licenses will be realized. In light of the foregoing, we caution you notavailable on acceptable terms and conditions, if at all.

International Operations Risks

Our international operations expose us to place undue reliance on these estimates. These estimates constitute forward-looking statements.

Table of Contents

Changes in laws, rules, and enforcement could adversely affect us.

We are not subject to substantial regulation by the FCC or the state public utilities commissions in the United States. Internet service is also subject to minimal regulation in Western Europe and in Canada. Elsewhere the regulation is greater, though not as extensive as the regulation for providers of voice services. If we decide to offer traditional voice services or otherwise expand our service offerings to include services that would cause us to be deemed a common carrier, we will become subject to additional regulation. Additionally, if we offer voice service using IP (VOIP) or offer certain other types of data services, we may become subject to additional regulation. This regulation could impact our business because of the costs and time required to obtain necessary authorizations, the additional taxes that we may become subject to or may have to collect from our customers, and the additional administrative costs of providing these services, and other costs. Even if we do not decide to offer additional services,However, governmental authorities may decide to impose additional regulation and taxes upon providers of Internet access and private network services. All of these matters could inhibit our ability to remain a low-cost carrier and could have a material adverse effect on our business, financial condition and our results of operations.

As with the privacy laws described earlier, much of the lawlaws related to the liability of Internet service providers for content on the network and the behavior of our customers and their end users remains unsettled. Some jurisdictions have laws, regulations, or court decisions that impose obligations upon Internet access providersISPs to restrict access to certain content. Other legal issues, such as the sharing of copyrighted information, data protection, trans-border data flow, unsolicited commercial email (“spam”), universal service, and liability for software viruses could become subjects of additional legislation and legal development and changes in enforcement policies. Laws that could subject us to claims or otherwise impact our business include, among others:

Table of Contents

If we do not comply with laws regarding corruptionThe utilization of certain of our net operating loss carryforwards is limited and bribery, we may become subject to monetary or criminal penalties.

The United States Foreign Corrupt Practices Act generally prohibits companies and their intermediaries from bribing foreign officials fordepending upon the purposeamount of obtaining or keeping business. Other countries have similar laws to which we are subject. We take precautions to comply with these laws. However, these precautions may not protect us against liability, particularly as a result of actions that may be taken in the future by agents and other intermediaries through whom we have exposure under these laws even though we may have limited or no ability to control such persons. Our competitors include foreign entities that are not subject to the United States Foreign Corrupt Practices Act or laws of similar stringency, and henceour taxable income we may be at a competitive disadvantage.subject to paying income taxes earlier than planned.

Allegations that the United States Government has intercepted Internet traffic may discourage useSection 382 of the Internet and the use of United States based Internet service providers.

Allegations have been made that the United States Government (through its National Security Agency) and other governments have allegedly intercepted Internet traffic on a massive scale. It has also been alleged that user information has been collected from various Internet-based services with and without the cooperation of the companies providing those services. Such allegations may discourage individuals and organizations from making use of Internet-based services due to privacy concerns and concerns that proprietary data can be compromised, This could impact our ability to grow our business, especially because we and other companies headquarteredInternal Revenue Code in the United States may be less favoredlimits the utilization of net operating losses when ownership changes, as defined by customers that perceive a connection betweensection, occur. We have performed an analysis of our Section 382 ownership changes and have determined that the activitiesutilization of certain of our net operating loss carryforwards in the United States Government andis limited. Further, recent changes to the tax law in the United States companies.and changes to tax laws in other jurisdictions in which we operate may impact our utilization of our net operating losses.

Risk Factors Related to Our Indebtedness

We have substantial debt which we may not be able to repay when due.

Our total indebtedness, at par, at December 31, 20192021 was $967.9 million$1.1 billion and included $189.2includes $500.0 million of our 5.625% senior unsecured notes, $445.0 million of our 5.375%3.50% senior secured notes and €135.0€350.0 million of our 4.375% senior unsecured notes. Our $189.2$500.0 million senior secured notes are due in May 2026 and require annual interest payments of $17.5 million per year - paid semi-annually. Our €350.0 million of senior unsecured notes are due in 2021 and require interest payments totaling $10.6 million per year. Our $445.0 million senior secured notes are due in March 2022 and require annual interest payments of $23.9 million per year. Our €135.0 million of senior unsecured notes are due inJune 2024 and require annual interest payments of €5.9€15.3 million per year.year - paid semi-annually. All of our noteholders have the right to be paid the principal upon default and upon certain designated events, such as certain changes of control. Our total indebtedness at December 31, 20192021 included $169.8$245.9 million of finance lease obligations for dark fiber primarily under 15 — 20 year IRUs and $12.5 million due under an installment payment agreement with a vendor.IRUs. Our total indebtedness at December 31, 20192021 excludes $96.8$124.0 million of operating lease liabilities which we were required to recordbe recorded as a right-to-use assetassets and operating lease liabilities in connection with the adoption of ASU No. 2016-02 Leases on January 1, 2019. The amount of our IRU finance lease obligations may be impacted due to our expansion activities, the timing of payments and fluctuations in foreign currency rates. The amount of US dollars required to fund our interest and principal obligations for our Euro-denominated notes may be impacted due to fluctuations in the Euro to US Dollar exchange rate. We may not have sufficient funds to pay the interest and principal related to these obligations at the time we are obligated to do so, which could result in bankruptcy, or we may only be able to raise the necessary funds on unfavorable terms.

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our notes and our other indebtedness.

We have substantial indebtedness. Our substantial debt may have important consequences. For instance, it could:

Table of Contents

We have assumed the risk associated with variable interest rates under our interest rate swap agreement.

Beginning in August 2021 we used a derivative financial instrument to manage our interest rate risk on our 2026 Notes. As of December 31, 2021, we were party to an interest rate swap agreement (the Swap Agreement”) that has the economic effect of modifying the fixed-interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”). The Swap Agreement is recorded at its fair value at each reporting period and we incur gains and losses due to changes in market interest rates. We have a $20.0 million interest-bearing deposit with the counterparty to the Swap Agreement. If the fair value of the Swap Agreement exceeds a net liability of $20.0 million, we will be required to deposit additional funds with the counterparty equal to the net liability fair value in excess of $20.0 million. As of December 31, 2021, the fair value of the Swap Agreement was a net liability of $9.0 million and, as a result, $9.0 million of the $20.0 million deposit was restricted and $11.0 million was unrestricted. The values that we report for the Swap Agreement as of each reporting date are recognized as interest expense with the corresponding amounts included in assets or liabilities in our consolidated balance sheets. By entering into this Swap Agreement, we have assumed the risk associated with variable interest rates based upon SOFR relate to our 2026 Notes. We did not elect hedge accounting for our Swap Agreement. We do not use derivative financial instruments for trading purposes.

Despite our leverage we may still be able to incur more debt. This could further exacerbate the risks that we and our subsidiaries face.

We and our subsidiaries may incur additional indebtedness, including additional secured indebtedness, in the future. The terms of our debt indentures restrict, but do not completely prohibit, us from doing so. In addition, the indentures allow us to issue additional notes and other indebtedness secured by the collateral under certain circumstances. Moreover, we are not prevented from incurring other liabilities that do not constitute indebtedness as defined in the indentures, including additional operating leases obligations and finance lease obligations in the form of IRUs. These liabilities may represent claims that are effectively prior to the claims of our note holders. If new debt or other liabilities are added to our debt levels the related risks that we and our subsidiaries now face could intensify.

The agreements governing our various debt obligations impose restrictions on our business and could adversely affect our ability to undertake certain corporate actions.

The agreements governing our various debt obligations include covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things:

Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities. The breach of any of these covenants or restrictions could result in a default under the agreements governing our debt obligations.

To service our indebtedness, we will require a significant amount of cash. However, our ability to generate cash depends on many factors many of which are beyond our control.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future, which, in turn, is subject to general economic, financial, competitive, regulatory and other factors, many of which are beyond our control.

Table of Contents

Our business may not generate sufficient cash flow from operations and we may not have available to us future borrowings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Table of Contents

Table of Contents

Table of Contents

NM - not meaningful

​

Table of Contents

Our on-net revenues increased 5.9%by 5.6% from 20182020 to 2019. We2021. Our on-net revenues increased as we increased the number of our on-net customer connections by 8.4%4.4% at December 31, 20192021 from December 31, 2018.2020. On-net customer connectionsrevenues increased at a greater rate than on-net revenuescustomer connections primarily due to the 3.8% declinean increase in our on-net ARPU primarily from a decline in ARPU for our net-centric customers.2020 to 2021 and the positive impact of foreign exchange. ARPU is determined by dividing revenue for the period by the average customer connections for that period. Our 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%decreased by 1.2% from 20182020 to 2019.2021. Our off-net revenues increased as we increaseddecreased primarily from the 5.2% decrease in our off-net ARPU from 2020 to 2021 offsetting the 5.8% increase in 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 due2020 to the 5.0% decrease in our off-net ARPU.December 31, 2021.

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'semployee’s salary and other compensation. Our network operations expenses, including non-cash equity-based compensation expense, increased 0.1%by 3.3% for 2021 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, 2018.2020. The increase in network operations expense is primarily attributable to an increase in costs related to our network and facilities expansion activities theand an increase in our off-net revenues andequity-based compensation expense from the increase in taxes recorded on a gross basisvesting of restricted employee shares, partly offset by price reductions obtained in certain of our leased circuit costs and fewerthe impact of a renewal of an IRU fiber lease agreement in the second quarter of 2020. When we adopted ASU 2016-02, we elected to apply certain practical expedients under ASU 2016-02 including not separating the lease and non-lease components of our finance and operating leases. When we provide off-net services we also assumeAs a result of accounting for this IRU renewal under ASU 2016-02, the costpresent value of $1.8 million of quarterly maintenance and co-location fees (non-lease components) that were previously accounted for as network operations expenses prior to the second quarter of 2020, were capitalized as a finance lease liability and right-of-use leased asset totaling $34.0 million. Amortization of the associated tail circuits.right-of-use asset is recorded as depreciation and amortization expense and the payments that are made toward the finance lease liability are recorded as a reduction of the finance lease liability and interest expense.

Selling, General, and Administrative Expenses (“SG&A”). Expenses.Our SG&A expenses, including non-cash equity-basedequity-based compensation expense, increased 9.8%by 2.5% for 2021 from 2018 to 2019.2020. Non-cash equity-based compensation expense is included in SG&A expenses consistent with the classification of the employee'semployee’s salary and other compensation and was $17.5 million for 2019 and $16.8 million for 2018.compensation. SG&A expenses increased primarily from an increase in salaries and related costs required to support our expansion and increases in our sales efforts, partly offset by a reduction in sales meeting and an increasetravel costs related to the COVID-19 pandemic and a reduction in our headcount.bad debt expense. Our sales force headcount increased by 10.8% from 619was 712 at December 31, 2018 to 6862020 and 633 at December 31, 20192021, and our total headcount increased by 8.3% from 974was 1,083 at December 31, 2018 to 1,0552020 and 1,001 at December 31, 2019.2021. We experienced an increase in both voluntary and involuntary employee departures, particularly within our sales department, in the third and fourth quarters of 2021. We believe that this rise in departures was attributable both to an increased focus on monitoring sales productivity and to the unwillingness of some employees to be vaccinated and/or to return to a full-time, in-office environment.

Depreciation and Amortization Expenses.Our depreciation and amortization expenses decreased 1.2%expense increased by 6.9% for 2021 from 2018 to 2019.2020. The decreaseincrease is primarily due to the depreciation expense associated with the increase relatedin deployed fixed assets and the impact of a renewal of an IRU fiber lease agreement in the second quarter of 2020. As a result of accounting for this IRU renewal under ASU 2016-02, the present value of $1.8 million of quarterly maintenance and co-location fees (non-lease components) that were previously accounted for as network operations expenses prior to the second quarter of 2020, were capitalized as a finance lease liability and right-of-use leased asset totaling $34.0 million. Amortization of the right-of-use asset is recorded as depreciation and amortization expense and the payments that are made toward the finance lease liability are recorded as a reduction of the finance lease liability and interest expense.

Interest Expense and Losses on Debt Extinguishment and Redemptions. Our interest expense resulted from interest incurred on our $445.0 million of our 2022 Notes until these notes were fully extinguished in May 2021, interest incurred on our €350.0 million of 2024 Notes, interest incurred on our $500.0 million of 2026 Notes that we issued in May 2021, interest incurred on our installment payment agreement and interest incurred on our finance lease obligations. We issued €215.0 million of our 2024 Notes in June 2020 and €135.0 million of our 2024 Notes were issued in June 2019. In June 2020, we redeemed and extinguished our $189.2 million of 2021 Notes at par value resulting in a loss on debt extinguishment and redemption of $0.6 million for the year ended December 31, 2020. In March 2021, we redeemed and extinguished $115.9 million of our 2022 Notes at 103.24% of par value resulting in a loss on debt extinguishment and redemption of $3.9 million and reduced the par value from $445.0 million to $329.1 million. In May 2021, we extinguished the remaining $329.1 million of our 2022 Notes at par value and deposited funds with the trustee to pay $11.5 million of interest through December 1, 2021 resulting in a loss on debt extinguishment and redemption of $10.8 million for the year ended December 31, 2021.

Table of Contents

newly deployedIn August 2021 we entered into our Swap Agreement that has the economic effect of modifying the fixed interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on SOFR so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR. The Swap Agreement is recorded at its fair value at each reporting period, and we incurs gains and losses due to changes in market interest rates. The values that we report for the Swap Agreement as of each reporting date are recognized as non-cash interest expense with the corresponding amounts included in assets being offset byor liabilities in our consolidated balance sheets. As of December 31, 2021 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 amountour Swap Agreement was a net liability of the returned used network equipment$9.0 million and the cash paid. The increasewe recorded an unrealized loss as interest expense related to our Swap Agreement of $9.0 million 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 on2021. We did not elect hedge accounting for 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.Swap Agreement. Our interest expense increased by 12.5% for 20197.3% from 20182020 to 2021. This increase was primarily due to the issuance of $70.0reduction in interest expense from the lower interest rate on our new 2026 Notes as compared to our extinguished 2022 Notes being offset by the additional $9.0 million of senior secured notesadditional non-cash interest expense we issued in August 2018, the issuance of €135.0recorded related to our Swap Agreement.

Realized Gain and Unrealized Gain (Loss) on Foreign Exchange – 2024 Notes. In June 2020, our €215.0 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)a Euro to USD rate of $1.112. We received proceeds in USD on the 2024 Notes on June 25, 2019. The9, 2020 at a Euro to USD rate of $1.133 resulting in a realized gain on foreign exchange of $2.5 million. Our 2024 Notes were issued in Euros and are reported in our reporting currency —– US Dollars. As of December 31, 2019 the2021, our 2024 Notes were valued at $151.4 million resulting in an$397.0 million. Our unrealized gain (loss) on foreign exchange of $2.3on our 2024 Notes from converting our 2024 Notes into USD was $32.5 million in 2019.for 2021 and $(37.0) million for 2020. We have not entered into hedging arrangements for our foreign currency obligations.

Income Tax Expense.Our income tax expense was $15.1$23.2 million for 20192021 and $12.7$4.1 million for 2018.2020. The increase in our income tax expense wasis primarily related to an increase in certain non-deductible expenses and the increase in our income before income taxes.

Buildings On-net.As of December 31, 20192021 and 20182020, we had a total of 2,8013,035 and 2,6762,914 on-net buildings connected to our network, respectively. The increase in our on-net buildings was a result of our disciplined network expansion program. We anticipate adding a similar number of buildings to our network for the next several years.

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017Liquidity and Capital Resources

OurIn assessing our liquidity, management reviews and analyzes several key financial measures in order to manageour current cash balances, accounts receivable, accounts payable, accrued liabilities, capital expenditure commitments, and required finance lease and debt payments and other obligations. As our business has grown as a result of an increasing customer base, broader geographic coverage and assessincreased traffic on our network, we have produced a growing level of operating cash flow. As a result of the quality of and variabilityoperating leverage of our service revenue, operating results and cash flows. The following summary tables present a comparison ofnetwork, our results of operations with respect to certain key financial measures. The comparisons illustrated in the tables are discussed in greater detail below.