Cogent Communications (CCOI) 10-Q 2 Nov 17 2017 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 31, 2017
Document and Entity Information
Entity Registrant Name	COGENT COMMUNICATIONS HOLDINGS, INC.
Entity Central Index Key	1,158,324
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		45,954,976
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q3

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 250,765	$ 274,319
Accounts receivable, net of allowance for doubtful accounts of $2,044 and $1,734, respectively	39,118	33,598
Prepaid expenses and other current assets	20,427	19,706
Total current assets	310,310	327,623
Property and equipment, net	381,010	361,641
Deferred tax assets, net	32,668	42,241
Deposits and other assets $727 and $128 restricted, respectively	5,872	6,387
Total assets	729,860	737,892
Current liabilities:
Accounts payable	12,314	11,551
Accrued and other current liabilities	47,449	47,149
Installment payment agreement, current portion, net of discount of $309 and $204, respectively	7,090	2,587
Current maturities, capital lease obligations	6,698	6,626
Total current liabilities	73,551	67,913
Senior secured 2022 notes, net of unamortized debt costs of $1,969 and $2,257, respectively and including premium of $402 and $462, respectively	373,433	373,205
Senior unsecured 2021 notes, net of unamortized debt costs of $2,200 and $2,575, respectively	187,025	186,650
Capital lease obligations, net of current maturities	147,623	135,335
Other long term liabilities	28,351	28,043
Total liabilities	809,983	791,146
Commitments and contingencies:
Stockholders' equity:
Common stock, $0.001 par value; 75,000,000 shares authorized; 45,946,226 and 45,478,787 shares issued and outstanding, respectively	46	45
Additional paid-in capital	452,369	442,799
Accumulated other comprehensive income-foreign currency translation	(5,912)	(17,193)
Accumulated deficit	(526,626)	(478,905)
Total stockholders' deficit	(80,123)	(53,254)
Total liabilities and stockholders' equity	$ 729,860	$ 737,892

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Assets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 2,044	$ 1,734
Deposits and other assets, restricted (in dollars)	727	128
Liabilities and stockholders' equity
Installment payment agreement, discount	$ 309	$ 204
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	45,946,226	45,478,787
Common stock, shares outstanding	45,946,226	45,478,787
Senior unsecured 2021 notes
Liabilities and stockholders' equity
Unamortized debt costs	$ 2,200	$ 2,575
Senior secured 2022 notes
Liabilities and stockholders' equity
Unamortized debt costs	1,969	2,257
Unamortized debt premium	$ 402	$ 462

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Service Revenue
Service revenue	$ 122,969	$ 113,057	$ 359,949	$ 331,304
Operating expenses:
Network operations	53,584	48,827	155,362	143,976
Selling, general, and administrative	32,915	30,050	96,165	89,403
Depreciation and amortization	19,147	18,804	56,583	55,161
Total operating expenses	105,646	97,681	308,110	288,540
Losses on debt purchases and installment loan repayment				(587)
Gains on equipment transactions	397	687	3,543	7,071
Operating income	17,720	16,063	55,382	49,248
Interest income and other, net	1,632	207	3,502	677
Interest expense	(12,266)	(9,891)	(36,245)	(30,200)
Income before income taxes	7,086	6,379	22,639	19,725
Income tax provision	(3,436)	(2,920)	(10,536)	(8,688)
Net income	3,650	3,459	12,103	11,037
Comprehensive income:
Net income	3,650	3,459	12,103	11,037
Foreign currency translation adjustment	3,790	688	11,281	2,795
Comprehensive income	$ 7,440	$ 4,147	$ 23,384	$ 13,832
Net income per common share:
Basic and diluted net income per common share (in dollars per share)	$ 0.08	$ 0.08	$ 0.27	$ 0.25
Dividends declared per common share (in dollars per share)	$ 0.46	$ 0.38	$ 1.32	$ 1.11
Weighted-average common shares - basic (in shares)	44,767,163	44,574,583	44,787,067	44,563,279
Weighted-average common shares - diluted (in shares)	45,118,607	44,816,860	45,083,765	44,796,259

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Network operations, equity-based compensation expense	$ 179	$ 161	$ 431	$ 427
Selling, general, and administrative, equity-based compensation expense	$ 3,555	$ 2,830	$ 9,175	$ 7,432

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net income	$ 12,103	$ 11,037
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	56,583	55,161
Amortization of debt discount and premium	899	879
Equity-based compensation expense (net of amounts capitalized)	9,606	7,859
Losses on debt purchases and installment loan repayment		587
Gains - equipment transactions and other, net	(4,394)	(7,124)
Deferred income taxes	9,835	8,453
Changes in operating assets and liabilities:
Accounts receivable	(4,317)	(2,478)
Prepaid expenses and other current assets	645	(3,256)
Accounts payable, accrued liabilities and other long-term liabilities	(1,411)	4,499
Deposits and other assets	793	(1,529)
Net cash provided by operating activities	80,342	74,088
Cash flows from investing activities:
Purchases of property and equipment	(35,183)	(38,039)
Net cash used in investing activities	(35,183)	(38,039)
Cash flows from financing activities:
Dividends paid	(59,824)	(50,011)
Purchases of common stock	(1,829)	(1,666)
Purchases of senior unsecured 2021 notes		(10,775)
Proceeds from exercises of stock options	919	894
Principal payments on installment payment agreement	(2,183)	(21,203)
Principal payments of capital lease obligations	(9,368)	(9,658)
Net cash used in financing activities	(72,285)	(92,419)
Effect of exchange rate changes on cash	3,572	930
Net decrease in cash and cash equivalents	(23,554)	(55,440)
Cash and cash equivalents, beginning of period	274,319	203,591
Cash and cash equivalents, end of period	250,765	148,151
Supplemental disclosure of non-cash financing activities:
Non-cash component of network equipment obtained in exchange transactions	3,509	7,071
PP&E obtained for installment payment agreement	6,577	2,746
Fair value of equipment acquired in leases		1,744
Capital lease obligations incurred	$ 18,105	$ 13,120

Description of the business and

Description of the business and recent developments:	9 Months Ended
	Sep. 30, 2017
Description of the business and recent developments:
Description of the business and recent developments:	1. Description of the business and recent developments: Reorganization and merger On May 15, 2014, pursuant to the Agreement and Plan of Reorganization (the “Merger Agreement”) by and among Cogent Communications Group, Inc. (“Group”), a Delaware corporation, Cogent Communications Holdings, Inc., a Delaware corporation (“Holdings”) and Cogent Communications Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Group adopted a new holding company organizational structure whereby Group is now a wholly owned subsidiary of Holdings. Holdings is a “successor issuer” to Group pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In connection with the succession, the common stock of Holdings is deemed to be registered under Section 12(b) of the Exchange Act by operation of law. References to the “Company” for events that occurred prior to May 15, 2014 refer to Cogent Communications Group, Inc. and its subsidiaries and on and after May 15, 2014 the “Company” refers to Cogent Communications Holdings, Inc. and its subsidiaries. Description of business The Company is a Delaware corporation and is headquartered in Washington, DC. The Company is a facilities-based provider of low-cost, high-speed Internet access and Internet Protocol (“IP”) communications services. The Company’s network is specifically designed and optimized to transmit data using IP. The Company delivers its services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in North America, Europe and Asia. The Company offers on-net Internet access services exclusively through its own facilities, which run from its network to its customers’ premises. The Company is not dependent on local telephone companies to serve its customers for its on-net Internet access services because of its integrated network architecture. The Company offers its on-net services to customers located in buildings that are physically connected to its network. The Company’s on-net service consists of high-speed Internet access and IP connectivity ranging from 100 Megabits per second to 100 Gigabits per second of bandwidth. The Company provides its on-net Internet access services to its corporate and net-centric customers. The Company’s corporate customers are located in multi-tenant office buildings and typically include law firms, financial services firms, advertising and marketing firms and other professional services businesses. The Company’s net-centric customers include bandwidth-intensive users such as consortiums of universities, Internet service providers, telephone companies, cable television companies, web hosting companies, content delivery network companies and commercial content and application service providers. These net-centric customers obtain the Company’s services in carrier neutral data centers and in the Company’s data centers. The Company operates data centers throughout North America and Europe that allow its customers to collocate their equipment and access the Company’s network. In addition to providing its on-net services, the Company provides Internet connectivity to customers that are not located in buildings directly connected to its network. The Company provides this off-net service primarily to corporate customers using other carriers’ facilities to provide the “last mile” portion of the link from the customers’ premises to the Company’s network. The Company also provides certain non-core services that resulted from acquisitions. The Company continues to support but does not actively sell these non-core services. Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. While the Company believes that the disclosures are adequate to not make the information misleading, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in its annual report on Form 10-K for the year ended December 31, 2016. The accompanying unaudited consolidated financial statements include all wholly-owned subsidiaries. All inter-company accounts and activity have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. Financial instruments At September 30, 2017, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of these instruments. The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1). Based upon recent trading prices (Level 2 — market approach) at September 30, 2017 the fair value of the Company’s $189.2 million senior unsecured notes was $194.9 million and the fair value of the Company’s $375.0 million senior secured notes was $396.6 million. The Company was party to letters of credit totaling $0.7 million as of September 30, 2017 and $0.1 million as of December 31, 2016. These letters of credit are secured by investments that are restricted and included in other assets. Gross receipts taxes, universal service fund and other surcharges Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state regulatory fees. Such charges may be presented gross or net based upon the Company’s accounting policy election. The Company records certain excise taxes and surcharges on a gross basis and includes them in its service revenue and cost of network operations. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $2.7 million and $2.4 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and $8.0 million and $6.5 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. Basic and diluted net income per common share Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common stock equivalents. Shares of restricted stock are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury stock method. The Company’s employees exercised options for 12,743 and 10,995 common shares for the three months ended September 30, 2017 and 2016, respectively, and exercised options for 30,656 and 39,473 common shares for the nine months ended September 30, 2017 and 2016, respectively. The following details the determination of diluted weighted average shares: Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended Weighted average common shares - basic Dilutive effect of stock options Dilutive effect of restricted stock Weighted average common shares - diluted The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock options and restricted stock awards outstanding: Three Months Three Months Nine Months Nine Months Unvested shares of restricted common stock Anti-dilutive options for common stock Anti-dilutive shares of restricted common stock — Recent Accounting Pronouncements—to be Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). This ASU will replace most existing lease accounting guidance when it becomes effective. The new standard is effective for the Company beginning on January 1, 2019. Early application is permitted. ASU 2016-02 must be adopted using the modified retrospective approach for all leases that exist at or commence after the beginning of the earliest comparative period presented (with the option to apply certain practical expedients), which for the Company will be the period beginning January 1, 2017. ASU 2016-02 will require the Company to record a right to use asset and a lease liability for most of its leases, including its leases currently treated as operating leases. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures and will elect to apply certain practical expedients. The Company has not yet determined the effect of ASU 2016-02 on its ongoing financial reporting or quantified the impact to its balance sheet, however it does expect that the right to use asset and lease liability recorded will be material. The Company does not expect to early adopt ASU 2016-02. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for the Company on January 1, 2018. Early application is permitted for annual periods beginning after December 15, 2016. ASU 2014-09 permits the use of either the full retrospective or modified retrospective transition method. The Company anticipates adopting ASU 2014-09 using the modified retrospective transition method on January 1, 2018. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial application. The Company does not expect to early adopt ASU 2014-09. The Company has not quantified the effect of adopting ASU 2014-09, however it anticipates that the period for which it recognizes revenue for fees billed in connection with customer installations will change. The Company expects that revenues will be recognized over the contract term for installation fees associated with customer contracts with terms that are longer than month-to-month, which may be a shorter period than the average customer life currently used, because the fee does not give rise to a material right as defined by ASU 2014-09. The Company expects that revenues will be recognized over the estimated average customer life for installation fees associated with month-to-month contracts, because the fee represents a material right as defined by ASU 2014-09. The impact of adopting ASU 2014-09 on the Company’s total service revenue and operating income is not expected to be material. Additionally, the Company will be required to capitalize certain contract acquisition costs, including commissions paid to its sales team and agents, and to amortize these costs over the period the services are transferred to the customer for commissions paid to its sales team and over the remaining contract term for agent commissions. The Company currently expenses these contract acquisition costs as incurred. In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments”. This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures.

Property and equipment_

Property and equipment:	9 Months Ended
	Sep. 30, 2017
Property and equipment:
Property and equipment:	2. Property and equipment: Depreciation and amortization expense related to property and equipment and capital leases was $19.1 million and $18.8 million for the three months ended September 30, 2017, and 2016 respectively, and $56.6 million and $55.2 million for the nine months ended September 30, 2017 and 2016, respectively. The Company capitalized salaries and related benefits of employees working directly on the construction and build-out of its network of $2.5 million and $2.2 million for the three months ended September 30, 2017 and 2016, respectively, and $7.2 million and $6.6 million for the nine months ended September 30, 2017 and 2016, respectively. Exchange agreement In the three and nine months ended September 30, 2017 and 2016, the Company exchanged certain used network equipment and cash consideration for new network equipment. The fair value of the equipment received was estimated to be $1.0 million and $1.6 million for the three months ended September 30, 2017 and 2016, respectively, and $7.9 million and $14.1 million for the nine months ended September 30, 2017 and 2016, respectively and after considering the cash component the transactions resulted in gains of $0.4 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $3.5 million and $7.1 million for the nine months ended September 30, 2017 and 2016, respectively. The estimated fair value of the equipment received was based upon the cash consideration price the Company pays for the new network equipment on a standalone basis (Level 3). Installment payment agreement In March 2015, the Company entered into an installment payment agreement (“IPA”) with a vendor. Under the IPA the Company was able to purchase network equipment in exchange for interest free note obligations each with a twenty-four month term. There are no payments under each note obligation for the first six months followed by eighteen equal installment payments for the remaining eighteen month term. As of September 30, 2017, and December 31, 2016 there was $9.9 million and $5.5 million, respectively, of note obligations outstanding under the IPA, secured by the related equipment. The Company recorded the net present value of the note obligation utilizing an imputed interest rate. The resulting discount was $0.3 million and $0.3 million as of September 30, 2017 and December 31, 2016, respectively, and is being amortized over the note term using the effective interest rate method.

Long-term debt_

Long-term debt:	9 Months Ended
	Sep. 30, 2017
Long-term debt:
Long-term debt:	3. Long-term debt: Limitations under the indentures The Company has $189.2 million of senior notes and $375.0 million of senior secured notes outstanding. The $189.2 million of senior notes are due on April 15, 2021 (the “2021 Notes”) and bear interest at a rate of 5.625% per year. Interest is paid semi-annually on April 15 and October 15. In the second quarter of 2016, the Company paid $10.9 million for the purchase of $10.8 million of par value and accrued interest on its 2021 Notes reducing the principal amount to $189.2 million (from the original principal amount of $200.0 million) resulting in a loss of $0.2 million. The loss resulted from the write off of the remaining unamortized debt issuance costs related to the purchased notes. The $375.0 million of senior secured notes are due on March 1, 2022 (the “2022 Notes”) and bear interest at a rate of 5.375% per year. Interest is paid semi-annually on March 1 and September 1. The indentures governing the 2022 Notes and 2021 Notes, among other things, limit the Company’s ability to incur indebtedness; to pay dividends or make other distributions; to make certain investments and other restricted payments; to create liens; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; to incur restrictions on the ability of a subsidiary to pay dividends or make other payments; and to enter into certain transactions with its affiliates. Limitations on the ability to incur additional indebtedness (excluding IRU agreements incurred in the normal course of business) include a restriction on incurring additional indebtedness if the Company’s consolidated leverage ratio, as defined in the indentures, is greater than 5.0. The indentures prohibit certain payments, such as dividends and stock purchases, when the Company’s consolidated leverage ratio, as defined by the indentures, is greater than 4.25. A certain amount of such unrestricted payments is permitted notwithstanding this prohibition. The unrestricted payment amount may be increased by the Company’s consolidated cash flow, as defined in the indentures, as long as the Company’s consolidated leverage ratio is less than 4.25. The Company’s consolidated leverage ratio is above 4.25 as of September 30, 2017. As of September 30, 2017, a total of $86.1 million ($84.2 million held by Holdings) was permitted for investment payments including dividends and stock purchases.

Commitments and contingencies_

Commitments and contingencies:	9 Months Ended
	Sep. 30, 2017
Commitments and contingencies:
Commitments and contingencies:	4. Commitments and contingencies : Current and potential litigation In accordance with the accounting guidance for contingencies, the Company accrues its estimate of a contingent liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no amount in the range is more likely than any other amount, the Company accrues at the low end of the range. The Company reviews its accruals at least quarterly and adjusts them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible could result in a loss of up to $2.6 million in excess of the amount accrued at September 30, 2017. In December 2011, certain former sales employees of the Company filed a collective action against the Company in the United States District Court, Southern District of Texas, Houston Division alleging misclassification of the Company’s sales employees throughout the United States in violation of the Fair Labor Standards Act. The lawsuit sought to recover pay for allegedly unpaid overtime and other damages, including attorney’s fees. In March 2014, the judge de-certified the collective action. Each of the former employees that opted-in to the collective action retained the right to file an individual action. Approximately 70 former employees did so. The Company has settled a number of the cases that were filed and made the required settlement payments. Currently, only one case in California remains (Ambrosia v. Cogent Communications, Inc. in the U. S. District Court for the Northern District of California). The parties have agreed to a settlement under which the Company will pay $3.1 million to settle the claims. The $3.1 million settlement, which was recorded in the fourth quarter of 2016 and was accrued at September 30, 2017, was paid in October 2017. In March 2015 the Company elected to terminate certain IRU capital lease obligations in Spain with a vendor. Under its estimate of the termination provisions of the related contracts the Company has recorded an estimated termination liability of $8.9 million included in accrued and other current liabilities. The Company has disputed the amount of termination liability with the vendor. This vendor filed arbitration proceedings in Civil and Commercial Arbitration Court (CIMA) in Madrid, Spain against the Company to recover the amount of termination liability. In September 2017 the Arbitral Tribunal was established to decide this dispute. In the ordinary course of business the Company is involved in other legal activities and claims. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the liability related to these legal actions and claims cannot be determined with certainty. Management does not believe that such claims and actions will have a material impact on the Company’s financial condition or results of operations. Judgment is required in estimating the ultimate outcome of any dispute resolution process, as well as any other amounts that may be incurred to conclude the negotiations or settle any litigation. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

Income taxes_

Income taxes:	9 Months Ended
	Sep. 30, 2017
Income taxes:
Income taxes:	5. Income taxes: The components of income before income taxes consist of the following (in thousands): Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended Domestic $ $ $ $ Foreign ) ) ) ) Total $ $ $ $

Common stock buyback program_

Common stock buyback program:	9 Months Ended
	Sep. 30, 2017
Common stock buyback program:
Common stock buyback program:	6. Common stock buyback program: The Company’s Board of Directors has approved purchases of the Company’s common stock under a buyback program (the “Buyback Program”) through December 31, 2018. At September 30, 2017, there was $41.5 million remaining for purchases under the Buyback Program. During the three months ended September 30, 2016 the Company purchased 46,983 shares of its common stock for $1.7 million. There were no purchases during the three months ended September 30, 2017. During the nine months ended September 30, 2017 and September 30, 2016 the Company purchased 46,750 and 46,983 shares of its common stock for $1.8 million and $1.7 million, respectively.

Dividends on common stock_

Dividends on common stock:	9 Months Ended
	Sep. 30, 2017
Dividends on common stock:
Dividends on common stock:	7. Dividends on common stock: Dividends are recorded as a reduction to retained earnings. Dividends on unvested restricted shares of common stock are paid as the awards vest. On November 1, 2017, the Company’s Board of Directors approved the payment of its quarterly dividend of $0.48 per common share. This dividend for the fourth quarter of 2017 will be paid to holders of record on November 17, 2017. This estimated $21.5 million dividend payment is expected to be made on December 4, 2017. The payment of any future dividends and any other returns of capital, including stock buybacks will be at the discretion of the Company’s Board of Directors and may be reduced, eliminated or increased and will be dependent upon the Company’s financial position, results of operations, available cash, cash flow, capital requirements, limitations under the Company’s debt indentures and other factors deemed relevant by the Company’s Board of Directors. The Company is a Delaware Corporation and under the General Corporate Law of the State of Delaware distributions may be restricted including a restriction that distributions, including stock purchases and dividends, do not result in an impairment of a corporation’s capital, as defined under Delaware Law. The indentures governing the Company’s notes limit the Company’s ability to return cash to its stockholders.

Related party transactions_

Related party transactions:	9 Months Ended
	Sep. 30, 2017
Related party transactions:
Related party transactions:	8. Related party transactions: Office leases The Company’s headquarters is located in an office building owned by Sodium LLC whose two owners are the Company’s Chief Executive Officer, who has a 51% interest in Sodium LLC and his wife who has a 49% interest. The fixed annual rent for the headquarters building is $1.0 million per year plus an allocation of taxes and utilities. The lease began in May 2015 and the lease term is for five years which is cancellable by the Company upon 60 days’ notice. The Company’s audit committee reviews and approves all transactions with related parties. The Company paid $0.4 million and $0.5 million in the three months ended September 30, 2017 and 2016, respectively, and $1.2 million and $1.3 million in the nine months ended September 30, 2017 and 2016, respectively, for rent and related costs (including taxes and utilities) to these lessors for these leases.

Segment information_

Segment information:	9 Months Ended
	Sep. 30, 2017
Segment information:
Segment information:	9. Segment information: The Company operates as one operating segment. The Company’s service revenue and long lived assets by geographic region are as follows (in thousands): Three Months Three Months Nine Months Nine Months Service revenue North America $ $ $ $ Europe Total $ $ $ $ September 30, December 31, Long lived assets, net North America $ $ Europe Total $ $ The majority of North American revenue consists of services delivered within the United States.

Description of the business a16

Description of the business and recent developments: (Policies)	9 Months Ended
	Sep. 30, 2017
Description of the business and recent developments:
Basis of presentation	Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. While the Company believes that the disclosures are adequate to not make the information misleading, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in its annual report on Form 10-K for the year ended December 31, 2016. The accompanying unaudited consolidated financial statements include all wholly-owned subsidiaries. All inter-company accounts and activity have been eliminated.
Use of estimates	Use of estimates The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Financial instruments	Financial instruments At September 30, 2017, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of these instruments. The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1). Based upon recent trading prices (Level 2 — market approach) at September 30, 2017 the fair value of the Company’s $189.2 million senior unsecured notes was $194.9 million and the fair value of the Company’s $375.0 million senior secured notes was $396.6 million. The Company was party to letters of credit totaling $0.7 million as of September 30, 2017 and $0.1 million as of December 31, 2016. These letters of credit are secured by investments that are restricted and included in other assets.
Gross receipts taxes, universal service fund and other surcharges	Gross receipts taxes, universal service fund and other surcharges Revenue recognition standards include guidance relating to taxes or surcharges assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer and may include, but are not limited to, gross receipts taxes, excise taxes, Universal Service Fund fees and certain state regulatory fees. Such charges may be presented gross or net based upon the Company’s accounting policy election. The Company records certain excise taxes and surcharges on a gross basis and includes them in its service revenue and cost of network operations. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $2.7 million and $2.4 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and $8.0 million and $6.5 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.
Basic and diluted net income per common share	Basic and diluted net income per common share Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common stock equivalents. Shares of restricted stock are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury stock method. The Company’s employees exercised options for 12,743 and 10,995 common shares for the three months ended September 30, 2017 and 2016, respectively, and exercised options for 30,656 and 39,473 common shares for the nine months ended September 30, 2017 and 2016, respectively. The following details the determination of diluted weighted average shares: Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended Weighted average common shares - basic Dilutive effect of stock options Dilutive effect of restricted stock Weighted average common shares - diluted The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock options and restricted stock awards outstanding: Three Months Three Months Nine Months Nine Months Unvested shares of restricted common stock Anti-dilutive options for common stock Anti-dilutive shares of restricted common stock —
Recent Accounting Pronouncements - to be Adopted	Recent Accounting Pronouncements—to be Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). This ASU will replace most existing lease accounting guidance when it becomes effective. The new standard is effective for the Company beginning on January 1, 2019. Early application is permitted. ASU 2016-02 must be adopted using the modified retrospective approach for all leases that exist at or commence after the beginning of the earliest comparative period presented (with the option to apply certain practical expedients), which for the Company will be the period beginning January 1, 2017. ASU 2016-02 will require the Company to record a right to use asset and a lease liability for most of its leases, including its leases currently treated as operating leases. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures and will elect to apply certain practical expedients. The Company has not yet determined the effect of ASU 2016-02 on its ongoing financial reporting or quantified the impact to its balance sheet, however it does expect that the right to use asset and lease liability recorded will be material. The Company does not expect to early adopt ASU 2016-02. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for the Company on January 1, 2018. Early application is permitted for annual periods beginning after December 15, 2016. ASU 2014-09 permits the use of either the full retrospective or modified retrospective transition method. The Company anticipates adopting ASU 2014-09 using the modified retrospective transition method on January 1, 2018. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial application. The Company does not expect to early adopt ASU 2014-09. The Company has not quantified the effect of adopting ASU 2014-09, however it anticipates that the period for which it recognizes revenue for fees billed in connection with customer installations will change. The Company expects that revenues will be recognized over the contract term for installation fees associated with customer contracts with terms that are longer than month-to-month, which may be a shorter period than the average customer life currently used, because the fee does not give rise to a material right as defined by ASU 2014-09. The Company expects that revenues will be recognized over the estimated average customer life for installation fees associated with month-to-month contracts, because the fee represents a material right as defined by ASU 2014-09. The impact of adopting ASU 2014-09 on the Company’s total service revenue and operating income is not expected to be material. Additionally, the Company will be required to capitalize certain contract acquisition costs, including commissions paid to its sales team and agents, and to amortize these costs over the period the services are transferred to the customer for commissions paid to its sales team and over the remaining contract term for agent commissions. The Company currently expenses these contract acquisition costs as incurred. In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments”. This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures.

Description of the business a17

Description of the business and recent developments: (Tables)	9 Months Ended
	Sep. 30, 2017
Description of the business and recent developments:
Schedule of diluted weighted average shares	Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended Weighted average common shares - basic Dilutive effect of stock options Dilutive effect of restricted stock Weighted average common shares - diluted
Schedule of unvested and anti-dilutive shares	Three Months Three Months Nine Months Nine Months Unvested shares of restricted common stock Anti-dilutive options for common stock Anti-dilutive shares of restricted common stock —

Income taxes_ (Tables)

Income taxes: (Tables)	9 Months Ended
	Sep. 30, 2017
Income taxes:
Schedule of components of income before income taxes	The components of income before income taxes consist of the following (in thousands): Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended Domestic $ $ $ $ Foreign ) ) ) ) Total $ $ $ $

Segment information_ (Tables)

Segment information: (Tables)	9 Months Ended
	Sep. 30, 2017
Segment information:
Schedule of service revenues and long lived assets by geographic region	The Company’s service revenue and long lived assets by geographic region are as follows (in thousands): Three Months Three Months Nine Months Nine Months Service revenue North America $ $ $ $ Europe Total $ $ $ $
Schedule of components of income (loss) before income taxes	September 30, December 31, Long lived assets, net North America $ $ Europe Total $ $

Description of the business a20

Description of the business and recent developments: (Details)	9 Months Ended
	Sep. 30, 2017MB
Minimum
On-net service - high-speed Internet access and IP connectivity
Speed per second of bandwidth (in megabits and gigabits)	100
Maximum
On-net service - high-speed Internet access and IP connectivity
Speed per second of bandwidth (in megabits and gigabits)	100

Description of the business a21

Description of the business and recent developments: Financial Instruments (Details) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Financial instruments
Letters of credit	$ 0.7	$ 0.1
Senior unsecured 2021 notes
Financial instruments
Senior notes	189.2
Senior unsecured 2021 notes | Level 2
Financial instruments
Senior notes, fair value	194.9
Senior secured 2022 notes
Financial instruments
Senior notes	375
Senior secured 2022 notes | Level 2
Financial instruments
Senior notes, fair value	$ 396.6

Description of the business a22

Description of the business and recent developments: Gross receipts taxes, universal service fund and other surcharges (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Gross receipts taxes, universal service fund and other surcharges
Excise taxes and surcharge	$ 2.7	$ 2.4	$ 8	$ 6.5

Description of the business a23

Description of the business and recent developments: Basic and diluted net income per common share (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Diluted weighted average shares
Weighted-average common shares - basic (in shares)	44,767,163	44,574,583	44,787,067	44,563,279
Weighted average common shares-diluted	45,118,607	44,816,860	45,083,765	44,796,259
Restricted stock
Diluted weighted average shares
Dilutive effect of awards (in shares)	319,045	212,877	267,637	199,188
Anti-dilutive effects
Unvested shares of restricted common stock	1,175,235	999,464	1,175,235	999,464
Anti-dilutive shares	195		99,737	126,993
Stock options
Basic and diluted net income (loss) per common share
Options exercised during the period (in shares)	12,743	10,995	30,656	39,473
Diluted weighted average shares
Dilutive effect of awards (in shares)	32,399	29,400	29,061	33,792
Anti-dilutive effects
Anti-dilutive shares	54,908	75,687	52,064	87,611

Property and equipment_ (Detail

Property and equipment: (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Property and equipment:
Depreciation and amortization	$ 19,147	$ 18,804	$ 56,583	$ 55,161
Capitalized salaries and related benefits of employees	$ 2,500	$ 2,200	$ 7,200	$ 6,600

Property and equipment_ Exchang

Property and equipment: Exchange agreement (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Property and equipment
Gains from asset related transactions	$ 400	$ 700	$ 3,509	$ 7,071
Network equipment | Estimate | Level 3
Property and equipment
Fair value of equipment	$ 1,000	$ 1,600	$ 7,900	$ 14,100

Property and equipment_ Install

Property and equipment: Installment payment agreement (Details) - Network equipment - Note obligations $ in Millions	1 Months Ended
	Mar. 31, 2015payment	Sep. 30, 2017USD ($)	Dec. 31, 2016USD ($)
Installment payment agreement
Term of debt	24 months
Number of payments first six months | payment	0
Number of equal payments | payment	18
Remaining term	18 months
Outstanding obligation | $		$ 9.9	$ 5.5
Unamortized discount | $		$ 0.3	$ 0.3

Long-term debt_ (Details)

Long-term debt: (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Jun. 30, 2016	Sep. 30, 2017
Limitations under the Indentures
Permitted investments and payments		$ 86.1
Permitted investments and payments held by Holdings		$ 84.2
Minimum
Limitations under the Indentures
Consolidated leverage ratio		4.25
Senior unsecured 2021 notes
Limitations under the Indentures
Senior notes outstanding		$ 189.2
Interest rate (as a percent)		5.625%
Interest expense on original debt	$ 10.9
Interest expense on repurchased debt	10.8
Original principal amount	200
Principal amount	189.2
Loss on debt purchase	$ 0.2
Senior secured 2022 notes
Limitations under the Indentures
Senior notes outstanding		$ 375
Interest rate (as a percent)		5.375%
Restriction on incurring additional indebtedness | Minimum
Limitations under the Indentures
Consolidated leverage ratio		5
Restriction on certain payments | Minimum
Limitations under the Indentures
Consolidated leverage ratio		4.25
Increase in unrestricted payment amount | Maximum
Limitations under the Indentures
Consolidated leverage ratio		4.25

Commitments and contingencies_

Commitments and contingencies: (Details) $ in Millions	1 Months Ended	3 Months Ended	9 Months Ended
	Oct. 31, 2017USD ($)	Sep. 30, 2016USD ($)	Sep. 30, 2017USD ($)caseemployee
Current and potential litigation
Number of former employees | employee			70
Number of pending claims | case			1
Settlement amount		$ 3.1
Subsequent Event
Current and potential litigation
Settlement payment	$ 3.1
Accrued and other current liabilities
Current and potential litigation
Estimate of possible loss			$ 8.9
Maximum | Leased circuits
Current and potential litigation
Estimate of possible loss			$ 2.6

Income taxes_ (Details)

Income taxes: (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Components of income before income taxes
Domestic	$ 12,210	$ 11,971	$ 37,266	$ 36,589
Foreign	(5,124)	(5,592)	(14,627)	(16,864)
Income before income taxes	$ 7,086	$ 6,379	$ 22,639	$ 19,725

Common stock buyback programs_

Common stock buyback programs: (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Common stock buyback program:
Remaining authorized amount for common stock repurchases	$ 41.5		$ 41.5
Repurchase of common stock (in shares)	0	46,983	46,750	46,983
Cost of shares of common stock repurchase under buyback program		$ 1.7	$ 1.8	$ 1.7

Dividends on common stock_ (Det

Dividends on common stock: (Details) - USD ($) $ / shares in Units, $ in Thousands	Dec. 04, 2017	Nov. 01, 2017	Sep. 30, 2017	Sep. 30, 2016
Dividends on common stock and return of capital program
Dividends paid			$ 59,824	$ 50,011
Expected
Dividends on common stock and return of capital program
Quarterly dividend payment approved (per share)		$ 0.48
Dividends paid	$ 21,500

Related party transactions_ (De

Related party transactions: (Details) $ in Millions	1 Months Ended	3 Months Ended		9 Months Ended
	May 31, 2015	Sep. 30, 2017USD ($)	Sep. 30, 2016USD ($)	Sep. 30, 2017USD ($)Owner	Sep. 30, 2016USD ($)
Sodium LLC Lease
Office lease
Number of owners | Owner				2
Fixed annual rent				$ 1
Lease term (in years)	5 years
Notice period for cancellation of lease	60 days
Payment for rent and related costs (in dollars)		$ 0.4	$ 0.5	$ 1.2	$ 1.3
CEO
Office lease
Ownership interest of related parties held in the partnership (as a percent)				51.00%
Chief Executive Officer's wife
Office lease
Ownership interest of related parties held in the partnership (as a percent)				49.00%

Segment information_ (Details)

Segment information: (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017USD ($)	Sep. 30, 2016USD ($)	Sep. 30, 2017USD ($)segment	Sep. 30, 2016USD ($)	Dec. 31, 2016USD ($)
Segment information
Number of operating segments | segment			1
Service revenue	$ 122,969	$ 113,057	$ 359,949	$ 331,304
Long lived assets, net	381,035		381,035		$ 361,665
North America
Segment information
Service revenue	101,450	94,597	298,942	276,080
Long lived assets, net	284,296		284,296		285,651
Europe
Segment information
Service revenue	21,519	$ 18,460	61,007	$ 55,224
Long lived assets, net	$ 96,739		$ 96,739		$ 76,014