Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Oct. 31, 2018 | |
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, 2018 | |
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 | 46,471,871 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 284,558 | $ 247,011 |
Accounts receivable, net of allowance for doubtful accounts of $1,614 and $1,499, respectively | 40,993 | 39,096 |
Prepaid expenses and other current assets | 32,956 | 20,011 |
Total current assets | 358,507 | 306,118 |
Property and equipment, net | 381,004 | 381,282 |
Deferred tax assets | 6,326 | 17,616 |
Deposits and other assets | 11,482 | 5,572 |
Total assets | 757,319 | 710,588 |
Current liabilities: | ||
Accounts payable | 8,262 | 11,592 |
Accrued and other current liabilities | 46,728 | 47,947 |
Installment payment agreement, current portion, net of discount of $450 and $337, respectively | 8,617 | 7,816 |
Current maturities, capital lease obligations | 8,665 | 7,171 |
Total current liabilities | 72,272 | 74,526 |
Senior secured 2022 notes, net of unamortized debt costs of $2,887 and $1,870, respectively and including premium of $1,507 and $382, respectively | 443,620 | 373,512 |
Senior unsecured 2021 notes, net of unamortized debt costs of $1,625 and $2,060, respectively | 187,600 | 187,165 |
Capital lease obligations, net of current maturities | 152,954 | 150,333 |
Other long term liabilities | 26,717 | 27,596 |
Total liabilities | 883,163 | 813,132 |
Commitments and contingencies: | ||
Stockholders' equity: | ||
Common stock, $0.001 par value; 75,000,000 shares authorized; 46,461,371 and 45,960,799 shares issued and outstanding, respectively | 46 | 46 |
Additional paid-in capital | 472,817 | 456,696 |
Accumulated other comprehensive income - foreign currency translation | (8,672) | (4,600) |
Accumulated deficit | (590,035) | (554,686) |
Total stockholders' deficit | (125,844) | (102,544) |
Total liabilities and stockholders' deficit | $ 757,319 | $ 710,588 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Assets | ||
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 1,614 | $ 1,499 |
Liabilities and stockholders' equity | ||
Installment payment agreement, discount | $ 450 | $ 337 |
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 | 46,461,371 | 45,960,799 |
Common stock, shares outstanding | 46,461,371 | 45,960,799 |
Senior secured 2022 notes | ||
Liabilities and stockholders' equity | ||
Unamortized debt costs | $ 2,887 | $ 1,870 |
Unamortized debt premium | 1,507 | 382 |
Senior unsecured 2021 notes | ||
Liabilities and stockholders' equity | ||
Unamortized debt costs | $ 1,625 | $ 2,060 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Service revenue | ||||
Service revenue | $ 130,139 | $ 122,969 | $ 388,144 | $ 359,949 |
Operating expenses: | ||||
Network operations | 54,615 | 53,584 | 163,868 | 155,362 |
Selling, general, and administrative | 33,409 | 32,915 | 100,637 | 96,165 |
Depreciation and amortization | 20,276 | 19,147 | 60,280 | 56,583 |
Total operating expenses | 108,300 | 105,646 | 324,785 | 308,110 |
Gains on equipment transactions | 416 | 397 | 891 | 3,543 |
Operating income | 22,255 | 17,720 | 64,250 | 55,382 |
Interest income and other, net | 1,937 | 1,632 | 3,817 | 3,502 |
Interest expense | (12,767) | (12,266) | (37,547) | (36,245) |
Income before income taxes | 11,425 | 7,086 | 30,520 | 22,639 |
Income tax provision | (3,194) | (3,436) | (8,953) | (10,536) |
Net income | 8,231 | 3,650 | 21,567 | 12,103 |
Comprehensive income: | ||||
Net income | 8,231 | 3,650 | 21,567 | 12,103 |
Foreign currency translation adjustment | (485) | 3,790 | (4,072) | 11,281 |
Comprehensive income | $ 7,746 | $ 7,440 | $ 17,495 | $ 23,384 |
Net income per common share: | ||||
Net income (loss) per common share-basic (in dollars per share) | $ 0.18 | $ 0.48 | $ 0.27 | |
Net income (loss) per common share-diluted (in dollars per share) | 0.18 | 0.47 | 0.27 | |
Basic and diluted net income per common share (in dollars per share) | 0.18 | $ 0.08 | ||
Dividends declared per common share (in dollars per share) | $ 0.54 | $ 0.46 | $ 1.56 | $ 1.32 |
Weighted-average common shares - basic (in shares) | 45,105,830 | 44,767,163 | 45,096,472 | 44,787,067 |
Weighted-average common shares - diluted (in shares) | 45,699,635 | 45,118,607 | 45,591,217 | 45,083,765 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Network operations, equity-based compensation expense | $ 250 | $ 179 | $ 671 | $ 431 |
Selling, general, and administrative, equity-based compensation expense | $ 4,571 | $ 3,555 | $ 12,629 | $ 9,175 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Cash flows from operating activities: | ||
Net income | $ 21,567 | $ 12,103 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 60,280 | 56,583 |
Amortization of debt discount and premium | 1,126 | 899 |
Equity-based compensation expense (net of amounts capitalized) | 13,300 | 9,606 |
Gains - equipment transactions and other, net | (727) | (4,394) |
Deferred income taxes | 7,527 | 9,835 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (2,280) | (4,317) |
Prepaid expenses and other current assets | (663) | 645 |
Accounts payable, accrued liabilities and other long-term liabilities | (5,473) | (1,411) |
Deposits and other assets | (1,462) | 793 |
Net cash provided by operating activities | 93,195 | 80,342 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (39,000) | (35,183) |
Net cash used in investing activities | (39,000) | (35,183) |
Cash flows from financing activities: | ||
Dividends paid | (71,371) | (59,824) |
Net proceeds from issuance of 2022 secured notes - net of debt costs of $1,363 | 69,862 | |
Purchases of common stock | (1,829) | |
Proceeds from exercises of stock options | 1,520 | 919 |
Principal payments on installment payment agreement | (6,888) | (2,183) |
Principal payments of capital lease obligations | (8,158) | (9,368) |
Net cash used in financing activities | (15,035) | (72,285) |
Effect of exchange rates changes on cash | (1,613) | 3,572 |
Net increase (decrease) in cash and cash equivalents | 37,547 | (23,554) |
Cash and cash equivalents, beginning of period | 247,011 | 274,319 |
Cash and cash equivalents, end of period | 284,558 | 250,765 |
Supplemental disclosure of non-cash investing and financing activities: | ||
Non-cash component of network equipment obtained in exchange transactions | 876 | 3,509 |
PP&E obtained for installment payment agreement | 8,609 | 6,577 |
Capital lease obligations incurred | $ 15,074 | $ 18,105 |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) $ in Thousands | 9 Months Ended |
Sep. 30, 2018USD ($) | |
Senior secured 2022 notes | |
Debt costs | $ 1,363 |
Description of the business and
Description of the business and recent developments: | 9 Months Ended |
Sep. 30, 2018 | |
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, 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”). 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 services, private network services and data center colocation space. The Company’s network is specifically designed and optimized to transmit packet routed data. 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 and private network services exclusively through its own facilities, which run from its network to its customers’ premises. The Company is not dependent on local telephone companies or cable TV 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 private network services offered at speeds ranging from 100 Megabits per second to 100 Gigabits per second of bandwidth. The Company provides its on-net Internet access services and private network 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 other 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 colocation facilities 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 and private network services 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. Beginning in the second quarter of 2018 the Company began to offer and sell its software-defined wide area network (“SDWAN”) service. 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, 2017. The accompanying unaudited condensed 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, 2018, 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, 2018 the fair value of the Company’s $189.2 million senior unsecured notes was $190.6 million and the fair value of the Company’s $445.0 million senior secured notes was $449.5 million. 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 revenues and costs of network operations. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $3.0 million and $2.7 million for the three months ended September 30, 2018 and September 30, 2017, respectively, and $9.3 million and $8.0 million for the nine months ended September 30, 2018 and September 30, 2017, 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 or (loss) 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 14,057 and 12,743 common shares for the three months ended September 30, 2018 and 2017, and exercised options for 44,753 and 30,656 common shares for the nine months ended September 30, 2018 and 2017, respectively. The following details the determination of diluted weighted average shares: Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Weighted average common shares - basic 45,105,830 44,767,163 45,096,472 44,787,067 Dilutive effect of stock options 39,488 32,399 34,644 29,061 Dilutive effect of restricted stock 554,317 319,045 460,101 267,637 Weighted average common shares - diluted 45,699,635 45,118,607 45,591,217 45,083,765 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 Ended Ended Ended Ended September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Unvested shares of restricted common stock 1,350,320 1,175,235 1,350,320 1,175,235 Anti-dilutive options for common stock 30,836 54,908 47,422 52,064 Anti-dilutive shares of restricted common stock — 195 1,348 99,737 Recent Accounting Pronouncements—Adopted In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), 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. ASC 606 replaced most existing revenue recognition guidance in U.S. GAAP. The new standard was effective for the Company on January 1, 2018. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company adopted ASC 606 using the modified retrospective transition method on January 1, 2018 and applied the standard to all of its customer contracts that are not considered completed as of the adoption date. Under the modified retrospective method, the cumulative effect of applying the standard was recognized at the date of initial application and resulted in a reduction to the Company’s accumulated deficit of $14.5 million, recording customer contract costs (a new asset) of $17.3 million, a decrease to deferred revenue of $0.9 million and a decrease to deferred income tax assets of $3.8 million. The Company refers to contract liabilities as “deferred revenue” on the condensed consolidated balance sheets and related disclosures. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition . The effect of adopting ASC 606, changed the period for which the Company recognizes revenue for fees billed in connection with customer installations. Installation fees for contracts with terms longer than month-to-month are now recognized over the contract term which may be a shorter period than the average customer life which was previously used to recognize revenue. The Company believes the installation fee does not give rise to a material right as defined by ASC 606 for contracts with terms longer than month-to-month. Consistent with previous GAAP, the Company is recognizing revenues 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 ASC 606. Additionally, the Company is required to capitalize certain contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and sales agents, and to amortize these costs on straight-line basis over the period the services are transferred to the customer for commissions paid to its sales team (estimated customer life) and over the contract term for agent commissions. The Company previously expensed these contract acquisition costs as incurred in selling, general and administrative expenses. Management assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The impact on the Company’s financial statement line items from adopting ASC 606 was as follows (in thousands, except earnings per share). There was no net impact on net cash provided by operating activities. Balances Without As Reported the Adoption of Financial Statement Line Items September 30, 2018 ASC 606 Balance Sheet Prepaid expenses and other current assets $ 32,956 $ 19,873 Deposits and other assets $ 11,482 $ 6,072 Deferred tax assets $ 6,326 $ 10,128 Accrued and other current liabilities $ 46,728 $ 46,504 Other long term liabilities $ 26,717 $ 27,865 Accumulated deficit $ (590,035) $ (604,588) Statement of Comprehensive Income Three months ended September 30, 2018 Service revenue $ 130,139 $ 129,964 Selling, general and administrative expenses $ 33,409 $ 33,331 Operating income $ 22,255 $ 22,158 Net income $ 8,231 $ 8,134 Basic earnings per share $ 0.18 $ 0.18 Diluted earnings per share $ 0.18 $ 0.18 Comprehensive income $ 7,746 $ 7,649 Statement of Comprehensive Income Nine months ended September 30, 2018 Service revenue $ 388,144 $ 388,112 Selling, general and administrative expenses $ 100,637 $ 101,962 Operating income $ 64,250 $ 62,893 Net income $ 21,567 $ 20,210 Basic earnings per share $ 0.48 $ 0.45 Diluted earnings per share $ 0.47 $ 0.44 Comprehensive income $ 17,495 $ 16,209 September 30, At Adoption - 2018 January 1, 2018 Customer contract costs — current portion (included in prepaid and other current assets) $ 13,083 $ 11,893 Customer contract costs — non-current portion (included in deposits and other assets) 5,410 5,400 Deferred revenue — current portion (included in accrued and other current liabilities) 4,280 3,846 Deferred revenue — non-current portion (included in other long-term liabilities) 1,762 2,865 Service revenue recognized from amounts in deferred revenue at the beginning of the period during the three months ended September 30, 2018 was $1.9 million and during the nine months ended September 30, 2018 was $5.8 million. Amortization expense for contract costs was $4.2 million for the three months ended September 30, 2018 and $12.5 million for the nine months ended September 30, 2018. Revenue recognition The Company's service offerings consist of on-net and off-net telecommunications services. Fixed fees are billed monthly in advance and usage fees are billed monthly in arrears. Amounts billed are due upon receipt and contract lengths range from month to month to 60 months. The Company satisfies its performance obligations to provide services to customers over time as the services are rendered. In accordance with ASC 606, revenue is recognized when a customer obtains the promised service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company has adopted the practical expedient related to certain performance obligation disclosures since it has a right to consideration from its customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. To achieve this core principle, the Company followed the following five steps: 1) 2) 3) 4) 5) Fees billed in connection with customer installations are deferred (as deferred revenue) and recognized as noted above. To the extent a customer contract is terminated prior to its contractual end the customer is subject to termination fees. The Company vigorously seeks payment of these amounts. The Company recognizes revenue for these amounts as they are collected. Recent Accounting Pronouncements—to be Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 will replace most existing lease accounting guidance when it becomes effective. ASU 2016-02 is effective for the Company beginning on January 1, 2019. Early application is permitted. In July 2018 the FASB approved an Accounting Standards Update which, among other changes, allows a company to elect to adopt ASU 2016-02 using a cumulative effect adjustment to the opening balance of its retained earnings on the adoption date. 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 continuing to evaluate the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures and the Company will elect to apply certain practical expedients. The Company estimates that the effect of ASU 2016-02 would be to record a right to use asset and lease liability totaling approximately $95 million. The estimated lease liability is not considered a liability under the consolidated leverage ratio calculations in the indentures governing the Company’s senior unsecured and senior secured note obligations. The Company will not early adopt ASU 2016-02 and will adopt the standard using the modified retrospective approach with a cumulative-effect adjustment on January 1, 2019. In September 2016, the FASB issued ASU No.2016-13, “ Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments .” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted. 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, 2018 | |
Property and equipment: | |
Property and equipment: | 2. Property and equipment: Depreciation and amortization expense related to property and equipment and capital leases was $20.3 million and $19.1 million for the three months ended September 30, 2018, and 2017 respectively, and $60.3 million and $56.6 million for the nine months ended September 30, 2018 and 2017, respectively. The Company capitalized salaries and related benefits of employees working directly on the construction and build-out of its network of $2.6 million and $2.5 million for the three months ended September 30, 2018 and 2017, respectively, and $7.9 million and $7.2 million for the nine months ended September 30, 2018 and 2017, respectively. Exchange agreement In the three and nine months ended September 30, 2018 and 2017, 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 $1.5 million and $1.0 million for the three months ended September 30, 2018 and 2017, respectively, and $3.0 million and $7.9 million for the nine months ended September 30, 2018 and 2017, respectively and after considering the cash component the transactions resulted in gains of $0.4 million and $0.4 million for the three months ended September 30, 2018 and 2017, respectively, and $0.9 million and $3.5 million for the nine months ended September 30, 2018 and 2017, 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 may 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 nine months followed by eighteen equal installment payments for the remaining eighteen month term. As of September 30, 2018, and December 31, 2017 there was $12.5 million and $10.7 million, respectively, of note obligations outstanding under the IPA, secured by the related equipment. The Company recorded the assets purchased and the net present value of the note obligation utilizing an imputed interest rate. The resulting discount was $0.5 million and $0.4 million as of September 30, 2018 and December 31, 2017, 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, 2018 | |
Long-term debt: | |
Long-term debt: | 3. Long-term debt: Limitations under the indentures The Company has $189.2 million of senior notes and $445.0 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. The $445.0 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. In August 2018, the Company issued an additional $70.0 million par value of its 2022 Notes at a premium of 101.75% of par value increasing the par value outstanding from $375.0 million to $445.0 million. The Company received net proceeds of $69.9 million after deducting $1.4 million of offering costs. The $1.2 million premium and offering costs are being amortized to interest expense to the maturity date using the effective interest rate method. The net proceeds from this offering are intended to be used for general corporate purposes. The indentures governing the 2022 Notes and 2021 Notes, among other things, limit the ability of Group (the company owned by Holdings which owns the operating companies) 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 Group'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 Group'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 Group's consolidated cash flow, as defined in the indentures, as long as the Group's consolidated leverage ratio is less than 4.25. Group's consolidated leverage ratio was above 4.25 as of September 30, 2018. As of September 30, 2018, a total of $163.5 million ($162.2 million held by Holdings in cash) was permitted for investment payments including dividends to Holdings. |
Commitments and contingencies_
Commitments and contingencies: | 9 Months Ended |
Sep. 30, 2018 | |
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 $2.8 million in excess of the amount accrued at September 30, 2018. The Company is engaged in an arbitration proceeding in Spain in which a former provider of optical fiber to the Company is seeking approximately $9 million for the Company’s early termination of the optical fiber leases, which amount the Company accrued in 2015. The Company has counterclaimed for damages and is contesting its obligation to pay the termination liability in an arbitration proceeding in Spain. The arbitration is being conducted by the Civil and Commercial Arbitration Court (CIMA) in Madrid, Spain. 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, 2018 | |
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 September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Domestic $ 16,652 $ 12,210 $ 46,234 $ 37,266 Foreign (5,227) (5,124) (15,714) (14,627) Total $ 11,425 $ 7,086 $ 30,520 $ 22,639 On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”). The Act amended the Internal Revenue Code and reduced the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction was effective on January 1, 2018. The Company’s net deferred tax assets represent a decrease in corporate taxes expected to be paid in the future. Under generally accepted accounting principles deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Although the tax rate reduction is known, the Company has not collected all of the necessary data to complete its analysis of the effect of the Tax Act on all of its underlying deferred taxes and as such, the amounts recorded are provisional. The actual impact on the Company’s net deferred tax asset may vary from this amount from certain changes in interpretations of the Act, additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, additional data collected and revisions to assumptions that the Company has made. Those adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018. |
Common stock buyback program_
Common stock buyback program: | 9 Months Ended |
Sep. 30, 2018 | |
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, 2019. At September 30, 2018, there was approximately $41.5 million remaining for purchases under the Buyback Program. During the nine months ended September 30, 2017 the Company purchased 46,750 shares of its common stock for $1.8 million. There were no purchases of common stock during the three and nine months ended September 30, 2018. |
Dividends on common stock_
Dividends on common stock: | 9 Months Ended |
Sep. 30, 2018 | |
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. The Company’s initial quarterly dividend payment was made in the third quarter of 2012. On October 31, 2018, the Company’s Board of Directors approved the payment of a quarterly dividend of $0.56 per common share. This dividend for the fourth quarter of 2018 will be paid to holders of record on November 16, 2018. This estimated $25.3 million dividend payment is expected to be made on November 30, 2018. 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, 2018 | |
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 owner is the Company’s Chief Executive Officer. 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 $0.5 million and $0.4 million in the three months ended September 30, 2018 and 2017, respectively, and $1.3 million and $1.3 million in the nine months ended September 30, 2018 and 2017, respectively, for rent and related costs (including taxes and utilities) to Sodium LLC for this lease. |
Segment information_
Segment information: | 9 Months Ended |
Sep. 30, 2018 | |
Segment information: | |
Segment information: | 9. Segment information: The Company operates as one operating segment. The Company’s service revenue by geographic region and product class and long lived assets by geographic region are as follows (in thousands): Three months Ended September 30, 2018 Revenues On net Off-net Non-core Total North America $ 75,245 $ 32,111 $ 131 $ 107,487 Europe 17,869 3,945 16 21,830 Asia Pacific 676 146 — 822 Total $ 93,790 $ 36,202 $ 147 $ 130,139 Three months Ended September 30, 2017 Revenues On net Off-net Non-core Total North America $ 70,313 $ 30,941 $ 196 $ 101,450 Europe 17,279 3,833 10 21,122 Asia Pacific 306 91 — 397 Total $ 87,898 $ 34,865 $ 206 $ 122,969 Nine months Ended September 30, 2018 Revenues On net Off-net Non-core Total North America $ 222,391 $ 96,131 $ 444 $ 318,966 Europe 55,128 11,913 42 67,083 Asia Pacific 1,686 409 — 2,095 Total $ 279,205 $ 108,453 $ 486 $ 388,144 Nine months Ended September 30, 2017 Revenues On net Off-net Non-core Total North America $ 207,263 $ 91,064 $ 615 $ 298,942 Europe 49,003 10,923 33 59,959 Asia Pacific 805 243 — 1,048 Total $ 257,071 $ 102,230 $ 648 $ 359,949 September 30, December 31, 2018 2017 Long lived assets, net North America $ 279,382 $ 282,112 Europe 101,283 99,194 Total $ 380,665 $ 381,306 The majority of North American revenue consists of services delivered within the United States. |
Description of the business a_2
Description of the business and recent developments: (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
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, 2017. The accompanying unaudited condensed 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, 2018, 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, 2018 the fair value of the Company’s $189.2 million senior unsecured notes was $190.6 million and the fair value of the Company’s $445.0 million senior secured notes was $449.5 million. |
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 revenues and costs of network operations. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and network operations expense) were $3.0 million and $2.7 million for the three months ended September 30, 2018 and September 30, 2017, respectively, and $9.3 million and $8.0 million for the nine months ended September 30, 2018 and September 30, 2017, 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 or (loss) 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 14,057 and 12,743 common shares for the three months ended September 30, 2018 and 2017, and exercised options for 44,753 and 30,656 common shares for the nine months ended September 30, 2018 and 2017, respectively. The following details the determination of diluted weighted average shares: Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Weighted average common shares - basic 45,105,830 44,767,163 45,096,472 44,787,067 Dilutive effect of stock options 39,488 32,399 34,644 29,061 Dilutive effect of restricted stock 554,317 319,045 460,101 267,637 Weighted average common shares - diluted 45,699,635 45,118,607 45,591,217 45,083,765 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 Ended Ended Ended Ended September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Unvested shares of restricted common stock 1,350,320 1,175,235 1,350,320 1,175,235 Anti-dilutive options for common stock 30,836 54,908 47,422 52,064 Anti-dilutive shares of restricted common stock — 195 1,348 99,737 |
Recent Accounting Pronouncements - Adopted | Recent Accounting Pronouncements—Adopted In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), 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. ASC 606 replaced most existing revenue recognition guidance in U.S. GAAP. The new standard was effective for the Company on January 1, 2018. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company adopted ASC 606 using the modified retrospective transition method on January 1, 2018 and applied the standard to all of its customer contracts that are not considered completed as of the adoption date. Under the modified retrospective method, the cumulative effect of applying the standard was recognized at the date of initial application and resulted in a reduction to the Company’s accumulated deficit of $14.5 million, recording customer contract costs (a new asset) of $17.3 million, a decrease to deferred revenue of $0.9 million and a decrease to deferred income tax assets of $3.8 million. The Company refers to contract liabilities as “deferred revenue” on the condensed consolidated balance sheets and related disclosures. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition . The effect of adopting ASC 606, changed the period for which the Company recognizes revenue for fees billed in connection with customer installations. Installation fees for contracts with terms longer than month-to-month are now recognized over the contract term which may be a shorter period than the average customer life which was previously used to recognize revenue. The Company believes the installation fee does not give rise to a material right as defined by ASC 606 for contracts with terms longer than month-to-month. Consistent with previous GAAP, the Company is recognizing revenues 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 ASC 606. Additionally, the Company is required to capitalize certain contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and sales agents, and to amortize these costs on straight-line basis over the period the services are transferred to the customer for commissions paid to its sales team (estimated customer life) and over the contract term for agent commissions. The Company previously expensed these contract acquisition costs as incurred in selling, general and administrative expenses. Management assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The impact on the Company’s financial statement line items from adopting ASC 606 was as follows (in thousands, except earnings per share). There was no net impact on net cash provided by operating activities. Balances Without As Reported the Adoption of Financial Statement Line Items September 30, 2018 ASC 606 Balance Sheet Prepaid expenses and other current assets $ 32,956 $ 19,873 Deposits and other assets $ 11,482 $ 6,072 Deferred tax assets $ 6,326 $ 10,128 Accrued and other current liabilities $ 46,728 $ 46,504 Other long term liabilities $ 26,717 $ 27,865 Accumulated deficit $ (590,035) $ (604,588) Statement of Comprehensive Income Three months ended September 30, 2018 Service revenue $ 130,139 $ 129,964 Selling, general and administrative expenses $ 33,409 $ 33,331 Operating income $ 22,255 $ 22,158 Net income $ 8,231 $ 8,134 Basic earnings per share $ 0.18 $ 0.18 Diluted earnings per share $ 0.18 $ 0.18 Comprehensive income $ 7,746 $ 7,649 Statement of Comprehensive Income Nine months ended September 30, 2018 Service revenue $ 388,144 $ 388,112 Selling, general and administrative expenses $ 100,637 $ 101,962 Operating income $ 64,250 $ 62,893 Net income $ 21,567 $ 20,210 Basic earnings per share $ 0.48 $ 0.45 Diluted earnings per share $ 0.47 $ 0.44 Comprehensive income $ 17,495 $ 16,209 September 30, At Adoption - 2018 January 1, 2018 Customer contract costs — current portion (included in prepaid and other current assets) $ 13,083 $ 11,893 Customer contract costs — non-current portion (included in deposits and other assets) 5,410 5,400 Deferred revenue — current portion (included in accrued and other current liabilities) 4,280 3,846 Deferred revenue — non-current portion (included in other long-term liabilities) 1,762 2,865 Service revenue recognized from amounts in deferred revenue at the beginning of the period during the three months ended September 30, 2018 was $1.9 million and during the nine months ended September 30, 2018 was $5.8 million. Amortization expense for contract costs was $4.2 million for the three months ended September 30, 2018 and $12.5 million for the nine months ended September 30, 2018. |
Revenue recognition | Revenue recognition The Company's service offerings consist of on-net and off-net telecommunications services. Fixed fees are billed monthly in advance and usage fees are billed monthly in arrears. Amounts billed are due upon receipt and contract lengths range from month to month to 60 months. The Company satisfies its performance obligations to provide services to customers over time as the services are rendered. In accordance with ASC 606, revenue is recognized when a customer obtains the promised service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company has adopted the practical expedient related to certain performance obligation disclosures since it has a right to consideration from its customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. To achieve this core principle, the Company followed the following five steps: 1) 2) 3) 4) 5) Fees billed in connection with customer installations are deferred (as deferred revenue) and recognized as noted above. To the extent a customer contract is terminated prior to its contractual end the customer is subject to termination fees. The Company vigorously seeks payment of these amounts. The Company recognizes revenue for these amounts as they are collected. |
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”). ASU 2016-02 will replace most existing lease accounting guidance when it becomes effective. ASU 2016-02 is effective for the Company beginning on January 1, 2019. Early application is permitted. In July 2018 the FASB approved an Accounting Standards Update which, among other changes, allows a company to elect to adopt ASU 2016-02 using a cumulative effect adjustment to the opening balance of its retained earnings on the adoption date. 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 continuing to evaluate the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures and the Company will elect to apply certain practical expedients. The Company estimates that the effect of ASU 2016-02 would be to record a right to use asset and lease liability totaling approximately $95 million. The estimated lease liability is not considered a liability under the consolidated leverage ratio calculations in the indentures governing the Company’s senior unsecured and senior secured note obligations. The Company will not early adopt ASU 2016-02 and will adopt the standard using the modified retrospective approach with a cumulative-effect adjustment on January 1, 2019. In September 2016, the FASB issued ASU No.2016-13, “ Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments .” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures. |
Description of the business a_3
Description of the business and recent developments: (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
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 September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Weighted average common shares - basic 45,105,830 44,767,163 45,096,472 44,787,067 Dilutive effect of stock options 39,488 32,399 34,644 29,061 Dilutive effect of restricted stock 554,317 319,045 460,101 267,637 Weighted average common shares - diluted 45,699,635 45,118,607 45,591,217 45,083,765 |
Schedule of unvested and anti-dilutive shares | Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Unvested shares of restricted common stock 1,350,320 1,175,235 1,350,320 1,175,235 Anti-dilutive options for common stock 30,836 54,908 47,422 52,064 Anti-dilutive shares of restricted common stock — 195 1,348 99,737 |
Schedule of impact on financial statement line items from adopting ASC 606 | The impact on the Company’s financial statement line items from adopting ASC 606 was as follows (in thousands, except earnings per share). There was no net impact on net cash provided by operating activities. Balances Without As Reported the Adoption of Financial Statement Line Items September 30, 2018 ASC 606 Balance Sheet Prepaid expenses and other current assets $ 32,956 $ 19,873 Deposits and other assets $ 11,482 $ 6,072 Deferred tax assets $ 6,326 $ 10,128 Accrued and other current liabilities $ 46,728 $ 46,504 Other long term liabilities $ 26,717 $ 27,865 Accumulated deficit $ (590,035) $ (604,588) Statement of Comprehensive Income Three months ended September 30, 2018 Service revenue $ 130,139 $ 129,964 Selling, general and administrative expenses $ 33,409 $ 33,331 Operating income $ 22,255 $ 22,158 Net income $ 8,231 $ 8,134 Basic earnings per share $ 0.18 $ 0.18 Diluted earnings per share $ 0.18 $ 0.18 Comprehensive income $ 7,746 $ 7,649 Statement of Comprehensive Income Nine months ended September 30, 2018 Service revenue $ 388,144 $ 388,112 Selling, general and administrative expenses $ 100,637 $ 101,962 Operating income $ 64,250 $ 62,893 Net income $ 21,567 $ 20,210 Basic earnings per share $ 0.48 $ 0.45 Diluted earnings per share $ 0.47 $ 0.44 Comprehensive income $ 17,495 $ 16,209 September 30, At Adoption - 2018 January 1, 2018 Customer contract costs — current portion (included in prepaid and other current assets) $ 13,083 $ 11,893 Customer contract costs — non-current portion (included in deposits and other assets) 5,410 5,400 Deferred revenue — current portion (included in accrued and other current liabilities) 4,280 3,846 Deferred revenue — non-current portion (included in other long-term liabilities) 1,762 2,865 |
Income taxes_ (Tables)
Income taxes: (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
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 September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Domestic $ 16,652 $ 12,210 $ 46,234 $ 37,266 Foreign (5,227) (5,124) (15,714) (14,627) Total $ 11,425 $ 7,086 $ 30,520 $ 22,639 |
Segment information_ (Tables)
Segment information: (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Segment information: | |
Schedule of service revenue by geographic region and product class and long lived assets by geographic region | The Company operates as one operating segment. The Company’s service revenue by geographic region and product class and long lived assets by geographic region are as follows (in thousands): Three months Ended September 30, 2018 Revenues On net Off-net Non-core Total North America $ 75,245 $ 32,111 $ 131 $ 107,487 Europe 17,869 3,945 16 21,830 Asia Pacific 676 146 — 822 Total $ 93,790 $ 36,202 $ 147 $ 130,139 Three months Ended September 30, 2017 Revenues On net Off-net Non-core Total North America $ 70,313 $ 30,941 $ 196 $ 101,450 Europe 17,279 3,833 10 21,122 Asia Pacific 306 91 — 397 Total $ 87,898 $ 34,865 $ 206 $ 122,969 Nine months Ended September 30, 2018 Revenues On net Off-net Non-core Total North America $ 222,391 $ 96,131 $ 444 $ 318,966 Europe 55,128 11,913 42 67,083 Asia Pacific 1,686 409 — 2,095 Total $ 279,205 $ 108,453 $ 486 $ 388,144 Nine months Ended September 30, 2017 Revenues On net Off-net Non-core Total North America $ 207,263 $ 91,064 $ 615 $ 298,942 Europe 49,003 10,923 33 59,959 Asia Pacific 805 243 — 1,048 Total $ 257,071 $ 102,230 $ 648 $ 359,949 September 30, December 31, 2018 2017 Long lived assets, net North America $ 279,382 $ 282,112 Europe 101,283 99,194 Total $ 380,665 $ 381,306 |
Description of the business a_4
Description of the business and recent developments: Description of business (Details) | 9 Months Ended |
Sep. 30, 2018MBGB | |
Minimum | |
Speed per second of bandwidth (in megabits and gigabits) | MB | 100 |
Maximum | |
Speed per second of bandwidth (in megabits and gigabits) | GB | 100 |
Description of the business a_5
Description of the business and recent developments: Financial Instruments (Details) - USD ($) $ in Millions | Sep. 30, 2018 | Jul. 31, 2018 |
Senior unsecured 2021 notes | ||
Financial instruments | ||
Senior notes | $ 189.2 | |
Senior unsecured 2021 notes | Level 2 | ||
Financial instruments | ||
Senior notes, fair value | 190.6 | |
Senior secured 2022 notes | ||
Financial instruments | ||
Senior notes | 445 | $ 375 |
Senior secured 2022 notes | Level 2 | ||
Financial instruments | ||
Senior notes, fair value | $ 449.5 |
Description of the business a_6
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, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Description of the business and recent developments: | ||||
Excise taxes and surcharge | $ 3 | $ 2.7 | $ 9.3 | $ 8 |
Description of the business a_7
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, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Diluted weighted average shares | ||||
Weighted-average common shares - basic (in shares) | 45,105,830 | 44,767,163 | 45,096,472 | 44,787,067 |
Weighted average common shares-diluted | 45,699,635 | 45,118,607 | 45,591,217 | 45,083,765 |
Stock options | ||||
Diluted weighted average shares | ||||
Options exercised during the period (in shares) | 14,057 | 12,743 | 44,753 | 30,656 |
Dilutive effect (options or restricted stock) | 39,488 | 32,399 | 34,644 | 29,061 |
Anti-dilutive effects | ||||
Anti-dilutive (options or restricted stock) | 30,836 | 54,908 | 47,422 | 52,064 |
Restricted stock | ||||
Diluted weighted average shares | ||||
Dilutive effect (options or restricted stock) | 554,317 | 319,045 | 460,101 | 267,637 |
Anti-dilutive effects | ||||
Unvested shares of restricted common stock | 1,350,320 | 1,175,235 | 1,350,320 | 1,175,235 |
Anti-dilutive (options or restricted stock) | 195 | 1,348 | 99,737 |
Description of the business a_8
Description of the business and recent developments: Recent Accounting Pronouncements - Adopted (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Jan. 01, 2018 | Dec. 31, 2017 | |
Recent accounting pronouncements- adopted | ||||||
Accumulated deficit | $ (590,035) | $ (590,035) | $ (554,686) | |||
Operating income | 22,255 | $ 17,720 | 64,250 | $ 55,382 | ||
Balance Sheet | ||||||
Prepaid expenses and other current assets | 32,956 | 32,956 | 20,011 | |||
Deposits and other assets | 11,482 | 11,482 | 5,572 | |||
Deferred tax assets | 6,326 | 6,326 | 17,616 | |||
Accrued and other current liabilities | 46,728 | 46,728 | 47,947 | |||
Other long term liabilities | 26,717 | 26,717 | 27,596 | |||
Accumulated deficit | (590,035) | (590,035) | $ (554,686) | |||
Statement of Comprehensive Income | ||||||
Service revenue | 130,139 | 122,969 | 388,144 | 359,949 | ||
Selling, general and administrative expenses | 33,409 | 32,915 | 100,637 | 96,165 | ||
Operating income | 22,255 | 17,720 | 64,250 | 55,382 | ||
Net income | $ 8,231 | $ 3,650 | $ 21,567 | $ 12,103 | ||
Basic earnings per share (in dollars per share) | $ 0.18 | $ 0.48 | $ 0.27 | |||
Diluted earnings per share (in dollars per share) | 0.18 | $ 0.47 | $ 0.27 | |||
Basic and diluted earnings per share | $ 0.18 | $ 0.08 | ||||
Comprehensive income | $ 7,746 | $ 7,440 | $ 17,495 | $ 23,384 | ||
Customer contract costs - current portion | 13,083 | 13,083 | ||||
Customer contract costs - non-current portion | 5,410 | 5,410 | ||||
Deferred revenue - current portion | 4,280 | 4,280 | ||||
Deferred revenue - non-current portion | 1,762 | $ 1,762 | ||||
Revenue recognition | ||||||
Maximum contract lengths for billing due upon receipts (in months) | 60 months | |||||
Totaling asset and lease liability | 95,000 | $ 95,000 | ||||
Accounting Standards Update 2014-09, Revenue from Contracts with Customers | ||||||
Statement of Comprehensive Income | ||||||
Service revenue recognized | 1,900 | 5,800 | ||||
Amortization expense for contract costs | 4,200 | 12,500 | ||||
Difference between Revenue Guidance in Effect before and after Topic 606 | ||||||
Recent accounting pronouncements- adopted | ||||||
Accumulated deficit | 14,500 | 14,500 | ||||
Customer contract costs | (17,300) | (17,300) | ||||
Operating income | 3,800 | |||||
Balance Sheet | ||||||
Accumulated deficit | 14,500 | 14,500 | ||||
Statement of Comprehensive Income | ||||||
Operating income | 3,800 | |||||
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09, Revenue from Contracts with Customers | ||||||
Recent accounting pronouncements- adopted | ||||||
Deferred revenue | 900 | 900 | ||||
Calculated under Revenue Guidance in Effect before Topic 606 | ||||||
Statement of Comprehensive Income | ||||||
Customer contract costs - current portion | $ 11,893 | |||||
Customer contract costs - non-current portion | 5,400 | |||||
Deferred revenue - current portion | 3,846 | |||||
Deferred revenue - non-current portion | $ 2,865 | |||||
Calculated under Revenue Guidance in Effect before Topic 606 | Accounting Standards Update 2014-09, Revenue from Contracts with Customers | ||||||
Recent accounting pronouncements- adopted | ||||||
Accumulated deficit | (604,588) | (604,588) | ||||
Operating income | 22,158 | 62,893 | ||||
Balance Sheet | ||||||
Prepaid expenses and other current assets | 19,873 | 19,873 | ||||
Deposits and other assets | 6,072 | 6,072 | ||||
Deferred tax assets | 10,128 | 10,128 | ||||
Accrued and other current liabilities | 46,504 | 46,504 | ||||
Other long term liabilities | 27,865 | 27,865 | ||||
Accumulated deficit | (604,588) | (604,588) | ||||
Statement of Comprehensive Income | ||||||
Service revenue | 129,964 | 388,112 | ||||
Selling, general and administrative expenses | 33,331 | 101,962 | ||||
Operating income | 22,158 | 62,893 | ||||
Net income | $ 8,134 | $ 20,210 | ||||
Basic earnings per share (in dollars per share) | $ 0.18 | $ 0.45 | ||||
Diluted earnings per share (in dollars per share) | $ 0.18 | $ 0.44 | ||||
Comprehensive income | $ 7,649 | $ 16,209 |
Property and equipment_ (Detail
Property and equipment: (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Property and equipment: | ||||
Depreciation and amortization | $ 20,276 | $ 19,147 | $ 60,280 | $ 56,583 |
Capitalized salaries and related benefits of employees | $ 2,600 | $ 2,500 | $ 7,900 | $ 7,200 |
Property and equipment_ Exchang
Property and equipment: Exchange agreement (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Property and equipment | ||||
Non-cash component of network equipment obtained in exchange transactions | $ 876 | $ 3,509 | ||
Network equipment | ||||
Property and equipment | ||||
Non-cash component of network equipment obtained in exchange transactions | $ 400 | $ 400 | 900 | 3,500 |
Network equipment | Level 3 | ||||
Property and equipment | ||||
Fair value of equipment | $ 1,500 | $ 1,000 | $ 3,000 | $ 7,900 |
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, 2018USD ($) | Dec. 31, 2017USD ($) | |
Installment payment agreement | |||
Term of debt (in months) | 24 months | ||
Number of payments first six months | payment | 0 | ||
Number of equal payments | payment | 18 | ||
Outstanding obligation | $ | $ 12.5 | $ 10.7 | |
Unamortized discount | $ | $ 0.5 | $ 0.4 |
Long-term debt_ (Details)
Long-term debt: (Details) - USD ($) $ in Thousands | 1 Months Ended | 9 Months Ended | ||
Aug. 31, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Jul. 31, 2018 | |
Limitations under the Indentures | ||||
Proceeds from Issuance of Secured Debt | $ 69,862 | |||
Amortization of debt discount and premium and offering costs | 1,126 | $ 899 | ||
Permitted investments and payments | 163,500 | |||
Permitted investments and payments held by Holdings | $ 162,200 | |||
Minimum | ||||
Limitations under the Indentures | ||||
Consolidated leverage ratio | 4.25 | |||
Senior unsecured 2021 notes | ||||
Limitations under the Indentures | ||||
Senior notes outstanding | $ 189,200 | |||
Interest rate (as a percent) | 5.625% | |||
Senior secured 2022 notes | ||||
Limitations under the Indentures | ||||
Senior notes outstanding | $ 445,000 | $ 375,000 | ||
Interest rate (as a percent) | 5.375% | |||
Face amount | $ 70,000 | |||
Premium percentage (as a percent) | 101.75% | |||
Proceeds from Issuance of Secured Debt | $ 69,900 | |||
Offering costs | 1,400 | |||
Amortization of debt discount and premium and offering costs | $ 1,200 | |||
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: Current and potential litigation (Details) - USD ($) $ in Millions | Sep. 30, 2018 | Mar. 31, 2015 |
Commitments and contingencies | ||
Estimate of possible loss in excess of accrual | $ 2.8 | |
Spain | ||
Commitments and contingencies | ||
Estimate of possible loss | $ 9 |
Income taxes_ Components of inc
Income taxes: Components of income before income taxes (Details) - USD ($) $ in Thousands | Jan. 01, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 |
Components of income before income taxes | ||||||
Domestic | $ 16,652 | $ 12,210 | $ 46,234 | $ 37,266 | ||
Foreign | (5,227) | (5,124) | (15,714) | (14,627) | ||
Income before income taxes | $ 11,425 | $ 7,086 | $ 30,520 | $ 22,639 | ||
Corporate tax rate | 21.00% | 35.00% |
Common stock buyback programs_
Common stock buyback programs: (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Common stock buyback program: | ||||
Remaining authorized amount for common stock repurchases | $ 41.5 | $ 41.5 | ||
Repurchase of common stock (in shares) | 0 | 46,750 | 0 | |
Cost of shares of common stock repurchase under buyback program | $ 1.8 |
Dividends on common stock_ (Det
Dividends on common stock: (Details) - USD ($) $ / shares in Units, $ in Thousands | Nov. 30, 2018 | Oct. 31, 2018 | Sep. 30, 2018 | Sep. 30, 2017 |
Dividends on common stock and return of capital program | ||||
Quarterly dividend payment approved (per share) | $ 0.56 | |||
Dividends paid | $ 71,371 | $ 59,824 | ||
Estimated | ||||
Dividends on common stock and return of capital program | ||||
Dividends paid | $ 25,300 |
Related party transactions_ (De
Related party transactions: (Details) - CEO - Lease - USD ($) $ in Millions | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||
May 31, 2015 | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Office lease | |||||
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) | $ 0.5 | $ 0.4 | $ 1.3 | $ 1.3 |
Segment information_ (Details)
Segment information: (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018USD ($) | Sep. 30, 2017USD ($) | Sep. 30, 2018USD ($)segment | Sep. 30, 2017USD ($) | Dec. 31, 2017USD ($) | |
Geographic information | |||||
Number of operating segments | segment | 1 | ||||
Revenues | $ 130,139 | $ 122,969 | $ 388,144 | $ 359,949 | |
Long lived assets, net | 380,665 | 380,665 | $ 381,306 | ||
On net | |||||
Geographic information | |||||
Revenues | 93,790 | 87,898 | 279,205 | 257,071 | |
Off-net | |||||
Geographic information | |||||
Revenues | 36,202 | 34,865 | 108,453 | 102,230 | |
Non-core | |||||
Geographic information | |||||
Revenues | 147 | 206 | 486 | 648 | |
North America | |||||
Geographic information | |||||
Revenues | 107,487 | 101,450 | 318,966 | 298,942 | |
Long lived assets, net | 279,382 | 279,382 | 282,112 | ||
North America | On net | |||||
Geographic information | |||||
Revenues | 75,245 | 70,313 | 222,391 | 207,263 | |
North America | Off-net | |||||
Geographic information | |||||
Revenues | 32,111 | 30,941 | 96,131 | 91,064 | |
North America | Non-core | |||||
Geographic information | |||||
Revenues | 131 | 196 | 444 | 615 | |
Europe | |||||
Geographic information | |||||
Revenues | 21,830 | 21,122 | 67,083 | 59,959 | |
Long lived assets, net | 101,283 | 101,283 | $ 99,194 | ||
Europe | On net | |||||
Geographic information | |||||
Revenues | 17,869 | 17,279 | 55,128 | 49,003 | |
Europe | Off-net | |||||
Geographic information | |||||
Revenues | 3,945 | 3,833 | 11,913 | 10,923 | |
Europe | Non-core | |||||
Geographic information | |||||
Revenues | 16 | 10 | 42 | 33 | |
Asia Pacific | |||||
Geographic information | |||||
Revenues | 822 | 397 | 2,095 | 1,048 | |
Asia Pacific | On net | |||||
Geographic information | |||||
Revenues | 676 | 306 | 1,686 | 805 | |
Asia Pacific | Off-net | |||||
Geographic information | |||||
Revenues | $ 146 | $ 91 | $ 409 | $ 243 |