Company Quick10K Filing
Quick10K
Cogent Communications Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$58.02 46 $2,690
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-25 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-06-20 Regulation FD
8-K 2019-06-18 Regulation FD, Exhibits
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-05-01 Officers, Shareholder Vote, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-14 Officers
8-K 2018-09-10 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-08-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-14 Regulation FD
8-K 2018-08-14 Regulation FD, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-05-02 Shareholder Vote
8-K 2018-02-22 Earnings, Exhibits
ROP Roper Technologies 36,600
ATO Atmos Energy 11,780
NNN National Retail Properties 8,520
ESGR Enstar 3,170
SYKE Sykes Enterprises 1,120
HBB Hamilton Beach Brands Holding 232
FENC Fennec Pharmaceuticals 85
JMU JMU 1
MFCO Microwave Filter 0
DGTW Digitaltown 0
CCOI 2019-06-30
Part I Financial Information
Item 1.Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures.
Part II Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits.
EX-31.1 ccoi-20190630ex3114d7d85.htm
EX-31.2 ccoi-20190630ex3129e1e7e.htm
EX-32.1 ccoi-20190630ex321e00a52.htm
EX-32.2 ccoi-20190630ex3227e9b82.htm

Cogent Communications Holdings Earnings 2019-06-30

CCOI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-51829

COGENT COMMUNICATIONS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

46-5706863

(State of Incorporation)

(I.R.S. Employer

Identification Number)

2450 N Street N.W.

Washington, D.C. 20037

(Address of Principal Executive Offices and Zip Code)

(202) 295-4200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange on which Registered

Common Stock, par value $0.001 per share

CCOI

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.001 par value 46,815,903 Shares Outstanding as of July 31, 2019

Table of Contents

INDEX

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets of Cogent Communications Holdings, Inc., and Subsidiaries as of June 30, 2019 (Unaudited) and December 31, 2018

1

Condensed Consolidated Statements of Comprehensive Income of Cogent Communications Holdings, Inc., and Subsidiaries for the Three Months Ended June 30, 2019 and June 30, 2018 (Unaudited)

2

Condensed Consolidated Statements of Comprehensive Income of Cogent Communications Holdings, Inc., and Subsidiaries for the Six Months Ended June 30, 2019 and June 30, 2018 (Unaudited)

3

Condensed Consolidated Statements of Cash Flows of Cogent Communications Holdings, Inc., and Subsidiaries for the Six Months Ended June 30, 2019 and June 30, 2018 (Unaudited)

4

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

28

SIGNATURES

29

CERTIFICATIONS

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2019 AND DECEMBER 31, 2018

(IN THOUSANDS, EXCEPT SHARE DATA)

    

June 30, 

    

December 31, 

2019

2018

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

409,279

$

276,093

Accounts receivable, net of allowance for doubtful accounts of $1,782 and $1,263, respectively

 

40,684

 

41,709

Prepaid expenses and other current assets

 

36,030

 

32,535

Total current assets

 

485,993

 

350,337

Property and equipment, net

375,936

375,325

Right-of-use leased assets

72,255

Deferred tax assets

 

 

2,733

Deposits and other assets

 

14,881

 

11,455

Total assets

$

949,065

$

739,850

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

11,570

$

8,519

Accrued and other current liabilities

 

51,615

 

51,431

Installment payment agreement, current portion, net of discount of $396 and $395, respectively

8,693

8,283

Current maturities, operating lease liabilities

10,639

Current maturities, finance lease obligations

 

7,700

 

7,074

Total current liabilities

 

90,217

 

75,307

Senior secured 2022 notes, net of unamortized debt costs of $2,301 and $2,695, respectively and including premium of $1,197 and $1,405, respectively

 

443,896

 

443,710

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $1,550

151,957

Senior unsecured 2021 notes, net of unamortized debt costs of $1,171 and $1,476, respectively

188,054

187,749

Operating lease liabilities, net of current maturities

83,456

Finance lease obligations, net of current maturities

 

160,487

 

156,706

Other long term liabilities

 

7,588

 

25,380

Total liabilities

 

1,125,655

 

888,852

Commitments and contingencies:

Stockholders’ equity:

Common stock, $0.001 par value; 75,000,000 shares authorized; 46,806,370 and 46,336,499 shares issued and outstanding, respectively

 

47

 

46

Additional paid-in capital

 

481,734

 

471,331

Accumulated other comprehensive income — foreign currency translation

 

(10,967)

 

(10,928)

Accumulated deficit

 

(647,404)

 

(609,451)

Total stockholders’ deficit

 

(176,590)

 

(149,002)

Total liabilities and stockholders’ deficit

$

949,065

$

739,850

The accompanying notes are an integral part of these condensed consolidated balance sheets.

1

Table of Contents

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND JUNE 30, 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

    

Three Months

    

Three Months

Ended

Ended

June 30, 2019

June 30, 2018

(Unaudited)

(Unaudited)

Service revenue

$

134,789

$

129,296

Operating expenses:

Network operations (including $226 and $232 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

 

54,407

 

54,379

Selling, general, and administrative (including $5,063 and $4,463 of equity-based compensation expense, respectively)

 

38,566

 

33,704

Depreciation and amortization

 

19,979

 

20,216

Total operating expenses

112,952

108,299

Gains on equipment transactions

185

357

Operating income

 

22,022

 

21,354

Interest income and other, net

 

1,753

 

189

Interest expense

 

(13,595)

 

(12,373)

Income before income taxes

 

10,180

 

9,170

Income tax provision

 

(3,044)

 

(2,618)

Net income

$

7,136

$

6,552

Comprehensive income:

Net income

$

7,136

$

6,552

Foreign currency translation adjustment

 

1,786

 

(6,198)

Comprehensive income

$

8,922

$

354

Net income per common share:

Basic net income per common share

$

0.16

$

0.15

Diluted net income per common share

$

0.16

$

0.14

Dividends declared per common share

$

0.60

$

0.52

Weighted-average common shares - basic

 

45,354,327

 

45,016,767

Weighted-average common shares - diluted

 

45,912,291

 

45,536,473

The accompanying notes are an integral part of these condensed consolidated statements.

2

Table of Contents

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND JUNE 30, 2018

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

    

Six Months

    

Six Months

Ended

Ended

June 30, 2019

June 30, 2018

(Unaudited)

(Unaudited)

Service revenue

$

268,930

$

258,002

Operating expenses:

 

  

 

  

Network operations (including $406 and $421 of equity-based compensation expense, respectively, exclusive of depreciation and amortization shown separately below)

 

108,557

 

109,252

Selling, general, and administrative (including $8,318 and $8,058 of equity-based compensation expense, respectively)

 

74,427

 

67,227

Depreciation and amortization

 

40,240

 

40,004

Total operating expenses

 

223,224

 

216,483

Gains on equipment transactions

 

721

 

475

Operating income

 

46,427

 

41,994

Interest income and other, net

 

3,572

 

1,879

Interest expense

 

(27,051)

 

(24,780)

Income before income taxes

 

22,948

 

19,093

Income tax provision

 

(6,595)

 

(5,757)

Net income

$

16,353

$

13,336

Comprehensive income:

 

  

 

  

Net income

$

16,353

$

13,336

Foreign currency translation adjustment

 

(39)

 

(3,587)

Comprehensive income

$

16,314

$

9,749

Net income per common share:

 

  

 

  

Basic net income per common share

$

0.36

$

0.30

Diluted net income per common share

$

0.36

$

0.29

Dividends declared per common share

$

1.18

$

1.02

Weighted-average common shares - basic

 

45,349,397

 

45,011,616

Weighted-average common shares - diluted

 

45,838,918

 

45,456,831

The accompanying notes are an integral part of these condensed consolidated statements.

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND JUNE 30, 2018

(IN THOUSANDS)

    

Six months

    

Six months

Ended

Ended

June 30, 2019

June 30, 2018

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

16,353

$

13,336

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

40,240

 

40,004

Amortization of debt costs and premium

 

842

 

751

Equity-based compensation expense (net of amounts capitalized)

 

8,724

 

8,479

Gains - equipment transactions and other, net

 

(484)

 

(439)

Deferred income taxes

 

4,831

 

4,815

Changes in operating assets and liabilities:

Accounts receivable

 

1,005

 

(741)

Prepaid expenses and other current assets

 

(3,547)

 

(631)

Accounts payable, accrued liabilities and other long-term liabilities

5,088

(2,418)

Deposits and other assets

(3,783)

(1,706)

Net cash provided by operating activities

 

69,269

 

61,450

Cash flows from investing activities:

Purchases of property and equipment

 

(25,008)

 

(26,893)

Net cash used in investing activities

 

(25,008)

 

(26,893)

Cash flows from financing activities:

Dividends paid

 

(54,306)

 

(46,607)

Net proceeds from issuance of senior unsecured 2024 Euro Notes - net of debt costs of $1,556

152,128

Proceeds from exercises of stock options

 

919

 

1,002

Principal payments on installment payment agreement

 

(4,774)

 

(4,254)

Principal payments of finance lease obligations

(5,006)

(6,059)

Net cash provided by (used in) financing activities

 

88,961

 

(55,918)

Effect of exchange rates changes on cash

 

(36)

 

(1,368)

Net increase (decrease) in cash and cash equivalents

 

133,186

 

(22,729)

Cash and cash equivalents, beginning of period

 

276,093

 

247,011

Cash and cash equivalents, end of period

$

409,279

$

224,282

Supplemental disclosure of non-cash investing and financing activities:

Non-cash component of network equipment obtained in exchange transactions

$

684

$

460

PP&E obtained for installment payment agreement

$

5,483

$

5,943

Finance lease obligations incurred

$

8,562

$

10,735

The accompanying notes are an integral part of these condensed consolidated statements.

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Description of the business and recent developments:

Reorganization and merger

On May 15, 2014, pursuant to the Agreement and Plan of Reorganization 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 and recently in Australia and Brazil.

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 and private network 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 access 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 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’ circuits 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

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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, 2018.

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 June 30, 2019, 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 June 30, 2019 the fair value of the Company’s $189.2 million senior unsecured notes was $191.8 million, the fair value of the Company’s $445.0 million senior secured notes was $461.7 million and the fair value of the Company’s 135.0 million Euro ($153.5 million USD) senior unsecured notes was $153.7 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 $3.2 million and $3.1 million for the three months ended June 30, 2019 and June 30, 2018, respectively, and $6.6 million and $6.3 million for the six months ended June 30, 2019 and June 30, 2018, 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.

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The following details the determination of diluted weighted average shares:

    

Three Months Ended

    

Three Months Ended

    

Six Months Ended

    

Six Months Ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Weighted average common shares - basic

 

45,354,327

45,016,767

45,349,397

45,011,616

Dilutive effect of stock options

 

35,895

36,320

30,972

32,222

Dilutive effect of restricted stock

 

522,069

483,386

458,549

412,993

Weighted average common shares - diluted

 

45,912,291

45,536,473

45,838,918

45,456,831

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

 

Six Months

Six Months

Ended

Ended

Ended

Ended

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

Unvested shares of restricted common stock

 

1,442,520

 

1,417,669

 

1,442,520

 

1,417,669

Anti-dilutive options for common stock

36,381

43,308

52,338

50,353

Anti-dilutive shares of restricted common stock

 

37,494

 

 

87,686

 

44,672

Stockholder’s Deficit

The following details the changes in stockholder’s deficit for the three and six months ended June 30, 2019 and June 30, 2018 (in thousands except share amounts):

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholder’s

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balance at March 31, 2019

 

46,350,434

$

46

$

475,275

$

(12,753)

$

(626,799)

$

(164,231)

Forfeitures of shares granted to employees

 

(1,702)

 

 

 

 

 

Equity-based compensation

 

 

 

5,714

 

 

 

5,714

Foreign currency translation

 

 

 

 

1,786

 

 

1,786

Issuances of common stock

 

438,478

 

1

 

 

 

 

1

Exercises of options

 

19,160

 

 

745

 

 

 

745

Dividends paid

 

 

 

 

 

(27,741)

 

(27,741)

Net income

 

 

 

 

 

7,136

 

7,136

Balance at June 30, 2019

 

46,806,370

$

47

$

481,734

$

(10,967)

$

(647,404)

$

(176,590)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholder’s

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balance at March 31, 2018

46,283,140

$

46

$

461,154

$

(1,989)

$

(556,266)

$

(97,055)

Forfeitures of shares granted to employees

 

(4,749)

 

 

 

 

 

Equity-based compensation

 

 

 

5,149

 

 

 

5,149

Foreign currency translation

 

 

 

 

(6,198)

 

 

(6,198)

Issuances of common stock

 

145,978

 

 

 

 

 

Exercises of options

 

19,576

 

 

704

 

 

 

704

Dividends paid

 

 

 

 

 

(23,788)

 

(23,788)

Net income

 

 

 

 

 

6,552

 

6,552

Balance at June 30, 2018

 

46,443,945

$

46

$

467,007

$

(8,187)

$

(573,502)

$

(114,636)

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Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholder's

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balance at December 31, 2018

46,336,499

$

46

$

471,331

$

(10,928)

$

(609,451)

$

(149,002)

Forfeitures of shares granted to employees

 

(3,886)

 

 

 

 

 

Equity-based compensation

 

 

 

9,484

 

 

 

9,484

Foreign currency translation

 

 

 

 

(39)

 

 

(39)

Issuances of common stock

 

448,978

 

1

 

 

 

 

1

Exercises of options

 

24,779

 

 

919

 

 

 

919

Dividends paid

 

 

 

 

 

(54,306)

 

(54,306)

Net income

 

 

 

 

 

16,353

 

16,353

Balance at June 30, 2019

 

46,806,370

$

47

$

481,734

$

(10,967)

$

(647,404)

$

(176,590)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholder's

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balance at December 31, 2017

45,960,799

$

46

$

456,696

$

(4,600)

$

(554,686)

$

(102,544)

Cumulative effect adjustment from adoption of ASC 606

 

 

 

 

 

14,455

 

14,455

Forfeitures of shares granted to employees

 

(11,528)

 

 

 

 

 

Equity-based compensation

 

 

 

9,310

 

 

 

9,310

Foreign currency translation

 

 

 

 

(3,587)

 

 

(3,587)

Issuances of common stock

 

463,978

 

 

 

 

 

Exercises of options

 

30,696

 

 

1,001

 

 

 

1,001

Dividends paid

 

 

 

 

 

(46,607)

 

(46,607)

Net income

 

 

 

 

 

13,336

 

13,336

Balance at June 30, 2018

 

46,443,945

$

46

$

467,007

$

(8,187)

$

(573,502)

$

(114,636)

Revenue recognition

The Company recognizes revenue under 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. Under ASC 606 installation fees for contracts with terms longer than month-to-month are recognized over the contract term. The Company believes that 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. The Company recognizes revenue 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. The Company capitalizes certain contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and sales agents and amortizes 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 remaining original contract term for agent commissions. 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 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

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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 follows the following five steps:

1)Identification of the contract, or contracts with a customer
2)Identification of the performance obligations in the contract
3)Determination of the transaction price
4)Allocation of the transaction price to the performance obligations in the contract
5)Recognition of revenue when, or as, we satisfy a performance obligation

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.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the three months ended June 30, 2019 was $1.7 million and during the three months ended June 30, 2018 was $1.9 million. Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the six months ended June 30, 2019 was $3.4 million and during the six months ended June 30, 2018 was $3.9 million. Amortization expense for contract costs was $4.3 million for the three months ended June 30, 2019 and $4.2 million for the three months ended June 30, 2018. Amortization expense for contract costs was $8.7 million for the six months ended June 30, 2019 and $8.3 million for the three months ended June 30, 2018.

Recent Accounting Pronouncements— Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced most existing lease accounting guidance. In July 2018 the FASB approved an Accounting Standards Update which, among other changes, allowed a company to elect to adopt ASU 2016-02 using the modified retrospective method applying the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these financial statements. ASU 2016-02 was effective for the Company beginning on January 1, 2019 and required the Company to record a right-of-use asset and a lease liability for most of its facilities leases. Leases that were previously treated as operating leases. The effect of ASU 2016-02 was to record a cumulative-effect adjustment on January 1, 2019 as a right-of-use asset and an operating lease liability totaling $97.3 million. The operating 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 has made an accounting policy election to not apply the recognition requirements of ASU 2016-02 to its short-term leases - leases with a term of one year or less. The Company has also elected to apply certain practical expedients under ASU2016-02 including not separating lease and nonlease components on its finance and operating leases, not reassessing whether any existing contracts contained leases, not reconsidering lease classification, not reassessing initial direct costs and using hindsight in determining the lease reasonably certain term of its leases.

    

Three Months

Ended

June 30, 2019

Finance lease cost

 

  

Amortization of right-of-use assets

$

4,917

Interest expense on finance lease liabilities

 

4,415

Operating lease cost

 

3,486

Total lease costs

 

12,818

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Six Months

 

Ended

 

June 30, 2019

 

Finance lease cost Amortization of right-of-use assets

$

9,888

Interest expense on finance lease liabilities

 

8,816

Operating lease cost

 

6,780

Total lease costs

 

25,484

Other lease information

 

Cash paid for amounts included in the measurement of lease liabilities

 

Operating cash flows from finance leases

 

(8,827)

Operating cash flows from operating leases

 

(6,780)

Financing cash flows from finance leases

 

(5,006)

Right-of-use assets obtained in exchange for new finance lease liabilities

 

8,562

Right-of-use assets obtained in exchange for new operating lease liabilities

 

1,457

Weighted-average remaining lease term — finance leases (in years)

 

14.6

Weighted-average remaining lease term — operating leases (in years)

 

22.3

Weighted average discount rate — finance leases

 

10.6

%

Weighted average discount rate — operating leases

 

5.7

%

Finance leases—fiber lease agreements

The Company has entered into lease agreements with numerous providers of dark fiber under indefeasible-right-of use agreements (“IRU’s). These IRU’s typically have initial terms of 15-20 years and include renewal options after the initial lease term. The Company establishes the number of renewal option periods used in determining the lease term based upon its assessment at the inception of the lease of the number of option periods for which failure to renew the lease imposes a penalty in such amount that renewal appears to be reasonably certain. The option to renew may be automatic, at the option of the Company or mutually agreed to between the dark fiber provider and the Company. Once the Company has accepted the related fiber route, leases that meet the criteria for treatment as finance leases are recorded as a finance lease obligation and an IRU asset. The interest rate used in determining the present value of the aggregate future minimum lease payments is the Company’s incremental borrowing rate for the reasonably certain lease term. Finance lease assets are included in property and equipment in the Company’s consolidated balance sheets. As of June 30, 2019, the Company had committed to additional dark fiber IRU lease agreements totaling $12.3 million in future payments to be paid over periods of up to 20 years. These obligations begin when the related fiber is accepted, which is generally expected to occur in the next 12 months.

The future minimum payments (principal and interest) under these finance leases are as follows (in thousands):

For the twelve months ending June 30,

    

2020

$

24,926

2021

 

24,753

2022

 

23,742

2023

 

22,567

2024

 

21,704

Thereafter

 

225,184

 

Total minimum finance lease obligations

 

342,876

Less—amounts representing interest

 

(174,689)

 

Present value of minimum finance lease obligations

 

168,187

Current maturities

 

(7,700)

 

Finance lease obligations, net of current maturities

$

160,487

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Operating leases

The Company leases office space and certain data center facilities under operating leases. In certain cases the Company also enters into short term operating leases for dark fiber. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments under the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the reasonably certain lease term. The implicit rates within the Company’s operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of its lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors including level of collateralization and term to align with the term of the lease. Certain of the Company’s leases include options to extend or terminate the lease. The Company establishes the number of renewal option periods used in determining the operating lease term based upon its assessment at the inception of the operating lease of the number of option periods for which failure to renew the lease imposes a penalty in such amount that renewal appears to be reasonably certain. The option to renew may be automatic, at the option of the Company or mutually agreed to between the landlord or dark fiber provider and the Company. Once the Company has accepted the related fiber route or the facility lease term has begun, the present value of the aggregate future minimum operating lease payments are recorded as an operating lease liability and a right-of-use leased asset. Lease incentives and deferred rent liabilities for facilities operating leases are presented with the right-of-use leased asset. Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.

The future minimum payments under these operating lease agreements are as follows (in thousands):

For the twelve months ending June 30,

    

2020

$

15,592

2021

 

13,504

2022

 

12,248

2023

 

10,985

2024

 

9,871

Thereafter

 

96,148

 

Total minimum operating lease obligations

 

158,348

Less—amounts representing interest

 

(64,253)

 

Present value of minimum operating lease obligations

 

94,095

Current maturities

 

(10,639)

 

Lease obligations, net of current maturities

$

83,456

Recent Accounting Pronouncements— to be Adopted

In June 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.

2. Property and equipment:

Depreciation and amortization expense related to property and equipment and finance leases was $20.0 million and $20.2 million for the three months ended June 30, 2019, and 2018 respectively, and $40.2 million and $40.0 million for the six months ended June 30, 2019 and 2018, respectively. The Company capitalized salaries and related benefits of employees working directly on the construction and build-out of its network of $2.7 million and $2.7 million for the

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three months ended June 30, 2019 and 2018, respectively, and $5.3 million and $5.3 million for the six months ended June 30, 2019 and 2018, respectively.

Exchange agreement

In the three and six months ended June 30, 2019 and 2018, 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 $0.5 million and $1.1 million for the three months ended June 30, 2019 and 2018, respectively, and $2.2 million and $1.5 million for the six months ended June 30, 2019 and 2018, respectively and after considering the cash component the transactions resulted in gains of $0.1 million and $0.3 million for the three months ended June 30, 2019 and 2018, respectively, and $0.7 million and $0.5 million for the six months ended June 30, 2019 and 2018, 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 six months followed by eighteen equal installment payments for the remaining eighteen month term. As of June 30, 2019, and December 31, 2018 there was $11.9 million and $11.2 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 $0.4 million and $0.4 million as of June 30, 2019 and December 31, 2018, respectively, and is being amortized over the note term using the effective interest rate method.

3. Long-term debt:

Limitations under the indentures

The Company has $189.2 million of senior unsecured notes, $445.0 million of senior secured notes and 135.0 million Euros ($153.5 million USD) of senior unsecured notes outstanding. The $189.2 million of senior unsecured 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. The 135.0 million Euro ($153.5 million USD) of senior unsecured notes are due on June 30, 2024 (the “2024 Notes”) and bear interest at a rate of 4.375% per year. Interest is paid semi-annually on June 30 and December 30.

The indentures governing the 2024 Notes, 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 6.0 for the 2024 Notes and greater than 5.0 for the 2022 Notes and 2021 Notes. Limitations on the ability to incur additional secured indebtedness include a restriction on incurring additional secured indebtedness if the Company’s consolidated secured leverage ratio, as defined in the indentures, is greater than 4.0 for the 2024 Notes and greater than 3.5 for the 2022 Notes and 2021 Notes. The indentures prohibit certain payments, such as dividends and stock purchases, when 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 was above 4.25 as of June 30, 2019. As of June 30, 2019, a total of $166.9 million (held by Holdings in cash and cash equivalents) was permitted for investment payments including dividends and stock purchases.

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Issuance of 2024 Notes

On June 25, 2019, Group completed an offering of €135.0 million ($153.7 million) aggregate principal amount of 4.375% senior unsecured notes due 2024. The net proceeds from the offering, after deducting offering expenses, were approximately $152.1 million. The Company expects to use the proceeds for general corporate purposes and/or to repurchase the Company’s common stock or for special or recurring dividends to the Company’s stockholders. The 2024 Notes are guaranteed (the “Guarantees”) on a senior unsecured basis, jointly and severally, by the Company’s material domestic subsidiaries, subject to certain exceptions, and by the Company (collectively, the “Guarantors”). Under certain circumstances, the Guarantors may be released from these Guarantees without the consent of the holders of the 2024 Notes.

The 2024 Notes and the Guarantees are Group’s and the Guarantors’ senior unsecured obligations. The 2024 Notes and the Guarantees are effectively subordinated to all of Groups’s and the Guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, and are structurally subordinated to all indebtedness and other liabilities of subsidiaries that are not Guarantors. Without giving effect to collateral arrangements, the 2024 Notes and the Guarantees rank pari passu in right of payment with Group’s and the Guarantors’ existing and future senior indebtedness. The 2024 Notes and the Guarantees rank contractually senior in right of payment to all of Group’s and the Guarantors’ existing and future subordinated indebtedness.

The 2024 Notes were offered and sold only to persons reasonably believed to be qualified institutional buyers in an unregistered offering pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Act”), and to certain non-U.S. persons in transactions outside the United States in compliance with Regulation S under the Act. The 2024 Notes have not been registered under the Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Application will be made for the 2024 Notes to be listed on the Official List of The International Stock Exchange; however, there can be no assurance that the application will be successful or that any such listing will be granted or maintained.

The 2024 Notes bear interest at a rate of 4.375% per annum. Interest began to accrue on the 2024 Notes on June 25, 2019 and will be paid semi-annually in arrears on June 30 and December 30 of each year, commencing on December 30, 2019. Unless earlier redeemed, the 2024 Notes will mature on June 30, 2024. The 2024 Notes were issued at par for 135.0 million Euros ($153.7 million USD) on June 25, 2019. The 2024 Notes were issued in Euros and are reported in the Company’s reporting currency – US Dollars. As of June 30, 2019 the 2024 Notes were valued at $153.5 million resulting in an unrealized gain of $0.2 million recorded during the three and six months ended June 30, 2019.

Group may redeem some or all of the 2024 Notes at any time prior to June 30, 2021 at a price equal to 100% of the principal amount of the 2024 Notes, plus a “make-whole” premium as set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. Thereafter, Group may redeem the 2024 Notes, in whole or in part, at a redemption price ranging from 102.188% to par (depending on the year), as set forth in the indenture. Group may also redeem up to 35% of the principal amount of the 2024 Notes using proceeds of certain equity offerings completed prior to June 30, 2021 at a redemption price equal to 104.375%, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, subject to certain exceptions. Group may also redeem the 2024 Notes, in whole but not in part, in the event of certain changes in the tax laws of the United States (or any taxing authority in the United States). This redemption would be at 100% of the principal amount of the 2024 Notes to be redeemed (plus any accrued interest and additional amounts then payable with respect to the 2024 Notes to, but not including, the redemption date).

If Group undergoes specific kinds of change in control accompanied by certain ratings events, it will be required to offer to repurchase the 2024 Notes from holders at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase. Additionally, if Group or any of its restricted subsidiaries sells assets and does not apply the proceeds from such sale in a certain manner or certain other events have not occurred, under certain circumstances, Group will be required to use the excess net proceeds to make an offer to purchase the 2024 Notes at an offer price in cash equal to 100% of the principal amount of the 2024 Notes, plus accrued and unpaid interest, if any, to, but not including, the repurchase date.

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In connection with any offer to purchase all or any of the 2024 Notes (including a change of control offer, asset sale offer or any tender offer), if holders of no less than 90% of the aggregate principal amount of the 2024 Notes validly tender their 2024 Notes, Group or a third party is entitled to redeem any remaining 2024 Notes at the price offered to each holder.

The 2024 notes indenture includes covenants that restrict Group and its restricted subsidiaries’ ability to, among other things: incur indebtedness; issue certain preferred stock or similar equity securities; pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock; make certain investments and other restricted payments, such as prepayment, redemption or repurchase of certain indebtedness; create liens; consolidate, merge, sell or otherwise dispose of all or substantially all of the assets of Group and its restricted subsidiaries taken as a whole; incur restrictions on the ability of a subsidiary to pay dividends or make other payments; and enter into transactions with affiliates. However, the covenants provide for certain exceptions to these restrictions and the Company is not subject to the covenants under the 2024 Notes indenture. Certain covenants will cease to apply to the 2024 Notes if, and for so long as, the 2024 Notes have investment grade ratings from any two of Moody’s Investors Service, Inc., Fitch Ratings, Inc. and S&P Global Ratings and so long as no default or event of default under the Indenture has occurred and is continuing.

The principal amount of the 2024 Notes would become immediately due and payable upon the occurrence of certain bankruptcy or insolvency events involving Group or certain of its subsidiaries, and may be declared immediately due and payable by the trustee or the holders of at least 25% of the aggregate principal amount of the then-outstanding 2024 Notes upon the occurrence of certain events of default under the indenture.

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 $3.0 million in excess of the amount accrued at June 30, 2019.

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 has 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.

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5. Income taxes:

The components of income before income taxes consist of the following (in thousands):

    

Three Months Ended

    

Three Months Ended

    

Six Months Ended

    

Six Months Ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Domestic

$

16,332

$

15,446

$

35,084

$

29,582

Foreign

 

(6,152)

 

(6,276)

 

(12,136)

 

(10,489)

Total

$

10,180

$

9,170

$

22,948

$

19,093

6. Common stock buyback program stock option and award plan:

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 June 30, 2019, there was approximately $34.9 million remaining for purchases under the Buyback Program. There were no purchases of common stock during the three and six months ended June 30, 2019 and June 30, 2018.

In the second quarter of 2019 the Company granted 0.4 million shares of common stock to its employees valued at $23.5 million. The vesting of 24,050 of these shares granted to the Company's executives are subject to certain performance conditions and the vesting of 105,000 shares granted to the Company's CEO are subject to the total shareholder return of the Company's common stock compared to the total shareholder return of the Nasdaq Telecommunications Index. The remaining shares vest over periods ending in December 2022.

7. Dividends on common stock:

On August 7, 2019, the Company’s Board of Directors approved the payment of a quarterly dividend of $0.62 per common share. This estimated $28.1 million dividend payment is expected to be made on September 9, 2019.

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.

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 $0.5 million in the three months ended June 30, 2019 and 2018, respectively, and $0.9 million and $0.8 million in the six months ended June 30, 2019 and 2018, respectively, for rent and related costs (including taxes and utilities) to Sodium LLC for this lease.

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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 June 30, 2019

Revenues

    

On net

    

Off-net

    

Non-core

    

Total

North America

$

78,484

$

32,864