Description of the business: (Policies)

6 Months Ended

Jun. 30, 2023

Description of the business:

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, (“GAAP”) 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, 2022.

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 US GAAP 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 June 30, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents, restricted cash, 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 and restricted cash 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, 2023, the fair value of the Company’s $450.0 million aggregate principal amount of 7.00% Senior Unsecured Notes due 2027 (the “2027 Notes”) was $433.1 million, the fair value of the Company’s $500.0 million aggregate principal amount of 3.50% Senior Secured Notes due 2026 (the “2026 Notes”) was $461.3 million and the estimated liability fair value of the Company’s interest rate swap agreement was $51.6 million.

Restricted cash and interest rate swap agreement

Restricted cash and interest rate swap agreement

Restricted cash represents amounts held in segregated bank accounts by our clearing broker as margin in support of our Swap Agreement as discussed in Note 3 and was $51.6 million as of June 30, 2023. Additional cash may be further restricted to maintain our swap agreement as interest rates fluctuate and margin requirements change. The Company does not use derivative financial instruments for trading purposes.

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 revenue and network operations expense. Excise taxes and surcharges billed to customers and recorded on a gross basis (as service revenue and costs of network operations) were $11.0 million and $3.4 million for the three months ended June 30, 2023 and June 30, 2022, respectively, and $15.2 million and $7.2 million for the six months ended June 30, 2023 and June 30, 2022, 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 following details the determination of diluted weighted average shares:

	Three Months	Three Months	Six Months	Six Months
	Ended	Ended	Ended	Ended
	June 30, 2023	June 30, 2022	June 30, 2023	June 30, 2022
Weighted average common shares - basic	47,137,822	46,691,142	47,142,074	46,705,088
Dilutive effect of stock options	16,147	17,686	16,223	19,498
Dilutive effect of restricted stock	372,238	320,618	350,037	326,325
Weighted average common shares - diluted	47,526,207	47,029,446	47,508,334	47,050,911

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, 2023	June 30, 2022	June 30, 2023	June 30, 2022
Unvested shares of restricted common stock	1,476,049	1,326,873	1,476,049	1,326,873
Anti-dilutive options for common stock	107,898	98,682	104,468	92,060
Anti-dilutive shares of restricted common stock	104,086	459,641	153,978	465,420

Stockholder's Deficit

Stockholders’ (Deficit) Equity

The following details the changes in stockholders’ (deficit) equity for the three and six months ended June 30, 2023 and June 30, 2022, respectively (in thousands except share data):

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at March 31, 2022	47,926,580	$	48	$	554,552	$	(13,168)	$	(950,038)	$	(408,606)
Forfeitures of shares granted to employees	(42,783)		—		—		—		—		—
Equity-based compensation	—		—		6,479		—		—		6,479
Foreign currency translation	—		—		—		(7,493)		—		(7,493)
Issuances of common stock	116,480		—		—		—		—		—
Exercises of options	3,447		—		130		—		—		130
Dividends paid	—		—		—		—		(41,855)		(41,855)
Net income	—		—		—		—		11,164		11,164
Balance at June 30, 2022	48,003,724	$	48	$	561,161	$	(20,661)	$	(980,729)	$	(440,181)

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at March 31, 2023	48,296,882	$	48	$	582,524	$	(17,368)	$	(1,113,751)	$	(548,547)
Forfeitures of shares granted to employees	(5,321)		—		—		—		—		—
Equity-based compensation	—		—		6,809		—		—		6,809
Foreign currency translation	—		—		—		1,741		—		1,741
Issuances of common stock	320,430		1		—		—		—		1
Exercises of options	5,171		—		240		—		—		240
Dividends paid	—		—		—		—		(44,907)		(44,907)
Net income	—		—		—		—		1,123,863		1,123,863
Balance at June 30, 2023	48,617,162	$	49	$	589,573	$	(15,627)	$	(34,795)	$	539,200

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at December 31, 2021	47,674,189	$	48	$	547,734	$	(11,003)	$	(909,877)	$	(373,098)
Forfeitures of shares granted to employees	(52,365)		—		—		—		—		—
Equity-based compensation	—		—		13,093		—		—		13,093
Foreign currency translation	—		—		—		(9,658)		—		(9,658)
Issuances of common stock	373,280		—		—		—		—		—
Exercises of options	8,620		—		334		—		—		334
Dividends paid	—		—		—		—		(83,153)		(83,153)
Net income	—		—		—		—		12,301		12,301
Balance at June 30, 2022	48,003,724	$	48	$	561,161	$	(20,661)	$	(980,729)	$	(440,181)

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance at December 31, 2022	48,013,330	$	48	$	575,064	$	(19,156)	$	(1,074,588)	$	(518,632)
Forfeitures of shares granted to employees	(11,830)		—		—		—		—		—
Equity-based compensation	—		—		14,124		—		—		14,124
Foreign currency translation	—		—		—		3,529		—		3,529
Issuances of common stock	607,192		1		—		—		—		1
Exercises of options	8,470		—		385		—		—		385
Dividends paid	—		—		—		—		(90,218)		(90,218)
Net income	—		—		—		—		1,130,011		1,130,011
Balance at June 30, 2023	48,617,162	$	49	$	589,573	$	(15,627)	$	(34,795)	$	539,200

Revenue recognition

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 installation 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 primarily 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 customers 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, the Company satisfies its performance obligations

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 termination fees. The Company recognizes revenue for termination fees as they are collected.

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Service revenue recognized from balance at beginning of period	$	3,562	$	1,332	$	4,621	$	2,310
Amortization expense for contract costs		4,728		4,907		9,551		9,656

Leases

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 replaced most existing lease accounting guidance. The operating lease liability under ASU 2016-02 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 ASU 2016-02 including not separating lease and non-lease components on its finance and operating leases.

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(Amounts in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Finance lease cost
Amortization of right-of-use assets	$	8,411	$	7,000	$	17,426	$	13,998
Interest expense on finance lease liabilities		6,565		5,116		12,995		10,197
Operating lease cost		27,730		4,628		32,312		9,401
Total lease costs	$	42,706	$	16,744	$	62,733	$	33,596

	Six Months			Six Months
	Ended			Ended
	June 30, 2023			June 30, 2022
Other lease information (amounts in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	(11,268)		$	(11,083)
Operating cash flows from operating leases		(32,957)			(9,543)
Financing cash flows from finance leases		(17,247)			(11,099)
Right-of-use assets obtained in exchange for new finance lease liabilities		42,639			23,685
Right-of-use assets obtained in exchange for new operating lease liabilities		8,027			9,429
Weighted-average remaining lease term — finance leases (in years)		13.7			12.7
Weighted-average remaining lease term — operating leases (in years)		9.9			18.1
Weighted average discount rate — finance leases		8.5	%		8.7	%
Weighted average discount rate — operating leases		7.3	%		5.4	%

Finance leases—fiber lease agreements

The Company has entered into lease agreements with numerous providers of dark fiber under indefeasible-right-of use agreements (“IRUs”). These IRUs 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. The implicit rates within the Company’s operating leases are generally not determinable and the Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors including the level of collateralization and term to align with the term of the lease. The determination of the Company’s incremental borrowing rate requires some judgment. Finance lease assets are included in property and equipment in the Company’s consolidated balance sheets. As of June 30, 2023, the Company had committed to additional dark fiber IRU lease agreements totaling $132.2 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.

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 some judgment. The Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors, including the 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 is recorded as an operating lease liability and a right-of-use leased asset. Lease incentives, deferred rent liabilities and unfavorable lease liabilities for facilities operating leases are presented with, and netted against, 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 and finance lease agreements are as follows (in thousands):

	Operating		Finance
For the Twelve Months Ending June 30,	Leases		Leases
2024	$	138,924	$	45,511
2025		123,723		45,307
2026		108,816		38,138
2027		78,498		38,021
2028		48,563		38,800
Thereafter		324,602		367,639
Total minimum lease obligations		823,126		573,416
Less—amounts representing interest		(241,862)		(241,897)
Present value of minimum lease obligations		581,264		331,519
Current maturities		(125,551)		(20,114)
Lease obligations, net of current maturities	$	455,713	$	311,405

Unfavorable lease liabilities

In connection with the Transaction, the Company recorded $147.5 million of unfavorable lease liabilities for leases with terms greater than current market rates. The liability is classified with the corresponding right-of-use lease assets and is being amortized to network operations expenses over the related lease terms. For the three and six months ended June 30, 2023 the Company amortized $6.5 million as a reduction to network operations expenses.

Allowance for credit losses

Allowance for credit losses

As of January 1, 2020, the Company maintained an allowance for credit losses to cover its current expected credit losses on its trade receivables arising from the failure of customers to make contractual payments. The Company estimates credit losses expected over the life of its trade receivables based on historical information combined with current conditions that may affect a customer’s ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables. Based on the Company’s experience, the customer’s delinquency status is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly.

			Current-period
			Provision for		Write offs
	Beginning		Expected Credit		Charged Against		Ending
Description	Balance		Losses (a)		Allowance		Balance
Allowance for credit losses (deducted from accounts receivable) (in thousands)
Three months ended June 30, 2023	$	2,675	$	5,014	$	(2,807)	$	4,882
Three months ended June 30, 2022		1,476		1,059		(818)		1,717
Six months ended June 30, 2023		2,303		6,562		(3,983)		4,882
Six months ended June 30, 2022		1,510		2,005		(1,798)		1,717

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net bad debt expense (a)	$	4,719	$	333	$	5,934	$	980
Bad debt recoveries		349		608		700		1,011

(a) Net bad debt expense related to the Wireless Business to reestablish an allowance for credit losses was $3.0 million for the three and six months ended June 30, 2023. Under ASC 805, accounts receivable are recorded at their book value representing the fair value of accounts receivable at the acquisition date.