[FORM 10-Q Information](index=1&type=section&id=FORM%2010-Q%20Information) [Filing Details](index=1&type=section&id=Filing%20Details) This quarterly report for BANDWIDTH INC. as of March 31, 2021, details its status as a Delaware-registered large accelerated filer and outstanding common stock - BANDWIDTH INC. is a Delaware-registered large accelerated filer[2](index=2&type=chunk)[3](index=3&type=chunk) Outstanding Shares Information (as of April 30, 2021) | Stock Class | Number of Shares Outstanding | | :------------------- | :--------------------------- | | Class A Common Stock | 22,879,349 | | Class B Common Stock | 2,215,170 | [Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) [Nature of Forward-Looking Statements](index=3&type=section&id=Nature%20of%20Forward-Looking%20Statements) This report contains forward-looking statements about the company's future expectations, strategies, and plans, which are subject to risks and uncertainties - Forward-looking statements cover various aspects including the company's ability to attract and retain customers, network traffic growth, revenue and cost expectations, business growth and liquidity, employee recruitment and retention, international expansion, product innovation, competition, technological evolution, accounting standard impacts, compliance, intellectual property, litigation, convertible notes, and COVID-19[7](index=7&type=chunk)[8](index=8&type=chunk) - Investors are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially due to risks, uncertainties, and other factors described in the 'Risk Factors' section[10](index=10&type=chunk)[11](index=11&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements for Q1 2021, including balance sheets, statements of operations, comprehensive loss, equity, and cash flows [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2021, total assets increased to **$1,070,349 thousand**, driven by cash and cash equivalents, with total liabilities also rising due to convertible senior notes Condensed Consolidated Balance Sheets Summary (USD thousands) | Metric | December 31, 2020 | March 31, 2021 | | :----------------------------------- | :---------------- | :------------- | | **Assets** | | | | Cash and cash equivalents | 72,163 | 319,731 | | Other investments | 40,000 | 10,000 | | Accounts receivable, net | 55,243 | 51,458 | | Total current assets | 193,599 | 406,674 | | Intangible assets, net | 248,055 | 232,804 | | Goodwill | 372,239 | 356,379 | | **Total Assets** | **890,608** | **1,070,349** | | **Liabilities and Stockholders' Equity** | | | | Accounts payable | 11,665 | 9,360 | | Accrued expenses and other current liabilities | 63,065 | 55,884 | | Total current liabilities | 92,189 | 81,599 | | Convertible senior notes | 282,196 | 464,848 | | **Total Liabilities** | **460,685** | **627,611** | | Common stock | 24 | 25 | | Additional paid-in capital | 451,463 | 492,778 | | Accumulated deficit | (49,505) | (54,821) | | Accumulated other comprehensive income | 27,941 | 4,756 | | **Total Stockholders' Equity** | **429,923** | **442,738** | | **Total Liabilities and Stockholders' Equity** | **890,608** | **1,070,349** | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2021, total revenue grew **65.6%** to **$113,479 thousand**, but net loss expanded to **$5,316 thousand**, mainly due to increased other expenses Condensed Consolidated Statements of Operations Summary (USD thousands, except per share amounts) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | 68,518 | 113,479 | | Cost of revenue | 36,359 | 61,328 | | Gross profit | 32,159 | 52,151 | | Total operating expenses | 35,043 | 52,188 | | Operating loss | (2,884) | (37) | | Other expense, net | (906) | (5,611) | | Loss before income taxes | (3,790) | (5,648) | | Income tax benefit | 2,732 | 332 | | Net loss | (1,058) | (5,316) | | Net loss per share (basic and diluted) | (0.04) | (0.21) | [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) For Q1 2021, total comprehensive loss increased to **$28,501 thousand**, mainly driven by **$23,185 thousand** in other comprehensive loss from foreign currency translation Condensed Consolidated Statements of Comprehensive Loss Summary (USD thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | (1,058) | (5,316) | | Foreign currency translation (net of tax) | (96) | (23,185) | | Other comprehensive loss | (96) | (23,185) | | **Total Comprehensive Loss** | **(1,154)** | **(28,501)** | [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) As of March 31, 2021, total stockholders' equity increased to **$442,738 thousand**, driven by additional paid-in capital from convertible debt and stock option exercises, offset by losses Condensed Consolidated Statements of Changes in Stockholders' Equity Summary (USD thousands, except share amounts) | Metric | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | Additional paid-in capital | 451,463 | 492,778 | | Accumulated deficit | (49,505) | (54,821) | | Accumulated other comprehensive income | 27,941 | 4,756 | | **Total Stockholders' Equity** | **429,923** | **442,738** | | Convertible debt issuance option | - | 66,908 | | Stock option exercises | - | 753 | | Foreign currency translation | - | (23,185) | | Stock-based compensation | - | 4,390 | | Net loss | - | (5,316) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 2021, operating cash flow was **$10,009 thousand**, investing cash flow **$22,116 thousand**, and financing cash flow **$215,294 thousand**, driven by convertible senior notes issuance Condensed Consolidated Statements of Cash Flows Summary (USD thousands) | Cash Flow Category | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash flow from operating activities | (7,607) | 10,009 | | Net cash flow from investing activities | (4,428) | 22,116 | | Net cash flow from financing activities | 344,916 | 215,294 | | Effect of exchange rate changes | (25) | 402 | | Net increase in cash and cash equivalents | 332,856 | 247,821 | | Cash and cash equivalents at end of period | 517,860 | 329,258 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the financial statements, covering organization, accounting policies, fair value, financial components, assets, debt, segments, equity, compensation, and commitments [1. Organization and Description of Business](index=11&type=section&id=1.%20Organization%20and%20Description%20of%20Business) Bandwidth Inc. is an international cloud-based CPaaS provider, enabling enterprise communication services, and expanded globally through the Voxbone acquisition in November 2020 - Bandwidth Inc. is an international cloud-based, software-driven Communications Platform as a Service (CPaaS) provider, enabling enterprises to create, scale, and operate voice or messaging communication services[34](index=34&type=chunk) - The company has two operating and reportable segments: CPaaS (primary revenue source, including voice, messaging, 911, and phone number solutions) and Other (including SIP trunking, data resale, hosted VoIP, etc.)[35](index=35&type=chunk) - The company acquired Voxbone on November 2, 2020, for **446 million EUR**, involving approximately **$400 million** in cash and approximately **$128 million** in Class A common stock, to expand its global operations[36](index=36&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the basis of financial statement preparation, key accounting estimates, cash classifications, credit risk, debt costs, and recent accounting standard adoptions - Financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and SEC interim financial reporting rules, including normal recurring adjustments deemed necessary by management[37](index=37&type=chunk)[38](index=38&type=chunk) - The company makes estimates and judgments in preparing financial statements, including allowances for doubtful accounts, recoverability of long-lived and intangible assets, fair value of acquired intangible assets and goodwill, and fair value of debt and equity components of convertible notes[41](index=41&type=chunk) - The company adopted ASU 2019-12 for fiscal years and interim periods beginning after December 15, 2020, with no material impact, and is evaluating ASU 2020-06 but does not intend to early adopt[50](index=50&type=chunk)[51](index=51&type=chunk) [3. Fair Value Measurements](index=14&type=section&id=3.%20Fair%20Value%20Measurements) This section discloses Level 1 fair value measurements for financial assets like money market accounts and time deposits, and Level 2 for the 2026 and 2028 convertible notes Summary of Financial Asset Fair Values (as of March 31, 2021, USD thousands) | Financial Asset Category | Level 1 | Level 2 | Level 3 | Total | | :----------------------- | :-------- | :------ | :------ | :---------- | | Cash and cash equivalents: | | | | | | Money market accounts | 283,504 | — | — | 283,504 | | Time deposits | 15,000 | — | — | 15,000 | | Other investments: | | | | | | Time deposits | 10,000 | — | — | 10,000 | | **Total Financial Assets** | **308,504** | **—** | **—** | **308,504** | - As of March 31, 2021, the fair value of the 2026 and 2028 convertible notes was approximately **$609,698 thousand** and **$245,206 thousand**, respectively, classified as Level 2 fair value measurements[55](index=55&type=chunk) [4. Financial Statement Components](index=15&type=section&id=4.%20Financial%20Statement%20Components) This section details the composition of net accounts receivable, including trade and unbilled receivables, allowances, and the breakdown of accrued expenses and other current liabilities Composition of Net Accounts Receivable (USD thousands) | Item | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | Trade accounts receivable | 26,504 | 22,591 | | Unbilled accounts receivable | 27,692 | 28,490 | | Allowance for doubtful accounts and allowance for expected credit losses | (1,203) | (1,218) | | Other accounts receivable | 2,250 | 1,595 | | **Total Net Accounts Receivable** | **55,243** | **51,458** | Composition of Accrued Expenses and Other Current Liabilities (USD thousands) | Item | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | Accrued expenses | 31,549 | 32,476 | | Accrued compensation and benefits | 19,534 | 11,531 | | Accrued sales, use, value-added, and telecom-related taxes | 9,142 | 9,114 | | Other accrued expenses | 2,657 | 2,588 | | Current portion of finance lease liabilities | 183 | 175 | | **Total Accrued Expenses and Other Current Liabilities** | **63,065** | **55,884** | [5. Right-of-Use Asset and Lease Liabilities](index=15&type=section&id=5.%20Right-of-Use%20Asset%20and%20Lease%20Liabilities) The company recognizes right-of-use assets and lease liabilities, with net operating lease assets at **$18,008 thousand** and total lease liabilities at **$21,636 thousand** as of March 31, 2021 - The company recognizes right-of-use assets and lease liabilities based on the present value of lease payments over the lease term, with operating lease expenses recognized on a straight-line basis and finance leases recognizing depreciation and interest expense[63](index=63&type=chunk) Lease-Related Assets and Liabilities (USD thousands) | Item | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | Operating lease right-of-use assets, net | 19,491 | 18,008 | | Finance lease assets | 464 | 428 | | **Total Lease Assets** | **19,955** | **18,436** | | Operating lease liabilities (current) | 5,515 | 5,594 | | Finance lease liabilities (current) | 183 | 175 | | Operating lease liabilities (non-current) | 17,202 | 15,609 | | Finance lease liabilities (non-current) | 282 | 258 | | **Total Lease Liabilities** | **23,182** | **21,636** | Lease Liability Maturities (as of March 31, 2021, USD thousands) | Year | Operating Lease Liabilities | Finance Lease Liabilities | | :------------------ | :-------------------------- | :------------------------ | | 2021 (remaining) | 4,756 | 147 | | 2022 | 6,736 | 148 | | 2023 | 6,593 | 97 | | 2024 | 2,670 | 61 | | 2025 | 1,648 | 4 | | Thereafter | 718 | - | | **Total Lease Payments** | **23,121** | **457** | | Less: Imputed interest | (1,918) | (24) | | **Total Lease Obligations** | **21,203** | **433** | [6. Property and Equipment](index=20&type=section&id=6.%20Property%20and%20Equipment) As of March 31, 2021, net property and equipment was **$50,660 thousand**, with telecommunications equipment as the largest component, and **$1,103 thousand** in software development costs capitalized in Q1 2021 Composition of Net Property and Equipment (USD thousands) | Item | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | Furniture and fixtures | 2,341 | 2,348 | | Computer and office equipment | 4,077 | 4,190 | | Telecommunications equipment | 60,651 | 61,753 | | Leasehold improvements | 6,285 | 6,280 | | Software | 3,901 | 4,877 | | Internally developed software | 19,968 | 20,884 | | Vehicles | 502 | 512 | | **Total Cost** | **97,725** | **100,844** | | Less: Accumulated depreciation | (46,080) | (50,184) | | **Total Property and Equipment, Net** | **51,645** | **50,660** | - For the three months ended March 31, 2021, the company capitalized **$1,103 thousand** in software development costs, and total depreciation expense was **$4,176 thousand**[79](index=79&type=chunk)[81](index=81&type=chunk) [7. Intangible Assets](index=21&type=section&id=7.%20Intangible%20Assets) As of March 31, 2021, net intangible assets were **$232,804 thousand**, mainly from Voxbone acquisition, with **$4,867 thousand** amortization expense and a 13-year remaining amortization period Composition of Net Intangible Assets (as of March 31, 2021, USD thousands) | Item | Gross Carrying Amount | Accumulated Amortization | Net Book Value | Amortization Period (Years) | | :--------------------------------- | :-------------------- | :----------------------- | :------------- | :-------------------------- | | Dash Acquisition and other intangible assets: | | | | | | Customer relationships | 10,396 | (5,241) | 5,155 | 20 | | Other, finite-lived | 3,933 | (3,933) | — | 2 - 7 | | Licenses, indefinite-lived | 764 | — | 764 | Indefinite | | Voxbone Acquisition: | | | | | | Customer relationships | 149,764 | (4,161) | 145,603 | 15 | | Developed technology | 84,816 | (3,534) | 81,282 | 10 | | **Total Net Intangible Assets** | **249,673** | **(16,869)** | **232,804** | | - For the three months ended March 31, 2021, amortization expense for finite-lived intangible assets was **$4,867 thousand**, with a remaining weighted-average amortization period of **13 years**[86](index=86&type=chunk) Future Amortization Expense for Finite-Lived Intangible Assets (USD thousands) | Year | Amortization Expense | | :--------------- | :------------------- | | 2021 (remaining) | 14,239 | | 2022 | 18,986 | | 2023 | 18,986 | | 2024 | 18,986 | | 2025 | 18,986 | | Thereafter | 141,857 | | **Total** | **232,040** | [8. Debt](index=22&type=section&id=8.%20Debt) As of March 31, 2021, the company had no outstanding revolving credit, and convertible senior notes had a net carrying value of **$464,848 thousand**, with the 2028 issuance increasing debt and including capped call options - As of March 31, 2021, the company's revolving credit facility had no outstanding balance, with **$25,000 thousand** available for borrowing, and the company was in compliance with all financial and non-financial covenants[90](index=90&type=chunk) - The 2026 convertible notes were issued on February 28, 2020, with a total principal of **$400,000 thousand**, a 0.25% interest rate, due March 1, 2026, and an initial conversion price of approximately **$91.03 per share**[92](index=92&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - The 2028 convertible notes were issued on March 16, 2021, with a total principal of **$250,000 thousand**, a 0.50% interest rate, due April 1, 2028, and an initial conversion price of approximately **$179.27 per share**[102](index=102&type=chunk)[103](index=103&type=chunk) Net Carrying Value of Convertible Senior Notes Liability Components (USD thousands) | Item | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | **2026 Convertible Notes:** | | | | Principal | 400,000 | 400,000 | | Unamortized discount | (110,546) | (106,036) | | Unamortized debt issuance costs | - | (6,962) | | **2026 Convertible Notes Net Carrying Value** | **282,196** | **287,002** | | **2028 Convertible Notes:** | | | | Principal | - | 250,000 | | Unamortized discount | - | (66,575) | | Unamortized debt issuance costs | - | (5,579) | | **2028 Convertible Notes Net Carrying Value** | **-** | **177,846** | | **Total Net Carrying Value** | **282,196** | **464,848** | Convertible Senior Notes Interest Expense (USD thousands) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | **2026 Convertible Notes:** | | | | Contractual interest expense | 96 | 250 | | Amortization of debt discount | 1,629 | 4,510 | | Amortization of debt issuance costs | 106 | 296 | | **Total Interest Expense Related to 2026 Convertible Notes** | **1,831** | **5,056** | | **2028 Convertible Notes:** | | | | Contractual interest expense | — | 52 | | Amortization of debt discount | — | 333 | | Amortization of debt issuance costs | — | 28 | | **Total Interest Expense Related to 2028 Convertible Notes** | **—** | **413** | | **Total Interest Expense** | **1,831** | **5,469** | [9. Segment and Geographic Information](index=29&type=section&id=9.%20Segment%20and%20Geographic%20Information) The CPaaS segment generated **$100,146 thousand** revenue and **$46,465 thousand** gross profit in Q1 2021, with most revenue from the U.S. and significant international growth Segment Operating Results (as of March 31, 2021, USD thousands) | Segment | Revenue | Cost of Revenue | Gross Profit | | :------- | :-------- | :-------------- | :----------- | | CPaaS | 100,146 | 53,681 | 46,465 | | Other | 13,333 | 7,647 | 5,686 | | **Total** | **113,479** | **61,328** | **52,151** | Revenue by Geographic Area (as of March 31, 2021, USD thousands) | Segment | United States | International | Total | | :------- | :------------ | :------------ | :---------- | | CPaaS | 88,862 | 11,284 | 100,146 | | Other | 11,936 | 1,397 | 13,333 | | **Total** | **100,798** | **12,681** | **113,479** | - As of March 31, 2021, the company's long-lived assets were primarily located in the United States, with **$10,537 thousand** in long-lived assets outside the U.S.[117](index=117&type=chunk) [10. Stockholders' Equity](index=30&type=section&id=10.%20Stockholders'%20Equity) As of March 31, 2021, the company had authorized preferred, Class A (one vote), and Class B (ten votes) common stock, with **22,873,604** Class A and **2,215,170** Class B shares outstanding - The company has authorized **10,000,000** shares of undesignated preferred stock, with none issued or outstanding[120](index=120&type=chunk) Common Stock Authorization and Outstanding Shares (as of March 31, 2021) | Stock Class | Authorized Shares | Outstanding Shares | Votes Per Share | | :------------------- | :---------------- | :----------------- | :-------------- | | Class A Common Stock | 100,000,000 | 22,873,604 | 1 | | Class B Common Stock | 20,000,000 | 2,215,170 | 10 | Class A Common Stock Reserved for Equity Incentive Plans (shares) | Item | December 31, 2020 | March 31, 2021 | | :--------------------------------- | :---------------- | :------------- | | Stock options issued and outstanding | 255,000 | 196,433 | | Unvested restricted stock units issued and outstanding | 450,614 | 405,875 | | Equity incentives available for grant under 2017 Plan | 2,020,342 | 3,044,024 | | **Total** | **2,725,956** | **3,646,332** | [11. Stock Based Compensation](index=32&type=section&id=11.%20Stock%20Based%20Compensation) The company grants equity incentives via its 2017 plan; as of March 31, 2021, unrecognized RSU compensation cost was **$31,023 thousand** (3.10-year amortization), with total compensation expense at **$4,390 thousand** - The 2017 Incentive Award Plan allows for the grant of stock options, restricted stock units, and other awards, with an automatic annual increase in available shares on January 1[126](index=126&type=chunk) Summary of Stock Option Activity (as of March 31, 2021) | Item | Number of Shares | Weighted-Average Exercise Price (per share) | | :------------------------------ | :--------------- | :------------------------------------------ | | Balance at December 31, 2020 | 255,000 | 10.82 | | Exercised | (57,817) | 13.02 | | Canceled | (750) | 9.57 | | **Balance at March 31, 2021** | **196,433** | **10.18** | Summary of Restricted Stock Unit (RSU) Activity (as of March 31, 2021) | Item | Number of Shares Granted | Weighted-Average Fair Value (per share) | | :--------------------------------- | :----------------------- | :-------------------------------------- | | Unvested RSUs at December 31, 2020 | 450,614 | 51.58 | | Granted | 113,664 | 153.90 | | Vested | (141,707) | 48.45 | | Forfeited or canceled | (16,696) | 63.36 | | **Unvested RSUs at March 31, 2021** | **405,875** | **82.33** | Stock-Based Compensation Expense (USD thousands) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | 175 | 72 | | Research and development | 453 | 768 | | Sales and marketing | 395 | 614 | | General and administrative | 1,476 | 2,936 | | **Total** | **2,499** | **4,390** | [12. Commitments and Contingencies](index=35&type=section&id=12.%20Commitments%20and%20Contingencies) The company has commitments including operating leases and **$14,386 thousand** in non-cancelable purchase obligations, and faces legal lawsuits primarily related to 911 service taxes - The company leases office space, with operating lease agreements maturing over the next **5.75 years**[138](index=138&type=chunk) - As of March 31, 2021, the company had **$14,386 thousand** in other non-cancelable purchase obligations, primarily for network equipment maintenance and software license contracts, with **$8,519 thousand** due within one year[139](index=139&type=chunk) - The company is involved in multiple legal lawsuits, primarily alleging failure to bill, collect, and remit certain taxes and surcharges for 911 services across various jurisdictions including Illinois, New York, Pennsylvania, and Rhode Island[143](index=143&type=chunk) - The company is actively defending these lawsuits, believes it has strong defenses, and management believes their ultimate resolution will not have a material adverse effect on the company's financial condition or results of operations[143](index=143&type=chunk) [13. Employee Benefit Plans](index=36&type=section&id=13.%20Employee%20Benefit%20Plans) The company offers 401(k) and defined contribution plans, with **$912 thousand** in matching contributions and **$104 thousand** net periodic benefit cost for non-U.S. defined benefit plans in Q1 2021 - The company offers a 401(k) plan for U.S. employees and defined contribution plans for non-U.S. employees[144](index=144&type=chunk) - For the three months ended March 31, 2021, the company made matching contributions of **$912 thousand** to defined contribution plans[144](index=144&type=chunk) Pre-Tax Net Periodic Benefit Cost for Non-U.S. Defined Benefit Pension Plans (as of March 31, 2021, USD thousands) | Item | Amount | | :----------------------- | :----- | | Service cost | 103 | | Interest cost | 5 | | Return on plan assets | (4) | | **Net Periodic Pension Cost** | **104** | [14. Income Taxes](index=36&type=section&id=14.%20Income%20Taxes) For Q1 2021, the effective tax rate decreased from **72.1%** to **5.9%**, mainly due to a valuation allowance against U.S. deferred tax assets, which the company continues to maintain - For the three months ended March 31, 2021, the company's effective tax rate decreased from **72.1%** in the prior year period to **5.9%**[150](index=150&type=chunk) - The change in tax rate is primarily attributable to a valuation allowance against U.S. deferred tax assets[150](index=150&type=chunk) - As of March 31, 2021, the company continues to maintain a valuation allowance against its U.S. federal and state net deferred tax assets[150](index=150&type=chunk) [15. Related Parties](index=38&type=section&id=15.%20Related%20Parties) The company has related party agreements with Republic Wireless, Inc., recognizing **$487 thousand** in telecom service revenue and **$153 thousand** in accounts receivable from them in Q1 2021 - The company has related party relationships with Republic Wireless, Inc. (a former subsidiary) and has entered into transition services, facility sharing, tax sharing, and master services agreements[152](index=152&type=chunk) - For the three months ended March 31, 2021, the company reduced rent expense by **$96 thousand** under the facility sharing agreement[153](index=153&type=chunk) - For the three months ended March 31, 2021, the company recognized **$487 thousand** in revenue from telecommunications services provided to Republic Wireless and had **$153 thousand** in accounts receivable[154](index=154&type=chunk) [16. Basic and Diluted Loss per Common Share](index=39&type=section&id=16.%20Basic%20and%20Diluted%20Loss%20per%20Common%20Share) For Q1 2021, basic and diluted net loss per share was **$0.21**, with **25,015,948** weighted-average shares outstanding, as diluted shares equal basic shares due to net loss Basic and Diluted Loss per Common Share (USD thousands, except per share amounts) | Metric | 2020 | 2021 | | :----------------------------------- | :---------- | :---------- | | Net loss | (1,058) | (5,316) | | Net loss attributable to common stockholders | (1,058) | (5,316) | | Net loss per share: | | | | Basic | (0.04) | (0.21) | | Diluted | (0.04) | (0.21) | | Weighted-average common shares outstanding: | | | | Basic | 23,563,569 | 25,015,948 | | Diluted | 23,563,569 | 25,015,948 | - As of March 31, 2021, common stock equivalents with an anti-dilutive effect (including stock options, unvested restricted stock units, and convertible debt conversion) totaling **2,414,442 shares** were excluded from the diluted net loss per share calculation[158](index=158&type=chunk) [17. Subsequent Events](index=40&type=section&id=17.%20Subsequent%20Events) CFO Jeffrey A. Hoffman notified the company on May 3, 2021, of his departure on August 31, 2021, and will assist with the transition - Chief Financial Officer Jeffrey A. Hoffman will depart on **August 31, 2021**, and will assist the company with an orderly transition[161](index=161&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's Q1 2021 financial condition and operating results, including business overview, Voxbone acquisition, COVID-19 impact, KPIs, financial statement components, non-GAAP metrics, and liquidity [Overview](index=41&type=section&id=Overview) Bandwidth is a leading global enterprise cloud communications company, expanding its platform to over 60 countries, with Q1 2021 total revenue at **$113.5 million** and CPaaS revenue growing **69%** - Bandwidth is a leading global enterprise cloud communications company, providing voice, messaging, and emergency services software APIs to enhance enterprise products and services[164](index=164&type=chunk) - The company owns and operates a nationwide IP voice network in the U.S. and expanded its global platform to over **60 countries**, covering over **90%** of global GDP, through the Voxbone acquisition[165](index=165&type=chunk) Key Financial and Operating Data (as of March 31, 2021) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | Year-over-Year Growth | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Total Revenue (USD millions) | 68.5 | 113.5 | 66% | | CPaaS Revenue (USD millions) | 59.1 | 100.1 | 69% | | Net Loss (USD millions) | 1.1 | 5.3 | 382% | | Active CPaaS Customer Accounts | 1,808 | 2,959 | 64% | [Acquisition of Voxbone](index=41&type=section&id=Acquisition%20of%20Voxbone) The company acquired Voice Topco (Voxbone) on November 2, 2020, for **446 million EUR**, comprising **$400 million** cash and **$128 million** Class A common stock, to expand global communication platform capabilities - The company acquired Voice Topco, the parent company of Voxbone S.A., on November 2, 2020, for **446 million EUR**[169](index=169&type=chunk)[171](index=171&type=chunk) - The acquisition consideration included approximately **$400 million** in cash and approximately **$128 million** in Class A common stock[171](index=171&type=chunk) [COVID-19 Update](index=42&type=section&id=COVID-19%20Update) The COVID-19 pandemic increased service usage, especially UCaaS and conferencing, a trend expected to continue, though long-term impacts on operations and financial performance remain uncertain - The COVID-19 pandemic led to increased usage of the company's services, primarily driven by large enterprise customers' UCaaS and conferencing solutions[173](index=173&type=chunk) - The company expects high usage levels for these services to continue post-pandemic due to the widespread adoption of remote work models[173](index=173&type=chunk) - The broader impact of the pandemic on the company's future operating results and financial performance remains uncertain, potentially leading to reduced customer demand or delayed service implementation[173](index=173&type=chunk) [Key Performance Indicators](index=42&type=section&id=Key%20Performance%20Indicators) The company assesses performance using active CPaaS customer accounts (**2,959**), dollar-based net retention rate (**125%**), Adjusted EBITDA, and free cash flow, all showing significant growth as of March 31, 2021 Key Performance Indicators (USD thousands, except percentages) | Metric | 2020 | 2021 | | :--------------------------------- | :------ | :----- | | Active CPaaS Customer Accounts (end of period) | 1,808 | 2,959 | | Dollar-Based Net Retention Rate | 126% | 125% | | Adjusted EBITDA | 3,099 | 13,397 | | Free Cash Flow | (12,035) | 2,125 | - Active CPaaS customer accounts are defined as unique accounts generating at least **$100** in revenue in the last month of the period, serving as a key indicator of business growth and future revenue trends[177](index=177&type=chunk) - Dollar-based net retention rate measures revenue growth from existing CPaaS customers, assessing increased customer usage or adoption of new products by comparing revenue over comparable periods[179](index=179&type=chunk) [Key Components of Statements of Operations](index=43&type=section&id=Key%20Components%20of%20Statements%20of%20Operations) This section analyzes key components of the statements of operations, including revenue sources, cost of revenue, gross margin, operating expenses (R&D, sales, marketing, G&A), and income tax changes [Revenue](index=43&type=section&id=Revenue) Most revenue is from the CPaaS segment, primarily usage-based fees (**73%** of CPaaS revenue), while the Other segment's revenue proportion is expected to decline - CPaaS revenue primarily derives from voice usage, phone number services, 911 phone number services, and messaging services[181](index=181&type=chunk) - For the three months ended March 31, 2021, **73%** of CPaaS revenue came from usage-based fees, **25%** from monthly unit fees, and the remaining **2%** from other miscellaneous services[181](index=181&type=chunk) - Revenue from the Other segment, comprising traditional services and indirect revenue, is expected to decrease as a percentage of total revenue over time[183](index=183&type=chunk) [Cost of Revenue and Gross Margin](index=44&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margin) CPaaS cost of revenue includes network provider fees, operations support, personnel, and D&A; gross margin is influenced by network investment, cost management, product mix, and pricing - CPaaS cost of revenue primarily includes fees paid to other network service providers (e.g., per-minute usage, phone numbers, messaging), IP voice network support costs, personnel costs, and depreciation and amortization[184](index=184&type=chunk) - Other cost of revenue includes leased line costs, internet connectivity fees, per-minute usage fees, regulatory fees, and software and hardware maintenance fees[185](index=185&type=chunk) - Gross margin is affected by the timing and extent of network investments, ability to manage off-network per-minute usage and messaging costs, revenue product mix, timing of capitalized software development cost amortization, and ability to pass costs to customers[185](index=185&type=chunk) [Operating Expenses](index=44&type=section&id=Operating%20Expenses) Operating expenses, primarily personnel costs, are expected to increase, with R&D for product development, sales and marketing for customer acquisition, and G&A for support and headquarters operations - Operating expenses primarily include personnel costs (salaries, benefits, bonuses, and stock-based compensation) and non-personnel costs such as facilities, software licenses, network services, and depreciation and amortization[186](index=186&type=chunk) - Research and development expenses are mainly for personnel costs, outsourced software development, and engineering services, with the company planning continued investment to enhance existing products and develop new services[187](index=187&type=chunk) - Sales and marketing expenses primarily include sales personnel costs (including commissions and stock-based compensation), as well as advertising, marketing, and brand-building activities[188](index=188&type=chunk)[190](index=190&type=chunk) - General and administrative expenses cover personnel costs for accounting, finance, legal, human resources, and administrative support, as well as product management, customer billing, information services, professional service fees, and rent[191](index=191&type=chunk) [Income Taxes](index=45&type=section&id=Income%20Taxes) For Q1 2021, the effective tax rate decreased to **5.9%**, mainly due to a change in judgment on deferred tax asset realizability and a valuation allowance, which the company continues to maintain - For the three months ended March 31, 2021, the company's effective tax rate decreased from **72.1%** in the prior year period to **5.9%**[192](index=192&type=chunk) - The decrease in tax rate is primarily attributable to a change in judgment regarding the realizability of certain deferred tax assets and the corresponding valuation allowance[192](index=192&type=chunk) - The company continues to maintain a valuation allowance against its U.S. federal and state, as well as UK, net deferred tax assets[192](index=192&type=chunk) [Non-GAAP Financial Measures](index=46&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP gross profit, net income, Adjusted EBITDA, and free cash flow to assess core operating performance by adjusting for non-cash and non-comparable items [Non-GAAP Gross Profit and Non-GAAP Gross Margin](index=46&type=section&id=Non-GAAP%20Gross%20Profit%20and%20Non-GAAP%20Gross%20Margin) Non-GAAP gross profit is GAAP gross profit adjusted for D&A and stock-based compensation; as of March 31, 2021, it was **$57,432 thousand**, with a non-GAAP gross margin of **51%** - Non-GAAP gross profit is calculated by adding back depreciation and amortization, amortization of acquired intangible assets, and stock-based compensation expense to GAAP gross profit[195](index=195&type=chunk) Consolidated Non-GAAP Gross Profit and Gross Margin (USD thousands, except percentages) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Consolidated gross profit | 32,159 | 52,151 | | Consolidated gross margin % | 47% | 46% | | Depreciation | 2,334 | 3,033 | | Amortization of acquired intangible assets | — | 2,176 | | Stock-based compensation | 175 | 72 | | **Non-GAAP Gross Profit** | **34,668** | **57,432** | | **Non-GAAP Gross Margin %** | **51%** | **51%** | CPaaS Segment Non-GAAP Gross Profit and Gross Margin (USD thousands, except percentages) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | CPaaS gross profit | 27,229 | 46,465 | | CPaaS gross margin % | 46% | 46% | | Depreciation | 2,334 | 3,033 | | Amortization of acquired intangible assets | — | 2,176 | | Stock-based compensation | 175 | 72 | | **Non-GAAP CPaaS Gross Profit** | **29,738** | **51,746** | | **Non-GAAP CPaaS Gross Margin %** | **50%** | **52%** | [Non-GAAP Net Income](index=47&type=section&id=Non-GAAP%20Net%20Income) Non-GAAP net income is adjusted for various non-cash items; as of March 31, 2021, it was **$8,303 thousand**, with non-GAAP diluted net income per share at **$0.30** - Non-GAAP net income is calculated by excluding stock-based compensation, amortization of acquired intangible assets, convertible debt discount and issuance cost amortization, acquisition-related expenses, intangible asset impairment, gain/loss on disposal of property and equipment, estimated tax impact of these adjustments, and excess tax benefits from stock-based compensation[202](index=202&type=chunk) Non-GAAP Net Income and Earnings Per Share (USD thousands, except per share amounts) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | (1,058) | (5,316) | | Stock-based compensation | 2,499 | 4,390 | | Amortization of acquired intangible assets | 130 | 4,868 | | Amortization of convertible debt discount and issuance costs | 1,735 | 5,167 | | Gain/loss on disposal of property and equipment | 233 | 201 | | Estimated tax impact of adjustments | (1,160) | (1,068) | | Valuation allowance | — | 61 | | Income tax benefit from stock-based compensation | (1,292) | — | | **Non-GAAP Net Income** | **1,087** | **8,303** | | Non-GAAP diluted net income per share | 0.04 | 0.30 | | Non-GAAP weighted-average diluted shares | 24,520,208 | 27,295,143 | [Adjusted EBITDA](index=49&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a key management metric, is calculated by adjusting net income/loss for taxes, interest, D&A, acquisition costs, stock compensation, and asset disposal; it was **$13,397 thousand** as of March 31, 2021 - Adjusted EBITDA is calculated by adjusting for income taxes, net interest expense, depreciation and amortization, acquisition-related expenses, stock-based compensation, intangible asset impairment, and gain/loss on disposal of property and equipment[207](index=207&type=chunk) Adjusted EBITDA (USD thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | (1,058) | (5,316) | | Income tax benefit | (2,732) | (332) | | Net interest expense | 859 | 5,410 | | Depreciation | 3,168 | 4,176 | | Amortization | 130 | 4,868 | | Stock-based compensation | 2,499 | 4,390 | | Gain/loss on disposal of property and equipment | 233 | 201 | | **Adjusted EBITDA** | **3,099** | **13,397** | [Free Cash Flow](index=49&type=section&id=Free%20Cash%20Flow) Free cash flow, representing operating cash less capital expenditures and capitalized software, was **$2,125 thousand** as of March 31, 2021, indicating improved liquidity - Free cash flow is defined as net cash provided by operating activities less purchases of property and equipment and capitalized internally developed software costs[209](index=209&type=chunk) Free Cash Flow (USD thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | (7,607) | 10,009 | | Net cash used in capital asset investments | (4,428) | (7,884) | | **Free Cash Flow** | **(12,035)** | **2,125** | [Results of Operations](index=50&type=section&id=Results%20of%20Operations) This section analyzes the company's Q1 2021 consolidated statements of operations, comparing revenue, cost of revenue, gross margin, operating expenses, interest expense, and income tax benefit for 2020 and 2021 [Consolidated Results of Operations](index=50&type=section&id=Consolidated%20Results%20of%20Operations) For Q1 2021, total revenue grew **65.6%** to **$113,479 thousand**, CPaaS revenue share increased, total gross margin slightly decreased to **46%**, and operating loss narrowed to **$37 thousand** Consolidated Statements of Operations Summary (USD thousands) | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | 68,518 | 113,479 | | Total cost of revenue | 36,359 | 61,328 | | Total gross profit | 32,159 | 52,151 | | Total operating expenses | 35,043 | 52,188 | | Operating loss | (2,884) | (37) | | Other expense, net | (906) | (5,611) | | Loss before income taxes | (3,790) | (5,648) | | Income tax benefit | 2,732 | 332 | | Net loss | (1,058) | (5,316) | Operating Results as a Percentage of Total Revenue | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | CPaaS revenue | 86% | 88% | | Other revenue | 14% | 12% | | Total revenue | 100% | 100% | | Total cost of revenue | 54% | 54% | | Total gross profit | 47% | 46% | | Research and development | 14% | 12% | | Sales and marketing | 14% | 11% | | General and administrative | 23% | 24% | | Total operating expenses | 51% | 46% | | Operating loss | (4)% | —% | | Net interest expense | (1)% | (5)% | | Loss before income taxes | (6)% | (5)% | | Income tax benefit | 4% | —% | | Net loss | (2)% | (5)% | [Comparison of the three months ended March 31, 2020 and 2021](index=52&type=section&id=Comparison%20of%20the%20three%20months%20ended%20March%2031,%202020%20and%202021) This section compares Q1 2020 and Q1 2021 financial performance, highlighting **66%** total revenue growth, **62%** gross profit increase, **49%** operating expense growth, increased net interest expense, and decreased income tax benefit [Revenue](index=52&type=section&id=Revenue_comparison) As of March 31, 2021, total revenue grew **66%** to **$113,479 thousand**, with CPaaS revenue up **69%** to **$100,146 thousand**, driven by usage and the Voxbone acquisition Revenue Comparison (USD thousands) | Revenue Category | March 31, 2020 | March 31, 2021 | Change Amount | Change Percentage | | :--------------- | :------------- | :------------- | :------------ | :---------------- | | CPaaS revenue | 59,121 | 100,146 | 41,025 | 69% | | Other revenue | 9,397 | 13,333 | 3,936 | 42% | | **Total Revenue** | **68,518** | **113,479** | **44,961** | **66%** | - CPaaS revenue growth is primarily attributed to increased voice and messaging usage (**$14.1 million**) and the Voxbone acquisition (**$21.1 million**)[219](index=219&type=chunk) - Active CPaaS customer accounts increased by **64%** from **1,808** as of March 31, 2020, to **2,959** as of March 31, 2021[219](index=219&type=chunk) [Cost of Revenue and Gross Margin](index=52&type=section&id=Cost_of_Revenue_and_Gross_Margin_comparison) As of March 31, 2021, total gross profit grew **62%** to **$52,151 thousand**, but total gross margin decreased to **46%**, with CPaaS cost of revenue up **68%** due to increased usage and network costs Cost of Revenue and Gross Margin Comparison (USD thousands, except percentages) | Item | March 31, 2020 | March 31, 2021 | Change Amount | Change Percentage | | :--------------------- | :------------- | :------------- | :------------ | :---------------- | | CPaaS cost of revenue | 31,892 | 53,680 | 21,788 | 68% | | Other cost of revenue | 4,467 | 7,648 | 3,181 | 71% | | **Total Cost of Revenue** | **36,359** | **61,328** | **24,969** | **69%** | | **Gross Profit** | **32,159** | **52,151** | **19,992** | **62%** | | CPaaS gross margin % | 46% | 46% | | | | Other gross margin % | 52% | 43% | | | | **Total Gross Margin %** | **47%** | **46%** | | | - The increase in CPaaS cost of revenue is primarily due to a **$10.2 million** increase in voice usage costs, a **$2.7 million** increase in messaging costs, and a **$6.4 million** increase in network costs and amortization expenses[223](index=223&type=chunk) - Excluding depreciation, amortization, and stock-based compensation, CPaaS non-GAAP gross margin increased from **50%** to **52%**, while total non-GAAP gross margin remained **51%** for both years[223](index=223&type=chunk) [Operating Expenses](index=53&type=section&id=Operating_Expenses_comparison) As of March 31, 2021, total operating expenses grew **49%** to **$52,188 thousand**, with R&D up **40%**, sales and marketing up **27%**, and G&A up **67%**, driven by personnel costs and the Voxbone acquisition Operating Expenses Comparison (USD thousands) | Item | March 31, 2020 | March 31, 2021 | Change Amount | Change Percentage | | :--------------------- | :------------- | :------------- | :------------ | :---------------- | | Research and development | 9,530 | 13,333 | 3,803 | 40% | | Sales and marketing | 9,417 | 11,992 | 2,575 | 27% | | General and administrative | 16,096 | 26,863 | 10,767 | 67% | | **Total Operating Expenses** | **35,043** | **52,188** | **17,145** | **49%** | - The increase in research and development expenses is primarily due to a **$3.4 million** increase in personnel costs, including personnel growth from the Voxbone acquisition[225](index=225&type=chunk) - The increase in general and administrative expenses is primarily due to a **$5.4 million** increase in personnel costs, a **$2.7 million** increase in depreciation and amortization costs, and a **$1.7 million** increase in professional service costs[226](index=226&type=chunk) [Net Interest Expense](index=53&type=section&id=Interest_Expense_Net_comparison) As of March 31, 2021, net interest expense increased by **$4.6 million**, primarily due to a **$3.7 million** increase in interest expense related to convertible notes - As of March 31, 2021, net interest expense increased by **$4.6 million**, primarily due to a **$3.7 million** increase in interest expense related to convertible notes[228](index=228&type=chunk) [Income Tax Benefit](index=54&type=section&id=Income_Tax_Benefit_comparison) As of March 31, 2021, income tax benefit decreased by **$2.4 million**, with the effective tax rate falling from **72.1%** to **5.9%**, due to deferred tax asset judgment changes and valuation allowance - As of March 31, 2021, income tax benefit decreased by **$2.4 million**, and the effective tax rate decreased from **72.1%** to **5.9%**[229](index=229&type=chunk) - The decrease in the effective tax rate is primarily attributable to a change in judgment regarding the realizability of certain deferred tax assets and the corresponding valuation allowance[229](index=229&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) The company secures liquidity via IPOs, offerings, convertible notes, and operations; in Q1 2021, operating activities provided **$10.0 million**, investing **$22.1 million**, and financing **$215.3 million**, largely from 2028 convertible notes [Statement of Cash Flows](index=54&type=section&id=Statement%20of%20Cash%20Flows) As of March 31, 2021, operating cash flow was **$10.0 million**, investing **$22.1 million**, and financing **$215.3 million**, leading to a **$247.8 million** net increase in cash and cash equivalents Cash Flow Summary (USD thousands) | Cash Flow Category | 2020 | 2021 | | :--------------------------------- | :---------- | :---------- | | Net cash flow from operating activities (used in) | (7,607) | 10,009 | | Net cash flow from investing activities | (4,428) | 22,116 | | Net cash flow from financing activities | 344,916 | 215,294 | | Effect of exchange rate changes | (25) | 402 | | **Net Increase in Cash and Cash Equivalents** | **332,856** | **247,821** | - In Q1 2021, operating cash flow turned positive, primarily due to adjustments for non-cash items (e.g., depreciation and amortization, debt discount amortization, stock-based compensation) and changes in working capital[233](index=233&type=chunk) - In Q1 2021, investing cash flow primarily resulted from the sale and maturity of other investments (**$30.0 million**), partially offset by purchases of property and equipment (**$6.8 million**) and capitalized software development costs (**$1.1 million**)[236](index=236&type=chunk) - In Q1 2021, financing cash flow primarily resulted from the issuance of 2028 convertible notes (**$250.0 million**), partially offset by the purchase of capped call options (**$25.5 million**) and payment of debt issuance costs (**$7.0 million**)[237](index=237&type=chunk) [Debt](index=55&type=section&id=Debt_liquidity) As of March 31, 2021, the company had no outstanding revolving credit, with **$25.0 million** available, and issued **$250.0 million** in 2028 convertible senior notes in March 2021 to boost liquidity - As of March 31, 2021, the company's revolving credit facility had no outstanding balance, with **$25.0 million** available for borrow

Bandwidth, Inc. (NASDAQ:BAND) Q1 2021 Earnings Conference Call May 5, 2021 5:00 PM ET Company Participants Sarah Walas – Vice President of Investor Relations David Morken – Chief Executive Officer Jeff Hoffman – Chief Financial Officer Conference Call Participants Bhavan Suri – William Blair Charlie Erlikh – Baird Pat Walravens – JMP Securities Steve Enders – KeyBanc Daniel Park – Canaccord Genuity Operator Welcome to the Bandwidth First Quarter 2021 Earnings Conference Call. As a reminder, all participants ...

PART I [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Bandwidth Inc. is a global CPaaS provider offering voice, messaging, and emergency services APIs, operating its own IP voice network and expanding globally through the Voxbone acquisition - Bandwidth is a leading global enterprise cloud communications company, providing software APIs for voice, messaging, and emergency services. It is the only CPaaS provider that owns and operates a **nationwide IP voice network** in the U.S.[14](index=14&type=chunk)[15](index=15&type=chunk) - In 2020, Bandwidth acquired Voxbone, expanding its global platform to over **60 countries**, serving enterprises in regions representing over **90% of global GDP**[15](index=15&type=chunk) Key Financial and Operational Highlights (2018-2020) | Metric | 2018 | 2019 | 2020 | | :-------------------------- | :------------ | :------------ | :------------ | | **Total Revenue** | **$204.1 million**| **$232.6 million**| **$343.1 million**| | CPaaS Revenue | $164.4 million| $197.9 million| $298.1 million| | **Net Income (Loss)** | **$17.9 million** | **$2.5 million** | **($44.0) million**| | Active CPaaS Customer Accounts | 1,230 | 1,728 | 2,848 | | Dollar-Based Net Retention Rate | 118% | 113% | 131% | - The company's growth strategy focuses on expanding existing enterprise relationships, growing its customer base, continuous platform innovation, cultivating long-term customer satisfaction, expanding international coverage, and selectively pursuing acquisitions[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from growth execution, competitive pressures, COVID-19 impacts, regulatory uncertainties, Voxbone integration, and financial structure - The success of Bandwidth's growth and expansion plans is subject to factors beyond its control, including personnel retention, economic health, competition, pricing structures, technology availability, and regulatory conditions[86](index=86&type=chunk)[88](index=88&type=chunk) - The COVID-19 pandemic has created volatility and economic disruption, potentially leading to slowdowns in customer payments, increased churn, and reduced service usage, despite an initial increase in demand for remote communication solutions[89](index=89&type=chunk)[335](index=335&type=chunk) - The CPaaS market is highly competitive, with larger competitors having greater resources and market recognition. Bandwidth faces risks from pricing pressures, new market entrants, and the potential for customers to develop in-house solutions or use competitors' services[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - Regulatory uncertainties in telecommunications, privacy, and data security (e.g., TRACED Act, GDPR, CCPA) pose significant compliance costs and potential liabilities, especially with international expansion[54](index=54&type=chunk)[57](index=57&type=chunk)[134](index=134&type=chunk)[147](index=147&type=chunk) - The acquisition of Voxbone in 2020 introduces integration risks, including combining corporate functions, achieving synergies, retaining key employees and customers, and managing unexpected costs[233](index=233&type=chunk)[234](index=234&type=chunk) - The company's **dual-class capital structure** concentrates voting control with pre-IPO stockholders, including directors and executive officers, potentially limiting the influence of other stockholders on corporate matters[241](index=241&type=chunk)[243](index=243&type=chunk) - Servicing future indebtedness, including **$400 million in Convertible Notes** issued in 2020, requires significant cash flow, and the company may face liquidity challenges or limitations from credit facilities if unable to generate sufficient cash or refinance debt[261](index=261&type=chunk)[262](index=262&type=chunk)[625](index=625&type=chunk) [Item 1B. Unresolved Staff Comments](index=57&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There were no unresolved staff comments[279](index=279&type=chunk) [Item 2. Properties](index=57&type=section&id=Item%202.%20Properties) Bandwidth maintains corporate headquarters in Raleigh, NC, with additional offices and data centers globally, leasing all facilities while planning a new HQ - Corporate headquarters are in **Raleigh, NC**, with additional offices in Denver, CO, Rochester, NY, Frankfurt, and Madrid[279](index=279&type=chunk) - Data centers are located in Raleigh, NC; Los Angeles, CA; Dallas, TX; Atlanta, GA; New York, NY; Frankfurt, Germany; and London, U.K.[279](index=279&type=chunk) - Voxbone S.A. adds offices in Brussels, Belgium; Austin, TX; San Francisco, CA; Simi Valley, CA; Dublin, Ireland; Iasi, Romania; Singapore; and London, U.K.[280](index=280&type=chunk) - The company leases all facilities and has signed an agreement to purchase land for a new headquarters in Raleigh, NC[280](index=280&type=chunk) [Item 3. Legal Proceedings](index=57&type=section&id=Item%203.%20Legal%20Proceedings) Bandwidth is involved in multiple lawsuits concerning 911 service taxes and a class action for unsolicited calls, which management intends to vigorously defend - Bandwidth is a defendant in multiple lawsuits regarding the billing, collection, and remittance of **911 services taxes and surcharges** in Illinois, New York, Pennsylvania, and Rhode Island[281](index=281&type=chunk)[282](index=282&type=chunk) - A new lawsuit was filed in February 2021 in California regarding **911 taxes and surcharges**[282](index=282&type=chunk) - The company is also a defendant in a **class action lawsuit** (Diana Mey v. All Access Telecom, Inc., et al.) concerning alleged failure to block unsolicited phone calls[283](index=283&type=chunk) - Management intends to vigorously defend these lawsuits, but acknowledges that litigation is inherently uncertain and could negatively affect business, results of operations, and financial condition[284](index=284&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Bandwidth Inc - Not applicable[286](index=286&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=59&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Bandwidth's Class A common stock trades on NASDAQ, with no cash dividends paid, and the company completed the Voxbone acquisition in 2020 - Bandwidth's Class A common stock trades on the **NASDAQ Global Select Market** under the symbol 'BAND' since November 10, 2017[288](index=288&type=chunk) - As of February 19, 2021, there were **24 holders of record** for Class A and Class B common stock[289](index=289&type=chunk) - The company has never declared or paid cash dividends and plans to retain all future earnings for business development[290](index=290&type=chunk)[258](index=258&type=chunk) - On October 12, 2020, Bandwidth acquired Voice Topco Limited (Voxbone) for approximately **$413 million in cash** and **$106 million in Class A common stock**[296](index=296&type=chunk)[297](index=297&type=chunk) [Item 6. Selected Financial Data](index=61&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected financial data for 2018-2020 highlights significant revenue growth, a shift to net loss in 2020, and key non-GAAP performance metrics Consolidated Statements of Operations Data (2018-2020, in thousands) | Metric | 2018 | 2019 | 2020 | | :-------------------------- | :---------- | :---------- | :---------- | | CPaaS Revenue | $164,415 | $197,944 | $298,090 | | Other Revenue | $39,698 | $34,650 | $45,023 | | **Total Revenue** | **$204,113**| **$232,594**| **$343,113**| | Total Cost of Revenue | $108,145 | $124,959 | $185,252 | | **Gross Profit** | **$95,968** | **$107,635**| **$157,861**| | Total Operating Expenses | $89,216 | $125,328 | $171,366 | | Operating Income (Loss) | $6,752 | ($17,693) | ($13,505) | | Income Tax Benefit (Provision)| $10,870 | $17,718 | ($15,005) | | **Net Income (Loss)** | **$17,923** | **$2,494** | **($43,977)**| | Basic EPS | $0.96 | $0.11 | ($1.83) | | Diluted EPS | $0.85 | $0.10 | ($1.83) | Consolidated Balance Sheets Data (as of December 31, in thousands) | Metric | 2019 | 2020 | | :-------------------------- | :---------- | :---------- | | Cash, Cash Equivalents & Restricted Cash | $185,004 | $81,437 | | Working Capital | $181,211 | $101,410 | | **Total Assets** | **$341,416**| **$890,608**| | Convertible Senior Notes | — | $282,196 | | **Total Liabilities** | **$71,326** | **$460,685**| | **Total Stockholders' Equity** | **$270,090**| **$429,923**| Non-GAAP Financial Measures (2018-2020, in thousands) | Metric | 2018 | 2019 | 2020 | | :-------------------------- | :---------- | :---------- | :---------- | | **Non-GAAP Gross Profit** | **$100,572**| **$114,429**| **$169,050**| | Non-GAAP Gross Margin % | 49% | 49% | 49% | | **Non-GAAP Net Income (Loss)** | **$9,048** | **($5,302)**| **$14,193** | | **Adjusted EBITDA** | **$16,106** | **($1,050)**| **$26,176** | | **Free Cash Flow** | **$10,186** | **($27,012)**| **($10,074)**| [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Bandwidth saw significant 2020 revenue growth, driven by CPaaS and Voxbone, but reported a net loss due to increased expenses and interest, with liquidity supported by cash and credit - Total revenue increased by **$110.5 million (48%)** in 2020 compared to 2019, reaching **$343.1 million**. CPaaS revenue grew by **$100.1 million (51%)** to **$298.1 million**[364](index=364&type=chunk) - The increase in CPaaS revenue was driven by higher voice and messaging usage (**$58.6 million**), phone number services (**$13.2 million**), higher usage pricing due to product mix (**$11.8 million**), and the Voxbone acquisition (**$16.6 million**)[364](index=364&type=chunk) - **Net loss in 2020 was $44.0 million**, compared to net income of $2.5 million in 2019, primarily due to increased operating expenses, interest expense from Convertible Notes, and a valuation allowance on deferred tax assets[331](index=331&type=chunk)[353](index=353&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) Key Performance Indicators (2018-2020) | Metric | 2018 | 2019 | 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Number of Active CPaaS Customers | 1,230 | 1,728 | 2,848 | | Dollar-Based Net Retention Rate | 118% | 113% | 131% | | **Adjusted EBITDA** | **$16,106** | **($1,050)**| **$26,176** | | **Free Cash Flow** | **$10,186** | **($27,012)**| **($10,074)**| - Cash provided by operating activities was **$4.5 million** in 2020, a significant improvement from cash used of $1.3 million in 2019[393](index=393&type=chunk) - Cash used in investing activities was **$455.1 million** in 2020, mainly due to the Voxbone acquisition (**$400.5 million**) and purchase of other investments (**$230.8 million**), partially offset by proceeds from sales and maturities of investments (**$190.8 million**)[398](index=398&type=chunk) - Cash provided by financing activities was **$346.9 million** in 2020, primarily from **$400.0 million** in proceeds from Convertible Notes, offset by capped call purchases and debt issuance costs[400](index=400&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=88&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risks primarily involve interest rate changes and foreign currency fluctuations, with limited inflation impact and no current hedging program - Primary market risk exposure is to interest rate changes, with cash and cash equivalents of **$72.2 million** and other investments of **$40.0 million** as of December 31, 2020[432](index=432&type=chunk) - The Credit Facility had no outstanding amount as of December 31, 2020, and loans bear variable interest rates[434](index=434&type=chunk) - The **$400.0 million Convertible Notes** issued in February 2020 have a fixed annual interest rate, limiting exposure to interest rate changes for this debt[435](index=435&type=chunk) - Foreign currency risk is increasing due to international expansion, with approximately **5% of 2020 total revenue** generated outside the U.S. The company does not currently hedge transactional exposures[436](index=436&type=chunk) - Inflation has not had a material effect on the business, but the company monitors it to minimize effects through pricing, productivity, and cost reductions[437](index=437&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=90&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section provides Bandwidth's audited consolidated financial statements for 2018-2020, with an unqualified audit opinion from Ernst & Young LLP, and details key accounting policies - Ernst & Young LLP issued an **unqualified opinion** on Bandwidth's consolidated financial statements for the three years ended December 31, 2020, and on the effectiveness of internal control over financial reporting as of December 31, 2020[443](index=443&type=chunk)[444](index=444&type=chunk)[461](index=461&type=chunk) - The audit of internal control over financial reporting excluded the internal controls of Voxbone, which was acquired on November 2, 2020, and constituted **3% of total assets** and **5% of total revenue** for the year ended December 31, 2020[462](index=462&type=chunk)[717](index=717&type=chunk) - **Critical audit matters** included revenue recognition, due to complex automated systems for capturing and pricing high volumes of voice and messaging data, and the accounting for the Voxbone acquisition, due to significant estimation uncertainty in valuing intangible assets[449](index=449&type=chunk)[450](index=450&type=chunk)[454](index=454&type=chunk)[455](index=455&type=chunk) Consolidated Balance Sheets (as of December 31, in thousands) | Asset/Liability | 2019 | 2020 | | :-------------------------- | :---------- | :---------- | | Cash and cash equivalents | $184,414 | $72,163 | | Restricted cash | $590 | $9,274 | | Other investments | — | $40,000 | | Accounts receivable, net | $30,187 | $55,243 | | Total current assets | $226,949 | $193,599 | | Property and equipment, net | $41,654 | $51,645 | | Intangible assets, net | $6,569 | $248,055 | | Goodwill | $6,867 | $372,239 | | Deferred tax asset, net | $34,861 | — | | **Total Assets** | **$341,416**| **$890,608**| | Accounts payable | $4,190 | $11,665 | | Accrued expenses & other current liabilities | $27,328 | $63,065 | | Total current liabilities | $45,738 | $92,189 | | Convertible senior notes | — | $282,196 | | **Total Liabilities** | **$71,326** | **$460,685**| | Total Stockholders' Equity | **$270,090**| **$429,923**| Consolidated Statements of Operations (Years Ended December 31, in thousands) | Metric | 2018 | 2019 | 2020 | | :-------------------------- | :---------- | :---------- | :---------- | | Total Revenue | $204,113 | $232,594 | $343,113 | | Total Cost of Revenue | $108,145 | $124,959 | $185,252 | | Gross Profit | $95,968 | $107,635 | $157,861 | | Total Operating Expenses | $89,216 | $125,328 | $171,366 | | Operating Income (Loss) | $6,752 | ($17,693) | ($13,505) | | Interest income (expense), net | $301 | $2,446 | ($13,672) | | Income (loss) before income taxes | $7,053 | ($15,224) | ($28,972) | | Income tax benefit (provision) | $10,870 | $17,718 | ($15,005) | | Net Income (Loss) | $17,923 | $2,494 | ($43,977) | Consolidated Statements of Cash Flows (Years Ended December 31, in thousands) | Cash Flow Activity | 2018 | 2019 | 2020 | | :-------------------------- | :---------- | :---------- | :---------- | | **Net cash provided by (used in) operating activities** | **$24,633** | **($1,253)** | **$4,518** | | **Net cash used in investing activities** | **($31,683)** | **($7,653)** | **($455,085)** | | **Net cash provided by financing activities** | **$10,681** | **$152,418** | **$346,891** | | **Net increase (decrease) in cash, cash equivalents, and restricted cash** | **$3,631** | **$143,503** | **($103,567)** | | **Cash, cash equivalents, and restricted cash, end of period** | **$41,501** | **$185,004** | **$81,437** | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=153&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[713](index=713&type=chunk) [Item 9A. Controls and Procedures](index=154&type=section&id=Item%209A.%20Controls%20and%20Procedures) Bandwidth's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020 - Management concluded that disclosure controls and procedures were **effective at a reasonable assurance level** as of December 31, 2020[715](index=715&type=chunk) - Internal control over financial reporting was **effective** as of December 31, 2020, based on the COSO criteria, excluding the internal controls of Voxbone[716](index=716&type=chunk)[717](index=717&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter ended December 31, 2020[718](index=718&type=chunk) [Item 9B. Other Information](index=155&type=section&id=Item%209B.%20Other%20Information) The company reported no other information required by this item - Not applicable[720](index=720&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=155&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the company's 2021 Annual Meeting of Stockholders Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the **2021 Annual Meeting of Stockholders Proxy Statement**[721](index=721&type=chunk) - The company has adopted a **Code of Business Conduct and Ethics** applicable to all officers, directors, and employees, available on its website[722](index=722&type=chunk) [Item 11. Executive Compensation](index=155&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2021 Annual Meeting of Stockholders Proxy Statement - Information on executive compensation is incorporated by reference from the **2021 Annual Meeting of Stockholders Proxy Statement**[723](index=723&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=155&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's 2021 Annual Meeting of Stockholders Proxy Statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the **2021 Annual Meeting of Stockholders Proxy Statement**[723](index=723&type=chunk) [Item 13. Certain Relationships and Related Transactions and Director Independence](index=155&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2021 Annual Meeting of Stockholders Proxy Statement - Information on certain relationships and related transactions and director independence is incorporated by reference from the **2021 Annual Meeting of Stockholders Proxy Statement**[724](index=724&type=chunk) [Item 14. Principal Accountant Fees and Services](index=155&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2021 Annual Meeting of Stockholders Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the **2021 Annual Meeting of Stockholders Proxy Statement**[725](index=725&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=156&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the 10-K report, including an index of various agreements and certifications - The report includes financial statements and schedules as part of this item[726](index=726&type=chunk) - A comprehensive Exhibit Index is provided, detailing various agreements (e.g., Share Purchase Agreement, Credit and Security Agreement), corporate documents (e.g., Certificate of Incorporation, Bylaws), and certifications (e.g., CEO/CFO certifications)[727](index=727&type=chunk)[729](index=729&type=chunk)[731](index=731&type=chunk) [Item 16. Form 10-K Summary](index=159&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company stated that there is no Form 10-K Summary - No Form 10-K Summary is provided[733](index=733&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q4 2020 was $113 million, representing an 82% year-over-year increase [26] - CPaaS revenue was $98.1 million, up 84% year-over-year, while other revenue contributed $14.9 million, up 74% [26] - For the full year 2020, total revenue was $343.1 million, a 48% increase year-over-year, with CPaaS revenue at $298.1 million, up 51% [30] Business Line Data and Key Metrics Changes - CPaaS revenue growth was driven by political messaging and COVID-related usage, contributing approximately $10 million to Q4 results [27] - The dollar-based net retention rate was 133% in Q4, indicating strong customer relationships [28] - The company ended Q4 with 2,848 active CPaaS customer accounts, including 109 new accounts added in the quarter [29] Market Data and Key Metrics Changes - The acquisition of Voxbone expanded Bandwidth's reach to over 60 countries, representing 93% of the world's GDP [19] - The company reported a 30% surge in concurrent calls during the pandemic, highlighting the demand for cloud communications [13] - 70% of companies indicated that the pandemic accelerated their shift to cloud communications [12] Company Strategy and Development Direction - Bandwidth aims to be the world's dominant cloud communications provider, leveraging the Voxbone acquisition to offer global solutions [19][20] - The company is focused on integrating Voxbone's services to enhance customer offerings and expand market reach [22] - Bandwidth is committed to balancing top-line growth with profitability, forecasting positive non-GAAP net income for 2021 [32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the hybrid work environment becoming the new norm, which is expected to benefit the business [31] - The company is dedicated to investing in people and systems to support future growth while maintaining profitability [32] - Management highlighted the importance of in-person culture and leadership in the post-pandemic work environment [36] Other Important Information - Non-GAAP gross margins for Q4 were 49%, with expectations for continued margin expansion in 2021 [29] - The company plans to stop breaking out COVID-related impacts in future reports as they become less meaningful [28] Q&A Session Summary Question: Philosophy on returning to work and maintaining culture - Management emphasized the importance of in-person dynamics for culture and leadership, advocating for a full return to in-person work [36] Question: Competitive landscape and market presence - Management noted no fundamental changes in competitive behavior but highlighted Bandwidth's unique global footprint as a key differentiator [44] Question: Cross-sell opportunities with Voxbone - Management indicated robust cross-sell opportunities due to limited overlap in customer bases between Bandwidth and Voxbone [46] Question: Gross margin expectations - Management expects CPaaS margins to continue growing, aided by Voxbone's higher margins, despite potential SMS surcharge impacts [47] Question: COVID impact on business - Management acknowledged the difficulty in distinguishing COVID-related growth from organic growth, deciding to stop reporting COVID impacts separately [53] Question: Microsoft Teams and direct routing opportunities - Management reported positive interest in the Microsoft Teams direct routing product and potential for future collaborations with other platforms [56] Question: Contact center activity trends - Management expressed excitement about the growth in contact center activity, particularly with international customers [66]

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines the report's forward-looking statements, which are subject to risks and uncertainties [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) The report contains forward-looking statements regarding future expectations, plans, and intentions - Forward-looking statements cover business aspects including customer retention, revenue, costs, and acquisitions[4](index=4&type=chunk)[5](index=5&type=chunk) - Readers are cautioned that forward-looking statements are subject to risks and **actual results may differ materially**[7](index=7&type=chunk) - The company undertakes no obligation to update forward-looking statements and advises against undue reliance[8](index=8&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part contains the company's unaudited financial statements and management's analysis of performance [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities increased significantly, driven by investments and convertible senior notes | Metric | Dec 31, 2019 (in thousands) | Sep 30, 2020 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---| | **Assets** ||||| | Cash and cash equivalents | $184,414 | $300,179 | $115,765 | 62.7% | | Other investments | — | $230,780 | $230,780 | N/A | | Accounts receivable, net | $30,187 | $46,452 | $16,265 | 53.9% | | Total current assets | $226,949 | $590,815 | $363,866 | 160.3% | | Total assets | $341,416 | $670,432 | $329,016 | 96.4% | | **Liabilities** ||||| | Convertible senior notes | — | $277,483 | $277,483 | N/A | | Total current liabilities | $45,738 | $57,841 | $12,103 | 26.5% | | Total liabilities | $71,326 | $357,293 | $285,967 | 400.9% | | **Stockholders' Equity** ||||| | Total stockholders' equity | $270,090 | $313,139 | $43,049 | 15.9% | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Revenue grew significantly, but net loss widened due to increased costs and income tax provisions **Three Months Ended September 30** | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | Revenue | $60,491 | $84,758 | $24,267 | 40.1% | | Cost of revenue | $33,104 | $45,527 | $12,423 | 37.5% | | Gross profit | $27,387 | $39,231 | $11,844 | 43.2% | | Operating (loss) income | $(4,605) | $1,864 | $6,469 | 140.5% | | Loss before income taxes | $(3,824) | $(2,342) | $1,482 | -38.8% | | Income tax benefit (provision) | $2,810 | $(10) | $(2,820) | -100.4% | | Net (loss) income | $(1,014) | $(2,352) | $(1,338) | 131.9% | | Basic EPS | $(0.04) | $(0.10) | $(0.06) | 150.0% | | Diluted EPS | $(0.04) | $(0.10) | $(0.06) | 150.0% | **Nine Months Ended September 30** | Metric (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | Revenue | $170,591 | $230,066 | $59,475 | 34.9% | | Cost of revenue | $91,980 | $123,895 | $31,915 | 34.7% | | Gross profit | $78,611 | $106,171 | $27,560 | 35.1% | | Operating (loss) income | $(14,232) | $(1,288) | $12,944 | -90.9% | | Loss before income taxes | $(12,521) | $(10,268) | $2,253 | -18.0% | | Income tax benefit (provision) | $16,971 | $(13,783) | $(30,754) | -181.2% | | Net (loss) income | $4,450 | $(24,051) | $(28,501) | -640.5% | | Basic EPS | $0.20 | $(1.01) | $(1.21) | -605.0% | | Diluted EPS | $0.19 | $(1.01) | $(1.20) | -631.6% | [Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) Total comprehensive loss widened significantly for the nine-month period, driven by the net loss **Three Months Ended September 30** | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | Net (loss) income | $(1,014) | $(2,352) | $(1,338) | 131.9% | | Other comprehensive (loss) income | $(67) | $139 | $206 | -307.5% | | Total comprehensive (loss) income | $(1,081) | $(2,213) | $(1,132) | 104.7% | **Nine Months Ended September 30** | Metric (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | Net (loss) income | $4,450 | $(24,051) | $(28,501) | -640.5% | | Other comprehensive (loss) income | $(34) | $20 | $54 | -158.8% | | Total comprehensive (loss) income | $4,416 | $(24,031) | $(28,447) | -644.2% | [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity increased due to debt conversion options and stock compensation, offset by net losses | Metric (in thousands) | Dec 31, 2019 | Sep 30, 2020 | Change | |:---|:---|:---|:---| | Total stockholders' equity | $270,090 | $313,139 | $43,049 | | Additional paid-in capital | $275,553 | $342,633 | $67,080 | | Accumulated deficit | $(5,528) | $(29,579) | $(24,051) | - Key activities impacting equity in 2020 include: issuance of debt conversion option (**$104.55 million**), capped call option purchase price (**$(43.32) million**), and stock-based compensation (**$7.31 million**)[20](index=20&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow improved, while investing outflow increased and financing inflow was boosted by notes | Metric (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | YoY Change | |:---|:---|:---|:---| | Net cash (used in) provided by operating activities | $(3,480) | $11,331 | $14,811 | | Net cash provided by (used in) investing activities | $2,270 | $(242,162) | $(244,432) | | Net cash provided by financing activities | $152,529 | $347,102 | $194,573 | | Net increase in cash, cash equivalents, and restricted cash | $151,300 | $116,319 | $(34,981) | - **Operating cash flow improved** due to non-cash adjustments like deferred tax benefit, amortization of debt discount, depreciation, and stock-based compensation[235](index=235&type=chunk) - Investing cash outflow was primarily driven by **$230.78 million in other investments** in 2020[237](index=237&type=chunk)[238](index=238&type=chunk) - Financing cash inflow was significantly boosted by **$400 million from convertible senior notes issuance** in 2020[239](index=239&type=chunk)[240](index=240&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context and detail for the unaudited financial statements [1. Organization and Description of Business](index=12&type=section&id=1.%20Organization%20and%20Description%20of%20Business) The company is a cloud-based CPaaS provider with two reportable segments, CPaaS and Other - Bandwidth Inc is a **cloud-based, software-powered CPaaS provider**[27](index=27&type=chunk) - The company has two operating segments: **CPaaS** (Voice, Messaging, 911, Phone Numbers solutions) and **Other** (SIP trunking, data resale, hosted VoIP, traffic from other carriers, SMS registration fees)[28](index=28&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section details accounting policies, use of estimates, and adoption of new standards - Financial statements are prepared in accordance with **GAAP and SEC rules** for interim reporting[29](index=29&type=chunk) - The company updated its estimated period of benefit for nonrefundable upfront fees from **3 to 4 years**, effective January 1, 2020[36](index=36&type=chunk) - Unbilled receivables were **$16.2 million** as of December 31, 2019, and **$25.78 million** as of September 30, 2020[41](index=41&type=chunk) - As of September 30, 2020, one individual customer represented approximately **13% of the Company's accounts receivable**[43](index=43&type=chunk) - The company adopted several new accounting standards in 2020, none of which had a **material impact** on financial statements[47](index=47&type=chunk)[48](index=48&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - The company is evaluating ASU 2020-06 (debt with conversion options) and ASU 2019-12 (income taxes) for future adoption[52](index=52&type=chunk)[53](index=53&type=chunk) [3. Fair Value Measurements](index=17&type=section&id=3.%20Fair%20Value%20Measurements) Financial assets measured at fair value totaled $468.24 million, primarily in money market accounts | Financial Assets (in thousands) | Dec 31, 2019 | Sep 30, 2020 | |:---|:---|:---| | Money market account | $25,000 | $237,459 | | Time deposits | $75,250 | $230,780 | | Total financial assets | $100,250 | $468,239 | - The fair value of Convertible Notes was approximately **$798.5 million** as of September 30, 2020, classified as Level 2[57](index=57&type=chunk) - Interest earned on marketable securities was **$0** for the three and nine months ended September 30, 2020[59](index=59&type=chunk) [4. Financial Statement Components](index=20&type=section&id=4.%20Financial%20Statement%20Components) This section details the composition of accounts receivable and accrued expenses | Accounts Receivable (in thousands) | Dec 31, 2019 | Sep 30, 2020 | |:---|:---|:---| | Trade accounts receivable | $14,692 | $20,980 | | Unbilled accounts receivable | $16,200 | $25,784 | | Allowance for doubtful accounts and reserve for expected credit losses | $(769) | $(889) | | Other accounts receivable | $64 | $577 | | Total accounts receivable, net | $30,187 | $46,452 | | Accrued Expenses (in thousands) | Dec 31, 2019 | Sep 30, 2020 | |:---|:---|:---| | Accrued expense | $12,701 | $18,437 | | Accrued compensation and benefits | $8,284 | $9,764 | | Accrued sales, use, and telecom related taxes | $5,439 | $5,922 | | Other accrued expenses | $904 | $237 | | Total accrued expenses and other current liabilities | $27,328 | $34,360 | [5. Right-of-Use Asset and Lease Liabilities](index=20&type=section&id=5.%20Right-of-Use%20Asset%20and%20Lease%20Liabilities) The company recognized right-of-use assets and lease liabilities for its operating leases - Company adopted ASU 2016-02 (Leases) as of January 1, 2019, recognizing ROU assets and lease liabilities[64](index=64&type=chunk) | Lease Metric (in thousands) | Dec 31, 2019 | Sep 30, 2020 | |:---|:---|:---| | Operating ROU asset, net | $21,031 | $17,509 | | Operating lease liability, current | $4,876 | $5,162 | | Operating lease liability, non-current | $19,868 | $15,638 | | Total lease liabilities | $24,744 | $20,800 | - Future minimum sub-lease receipts from Republic Wireless, Inc are **$819 thousand** as of September 30, 2020[66](index=66&type=chunk) | Lease Payments (in thousands) | As of Sep 30, 2020 | |:---|:---| | 2020 (remaining) | $1,083 | | 2021 | $6,587 | | 2022 | $6,302 | | 2023 | $5,926 | | 2024 | $1,987 | | 2025 | $949 | | Total lease payments | $22,834 | | Less: imputed interest | $(2,034) | | Total lease obligations | $20,800 | [6. Property and Equipment](index=23&type=section&id=6.%20Property%20and%20Equipment) Property and equipment, net, increased due to additions in telecommunications equipment and software | Property and Equipment (in thousands) | Dec 31, 2019 | Sep 30, 2020 | |:---|:---|:---| | Total cost | $76,567 | $88,367 | | Less—accumulated depreciation | $(34,913) | $(44,441) | | Total property and equipment, net | $41,654 | $43,926 | - Capitalized software development costs were **$1.85 million** for the nine months ended September 30, 2020[71](index=71&type=chunk) | Depreciation Expense (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---| | Cost of revenue | $4,523 | $6,958 | | Research and development | $197 | $441 | | Sales and marketing | $79 | $90 | | General and administrative | $1,439 | $2,048 | | Total depreciation expense | $6,238 | $9,537 | [7. Intangible Assets](index=24&type=section&id=7.%20Intangible%20Assets) Intangible assets, net, decreased slightly due to ongoing amortization of definite-lived assets | Intangible Assets (in thousands) | Dec 31, 2019 Net Carrying Value | Sep 30, 2020 Net Carrying Value | |:---|:---|:---| | Customer relationships | $5,805 | $5,415 | | Other, definite lived | — | — | | Licenses, indefinite lived | $764 | $764 | | Total intangible assets, net | $6,569 | $6,179 | - Amortization expense for definite-lived intangible assets was **$390 thousand** for the nine months ended September 30, 2020[76](index=76&type=chunk) | Future Estimated Amortization (in thousands) | As of Sep 30, 2020 | |:---|:---| | 2020 (remaining) | $130 | | 2021 | $520 | | 2022 | $520 | | 2023 | $520 | | 2024 | $520 | | Thereafter | $3,205 | | Total | $5,415 | [8. Debt](index=25&type=section&id=8.%20Debt) The company issued $400 million in 0.25% Convertible Senior Notes and entered into capped call transactions - Issued **$400 million** aggregate principal amount of 0.25% Convertible Notes due March 1, 2026, in February 2020[82](index=82&type=chunk) - Net proceeds from Convertible Notes were approximately **$344.7 million** after deducting discounts and costs[83](index=83&type=chunk) - Initial conversion price for Convertible Notes is approximately **$91.03 per share**[84](index=84&type=chunk) - The **conditional conversion feature** of the Convertible Notes was triggered during the three months ended September 30, 2020[89](index=89&type=chunk) - The company intends to settle the principal amount of the Convertible Notes with **cash upon conversion**[90](index=90&type=chunk) | Convertible Notes Interest Expense (in thousands) | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---| | Contractual interest expense | $246 | $591 | | Amortization of debt discount | $4,292 | $10,183 | | Amortization of debt issuance costs | $283 | $669 | | Total interest expense | $4,821 | $11,443 | - Entered into **Capped Call transactions** with an initial strike price of $91.03 per share and cap prices of $137.40 per share[97](index=97&type=chunk) - As of September 30, 2020, the company had **$0 outstanding** on its $25 million revolving Credit Facility[81](index=81&type=chunk) [9. Segment and Geographic Information](index=29&type=section&id=9.%20Segment%20and%20Geographic%20Information) CPaaS segment revenue grew 43% in Q3 2020, with significant growth in international revenue **Three and Nine Months Ended September 30** | Segment (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | CPaaS Revenue | $51,499 | $73,762 | $22,263 | 43.2% | | CPaaS Gross Profit | $22,202 | $34,416 | $12,214 | 55.0% | | Other Revenue | $8,992 | $10,996 | $2,004 | 22.3% | | Other Gross Profit | $5,185 | $4,815 | $(370) | -7.1% | | Consolidated Revenue | $60,491 | $84,758 | $24,267 | 40.1% | | Consolidated Gross Profit | $27,387 | $39,231 | $11,844 | 43.2% | | Segment (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | CPaaS Revenue | $144,501 | $199,959 | $55,458 | 38.4% | | CPaaS Gross Profit | $63,431 | $91,492 | $28,061 | 44.2% | | Other Revenue | $26,090 | $30,107 | $4,017 | 15.4% | | Other Gross Profit | $15,180 | $14,679 | $(501) | -3.3% | | Consolidated Revenue | $170,591 | $230,066 | $59,475 | 34.9% | | Consolidated Gross Profit | $78,611 | $106,171 | $27,560 | 35.1% | **Geographic Revenue** | Geographic Revenue (CPaaS, in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | United States | $142,999 | $194,414 | $51,415 | 36.0% | | International | $1,502 | $5,545 | $4,043 | 269.2% | | Total CPaaS | $144,501 | $199,959 | $55,458 | 38.4% | [10. Stockholders' Equity](index=31&type=section&id=10.%20Stockholders%27%20Equity) The company had 21.2 million Class A and 3.0 million Class B common stock shares outstanding - As of September 30, 2020, **21,222,929 shares of Class A** common stock and **2,993,136 shares of Class B** common stock were outstanding[103](index=103&type=chunk) - Class B common stock is convertible into Class A common stock[104](index=104&type=chunk) | Reserved Shares (in thousands) | Dec 31, 2019 | Sep 30, 2020 | |:---|:---|:---| | Stock options issued and outstanding | 853,399 | 269,108 | | Nonvested restricted stock units issued and outstanding | 392,351 | 447,449 | | Stock-based awards available for grant under the 2017 Plan | 1,310,354 | 2,040,931 | | Total | 2,556,104 | 2,757,488 | [11. Stock Based Compensation](index=32&type=section&id=11.%20Stock%20Based%20Compensation) Stock-based compensation expense increased to $7.31 million for the nine-month period | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Cost of revenue | $52 | $46 | $158 | $161 | | Research and development | $371 | $508 | $1,101 | $1,581 | | Sales and marketing | $280 | $369 | $892 | $1,140 | | General and administrative | $951 | $1,459 | $2,809 | $4,424 | | Total | $1,654 | $2,382 | $4,960 | $7,306 | - As of September 30, 2020, total unrecognized compensation cost related to non-vested stock options was **$223 thousand**[113](index=113&type=chunk) - As of September 30, 2020, total unrecognized compensation cost related to non-vested RSUs was **$17.41 million**[114](index=114&type=chunk) [12. Commitments and Contingencies](index=34&type=section&id=12.%20Commitments%20and%20Contingencies) The company has purchase obligations of $10.67 million and is involved in 911 tax-related lawsuits - Non-cancellable purchase obligations totaled **$10.67 million** as of September 30, 2020[118](index=118&type=chunk) - The company entered into an indemnity agreement for predevelopment work on land for its office headquarters[119](index=119&type=chunk) - Signed a Purchase and Sale Agreement for approximately 40 acres of land in Raleigh, NC, for **$30 million**[120](index=120&type=chunk) - Involved in multiple lawsuits alleging failure to bill, collect, and remit 911 taxes and surcharges; management believes the resolution will **not have a material adverse effect**[121](index=121&type=chunk)[122](index=122&type=chunk) [13. Employee Benefit Plan](index=35&type=section&id=13.%20Employee%20Benefit%20Plan) The company sponsors a 401(k) plan and made matching contributions of $1.58 million in 2020 | 401(k) Matching Contributions (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Matching contributions | $415 | $474 | $1,301 | $1,583 | [14. Income Taxes](index=35&type=section&id=14.%20Income%20Taxes) The effective tax rate decreased significantly due to a valuation allowance on deferred tax assets | Effective Tax Rate | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | |:---|:---|:---| | Effective tax rate | 73.5% | (0.4)% | | Effective Tax Rate | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---| | Effective tax rate | 135.5% | (134.2)% | - The change in tax rate is primarily due to a change in judgment related to the **realizability of certain deferred tax assets** and the resulting valuation allowance[125](index=125&type=chunk) - The company continues to maintain a **valuation allowance** for its U.S. federal and state net deferred tax assets[125](index=125&type=chunk) - The company has accounted for the estimated impact of the **Coronavirus Aid, Relief, and Economic Security (CARES) Act**[128](index=128&type=chunk) [15. Related Parties](index=35&type=section&id=15.%20Related%20Parties) The company has ongoing service and facility sharing arrangements with Republic Wireless, Inc - Republic Wireless, Inc is considered a **related party** and a variable interest entity (VIE)[129](index=129&type=chunk)[131](index=131&type=chunk) | Related Party Transactions (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Reduction of rent expense (Facilities Sharing Agreement) | $(96) | $(96) | $(547) | $(288) | | Revenue from telecommunication services to Republic | $524 | $541 | $2,093 | $1,657 | | Withholding tax remitted to Republic | $442 | $747 | $1,769 | $1,295 | | Net compensation for legal services from Republic | — | $16 | — | $63 | - As of September 30, 2020, the company had a receivable of **$183 thousand** from Republic and a payable of **$10 thousand** to Republic[134](index=134&type=chunk)[136](index=136&type=chunk) [16. Basic and Diluted (Loss) Income per Common Share](index=37&type=section&id=16.%20Basic%20and%20Diluted%20%28Loss%29%20Income%20per%20Common%20Share) Net loss per share was $(1.01) for the nine-month period, a decline from net income per share in 2019 | EPS Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Basic Net (Loss) Income per Share | $(0.04) | $(0.10) | $0.20 | $(1.01) | | Diluted Net (Loss) Income per Share | $(0.04) | $(0.10) | $0.19 | $(1.01) | | Weighted Average Basic Shares Outstanding | 23,426,455 | 24,175,762 | 22,353,097 | 23,905,322 | | Weighted Average Diluted Shares Outstanding | 23,426,455 | 24,175,762 | 23,692,571 | 23,905,322 | - For the nine months ended September 30, 2020, common share equivalents with **anti-dilutive effects** were excluded from the diluted EPS calculation[140](index=140&type=chunk) [17. Subsequent Events](index=39&type=section&id=17.%20Subsequent%20Events) The company entered into an agreement to acquire Voice Topco Limited (Voxbone) for €446 million - On October 12, 2020, the company entered into a Share Purchase Agreement to acquire Voice Topco Limited (indirectly Voxbone S.A.) for **€446 million**[141](index=141&type=chunk)[142](index=142&type=chunk) - Consideration for the acquisition includes approximately **$400 million in cash** and approximately **€108 million (or $128 million) in Class A common stock**[142](index=142&type=chunk) - The acquisition is subject to customary conditions and approvals, with an expected closing in the **fourth quarter of 2020**[143](index=143&type=chunk)[154](index=154&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and results of operations [Overview](index=41&type=section&id=Overview) The company is a leading cloud-based CPaaS provider with a proprietary IP voice network - Bandwidth is a leading cloud-based communications platform for enterprises in the United States[147](index=147&type=chunk)[149](index=149&type=chunk) | Metric (in millions) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | YoY Change | % Change | |:---|:---|:---|:---|:---| | Total Revenue | $60.5 | $84.8 | $24.3 | 40.2% | | CPaaS Revenue | $51.5 | $73.8 | $22.3 | 43.3% | | Net Loss | $1.0 | $2.4 | $1.4 | 140.0% | - The number of active CPaaS customer accounts **increased by 25% year-over-year**, from 1,610 in 2019 to 2,015 in 2020[150](index=150&type=chunk) [Proposed Acquisition of Voxbone](index=41&type=section&id=Proposed%20Acquisition%20of%20Voxbone) The company announced an agreement to acquire Voxbone for €446 million, expected to close in Q4 2020 - On October 12, 2020, Bandwidth entered into a Share Purchase Agreement to acquire Voice Topco Limited (Voxbone) for **€446 million**[151](index=151&type=chunk)[152](index=152&type=chunk) - Consideration includes approximately **$400 million in cash** and approximately **€108 million (or $128 million) in Class A common stock**[152](index=152&type=chunk) - The proposed transaction is expected to close in **Q4 2020**, subject to customary conditions and approvals[154](index=154&type=chunk) - Incurred **$1.7 million in expenses** related to the proposed acquisition during the nine months ended September 30, 2020[154](index=154&type=chunk) [COVID-19 Update](index=42&type=section&id=COVID-19%20Update) The COVID-19 pandemic led to increased use of the company's services due to remote work trends - COVID-19 resulted in **increased use of services** during Q3 and the nine months ended September 30, 2020[156](index=156&type=chunk) - Increased usage was primarily from large enterprise customers offering **unified communications as a service (UCaaS)** and meeting solutions[156](index=156&type=chunk) - Future financial performance remains uncertain, with potential for **curtailed customer demand** or delayed service implementation[156](index=156&type=chunk) [Key Performance Indicators](index=43&type=section&id=Key%20Performance%20Indicators) The company monitors KPIs including active customers, net retention rate, and non-GAAP measures | KPI | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Number of active CPaaS customers (as of period end) | 1,610 | 2,015 | 1,610 | 2,015 | | Dollar-based net retention rate | 116% | 131% | 113% | 130% | | Adjusted EBITDA (in thousands) | $(638) | $9,275 | $(2,277) | $17,896 | | Free cash flow (in thousands) | $(4,386) | $9,313 | $(19,317) | $(51) | - Active CPaaS customer accounts are defined as individual accounts with at least **$100 of revenue** in the last month of the period[159](index=159&type=chunk)[160](index=160&type=chunk) - **Dollar-based net retention rate** measures CPaaS revenue growth from existing customers[161](index=161&type=chunk) [Key Components of Statements of Operations](index=44&type=section&id=Key%20Components%20of%20Statements%20of%20Operations) This section details revenue, cost of revenue, and operating expense components - CPaaS revenue is primarily derived from **usage-based fees**, accounting for **75% of CPaaS revenue** for Q3 2020[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - Monthly fees from phone number services and 911 access service accounted for **23% of CPaaS revenue** for Q3 2020[164](index=164&type=chunk)[165](index=165&type=chunk) - Other revenue is expected to continue to **decline as a percentage of total revenue**[166](index=166&type=chunk) - Unbilled revenue constituted **56% of outstanding accounts receivable**, net, as of September 30, 2020[167](index=167&type=chunk) - Cost of revenue for CPaaS includes fees to network service providers, network support, and personnel costs[168](index=168&type=chunk)[169](index=169&type=chunk) - Operating expenses are expected to **increase in absolute dollars** due to investments in growth and public company compliance[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - The effective tax rate decreased significantly due to a **valuation allowance** on deferred tax assets[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) [Non-GAAP Financial Measures](index=47&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures to evaluate performance and facilitate period-to-period comparisons - Non-GAAP gross profit and gross margin exclude depreciation, amortization, and stock-based compensation[184](index=184&type=chunk)[185](index=185&type=chunk) **Non-GAAP Gross Profit** | Non-GAAP Gross Profit (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Consolidated Gross Profit | $27,387 | $39,231 | $78,611 | $106,171 | | Depreciation | $1,700 | $2,284 | $4,523 | $6,958 | | Stock-based compensation | $52 | $46 | $158 | $161 | | Non-GAAP Gross Profit | $29,139 | $41,561 | $83,292 | $113,290 | | Consolidated Gross Profit Margin % | 45% | 46% | 46% | 46% | | Non-GAAP Gross Margin % | 48% | 49% | 49% | 49% | **Non-GAAP CPaaS Gross Profit** | Non-GAAP CPaaS Gross Profit (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | CPaaS Gross Profit | $22,202 | $34,416 | $63,431 | $91,492 | | Depreciation | $1,700 | $2,284 | $4,523 | $6,958 | | Stock-based compensation | $52 | $46 | $158 | $161 | | Non-GAAP CPaaS Gross Profit | $23,954 | $36,746 | $68,112 | $98,611 | | CPaaS Gross Profit Margin % | 43% | 47% | 44% | 46% | | Non-GAAP CPaaS Gross Margin % | 47% | 50% | 47% | 49% | - Non-GAAP net (loss) income excludes items like stock-based compensation and acquisition-related expenses[190](index=190&type=chunk) **Non-GAAP Net (Loss) Income** | Non-GAAP Net (Loss) Income (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Net (loss) income | $(1,014) | $(2,352) | $4,450 | $(24,051) | | Non-GAAP net (loss) income | $(1,427) | $6,483 | $(4,774) | $10,678 | | Non-GAAP diluted shares | 23,426,455 | 26,509,779 | 22,353,097 | 25,454,254 | | Non-GAAP diluted EPS | $(0.06) | $0.24 | $(0.21) | $0.42 | - Adjusted EBITDA excludes items like income tax, interest, depreciation, and amortization[195](index=195&type=chunk)[196](index=196&type=chunk) **Adjusted EBITDA** | Adjusted EBITDA (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Net (loss) income | $(1,014) | $(2,352) | $4,450 | $(24,051) | | Adjusted EBITDA | $(638) | $9,275 | $(2,277) | $17,896 | - Free cash flow is net cash from operating activities less capital expenditures[199](index=199&type=chunk) **Free Cash Flow** | Free Cash Flow (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Net cash provided by (used in) operating activities | $1,932 | $11,647 | $(3,480) | $11,331 | | Net cash used in investing in capital assets | $(6,318) | $(2,334) | $(15,837) | $(11,382) | | Free cash flow | $(4,386) | $9,313 | $(19,317) | $(51) | [Results of Operations](index=51&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of consolidated results for 2019 and 2020 periods [Consolidated Results of Operations](index=51&type=section&id=Consolidated%20Results%20of%20Operations) Total revenue grew 35% for the nine-month period, but net loss increased due to a tax provision | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | Total Revenue | $60,491 | $84,758 | $170,591 | $230,066 | | Total Cost of Revenue | $33,104 | $45,527 | $91,980 | $123,895 | | Total Gross Profit | $27,387 | $39,231 | $78,611 | $106,171 | | Total Operating Expenses | $31,992 | $37,367 | $92,843 | $107,459 | | Operating (Loss) Gain | $(4,605) | $1,864 | $(14,232) | $(1,288) | | Total Other Income (Expense), Net | $781 | $(4,206) | $1,711 | $(8,980) | | Loss Before Income Taxes | $(3,824) | $(2,342) | $(12,521) | $(10,268) | | Income Tax Benefit (Provision) | $2,810 | $(10) | $16,971 | $(13,783) | | Net (Loss) Income | $(1,014) | $(2,352) | $4,450 | $(24,051) | | Metric (% of Total Revenue) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---|:---|:---| | CPaaS Revenue | 85% | 87% | 85% | 87% | | Other Revenue | 15% | 13% | 15% | 13% | | Total Cost of Revenue | 54% | 53% | 54% | 54% | | Total Gross Profit | 45% | 46% | 46% | 46% | | Total Operating Expenses | 53% | 44% | 54% | 47% | | Operating (Loss) Gain | (8)% | 2% | (8)% | (1)% | | Net (Loss) Income | (2)% | (3)% | 3% | (10)% | [Comparison of the three months ended September 30, 2019 and 2020](index=53&type=section&id=Comparison%20of%20the%20three%20months%20ended%20September%2030%2C%202019%20and%202020) Total revenue increased 40% in Q3 2020, driven by a 43% increase in CPaaS revenue | Revenue (in thousands) | Sep 30, 2019 | Sep 30, 2020 | Change | % Change | |:---|:---|:---|:---|:---| | CPaaS revenue | $51,499 | $73,762 | $22,263 | 43% | | Other revenue | $8,992 | $10,996 | $2,004 | 22% | | Total revenue | $60,491 | $84,758 | $24,267 | 40% | - CPaaS revenue increase driven by **$15.2 million from voice and messaging usage** and **$4.6 million from higher usage pricing**[208](index=208&type=chunk) - Dollar-based net retention rate was **131%**, and active CPaaS customer accounts increased **25% to 2,015**[208](index=208&type=chunk) | Cost of Revenue & Gross Margin (in thousands) | Sep 30, 2019 | Sep 30, 2020 | Change | % Change | |:---|:---|:---|:---|:---| | CPaaS cost of revenue | $29,297 | $39,346 | $10,049 | 34% | | Other cost of revenue | $3,807 | $6,181 | $2,374 | 62% | | Total cost of revenue | $33,104 | $45,527 | $12,423 | 38% | | Total gross profit | $27,387 | $39,231 | $11,844 | 43% | | CPaaS gross margin | 43% | 47% | 4%pt | | | Total gross margin | 45% | 46% | 1%pt | | - CPaaS cost of revenue increased due to **$4.9 million in voice usage costs** and **$3.2 million in messaging costs**[212](index=212&type=chunk) | Operating Expenses (in thousands) | Sep 30, 2019 | Sep 30, 2020 | Change | % Change | |:---|:---|:---|:---|:---| | Research and development | $7,939 | $10,232 | $2,293 | 29% | | Sales and marketing | $8,784 | $9,001 | $217 | 2% | | General and administrative | $15,269 | $18,134 | $2,865 | 19% | | Total operating expenses | $31,992 | $37,367 | $5,375 | 17% | - G&A expenses include **$1.7 million** for legal and accounting consulting related to the Voxbone acquisition[216](index=216&type=chunk) - Interest expense, net, increased by **$5.0 million**, primarily due to **$4.8 million from Convertible Notes**[218](index=218&type=chunk) - Income tax benefit decreased by **$2.8 million**, with the effective tax rate changing from **73.5% to (0.4)%**[219](index=219&type=chunk) [Comparison of the nine months ended September 30, 2019 and 2020](index=55&type=section&id=Comparison%20of%20the%20nine%20months%20ended%20September%2030%2C%202019%20and%202020) Total revenue increased 35% for the nine-month period, driven by a 38% increase in CPaaS revenue | Revenue (in thousands) | Sep 30, 2019 | Sep 30, 2020 | Change | % Change | |:---|:---|:---|:---|:---| | CPaaS revenue | $144,501 | $199,959 | $55,458 | 38% | | Other revenue | $26,090 | $30,107 | $4,017 | 15% | | Total revenue | $170,591 | $230,066 | $59,475 | 35% | - CPaaS revenue increase driven by **$41.7 million from voice and messaging usage**[220](index=220&type=chunk) - Dollar-based net retention rate was **130%**, and active CPaaS customer accounts increased **25% to 2,015**[220](index=220&type=chunk) | Cost of Revenue & Gross Margin (in thousands) | Sep 30, 2019 | Sep 30, 2020 | Change | % Change | |:---|:---|:---|:---|:---| | CPaaS cost of revenue | $81,070 | $108,467 | $27,397 | 34% | | Other cost of revenue | $10,910 | $15,428 | $4,518 | 41% | | Total cost of revenue | $91,980 | $123,895 | $31,915 | 35% | | Total gross profit | $78,611 | $106,171 | $27,560 | 35% | | CPaaS gross margin | 44% | 46% | 2%pt | | | Total gross margin | 46% | 46% | 0%pt | | - CPaaS cost of revenue increased due to **$14.1 million in voice usage costs** and **$7.4 million in network costs**[224](index=224&type=chunk) | Operating Expenses (in thousands) | Sep 30, 2019 | Sep 30, 2020 | Change | % Change | |:---|:---|:---|:---|:---| | Research and development | $23,312 | $29,316 | $6,004 | 26% | | Sales and marketing | $25,647 | $27,073 | $1,426 | 6% | | General and administrative | $43,884 | $51,070 | $7,186 | 16% | | Total operating expenses | $92,843 | $107,459 | $14,616 | 16% | - G&A expenses include **$1.7 million** for legal and accounting consulting related to the Voxbone acquisition[228](index=228&type=chunk) - Interest expense, net, increased by **$10.6 million**, primarily due to **$11.2 million from Convertible Notes**[230](index=230&type=chunk) - Income tax benefit decreased by **$30.8 million**, with the effective tax rate changing from **135.5% to (134.2)%**[231](index=231&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources include public offerings, convertible notes, and operating cash flow - Principal liquidity sources include proceeds from initial public offering (**$74.4 million**), follow-on public offering (**$147.4 million**), and convertible notes (**$344.7 million**)[232](index=232&type=chunk) | Cash Flows (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | |:---|:---|:---| | Net cash (used in) provided by operating activities | $(3,480) | $11,331 | | Net cash provided by (used in) investing activities | $2,270 | $(242,162) | | Net cash provided by financing activities | $152,529 | $347,102 | | Net increase in cash, cash equivalents, and restricted cash | $151,300 | $116,319 | - Cash provided by operating activities in 2020 was **$11.3 million**, driven by non-cash adjustments[235](index=235&type=chunk) - Cash used in investing activities in 2020 was **$242.2 million**, primarily due to **$230.8 million in other investments**[237](index=237&type=chunk) - Cash provided by financing activities in 2020 was **$347.1 million**, mainly from **$400 million in convertible notes proceeds**[239](index=239&type=chunk) - As of September 30, 2020, the company had **$0 outstanding** on its $25 million Credit Facility[243](index=243&type=chunk) | Contractual Obligations (in thousands) | Total | Less than 1 year | 1 to 3 Years | 3 to 5 Years | More than 5 years | |:---|:---|:---|:---|:---|:---| | Operating leases | $22,834 | $6,009 | $12,406 | $4,419 | — | | Convertible Notes | $400,000 | — | — | — | $400,000 | | Purchase obligations | $10,673 | $5,818 | $4,456 | $397 | $2 | | Total | $433,507 | $11,827 | $16,862 | $4,816 | $400,002 | - The company has **not entered into any off-balance sheet arrangements**[249](index=249&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=60&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Management makes significant estimates, particularly for revenue recognition and income taxes - Critical accounting policies and estimates include revenue recognition, stock-based compensation, and income taxes[251](index=251&type=chunk) - **No material changes** to critical accounting policies since the Annual Report on Form 10-K filed on February 21, 2020[252](index=252&type=chunk) [Recently Issued Accounting Guidance](index=61&type=section&id=Recently%20Issued%20Accounting%20Guidance) This section refers to Note 2 for details on recently adopted and unadopted accounting standards - Refer to Note 2, 'Summary of Significant Accounting Policies,' for details on recently adopted accounting standards[253](index=253&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=62&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is primarily exposed to market risks from interest rate fluctuations - Primary market risk exposure is to **interest rate changes**, with minimal exposure to foreign currency rates and inflation[255](index=255&type=chunk) - Cash and cash equivalents (**$300.2 million**) and other investments (**$230.8 million**) are in short-term instruments, limiting interest rate risk[256](index=256&type=chunk)[257](index=257&type=chunk) - A hypothetical **10% change in interest rates** would not materially impact consolidated financial statements[258](index=258&type=chunk) - Convertible Notes have a **fixed annual interest rate**, eliminating financial exposure to interest rate changes for this debt[259](index=259&type=chunk) - **Foreign currency risk is minimal** as revenue and expenses are primarily in U.S dollars[260](index=260&type=chunk)[261](index=261&type=chunk) - Inflation has **not had a material effect** on the business[263](index=263&type=chunk) [Item 4. Controls and Procedures](index=64&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020 - Disclosure controls and procedures were evaluated as **effective** at a reasonable assurance level as of September 30, 2020[265](index=265&type=chunk) - **No material changes** in internal control over financial reporting were identified during the quarter[266](index=266&type=chunk) - The effectiveness of internal control systems is subject to **inherent limitations**[267](index=267&type=chunk) [PART II - OTHER INFORMATION](index=65&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part contains information on legal proceedings, risk factors, and other required disclosures [Item 1. Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) The company is a defendant in multiple lawsuits related to 911 taxes and surcharges - Bandwidth Inc is a defendant in multiple lawsuits alleging failure to bill, collect, and remit **911 taxes and surcharges**[269](index=269&type=chunk)[270](index=270&type=chunk) - The company intends to vigorously defend these lawsuits and believes the ultimate resolution will **not have a material adverse effect**[271](index=271&type=chunk)[122](index=122&type=chunk) - The company may also be subject to other legal actions in the ordinary course of business[272](index=272&type=chunk) [Item 1A. Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could adversely affect the company's business [Risks Related to Our Business](index=65&type=section&id=Risks%20Related%20to%20Our%20Business) The company faces risks related to growth, competition, regulations, and cybersecurity - The **COVID-19 pandemic** may harm business through slowdowns in customer payments, increased churn, and reduced usage[277](index=277&type=chunk)[278](index=278&type=chunk) - The market is **highly competitive** with larger competitors, and failure to compete effectively could harm the business[279](index=279&type=chunk)[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - **Dependence on customers increasing use of services**; loss of customers or decline in usage could materially harm the business[292](index=292&type=chunk)[293](index=293&type=chunk) - **Rapid growth** strains corporate culture, operational infrastructure, and management[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Expanding international operations exposes the company to significant **regulatory, economic, and political risks**[317](index=317&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk) - **Concentration of revenue** in a limited number of enterprise customers poses a risk if top customers are lost[322](index=322&type=chunk) - **Breaches of networks or systems** could degrade business, result in data losses, and damage reputation[323](index=323&type=chunk)[324](index=324&type=chunk)[326](index=326&type=chunk) - Litigation related to **911 services taxes and charges** could adversely affect results[327](index=327&type=chunk)[328](index=328&type=chunk) - The communications industry faces significant **regulatory uncertainties**, including FCC proceedings and network neutrality changes[333](index=333&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk)[344](index=344&type=chunk) - Subject to privacy and data security obligations (e.g., **CCPA, GDPR**); failure to comply could result in fines and loss of business[345](index=345&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk) - **Termination of relationships with key suppliers** could cause delay and additional costs[400](index=400&type=chunk)[401](index=401&type=chunk)[402](index=402&type=chunk) - **Dependence on continued services of senior management** and key employees; loss could adversely affect business[414](index=414&type=chunk)[415](index=415&type=chunk) - **Acquisitions or investments** may divert management's attention and result in integration difficulties[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk)[451](index=451&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=95&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) Ownership of Class A common stock carries risks including price volatility and concentrated voting control - The trading price of Class A common stock may be **volatile** due to market conditions and company performance[455](index=455&type=chunk)[456](index=456&type=chunk)[457](index=457&type=chunk)[458](index=458&type=chunk)[459](index=459&type=chunk)[460](index=460&type=chunk) - **Dual-class common stock structure** concentrates voting control (**57.1%** as of Sep 30, 2020) with pre-IPO stockholders[461](index=461&type=chunk)[462](index=462&type=chunk)[463](index=463&type=chunk) - David A Morken, Co-Founder and CEO, may control approximately **42.0% of voting power**[466](index=466&type=chunk)[467](index=467&type=chunk) - **Anti-takeover provisions** in corporate documents and Delaware law could impair or prevent takeover attempts[470](index=470&type=chunk)[471](index=471&type=chunk)[472](index=472&type=chunk)[473](index=473&type=chunk)[474](index=474&type=chunk) - The company **does not intend to pay dividends** for the foreseeable future[481](index=481&type=chunk) [Risks Related to the Convertible Notes and Our Indebtedness](index=100&type=section&id=Risks%20Related%20to%20the%20Convertible%20Notes%20and%20Our%20Indebtedness) The company's debt poses risks related to servicing, potential defaults, and liquidity - Servicing future indebtedness requires **significant cash**, and insufficient cash flow could force asset sales or restructuring[484](index=484&type=chunk)[485](index=485&type=chunk) - The Credit Facility may **limit cash payments** upon conversion or repurchase of Convertible Notes, potentially leading to default[486](index=486&type=chunk)[488](index=488&type=chunk) - Triggering of the **conditional conversion feature** of Convertible Notes could adversely affect liquidity[492](index=492&type=chunk)[494](index=494&type=chunk) - The accounting method for convertible debt results in **non-cash interest expense**, potentially lowering reported net income[495](index=495&type=chunk)[496](index=496&type=chunk)[497](index=497&type=chunk) - **Capped call transactions** may affect the value of Convertible Notes and Class A common stock[498](index=498&type=chunk)[499](index=499&type=chunk)[500](index=500&type=chunk)[501](index=501&type=chunk)[502](index=502&type=chunk) - Subject to **counterparty risk** with respect to the Capped Calls[503](index=503&type=chunk) [Risks Related to the Acquisition of Voxbone](index=103&type=section&id=Risks%20Related%20to%20the%20Acquisition%20of%20Voxbone) The proposed acquisition of Voxbone presents risks including business disruption and integration challenges - The proposed acquisition of Voxbone may cause **disruptions to business** or business relationships[504](index=504&type=chunk)[505](index=505&type=chunk)[506](index=506&type=chunk) - **Significant costs, expenses, and fees** are incurred, many payable regardless of acquisition consummation[507](index=507&type=chunk) - **Failure to complete the acquisition** could negatively impact stock price and business operations[508](index=508&type=chunk)[509](index=509&type=chunk)[510](index=510&type=chunk) - No assurance that **anticipated synergies and other benefits** from the acquisition will be realized due to integration difficulties[511](index=511&type=chunk)[512](index=512&type=chunk)[514](index=514&type=chunk)[515](index=515&type=chunk) - Due diligence may fail to discover all **risks or liabilities** associated with acquisitions[451](index=451&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=105&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states there were no unregistered sales of equity securities during the period - No unregistered sales of equity securities[516](index=516&type=chunk) [Item 6. Exhibits and Financial Statement Schedules](index=105&type=section&id=Item%206.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Quarterly Report on Form 10-Q - Includes Share Purchase Agreement for Voxbone, corporate organizational documents, and various certifications[517](index=517&type=chunk) - Includes CEO and CFO certifications and XBRL Instance, Schema, and Linkbase Documents[517](index=517&type=chunk) [Signatures](index=107&type=section&id=Signatures) This section contains the required signatures for the Quarterly Report on Form 10-Q - The report is signed by the Chief Executive Officer and Chief Financial Officer on October 30, 2020[519](index=519&type=chunk)[520](index=520&type=chunk)

Bandwidth Inc. (NASDAQ:BAND) Q3 2020 Results Conference Call October 29, 2020 5:00 PM ET Company Participants Sarah Walas - Vice President of Investor Relations David Morken - Chief Executive Officer Jeff Hoffman - Chief Financial Officer Conference Call Participants Mark Murphy - JPMorgan Bhavan Suri - William Blair Will Power - Baird Rich Valera - Needham & Company Pat Walravens - JMP Securities Mike Walkley - Canaccord Genuity Meta Marshall - Morgan Stanley Operator Thank you for standing by. This is t ...

Bandwidth Inc. (NASDAQ:BAND) Q2 2020 Earnings Conference Call July 30, 2020 5:00 PM ET Company Participants Sarah Walas - Vice President of Investor Relations David Morken - Chief Executive Officer Jeff Hoffman - Chief Financial Officer Conference Call Participants Bhavan Suri - William Blair Will Power - Robert W. Baird Patrick Walravens - JMP Mark Murphy - JPMorgan Meta Marshall - Morgan Stanley Mike Walkley - Canaccord Steve Enders - KeyBanc Derek Soderberg - Colliers Securities Operator Greetings, welco ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited statements show asset growth from convertible notes, increased revenue, and a net loss due to a tax provision [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities grew significantly due to cash and debt from a convertible senior notes issuance Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | June 30, 2020 | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$341,416** | **$657,957** | **+$316,541** | | Cash and cash equivalents | $184,414 | $290,979 | +$106,565 | | Other investments | $0 | $230,780 | +$230,780 | | **Total Liabilities** | **$71,326** | **$345,023** | **+$273,697** | | Convertible senior notes | $0 | $272,901 | +$272,901 | | **Total Stockholders' Equity** | **$270,090** | **$312,934** | **+$42,844** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue and gross profit increased, but a large income tax provision drove a significant net loss for the quarter Statement of Operations Summary (in thousands) | Metric | Q2 2019 | Q2 2020 | YoY Change | H1 2019 | H1 2020 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$56,779** | **$76,790** | **+35.2%** | **$110,100** | **$145,308** | **+32.0%** | | **Gross Profit** | **$26,669** | **$34,781** | **+30.4%** | **$51,224** | **$66,940** | **+30.7%** | | Operating Loss | ($3,783) | ($268) | +92.9% | ($9,627) | ($3,152) | +67.3% | | **Net Income (Loss)** | **$3,472** | **($20,641)** | **-694.5%** | **$5,464** | **($21,699)** | **-497.1%** | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Financing activities provided significant cash from notes issuance, funding investments and increasing overall cash reserves Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,412) | ($316) | | Net cash used in investing activities | ($47,452) | ($239,828) | | Net cash provided by financing activities | $151,947 | $347,057 | | **Net increase in cash** | **$99,082** | **$106,905** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the CPaaS business, a $400 million convertible notes issuance, and a large tax valuation allowance - The company operates through two reportable segments: **CPaaS** (Communications Platform-as-a-Service) and Other[27](index=27&type=chunk) - In February 2020, the company issued **$400 million** in 0.25% Convertible Senior Notes due 2026, with net proceeds of approximately **$344.8 million**[79](index=79&type=chunk)[80](index=80&type=chunk) - A valuation allowance of **$14.2 million** was recorded against U.S. deferred tax assets, significantly impacting the net loss for the period[126](index=126&type=chunk)[172](index=172&type=chunk) - The company entered into an agreement to acquire land in Raleigh, NC, for **$30 million** to construct its new office headquarters[119](index=119&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong revenue growth driven by CPaaS customer usage, offset by a net loss from a tax allowance [Overview and COVID-19 Update](index=44&type=section&id=Overview%20and%20COVID-19%20Update) The company's CPaaS business saw increased usage due to COVID-19, though long-term impacts remain uncertain - The company is a **CPaaS provider** with its own nationwide IP voice network, which it considers a significant competitive advantage[141](index=141&type=chunk)[143](index=143&type=chunk) - The **COVID-19 pandemic** resulted in increased service usage during the quarter, driven by large enterprise customers in a work-from-home environment[146](index=146&type=chunk)[147](index=147&type=chunk) [Key Performance Indicators](index=45&type=section&id=Key%20Performance%20Indicators) Key metrics show strong growth in active CPaaS customers, dollar-based net retention rate, and Adjusted EBITDA Key Performance Indicators | KPI | Q2 2019 | Q2 2020 | H1 2019 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Number of active CPaaS customers | 1,467 | 1,900 | 1,467 | 1,900 | | Dollar-based net retention rate | 113% | 133% | 112% | 130% | | Adjusted EBITDA (in thousands) | $24 | $5,522 | ($1,639) | $8,621 | | Free cash flow (in thousands) | ($4,062) | $2,671 | ($14,931) | ($9,364) | [Results of Operations](index=53&type=section&id=Results%20of%20Operations) CPaaS revenue grew 40% year-over-year, driving total revenue growth and a significantly reduced operating loss Revenue Comparison for Three Months Ended June 30 (in thousands) | Revenue Type | 2019 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | CPaaS revenue | $47,989 | $67,076 | +$19,087 | +40% | | Other revenue | $8,790 | $9,714 | +$924 | +11% | | **Total revenue** | **$56,779** | **$76,790** | **+$20,011** | **+35%** | - The increase in Q2 CPaaS revenue was primarily driven by increased usage, reflecting a dollar-based net retention rate of **133%**[198](index=198&type=chunk) - Total operating expenses for Q2 2020 increased by **15% YoY** to $35.0 million, with R&D up 25%, Sales & Marketing up 2%, and G&A up 18%[203](index=203&type=chunk) [Liquidity and Capital Resources](index=60&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity was significantly strengthened by a $400 million convertible notes issuance - Primary liquidity sources include proceeds from public offerings and the recent **$344.8 million** net proceeds from the February 2020 convertible notes issuance[220](index=220&type=chunk) - For the first six months of 2020, financing activities provided **$347.1 million** in cash, primarily from the convertible notes issuance[221](index=221&type=chunk)[224](index=224&type=chunk)[226](index=226&type=chunk) - As of June 30, 2020, the company had **$25 million** of available borrowing capacity under its revolving credit facility with no amount outstanding[230](index=230&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate changes affecting its cash investments and convertible notes' fair value - Primary market risk is from interest rate changes on cash and investments totaling **$521.8 million** as of June 30, 2020[242](index=242&type=chunk) - The **$400 million** in convertible notes carry a fixed annual interest rate, but their fair value fluctuates with interest rates and the company's stock price[245](index=245&type=chunk) - Foreign currency risk is minimal as of June 30, 2020, with revenue and expenses primarily in U.S. dollars[246](index=246&type=chunk)[247](index=247&type=chunk) [Item 4. Controls and Procedures](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that as of June 30, 2020, the company's disclosure controls and procedures are **effective** at a reasonable assurance level[251](index=251&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[252](index=252&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in several lawsuits and a regulatory inquiry concerning 911 service taxes and surcharges - The company is a defendant in several lawsuits alleging failure to bill, collect, and remit **911 service taxes** and surcharges in multiple jurisdictions[255](index=255&type=chunk)[256](index=256&type=chunk) - In August 2016, the company received a Civil Investigative Demand from the North Carolina Department of Justice concerning the same **911 tax** and surcharge issues[258](index=258&type=chunk) [Item 1A. Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) Key risks include intense market competition, regulatory uncertainty, a dual-class stock structure, and debt service obligations - The **CPaaS market is highly competitive**, with rivals ranging from other CPaaS companies to large network service providers with greater resources[266](index=266&type=chunk)[268](index=268&type=chunk) - The business faces significant **regulatory uncertainty**, including litigation over 911 taxes and evolving data privacy laws like CCPA and GDPR[312](index=312&type=chunk)[314](index=314&type=chunk)[331](index=331&type=chunk)[338](index=338&type=chunk) - The **dual-class stock structure** concentrates **61.9% of voting power** with pre-IPO stockholders, limiting the influence of Class A stockholders[449](index=449&type=chunk)[450](index=450&type=chunk) - Financial risks include the ability to service debt, including the **convertible notes**, and potential limitations on paying cash upon conversion[475](index=475&type=chunk)[479](index=479&type=chunk)

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Bandwidth Inc. for the three months ended March 31, 2020, accompanied by notes detailing significant accounting policies and financial events [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2020, total assets increased to **$665.3 million** from **$341.4 million** at year-end 2019, primarily due to a significant rise in cash and cash equivalents, driven by the issuance of convertible senior notes, which also caused total liabilities to increase to **$337.1 million** from **$71.3 million** over the same period Balance Sheet Summary (in thousands) | Metric | Dec 31, 2019 | Mar 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $226,949 | $566,873 | | **Total Assets** | $341,416 | $665,276 | | **Total Current Liabilities** | $45,738 | $43,976 | | **Total Liabilities** | $71,326 | $337,117 | | **Total Stockholders' Equity** | $270,090 | $328,159 | - The significant increase in assets and liabilities is primarily attributable to the issuance of **$400 million** in convertible senior notes in February 2020[11](index=11&type=chunk)[78](index=78&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2020, revenue grew **28.5%** year-over-year to **$68.5 million**, and despite a **31.0%** increase in gross profit to **$32.2 million**, the company reported a net loss of **$1.1 million**, a shift from a net income of **$2.0 million** in the prior-year period, driven by higher operating and debt-related expenses Q1 Statement of Operations (in thousands, except per share data) | Metric | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | **Revenue** | $53,321 | $68,518 | | **Gross Profit** | $24,555 | $32,159 | | **Operating Loss** | $(5,844) | $(2,884) | | **Net Income (Loss)** | $1,992 | $(1,058) | | **Diluted EPS** | $0.09 | $(0.04) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2020, net cash used in operating activities was **$7.6 million**, while financing activities provided **$344.9 million** in cash, primarily from the issuance of convertible senior notes, resulting in a net increase in cash, cash equivalents, and restricted cash of **$332.9 million** for the quarter Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | **Net Cash Used in Operating Activities** | $(9,035) | $(7,607) | | **Net Cash Used in Investing Activities** | $(43,824) | $(4,428) | | **Net Cash Provided by Financing Activities** | $150,453 | $344,916 | | **Net Increase in Cash** | $97,594 | $332,856 | - Financing activities in Q1 2020 were dominated by **$400 million** in proceeds from convertible senior notes, offset by a **$43.3 million** purchase of capped calls and **$11.0 million** in debt issuance costs[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the company's business structure, accounting policies, segment information, debt instruments, and other significant financial events - The company operates two reportable segments: CPaaS, which derives revenue from Voice, Messaging, 911, and Phone Numbers solutions via APIs, and Other, which includes legacy services like SIP trunking and data resale[26](index=26&type=chunk) - On February 28, 2020, the company issued **$400 million** in aggregate principal amount of **0.25%** Convertible Senior Notes due 2026, and in connection with this, it entered into capped call transactions to reduce potential dilution[78](index=78&type=chunk)[91](index=91&type=chunk) Segment Gross Profit (in thousands) | Segment | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | **CPaaS** | $19,713 | $27,229 | | **Other** | $4,842 | $4,930 | | **Consolidated** | $24,555 | $32,159 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20%28MD%26A%29) Management discusses the company's Q1 2020 financial performance, highlighting CPaaS revenue growth driven by customer expansion and increased usage, alongside an analysis of operations, liquidity, and non-GAAP measures [Overview and COVID-19 Update](index=35&type=section&id=Overview%20and%20COVID-19%20Update) Bandwidth, a leading CPaaS provider, saw total revenue grow to **$68.5 million** in Q1 2020, with CPaaS revenue up **31%** to **$59.1 million**, noting increased service usage due to the COVID-19 pandemic and the shift to remote work Q1 Performance Highlights | Metric | Q1 2019 | Q1 2020 | YoY Growth | | :--- | :--- | :--- | :--- | | **Total Revenue** | $53.3M | $68.5M | 28.5% | | **CPaaS Revenue** | $45.0M | $59.1M | 31.3% | | **Active CPaaS Customers** | 1,351 | 1,808 | 33.8% | - The COVID-19 pandemic resulted in increased use of services during Q1 2020, driven by reliance on connectivity for physical distancing and work-from-home environments, particularly from UCaaS and meeting solutions customers[140](index=140&type=chunk)[141](index=141&type=chunk) [Key Performance Indicators](index=36&type=section&id=Key%20Performance%20Indicators) The company's key performance indicators showed strong growth in Q1 2020, with active CPaaS customers increasing by **34%** to **1,808**, the dollar-based net retention rate improving significantly to **126%**, and Adjusted EBITDA turning positive at **$3.1 million** Key Performance Indicators (in thousands, except rate) | Metric | Q1 2019 | Q1 2020 | | :--- | :--- | :--- | | **Number of active CPaaS customers** | 1,351 | 1,808 | | **Dollar-based net retention rate** | 111% | 126% | | **Adjusted EBITDA** | $(1,663) | $3,099 | | **Free cash flow** | $(10,869) | $(12,035) | [Results of Operations](index=44&type=section&id=Results%20of%20Operations) In Q1 2020, total revenue increased **29%** year-over-year to **$68.5 million**, primarily driven by a **31%** increase in CPaaS revenue from higher usage and a **34%** increase in active customers, while operating loss narrowed to **$2.9 million** - The increase in CPaaS revenue was attributed to higher usage of voice and messaging services (**$10.7 million**), phone number and 911 services (**$2.1 million**), and a **34%** increase in active CPaaS customer accounts[190](index=190&type=chunk) - CPaaS gross margin increased from **44%** in Q1 2019 to **46%** in Q1 2020, with non-GAAP CPaaS gross margin increasing from **47%** to **50%** (excluding depreciation and stock-based compensation)[194](index=194&type=chunk) - Operating expenses increased by **$4.6 million** (**15%**), primarily due to higher personnel costs in R&D (**$1.7 million**) and Sales & Marketing (**$1.7 million**)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity position strengthened significantly, with cash and cash equivalents reaching **$492.0 million** at the end of Q1 2020, primarily due to **$344.8 million** in net proceeds from convertible notes, ensuring sufficient funds for the next 12 months - Principal sources of liquidity include proceeds from public offerings and the February 2020 issuance of Convertible Notes, which provided approximately **$344.8 million** in net proceeds[200](index=200&type=chunk) - As of March 31, 2020, the company had **$0** outstanding on its **$25.0 million** revolving credit facility and was in compliance with all covenants[210](index=210&type=chunk) Contractual Obligations as of March 31, 2020 (in thousands) | Obligation Type | Total | Less than 1 year | 1 to 3 Years | 3 to 5 Years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating leases** | $26,070 | $4,320 | $12,889 | $8,861 | $— | | **Convertible Notes** | $400,000 | $— | $— | $— | $400,000 | | **Purchase obligations** | $10,620 | $6,304 | $3,639 | $674 | $3 | | **Total** | $436,690 | $10,624 | $16,528 | $9,535 | $400,003 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure relates to interest rate changes affecting its **$492.0 million** in cash and cash equivalents, with foreign currency risk currently minimal but expected to grow with international expansion - The primary market risk is interest rate risk on the company's cash and cash equivalents, which totaled **$492.0 million** as of March 31, 2020[223](index=223&type=chunk) - The **$400.0 million** in Convertible Notes have a fixed annual interest rate, so there is no direct economic interest exposure from rate changes, though their fair value will fluctuate[226](index=226&type=chunk) - Foreign currency risk is minimal as of March 31, 2020, with revenue and expenses primarily denominated in U.S. dollars, but this exposure is expected to grow with international expansion[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2020, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting identified during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[232](index=232&type=chunk) - No material changes to the company's internal control over financial reporting were identified during the first quarter of 2020[233](index=233&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in multiple lawsuits and a civil investigation concerning its alleged failure to properly bill, collect, and remit certain taxes and surcharges related to 911 services, pending in several jurisdictions - The company is a defendant in multiple lawsuits alleging failure to bill, collect, and remit taxes and surcharges for 911 services in jurisdictions including Cook County (IL), New York State, and Allegheny County (PA)[236](index=236&type=chunk)[237](index=237&type=chunk) - The company received a Civil Investigative Demand from the North Carolina Department of Justice in August 2016 regarding the same 911 tax and surcharge issues[239](index=239&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks to the company's business, including intense market competition, operational challenges, regulatory uncertainties, and financial risks related to its capital structure and debt obligations - The cloud communications market is highly competitive and fragmented, with competitors ranging from other CPaaS companies to large network service providers[246](index=246&type=chunk) - The business is subject to complex and evolving regulations regarding data privacy (e.g., CCPA, GDPR), 911 services, and telecommunications, which could increase costs and liability[300](index=300&type=chunk)[315](index=315&type=chunk)[322](index=322&type=chunk) - The dual-class stock structure concentrates approximately **70.1%** of voting power with pre-IPO stockholders, limiting the influence of Class A common stockholders on corporate matters[432](index=432&type=chunk)[433](index=433&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=92&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In February 2020, the company issued **$400 million** in aggregate principal amount of Convertible Senior Notes due 2026, sold to qualified institutional buyers in a private placement relying on exemptions from registration under the Securities Act of 1933 - In February 2020, the company issued **$400 million** of Convertible Notes due 2026, with the sale made to initial purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act[475](index=475&type=chunk)[476](index=476&type=chunk) [Item 6. Exhibits](index=93&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents, debt instrument agreements, and required certifications - The exhibits include the Indenture for the Convertible Notes issued in February 2020 and the associated Capped Call Transaction confirmations[478](index=478&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed with the report[480](index=480&type=chunk)

Bandwidth Inc. (NASDAQ:BAND) Q1 2020 Earnings Conference Call April 30, 2020 5:00 PM ET Company Participants Sarah Walas - Vice President of Investor Relations David Morken - Chief Executive Officer Jeff Hoffman - Chief Financial Officer Conference Call Participants Alex Kurtz - KeyBanc Capital Markets Mark Murphy - JPMorgan Rich Valera - Needham & Company Will Power - Baird Pat Walravens - JMP Group Meta Marshall - Morgan Stanley Catharine Trebnick - Dougherty & Company Operator Greetings, and welcome to t ...