UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM 10-K __________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38285 BANDWIDTH INC. (Exact name of registrant as specified in its charte ...

Financial Data and Key Metrics Changes - The company reported revenue of $148 million for Q3 2022, which is a 14% increase year-over-year and exceeded guidance by $7 million [18][21] - Non-GAAP net income for the quarter was $8 million, also exceeding guidance by $7 million [18] - Non-GAAP gross margin reached a record 57%, up 300 basis points from the prior year [22] - The company raised its full-year revenue guidance to $563 million, reflecting a $9 million increase from previous guidance [18] Business Line Data and Key Metrics Changes - Messaging accounted for 14% of total revenue and grew 50% year-over-year, driven by political messaging contributing approximately $7 million in Q3 [21][13] - The average annual revenue per customer increased to $163,000, indicating a focus on larger enterprise customers [22] Market Data and Key Metrics Changes - The company noted a strong demand for its services among established customers, particularly in the context of digital transformation and cloud migration [45] - The net retention rate was reported at 109%, reflecting strong customer engagement and growth [22][68] Company Strategy and Development Direction - The company is focused on essential services and has introduced new products like Send-To and Call Assure to enhance its offerings [8][9] - The management emphasized the importance of cost savings for customers, which is driving adoption of their services [45] - The company is strategically positioned to benefit from the ongoing shift to digital communications and cloud services [7][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic uncertainties due to the mission-critical nature of its services [17] - The company plans to continue managing its business prudently while focusing on profitability and growth [17][20] Other Important Information - The company announced leadership changes, including the departure of President Marina Carreker and the appointment of Devesh Agarwal as Chief Software Strategy Officer [15][16] - The company repurchased $160 million of convertible notes at a discount, strengthening its balance sheet [20] Q&A Session Summary Question: Impact of macro environment on usage trends - Management noted that contract customer term lengths and average annual customer spend have increased, indicating resilience in customer behavior despite macro uncertainties [25] Question: Drivers of gross margin performance - Management attributed the gross margin expansion to product mix, particularly the contribution from messaging, and operational efficiencies [26][27] Question: Addressing additional convertible notes - Management indicated confidence in repaying remaining convertible notes through earnings and available cash, while remaining opportunistic regarding capital structure [30] Question: Expectations for political messaging in Q4 - Management expects political messaging to contribute similarly in Q4 as seen in previous election cycles, with usage peaking around election time [31][39] Question: Operating expenses and guidance - Management explained that increased operating expenses in Q4 are due to seasonal factors and timing shifts from Q3 [34] Question: Churning lower spend customers - Management confirmed ongoing efforts to focus on larger enterprise customers, resulting in a net increase in customer count despite some churn [36] Question: Strategic OpEx investments - Management highlighted investments in innovative products like Send-To and Call Assure, as well as enhancements in contact center capabilities [60] Question: Development of direct to enterprise sales motion - Management reported positive progress in direct sales efforts, particularly with large enterprise customers [63] Question: Clarification on messaging growth - Management confirmed that messaging growth, excluding political contributions, was up 10% year-over-year, with overall pricing improvements [66][67]

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines the company's forward-looking statements, which are subject to risks and uncertainties and should not be considered predictions of future events - This report contains forward-looking statements concerning the company's expectations, strategy, plans, and intentions, which are subject to risks and uncertainties and are based on current expectations[7](index=7&type=chunk)[8](index=8&type=chunk) - The company cautions readers not to rely on these forward-looking statements as actual results could differ materially, and it does not undertake any obligation to update them except as required by law[10](index=10&type=chunk)[11](index=11&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the period ended September 30, 2022, show a decrease in total assets to $1.01 billion from $1.07 billion at year-end 2021, primarily due to a reduction in cash and goodwill. Total liabilities increased to $813.8 million from $652.9 million, driven by an increase in convertible senior notes. For the third quarter of 2022, the company reported revenue of $148.3 million, up from $130.6 million in Q3 2021, and significantly narrowed its net loss to $0.8 million from $6.9 million in the prior-year period. For the nine-month period, revenue grew to $416.2 million, and net loss was reduced to $13.9 million from $19.2 million year-over-year [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets to **$1.01 billion** and an increase in total liabilities to **$813.8 million** as of September 30, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $166,384 | $331,453 | | Total current assets | $417,115 | $412,885 | | Goodwill | $298,892 | $344,423 | | **Total assets** | **$1,008,399** | **$1,065,539** | | **Liabilities & Equity** | | | | Total current liabilities | $117,158 | $93,498 | | Convertible senior notes | $637,248 | $486,440 | | **Total liabilities** | **$813,803** | **$652,944** | | **Total stockholders' equity** | **$194,596** | **$412,595** | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show **Q3 2022 revenue of $148.3 million** and a **net loss of $0.8 million**, significantly reduced from the prior year Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$148,325** | **$130,638** | **$416,178** | **$364,775** | | Gross profit | $63,464 | $57,065 | $174,282 | $161,704 | | Operating (loss) income | $(1,387) | $938 | $(17,307) | $1,835 | | **Net loss** | **$(802)** | **$(6,944)** | **$(13,864)** | **$(19,188)** | | Net loss per share | $(0.03) | $(0.28) | $(0.55) | $(0.77) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statements indicate a **net decrease in cash of $165.0 million** for the nine months ended September 30, 2022, primarily due to investing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,340 | $23,688 | | Net cash (used in) provided by investing activities | $(180,386) | $11,681 | | Net cash (used in) provided by financing activities | $(2,600) | $213,961 | | **Net (decrease) increase in cash** | **$(164,987)** | **$249,621** | - The significant cash used in investing activities for the nine months ended Sep 30, 2022, was primarily due to the purchase of marketable securities (**$178.2 million**)[29](index=29&type=chunk) - In the prior year period, financing activities provided significant cash due to the issuance of convertible senior notes (**$250.0 million**)[29](index=29&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, financial statement components, and significant events. Key disclosures include the re-evaluation to a single reporting segment in Q1 2022, the adoption of ASU 2020-06 which impacted the accounting for convertible notes, details on the company's debt structure including $650 million in convertible senior notes, commitments for a new corporate headquarters lease, and a subsequent event in November 2022 involving the repurchase of $160 million of its 2026 Convertible Notes - In Q1 2022, the company re-evaluated its segment reporting and determined that one segment was appropriate, rather than the previously reported "CPaaS" and "Other" segments, driven by strategic alignment and the sale of legacy assets[36](index=36&type=chunk) - The company adopted ASU 2020-06 on January 1, 2022, which simplified the accounting for convertible instruments, increasing the convertible notes balance by **$148.4 million** and decreasing non-cash interest expense[59](index=59&type=chunk) - On November 1, 2022, the company entered into agreements to repurchase approximately **$160.0 million** of its 2026 Convertible Notes at a **29% discount** to par value, with approximately **$240.0 million** remaining outstanding after the expected closing[166](index=166&type=chunk)[167](index=167&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting a 14% revenue increase to $148.3 million for Q3 2022, driven primarily by growth in pass-through messaging surcharge revenue. The number of active customer accounts grew 5% year-over-year to 3,380. The dollar-based net retention rate was 109%. Operating expenses increased, led by a 49% rise in R&D due to higher personnel costs. The company's liquidity is supported by cash from operations and financing activities, with sufficient cash expected for the next 12 months despite significant future commitments, including convertible notes and a new headquarters lease [Overview](index=40&type=section&id=Overview) This section provides an overview of Bandwidth's business as a global CPaaS provider and highlights key performance metrics for Q3 2022 - Bandwidth is a global enterprise cloud communications (CPaaS) provider offering software APIs for voice, messaging, and emergency services, operating its own nationwide IP voice network in the U.S. and a global platform across more than 60 countries due to the 2020 acquisition of Voxbone[169](index=169&type=chunk)[170](index=170&type=chunk) Q3 2022 Performance Highlights | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $148.3M | $131.0M | +14% | | Net Loss | $(1.0)M | $(7.0)M | N/A | | Active Customer Accounts | 3,380 | 3,220 | +5% | [Key Performance Indicators](index=42&type=section&id=Key%20Performance%20Indicators) Key performance indicators show **3,380 active customer accounts** and a **dollar-based net retention rate of 109%** for Q3 2022 Key Performance Indicators (Q3 2022 vs Q3 2021) | KPI | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Number of active customers | 3,380 | 3,220 | | Dollar-based net retention rate | 109% | 125% | - An active customer account is defined as an account with at least **$100** of revenue in the last month of the period[181](index=181&type=chunk) - The dollar-based net retention rate is calculated by comparing revenue from a cohort of customers in the current quarter to the same quarter in the prior year, averaged over four quarters[182](index=182&type=chunk) [Results of Operations](index=45&type=section&id=Results%20of%20Operations) For Q3 2022, revenue grew 14% YoY to $148.3 million, largely due to a $13 million increase in pass-through messaging surcharges. Gross margin slightly decreased to 43% from 44%. Operating expenses rose 16%, driven by a 49% increase in R&D. For the nine-month period, revenue also grew 14% to $416.2 million, with gross margin declining to 42% from 44%. The company's effective tax rate was favorable due to operating losses outside the U.S. not offset by a valuation allowance Comparison of Three Months Ended September 30 (in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $148,325 | $130,638 | $17,687 | 14% | | Cost of Revenue | $84,861 | $73,573 | $11,288 | 15% | | Gross Profit | $63,464 | $57,065 | $6,399 | 11% | | Total Operating Expenses | $64,851 | $56,127 | $8,724 | 16% | - The Q3 2022 revenue increase was primarily driven by **$13 million** in pass-through messaging surcharge revenue, with core messaging offerings growing **50%** aided by higher volumes leading up to the U.S. midterm elections, while voice revenue was lower due to the prior year's DDoS incident and divested businesses[200](index=200&type=chunk) Comparison of Nine Months Ended September 30 (in thousands) | Metric | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $416,178 | $364,775 | $51,403 | 14% | | Cost of Revenue | $241,896 | $203,071 | $38,825 | 19% | | Gross Profit | $174,282 | $161,704 | $12,578 | 8% | | Total Operating Expenses | $191,589 | $159,869 | $31,720 | 20% | [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by cash from operations and financing, with significant future commitments including **$650 million in Convertible Notes** and a **$496 million lease** - The company's liquidity is provided by free cash flow and financing activities, with no borrowings under the **$50 million** revolving credit facility as of September 30, 2022[229](index=229&type=chunk)[230](index=230&type=chunk) - Principal future commitments include **$650 million** in Convertible Notes, a **$496 million** non-cancelable lease for a new headquarters commencing in June 2023, **$15 million** in purchase obligations, and **$13 million** in current office rent[232](index=232&type=chunk) Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow | 2022 | 2021 | | :--- | :--- | :--- | | From Operating Activities | $24,340 | $23,688 | | From Investing Activities | $(180,386) | $11,681 | | From Financing Activities | $(2,600) | $213,961 | | **Net Change in Cash** | **$(164,987)** | **$249,621** | [Non-GAAP Financial Measures](index=53&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles GAAP net loss to non-GAAP measures, reporting **Adjusted EBITDA of $12.8 million** and **Non-GAAP net income of $8.0 million** for Q3 2022 Adjusted EBITDA Reconciliation (in thousands) | | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(802) | $(6,944) | $(13,864) | $(19,188) | | Adjustments... | ... | ... | ... | ... | | **Adjusted EBITDA** | **$12,784** | **$14,165** | **$26,274** | **$41,318** | Non-GAAP Net Income (in thousands) | | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(802) | $(6,944) | $(13,864) | $(19,188) | | Adjustments... | ... | ... | ... | ... | | **Non-GAAP net income** | **$7,998** | **$6,486** | **$9,650** | **$23,362** | Free Cash Flow (in thousands) | | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $24,016 | $14,843 | $24,340 | $23,688 | | Net cash used in investing in capital assets | $(10,524) | $(2,657) | $(20,790) | $(28,319) | | **Free cash flow** | **$13,492** | **$12,186** | **$3,550** | **$(4,631)** | [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's primary market risks are related to interest rate and foreign currency exchange rate fluctuations. Interest rate risk stems from its cash equivalents, marketable securities, and variable-rate credit facility. The fixed-rate convertible notes are not subject to economic interest rate risk, but their fair value fluctuates with rate changes. Foreign currency risk arises from international operations, primarily in Euros and British Pounds, which accounted for approximately 11% of total revenue for the nine months ended September 30, 2022. The company does not currently use hedging instruments for these risks - As of September 30, 2022, the company held **$166.4 million** in cash and cash equivalents and **$145.2 million** in marketable securities, which are exposed to interest rate risk, though a hypothetical **10%** change is not expected to have a material impact due to their short-term nature[259](index=259&type=chunk)[260](index=260&type=chunk) - The company's **$50.0 million** revolving credit facility has a variable interest rate tied to SOFR or a base rate, exposing it to interest rate risk if drawn upon, though there were no outstanding borrowings as of September 30, 2022[261](index=261&type=chunk) - Foreign currency risk is present as approximately **11%** of total revenue for the first nine months of 2022 was generated outside the U.S., primarily in Euros and British Pounds, and the company does not currently engage in hedging[264](index=264&type=chunk) [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2022. They concluded that these controls are effective at a reasonable assurance level to ensure timely and accurate reporting as required by the SEC. No material changes to internal control over financial reporting were identified during the quarter - The CEO and CFO concluded that as of the end of the quarter, the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported in a timely manner[266](index=266&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[267](index=267&type=chunk) [PART II - OTHER INFORMATION](index=61&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section details the company's legal proceedings and outlines significant risk factors affecting its business operations and financial condition [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in multiple lawsuits alleging failure to properly bill, collect, and remit 911 service taxes and surcharges in jurisdictions including California, Illinois, and New York. Additionally, it is a defendant in a putative class action related to the alleged failure to block unsolicited phone calls under the Telephone Consumer Protection Act (TCPA). The company intends to vigorously defend these lawsuits but acknowledges that litigation is inherently uncertain - The company faces multiple lawsuits from various jurisdictions, including San Francisco, CA; Cook and Kane Counties, IL; Chicago, IL; and the State of New York, alleging failure to bill, collect, and remit 911-related taxes and surcharges[270](index=270&type=chunk)[271](index=271&type=chunk) - Bandwidth is a defendant in a putative class action lawsuit (Mey v. All Access Telecom, Inc., et al.) under the TCPA for allegedly failing to block unsolicited phone calls[271](index=271&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) The company outlines significant risks to its business, operations, and financial condition. Key risks include intense competition in the CPaaS market, dependence on economic conditions and customer usage growth, and potential impacts from inflation. Operational risks involve cybersecurity threats, such as the DDoS attack experienced in September 2021, reliance on third-party suppliers, and the complexities of regulatory compliance in the telecommunications industry, both domestically and internationally. Financial risks are associated with servicing its convertible notes, potential tax liabilities, and foreign currency fluctuations. The company also notes risks related to its dual-class stock structure, which concentrates voting control - The business faces significant competition from other CPaaS companies and network service providers, some of whom are larger and have greater resources, leading to pricing pressure and challenges in attracting new customers cost-effectively[285](index=285&type=chunk)[290](index=290&type=chunk) - Cybersecurity is a major risk, highlighted by the Distributed Denial of Service (DDoS) attack in September 2021, which caused service disruptions and can result in service degradation, data loss, and reputational harm[327](index=327&type=chunk) - The company is subject to significant and complex regulatory uncertainties in the communications industry, including rules related to 911 services, IP-based services (like STIR/SHAKEN for robocall mitigation), and data privacy laws, which could increase costs and impact operations[340](index=340&type=chunk)[344](index=344&type=chunk)[353](index=353&type=chunk) - Servicing the Convertible Notes requires significant cash, and the company may not have the ability to raise funds for cash settlement upon conversion or repurchase, while the dual-class stock structure concentrates voting control with early stockholders, potentially limiting the influence of other shareholders[445](index=445&type=chunk)[464](index=464&type=chunk)

Bandwidth, Inc. (NASDAQ:BAND) Q2 2022 Earnings Conference Call August 3, 2022 5:00 PM ET Company Participants Sarah Walas - VP, IR David Morken - Co-Founder, CEO, & Chairman Daryl Raiford - EVP, CFO & Principal Accounting Officer Conference Call Participants Ryan Koontz - Needham & Company William Power - Robert W. Baird & Co. James Fish - Piper Sandler & Co. Patrick Walravens - JMP Securities Matthew Stotler - William Blair & Company Ryan MacWilliams - Barclays Bank Operator Greetings, and welcome to the B ...

Company Overview - Bandwidth is a global cloud communications leader powering enterprise digital transformation through software APIs and its global network[3] - The company's global total addressable market (TAM) is $83 billion[5] - Bandwidth experienced a 3-year compound annual growth rate (CAGR) of 36% in revenue[5] - Bandwidth provides communication services in over 60 countries[5] Technology and Services - Bandwidth's software API library powers next-generation, global use cases, including in-browser calling, A2P messaging, real-time 911 location updates, and telehealth calls[8] - The company's platform supports various applications, such as customer notifications, IVRs with natural language processing, appointment reminders, call data analytics, and two-factor authentication[8] Market Opportunity and Strategy - The company is capitalizing on the global move to the cloud with a three-pronged growth strategy: growing existing customers, winning direct enterprise customers, and being the best CPaaS platform[19] - Bandwidth is focused on opportunities across four key customer categories: work communications, contact center platforms, brand-to-customer engagement, and global enterprises[18] Financial Performance - Bandwidth's revenue experienced +36% CAGR from 2018 to 2021[35] - In FY21, the company's GAAP gross profit was $2138 million, with a gross margin of 44%, while the Non-GAAP gross profit was $2353 million, with a Non-GAAP gross margin of 53%[46]

[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 Bandwidth Inc's unaudited condensed consolidated financial statements and related notes [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202022%20and%20December%2031%2C%202021) Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :------------------ | | Total assets | $1,054,196 | $1,065,539 | | Total liabilities | $802,709 | $652,944 | | Total stockholders' equity | $251,487 | $412,595 | [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202022%20and%202021) Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, In thousands, except per share amounts) | Metric | 2022 | 2021 | | :-------------------------------------------------- | :------- | :------- | | Revenue | $131,364 | $113,479 | | Cost of revenue | $75,950 | $62,321 | | Gross profit | $55,414 | $51,158 | | Operating loss | $(6,870) | $(37) | | Net loss | $(6,814) | $(5,316) | | Net loss per share, basic and diluted | $(0.27) | $(0.21) | | Weighted average common shares outstanding | 25,220,052 | 25,015,948 | - Revenue increased by **16% year-over-year** to $131,364 thousand, while net loss widened to **$(6,814) thousand** from $(5,316) thousand in Q1 2021[17](index=17&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202022%20and%202021) Condensed Consolidated Statements of Comprehensive Loss (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | | :------------------------------------ | :------- | :------- | | Net loss | $(6,814) | $(5,316) | | Foreign currency translation, net of income taxes | $(10,516) | $(23,185) | | Total comprehensive loss | $(17,330) | $(28,501) | - Total comprehensive loss decreased to **$(17,330) thousand** from $(28,501) thousand in Q1 2021, primarily due to a smaller foreign currency translation loss[20](index=20&type=chunk) [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) - Stockholders' equity decreased from $412,595 thousand to **$251,487 thousand**, significantly impacted by an accounting standard adoption (ASU 2020-06)[14](index=14&type=chunk)[26](index=26&type=chunk) - Foreign currency translation resulted in a **$(10,516) thousand loss** for the three months ended March 31, 2022[26](index=26&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202022%20and%202021) Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, In thousands) | Cash Flow Activity | 2022 | 2021 | | :---------------------------------------------------------------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(6,695) | $10,009 | | Net cash (used in) provided by investing activities | $(5,925) | $22,116 | | Net cash (used in) provided by financing activities | $(1,624) | $215,294 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(15,300) | $247,821 | | Cash, cash equivalents, and restricted cash, end of period | $316,989 | $329,258 | - The company experienced a net decrease in cash of **$(15,300) thousand** in Q1 2022, a significant shift from a net increase of $247,821 thousand in Q1 2021[29](index=29&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Organization and Description of Business](index=11&type=section&id=1.%20Organization%20and%20Description%20of%20Business) - Bandwidth Inc is a global cloud-based Communications Platform-as-a-Service (CPaaS) provider[32](index=32&type=chunk) - The company consolidated its reporting from two segments to a **single segment** in Q1 2022 due to strategic alignment[33](index=33&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The company changed its presentation of certain costs in Q1 2022 to align with benchmarked definitions, with no impact on revenue or net income[36](index=36&type=chunk)[37](index=37&type=chunk) - The company adopted ASU 2020-06, which reversed the separation of convertible debt into liability and equity components, now accounting for it entirely as debt[51](index=51&type=chunk) - The adoption of ASU 2020-06 decreased non-cash interest expense by **$6.6 million** for the three months ended March 31, 2022[51](index=51&type=chunk) Impact of Cost Alignment on Statement of Operations (Three Months Ended March 31, 2021, In thousands) | Statement of Operations | As previously reported | Conformed to current definitions | | :---------------------- | :--------------------- | :------------------------------- | | Cost of revenue | $61,328 | $62,321 | | Research and development | $13,333 | $16,789 | | Sales and marketing | $11,992 | $19,110 | | General and administrative | $26,863 | $15,296 | [Note 3. Fair Value Measurements](index=14&type=section&id=3.%20Fair%20Value%20Measurements) - The fair value of 2026 and 2028 Convertible Notes was approximately **$309.5 million** and **$164.8 million**, respectively, as of March 31, 2022[57](index=57&type=chunk) Financial Assets Measured at Fair Value (In thousands) | Financial Assets | March 31, 2022 | December 31, 2021 | | :----------------------- | :------------- | :------------------ | | Money market account | $230,003 | $241,157 | [Note 4. Financial Statement Components](index=15&type=section&id=4.%20Financial%20Statement%20Components) - Unbilled receivables increased from $31.8 million to **$35.5 million** at March 31, 2022, representing earned revenue to be billed in the next cycle[45](index=45&type=chunk)[59](index=59&type=chunk) Accounts Receivable, Net of Allowances (In thousands) | Component | March 31, 2022 | December 31, 2021 | | :------------------------------------------------------- | :------------- | :------------------ | | Trade accounts receivable | $32,256 | $31,036 | | Unbilled accounts receivable | $35,515 | $31,786 | | Allowance for doubtful accounts and reserve for expected credit losses | $(1,680) | $(1,661) | | Other accounts receivable | $2,736 | $411 | | Total accounts receivable, net | $68,827 | $61,572 | Allowance for Doubtful Accounts Rollforward (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | | :--------------------------------- | :------- | :------- | | Balance, beginning of period | $(1,661) | $(1,203) | | Charged to bad debt expense | $(141) | $(48) | | Deductions (write-offs) | $111 | $10 | | Impact of foreign currency translation | $11 | $23 | | Balance, end of period | $(1,680) | $(1,218) | [Note 5. Right-of-Use Asset and Lease Liabilities](index=16&type=section&id=5.%20Right-of-Use%20Asset%20and%20Lease%20Liabilities) - The company entered into a lease for a new corporate headquarters with total lease payments over the initial 20-year term of approximately **$495.7 million**[75](index=75&type=chunk)[76](index=76&type=chunk) Lease Expense Components (Three Months Ended March 31, In thousands) | Lease Cost Component | 2022 | 2021 | | :-------------------------- | :------- | :------- | | Operating lease cost | $2,138 | $1,614 | | Finance lease cost: Depreciation | $50 | $47 | | Finance lease cost: Interest | $3 | $0 | | Sublease income | $(96) | $(96) | | Total net lease cost | $2,095 | $1,565 | Lease Assets and Liabilities (In thousands) | Metric | March 31, 2022 | December 31, 2021 | | :------------------------------------------------ | :------------- | :------------------ | | Operating lease assets, net | $15,419 | $14,061 | | Finance lease assets, net | $358 | $373 | | Total leased assets | $15,777 | $14,434 | | Operating lease liability, current | $7,208 | $5,807 | | Finance lease liability, current | $170 | $177 | | Operating lease liability, non-current | $10,711 | $10,958 | | Finance lease liability, non-current | $195 | $202 | | Total lease liabilities | $18,284 | $17,144 | [Note 6. Property, Plant and Equipment](index=20&type=section&id=6.%20Property%2C%20Plant%20and%20Equipment) - Capitalized software development costs were **$0.7 million** in Q1 2022, down from $1.1 million in Q1 2021[79](index=79&type=chunk) Property, Plant and Equipment, Net (In thousands) | Component | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :------------------ | | Total cost | $139,336 | $139,336 | | Less—accumulated depreciation | $(69,732) | $(69,732) | | Total property, plant and equipment, net | $69,604 | $69,604 | Total Depreciation Expense (Three Months Ended March 31, In thousands) | Category | 2022 | 2021 | | :----------------------------- | :------- | :------- | | Cost of revenue | $3,376 | $3,146 | | Research and development | $592 | $453 | | Sales and marketing | $334 | $284 | | General and administrative | $302 | $293 | | Total depreciation expense | $4,604 | $4,176 | [Note 7. Intangible Assets](index=21&type=section&id=7.%20Intangible%20Assets) - Total intangible assets, net, decreased from $211,217 thousand to **$202,502 thousand** at March 31, 2022[14](index=14&type=chunk)[85](index=85&type=chunk) Intangible Assets, Net (March 31, 2022, In thousands) | Intangible Asset | Gross Amount | Accumulated Amortization | Net Carrying Value | Amortization Period (In years) | | :----------------------- | :----------- | :----------------------- | :----------------- | :----------------------------- | | Customer relationships | $152,005 | $(19,135) | $132,870 | 15 - 20 | | Developed technology | $80,234 | $(11,366) | $68,868 | 10 | | Other, definite lived | $2,828 | $(2,828) | $0 | 2 - 7 | | Licenses, indefinite lived | $764 | $0 | $764 | Indefinite | | Total intangible assets, net | $235,831 | $(33,329) | $202,502 | | Total Amortization Expense (Three Months Ended March 31, In thousands) | Category | 2022 | 2021 | | :----------------------------- | :------- | :------- | | Cost of revenue | $2,032 | $2,176 | | Sales and marketing | $2,534 | $2,692 | | Total amortization expense | $4,566 | $4,868 | [Note 8. Debt](index=22&type=section&id=8.%20Debt) - The company has **$400 million** of 0.25% Convertible Notes due 2026 and **$250 million** of 0.50% Convertible Notes due 2028[91](index=91&type=chunk)[102](index=102&type=chunk) - Upon adoption of ASU 2020-06, the company reversed the separation of debt and equity components for its Convertible Notes, now accounting for them entirely as debt[100](index=100&type=chunk)[111](index=111&type=chunk)[119](index=119&type=chunk) - The conditional conversion feature for both 2026 and 2028 Convertible Notes was **not triggered** during Q1 2022[97](index=97&type=chunk)[108](index=108&type=chunk) Convertible Notes Net Carrying Amount (In thousands) | Convertible Notes | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :------------------ | | 2026 Convertible Notes net carrying amount | $392,169 | $301,923 | | 2028 Convertible Notes net carrying amount | $243,558 | $184,517 | | Total net carrying amount | $635,727 | $486,440 | Total Interest Expense Related to Convertible Notes (Three Months Ended March 31, In thousands) | Interest Expense Component | 2022 | 2021 | | :----------------------------------------------------------- | :------- | :------- | | 2026 Convertible Notes: Contractual interest expense | $250 | $250 | | 2026 Convertible Notes: Amortization of debt discount | $0 | $4,510 | | 2026 Convertible Notes: Amortization of debt issuance costs | $495 | $296 | | Total interest expense related to 2026 Convertible Notes | $745 | $5,056 | | 2028 Convertible Notes: Contractual interest expense | $313 | $52 | | 2028 Convertible Notes: Amortization of debt discount | $0 | $333 | | 2028 Convertible Notes: Amortization of debt issuance costs | $265 | $28 | | Total interest expense related to 2028 Convertible Notes | $578 | $413 | | Total interest expense | $1,323 | $5,469 | [Note 9. Geographic Information](index=30&type=section&id=9.%20Geographic%20Information) - International revenue increased by **22% year-over-year** to $15,479 thousand in Q1 2022[123](index=123&type=chunk) - Long-lived assets held outside the United States increased from $9.2 million to **$11.9 million** at March 31, 2022[122](index=122&type=chunk) Revenue by Geographic Area (Three Months Ended March 31, In thousands) | Geographic Area | 2022 | 2021 | | :---------------- | :------- | :------- | | United States | $115,885 | $100,798 | | International | $15,479 | $12,681 | | Total | $131,364 | $113,479 | [Note 10. Stockholders' Equity](index=30&type=section&id=10.%20Stockholders'%20Equity) - As of March 31, 2022, the company had **23,309,031 shares of Class A** and **1,965,170 shares of Class B** common stock outstanding[125](index=125&type=chunk) Reserved Shares of Class A Common Stock for Stock-Based Awards | Category | March 31, 2022 | December 31, 2021 | | :--------------------------------------------------- | :------------- | :------------------ | | Stock options issued and outstanding | 164,114 | 180,209 | | Nonvested restricted stock units issued and outstanding | 793,848 | 344,486 | | Stock-based awards available for grant under the 2017 Plan | 3,625,235 | 3,060,674 | | Total | 4,583,197 | 3,585,369 | [Note 11. Stock-Based Compensation](index=31&type=section&id=11.%20Stock-Based%20Compensation) - The 2017 Incentive Award Plan automatically increased shares available for grant by **1,158,900** on January 1, 2022[131](index=131&type=chunk) Stock Option Activity (Three Months Ended March 31, 2022) | Metric | Number of options outstanding | | :----------------------------------------------------------- | :---------------------------- | | Outstanding as of December 31, 2021 | 180,209 | | Exercised | (16,095) | | Outstanding as of March 31, 2022 | 164,114 | | Options vested and exercisable at March 31, 2022 | 164,114 | Restricted Stock Unit (RSU) Activity (Three Months Ended March 31, 2022) | Metric | Number of awards outstanding | | :----------------------------------------------------------- | :---------------------------- | | Nonvested RSUs as of December 31, 2021 | 344,486 | | Granted | 627,724 | | Vested | (144,977) | | Forfeited or cancelled | (33,385) | | Nonvested RSUs as of March 31, 2022 | 793,848 | Total Stock-Based Compensation Expense (Three Months Ended March 31, In thousands) | Category | 2022 | 2021 | | :----------------------------- | :------- | :------- | | Cost of revenue | $99 | $101 | | Research and development | $1,868 | $1,080 | | Sales and marketing | $899 | $710 | | General and administrative | $2,480 | $2,499 | | Total | $5,346 | $4,390 | [Note 12. Commitments and Contingencies](index=33&type=section&id=12.%20Commitments%20and%20Contingencies) - The company has non-cancellable purchase obligations totaling **$13.7 million** as of March 31, 2022[145](index=145&type=chunk) - The new corporate headquarters lease has total lease payments of approximately **$495.7 million** over the initial 20-year term[147](index=147&type=chunk) [Note 13. Employee Benefit Plans](index=34&type=section&id=13.%20Employee%20Benefit%20Plans) - Company matching contributions for defined contribution plans increased from $0.9 million to **$1.2 million** in Q1 2022[152](index=152&type=chunk) Net Periodic Pension Cost (Three Months Ended March 31, In thousands) | Component | 2022 | 2021 | | :-------------------------- | :------- | :------- | | Service cost | $70 | $103 | | Interest cost | $9 | $5 | | Return on plan assets | $(7) | $(4) | | Net periodic pension cost | $72 | $104 | [Note 14. Income Taxes](index=35&type=section&id=14.%20Income%20Taxes) - The effective tax rate decreased from 5.9% in Q1 2021 to **(2.7)%** in Q1 2022 due to a valuation allowance against deferred tax assets[156](index=156&type=chunk)[157](index=157&type=chunk) [Note 15. Related Parties](index=35&type=section&id=15.%20Related%20Parties) - Amounts charged under services arrangements with Relay, Inc totaled **$0.4 million** in Q1 2022[158](index=158&type=chunk) [Note 16. Basic and Diluted Loss per Common Share](index=35&type=section&id=16.%20Basic%20and%20Diluted%20Loss%20per%20Common%20Share) Basic and Diluted Loss per Common Share (Three Months Ended March 31, In thousands, except per share amounts) | Metric | 2022 | 2021 | | :----------------------------------------------------------- | :------- | :------- | | Net loss attributable to common stockholders | $(6,814) | $(5,316) | | Net loss per share, basic and diluted | $(0.27) | $(0.21) | | Weighted average number of common shares outstanding, basic and diluted | 25,220,052 | 25,015,948 | Common Share Equivalents Excluded from Diluted EPS (Anti-dilutive) | Category | March 31, 2022 | March 31, 2021 | | :-------------------------------- | :------------- | :------------- | | Stock options issued and outstanding | 164,114 | 196,433 | | Restricted stock units issued and outstanding | 793,848 | 405,875 | | Convertible senior notes | 5,788,805 | 1,812,134 | | Total | 6,746,767 | 2,414,442 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and results of operations for Q1 2022 [Overview](index=37&type=section&id=Overview) - Bandwidth Inc is a leading global enterprise cloud communications platform-as-a-service (CPaaS) provider[167](index=167&type=chunk) - The company owns and operates a nationwide IP voice network in the U.S and has a global platform across over 60 countries[168](index=168&type=chunk) Key Financial and Operational Highlights (Three Months Ended March 31) | Metric | 2022 | 2021 | Change (%) | | :-------------------- | :------- | :------- | :--------- | | Total Revenue | $131M | $113M | 16% | | Net Loss | $7M | $5M | 40% | | Active Customer Accounts | 3,372 | 2,999 | 12% | [Segment Reporting Update and Cost Alignment](index=37&type=section&id=Segment%20Reporting%20Update%20and%20Cost%20Alignment) - Bandwidth consolidated from two segments to a **single segment** in Q1 2022 due to strategic alignment[171](index=171&type=chunk) - The company also re-aligned cost presentations, which did not impact revenue or net income for any periods presented[172](index=172&type=chunk) Impact of Cost Alignment on Statement of Operations (Three Months Ended March 31, 2021, In thousands) | Statement of Operations | As previously reported | Conformed to current definitions | | :---------------------- | :--------------------- | :------------------------------- | | Cost of revenue | $61,328 | $62,321 | | Research and development | $13,333 | $16,789 | | Sales and marketing | $11,992 | $19,110 | | General and administrative | $26,863 | $15,296 | [COVID-19 Update](index=38&type=section&id=COVID-19%20Update) - The COVID-19 pandemic continues to create uncertainty, potentially impacting business spending and customer demand[174](index=174&type=chunk) - The company anticipates potential curtailed customer demand as the pandemic abates, which could adversely affect future financial performance[174](index=174&type=chunk) [DDoS Attack](index=38&type=section&id=DDoS%20Attack) - In September 2021, Bandwidth's network was subjected to a **distributed denial of service (DDoS) attack**, causing service disruptions[175](index=175&type=chunk) - Mitigation efforts have largely stabilized the network, though some intermittent disruptions continued[175](index=175&type=chunk) [Key Performance Indicators](index=39&type=section&id=Key%20Performance%20Indicators) - Active customer accounts increased by **12% year-over-year** to 3,372, while the dollar-based net retention rate decreased from 131% to **114%**[178](index=178&type=chunk) - Adjusted EBITDA decreased by **37.5% year-over-year** to $8,368 thousand, and free cash flow declined significantly to **$(12,620) thousand**[178](index=178&type=chunk) Key Performance Indicators (Three Months Ended March 31, Dollars in thousands) | Metric | 2022 | 2021 | | :-------------------------------- | :------- | :------- | | Number of active customers | 3,372 | 2,999 | | Dollar-based net retention rate | 114% | 131% | | Adjusted EBITDA | $8,368 | $13,397 | | Free cash flow | $(12,620) | $2,125 | [Key Components of Statements of Operations](index=40&type=section&id=Key%20Components%20of%20Statements%20of%20Operations) - Revenue is primarily derived from reoccurring sources like per-minute usage and monthly recurring charges[183](index=183&type=chunk) - Cost of revenue includes fees to network service providers, network operations costs, and personnel costs[185](index=185&type=chunk) - Operating expenses are expected to **increase in absolute dollars**[188](index=188&type=chunk) - The effective tax rate for Q1 2022 was **(2.7)%**, down from 5.9% in Q1 2021, due to a valuation allowance[192](index=192&type=chunk) [Results of Operations (Consolidated)](index=42&type=section&id=Results%20of%20Operations) - Gross margin decreased to **42%** in Q1 2022 from 45% in Q1 2021, primarily due to a $14 million increase in messaging usage costs[199](index=199&type=chunk) - R&D expenses increased by **34%** and Sales & Marketing expenses increased by **21%**, driven by higher personnel and facilities costs[201](index=201&type=chunk)[202](index=202&type=chunk) - Interest expense, net, decreased by **$4 million** in Q1 2022 compared to Q1 2021[203](index=203&type=chunk) Consolidated Statements of Operations (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Revenue | $131,364 | $113,479 | $17,885 | 16% | | Cost of revenue | $75,950 | $62,321 | $13,629 | 22% | | Gross profit | $55,414 | $51,158 | $4,256 | 8% | | Operating expenses | $62,284 | $51,195 | $11,089 | 22% | | Operating loss | $(6,870) | $(37) | $(6,833) | >100% | | Net loss | $(6,814) | $(5,316) | $(1,498) | 28% | [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) - Liquidity is provided by free cash flow from operations and financing activities[205](index=205&type=chunk) - Principal future commitments include **$650.0 million** in Convertible Notes and a **$496 million** lease for a future office headquarters[206](index=206&type=chunk) - The company expects its cash and cash equivalents to be sufficient for anticipated cash needs for at least the next **12 months**[205](index=205&type=chunk) [Statement of Cash Flows](index=45&type=section&id=Statement%20of%20Cash%20Flows) - Net cash used in operating activities was **$7 million** in Q1 2022, a decrease from $10 million provided in Q1 2021[210](index=210&type=chunk) - Net cash used in investing activities was **$6 million** in Q1 2022, compared to $22 million provided in Q1 2021[209](index=209&type=chunk)[211](index=211&type=chunk) - Net cash used in financing activities was **$2 million** in Q1 2022, a significant decrease from $215 million provided in Q1 2021[209](index=209&type=chunk)[212](index=212&type=chunk) Summary of Cash Flows (Three Months Ended March 31, In thousands) | Cash Flow Activity | 2022 | 2021 | | :---------------------------------------------------------------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(6,695) | $10,009 | | Net cash (used in) provided by investing activities | $(5,925) | $22,116 | | Net cash (used in) provided by financing activities | $(1,624) | $215,294 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(15,300) | $247,821 | [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has off-balance sheet agreements for short-term leases totaling **$237 thousand**[213](index=213&type=chunk) [Non-GAAP Financial Measures](index=46&type=section&id=Non-GAAP%20Financial%20Measures) - The company uses Non-GAAP gross profit, Non-GAAP net income, Adjusted EBITDA, and free cash flow to evaluate performance[215](index=215&type=chunk) Non-GAAP Gross Profit and Margin (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | | :--------------------------------- | :------- | :------- | | Gross Profit | $55,414 | $51,158 | | Depreciation | $3,376 | $3,146 | | Amortization of acquired intangible assets | $2,032 | $2,176 | | Stock-based compensation | $99 | $101 | | Non-GAAP Gross Profit | $60,921 | $56,581 | | Non-GAAP Gross Margin % | 53% | 52% | Non-GAAP Net Income (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | | :----------------------------------------------------------- | :------- | :------- | | Net loss | $(6,814) | $(5,316) | | Stock-based compensation | $5,346 | $4,390 | | Amortization of acquired intangibles | $4,566 | $4,868 | | Amortization of debt discount and issuance costs for convertible debt | $760 | $5,167 | | Non-GAAP net income | $2,544 | $8,303 | | Non-GAAP diluted net income per share | $0.09 | $0.30 | Adjusted EBITDA (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | | :--------------------------------- | :------- | :------- | | Net loss | $(6,814) | $(5,316) | | Income tax provision (benefit) | $179 | $(332) | | Interest expense, net | $1,250 | $5,410 | | Depreciation | $4,604 | $4,176 | | Amortization | $4,566 | $4,868 | | Stock-based compensation | $5,346 | $4,390 | | Adjusted EBITDA | $8,368 | $13,397 | Free Cash Flow (Three Months Ended March 31, In thousands) | Metric | 2022 | 2021 | | :----------------------------------------------------------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(6,695) | $10,009 | | Net cash used in investing in capital assets | $(5,925) | $(7,884) | | Free cash flow | $(12,620) | $2,125 | [Critical Accounting Policies and Significant Judgments and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) - Critical accounting policies include revenue recognition, stock-based compensation, and goodwill valuation[231](index=231&type=chunk) - There have been **no material changes** to critical accounting policies compared to the Annual Report on Form 10-K[231](index=231&type=chunk) [Recently Issued Accounting Guidance](index=50&type=section&id=Recently%20Issued%20Accounting%20Guidance) - Refer to Note 2 for a summary of recently adopted and not yet adopted accounting standards[232](index=232&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate and foreign currency fluctuations [Interest Rate Risk](index=51&type=section&id=Interest%20Rate%20Risk) - The company's primary market risk is interest rate changes, with **$316.0 million** in cash and cash equivalents[235](index=235&type=chunk) - The **$650.0 million** in Convertible Notes have fixed annual interest rates, limiting direct interest rate exposure[236](index=236&type=chunk) [Foreign Currency Risk](index=51&type=section&id=Foreign%20Currency%20Risk) - Approximately **12% of total revenue** was generated outside the United States for Q1 2022[237](index=237&type=chunk) - The majority of revenues and operating expenses are denominated in U.S dollars, limiting significant foreign currency risk[237](index=237&type=chunk) [Inflation](index=51&type=section&id=Inflation) - The company monitors inflation to minimize its effects through pricing strategies and cost reductions[238](index=238&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of disclosure controls and procedures, concluding their effectiveness [Evaluation of disclosure controls and procedures](index=52&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) - Management concluded that disclosure controls and procedures were **effective** at a reasonable assurance level as of March 31, 2022[240](index=240&type=chunk) [Changes in internal control over financial reporting](index=52&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) - There were **no material changes** in internal control over financial reporting during the quarter ended March 31, 2022[241](index=241&type=chunk) [Inherent limitation on the effectiveness of internal control](index=52&type=section&id=Inherent%20limitation%20on%20the%20effectiveness%20of%20internal%20control) - The effectiveness of any internal control system is subject to inherent limitations, providing reasonable, not absolute, assurances[242](index=242&type=chunk) [PART II - OTHER INFORMATION](index=52&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) This section outlines ongoing legal proceedings, primarily concerning 911 taxes and unsolicited phone calls - Bandwidth Inc is a defendant in multiple lawsuits alleging failure to bill, collect, and remit **911 taxes and surcharges**[244](index=244&type=chunk)[245](index=245&type=chunk) - The company is also named in a class action lawsuit regarding alleged failure to block unsolicited phone calls[245](index=245&type=chunk) - Management believes the ultimate resolution of these matters will **not have a material adverse effect** on the company's financial position[151](index=151&type=chunk)[246](index=246&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks and uncertainties that could adversely affect the company's business [Risk Factors Summary](index=54&type=section&id=Risk%20Factors%20Summary) - Key risks include market competition, customer retention, international operations, the Russia-Ukraine conflict, cybersecurity threats, and various litigations[251](index=251&type=chunk)[252](index=252&type=chunk) - Additional risks relate to the Voxbone acquisition, Convertible Notes, and Class A Common Stock ownership[252](index=252&type=chunk) [Risks Related to Our Business](index=55&type=section&id=Risks%20Related%20to%20Our%20Business) - Future growth depends on factors including competition, pricing, new service offerings, and regulatory conditions[254](index=254&type=chunk)[255](index=255&type=chunk) - The **COVID-19 pandemic** may harm business through decreased spending, lower renewal rates, and delayed sales cycles[256](index=256&type=chunk)[258](index=258&type=chunk) - The market is **highly competitive**, with larger competitors having greater resources, potentially leading to price decreases[261](index=261&type=chunk)[262](index=262&type=chunk) - **Cyberattacks**, including the September 2021 DDoS attack, pose significant risks of service disruption and reputational damage[300](index=300&type=chunk)[303](index=303&type=chunk) - Operating internationally exposes the company to political, regulatory, economic, and staffing risks[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) - The military conflict between **Russia and Ukraine** may adversely affect operations in Europe and increase cyberattack threats[298](index=298&type=chunk)[299](index=299&type=chunk) - The company's revenue is **concentrated** among a limited number of customers[300](index=300&type=chunk) - Failure to protect internally developed systems, technology, and intellectual property could lead to costly litigation[346](index=346&type=chunk)[347](index=347&type=chunk) - The company relies heavily on the continued services of **senior management and key employees**[378](index=378&type=chunk)[379](index=379&type=chunk) [Risks Related to the Acquisition of Voxbone](index=84&type=section&id=Risks%20Related%20to%20the%20Acquisition%20of%20Voxbone) - The anticipated synergies from the Voxbone acquisition may **not be fully realized** due to integration difficulties[418](index=418&type=chunk)[419](index=419&type=chunk) - **Significant non-recurring costs** have been incurred for the acquisition and integration[420](index=420&type=chunk) [Risks Related to the Convertible Notes](index=85&type=section&id=Risks%20Related%20to%20the%20Convertible%20Notes) - Servicing the company's debt requires significant cash flow, and there is a risk that future operations may **not generate sufficient cash**[421](index=421&type=chunk)[422](index=422&type=chunk) - The company may not have the ability to raise necessary funds for cash settlement upon conversion or repurchase of Convertible Notes[423](index=423&type=chunk)[424](index=424&type=chunk) - The accounting method for convertible debt may adversely affect reported financial results and diluted EPS[427](index=427&type=chunk)[429](index=429&type=chunk) - The conditional conversion feature of the Convertible Notes, if triggered, could **adversely affect liquidity**[430](index=430&type=chunk) - Capped call transactions, intended to reduce dilution, may affect the value of the Convertible Notes and Class A common stock[431](index=431&type=chunk)[433](index=433&type=chunk) - The company is exposed to **counterparty risk** with respect to the Capped Calls[435](index=435&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=88&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) - The trading price of Class A common stock may be **volatile**, potentially leading to investment losses[436](index=436&type=chunk)[438](index=438&type=chunk) - Substantial future sales of Class A common stock by existing stockholders could cause the market price to decline[439](index=439&type=chunk)[458](index=458&type=chunk) - The **dual-class capital structure** concentrates voting control with pre-IPO stockholders[440](index=440&type=chunk)[441](index=441&type=chunk) - **Anti-takeover provisions** in organizational documents and Delaware law could impair or delay takeover attempts[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk) - The company does **not intend to pay cash dividends** in the foreseeable future[456](index=456&type=chunk)[457](index=457&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=93&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 reporting period - No unregistered sales of equity securities occurred during the period[460](index=460&type=chunk) [Item 6. Exhibits](index=93&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q - Exhibits include organizational documents, employment agreements, and certifications from the CEO and CFO[461](index=461&type=chunk) [Signatures](index=94&type=section&id=Signatures) This section contains the duly authorized signatures of the company's CEO and CFO - The report is signed by David A Morken, CEO, and Daryl E Raiford, CFO, on May 6, 2022[463](index=463&type=chunk)[464](index=464&type=chunk)[465](index=465&type=chunk)

Bandwidth Inc. (NASDAQ:BAND) Q1 2022 Earnings Conference Call May 4, 2022 4:30 PM ET Company Participants Sarah Walas – Vice President-Investor Relations David Morken – Chief Executive Officer Daryl Raiford – Chief Financial Officer Conference Call Participants Matt Stotler – William Blair Ryan MacWilliams – Barclays Tyler Radke – Citi Charlie Erlikh – Baird Pat Walravens – JMP Operator Greetings, and welcome to the Bandwidth Inc.’s First Quarter 2022 Earnings Conference Call. At this time, all participants ...