[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 ...

Bandwidth Inc. (NASDAQ:BAND) Q4 2021 Earnings Conference Call February 23, 2022 5:00 PM ET Corporate Participants Sarah Walas - VP of Investor Relations David Morken - Chief Executive Officer Daryl Raiford - Chief Financial Officer Conference Call Participants Halle Mogk - William Blair Mark Murphy - JPMorgan Ryan MacWilliams – Barclays Karan Juvekar - Morgan Stanley George Mohan - KeyBanc Tyler Radke - Citi Catherine Trebnick - Colliers Charlie Erlikh - Baird Joe Goodwin - JMP Securities Quinton Gabrielli ...

Bandwidth Inc. (NASDAQ:BAND) Q3 2021 Earnings Conference Call November 9, 2021 5:00 PM ET Company Participants David Morken – CEO Sarah Walas – VP of Investor Relations Daryl Raiford – CFO Conference Call Participants Matt Stotler – William Blair Mark Murphy – JPMorgan Charlie Erlikh – Baird Klarna – Morgan Stanley George – KeyBanc Tyler Radke – Citi Andrew King – Colliers Securities Ryan Koontz – Needham & Company Quinton – Piper Sandler Pat Walravens – JMP Securities Operator Thank you for standing by and ...

Bandwidth Inc. (NASDAQ:BAND) Q2 2021 Earnings Conference Call August 5, 2021 5:00 PM ET Company Participants Sarah Walas - Vice President of Investor Relations David Morken - Chief Executive Officer Daryl Raiford - Executive Vice President Jeff Hoffman - Chief Financial Officer Conference Call Participants Bhavan Suri - William Blair Charlie Erlikh - Baird Pinjalim Bora - JPMorgan Mike Walkley - Canaccord Genuity Dave Nwokonko - Morgan Stanley Andrew King - Colliers Securities Quinton Gabrielli - Piper Sand ...

[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