UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________

FORM 10-Q

__________________________________

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from     to

Commission File Number: 001-38285

Bandwidth Inc.

(Exact name of registrant as specified in its charter)

 ______________________________________________

Delaware	56-2242657
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

900 Main Campus Drive

Raleigh, NC 27606

(Address of principal executive offices) (Zip Code)

(800) 808-5150

(Registrant’s telephone number, including area code)

_____________________________________________

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share	BAND	NASDAQ Global Select Market

_____________________________________________

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

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

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

As of July 31, 2019, 17,762,688 shares of the registrant’s Class A common stock and 5,627,060 shares of registrant’s Class B common stock were outstanding, respectively.

Bandwidth Inc.

Quarterly Report on Form 10-Q

For the Three Months Ended June 30, 2019

Table of Contents

		Page
Special Note Regarding Forward Looking Statement		2
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2018 and June 30, 2019	5
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2019	6
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2019	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2019	10
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83
Item 6.	Exhibits	83
	Signatures	85

1

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Forward-looking statements generally can be identified by the words “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “estimate,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our ability to attract and retain customers, including large enterprises;

•our approach to identifying, attracting and keeping new and existing customers, as well as our expectations regarding customer turnover;

•our beliefs regarding network traffic growth and other trends related to the usage of our products and services;

•our expectations regarding revenue, costs, expenses, gross margin, dollar based net retention rate, adjusted EBITDA, other non-generally accepted accounting principles in the United States of America (“GAAP”) net income and capital expenditures; our beliefs regarding the growth of our business and how that impacts our liquidity and capital resources requirements;

•the sufficiency of our cash and cash equivalents to meet our liquidity needs;

•our ability to attract, train, and retain qualified employees and key personnel;

•our beliefs regarding the expense and productivity of, and competition for, our sales force;

•our expectations regarding headcount;

•our ability to maintain and benefit from our corporate culture;

•our plans to further invest in and grow our business, and our ability to effectively manage our growth and associated investments;

•our ability to introduce new products and services and enhance existing products and services;

•our ability to compete successfully against current and future competitors;

•the evolution of technology affecting our products, services and markets;

•the impact of certain new accounting standards and guidance, as well as the time and cost of continued compliance with existing rules and standards;

•our beliefs regarding the use of non-GAAP financial measures;

•our ability to maintain, protect and enhance our intellectual property;

•our expectations regarding litigation and other pending or potential disputes;

•our ability to comply with modified or new laws and regulations; and

•the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.

2

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

4

Bandwidth Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	December 31,		June 30,
	2018		2019
Assets
Current assets:
Cash and cash equivalents	$	41,261	$	140,091
Marketable securities	17,400		55,839
Accounts receivable, net of allowance for doubtful accounts	24,009		26,695
Prepaid expenses and other current assets	6,114		8,541
Deferred costs	2,630		2,053
Total current assets	91,414		233,219
Property and equipment, net	25,136		31,799
Intangible assets, net	7,089		6,829
Deferred costs, non-current	1,828		1,038
Other long-term assets	727		2,128
Goodwill	6,867		6,867
Deferred tax asset	17,359		31,615
Total assets	$	150,420	$	313,495
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,418	$	3,089
Accrued expenses and other current liabilities	21,393		24,120
Current portion of deferred revenue	5,324		4,887
Advanced billings	2,588		2,676
Total current liabilities	32,723		34,772
Deferred rent, net of current portion	2,503		3,698
Deferred revenue, net of current portion	6,424		5,900
Total liabilities	41,650		44,370
Stockholders’ equity:
Class A and Class B common stock	19		23
Additional paid-in capital	116,600		271,628
Accumulated deficit	(7,848)		(2,558)
Accumulated other comprehensive (loss) income	(1)		32
Total stockholders’ equity	108,770		269,125
Total liabilities and stockholders’ equity	$	150,420	$	313,495

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

5

Bandwidth Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2018		2019		2018		2019
Revenue	$	48,304	$	56,779	$	101,316	$	110,100
Cost of revenue	26,566		30,110		51,930		58,876
Gross profit	21,738		26,669		49,386		51,224
Operating expenses:
Research and development	4,435		7,656		8,216		15,373
Sales and marketing	4,654		8,514		9,176		16,863
General and administrative	11,490		14,282		22,059		28,615
Total operating expenses	20,579		30,452		39,451		60,851
Operating income (loss)	1,159		(3,783)		9,935		(9,627)
Other income, net	90		729		139		930
Income (loss) before income taxes	1,249		(3,054)		10,074		(8,697)
Income tax benefit	9,263		6,526		6,629		14,161
Net income	$	10,512	$	3,472	$	16,703	$	5,464
Net income per share:
Basic	$	0.58	$	0.15	$	0.93	$	0.25
Diluted	$	0.50	$	0.14	$	0.80	$	0.23
Weighted average number of common shares outstanding:
Basic	18,154,964		23,102,553		17,908,159		21,807,523
Diluted	20,893,653		24,447,417		20,866,777		23,262,496

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

6

Bandwidth Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2018		2019		2018		2019
Net income	$	10,512	$	3,472	$	16,703	$	5,464
Other comprehensive income
Unrealized gain (loss) on marketable securities, net of income taxes	4		13		(2)		21
Foreign currency translation	—		12		—		12
Total comprehensive income	$	10,516	$	3,497	$	16,701	$	5,497

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

7

Bandwidth Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

	Class A voting common Stock			Class B voting common Stock			Additional paid-in capital		Accumulated other comprehensive (loss) income		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2017	4,197,831	$	4	13,440,725	$	13	$	102,465	$	—	$	(25,771)	$	76,711
Exercises of vested stock options	5,000	1		—	—		34		—		—		35
Exercise of warrants to purchase common stock	—	—		48,904	—		36		—		—		36
Costs in connection with initial public offering	—	—		—	—		(285)		—		—		(285)
Unrealized loss on marketable securities	—	—		—	—		—		(6)		—		(6)
Stock based compensation	—	—		—	—		493		—		—		493
Net income	—	—		—	—		—		—		6,191		6,191
Balance at March 31, 2018	4,202,831	5		13,489,629	13		102,743		(6)		(19,580)		83,175
Exercises of vested stock options	1,112,646	1		—	—		6,932		—		—		6,933
Vesting of restricted stock units	6,512	—		—	—		—		—		—		—
Conversion of Class B voting common stock to Class A voting common stock	6,052,910	6		(6,052,910)	(6)		—		—		—		—
Issuance of Class A voting common stock	330	—		—	—		—		—		—		—
Unrealized gain on marketable securities	—	—		—	—		—		4		—		4
Stock based compensation	—	—		—	—		762		—		—		762
Net income	—	—		—	—		—		—		10,512		10,512
Balance at June 30, 2018	11,375,229	12		7,436,719	7		110,437		(2)		(9,068)		101,386
Exercises of vested stock options	534,474	—		—	—		3,579		—		—		3,579
Vesting of restricted stock units	2,466	—		—	—		—		—		—		—
Conversion of Class B voting common stock to Class A voting common stock	435,313	—		(435,313)	—		—		—		—		—
Unrealized loss on marketable securities	—	—		—	—		—		(1)		—		(1)
Stock based compensation	—	—		—	—		762		—		—		762
Net income	—	—		—	—		—		—		2,510		2,510
Balance at September 30, 2018	12,347,482	12		7,001,406	7		114,778		(3)		(6,558)		108,236
Exercises of vested stock options	72,569	—		—	—		500		—		—		500
Vesting of restricted stock units	2,022	—		—	—		—		—		—		—
Conversion of Class B voting common stock to Class A voting common stock	490,674	1		(490,674)	(1)		—		—		—		—
Unrealized gain on marketable securities	—	—		—	—		—		2		—		2

8

Bandwidth Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

Stock based compensation	—	—		—	—		1,322		—		—		1,322
Net loss	—	—		—	—		—		—		(1,290)		(1,290)
Balance at December 31, 2018	12,912,747	13		6,510,732	6		116,600		(1)		(7,848)		108,770
Issuance of common stock in connection with follow on public offering, net of underwriting discounts	2,875,000	3		—	—		147,388		—		—		147,391
Costs in connection with public offering	—	—		—	—		(785)		—		—		(785)
Exercises of vested stock options	589,510	1		—	—		3,934		—		—		3,935
Vesting of restricted stock units	105,367	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(16,585)	—		—	—		(938)		—		—		(938)
Conversion of Class B voting common stock to Class A voting common stock	57,230	—		(57,230)	—		—		—		—		—
Adjustment to opening retained earnings due to adoption of ASC 606	—	—		—	—		—		—		(174)		(174)
Unrealized gain on marketable securities	—	—		—	—		—		8		—		8
Stock based compensation	—	—		—	—		1,676		—		—		1,676
Net income	—	—		—	—		—		—		1,992		1,992
Balance at March 31, 2019	16,523,269	17		6,453,502	6		267,875		7		(6,030)		261,875
Costs in connection with public offering	—	—		—	—		(49)		—		—		(49)
Exercises of vested stock options	366,405	—		—	—		2,446		—		—		2,446
Vesting of restricted stock units	20,003	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(3,665)	—		—	—		(274)		—		—		(274)
Conversion of Class B voting common stock to Class A voting common stock	826,441	1		(826,441)	(1)		—		—		—		—
Unrealized gain on marketable securities	—	—		—	—		—		13		—		13
Foreign currency translation	—	—		—	—		—		12		—		12
Stock based compensation	—	—		—	—		1,630		—		—		1,630
Net income	—	—		—	—		—		—		3,472		3,472
Balance at June 30, 2019	17,732,453	$	18	5,627,061	$	5	$	271,628	$	32	$	(2,558)	$	269,125

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

9

Bandwidth Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six months ended June 30,
	2018		2019
Operating activities
Net income	$	16,703	$	5,464
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,683		4,321
Accretion of bond discount	(26)		(478)
Amortization of debt issuance costs	32		139
Stock-based compensation	1,255		3,306
Deferred taxes	(6,677)		(14,263)
Loss on disposal of property and equipment	10		351
Changes in operating assets and liabilities:
Accounts receivable	(1,776)		(2,683)
Prepaid expenses and other assets	(620)		(3,586)
Deferred costs	225		1,290
Accounts payable	(2,375)		(95)
Accrued expenses and other liabilities	2,517		1,584
Deferred revenue and advanced billings	4,141		(1,047)
Deferred rent	1,025		285
Net cash provided by (used in) operating activities	17,117		(5,412)
Investing activities
Purchase of property and equipment	(3,113)		(7,844)
Capitalized software development costs	(1,547)		(1,675)
Proceeds from sale of property and equipment	3		—
Purchase of marketable securities	(13,995)		(55,933)
Maturities of marketable securities	3,000		18,000
Net cash used in investing activities	(15,652)		(47,452)
Financing activities
Proceeds from the follow-on public offering, net of underwriting discounts	—		147,391
Payment of costs related to the follow-on public offering	—		(755)
Payment of costs related to the initial public offering	(285)		—
Payments on capital leases	(50)		—
Payment of debt issuance costs	—		(125)
Proceeds from exercises of stock options	6,967		6,381
Proceeds from exercises of warrants	37		—
Equity awards withheld and paid for tax liabilities	—		(945)
Net cash provided by financing activities	6,669		151,947
Effect of exchange rate changes on cash, cash equivalents and restricted cash	—		(1)
Net increase in cash, cash equivalents, and restricted cash	8,134		99,082
Cash, cash equivalents, and restricted cash, beginning of period	37,870		41,501
Cash, cash equivalents, and restricted cash, end of period	$	46,004	$	140,583
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	45	$	96
Cash paid for taxes	$	155	$	157
Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment, accrued but not paid	$	2,126	$	2,725
Equity awards withheld for tax liabilities, accrued but not paid	$	—	$	267

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

10

Bandwidth Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

(Unaudited)

1. Organization and Description of Business

Bandwidth Inc. (together with its subsidiaries, “Bandwidth” or the “Company”) was founded in July 2000 and incorporated in Delaware on March 29, 2001. The Company’s headquarters are located in Raleigh, North Carolina. The Company is a cloud-based, software-powered communications platform-as-a-service (“CPaaS”) provider that enables enterprises to create, scale and operate voice or text communications services across any mobile application or connected device.

The Company has two operating and reportable segments, CPaaS and Other. CPaaS revenue is derived from usage and monthly services fees charged for usage of Voice, Messaging, 911 and Phone Numbers solutions through the Company’s proprietary CPaaS software application programming interfaces. Other revenue consists of fees charged for services provided such as: SIP trunking, data resale, and a hosted Voice-over Internet Protocol (“VoIP”). The Other segment also includes revenue from traffic generated by other carriers, SMS registration fees and other miscellaneous product lines.

Follow-on Public Offering

On March 11, 2019, the Company completed a follow-on public offering in which the Company sold 2,875,000 shares of its Class A common stock, including 375,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $54.25 per share. The Company received aggregate proceeds of $146,557, after deducting underwriting discounts and offering expenses paid and payable by the Company.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K filed with the SEC on February 15, 2019.

The condensed consolidated balance sheet as of December 31, 2018, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2019 or any future period.

Reclassification

The Company reclassified certain prior year amounts to conform to the current year presentation. These reclassifications had no impact on the previously reported total assets, liabilities, stockholder’s deficit or net income.

11

Notes to Condensed Consolidated Financial Statements (continued)

(In thousands, except share and per share amounts)

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Bandwidth Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the amounts reported in these financial statements and accompanying notes. Although the Company believes that the estimates it uses are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates. These estimates in the consolidated financial statements include, but are not limited to, allowance for doubtful accounts, recoverability of long lived and intangible assets, estimated period of benefit, valuation allowances on deferred tax assets, certain accrued expenses, and contingencies.

Cash and Cash Equivalents

The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months from the date of purchase as current marketable securities. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company invests its cash primarily in government securities and obligations, corporate debt securities, money market funds and reverse repurchase agreements (“RRAs”). RRAs are collateralized by deposits in the form of Government Securities and Obligations for an amount not less than 102% of their value. The Company does not record an asset or liability as the Company is not permitted to sell or repledge the associated collateral. The Company has a policy that the collateral has at least an “A” (or equivalent) credit rating. The Company utilizes a third party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the RRAs on a daily basis. RRAs with stated maturities of greater than three months from the date of purchase are classified as marketable securities.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

For the six months ended June 30, 2019:

	December 31,		June 30,
	2018		2019
Cash and cash equivalents	$	41,261	$	140,091
Restricted cash	240		492
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	41,501	$	140,583

For the six months ended June 30, 2018:

	December 31,		June 30,
	2017		2018
Cash and cash equivalents	$	37,627	$	45,806
Restricted cash	243		198
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	37,870	$	46,004

12

Notes to Condensed Consolidated Financial Statements (continued)

(In thousands, except share and per share amounts)

Restricted cash is primarily for Automated Clearing House availability, customer deposits, employee withholding tax liability not yet remitted, and for credit card security. The Company has classified this asset as a long-term asset in order to match the expected period of restriction and is included in Other long-term assets in the condensed consolidated balance sheets.

Concentration of Credit Risk

Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and trade accounts receivable. Cash deposits may be in excess of insured limits. The Company believes that the financial institutions that hold its cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances.

With regard to customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As of December 31, 2018, one customer represented approximately 18% of the Company’s accounts receivable, net of allowance for doubtful accounts. As of June 30, 2019, no individual customer represented more than 10% of the Company’s accounts receivable, net of allowance for doubtful accounts.

For the three and six months ended June 30, 2018 and 2019, no individual customer represented more than 10% of the Company’s total revenue.

Foreign currency translation

The Company has foreign operations with non-USD functional currencies. The Euro and British Pound are the functional currencies for the Company’s international operations. Foreign exchange gains and losses, which result from the process of remeasuring foreign currency transactions into the appropriate functional currency, are included in other income, net in the Company’s condensed consolidated statements of operations.

The impact of changes in foreign currency exchange rates resulting from the translation of foreign currency financial statements into U.S. dollars for financial reporting purposes is included in other comprehensive income, which is a separate component of stockholders’ equity. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average rates for the period.

Recently Adopted Accounting Standards

On January 1, 2019, the Company adopted the guidance of ASC 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2019. The Company’s results for reporting periods beginning after January 1, 2019 are presented in accordance with the provisions under ASC 606 and prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s revenue recognition policy as further described in Note 2, Summary of Significant Accounting Policies, to its Annual Report on Form 10-K for the year ended December 31, 2018.

In connection with the adoption of ASC 606, the Company recognized a net increase to its opening accumulated deficit of $174 as of January 1, 2019, related to a discount present in one of its contracts.

Prior to the adoption of ASC 606, the Company recognized the majority of its revenue based on the usage of its customers in the period the traffic traversed the Company’s network. The Company determined that ASC 606 continues to support the recognition of revenue over time for the majority of the Company’s contracts due to the continuous transfer of control to the customer.

The adoption of ASC 606 did not result in a change in the Company’s accounting for its commission costs, which will continue to be expensed as incurred. The Company pays commissions over time and a corresponding

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Notes to Condensed Consolidated Financial Statements (continued)

(In thousands, except share and per share amounts)

requisite substantive service condition exists for the employee to receive the commission. The Company determined the timing of the commission payments and the underlying service performed by the employee were commensurate.

The impact on the Company’s balance sheet presentation includes separately presenting customer refundable prepayments as advanced billings, whereas under ASC 605 these were included in the current portion of deferred revenue and advanced billings.

Revenue Recognition

Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that the Company expects to receive in exchange for those products or services.

The Company determines revenue recognition through the following steps:

•identification of the contract, or contracts, with a customer;

•identification of the performance obligations in the contract;

•