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 March 31, 2021

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 April 30, 2021, 22,879,349 shares of the registrant’s Class A common stock and 2,215,170 shares of registrant’s Class B common stock were outstanding, respectively.

BANDWIDTH INC.

Table of Contents

		Page
Special Note Regarding Forward-Looking Statements		3
	PART I - FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Unaudited Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2021	5
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2021	6
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2021	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2020 and 2021	10
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	52
Item 4.	Controls and Procedures	54
	PART II - OTHER INFORMATION	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94
Item 6.	Exhibits	94
	Signatures	96

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, 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, including international offerings, 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 successfully integrate and benefit from any strategic acquisitions, including our acquisition of Voxbone (as defined herein), or future strategic acquisitions or investments;

•our ability to effectively manage our international operations and expansion;

•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 comply with modified or new industry standards, laws and regulations applicable to our products, services and business, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act of 2018 and other privacy regulations that may be implemented in the future, and Secure

3

Telephone Identity Revisited (“STIR”) and Signature-based Handling of Asserted Information Using toKENs (“SHAKEN”) (together, “STIR/SHAKEN”) and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;

•our customers’ violation of our policies or other misuse of our platform;

•our ability to manage fees that have been or may be instituted by network providers that increase our costs;

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

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

•our ability to service the interest on our Convertible Notes (as defined herein) and repay such Convertible Notes, to the extent required;

•our expectations about the impact of public health epidemics, such as COVID-19 (as defined herein), or natural disasters on the global economy and our business, results of operations and financial condition; and

•risks relating to our indebtedness.

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

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.

4

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANDWIDTH INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	As of December 31,		As of March 31,
	2020		2021
Assets
Current assets:
Cash and cash equivalents	$	72,163	$	319,731
Restricted cash	9,274		9,527
Other investments	40,000		10,000
Accounts receivable, net of allowance for doubtful accounts	55,243		51,458
Prepaid expenses and other current assets	14,508		13,386
Deferred costs	2,411		2,572
Total current assets	193,599		406,674
Property and equipment, net	51,645		50,660
Operating right-of-use asset, net	19,491		18,008
Intangible assets, net	248,055		232,804
Deferred costs, non-current	3,604		3,795
Other long-term assets	1,975		2,029
Goodwill	372,239		356,379
Total assets	$	890,608	$	1,070,349
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,665	$	9,360
Accrued expenses and other current liabilities	63,065		55,884
Current portion of deferred revenue	6,515		6,519
Advanced billings	5,429		4,242
Operating lease liability, current	5,515		5,594
Total current liabilities	92,189		81,599
Other liabilities	1,707		1,635
Operating lease liability, net of current portion	17,202		15,609
Deferred revenue, net of current portion	6,386		6,592
Deferred tax liability	61,005		57,328
Convertible senior notes	282,196		464,848
Total liabilities	460,685		627,611
Stockholders’ equity:
Class A and Class B 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

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 March 31,
	2020		2021
Revenue	$	68,518	$	113,479
Cost of revenue	36,359		61,328
Gross profit	32,159		52,151
Operating expenses:
Research and development	9,530		13,333
Sales and marketing	9,417		11,992
General and administrative	16,096		26,863
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)
Weighted average number of common shares outstanding, basic and diluted	23,563,569		25,015,948

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

6

BANDWIDTH INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

	Three months ended March 31,
	2020		2021
Net loss	$	(1,058)	$	(5,316)
Other comprehensive loss
Foreign currency translation, net of income taxes	(96)		(23,185)
Other comprehensive loss	(96)		(23,185)
Total comprehensive loss	$	(1,154)	$	(28,501)

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 income (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	18,584,478	$	19	4,927,401	$	5	$	275,553	$	41	$	(5,528)	$	270,090
Issuance of debt conversion option	—	—		—	—		104,553		—		—		104,553
Debt conversion option issuance costs, net of tax	—	—		—	—		(3,731)		—		—		(3,731)
Capped call option purchase price	—	—		—	—		(43,320)		—		—		(43,320)
Exercises of vested stock options	32,059	—		—	—		244		—		—		244
Vesting of restricted stock units	103,824	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(14,411)	—		—	—		(1,021)		—		—		(1,021)
Conversion of Class B voting common stock to Class A voting common stock	500,250	—		(500,250)	(1)		—		—		—		(1)
Foreign currency translation	—	—		—	—		—		(96)		—		(96)
Stock based compensation	—	—		—	—		2,499		—		—		2,499
Net loss	—	—		—	—		—		—		(1,058)		(1,058)
Balance at March 31, 2020	19,206,200	19		4,427,151	4		334,777		(55)		(6,586)		328,159
Debt conversion option issuance costs, net of tax	—	—		—	—		(11)		—		—		(11)
Exercises of vested stock options	502,182	1		—	—		3,296		—		—		3,297
Vesting of restricted stock units	21,871	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(2,133)	—		—	—		(272)		—		—		(272)
Conversion of Class B voting common stock to Class A voting common stock	827,597	—		(827,597)	—		—		—		—		—
Foreign currency translation	—	—		—	—		—		(23)		—		(23)
Stock based compensation	—	—		—	—		2,425		—		—		2,425
Net loss	—	—		—	—		—		—		(20,641)		(20,641)
Balance at June 30, 2020	20,555,717	20		3,599,554	4		340,215		(78)		(27,227)		312,934
Exercises of vested stock options	44,848	—		—	—		386		—		—		386
Vesting of restricted stock units	17,948	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(2,002)	—		—	—		(350)		—		—		(350)
Conversion of Class B voting common stock to Class A voting common stock	606,418	1		(606,418)	(1)		—		—		—		—
Foreign currency translation	—	—		—	—		—		139		—		139
Stock based compensation	—	—		—	—		2,382		—		—		2,382
Net loss	—	—		—	—		—		—		(2,352)		(2,352)
Balance at September 30, 2020	21,222,929	21		2,993,136	3		342,633		61		(29,579)		313,139
Exercises of vested stock options	13,995	—		—	—		149		—		—		149
Vesting of restricted stock units	17,424	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(1,749)	—		—	—		(273)		—		—		(273)
Conversion of Class B voting common stock to Class A voting common stock	497,011	—		(497,011)	(1)		—		—		—		(1)
Equity consideration for Voxbone acquisition	663,394	1		—	—		106,379		—		—		106,380

8

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 income (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Foreign currency translation	—	—		—	—		—		27,880				27,880
Stock based compensation	—	—		—	—		2,575		—		—		2,575
Net loss	—	—		—	—		—		—		(19,926)		(19,926)
Balance at December 31, 2020	22,413,004	22		2,496,125	2		451,463		27,941		(49,505)		429,923
Issuance of debt conversion option	—	—		—	—		66,908		—		—		66,908
Debt conversion option issuance costs, net of tax	—	—		—	—		(2,049)		—		—		(2,049)
Capped call option purchase price	—	—		—	—		(25,500)		—		—		(25,500)
Exercises of vested stock options	57,817	—		—	—		753		—		—		753
Vesting of restricted stock units	141,707	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(19,879)	—		—	—		(3,187)		—		—		(3,187)
Conversion of Class B voting common stock to Class A voting common stock	280,955	1		(280,955)	—		—		—		—		1
Foreign currency translation	—	—		—	—		—		(23,185)		—		(23,185)
Stock based compensation	—	—		—	—		4,390		—		—		4,390
Net loss	—	—		—	—		—		—		(5,316)		(5,316)
Balance at March 31, 2021	22,873,604	$	23	2,215,170	$	2	$	492,778	$	4,756	$	(54,821)	$	442,738

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)

	Three months ended March 31,
	2020		2021
Cash flows from operating activities
Net loss	$	(1,058)	$	(5,316)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization	3,298		9,043
Right-of-use asset amortization	1,158		1,347
Amortization of debt discount and issuance costs	1,753		5,186
Stock-based compensation	2,499		4,390
Deferred taxes	(2,337)		(1,095)
Loss on disposal of property and equipment	233		201
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(6,899)		3,530
Prepaid expenses and other assets	(991)		925
Deferred costs	(396)		(352)
Accounts payable	304		1,387
Accrued expenses and other liabilities	(4,991)		(6,913)
Deferred revenue and advanced billings	1,105		(953)
Operating right-of-use liability	(1,285)		(1,371)
Net cash (used in) provided by operating activities	(7,607)		10,009
Cash flows from investing activities
Purchase of property and equipment	(3,638)		(6,781)
Capitalized software development costs	(790)		(1,103)
Proceeds from sales and maturities of other investments	—		30,000
Net cash (used in) provided by investing activities	(4,428)		22,116
Cash flows from financing activities
Payments on finance leases	—		(44)
Proceeds from issuance of convertible senior notes	400,000		250,000
Payment of debt issuance costs	(11,048)		(7,000)
Purchase of capped call	(43,320)		(25,500)
Proceeds from exercises of stock options	244		738
Value of equity awards withheld for tax liabilities	(960)		(2,900)
Net cash provided by financing activities	344,916		215,294
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(25)		402
Net increase in cash, cash equivalents, and restricted cash	332,856		247,821
Cash, cash equivalents, and restricted cash, beginning of period	185,004		81,437
Cash, cash equivalents, and restricted cash, end of period	$	517,860	$	329,258
Supplemental disclosure of cash flow information
Cash paid for interest	$	—	$	525
Cash refunded for taxes, net	$	(229)	$	(394)
Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment, accrued but not paid	$	2,595	$	1,780
Equity awards withheld for tax liabilities, accrued but not paid	$	238	$	531
Payment of debt issuance costs, accrued but unpaid	$	875	$	659

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 an international cloud-based, software-powered communications platform-as-a-service (“CPaaS”) provider that enables enterprises to create, scale and operate voice or messaging 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.

On November 2, 2020, the Company acquired all of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares of Voice Topco through a Share Purchase Agreement. Voice Topco directly or indirectly held all of the issued and outstanding shares of Voxbone S.A., which (with its subsidiaries) was the operating subsidiary of Voice Topco (“Voxbone)”. The transaction was valued at €446 million. As consideration for the Share Purchase, the Company (i) paid the selling stockholders approximately $400 million (or approximately €338 million based on prevailing exchange rates at the close of business on October 9, 2020) at the Closing and (ii) issued to the selling stockholders at the Closing shares of the Company’s Class A common stock, with an aggregate value of approximately €108 million (or approximately $128 million based on prevailing exchange rates at the close of business on October 9, 2020). Due to the timing and magnitude of the transaction and multi-jurisdictional nature of the net assets acquired, initial accounting for the acquisition is not complete, and further measurement adjustments may occur in fiscal year 2021. The Company will reflect measurement period adjustments in the period in which the adjustments are determined.

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 Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2021.

The condensed consolidated balance sheet as of December 31, 2020, 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 loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2021 or any future period.

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 condensed 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. These estimates in the condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, reserve for expected credit losses, reserve for sales credits, recoverability of long lived and intangible assets, fair value of acquired intangible assets and goodwill, discount rates used in the valuation of right-of-use assets and lease liabilities, the fair value of the liability and equity components of the Company’s Convertible Notes (as defined herein), estimated period of benefit, valuation allowances on deferred tax assets, certain accrued expenses and contingencies, economic and demographic actuarial assumptions related to pension and other postretirement benefit costs and liabilities, estimated cash flows on asset retirement obligation. 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.

Cash and Cash Equivalents

The Company classifies all highly liquid investments with original stated maturities of three months or less from the date of purchase as cash equivalents and all highly liquid investments with original stated maturities of greater than three months from the date of purchase as current marketable securities, with the exception of time deposits which are classified as other investments. Cash deposits are primarily in financial institutions in the United States. However, cash for monthly operating costs of international operations are deposited in banks outside the United States. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company utilizes money market funds as an investment option and only invests in AAA rated funds.

Restricted Cash

Restricted cash consists primarily of the holdback amount remaining to be paid to the selling stockholders of Voxbone, employee withholding tax liability and employee benefits contributions not yet remitted. The Company has classified this asset as a short-term asset in order to match the expected period of restriction.

Accounts Receivable and Current Expected Credit Losses

Accounts receivable are stated at realizable value, net of allowances, which includes an allowance for doubtful accounts and a reserve for expected credit losses. The allowance for doubtful accounts is based on management’s assessment of the collectability of its customer accounts. The Company regularly reviews the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, current economic trends, and reasonable and supportable forecasts about the future. Relevant risk characteristics include customer size and historical loss patterns. Management has evaluated the expected credit losses related to trade accounts receivable and determined that allowances of approximately $1,203 and $1,218 for uncollectible accounts and customer balances that are disputed were required as of December 31, 2020 and March 31, 2021, respectively. Refer to Note 4, “Financial Statement Components” to these condensed consolidated financial statements, for a rollforward of the components of the allowances as of December 31, 2020 and March 31, 2021.

The Company includes unbilled receivables in its accounts receivable balance. Generally, these receivables represent services provided to customers, which will be billed in the next billing cycle. All amounts are considered

12

Notes to Condensed Consolidated Financial Statements (continued)

(In thousands, except share and per share amounts)

collectible and billable. As of December 31, 2020 and March 31, 2021, unbilled receivables were $27,692 and $28,490, respectively.

Concentration of Credit Risk

Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, other investments 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, 2020, one individual customer represented approximately 11% of the Company’s accounts receivable, net of allowance for doubtful accounts. As of March 31, 2021, one individual customer represented approximately 12% of the Company’s accounts receivable, net of allowance for doubtful accounts.

For the three months ended March 31, 2020 and 2021, no individual customer represented more than 10% of the Company’s total revenue.

Debt Issuance Costs

The Company incurs debt issuance costs associated with obtaining and entering into credit agreements, including the issuances of convertible notes. These costs customarily include non-refundable structuring fees, commitment fees, up-front fees and syndication expenses. The Company has a policy of deferring and amortizing these costs based on the effective interest method over the term of the credit agreements.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard on a prospective basis, which did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the effect of adopting this new accounting guidance on its financial statements and earnings per share calculations, but does not intend to early adopt.

13

Notes to Condensed Consolidated Financial Statements (continued)

(In thousands, except share and per share amounts)

3. Fair Value Measurements

The carrying amounts of cash and cash equivalents, other investments, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2020 and March 31, 2021 because of the relatively short duration of these instruments.

The Company evaluated its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period.

The following table summarizes the assets measured at fair value as of December 31, 2020 and March 31, 2021:

	Fair value measurements on a recurring basis December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents:
Money market account	$	57,517	$	—	$	—	$	57,517
Other investments:
Time deposits	40,000		—		—		40,000
Total financial assets	$	97,517	$	—	$	—	$	97,517

	Fair value measurements on a recurring basis March 31, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents:
Money market account	$	283,504	$	—	$	—	$	283,504
Time deposits	15,000		—		—		15,000
Total included in cash and cash equivalents	298,504		—		—		298,504
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, as further described in Note 8, “Debt”, was approximately $609,698 and $245,206, respectively. The fair value was determined based on the closing price for the Convertible Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

14

Notes to Condensed Consolidated Financial Statements (continued)

(In thousands, except share and per share amounts)

4. Financial Statement Components

Accounts receivable, net of allowances consist of the following:

	As of December 31,		As of March 31,
	2020		2021
Trade accounts receivable	$	26,504	$	22,591
Unbilled accounts receivable	27,692		28,490
Allowance for doubtful accounts and reserve for expected credit losses	(1,203)		(1,218)
Other accounts receivable	2,250		1,595
Total accounts receivable, net	$	55,243	$	51,458

Components of allowance for doubtful accounts and reserve for expected credit losses are as follows:

	Three months ended March 31,
	2020		2021
Allowance for doubtful accounts:
Balance, beginning of period	$	(769)	$	(1,203)
Charged to bad debt expense	(189)		(48)
Deductions (1)	75		10
Impact of foreign currency translation	—		23
Balance, end of period	$	(883)	$	(1,218)

________________________

(1) Write off of uncollectible accounts after all collection efforts have been exhausted.

Accrued expenses and other current liabilities consisted of the following:

	As of December 31,		As of March 31,
	2020		2021
Accrued expense	$	31,549	$	32,476
Ac