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, 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 July 30, 2021, 23,145,318 shares of the registrant’s Class A common stock and 1,965,170 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 June 30, 2021	5
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2021	6
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2021	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Six months ended June 30, 2020 and 2021	10
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	56
Item 4.	Controls and Procedures	57
	PART II - OTHER INFORMATION	58
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97
Item 6.	Exhibits	97
	Signatures	98

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;

•other risks related to our indebtedness; and

•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.

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 June 30,
	2020		2021
Assets
Current assets:
Cash and cash equivalents	$	72,163	$	309,615
Restricted cash	9,274		9,406
Other investments	40,000		—
Accounts receivable, net of allowance for doubtful accounts	55,243		63,098
Deferred costs	2,411		2,750
Prepaid expenses and other current assets	14,508		23,360
Total current assets	193,599		408,229
Property, plant and equipment, net	51,645		66,650
Operating right-of-use asset, net	19,491		16,894
Intangible assets, net	248,055		230,711
Deferred costs, non-current	3,604		4,022
Other long-term assets	1,975		7,373
Goodwill	372,239		360,551
Total assets	$	890,608	$	1,094,430
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,665	$	8,205
Accrued expenses and other current liabilities	63,065		66,553
Current portion of deferred revenue	6,515		6,591
Advanced billings	5,429		4,998
Operating lease liability, current	5,515		6,000
Total current liabilities	92,189		92,347
Other liabilities	1,707		4,870
Operating lease liability, net of current portion	17,202		14,048
Deferred revenue, net of current portion	6,386		6,871
Deferred tax liability	61,005		59,294
Convertible senior notes	282,196		471,987
Total liabilities	460,685		649,417
Stockholders’ equity:
Class A and Class B common stock	24		25
Additional paid-in capital	451,463		495,966
Accumulated deficit	(49,505)		(61,749)
Accumulated other comprehensive income	27,941		10,771
Total stockholders’ equity	429,923		445,013
Total liabilities and stockholders’ equity	$	890,608	$	1,094,430

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,
	2020		2021		2020		2021
Revenue	$	76,790	$	120,658	$	145,308	$	234,137
Cost of revenue	42,009		66,059		78,368		127,387
Gross profit	34,781		54,599		66,940		106,750
Operating expenses:
Research and development	9,554		12,817		19,084		26,150
Sales and marketing	8,655		12,584		18,072		24,576
General and administrative	16,840		28,264		32,936		55,127
Total operating expenses	35,049		53,665		70,092		105,853
Operating (loss) income	(268)		934		(3,152)		897
Other expense, net	(3,868)		(7,590)		(4,774)		(13,201)
Loss before income taxes	(4,136)		(6,656)		(7,926)		(12,304)
Income tax (provision) benefit	(16,505)		(272)		(13,773)		60
Net loss	$	(20,641)	$	(6,928)	$	(21,699)	$	(12,244)
Net loss per share, basic and diluted
Basic	$	(0.86)	$	(0.28)	$	(0.91)	$	(0.49)
Diluted	$	(0.86)	$	(0.28)	$	(0.91)	$	(0.49)
Weighted average number of common shares outstanding, basic and diluted
Basic	23,973,663		25,096,026		23,768,616		25,056,208
Diluted	23,973,663		25,096,026		23,768,616		25,056,208

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 June 30,				Six months ended June 30,
	2020		2021		2020		2021
Net loss	$	(20,641)	$	(6,928)	$	(21,699)	$	(12,244)
Other comprehensive (loss) income
Foreign currency translation, net of income taxes	(23)		6,015		(119)		(17,170)
Other comprehensive (loss) income	(23)		6,015		(119)		(17,170)
Total comprehensive loss	$	(20,664)	$	(913)	$	(21,818)	$	(29,414)

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
Foreign currency translation	—	—		—	—		—		27,880				27,880

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
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
Debt conversion option issuance costs, net of tax	—	—		—	—		30		—		—		30
Exercises of vested stock options	4,406	—		—	—		46		—		—		46
Vesting of restricted stock units	15,605	—		—	—		—		—		—		—
Equity awards withheld for tax liability	(1,948)	—		—	—		(265)		—		—		(265)
Foreign currency translation	—	—		—	—		—		6,015		—		6,015
Stock based compensation	—	—		—	—		3,377		—		—		3,377
Net loss	—	—		—	—		—		—		(6,928)		(6,928)
Balance at June 30, 2021	22,891,667	$	23	2,215,170	$	2	$	495,966	$	10,771	$	(61,749)	$	445,013

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,
	2020		2021
Cash flows from operating activities
Net loss	$	(21,699)	$	(12,244)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization	6,640		18,245
Right-of-use asset amortization	2,332		2,785
Amortization of debt discount and issuance costs	6,314		12,308
Stock-based compensation	4,924		7,767
Deferred taxes	14,254		213
Loss on disposal of property and equipment	260		336
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(11,609)		(8,159)
Deferred costs	(584)		(757)
Prepaid expenses and other assets	(2,041)		(3,729)
Accounts payable	41		1,118
Accrued expenses and other liabilities	2,417		(6,348)
Deferred revenue and advanced billings	1,047		160
Operating right-of-use liability	(2,612)		(2,850)
Net cash (used in) provided by operating activities	(316)		8,845
Cash flows from investing activities
Purchase of property and equipment	(7,550)		(10,703)
Capitalized software development costs	(1,498)		(2,404)
Purchase of land	—		(30,017)
Proceeds from sale of land	—		17,462
Purchase of other investments	(230,780)		—
Proceeds from sales and maturities of other investments	—		40,000
Net cash (used in) provided by investing activities	(239,828)		14,338
Cash flows from financing activities
Payments on finance leases	—		(105)
Proceeds from issuance of convertible senior notes	400,000		250,000
Payment of debt issuance costs	(11,965)		(7,544)
Purchase of capped call	(43,320)		(25,500)
Proceeds from exercises of stock options	3,540		802
Value of equity awards withheld for tax liabilities	(1,198)		(3,456)
Net cash provided by financing activities	347,057		214,197
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8)		204
Net increase in cash, cash equivalents, and restricted cash	106,905		237,584
Cash, cash equivalents, and restricted cash, beginning of period	185,004		81,437
Cash, cash equivalents, and restricted cash, end of period	$	291,909	$	319,021
Supplemental disclosure of cash flow information
Cash paid for interest	$	32	$	541
Cash (refunded) paid for taxes, net	$	(154)	$	300
Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment, accrued but not paid	$	1,082	$	4,049

10

BANDWIDTH INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Obligation included in basis of acquired land	$	—	$	7,752
Lease incentive	$	—	$	3,193
Obligation included in basis of land acquired by the Developer	$	—	$	4,512
Equity awards withheld for tax liabilities, accrued but not paid	$	272	$	242

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

11

BANDWIDTH INC.

Notes to Condensed Consolidated Financial Statements

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