band-20210930

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 September 30, 2021


☐			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 October 29, 2021, 23,168,711 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.

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		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 September 30, 2021	5
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2021	6
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2021	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine M onths E nded September 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	37
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	58
Item 4.	Controls and Procedures	59

	PART II - OTHER INFORMATION	60
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 6.	Exhibits	98
	Signatures	99

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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 ability to successfully defend our network, systems and data against ever-evolving cybersecurity threats, including denial-of-service and ransomware attacks;

•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;

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•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 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.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANDWIDTH INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


	As of December 31,		As of September 30,
	2020		2021
Assets
Current assets:
Cash and cash equivalents	$	72,163	$	321,819
Restricted cash	9,274		9,239

Other investments	40,000		—
Accounts receivable, net of allowance for doubtful accounts	55,243		75,161
Deferred costs	2,411		2,951
Prepaid expenses and other current assets	14,508		22,355


Total current assets	193,599		431,525
Property, plant and equipment, net	51,645		68,267
Operating right-of-use asset, net	19,491		15,612
Intangible assets, net	248,055		220,566
Deferred costs, non-current	3,604		4,262
Other long-term assets	1,975		7,543
Goodwill	372,239		353,151


Total assets	$	890,608	$	1,100,926
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,665	$	15,688
Accrued expenses and other current liabilities	63,065		76,259
Current portion of deferred revenue	6,515		6,362
Advanced billings	5,429		4,797
Operating lease liability, current	5,515		6,015




Total current liabilities	92,189		109,121
Other liabilities	1,707		5,416
Operating lease liability, net of current portion	17,202		12,525

Deferred revenue, net of current portion	6,386		7,383

Deferred tax liability	61,005		57,997
Convertible senior notes	282,196		479,155
Total liabilities	460,685		671,597












Stockholders’ equity:





Class A and Class B common stock	24		25
Additional paid-in capital	451,463		499,738
Accumulated deficit	(49,505)		(68,693)
Accumulated other comprehensive income (loss)	27,941		(1,741)
Total stockholders’ equity	429,923		429,329
Total liabilities and stockholders’ equity	$	890,608	$	1,100,926

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

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BANDWIDTH INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2020		2021		2020		2021




Revenue	$	84,758	$	130,638	$	230,066	$	364,775



Cost of revenue	45,527		72,395		123,895		199,782

Gross profit	39,231		58,243		106,171		164,993
Operating expenses:
Research and development	10,232		13,359		29,316		39,509
Sales and marketing	9,001		13,592		27,073		38,168
General and administrative	18,134		30,354		51,070		85,481
Total operating expenses	37,367		57,305		107,459		163,158

Operating income (loss)	1,864		938		(1,288)		1,835





Other expense, net	(4,206)		(7,567)		(8,980)		(20,768)

Loss before income taxes	(2,342)		(6,629)		(10,268)		(18,933)
Income tax provision	(10)		(315)		(13,783)		(255)


Net loss	$	(2,352)	$	(6,944)	$	(24,051)	$	(19,188)

















Net loss per share, basic and diluted	$	(0.10)	$	(0.28)	$	(1.01)	$	(0.77)



Weighted average number of common shares outstanding, basic and diluted	24,175,762		25,114,762		23,905,322		25,075,941

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

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BANDWIDTH INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2020		2021		2020		2021






























Net loss	$	(2,352)	$	(6,944)	$	(24,051)	$	(19,188)
Other comprehensive income (loss)

Foreign currency translation, net of income taxes	139		(12,512)		20		(29,682)
Other comprehensive income (loss)	139		(12,512)		20		(29,682)
Total comprehensive loss	$	(2,213)	$	(19,456)	$	(24,031)	$	(48,870)

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

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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

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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



Exercises of vested stock options	8,700	—		—	—			101		—		—		101
Vesting of restricted stock units	16,383	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(1,631)	—		—	—			(154)		—		—		(154)
Conversion of Class B voting common stock to Class A voting common stock	250,000	—		(250,000)	—			—		—		—		—
Foreign currency translation	—	—		—	—			—		(12,512)		—		(12,512)
Stock based compensation	—	—		—	—			3,825		—		—		3,825
Net loss	—	—		—	—			—		—		(6,944)		(6,944)
Balance at September 30, 2021	23,165,119	$	23	1,965,170	$	2		$	499,738	$	(1,741)	$	(68,693)	$	429,329

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

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BANDWIDTH INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine months ended September 30,
	2020		2021
Cash flows from operating activities
Net loss	$	(24,051)	$	(19,188)

Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	9,927		27,478
Right-of-use asset amortization	3,522		4,251



Amortization of debt discount and issuance costs	10,916		19,475
Stock-based compensation	7,306		11,592

Deferred taxes	14,254		329
Loss on disposal of property and equipment	263		357

Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(16,218)		(20,610)



Prepaid expenses and other assets	(2,224)		(4,173)
Accounts payable	2,905		7,122
Accrued expenses and other liabilities	8,675		1,590

Operating right-of-use liability	(3,944)		(4,535)



Net cash provided by operating activities	11,331		23,688
Cash flows from investing activities
Purchase of property and equipment	(9,536)		(12,552)
Capitalized software development costs	(1,846)		(3,212)

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	(242,162)		11,681
Cash flows from financing activities


Payments on finance leases	—		(161)






Proceeds from issuance of convertible senior notes	400,000		250,000
Purchase of capped call	(43,320)		(25,500)
Payment of debt issuance costs	(11,965)		(7,544)
Proceeds from exercises of stock options	3,859		886

Value of equity awards withheld for tax liabilities	(1,472)		(3,720)

Net cash provided by financing activities	347,102		213,961
Effect of exchange rate changes on cash, cash equivalents and restricted cash	48		291
Net increase in cash, cash equivalents, and restricted cash	116,319		249,621
Cash, cash equivalents, and restricted cash, beginning of period