band-20220930

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, 2022


☐			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 31, 2022, 23,359,265 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 September 30, 2022 and December 31, 2021	5
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021	6
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2022 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	55
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	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 beliefs regarding the impact of macroeconomic conditions, including inflationary and/or recessionary pressures, on our business and financial condition;

•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;

•the impact of our customers’ violation of applicable laws, our policies or other misuse of our platform;

•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;

•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;

•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;

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•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 Telephone Identity Revisited and Signature-based Handling of Asserted Information Using toKENs and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;

•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; and

•other risks related 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.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANDWIDTH INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


	As of September 30,		As of December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	166,384	$	331,453
Restricted cash	918		836
Marketable securities	145,171		—

Accounts receivable, net of allowance for doubtful accounts	76,597		61,572
Deferred costs	3,772		3,204
Prepaid expenses and other current assets	24,273		15,820


Total current assets	417,115		412,885
Property, plant and equipment, net	73,205		69,604
Operating right-of-use asset, net	11,251		14,061
Intangible assets, net	170,498		211,217
Deferred costs, non-current	5,145		4,676
Other long-term assets	32,293		8,673
Goodwill	298,892		344,423


Total assets	$	1,008,399	$	1,065,539
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	21,034	$	9,142
Accrued expenses and other current liabilities	75,053		65,921
Current portion of deferred revenue	6,233		6,248
Advanced billings	7,672		6,380
Operating lease liability, current	7,166		5,807




Total current liabilities	117,158		93,498
Other liabilities	9,601		6,018
Operating lease liability, net of current portion	6,426		10,958

Deferred revenue, net of current portion	8,155		7,634

Deferred tax liability	35,215		48,396
Convertible senior notes	637,248		486,440
Total liabilities	813,803		652,944












Stockholders’ equity:





Class A and Class B common stock	25		25
Additional paid-in capital	359,465		502,477
Accumulated deficit	(81,981)		(76,867)
Accumulated other comprehensive loss	(82,913)		(13,040)
Total stockholders’ equity	194,596		412,595
Total liabilities and stockholders’ equity	$	1,008,399	$	1,065,539

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,
	2022		2021		2022		2021




Revenue	$	148,325	$	130,638	$	416,178	$	364,775



Cost of revenue	84,861		73,573		241,896		203,071

Gross profit	63,464		57,065		174,282		161,704
Operating expenses:
Research and development	25,044		16,857		71,735		50,036
Sales and marketing	23,184		21,143		69,663		60,458
General and administrative	16,623		18,127		50,191		49,375
Total operating expenses	64,851		56,127		191,589		159,869

Operating (loss) income	(1,387)		938		(17,307)		1,835





Other (expense) income, net	(338)		(7,567)		2,282		(20,768)

Loss before income taxes	(1,725)		(6,629)		(15,025)		(18,933)
Income tax benefit (provision)	923		(315)		1,161		(255)


Net loss	$	(802)	$	(6,944)	$	(13,864)	$	(19,188)

















Net loss per share, basic and diluted	$	(0.03)	$	(0.28)	$	(0.55)	$	(0.77)



Weighted average number of common shares outstanding, basic and diluted	25,304,057		25,114,762		25,268,216		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,
	2022		2021		2022		2021
Net loss	$	(802)	$	(6,944)	$	(13,864)	$	(19,188)
Other comprehensive loss
Unrealized gain on marketable securities, net of income taxes	458		—		120		—
Foreign currency translation, net of income taxes	(29,702)		(12,512)		(69,993)		(29,682)

Other comprehensive loss	(29,244)		(12,512)		(69,873)		(29,682)
Total comprehensive loss	$	(30,046)	$	(19,456)	$	(83,737)	$	(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, 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



Exercises of vested stock options	3,062	—		—	—			23		—		—		23
Vesting of restricted stock units	12,807	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(3,000)	—		—	—			(229)		—		—		(229)

Foreign currency translation	—	—		—	—			—		(11,468)		—		(11,468)
Unrealized gain/loss on employee benefit pension plan	—	—		—	—			—		169		—		169
Stock-based compensation	—	—		—	—			2,945		—		—		2,945
Net loss	—	—		—	—			—		—		(8,174)		(8,174)

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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, 2021	23,177,988	23		1,965,170	2			502,477		(13,040)		(76,867)		412,595



Exercises of vested stock options	16,095	—		—	—			125		—		—		125
Vesting of restricted stock units	144,977	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(30,029)	—		—	—			(1,751)		—		—		(1,751)

Adjustment to opening retained earnings due to adoption of ASU 2020-06	—	—		—	—			(156,248)		—		8,750		(147,498)
Foreign currency translation	—	—		—	—			—		(10,516)		—		(10,516)

Stock-based compensation	—	—		—	—			5,346		—		—		5,346
Net loss	—	—		—	—			—		—		(6,814)		(6,814)
Balance at March 31, 2022	23,309,031	23		1,965,170	2			349,949		(23,556)		(74,931)		251,487



Exercises of vested stock options	4,287	—		—	—			37		—		—		37
Vesting of restricted stock units	28,351	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(7,005)	—		—	—			(145)		—		—		(145)


Unrealized loss on marketable securities	—	—		—	—			—		(338)		—		(338)
Foreign currency translation	—	—		—	—			—		(29,775)		—		(29,775)

Stock-based compensation	—	—		—	—			4,821		—		—		4,821
Net loss	—	—		—	—			—		—		(6,248)		(6,248)
Balance at June 30, 2022	23,334,664	23		1,965,170	2			354,662		(53,669)		(81,179)		219,839

Vesting of restricted stock units	30,395	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(6,856)	—		—	—			(89)		—		—		(89)

Unrealized gain on marketable securities	—	—		—	—			—		458		—		458
Foreign currency translation	—	—		—	—			—		(29,702)		—		(29,702)

Stock-based compensation	—	—		—	—			4,892		—		—		4,892
Net loss	—	—		—	—			—		—		(802)		(802)
Balance at September 30, 2022	23,358,203	$	23	1,965,170	$	2		$	359,465	$	(82,913)	$	(81,981)	$	194,596

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,
	2022		2021
Cash flows from operating activities
Net loss	$	(13,864)	$	(19,188)

Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	26,866		27,478
Non-cash reduction to the right-of-use asset	5,308		4,251



Amortization of debt discount and issuance costs	2,343		19,475
Stock-based compensation	15,059		11,592

Deferred taxes and other	(5,496)		686


Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(18,311)		(20,610)



Prepaid expenses and other assets	(13,389)		(4,173)
Accounts payable	14,305		7,122
Accrued expenses and other liabilities	17,142		1,590

Operating right-of-use liability	(5,623)		(4,535)



Net cash provided by operating activities	24,340		23,688
Cash flows from investing activities
Purchase of property and equipment	(18,669)		(9,552)
Deposits for construction in progress	(14,545)		(3,000)
Capitalized software development costs	(2,121)		(3,212)

Purchase of land	—		(30,017)
Proceeds from sale of land	—		17,462
Purchase of marketable securities	(178,153)		—
Proceeds from sales and maturities of marketable securities	33,102		—

Proceeds from sales and maturities of other investments	—		40,000




Net cash (used in) provided by investing activities	(180,386)		11,681
Cash flows from financing activities



Payments on finance leases	(162)		(161)






Proceeds from issuance of convertible senior notes	—		250,000
Purchase of Capped Call	—		(25,500)

Payment of debt issuance costs	(553)		(7,544)
Proceeds from exercises of stock options	162		886

Value of equity awards withheld for tax liabilities	(2,047)		(3,720)

Net cash (used in) provided by financing activities	(2,600)		213,961
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(6,341)		291
Net (decrease) increase in cash, cash equivalents, and restricted cash	(164,987)		249,621
Cash, cash equivalents, and restricted cash, beginning of period	332,289		81,437
Cash, cash equivalents, and restricted cash, end of period	$	167,302	$	331,058

Supplemental disclosure of cash flow information
Cash paid for interest	$	1,328	$	674
Cash paid for taxes, net	$	899	$	961
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,322	$	553


Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment, accrued but not paid	$	2,133	$	7,611