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What changed in Bandwidth Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Bandwidth Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+416 added−446 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-28)

Top changes in Bandwidth Inc.'s 2024 10-K

416 paragraphs added · 446 removed · 329 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

70 edited+18 added−9 removed59 unchanged
Biggest changeTo accomplish that mission, we’ve created a unique, service-oriented culture, centered on meaningful work, lifting each other up, and investing 11 Table of Contents in the bodies, minds, and spirits of our Bandmates. For our customers, this means there’s always a smiling, world-class Bandmate on the other end of the line who will go the extra mile for them.
Biggest changeOn G2, a customer review platform, Bandwidth has been a Leader in CPaaS Platforms for 26 consecutive quarters. A unique culture focused on people: At Bandwidth, we are mission first. To accomplish that mission, we’ve created a unique, service-oriented culture, centered on meaningful work, lifting each other up, and investing in the bodies, minds, and spirits of our Bandmates.
In its November 2011 Universal Service Fund/Intercarrier Compensation Transformation Order (the “USF/ICC Transformation Order”) and subsequent related FCC orders, most terminating switched access charges and all reciprocal compensation charges were capped at then-current levels, and were reduced to zero over, as relevant to us, generally a six-year transition period that began July 1, 2012.
In its 2011 Universal Service Fund/Intercarrier Compensation Transformation Order (the “USF/ICC Transformation Order”) and subsequent related FCC orders, most terminating switched access charges and all reciprocal compensation charges were capped at then-current levels, and were reduced to zero over, as relevant to us, generally a six-year transition period that began July 1, 2012.
Every function within The Bandwidth Dashboard has an accompanying API, allowing our customers’ product leaders and developers to integrate Bandwidth’s functionality within their own user interfaces or web applications. • Global number management : Order, provision, and activate local and toll-free phone numbers around the world, in real-time, allowing customers to search and sort by availability, geographic region, city/state, country/area code and many other options. • Programmatically port up to 20,000 numbers simultaneously : Gain control over the confusing carrier landscape and automate number porting across all major carriers.
Every function within The Bandwidth App has an accompanying API, allowing our customers’ product leaders and developers to integrate Bandwidth’s functionality within their own user interfaces or web applications. • Global number management: Order, provision, and activate local and toll-free phone numbers around the world, in real-time, allowing customers to search and sort by availability, geographic region, city/state, country/area code and many other options. • Programmatically port up to 20,000 numbers simultaneously: Gain control over the confusing carrier landscape and automate number porting across all major carriers.
These new regulations address the obligations of communication service providers and software providers, like us, as well as equipment installers, managers and operators of a variety of different types of communications systems, and generally require uniformity in dialing patterns for contacting emergency operators, implementing central notification functionalities.
These regulations address the obligations of communication service providers and software providers, like us, as well as equipment installers, managers and operators of a variety of different types of communications systems, and generally require uniformity in dialing patterns for contacting emergency operators, implementing central notification functionalities.
International As an international company, we are subject to communications laws and regulations in the non-US jurisdictions in which we offer our services. These laws and regulations may concern communications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects.
International Regulation As an international company, we are subject to communications laws and regulations in the non-US jurisdictions in which we offer our services. These laws and regulations may concern communications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects.
Many of the laws and regulations that apply to us and the communications services that we provide through our Communications Cloud and software APIs are still evolving and being tested in courts and could be interpreted or applied in ways that could harm our business.
Many of the laws and regulations that apply to us and the communications services that we provide through our Communications Cloud and software APIs are still evolving and being tested in courts and could ultimately be interpreted or applied in ways that could harm our business.
Among other things, the TRACED Act directs the FCC to conduct a number of different rulemaking proceedings and increases the FCC’s enforcement authority. As a result, the FCC continues to conduct several proceedings to understand and address fraud and abuse in the form of illegal robocalling.
Among other things, the TRACED Act directs the FCC to conduct a number of different rulemaking proceedings and increases the FCC’s enforcement authority. As a result, the FCC continues to conduct proceedings to understand and address fraud and abuse in the form of illegal robocalling.
While we provide a wide range of functionalities, some of the common use cases are: • Automated real-time notification and alerts : Our APIs empower product leaders and enterprise developers with predefined functionalities to send and receive A2P messages, uniquely integrated with their own business processes or tech stacks. • Two-factor authentication : We enable enterprises to verify the identity and maintain security of end users through our software-based, multi-channel verification service that sends unique codes to end users to log in to mobile and web applications. • Group messaging : Product owners utilize our platform to build messaging applications that enable their end-users to share SMS and MMS messages, videos, carry out polls and surveys amongst other uses without leaving the application.
While we provide a wide range of functionalities, some of the common use cases are: • Automated real-time notification and alerts: Our APIs empower product leaders and enterprise developers with predefined functionalities to send and receive A2P messages, uniquely integrated with their own business processes or tech stacks. • Two-factor authentication: We enable enterprises to verify the identity and maintain security of end users through our software-based, multi-channel verification service that sends unique codes to end users to log in to mobile and web applications. 9 Table of Contents • Group messaging: Product owners utilize our platform to build messaging applications that enable their end-users to share SMS and MMS messages, videos, carry out polls and surveys amongst other uses without leaving the application.
There is some ambiguity in the rules as to the specific obligations of each party involved in the service delivery chain and the rules have not yet been interpreted by the FCC or a court.
There is some ambiguity in the rules as to the specific obligations of each party involved in the service delivery chain and the rules have not yet been further interpreted by the FCC or a court.
Federal Telecommunications Regulation The Federal Communications Commission (“FCC”) has jurisdiction over interstate and international communications services in the U.S. We have obtained FCC authorization to provide services on a facilities and resale basis.
Federal Regulation The Federal Communications Commission (“FCC”) has jurisdiction over interstate and international communications services in the U.S. We have obtained FCC authorization to provide services on a facilities and resale basis.
We seek to empower enterprises to create, scale and operate business-critical services across any mobile application or connected device, and this capability reinforces our customer relationships. The majority of our customers sign master service agreements (“MSAs”) containing standard terms and conditions, including billing and payment, default, termination, limitations of liability, confidentiality, assignment and notification, and other key terms and conditions.
We seek to empower enterprises to create, scale and operate mission-critical services across any mobile application or connected device, and this capability reinforces our customer relationships. The majority of our customers sign master service agreements (“MSAs”) containing standard terms and conditions, including billing and payment, default, termination, limitations of liability, confidentiality, assignment and notification, and other key terms and conditions.
Market Offering 3: Global Enterprises Much as the leading platforms in cloud communications have done for years, followed by the messaging leaders in SaaS, now Global 2000 enterprises need to accelerate their digital transformations. Bandwidth can help these large enterprises transition from on-premises communications infrastructure to a fully or hybrid cloud-based solution.
Market Offering 3: Enterprise Voice Much as the leading platforms in cloud communications have done for years, followed by the messaging leaders in SaaS, now Global 2000 enterprises need to accelerate their digital transformations. Bandwidth can help these large enterprises transition from on-premises communications infrastructure to a fully or hybrid cloud-based solution.
See “Risk Factors–Risks Related to Our Business” elsewhere in this Annual Report on Form 10-K for additional information on our intellectual property rights and risks related thereto. Employees As of December 31, 2023, we had approximately 1,100 employees, who are primarily located in the United States, Europe and Asia Pacific.
See “Risk Factors–Risks Related to Our Business” elsewhere in this Annual Report on Form 10-K for additional information on our intellectual property rights and risks related thereto. Employees As of December 31, 2024, we had approximately 1,100 employees, who are primarily located in the United States, Europe and Asia Pacific.
The FCC has imposed regulatory requirements on VoIP providers that previously applied only to traditional telecommunications providers, such as obligations to provide 911 functionality, to contribute to the federal universal service fund, to comply with regulations relating to local number portability, to abide by the FCC’s service discontinuance rules, to contribute to the Telecommunications Relay Services fund and to abide by the regulations concerning Customer Proprietary Network Information (“CPNI”), outage reporting, access for persons with disabilities, the Communications Assistance for Law Enforcement Act and expanded obligations with respect to the transmission of emergency calls.
The FCC has imposed regulatory requirements on VoIP providers that previously applied only to traditional telecommunications providers, such as obligations to provide 911 functionality, to contribute to the federal universal service fund, to comply with regulations relating to local number portability, to abide by the FCC’s service discontinuance rules, to contribute to the Telecommunications Relay Services fund and to abide by the regulations concerning Customer Proprietary Network Information (“CPNI”), outage reporting, access for persons with disabilities, the Communications Assistance for Law Enforcement Act and 15 Table of Contents expanded obligations with respect to the transmission of emergency calls.
Market Offering 1: Global Communications Plans Through our Global Communications Plans market offering, we power all the leaders in UCaaS and CCaaS, as recognized by the research firm Gartner, including Microsoft, Google, Zoom, RingCentral, Genesys, and Five9. We have been co-creating with many of these customers for more than a decade.
Market Offering 1: Global Voice Plans Through our Global Voice Plans market offering, we power all the leaders in UCaaS and CCaaS, as recognized by the research firm Gartner, including Microsoft, Google, Zoom, RingCentral, Genesys, and Five9. We have been co-creating with many of these customers for more than a decade.
In fact, Bandwidth already powers all the 2023 Gartner Ⓡ Magic Quadrant Leaders in the key cloud communications categories of Unified Communications as a Service (“UCaaS”) and Contact Center as a Service (“CCaaS”). Our long-term vision is to continue strengthening this position as the key enabling platform for communications transformation.
In fact, Bandwidth already powers all the 2024 Gartner Ⓡ Magic Quadrant Leaders in the key cloud communications categories of Unified Communications as a Service (“UCaaS”) and Contact Center as a Service (“CCaaS”). Our long-term vision is to continue strengthening this position as the key enabling platform for communications transformation.
Maestro is a key platform for Bandwidth ’ s AI innovation strategy. In 2023, Bandwidth launched AIBridge, a solution for Maestro, which enables enterprises to easily deploy voice-based AI tools in their contact centers to resolve calls faster and more efficiently in the communications cloud.
Maestro is a key platform for Bandwidth ’ s AI innovation strategy. In 2023, Bandwidth launched AIBridge, a solution integrated with Maestro, which enables enterprises to easily deploy voice-based AI tools in their contact centers to resolve calls faster and more efficiently in the communications cloud.
We believe Maestro ’ s open approach, designed to accommodate technologies developed by third parties, is unique in the cloud communications space. It provides a critical technology bridge that enterprises need to orchestrate a modern customer experience stack without months of costly integration work resulting in faster time to value and enhanced customer and employee experiences and loyalty.
We believe Maestro ’ s open approach, designed to accommodate technologies developed by third parties, is unique in the cloud communications space. It provides a critical technology bridge that enterprises need to orchestrate a modern customer experience stack without months of costly integration work, which results in faster time to value and enhanced customer and employee experiences and loyalty.
Use cases include retail and eCommerce promotions, financial services identity authentication, healthcare patient engagement, and many more. Bandwidth offers a full suite of messaging 7 Table of Contents products, including Application to Person (“A2P”) messaging solutions supporting both SMS and MMS on Local Numbers (“10DLC”), Toll Free Numbers, and Short Codes. All our solutions support bi-directional unicode, including emojis.
Use cases include retail and eCommerce promotions, financial services identity authentication, healthcare patient engagement, and many more. Bandwidth offers a full suite of messaging products, including Application to Person (“A2P”) messaging solutions supporting both SMS and MMS on Local Numbers (“10DLC”), Toll Free Numbers, and Short Codes. All our solutions support bi-directional unicode, including emojis.
This helps enterprises meet compliance requirements and enable increasingly remote workforces. • Emergency calling API: Connects apps to the public safety infrastructure without the need for on-premise technology or telephony expertise. • Emergency notification API : Enables a multi-channel notification sent to on-site security personnel when an emergency call takes place within a large enterprise. Phone Numbers.
This helps enterprises meet compliance requirements and enable increasingly remote workforces. • Emergency calling API: One global API that connects apps to the public safety infrastructure without the need for on-premise technology or telephony expertise. • Emergency notification API: Enables a multi-channel notification sent to on-site security personnel when an emergency call takes place within a large enterprise. Phone Numbers.
With the combination of our software APIs, our global Communications Cloud and our broad range of experience with global regulatory frameworks, we believe Bandwidth is one of the best-positioned providers in our space to deliver business-critical communications for global enterprises.
With the combination of our software APIs, our global Communications Cloud and our broad range of experience with global regulatory frameworks, we believe Bandwidth is one of the best-positioned providers in our space to deliver mission-critical communications for global enterprises.
In 2023, we launched Bandwidth Maestro TM ( “ Maestro ” ), a first-of-its-kind, next-generation enterprise cloud communications platform that enables IT customers to solve the key challenge of integrating best-in-class, real-time voice applications across their UCaaS, CCaaS, AI and machine learning platforms.
Bandwidth Maestro TM ( “ Maestro ” ), launched in 2023, is a first-of-its-kind, next-generation enterprise cloud communications platform that enables customers to solve the key challenge of integrating best-in-class, real-time voice applications across their UCaaS, CCaaS, AI and machine learning platforms.
Our easy-to-use APIs and proven track record for deliverability have made Bandwidth a top choice for many leading platforms in text messaging. Our messaging customers are powering digital engagements across many of the major brands of products people wear, eat, drive, and use every day.
Our easy-to-use APIs and proven track record for deliverability have made Bandwidth a top choice for many leading platforms in text messaging. 7 Table of Contents Our messaging customers are powering digital engagements across many of the major brands of products people wear, eat, drive and use every day.
We expect that we should be able to negotiate or otherwise obtain renewals or successor agreements through adoption of 16 Table of Contents others’ contracts or through arbitration proceedings, although the rates, terms and conditions applicable to interconnection and the exchange of traffic with certain ILECs could change significantly in certain cases.
We expect that we should be able to negotiate or otherwise obtain renewals or successor agreements through adoption of others’ contracts or through arbitration proceedings, although the rates, terms and conditions applicable to interconnection and the exchange of traffic with certain ILECs could change significantly in certain cases.
We benefit from long-standing relationships with some of the largest technology companies, well-recognized enterprise customers, and innovative SaaS platforms. Many of our customers have multi-year contracts, with no single customer representing 10% of total revenue for the year ended December 31, 2023. Our management is highly focused on creating and maintaining strategic partnerships beyond standard transactional customer relationships.
We benefit from long-standing relationships with some of the largest technology companies, well-recognized enterprise customers, and innovative SaaS platforms. Many of our customers have multi-year contracts, with no single customer representing 10% or more of total revenue for the year ended December 31, 2024. Our management is highly focused on creating and maintaining strategic partnerships beyond standard transactional customer relationships.
We describe 14 Table of Contents below certain material components of the telecommunications regulatory framework in which we operate. See “Risk Factors–Risks Related to Our Business” elsewhere in this Annual Report on Form 10-K for additional information on the regulatory framework in which we operate and risks related thereto.
We describe below certain material components of the telecommunications regulatory framework in which we operate. See “Risk Factors–Risks Related to Our Business” elsewhere in this Annual Report on Form 10-K for additional information on the regulatory framework in which we operate and risks related thereto.
Sales and Marketing Our sales and marketing teams are part of a single revenue organization and work closely together to identify and acquire new customers, expand relationships with existing enterprises, and integrate them with the 12 Table of Contents Bandwidth Communications Cloud.
Sales and Marketing Our sales and marketing teams are part of a single revenue organization and work closely together to identify and acquire new customers, expand relationships with existing enterprises, and integrate them with the Bandwidth Communications Cloud.
Any change in the assessment methodology may affect our revenue and expenses, but at this time it is not possible to predict the extent we would be affected. 15 Table of Contents Intercarrier Compensation. Telecommunications carriers compensate one another for traffic carried on each other’s networks.
Any change in the assessment methodology may affect our revenue and expenses, but at this time it is not possible to predict the extent we would be affected. Intercarrier Compensation. Telecommunications carriers compensate one another for traffic carried on each other’s networks.
The 17 Table of Contents information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.
The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.
We can instantly connect numbers, devices or applications to emergency services with reliable and accurate emergency routing. 9 Table of Contents • Dynamic location routing : Enables real-time, geocoded routing based on X,Y coordinates of the caller and defined Public Safety Answering Point boundaries.
We can instantly connect numbers, devices or applications to emergency services with reliable and accurate emergency routing. • Dynamic location routing: Enables real-time, geocoded routing based on X,Y coordinates of the caller and defined Public Safety Answering Point (“PSAPS”) boundaries.
With these three market offerings, we aim for Bandwidth to be a “one stop shop” and critical enabler for global enterprises, SaaS platforms, and cloud communications platforms. We believe the combined power of our software platform and global Communications Cloud helps our customers to future-proof their strategy for the integrations of today, and new services to come.
With these three market offerings, we aim for Bandwidth to be a strategic partner and critical enabler for global enterprises, SaaS platforms, and cloud communications platforms. We believe the combined power of our software platform and global Communications Cloud helps our customers to future-proof their strategy for the integrations of today, and new services to come.
Customers order specific services in separate service order forms that incorporate the applicable MSA. Each service order form details the minimum contract duration, any applicable monthly recurring charge and applicable non-recurring charges. The terms and conditions for each order are also specified in the applicable service order form.
Customers order specific services in separate service order forms that incorporate the applicable MSA. Each service order form details the minimum contract duration, any 12 Table of Contents applicable monthly recurring charge and applicable non-recurring charges. The terms and conditions for each order are also specified in the applicable service order form.
The Bandwidth Communications Cloud We believe one of our key competitive differentiators is the Bandwidth Communications Cloud. It provides a communications developer platform on top of an all-IP, owned-and-operated network with global reach. We believe we provide reliability, scalability, and usage-based control for global business-critical communications.
The Bandwidth Communications Cloud We believe one of our key competitive differentiators is the Bandwidth Communications Cloud. It provides a communications developer platform on top of an all-IP, owned-and-operated network with global reach. We believe the benefits to our customers include reliability, scalability, and usage-based control for global business-critical communications.
The Bandwidth Dashboard is Bandwidth’s user-friendly interface for a comprehensive number management solution.
The Bandwidth App is Bandwidth’s user-friendly interface for a comprehensive number management solution.
Separately, the FCC, FTC and state attorneys general work to thwart illegal robocalling through various methods, including enforcing compliance with the Telephone Consumer Protection Act of 1991 (the “TCPA”), which restricts telemarketing calls and the use of automatic text messages without the recipient’s proper consent, the Telemarketing Sales Rule (the “TSR”), and other federal and state laws.
Separately, the FCC, FTC and state attorneys general work to thwart illegal robocalling through various methods, including imposing hefty fines on non-compliant entities and enforcing compliance with the Telephone Consumer Protection Act of 1991 (the “TCPA”), which restricts telemarketing calls and the use of automatic text messages without the recipient’s proper consent, the Telemarketing Sales Rule (the “TSR”), and other federal and state laws.
As of December 31, 2023, we had 33 U.S. patents and three U.S. patent applications pending. In addition, as of December 31, 2023, we had 18 registered trademarks and 34 trademark applications pending in the United States and elsewhere.
As of December 31, 2024, we had 34 U.S. patents and six U.S. patent applications pending. In addition, as of December 31, 2024, we had 18 registered trademarks and three trademark applications pending in the United States and elsewhere.
On December 17, 2019, t he FCC issued an order that concludes that local exchange carriers (“LECs”) may assess end office switched access charges only if the LEC or its VoIP partner provides a physical connection to the last-mile facilities used to serve an end user.
In 2019, the FCC issued an order that concludes that local exchange carriers (“LECs”) may assess end office switched access charges only if the LEC or its VoIP partner provides a physical connection to the last-mile facilities used to serve an end user.
Under the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (the “1996 Act”), any entity, including cable television companies and electric and gas utilities, may enter any telecommunications market, subject to reasonable state regulation of safety, quality and consumer protection. The industry continues to evolve toward new services built upon IP technologies.
Under the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (the “1996 Act”), any entity may enter any telecommunications market, subject to reasonable state regulation of safety, quality and consumer protection. The industry continues to evolve toward new services built upon IP technologies.
Market Offering 2: Programmable Services Our Programmable Services market offering is aimed at B2B2C platforms that use Bandwidth to deliver digital engagement experiences, primarily through our text messaging solutions. With a significantly higher open rate by end users than email, text messaging has become a business-critical communication channel to reach consumers.
Market Offering 2: Programmable Messaging Our Programmable Messaging market offering is aimed at large messaging customers that use Bandwidth to deliver digital engagement experiences, primarily through our text messaging solutions. With a significantly higher open rate by end users than email, text messaging has become a key channel to reach consumers.
As each of these customer categories uses services on the Bandwidth Communications Cloud in its own unique way, we have designed three key market offerings to power digital communications transformation: 6 Table of Contents • Market Offering 1: Global Communications Plans.
As each of these customer categories uses services on the Bandwidth Communications Cloud in its own unique way, we have designed three key market offerings to power digital communications transformation: 6 Table of Contents • Market Offering 1: Global Voice Plans. This category serves the leading power platforms at the forefront of the communications transformation in UCaaS and CCaaS.
Automation and Workflow The Bandwidth Communication Cloud’s command over our own numbering resources enables real-time porting, provisioning and number ordering en masse, and includes: • coverage in more than 65 countries, serving over 90 percent of global GDP; • network platform paired with peering relationships with major global networks ensure our customers are never more than one hop away from the public switched telephone network (“PSTN”); 8 Table of Contents • 5x resilient U.S. toll-free network, with interconnections to four toll-free networks in addition to our own, designed for best-in-class resiliency from a single provider; • public safety connectivity purpose-built for today’s dynamic, increasingly remote workforce, interconnected with emergency calling networks worldwide; • A2P messaging designed to support best-in-class deliverability and insight; and • a broad range of experience with global regulatory frameworks earned through offering communications services in more than 60 countries and territories.
Automation and Workflow The Bandwidth Communication Cloud’s command over our own numbering resources enables real-time porting, provisioning and number ordering en masse, and includes: • coverage in more than 65 countries, serving over 90 percent of global GDP; 8 Table of Contents • network platform paired with peering relationships with major global networks ensure our customers are never more than one hop away from the public switched telephone network (“PSTN”); • 5x resilient U.S. toll-free network, with interconnections to four toll-free networks in addition to our own, designed for best-in-class resiliency from a single provider; • public safety connectivity purpose-built for today’s dynamic, increasingly remote workforce, interconnected with emergency calling networks worldwide; • A2P messaging designed to support best-in-class deliverability and insight; • a broad range of experience with global regulatory frameworks earned through offering communications services in more than 60 countries and territories; • modernized connections with incumbents and partners in Europe by migrating to an end-to-end all-IP architecture delivering increased consistency and reliability; and • Bandwidth-patented anomaly detection models that proactively generate alerts directly into our Network Operations Center for immediate triage, across both voice and messaging.
A portion of our traffic may be classified as intrastate telecommunications and therefore subject to state regulation. We are authorized to provide competitive local exchange telecommunications services in 49 states and the District of Columbia, and thus are subject to these additional regulatory regimes. Changes in applicable state regulations could affect our business.
We are authorized to provide competitive local exchange telecommunications services in 49 states and the District of Columbia, and thus are subject to these additional regulatory regimes. Changes in applicable state regulations could affect our business.
Our competitors fall into two primary categories: • CPaaS companies that offer a narrower set of software APIs, more limited global reach, less robust customer support and fewer other features while relying on third-party networks and physical infrastructure; and • Incumbent network operators that offer limited geographical reach and limited developer functionality on top of their networks and physical infrastructure, such as AT&T, Colt, Lumen and Verizon.
Our competitors fall into two primary categories: • CPaaS companies that may offer a broader set of software APIs and services, but may have more limited global reach, less robust customer support or fewer other features while relying on third-party networks and physical infrastructure; and • Incumbent network operators that offer limited geographical reach and limited developer functionality on top of their networks and physical infrastructure.
We often hear from our customers that Bandwidth just cares more. For our employees, this means we make a “whole person promise” to offer meaningful work and programs that ensure Bandmates can find the work/life balance necessary to enjoy a healthy and fulfilling life. Our culture is focused on helping each other succeed in our mission.
For our employees, this means we make a “whole person promise” to offer meaningful work and programs that ensure Bandmates can find the work/life balance necessary to enjoy a healthy and fulfilling life. Our culture is focused on helping each other succeed in our mission. Making work-life balance possible is not just something to feel good about.
We believe that the control we have over our Communications Cloud gives us distinct competitive advantages that include: enabling our customers to deploy cloud-native services, consistent high quality, in-depth enterprise support, real-time traffic visibility and economies of scale. CPaaS based emergency calling capabilities : We believe we are one of the only CPaaS providers with full stack emergency service capabilities.
We believe that the control we have over our Communications Cloud gives us distinct competitive advantages that include: enabling our customers to deploy cloud-native services, consistent high quality, in-depth enterprise support, real-time traffic visibility and economies of scale.
Bandwidth’s new Maestro TM platform (described below) is designed to accelerate these customers’ transitions from on-premises equipment to a hybrid or fully cloud-based solution utilizing integrations with leading UCaaS, CCaaS, voice authentication, conversational AI, and other platforms.
Bandwidth’s Maestro TM platform (described below) is designed to accelerate these customers’ transitions from on-premises equipment to a hybrid or fully cloud-based solution utilizing integrations with leading UCaaS, CCaaS, voice authentication, conversational AI, and other platforms. Bandwidth’s platform architecture provides flexibility, resiliency, and simplicity for enterprises who are modernizing their communications stacks.
We believe that the principal competitive factors in our market are: • platform scalability, reliability, deliverability, security and performance; • network control and quality; • global reach; • completeness of offering; • ease of integration and programmability; • product features; • customer support; • ability to deliver measurable value and savings; • the cost of deploying and using our service offerings; • the strength of sales and marketing efforts; • brand awareness and reputation; and • credibility with product executives and developers. 13 Table of Contents We believe that we compete favorably based on the factors listed above and believe that none of our competitors currently competes directly with us across the combination of our global scale, all-IP Communications Cloud, enterprise-grade APIs, and broad regulatory experience gained through our service offerings.
We believe that the principal competitive factors in our market are: • platform scalability, reliability, deliverability, security and performance; • network control and quality; • global reach; • completeness of offering; • ease of integration and programmability; • product features; • customer support; • ability to deliver measurable value and savings; • the cost of deploying and using our service offerings; 13 Table of Contents • the strength of sales and marketing efforts; • brand awareness and reputation; and • credibility with product executives and developers.
Second, our API-first approach facilitates the embedding of automation, enterprise-grade tooling, and simple UX/UI throughout the Bandwidth Communications Cloud. Third, we have a broad range of experience with global regulatory frameworks informed by our communications services offerings. We believe customers view Bandwidth as a trusted resource, helping them navigate constant change in the global regulatory landscape.
Third, we have a broad range of experience with global regulatory frameworks informed by our communications services offerings. We believe customers view Bandwidth as a trusted resource, helping them navigate constant change in the global regulatory landscape.
We now have a dedicated go-to-market focus on enterprises in the Global 2000. By partnering with Bandwidth, global enterprises can reduce complexity, gain greater control, centralize communication resources and operational workloads, and better prepare for future scale.
By partnering with Bandwidth, global enterprises can reduce complexity, gain greater control, centralize communication resources and operational workloads, and better prepare for future scale.
The Code sets forth the European regulatory framework and harmonized rules across the EU and EEA, which govern the provision of electronic communications networks and services. While the Code provides a harmonized framework, laws of each jurisdiction of the EU and the EEA, and related regulations, will differ from country to country.
The Code sets forth the European regulatory framework and harmonized rules across the EU and EEA, which govern the provision of electronic communications networks and services.
With respect to local services, incumbent local exchange carriers (“ILECs”) such as AT&T are required to allow interconnection to their incumbent networks and to provide access to network facilities, as well as several other pro-competitive measures. State regulatory agencies have jurisdiction when our facilities and services are used to provide intrastate telecommunications services.
State Regulation The 1996 Act was intended to increase competition in the telecommunications industry, especially in the local market. With respect to local services, incumbent local exchange carriers (“ILECs”) such as AT&T are required to allow interconnection to their incumbent networks and to provide access to network facilities, as well as several other pro-competitive measures.
Our relationship with each of the enterprises we serve often spans product suites, divisions and use cases over time. Based on surveys conducted after customer interactions in 2022, our customers have expressed a 97% satisfaction rate. A unique culture focused on people: At Bandwidth, we are mission first.
A number of our largest enterprise customers have been on our platform for more than ten years. Our relationship with each of the enterprises we serve often spans product suites, divisions and use cases over time. Based on surveys conducted after customer interactions in 2024, our customers have expressed a greater than 97% satisfaction rate.
Growing relationships with low customer churn : We address the complex needs of the customers we serve, and as a result, these enterprises have continued to innovate and grow with our platform over many years. A number of our largest enterprise customers have been on our platform for more than ten years.
We seek to bring this body of experience and knowledge to all our customer engagements. 11 Table of Contents Growing relationships with low customer churn: We address the complex needs of the customers we serve, and as a result, these enterprises have continued to innovate and grow with our platform over many years.
The real masterpiece is in the music we make together with the strength and ingenuity to lift up all those we serve. Our Your Music Matters program builds outreach programs and initiatives to fill our recruiting funnel with diverse candidates who possess the “Bandwidth Edge”—smart, common sense, hardworking, honest, competitive energy and emotional intelligence.
Our Your Music Matters program builds outreach programs and initiatives to fill our recruiting funnel with candidates from a variety of backgrounds who possess the “Bandwidth Edge”—smart, common sense, hardworking, honest, competitive energy and emotional intelligence.
Bring your own carrier ( “ BYOC ” ) with CCaaS and UCaaS Integrations. Bandwidth’s global Communications Cloud integrates with several leading UCaaS and CCaaS platforms under our BYOC solutions portfolio, to provide a holistic solution that’s seamlessly aligned with the organization, and allows enterprises to move communications to the cloud at their own pace.
Bandwidth offers the largest ecosystem of BYOC of any provider by integrating with several leading UCaaS, CCaaS, conversational AI and speech-to-text/text-to-speech platforms under our BYOC solutions portfolio, to provide a holistic solution that’s seamlessly aligned with the organization, and allows enterprises to move communications to the cloud at their own pace.
For example, rules around suballocation of numbering resources differ from country to country. The E-Privacy Directive seeks to ensure privacy and confidentiality in the processing of personal data in electronic communications. The E-Privacy Directive requires providers of publicly available electronic communications services to take appropriate technical and organizational measures to safeguard the security of services.
These laws impact our business and that of our customers. Specifically, the ePrivacy Directive seeks to ensure privacy and confidentiality in the processing of personal data in electronic communications. The E-Privacy Directive requires providers of publicly available electronic communications services to take appropriate technical and organizational measures to safeguard the security of services.
If neither the LEC nor its VoIP partner provides such a physical connection, the LEC may not assess end office switched access charges because it is not providing the functional equivalent of end office switched access. The FCC also decided to give its order retroactive effect.
If neither the LEC nor its VoIP partner provides such a physical connection, the LEC may not assess end office switched access charges because it is not providing the functional equivalent of end office switched access. In 2020, the FCC adopted new rules governing various aspects of the intercarrier compensation structure applicable to toll free (8YY) calls.
Once numbers are in the Bandwidth Communications Cloud, they can be moved from platform to platform without leaving Bandwidth, decreasing cloud migration risk and complexity. • UCaaS integration for Microsoft Teams: We have BYOC partnerships with leading CCaaS platforms. We also have a BYOC offering in the UCaaS space, including for Microsoft Teams.
Once numbers are in the Bandwidth Communications Cloud, they can be moved from platform to platform without leaving Bandwidth, decreasing cloud migration risk and complexity.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
None of our employees are represented by a labor union or covered by a collective bargaining agreement.
This comprises our text messaging solutions, through which we support innovative SaaS platforms with use cases like retail and eCommerce promotions, financial services identity authentication, and healthcare patient engagement, through a business-to-business-to-consumer (“B2B2C”) delivery model. Programmable Services customers come to our Bandwidth Communications Cloud because we offer high capacity, volume and deliverability.
We enable these customers to rapidly automate voice, global number management, emergency services, and many other services on a scalable, global basis. • Market Offering 2: Programmable Messaging. This comprises our text messaging solutions, through which we support innovative SaaS platforms with use cases like retail and eCommerce promotions, financial services identity authentication, and healthcare patient engagement.
Competitive Strengths We believe three things give Bandwidth a competitive advantage. First, we have an all-IP platform with global reach. The Bandwidth Communications Cloud provides the connectivity, APIs, security, privacy, workflows, and tools to give enterprises of all sizes a simple, scalable way to consume our services.
The Bandwidth Communications Cloud provides the connectivity, APIs, security, privacy, workflows, and tools to give enterprises of all sizes a simple, scalable way to consume our services. Second, our API-first approach facilitates the embedding of automation, enterprise-grade tooling, and simple UX/UI throughout the Bandwidth Communications Cloud.
W e regularly interact with local regulators in more than 30 countries, and we currently power all the 2023 Gartner Magic Quadrant Leaders in UCaaS and CCaaS. We seek to bring this body of experience and knowledge to all our customer engagements.
Experience & expertise: Our senior leadership team consists of both new and long-tenured leaders – each an expert with deep and proven experience in the telecommunications and SaaS space. W e regularly interact with local regulators in more than 30 countries, and we currently power all the 2024 Gartner Magic Quadrant Leaders in UCaaS and CCaaS.
At Bandwidth, we say, “Your music matters to the BAND.” We celebrate differences and encourage our team members to be their authentic selves. No matter what music a team member makes, we support each team members’ unique gifts and needs with our programs that deliver on our Whole Person Promise.
No matter what music a team member makes, we support each team members’ unique gifts and needs with our programs that deliver on our Whole Person Promise. The real masterpiece is in the music we make together with the strength and ingenuity to lift up all those we serve.
Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K.
Our principal executive offices are located at 2230 Bandmate Way, Raleigh, NC 27607, and our telephone number is (800) 808-5150. Our website address is www.bandwidth.com. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K.
The new 8YY originating access rules took effect on December 28, 2020. The new rules are generally intended to shift most switched access charges for 8YY calls to a bill-and-keep framework over a three-year period. Emergency Services.
These rules are generally intended to shift most switched access charges for 8YY calls to a bill-and-keep framework. Emergency Services. Pursuant to Federal legislation called Ray Baum’s Act and Kari’s Law, the FCC adopted new emergency calling regulations in 2020.
In many countries, it is a legal obligation to ensure on-premise access to local emergency services. Our customers can meet compliance commitments using a single provider in multiple markets where they do business—across North America, Europe and Asia-Pacific.
Our customers can meet compliance commitments using a single provider in multiple markets where they do business—across North America, Europe and Asia-Pacific. Moreover, our dynamic geospatial routing capability can route emergency calls over our E911 network based on a real-time location of the caller to produce industry-leading results.
Regulatory General We and the communications services that we provide through our Communications Cloud and software APIs are subject to many U.S. federal and state, and foreign, laws and regulations. These laws and regulations govern telecommunications activities, but also govern privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects.
These laws and regulations govern telecommunications activities, but also govern privacy, data protection, cybersecurity, AI, intellectual property, competition, consumer protection, taxation or other subjects.
We believe this category represents a significant opportunity for future growth due to our ability to scale with customer demand. • Market Offering 3: Global Enterprises. This category is a business-to-business channel, where Global 2000 enterprises engage directly with us to leverage our services in their digital transformation.
We believe this category represents a significant opportunity for future growth due to our ability to scale with customer demand, and innovative products and features such as the emergence of Rich Communication Services (“RCS”) in the U.S. market. • Market Offering 3: Enterprise Voice.
With these technological advances, there have been challenges to the traditional regulatory structure under the 1996 Act. Among the challenges are fraud and abuse in the form of illegal robocalling and unwanted text messaging. In December 2019, Congress adopted the Telephone Robocall Abuse Criminal Enforcement and Deterrence (“TRACED”) Act.
We cannot predict the outcome of these proceedings or legislative initiatives or the effects, if any, that these proceedings or legislative initiatives may have on our business and operations. Anti-Fraud and Abuse Regulation. Among the challenges are fraud and abuse in the form of illegal robocalling and unwanted text messaging. In December 2019, Congress adopted the TRACED Act.
Making work-life balance possible is not just something to feel good about. It drives real results. Our Bandmate engagement and satisfaction scores are consistently ranked higher than our peers.
It drives real results. Our Bandmate engagement and satisfaction scores are consistently ranked higher than our peers. At Bandwidth, we say, “Your music matters to the BAND.” We celebrate differences and encourage our team members to be their authentic selves.
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This serves the leading power platforms at the forefront of the communications transformation in UCaaS and CCaaS, through a business-to-business-to-business (“B2B2B”) delivery model. We enable these customers to rapidly automate voice, global number management, emergency services, and many other services on a scalable, global basis. • Market Offering 2: Programmable Services.
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Programmable Messaging customers come to our Bandwidth Communications Cloud because we offer high capacity, volume and deliverability.
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This includes: • Direct routing and dynamic E911: Consolidate telephony globally with direct access to the Bandwidth Communications Cloud, and solve for an increasingly dynamic workforce with dynamic location routing for E911 — all from a single, certified provider. • Microsoft Teams Operator Connect: Integrate Bandwidth’s telephony in more than 30 countries through the Microsoft Teams Operator Connect program, enabling the move away from on-premise equipment to cloud-hosted session border controllers and seamless management in the Teams admin portal. 10 Table of Contents • Send-to SMS web application: Allows enterprises the ability to send text messages in and outside of the organization from within a user’s Teams environment using the same phone number they use for phone calls, built to work seamlessly with a direct routing or BYOC strategy.
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In this category, Global 2000 enterprises engage directly with us to leverage our voice, global number management, emergency services and other services in their digital transformation.
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Moreover, our dynamic geospatial routing capability can route emergency calls over our E911 network based on a real-time location of the caller to produce industry-leading results. Experience & expertise : Our senior leadership team consists of both new and long-tenured leaders – each an expert with deep and proven experience in the telecommunications and SaaS space.
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Bring your own carrier ( “ BYOC ” ) Integrations.
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While we are exceptionally proud of the team we have assembled, we also acknowledge that there is important work for us to do to continue developing a more diverse and inclusive team. We believe diverse and inclusive teams are more innovative and make better business decisions.
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This includes: • UCaaS integrations: We have BYOC partnerships with leading UCaaS platforms, including Microsoft Teams Direct Routing and Operator Connect, Zoom Phone Provider Exchange, Webex Calling by Cisco and Google Voice for Google Workspace. 10 Table of Contents • CCaaS Integrations: We have BYOC partnerships with leading CCaaS platforms, including Five9, Genesys, Webex Contact Center by Cisco and Zoom Contact Center. • Conversational AI Integrations: We have BYOC partnerships with leading conversational AI platforms, including Cognigy and Google Cloud’s Dialogflow. • Speech-to-Text/Text-to-Speech: Our BYOC partnership with Pindrop enables enterprises to utilize Pindrop’s voice bio-authentication and anti-fraud services.
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We cannot predict the impact on our business, including whether other carriers will agree with our legal interpretations and treatments, at this time. In a Report and Order released on October 9, 2020, the FCC adopted new rules governing various aspects of the intercarrier compensation structure applicable to toll free (8YY) calls (“8YY Originating Access Reform Order”) .
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Our partnership with Amazon Web Services STT/TTS provides access to AWS’s speech-to-text and text-to-speech solutions to enable virtual agents with Bandwidth AIBridge. Competitive Strengths We believe three elements give Bandwidth a competitive advantage. First, we have an all-IP platform with global reach.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFrom time to time, we have received customer complaints about our services, including with respect to pricing, customer support, and disruption to, or outage of, our services. If we do not handle customer complaints effectively, then our brand and reputation may suffer, our customers may lose confidence in us and they may reduce or cease their use of our services.
Biggest changeIf we do not handle customer complaints effectively, then our brand and reputation may suffer, our customers may lose confidence in us and they may reduce or cease their use of our services. In addition, social media has become a widespread method by which consumers communicate about products and services they purchase, including our services and communications platform.
We offer our customers the ability to integrate certain AI technologies developed by third parties into certain of our offerings, and this integration capability is a prominent feature of our Maestro offering. Certain other features of our products are also supported by third-party AI technologies.
We also offer our customers the ability to integrate certain AI technologies developed by third parties into certain of our offerings, and this integration capability is a prominent feature of our Maestro offering. Certain other features of our products are also supported by third-party AI technologies.
Similar providers of IP telephony services, our 911 and other emergency services are different from those associated with traditional local telecommunications services. These differences may lead to an inability to make and complete calls that would not occur for users of traditional telephony services.
Similar to providers of IP telephony services, our 911 and other emergency services are different from those associated with traditional local telecommunications services. These differences may lead to an inability to make and complete calls that would not occur for users of traditional telephony services.
The integration of any acquired businesses involves a number of risks, including, but not limited to: • demands on management related to any significant increase in size after the acquisition; • the disruption of ongoing business and the diversion of management’s attention from the management of daily operations to management of integration activities; • failure to fully achieve expected synergies and costs savings; • unanticipated impediments in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards, controls, including internal control over financial reporting required by the Sarbanes-Oxley Act, procedures and policies; • difficulty establishing and maintaining appropriate governance, reporting relationships, policies, controls, and procedures for the acquired business, particularly if it is based in a country or region where we did not previously operate; • new or more stringent regulatory compliance obligations and costs by virtue of the acquisition, including risks related to international acquisitions that may operate in new jurisdictions or geographic areas where we may have no or limited experience; • loss of customers or the failure of customers to order incremental services that we expect them to order; • difficulty and delays in integrating the products, technology platforms, operations, systems, and personnel of the acquired business with our own, particularly if the acquired business is outside of our core competencies and current geographic markets; • failure to provision services that are ordered by customers during the integration period; • higher integration costs than anticipated; • difficulties in the assimilation and retention of highly qualified, experienced employees, many of whom may be geographically dispersed; • litigation, investigations, proceedings, fines, or penalties arising from or relating to the transaction or the acquired business, and any resulting liabilities may exceed our forecasts; • acquisition of businesses with different revenue models, different contractual relationships, and increased customer concentration risks; 47 Table of Contents • assumption of long-term contractual obligations, commitments, or liabilities (for example, the costs associated with leased facilities), which could adversely impact our efforts to achieve and maintain profitability and impair our cash flow; • failure to successfully evaluate or utilize the acquired business’ technology and accurately forecast the financial impact of an acquisition, including accounting charges; and • drag on our overall revenue growth rate or an increase of our net loss, which could cause analysts and investors to reduce their valuation of our company.
The integration of any acquired businesses involves a number of risks, including, but not limited to: • demands on management related to any significant increase in size after the acquisition; • the disruption of ongoing business and the diversion of management’s attention from the management of daily operations to management of integration activities; • failure to fully achieve expected synergies and costs savings; • unanticipated impediments in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards, controls, including internal control over financial reporting required by the Sarbanes-Oxley Act, procedures and policies; • difficulty establishing and maintaining appropriate governance, reporting relationships, policies, controls, and procedures for the acquired business, particularly if it is based in a country or region where we did not previously operate; • new or more stringent regulatory compliance obligations and costs by virtue of the acquisition, including risks related to international acquisitions that may operate in new jurisdictions or geographic areas where we may have no or limited experience; • loss of customers or the failure of customers to order incremental services that we expect them to order; • difficulty and delays in integrating the products, technology platforms, operations, systems, and personnel of the acquired business with our own, particularly if the acquired business is outside of our core competencies and current geographic markets; • failure to provision services that are ordered by customers during the integration period; • higher integration costs than anticipated; 47 Table of Contents • difficulties in the assimilation and retention of highly qualified, experienced employees, many of whom may be geographically dispersed; • litigation, investigations, proceedings, fines, or penalties arising from or relating to the transaction or the acquired business, and any resulting liabilities may exceed our forecasts; • acquisition of businesses with different revenue models, different contractual relationships, and increased customer concentration risks; • assumption of long-term contractual obligations, commitments, or liabilities (for example, the costs associated with leased facilities), which could adversely impact our efforts to achieve and maintain profitability and impair our cash flow; • failure to successfully evaluate or utilize the acquired business’ technology and accurately forecast the financial impact of an acquisition, including accounting charges; and • drag on our overall revenue growth rate or an increase of our net loss, which could cause analysts and investors to reduce their valuation of our company.
The Capped Calls are expected generally to reduce the potential dilution upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in 49 Table of Contents excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap.
The Capped Calls are expected generally to reduce the potential 49 Table of Contents dilution upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap.
Bribery Act 2010; • international trade policies, tariffs and other non-tariff barriers, such as quotas; • more limited protection for intellectual property rights in some countries; • adverse consequences relating to the complexity of operating in multiple international jurisdictions with differing tax frameworks; • fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk; • currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars; • restrictions on the transfer of funds; • deterioration of political relations between the United States and other countries; • public health epidemics, such as COVID-19, or natural disasters, which could have an adverse impact on our employees, contractors, customers, partners, travel and the global economy; and • political or social unrest, acts of war or economic instability in a specific country or region in which we operate, which could have an adverse impact on our operations in that location.
Bribery Act 2010; • international trade policies, tariffs and other non-tariff barriers, such as quotas; • more limited protection for intellectual property rights in some countries; • adverse consequences relating to the complexity of operating in multiple international jurisdictions with differing tax frameworks; • fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk; • currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars; • restrictions on the transfer of funds from or between international jurisdictions; • deterioration of political relations between the United States and other countries; • public health epidemics, such as COVID-19, or natural disasters, which could have an adverse impact on our employees, contractors, customers, partners, travel and the global economy; and • political or social unrest, acts of war or economic instability in a specific country or region in which we operate, which could have an adverse impact on our operations in that location.
If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by taking mandatory actions such as obtaining proper customer consent, we could become subject to lawsuits, fines, civil penalties, potentially significant statutory damages, consent decrees, injunctions, adverse publicity, loss of user confidence in our services, loss of users and other adverse consequences, which could materially harm our business.
If we do not comply with these laws or regulations, or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by taking mandatory actions such as obtaining proper customer consent, we could become subject to costly lawsuits, fines, civil penalties, potentially significant statutory damages, consent decrees, injunctions, adverse publicity, loss of user confidence in our services, loss of users and other adverse consequences, which could materially harm our business.
Attacks on or breaches of our networks or systems, or those of third parties upon which we rely, could degrade our ability to conduct our business, compromise the integrity of our services and our communications platform, result in service degradation or outages, significant data losses, the theft of our intellectual property, investigations by government agencies and damage to our reputation, and could expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.
Attacks on or breaches of our networks or systems, or those of third parties upon which we rely, could degrade our ability to conduct our business, compromise the integrity of our services and our communications platform, result in service degradation or outages, significant data losses, the theft of our intellectual property, investigations and fines by government agencies and damage to our reputation, and could expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.
Changes in the economy, increased competition from other providers, cyber incidents such as the DDoS attack we experienced in late 2021, or issues with the quality of service we deliver can impact our customer churn rate. We cannot predict future pricing by our competitors, but we anticipate that price competition will continue.
Changes in the economy, increased competition from other providers, cyber incidents such as the DDoS attack we experienced in late 2021, customer service preferences, or issues with the quality of service we deliver can impact our customer churn rate. We cannot predict future pricing by our competitors, but we anticipate that price competition will continue.
In other cases, some countries may limit the transfer of personal data or require that that personal data regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit the processing of personal data to within individual countries could increase our operating costs significantly.
In other cases, some countries may limit the transfer of personal data or require that that personal data regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit, within an individual country, the processing of personal data could increase our operating costs significantly.
Enhancements and new services that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may have interoperability difficulties with our communications platform, network or other services, or may not achieve the broad market acceptance necessary to generate significant revenue.
Enhancements and new services or features that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may have interoperability difficulties with our communications platform, network or other services, or may not achieve the broad market acceptance necessary to generate significant revenue.
As we continue to expand geographically and otherwise, we may experience difficulties in maintaining our corporate culture, operational infrastructure and management, and our business, results of operations and financial condition could be adversely affected. We have experienced substantial expansion in our business, including internationally through our acquisition of Voxbone in late 2020.
As we continue to expand our services geographically and otherwise, we may experience difficulties in maintaining our corporate culture, operational infrastructure and management, and our business, results of operations and financial condition could be adversely affected. We have experienced substantial expansion in our business, including internationally through our acquisition of Voxbone in late 2020.
If we are unable to successfully enhance our existing services to meet evolving customer requirements, increase adoption and usage of our services or develop new services, or if our efforts to increase the usage of our services are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected.
If we are unable to successfully enhance our existing services to meet evolving customer requirements, increase adoption and usage of our services or develop new services or features, or if our efforts to increase the usage of our services are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected.
And while we do not offer any services in Ukraine, we continue to monitor the situation in that country and globally, and assess the military conflict’s potential impact on our business. Some of our revenue is concentrated in a limited number of customers. A significant portion of our revenue is concentrated among a limited number of customers.
And while we do not offer any services in Ukraine, we continue to monitor the situation in that country and globally, and assess the military conflict’s potential impact on our business. A significant portion of our revenue is concentrated in a limited number of customers. A significant portion of our revenue is concentrated among a limited number of customers.
Our Class A common stock has one vote per share, and our Class B common stock has ten votes per share. Substantially all of our Class B common stock continues to be held by our current Chairman and CEO, David Morken, and our co-Founder Henry Kaestner.
Our Class A common stock has one vote per share, and our Class B common stock has ten votes per share. Substantially all of our Class B common stock continues to be held by our co-Founder, Chairman and CEO, David Morken, and our co-Founder Henry Kaestner.
In addition, we face risks in doing business internationally that could adversely affect our business, including: 25 Table of Contents • exposure to international political developments that may cause instability for businesses and volatility in global financial markets and the value of foreign currencies, any of which could disrupt trade and the sale of our services in international markets; • difficulties in managing and staffing international operations, including difficulties related to the increased operations, travel, infrastructure, employee attrition and legal compliance costs associated with numerous international locations; • our ability to effectively price our products in competitive international markets; • new and different sources of competition; • costs associated with network service providers outside of the United States; • the need to adapt and localize our products for specific countries; • challenges in understanding and complying with local laws, regulations and customs in multiple foreign jurisdictions, particularly in the areas of telecommunications and data privacy and security; • complexities related to differing technical standards, certification requirements and audit requirements outside the United States, which could prevent customers from deploying our products or limit their usage; • export controls and economic sanctions administered by the Bureau of Industry and Security of the U.S.
In addition, we face risks in doing business internationally that could adversely affect our business, including: • exposure to international political developments that may cause instability for businesses and volatility in global financial markets and the value of foreign currencies, any of which could disrupt trade and the sale of our services in international markets; 26 Table of Contents • difficulties in managing and staffing international operations, including difficulties related to the increased operations, travel, infrastructure, employee attrition and legal compliance costs associated with numerous international locations; • our ability to effectively price our products in competitive international markets; • new and different sources of competition; • costs associated with network service providers outside of the United States; • the need to adapt and localize our products for specific countries; • challenges in keeping abreast of, understanding and complying with local laws, regulations and customs in multiple foreign jurisdictions, particularly in the areas of telecommunications and data privacy and security; • complexities related to differing technical standards, certification requirements and audit requirements outside the United States, which could prevent customers from deploying our products or limit their usage; • export controls and economic sanctions administered by the Bureau of Industry and Security of the U.S.
Any failure to comply with these obligations and restrictions or our own posted privacy policies and notices, or any security incident that results in a personal data breach or the unauthorized access to, or the acquisition, release or transfer of, other customer data, could subject us to investigations, proceedings or actions against us by governmental entities or others, lawsuits, fines, criminal penalties, statutory damages, consent decrees, injunctions, adverse publicity, contractual liability, civil liabilities, loss of customer confidence, damage to our brand and reputation or a loss of customers, any of which could materially harm our business.
Any failure to comply with these obligations and restrictions or our own posted privacy policies and notices, or any security incident that results in a personal data breach or the unauthorized access to, or the acquisition, release or transfer of, other customer data, could subject us to investigations, proceedings or actions 33 Table of Contents against us by governmental entities or others, lawsuits, fines, criminal penalties, statutory damages, consent decrees, injunctions, adverse publicity, contractual liability, civil liabilities, loss of customer confidence, damage to our brand and reputation or a loss of customers, any of which could materially harm our business.
Our ability to attract new customers and increase revenue from existing customers depends in part on our ability to increase adoption and usage of our services, enhance and improve functionality of our existing services, and introduce new services.
Our ability to attract new customers and increase revenue from existing customers depends in part on our ability to increase adoption and usage of our services, enhance and improve functionality of our existing services, and introduce new services and features.
In addition, if we cannot provide emergency calling functionality through our communications platform to meet any applicable federal, state or international requirements, the competitive advantages that we have may not persist, adversely affecting our ability to obtain and to retain enterprise customers which could have an adverse impact on our business.
In addition, if we cannot provide emergency calling functionality through our communications platform to meet applicable federal, state, local or international requirements, the competitive advantages that we have may not persist, adversely affecting our ability to obtain and to retain enterprise customers which could have an adverse impact on our business.
If current or future regulations change, the Federal Communications Commission (the “FCC”), state regulators or regulators in other jurisdictions may not grant us required regulatory authorizations or may take action against us if we are found to have provided services without obtaining the necessary authorizations, or to have violated other requirements of their rules and orders.
If current or future regulations change, the Federal Communications Commission (the “FCC”), state or local regulators or regulators in jurisdictions abroad may not grant us required regulatory authorizations or may take action against us if we are found to have provided services without obtaining the necessary authorizations, or to have violated other requirements of their rules and orders.
Furthermore, our ability to increase the usage of our services depends, in part, on the development of new use cases for our services, which may be outside of our control. Our ability to generate usage of additional services by our customers may also require increasingly sophisticated and more costly sales efforts and result in a longer sales cycle.
Furthermore, our ability to increase the usage of our services depends, in part, on the development of new use cases for our services, which may be outside of our control. Our ability to generate usage of additional services or features by our customers may also require increasingly sophisticated and more costly sales efforts and result in a longer sales cycle.
The scope and interpretation of the laws that are or may be applicable to the making and/or delivery of calls and/or messages are continuously evolving and developing.
The scope and interpretation of the laws and regulations that are or may be applicable to the making and/or delivery of calls and/or messages are continuously evolving and developing.
These delays, errors or failures could significantly impair our business due to: • service interruptions; • malfunction of our communications platform on which our enterprise users rely for voice, messaging or emergency service functionality; • exposure to customer liability; • the inability to install new service; • the unavailability of employees necessary to provide services; 37 Table of Contents • the delay in the completion of other corporate functions such as issuing bills and the preparation of financial statements; or • the need for expensive modifications to our systems and infrastructure.
These delays, errors or failures could significantly impair our business due to: • service interruptions; • malfunction of our communications platform on which our enterprise users rely for voice, messaging or emergency service functionality; • exposure to customer liability; • the inability to install new service; • the unavailability of employees necessary to provide services; • the delay in the completion of other corporate functions such as issuing bills and the preparation of financial statements; or • the need for expensive modifications to our systems and infrastructure.
Failure to comply with these requirements, or failure of our communications platform such that 911 and other emergency calls did not complete or were misrouted, may result in FCC, foreign regulatory or other enforcement action, state attorneys’ general investigations, potential exposure to significant monetary penalties, cease and desist orders, civil liability to our 38 Table of Contents users and their customers, loss of user confidence in our services, loss of users, and other adverse consequences, which could materially harm our business.
Failure to comply with these requirements, or failure of our communications platform such that 911 and other emergency calls did not complete or were misrouted, may result in FCC, foreign regulatory or other enforcement action, state attorneys’ general investigations, potential exposure to significant monetary penalties, cease and desist orders, civil liability to our users and their customers, loss of user confidence in our services, loss of users, and other adverse consequences, which could materially harm our business.
If a claim of infringement was brought against us based on the use of our technology or against our customers based on their use of our services for which we are obligated to indemnify, we could be subject to litigation to determine whether such use or sale is, in fact, infringing.
If a claim of infringement were brought against us based on the use of our technology or against our customers based on their use of our services for which we are obligated to indemnify, we could be subject to litigation to determine whether such use or sale is, in fact, infringing.
Because of the ten-to-one voting ratio between our Class B and Class A common stock, these holders of our Class B common stock collectively control approximately 46% of the combined voting power of our common stock and therefore would be able to exert significant influence over all matters submitted to our stockholders for approval.
Because of the ten-to-one voting ratio between our Class B and Class A common stock, these holders of our Class B common stock collectively control approximately 45% of the combined voting power of our common stock and therefore would be able to exert significant influence over all matters submitted to our stockholders for approval.
We cannot accurately predict customers’ usage levels , and the loss of customers or reductions in their usage levels of our services may each have a negative impact on our business, results of operations and financial condition and may cause our net retention rate to decline in the future.
We cannot accurately predict customers’ usage levels , and the loss of customers or reductions in their service usage levels may each have a negative impact on our business, results of operations and financial condition and may cause our net retention rate to decline in the future.
The market for our services and platform could fail to grow significantly or there could be a reduction in demand for our services and platform as a result of a lack of customer acceptance, technological changes or challenges, our inability to successfully introduce new product offerings, competing services and platforms, decreases in spending by current and prospective customers, weakening economic conditions, geopolitical developments, global pandemics, adverse regulatory developments or other causes.
The market for our services and platform could fail to grow significantly or there could be a reduction in demand for our services and platform as a result of a lack of customer acceptance, technological changes or challenges, our inability to successfully introduce new product offerings, competing services and platforms, decreases in spending by current and prospective customers, weakening economic conditions, 21 Table of Contents geopolitical developments, global pandemics, adverse regulatory developments or other causes.
If an author or other third-party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could 34 Table of Contents be subject to significant damages, enjoined from generating revenue from customers using services that contained the open source software and required to comply with onerous conditions or restrictions on these services.
If an author or other third-party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating revenue from customers using services that contained the open source software and required to comply with onerous conditions or restrictions on these services.
Our ability to achieve significant revenue growth in the future will depend, in part, on our ability to recruit, train and retain a sufficient number of experienced sales professionals, particularly those with experience selling to enterprises.
Our ability to achieve significant revenue growth in the future will depend, in part, on our ability to recruit, train and retain a sufficient number of talented sales professionals, particularly those with experience selling to enterprises.
Because such patent holding companies, commonly referred to as patent “trolls,” do not provide services or use technology, the assertion of our own patents by way of counter-claim would be largely ineffective. Our use of open source software could negatively affect our ability to sell our services and subject us to possible litigation.
Because such patent holding companies, commonly referred to as patent “trolls,” do not provide services or use technology, the assertion of our own patents by way of counter-claim would be largely ineffective. 35 Table of Contents Our use of open source software could negatively affect our ability to sell our services and subject us to possible litigation.
Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any rights against such party. Policing unauthorized use of our technology is difficult.
Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our technology without authorization. In addition, others may independently 36 Table of Contents discover trade secrets and proprietary information, and in such cases we could not assert any rights against such party. Policing unauthorized use of our technology is difficult.
While the FCC has generally subjected IP-based service providers in the United States to less stringent regulatory oversight than traditional common carriers, the FCC has imposed certain regulatory obligations on providers of interconnected and non-interconnected VoIP services, including the obligations to contribute to the Universal Service Fund, to provide 911 services, and to comply with the Communications Assistance for Law Enforcement Act.
While the FCC has generally subjected IP-based services in the United States to less stringent regulatory oversight than traditional telecommunications, the FCC has imposed certain regulatory obligations on providers of interconnected and non-interconnected VoIP services, including the obligations to contribute to the Universal Service Fund, to provide 911 services, and to comply with the Communications Assistance for Law Enforcement Act.
We also may not be able to effectively respond to any new fees if all network providers in a particular market impose equivalent fee 40 Table of Contents structures, if the magnitude of the fees is disproportionately large when compared to the underlying prices paid by our customers, or if market conditions limit our ability to increase the prices we charge our customers.
We also may not be able to effectively respond to any new fees if all network providers in a particular market impose equivalent fee structures, if the magnitude of the fees is disproportionately large when compared to the underlying prices paid by our customers, or if market conditions limit our ability to increase the prices we charge our customers.
Our success in achieving continued growth depends upon several factors including: • our ability to hire and retain qualified and effective personnel, including, but not limited to, those with the expertise required to develop and maintain our service offerings, to sell those offerings and to operate our business effectively; • the overall economic health of new and existing markets; • the number and effectiveness of competitors; • the pricing structure under which we will be able to purchase services required to serve our customers; • our ability to successfully introduce new service offerings and maintain or enhance existing offerings; • the availability to us of technologies needed to remain competitive; • federal, state and international regulatory conditions, including the maintenance of regulation that protects us from unfair business practices by traditional network service providers or others with greater market power who have relationships with us as both competitors and suppliers; and • changes in industry standards, laws, regulations, or regulatory enforcement in the United States and internationally.
Our success in achieving continued growth depends upon several factors including: • our ability to hire and retain qualified and effective personnel, including, but not limited to, those with the expertise required to develop and maintain our service offerings, to sell those offerings and to operate our business effectively; • the overall economic health of new and existing markets; 18 Table of Contents • the number and effectiveness of competitors; • the pricing structure under which we will be able to purchase services required to serve our customers; • our ability to successfully introduce new service offerings and features that generate revenue growth, and maintain or enhance existing offerings; • the availability to us of technologies needed to remain competitive; • federal, state and international regulatory conditions, including the maintenance of regulation that protects us from unfair business practices by traditional network service providers or others with greater market power who have relationships with us as both competitors and suppliers; and • changes in industry standards, laws, regulations, or regulatory enforcement trends in the United States and internationally.
For example, certain laws or regulations may mandate disclosure of customer information to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with customers and may not always provide a level of 32 Table of Contents protection for such information that is required by other laws or regulations.
For example, certain laws or regulations may mandate disclosure of customer information to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with customers and may not always provide a level of protection for such information that is required by other laws or regulations.
In the event of non-compliance, we may be forced to reclaim phone numbers from our customers, which could result in loss of customers, breach of contract claims, loss of revenue and reputational harm, all of which could have a material adverse effect on our business, results of operations and financial condition.
In the event of non-compliance, we 34 Table of Contents may be forced to reclaim phone numbers from our customers, which could result in loss of customers, breach of contract claims, loss of revenue and reputational harm, all of which could have a material adverse effect on our business, results of operations and financial condition.
We will not be restricted under the terms of the indentures governing the Convertible Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indentures governing the Convertible Notes that could have the effect of diminishing our ability to make payments on the Convertible Notes when due.
We will not be restricted under the terms of the indentures governing the Convertible Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that could have the effect of diminishing our ability to make payments on the Convertible Notes when due.
Our competitors fall into two primary categories: 19 Table of Contents • CPaaS companies that offer software APIs, less robust customer support and fewer other features, while relying on third-party networks and physical infrastructure; and • network service providers that offer limited developer functionality on top of their own networks and physical infrastructure.
Our competitors fall into two primary categories: • CPaaS companies that offer software APIs, less robust customer support and fewer other features, while relying on third-party networks and physical infrastructure; and • network service providers that offer limited developer functionality on top of their own networks and physical infrastructure.
Our ability to expand our sales to enterprise customers will depend, in part, on our ability to effectively organize, focus and train our sales and marketing personnel and to attract and retain sales personnel with experience selling to enterprises. We believe there is significant competition for experienced sales professionals with the skills and technical knowledge our business requires.
Our ability to expand our sales to enterprise customers will depend, in part, on our ability to effectively organize, focus and train our sales and marketing personnel and to attract and retain sales personnel capable of selling to enterprises. We believe there is significant competition for experienced sales professionals with the skills and technical knowledge our business requires.
The successful promotion of our brand depends largely on our continued marketing efforts, our ability to continue to offer high quality services meeting the evolving needs of existing and prospective customers, and our ability to successfully 24 Table of Contents differentiate our services from competing products and services. Our brand promotion activities may not be successful or yield increased revenue.
The successful promotion of our brand depends largely on our continued marketing efforts, our ability to continue to offer high quality services meeting the evolving needs of existing and prospective customers, and our ability to successfully differentiate our services from competing products and services. Our brand promotion activities may not be successful or yield increased revenue.
For example, to provide the emergency calling services required by the FCC’s rules to our IP telephony consumers, we may use components of both the wireline and wireless infrastructure in unique ways that can result in failed connections and calls routed to incorrect emergency call centers.
For example, to provide the emergency calling services required by the FCC’s rules to our IP telephony consumers, we may use components of both the wireline and wireless 39 Table of Contents infrastructure in unique ways that can result in failed connections and calls routed to incorrect emergency call centers.
While our network is designed to withstand the loss of any one data center at any point in time, the simultaneous failure of multiple data centers could disrupt our ability to serve our clients. Additionally, certain of our capabilities cannot be 46 Table of Contents made redundant feasibly or cost-effectively.
While our network is designed to withstand the loss of any one data center at any point in time, the simultaneous failure of multiple data centers could disrupt our ability to serve our clients. Additionally, certain of our capabilities cannot be made redundant feasibly or cost-effectively.
A sustained and significant growth in the churn rate could have a material adverse effect on our business. 39 Table of Contents The market prices for certain of our services have decreased in the past and may decrease in the future, resulting in lower revenue than we anticipate. Market prices for certain of our services have decreased over recent years.
A sustained and significant growth in the churn rate could have a material adverse effect on our business. The market prices for certain of our services have decreased in the past and may decrease in the future, resulting in lower revenue than we anticipate. Market prices for certain of our services have decreased over recent years.
These estimates include several key assumptions including, but not limited to, the taxability of our services, the jurisdictions in which we believe we have nexus, and the sourcing of revenue to those jurisdictions. In the event these jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates.
These estimates include several key assumptions including, but not limited to, the taxability of our services, the jurisdictions in which we believe we have nexus, and the sourcing of revenue to those jurisdictions. In the event 43 Table of Contents these jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates.
If such a disagreement were to occur, and our position were not sustained, we could be 42 Table of Contents required to pay additional taxes, interest and penalties, which could result in additional tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.
If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in additional tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.
Our agreements with customers and other third parties typically include indemnification or other provisions under which we agree to indemnify or are otherwise liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons or other liabilities relating to or arising from our services or platform or other acts or omissions.
Our agreements with customers and other third parties typically include indemnification or other provisions such as service level agreements under which we agree to indemnify or are otherwise liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, service interruptions, damages caused by us to property or persons or other liabilities relating to or arising from our services or platform or other acts or omissions.
Any perception by existing and prospective customers that our network and systems are not secure could result in a 27 Table of Contents material loss of business and revenue and damage our reputation. We will continue to deploy security enhancements in an effort to further secure our network.
Any perception by existing and prospective customers that our network and systems are not secure could result in a material loss of business and revenue and damage our reputation. We will continue to deploy security enhancements in an effort to further secure our network.
The future utilization of our net operating loss and tax credit carryforwards (collectively, “Tax Attributes”) may be limited due to changes in ownership as defined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).
The future utilization of our net operating loss and tax credit carryforwards (collectively, “Tax Attributes”) may be limited due to changes in ownership as defined under Section 382 of the Internal Revenue Code of 1986, as 44 Table of Contents amended (the “Code”).
Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting.
Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation 45 Table of Contents reports regarding the effectiveness of our internal control over financial reporting.
Our ability to procure and distribute numbers depends on factors outside of our control, such as regulations, the practices of the communications carriers that provide numbers to us in certain jurisdictions, the cost of obtaining and managing numbers and the level of demand for new numbers.
Our ability to procure and distribute numbers may depend on factors outside of our control, such as regulations, the practices of the communications carriers that provide numbers to us in certain jurisdictions, the cost of obtaining and managing numbers and the level of demand for new numbers.
Employees may be more likely to terminate their employment with us if the shares they own or the shares underlying any restricted stock units have not significantly appreciated in value, or if the value of the shares 41 Table of Contents underlying restricted stock units they hold has depreciated significantly.
Employees may be more likely to terminate their employment with us if the shares they own or the shares underlying any restricted stock units have not significantly appreciated in value, or if the value of the shares underlying restricted stock units they hold has depreciated significantly.
Changes to existing regulations or rules, or the failure of regulatory agencies to regulate in areas historically regulated on matters such as network neutrality, licensing fees, environmental, health and safety, privacy, intercarrier compensation, emergency services, interconnection, illegal robocalling, extraterritorial use of telephone numbers, and other areas, in general or particular to our industry, may increase uncertainty, increase costs, restrict operations or decrease revenue.
Changes to existing regulations or rules, or the failure of regulatory agencies to regulate in areas historically regulated on matters such as network neutrality, licensing fees, environmental, health and safety, privacy, 32 Table of Contents intercarrier compensation, emergency services, interconnection, illegal robocalling, extraterritorial use of telephone numbers, cybersecurity, AI and other areas, in general or particular to our industry, may increase uncertainty and costs and restrict operations or decrease revenue.
Competition for talent in the technology industry has become increasingly intense, and the market to recruit, retain and motivate talent has become even more competitive. Many key individual contributors, particularly in software development, sales and cloud computing and telecommunications infrastructure, are critical to our success and can attract very significant compensation packages.
Competition for talent in the technology industry has become increasingly intense, and the market to recruit, retain 42 Table of Contents and motivate talent has become even more competitive. Many key individual contributors, particularly in software development, sales and cloud computing and telecommunications infrastructure, are critical to our success and can attract very significant compensation packages.
Although our service agreements generally limit our liability for service failures and generally exclude any liability for “consequential” damages such as lost profits, a court might not enforce these limitations on liability, which could expose us to financial loss. We also sometimes provide our customers with committed service levels.
Although our service agreements generally limit our liability for service failures and generally exclude 38 Table of Contents any liability for “consequential” damages such as lost profits, a court might not enforce these limitations on liability, which could expose us to financial loss. We also sometimes provide our customers with committed service levels.
Transitioning to new vendors also may result in the loss of the value of assets associated with our integration of third-party services into our network or service offerings. Approximately half of our operating cash is maintained in deposit accounts with various financial institutions and is not insured by the FDIC.
Transitioning to new vendors also may result in the loss of the value of assets associated with our integration of third-party services into our network or service offerings. Nearly all of our operating cash is maintained in deposit accounts with various financial institutions and is not insured by the FDIC.
The successful enforcement of these patents, or our inability to negotiate a license for these patents on acceptable terms, could force us to cease (i) using the relevant technology and (ii) offering services incorporating the technology.
The successful enforcement of these patents, or our inability to negotiate a license for these patents on acceptable terms, could force us to cease using the relevant technology and discontinue offering services incorporating the technology.
We cannot be certain that the outcome of current or future litigation will not have a material adverse impact on our business and results of operations. See “Part I, Item 3. Legal Proceedings,” in this Annual Report on Form 10-K.
We cannot be certain that the outcome of current or future litigation will not have a material adverse impact on our business and results of operations. See “Item 3. Legal Proceedings,” in this Annual Report on Form 10-K.
We will incur marketing expenses before we are able to recognize any revenue that the 20 Table of Contents marketing initiatives may generate, and these expenses may not result in increased revenue or brand awareness. We have made in the past, and may make in the future, significant expenditures and investments in new marketing campaigns.
We will incur marketing expenses before we are able to recognize any revenue that the marketing initiatives may generate, and these expenses may not result in increased revenue or brand awareness. We have made in the past, and may make in the future, significant expenditures and investments in new marketing campaigns.
We cannot assure you that our pending or future trademark applications will be approved. Although we anticipate that we would be given an opportunity to respond to any such rejections, we may be unable to overcome any such rejections. In addition, in 35 Table of Contents proceedings before the U.S.
We cannot assure you that our pending or future trademark applications will be approved. Although we anticipate that we would be given an opportunity to respond to any such rejections, we may be unable to overcome any such rejections. In addition, in proceedings before the U.S.
We have expanded our international operations, including through the deployment of data centers in certain European locations and our acquisition of Voxbone in late 2020. As part of our growth strategy, we will continue to evaluate potential opportunities for further international expansion.
We have expanded our international operations, including through the deployment of data centers in certain locations outside of the U.S. and our acquisition of Voxbone in late 2020. As part of our growth strategy, we will continue to evaluate potential opportunities for further international expansion.
Our international activities create the risk of unauthorized payments or offers of payments by one of our employees or consultants, even though 33 Table of Contents these parties are not always subject to our control.
Our international activities create the risk of unauthorized payments or offers of payments by one of our employees or consultants, even though these parties are not always subject to our control.
The misuse of our offerings by our customers, or customers of our customers, may result in civil claims and/or enforcement actions against us, including those arising due to misuse of our platform or offerings, and 28 Table of Contents requests for information through third-party subpoenas or regulatory investigations.
The misuse of our offerings by our customers, or customers of our customers, may result in civil claims and/or agency enforcement actions against us, including those arising due to misuse of our platform or offerings, and requests for information through third-party subpoenas or regulatory investigations.
The market in which we participate is highly competitive, and if we do not compete effectively, our business, results of operations and financial condition could be adversely affected. The market for cloud communications is rapidly evolving, significantly fragmented and highly competitive, with relatively low barriers to entry in some segments.
The market in which we participate is highly competitive, and if we do not compete effectively, our business, results of operations and financial condition could be adversely affected. The market for cloud communications is rapidly evolving, significantly fragmented and highly competitive, with relatively low barriers to entry in some segments while other areas experience increased barriers.
Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is 45 Table of Contents documented, designed or operating.
Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.
From November 10, 2017, the date that our Class A common stock began trading on the NASDAQ Global Select Market, through December 31, 2023, the trading price of our Class A common stock has ranged from $9.34 per share to $198.61 per share.
From November 10, 2017, the date that our Class A common stock began trading on the NASDAQ Global Select Market, through December 31, 2024, the trading price of our Class A common stock has ranged from $9.20 per share to $198.61 per share.
Our customers may have been subject to “phishing,” which occurs when a third party calls or sends an email or pop-up message to a customer that claims to be from a business or organization that provides services to the customer.
Our customers have been subject to “phishing,” which occurs when a third party calls or sends an email or text message to a customer that claims to be from a business or organization that provides services to the customer.
Approximately half of our operating cash is maintained in deposit accounts at various financial institutions and is not insured by the FDIC. We believe we employ a reasonable strategy to diversify our cash deposits among financial institutions.
Nearly all of our operating cash is maintained in deposit accounts at various financial institutions and is not insured by the FDIC. We believe we employ a reasonable strategy to diversify our cash deposits among financial institutions.
Additionally, third parties or government agencies may bring action with federal, state, local or international regulators if they believe a provider has breached applicable rules and regulations. The effects of increased regulation of IP-based service providers are unknown.
Additionally, third parties or government agencies may bring action with federal, state, local or international regulators if they believe a provider has breached applicable rules and regulations. The effects of either increased or decreased regulation of IP-based services are unknown.
As we add to or change the mix of our marketing strategies, we may need to expand into more expensive channels than those we are currently in, which could adversely affect our business, results of operations and financial condition.
As we add to or change the mix of our marketing strategies and as target audience preferences shift across channels, we may need to expand into more expensive channels than those we are currently in, which could adversely affect our business, results of operations and financial condition.
The success of any enhancements or new services depends on several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance.
The success of any enhancements or new services or features depends on 22 Table of Contents several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance.
Our business is dependent on third-party suppliers for fiber, computers, software, transmission electronics and related network components, as well as providers of network colocation facilities that are integrated into our network, some of which are critical to the operation of our business.
Our business is dependent on third-party carriers, suppliers for fiber, computers, software, transmission electronics and related network components, including network colocation facilities that are integrated into our network, some of which are critical to the operation of our business.
Due to their limited availability, there are certain popular area code prefixes and specialized numbers that we may not be able to obtain in desired quantities. Our inability to acquire or retain numbers would make our services, including our communications platform, less attractive to potential customers that desire assignments of particular numbering resources.
Certain popular area code prefixes and specialized numbers have limited availability, and we may not be able to obtain those prefixes and specialized numbers in desired quantities. Our inability to acquire or retain such numbers would make our services, including our communications platform, less attractive to potential customers that desire assignments of particular numbering resources.
Furthermore, these regulations and governments’ approach to their enforcement, as well as our products and services, are evolving and we may be unable to maintain compliance with applicable regulations, or enforce compliance by our customers, on a timely basis or without significant cost.
Furthermore, these regulations and government-specific approaches to their enforcement, as well as our products and services, are evolving and we may be unable to maintain compliance with applicable regulations, or enforce compliance by our customers, on a timely basis or without significant or prohibitive cost.
Our policies prohibit these practices by our employees and consultants, although our existing safeguards and any future improvements may prove to be less than effective, and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the FCPA, the U.K.
Our policies prohibit these practices by our employees and consultants and we regularly require Company-wide training on these issues, although our existing safeguards and any future improvements may prove to be less than effective, and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the FCPA, the U.K.
Even if claims asserted against us do not result in liability, we may incur substantial costs to investigate and defend such claims.
Even if claims asserted against us do not 30 Table of Contents result in liability, we may incur substantial costs to investigate and defend such claims.
If we do not develop enhancements to our services and introduce new services that achieve market acceptance, our business, results of operations and financial condition could be adversely affected.
If we do not develop enhancements to our services and introduce new services or features that achieve marketplace acceptance and preference, our business, results of operations and financial condition could be adversely affected.
If technology that we require to provide our services, including our communications platform, was determined by a court to infringe a patent held by another entity that will not grant us a license on terms acceptable to us, we could be precluded by a court order from using that technology and we would likely be required to pay significant monetary damages to the patent holder.
If the technology we require to provide our services or expand the features we offer, including our communications platform, were determined by a court to infringe a patent held by another entity that refuses to grant us a license on terms acceptable to us, we could be precluded by a court order from using that technology and we would likely be required to pay significant monetary damages to the patent holder.
A significant event, such as an earthquake, hurricane, a fire, a flood, a pandemic, such as COVID-19, a power outage, terrorist attack, act of war, such as the ongoing Russia-Ukraine conflict or the Israel-Hamas conflict, or civilian unrest could have a material adverse effect on our business, results of operations or financial condition.
A significant event, such as an earthquake, hurricane, a fire, a flood, a pandemic, such as COVID-19, a power outage, terrorist attack, act of war, such as the ongoing Russia-Ukraine or Middle East conflicts, or civilian 46 Table of Contents unrest could have a material adverse effect on our business, results of operations or financial condition.
Our failure to comply with the obligations imposed upon license and permit holders, including the payment of fees, may cause sanctions or additional costs, including the revocation of authority to provide services. Our operations are subject to regulation at the country, state and local levels.
Our failure to comply with the obligations imposed upon license and permit holders, including the payment of fees or the filing of required reports, may cause sanctions or additional costs, including the revocation of authority to provide services. Our operations are subject to regulation at the regional bloc (e.g., European Union), country, state and local levels.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur Vice President, Information Security has over 25 years of industry experience, including serving in similar roles, building, leading and overseeing cybersecurity programs at other private and public companies. Team members who support our information security program have relevant educational and industry experience, including application security, security operations, forensic and incident response, governance, risk and compliance.
Biggest changeOur CIO and our Vice President, Information Security lead our global information security organization and are responsible for overseeing our information security program. Our Vice President, Information Security has over 25 years of industry experience, including serving in similar roles, building, leading and overseeing cybersecurity 56 Table of Contents programs at other private and public companies.
Our Application Security program proactively performs static and dynamic scanning of systems and software code. In addition, we perform vulnerability scans daily on our systems and assets.
Our Application Security program performs static and dynamic scanning of systems and software code. In addition, we perform vulnerability scans daily on our systems and assets.
To protect our information systems from cybersecurity threats, we use various security tools that help prevent, identify, escalate, investigate, resolve and recover from identified vulnerabilities and security incidents in a timely manner with continuous monitoring from our Security Operations Center.
With respect to cybersecurity threats, we use various security tools that help prevent, identify, escalate, investigate, resolve and recover from identified vulnerabilities and security incidents in a timely manner with continuous monitoring from our Security Operations Center.
We conduct regular reviews and tests of our information security program and also leverage audits by our internal audit team, tabletop exercises, penetration and vulnerability testing, threat modeling, simulations, and other exercises to evaluate the effectiveness of our information security program and improve our security measures and planning.
We conduct regular periodic reviews and tests of our information security program and also leverage audits by our internal audit team, tabletop exercises, penetration and vulnerability testing internally and with external independent third-parties, threat modeling, simulations, and other exercises in an effort to evaluate the effectiveness of our information security program and improve our security measures and planning.
We regularly remind employees of the importance of handling and protecting customer and employee data, including through annual privacy and security training designed to enhance employee awareness of how to detect and respond to cybersecurity threats.
We regularly remind employees of the importance of handling and protecting customer and employee data, and our policies require each of our employees to undergo annual privacy and information security training designed to enhance employee awareness of how to detect and respond to cybersecurity threats.
We have implemented incident response and breach management processes, which have four overarching and interconnected workflows: (1) detection and analysis of a security or privacy incident, (2) investigation, mitigation and remediation, (3) reporting and notification, and (4) post-incident analysis. Such incident responses may involve participants from our information security, network, information Technology, development, executive and legal teams.
We have implemented incident response and breach management processes, which have four overarching and interconnected workflows: (1) detection and analysis of a security or privacy incident, (2) investigation, mitigation and remediation, (3) reporting and notification, and (4) post-incident analysis.
See “Risk Factors - Attacks on or breaches of our networks or systems, or those of third parties upon which we rely, could degrade our ability to conduct our business, compromise the integrity of our services and our communications platform, result in service degradation or outages, significant data 56 Table of Contents losses, the theft of our intellectual property, investigations by government agencies and damage to our reputation, and could expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data. ” Cybersecurity Governance Our board of directors oversees our annual enterprise risk assessment, where we assess key risks within the company, including security and technology risks and cybersecurity threats.
See “Risk Factors - Attacks on or breaches of our networks or systems, or those of third parties upon which we rely, could degrade our ability to conduct our business, compromise the integrity of our services and our communications platform, result in service degradation or outages, significant data losses, the theft of our intellectual property, investigations by government agencies and damage to our reputation, and could expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data,” included elsewhere in this Annual Report on Form 10-K.
Our Executive Security Committee, which includes our Chief Operating Officer, our CIO, our Chief Technology Officer, our Chief Development Officer, our General Counsel and other cross-functional participants, meets monthly to evaluate our cybersecurity risks and related response efforts. Education and Awareness Our policies require each of our employees to contribute to our data security efforts.
Our Executive Security Committee, which includes our Chief Operating Officer, our CIO, our Chief Technology Officer, our Chief Development Officer, our General Counsel and other cross-functional participants, meets monthly to evaluate our cybersecurity risks and related response efforts. Cybersecurity Education and Awareness We monitor emerging laws and best practices related to data protection, privacy and information security.
The DDoS attack we experienced in late 2021 did have a material impact on our results of operations. We do face risks from similar attacks and other cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations or financial condition.
We have not experienced any material cybersecurity events in the last three fiscal years, and expenses incurred in connection with cybersecurity incidents were not material. However, we do face risks from similar attacks and other cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations or financial condition.
As part of the processes described above, we regularly engage external auditors and consultants to assess our cybersecurity programs and compliance with applicable practices and standards. Our Information Security Management System has been certified to conform to the requirements of ISO/IEC 27001:2013 and AICPA SOC 2 Type II, which includes all five of the Trust Services Criteria.
Our Information Security Management System has been certified to conform to the requirements of ISO/IEC 27001:2013 and AICPA SOC 2 Type II, which includes all five of the Trust Services Criteria.
The VRM program is designed to evaluate the cybersecurity and data privacy risks associated with the use of third-party vendors that will be processing, storing, or handling Bandwidth employee, business or customer data.
Our Vendor Risk Management (“VRM”) program aids in evaluating the cybersecurity and data privacy risks associated with the use of vendors and other third parties that will be processing, storing, or handling Bandwidth employee, business or customer data.
At the management level, our cybersecurity risks are identified and addressed through a comprehensive, cross-functional approach. Key security, operations, legal and compliance stakeholders meet regularly to develop strategies for preserving the confidentiality, integrity and availability of our and our customers’ information by identifying, preventing and mitigating cybersecurity threats, and effectively responding to cybersecurity incidents.
Key security, operations, legal and compliance stakeholders meet regularly to discuss strategies designed to preserve the confidentiality, integrity and availability of our and our customers’ information by identifying and mitigating cybersecurity threats, and effectively responding to cybersecurity incidents.
Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy We regularly assess risks from cybersecurity and technology threats and monitor our information systems for potential vulnerabilities. We use a widely-adopted risk quantification model to identify, measure and prioritize cybersecurity threats and develop related security controls and safeguards.
We use a widely-adopted risk quantification model to identify, measure and prioritize cybersecurity threats and develop related security controls and safeguards.
Our board of directors receives an update on Bandwidth’s risk management process at least annually, and receives quarterly cybersecurity updates from our Chief Information Officer (“CIO”). Our CIO and our Vice President, Information Security lead our global information security organization and are responsible for overseeing our information security program.
Cybersecurity Governance Our board of directors oversees our annual enterprise risk assessment, where we assess key risks within the company, including security and technology risks and cybersecurity threats. Our board of directors receives an update on Bandwidth’s risk management process at least annually, and receives quarterly cybersecurity updates from our Chief Information Officer (“CIO”).
We also conduct exercises to simulate responses to cybersecurity incidents. Our team of cybersecurity professionals collaborates with technical and business stakeholders across our business units to further analyze the risks to the company and form detection, mitigation and remediation strategies.
Our team of cybersecurity professionals collaborates with legal, technical and business stakeholders to further analyze the risks to the company and form detection, mitigation and remediation strategies. As part of the processes described above, we regularly engage external auditors and consultants to assess our cybersecurity programs and compliance with applicable practices and standards.
Our enterprise-wide information security program is designed to identify, protect, detect, respond to and manage reasonably foreseeable cybersecurity risks and threats. Cybersecurity risks related to our business, network, and operations are identified and addressed through a multi-faceted approach including third party assessments, as well as internal information system and network security, governance, risk and compliance reviews.
Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy We regularly assess risks from cybersecurity and technology threats and monitor our information systems for potential vulnerabilities. Our enterprise-wide information security program is designed to identify, protect, detect, respond to and manage reasonably foreseeable cybersecurity risks and threats.
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To defend, detect and respond to cybersecurity incidents, we (i) conduct proactive privacy and cybersecurity reviews of systems and applications, (ii) audit applicable data policies, (iii) perform penetration testing internally and with external independent third-parties to test our security controls, (iv) conduct employee training, (v) monitor emerging laws and best practices related to data protection and information security and (vi) 55 Table of Contents implement appropriate changes.
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These processes may involve participants from our information security, network, information technology, software development, executive and legal teams. 55 Table of Contents From time to time, we also conduct exercises to simulate responses to cybersecurity incidents.
Removed
Our Vendor Risk Management (“VRM”) program assesses risks from cybersecurity threats associated with our use of third-party service providers. Under this program, we perform initial risk assessments prior to selecting and engaging third-party service providers as well as ongoing risk assessments in an effort to identify and mitigate risks from third parties such as vendors, suppliers, and other business partners.
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The VRM program is designed to evaluate third-party risk, advise on selection or implementation recommendations, and inform privacy, security and data protection contractual terms. We rely, however, on the third parties we use to implement security programs commensurate with their risk, and we cannot ensure in all circumstances that their efforts will be successful.
Removed
Based on this evaluation, the VRM program records a risk rating, advises on selection or implementation recommendations, and informs contractual terms with the applicable third-party, such as privacy, security, and data protection commitments.
Added
Team members who support our information security program have relevant educational and industry experience, including application security, security operations, forensic and incident response, governance, risk and compliance. At the management level, our cybersecurity risks are identified and addressed through a comprehensive, cross-functional approach.
Removed
In addition to new vendor onboarding, the VRM program includes annual review of critical service providers, ongoing assessment of expanded use cases, and evaluation of potential third-party incidents. We monitor and evaluate reports of third-party cybersecurity threats to identify and mitigate potential risks to us from third-party incidents in our supply chain.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to our corporate headquarters, we lease space in Denver, CO; Rochester, NY; Brussels, Belgium; London, U.K.; Dublin, Ireland; Iasi, Romania; and Istanbul, Turkey. We currently lease all our facilities. We relocated to our newly constructed corporate headquarters in the third quarter of 2023.
Biggest changeWe maintain offices in locations in Raleigh, NC, Denver, CO and Rochester, NY in the United States, and in a number of locations internationally, including Brussels, Belgium; London, U.K.; Dublin, Ireland; Iasi, Romania; and Istanbul, Turkey. We currently lease all our facilities. We believe our corporate headquarters in Raleigh, NC will provide sufficient space to accommodate our growing work force.
Item 2. Properties Our corporate headquarters is located in Raleigh, North Carolina, where we lease approximately 534,000 square feet of office space at 2230 Bandmate Way. We maintain offices in locations in the United States and internationally.
Item 2. Properties Our corporate headquarters is located in Raleigh, North Carolina, where we lease approximately 534,000 square feet of office space at 2230 Bandmate Way.
Removed
We believe this new facility will provide the additional space needed to accommodate our growing work force.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeLegal Proceedings Phone Recovery Services, LLC and Phone Administrative Services, Inc. acting or purporting to act on behalf of applicable jurisdictions, or the applicable county or city itself, have filed multiple lawsuits against us and/or one of our subsidiaries alleging that we failed to bill, collect and remit certain taxes and surcharges associated with the provision of 911 services. 57 Table of Contents The following county or municipal governments have named us in lawsuits that remain unresolved and are associated with the collection and remittance of 911 taxes and surcharges: (a) the City and County of San Francisco, California; (b) the following Illinois jurisdictions, collectively: Cook and Kane Counties, Illinois, the City of Chicago, Illinois, and the State of Illinois; and (c) the State of New York.
Biggest changeLegal Proceedings Phone Recovery Services, LLC and Phone Administrative Services, Inc. acting or purporting to act on behalf of applicable jurisdictions, or the applicable county or city itself, have filed multiple lawsuits against us and/or one of our subsidiaries alleging that we failed to bill, collect and remit certain taxes and surcharges associated with the provision of 911 services.
Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights or to recover amounts owed to us.
Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, 57 Table of Contents enforceability and validity of third-party proprietary rights, or to establish our proprietary rights or to recover amounts owed to us.
The complaints allege that we failed to bill, collect and remit certain taxes and surcharges associated with 911 services pursuant to applicable laws. On October 19, 2023, we were named as a defendant in a complaint captioned Aguilar v. Network Insurance Senior Health Division ALG, LLC, et al. , pending in the U.S.
The complaints allege that we failed to bill, collect and remit certain taxes and surcharges associated with 911 services pursuant to applicable laws. We intend to vigorously defend these lawsuits and believe we have meritorious defenses to each.
Removed
District Court for the Southern District of Texas, relating to the alleged delivery of unsolicited phone calls to the plaintiff’s telephone number. We intend to vigorously defend these lawsuits and believe we have meritorious defenses to each.
Added
The following county or municipal governments have named us in lawsuits that remain unresolved and are associated with the collection and remittance of 911 taxes and surcharges: (a) the City and County of San Francisco, California; and (b) the following Illinois jurisdictions, collectively: Cook and Kane Counties, Illinois, the City of Chicago, Illinois, and the State of Illinois.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to our Proxy Statement relating to our 2024 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to our Proxy Statement relating to our 2025 Annual Meeting of Stockholders. The Proxy Statement will be filed with the SEC within 120 days of the fiscal year ended December 31, 2024.
Recent Sales of Unregistered Securities From January 1, 2023 through December 31, 2023, we did not sell any securities on an unregistered basis. Item 6. [Reserved] 60 Table of Contents Management ’ s Discussion and Analysis
Recent Sales of Unregistered Securities From January 1, 2024 through December 31, 2024, we did not sell any securities on an unregistered basis. Item 6. [Reserved] 60 Table of Contents Management ’ s Discussion and Analysis
The graph assumes $100 was invested in our Class A common stock and in each index from December 31, 2018 to December 31, 2023, and assumes reinvestment of any dividends. 59 Table of Contents The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock.
The graph assumes $100 was invested in our Class A common stock and in each index from December 31, 2019 to December 31, 2024, and assumes reinvestment of any dividends. 59 Table of Contents The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock.
Prior to that date, there was no public trading market for our Class A common stock. Stockholders As of February 23, 2024, we had 22 holders of record of our Class A and Class B common stock.
Prior to that date, there was no public trading market for our Class A common stock. Stockholders As of February 14, 2025, we had 23 holders of record of our Class A and Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear ended December 31, 2023 2022 2021 (In thousands) Revenue $ 601,117 $ 573,152 $ 490,907 Cost of revenue 364,960 334,799 277,094 Gross profit 236,157 238,353 213,813 Operating expenses Research and development 104,188 97,990 69,505 Sales and marketing 102,063 96,658 82,333 General and administrative 65,363 68,029 64,212 Total operating expenses 271,614 262,677 216,050 Operating loss (35,457) (24,324) (2,237) Other income (expense), net: Net gain on extinguishment of debt 12,767 40,205 — Gain on business interruption insurance recoveries 4,000 — — Interest expense, net (808) (3,048) (28,784) Other income (expense), net 195 4,473 (174) Total other income (expense), net 16,154 41,630 (28,958) (Loss) income before income taxes (19,303) 17,306 (31,195) Income tax benefit 2,960 2,264 3,833 Net (loss) income $ (16,343) $ 19,570 $ (27,362) The following table sets forth our results of operations as a percentage of our total revenue for the periods presented. * Year ended December 31, 2023 2022 2021 Revenue 100 % 100 % 100 % Cost of revenue 61 % 58 % 56 % Gross profit 39 % 42 % 44 % Operating expenses Research and development 17 % 17 % 14 % Sales and marketing 17 % 17 % 17 % General and administrative 11 % 12 % 13 % Total operating expenses 45 % 46 % 44 % Operating loss (6) % (4) % — % Other income (expense), net: Net gain on extinguishment of debt 2 % 7 % — % Gain on business interruption insurance recoveries 1 % — % — % Interest expense, net — % (1) % (6) % Other income (expense), net — % 1 % — % Total other income (expense), net 3 % 7 % (6) % (Loss) income before income taxes (3) % 3 % (6) % Income tax benefit — % — % 1 % Net (loss) income (3) % 3 % (5) % (*) Columns may not foot due to rounding. 66 Table of Contents Management ’ s Discussion and Analysis Comparison of the Years Ended December 31, 2023 and 2022 Revenue Year ended December 31, 2023 2022 Change (Dollars in thousands) Cloud communications $ 478,892 $ 474,576 $ 4,316 1 % Messaging surcharges $ 122,225 $ 98,576 $ 23,649 24 % Revenue $ 601,117 $ 573,152 $ 27,965 5 % In 2023, our cloud communications revenue increased by $4 million , or 1%, compared with the same period in 2022.
Biggest changeYear ended December 31, 2024 2023 2022 (In thousands) Revenue $ 748,487 $ 601,117 $ 573,152 Cost of revenue 468,529 364,960 334,799 Gross profit 279,958 236,157 238,353 Operating expenses Research and development 118,627 104,188 97,990 Sales and marketing 109,698 102,063 96,658 General and administrative 71,692 65,363 68,029 Total operating expenses 300,017 271,614 262,677 Operating loss (20,059) (35,457) (24,324) Other income: Net gain on extinguishment of debt 10,267 12,767 40,205 Gain on business interruption insurance recoveries — 4,000 — Interest expense, net (1,861) (808) (3,048) Other income, net 2,700 195 4,473 Total other income 11,106 16,154 41,630 (Loss) income before income taxes (8,953) (19,303) 17,306 Income tax benefit 2,429 2,960 2,264 Net (loss) income $ (6,524) $ (16,343) $ 19,570 The following table sets forth selected consolidated statements of operations data as a percentage of our total revenue for the periods presented. * Year ended December 31, 2024 2023 2022 Revenue 100 % 100 % 100 % Cost of revenue 63 % 61 % 58 % Gross profit 37 % 39 % 42 % Operating expenses Research and development 16 % 17 % 17 % Sales and marketing 15 % 17 % 17 % General and administrative 10 % 11 % 12 % Total operating expenses 40 % 45 % 46 % Operating loss (3) % (6) % (4) % Other income: Net gain on extinguishment of debt 1 % 2 % 7 % Gain on business interruption insurance recoveries — % 1 % — % Interest expense, net — % — % (1) % Other income, net — % — % 1 % Total other income 1 % 3 % 7 % (Loss) income before income taxes (1) % (3) % 3 % Income tax benefit — % — % — % Net (loss) income (1) % (3) % 3 % (*) Columns may not foot due to rounding. 65 Table of Contents Management ’ s Discussion and Analysis Comparison of the Years Ended December 31, 2024 and 2023 Revenue Year ended December 31, 2024 2023 Change (Dollars in thousands) Cloud communications $ 539,753 $ 478,892 $ 60,861 13 % Messaging surcharges 208,734 122,225 86,509 71 % Revenue $ 748,487 $ 601,117 $ 147,370 25 % In 2024, our cloud communications revenue increased by $61 million , or 13%, compared with the same period in 2023.
Adjusted EBITDA We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain income statement items including, but not limited to: • income tax (benefit) provision; • interest (income) expense, net; • depreciation and amortization expense; • acquisition related expenses; • stock-based compensation expense; • impairment of intangible assets, if any; • (gain) loss on sale of business; • net cost associated with early lease terminations and leases without economic benefit; • net (gain) loss on extinguishment of debt; • gain on business interruption insurance recoveries; and • non-recurring items not indicative of ongoing operations and other. 78 Table of Contents Management ’ s Discussion and Analysis Adjusted EBITDA is a key measure u sed by management to understand and evaluate our core operating performance and trends, to generate future operating plans and to make strategic decisions regarding the allocation of capital.
Adjusted EBITDA We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain income statement items including, but not limited to: • income tax (benefit) provision; • interest (income) expense, net; • depreciation and amortization expense; • acquisition related expenses; • stock-based compensation expense; • impairment of intangible assets, if any; • (gain) loss on sale of business; • net cost associated with early lease terminations and leases without economic benefit; • net (gain) loss on extinguishment of debt; • gain on business interruption insurance recoveries; and • non-recurring items not indicative of ongoing operations and other. 77 Table of Contents Management ’ s Discussion and Analysis Adjusted EBITDA is a key measure u sed by management to understand and evaluate our core operating performance and trends, to generate future operating plans and to make strategic decisions regarding the allocation of capital.
Cash Flows from Investing Activities In 2023, net cash provided by investing activities was $31 million . Cash provided by investing activities was driven by proceeds from the sales and maturities of marketable securities of $130 million to partially fund the repurchase of $65 million aggregate principal amount of the 2026 Convertible Notes.
In 2023, net cash provided by investing activities was $31 million . Cash provided by investing activities was driven by proceeds from the sales and maturities of marketable securities of $130 million to partially fund the repurchase of $65 million aggregate principal amount of the 2026 Convertible Notes.
Recently Issued Accounting Guidance See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a summary of recently adopted accounting standards and recent accounting pronouncements not yet adopted, if applicable. 83 Table of Contents
Recently Issued Accounting Guidance See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a summary of recently adopted accounting standards and recent accounting pronouncements not yet adopted, if applicable. 81 Table of Contents
Most of the permanent tax adjustments within our effective tax rate are offset by a valuation allowance. These adjustments include state taxes, federal research tax credits under Internal Revenue Code Section 41, equity compensation in the U.S. and other non-deductible expenditures in the U.S.
Most of the permanent tax adjustments within our effective tax rate are offset by a valuation allowance. These adjustments include state taxes, federal research tax credits under Section 41 of the Code, equity compensation in the U.S. and other non-deductible expenditures in the U.S.
In fact, Bandwidth already powers all the 2023 Gartner Ⓡ Magic Quadrant Leaders in the key cloud communications categories of UCaaS and CCaaS. Our long-term vision is to continue strengthening this position as the key enabling platform for communications transformation.
In fact, Bandwidth already powers all the 2024 Gartner Ⓡ Magic Quadrant Leaders in the key cloud communications categories of UCaaS and CCaaS. Our long-term vision is to continue strengthening this position as the key enabling platform for communications transformation.
The applicable federal tax law and regulations define qualified research activities as research and development activities conducted in the U.S. that involve a process of experimentation designed to discover new information intended to develop a new or improved business component.
The applicable federal tax laws and regulations define qualified research activities as research and development activities conducted in the U.S. that involve a process of experimentation designed to discover new information intended to develop a new or improved business component.
With the combination of our software APIs, our global Communications Cloud and our broad range of experience with global regulatory frameworks, we believe Bandwidth is one of the best-positioned providers in our space to deliver business-critical communications for global enterprises.
With the combination of our software APIs, our global Communications Cloud and our broad range of experience with global regulatory frameworks, we believe Bandwidth is one of the best-positioned providers in our space to deliver mission-critical communications for global enterprises.
Messaging surcharge revenue is derived from fees imposed by certain carriers within the messaging ecosystem, which are subsequently invoiced and passed through to customers. For the years ended December 31, 2023, 2022 and 2021, we generated 72%, 73%, and 73%, respectively, of our cloud communications revenue from reoccurring sources.
Messaging surcharge revenue is derived from fees imposed by certain carriers within the messaging ecosystem, which are subsequently invoiced and passed through to customers. For the years ended December 31, 2024, 2023 and 2022, we generated 74%, 72%, and 73%, respectively, of our cloud communications revenue from reoccurring sources.
In the fourth quarter of 2022, we removed the valuation allowance against all U.S. deferred tax assets for Non-GAAP purposes as a result of cumulative Non-GAAP U.S. income over the past three years and a significant depletion of net operating loss and tax credit carryforwards on a Non-GAAP basis.
We analyze the Non-GAAP valuation allowance position on a quarterly basis. In the fourth quarter of 2022, we removed the valuation allowance against all U.S. deferred tax assets for Non-GAAP purposes as a result of cumulative Non-GAAP U.S. income over the past three years and a significant depletion of net operating loss and tax credit carryforwards on a Non-GAAP basis.
General and administrative expenses include depreciation, expenditures for third party professional services, and allocated costs of facilities and information technology utilized by our corporate and administrative staff. Income Taxes For the years ended December 31, 2023, 2022 and 2021, our effective tax rate was 15.3%, (13.1)%, and 12.3%, respectively.
General and administrative expenses include depreciation, expenditures for third party professional services, and allocated costs of facilities and information technology utilized by our corporate and administrative staff. Income Taxes For the years ended December 31, 2024, 2023 and 2022, our effective tax rate was 27.1%, 15.3% , and (13.1)% , respectively.
Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property, plant and equipment to support growth on our communications platform and the purchase of land for our new corporate headquarters.
Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property, plant and equipment to support growth on our communications platform.
Revenue from service-based fees, such as the provision and management of phone numbers and emergency services access, is recognized on a ratable basis as the service is provided, which is typically one month. We enter into arrangements with customers that are typically 2 to 3 years in length with an auto-renewal feature.
Revenue from service-based fees, such as the provision and management of phone numbers and emergency services access, is recognized on a ratable basis as the service is provided, which is typically one month. 79 Table of Contents Management ’ s Discussion and Analysis We enter into arrangements with customers that are typically 2 to 3 years in length with an auto-renewal feature.
As of December 31, 2023, we continue to maintain a valuation allowance against our U.S. federal and state net deferred tax assets. 65 Table of Contents Management ’ s Discussion and Analysis Results of Operations The following table sets forth the consolidated statements of operations for the periods indicated.
As of December 31, 2024, we continue to maintain a valuation allowance against our U.S. federal and state net deferred tax assets. 64 Table of Contents Management ’ s Discussion and Analysis Results of Operations The following table sets forth selected consolidated statements of operations data for the periods indicated.
Excluding the impact of the valuation allowance, we realize an estimated state effective tax rate of 4.3% for the year ended December 31, 2022. In addition, exclusive of the valuation allowance, we continue to generate income tax benefits in the current period related to income tax credits recognized for qualified research activities in the U.S.
Excluding the impact of the valuation allowance, we realized an estimated state effective tax rate of 4.2% for the year ended December 31, 2024. In addition, exclusive of the valuation allowance, we continue to generate income tax benefits in the current period related to income tax credits recognized for qualified research activities in the U.S.
For the years ended December 31, 2023 and 2022, the effective tax rates of 15.3% and (13.1)%, respectively, differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.
For the years ended December 31, 2024 and 2023, the effective tax rate of 27.1% and 15.3% differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.
Our arrangements do not contain general rights of return or provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met. We maintain a reserve for sales credits.
Our arrangements do not contain general rights of return or provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met.
The majority of our revenue is generated from usage-based fees earned from customers accessing our communications platform. Access to the communications platform is considered a series of distinct services, with continuous transfer of control to the customer, comprising one performance obligation. Usage-based fees are recognized in revenue in the period the traffic traverses our network.
Access to the communications platform is considered a series of distinct services, with continuous transfer of control to the customer, comprising one performance obligation. Usage-based fees are recognized in revenue in the period the traffic traverses our network.
Unbilled revenue made up 56%, 45%, and 52% of outstanding accounts receivable, net of allowance for doubtful accounts, as of December 31, 2023, 2022 and 2021, respectively.
Unbilled revenue made up 54%, 56%, and 45% of outstanding accounts receivable, net of allowance for doubtful accounts, as of December 31, 2024, 2023 and 2022, respectively.
The large bulk of our remaining cloud communications revenue is generated from recurring monthly charges. 63 Table of Contents Management ’ s Discussion and Analysis We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods.
The large bulk of our remaining cloud communications revenue is generated from recurring monthly charges. We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods.
Long-Lived Assets Long-lived assets, including intangible assets with definite lives, are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. 81 Table of Contents Management ’ s Discussion and Analysis We evaluate the recoverability of our long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable.
Long-Lived Assets Long-lived assets, including intangible assets with definite lives, are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. We evaluate the recoverability of our long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable.
Sales and marketing expenses include depreciation, amortization of acquired customer relationship intangible assets, and allocated costs of facilities and information technology utilized by our sales and marketing staff. 64 Table of Contents Management ’ s Discussion and Analysis General and Administrative General and administrative expenses consist of salaries and related personnel costs for accounting, legal, human resources, corporate, and other administrative and compliance functions.
Sales and marketing expenses include depreciation, amortization of acquired customer relationship intangible assets, and allocated costs of facilities and information technology utilized by our sales and marketing staff. General and Administrative General and administrative expenses consist of salaries and related personnel costs for accounting, legal, human resources, corporate, and other administrative and compliance functions.
Year ended December 31, 2023 2022 2021 (In thousands) Net (loss) income $ (16,343) $ 19,570 $ (27,362) Income tax benefit (2,960) (2,264) (3,833) Interest expense, net 808 3,048 28,784 Depreciation 24,443 18,419 17,523 Amortization 17,274 17,180 19,119 Stock-based compensation 36,992 20,655 14,537 Gain on sale of business — (3,777) — Net cost associated with early lease terminations and leases without economic benefit 3,954 — — Net gain on extinguishment of debt (12,767) (40,205) — Gain on business interruption insurance recoveries (4,000) — — Non-recurring items not indicative of ongoing operations and other (1) 769 1,992 832 Adjusted EBITDA $ 48,170 $ 34,618 $ 49,600 ________________________ (1) Non-recurring items not indicative of ongoing operations and other include $0.8 million, $0.5 million, and $0.8 million of losses on disposals of property, plant and equipment during the years ended December 31, 2023, 2022 and 2021, respectively, $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022. 79 Table of Contents Management ’ s Discussion and Analysis Free Cash Flow Free cash flow represents net cash provided by or used in operating activities less net cash used in the acquisition of property, plant and equipment and capitalized development costs of software for internal use.
Year ended December 31, 2024 2023 2022 (In thousands) Net (loss) income $ (6,524) $ (16,343) $ 19,570 Income tax benefit (2,429) (2,960) (2,264) Interest expense, net 1,861 808 3,048 Depreciation 31,739 24,443 18,419 Amortization 17,503 17,274 17,180 Stock-based compensation 48,362 36,992 20,655 Gain on sale of business — — (3,777) Net cost associated with early lease terminations and leases without economic benefit 2,387 3,954 — Net gain on extinguishment of debt (10,267) (12,767) (40,205) Gain on business interruption insurance recoveries — (4,000) — Non-recurring items not indicative of ongoing operations and other (1) (571) 769 1,992 Adjusted EBITDA $ 82,061 $ 48,170 $ 34,618 ________________________ (1) Non-recurring items not indicative of ongoing operations and other include (i) $0.4 million, $0.8 million, and $0.5 million of losses on disposals of property, plant and equipment during the years ended December 31, 2024, 2023 and 2022, respectively, (ii) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024, and (iii) $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022. 78 Table of Contents Management ’ s Discussion and Analysis Free Cash Flow Free cash flow represents net cash provided by or used in operating activities less net cash used in the acquisition of property, plant and equipment and capitalized development costs of software for internal use.
These three strategies are the foundation of the durable business we seek to build. For the years ended December 31, 2023, 2022 and 2021, total revenue was $601 million, $573 million , and $491 million, respectively, representing an increase of 5% in 2023 and 17% in 2022. Net loss in 2023 and 2021 was $16 million and $27 million, respectively.
These three strategies are the foundation of the durable business we seek to build. For the years ended December 31, 2024, 2023 and 2022, total revenue was $748 million, $601 million and $573 million, respectively, representing an increase of 25% in 2024, and 5% in 2023. Net loss in 2024 and 2023 was $7 million and $16 million , respectively.
As a result of the adoption of ASU No. 2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share. 76 Table of Contents Management ’ s Discussion and Analysis Year ended December 31, 2023 2022 2021 ( In thousands, except share and per share amounts ) Net (loss) income $ (16,343) $ 19,570 $ (27,362) Stock-based compensation 36,992 20,655 14,537 Amortization of acquired intangibles 17,274 17,180 19,119 Amortization of debt discount and issuance costs for convertible debt 2,004 2,977 26,672 Gain on sale of business — (3,777) — Net cost associated with early lease terminations and leases without economic benefit 3,954 — — Net gain on extinguishment of debt (12,767) (40,205) — Gain on business interruption insurance recoveries (4,000) — — Non-recurring items not indicative of ongoing operations and other (1) 1,171 1,992 832 Estimated tax effects of adjustments (2) (5,525) (3,396) (8,087) Non-GAAP net income $ 22,760 $ 14,996 $ 25,711 Interest expense on Convertible Notes (3) 1,287 1,666 — Numerator used to compute Non-GAAP diluted net income per share $ 24,047 $ 16,662 $ 25,711 Net (loss) income per share Basic $ (0.64) $ 0.77 $ (1.09) Diluted $ (0.64) $ (0.48) $ (1.09) Non-GAAP net income per Non-GAAP share Basic $ 0.89 $ 0.59 $ 1.02 Diluted $ 0.83 $ 0.54 $ 0.97 Weighted average number of shares outstanding Basic 25,612,724 25,282,796 25,090,916 Diluted 25,612,724 30,907,869 25,090,916 Non-GAAP basic shares 25,612,724 25,282,796 25,090,916 Convertible debt conversion 3,442,229 5,625,073 987,149 Stock options issued and outstanding 39,152 100,088 180,318 Nonvested RSUs outstanding — — 197,538 Non-GAAP diluted shares 29,094,105 31,007,957 26,455,921 ________________________ (1) Non-recurring items not indicative of ongoing operations and other include (i) $0.8 million, $0.5 million, and $0.8 million of losses on disposals of property, plant and equipment during the years ended December 31, 2023, 2022 and 2021, respectively, (ii) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility during the year ended December 31, 2023 and (iii) $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022. 77 Table of Contents Management ’ s Discussion and Analysis (2) The estimated tax-effect of adjustments is determined by recalculating the tax provision on a Non-GAAP basis.
As a result of the adoption of ASU No. 2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share. 75 Table of Contents Management ’ s Discussion and Analysis Year ended December 31, 2024 2023 2022 ( In thousands, except share and per share amounts ) Net (loss) income $ (6,524) $ (16,343) $ 19,570 Stock-based compensation 48,362 36,992 20,655 Amortization of acquired intangibles 17,503 17,274 17,180 Amortization of debt discount and issuance costs for convertible debt 1,492 2,004 2,977 Gain on sale of business — — (3,777) Net cost associated with early lease terminations and leases without economic benefit 2,387 3,954 — Net gain on extinguishment of debt (10,267) (12,767) (40,205) Gain on business interruption insurance recoveries — (4,000) — Non-recurring items not indicative of ongoing operations and other (1) (571) 1,171 1,992 Estimated tax effects of adjustments (2) (11,486) (5,525) (3,396) Non-GAAP net income $ 40,896 $ 22,760 $ 14,996 Interest expense on Convertible Notes (3) 1,118 1,287 1,666 Numerator used to compute Non-GAAP diluted net income per share $ 42,014 $ 24,047 $ 16,662 Net (loss) income per share Basic $ (0.24) $ (0.64) $ 0.77 Diluted $ (0.24) $ (0.64) $ (0.48) Non-GAAP net income per Non-GAAP share Basic $ 1.50 $ 0.89 $ 0.59 Diluted $ 1.34 $ 0.83 $ 0.54 Weighted average number of shares outstanding Basic 27,209,698 25,612,724 25,282,796 Diluted 27,209,698 25,612,724 30,907,869 Non-GAAP basic shares 27,209,698 25,612,724 25,282,796 Convertible debt conversion 2,321,106 3,442,229 5,625,073 Stock options issued and outstanding 29,731 39,152 100,088 Nonvested RSUs outstanding 1,822,530 — — Non-GAAP diluted shares 31,383,065 29,094,105 31,007,957 ________________________ (1) Non-recurring items not indicative of ongoing operations and other include (i) $0.4 million, $0.8 million, and $0.5 million of losses on disposals of property, plant and equipment during the years ended December 31, 2024, 2023 and 2022, respectively, (ii) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024, (iii) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility during the year ended December 31, 2023, and (iv) $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022. 76 Table of Contents Management ’ s Discussion and Analysis (2) The estimated tax-effect of adjustments is determined by recalculating the tax provision on a Non-GAAP basis.
As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future. We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S. increase or decrease in subsequent periods.
As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future. 67 Table of Contents Management ’ s Discussion and Analysis We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S. increase or decrease in subsequent periods.
Operating Expenses Year ended December 31, 2023 2022 Change (Dollars in thousands) Research and development $ 104,188 $ 97,990 $ 6,198 6 % Sales and marketing 102,063 96,658 5,405 6 % General and administrative 65,363 68,029 (2,666) (4) % Total operating expenses $ 271,614 $ 262,677 $ 8,937 3 % As a percentage of revenue, total operating expenses for the years ended December 31, 2023 and 2022 were 45% and 46%, respecti vely. 67 Table of Contents Management ’ s Discussion and Analysis In 2023, research and development expenses increased by $6 million, or 6%, compared with the same period in 2022.
Our total gross margin percentage of 39% in 2023 declined by 3% , compared with the same period in 2022, driven by higher network costs and higher pass-through messaging surcharges within the total revenue mix. 68 Table of Contents Management ’ s Discussion and Analysis Operating Expenses Year ended December 31, 2023 2022 Change (Dollars in thousands) Research and development $ 104,188 $ 97,990 $ 6,198 6 % Sales and marketing 102,063 96,658 5,405 6 % General and administrative 65,363 68,029 (2,666) (4) % Total operating expenses $ 271,614 $ 262,677 $ 8,937 3 % As a percentage of revenue, total operating expenses for the years ended December 31, 2023 and 2022 were 45% and 46%, respecti vely.
When required as part of providing service, revenues and associated expenses related to nonrefundable, 80 Table of Contents Management ’ s Discussion and Analysis upfront service activation and setup fees are deferred and recognized over the longer of the associated service contract period or estimated period of benefit.
When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the longer of the associated service contract period or estimated period of benefit.
For the years ended December 31, 2023 and 2022, the Non-GAAP effective income tax rate differed from the federal statutory tax rate of 21% in the U.S. primarily due to the research and development tax credits generated in 2023 and 2022.
The Non-GAAP effective income tax rate was 18.1%, 10.1%, and 7.0% for the years ended December 31, 2024, 2023 and 2022, respectively. For the year ended December 31, 2024, the Non-GAAP effective income tax rate differed from the federal statutory tax rate of 21% in the U.S. primarily due to the research and development tax credits generated in 2024.
This was partially offset by cash 72 Table of Contents Management ’ s Discussion and Analysis provided as a result of lower prepaid expenses and other assets of $2 million during 2023 from timing throughout the year.
This was partially offset by cash provided as a result of lower prepaid expenses and other assets of $2 million during 2023 from timing throughout the year.
Year ended December 31, 2023 2022 2021 (In thousands) Net cash provided by operating activities $ 39,001 $ 34,906 $ 40,803 Net cash used in investing in capital assets (1) (2) (19,899) (45,416) (37,167) Free cash flow $ 19,102 $ (10,510) $ 3,636 ________________________ (1) Represents the acquisition cost of property, plant and equipment and capitalized development costs for software for internal use.
Year ended December 31, 2024 2023 2022 (In thousands) Net cash provided by operating activities $ 83,883 $ 39,001 $ 34,906 Net cash used in investing in capital assets (1) (25,380) (19,899) (45,416) Free cash flow $ 58,503 $ 19,102 $ (10,510) ________________________ (1) Represents the acquisition cost of property, plant and equipment and capitalized development costs for software for internal use.
Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.
The evaluation of the recoverability of deferred tax assets requires judgment in assessing future profitability. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.
As of December 31, 2023, we have no valuation allowance against our remaining deferred tax assets for Non-GAAP purposes. (3) Upon the adoption of ASU 2020-06 on January 1, 2022, net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share.
As of December 31, 2024, we have no valuation allowance against our remaining deferred tax assets for Non-GAAP purposes. (3) Non-GAAP net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share.
To calculate the net retention rate, we first identify the cohort of customers that generated revenue in the same quarter of the prior year. The net retention rate is obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year.
The net retention rate is obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year.
Significant assumptions used within the discounted cash flow method under the income approach included estimated revenue projections and a risk adjusted discount rate. Significant assumptions used with the market approach included estimated revenue projections and an appropriate risk adjusted earnings multiple.
The estimated fair value of our one reporting unit was based on the income approach and the market approach. Significant assumptions used within the discounted cash flow method under the income approach included estimated revenue projections and a risk adjusted discount rate. Significant assumptions used with the market approach included estimated revenue projections and an appropriate risk adjusted earnings multiple.
The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures.
As of December 31, 2023, we had cash and cash equivalents of $132 million and marketable securities of $21 million. On August 1, 2023, we entered into the Credit Agreement, which provides for a $50 million Credit Facility, including a $15 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million.
On August 1, 2023, we entered into the Credit Agreement, which provides for a $50 million credit facility (the “Credit Facility”), including a $15 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million.
The amounts involved may be material. 71 Table of Contents Management ’ s Discussion and Analysis We believe that our cash, cash equivalents and marketable securities balances, and the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.
We believe that our cash, cash equivalents and marketable securities balances, and the cash flows generated by our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.
Our net retention rate increases when such customers increase usage of a product, extend usage of a product to new applications or adopt a new product. Our net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions.
Our net retention rate increases when such customers increase usage of a product, extend usage of a product to new applications or adopt a new product.
Our cost of revenue and gross margin have been, and will continue to be, affected by several factors, including the timing and extent of our investments in our network, our ability to manage off-network minutes of use and messaging costs, changes to the mix or amount of personnel-related costs included in our cost of revenue, the product mix of revenue, the timing of amortization of capitalized software development costs and fluctuations in the price we charge our customers for services.
Our cost of revenue and gross margin have been, and will continue to be, affected by several factors, including the timing and extent of our investments in our network, our ability to manage off-network minutes of use and messaging costs, changes to the mix or amount of personnel-related costs included in our cost of revenue, the product mix of revenue, the timing of amortization of capitalized software development costs and fluctuations in the price we charge our customers for services. 63 Table of Contents Management ’ s Discussion and Analysis Operating Expenses The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation expenses.
We may, at any time and from time to time, seek to retire or purchase our 2026 Convertible Notes or 2028 Convertible Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.
Following the 2024 Repurchases and previous repurchases, approximately $35.0 million principal amount of the 2026 Convertible Notes remain outstanding. We may, at any time and from time to time, seek to retire or purchase our 2026 Convertible Notes or 2028 Convertible Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.
Research and development expenses include depreciation and allocated costs of facilities and information technology utilized by our research and development staff. Sales and Marketing S ales and marketing expenses consist of salaries and related personnel costs, commissions, and costs related to advertising, marketing, brand awareness activities, sales support and professional services fees, and customer billing and collections functions.
Sales and Marketing S ales and marketing expenses consist of salaries and related personnel costs, commissions, and costs related to advertising, marketing, brand awareness activities, sales support and professional services fees, and customer billing and collections functions.
Statement of Cash Flows The following table summarizes our cash flows for the periods indicated: Year ended December 31, 2023 2022 2021 (In thousands) Net cash provided by operating activities $ 39,001 $ 34,906 $ 40,803 Net cash provided by (used in) investing activities 30,849 (133,449) 2,833 Net cash (used in) provided by financing activities (52,775) (120,005) 207,027 Effect of exchange rate changes on cash, cash equivalents and restricted cash 610 881 189 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 17,685 $ (217,667) $ 250,852 Cash Flows from Operating Activities In 2023, net cash provided by operating activities was $39 million and was generated by our aggregate results of $55 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, and net gain on extinguishment of debt and (2) a $16 million cash outflow from lower operating liabilities and higher operating assets.
Cash Flows The table below summarizes our cash flow information: Year ended December 31, 2024 2023 2022 (In thousands) Net cash provided by operating activities $ 83,883 $ 39,001 $ 34,906 Net cash (used in) provided by investing activities (1,442) 30,849 (133,449) Net cash used in financing activities (131,273) (52,775) (120,005) Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,241) 610 881 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (50,073) $ 17,685 $ (217,667) 71 Table of Contents Management ’ s Discussion and Analysis Cash Flows from Operating Activities In 2024, net cash provided by operating activities was $84 million and was generated by our aggregate results of $81 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, gain on sale of intangible asset, net gain on extinguishment of debt and (2) a $3 million cash inflow from higher operating liabilities and lower operating assets.
See Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and “Overview — Revolving Credit Facility,” included elsewhere in this Annual Report on Form 10-K, for additional information on the Credit Agreement.
For additional information on these future contractual obligations, see Note 8, “Debt,” and Note 12, “Commitments and Contingencies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K .
Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience, contractual obligations and current trends of credit issuances. Adjustments to the reserve are recorded against revenue.
We maintain a reserve for sales credits, which reserve historically has not been significant and continues to be consistent relative to total revenue. Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience, contractual obligations and current trends of credit issuances. Adjustments to the reserve are recorded against revenue.
The tax benefit recognized is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position.
The tax benefit recognized is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position. We recognize potential accrued interest and penalties associated with unrecognized tax positions in income tax benefit in the accompanying consolidated statements of operations.
We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination.
Using the aforementioned approach, we recorded $70 million and $68 million in valuation allowance on our deferred tax assets in 2024 and 2023, respectively. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination.
The cash used as a result of higher prepaid expenses and other assets of $6 million during 2022 was driven by higher VAT receivables and the timing of advance payments for software and other services.
The cash used as a result of higher prepaid expenses and other assets of $6 million during 2022 was driven by higher VAT receivables and the timing of advance payments for software and other services. 72 Table of Contents Management ’ s Discussion and Analysis Cash Flows from Investing Activities In 2024 net cash used in investing activities was $1 million.
The Credit Facility has an accordion feature that allows for an increase in the total borrowing size up to $25 million, subject to certain conditions.
The Credit Facility has an accordion feature that allows for an increase in the total borrowing size up to $25 million, subject to certain conditions. On May 1, 2024, we amended the Credit Agreement by, among other things, upsizing the Credit Facility to $100 million.
This increase was primarily due to higher information technology and facilities expenses in support of our expanding research and development capabilities.
In 2023, research and development expenses increased by $6 million, or 6%, compared with the same period in 2022. This increase was primarily due to higher information technology and facilities expenses in support of our expanding research and development capabilities.
Revenue Recognition and Deferred Revenue We generate revenue primarily from the sale of communications services to enterprise customers. Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that we expect to receive in exchange for those goods or services.
Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that we expect to receive in exchange for those goods or services. The majority of our revenue is generated from usage-based fees earned from customers accessing our communications platform.
Net Retention Rate Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our existing customers that generated revenue and seek to increase their use of our platform. We track our performance in this area by measuring the net retention rate for our customers who generate revenue.
For the years ended December 31, 2024, 2023 and 2022, the net retention rate was 122%, 101% and 112%, respectively. Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our existing customers that generated revenue and seek to increase their use of our platform.
Our principal future commitments consist of (i) an aggregate of $425 million in Convertible Notes (see Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of the 2026 Convertible Notes and the 2028 Convertible Notes), (ii) $496 million in future minimum rent payments for our current office space, including a $487 million non-cancelable lease for our new corporate headquarters , which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term (the “ Headquarters Lease ” ) (see Note 5, “Leases,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our Headquarters Lease), and (iii) $23 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers (see Note 12, “Commitments and Contingencies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on future contractual obligations).
Our principal future commitments consist of (i) an aggregate of $285 million in Convertible Notes , (ii) $471 million in future minimum rent payments for our current office space, including a $464 million non-cancelable lease for our new corporate headquarters , which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term , and (iii) $15 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers.
In 2022, net cash used in financing activities was $120 million, consisting primarily of $117 million net cash paid to repurchase $160 million aggregate principal amount of the 2026 Convertible Notes.
Cash Flows from Financing Activities In 2024, net cash used in financing activities was $131 million, consisting primarily of $129 million of cash used to complete the 2024 Repurchases. In 2023, net cash used in financing activities was $53 million, consisting primarily of $51 million net cash paid to repurchase $65 million aggregate principal amount of the 2026 Convertible Notes.
Repurchase of 2026 Convertible Notes During March 2023, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes to repurchase approximately $65 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $51 million . These repurchases closed on March 6, 2023.
Net income in 2022 was $20 million . Repurchase of 2026 Convertible Notes During May 2024, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes (the “2024 Repurchases”) to repurchase approximately $140 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $128 million.
Absent the valuation allowance, equity compensation also impacts the effective tax rate to the extent the income tax deduction exceeds or is below the related book expense, as required under ASC 70 Table of Contents Management ’ s Discussion and Analysis 718-740-35-2.
Absent the valuation allowance, equity compensation also impacts the effective tax rate to the extent the income tax deduction exceeds or is below the related book expense, as required under ASC 718-740-35-2. Other U.S. non-deductible expenses that are offset by the valuation allowance consist primarily of non-deductible executive compensation under Section 162(m) of the Code.
Non-GAAP gross profit and Non-GAAP gross margin may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin or similarly titled measures in the same manner we do. 75 Table of Contents Management ’ s Discussion and Analysis Year ended December 31, 2023 2022 2021 (Dollars in thousands) Gross Profit $ 236,157 $ 238,353 $ 213,813 Gross Profit Margin % 39 % 42 % 44 % Depreciation 16,273 13,602 12,606 Amortization of acquired intangible assets 7,810 7,657 8,543 Stock-based compensation 1,136 404 364 Non-GAAP Gross Profit $ 261,376 $ 260,016 $ 235,326 Non-GAAP Gross Margin % (1) 55 % 55 % 52 % ________________________ (1) Calculated by dividing Non-GAAP gross profit by cloud communications revenue of $479 million, $475 million, and $450 million in the years ended December 31, 2023, 2022 and 2021, respectively.
Year ended December 31, 2024 2023 2022 (Dollars in thousands) Gross Profit $ 279,958 $ 236,157 $ 238,353 Gross Profit Margin % 37 % 39 % 42 % Depreciation 18,532 16,273 13,602 Amortization of acquired intangible assets 7,811 7,810 7,657 Stock-based compensation 1,638 1,136 404 Non-GAAP Gross Profit $ 307,939 $ 261,376 $ 260,016 Non-GAAP Gross Margin % (1) 57 % 55 % 55 % ________________________ (1) Calculated by dividing Non-GAAP gross profit by cloud communications revenue of $540 million, $479 million, and $475 million for the years ended December 31, 2024, 2023 and 2022, respectively. 74 Table of Contents Management ’ s Discussion and Analysis Non-GAAP Net Income We define Non-GAAP net income as net income or loss adjusted for certain items affecting period-to-period comparability.
Actual results may differ from these judgments and estimates under different assumptions or conditions, and any such differences may be material. We believe the accounting policies discussed below are critical to the process of making significant judgments and estimates in the preparation of our financial statements, and to understanding our historical and future performance.
Actual results may differ from these judgments and estimates under different assumptions or conditions, and any such differences may be material. We believe that the following assumptions, judgments and estimates have the greatest potential financial impact on our consolidated financial statements, and therefore, we consider these to be our critical accounting policies.
For the years ended December 31, 2022 and 2021, the effective tax rates of (13.1)% and 12.3%, respectively, differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recognized against federal and state deferred tax assets in the U.S.
For the year ended December 31, 2023, the change to the effective tax rate was primarily due to increased operating losses outside of the U.S., where tax benefits are recognized and are not offset by a valuation allowance. 69 Table of Contents Management ’ s Discussion and Analysis For the years ended December 31, 2023 and 2022, the effective tax rates of 15.3% and (13.1)%, respectively, differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.
Operating Expenses The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation expenses. We also incur other non-personnel costs related to our general overhead expenses, including facility expenses, software licenses, web services, depreciation and amortization of assets unrelated to delivery of our services.
We also incur other non-personnel costs related to our general overhead expenses, including facility expenses, software licenses, web services, depreciation and amortization of assets unrelated to delivery of our services. We expect that our operating expenses will increase in absolute dollars driven by the growth in our business.
As of December 31, 2023, we completed a quantitative assessment under ASC 350 and determined that there was not an impairment of goodwill. The estimated fair value of our one reporting unit was based on the income approach and the market approach.
We concluded that based on the relevant events and circumstances, it was more likely than not that the reporting unit’s fair value exceeded its related carrying value and therefore no quantitative assessment was required. As of December 31, 2023, we completed a quantitative assessment under ASC 350 and determined that there was not an impairment of goodwill.
We expect that our operating expenses will increase in absolute dollars driven by the growth in our business. Research and Development R esearch and development expenses consist of salaries and related personnel costs for the design, development, testing and enhancement of our cloud network and software products.
Research and Development R esearch and development expenses consist of salaries and related personnel costs for the design, development, testing and enhancement of our cloud network and software products. Research and development expenses include depreciation and allocated costs of facilities and information technology utilized by our research and development staff.
We completed our annual goodwill impairment analysis in each of the years ended December 31, 2023, 2022 and 2021 and no impairment charges were recorded. As of December 31, 2023, goodwill was $336 million.
A hypothetical 10% decrease in the estimated fair value of our one reporting unit used in the quantitative assessment would not have changed our conclusion. We completed our annual goodwill impairment analysis in each of the years ended December 31, 2024, 2023 and 2022 and no impairment charges were recorded. As of December 31, 2024, goodwill was $317 million.
We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S. increase or decrease in subsequent periods.
We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S. increase or decrease in subsequent periods. We will maintain a valuation allowance against all U.S. federal and state deferred tax assets until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized.
As our customers grow their businesses and increase usage of our platform, they sometimes create multiple customer accounts with us for operational or other reasons.
Our net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions. 62 Table of Contents Management ’ s Discussion and Analysis As our customers grow their businesses and increase usage of our platform, they sometimes create multiple customer accounts with us for operational or other reasons.
Off-Balance Sheet Arrangements With the acquisition of Voxbone, we have off-balance sheet agreements for short-term office leases in the amount of $1 million , ending prior to December 31, 2024 . 74 Table of Contents Management ’ s Discussion and Analysis Non-GAAP Financial Measures We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income, Adjusted EBITDA and free cash flow for financial and operational decision making and to evaluate period-to-period differences in our performance.
In 2022, net cash used in financing activities was $120 million, consisting primarily of $117 million net cash paid to repurchase $160 million aggregate principal amount of the 2026 Convertible Notes. 73 Table of Contents Management ’ s Discussion and Analysis Non-GAAP Financial Measures We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income, Adjusted EBITDA and free cash flow for financial and operational decision making and to evaluate period-to-period differences in our performance.
Other U.S. non-deductible expenses that are offset by the valuation allowance consist primarily of non-deductible executive compensation under Internal Revenue Code 162(m). Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance include minimum state taxes, foreign tax benefits and foreign rate differentials.
Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance include federal and state tax payable, foreign tax benefits and foreign rate differentials.
The difference between the consideration used to repurchase the 2026 Convertible Notes and the carrying value of the 2026 Convertible Notes resulted in gains of approximately $13 million and $40 million recorded within net gain on extinguishment of debt on our consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively. 62 Table of Contents Management ’ s Discussion and Analysis Key Performance Indicator We monitor the following key performance indicator (“KPI”) to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Following the 2024 Repurchases and previous repurchases of the 2026 Convertible Notes, approximately $35 million principal amount of the 2026 Convertible Notes remain outstanding. 61 Table of Contents Management ’ s Discussion and Analysis The difference between the consideration used for the 2024 Repurchases and the carrying value of the 2026 Convertible Notes resulted in a gain of $10 million recorded within net gain on extinguishment of debt on our consolidated statements of operations for the year ended December 31, 2024 .
In 2022 , research and development expenses increased by approximately $28 million, or 41%, compared with the same period in 2021. This increase was primarily due to increased personnel costs from greater numbers of employed staff of $22 million. The increase in headcount also contributed to higher allocated facilities and IT expenses of $7 million.
In 2024, research and development expenses increased by $14 million , or 14% , compared with the same period in 2023. This increase was primarily due to higher facilities expenses in support of our expanding research and development capabilities.
Our total gross margin percentage of 42% in 2022 declined two percentage points compared with the same period in 2021 , as operating and product mix improvements were more than offset by the inclusion of higher pass-through messaging surcharges within total revenue. 69 Table of Contents Management ’ s Discussion and Analysis Operating Expenses Year ended December 31, 2022 2021 Change (Dollars in thousands) Research and development $ 97,990 $ 69,505 $ 28,485 41 % Sales and marketing 96,658 82,333 14,325 17 % General and administrative 68,029 64,212 3,817 6 % Total operating expenses $ 262,677 $ 216,050 $ 46,627 22 % As a percentage of revenue, total operating expenses for the years ended December 31, 2022 and 2021 were 46% and 44%, respectively.
Our total gross margin percentage of 37% in 2024 declined by 2% , compared with the same period in 2023, driven by higher pass-through messaging surcharges within the total revenue mix. 66 Table of Contents Management ’ s Discussion and Analysis Operating Expenses Year ended December 31, 2024 2023 Change (Dollars in thousands) Research and development $ 118,627 $ 104,188 $ 14,439 14 % Sales and marketing 109,698 102,063 7,635 7 % General and administrative 71,692 65,363 6,329 10 % Total operating expenses $ 300,017 $ 271,614 $ 28,403 10 % As a percentage of revenue, total operating expenses for the years ended December 31, 2024 and 2023 were 40% and 45% , respecti vely.
The increase in our effective tax rate from 2022 to 2023 is primarily due to increased operating losses outside of the U.S., where tax benefits are recognized and are not offset by a valuation allowance. Judgment is required in determining whether deferred tax assets will be realized in full or in part.
While we continue to recognize a valuation allowance in the U.S. against our deferred tax assets, changes to our current U.S. cash tax liabilities will cause effective tax rate fluctuations between financial periods. Judgment is required in determining whether deferred tax assets will be realized in full or in part.
See Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details. Income Tax Benefit For the year ended December 31, 2022, we recognized an income tax benefit of $2 million, a decrease of $2 million compared with the same period in 2021.
Income Tax Benefit In 2024, we recognized an income tax benefit of $2 million , a decrease of $1 million , compared with the same period in 2023 . The resulting effective tax rate for the year ended December 31, 2024 was 27.1%, compared with 15.3% in 2023 .
Cost of Revenue and Gross Margin Year ended December 31, 2022 2021 Change (Dollars in thousands) Cost of revenue $ 334,799 $ 277,094 $ 57,705 21 % Gross profit $ 238,353 $ 213,813 $ 24,540 11 % Total gross margin 42 % 44 % In 2022, total cost of revenue increased by $58 million, compared with the same period in 2021, driven by higher pass-through messaging surcharges of $56 million.
Cost of Revenue and Gross Margin Year ended December 31, 2024 2023 Change (Dollars in thousands) Cost of revenue $ 468,529 $ 364,960 $ 103,569 28 % Gross profit $ 279,958 $ 236,157 $ 43,801 19 % Total gross margin 37 % 39 % In 2024, total cost of revenue increased by $104 million , compared with the same period in 2023, driven by higher pass-through messaging surcharges of $84 million largely from higher political messaging from the U.S. presidential election .
Net income in 2022 was $20 million. 61 Table of Contents Management ’ s Discussion and Analysis Revolving Credit Facility On August 1, 2023, we entered into a credit agreement (the “Credit Agreement”) among us, as borrower, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer.
Credit Agreement Amendment On May 1, 2024, we entered into an amendment (the “Amendment”) to the credit agreement (the “Credit Agreement”), dated August 1, 2023, among the Company, as borrower, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer Credit Agreement, which increased the aggregate revolving credit commitments from $50 million to $100 million; increased the swingline sublimit from $5 million to $10 million; increased the minimum liquidity from $75 million to $83 million; and extended the maturity date from August 1, 2028 to the earlier of (a) May 1, 2029 or (b) the date that is 91 days prior to the scheduled maturity date or mandatory conversion date of any of our outstanding convertible notes.
Recoverability of long-lived assets are measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net 80 Table of Contents Management ’ s Discussion and Analysis cash flows expected to be generated by the asset or asset group.
In 2022 , general and administrative expenses increased $4 million, or 6%, compared with the same period in 2021, primarily due to an increase in personnel costs of $5 million.
In 2024, sales and marketing expenses increased by $8 million, or 7% , compared with th e same period in 2023, primarily due to higher facilities expenses in support of our sales force. In 2024, g eneral and administrative expenses increased by $6 million , or 10% , compared with the same period in 2023, driven by higher headcount expenses.
On March 6, 2023 and November 2, 2022, we repurchased $65 million and $160 million, respectively, of our 2026 Convertible Notes, as further described in Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on our accounting policies. Revenue Recognition and Deferred Revenue We generate revenue primarily from the sale of communications services to enterprise customers.
Quarterly, we review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, the implementation of prudent and feasible tax planning strategies, and results of recent operations. The evaluation of the recoverability of deferred tax assets requires judgment in assessing future profitability.
If we demonstrate cumulative pre-tax losses in a particular jurisdiction in a three-year period, including the current and prior two years, management then considers the expected timing of the reversals of existing temporary differences, the implementation of prudent and feasible tax planning strategies, and projected future taxable income when determining if the deferred tax assets will be realized.
In 2022, the combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of $238 million, whic h increased by $25 million, or 11%, compared with the same period in 2021, driven by profit improvements from the combination of our revenue and cost of revenue derived other than from pass-through messaging surcharges.
The combination of changes in total revenue and total cost of revenue yielded gross profit o f $280 million , which increased $44 million f rom the same period in 2023 , driven by higher sales of election-related political messaging.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe carry the Convertible Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. 84 Table of Contents Foreign Currency Risk The functional currencies of our foreign subsidiaries are the respective local currencies of the jurisdictions in which they operate, which are primarily the Euro and the British Pound.
Biggest changeA hypothetical 10% change in interest rates would not have had a material impact on our financial results included elsewhere in this Annual Report on Form 10-K. 82 Table of Contents Foreign Currency Risk The functional currencies of our foreign subsidiaries are the respective local currencies of the jurisdictions in which they operate, which are primarily the Euro and the British Pound.
Gains or losses due to transactions in foreign currencies are included in other income (expense), net in our consolidated statements of operations. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future.
Gains or losses due to transactions in foreign currencies are included in other income, net in our consolidated statements of operations. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future.
Approximately 14%, 16% and 12% of our total revenue was generated outside North America for the years ended December 31, 2023, 2022 and 2021, respectively. The majority of our revenues and operating expenses are denominated in U.S. dollars, and therefore are not currently subject to significant foreign currency risk.
Approximately 12%, 14%, and 16% of our total revenue was generated outside North America for the years ended December 31, 2024, 2023 and 2022, respectively. The majority of our revenues and operating expenses are denominated in U.S. dollars, and therefore are not currently subject to significant foreign currency risk.
As a result, we are exposed to interest rate risk as we make draws on the Credit Facility. As of December 31, 2023, there were no outstanding borrowings. As of December 31, 2023, we had a gross carrying amount of $175 million and $250 million outstanding from our 2026 Convertible Notes and 2028 Convertible Notes, respectively.
As a result, we are exposed to interest rate risk as we make draws on the Credit Facility. As of December 31, 2024 , there were no outstanding borrowings. As of December 31, 2024, we had gross carrying amounts of $35 million and $250 million outstanding from our 2026 Convertible Notes and 2028 Convertible Notes, respectively.
A hypothetical 10% adverse change in foreign currency exchange rates would have adversely impacted our net loss for the year ended December 31, 2023 by approximately $3 million. 85 Table of Contents
A hypothetical 10% adverse change in foreign currency exchange rates would have adversely impacted our net loss for the year ended December 31, 2024 by approximately $3.1 million. 83 Table of Contents
Our cash and cash equivalents are comprised primarily of interest bearing checking and direct deposit accounts, and money market accounts. Marketable securities consist of corporate debt securities, U.S. treasury securities, and commercial paper not otherwise classified as cash equivalents. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant.
Our cash and cash equivalents are comprised primarily of interest bearing checking and direct deposit accounts, and money market accounts. Marketable securities consist of time deposits and commercial paper not otherwise classified as cash equivalents. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. Interest Rate Risk Our primary exposure to market risk relates to interest rate changes. We had cash and cash equivalents of $132 million and marketable securities of $21 million as of December 31, 2023, which were held for working capital purposes.
Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. Interest Rate Risk We had cash and cash equivalents of $82 million and marketable securities of $2 million as of December 31, 2024, which were held for working capital purposes.
Loans based on SOFR bear interest at a rate equal to term SOFR for the applicable interest period plus 10 basis points plus an applicable margin between 2.25% and 2.75%, and loans based on the base rate bear interest at a rate equal to the base rate plus an applicable margin between 1.25% and 1.75%, in each case of the foregoing, depending upon our consolidated EBITDA for the most recent period of four consecutive fiscal quarters for which financial statements have been delivered under the Credit Agreement.
Under the terms of the Second Amendment, loans based on SOFR bear interest at a rate equal to term SOFR for the applicable interest period plus 10 basis points plus an applicable margin between 2.0% and 2.5% , and loans based on the base rate bear interest at a rate equal to the base rate plus an applicable margin between 1.0% and 1.50% , in each case of the foregoing, depending upon our consolidated total leverage ratio for the most recent fiscal quarter for which financial statements have been delivered under the Credit Agreement.
On August 1, 2023, we entered into the Credit Agreement, which provides for a $50 million Credit Facility. Interest on borrowings under the Credit Facility accrues at an annual rate tied to a base rate or the SOFR, at our election.
Interest on borrowings under the Credit Facility accrues at an annual rate tied to a base rate or the SOFR, at our election.
Due to the short‑term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates would not have had a material impact on our financial results included elsewhere in this Annual Report on Form 10-K.
Due to the short‑term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. On August 1, 2023, we entered into the Credit Agreement, which provided for a $50 million Credit Facility.
Added
On May 1, 2024, we entered into the Amendment, which, among other things, increased our Credit Facility to $100 million, and on October 28, 2024, we entered into the Second Amendment, which further increased our Credit Facility to $150 million.
Added
We carry the Convertible Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. S ee Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on the Revolving Credit Facility and the Convertible Notes .

Other BAND 10-K year-over-year comparisons