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What changed in Bandwidth Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Bandwidth Inc.'s 2022 and 2023 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 2023 report.

+404 added−401 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-23)

Top changes in Bandwidth Inc.'s 2023 10-K

404 paragraphs added · 401 removed · 326 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeA hosted SBC eliminates complexity and allows for a truly cloud deployment. • Send-to SMS web application: Allows enterprises the ability to send text messages in and outside of the organization from within the Teams environment, built to work seamlessly with a direct routing or BYOC strategy. 10 Table of Contents Competitive Strengths We believe three things give Bandwidth a competitive advantage.
Biggest changeThis 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.
Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is our Chief Executive Officer, in deciding how to allocate resources and assessing performance. Our chief operating decision maker allocates resources and assesses performance based upon consolidated financial information.
Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is our Chief Executive Officer, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker allocates resources and assesses performance based upon consolidated financial information.
As each of these customer categories uses 6 Table of Contents services on the Bandwidth Communications Cloud in its own unique way, we have designed three key market offerings to power digital communications transformation: • 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 Communications Plans.
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. 17 Table of Contents
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.
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 and many other services on a scalable, global basis. • Market Offering 2: Programmable Services.
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.
Bandwidth was the first CPaaS provider to offer a robust selection of APIs built on our own cloud platform. Our award-winning support teams help businesses around the world solve complex communications challenges every day.
Bandwidth was the first cloud communications provider to offer a robust selection of APIs built on our own cloud platform. Our award-winning support teams help businesses around the world solve complex communications challenges every day.
Our large library of APIs (including voice, messaging, numbers, emergency services, insights and integrations) allows customers to incorporate a broad range of capabilities into their products and services that would be otherwise unattainable. Global reach from a single source : Our Communications Cloud provides coverage in more than 60 countries covering more than 90 percent of global GDP.
Our large library of APIs (including voice, messaging, numbers, emergency services, insights and integrations) allows customers to incorporate a broad range of capabilities into their products and services that would be otherwise unattainable. Global reach from a single source : Our Communications Cloud provides coverage in more than 65 countries covering more than 90 percent of global GDP.
These platforms are global in nature, and they expect a communications partner who can provide direct global coverage and regulatory insight. We believe our leadership in this space continues to expand with our global footprint. We believe Bandwidth’s toll-free voice solution is a major reason contact center platforms build with Bandwidth for their North American business.
These platforms are global in nature, and they expect a communications partner who can provide direct global coverage and regulatory insight. We believe our leadership in this market continues to expand with our global footprint. We believe Bandwidth’s toll-free voice solution is a major reason contact center platforms build with Bandwidth for their North American business.
Offering 5X redundancy with available hands-free alternative routing, our own toll-free voice network is directly peered with four additional network partners, offering customers greater peace of mind. Whenever possible, Bandwidth keeps calls on its own network to enable excellent quality and better return on investment.
Offering 5x carrier redundancy with available hands-free alternative routing, our own toll-free voice network is combined with four additional directly peered toll-free network partners, offering customers greater peace of mind. Whenever possible, Bandwidth keeps calls on its own network to enable excellent quality and better return on investment.
In fact, Bandwidth already powers all the 2022 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 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.
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 can now 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. • 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.
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.
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.
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. Video API.
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.
Our near-term roadmap includes a range of solutions to help enterprises create a better total experience for consumers and employees whether through the contact center, hybrid work, text messaging engagement, intelligent emergency services, or a combination thereof. Competition The CPaaS market is rapidly evolving and increasingly competitive.
Our near-term roadmap includes a range of solutions to help enterprises create a better total experience for consumers and employees whether through the contact center, hybrid work, text messaging engagement, intelligent emergency services, new AI technologies or a combination thereof. Competition The CPaaS market is rapidly evolving and increasingly competitive.
Our marketing team generates marketing qualified leads and pipeline for sales through a number of demand-generating channels, including our website, marketing campaigns, webinars, sponsored virtual and live events, white papers and blogs, public relations, social media, analyst relations, paid 12 Table of Contents search and search engine optimization and outbound lead development efforts.
Our marketing team generates marketing qualified leads and pipeline for sales through a number of demand-generating channels, including our website, marketing campaigns, webinars, sponsored virtual and live events, white papers and blogs, public relations, social media, analyst relations, paid search and search engine optimization and outbound lead development efforts.
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 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 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 boundaries.
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.
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 60 countries, serving 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”); • 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. 8 Table of Contents Core Product Domains Bandwidth is continually investing in new domains in our Communications Cloud.
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.
Backed by the Bandwidth Communications Cloud, a global owned-and-operated network spanning more than 60 countries reaching over 90 percent of global gross domestic product (“GDP”), innovative enterprises use Bandwidth’s Application Programming Interfaces (“APIs”) to easily embed voice, messaging and emergency services capabilities into software and applications.
Backed by the Bandwidth Communications Cloud, our global owned-and-operated network spanning more than 65 countries reaching over 90 percent of global gross domestic product (“GDP”), innovative enterprises use Bandwidth’s Application Programming Interfaces (“APIs”) to easily embed voice, messaging and emergency services capabilities into software and applications.
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.
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.
We benefit from long-standing relationships with some of the largest tech companies, well-recognized enterprise customers, as well as 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, 2022. 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% 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.
Our easy-to-use APIs and proven track record for deliverability have made Bandwidth a 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.
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.
Phone Numbers. The Bandwidth Dashboard is Bandwidth’s user-friendly interface for a comprehensive number management solution.
The Bandwidth Dashboard is Bandwidth’s user-friendly interface for a comprehensive number management solution.
The methodology by which carriers have 15 Table of Contents compensated one another for exchanged traffic, whether it be for local, intrastate or interstate traffic, has been subject to ongoing reform efforts at the FCC.
The methodology by which carriers have compensated one another for exchanged traffic, whether it be for local, intrastate or interstate traffic, has been subject to ongoing reform efforts at the FCC.
We will seek to do this in three ways: (1) by cross-selling and up-selling within our existing customers as they benefit from our global footprint and powerful APIs to automate and scale cloud communications; (2) by focusing on direct-to-enterprise growth to serve Global 2000 enterprises that come directly to Bandwidth to leverage our services to accelerate their digital transformations, and (3) by aiming to be the preferred provider for Software as a Service (“SaaS”) platforms that use conversational messaging to create digital engagements that enhance the customer experience.
We will seek to do this in three ways: (1) cross-sell and up-sell our existing customers as they benefit from our global footprint and powerful APIs to automate and scale cloud communications; (2) focus on direct-to-enterprise growth to serve Global 2000 enterprises that directly leverage Bandwidth services to accelerate their digital transformations, and (3) aim to be the preferred provider for Software as a Service (“SaaS”) platforms that use conversational voice and messaging to create digital engagements that enhance the customer experience.
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, 2022, 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, 2023, we had approximately 1,100 employees, who are primarily located in the United States, Europe and Asia Pacific.
International 16 Table of Contents As an international company, we are subject to telecommunications laws and regulations in the non-US jurisdictions in which we offer our services. These laws and regulations may concern telecommunications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects.
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.
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 98 percent open rate by users, text messaging has become a business-critical communication channel to reach consumers.
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.
Go-to-Market Strategy Bandwidth’s go-to-market strategy is designed around the global shift from on-premises based technology to cloud-based communications. We believe we are the only global CPaaS provider that also owns and operates our own Communications Cloud network.
Go-to-Market Strategy Bandwidth’s go-to-market strategy is designed around the global shift from on-premises based technology to cloud-based communications. We believe we are the only global Communications Platform as a Service (“CPaaS”) provider that also owns and operates our own cloud communications network.
Bandwidth’s Call Assure solution, announced in October 2022, provides hands-free alternative routing that is fully insulated from the core network to protect against an extraordinary disruption, such as a fire, natural disaster or cyberattack.
Bandwidth’s unique Call Assure TM solution provides hands-free alternative routing that is fully insulated from the core network to protect against an extraordinary disruption, such as a fire, natural disaster or cyberattack.
Sales and Marketing Our sales and marketing teams are part of a single revenue organization that works closely together to identify and acquire new customers, expand relationships with existing enterprises, and integrate them with the 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 12 Table of Contents Bandwidth Communications Cloud.
Bandwidth’s business benefits from multiple global megatrends, including the enterprise migration to the cloud, the adoption of Contact Center as a Service platforms, the need to be able to work from anywhere, the reinvention of customer experience and the growth in messaging applications to engage directly with consumers.
Bandwidth’s business benefits from multiple global megatrends, including enterprise migration to the cloud, adoption of Contact Center as a Service platforms, the need to be able to work from anywhere, reinvention of customer experience, growth in messaging applications to engage directly with consumers, and application of artificial intelligence (“AI”) technologies to cloud communications use cases.
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 may concern telecommunications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects.
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.
Corporate Information Bandwidth Inc. was founded in July 2000 and incorporated in Delaware on March 29, 2001. Our principal executive offices are located at 900 Main Campus Drive, Raleigh, NC 27606, and our telephone number is (800) 808-5150. Our website address is www.bandwidth.com.
Corporate Information Bandwidth Inc. was founded in July 2000 and incorporated in Delaware on March 29, 2001. 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.
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. We describe below certain material components of the regulatory framework in which we operate.
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.
CCaaS and UCaaS Platform Integrations. Bandwidth’s global Communications Cloud integrates with several leading UCaaS and CCaaS platforms under the Duet TM 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.
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.
This means our customers can consolidate their communications vendor relationships with Bandwidth, while gaining global reach, resiliency and efficiency for their communications stack. We offer greater levels of quality and delivery assurance than providers offering aggregated services across the public Internet or through resold partnerships.
This means our customers can consolidate their communications vendor relationships with Bandwidth, while gaining global reach, resiliency and efficiency for their communications stack. We offer greater quality and delivery assurance than providers that offer aggregated services across the public Internet or that simply resell partner networks.
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 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.
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. • Duet TM for Microsoft Teams: As mentioned earlier, we have a Duet partnership with the leading CCaaS platform. We also have Duets in the UCaaS space, including Duet 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. • 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.
Below are some of the major product offerings and use cases supported: Voice. We offer customers the ability to interact with our voice services through SIP or programmable voice API.
Core Product Domains Bandwidth is continually investing in new domains in our Communications Cloud. Below are some of the major product offerings and use cases supported: Voice. We offer customers the ability to interact with our voice services through SIP or programmable voice API.
In December 2019, Congress adopted the Telephone Robocall Abuse Criminal Enforcement and Deterrence (“TRACED”) Act. 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 is conducting 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 several proceedings to understand and address fraud and abuse in the form of illegal robocalling.
As of December 31, 2022, we had twenty-nine U.S. patents and three U.S. patent applications pending. In addition, as of December 31, 2022, we had nineteen registered trademarks and two trademark applications pending in the United States and elsewhere.
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.
Bandwidth can help these large enterprises transition from their current on-premises equipment to a fully or hybrid cloud-based solution. 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.
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.
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. Moreover, our dynamic geospatial routing capability routes emergency calls based on a real-time location of the caller to produce industry-leading results.
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.
This competitive differentiator has enabled Bandwidth to power each successive wave of the cloud communications revolution–from the unified communications hyperscalers, to the messaging platform leaders, and now directly to global enterprises.
This competitive differentiator has enabled Bandwidth to power the forces behind successive waves of the cloud communications revolution–from the growth of unified communications hyperscalers, to the acceleration of messaging platform leaders, and to directly powering global enterprise communications.
Our culture is focused on helping each other succeed in our mission and makes work-life balance possible isn’t just something to feel good about. It drives real results. Our Bandmate engagement and satisfaction scores are consistently ranked higher than our peers.
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.
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.
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.
Separately, the FCC and other governmental agencies work to thwart illegal robocalling through 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 Federal Trade Commission and state attorneys general also have the authority to enforce compliance with the TCPA.
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.
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. Second, our API-first approach facilitates the embedding of automation, enterprise-grade tooling, and simple UX/UI throughout the Bandwidth Communications Cloud.
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.
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 2022, our customers have expressed a 97% satisfaction rate.
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.
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.
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 have obtained FCC authorization to provide services on a facilities and resale basis. 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.
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.
We seek to bring this body of experience and knowledge to all our customer engagements. 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.
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 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.. 13 Table of Contents 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 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.
The industry continues to evolve toward new services built upon IP technologies. 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.
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.
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. 14 Table of Contents Federal Telecommunications Regulation The Federal Communications Commission (“FCC”) has jurisdiction over interstate and international telecommunications services in the U.S.
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.
For our employees, this means we make a “whole person promise” to offer 11 Table of Contents meaningful work and programs that ensure Bandmates can find the work/life balance necessary to enjoy a healthy and fulfilling life.
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.
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.
To 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.
We believe we will continue to win high-volume contracts from enterprises that have run out of capacity with our competitors 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.
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.
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 2022 Gartner Magic Quadrant Leaders in UCaaS and CCaaS.
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.
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.
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.
Moreover, the TCPA also allows aggrieved private parties to directly seek civil remedies and seek statutory-defined damages for calls or text messages received without recipients’ proper consent. VoIP Regulation . Some communications services provided through our software APIs may qualify as Voice-over Internet Protocol (“VoIP”).
The FCC also has the authority to issue an order to downstream voice service providers to block and cease delivery of voice traffic from gateway providers identified by the FCC. Moreover, the TCPA and other similar laws allow aggrieved private parties to directly seek civil remedies and seek statutory-defined damages for calls or text messages received without recipients’ proper consent.
These three strategies are the foundation of the durable business we seek to build. Operating Segments As a result of certain changes in our business during the quarter ended March 31, 2022, we re-evaluated our segment reporting and determined that one segment was appropriate, rather than the previously reported segments comprising “CPaaS” and “Other”.
These three strategies are the foundation of the durable business we seek to build. Operating Segments We currently operate in one operating segment.
Bandwidth’s capacity, high deliverability, and regulatory know-how have positioned us as a leading provider for messaging platforms.
Bandwidth’s capacity, high deliverability, regulatory know-how and exceptional human-based support has positioned us as a leading provider for messaging platforms. We believe we will continue to win high-volume contracts from customers that have run out of capacity with our competitors or who seek the robustness, reliability and resilience of our service.
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The primary drivers for this change were the strategic alignment of our operating departments and the sale of certain immaterial legacy businesses. We currently operate in one operating segment.
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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.
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Bandwidth provides solutions to facilitate these customers’ efficient transition from their current on-premises equipment to a fully cloud-based solution. To capitalize on this growing opportunity, we now have a dedicated focus on enterprises.
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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.
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Our API for video easily combines with our programmable voice API to create an integrated collaboration experience, and enables users to join calls by video or by voice calling.
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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.
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Easily deployed with mobile, 9 Table of Contents browser, and server SDKs, our Video API provides such features as multi-party conferencing, support for VP8, H.264 video codecs, screen sharing, connection to the PSTN, and detailed call records. • PSTN, SIP and browser-based endpoints: We allow customers to connect to PSTN, SIP, and browser-based voice and video endpoints to create a multi-party communication experience, and enable users to make and receive calls around the globe. • Improve the impact of direct in-application communications: Our API allows applications that depend on making a real connection, such as telehealth, the ability to do so without leaving the context of the application, allowing them to connect face-to-face with consumers with a trackable video.
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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.
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This includes: • Direct routing & dynamic E911: Consolidate SIP globally with meaningful direct access to the telephony, and solve for an increasingly dynamic workforce from a single provider. • Hosted session border controllers (SBCs): Connect telephony without another piece of on-premise equipment.
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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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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. We often hear from our customers that Bandwidth just cares more.
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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.
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The majority of our customers sign master service agreements (“MSAs”) that contain standard terms and conditions, including billing and payment, default, termination, limitations of liability, confidentiality, assignment and notification, and other key terms and conditions. Customers order specific services in separate service order forms that incorporate the applicable MSA.
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VoIP Regulation . Some communications services provided through our software APIs may qualify as Voice-over Internet Protocol (“VoIP”).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding common stock not held by such 15% or greater stockholder.
Biggest changeAs a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding common stock not held by such 15% or greater stockholder. 53 Table of Contents Any provision of our second amended and restated certificate of incorporation, third amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
If we do not devote sufficient resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to retain existing customers and could prevent prospective customers from adopting our services. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support.
If we do not devote sufficient resources to, or are otherwise unsuccessful in, assisting our customers effectively, it could adversely affect our ability to retain existing customers and could prevent prospective customers from adopting our services. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support.
Cyber-attacks, including through the use of malware, computer viruses, distributed denial of services (“DDoS”) attacks, credential harvesting and other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our suppliers, vendors and other service providers, could cause harm to our business, including by misappropriating our proprietary information or that of our customers, employees and business partners or to cause interruptions of our services and our communications platform.
Cyber-attacks, including through the use of malware, computer viruses, distributed denial of service (“DDoS”) attacks, credential harvesting and other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our suppliers, vendors and other service providers, could cause harm to our business, including by misappropriating our proprietary information or that of our customers, employees and business partners or to cause interruptions of our services and our communications platform.
Some of our customers may use our platform to transmit illegal, offensive, unsolicited and/or unauthorized calls and messages, including spam, phishing scams, and links to harmful applications. Some of our customers also may reproduce and distribute copyrighted material or the trademarks of others without permission.
Some of our customers, or customers of our customers, may use our platform to transmit illegal, offensive, unsolicited and/or unauthorized calls and messages, including spam, phishing scams, and links to harmful applications. Some of our customers also may reproduce and distribute copyrighted material or the trademarks of others without permission.
The trading price of our Class A common stock may continue to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • general market volatility caused by epidemics, endemics and pandemics such as COVID-19, acts of war, or other significant domestic or international events; • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks; • volatility in the trading volumes of our Class A common stock; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry or both; • regulatory actions or developments affecting our operations, those of our competitors or our industry more broadly; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, products, services or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; 50 Table of Contents • changes in accounting standards, policies, guidelines, interpretations or principles; • new rules adopted by certain index providers, such as S&P Dow Jones, that limit or preclude inclusion of companies with multi-class capital structures in certain of their indices; • any significant change in our management; and • general economic conditions and slow or negative growth of our markets.
The trading price of our Class A common stock may continue to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • general market volatility caused by epidemics, endemics and pandemics such as COVID-19, acts of war, or other significant domestic or international events; • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks; • volatility in the trading volumes of our Class A common stock; 50 Table of Contents • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry or both; • regulatory actions or developments affecting our operations, those of our competitors or our industry more broadly; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, products, services or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations or principles; • new rules adopted by certain index providers, such as S&P Dow Jones, that limit or preclude inclusion of companies with multi-class capital structures in certain of their indices; • any significant change in our management; and • general economic conditions and slow or negative growth of our markets.
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; 46 Table of Contents • 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; • 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; • 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.
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 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; • 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 second amended and restated bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholder to us or our stockholders; (iii) any action asserting a claim against us that is governed by the internal affairs doctrine; or (iv) any action arising pursuant to any provision of the Delaware General Corporation Law, our second amended and restated certificate of incorporation or our second amended and restated bylaws.
Our third amended and restated bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholder to us or our stockholders; (iii) any action asserting a claim against us that is governed by the internal affairs doctrine; or (iv) any action arising pursuant to any provision of the Delaware General Corporation Law, our second amended and restated certificate of incorporation or our third amended and restated bylaws.
If we are unable to maintain our current pricing due to competitive pressures, our revenue and margins will be reduced and our business, results of operations and financial condition would be adversely affected. Customers utilize our services in many ways and use varying levels of functionality that our services offer or are capable of supporting or enabling within their applications.
If we are unable to maintain our current pricing due to competitive pressures, our revenue and margins will be reduced and our business, results of operations and financial condition will be adversely affected. Customers utilize our services in many ways and use varying levels of functionality that our services offer or are capable of supporting or enabling within their applications.
Our business would be substantially impaired if the FCC, the courts or state commissions eliminated our access to the facilities and services we use to serve our customers, substantially increased the rates we pay for facilities and services, increased the costs or complexity associated with providing emergency 911 services or adversely affected the revenue we receive from other carriers or our customers.
Our business would be substantially impaired if the FCC, the courts, state commissions, or interconnected carriers eliminated our access to the facilities and services we use to serve our customers, substantially increased the rates we pay for facilities and services, increased the costs or complexity associated with providing emergency 911 services or adversely affected the revenue we receive from other carriers or our customers.
These changes include amending or repealing our second amended and restated bylaws or second amended and restated certificate of incorporation or removing a director from office for cause. If all or substantially all of the holders of our Class B common stock convert their shares into Class A common stock voluntarily or otherwise, Mr.
These changes include amending or repealing our third amended and restated bylaws or second amended and restated certificate of incorporation or removing a director from office for cause. If all or substantially all of the holders of our Class B common stock convert their shares into Class A common stock voluntarily or otherwise, Mr.
We are subject to telecommunications laws and regulations in the non-U.S. countries where we offer our services. Numerous country-specific laws and governmental regulations apply to our business and may increase our costs, impact our products and communications platform or prevent us from offering or providing our products in certain countries.
We are subject to communications laws and regulations in the non-U.S. countries where we offer our services. Numerous country-specific laws and governmental regulations apply to our business and may increase our costs, impact our products and communications platform or prevent us from offering or providing our products in certain countries.
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; 25 Table of Contents • 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; • 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.
Our second amended and restated certificate of incorporation, second amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors.
Our second amended and restated certificate of incorporation, third amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors.
Among other things, our second amended and restated certificate of incorporation and second amended and restated bylaws include provisions: • authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Class A and Class B common stock; • limiting the liability of, and providing indemnification to, our directors and officers; • limiting the ability of our stockholders to call and bring business before special meetings; • providing for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; 52 Table of Contents • providing that our board of directors is classified into three classes of directors with staggered three-year terms; • prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • requiring super-majority voting to amend some provisions in our second amended and restated certificate of incorporation and second amended and restated bylaws; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings.
Among other things, our second amended and restated certificate of incorporation and third amended and restated bylaws include provisions: • authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Class A and Class B common stock; • limiting the liability of, and providing indemnification to, our directors and officers; • limiting the ability of our stockholders to call and bring business before special meetings; • providing for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; • providing that our board of directors is classified into three classes of directors with staggered three-year terms; • prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • requiring super-majority voting to amend some provisions in our second amended and restated certificate of incorporation and third amended and restated bylaws; • requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings.
Our second amended and restated certificate of incorporation and our second amended and restated bylaws include provisions that require the affirmative vote of two-thirds of all of the outstanding shares of our capital stock entitled to vote to effect certain changes.
Our second amended and restated certificate of incorporation and our third amended and restated bylaws include provisions that require the affirmative vote of two-thirds of all of the outstanding shares of our capital stock entitled to vote to effect certain changes.
Our second amended and restated certificate of incorporation and our second amended and restated bylaws include super-majority voting provisions that will limit your ability to influence corporate matters.
Our second amended and restated certificate of incorporation and our third amended and restated bylaws include super-majority voting provisions that will limit your ability to influence corporate matters.
Alternatively, if a court were to find the choice of forum provision contained in our second amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.
Alternatively, if a court were to find the choice of forum provision contained in our third amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.
We, along with many other telecommunications companies and similar service providers, currently are subject to litigation regarding our billing, collection and remittance of non-income-based taxes and other similar charges regarding 911 services alleged to apply in certain states, counties, and municipalities located in California, Illinois and New York. See “Part II, Item 3.
We, along with many other telecommunications companies and similar service providers, currently are subject to litigation regarding our billing, collection and remittance of non-income-based taxes and other similar charges regarding 911 services alleged to apply in certain states, counties, and municipalities located in California, Illinois and New York. See “Part I, Item 3.
In January 2018, the FCC adopted an order largely repealing its network neutrality rules (the “Order”). Among other things, the pre-existing network neutrality rules prevented providers of broadband internet access services—like cable and telephone companies—from blocking, impairing and degrading service offerings from non-affiliated third parties like us. In 2019, the U.S.
In January 2018, the FCC released an order largely repealing its network neutrality rules (the “Order”). Among other things, the pre-existing network neutrality rules prevented providers of broadband internet access services—like cable and telephone companies—from blocking, impairing and degrading service offerings from non-affiliated third parties like us. In 2019, the U.S.
Our ability to attract new customers and increase revenue from existing customers depends in part on our ability to enhance and improve our existing services, increase adoption and usage of our 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.
Anti-takeover provisions contained in our second amended and restated certificate of incorporation and second amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Anti-takeover provisions contained in our second amended and restated certificate of incorporation and third amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Lower prices offered by our competitors could contribute to an increase in customer churn. We cannot predict the timing, duration or magnitude of any deteriorated economic conditions or its impact on our target of customers. Higher customer churn rates could adversely affect our revenue growth. Higher customer churn rates could cause our dollar-based net retention rate to decline.
Lower prices offered by our competitors could contribute to an increase in customer churn. We cannot predict the timing, duration or magnitude of any deteriorated economic conditions or its impact on our target of customers. Higher customer churn rates could adversely affect our revenue growth. Higher customer churn rates could cause our net retention rate to decline.
Our second amended and restated bylaws provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our third amended and restated bylaws provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
While Delaware courts have determined that choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than that designated in our exclusive forum provision. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provision of our second amended and restated bylaws.
While Delaware courts have determined that choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than that designated in our exclusive forum provision. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provision of our third amended and restated bylaws.
Changes in the economy, increased competition from other providers, cyber incidents such as the 2021 DDoS attack 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, 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 connection with the pricing of the Company’s 0.25% Convertible Notes due March 1, 2026 (the “ 2026 Convertible Notes”) and 0.50% Convertible Notes due April 1, 2028 (the “ 2028 Convertible Notes” and, together with the 2026 Convertible Notes, the “Convertible Notes”), we entered into privately negotiated capped call transactions (the “2026 Capped Calls” and the “2028 Capped Calls,” respectively and, collectively, the “Capped Calls”) with certain financial institutions (the “option counterparties”).
In connection with the pricing of our 0.25% Convertible Notes due March 1, 2026 (the “2026 Convertible Notes”) and 0.50% Convertible Notes due April 1, 2028 (the “2028 Convertible Notes” and, together with the 2026 Convertible Notes, the “Convertible Notes”), we entered into privately negotiated capped call transactions (the “2026 Capped Calls” and the “2028 Capped Calls,” respectively and, collectively, the “Capped Calls”) with certain financial institutions (the “option counterparties”).
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.
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.
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.
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.
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.
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.
It could apply, however, to a suit that asserts claims under the Securities Act and falls within one or more of the categories enumerated in our choice of forum provision, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the 53 Table of Contents Securities Act or the rules and regulations thereunder.
It could apply, however, to a suit that asserts claims under the Securities Act and falls within one or more of the categories enumerated in our choice of forum provision, inasmuch as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
This litigation could be expensive and distracting, regardless of the outcome. 33 Table of Contents While our own limited patent portfolio may deter other operating companies from bringing such actions, patent infringement claims may also be asserted by patent holding companies, which do not use technology and whose sole business is to enforce patents against operators, such as us, for monetary gain.
This litigation could be expensive and distracting, regardless of the outcome. While our own limited patent portfolio may deter other operating companies from bringing such actions, patent infringement claims may also be asserted by patent holding companies, which do not use technology and whose sole business is to enforce patents against operators, such as us, for monetary gain.
We also generally evaluate complaints that we receive regarding our customers’ use of our platform. Our substantial efforts will not prevent all illegal robocalls and other fraudulent activity. The unlawful or fraudulent use of our platform could subject us to 28 Table of Contents claims for damages, copyright or trademark infringement, regulatory enforcement, fraud, or negligence or damage our reputation.
We also generally evaluate complaints that we receive regarding our customers’ use of our platform. Our substantial efforts will not prevent all illegal robocalls and other fraudulent activity. The unlawful or fraudulent use of our platform could subject us to claims for damages, copyright or trademark infringement, regulatory enforcement, fraud, or negligence or damage our reputation.
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.
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.
In addition, congressional legislative efforts to rewrite the Telecommunications Act of 1996 or enact other telecommunications legislation, as well as various state legislative initiatives, may cause major industry and regulatory changes.
In addition, congressional legislative efforts to rewrite the Telecommunications Act of 1996 or enact other telecommunications legislation such as the TRACED Act, as well as various state legislative initiatives, may cause major industry and regulatory changes.
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.
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.
We may not have sufficient funds to satisfy all amounts due under such 48 Table of Contents existing or future indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof. The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
We may not have sufficient funds to satisfy all amounts due under such existing or future indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof. The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
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. 22 Table of Contents We have experienced substantial expansion in our business, including internationally through our acquisition of Voxbone in late 2020.
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.
These obligations may also limit the ability of our customers to collect, store, retain, protect, use, process, transmit, share and disclose data 31 Table of Contents with others through our services. Compliance with, and other burdens imposed by, such obligations and restrictions could increase the cost of our operations and adversely impact our business.
These obligations may also limit the ability of our customers to collect, store, retain, protect, use, process, transmit, share and disclose data with others through our services. Compliance with, and other burdens imposed by, such obligations and restrictions could increase the cost of our operations and adversely impact our business.
While we typically 34 Table of Contents enter into confidentiality agreements with our employees, consultants, customers, and vendors in an effort to control access to and distribution of technology, software, documentation and other information, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
While we typically enter into confidentiality agreements with our employees, consultants, customers, and vendors in an effort to control access to and distribution of technology, software, documentation and other information, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
Although we expect that we could receive similar services from other third-party suppliers, if any of our arrangements with 38 Table of Contents our third-party suppliers are terminated or interrupted, we could experience interruptions in our ability to make our services available to customers, as well as delays and additional expenses in arranging alternative providers.
Although we expect that we could receive similar services from other third-party suppliers, if any of our arrangements with our third-party suppliers are terminated or interrupted, we could experience interruptions in our ability to make our services available to customers, as well as delays and additional expenses in arranging alternative providers.
In some jurisdictions, we rely on third party access and networks for local connectivity. We are not always able to secure this access and local 39 Table of Contents connectivity on favorable terms. Costs of obtaining service from other communications carriers comprise a significant proportion of the operating expenses of long distance carriers.
In some jurisdictions, we rely on third party access and networks for local connectivity. We are not always able to secure this access and local connectivity on favorable terms. Costs of obtaining service from other communications carriers comprise a significant proportion of the operating expenses of long distance carriers.
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 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.
The governments of countries in which we operate and other governmental bodies could make unprecedented assertions about how taxation is determined in their jurisdictions that are contrary to the way in which we have interpreted and historically applied the rules and regulations in our tax returns filed in such 42 Table of Contents jurisdictions.
The governments of countries in which we operate and other governmental bodies could make unprecedented assertions about how taxation is determined in their jurisdictions that are contrary to the way in which we have interpreted and historically applied the rules and regulations in our tax returns filed in such jurisdictions.
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 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 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.
If any governmental sanctions or fines are imposed, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any governmental action will likely result in a diversion of management’s attention and resources and an increase in professional fees.
If any governmental sanctions or fines are imposed, our business, results of operations, and 30 Table of Contents financial condition could be materially adversely affected. In addition, responding to any governmental action will likely result in a diversion of management’s attention and resources and an increase in professional fees.
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.
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.
Court of Appeals for the District of Columbia Circuit largely affirmed the Order, but vacated the portion of the Order that would bar states from imposing any rule or requirement inconsistent with the FCC’s order. In April 2022, after losing an appeal before the U.S.
Court of Appeals for the District of Columbia Circuit largely 31 Table of Contents affirmed the Order, but vacated the portion of the Order that would bar states from imposing any rule or requirement inconsistent with the FCC’s order. In April 2022, after losing an appeal before the U.S.
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.
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.
These estimates include several key assumptions including, but not limited to, the taxability of our services, the 41 Table of Contents 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 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 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 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.
(f/k/a Republic Wireless, Inc.) (“Relay”), our former subsidiary, to our stockholders as of and on November 30, 2016 (the “Spin-Off”), if there is a determination that the Spin-Off is taxable for U.S. federal income tax purposes.
(f/k/a Republic Wireless, 43 Table of Contents Inc.) (“Relay”), our former subsidiary, to our stockholders as of and on November 30, 2016 (the “Spin-Off”), if there is a determination that the Spin-Off is taxable for U.S. federal income tax purposes.
Our disclosure controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal 44 Table of Contents executive and financial officers, and we continue to evaluate how to improve controls.
Our disclosure controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers, and we continue to evaluate how to improve controls.
To the extent that upgrades of existing products, services and technology are required for the introduction of new services, the success of these upgrades also may be dependent on reaching mutually acceptable terms with vendors and on vendors meeting their obligations in a timely manner.
To the extent that upgrades of existing products, services and technology are required for the introduction of new 22 Table of Contents services, the success of these upgrades also may be dependent on reaching mutually acceptable terms with vendors and on vendors meeting their obligations in a timely manner.
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.
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.
We are subject to various federal, state, local and foreign laws and regulations, contractual commitments and industry standards that create obligations and impose restrictions with respect to the collection, storage, retention, use, processing, transmission, sharing, disclosure and protection of personal data and other customer data, including “customer proprietary network information” under applicable U.S. laws.
We are subject to various federal, state, local and foreign laws and regulations, contractual commitments and industry standards that create obligations and impose restrictions with respect to the collection, storage, retention, use, processing, transmission, sharing, disclosure and protection of personal data and other customer data, including “customer proprietary network information” as defined in applicable U.S. laws.
In addition, if we cannot provide emergency calling functionality through our communications platform to meet any applicable federal, state or international 30 Table of Contents 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 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.
We have obtained licenses or are 32 Table of Contents obtaining licenses in various countries in which we do business, but in some countries, the regulatory regime around provisioning of phone numbers is unclear, subject to change, and may conflict from jurisdiction to jurisdiction.
We have obtained licenses or are obtaining licenses in various countries in which we do business, but in some countries, the regulatory regime around provisioning of phone numbers is unclear, subject to change, and may conflict from jurisdiction to jurisdiction.
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.
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.
Although our service agreements generally limit our liability for service failures and generally exclude 36 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.
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.
Network providers also may institute additional fees due to regulatory, competitive or other industry-related changes that increase our costs. For example, the major U.S. cellular carriers and their intermediaries have added a variety of fees that are applied to Application to Person (“A2P”) messages delivered to their subscribers.
Network providers also may institute additional fees due to regulatory, competitive or other industry-related changes that increase our costs. For example, the major U.S. cellular carriers and their intermediaries have added a variety of fees that are applied to A2P messages delivered to their subscribers.
Delays in receiving required regulatory approvals or the enactment of new adverse regulation or regulatory requirements may slow our growth and have a material adverse effect on our business, results of operations and financial condition.
Delays in receiving required regulatory approvals or the 29 Table of Contents enactment of new adverse regulation or regulatory requirements may slow our growth and have a material adverse effect on our business, results of operations and financial condition.
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 that there is significant competition for experienced sales professionals with the skills and technical knowledge that we require.
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.
In 19 Table of Contents addition, some of our competitors have lower list prices than us, which may be attractive to certain customers even if those services have different or lesser functionality.
In addition, some of our competitors have lower list prices than us, which may be attractive to certain customers even if those services have different or lesser functionality.
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 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.
While additional countries have adopted or are expected to adopt the STIR/SHAKEN framework, other countries may seek to impose alternative regulatory obligations in an effort to mitigate illegal robocalling. Noncompliance with applicable FCC or other regulations or requirements could subject us to investigations, sanctions, enforcement actions, fines, consent decrees or other collateral consequences.
While additional countries have adopted or are expected to adopt the STIR/SHAKEN framework, other countries may seek to impose alternative regulatory obligations in an effort to mitigate illegal robocalling. Noncompliance with applicable FCC, FTC, state public utility corporations, or other regulations or requirements could subject us to investigations, sanctions, enforcement actions, fines, consent decrees or other collateral consequences.
In addition, these sales could impair our ability to raise capital through the sale of additional Class A common stock in the capital markets. Item 1B. Unresolved Staff Comments None. 54 Table of Contents
In addition, these sales could impair our ability to raise capital through the sale of additional Class A common stock in the capital markets. Item 1B. Unresolved Staff Comments None.
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 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.
If they do not recognize the need for and benefits of our services and platform, they may decide to adopt alternative services and/or develop the necessary services in-house to satisfy their business needs.
And even if they recognize the need for and benefits of our services and platform, they may decide to adopt alternative services and/or develop the necessary services in-house to satisfy their business needs.
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.
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.
Routing emergency calls through the Internet may be adversely affected by 37 Table of Contents power outages and network congestion that may not occur for users of traditional telephony services.
Routing emergency calls through the Internet may be adversely affected by power outages and network congestion that may not occur for users of traditional telephony services.
With the introduction of new services and new market entrants, we expect competition to intensify in the future. In addition, some of our customers choose to use our services and our competitors’ services at the same time in order to provide redundancy in their ability to deliver their own product offerings.
With the introduction of new services and new market entrants, we expect competition to intensify in the future. In addition, some of our customers choose to use both our services and our competitors’ services in order to provide redundancy in their ability to deliver their own product offerings.
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.
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.
We may require more capital in the future from equity or debt financings to fund our operations, finance investments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to competitive pressures and potential strategic opportunities.
We may require more capital in the future from equity or debt financings to fund our operations, finance investments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to 54 Table of Contents competitive pressures and potential strategic opportunities.
In addition, we believe that there is, and will continue to be, intense 40 Table of Contents competition for highly skilled management, technical, sales and other personnel with experience in our industry in the Raleigh, North Carolina area, where our headquarters are located, and in other geographic locations where we maintain offices.
In addition, we believe that there is, and will continue to be, intense competition for highly skilled management, technical, sales and other personnel with experience in our industry in the Raleigh, North Carolina area, where our corporate headquarters are located, and in other geographic locations where we maintain offices.
If a significant number of customers cease using, or reduce their usage of, our services, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from customers. Such additional sales and marketing expenditures could adversely affect our business, results of operations and financial condition.
If a significant number of customers cease using, or reduce their usage of, our services, we may be required to spend significantly more than planned on sales and marketing efforts to maintain or increase revenue from customers. Such additional sales and marketing expenditures could adversely affect our business, results of operations and financial condition.
More specifically, if: • we do not maintain or improve our current relationships with existing key customers; • we are not able to expand the available capacity on our network to meet our customers’ demands in a timely manner; • we do not develop and maintain relationships with new large enterprise customers; or • our customers choose to obtain these services from either their own network or from one of our competitors, then we may be unable to increase or maintain our revenue at acceptable margins.
More specifically, if: • we do not maintain or improve our current relationships with existing key customers; • we are not able to expand the available capacity on our network to meet our customers’ demands in a timely manner; • we do not develop and maintain relationships with new large enterprise customers; or • our customers choose to obtain these services from one of our competitors or develop similar capabilities in-house, 21 Table of Contents then we may be unable to increase or maintain our revenue at acceptable margins.
Customers that use many of the features of our services or use our services to support or enable core functionality for their applications may have difficulty or find it impractical to replace our services with a competitor’s services, while customers that use only limited functionality may be able to more easily replace our services with competitive offerings.
Customers using only limited functionality may be able to more easily replace our services with competitive offerings. By contrast, customers using many of the features of our services or using our services to support or enable core functionality for their applications may have difficulty or find it impractical to replace our services with a competitor’s services.
Some of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, a larger global reach, larger budgets and significantly greater resources than we do.
Some of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, greater penetration into the enterprise space, a larger global reach, larger budgets and significantly greater resources than we do.
We also must integrate with a variety of network, hardware, mobile and software platforms and technologies, which requires us to enhance and modify our products and our communications platform to adapt to changes and innovation in these technologies.
We also must integrate with a variety of network, hardware, mobile and software platforms and technologies, which requires us to adapt our communications platform and product offerings to changes and innovation in these technologies.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe subsequently sold approximately 24 acres of such property to a third party who is constructing our new headquarters facility, and retained approximately 17 acres of such property. We intend to relocate our corporate headquarters in mid-2023. We believe this new facility will provide the additional space needed to accommodate our growing work force.
Biggest changeWe believe this new facility will provide the additional space needed to accommodate our growing work force.
Item 2. Properties Our corporate headquarters is located in Raleigh, North Carolina, where we lease approximately 120,041 square feet of office space at 900 Main Campus Drive and 40,802 square feet of additional office space on the Centennial Campus of North Carolina State University in Raleigh, North Carolina. 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. We maintain offices in locations in the United States and internationally.
In addition to our headquarters, we lease space in Denver, CO; Rochester, NY; Austin, TX; Simi Valley, CA; Brussels, Belgium; London, U.K.; Dublin, Ireland; Iasi, Romania; Singapore; Frankfurt, Germany; Madrid, Spain; and Istanbul, Turkey.
In 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.
Removed
We maintain data centers located in Raleigh, NC (including our network operations center); Los Angeles, CA; Dallas, TX; Atlanta, GA; New York, NY; Frankfurt, Germany; and London, U.K. We currently lease all our facilities. On June 4, 2021, we purchased approximately 40 acres of undeveloped land from the state of North Carolina to construct a new headquarters in Raleigh, NC.

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.
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.
The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. 55 Table of Contents PART II - OTHER INFORMATION
The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. 58 Table of Contents PART II - OTHER INFORMATION
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.
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.
In addition to the litigation discussed above, from time to time, we may be subject to legal actions and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties relating to number management, and claims asserting, among other things, infringement of their intellectual property rights.
We have received, and may in the future continue to receive, claims from third parties relating to number management and billing, employment-related claims, claims arising from customer misuse of our offerings, and claims asserting, among other things, infringement of their intellectual property rights.
We intend to vigorously defend these lawsuits and believe we have meritorious defenses to each. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition.
However, litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition. In addition to the litigation discussed above, from time to time, we may be subject to legal actions and claims in the ordinary course of business.
The complaints allege that we failed to bill, collect and remit certain taxes and surcharges associated with 911 service pursuant to applicable laws. On January 27, 2023, we were named as a defendant in an action brought by a non-practicing entity related to alleged patent infringement.
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.
Removed
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.
Added
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph below compares the cumulative total return to our stockholders between November 10, 2017 (the date our Class A common stock commenced trading on the NASDAQ Global Select Market) through December 31, 2022 in comparison to the NASDAQ Composite Index and the S&P 500 Information Technology Index.
Biggest changeThe graph below compares the cumulative 5-year total return to our stockholders in comparison to the NASDAQ Composite Index and the S&P 500 Information Technology Index.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to our Proxy Statement relating to our 2023 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
Securities 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.
Recent Sales of Unregistered Securities From January 1, 2022 through December 31, 2022, we did not sell any securities on an unregistered basis. Item 6. [Reserved] 57 Table of Contents Management ’ s Discussion and Analysis
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
Prior to that date, there was no public trading market for our Class A common stock. Stockholders As of February 17, 2023, 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 23, 2024, we had 22 holders of record of our Class A and Class B common stock.
The graph assumes $100 was invested in the Class A common stock of Bandwidth Inc., the NASDAQ Composite Index and the S&P 500 Information Technology Index, in each case on November 10, 2017, and assumes reinvestment of any dividends. 56 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, 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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeAs 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. 72 Table of Contents Management ’ s Discussion and Analysis Year ended December 31, 2022 2021 2020 ( In thousands, except share and per share amounts ) Net income (loss) $ 19,570 $ (27,362) $ (43,977) Stock-based compensation 20,655 14,537 9,881 Amortization of acquired intangibles 17,180 19,119 3,666 Amortization of debt discount and issuance costs for convertible debt 2,977 26,672 15,565 Acquisition-related expenses — — 14,458 Gain on sale of business (3,777) — — Net gain on extinguishment of debt (40,205) — — Non-recurring items not indicative of ongoing operations and other (1) 1,992 832 334 Estimated tax effects of adjustments (2) (3,396) (8,087) 14,266 Non-GAAP net income $ 14,996 $ 25,711 $ 14,193 Interest expense on Convertible Notes (3) 1,666 — — Numerator used to compute Non-GAAP diluted net income per share $ 16,662 $ 25,711 $ 14,193 Net income (loss) per share Basic $ 0.77 $ (1.09) $ (1.83) Diluted $ (0.48) $ (1.09) $ (1.83) Non-GAAP net income per Non-GAAP share Basic $ 0.59 $ 1.02 $ 0.59 Diluted $ 0.54 $ 0.97 $ 0.55 Weighted average number of shares outstanding Basic 25,282,796 25,090,916 24,092,574 Diluted 30,907,869 25,090,916 24,092,574 Non-GAAP basic shares 25,282,796 25,090,916 24,092,574 Convertible debt conversion 5,625,073 987,149 1,022,941 Stock options issued and outstanding 100,088 180,318 443,738 Nonvested RSUs outstanding — 197,538 352,854 Non-GAAP diluted shares 31,007,957 26,455,921 25,912,107 ________________________ (1) Non-recurring items not indicative of ongoing operations and other include $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, and $0.5 million, $0.8 million, and $0.3 million of losses on disposals of property, plant and equipment during the years ended December 31, 2022, 2021 and 2020, respectively. 73 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.
Biggest changeAs 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.
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 $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, 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.
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. 64 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 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.
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 Internal Revenue Code 162(m).
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 Internal Revenue Code Section 162(m).
We may, at any time and from time to time, seek to retire or purchase our 2026 Notes or 2028 Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.
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.
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; and • non-recurring items not indicative of ongoing operations and other 74 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. 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.
For the years ended December 31, 2022 and 2021, the effective tax rates o f (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 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.
Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance included minimum state taxes, foreign tax benefits and foreign rate differentials. As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future.
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. As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future.
In fact, Bandwidth already powers all the 2022 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 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.
The dollar-based net retention rate reported in a quarter is then obtained by averaging the result from that quarter, by the corresponding results from each of the prior three quarters. Customers of acquired businesses are included in the subsequent year ’ s calendar quarter of acquisition.
The net retention rate reported in a quarter is then obtained by averaging the result from that quarter, by the corresponding results from each of the prior three quarters. Customers of acquired businesses are included in the subsequent year ’ s calendar quarter of acquisition.
Backed by the Bandwidth Communications Cloud, a global owned-and-operated network spanning more than 60 countries reaching over 90 percent of GDP, innovative enterprises use Bandwidth’s APIs to easily embed voice, messaging and emergency services capabilities into software and applications. Bandwidth was the first CPaaS provider to offer a robust selection of APIs built on our own cloud platform.
Backed by the Bandwidth Communications Cloud, a global owned-and-operated network spanning more than 65 countries reaching over 90 percent of GDP, innovative enterprises use Bandwidth’s APIs to easily embed voice, messaging and emergency services capabilities into software and applications. Bandwidth was the first cloud communications provider to offer a robust selection of APIs built on our own cloud platform.
Our dollar-based 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 dollar-based 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 net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions.
Cash Flows from Financing Activities 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.
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.
W ithin operating assets, cash used as a result of higher accounts receivable of $13 million during 2022 was driven by higher unbilled receivables balances of $2 million arising from higher usage amounts in the last month of 2022 and $11 million from timing of collection of invoiced amounts.
Within operating assets, cash used as a result of higher accounts receivable of $13 million during 2022 was driven by higher unbilled receivables balances of $2 million arising from higher usage amounts in the last month of 2022 and $11 million from timing of collection of invoiced amounts.
In 2022, sales and marketing expenses increased by $14 million , or 17%, compared with th e same period in 2021, primarily due to an increase in sales personnel costs from a greater number of employed staff of $13 million.
In 2022 , sales and marketing expenses increased by $14 million, or 17%, compared with the same period in 2021, primarily due to an increase in sales personnel costs from a greater number of employed staff of $13 million.
For comparative purposes, the dollar-based net retention rate presented in the table above has been updated to reflect the change in our reporting segments.
For comparative purposes, the net retention rate presented in the table above has been updated to reflect the change in our reporting segments.
On June 6, 2022, we entered into a credit agreement (the “Credit Agreement”) among us, as borrower, the lenders from time to time party thereto, and Silicon Valley Bank as administrative agent, issuing lender and swingline lender.
On June 6, 2022, we entered into a credit agreement among us, as borrower, the lenders from time to time party thereto, and Silicon Valley Bank (“SVB”), as administrative agent, issuing lender and swingline lender.
As of December 31, 2022, we have no valuation allowance against our remaining deferred tax assets for Non-GAAP purposes. (3) Upon the adoption of ASU 2020-06, net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share.
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.
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. 78 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. 83 Table of Contents
Off-Balance Sheet Arrangements With the acquisition of Voxbone, we have off-balance sheet agreements for short-term office leases in the amount of less than $1 million ending prior to December 31, 2023 . 70 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.
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 , the combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of $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.
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.
In 2022, g eneral 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 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.
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, 2022, 2021 and 2020 our effective tax rate was (13.1)%, 12.3% and (51.8)%, 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, 2023, 2022 and 2021, our effective tax rate was 15.3%, (13.1)%, and 12.3%, respectively.
As of December 31, 2022, we continue to maintain a valuation allowance for our U.S. federal and state net deferred tax assets. 62 Table of Contents Management ’ s Discussion and Analysis Results of Operations Consolidated Results of Operations The following table sets forth the consolidated statements of operations for the periods indicated.
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.
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.
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.
Excluding the impact of the valuation allowance, we realize an estimated state effective tax rate of 4.3%. 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 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.
We completed our annual goodwill impairment analysis in each of the years ended December 31, 2022, 2021 and 2020 and no impairment charges were recorded. As of December 31, 2022 goodwill was $326 million.
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.
We will seek to do this in three ways: (1) by cross-selling and up-selling within our existing customers as they benefit from our global footprint and powerful APIs to automate and scale cloud communications; (2) by focusing on direct-to-enterprise growth to serve Global 2000 enterprises that come directly to Bandwidth to leverage our services to accelerate their digital transformations, and (3) by aiming to be the preferred provider for SaaS platforms that use conversational messaging to create digital engagements that enhance the customer experience.
We will seek to do this in three ways: (1) cross-sell and up-sell our existing customers as they benefit from our global footprint and powerful APIs to automate and scale cloud communications; (2) focus on direct-to-enterprise growth to serve Global 2000 enterprises that directly leverage Bandwidth services to accelerate their digital transformations, and (3) aim to be the preferred provider for SaaS platforms that use conversational voice and messaging to create digital engagements that enhance the customer experience.
Key Components of Statements of Operations Revenue Revenue is derived from (i) reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees, (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services, and (iii) other various communications services and products, indirect revenue and messaging surcharge revenue.
Key Components of Statements of Operations Revenue Cloud communications revenue is derived from (i) reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees, and (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services.
As a result, the assessment of a potential liability and the amount of any accruals recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates.
The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of any accruals recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates.
(2) Includes the net cash used from the purchase of land of $(30.0) million offset by the proceeds from the sale of land of $17.5 million from investing activities of the statement of cash flows for the year ended December 31, 2021. 75 Table of Contents Management ’ s Discussion and Analysis Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
(2) Includes the net cash used from the purchase of land of $(30.0) million offset by the proceeds from the sale of land of $17.5 million from investing activities of the statement of cash flows for the year ended December 31, 2021. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
On November 2, 2022, we repurchased $160 million 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.
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.
Our dollar-based net retention rate as of December 31, 2022 was 112%.
Our net retention rate as of December 31, 2022 was 112%.
See Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details. 65 Table of Contents Management ’ s Discussion and Analysis 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 .
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.
For the years ended December 31, 2021 and 2020, these effective income tax rates differ from the federal statutory tax 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. We analyze the Non-GAAP valuation allowance position on a quarterly basis.
For the year ended December 31, 2021, the effective income tax rate differed from the federal statutory tax 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. We analyze the Non-GAAP valuation allowance position on a quarterly basis.
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.
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.
Goodwill is not amortized, but is subject to an annual impairment test. We test goodwill for impairment annually on December 31 of each calendar year or more frequently if events or changes in business circumstances indicate the asset might be impaired. Goodwill is tested for impairment at the reporting unit level.
We test goodwill for impairment annually on December 31 of each calendar year or more frequently if events or changes in business circumstances indicate the asset might be impaired. Goodwill is tested for impairment at the reporting unit level.
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.
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.
Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of Statements of Operations-Cost of Revenue and Gross Margin.” We define Non-GAAP gross profit as gross profit after adding back the following items: • depreciation and amortization; • amortization of acquired intangible assets related to acquisitions; and • stock-based compensation We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges, expressed as a percentage of revenue.
Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of Statements of Operations-Cost of Revenue and Gross Margin.” We define Non-GAAP gross profit as gross profit after adding back the following items: • depreciation and amortization; • amortization of acquired intangible assets related to acquisitions; and • stock-based compensation.
Year ended December 31, 2022 2021 2020 (In thousands) Net cash provided by operating activities $ 34,906 $ 40,803 $ 4,518 Net cash used in investing in capital assets (1) (2) (45,416) (37,167) (14,592) Free cash flow $ (10,510) $ 3,636 $ (10,074) ________________________ (1) Represents the acquisition cost of property, plant and equipment and capitalized development costs for software for internal use.
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.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which 77 Table of Contents Management ’ s Discussion and Analysis the differences are expected to reverse.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
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.
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.
These three strategies are the foundation of the durable business we seek to build. For the years ended December 31, 2022, 2021 and 2020, total revenue was $573 million, $491 million and $343 million, respectively, representing an increase of 17% in 2022 and 43% in 2021.
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.
Non-GAAP net income excludes: • stock-based compensation; • amortization of acquired intangible assets related to acquisitions; • amortization of debt discount and issuance costs for convertible debt; • acquisition related expenses; • impairment charges of intangibles assets , if any ; • net cost associated with early lease terminations and leases without economic benefit; • (gain) loss on sale of business; • net (gain) loss on extinguishment of debt; • non-recurring items not indicative of ongoing operations and other; and • estimated tax impact of above adjustments, net of valuation allowances We calculate Non-GAAP basic and diluted shares by adding the weighted average of outstanding Series A redeemable convertible preferred stock, if any, to the weighted average number of outstanding basic and diluted shares, respectively.
Non-GAAP net income excludes: • stock-based compensation; • amortization of acquired intangible assets related to acquisitions; • amortization of debt discount and issuance costs for convertible debt; • acquisition related expenses; • impairment charges of intangibles assets , if any ; • net cost associated with early lease terminations and leases without economic benefit; • (gain) loss on sale of business; • net (gain) loss on extinguishment of debt; • gain on business interruption insurance recoveries; • non-recurring items not indicative of ongoing operations and other; and • estimated tax impact of above adjustments, net of valuation allowances.
Additionally, in the last three years we have supplemented our liquidity with proceeds from our issuance of the 2026 Convertible Notes and the 2028 Convertible Notes in February 2020 and March 2021, respectively. We used a majority of the proceeds from the issuance of our 2026 Convertible Notes to consummate the acquisition of Voxbone.
The Termination became effective on March 15, 2023. Additionally, we have supplemented our liquidity with proceeds from our issuance of the 2026 Convertible Notes in February 2020 and the 2028 Convertible Notes in March 2021. We used a majority of the proceeds from the issuance of our 2026 Convertible Notes to consummate the acquisition of Voxbone.
Bandwidth’s business benefits from multiple global megatrends, including the enterprise migration to the cloud, the adoption of Contact Center as a Service platforms, the need to be able to work from anywhere, the reinvention of customer experience and the growth in messaging applications to engage directly with consumers.
Bandwidth’s business benefits from multiple global megatrends, including enterprise migration to the cloud, adoption of CCaaS platforms, the need to be able to work from anywhere, reinvention of customer experience, growth in messaging applications to engage directly with consumers, and application of AI technologies to cloud communications use cases.
The Non-GAAP effective income tax rate was 7.0%, 14.2%, and 5.0% for the years ended December 31, 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, the Non-GAAP effective income tax rate differed from the federal statutory tax rate of 21% in the U.S. primarily due to research and development tax credits generated in 2022.
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.
Repurchase of 2026 Convertible Notes During November 2022, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes to repurchase (the “Repurchases”) approximately $160 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $117 million. The Repurchases closed on November 28, 2022.
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.
We believe Non-GAAP net income is a meaningful measure because by removing certain non-cash and other expenses, we are able to evaluate our operating results in a manner we believe is more indicative of the current period’s performance.
When we have a valuation allowance recorded and no tax benefits will be recognized, the rate is considered to be zero. We believe Non-GAAP net income is a meaningful measure because by removing certain non-cash and other expenses, we are able to evaluate our operating results in a manner we believe is more indicative of the current period’s performance.
We believe the following KPIs are useful in evaluating our business: Year ended December 31, 2022 2021 2020 Number of active customers (as of period end) (1) 3,405 3,300 2,879 Dollar-based net retention rate (1) 112 % 117 % 131 % ________________________ (1) As a result of the change in revenue segment reporting, our KPIs of number of active customers and dollar-based net retention rates disclosed in previous SEC filings, press releases and presentations prior to reporting periods ending March 31, 2022, will not be directly comparable to our KPIs reported going forward.
We believe the following KPI is useful in evaluating our business: Year ended December 31, 2023 2022 2021 Net retention rate (1) 101 % 112 % 117 % _______________________ (1) As a result of the change in revenue segment reporting, our KPI of net retention rate disclosed in previous SEC filings (previously described as “ dollar-based net retention rate ” ), press releases and presentations prior to reporting periods ending March 31, 2022, will not be directly comparable to our KPI reported going forward.
We use a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed.
We use a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained, but no later than one year from the acquisition date.
Our principal future commitments consist of (i) an aggregate of $490 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) a $496 million non-cancelable lease for our future office headquarters, which is anticipated to commence in mid- 2023 and continue for an initial twenty (20) year term (the “ Headquarters Lease ” ) (see Note 5, “Right-of-Use Asset and Lease Liabilities” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our Headquarters Lease), (iii) $12 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers, and (iv) $17 million in future minimum rent payments for our current office space.
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).
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.
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.
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 expense.
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 dollar-based 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.
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.
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. 71 Table of Contents Management ’ s Discussion and Analysis Year ended December 31, 2022 2021 2020 (In thousands) Gross Profit $ 238,353 $ 213,813 $ 153,910 Gross Profit Margin % 42 % 44 % 45 % Depreciation 13,602 12,606 9,997 Amortization of acquired intangible assets 7,657 8,543 1,445 Stock-based compensation 404 364 306 Non-GAAP Gross Profit $ 260,016 $ 235,326 $ 165,658 Non-GAAP Gross Margin % (1) 55 % 52 % 50 % ________________________ (1) Calculated by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges of $99 million, $41 million, and $11 million in the years ended December 31, 2022, 2021 and 2020, respectively.
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, 2022 2021 2020 (In thousands) Revenue $ 573,152 $ 490,907 $ 343,113 Cost of revenue 334,799 277,094 189,203 Gross profit 238,353 213,813 153,910 Operating expenses: Research and development 97,990 69,505 54,555 Sales and marketing 96,658 82,333 61,216 General and administrative 68,029 64,212 51,644 Total operating expenses 262,677 216,050 167,415 Operating loss (24,324) (2,237) (13,505) Other income (expense), net: Net gain on extinguishment of debt 40,205 — — Interest expense, net (3,048) (28,784) (13,672) Other income (expense), net 4,473 (174) (1,795) Total other income (expense), net 41,630 (28,958) (15,467) Income (loss) before income taxes 17,306 (31,195) (28,972) Income tax benefit (provision) 2,264 3,833 (15,005) Net income (loss) $ 19,570 $ (27,362) $ (43,977) The following table sets forth our results of operations as a percentage of our total revenue for the periods presented. * Year ended December 31, 2022 2021 2020 Revenue 100 % 100 % 100 % Cost of revenue 58 % 56 % 55 % Gross profit 42 % 44 % 45 % Operating expenses: Research and development 17 % 14 % 16 % Sales and marketing 17 % 17 % 18 % General and administrative 12 % 13 % 15 % Total operating expenses 46 % 44 % 49 % Operating loss (4) % — % (4) % Other income (expense), net: Net gain on extinguishment of debt 7 % — % — % Interest expense, net (1) % (6) % (4) % Other income (expense), net 1 % — % (1) % Total other income (expense), net 7 % (6) % (5) % Income (loss) before income taxes 3 % (6) % (8) % Income tax benefit (provision) — % 1 % (4) % Net income (loss) 3 % (5) % (13) % (*) Columns may not foot due to rounding. 63 Table of Contents Management ’ s Discussion and Analysis Comparison of the Years Ended December 31, 2022 and 2021 Revenue Year ended December 31, 2022 2021 Change (Dollars in thousands) Revenue $ 573,152 $ 490,907 $ 82,245 17 % In 2022, our total revenue increased by $82 million , or 17%, compared with the same period in 2021.
Year 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.
In addition, we record a provision for non-income based taxes and fees in jurisdictions where it is both probable that liability has been incurred and the amount of the exposure can be reasonably estimated.
In addition, we record a provision for non-income based taxes and fees in jurisdictions where it is both probable that liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, we have recorded a liability of $8 million as of December 31, 2023, which is included in accrued expenses and other current liabilities.
Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing.
We capitalize qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function.
Cash used for deposits for construction in progress and the purchase of property, plant and equipment, primarily for our Raleigh, NC headquarters, was $60 million. In 2021 , net cash provided by investing activities was $3 million.
Cash used in investing activities included the purchase of marketable securities of $180 million partially offset by proceeds from the sales and maturities of marketable securities of $109 million. Cash used for deposits for construction in progress and the purchase of property, plant and equipment, primarily for our Raleigh, NC headquarters, was $60 million.
As of December 31, 2022, software development costs, net of accumulated amortization, were $8 million. Capitalized costs of platform and other software applications are included in property, plant and equipment.
Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred. As of December 31, 2023, software development costs, net of accumulated amortization, were $15 million. Capitalized costs of platform and other software applications are included in property, plant and equipment, net.
These costs are amortized over the estimated useful life of the software on a straight-line basis over three years, which is recorded in cost of revenue in the statement of operations.
These assets are placed into service when ready for use and amortized over the estimated useful life of the software on a straight-line basis over four years, which is recorded in cost of revenue in the consolidated statements of operations.
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.
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.
Year ended December 31, 2022 2021 2020 (In thousands) Net income (loss) $ 19,570 $ (27,362) $ (43,977) Income tax (benefit) provision (2,264) (3,833) 15,005 Interest expense, net 3,048 28,784 13,672 Depreciation 18,419 17,523 13,137 Amortization 17,180 19,119 3,666 Acquisition-related expenses — — 14,458 Stock-based compensation 20,655 14,537 9,881 Gain on sale of business (3,777) — — Net gain on extinguishment of debt (40,205) — — Non-recurring items not indicative of ongoing operations and other (1) 1,992 832 334 Adjusted EBITDA $ 34,618 $ 49,600 $ 26,176 ________________________ (1) Non-recurring items not indicative of ongoing operations and other include $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, and $0.5 million, $0.8 million, and $0.3 million of losses on disposals of property, plant and equipment during the years ended December 31, 2022, 2021 and 2020, respectively.
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.
See Note 12, “Commitments and Contingencies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for future lease commitments. 68 Table of Contents Management ’ s Discussion and Analysis Statement of Cash Flows The following table summarizes our cash flows for the periods indicated: Year ended December 31, 2022 2021 2020 (In thousands) Net cash provided by operating activities $ 34,906 $ 40,803 $ 4,518 Net cash (used in) provided by investing activities (133,449) 2,833 (455,085) Net cash (used in) provided by financing activities (120,005) 207,027 346,891 Effect of exchange rate changes on cash, cash equivalents and restricted cash 881 189 109 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (217,667) $ 250,852 $ (103,567) Cash Flows from Operating Activities In 2022, net cash provided by operating activities was $35 million and was generated by our aggregate results of $40 million during the period, net of 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 tax expense and other and net gain on extinguishment of debt and a $14 million cash inflow from increased operating liabilities, partially offset by a net cash outflow from operating assets aggregating $19 million .
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.
Fees paid to other network service providers arise when we purchase services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits.
Fees paid to other network service providers arise when we purchase services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits. Network operations costs are incurred for web services and cloud infrastructure, capacity planning and management, software licenses, hardware and software maintenance fees, customer support and network-related facility rents.
Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods. Unbilled revenue made up 45%, 52%, and 50% of outstanding accounts receivable, net of allowance for doubtful accounts, as of December 31, 2022, 2021 and 2020, respectively.
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.
Cash provided by investing activities included proceeds from sales and maturities of other investments of $40 million, proceeds from the sale of land of $17 million, offset by the purchase of land of $30 million , purchase of property, plant and equipment of $21 million and capitalized internally developed software costs of $4 million .
Cash provided by investing activities included proceeds from sales and maturities of other investments of $40 million, proceeds from the sale of land of $17 million, offset by the purchase of land of $30 million, purchase of property, plant and equipment of $21 million and capitalized internally developed software costs of $4 million. 73 Table of Contents Management ’ s Discussion and Analysis Cash Flows from Financing Activities 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.
As of December 31, 2022, intangible assets, net of accumulated amortization, were $177 million, which consists primarily of client relationships, client contracts and developed technology. No indicators of impairment were identified for the years ended December 31, 2022, 2021 and 2020.
As of December 31, 2023, intangible assets, net of accumulated amortization, were $167 million, which consists primarily of customer relationships and developed technology. No indicators of impairment were identified for the years ended December 31, 2023, 2022 and 2021. Internal-Use Software Development Costs Internal-use software includes software that has been acquired, internally developed, or modified exclusively to meet our needs.
We believe that our cash and cash equivalents 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. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.
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 also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred.
Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements.
Other Contingencies We are subject to legal proceedings and litigation arising in the ordinary course of business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.
If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is involved in the determination of the probability of a loss and whether the amount of the loss is reasonably estimable.
For comparative purposes, the number of active customers presented in the table above has been updated to reflect the change in our reporting segments. 60 Table of Contents Management ’ s Discussion and Analysis Dollar-Based 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 generate revenue and seek to increase their use of our 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.
To facilitate comparison between the periods presented in the table above, number of active customers and dollar-based net retention rate have been conformed to the current period methodology.
To facilitate comparison between the periods presented in the table above, net retention rate has been conformed to the current period methodology. We previously reported active customer account as a KPI. However, active customer count has diminished in relevance as we focus on larger customers and has been removed as a KPI.
The income resulted in nominal tax expense in the U.S. due to the utilization of tax attributes and the valuation allowance position. Judgment is required in determining whether deferred tax assets will be realized in full or in part.
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.
DDoS Attack Beginning on September 25, 2021, our communications network was subjected to a distributed denial of service attack (the “DDoS Attack”) initially causing intermittent communications services disruptions affecting certain of our markets and customers.
Business Interruption Insurance Recovery Beginning in September 2021, our communications network was subjected to a DDoS Attack that caused intermittent communications services disruptions affecting certain of our markets and customers. During the period of the DDoS Attack, we maintained certain insurance coverage, including business interruption insurance, intended to cover such circumstances.
The Credit Agreement provides for a $50 million revolving credit facility (the “Credit Facility”), including a $20 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million. The Credit Facility matures on June 6, 2025. As of December 31, 2022, there were no borrowings under the Credit Facility.
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.
Cash Flows from Investing Activities In 2022, net cash used in investing activities was $133 million . Cash used in investing activities included the purchase of marketable securities of $180 million partially offset by proceeds from the sales and maturities of marketable securities of $109 million.
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 2021, the combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of $60 million , or 39%, compared with the same period in 2020, driven by higher revenue and improved operating leverage.
The combination of changes in total revenue and total cost of revenue yielded gross profit o f $236 million , which decreased $2 million from the same period in 2022, driven by higher network costs.
The measurement period ends once all information is obtained, but no later than one year from the acquisition date. 76 Table of Contents Management ’ s Discussion and Analysis Goodwill and Intangible Assets Goodwill Goodwill represents the excess of the aggregate fair value of consideration transferred in a business combination, over the fair value of assets acquired, net of liabilities assumed.
Goodwill and Intangible Assets Goodwill Goodwill represents the excess of the aggregate fair value of consideration transferred in a business combination, over the fair value of assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test.

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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 changeLoans based on SOFR bear interest at a rate equal to SOFR plus an applicable margin between 1.50% and 2.00% depending upon our consolidated adjusted quick ratio for the immediately preceding quarter and loans based on the base rate bear interest at a rate equal to the base rate plus an applicable margin between 0.50% and 1.00% depending upon our consolidated adjusted quick ratio for the immediately preceding quarter.
Biggest changeLoans 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.
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. 79 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.
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. 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.
To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currencies result in increased revenue and operating expenses for our non-U.S. operations. Similarly, our revenue and operating expenses for our non-U.S. operations decrease if the U.S. dollar strengthens against foreign currencies.
To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currencies result in increased revenue and operating expenses for our rest of world operations. Similarly, our revenue and operating expenses for our rest of world operations decrease if the U.S. dollar strengthens against foreign currencies.
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 $114 million and marketable securities of $71 million as of December 31, 2022, 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 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.
A hypothetical 10% adverse change in foreign currency exchange rates would have adversely impacted our net income for the year ended December 31, 2022 by approximately $2.4 million. 80 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, 2023 by approximately $3 million. 85 Table of Contents
Approximately 10% of our total revenue was generated outside the United States for the year ended December 31, 2022. 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 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.
On June 6, 2022, we entered into the Credit Agreement, which provides for a $50 million Credit Facility. Interest on borrowings accrues at an annual rate tied to a base rate or the Secured Overnight Financing Rate (“SOFR”), at our election.
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.
As a result, we are exposed to interest rate risk as we make draws on the Credit Facility. As of December 31, 2022, there were no outstanding borrowings. In February 2020 and March 2021, we issued $400 million and $250 million aggregate principal amount of the 2026 Convertible Notes and the 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, 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.
However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates.
As the Convertible Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates.
Removed
On November 2, 2022, we repurchased $160 million 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. As the Convertible Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates.

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