What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-02-25 compared with 2021-03-01 · 12 added, 198 removed, 20 unchanged (91% of the section changed)

13 unchanged sentences

The 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, 2021 in comparison to the NASDAQ Composite Index and the S&P 500 Information Technology Index.

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, and assumes reinvestment of any dividends.

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.

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.

3 unchanged sentences

Recent Sales of Unregistered Securities

From January 1, 2020 through December 31, 2020, we did not sell any securities on an unregistered basis.

Use of Proceeds from Public Offering of Common Stock

On October 12, 2020, we entered into a Share Purchase Agreement (the “Share Purchase Agreement”) by and among us, Voicebox S.à r.l., a private limited liability company ( société à responsibilité limitée ) incorporated under the laws of Luxembourg (“Voicebox”), Itay Rosenfeld, Stefaan Konings, Dirk Hermans, Gaetan Brichet and Stichting Administratiekantoor Voice, a foundation ( stichting ) incorporated under the laws of the Netherlands (“Stichting” and, together with Voicebox, Itay Rosenfeld, Stefaan Konings, Dirk Hermans and Gaetan Brichet, the “Selling Stockholders”) pursuant to which, among other things, we acquired all of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares of Voice Topco.

Voice Topco directly or indirectly holds all of the issued and outstanding shares of Voxbone S.A., which (with its subsidiaries) is the operating subsidiary of Voice Topco.

Our board of directors unanimously approved the Share Purchase Agreement on October 5, 2020.

Pursuant to the Share Purchase Agreement, we acquired from the Selling Stockholders, all of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares of Voice Topco (the “Share Purchase”) in a transaction valued at €446 million.

As consideration for the Share Purchase, we (i) paid the Selling Stockholders approximately $413 million (or approximately €355 million based on prevailing exchange rates at the close of business on October 30, 2020) at the closing of the Share Purchase (the “Closing”) and (ii) issued to the Selling Stockholders at the Closing shares of our Class A common stock, with an aggregate value of approximately €91 million (or approximately $106 million) based on prevailing exchange rates at the close of business on October 30, 2020.

Selected Financial Data

The consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020 and the consolidated balance sheets as of December 31, 2019 and 2020, are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our historical results are not necessarily indicative of the results that may be expected in the future.

The following selected consolidated financial data should be read in conjunction with Item 7, “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations ” and the consolidated financial statements and related notes included in Item 8, “ Financial Statements and Supplementary Data, ” within this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below.

Year ended December 31,

Consolidated Statements of Operations Data:

2018 2019 2020

(In thousands, except share and per share amounts)

CPaaS revenue $ 164,415 $ 197,944 $ 298,090

Other revenue 39,698 34,650 45,023

Total revenue 204,113 232,594 343,113

Cost of revenue:

CPaaS cost of revenue 94,296 110,343 160,706

Other cost of revenue 13,849 14,616 24,546

Total cost of revenue (1) 108,145 124,959 185,252

Gross profit 95,968 107,635 157,861

Operating expenses:

Research and development (1) 20,897 31,461 42,059

Sales and marketing (1) 20,731 35,020 40,552

General and administrative (1) 47,588 58,847 88,755

Total operating expenses 89,216 125,328 171,366

Operating income (loss) 6,752 (17,693) (13,505)

Other income (expense):

Interest income (expense), net 301 2,446 (13,672)

Other income (expense), net — 23 (1,795)

Total other income (expense) 301 2,469 (15,467)

Income (loss) before income taxes 7,053 (15,224) (28,972)

Income tax benefit (provision) (2) 10,870 17,718 (15,005)

Net income (loss) $ 17,923 $ 2,494 $ (43,977)

Other comprehensive (loss) income

Unrealized (loss) gain on marketable securities, net of income tax benefit (1) 1 —

Foreign currency translation — 41 27,900

Total other comprehensive (loss) income (1) 42 27,900

Total comprehensive income (loss) $ 17,922 $ 2,536 $ (16,077)

Earnings per share:

Net income (loss) per share:

Basic $ 0.96 $ 0.11 $ (1.83)

Diluted $ 0.85 $ 0.10 $ (1.83)

Weighted average number of common shares outstanding:

Basic 18,573,067 22,640,461 24,092,574

Diluted 21,140,382 23,923,777 24,092,574

________________________

(1) Includes stock-based compensation expense as shown below.

(2) Includes 13,484 of excess tax benefits associated with the exercise of stock options and vesting of restricted stock units in the year ended December 31, 2019.

Year ended December 31,

Stock-based compensation expense:

2018 2019 2020

(In thousands)

Cost of revenue $ 114 $ 211 $ 208

Research and development 555 1,461 2,118

Sales and marketing 511 1,199 1,525

General and administrative 2,159 3,755 6,030

Total $ 3,339 $ 6,626 $ 9,881

As of December 31,

Consolidated Balance Sheets Data:

(In thousands)

Cash, cash equivalents and restricted cash $ 185,004 $ 81,437

Working capital 181,211 101,410

Total assets 341,416 890,608

Convertible senior notes — 282,196

Total stockholders’ equity 270,090 429,923

Non-GAAP Financial Measures

We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income (loss), Adjusted EBITDA and free cash flow for financial and operational decision making and to evaluate period-to-period differences in our performance.

Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income (loss), Adjusted EBITDA and free cash flow are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performance.

We believe these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key performance indicators used by management in its financial and operational decision making.

See below for a reconciliation of each of the non-GAAP financial measures described below.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

GAAP defines gross profit as revenue less cost of revenue.

Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of Statement 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;

• stock-based compensation.

We add back depreciation and amortization, amortization of acquired intangible assets related to acquisitions, and stock-based compensation, because they are non-cash items.

We eliminate the impact of these non-cash items because we do not consider them indicative of our core operating performance.

Their exclusion facilitates comparisons of our operating performance on a period-to-period basis.

We believe showing gross margin, as Non-GAAP to remove the impact of these non-cash expenses, such as depreciation and amortization and stock-based compensation, is helpful to investors in assessing our gross profit and gross margin performance in a way that is similar to how management assesses our performance.

We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by revenue, expressed as a percentage of revenue.

Management uses Non-GAAP gross profit and Non-GAAP gross margin to evaluate operating performance and to determine resource allocation among our various service offerings.

We believe Non-GAAP gross profit and Non-GAAP gross margin provide useful information to investors and others to understand and evaluate our operating results in the same manner as our management and board of directors and allows for better comparison of financial results among our competitors.

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 as we do.

Year ended December 31,

2018 2019 2020

(In thousands)

Consolidated Gross Profit $ 95,968 $ 107,635 $ 157,861

Consolidated Gross Profit Margin % 47 % 46 % 46 %

Depreciation 4,490 6,583 9,536

Amortization of acquired intangible assets — — 1,445

Stock-based compensation 114 211 208

Non-GAAP Gross Profit $ 100,572 $ 114,429 $ 169,050

Non-GAAP Gross Margin % 49 % 49 % 49 %

Year ended December 31,

2018 2019 2020

(In thousands)

CPaaS Gross Profit $ 70,119 $ 87,601 $ 137,384

CPaaS Gross Profit Margin % 43 % 44 % 46 %

Depreciation 4,490 6,583 9,536

Amortization of acquired intangible assets — — 1,445

Stock-based compensation 114 211 208

Non-GAAP CPaas Gross Profit $ 74,723 $ 94,395 $ 148,573

Non-GAAP CPaaS Gross Margin % 45 % 48 % 50 %

There are no Non-GAAP adjustments to gross profit for the Other segment .

Non-GAAP Net Income (Loss)

We define Non-GAAP net income (loss) as net income or loss adjusted for certain items affecting period-to-period comparability.

Non-GAAP net income (loss) 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 ;

• loss (gain) on disposal of property and equipment;

• estimated tax impact of above adjustments;

• income tax benefit resulting from excess tax benefits associated with the exercise of stock options, vesting of restricted stock units and equity compensation;

• expense resulting from recording the valuation allowance on our deferred tax assets.

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.

The tax-effect of Non-GAAP adjustments is determined using a blended rate of statutory tax rates in the jurisdictions where the Company has tax filings.

When the Company has a valuation allowance recorded and no tax benefits will be recognized, the rate is considered to be zero.

We believe Non-GAAP net income (loss) 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 use of Non-GAAP net income (loss) may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which may use similar Non-GAAP financial information to supplement their GAAP results.

Year ended December 31,

2018 2019 2020

(In thousands)

Net income (loss) $ 17,923 $ 2,494 $ (43,977)

Stock-based compensation 3,339 6,626 9,881

Amortization of acquired intangibles 520 520 3,666

Amortization of debt discount and issuance costs for convertible debt — — 15,565

Acquisition-related expenses — — 14,458

Loss on disposal of property and equipment 191 456 334

Estimated tax effects of adjustments (1) (1,038) (1,914) (758)

Valuation allowance (2) — — 15,024

Income tax benefit of equity compensation (11,887) (13,484) —

Non-GAAP net income (loss) $ 9,048 $ (5,302) $ 14,193

Net income (loss) per share

Basic $ 0.96 $ 0.11 $ (1.83)

Diluted $ 0.85 $ 0.10 $ (1.83)

Non-GAAP net income (loss) per Non-GAAP share

Basic $ 0.49 $ (0.23) $ 0.59

Diluted $ 0.43 $ (0.23) $ 0.55

Non-GAAP weighted average number of shares outstanding

Non-GAAP basic shares 18,573,067 22,640,461 24,092,574

Warrants to purchase common stock 7,726 — —

Convertible debt conversion — — 1,022,941

Stock options issued and outstanding 2,375,424 — 443,738

Nonvested RSUs outstanding 184,165 — 352,854

Non-GAAP diluted shares 21,140,382 22,640,461 25,912,107

________________________

(1) The Non-GAAP tax-effect is determined using a blended rate of statutory tax rates in the jurisdictions where the Company has tax filings.

When the Company has a valuation allowance recorded and no tax benefits will be recognized, the rate in that jurisdiction is considered to be zero.

The rate was 28.6%, 25.2%, 1.8% for the years ended December 31, 2018, 2019 and 2020, respectively.

(2) The Company recognized a tax expense of $0 and $15,024 to record a valuation allowance on U.S.

deferred tax assets in the years ended December 31, 2019 and 2020, respectively.

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 provision (benefit);

• interest (income) expense, net;

• depreciation and amortization expense;

• acquisition related expenses;

• stock-based compensation expense;

• impairment of intangible assets, if any;

• loss (gain) on disposal of property and equipment, if any.

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.

In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis.

Year ended December 31,

2018 2019 2020

(In thousands)

Net income (loss) $ 17,923 $ 2,494 $ (43,977)

Income tax (benefit) provision (1) (2) (10,870) (17,718) 15,005

Interest (income) expense, net (301) (2,446) 13,672

Depreciation 5,270 9,018 13,137

Amortization 554 520 3,666

Acquisition-related expenses — — 14,458

Stock-based compensation 3,339 6,626 9,881

Loss on disposal of property and equipment 191 456 334

Adjusted EBITDA $ 16,106 $ (1,050) $ 26,176

________________________

(1) Includes excess tax benefits associated with the exercise of stock options and vesting of restricted stock units of $11,887, $13,484, and $0 in the years ended December 31, 2018, 2019 and 2020, respectively.

(2) Includes $0, $0, and $15,024 of tax expense to record a valuation allowance on U.S.

deferred tax assets in the years December 31, 2018, 2019 and 2020, respectively .

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 and equipment and capitalized development costs of software for internal use.

We believe free cash flow is a useful indicator of liquidity and provides information to management and investors about the amount of cash generated from our core operations that can be used for investing in our business.

Free cash flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, it does not take into consideration investment in long-term securities, nor does it represent the residual cash flows available for discretionary expenditures.

Therefore, it is important to evaluate free cash flow along with our consolidated statements of cash flows.

Year ended December 31,

2018 2019 2020

(In thousands)

Net cash provided by (used in) operating activities $ 24,633 $ (1,253) $ 4,518

Net cash used in investing in capital assets (1) (14,447) (25,759) (14,592)

Free cash flow $ 10,186 $ (27,012) $ (10,074)

________________________

(1) Represents the acquisition cost of property, equipment and capitalized development costs for software for internal use.

In March 2021, we issued $250 million in aggregate principal amount of our 2028 Convertible Senior Notes.

In connection with the offering of the Notes, we entered into privately-negotiated capped call transactions with certain counterparties (the “2028 Capped Calls”).

The 2028 Capped Calls each have an initial strike price of approximately $179.27 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2028 Convertible Notes.

The 2028 Capped Calls have initial cap prices of $260.76 per share, subject to certain adjustments.

The 2028 Capped Calls cover, subject to anti-dilution adjustments, approximately 1,917,450 shares of our Class A common stock.

See Note 8, “ Debt, ” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information about the 2028 Convertible Notes and 2028 Capped Calls.

We offered and sold the 2028 Convertible Notes to the initial purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, and for resale by the initial purchasers to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act.

We relied on these exemptions from registration based in part on representations made by the initial purchasers in the purchase agreement dated March 11, 2021.

The shares of the Class A common stock issuable upon conversion of the 2028 Convertible Notes, if any, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

To the extent that any shares of the Class A common stock are issued upon conversion of the 2028 Convertible Notes, they will be issued in transactions anticipated to be exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof, because no commission or other remuneration is expected to be paid in

connection with conversion of the 2028 Convertible Notes, and any resulting issuance of shares of the Class A common stock.

Management ’ s Discussion and Analysis

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What changed 10-K

Item 5. Market for Registrant’s Common Equity