What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-25 · 285 added, 300 removed, 305 unchanged (66% of the section changed)

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Our fiscal year ends on December 31.

We are a leading global enterprise cloud communications company.

Our solutions include a broad range of software Application Programming Interfaces (“APIs”) for voice, messaging and emergency services.

Our sophisticated and easy-to-use software APIs allow enterprises to enhance their products and services by incorporating advanced, global connectivity for voice, messaging and emergency services communications capabilities.

Companies use our platform to more frequently and seamlessly connect with their end users, add voice calling capabilities to applications and devices, transition from on-premise to cloud-based communication tools and applications, integrate messaging capabilities into applications or software, build interactive voice response systems for contact centers, and offer end users new mobile application experiences including emergency services and improve employee productivity, among other use cases.

We have established a reputation as a leader in the Communications Platform-as-a-Service (“CPaaS”) space through our innovation-rich culture and focus on empowering enterprises with end-to-end communications solutions.

We are the only CPaaS provider in the industry that owns and operates a nationwide IP voice network in the United States.

In 2020, we acquired Voxbone, a leading European-based communications platform with its own IP voice network assembled by building relationships with local carriers around the globe.

Our deep U.S.

presence and global platform extending across more than 60 countries serves enterprises in countries representing more than 90% of global gross domestic product.

We believe that our current and future customers will benefit from using a unified software platform, network and team to serve people around the world.

Our voice software APIs allow enterprises to make and receive phone calls and create advanced voice experiences.

Integration with our purpose-built IP voice network ensures enterprise-grade functionality and secure, high-quality connections.

Our messaging software APIs provide enterprises with advanced tools to connect with end users via messaging.

Our customers also use our solutions to enable 911 response capabilities, real-time provisioning and activation of phone numbers and toll-free number messaging.

We believe our network is capital-efficient and supports the applications and experiences that make a difference in the way enterprises communicate.

Since a communications platform is only as strong as the network that backs it, we believe our network provides a significant competitive advantage in the control, quality, pricing power and scalability of our offering.

We are able to control the quality and provide the support our customers expect, while meeting regulatory, scalability and cost requirements more efficiently.

For the years ended December 31, 2019, 2020 and 2021, total revenue was $232.6 million, $343.1 million, and $490.9 million, respectively.

For the years ended December 31, 2019, 2020 and 2021, our CPaaS segment revenue was $197.9 million, $298.1 million, and $413.9 million, respectively, representing an increase of 51% in 2020 and 39% in 2021.

A global communications transformation is underway, and we believe Bandwidth is at the center.

Our mission is to develop and deliver the power to communicate.

We enable innovative organizations—from startup app developers to the world’s largest enterprises—to engage their end-users and deliver exceptional experiences everywhere people live, learn, work and play.

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.

Our award-winning support teams help businesses around the world solve complex communications challenges every day.

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.

We believe these megatrends, which have created sizable total addressable markets, are secular, long-lasting and still early in the adoption curve.

With the combination of our software APIs, our global Communications Cloud and our broad range of experience with global regulatory frameworks, we believe Bandwidth is one of the best-positioned providers in our space to deliver business-critical communications for global enterprises.

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.

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.

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.

Net income in 2022 was $20 million, and net loss in 2021 and 2020 was $27 million and $44 million , respectively.

As of December 31, 2019, 2020 and 2021, the number of active CPaaS customer accounts was 1,728, 2,848, and 3,228, respectively, representing a year-over-year increase of 40% in 2019, 65% in 2020 and 13% in 2021.

As of December 31, 2022, 2021 and 2020, the number of active customer accounts was 3,405, 3,300, and 2,879, respectively, representing a year-over-year increase of 3% in 2022 and 15% in 2021.

Segment Reporting Update and Cost Alignment

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”.

The primary drivers for this change were the strategic alignment of our operating departments and the sale of certain immaterial legacy businesses.

Management ’ s Discussion and Analysis

Acquisition of Voxbone

On November 2, 2020, we acquired a ll of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares of Voice Topco Limited ( “ Voice Topco ” ) through a Share Purchase Agreement (the “ Share Purchase Agreement ” and such purchase, the “Share Purchase” ) (the “Acquisition”) .

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 .

The Acquisition was valued at €446 million.

As consideration for the Share Purchase, we (i) paid the Sellers (as defined in the Share Purchase Agreement) approximately $400 million (or approximately €338 million based on prevailing exchange rates at the close of business on October 9, 2020) at the Closing (as disclosed in the Share Purchase Agreement) and (ii) issued to the Sellers at the Closing shares of our Class A common stock, with an aggregate value of approximately €108 million (or approximately $128 million based on prevailing exchange rates at the close of business on October 9, 2020).

Additionally, during the quarter ended March 31, 2022, we changed our presentation of certain costs to align with benchmarked definitions of cost of revenue, research and development, sales and marketing and general and administrative expenses.

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.

For both matters, prior period information has been conformed to the current period presentation.

The following is a comparison of the change in costs to the prior period:

Year ended December 31, 2021 Year ended December 31, 2020

As reported As previously reported As reported As previously reported

(In thousands)

Statement of Operations

Cost of revenue $ 277,094 $ 272,384 $ 189,203 $ 185,252

Research and development 69,505 55,173 54,555 42,059

Sales and marketing 82,333 51,817 61,216 40,552

General and administrative 64,212 113,770 51,644 88,755

Adoption of Accounting Standards Update 2020-06

We adopted Accounting Standards Update 2020-06 (“ASU 2020-06”) on January 1, 2022 using the modified retrospective approach resulting in decreases in accumulated deficit of $9 million, additional paid in capital of $156 million, and deferred tax liability of $1 million.

We also recorded an increase in the Convertible Notes balance of $148 million as a result of the reversal of the separation of the convertible debt between debt and equity.

The adoption of this standard decreased the amount of non-cash interest expense to be recognized in current and future periods as a result of eliminating the discount associated with the equity component.

For the year ended December 31, 2022, the combined interest expense of the 2026 Convertible Notes and 2028 Convertible Notes was $27 million lower upon the adoption of ASU 2020-06.

The number of diluted shares increased as a result of transitioning from the treasury stock method to the as-if converted method, which impacted the earnings per share for the year ended December 31, 2022.

The transition did not impact the years ended December 31, 2021 and 2020, as we incurred a net loss in both reporting periods.

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.

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.

Following the Repurchases, approximately $240 million aggregate principal amount of the 2026 Convertible Notes remains outstanding.

The difference between the consideration used to repurchase the 2026 Convertible Notes and the carrying value of the 2026 Convertible Notes resulted in a gain of $40 million recorded within other income (expense), net on our consolidated statements of operations included elsewhere in this Annual Report on Form 10-K.

COVID-19 Update

The novel coronavirus (“COVID-19”) pandemic persisted throughout 2021 and remains an issue today, impacting areas of the United States and the rest of the world to varying degrees.

The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain.

The COVID-19 pandemic and its adverse effects have been prevalent in the locations where we, our customers, suppliers and third-party business partners conduct business.

During the year ended December 31, 2021, we experienced stable or increased usage by our customers that had been most impacted by COVID-19, including large enterprise customers that offer unified communications as a service (“UCaaS”), meeting solutions, travel, hospitality and ridesharing services, among others.

We acknowledge there may be additional impacts to the economy and our business going forward as a result of COVID-19, and we expect there may be some volatility in customer demand and buying habits as the pandemic continues.

offices have remained open to employees, subject to applicable government regulations.

Appropriate measures are being taken to protect the health of our employees who return to the office.

We have also reinstated business travel, subject to applicable government regulations.

As the COVID-19 pandemic abates, we may experience curtailed customer demand that could materially adversely impact our business, results of operations and overall financial performance in future periods.

Specifically, we may experience impact from enterprises reducing usage of our services or delaying decisions to implement our services.

As a result, the effect of the COVID-19 pandemic will not be reflected fully in our results of operations and overall financial performance until future periods.

We believe COVID-19 has reduced to endemic levels globally however, while its persistent nature has diminished in the present period, it is possible it could potentially impact areas of the United States or the rest of the world to varying degrees in the future.

During the COVID-19 pandemic, its adverse effects were prevalent in the locations where we, our customers, suppliers and third-party business partners conduct business.

We acknowledge there may be additional impacts to the economy and our business going forward as a result of COVID-19 and that

Management ’ s Discussion and Analysis

there is uncertainty regarding potentially broad or unknown implications of COVID-19 on our results of operations and overall financial performance remain uncertain.

If the COVID-19 infection rate were to return to pandemic levels in the United States or in other global territories where we operate, we may experience curtailed customer demand that could materially adversely impact our business, results of operations and overall financial performance in future periods.

Specifically, this could result in enterprises reducing usage of our services or delaying decisions to implement our services.

See “Item 1A.

Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.

Risk Factors” for further discussion of the possible impact of COVID-19 on our business.

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.

A DDoS attack is a malicious attempt to disrupt the normal traffic of a targeted server, service or network by overwhelming the target or its surrounding infrastructure with a flood of unwanted internet traffic from multiple sources, resulting in the slowdown or blockage of legitimate traffic.

Our mitigation efforts, in conjunction with our partners from leading cybersecurity firms, have proved successful.

Our mitigation efforts, in conjunction with our partners from leading cybersecurity firms, have proven successful.

Our network has been largely stable and operating at normal service levels since the evening of September 29, 2021, although there have been some continued intermittent disruptions.

We estimate that the impact from lost transaction volume and customer credits attributable to the DDoS Attack reduced CPaaS revenue for the full year 2021 by approximately $10.0 million.

Management ’ s Discussion and Analysis

Key Performance Indicators

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2022 2021 2020

(Dollars in thousands)

Number of active CPaaS customers (as of period end) 1,728 2,848 3,228

Dollar-based net retention rate 113 % 131 % 110 %

Adjusted EBITDA (1)

Number of active customers (as of period end) (1)

3,405 3,300 2,879

Free cash flow (1)

Dollar-based net retention rate (1)

112 % 117 % 131 %

________________________

(1) See “ Non-GAAP Financial Measures ” , discussed elsewhere in Management ’ s Discussion and Analysis.

Number of Active CPaaS Customer Accounts

We believe the number of active CPaaS customer accounts is an important indicator of the growth of our business, the market acceptance of our platform and our future revenue trends.

We define an active CPaaS customer account at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least $100 of revenue in the last month of the period.

We believe usage of our platform by an active CPaaS customer at or above the $100 per month threshold is a stronger indicator of potential future engagement than trial usage at levels below $100 per month.

A single organization may constitute multiple unique active CPaaS customer accounts if it has multiple unique account identifiers, each of which is treated as a separate active CPaaS customer account.

Customers who pay after using our platform and customers that have credit balances are included in the number of active CPaaS customer accounts.

Customers from our Other segment are excluded in the number of active CPaaS customer accounts, unless they are also CPaaS customers.

In the years ended December 31, 2019, 2020 and 2021 , revenue from active CPaaS customer accounts represented approximately 99% of total CPaaS revenue.

(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.

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.

Number of Active Customer Accounts

We define an active customer account at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least $100 of revenue in the last month of the period.

We believe usage of our platform by an active customer at or above the $100 per month threshold is a stronger indicator of potential future engagement than trial usage at levels below $100 per month.

A single organization may constitute multiple unique active customer accounts if it has multiple unique account identifiers, each of which is treated as a separate active customer account.

Customers who pay after using our platform and customers that have credit balances are included in the number of active customer accounts.

For comparative purposes, the number of active customers presented in the table above has been updated to reflect the change in our reporting segments.

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 CPaaS revenue and seek to increase their use of our platform.

We track our performance in this area by measuring the dollar-based net retention rate for our customers who generate CPaaS revenue.

Our dollar-based net retention rate compares the CPaaS revenue from customers in a quarter to the same quarter in the prior year.

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.

We track our performance in this area by measuring the dollar-based net retention rate for our customers who generate revenue.

To calculate the dollar-based net retention rate, we first identify the cohort of customers that generate revenue and that were customers in the same quarter of the prior year.

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.

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.

To calculate the dollar-based net retention rate, we first identify the cohort of customers that generate CPaaS revenue and that were customers in the same quarter of the prior year.

The dollar-based net retention rate is obtained by dividing the CPaaS revenue generated from that cohort in a quarter, by the CPaaS revenue generated from that same cohort in the corresponding quarter in the prior year.

When we calculate dollar-based net retention rate for periods longer than one quarter, we use the average of the quarterly dollar-based net retention rates for the quarters in such period.

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.

Management ’ s Discussion and Analysis

As our customers grow their businesses and increase usage of our platform, they sometimes create multiple customer accounts with us for operational or other reasons.

As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of CPaaS revenue in a quarterly reporting period) that has created a new CPaaS customer, this new customer is tied to, and CPaaS revenue from this new customer is included with, the original CPaaS customer for the purposes of calculating this metric.

As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of revenue in a quarterly reporting period) that has created a new customer, this new customer is tied to, and revenue from this new customer is included with, the original customer for the purposes of calculating this metric.

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.

Key Components of Statements of Operations

We generate a majority of our revenue from our CPaaS segment.

CPaaS revenue is derived from reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees, and from monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services.

For the years ended December 31, 2019, 2020 and 2021, we generated 66%, 74% and 72%, respectively of our CPaaS revenue from reoccurring sources.

The large bulk of our remaining CPaaS revenue is generated from recurring monthly charges.

The remainder of our revenue not classified in our CPaaS segment is generated by our Other segment.

Other segment revenue is composed of revenue earned from various communications services and products, indirect revenue and messaging surcharge 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.

For the years ended December 31, 2022, 2021 and 2020, we generated 78%, 75%, and 74%, respectively, of our revenue from reoccurring sources.

The large bulk of our remaining revenue is generated from recurring monthly charges.

We recognize accounts receivable at the time the customer is invoiced.

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Cost of Revenue and Gross Margin

CPaaS cost of revenue consists primarily of fees paid to other network service providers from whom we buy services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits.

Cost of revenue also contains costs related to support of our IP voice network, web services, cloud infrastructure, capacity planning and management, rent for network facilities, software licenses, hardware and software maintenance fees and network engineering services.

Personnel costs (including non-cash stock-based compensation expenses) associated with personnel who are responsible for the delivery of services, operation and maintenance of our communications network, and customer support, as well as third-party support agreements and depreciation of network equipment, amortization of internally developed software and gain (loss) on disposal of property and equipment are also included in cost of revenue.

Other cost of revenue consists of costs supporting non-CPaaS services including leased circuit costs paid to third party providers, internet connectivity expenses, minutes of use, direct operations, contractors, regulatory fees, surcharges and other pass-through costs and software and hardware maintenance fees.

Gross margin is calculated by subtracting cost of revenue from revenue, divided by total revenue, expressed as a percentage.

Our cost of revenue and gross margin have been, and will continue to be, affected by several factors, including the timing and extent of our investments in our network, our ability to manage off-network minutes of use and messaging costs, changes to the mix or amount of personnel-related costs included in our cost of revenue, the product mix of revenue, the timing of amortization of capitalized software development costs and fluctuations in the price we charge our customers for services.

Cost of revenue consists of fees paid to other network service providers, network operations costs, personnel costs, allocated costs of facilities and information technology, amortization of acquired technology intangibles and depreciation.

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.

Management ’ s Discussion and Analysis

Personnel costs (including non-cash stock-based compensation expenses) arise for employees who are responsible for the delivery of services and the operations and maintenance of the communications network.

Gross margin is calculated by subtracting cost of revenue from revenue, divided by revenue, expressed as a percentage.

Operating Expenses

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We also incur other non-personnel costs related to our general overhead expenses, including facility expenses, software licenses, web services, depreciation and amortization of assets unrelated to delivery of our services.

We expect that our operating expenses will increase in absolute dollars.

We expect that our operating expenses will increase in absolute dollars driven by the growth in our business.

Research and Development

Research and development ( “ R&D ” ) consists primarily of personnel costs (including non-cash stock-based compensation expenses), outsourced software development and engineering service and cloud infrastructure fees for staging and development of outsourced engineering services.

We capitalize the portion of our software development costs in instances where we invest resources to develop software for internal use.

We plan to continue to invest in R&D to enhance current product offerings and develop new services.

R esearch and development expenses consist of salaries and related personnel costs for the design, development, testing and enhancement of our cloud network and software products.

Research and development expenses include depreciation and allocated costs of facilities and information technology utilized by our research and development staff.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees and non-cash stock-based compensation expenses.

Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities, sales support and professional services fees.

We focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand.

We plan to continue to invest in sales and marketing in order to expand our CPaaS customer base by growing headcount, driving our go-to-market strategies, building brand awareness, advertising and sponsoring additional industry marketing events.

S ales and marketing expenses consist of salaries and related personnel costs, commissions, and costs related to advertising, marketing, brand awareness activities, sales support and professional services fees, and customer billing and collections functions.

Sales and marketing 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 primarily of personnel costs, including stock-based compensation, for our accounting, finance, legal, human resources and administrative support personnel, and executives.

General and administrative expenses also include costs related to product management and reporting, customer billing and collection functions, information services, professional services fees, credit card processing fees, rent and other facilities costs associated with our headquarters in Raleigh, North Carolina and our other offices, and depreciation and amortization.

General and administrative expenses consist of salaries and related personnel costs for accounting, legal, human resources, corporate, and other administrative and compliance functions.

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.

For the years ended December 31, 2022, 2021 and 2020 our effective tax rate was (13.1)%, 12.3% and (51.8)%, respectively.

The increase in our effective tax rate is primarily due to a change in the valuation allowance related to certain deferred tax assets.

Judgment is required in a determination as to whether deferred tax assets will be realized in full or in part.

Management assesses available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized, or when it is more likely than not that all or some deferred tax assets will not be realized and a valuation allowance must be established.

As of December 31, 2021, the Company continues to maintain a valuation allowance for its U.S.

The decrease in our effective tax rate is primarily due to the split of earnings and losses between jurisdictions.

In 2022 we were in a pre-tax loss position in jurisdictions without valuation allowances and as such, recognized income tax benefit.

However, as a result of income recognized in connection with our debt buy-back, we recognized pre-tax income in the U.S.

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.

Management assesses the available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized and when it is more likely than not that all or some deferred tax assets will not be realized, and a valuation allowance must be established.

As of December 31, 2022, we continue to maintain a valuation allowance for our U.S.

federal and state net deferred tax assets.

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(In thousands)

CPaaS revenue $ 197,944 $ 298,090 $ 413,948

Other revenue 34,650 45,023 76,959

Total revenue 232,594 343,113 490,907

Revenue $ 573,152 $ 490,907 $ 343,113

Cost of revenue 334,799 277,094 189,203

CPaaS cost of revenue 110,343 160,706 217,403

Other cost of revenue 14,616 24,546 54,981

Total cost of revenue 124,959 185,252 272,384

Gross profit 238,353 213,813 153,910

CPaaS 87,601 137,384 196,545

Other 20,034 20,477 21,978

Total gross profit 107,635 157,861 218,523

Operating expenses:

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Other income (expense), net:

Interest income (expense), net 2,446 (13,672) (28,784)

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)

Loss before income taxes (15,224) (28,972) (31,195)

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)

Management ’ s Discussion and Analysis

The following table sets forth our results of operations as a percentage of our total revenue for the periods presented.

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2022 2021 2020

CPaaS revenue 85 % 87 % 84 %

Other revenue 15 % 13 % 16 %

Total revenue 100 % 100 % 100 %

Revenue 100 % 100 % 100 %

Cost of revenue 58 % 56 % 55 %

CPaaS cost of revenue 47 % 47 % 44 %

Other cost of revenue 6 % 7 % 11 %

Total cost of revenue 53 % 54 % 55 %

Gross profit 42 % 44 % 45 %

CPaaS 37 % 40 % 40 %

Other 9 % 6 % 3 %

Total gross profit 46 % 46 % 45 %

Operating expenses:

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Other income (expense), net:

Interest income (expense), net 1 % (4) % (6) %

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) %

Loss before income taxes (7) % (8) % (6) %

Income (loss) before income taxes 3 % (6) % (8) %

Income tax benefit (provision) — % 1 % (4) %

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(Dollars in thousands)

CPaaS revenue $ 298,090 $ 413,948 $ 115,858 39 %

Other revenue 45,023 76,959 31,936 71 %

Total revenue $ 343,113 $ 490,907 $ 147,794 43 %

In 2021, total revenue increased by $147.8 million, or 43%, and CPaaS revenue increased by $115.9 million, or 39%, compared with the same period in 2020.

As a percentage of total revenue, CPaaS revenue was 84% in 2021 compared with 87% in 2020.

Revenue earned on our international platform contributed $81.5 million of this increase to total revenue and $78.8 million to CPaaS revenue.

Excluding the higher amounts attributable to our international platform, revenue from all of our CPaaS offerings increased from the same period in 2020 led by growth in our voice and messaging offerings of $20.4 million, and phone number services and 911-enabled phone number services of $16.7 million.

We believe our revenue results were lowered by approximately $10.0 million in 2021 from lost transaction volume and customer credits due to the previously disclosed DDoS Attack.

These increases in usage volume period-over-period, including the negative impact of approximately $10.0 million from lower transaction volume, yielded our dollar-based net retention rate of 110%.

Active CPaaS customer accounts increased 13% to 3,228 as of December 31, 2021, as compared with 2,848 as of December 31, 2020 active accounts as of December 31, 2020.

Other revenue increased by $31.9 million, or 71%, in 2021 primarily due to higher indirect revenue, which increased by $30.6 million due to an increase in messaging surcharges and indirect voice revenue, and $2.7 million due to reoccurring revenue earned from our international platform .

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.

This growth was the result of higher usage of our core messaging offering and additional A2P pass-through messaging surcharges imposed by certain carriers.

Growth in our revenue other than from pass-through messaging surcharges, compared with the same period in 2021, was led by our core messaging offerings, which grew 46%, and phone number and 911-enabled phone number services, mostly offset by lower revenue from voice offerings.

The growth in our core messaging offering was aided by higher messaging volumes from certain customers leading up to the U.S.

midterm elections in November 2022.

Compared with the same period last year, our voice offerings revenue in 2022 remained affected by lower usage arising from the 2021 DDoS incident as well as the absence of revenue from businesses divested earlier in 2022.

Active customer accounts increased 3% to 3,405 as of December 31, 2022, as compared with 3,300 active accounts as of December 31, 2021.

Our dollar-based net retention rate as of December 31, 2022 was 112%.

Cost of Revenue and Gross Margin

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Cost of revenue $ 334,799 $ 277,094 $ 57,705 21 %

CPaaS cost of revenue $ 160,706 $ 217,403 $ 56,697 35 %

Other cost of revenue 24,546 54,981 30,435 124 %

Total cost of revenue $ 185,252 $ 272,384 $ 87,132 47 %

Gross profit $ 238,353 $ 213,813 $ 24,540 11 %

Gross margin:

CPaaS 46 % 47 %

Other 45 % 29 %

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.

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.

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.

Management ’ s Discussion and Analysis

In 2021, total gross profit increased by $60.7 million, or 38%, compared with the same period in 2020, driven by higher revenue and improved operating leverage offset by unfavorable segment mix, which resulted in total gross margin of 45% for the year ended December 31, 2021 compared with 46% for the year ended December 31, 2020 .

As a component of total gross margin, our CPaaS gross margin grew from 46% to 47% for the years ended December 31, 2020 and 2021 , respectively.

Higher CPaaS gross margins arose from higher revenue, improved operating leverage and product mix.

Our higher revenue drove correspondingly higher CPaaS cost of revenue for the year ended December 31, 2021 of $56.7 million, or 35%, compared with the same period in 2020.

CPaaS cost of revenue increased due to an increase in network costs of $22.8 million due to both network expansions and amortization expense, partially related to our international platform, voice usage costs of $22.5 million, c osts of phone numbers and 911 of $8.7 million, and cost of messaging of $2.7 million from increased cost per message and higher messaging sales volumes.

Excluding depreciation, amortization and stock-based compensation of $20.8 million for the year ended December 31, 2021 and $11.2 million for the year ended December 31, 2020 , CPaaS Non-GAAP gross margins increased to 53%, compared with 50% for the year ended December 31, 2020 , and total Non-GAAP gross margins were 49% and 49%, respectively, for the years ended December 31, 2020 and 2021.

Higher CPaaS Non-GAAP gross margins were driven by revenue growth, improved operating leverage, improved product mix and the inclusion of higher margin sales from our international platform.

See “ Non-GAAP Financial Measures ” , discussed elsewhere in Management ’ s Discussion and Analysis.

In 2021, o ther cost of revenue increased by $30.4 million compared with the same period in 2020.

This was primarily due to increased indirect revenue and costs related to messaging surcharges, resulting in decreased Other gross margin from 45% to 29%.

Operating Expenses

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Total operating expenses $ 262,677 $ 216,050 $ 46,627 22 %

As a percentage of revenue, total operating expenses for the years ended December 31, 2020 and 2021 decreased from 50% to 45%, respectively, as revenue growth exceeded corresponding growth in operating expenditures in 2021.

In 2021, R&D expenses increased by $13.1 million, or 31%, compared with the same period in 2020.

This increase was due to increased personnel costs of $10.0 million including the impact of growth in headcount as a result of the Acquisition, and an increase in non-headcount costs of $3.1 million.

In 2021, sales and marketing expenses increased by $11.3 million , or 28%, compared with th e same period in 2020, primarily due to an increase in sales personnel costs of $7.8 million, which included the impact of growth in headcount as a result of the Acquisition, and an increase in non-headcount costs of $3.5 million.

As a percentage of revenue, total operating expenses for the years ended December 31, 2022 and 2021 were 46% and 44%, respectively.

In 2022, research and development expenses increased by approximately $28 million, or 41%, compared with the same period in 2021.

This increase was primarily due to increased personnel costs from greater numbers of employed staff of $22 million.

The increase in headcount also contributed to higher allocated facilities and IT expenses of $7 million.

In 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, 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 .

Interest Expense, Net

In 2022, interest expense, net of interest income, decreased by $26 million compared with the same period in 2021, due to a $24 million decrease in interest expense primarily related to the impact of the adoption of ASU 2020-06 on the Convertible Notes.

See Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details.

Management ’ s Discussion and Analysis

In 2021, g eneral and administrative expenses increased by $25.0 million , or 28%, compared with the same period in 2020.

This increase was primarily due to higher personnel costs of $13.9 million resulting from the impact of growth in headcount as a result of the Acquisition, depreciation and amortization costs of $10.0 million, facilities costs of $3.2 million, and other costs of $2.2 million, offset by a decrease in professional costs of $4.3 million.

Interest Income (Expense), Net

In 2021, interest expense, net of interest income, increased by $15.1 million compared with the same period in 2020, due to a $12.4 million increase in interest expense related to the Convertible Notes and a $2.5 million decrease in interest income from the investment of follow-on equity offering proceeds.

See Note 9, “Debt” to the consolidated financial statements, for additional details.

Income Tax Benefit

In 2021, income tax expense decreased by $18.8 million compared with the same period in 2020.

The effective tax rate for the year ended December 31, 2021, was 12.3% compared with (51.8)% in the same period in 2020.

The increase in our effective tax rate is primarily due to a change in the valuation allowance related to certain deferred tax assets.

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 .

The resulting effective tax rate for the year ended December 31, 2022 was (13.1)% compared with 12.3% in 2021 .

For the year ended December 31, 2022, the favorable change to the effective tax rate was primarily due to the split of earnings and losses between jurisdictions.

In 2022 , we were in a pre-tax loss position in jurisdictions without valuation allowances and as such, recognized income tax benefit.

However, as a result of income recognized in connection with our debt buy-back, we recognized pre-tax income in the U.S.

This income resulted in nominal income tax expense in the U.S.

due to the utilization of tax attributes and the valuation allowance position.

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.

Most of the permanent tax adjustments within our effective tax rate are offset by a valuation allowance.

These adjustments include state taxes, federal research tax credits under Internal Revenue Code Section 41, equity compensation in the U.S.

and other non-deductible expenditures in the U.S.

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.

The applicable federal tax law and regulations define qualified research activities as research and development activities conducted in the U.S.

that involve a process of experimentation designed to discover new information intended to develop a new or improved business component.

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.

non-deductible expenses that are offset by the valuation allowance consist primarily of non-deductible executive compensation under Internal Revenue Code 162(m).

Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance 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.

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.

Comparison of the Years Ended December 31, 2021 and 2020

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(Dollars in thousands)

CPaaS revenue $ 197,944 $ 298,090 $ 100,146 51 %

Other revenue 34,650 45,023 10,373 30 %

Total revenue $ 232,594 $ 343,113 $ 110,519 48 %

In 2020, total revenue increased by $110.5 million, or 48%, compared to the same period in 2019, and CPaaS revenue increased by $100.1 million, or 51%, compared to the same period in 2019.

The increase in CPaaS revenue was primarily attributable to an increase in the usage of all our service offerings, particularly our voice and messaging usage, which accounted for $58.6 million of the increase in CPaaS revenue.

Messaging usage increased in the year due to higher volumes of messages related to political campaigns for the U.S.

elections in November.

The situation caused by COVID-19 also caused increased usage in the year because of more reliance on our offerings to connect people during a time of physical distancing and work from home environment.

Increased usage was mostly driven by large enterprise customers that offer UCaaS services and meeting solutions and our phone number services.

Our phone number services and 911-enabled phone number services accounted for $13.2 million of the increase in CPaaS revenue.

In 2020, CPaaS revenue also increased by $11.8 million from higher usage pricing due to a shift in product mix to products with a higher rate compared to the same period in 2019.

In addition, $16.6 million of growth was attributable to the acquisition of Voxbone for the period from November 1, 2020 through December 31, 2020.

The changes in usage and price in 2020 compared to the same period in 2019 were reflected in our dollar-based net retention rate of 131%.

In addition, revenue from new CPaaS customers contributed $22.9 million , or 11%, to CPaaS revenue for 2020 compared to $11.7 million , or 7%, in the same period in 2019.

The increase in usage was also attributable to a 65% increase in the number of active CPaaS customer accounts, from 1,728 as of December 31, 2019 to 2,848 as of December 31, 2020.

As a percentage of total revenue, CPaaS revenue increased from 85% in 2019 to 87% in the same period in 2020 .

Other revenue increased by $10.4 million, or 30%, in 2020 due to higher indirect revenue, which increased by $12.7 million primarily due to an increase in messaging surcharges and indirect voice revenue, offset by the expected decline of legacy revenue, which decreased by $2.3 million, compared to the same period in 2019 .

Revenue $ 490,907 $ 343,113 $ 147,794 43 %

In 2021 , our total revenue increased by $148 million, or 43%, compared with the same period in 2020.

This growth was led by increases in our core voice, messaging and related surcharges, and phone number services of $71 million, $41 million, and $26 million, respectively.

This growth was aided by a full year of revenue contribution from the acquisition of Voxbone in November 2020.

We believe our revenue results were lowered by approximately $10.0 million in 2021 from lost transaction volume and customer credits due to the previously disclosed 2021 DDoS Attack.

Management ’ s Discussion and Analysis

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Cost of revenue $ 277,094 $ 189,203 $ 87,891 46 %

CPaaS cost of revenue $ 110,343 $ 160,706 $ 50,363 46 %

Other cost of revenue 14,616 24,546 9,930 68 %

Total cost of revenue $ 124,959 $ 185,252 $ 60,293 48 %

Gross profit $ 213,813 $ 153,910 $ 59,903 39 %

Gross margin:

CPaaS 44 % 46 %

Other 58 % 45 %

Total gross margin 44 % 45 %

In 2020, total gross profit increased by $50.2 million, or 47%, compared to the same period in 2019 .

Total gross margin was 46% for both years.

In 2020, CPaaS cost of revenue increased by $50.4 million, or 46%, compared to the same period in 2019.

CPaaS cost of revenue increased due to an increase in voice usage costs of $25.0 million due to growth in minutes used by customers.

Cost of messaging increased by $10.3 million due to growth in messages used by customers, including an increase related to political campaigns and increased cost per message.

Network costs also increased $13.0 million due to network expansions and depreciation expense.

Cost of phone numbers and 911 increased by $2.1 million.

COVID-19 and the increased usage resulting from the work at home environment generated increased voice usage costs and network expansions.

CPaaS gross margin increased from 44% in 2019 to 46% in 2020.

Excluding depreciation and stock-based compensation of $6.8 million in 2019 and $9.7 million in 2020, CPaaS Non-GAAP gross margin was 48% and 50%, respectively, and total Non-GAAP gross margin was 49% for both years

In 2020, o ther cost of revenue increased by $9.9 million compared to the same period in 2019, primarily due to a $10.8 million increase in cost of indirect revenue related to messaging surcharges offset by a $0.9 million decrease in costs as a result of the expected churn in legacy services.

In 2021 , total cost of revenue increased $88 million, compared with the same period in 2020.

This growth was driven by higher cost of revenue in our messaging business and related surcharges, network related costs, and core voice of $33 million, $24 million, and $23 million, respectively.

This growth was aided by a full year of cost of revenue contribution from the acquisition of Voxbone in November 2020.

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.

For the year ended December 31, 2021, total gross margin was 44.0% compared with 45.0% for the year ended December 31, 2020 and was impacted by higher pass-through messaging surcharges within total revenue.

Operating Expenses

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Total operating expenses $ 216,050 $ 167,415 $ 48,635 29 %

In 2020, R&D expenses related to the expansion of our product offerings increased by $10.6 million, or 34%, compared to the same period in 2019.

This increase was primarily due to increased personnel costs of $10.1 million including the impact of growth in headcount as a result of the Acquisition and an increase in non-headcount costs of $0.5 million.

In 2020, sales and marketing expenses increased by $5.5 million, or 16%, compared to the same period in 2019, primarily due to an overall increase in sales personnel costs of $6.6 million including the impact of growth in headcount as a result of the Acquisition offset by a decrease in non-headcount costs of $1.1 million.

Management ’ s Discussion and Analysis

In 2020, g eneral and administrative expenses increased by $29.9 million , or 51%, compared to the same period in 2019.

This increase was due to $12.7 million in costs which consist of mainly fees for financial and legal services, due diligence services and success fees related to the acquisition of Voxbone, higher personnel costs of $11.9 million due to the impact of growth in headcount as a result of the Acquisition, depreciation and amortization costs of $3.1 million, facilities costs of $1.4 million, bank charges and license costs of $1.1 million, professional costs of $0.6 million, and expensed IT charges of $0.6 million, offset by lower other non-headcount costs of $0.9 million and travel and entertainment expenses of $0.6 million, which contributed to the overall increase in general and administrative expenses.

As a percentage of revenue, total operating expenses for the years ended December 31, 2018, 2019 and 2020 increased from 43% to 53% and 50%, respectively, as operating expenditures growth exceeded corresponding growth in revenue in 2019 and 2020.

As a percentage of revenue, total operating expenses for the years ended December 31, 2021 and 2020 , were 44% and 49%, respectively.

In 2021 , research and development expenses increased by approximately $15 million, or 27%, compared with the same period in 2020.

This increase was primarily due to increased personnel costs from greater numbers of employed staff of $10 million, which was driven by the acquisition of Voxbone in November 2020.

In 2021 , sales and marketing expenses increased by $21 million , or 34%, compared with th e same period in 2020, driven by the increase in sales personnel costs from a greater number of employed staff of $8 million from the acquisition of Voxbone in November 2020.

In 2021 , g eneral and administrative expenses increased by approximately $13 million , or 24%, compared with the same period in 2020 , main ly from higher headcount costs of $14 million, driven by the acquisition of Voxbone in November 2020.

Interest Expense, Net

In 2020, interest expense, net increased by $16.1 million compared to the same period in 2019, due to a $0.1 million decrease in interest income from the investment of follow-on equity offering proceeds and a $16.2 million increase in interest expense related to the Convertible Notes.

In 2021 , interest expense, net of interest income increased by $15 million compared with the same period in 2020 , due to a $12 million increase in interest expense related to the Convertible Notes and a $2 million decrease in interest income from the investment of follow-on equity offering proceeds.

See Note 8, “ Debt, ” to the consolidated financial statements, for additional details.

Income Tax Provision

In 2020, income tax benefit decreased by $32.7 million compared to the same period in 2019 The effective tax rate for the twelve months ended December 31, 2020 was (51.8)% compared to 116.4% in the same period in 2019.

The decrease in our effective tax rate is primarily due to the change in judgment related to the realizability of certain deferred tax assets and the resulting valuation allowance.

Income Tax Benefit (Provision)

Management ’ s Discussion and Analysis

In 2021 , income tax expense decreased by $19 million compared with the same period in 2020.

The effective tax rate for the year ended December 31, 2021, was 12.3% compared with (51.8)% in the same period in 2020.

The increase in our effective tax rate is primarily due to a change in the valuation allowance related to certain deferred tax assets.

Liquidity and Capital Resources

Our liquidity for the year ended December 31, 2021 was provided by positive free cash flow, derived from our cash flow from operations of $40.8 million less expenditures for capital equipment.

In the last three years, we have also supplemented our liquidity with proceeds from our issuance of the 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.

Our liquidity is provided by our cash flow from operations less expenditures for capital equipment, and supplemented by financing activities from time to time.

Our cash flow from operations is driven by monthly payments from customers for communication services consumed during the period.

Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property plant and equipment to support growth on our communications platform and the purchase of land for our new corporate headquarters.

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.

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.

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.

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.

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.

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.

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.

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If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected .

Management ’ s Discussion and Analysis

Our principal future commitments consist of (i) an aggregate of $650.0 million in Convertible Notes (see Note 9, “Debt” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for a discussion of our 2026 Convertible Notes and our 2028 Convertible Notes), (ii) a $495.7 million non-cancelable lease for our future office headquarters, which is anticipated to commence in May of 2023 (the “ Headquarters Lease ” ), (iii) a $3.6 million non-cancelable lease for our London office, (iv) $18.1 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers, and (v) $15.8 million in future minimum rent payments for our current office space.

The initial base rent for the Headquarters Lease will be $38.79 per square foot, or approximately $20.7 million per annum, and will increase by 1.85% on each anniversary of the commencement date.

In addition, we are required to deposit an amount equal to the final “ Cost of the Work ” (as defined in the lease agreement) minus the amount of allowance for certain tenant improvements (the “ Excess Costs ” ) with USEF Edwards Mill Owner, LLC and Chicago Title Insurance Company when such amount has been determined.

The final calculation of Excess Costs for the Headquarters Lease is expected to be approximately $12.6 million to occur in March 2022.

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.

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.

Management ’ s Discussion and Analysis

Statement of Cash Flows

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(In thousands)

Net cash (used in) provided by operating activities $ (1,253) $ 4,518 $ 40,803

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 provided by financing activities 152,418 346,891 207,027

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 increase (decrease) in cash, cash equivalents, and restricted cash $ 143,503 $ (103,567) $ 250,852

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 .

The net gain on extinguishment of debt was a result of the repurchase of $160 million aggregate principal amount of the 2026 Convertible Notes.

Within operating liabilities, the net cash provided as a result of higher accounts payable of $17 million during 2022 was primarily related to the timing and amounts of purchases of both services and tangible goods and their related payment arrangements.

The cash provided as a result of higher accrued expenses and other liabilities of $3 million during 2022 primarily related to higher accruals for lease incentives and higher advanced billings.

This was partially offset by a cash outflow related to the operating right-of-use liability of $8 million.

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.

The cash used as a result of higher prepaid expenses and other assets of $6 million during 2022 was driven by higher VAT receivables and the timing of advance payments for software and other services.

In 2021 , net cash provided by operating activities was $41 million consisting of net loss of $27 million adjusted for non-cash items of $76 million and offset by cash used by changes in operating assets and liabilities of $8 million .

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Offsetting these cash use items in assets and liabilities was an increase in accrued expenses and other liabilities of $10 million, and an increase in accounts payable of $2 million.

The non-cash items included depreciation and amortization expense of $36.7 million, amortization of debt discount and issuance costs of $26.8 million, stock-based compensation expenses of $14.5 million, right-of-use asset amortization of $5.7 million, and loss on disposal of property and equipment of $0.8 million, offset by a deferred tax benefit of $8.3 million.

In 2020, net cash provided by operating activities was $4.5 million, consisting of net loss of $44.0 million adjusted for non-cash items of $61.8 million and offset by cash used by changes in operating assets and liabilities of $13.3 million.

Cash generated in operating assets and liabilities included an increase in accrued expenses and other liabilities of $14.4 million, and an increase in accounts payable of $0.3 million.

Offsetting these cash generating

The non-cash items included depreciation and amortization expense of $37 million, amortization of debt discount and issuance costs of $27 million, stock-based compensation expense of $15 million, right-of-use asset amortization of $6 million, and loss on disposal of property, plant and equipment of $1 million, offset by a deferred tax benefit of $8 million .

In 2020, net cash provided by operating activities was $5 million consisting of net loss of $44 million a djusted for non-cash items of $62 million and offset by cash used changes in operating assets and liabilities of $13 million .

Cash generated in operating assets and liabilities included an increase in accrued expenses and other liabilities of $14 million .

Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of $19 million , a decrease in operating right-of-use liability of $5 million , and an increase in prepaid expenses and other assets of $4 million .

The non-cash items included depreciation and amortization expense of $17

Management ’ s Discussion and Analysis

items in assets and liabilities were an increase in accounts receivable of $18.8 million, a decrease in operating right-of-use liability of $5.3 million, and an increase in prepaid expenses and other assets of $3.8 million.

The non-cash items included depreciation and amortization expense of $16.8 million, amortization of debt discount and issuance costs of $15.6 million, deferred tax expense of $14.3 million, stock-based compensation expenses of $9.9 million, right-of-use asset amortization of $4.8 million, and loss on disposal of property and equipment of $0.3 million.

In 2019, cash used in operating activities was $1.3 million, consisting of net income of $2.5 million adjusted for non-cash items.

These non-cash items included depreciation and amortization expense of $9.6 million, stock-based compensation expenses of $6.6 million, right-of-use asset amortization of $4.3 million, loss on disposal of property and equipment of $0.5 million, offset by deferred tax benefit of $17.5 million, cash used by changes in operating assets and liabilities of $6.6 million, and accretion of bond discount of $0.7 million.

Cash generated from operating assets and liabilities included an increase in accrued expenses and other liabilities of $5.5 million, an increase in accounts payable of $1.1 million, and an increase in deferred revenue and advanced billings of $0.6 million.

Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of $6.2 million, an increase in prepaid expenses and other assets of $4.2 million, and a decrease in operating right-of-use liability of $3.4 million.

million , amo rtization of debt discount and issuance costs of $16 million, deferred tax expense of $14 million, stock-based compensation expenses of $10 million, and right-of-use amortization of $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 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 provided by investing activities included proceeds from sales and maturities of other investments of $40.0 million, proceeds from the sale of land of $17.5 million, offset by the purchase of land of $30.0 million, purchase of property and equipment of $20.7 million and capitalized internally developed software costs of $3.9 million.

In 2020, cash used in investing activities was $455.1 million mainly from the costs related to the Acquisition of $400.5 million, net of cash.

In addition, cash used in investing activities was the purchase of other investments of $230.8 million, the purchase of property and equipment of $12.3 million and capitalized internally developed software costs of $2.3 million, offset by the proceeds from sales and maturities of other investments of $190.8 million.

In 2019, cash used in investing activities was $7.7 million from the proceeds from the sales and maturities of marketable securities of $86.4 million, offset by the investment in marketable securities of $68.4 million, the purchase of property and equipment of $22.2 million and capitalized internally developed software costs of $3.5 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 .

In 2020, net cash used in investing activities was $455 million, mainly from the costs related to the Voxbone acquisition of $400 million , net of cash.

In addition, cash used in investing activities was the purchase of other investments of $231 million , the purchase of property, plant and equipment of $12 million and capitalized internally developed software costs of $2 million , offset by the proceeds from sales and maturities of other investments of $191 million.

Cash Flows from Financing Activities

In 2021, net cash provided by financing activities was $207.0 million consisting primarily of $250.0 million in proceeds from the issuance of the 2028 Convertible Notes and $0.9 million in proceeds from the issuance of stock options, partially offset by $25.5 million in the purchase of the 2028 Capped Calls, $7.5 million in payments of debt issuance cost, $6.7 million in payment of holdback proceeds to former Voxbone shareholders, $4.0 million in value of equity awards withheld for tax liabilities, and $0.2 million in payments on finance leases.

In 2020, cash provided by financing activities was $346.9 million consisting primarily of $400.0 million in proceeds from the issuance of the Convertible Notes and $4.1 million in proceeds from the issuance of stock options, partially offset by $43.3 million in the purchase of the 2026 Capped Calls, $12.0 million in payments of debt issuance cost, and $1.9 million in value of equity awards withheld for tax liabilities.

In 2019, cash provided by financing activities was $152.4 million consisting primarily of $147.4 million in proceeds from the follow-on public offering, $7.4 million in proceeds from the issuance of stock options, partially offset by $1.4 million in value of equity awards withheld for tax liabilities, $0.8 million in payments related to the cost of the follow-on public offering and $0.2 million in payments of debt issuance cost.

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 2021 , net cash provided by financing activities was $207 million consisting primarily of $250 million in proceeds from the issuance of the 2028 Convertible Notes and $1 million in proceeds from the exercise of stock options, partially offset by $26 million in the purchase of the 2028 Capped Calls, $8 million in payments of debt issuance cost, $7 million in payment of holdback proceeds to former Voxbone shareholders, and $4 million in value of equity awards withheld for tax liabilities.

In 2020, net cash provided by financing activities was $347 million consisting primarily of $400 million in proceeds from the issuance of the 2026 Convertible Notes and $4 million in proceeds from the exercise of stock options, partially offset by $43 million in the purchase of the 2026 Capped Calls, $12 million in payments of debt issuances cost, and $2 million in value of equity awards withheld for tax liabilities.

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 .

Management ’ s Discussion and Analysis

On May 25, 2021, we terminated the Credit and Security Agreement, dated as of November 4, 2016, as amended and restated as of March 1, 2019, among the Company, KeyBank National Association, and KeyBanc Capital Markets Inc.

(the “Credit Agreement”).

The Credit Agreement provided for a secured $25.0 million revolving credit facility.

As of May 25, 2021, no borrowings were outstanding under the Credit Agreement.

As of December 31, 2021, we had no outstanding unamortized loan fees for the Credit Agreement.

On March 16, 2021, we issued $250.0 million aggregate principal amount of the 2028 Convertible Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The interest on the 2028 Convertible Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021.

The 2028 Convertible Notes may bear special interest under specified circumstances relating to our failure to comply with our reporting obligations under the indenture governing the 2028 Convertible Notes (the “2028 Indenture”) or if the 2028 Convertible Notes are not freely tradeable as required by the 2028 Indenture.

The 2028 Convertible Notes will mature on April 1, 2028, unless earlier repurchased, redeemed by us, or converted pursuant to their terms.

The total net proceeds from the 2028 Convertible Notes, after deducting initial purchaser discounts, costs related to the 2028 Capped Calls, and debt issuance costs, paid or payable by us, were approximately $217.0 million .

On February 28, 2020, we issued $400.0 million aggregate principal amount of the Convertible Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, including $50.0 million aggregate principal amount of such Convertible Notes pursuant to the exercise in full of the initial purchasers’ over-allotment option.

The interest on the Convertible Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020.

The 2026 Convertible Notes may bear special interest under specified circumstances relating to our failure to comply with our reporting obligations under the indenture governing the 2026 Convertible Notes (the “2026 Indenture”) or if the 2026 Convertible Notes are not freely tradeable as required by the 2026 Indenture.

The 2026 Convertible Notes will mature on March 1, 2026, unless earlier repurchased, redeemed by us, or converted pursuant to their terms.

The total net proceeds from the Convertible Notes, after deducting initial purchaser discounts, costs related to the Capped Calls, and debt issuance costs, paid or payable by us, were approximately $344.7 million.

Non-GAAP Financial Measures

We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net (loss) income, 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 (loss) income, 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 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.

Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income, 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.

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• amortization of acquired intangible assets related to acquisitions;

Management ’ s Discussion and Analysis

• stock-based compensation

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

In our calculation of Non-GAAP gross profit and Non-GAAP gross margin, we eliminate the impact of depreciation and amortization, amortization of acquired intangible assets related to acquisitions, and stock-based compensation, all non-cash items, because we do not consider them indicative of our core operating performance.

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.

In our calculation of Non-GAAP gross profit and Non-GAAP gross margin, we eliminate the impact of depreciation and amortization, amortization of acquired intangible assets related to acquisitions, stock-based compensation, pass-through messaging surcharges, and all non-cash items, because we do not consider them indicative of our core operating performance.

The exclusion of these items facilitates comparisons of our operating performance on a period-to-period basis.

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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.

Management ’ s Discussion and Analysis

Year ended December 31,

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(In thousands)

Consolidated Gross Profit $ 107,635 $ 157,861 $ 218,523

Consolidated Gross Profit Margin % 46 % 46 % 45 %

Gross Profit $ 238,353 $ 213,813 $ 153,910

Gross Profit Margin % 42 % 44 % 45 %

Depreciation 13,602 12,606 9,997

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Non-GAAP Gross Margin % (1)

Year ended December 31,

55 % 52 % 50 %

(In thousands)

CPaaS Gross Profit $ 87,601 $ 137,384 $ 196,545

CPaaS Gross Profit Margin % 44 % 46 % 47 %

Depreciation 6,583 9,536 12,051

Amortization of acquired intangible assets — 1,445 8,543

Stock-based compensation 211 208 252

Non-GAAP CPaaS Gross Profit $ 94,395 $ 148,573 $ 217,391

Non-GAAP CPaaS Gross Margin % 48 % 50 % 53 %

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

Management ’ s Discussion and Analysis

Non-GAAP Net (Loss) Income

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

Non-GAAP net (loss) income excludes:

________________________

(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 Net Income

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

Non-GAAP net income excludes:

• stock-based compensation;

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• impairment charges of intangibles assets , if any ;

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

• net cost associated with early lease terminations and leases without economic benefit;

• 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.

• (gain) loss on sale of business;

• net (gain) loss on extinguishment of debt;

• non-recurring items not indicative of ongoing operations and other;

• 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.

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

The tax-effect of Non-GAAP adjustments is determined by recalculating the tax provision on a Non-GAAP basis.

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 (loss) 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 use of Non-GAAP net (loss) income 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.

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 use of Non-GAAP net income 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.

As a result of the adoption of ASU No.

2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share.

Management ’ s Discussion and Analysis

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2022 2021 2020

(In thousands)

( In thousands, except share and per share amounts )

Net income (loss) $ 19,570 $ (27,362) $ (43,977)

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Acquisition-related expenses — — 14,458

Loss on disposal of property and equipment 456 334 832

Estimated tax effects of adjustments (1)

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

Valuation allowance (2)

Estimated tax effects of adjustments (2)

(3,396) (8,087) 14,266

Income tax benefit of equity compensation (13,484) — (2,603)

Non-GAAP net (loss) income $ (5,302) $ 14,193 $ 25,711

Net income (loss) per share, basic and diluted

Non-GAAP net income $ 14,996 $ 25,711 $ 14,193

Interest expense on Convertible Notes (3)

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 (loss) income per Non-GAAP share

Non-GAAP net income per Non-GAAP share

Basic $ 0.59 $ 1.02 $ 0.59

Diluted $ 0.54 $ 0.97 $ 0.55

Non-GAAP weighted average number of shares outstanding

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

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________________________

(1) The Non-GAAP tax-effect adjustments are calculated based on statutory tax rates in the jurisdictions where we have has tax filings.

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

The rate was 25.2%, 1.8%, 13.2% for the years ended December 31, 2019, 2020 and 2021, respectively.

(2) The Company recognized a tax expense of $0.0 million, $15.0 million, and $9.6 million to record a valuation allowance on U.S.

deferred tax assets in the years ended December 31, 2019, 2020 and 2021 , respectively.

(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.

Management ’ s Discussion and Analysis

(2) The estimated tax-effect of adjustments is determined by recalculating the tax provision on a Non-GAAP basis.

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, 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.

In the fourth quarter of 2022, we removed the valuation allowance against all U.S.

deferred tax assets for Non-GAAP purposes as a result of cumulative Non-GAAP U.S.

income over the past three years and a significant depletion of net operating loss and tax credit carryforwards on a Non-GAAP basis.

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.

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 details on the adoption of ASU 2020-06.

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);

• income tax (benefit) provision;

• interest (income) expense, net;

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• acquisition related expenses;

Management ’ s Discussion and Analysis

• stock-based compensation expense;

• impairment of intangible assets, if any;

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

• non-recurring items not indicative of ongoing operations and other

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.

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Income tax (benefit) provision (2,264) (3,833) 15,005

(17,718) 15,005 (3,833)

Interest (income) expense, net (2,446) 13,672 28,784

Interest expense, net 3,048 28,784 13,672

Depreciation 18,419 17,523 13,137

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Stock-based compensation 20,655 14,537 9,881

Loss on disposal of property and equipment 456 334 832

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) Includes $0.0 million, $15.0 million, and $9.6 million of tax expense to record a valuation allowance on U.S.

deferred tax assets for the years ended December 31, 2019, 2020 and 2021 , 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.

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.

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 to invest in our business.

Free cash flow has certain limitations because 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 residual cash flows available for discretionary expenditures.

Free cash flow has certain limitations because it is subject to working capital timing, 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 residual cash flows available for discretionary expenditures.

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

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(In thousands)

Net cash (used in) provided by operating activities $ (1,253) $ 4,518 $ 40,803

Net cash provided by operating activities $ 34,906 $ 40,803 $ 4,518

Net cash used in investing in capital assets (1) (2)

2 unchanged sentences

________________________

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

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

(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.

Management ’ s Discussion and Analysis

(2) Includes the net cash used from the purchase of land of $(30.0) million offset by the proceeds from sale of land of $17.5 million from investing activities of the consolidated statement of cash flows for the year ended December 31, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

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The fair values of the assets acquired and liabilities assumed are determined based upon management's valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date.

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

Management ’ s Discussion and Analysis

The measurement period ends once all information is obtained, but no later than one year from the acquisition date.

Management ’ s Discussion and Analysis

Goodwill and Intangible Assets

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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, 2021 goodwill was $344.4 million which has been assigned to the CPaaS segment.

As of December 31, 2022 goodwill was $326 million.

Long-Lived Assets

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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 and equipment.

Capitalized costs of platform and other software applications are included in property, plant and equipment.

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.

We evaluate the useful life of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Management ’ s Discussion and Analysis

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that are included in the financial statements.

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.

Management ’ s Discussion and Analysis

the differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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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 $5.4 million, $9.1 million and $11.0 million as of December 31, 2019, 2020 and 2021, respectively, included in accrued expenses and other current liabilities.

As a result, we have recorded a liability of $8 million and $11 million as of December 31, 2022 and 2021, respectively, included in accrued expenses and other current liabilities.

These estimates are based on several key assumptions, including the taxability of our services, the jurisdictions in which we believe we have nexus and the sourcing of revenue to those jurisdictions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis