What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-25 · 424 added, 393 removed, 990 unchanged (45% of the section changed)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Changes in Stockholders’ Equity

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We have audited the accompanying consolidated balance sheets of Bandwidth Inc.

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

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Description of the

Matter As discussed in Note 2, the Company recognizes revenue from the sale of communications services offered through software solutions, which are generally derived from usage and monthly service fees from both the CPaaS and Other segments.

Usage revenue includes voice communication (primarily driven by inbound minutes, outbound minutes and toll-free minutes) and messaging communication (driven by the number of messages) that traverse the platform and network.

Revenue for these services is recognized in the period the usage occurs.

Monthly service fees include the provisioning and management of phone numbers and emergency services access, which are recognized based on the quantity of phone numbers in service and the quantity of phone numbers with emergency services access during the month, respectively.

Monthly service fees include the provisioning and management of phone numbers and emergency services access, which is recognized on a ratable basis as the service is provided, which is typically one month.

The processing and recording of revenue from voice and messaging data usage is highly automated and involves capturing and pricing significant volumes of data across multiple systems.

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This included involvement of audit professionals with significant experience in the use of information technology (IT) to support business operations and related controls.

With the involvement of our IT professionals, we identified the significant systems used to capture and process voice usage, phone number services, emergency services access, and messaging services, and tested the IT general controls over those systems, including testing of user access and change management controls.

In addition, our audit procedures included testing of other manual reconciliation controls designed to determine the accuracy and completeness of data processed and transferred across multiple platforms in connection with the recognition of revenue for voice and messaging usage, the quantity of phone numbers in service, and the quantity of phone numbers with emergency services access during the period.

With the involvement of our IT professionals, we identified the significant systems used to capture and process voice usage, phone number services, emergency services access, and messaging volume, and tested the IT general controls over those systems, including testing of user access and change management controls.

In addition, our audit procedures included testing of other manual reconciliation and analytical review controls designed to determine the accuracy and completeness of data processed and transferred across multiple platforms in connection with the recognition of revenue for voice and messaging usage, the quantity of phone numbers in service, and the quantity of phone numbers with emergency services access during the period.

To test the Company’s revenue, our audit procedures included, among other procedures, performing data analytics by extracting data from the Company’s systems to evaluate the completeness and accuracy of recorded revenues, testing a sample of revenue transactions, which included evaluating the transaction price based on inspection of customer contracts and approved rate tables, as well as testing the mathematical accuracy of the recorded revenue based on the voice and messaging usage, as well as the quantity of phone numbers in service and quantity of phone numbers with emergency services access during the period.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 25, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 23, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Restricted cash 981 836

Other investments 40,000 —

Marketable securities 71,231 —

Accounts receivable, net of allowance for doubtful accounts 74,465 61,572

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20,000,000 shares authorized as of December 31, 2022 and 2021;

2,496,125 and 1,965,170 shares issued and outstanding as of December 31, 2020 and 2021, respectively

1,965,170 shares issued and outstanding as of December 31, 2022 and 2021

Additional paid-in capital 364,913 502,477

Accumulated deficit ( 48,547 ) ( 76,867 )

Accumulated other comprehensive income (loss) 27,941 ( 13,040 )

Accumulated other comprehensive loss ( 44,214 ) ( 13,040 )

Total stockholders’ equity 272,177 412,595

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2022 2021 2020

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

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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 )

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Diluted $ ( 0.48 ) $ ( 1.09 ) $ ( 1.83 )

Numerator used to compute net income (loss) per share:

Basic $ 19,570 $ ( 27,362 ) $ ( 43,977 )

Diluted $ ( 14,897 ) $ ( 27,362 ) $ ( 43,977 )

Weighted average number of common shares outstanding:

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BANDWIDTH INC.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Loss

(In thousands)

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

Other comprehensive income (loss)

Other comprehensive (loss) income

Unrealized gain on marketable securities, net 314 — —

Foreign currency translation, net of income taxes 41 27,900 ( 41,150 )

Unrealized gain on employee benefit plan, net of income taxes — — 169

Total other comprehensive income (loss) 42 27,900 ( 40,981 )

Total comprehensive income (loss) $ 2,536 $ ( 16,077 ) $ ( 68,343 )

Foreign currency translation ( 31,855 ) ( 41,150 ) 27,900

Unrealized gain on employee benefit plan, net 367 169 —

Total other comprehensive (loss) income ( 31,174 ) ( 40,981 ) 27,900

Total comprehensive loss $ ( 11,604 ) $ ( 68,343 ) $ ( 16,077 )

See accompanying notes.

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common stock Class B voting

common stock Additional paid-in capital Accumulated other comprehensive (loss) income Accumulated deficit Total stockholders’ equity

common stock Additional paid-in capital Accumulated other comprehensive income (loss) Accumulated deficit Total stockholders’ equity

Shares Amount Shares Amount

Balance at December 31, 2019 18,584,478 $ 19 4,927,401 $ 5 $ 275,553 $ 41 $ ( 5,528 ) $ 270,090

Issuance of common stock in connection with follow on public offering, net of underwriting discounts 2,875,000 3 — — 147,388 — — 147,391

Costs in connection with public offering — — — — ( 834 ) — — ( 834 )

Issuance of debt conversion option — — — — 104,553 — — 104,553

Debt conversion option issuance costs, net of tax — — — — ( 3,742 ) — — ( 3,742 )

Capped call option purchase price — — — — ( 43,320 ) — — ( 43,320 )

Exercises of vested stock options 593,084 1 — — 4,075 — — 4,076

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Conversion of Class B voting common stock to Class A voting common stock 2,431,276 1 ( 2,431,276 ) ( 3 ) — — — ( 2 )

Adjustment to opening retained earnings due to adoption of ASC 606 — — — — — — ( 174 ) ( 174 )

Unrealized gain on marketable securities — — — — — 1 — 1

Equity consideration for Voxbone acquisition 663,394 1 — — 106,379 — — 106,380

Foreign currency translation — — — — — 27,900 — 27,900

Stock based compensation — — — — 9,881 — — 9,881

Net income — — — — — — 2,494 2,494

Net loss — — — — — — ( 43,977 ) ( 43,977 )

Balance at December 31, 2020 22,413,004 22 2,496,125 2 451,463 27,941 ( 49,505 ) 429,923

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Conversion of Class B voting common stock to Class A voting common stock 530,955 1 ( 530,955 ) — — — — 1

Equity consideration for Voxbone acquisition 663,394 1 — — 106,379 — — 106,380

Foreign currency translation — — — — — ( 41,150 ) — ( 41,150 )

Unrealized gain on employee benefit pension plan — — — — — 169 — 169

Stock-based compensation — — — — 14,537 — — 14,537

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Balance at December 31, 2021 23,177,988 23 1,965,170 2 502,477 ( 13,040 ) ( 76,867 ) 412,595

Issuance of debt conversion option — — — — 66,908 — — 66,908

Debt conversion option issuance costs, net of tax — — — — ( 2,019 ) — — ( 2,019 )

Capped call option purchase price — — — — ( 25,500 ) — — ( 25,500 )

Exercises of vested stock options 20,468 — — — 163 — — 163

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Equity awards withheld for tax liability ( 50,690 ) — — — ( 2,134 ) — — ( 2,134 )

Conversion of Class B voting common stock to Class A voting common stock 530,955 1 ( 530,955 ) — — — — 1

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

Unrealized gain on marketable securities — — — — — 314 — 314

Foreign currency translation — — — — — ( 31,855 ) — ( 31,855 )

Unrealized gain on employee benefit pension plan — — — — — 367 — 367

BANDWIDTH INC.

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common stock Class B voting

common stock Additional paid-in capital Accumulated other comprehensive (loss) income Accumulated deficit Total stockholders’ equity

common stock Additional paid-in capital Accumulated other comprehensive income (loss) Accumulated deficit Total stockholders’ equity

Shares Amount Shares Amount

Foreign currency translation — — — — — ( 41,150 ) — ( 41,150 )

Unrealized gain on employee benefit pension plan — — — — — 169 — 169

Stock-based compensation — — — — 20,655 — — 20,655

Net loss — — — — — — ( 27,362 ) ( 27,362 )

Net income — — — — — — 19,570 19,570

Balance at December 31, 2022 23,379,000 $ 23 1,965,170 $ 2 $ 364,913 $ ( 44,214 ) $ ( 48,547 ) $ 272,177

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

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization 35,599 36,642 16,803

Right-of-use asset amortization 4,269 4,812 5,722

Accretion of bond discount ( 700 ) — —

Gain on sale of marketable securities ( 4 ) — —

Non-cash reduction to the right-of-use asset 6,977 5,722 4,812

Amortization of debt discount and issuance costs 3,082 26,754 15,647

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

Deferred taxes ( 17,502 ) 14,266 ( 8,318 )

Loss on disposal of property and equipment 456 334 832

Deferred taxes and other ( 5,557 ) ( 7,486 ) 14,600

Net gain on extinguishment of debt ( 40,205 ) — —

Changes in operating assets and liabilities:

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Operating right-of-use liability ( 7,580 ) ( 6,227 ) ( 5,301 )

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

Cash flows from investing activities

Purchase of property and equipment ( 22,215 ) ( 12,273 ) ( 20,686 )

Purchase of property, plant and equipment ( 41,661 ) ( 17,686 ) ( 12,273 )

Deposits for construction in progress ( 18,674 ) ( 3,000 ) —

Capitalized software development costs ( 3,755 ) ( 3,926 ) ( 2,319 )

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Proceeds from sales and maturities of other investments — 40,000 190,780

Proceeds from sale of business 1,558 — —

Acquisition, net of cash acquired — — ( 400,493 )

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Payments on finance leases ( 190 ) ( 212 ) ( 28 )

Proceeds from the follow-on public offering, net of underwriting discounts 147,391 — —

Payment of costs related to the follow-on public offering ( 757 ) — —

Proceeds from issuance of convertible senior notes — 250,000 400,000

Net cash paid for debt extinguishment ( 117,286 ) — —

Purchase of Capped Call — ( 25,500 ) ( 43,320 )

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Value of equity awards withheld for tax liabilities ( 2,139 ) ( 3,954 ) ( 1,844 )

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, cash equivalents, and restricted cash, beginning of period 332,289 81,437 185,004

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(In thousands)

Year ended December 31,

2022 2021 2020

Supplemental disclosure of cash flow information

Cash paid for interest $ 18 $ 1,476 $ 579

Cash (refunded) paid for taxes $ ( 178 ) $ 454 $ 1,999

Cash paid for taxes $ 3,932 $ 1,999 $ 454

Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,421 $ 526 $ 3,105

Property and equipment obtained in exchange for new finance lease liabilities $ — $ 462 $ —

Property, plant and equipment obtained in exchange for new finance lease liabilities $ — $ — $ 462

Supplemental disclosure of noncash investing and financing activities

Purchase of property and equipment, accrued but not paid $ 1,375 $ 6,043 $ 3,760

Purchase of property, plant and equipment, accrued but not paid $ 1,741 $ 3,760 $ 6,043

Lease incentive $ 5,791 $ 4,677 $ —

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Equity awards withheld for tax liabilities, accrued but not paid $ 121 $ 127 $ 247

Unrealized gain on marketable securities, accrued but not realized $ 314 $ — $ —

Acquisition of equipment through finance leases $ 147 $ 160 $ 113

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The Company is an international cloud-based, software-powered communications platform-as-a-service (“CPaaS”) provider that enables enterprises to create, scale and operate voice or messaging communications services across any mobile application or connected device.

The Company has two operating and reportable segments, CPaaS and Other.

CPaaS revenue is derived from usage and monthly services fees charged for usage of Voice, Messaging, 911 and Phone Numbers solutions through the Company’s proprietary CPaaS software application programming interfaces.

Other revenue consists of fees charged for services provided such as:

SIP trunking, data resale, and a hosted Voice-over Internet Protocol (“VoIP”).

The Other segment also includes revenue from traffic generated by other carriers, SMS registration fees and other miscellaneous product lines.

As a result of certain changes in the Company’s business during the quarter ended March 31, 2022, the Company re-evaluated its 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 Company’s strategic alignment of its operating departments and the sale of legacy assets.

All previously reported segment information has been recast to conform with the one segment structure.

Summary of Significant Accounting Policies

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The consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Cost Alignment

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

As part of the benchmarked definitions, the Company has included allocations of facilities and shared IT costs based on employee headcount within the cost of revenue, research and development, sales and marketing, and general and administrative expense categories.

Additionally, the product management function is now included in research and development rather than general and administrative as previously reported and the customer billing and collections function and the amortization of acquired customer relationship intangible assets are now included in sales and marketing rather than general and administrative as previously reported.

Management believes use of the benchmarked definitions will increase comparability to peers and therefore usability of its financial statements.

All periods presented have been conformed to the current definitions of cost of revenue, research and development, sales and marketing, and general and administrative expenses.

There was no impact to revenue or net income for any periods presented due to the change in presentation.

The consolidated balance sheets, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows are not affected by these changes.

Notes to Consolidated Financial Statements (continued)

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

Reclassification

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The preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the amounts reported in these financial statements and accompanying notes.

These estimates in the consolidated financial statements include, but are not limited to, allowance for doubtful accounts, reserve for expected credit losses, reserve for sales credits, recoverability of long lived and intangible assets, fair value of acquired intangible assets and goodwill, discount rates used in the valuation of right-of-use assets and lease liabilities, the fair value of the liability and equity components of the Company’s Convertible Notes (as defined herein), estimated period of benefit, valuation allowances on deferred tax assets, certain accrued expenses and contingencies, economic and demographic actuarial assumptions related to pension and other postretirement benefit costs and liabilities, estimated cash flows on asset retirement obligation.

Notes to Consolidated Financial Statements (continued)

the Company believes that the estimates it uses are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

Effective January 1, 2020, due to the continued growth in customers and low churn rates, the Company updated its calculation of the estimated period of benefit for nonrefundable upfront fees from 3 to 4 years.

Effective July 1, 2020, due to significant investment in software during the first half of 2020 and management's expectation that such investment would yield benefit for a longer period of time, the Company updated its estimated useful life for internal-use software development from 3 to 4 years.

Although the Company believes that the estimates it uses are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

Revenue Recognition

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• recognition of revenue, when, or as, the Company satisfies a performance obligation.

Notes to Consolidated Financial Statements (continued)

Nature of Products and Services

Revenue consists primarily of the sale of communications services offered through Application Programming Interface (“API”) software solutions to large enterprise, as well as small and medium-sized business, customers and is generally derived from usage and service fees in both the CPaaS and Other segments.

Service fees include the provision and management of phone numbers and emergency services access.

The majority of the Company’s revenue is generated from usage-based fees earned from customers accessing the Company’s communications platform.

Access to the Company’s communication platform is considered a series of distinct services, with continuous transfer of control to the customer, comprising one performance obligation and usage-based fees are recognized in revenue in the period the traffic traverses the Company’s network.

For the years ended December 31, 2019, 2020 and 2021 the revenue from usage-based fees represented $ 131.6 million, $ 219.8 million and $ 319.0 million of CPaaS revenue, respectively, and $ 29.0 million, $ 40.8 million and $ 73.5 million of Other revenue, respectively.

Revenue from service fees is recognized on a ratable basis as the service is provided, which is typically one month.

For the years ended December 31, 2019, 2020 and 2021 the revenue from service fees represented $ 61.2 million, $ 72.3 million and $ 87.6 million of CPaaS revenue, respectively, and $ 5.6 million, $ 4.2 million and $ 3.5 million of Other revenue, respectively.

The remaining $ 5.1 million, $ 6.0 million and $ 7.3 million of CPaaS revenue for the years ended December 31, 2019, 2020 and 2021, respectively, are generated from other miscellaneous services.

The majority of the Company’s revenue is generated from reoccurring fees earned from customers accessing and using the Company’s communications platform.

Access to the Company’s communication platform is considered a series of distinct services with continuous transfer of control to the customer, comprising one performance obligation.

Reoccurring fees are recognized in revenue in the period the traffic traverses the Company’s network.

For the years ended December 31, 2022, 2021 and 2020, the revenue from reoccurring fees represented $ 445.7 million, $ 392.5 million, and $ 260.6 million of total revenue, respectively.

Revenue from recurring fees is recognized on a ratable basis as the service is provided, which is typically one month.

For the years ended December 31, 2022, 2021 and 2020, the revenue from recurring fees represented $ 116.9 million, $ 91.1 million and $ 76.5 million of total revenue, respectively.

The remaining $ 10.6 million, $ 7.3 million, and $ 6.0 million of revenue for the years ended December 31, 2022, 2021 and 2020, respectively, are generated from other miscellaneous services.

Infrequently, Bandwidth’s contracts with customers may include multiple performance obligations.

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Generally, standalone selling prices are determined based on the prices charged to similar customers for similar services.

Notes to Consolidated Financial Statements (continued)

When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the longer of the associated service contract period or estimated customer life.

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These costs are recorded within sales and marketing expenses.

Notes to Consolidated Financial Statements (continued)

Contract Assets and Liabilities

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________________________

(1) Included in accounts receivable, net of allowance for doubtful accounts on the consolidated balance sheet.

(2) Included in current portion of deferred revenue and deferred revenue, net of current portion on the consolidated balance sheet.

(1) Included in accounts receivable, net of allowance for doubtful accounts on the consolidated balance sheets.

(2) Included in current portion of deferred revenue and deferred revenue, net of current portion on the consolidated balance sheets.

Deferred revenue is recorded when cash payments are received in advance of future usage on contracts.

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Cost of Revenue

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

Cost of revenue also contains costs related to the support of the network, web services and 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

Notes to Consolidated Financial Statements (continued)

maintenance of the communications network, customer support, as well as, third party support agreements, and depreciation and amortization of acquired technology intangibles are also recorded as cost of revenue.

Other cost of revenue consists of amortization of capital software development costs related to platform applications supporting non-CPaaS services including circuit costs paid to third party providers, internet connectivity expenses, minutes of use, contractors, regulatory fees and surcharges, depreciation, and software and hardware maintenance fees.

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 the Company purchases 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.

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

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel costs (including non-cash stock-based compensation expenses), outsourced software development and engineering services and cloud infrastructure fees for staging and development outsourced engineering services.

Research 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 for 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 sales employees and non-cash stock-based compensation expenses.

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

Sales 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

Notes to Consolidated Financial Statements (continued)

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 for support personnel and executives in accounting, finance, legal, information services, human resources and administrative functions.

General and administrative expenses also include costs related to product management and reporting, data services, customer billing and collection functions, and other professional services fees, credit card processing fees, rent associated with the Company’s headquarters in Raleigh, North Carolina and its offices worldwide, 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.

Cash and Cash Equivalents

The Company classifies all highly liquid investments with original stated maturities of three months or less from the date of purchase as cash equivalents.

All highly liquid investments with original stated maturities of greater than three months from the date of purchase are classified as current marketable securities, with the exception of time deposits with maturities greater than ninety days which are classified as other investments.

All highly liquid investments with original stated maturities of greater than three months from the date of purchase are classified as current marketable securities.

Cash deposits are primarily in financial institutions in the United States.

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The Company has classified this asset as a short-term asset in order to match the expected period of restriction.

Marketable Securities

The Company’s marketable securities consist of time deposits, U.S.

treasury debt securities, commercial paper, and corporate debt securities.

The Company classifies marketable securities as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date.

The Company may sell these securities at any time for use in current operations even if they have not yet reached maturity.

As a result, the Company classifies investments with maturities greater than 90 days as marketable securities in the accompanying consolidated balance sheets.

Available-for-sale securities are recorded at fair value at the end of each reporting period.

Unrealized gains and losses are excluded from earnings and recorded as a separate component within accumulated other comprehensive loss on the consolidated balance sheets until realized.

Interest income is reported within other income (expense), net on the consolidated statements of operations.

The Company evaluates its investments to assess whether the amortized cost basis is in excess of estimated fair value and determines what amount of that difference, if any, is caused by expected credit losses.

Allowance for credit losses are recognized as a charge in other income (expense), net on the consolidated statements of operations, and any remaining unrealized losses are included in accumulated other comprehensive loss on the consolidated balance sheets.

Due to the nature and investment grade of the Company’s marketable securities, there were no credit losses recorded for the year ended December 31, 2022.

There have been no impairment charges for any unrealized losses during the period.

The Company determines realized gains and losses on the sale of marketable securities using the specific identification method and records such gains and losses in other income (expense), net on the consolidated statements of operations.

Accounts Receivable and Current Expected Credit Losses

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characteristics include customer size and historical loss patterns.

Management has evaluated the expected credit losses related to trade accounts receivable and determined that allowances of approximately $ 1.2 million and $ 1.7 million for uncollectible accounts and customer balances that are disputed were required as of December 31, 2020 and December 31, 2021, respectively.

Refer to Note 5, “Financial Statement Components” to these consolidated financial statements, for a rollforward of the components of the allowances as of December 31, 2020 and December 31, 2021.

Refer to Note 4, “Financial Statement Components” to these consolidated financial statements, for a rollforward of the components of the allowances as of December 31, 2022 and 2021.

The Company includes unbilled receivables in its accounts receivable balance.

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All amounts are considered collectible and billable.

As of December 31, 2020 and December 31, 2021, unbilled receivables were $ 27.7 million and $ 31.8 million, respectively.

As of December 31, 2022 and 2021, unbilled receivables were $ 33.9 million and $ 31.8 million, respectively.

Concentration of Credit Risk

Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, other investments and trade accounts receivable.

Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and trade accounts receivable.

Cash deposits may be in excess of insured limits.

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The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable.

As of December 31, 2020 and December 31, 2021, one individual customer represented approximately 11 % and 10 %, respectively, of the Company’s accounts receivable, net of allowance for doubtful accounts.

As of December 31, 2022, no individual customer represented more than 10% of the Company’s accounts receivable, net of allowance for doubtful accounts.

As of December 31, 2021, one individual customer represented approximately 10 % of the Company’s accounts receivable, net of allowance for doubtful accounts.

For the years ended December 31, 2022, 2021 and 2020, no individual customer represented more than 10% of the Company’s revenue.

Property and Equipment, net

Property and equipment, net is stated at cost, less accumulated depreciation and amortization.

Property, Plant and Equipment, net

Property, plant and equipment, net is stated at cost, less accumulated depreciation and amortization.

Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives of those assets as follows:

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Furniture and fixtures 2 to 5 years

Land Indefinite

Leasehold improvements Shorter of the estimated lease term or 4 to 7 years

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The Company capitalizes qualifying internal-use software development costs that are incurred during the application development stage.

Capitalization of costs begins when two criteria are met:

Capitalization of costs begins when two criteria are

Notes to Consolidated Financial Statements (continued)

(i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and used for its intended function.

Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing.

The Company also capitalizes costs related to

Notes to Consolidated Financial Statements (continued)

specific upgrades and enhancements when the expenditures will result in additional functionality, and expenses costs incurred for maintenance and minor upgrades and enhancements.

The Company also capitalizes costs related to specific upgrades and enhancements when the expenditures will result in additional functionality, and expenses costs incurred for maintenance and minor upgrades and enhancements.

Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred.

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, net.

These costs are amortized over the estimated useful life of the software on a straight-line basis over four to seven years .

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Intangible assets without determinable economic lives are carried at cost, not amortized and reviewed for impairment at least annually.

Refer to Note 8, “Goodwill and Intangible Assets” to these consolidated financial statements, for the useful lives of the Company's intangible assets as of December 31, 2020 and December 31, 2021.

The Company reviews goodwill and indefinite-lived intangible assets at least annually, as of December 31, for possible impairment.

Goodwill and indefinite-lived intangible assets are reviewed for possible impairment at an interim date if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or indefinite-lived intangible asset below its carrying value.

The Company tests goodwill at the reporting unit level and has determined that it has 2 -reporting units, CPaaS and Other.

All Goodwill is allocated to the CPaaS reporting unit.

Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if a two-step impairment test is necessary.

Management may choose to proceed directly to the two-step evaluation, bypassing the initial qualitative assessment.

The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill.

If the carrying value exceeds its fair value, then the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss.

The impairment loss would be calculated by comparing the implied fair value of the goodwill to its carrying value.

In calculating the implied fair value of goodwill, the fair value of the entity would be allocated to all of the other assets and liabilities based on their fair values.

The excess of the fair value of the entity over the amount assigned to other assets and liabilities is the implied fair value of goodwill.

An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value.

The Company makes assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market values to determine each reporting unit’s and indefinite-lived intangible asset’s estimated fair value.

If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge.

As of December 31, 2020 and 2021, the Company has recorded goodwill of $ 372.2 million and $ 344.4 million, respectively.

No goodwill impairment charges were recorded for the years ended December 31, 2019, 2020 and 2021.

Refer to Note 7, “Goodwill and Intangible Assets” to these consolidated financial statements, for the useful lives of the Company's intangible assets as of December 31, 2022 and 2021.

In accordance with Accounting Standards Codification 350, “Intangibles - Goodwill and Other” (“ASC 350”), goodwill is not amortized, but rather is reviewed for impairment at the reporting unit level on the last day of the Company’s fourth quarter of each fiscal year, or when there is evidence that events or changes in circumstances indicate that the fair value of the reporting unit is less than the carrying amount of the reporting unit, including goodwill.

The Company establishes its reporting units based on its current organizational structure and management’s view of the business.

The Company has determined it has one reporting unit.

Under ASC 350, the Company has the option to first assess qualitatively whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

In performing qualitative assessments, consistent with ASC 350-20-35-3C, the Company considers, among other factors, macroeconomic conditions (both in the United States and internationally), the Company’s overall financial performance (including, but not limited to, comparisons to prior periods, current period internal expectations, and comparable peer companies), broader industry and market considerations, and the trading price performance of the Company’s Class A common stock.

As of December 31, 2022, the Company completed its annual qualitative assessment under ASC 350 to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of its reporting unit was less than its respective carrying value.

The Company concluded that based on the

Notes to Consolidated Financial Statements (continued)

relevant events and circumstances, it was more likely than not that the reporting unit’s fair value exceeded its related carrying value and therefore no quantitative assessment was required.

No goodwill impairment charges were recorded for the years ended December 31, 2022, 2021 and 2020.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including property and equipment and definite lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company evaluates long-lived assets, including property, plant and equipment and definite lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group.

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

On November 2, 2020, the Company acquired all shares of Voice Topco Limited through a Share Purchase Agreement (“SPA”).

During the year ended December 31, 2021, the Company made measurement period adjustments to reflect facts and circumstances in existence as of October 31, 2020, the effective date of the SPA (the “Effective Date”).

The adjustments primarily related to certain state and local tax liabilities as well as an adjustment related to the finalization of the net working capital adjustment, which were not reasonably estimable at the Effective Date and consisted of a $ 1.0 million increase to goodwill and $ 1.0 million increase to accrued expense and other current liabilities.

Additionally in 2021 and in accordance with the SPA, the Company paid the selling stockholders $ 7.6 million, which included $ 7.4 million of the amount held in escrow as a holdback amount and $ 0.2 million in interest earned from the escrow.

Advertising Costs

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The Company accounts for stock-based compensation expense related to all stock-based awards based on the fair value of the award on the grant date.

Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, which is generally four years .

Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, which is generally three or four years .

The fair value of the restricted stock units is determined using the fair value of the Company’s Class A common stock on the date of grant.

The Company uses the Black-Scholes option pricing model, net of estimated forfeitures, to measure the fair value of its stock options.

The Company has elected to estimate expected forfeitures, and, as such, the Company must also determine a forfeiture rate to calculate the stock-based compensation for awards.

Through December 31, 2021, the Company recognized compensation for only the portion of options expected to vest using an estimated forfeiture rate that was derived from historical employee termination behavior.

If any of the assumptions used in the Black-Scholes option pricing model change, stock-based compensation for future options may differ materially compared to that associated with previous grants.

The Company accounts for income taxes under the asset and liability method.

Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax

Notes to Consolidated Financial Statements (continued)

basis of assets and liabilities using enacted tax rates.

The Company has elected to estimate expected forfeitures, and, as such, the Company must also determine a forfeiture rate to calculate the stock-based compensation expense for awards.

Through December 31, 2022, the Company recognized compensation expense for only the portion of restricted stock units expected to vest using an estimated forfeiture rate that was derived from historical employee termination behavior.

As of December 31, 2022, all outstanding stock options are fully vested.

The Company accounts for income taxes under the asset and liability method.

Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates.

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

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Operating Segments

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to make operating decisions, allocate resources and in assessing performance.

The Company has two operating segments, CPaaS and Other, which are deemed to be reportable segments.

The Company’s CODM is its Chief Executive Officer.

The CODM evaluates the performance of the Company’s operating segments primarily based on revenue and gross profit.

The Company does not analyze discrete segment balance sheet information related to long-term assets.

All other financial information is evaluated on a consolidated basis.

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to make operating decisions, allocate resources and in assessing performance.

The Company’s chief operating decision maker is its Chief Executive Officer, who evaluates the Company's financial information on a consolidated basis.

Accordingly, the Company has determined that it operates in one operating segment.

Earnings per Share

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The Euro and British Pound are the primary functional currencies for the Company’s international operations.

All of the assets and liabilities of these subsidiaries are converted to U.S.

dollars at the exchange rate in effect at the balance sheet date, and equity accounts are carried at historical exchange rates.

All of the assets and liabilities of these subsidiaries are translated to U.S.

dollars at the exchange rate in effect at the balance sheet date, and equity accounts are translated at historical exchange rates.

Revenue and expenses are translated at average exchange rates in effect during each reporting period .

The net effect of foreign currency translation adjustments is included in shareholder’s equity as a component of “ Accumulated other comprehensive loss ” line item in the accompanying consolidated balance sheets.

Foreign currency transaction gains and losses are the result of exchange rate changes during the period of time between the consummation and cash settlement of transactions denominated in currencies other than the

The net effect of currency

Notes to Consolidated Financial Statements (continued)

functional currency.

Foreign currency transaction gains and losses are recognized in current period earnings as incurred.

Foreign exchange gains and losses, which result from the process of remeasuring foreign currency transactions into the appropriate functional currency, are included in other income (expense), net in the Company’s consolidated statements of operations.

The Company recorded less than $ 0.1 million in related gains and losses during each of the years ended December 31, 2019, 2020 and 2021.

translation adjustments is included in shareholder’s equity as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets.

Foreign currency transaction gains and losses are realized upon cash settlement of transactions denominated in currencies others than the functional currency.

They result from exchange rate changes during the period of time between the consummation and cash settlement of such transactions.

When realized, foreign currency transaction gains and losses are recognized in current period earnings as incurred.

The Company recorded $ 0.2 million in related gains during the year ended December 31, 2022 and less than $ 0.1 million in related losses in each of the years ended December 31, 2021 and 2020 included in other income (expense), net in the Company's consolidated statements of operations.

Unrealized gains and losses result from the process of remeasuring foreign currency assets and liabilities into the appropriate functional currency at exchange rates in place as of the reporting date.

Unrealized gains and losses are reported net in foreign currency translation on the accompanying consolidated statements of comprehensive loss.

Fair Value of Financial Instruments

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A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Comprehensive Income (Loss)

The Company has elected to present Comprehensive Income (Loss) and its components as a separate financial statement.

Comprehensive income refers to net income and other revenue, expenses, gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders’ equity but are excluded from the calculation of net income.

Comprehensive Loss

The Company has elected to present comprehensive loss and its components as a separate financial statement.

Comprehensive income refers to net income and other revenue, expenses, gains and losses that, under

Notes to Consolidated Financial Statements (continued)

generally accepted accounting principles, are recorded as an element of stockholders’ equity but are excluded from the calculation of net income.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.

For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and EPS guidance on the basis of feedback from financial statement users.

ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

The Company adopted this standard on January 1, 2021 on a prospective basis, which did not have a material impact on the Company’s financial statements.

Notes to Consolidated Financial Statements (continued)

Recent Accounting Pronouncements Not Yet Adopted

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt —Modifications and Extinguishments (Subtopic 470-50), Compensation--Stock Compensation (Topic 718), and Derivatives and Hedging--Contracts in Entity's Own Equity (Subtopic 815-40) , which is intended to provide clarity surrounding the treatment for a modification or an exchange of a freestanding equity-classified written call option.

Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company adopted the new guidance on January 1, 2022 using the modified retrospective approach resulting in decreases in accumulated deficit of $ 8.8 million, additional paid in capital of $ 156.2 million, and deferred tax liability of $ 1.0 million.

The Company also recorded an increase in the Convertible Notes balance of $ 148.4 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 Convertible Notes was $ 27.5 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 the Company incurred a net loss in both reporting periods.

In May 2021, the FASB issued Accounting Standards Update 2021-04, Earnings Per Share (Topic 260), Debt —Modifications and Extinguishments (Subtopic 470-50), Compensation--Stock Compensation (Topic 718), and Derivatives and Hedging--Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which is intended to provide clarity surrounding the treatment for a modification or an exchange of a freestanding equity-classified written call option.

The amendments also provide guidance for the recognition and measurement of earnings-per-share (“EPS”) for certain modifications or exchanges of freestanding equity-classified written call options for entities that present EPS.

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ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

The Company did not and does not expect to have any modification or exchanges of freestanding written call options classified in equity during the reporting period and therefore does not expect adoption will have a material impact on its financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) , which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.

ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company will adopt the new guidance on January 1, 2022 using the modified retrospective approach resulting in adjustments in accumulated deficit and paid in capital.

The Company will also record an increase in the convertible notes balance as a result of the reversal of the separation of the convertible debt between debt and equity.

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

The number of diluted shares will increase as a result of transitioning from the treasury stock method to the as-if converted method for the calculation.

The Company is currently quantifying the effect of adopting this new accounting guidance on its financial statements and earnings per share calculations.

Business Combination

Voxbone Acquisition

On November 2, 2020, the Company acquired all 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”).

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

The transaction was valued at € 446 million.

As consideration for the Share Purchase, the Company (i) paid the selling stockholders approximately $ 400 million (or approximately € 338 million based on prevailing exchange rates at the close of business on October 9, 2020) at the Closing and (ii) issued to the selling stockholders at the Closing shares of the Company’s 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).

During the year ended December 31, 2021 the Company made measurement period adjustments to reflect facts and circumstances in existence as of October 31, 2020, the effective date of the Share Purchase (the “Effective Date”).

The adjustments primarily related to certain state and local tax liabilities as well as an adjustment related to the finalization of the net working capital adjustment which were not reasonably estimable at the Effective Date and

Notes to Consolidated Financial Statements (continued)

consisted of a $ 1.0 million increase to goodwill and $ 1.0 million increase to accrued expenses and other current liabilities.

The Company, in accordance with the Share Purchase Agreement (“SPA”), paid the selling stockholders $ 7.6 million, which included $ 7.4 million of the amount held in escrow as a holdback amount and $ 0.2 million in interest earned from the escrow.

Early adoption was permitted, including adoption in an interim period.

The Company adopted the new guidance on January 1, 2022.

The Company did not have any modifications or exchanges of freestanding written call options classified in equity during the reporting period and therefore did not have an impact on its financial statements.

Recent Accounting Pronouncements Not Yet Adopted

The Company did not have any applicable recent accounting pronouncements not yet adopted.

Fair Value Measurements

The carrying amounts of cash and cash equivalents, other investments, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2020 and 2021 because of the relatively short duration of these instruments.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2022 and 2021 because of the relatively short duration of these instruments.

Marketable securities consist of time deposits, corporate debt securities, U.S.

treasury securities, and commercial paper not otherwise classified as cash equivalents.

All marketable securities are considered to be available-for-sale and are recorded at their estimated fair values.

Unrealized gain and losses for available-for-sale securities are recorded in other comprehensive loss.

Notes to Consolidated Financial Statements (continued)

The Company evaluated its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period.

The following table summarizes the assets measured at fair value as of December 31, 2020 and December 31, 2021:

Fair value measurements on a recurring basis

The following tables summarize the assets measured at fair value as of December 31, 2022 and 2021:

Amortized cost or carrying value Unrealized gains Unrealized losses Fair value measurements on a recurring basis

December 31, 2022

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Money market account $ 36,728 $ — $ — $ 36,728 $ — $ — $ 36,728

Other investments:

Commercial paper 28,254 — — 28,254 — — 28,254

Total included in cash and cash equivalents $ 64,982 $ — $ — $ 64,982 $ — $ — $ 64,982

Marketable securities:

Time deposits $ 6,645 $ — $ ( 15 ) $ 6,630 $ — $ — $ 6,630

treasury securities 14,718 74 — 14,792 — — 14,792

Corporate debt securities 23,412 — ( 97 ) — 23,315 — 23,315

Commercial paper 26,142 352 — 26,494 — — 26,494

Total marketable securities $ 70,917 $ 426 $ ( 112 ) $ 47,916 $ 23,315 $ — $ 71,231

Total financial assets $ 135,899 $ 426 $ ( 112 ) $ 112,898 $ 23,315 $ — $ 136,213

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Total financial assets $ 241,157 $ — $ — $ 241,157

As of the years ended December 31, 2020 and 2021, the fair value of the 2026 Convertible Notes, as further described in Note 9, “Debt”, was approximately $ 716.3 million and $ 427.1 million, respectively.

As of December 31, 2021, the fair value of the 2028 Convertible Notes, as further described in Note 9, “Debt”, was approximately $ 194.2 million.

The Company classifies its marketable securities as current assets as they are available for current operating needs.

The following table summarizes the contractual maturities of marketable securities as of December 31, 2022:

Amortized cost Aggregate fair value

(In thousands)

Financial assets:

Less than one year $ 70,917 $ 71,231

Total $ 70,917 $ 71,231

As of December 31, 2022, the marketable securities were in an unrealized gain position.

The Company has determined that (i) it does not have the intent to sell any of these investments and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis.

As of December 31, 2022, the Company anticipates that it will recover the entire amortized cost basis of its marketable securities before maturity.

Notes to Consolidated Financial Statements (continued)

During the year ended December 31, 2022, there were $ 74.3 million in maturities of marketable securities.

There were no maturities in marketable securities during the years ended December 31, 2021 and 2020.

Proceeds from sales of marketable securities were $ 34.4 million for the year ended December 31, 2022.

There were no sales in marketable securities during the years ended December 31, 2021 and 2020.

Interest earned on marketable securities was $ 1.2 million for the year ended December 31, 2022.

There was no interest earned on marketable securities during the years ended December 31, 2021 and 2020.

The interest is recorded in other income (expense), net, on the accompanying consolidated statements of operations.

As of December 31, 2022, the accrued interest receivable, net of allowance for credit losses, was $ 0.3 million.

Accrued interest receivable is recorded in prepaid expenses and other current assets on the accompanying consolidated balance sheet.

As of December 31, 2022, the fair value of the 2026 Convertible Notes and 2028 Convertible Notes, as further described in Note 8, “Debt,” to these consolidated financial statements, was approximately $ 180.9 million and $ 156.5 million, respectively.

As of December 31, 2021, the fair value of the 2026 Convertible Notes and the 2028 Convertible Notes was approximately $ 427.1 million and $ 194.2 million, respectively.

The fair value was determined based on the closing price for the Convertible Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

As of the years ended December 31, 2020 and 2021, the fair value of the Pension Plan’s assets, as further described in Note 14, “Employee Benefit Plans”, was approximately $ 2.9 million and $ 3.0 million, respectively.

As of the years ended December 31, 2022 and 2021, the fair value of the Pension Plan’s assets, as further described in Note 13, “Employee Benefit Plans,” to these consolidated financial statements, was approximately $ 3.2 million and $ 3.0 million, respectively.

The fair value was determined by an independent actuary and is considered as Level 2 in the fair value hierarchy.

Notes to Consolidated Financial Statements (continued)

The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy.

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There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2022 and 2021.

The money market account is included in cash and cash equivalents in the consolidated balance sheets as of December 31, 2020 and December 31, 2021.

During the year ended December 31, 2019, there was $ 69.0 million in maturities of marketable securities.

There were no maturities in marketable securities during the years ended December 31, 2020 and 2021, respectively.

There were no sales of marketable securities for the years ended December 31, 2020 and 2021.

Proceeds and gross realized gains from sales of marketable securities were $ 17.5 million and less than $0.1 million, respectively for the year ended December 31, 2019.

The cost of the securities sold was based on the specific identification method and the gross realized gain is recorded as other income (expense), net, in the consolidated statements of operations.

Interest earned on marketable securities was less than $ 0.1 million for the years ended December 31, 2019, 2020 and 2021, respectively, and is recorded within other income (expense), net in the accompanying consolidated statements of operations.

The money market account is included in cash and cash equivalents in the consolidated balance sheets as of December 31, 2022 and 2021.

Financial Statement Components

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Total accounts receivable, net $ 74,465 $ 61,572

Notes to Consolidated Financial Statements (continued)

Components of allowance for doubtful accounts and reserve for expected credit losses are as follows:

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Balance, beginning of period $ ( 1,661 ) $ ( 1,203 )

Charged to bad debt expense ( 1,322 ) ( 913 )

Charged to bad debt expense, net of reversals ( 543 ) ( 913 )

Deductions (1) 983 416

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________________________

Notes to Consolidated Financial Statements (continued)

(1) Write-off of uncollectible accounts after all collection efforts have been exhausted.

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Current portion of finance lease 143 177

Income tax payable 2,235 3,420

Other accrued expenses 815 972

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ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Operating lease expense attributable to lease payments is recognized on a straight-line basis over the lease term and is included in general and administrative expense on the Company’s consolidated statements of operations.

Operating lease expense attributable to lease payments is recognized on a straight-line basis over the lease term and is part of allocated facilities costs based on employee headcount within the cost of revenue, research and development, sales and marketing, and general and administrative expense categories on the Company’s consolidated statements of operations.

Finance leases result in the recognition of depreciation expense, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method.

Depreciation expense attributable to finance leases is included in general and administrative expense on the Company’s consolidated statements of operations.

Depreciation expense attributable to finance leases is included in operating expenses on the Company’s consolidated statements of operations.

The Company presents the operating leases in long-term assets and current and long-term liabilities in the accompanying consolidated balance sheets.

Finance leases are reported in property, plant and equipment, net, accrued expenses and other current liabilities, and other liabilities on the Company’s consolidated balance sheets.

The Company sub-leases approximately 17,073 square feet of office space to a related party, Relay, Inc.

The Company has entered into various operating lease agreements for office space and finance lease agreements for automobiles.

Notes to Consolidated Financial Statements (continued)

The Company previously sub-leased approximately 17,073 square feet of office space to a related party, Relay, Inc.

(f/k/a Republic Wireless, Inc.) (“Relay”).

Future minimum sub-lease receipts required under the non-cancellable lease are as follows:

As of December 31,

(In thousands)

As of December 31, 2021, the Company had various leased properties in the United States and internationally, with remaining lease terms of six months to 5 years, some of which include options to extend the leases for up to 5 years.

The lease term under this non-cancellable lease expired in July 2022.

As of December 31, 2022, the Company had various leased properties in the United States and internationally, with remaining lease terms of five months to 4 years, some of which include options to extend the leases for up to 5 years.

None of the options to extend the leases are recognized in operating lease ROU assets or lease liabilities.

The Company has one lease with an early-termination option, which it does not expect to exercise.

The Company has a lease not yet commenced, with a lease term of 20 years and two options to extend the lease by a term of ten years each, up to twenty additional years in total.

The components of lease expense recorded in general and administrative expenses in the consolidated statement of operations were as follows:

Notes to Consolidated Financial Statements (continued)

The components of lease expense recorded in the consolidated statement of operations were as follows:

Year ended December 31,

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Total net lease cost $ 7,741 $ 6,670 $ 5,587

________________________

(1) See Note 16, “Related Parties” to these consolidated financial statements, for additional details on sublease income.

During the years ended December 31, 2022, 2021 and 2020, short-term operating lease expense was $ 0.6 million, $ 1.3 million, and $ 0.2 million, respectively.

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________________________

(1) Operating lease assets are recorded net of accumulated amortization of $ 9.1 million and $ 14.8 million as of December 31, 2020 and December 31, 2021, respectively.

(2) Finance lease assets are recorded net of accumulated depreciation of $ 0.0 million and $ 0.2 million as of December 31, 2020 and December 31, 2021, respectively.

(1) Operating lease assets are recorded net of accumulated amortization of $ 17.7 million and $ 14.8 million as of December 31, 2022 and 2021, respectively.

(2) Finance lease assets are recorded net of accumulated depreciation of $ 0.3 million and $ 0.2 million as of December 31, 2022 and 2021, respectively.

Notes to Consolidated Financial Statements (continued)

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2025 1,587 51

2025 1,623 10

Total lease payments 12,665 338

3 unchanged sentences

Long-term lease obligations $ 4,640 $ 172

On June 4, 2021, the Company purchased approximately 40 acres of undeveloped land (the “Property”) in Raleigh, North Carolina, from the State of North Carolina (the “State”).

The Company paid $ 30.0 million for the land.

Future Corporate Headquarters

On June 4, 2021, the Company purchased approximately 40 acres of undeveloped land (the “Property”) in Raleigh, North Carolina, from the State of North Carolina (the “State”) for $ 30.0 million.

Additionally, as consideration for the Property, the Company agreed to construct, at its expense, a parking lot and related improvements (the “Parking Improvements”) on land owned by the State adjacent to the Property.

The estimated cost of construction of the Parking Improvements was $ 7.8 million.

Subsequent to the purchase of the Property, the Company sold a portion of the Property constituting approximately 23.76 acres (the “Conveyed Parcel”) to USEF Edwards Mill Owner, LLC (the “Developer”) for $ 17.5 million.

In addition, the Developer agreed to construct, at its expense, the Parking Improvements in connection with the Company’s purchase of the Property from the State.

The Company retained approximately 17.06 acres of the Property, which was recorded at cost and is included in the Company’s consolidated balance sheet as a component property, plant and equipment, net.

The Company retained approximately 17.06 acres of the Property, which was recorded at cost and is included in the Company’s consolidated balance sheets as a component of property, plant and equipment, net.

A lease incentive was recognized for the difference between the consideration received from the Developer for the Conveyed Parcel and the cost basis of the Conveyed Parcel and is included as a component of other liabilities on the consolidated balance sheets.

Notes to Consolidated Financial Statements (continued)

Company recorded an asset for the Developer’s obligation to construct the Parking Improvements at the Developer's expense, which is included as a component of prepaid expenses and other current assets in the consolidated balance sheet as of December 31, 2021.

A lease incentive of $ 4.7 million was recognized for the difference between the consideration received from the Developer for the Conveyed Parcel and the cost basis of the Conveyed Parcel and is included as a component of other liabilities on the consolidated balance sheet.

On October 1, 2021, the developer delivered the completed parking improvements and the State released the Company from its liability.

December 31, 2022, the balance of the lease incentive, including additional incentives obtained during project development, was $ 10.5 million.

On May 27, 2021, the Company entered into a Lease Agreement (the “Lease”) with the Developer for the Conveyed Parcel, together with improvements for office and related infrastructure to be constructed thereon, collectively constituting approximately 534,000 gross square feet (the “Project”).

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The lease term will commence upon substantial completion of the final building to be delivered, as evidenced by a certificate of occupancy issued by the City of Raleigh (the “Commencement Date”), and continue for a period of twenty ( 20 ) years (the “Initial Term”).

It is anticipated that the Commencement Date will occur in May 2023.

It is anticipated that the Commencement Date will occur in mid-2023.

The Company has the option to renew the Initial Term for two ten-year periods at a rental rate equal to 100 % of the then-prevailing market rental rate for comparable buildings in the Raleigh, North Carolina, market.

Upon the effective date, the Company deposited $ 2.5 million with the Developer as security on the lease.

The deposit is included in other long-term assets on the Company’s consolidated balance sheet.

Additionally, the Company placed $ 3.0 million in escrow to fund the certain tenant improvements expected to be constructed as part of the development of the Project.

No right-of-use assets or lease liabilities have been recognized in connection with the lease as of December 31, 2021.

Future lease payments are included in Note 13, “Commitments and Contingencies”.

Asset Retirement Obligation

The Company has an obligation to return one of its leased properties to its original leased condition.

These costs are accrued at the present value of expected cost to settle the obligation using estimated cash flows.

The cash flows are discounted at a current pre-tax rate that reflects the risk specific to the retirement liability.

The estimated future cost of restoration is reviewed annually and adjusted as appropriate.

As of December 31, 2021, asset retirement obligation was $ 0.2 million included in other liabilities.

Notes to Consolidated Financial Statements (continued)

Additionally, the Company made deposits of $ 21.7 million to fund certain improvements expected to be constructed as part of the development of the Project.

Deposits are recorded in other long-term assets on the Company’s consolidated balance sheets.

No ROU assets or lease liabilities have been recognized in connection with the lease as of December 31, 2022.

Future lease payments are included in Note 12, “Commitments and Contingencies,” to these consolidated financial statements.

Property, Plant and Equipment

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Amortization begins once the project is substantially complete and ready for its intended use.

The Company amortizes the asset on a straight-line basis over the useful life, which is estimated to be 4 years.

Costs incurred prior to the application development stage, maintenance activities or minor upgrades are expensed in the period incurred.

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The Company capitalized $ 3.8 million, $ 3.9 million, and $ 2.3 million of software development costs for the years ended December 31, 2022, 2021 and 2020, respectively.

Amortization expense related to capitalized software development costs $ 2.0 million, $ 2.0 million, and $ 1.8 million for the years ended December 31, 2019, 2020 and 2021, respectively.

Notes to Consolidated Financial Statements (continued)

Amortization expense related to capitalized software development costs were $ 2.2 million, $ 1.8 million, and $ 2.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, unamortized implementation costs related to cloud computing arrangements are $ 0.3 million, of which $ 0.1 million are included in prepaid expenses and other current assets and $ 0.2 million are included in other long-term assets.

The Company leases automobiles under leases accounted for as finance leases with expiration dates ranging from February 7, 2023 to June 23, 2026.

As of December 31, 2020, cost and accumulated depreciation of the assets under finance leases recorded by the Company were $ 0.5 million and less than $0.1 million, respectively.

As of December 31, 2022, cost and accumulated depreciation of the assets under finance leases recorded by the Company were $ 0.7 million and $ 0.3 million, respectively.

As of December 31, 2021, cost and accumulated depreciation of the assets under finance leases recorded by the Company were $ 0.6 million and $ 0.2 million, respectively.

The Company recognized an impairment of $ 0.5 million, $ 0.5 million, and $ 0.2 million during the years ended December 31, 2022, 2021 and 2020, respectively, related to capitalized software development costs that provided no future benefit and therefore were impaired.

This expense is reflected within cost of revenue in the accompanying consolidated statements of operations.

Notes to Consolidated Financial Statements (continued)

This expense is reflected within other income (expense), net as of December 31, 2022 and cost of revenue as of December 31, 2021 and 2020 in the accompanying consolidated statements of operations.

The Company recognized depreciation expense, which includes amortization of capitalized software development costs, as follows:

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Balance as of December 31, 2020 $ 372,239

Goodwill additions related to 2020 acquisition 346,564

Measurement period adjustment 999

Impact of foreign currency translation ( 28,815 )

Balance as of December 31, 2021 344,423

Measurement period adjustment 999

Impact of foreign currency translation ( 18,018 )

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Cost of revenue $ 7,657 $ 8,543 $ 1,445

General and administrative 520 2,221 10,576

Sales and marketing 9,523 10,576 2,221

Total amortization expense $ 17,180 $ 19,119 $ 3,666

5 unchanged sentences

Thereafter 91,861

Revolving Loan

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

(the “Credit Agreement”).

The agreement provided for a secured $ 25 million revolving credit facility (the “Credit Facility”).

As of December 31, 2020 and at the date of termination, no outstanding indebtedness existed under the Credit Facility and the Company was in compliance with all financial and non-financial covenants.

As of December 31, 2020, unamortized debt issuance costs were $ 0.1 million, of which were included in prepaid expenses and other current assets, and other long-term assets.

As of December 31, 2021, there were no outstanding debt issuance costs.

Revolving Credit Facility

On June 6, 2022, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, 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 $ 50.0 million revolving credit facility (the “Credit Facility”), including a $ 20.0 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $ 5.0 million.

The Credit Facility matures on June 6, 2025.

Interest on borrowings under the Credit Facility accrues at an annual rate tied to a base rate or the Secured Overnight Financing Rate (“SOFR”), at the Company’s election.

Loans based on SOFR bear interest at a rate equal to SOFR plus an applicable margin between 1.50 % and 2.00 % depending upon the Company’s consolidated adjusted quick ratio for the immediately preceding quarter, and loans based on the base rate bear interest at a rate equal to the base rate plus an applicable margin between 0.50 % and 1.00 % depending upon the Company’s consolidated adjusted quick ratio for the immediately preceding quarter.

The Company is required to pay a quarterly commitment fee equal to 0.0625 % on the unused portion of the borrowing commitment.

The Credit Agreement requires that the Company meet a minimum quick ratio on a quarterly basis if the Company does not maintain the minimum liquidity amount of $ 70.0 million in cash and cash equivalents at all times.

As of December 31, 2022, unamortized debt issuance costs were $ 0.4 million, of which $ 0.2 million were included in prepaid expenses and other current assets and $ 0.2 million were included in other long-term assets.

As of December 31, 2022, there were no borrowings under the Credit Facility and the Company was in compliance with all financial and non-financial covenants for all periods presented.

The available borrowing capacity under the Credit Facility was $ 50.0 million as of December 31, 2022.

Notes to Consolidated Financial Statements (continued)

Convertible Senior Notes and Capped Call Transactions

2026 Convertible Notes

On February 28, 2020, the Company issued $ 400 million aggregate principal amount of 0.25 % Convertible Notes due March 1, 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the

Notes to Consolidated Financial Statements (continued)

Securities Act (the “2026 Convertible Notes”).

On February 28, 2020, the Company issued $ 400.0 million aggregate principal amount of 0.25 % Convertible Notes due March 1, 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act (the “2026 Convertible Notes”).

The interest on the 2026 Convertible Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020.

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(4) if the Company calls such 2026 Convertible Notes for redemption.

On or after September 1, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2026 Convertible Notes may, at their option, convert all or a portion of their 2026 Convertible Notes regardless of the foregoing conditions.

Prior to and during the nine months ended September 20, 2021, the conditional conversion feature of the 2026 Convertible Notes was triggered as the last reported sale price of the Company's Class A common stock was

Notes to Consolidated Financial Statements (continued)

more than or equal to 130 % of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on or after June 30, 2020 (the last trading day of the calendar quarter), and therefore the 2026 Convertible Notes were convertible, in whole or in part, at the option of the holders between July 1, 2020 through September 30, 2021.

The conditional conversion feature of the 2026 Convertible Note was not triggered from October 1, 2021 through December 31, 2021 as the last reported sale price of the Company's Class A common stock was not more than or equal to 130 % of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days (the last trading day of the calendar quarter).

Prior to and during the nine months ended September 30, 2021, the conditional conversion feature of the 2026 Convertible Notes was triggered as the last reported sale price of the Company’s Class A common stock was more than or equal to 130 % of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on or after June 30, 2020 (the last trading day of the calendar quarter), and therefore the 2026 Convertible Notes were convertible, in whole or in part, at the option of the holders between July 1, 2020 through September 30, 2021.

The conditional conversion feature of the 2026 Convertible Notes was not triggered from October 1, 2021 through December 31, 2022 as the last reported sale price of the Company’s Class A common stock was not more than or equal to 130 % of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days (the last trading day of the calendar quarter).

Whether the 2026 Convertible Notes will be convertible following such period will depend on the satisfaction of this condition or another conversion condition in the future.

The Company continues to classify the 2026 Convertible Notes as a long-term liability in its consolidated balance sheet as of December 31, 2021, based on contractual settlement provisions.

The Company continues to classify the 2026 Convertible Notes as a long-term liability in its consolidated balance sheets as of December 31, 2022, based on contractual settlement provisions.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company’s election.

2 unchanged sentences

Upon the occurrence of a fundamental change (as defined in the 2026 Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2026 Convertible Notes for cash at a price equal to the principal amount of the 2026 Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the 2026 Convertible Notes, the Company separated the 2026 Convertible Notes into liability and equity components.

In accounting for the issuance of the 2026 Convertible Notes, prior to the adoption of ASU 2020-06, the Company separated the 2026 Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 125.2 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Convertible Notes.

The difference represents the debt discount that is amortized to interest expense at an effective interest rate of 6.763 % over the term of the 2026 Convertible Notes.

The difference represented the debt discount that was amortized to interest expense at an effective interest rate of 6.763 % over the term of the 2026 Convertible Notes.

The carrying amount of the equity component was $ 57.5 million and is recorded in additional paid-in-capital.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an annual effective interest rate of 6.907 % over the contractual terms of the 2026 Convertible Notes.

In accounting for the transaction costs related to the 2026 Convertible Notes, the Company allocated the total amount incurred to the liability and equity components of the 2026 Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 8.2 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the 2026 Convertible Notes.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an annual effective interest rate of 6.907 % over the contractual terms of the 2026 Convertible Notes.

Upon adoption of ASU 2020-06 on January 1, 2022, the Company reversed the separation of the debt and equity component representing the conversion option and accounted for the 2026 Convertible Notes in their entirety as debt.

The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

In accounting for the transaction costs related to the 2026 Convertible Notes, prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2026 Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 8.2 million, were recorded as an additional debt discount and amortized to interest expense using the effective interest method over the contractual terms of the 2026 Convertible Notes.

Issuance costs attributable to the equity component of $ 3.7 million were netted with the equity component in stockholders’ equity.

Upon adoption of ASU 2020-06 on January 1, 2022, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost

Notes to Consolidated Financial Statements (continued)

that will be amortized as interest expense at an effective interest rate of 0.513 % for the term of the 2026 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

During November 2022, the Company entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes to repurchase approximately $ 160.0 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $ 117.2 million.

The Repurchases closed on November 28, 2022.

The Company had previously entered into capped call transactions with certain financial institutions in connection with the 2026 Convertible Notes.

All of these transactions are expected to remain in effect notwithstanding the Repurchases.

Following the Repurchases, approximately $ 240.0 million principal amount of the 2026 Convertible Notes remain 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 $ 40.2 million recorded within other income (expense), net on the Company’s consolidated statements of operations in the year ended December 31, 2022.

2028 Convertible Notes

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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.

Notes to Consolidated Financial Statements (continued)

The 2028 Convertible Notes may bear special interest under specified circumstances relating to the Company’s failure to comply with its 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.

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On or after April 6, 2025 until the close of business on the scheduled trading day immediately preceding the maturity date, the 2028 Convertible Notes may be convertible at the option of the holders only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price per share of the Company's Class A common stock exceeds 130 % of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

Notes to Consolidated Financial Statements (continued)

consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $0.001 principal amount of 2028 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s Class A common stock on such trading day and the conversion rate on such trading day;

2 unchanged sentences

On or after October 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2028 Convertible Notes may, at their option, convert all or a portion of their Convertible Notes regardless of the foregoing conditions.

The conditional conversion feature of the 2028 Convertible Notes was not triggered during the years ended December 31, 2022 and 2021, as the last reported sale price of the Company’s Class A common stock was not more than or equal to 130 % of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days (the last trading day of the calendar quarter).

Whether the 2028 Convertible Notes will be convertible following such period will depend on the satisfaction of this condition or another conversion condition in the future.

The Company continues to classify the 2028 Convertible Notes as a long-term liability in its consolidated balance sheets as of December 31, 2022, based on contractual settlement provisions.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company’s election.

It is the Company’s current intent to settle the principal amount of the 2028 Convertible Notes with cash.

Notes to Consolidated Financial Statements (continued)

No sinking fund is provided for the 2028 Convertible Notes.

Upon the occurrence of a fundamental change (as defined in the 2028 Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2028 Convertible Notes for cash at a price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the 2028 Convertible Notes, the Company separated the 2028 Convertible Notes into liability and equity components.

In accounting for the issuance of the 2028 Convertible Notes, prior to the adoption of ASU 2020-06, the Company separated the 2028 Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 66.9 million and was determined by deducting the fair value of the liability component from the par value of the 2028 Convertible Notes.

The difference represents the debt discount that is amortized to interest expense at an effective interest rate of 5.125 % over the term of the 2028 Convertible Notes.

The carrying amount of the equity component was $ 39.4 million and is recorded in additional paid-in-capital.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an annual effective interest rate of 4.959 % over the contractual terms of the 2028 Convertible Notes.

In accounting for the transaction costs related to the 2028 Convertible Notes, the Company allocated the total amount incurred to the liability and equity components of the 2028 Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 5.5 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the 2028 Convertible Notes.

The difference represents the debt discount that was amortized to interest expense at an effective interest rate of 5.125 % over the term of the 2028 Convertible Notes.

The carrying amount of the equity component was $ 39.4 million and was recorded in additional paid-in-capital.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an annual effective interest rate of 4.959 % over the contractual terms of the 2028 Convertible Notes.

The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

In accounting for the transaction costs related to the 2028 Convertible Notes, prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2028

Notes to Consolidated Financial Statements (continued)

Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 5.5 million, were recorded as an additional debt discount and amortized to interest expense using the effective interest method over the contractual terms of the 2028 Convertible Notes.

Issuance costs attributable to the equity component of $ 2.0 million were netted with the equity component in stockholders’ equity.

The net carrying amount of the liability components of the 2026 and 2028 Convertible Notes were as follows:

Upon adoption of ASU 2020-06 on January 1, 2022, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense at an effective interest rate of 0.442 % for the term of the 2028 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

As discussed above, upon adoption of ASU 2020-06, the Company reversed the separation of the debt and equity components of the 2026 Convertible Notes and the 2028 Convertible Notes, and accounted for the Convertible Notes wholly as debt.

Additionally, the issuance costs of the 2026 Convertible Notes and the 2028 Convertible Notes were accounted for as debt issuance costs in their entirety.

There is no longer a net carrying amount for the equity component as of the adoption date, January 1, 2022.

The net carrying amount of the liability components of the 2026 Convertible Notes and the 2028 Convertible Notes were as follows:

As of December 31,

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Principal $ 240,000 $ 400,000

Unamortized discount ( 110,546 ) ( 92,034 )

Unamortized discount N/A ( 92,034 )

Unamortized debt issuance costs ( 3,805 ) ( 6,043 )

2 unchanged sentences

Principal $ 250,000 $ 250,000

Unamortized discount — ( 60,488 )

Unamortized discount N/A ( 60,488 )

Unamortized debt issuance costs ( 5,649 ) ( 4,995 )

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(In thousands)

Proceeds allocated to the conversion options (debt discount) $ 125,152 $ 125,152

Issuance costs ( 3,742 ) ( 3,742 )

2026 Convertible Notes net carrying amount $ 121,410 $ 121,410

Proceeds allocated to the conversion options (debt discount) N/A $ 125,152

Issuance costs N/A ( 3,742 )

2026 Convertible Notes net carrying amount N/A $ 121,410

2028 Convertible Notes:

Proceeds allocated to the conversion options (debt discount) $ — $ 66,908

Issuance costs — ( 2,019 )

2028 Convertible Notes net carrying amount $ — $ 64,889

Total net carrying amount $ 121,410 $ 186,299

Proceeds allocated to the conversion options (debt discount) N/A $ 66,908

Issuance costs N/A ( 2,019 )

2028 Convertible Notes net carrying amount N/A $ 64,889

Total net carrying amount N/A $ 186,299

The following table sets forth the interest expense recognized related to the 2026 and 2028 Convertible Notes:

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Total interest expense $ 5,224 $ 28,661

________________________

(1) Upon adoption of ASU 2020-06, the debt discount associated with the equity component on convertible debt outstanding was reversed, which resulted in a decrease in the amount of non-cash interest expense to be recognized going forward.

In connection with the offering of the 2026 Convertible Notes and the 2028 Convertible Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “2026 Capped Calls” and the “2028 Capped Calls,” respectively and, collectively, the “Capped Calls”).

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The 2026 Capped Calls and the 2028 Capped Calls cover, subject to anti-dilution adjustments, approximately 4,394,276 and 1,394,525 shares of Class A common stock for the 2026 Convertible Notes and 2028 Convertible Notes, respectively.

The Capped Calls are generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the 2026 Convertible Notes and 2028 Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

The Capped Calls expire on the earlier of (i) the last day on which

Notes to Consolidated Financial Statements (continued)

any convertible securities remain outstanding and (ii) March 1, 2026 for the 2026 Capped Calls and April 1, 2028 for the 2028 Capped Calls, subject to earlier exercise.

Capped Calls are generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the 2026 Convertible Notes and 2028 Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

The Capped Calls expire on the earlier of (i) the last day on which any convertible securities remain outstanding and (ii) March 1, 2026 for the 2026 Capped Calls and April 1, 2028 for the 2028 Capped Calls, subject to earlier exercise.

The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company.

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The net cost of $ 43.3 million and $ 25.5 million incurred to purchase the 2026 Capped Calls and the 2028 Capped Calls, respectively, was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheets.

The Convertible Notes are effectively subordinated to the Company’s future senior secured indebtedness, if any, to the extent of the value of the collateral securing that indebtedness.

The Convertible Notes are effectively subordinated to the Company’s future senior secured indebtedness, including the Credit Facility, to the extent of the value of the collateral securing that indebtedness.

The Convertible Notes are the senior, unsecured obligations of the Company and are equal in right of payment with the Company’s future senior unsecured indebtedness, if any, senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Convertible Notes and the Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and preferred equity, if any, of the Company’s subsidiaries.

Segment and Geographic Information

The Company has two reportable segments, CPaaS and Other.

Segments are primarily evaluated based on revenue and gross profit.

The Company does not allocate operating expenses, interest expense or income tax expense to its segments.

Accordingly, the Company does not report such information.

Additionally, the Chief Operating Decision Maker does not evaluate the Company’s operating segments using discrete asset information.

The segments share the majority of the Company’s assets.

Therefore, no segment asset information is reported.

Year ended December 31,

2019 2020 2021

(In thousands)

Revenue $ 197,944 $ 298,090 $ 413,948

Cost of revenue 110,343 160,706 217,403

Gross profit $ 87,601 $ 137,384 $ 196,545

Revenue $ 34,650 $ 45,023 $ 76,959

Cost of revenue 14,616 24,546 54,981

Gross profit $ 20,034 $ 20,477 $ 21,978

Revenue $ 232,594 $ 343,113 $ 490,907

Cost of revenue 124,959 185,252 272,384

Gross profit $ 107,635 $ 157,861 $ 218,523

The Company’s long-lived assets were primarily held in the United States as of December 31, 2020 and December 31, 2021.

As of December 31, 2020 and December 31, 2021, long-lived assets held outside of the United States were $ 11.2 million and $ 9.2 million, respectively.

Notes to Consolidated Financial Statements (continued)

Geographic Information

The Company generates its revenue primarily in the United States.

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

United States $ 33,664 $ 42,692 $ 69,051

International 986 2,331 7,908

Total $ 34,650 $ 45,023 $ 76,959

The Company’s long-lived assets were primarily held in the United States as of December 31, 2022 and 2021.

As of December 31, 2022 and 2021, long-lived assets held outside of the United States were $ 10.8 million and $ 9.2 million, respectively.

Stockholders’ Equity

Preferred Stock

As of December 31, 2020 and December 31, 2021, the Company had authorized 10,000,000 shares of undesignated preferred stock, par value $ 0.001 , of which no shares were issued and outstanding.

As of December 31, 2020 and December 31, 2021, the Company had authorized 100,000,000 shares of Class A common stock, par value $ 0.001 per share, with one vote per share and 20,000,000 shares of Class B common stock, par value $ 0.001 per share, with ten votes per share.

As of December 31, 2022 and 2021, the Company had authorized 10,000,000 shares of undesignated preferred stock, par value $ 0.001 , of which no shares were issued and outstanding.

As of December 31, 2022 and 2021, the Company had authorized 100,000,000 shares of Class A common stock, par value $ 0.001 per share, with one vote per share and 20,000,000 shares of Class B common stock, par value $ 0.001 per share, with ten votes per share.

Notes to Consolidated Financial Statements (continued)

As of December 31, 2022, 23,379,000 and 1,965,170 shares of Class A common stock and Class B common stock, respectively, were issued and outstanding.

As of December 31, 2021, 23,177,988 and 1,965,170 shares of Class A common stock and Class B common stock, respectively, were issued and outstanding.

Shares of Class B common stock are convertible into shares of Class A common stock upon the stockholder’s voluntary written notice to the Company’s transfer agent or a transfer by the stockholder, subject to limited exceptions for transfers for estate planning purposes.

Shares of Class B common stock are convertible into shares of Class A common stock on a 1 :1 basis upon the stockholder’s voluntary written notice to the Company’s transfer agent or a transfer by the stockholder, subject to limited exceptions for transfers for estate planning purposes.

Voting Rights

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Dividend payments are not subject to restriction.

Notes to Consolidated Financial Statements (continued)

Reserved Shares

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However, the 2010 Plan continues to govern the terms and conditions of the outstanding awards granted thereunder.

2017 Incentive Award Plan

The Company’s 2017 Incentive Award Plan (the “2017 Plan”) became effective on November 9, 2017.

Amended and Restated 2017 Incentive Award Plan

The Company’s Amended and Restated 2017 Incentive Award Plan (as amended from time to time, the “2017 Plan”) became effective on November 9, 2017.

The 2017 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units, and other stock or cash based awards to employees, consultants and directors of the Company.

A total of 1,050,000 shares of the Company’s Class A common stock were originally reserved for issuance under the 2017 Plan.

These available shares automatically increase each January 1, beginning on January 1, 2018, by 5 % of the number of shares of the Company’s Class A common stock outstanding on the final day of the immediately preceding calendar year.

These available shares automatically increase each January 1, beginning on January 1, 2018, by 5 % of the number of shares of the Company’s Class A common stock outstanding on the

Notes to Consolidated Financial Statements (continued)

final day of the immediately preceding calendar year.

On January 1, 2022, the shares available for grant under the 2017 Plan were automatically increased by 1,158,899 shares.

The terms of the stock option grants are determined by the Company’s Board of Directors.

The Company’s stock options vest based on terms of the stock option agreements, which is generally over four years .

The Company’s stock options vest based on terms of the stock option agreements.

The stock options have a contractual life of ten years .

Restricted stock units (“RSUs”) granted under the 2017 Plan are generally subject to a time-based vesting condition.

Restricted stock units (“RSUs”) granted to employees and non-employee members of the Board of Directors under the 2017 Plan are generally subject to a time-based vesting condition.

The compensation expense related to these awards is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period.

The Company granted RSUs to its non-employee members of the Board of Directors, some of which vested immediately while others vest 25 % as of each calendar quarter immediately following the grant date.

Certain RSUs awarded to executives vest over four years with 50 % vesting in the first year in 12.5 % increments on each calendar quarter immediately following the grant date and the remaining 50 % earned over years two, three and four.

Other RSUs awarded to executives and employees generally are earned over a service period of four years .

Notes to Consolidated Financial Statements (continued)

Vesting schedules may differ as between different categories of award recipients.

Stock Options

The following summarizes the stock option activity for the period presented:

The following summarizes the stock option activity for the periods presented:

outstanding Weighted-

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As of December 31, 2022, the Company had no unrecognized compensation cost related to non-vested stock options.

All outstanding stock options are fully vested.

All outstanding stock options were fully vested prior to the current year.

Notes to Consolidated Financial Statements (continued)

Restricted Stock Units

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As of December 31, 2022, total unrecognized compensation cost related to non-vested RSUs was $ 71.9 million, which will be amortized over a weighted-average period of 2.85 years.

Notes to Consolidated Financial Statements (continued)

Stock-Based Compensation Expense

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The Company leases office space under operating lease agreements that expire over the next 4 years.

As of December 31, 2022, the Company has $ 17.0 million in future minimum rent payments for its current office space.

See Note 5, “Right-of-Use Asset and Lease Liabilities” to the consolidated financial statements, for additional details on the Company’s operating lease commitments.

Contractual Obligations

On October 25, 2015, the Company entered into an agreement with a telecommunications service provider.

The service agreement requires the Company to pay a monthly recurring charge associated with the services received.

The service agreement is non-cancellable and contains annual minimum commitments.

On August 1, 2020, the Company amended the agreement to require annual minimum commitments of $ 0.6 million and $ 0.3 million in 2021 and 2022, respectively.

In addition, as of December 31, 2021, the Company has $ 18.1 million in other non-cancellable purchase obligations, consisting of primarily network equipment maintenance and software license contracts, of which $ 13.2 million will be fulfilled within one year.

As of December 31, 2022, the Company has $ 12.0 million in non-cancellable purchase obligations, consisting of primarily network equipment maintenance and software license contracts, of which $ 9.9 million will be fulfilled within one year.

Notes to Consolidated Financial Statements (continued)

On May 27, 2021, the Company entered into the Lease with the Developer for the Conveyed Parcel, together with the Project.

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The Lease term will commence upon the Commencement Date and continue for the Initial Term.

It is anticipated that the Commencement Date will occur in May 2023.

It is anticipated that the Commencement Date will occur in mid-2023.

If the Commencement Date does not occur within one hundred twenty ( 120 ) days from the scheduled Commencement Date, the Company shall be entitled to certain rent abatements, as described in the Lease.

If the Commencement Date is not delivered within twelve ( 12 ) months of the scheduled Commencement Date, the Company may terminate the Lease.

If the Commencement Date does not occur within twelve ( 12 ) months of the scheduled Commencement Date, the Company may terminate the Lease.

The Company has the option to renew the Initial Term for two ten-year periods.

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See Note 5, “Right-of-Use Asset and Lease Liabilities” to the consolidated financial statements, for additional details on the Company's operating lease commitments.

On December 7, 2021, the Company entered into a non-cancelable operating lease agreement for its London, UK, facilities.

The lease term commenced on January 1, 2022 and will continue for the initial term of 24 months.

Total lease payments over the initial term are approximately $ 3.6 million.

The lease will automatically renew on a month by month basis after the initial lease term.

Notes to Consolidated Financial Statements (continued)

Legal Matters

The Company is involved as a defendant in various litigation, including, but not limited to, lawsuits alleging that the Company failed to bill, collect and remit certain taxes and surcharges associated with the provision of 911 services pursuant to applicable laws in various jurisdictions.

While the results of these legal proceedings cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.

The Company is involved as a defendant in various litigation, including, but not limited to, (a) lawsuits alleging that the Company failed to bill, collect and remit certain taxes and surcharges associated with the provision of 911 services pursuant to applicable laws in various jurisdictions, and (b) an action brought by a non-practicing entity related to alleged patent infringement.

The Company intends to vigorously defend these lawsuits and believes that it has meritorious defenses to each.

However, litigation is inherently uncertain, and any judgment or injunctive relief entered against the Company or any adverse settlement could adversely affect the Company’s business, results of operations and financial condition.

Notes to Consolidated Financial Statements (continued)

Employee Benefit Plans

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The following table summarizes information for the pension plans:

Notes to Consolidated Financial Statements (continued)

As of December 31,

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Interest cost 35 21

Actuarial loss (gain) 15 ( 237 )

Actuarial gain ( 418 ) ( 237 )

Taxes, insurance premiums and administrative expenses ( 50 ) ( 55 )

Acquisitions/plan mergers 3,980 —

Impact of foreign currency translation ( 207 ) ( 315 )

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Employer contribution 332 335

Acquisitions/plan mergers 2,824 —

Taxes, insurance premiums and administrative expenses ( 50 ) ( 55 )

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Funded status, net liability $ 321 $ 916

Notes to Consolidated Financial Statements (continued)

The following table presents the balance sheet location of the Company’s pension liability for the Company’s non-U.S.

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Fair value of plan assets 3,181 2,958

The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs arising from the services rendered by the employee and records the other components of net periodic benefit cost in other expense, net.

Notes to Consolidated Financial Statements (continued)

Pretax amounts for net periodic benefit cost and other amounts for the defined benefit pension plans consisted of the following components:

Year ended December 31,

2022 2021 2020

(In thousands)

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Net periodic pension cost 277 403 70

Changes in plan assets and benefit obligations included in other comprehensive income (loss):

Unrecognized net actuarial loss beginning of year — 17

Actuarial loss (gain) on benefit obligation 15 ( 237 )

Actuarial loss (gain) on fair value of plan assets 2 ( 6 )

Changes in plan assets and benefit obligations included in other comprehensive loss:

Unrecognized net actuarial (gain) loss beginning of year ( 227 ) 17 —

Actuarial (gain) loss on benefit obligation ( 418 ) ( 237 ) 15

Actuarial (gain) loss on fair value of plan assets ( 72 ) ( 6 ) 2

Impact of foreign currency translation 12 ( 1 ) —

Total included in other comprehensive income (loss) (before tax effect) 17 ( 227 )

Total recognized in net periodic benefit cost and included in other comprehensive income (loss) $ 87 $ 176

Total included in other comprehensive loss (before tax effect) ( 705 ) ( 227 ) 17

Total recognized in net periodic benefit cost and included in other comprehensive loss $ ( 428 ) $ 176 $ 87

The Company uses significant judgment to determine the measurement of their non-U.S.

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Any change in these assumptions will impact the present value of the defined benefit obligation.

Notes to Consolidated Financial Statements (continued)

The actuarial gains and losses recognized in the pension expense are determined using the so-called “10% corridor” method, i.e.

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The other assumptions for pension obligations are based in part on market conditions.

Notes to Consolidated Financial Statements (continued)

Significant assumptions used in determining benefit obligations and net periodic benefit cost are as follows:

Year ended December 31,

2022 2021 2020

Defined benefit obligations:

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Notes to Consolidated Financial Statements (continued)

The following table summarizes projected benefit payments from the Company’s pension plans through 2031, including benefits attributable to estimated future service:

As of December 31,

(In thousands)

The following table presents domestic and foreign components of loss before income taxes for the tax years ended December 31, 2019, 2020 and 2021:

The following table presents domestic and foreign components of income (loss) before income taxes for the tax years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

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International ( 13,288 ) ( 3,648 ) ( 3,227 )

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

Income (loss) before income taxes $ 17,306 $ ( 31,195 ) $ ( 28,972 )

Benefit (provision) for income taxes from operations consists of the following:

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Federal Tax Rate 21.0 % 21.0 % 21.0 %

State Tax Rate 3.1 2.0 2.8

State Tax Rate - statutory blended rate 4.3 4.2 4.1

Other effective state tax adjustments 3.6 ( 1.4 ) ( 2.1 )

Non-deductible expenses 4.0 ( 6.1 ) ( 9.2 )

Research credit 7.2 10.5 6.2

Research tax benefits ( 31.6 ) 7.9 10.5

Stock-based compensation 6.3 13.9 46.8

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Total ( 13.1 ) % 12.3 % ( 51.8 ) %

For the year ended December 31, 2022, the Company recognized an income tax benefit of $ 2.3 million on pre-tax book income of $ 17.3 million, resulting in an effective income tax rate of ( 13.1 )%.

Although the Company has pre-tax book income on a global basis, the Company recognized an income tax benefit due to the valuation allowance position within the U.S.

For the year ended December 31, 2021, the Company recognized an income tax benefit of $ 3.8 million on pre-tax book loss of $ 31.2 million, resulting in an effective income tax rate of 12.3 %.

For the year ended December 31, 2020, the Company recognized an income tax expense of $ 15.0 million on pre-tax book loss of $ 29.0 million, resulting in an effective income tax rate of ( 51.8 )%.

In 2022, the Company’s valuation allowance in the U.S.

continued to offset many of the permanent tax adjustments within the effective tax rate.

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.

The Company has disclosed the statutory blended state income tax rate in the income tax rate reconciliation table.

This statutory blended state income tax rate is the rate applied to the Company’s U.S.

taxable earnings to calculate its state income tax liability.

The Company has also disclosed other effective state tax adjustments which primarily include the state tax impact of permanent tax adjustments and the reconciling adjustment to remove the statutory blended state income tax rate effect from income or loss generated outside of the U.S.

The Company continues 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).

As a result of ASU 2020-06, the company decreased its deferred tax liability by $ 37.2 million related to debt with a corresponding increase of $ 36.2 million to valuation allowance.

The net impact of these income tax changes related to ASU 2020-06 increased additional paid in capital by $ 30.0 million and accumulated deficit by $ 29.0 million, and decreased deferred tax liability by $ 1.0 million.

Notes to Consolidated Financial Statements (continued)

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Stock-based compensation - deferred tax asset 3,216 2,278

OID 9,433 8,848

Section 174 20,997 —

Accrued lease incentive 2,645 —

Tax credits 10,948 9,214

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Other deferred tax assets 4,592 4,166

Total deferred tax assets 78,455 83,801

Gross deferred tax assets 78,037 83,801

valuation allowance ( 65,678 ) ( 32,224 )

Net deferred tax assets 40,684 51,577

Total deferred tax assets 12,359 51,577

Deferred tax liabilities:

Property and equipment 8,038 7,813

Property, plant and equipment 4,890 7,813

Goodwill 1,272 1,130

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Net deferred tax liability $ ( 38,466 ) $ ( 48,396 )

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its deferred tax assets.

The Company primarily considered the historic performance of Bandwidth, the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible.

Based on an analysis of these factors, the Company maintained that in 2021 a valuation allowance against US deferred tax assets was required.

As of December 31, 2021, the Company had approximately $ 195.5 million in US federal net operating loss carryforwards, $ 5.6 million in UK loss carryforwards, and $ 9.2 million in federal tax credits.

All US federal net operating loss carryforwards were generated after the enactment of the Tax Cuts and Jobs Act (the “Act”) and as such do not expire, but can only be utilized to offset up to 80% of taxable income in any given year.

Based on an analysis of these factors, the Company maintained that in 2022 a valuation allowance against U.S.

deferred tax assets was required.

As of December 31, 2022, the Company had approximately $ 100.1 million in U.S.

federal net operating loss carryforwards, $ 3.8 million in U.K.

loss carryforwards, and $ 10.9 million in federal tax credits.

federal net operating loss carryforwards were generated after the enactment of the Tax Cuts and Jobs Act (the “Act”) and as such do not expire, but can only be utilized to offset up to 80% of taxable income in any given year.

The federal tax credits start to expire at various dates beginning in 2038.

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Notes to Consolidated Financial Statements (continued)

At December 31, 2022, the amount of unremitted earnings generated by the Company’s foreign subsidiaries was not significant.

The Company does not assert indefinite reinvestment on a portion of its unremitted earnings of certain foreign subsidiaries as of December 31, 2022.

On the earnings that are not indefinitely reinvested, the Company did not recognize deferred income taxes related to those unremitted foreign earnings, due to the tax favorable manner in which it would be repatriated.

For the subsidiaries that the Company asserts permanent reinvestment, if repatriation were to occur, the Company would be required to accrue U.S.

taxes, if any, and remit applicable withholding taxes as appropriate.

A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

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deferred tax assets.

The Company has not incurred any material tax interest or penalties with respect to income taxes in the years ended December 31, 2020 and 2021 .

For the year ended December 31, 2022, the Company recognized interest and penalties of $ 0.3 million related to income taxes within income tax expense.

For the year ended December 31, 2021, the Company did not incur any material tax interest or penalties with respect to income taxes.

The Company expects no material changes in the twelve months following December 31, 2022 in its uncertain tax positions.

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(f/k/a Republic Wireless, Inc.) (“Relay”), which was incorporated in Delaware.

On November 30, 2016, the Company completed a pro-rata distribution of the common stock of Relay to its stockholders of record as of the close of business (the “Spin-Off”).

In connection with the Spin-Off on November 30, 2016, the Company and Relay entered into certain agreements in order to govern the ongoing relationships between the two companies after the Spin-Off and to provide for an orderly transition.

The agreements include a Transition Services Agreement, Facilities Sharing Agreement, Tax Sharing Agreement, and Master Services Agreement.

The equity holders of Bandwidth pre-initial public offering are comprised of substantially the same individuals and entities that are the equity owners of Relay.

The Company has determined the equity owners of Relay are related parties of Bandwidth.

The Company has certain involvement with Relay via ongoing services arrangements, with these ongoing services arrangements creating a variable interest in Relay.

The Company assessed the relationship with Relay under guidance for variable interest entities (“VIE”).

Because investors in Relay have disproportionate voting rights, the Company concluded that Relay is a VIE, but Bandwidth is not a primary beneficiary.

The Company’s maximum exposure to loss relating to this VIE is limited to amounts due under the service agreements between the Company and Relay.

The Company recorded a reduction of rent expense under the Facilities Sharing Agreement of $ 0.6 million, $ 0.4 million, and $ 0.4 million for the years ended December 31, 2019, 2020 and 2021, respectively, which is included in general and administrative expenses in the consolidated statements of operations.

No amounts were due to the Company under the Facilities Sharing Agreement as of December 31, 2020 and December 31, 2021.

The Tax Sharing Agreement governs rights and obligations after the Spin-Off regarding income taxes and other taxes, including tax liabilities and benefits, attributes, returns and contests.

There were no amounts outstanding or payable under this agreement as of December 31, 2020 and December 31, 2021.

The Master Services Agreement specifies certain wholesale telecommunications services to be provided by the Company.

The agreement is cancellable at any time by either party.

The Company provided telecommunication services to Relay of $ 2.6 million, $ 2.2 million, and $ 1.8 million for the years ended December 31, 2019, 2020 and

On November 30, 2016, the Company completed a pro-rata distribution of the common stock of Relay to its stockholders of record as of the close of business.

The Company has certain involvement with Relay via an ongoing Master Agreement and a Facilities Sharing Agreement that expired in July 2022.

Amounts charged under these arrangements totaled $ 1.1 million, $ 1.8 million, and $ 2.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, and are included in revenue on the Company’s consolidated statements of operations.

Amounts due under these arrangements totaled less than $ 0.1 million as of December 31, 2022 and 2021, and are reported in accounts receivable, net of allowance for doubtful accounts in the accompanying consolidated balance sheets.

Notes to Consolidated Financial Statements (continued)

2021, respectively.

The Company recognized such amounts as revenue in the accompanying consolidated statements of operations.

As of December 31, 2020 and December 31, 2021, the Company had a receivable of $ 0.2 million and $ 0.1 million, respectively, under the Master Services Agreement.

Subsequent to the expiration of the 180-day IPO blackout window on May 9, 2018, Relay employees that held Bandwidth stock options began exercising their options.

Upon exercise, Bandwidth withholds the employee tax amounts due from the proceeds.

Bandwidth had collected on behalf of, and remitted withholding tax to, Relay of $ 1.8 million, $ 1.4 million, and $ 0.4 million for the years ended December 31, 2019, 2020 and 2021, respectively.

As of December 31, 2020 and December 31, 2021, the Company had no amounts that were due to Relay.

On September 30, 2019, the Company entered into a services agreement with Relay.

Pursuant to the terms of the new agreement, Relay receives services performed by the Company’s legal department, effective September 30, 2019.

The Company is compensated by Relay for these services based on costs incurred by the Company.

The Company received net compensation of less than $ 0.1 million for the years ended December 31, 2019 and 2021.

The Company received net compensation of $ 0.1 million for the year ended December 31, 2020, which is included in general and administrative expenses in the consolidated statements of operations.

As of December 31, 2020 and December 31, 2021, the Company had receivables of less than $ 0.1 million under this agreement.

Basic and Diluted Income (Loss) per Common Share

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Diluted net income (loss) per share is computed by giving effect to all potential shares of common stock, including stock options and stock related to unvested restricted stock awards.

Notes to Consolidated Financial Statements (continued)

The Company is in a net loss position for the years ended December 31, 2021 and 2020, and therefore diluted shares equals basic shares.

The components of basic and diluted income (loss) per share are as follows:

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Diluted $ ( 0.48 ) $ ( 1.09 ) $ ( 1.83 )

Numerator used to compute net income (loss) per share:

Basic $ 19,570 $ ( 27,362 ) $ ( 43,977 )

Net gain on extinguishment of debt, net of taxes ( 39,614 ) — —

Interest expense on convertible notes, net of taxes 5,147 — —

$ ( 14,897 ) $ ( 27,362 ) $ ( 43,977 )

Weighted average number of common shares outstanding:

Basic 25,282,796 25,090,916 24,092,574

Dilutive effect of stock options, restricted stock units, and warrants 1,283,316 — —

Convertible debt conversion 5,625,073 — —

Diluted 30,907,869 25,090,916 24,092,574

The following common share equivalents were excluded from the weighted average shares used to calculate net loss per common share because their effects would have been anti-dilutive:

________________________

(1) Upon the adoption of ASU 2020-06, net income is adjusted for the reversal of the net gain on extinguishment of debt and add back of 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, for additional details on the adoption of ASU 2020-06.

Notes to Consolidated Financial Statements (continued)

The following common share equivalents were excluded from the weighted average shares used to calculate net income (loss) per common share because their effects would have been anti-dilutive:

As of December 31,

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________________________

(1) As of December 31, 2020 and December 31, 2021, the Company used the treasury stock method to calculate the dilutive impact of the 2026 and 2028 Convertible Notes because at that time the Company expected to settle the principal amount of these notes in cash and any excess in shares of the Company ’ s Class A common stock.

As of December 31, 2020 and December 31, 2021, the conversion spread, calculated using the average market price of Class A common stock during the period consistent with the treasury stock method, had a dilutive impact for the 2026 Convertible Notes on diluted net income per share of Class A common stock when the average market price of the Company ’ s Class A common stock for a given period exceeded the conversion price of $ 91.03 per share.

(1) As of December 31, 2022, subsequent to adopting ASU 2020-06 as of January 1, 2022, the Company used the if-converted method to calculate the dilutive impact of the 2026 Convertible Notes and 2028 Convertible Notes on diluted income per share, if applicable.

The Company expected to settle the principal amount of these notes in cash and any excess in shares of the Company’s Class A common stock.

The diluted shares were calculated based on the initial conversion rate of 10.9857 and 5.5781 shares per $0.001 of the aggregate principal amount for the 2026 Convertible Notes and 2028 Convertible Notes, respectively.

See Note 2, “Summary of Significant Accounting Policies” to the consolidated financial statements, for additional details on the adoption of ASU 2020-06 and Note 8, “Debt” to the consolidated financial statements, for additional details on the Company’s Convertible Notes.

(2) As of December 31, 2021, the Company used the treasury stock method to calculate the dilutive impact of the 2026 Convertible Notes and the 2028 Convertible Notes because at that time the Company expected to settle the principal amount of these notes in cash and any excess in shares of the Company’s Class A common stock.

As of December 31, 2021, the conversion spread, calculated using the average market price of Class A common stock during the period consistent with the treasury stock method, had a dilutive impact for the 2026 Convertible Notes on diluted net income per share of Class A common stock when the average market price of the Company’s Class A common stock for a given period exceeded the conversion price of $ 91.03 per share.

As of December 31, 2021, the conversion spread for the 2028 Convertible Notes was anti-dilutive as the average market price of the Company’s Class A common stock for a given period did not exceed the conversion price of $ 179.27 per share.

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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 8. Financial Statements and Supplementary Data