Bandwidth Inc. 10-K

Item 8. Financial Statements and Supplementary Data BANDWIDTH INC. Index to Consolidated Financial Statements Page Reports of Independent Registered Public Accounting Firm 87 Consolidated Balance Sheets 90 Consolidated Statements of Operations 91 Consolidated Statements of Comprehensive Loss 92 Consolidated Statements of Changes in Stockholders’ Equity 93 Consolidated Statements of Cash Flows 95 Notes to Consolidated Financial Statements 97 86 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Bandwidth Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bandwidth Inc. (the Company) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 87 Table of Contents Revenue Recognition Description of the Matter As discussed in Note 2, the Company recognizes revenue from the sale of cloud communications services offered through software solutions, which are predominantly derived from (i) reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees and (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services. Revenue for reoccurring fees earned from customers accessing and using the Company’s communications platform is recognized in the period the traffic traverses the Company’s network. Revenue from recurring fees is recognized on a ratable basis as the service is provided, which is typically one month. The processing and recording of revenue from reoccurring sources and recurring charges is highly automated and involves capturing and pricing significant volumes of data across multiple systems. Given the complex automated systems utilized to capture, process, and ultimately record revenue, performing procedures to audit revenue required a high degree of auditor judgment and extensive audit effort. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the measurement and occurrence of revenue. 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 tested the IT application and general controls including user access and change management controls over the significant systems used to capture and process voice usage, phone number services, 911 services access, messaging services and other services. 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. 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 usage and services access during the period. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2012. Raleigh, North Carolina February 28, 2024 88 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Bandwidth Inc. Opinion on Internal Control Over Financial Reporting We have audited Bandwidth Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Bandwidth Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, 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, 2023 and 2022, 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, 2023, and the related notes and our report dated February 28, 2024 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Raleigh, North Carolina February 28, 2024 89 Table of Contents BANDWIDTH INC. Consolidated Balance Sheets (In thousands, except share and per share amounts) As of December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 131,987 $ 113,641 Marketable securities 21,488 71,231 Accounts receivable, net of allowance for doubtful accounts 78,155 74,465 Deferred costs 4,155 3,566 Prepaid expenses and other current assets 16,990 16,705 Total current assets 252,775 279,608 Property, plant and equipment, net 177,864 99,753 Operating right-of-use asset, net 157,507 9,993 Intangible assets, net 166,914 177,370 Deferred costs, non-current 4,586 4,938 Other long-term assets 5,530 31,251 Goodwill 335,872 326,405 Total assets $ 1,101,048 $ 929,318 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 34,208 $ 26,750 Accrued expenses and other current liabilities 69,014 62,577 Current portion of deferred revenue 8,059 7,181 Advanced billings 6,027 10,049 Operating lease liability, current 5,463 7,450 Total current liabilities 122,771 114,007 Other liabilities 386 11,176 Operating lease liability, net of current portion 220,548 4,640 Deferred revenue, net of current portion 8,406 8,306 Deferred tax liability 33,021 38,466 Convertible senior notes 418,526 480,546 Total liabilities 803,658 657,141 Commitments and contingencies Stockholders’ equity: Preferred stock: $ 0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding — — Class A voting common stock: $ 0.001 par value; 100,000,000 shares authorized; 24,206,140 and 23,379,000 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 24 23 Class B voting common stock: $ 0.001 par value; 20,000,000 shares authorized; 1,958,028 and 1,965,170 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 2 2 Additional paid-in capital 391,048 364,913 Accumulated deficit ( 64,890 ) ( 48,547 ) Accumulated other comprehensive loss ( 28,794 ) ( 44,214 ) Total stockholders’ equity 297,390 272,177 Total liabilities and stockholders’ equity $ 1,101,048 $ 929,318 See accompanying notes. 90 Table of Contents BANDWIDTH INC. Consolidated Statements of Operations (In thousands, except share and per share amounts) Year ended December 31, 2023 2022 2021 Revenue $ 601,117 $ 573,152 $ 490,907 Cost of revenue 364,960 334,799 277,094 Gross profit 236,157 238,353 213,813 Operating expenses Research and development 104,188 97,990 69,505 Sales and marketing 102,063 96,658 82,333 General and administrative 65,363 68,029 64,212 Total operating expenses 271,614 262,677 216,050 Operating loss ( 35,457 ) ( 24,324 ) ( 2,237 ) Other income (expense), net: Net gain on extinguishment of debt 12,767 40,205 — Gain on business interruption insurance recoveries 4,000 — — Interest expense, net ( 808 ) ( 3,048 ) ( 28,784 ) Other income (expense), net 195 4,473 ( 174 ) Total other income (expense), net 16,154 41,630 ( 28,958 ) (Loss) income before income taxes ( 19,303 ) 17,306 ( 31,195 ) Income tax benefit 2,960 2,264 3,833 Net (loss) income $ ( 16,343 ) $ 19,570 $ ( 27,362 ) Earnings per share: Net (loss) income per share: Basic $ ( 0.64 ) $ 0.77 $ ( 1.09 ) Diluted $ ( 0.64 ) $ ( 0.48 ) $ ( 1.09 ) Numerator used to compute net (loss) income per share: Basic $ ( 16,343 ) $ 19,570 $ ( 27,362 ) Diluted $ ( 16,343 ) $ ( 14,897 ) $ ( 27,362 ) Weighted average number of common shares outstanding: Basic 25,612,724 25,282,796 25,090,916 Diluted 25,612,724 30,907,869 25,090,916 See accompanying notes. 91 Table of Contents BANDWIDTH INC. Consolidated Statements of Comprehensive Loss (In thousands) Year ended December 31, 2023 2022 2021 Net (loss) income $ ( 16,343 ) $ 19,570 $ ( 27,362 ) Other comprehensive income (loss) Unrealized (loss) gain on marketable securities, net ( 248 ) 314 — Foreign currency translation, net 15,698 ( 31,855 ) ( 41,150 ) Unrealized (loss) gain on employee benefit plan, net ( 30 ) 367 169 Total other comprehensive income (loss) 15,420 ( 31,174 ) ( 40,981 ) Total comprehensive loss $ ( 923 ) $ ( 11,604 ) $ ( 68,343 ) See accompanying notes. 92 Table of Contents BANDWIDTH INC. Consolidated Statements of Changes in Stockholders ’ Equity (In thousands, except share amounts) Class A voting common stock Class B voting common stock Additional paid-in capital Accumulated other comprehensive income (loss) Accumulated deficit Total stockholders’ equity Shares Amount Shares Amount Balance at December 31, 2020 22,413,004 $ 22 2,496,125 $ 2 $ 451,463 $ 27,941 $ ( 49,505 ) $ 429,923 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 73,985 — — — 923 — — 923 Vesting of restricted stock units 186,502 — — — — — — — Equity awards withheld for tax liability ( 26,458 ) — — — ( 3,835 ) — — ( 3,835 ) Conversion of Class B voting common stock to Class A voting common stock 530,955 1 ( 530,955 ) — — — — 1 Foreign currency translation — — — — — ( 41,150 ) — ( 41,150 ) Unrealized gain on employee benefit pension plan — — — — — 169 — 169 Stock-based compensation — — — — 14,537 — — 14,537 Net loss — — — — — — ( 27,362 ) ( 27,362 ) Balance at December 31, 2021 23,177,988 23 1,965,170 2 502,477 ( 13,040 ) ( 76,867 ) 412,595 Exercises of vested stock options 20,468 — — — 163 — — 163 Vesting of restricted stock units 231,234 — — — — — — — Equity awards withheld for tax liability ( 50,690 ) — — — ( 2,134 ) — — ( 2,134 ) 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 Stock-based compensation — — — — 20,655 — — 20,655 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 Exercises of vested stock options 61,349 — — — 414 — — 414 Vesting of restricted stock units 804,962 1 — — — — — 1 Equity awards withheld for tax liability ( 46,313 ) — — — ( 941 ) — — ( 941 ) Conversion of Class B voting common stock to Class A voting common stock 7,142 — ( 7,142 ) — — — — — Unrealized loss on marketable securities — — — — — ( 248 ) — ( 248 ) Foreign currency translation — — — — — 15,698 — 15,698 Unrealized loss on employee benefit pension plan — — — — — ( 30 ) — ( 30 ) Stock-based compensation — — — — 26,662 — — 26,662 93 Table of Contents BANDWIDTH INC. Consolidated Statements of Changes in Stockholders ’ Equity (In thousands, except share amounts) Class A voting common stock Class B voting common stock Additional paid-in capital Accumulated other comprehensive income (loss) Accumulated deficit Total stockholders’ equity Shares Amount Shares Amount Net loss — — — — — — ( 16,343 ) ( 16,343 ) Balance at December 31, 2023 24,206,140 $ 24 1,958,028 $ 2 $ 391,048 $ ( 28,794 ) $ ( 64,890 ) $ 297,390 See accompanying notes. 94 Table of Contents BANDWIDTH INC. Consolidated Statements of Cash Flows (In thousands) Year ended December 31, 2023 2022 2021 Cash flows from operating activities Net (loss) income $ ( 16,343 ) $ 19,570 $ ( 27,362 ) Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation and amortization 41,717 35,599 36,642 Non-cash reduction to the right-of-use asset 9,323 6,977 5,722 Amortization of debt discount and issuance costs 2,520 3,082 26,754 Stock-based compensation 36,992 20,655 14,537 Deferred taxes and other ( 5,942 ) ( 5,557 ) ( 7,486 ) Net gain on extinguishment of debt ( 12,767 ) ( 40,205 ) — Changes in operating assets and liabilities: Accounts receivable ( 3,454 ) ( 13,341 ) ( 6,711 ) Prepaid expenses and other assets 2,141 ( 5,795 ) ( 6,751 ) Accounts payable 5,385 17,210 1,992 Accrued expenses and other liabilities ( 10,592 ) 4,291 9,693 Operating right-of-use liability ( 9,979 ) ( 7,580 ) ( 6,227 ) Net cash provided by operating activities 39,001 34,906 40,803 Cash flows from investing activities Purchase of property, plant and equipment ( 9,257 ) ( 41,661 ) ( 17,686 ) Deposits for construction in progress — ( 18,674 ) ( 3,000 ) Capitalized software development costs ( 10,642 ) ( 3,755 ) ( 3,926 ) Purchase of land — — ( 30,017 ) Proceeds from sale of land — — 17,462 Purchase of marketable securities ( 80,625 ) ( 179,598 ) — Proceeds from sales and maturities of marketable securities 130,120 108,681 — Proceeds from sales and maturities of other investments — — 40,000 Proceeds from sale of business 1,253 1,558 — Net cash provided by (used in) investing activities 30,849 ( 133,449 ) 2,833 Cash flows from financing activities Payments on finance leases ( 157 ) ( 190 ) ( 212 ) Proceeds from issuance of convertible senior notes — — 250,000 Net cash paid for debt extinguishment ( 51,259 ) ( 117,286 ) — Purchase of Capped Call — — ( 25,500 ) Payment of Acquisition holdback — — ( 6,689 ) Payment of debt issuance costs ( 710 ) ( 553 ) ( 7,544 ) Proceeds from exercises of stock options 413 163 926 Value of equity awards withheld for tax liabilities ( 1,062 ) ( 2,139 ) ( 3,954 ) Net cash (used in) provided by financing activities ( 52,775 ) ( 120,005 ) 207,027 Effect of exchange rate changes on cash, cash equivalents and restricted cash 610 881 189 Net increase (decrease) in cash, cash equivalents, and restricted cash 17,685 ( 217,667 ) 250,852 Cash, cash equivalents, and restricted cash, beginning of period 114,622 332,289 81,437 Cash, cash equivalents, and restricted cash, end of period $ 132,307 $ 114,622 $ 332,289 Reconciliation of cash, cash equivalents, and restricted cash, end of period Cash and cash equivalents $ 131,987 $ 113,641 $ 331,453 Restricted cash included in prepaid expenses and other current assets 320 981 836 Total cash, cash equivalents, and restricted cash, end of period $ 132,307 $ 114,622 $ 332,289 95 Table of Contents BANDWIDTH INC. Consolidated Statements of Cash Flows (In thousands) Year ended December 31, 2023 2022 2021 Supplemental disclosure of cash flow information Cash (received from) paid for interest $ ( 1,500 ) $ 18 $ 1,476 Cash paid for taxes $ 7,203 $ 3,932 $ 1,999 Right-of-use assets obtained in exchange for new operating lease liabilities $ 156,025 $ 3,421 $ 526 Supplemental disclosure of noncash investing and financing activities Purchase of property, plant and equipment, accrued but not paid $ 6,871 $ 1,741 $ 3,760 Purchase of property and equipment through lease incentive $ 57,329 $ 5,791 $ 4,677 Purchase of property and equipment through use of escrow deposits $ 20,674 $ — $ — See accompanying notes. 96 Table of Contents BANDWIDTH INC. Notes to Consolidated Financial Statements 1. Organization and Description of Business Bandwidth Inc. (together with its subsidiaries, “Bandwidth” or the “Company”) was founded in July 2000 and incorporated in Delaware on March 29, 2001. The Company’s headquarters are located in Raleigh, North Carolina. The Company is a global 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. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Reclassification The Company reclassified certain prior year amounts to conform to the current year presentation. These reclassifications had no impact on the previously reported total assets, liabilities, stockholder’s deficit or net income. Principles of Consolidation The consolidated financial statements include the accounts of Bandwidth Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates 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 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. 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 Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that the Company expects to receive in exchange for those products or services. The Company determines revenue recognition through the following steps: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; 97 Table of Contents Notes to Consolidated Financial Statements (continued) • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue, when, or as, the Company satisfies a performance obligation. Infrequently, Bandwidth’s contracts with customers may include multiple performance obligations. For such arrangements, revenues are allocated to each performance obligation based on its relative standalone selling price. Generally, standalone selling prices are determined based on the prices charged to similar customers for similar services. 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. The Company’s contracts do not contain general rights of return. However, occasionally credits may be issued. The Company’s contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met. The Company maintains a reserve for sales credits. Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience and current trends of credit issuances. Adjustments to the reserve are recorded against revenue. The Company has various sales commission plans for which eligible employees can earn commissions from the sale of products and services to customers. Eligible employees must be employed at the time of payment in order to receive a commission. The Company pays commissions over time and a corresponding requisite substantive service condition exists for the employee to receive the commission. The Company determined that the timing of the commission payments and the underlying service performed by the employee were commensurate. Accordingly, sales commissions are generally expensed as incurred. These costs are recorded within sales and marketing expenses. Nature of Products and Services Revenue consists primarily of two categories: (1) cloud communications and (2) messaging surcharges, which are described and quantified below. Year ended December 31, 2023 2022 2021 (In thousands) Cloud communications $ 478,892 $ 474,576 $ 449,656 Messaging surcharges 122,225 98,576 41,251 Total revenue $ 601,117 $ 573,152 $ 490,907 Cloud Communications Cloud communications revenue consists of the sale of communications services offered through Application Programming Interface (“API”) software solutions to customers and is derived from (i) reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees, and (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services. The majority of the Company’s cloud communications revenue is generated from reoccurring fees earned from customers accessing and using the Company’s communications platform. Access to the Company’s communications 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 98 Table of Contents Notes to Consolidated Financial Statements (continued) traffic traverses the Company’s network. For the years ended December 31, 2023, 2022 and 2021, the revenue from reoccurring cloud communications fees represented $ 346.9 million, $ 354.0 million, and $ 355.3 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, 2023, 2022 and 2021, the revenue from recurring cloud communications fees represented $ 132.0 million, $ 120.6 million and $ 94.4 million of total revenue, respectively. Messaging surcharges Messaging surcharge revenue consists of pass-through messaging surcharges imposed by the major mobile carriers in North America and is recognized in revenue during the period in which the messaging traffic traverses the Company’s network. Contract Assets and Liabilities The following table provides information about receivables and contract liabilities from contracts with customers: As of December 31, 2023 2022 (In thousands) Receivables (1) $ 78,155 $ 74,465 Contract liabilities (2) 16,465 15,487 ________________________ (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. Revenue is typically recognized in the following month when service is rendered or, in the case of nonrefundable upfront fees, over the estimated period of benefit from the date the fee is incurred by the customer. Customer refundable payments are recorded as advanced billings. During the year ended December 31, 2023, the Company recognized revenue of $ 5.8 million related to contract liabilities recorded at the beginning of the year. The Company expects to recognize $ 8.1 million in revenue over the next 12 months related to its contract liabilities as of December 31, 2023. Cost of Revenue 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. 99 Table of Contents Notes to Consolidated Financial Statements (continued) Operating Expenses Research and Development 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 of salaries and related personnel costs, commissions, and costs related to advertising, marketing, brand awareness activities, sales support and professional services fees, and customer billing and collections functions. Sales and marketing expenses include depreciation, amortization of acquired customer relationship intangible assets, and allocated costs of facilities and information technology utilized by our sales and marketing staff. General and Administrative General and administrative expenses consist 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. Cash deposits are primarily in financial institutions in the United States. However, cash for monthly operating costs of international operations are deposited in banks outside the United States. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company utilizes money market funds as an investment option and only invests in AAA rated funds. 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, 2023. 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 100 Table of Contents Notes to Consolidated Financial Statements (continued) 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 Accounts receivable are stated at realizable value, net of allowances, which includes an allowance for doubtful accounts and a reserve for expected credit losses. The allowance for doubtful accounts is based on management’s assessment of the collectability of its customer accounts. The Company regularly reviews the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, current economic trends, and reasonable and supportable forecasts about the future. Relevant risk 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 $ 1.1 million and $ 1.2 million for uncollectible accounts and customer balances that are disputed were required as of December 31, 2023 and 2022, respectively. 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, 2023 and 2022. The Company includes unbilled receivables in its accounts receivable balance. Generally, these receivables represent earned revenue from services provided to customers, which will be billed in the next billing cycle. All amounts are considered collectible and billable. As of December 31, 2023 and 2022, unbilled receivables were $ 43.6 million and $ 33.9 million, respectively. Concentration of Credit Risk Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and trade accounts receivable. The Company maintains its cash, cash equivalents and marketable securities with high credit-quality financial institutions. Certain balances held by such financial institutions exceed federally-insured limits. With regard to customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. 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, 2023 and 2022, no individual customer represented more than 10% of the Company’s accounts receivable, net of allowance for doubtful accounts. For the years ended December 31, 2023, 2022 and 2021, no individual customer represented more than 10% of the Company’s revenue. 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. Refer to Note 6, “Property, Plant and Equipment” to these consolidated financial statements, for the useful lives of the Company’s property, plant and equipment as of December 31, 2023 and 2022. Deferred Costs The Company defers certain direct and incremental upfront costs related to the generation of a revenue stream or obtaining a new customer agreement. These costs include installment fees, activation and other telecommunication fees. The Company capitalizes these costs and amortizes them over the longer of the term of the customer contract or the estimated period of benefit, which is approximately four years . Internal-Use Software Development Costs Internal-use software includes software that has been acquired, internally developed, or modified exclusively to meet the Company’s needs. 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 101 Table of Contents Notes to Consolidated Financial Statements (continued) met: (i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. 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, plant and equipment, net. These assets are placed into service when ready for use and amortized over the estimated useful life of the software on a straight-line basis over four years . Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Debt Issuance Costs The Company incurs debt issuance costs associated with obtaining and entering into credit agreements and issuing convertible notes. These costs customarily include non-refundable structuring fees, commitment fees, up-front fees and syndication expenses. The Company has a policy of deferring and amortizing these costs based on the effective interest method over the term of the credit agreements or the convertible notes, as applicable. Amortization of Intangibles Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company’s long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions. Intangible assets without determinable economic lives are carried at historical cost and reviewed for impairment at least annually. 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, 2023 and 2022. Goodwill 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, 2023, the Company completed a quantitative assessment under ASC 350 and determined that there was not an impairment of goodwill. 102 Table of Contents Notes to Consolidated Financial Statements (continued) The estimated fair value of the Company’s one reporting unit was based on the income approach and the market approach. Significant assumptions used within the discounted cash flow method under the income approach included estimated revenue projections and a risk adjusted discount rate. Significant assumptions used with the market approach included estimated revenue projections and an appropriate risk adjusted earnings multiple. No goodwill impairment charges were recorded for the years ended December 31, 2023, 2022 and 2021. Impairment of Long-Lived Assets 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. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. Business Combinations The Company uses the acquisition method of accounting for business combinations which requires the tangible and intangible assets acquired and liabilities assumed to be recorded at their respective fair market value as of the acquisition date. Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired. The fair values of the assets acquired and liabilities assumed are determined based upon the Company’s valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date. The Company uses a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained, but no later than one year from the acquisition date. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs totaled $ 1.2 million, $ 1.5 million and $ 1.8 million for the years ended December 31, 2023, 2022 and 2021, respectively, which are included in sales and marketing expenses in the accompanying consolidated statements of operations. Commissions Commissions consist of variable compensation earned by sales personnel and third-party resellers. Sales commissions associated with the acquisition of a new customer contract are paid over time, based on monthly revenues, and are recognized as sales and marketing expense in the period incurred. Stock-Based Compensation 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 three or four years for stock options and restricted stock units granted to employees, and one year for restricted stock units granted to non-employee members of the Board of Directors. 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 expense for awards. Through December 31, 2023, 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, 2023, all outstanding stock options are fully vested. 103 Table of Contents Notes to Consolidated Financial Statements (continued) Income Taxes 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. The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that it will not realize some or all the deferred tax asset. Quarterly, the Company reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of prudent and feasible tax planning strategies. The evaluation of the recoverability of deferred tax assets requires judgment in assessing future profitability. Should there be a change in the ability to recover deferred tax assets, the Company’s income tax provision would increase or decrease in the period in which the assessment is changed. The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. The tax benefit recognized is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions in income tax expense. 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 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 Basic earnings per share attributable to common stockholders is calculated by dividing the net (loss) income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is calculated by giving effect to all potentially dilutive common stock when determining the weighted-average number of common shares outstanding. For purposes of the diluted net (loss) income per share calculation, options to purchase common stock, restricted stock units and redeemable convertible preferred stock are considered to be potential common stock. Foreign currency translation The Company has foreign operations with non-USD functional currencies. 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 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 currency 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 104 Table of Contents Notes to Consolidated Financial Statements (continued) gains and losses are recognized in current period earnings as incurred, and included in other income (expense), net in the Company’s consolidated statements of operations. Foreign exchange gains and losses, which 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, are included in other income (expense), net in the Company’s consolidated statements of operations. Fair Value of Financial Instruments The Company minimizes its credit risk associated with investments by investing primarily in investment grade, liquid securities. The Company policy is designed to preserve capital, maintain liquidity and minimize credit risk, and the policy limits exposure to any one issuer and also establishes minimum credit ratings of approved investments. Periodic evaluations of relative credit standing of those issuers are considered in the Company's investment strategy. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires use of observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows: • Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and • Level 3. Unobservable inputs for which there is little or no market data, which requires the Company to develop its own assumptions. 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 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 generally accepted accounting principles, are recorded as an element of stockholders’ equity but are excluded from the calculation of net income. Business Interruption Insurance Recovery Beginning in September 2021, the Company’s communications network was subjected to a distributed denial of service attack (the “DDoS Attack”) that caused intermittent communications services disruptions affecting certain of its markets and customers. During the period of the DDoS Attack, the Company maintained certain insurance coverage, including business interruption insurance, intended to cover such circumstances. In June 2023, the Company resolved its claim with an insurer, pursuant to which the Company was entitled to receive $ 4.0 million in proceeds from business interruption insurance. The proceeds of the insurance payment were received in full in July 2023 and were recorded within gain on business interruption insurance recoveries on the Company’s consolidated statements of operations in the year ended December 31, 2023. 105 Table of Contents Notes to Consolidated Financial Statements (continued) Recent Accounting Pronouncements Not Yet Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance on its financial statements, but does not intend to early adopt. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). The amendments also require entities on an annual basis to disclose disaggregated amounts of income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the effect of adopting this new accounting guidance on its financial statements, but does not intend to early adopt. 3. Fair Value Measurements The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2023 and 2022 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 gains and losses for available-for-sale securities are recorded in accumulated other comprehensive loss. 106 Table of Contents 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 tables summarize the Company’s financial assets measured at fair value as of December 31, 2023 and 2022: Amortized cost or carrying value Unrealized gains Unrealized losses Fair value measurements on a recurring basis December 31, 2023 Level 1 Level 2 Level 3 Total (In thousands) Financial assets: Cash and cash equivalents: Money market account $ 120,724 $ — $ — $ 120,724 $ — $ — $ 120,724 Total included in cash and cash equivalents 120,724 — — 120,724 — — 120,724 Marketable securities: Time deposits 20,000 — — 20,000 — — 20,000 Commercial paper 1,422 66 — 1,488 — — 1,488 Total marketable securities 21,422 66 — 21,488 — — 21,488 Total financial assets $ 142,146 $ 66 $ — $ 142,212 $ — $ — $ 142,212 Amortized cost or carrying value Unrealized gains Unrealized losses Fair value measurements on a recurring basis December 31, 2022 Level 1 Level 2 Level 3 Total (In thousands) Financial assets: Cash and cash equivalents: Money market account $ 36,728 $ — $ — $ 36,728 $ — $ — $ 36,728 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 U.S. 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 $ — $ 136,213 107 Table of Contents Notes to Consolidated Financial Statements (continued) 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, 2023: Amortized cost Aggregate fair value (In thousands) Financial assets: Less than one year $ 21,422 $ 21,488 Total $ 21,422 $ 21,488 As of December 31, 2023, 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, 2023, the Company anticipates that it will recover the entire amortized cost basis of its marketable securities before maturity. During the years ended December 31, 2023 and 2022, there were $ 91.8 million and $ 74.3 million, respectively, in maturities of marketable securities. There were no maturities in marketable securities during the year ended December 31, 2021. Proceeds from sales of marketable securities were $ 38.3 million and $ 34.4 million for the years ended December 31, 2023 and 2022, respectively. There were no sales in marketable securities during the year ended December 31, 2021. Interest earned on marketable securities was $ 2.0 million and $ 1.2 million for the years ended December 31, 2023 and 2022, respectively. There was no interest earned on marketable securities during the year ended December 31, 2021. The interest is recorded in other income (expense), net, on the accompanying consolidated statements of operations. As of December 31, 2023 and 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 sheets. As of December 31, 2023, 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 $ 145.5 million and $ 157.6 million, respectively. As of December 31, 2022, the fair value of the 2026 Convertible Notes and the 2028 Convertible Notes was approximately $ 180.9 million and $ 156.5 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, 2023 and 2022, 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 $ 3.6 million and $ 3.2 million, respectively. The fair value was determined by an independent actuary and is considered as Level 2 in the fair value hierarchy. The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2023 and 2022. The money market account is included in cash and cash equivalents in the consolidated balance sheets as of December 31, 2023 and 2022. 108 Table of Contents Notes to Consolidated Financial Statements (continued) 4. Financial Statement Components Accounts receivable, net of allowances consist of the following: As of December 31, 2023 2022 (In thousands) Trade accounts receivable $ 35,612 $ 40,332 Unbilled accounts receivable 43,631 33,863 Allowance for doubtful accounts and reserve for expected credit losses ( 1,128 ) ( 1,191 ) Other accounts receivable 40 1,461 Total accounts receivable, net $ 78,155 $ 74,465 Components of allowance for doubtful accounts and reserve for expected credit losses are as follows: Year ended December 31, 2023 2022 (In thousands) Balance, beginning of period $ ( 1,191 ) $ ( 1,661 ) Charged to bad debt expense, net of reversals ( 733 ) ( 543 ) Deductions (1) 807 983 Impact of foreign currency translation ( 11 ) 30 Balance, end of period $ ( 1,128 ) $ ( 1,191 ) ________________________ (1) Write-off of uncollectible accounts after all collection efforts have been exhausted. Accrued expenses and other current liabilities consisted of the following: As of December 31, 2023 2022 (In thousands) Accrued expense $ 40,731 $ 29,990 Accrued compensation and benefits 19,142 21,595 Accrued sales, use, VAT and telecommunications related taxes 8,467 7,799 Income tax payable — 2,235 Other accrued expenses 674 958 Total accrued expenses and other current liabilities $ 69,014 $ 62,577 109 Table of Contents Notes to Consolidated Financial Statements (continued) Other liabilities consisted of the following: As of December 31, 2023 2022 (In thousands) Lease incentive $ — $ 10,468 Other liabilities 386 708 Total other liabilities $ 386 $ 11,176 5. Leases Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. 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 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 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 has entered into various operating lease agreements for office space and finance lease agreements for automobiles. 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”). The lease term under this non-cancellable lease expired in July 2022. The Company primarily leases facilities for office space under non-cancelable operating leases for its U.S. and international locations. As of December 31, 2023, non-cancelable leases expire on various dates between 2024 and 2043, some of which include options to extend the leases for up to 20 years. The components of lease expense recorded in the consolidated statements of operations were as follows: Year ended December 31, 2023 2022 2021 (In thousands) Operating lease cost $ 15,655 $ 7,750 $ 6,818 Sublease income — ( 206 ) ( 384 ) Total net lease cost $ 15,655 $ 7,544 $ 6,434 During the years ended December 31, 2023, 2022 and 2021, short-term operating lease expense was $ 0.6 million, $ 0.6 million, and $ 1.3 million, respectively. 110 Table of Contents Notes to Consolidated Financial Statements (continued) Operating lease assets are recorded net of accumulated amortization of $ 20.3 million and $ 17.7 million as of December 31, 2023 and 2022, respectively. Other supplemental information related to operating leases were as follows: Year ended December 31, 2023 2022 2021 Weighted average remaining lease term (in years) 19.30 2.12 2.95 Weighted average discount rate 8.76 % 4.58 % 4.78 % Maturities of operating lease liabilities were as follows: As of December 31, 2023 (In thousands) 2024 $ 23,313 2025 22,277 2026 21,722 2027 22,122 2028 22,462 Thereafter 378,808 Total lease payments 490,704 Less: imputed interest ( 264,693 ) Total lease obligations 226,011 Less: current obligations ( 5,463 ) Long-term lease obligations $ 220,548 New Corporate Headquarters On August 1, 2023, the Company commenced a lease for a new corporate headquarters in Raleigh, North Carolina. The lease term will continue for a period of twenty ( 20 ) years (the “Initial Term”). 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. The Company relocated its corporate headquarters to the leased property during the third quarter of 2023. Upon commencement of the lease, the Company recognized ROU assets of $ 156.0 million and operating lease liabilities of $ 223.1 million. The operating lease liabilities include $ 67.8 million of incentives provided by the landlord throughout development of the new corporate headquarters. Assets obtained through lease incentives are reported in property, plant and equipment, net, on the consolidated balance sheets. The Company also has recorded $ 2.5 million in security deposits and $ 1.0 million in escrow deposits to fund additional improvements. Deposits are reported as a component of other long-term assets on the Company’s consolidated balance sheets. 111 Table of Contents Notes to Consolidated Financial Statements (continued) 6. Property, Plant and Equipment Property, plant and equipment, net consisted of the following: As of December 31, Useful Life 2023 2022 (In thousands) (In years) Furniture and fixtures $ 16,036 $ 16,494 5 Computer and office equipment 13,669 14,160 2 to 5 Telecommunications equipment 82,991 80,251 5 to 7 Leasehold improvements 75,437 6,410 5 to 15 Software 12,552 7,051 3 Internal-use software development 25,909 23,677 4 Automobile 507 665 3 Land 27,771 23,090 Indefinite Land Improvements 930 — 20 Total cost 255,802 171,798 Less—accumulated depreciation ( 77,938 ) ( 72,045 ) Total property, plant and equipment, net $ 177,864 $ 99,753 The Company capitalizes the costs to design software for internal use related to the development of its platform during the application development stage of the projects. The costs are primarily comprised of salaries and benefits of the projects’ engineers and product development teams. Internally developed software is reported at cost less accumulated amortization. Amortization begins once the project is substantially complete and ready for its intended use. Costs incurred prior to the application development stage, maintenance activities or minor upgrades are expensed in the period incurred. Unamortized software development costs were approximately $ 15.3 million and $ 8.4 million as of December 31, 2023 and 2022, respectively. The Company capitalized $ 10.6 million, $ 3.8 million, and $ 3.9 million of software development costs for the years ended December 31, 2023, 2022 and 2021, respectively. Amortization expense related to capitalized software development costs was $ 3.2 million, $ 2.2 million, and $ 1.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, unamortized implementation costs related to cloud computing arrangements were $ 0.1 million, which is included in prepaid expenses and other current assets. The Company leases automobiles under leases accounted for as finance leases, which expire on various dates between 2024 and 2026. As of December 31, 2023, cost and accumulated depreciation of the assets under finance leases recorded by the Company were $ 0.5 million and $ 0.3 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. The Company recognized an impairment of $ 0.5 million during each of the years ended December 31, 2023, 2022 and 2021, related to capitalized software development costs that provided no future benefit and therefore were impaired. This expense is reflected within other income (expense), net as of December 31, 2023 and 2022 and cost of revenue as of December 31, 2021 in the accompanying consolidated statements of operations. 112 Table of Contents Notes to Consolidated Financial Statements (continued) The Company recognized depreciation expense, which includes amortization of capitalized software development costs, as follows: Year ended December 31, 2023 2022 2021 (In thousands) Cost of revenue $ 16,273 $ 13,602 $ 12,606 Research and development 3,977 2,311 2,166 Sales and marketing 2,628 1,331 1,090 General and administrative 1,565 1,175 1,661 Total depreciation expense $ 24,443 $ 18,419 $ 17,523 7. Goodwill and Intangible Assets Goodwill The change in the carrying amounts of goodwill was as follows: Total (In thousands) Balance as of December 31, 2021 $ 344,423 Foreign currency translation adjustments ( 18,018 ) Balance as of December 31, 2022 326,405 Foreign currency translation adjustments 9,467 Balance as of December 31, 2023 $ 335,872 113 Table of Contents Notes to Consolidated Financial Statements (continued) Intangible Assets Intangible assets, net consisted of the following as of December 31, 2023: Gross Amount Accumulated Amortization Net Carrying Value Amortization Period (In thousands) (In years) Customer relationships $ 147,426 $ ( 35,599 ) $ 111,827 15 - 20 Developed technology 79,702 ( 25,239 ) 54,463 10 Other, definite lived 2,828 ( 2,828 ) — 2 - 7 Licenses, indefinite lived 624 — 624 Indefinite Total intangible assets, net $ 230,580 $ ( 63,666 ) $ 166,914 Intangible assets, net consisted of the following as of December 31, 2022: Gross Amount Accumulated Amortization Net Carrying Value Amortization Period (In thousands) (In years) Customer relationships $ 141,146 $ ( 25,037 ) $ 116,109 15 - 20 Developed technology 77,409 ( 16,772 ) 60,637 10 Other, definite lived 2,828 ( 2,828 ) — 2 - 7 Licenses, indefinite lived 624 — 624 Indefinite Total intangible assets, net $ 222,007 $ ( 44,637 ) $ 177,370 The Company recognized amortization expense as follows: Year ended December 31, 2023 2022 2021 (In thousands) Cost of revenue $ 7,810 $ 7,657 $ 8,543 Sales and marketing 9,464 9,523 10,576 Total amortization expense $ 17,274 $ 17,180 $ 19,119 The remaining weighted average amortization period for definite lived intangible assets is 10.1 years. Future estimated amortization expense for definite lived intangible assets is as follows: As of December 31, 2023 (In thousands) 2024 $ 17,625 2025 17,625 2026 17,625 2027 17,625 2028 17,625 Thereafter 78,165 $ 166,290 114 Table of Contents Notes to Consolidated Financial Statements (continued) 8. Debt Revolving Credit Facility On August 1, 2023, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, as borrower, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer. The Credit Agreement provides for a $ 50.0 million revolving credit facility (the “Credit Facility”), including a $ 15.0 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $ 5.0 million. The Credit Facility has an accordion feature that allows for an increase in the total borrowing size up to $ 25.0 million, subject to certain conditions. The Credit Facility matures on the earlier of (a) August 1, 2028 or (b) the date that is 91 days prior to the scheduled maturity date or mandatory conversion date of any of the Company’s outstanding convertible notes. 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 term SOFR for the applicable interest period plus 10 basis points plus an applicable margin between 2.25 % and 2.75 %, and loans based on the base rate bear interest at a rate equal to the base rate plus an applicable margin between 1.25 % and 1.75 %, in each case of the foregoing, depending upon the Company’s consolidated EBITDA for the most recent period of four consecutive fiscal quarters for which financial statements have been delivered under the Credit Agreement. The Company is required to pay a quarterly commitment fee equal to between 0.05 % and 0.0625 % on the unused portion of the borrowing commitment, depending upon the Company’s consolidated EBITDA for the most recent period of four consecutive fiscal quarters for which financial statements have been delivered under the Credit Agreement. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. As a result, SVB ceased normal banking operations for a period of time. Given these circumstances, on March 14, 2023 (the “Notice Date”), the Company gave notice to SVB of its desire and intent to terminate the commitments (the “Termination”) under that certain credit agreement, dated as of June 6, 2022, among the Company, as borrower, the lenders from time to time party thereto, and SVB, as administrative agent, issuing lender and swingline lender. As of the Notice Date, there were no outstanding borrowings under this credit agreement. The Termination became effective on March 15, 2023. As of December 31, 2023, unamortized debt issuance costs were $ 0.6 million, of which $ 0.1 million were included in prepaid expenses and other current assets and $ 0.5 million were included in other long-term assets. 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, 2023, 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. Convertible Senior Notes and Capped Call Transactions 2026 Convertible Notes In February 2020, the Company issued $ 400.0 million aggregate principal amount of 0.25 % Convertible Notes due 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. The 2026 Convertible Notes will mature on March 1, 2026, unless earlier repurchased, redeemed by the Company, or converted pursuant to their terms. The total net proceeds from the 2026 Convertible Notes, after deducting initial purchaser discounts, costs related to the 2026 Capped Calls (as defined herein), and debt issuance costs, paid by the Company, were approximately $ 344.7 million. The excess of the principal amount of the liability component over its carrying 115 Table of Contents Notes to Consolidated Financial Statements (continued) amount, or the debt discount, was amortized to interest expense at an annual effective interest rate of 0.509 % over the contractual terms of the 2026 Convertible Notes. Each $1,000 principal amount of the 2026 Convertible Notes is initially convertible into 10.9857 shares of the Company’s Class A common stock, par value $ 0.001 per share, which is equivalent to an initial conversion price of approximately $ 91.03 per share. During March 2023, the Company entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes to repurchase approximately $ 65.0 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $ 51.3 million. These repurchases closed on March 6, 2023. The Company entered into similar agreements to repurchase approximately $ 160.0 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $ 117.2 million that closed in November 2022. Following these repurchases, approximately $ 175.0 million principal amount of the 2026 Convertible Notes remain outstanding. 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. The difference between the consideration used to repurchase the 2026 Convertible Notes and the carrying value of the 2026 Convertible Notes resulted in gains of $ 12.8 million and $ 40.2 million recorded within net gain on extinguishment of debt on the Company’s consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively. 2028 Convertible Notes In March 2021, the Company issued $ 250.0 million aggregate principal amount of 0.50 % Convertible Notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act (the “2028 Convertible Notes” and, together with the 2026 Convertible Notes, the “Convertible Notes”). The interest on the 2028 Convertible Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The 2028 Convertible Notes will mature on April 1, 2028, unless earlier repurchased, redeemed by the Company, or converted pursuant to their terms. The total net proceeds from the 2028 Convertible Notes, after deducting initial purchaser discounts, costs related to the 2028 Capped Calls (as defined herein), and debt issuance costs, paid by the Company, were approximately $ 217.0 million. 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 0.442 % over the contractual terms of the 2028 Convertible Notes. Each $1,000 principal amount of the 2028 Convertible Notes is initially convertible into 5.5781 shares of the Company’s Class A common stock, par value $ 0.001 per share, which is equivalent to an initial conversion price of approximately $ 179.27 per share. Other Terms of the Convertible Notes The Convertible Notes are effectively subordinated to the Company’s future senior secured indebtedness 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. The 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 applicable Convertible Notes (each, a “Notes Indenture” and collectively, the “Notes Indentures”) or if the Convertible Notes are not freely tradeable as required by the applicable Notes Indenture. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (which includes the calling of any Convertible Notes for redemption), as defined in the applicable Notes Indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a 116 Table of Contents Notes to Consolidated Financial Statements (continued) holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or during the relevant redemption period. The Company may redeem the Convertible Notes, in whole or in part, at its option at any time, and from time to time, on or after (i) March 6, 2023 for the 2026 Convertible Notes, or ii) after April 6, 2025 for the 2028 Convertible Notes, in each case, on or before the fortieth ( 40 th ) scheduled trading day immediately before the maturity date, at a cash redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding the redemption date, if the last reported sale price of the Class A common stock has exceeded 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading date immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading days ending on, and including, the trading date immediately before the date on which the Company provides the related redemption notice. No sinking fund is provided for the Convertible Notes. The Convertible Notes will be convertible at certain times and upon the occurrence of certain events in the future. Further, on or after September 1, 2025 for the 2026 Convertible Notes, and on or after October 1, 2027 for the 2028 Convertible Notes, in each case, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert all or a portion of their Convertible Notes regardless of these conditions. 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 Convertible Notes with cash. During the years ended December 31, 2023 and 2022, the conditions allowing the holders of the 2026 Convertible Notes and the 2028 Convertible Notes to convert were not met. The Convertible Notes may be convertible thereafter if one or more of the conversion conditions specified in each respective Notes Indenture are satisfied during future measurement periods. The Company continues to classify the Convertible Notes as a long-term liability in its consolidated balance sheets as of December 31, 2023, based on contractual settlement provisions. Upon the occurrence of a fundamental change (as defined in the applicable Notes Indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the 2026 Convertible Notes or 2028 Convertible Notes for cash at a price equal to the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The net carrying amount of the liability components of the Convertible Notes were as follows: As of December 31, 2023 2022 2026 Convertible Notes: (In thousands) Principal $ 175,000 $ 240,000 Unamortized debt issuance costs ( 1,891 ) ( 3,805 ) 2026 Convertible Notes net carrying amount 173,109 236,195 2028 Convertible Notes: Principal 250,000 250,000 Unamortized debt issuance costs ( 4,583 ) ( 5,649 ) 2028 Convertible Notes net carrying amount 245,417 244,351 Total net carrying amount $ 418,526 $ 480,546 117 Table of Contents Notes to Consolidated Financial Statements (continued) The following table sets forth the interest expense recognized related to the Convertible Notes: Year ended December 31, 2023 2022 2026 Convertible Notes: (In thousands) Contractual interest expense $ 465 $ 997 Amortization of debt issuance costs 940 1,915 Total interest expense related to the 2026 Convertible Notes 1,405 2,912 2028 Convertible Notes: Contractual interest expense 1,250 1,250 Amortization of debt issuance costs 1,064 1,062 Total interest expense related to the 2028 Convertible Notes 2,314 2,312 Total interest expense $ 3,719 $ 5,224 On January 1, 2022, the Company adopted 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) (“ASU 2020-06”), 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 years ended December 31, 2023 and 2022, the combined interest expense of the Convertible Notes was $ 29.2 million and $ 27.2 million lower, respectively, 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, 2023 and 2021, as the Company incurred a net loss in both reporting periods. Capped Calls 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”). The initial strike price of the Convertible Notes corresponds to the initial conversion price of the 2026 Convertible Notes and the 2028 Convertible Notes. 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 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. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including changes in law, insolvency filings, and hedging disruptions. The Capped Call transactions are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost to purchase the Capped Calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheets. 118 Table of Contents Notes to Consolidated Financial Statements (continued) The following table sets forth key terms and costs incurred for the Capped Calls related to the Convertible Notes as of December 31, 2023: 2026 Convertible Notes 2028 Convertible Notes (In thousands, except share and per share amounts) Initial approximate strike price per share, subject to certain adjustments $ 91.03 $ 179.27 Initial cap price per share, subject to certain adjustments $ 137.40 $ 260.76 Net costs incurred $ 43,320 $ 25,500 Class A common stock covered, subject to anti-dilution adjustments 1,922,498 1,394,525 All of the Capped Calls were outstanding as of December 31, 2023. 9. Geographic Information The Company generates its revenue primarily in North America. Revenue by geographic area is detailed in the table below, which is apportioned based on the destination of the service: Year ended December 31, 2023 2022 2021 (In thousands) North America $ 514,048 $ 484,105 $ 433,463 Rest of World 87,069 89,047 57,444 Total $ 601,117 $ 573,152 $ 490,907 During the three months ended March 31, 2023, the Company changed its methodology for apportioning the revenue by geographic area, from basing the revenue on the customer billing address to basing the revenue on the destination of the service, in order to provide a more transparent metric and to be consistent with other information provided publicly. Accordingly, 2023 and 2022 have been conformed to the updated methodology, however due to data limitations, 2021 is presented under the previous methodology. The Company’s long-lived assets were primarily held in North America as of December 31, 2023 and 2022. As of December 31, 2023 and 2022, long-lived assets held outside of North America were $ 4.5 million and $ 9.1 million, respectively. 10. Stockholders’ Equity Preferred Stock As of December 31, 2023 and 2022, the Company had authorized 10,000,000 shares of undesignated preferred stock, par value $ 0.001 , of which no shares were issued and outstanding. Common Stock As of December 31, 2023 and 2022, the Company had authorized 100,000,000 shares of Class A common stock, par value $ 0.001 per share and 20,000,000 shares of Class B common stock, par value $ 0.001 per share. 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. 119 Table of Contents Notes to Consolidated Financial Statements (continued) Voting Rights The holders of Class A common stock and Class B common stock have identical rights, except that holders of Class A voting common stock are entitled to one vote per share of Class A common stock and holder of Class B common stock are entitled to ten votes per share of Class B common stock. Dividends Any dividends or distributions paid or payable to the holders of shares of Class A common stock and Class B common stock shall be paid pro-rata, on an equal priority. During the years ended December 31, 2023, 2022 and 2021, no dividends were declared. Dividend payments are not subject to restriction. Reserved Shares The Company had reserved shares of Class A common stock for issuance under stock-based award agreements as follows: As of December 31, 2023 2022 Stock options issued and outstanding 97,480 159,741 Nonvested restricted stock units issued and outstanding 5,066,159 2,607,106 Stock-based awards available for grant under the 2017 Plan 2,330,616 1,879,368 Total 7,494,255 4,646,215 11. Stock-Based Compensation Equity Incentive Plans The Company adopted the 2010 Equity Compensation Plan (the “2010 Plan”) on July 26, 2010. On November 9, 2017, the 2010 Plan was terminated in connection with the Company’s initial public offering. Accordingly, no shares are available for future issuance under the 2010 Plan. However, the 2010 Plan continues to govern the terms and conditions of the outstanding awards granted thereunder. The Company’s Second 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. On January 1, 2023, the shares available for grant under the 2017 Plan were automatically increased by 1,168,950 shares. On May 18, 2023, stockholders approved an amendment to the 2017 Plan that increased the number of shares available for grant by 2,500,000 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. The stock options have a contractual life of ten years . Restricted stock units (“RSUs”) granted to employees, non-employee members of the Board of Directors and other Service Providers (as defined in the 2017 Plan) under the 2017 Plan are subject to an immediate or time-based vesting condition as specified by the underlying compensation plans. Vesting schedules may differ between different categories of award recipients. Stock compensation expense is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period. Depending on the nature of the 120 Table of Contents Notes to Consolidated Financial Statements (continued) underlying compensation plan, certain share-based payment arrangements may be classified as liability-based awards resulting in classification as accrued expenses on the consolidated balance sheets with the corresponding offset to stock-based compensation expense. As of December 31, 2023, awards granted under the 2010 Plan consisted of stock options and awards granted under the 2017 Plan consisted of stock options and RSUs. Stock Options The following summarizes the stock option activity for the year ended December 31, 2023: Number of options outstanding Weighted- average exercise price (Per share) Weighted- average remaining contract life (In years) Aggregate intrinsic value (In thousands) Outstanding as of December 31, 2022 159,741 $ 10.42 2.57 $ 2,001 Granted — — Exercised ( 61,349 ) 6.74 Forfeited or expired ( 912 ) 9.46 Outstanding as of December 31, 2023 97,480 $ 12.75 2.97 $ 332 Options vested and exercisable at December 31, 2023 97,480 $ 12.75 2.97 $ 332 Options vested and expected to vest as of December 31, 2023 97,480 $ 12.75 2.97 $ 332 The total intrinsic value of stock options exercised for the years ended December 31, 2023, 2022 and 2021 was $ 0.4 million, $ 0.6 million and $ 9.3 million, respectively. Aggregate intrinsic value is computed based on the difference between the option exercise price and the fair value of the Company’s common stock at the time of such option exercises. No options were granted for the year ended December 31, 2023. As of December 31, 2021, all outstanding stock options were fully vested. As of December 31, 2023, the Company had no unrecognized compensation cost related to non-vested stock options. 121 Table of Contents Notes to Consolidated Financial Statements (continued) Restricted Stock Units The following summarizes the RSU activity for the year ended December 31, 2023: Number of awards outstanding Weighted-average grant date fair value (Per share) Nonvested RSUs as of December 31, 2022 2,607,106 $ 32.33 Granted 3,431,074 11.35 Vested ( 804,962 ) 31.29 Forfeited ( 167,059 ) 28.77 Nonvested RSUs as of December 31, 2023 5,066,159 $ 18.41 Year ended December 31, 2023 2022 2021 Weighted average grant date fair value of RSUs granted (per share) $ 11.35 $ 30.43 $ 143.31 Total fair value of RSUs vested (in thousands) 25,186 15,038 12,571 As of December 31, 2023, total unrecognized compensation cost related to non-vested RSUs was $ 79.4 million, which will be amortized over a weighted-average period of 2.35 years. Stock-Based Compensation Expense The Company recognized total stock-based compensation expense as follows: Year ended December 31, 2023 2022 2021 (In thousands) Cost of revenue $ 1,136 $ 404 $ 364 Research and development 15,661 7,523 3,681 Sales and marketing 6,273 2,808 2,225 General and administrative 13,922 9,920 8,267 Total $ 36,992 $ 20,655 $ 14,537 12. Commitments and Contingencies Operating Leases The Company leases office space under non-cancelable operating lease agreements that expire on various dates through July 2043. As of December 31, 2023, the Company has $ 496.1 million in future minimum rent payments for its current office space. See Note 5, “Leases,” to the consolidated financial statements, for additional details on the Company ’ s operating lease commitments. Contractual Obligations As of December 31, 2023, the Company has $ 23.0 million in non-cancellable purchase obligations, consisting of primarily network equipment maintenance and software license contracts, of which $ 12.9 million will be fulfilled within one year. 122 Table of Contents 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. 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. 13. Employee Benefit Plans The Company sponsors a U.S. defined contribution 401(k), which allows eligible U.S.-based employees to defer a portion of their compensation. The Company, at its discretion, may make matching contributions. With the acquisition of Voxbone S.A. on November 1, 2020, the Company assumed sponsorship for Voxbone S.A.’s U.S. defined contribution 401(k). In connection with that acquisition, the Company also assumed sponsorship for a non-U.S. defined contribution plan for which it pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current or prior periods. The contributions are recognized as employee benefit expense when they are due. The Company made matching contributions for the defined contribution plans of $ 4.8 million, $ 4.6 million, and $ 3.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. In addition, as a result of the acquisition of Voxbone S.A., the Company assumed sponsorship for Voxbone S.A.’s non-U.S. defined benefit pension plans. The liability recognized is the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets and is included in other liabilities in the accompanying consolidated balance sheets. The defined benefit obligation is calculated annually by an independent actuary using the Projected Unit Credit Method. 123 Table of Contents Notes to Consolidated Financial Statements (continued) The following table summarizes information for the pension plans: As of December 31, 2023 2022 (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 3,502 $ 3,874 Service cost 264 268 Interest cost 146 35 Actuarial loss (gain) 13 ( 418 ) Benefits paid ( 41 ) — Taxes, insurance premiums and administrative expenses ( 61 ) ( 50 ) Impact of foreign currency translation 104 ( 207 ) Benefit obligation at end of year $ 3,927 $ 3,502 Change in plan assets: Fair value of plan assets at beginning of year $ 3,181 $ 2,958 Return on plan assets 41 26 Actuarial gain — 72 Employer contribution 393 332 Benefits paid ( 41 ) — Taxes, insurance premiums and administrative expenses ( 61 ) ( 50 ) Impact of foreign currency translation 94 ( 157 ) Fair value of plan assets at end of year 3,607 3,181 Funded status, net liability $ 320 $ 321 The Company’s pension liability for the Company’s non-U.S. defined benefit pension plans was $ 0.3 million as of December 31, 2023 and 2022, which is included in other liabilities on the accompanying consolidated balance sheets. The following table summarizes information for the Company’s pension plans with an accumulated benefit obligation in excess of plan assets: As of December 31, 2023 2022 (In thousands) Projected benefit obligation $ 3,927 $ 3,502 Accumulated benefit obligation 3,623 3,265 Fair value of plan assets 3,607 3,181 124 Table of Contents Notes to Consolidated Financial Statements (continued) 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 income (expense), net . 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, 2023 2022 2021 (In thousands) Service cost $ 264 $ 268 $ 396 Interest cost 146 35 21 Return on plan assets ( 41 ) ( 26 ) ( 14 ) Amortization of actuarial gain ( 27 ) — — Net periodic pension cost 342 277 403 Changes in plan assets and benefit obligations included in other comprehensive loss: Unrecognized net actuarial (gain) loss beginning of year ( 705 ) ( 227 ) 17 Actuarial gain recognized during year 27 — — Actuarial loss (gain) on benefit obligation 13 ( 418 ) ( 237 ) Actuarial gain on fair value of plan assets — ( 72 ) ( 6 ) Impact of foreign currency translation ( 118 ) 12 ( 1 ) Total included in other comprehensive loss (before tax effect) ( 783 ) ( 705 ) ( 227 ) Total recognized in net periodic benefit cost and included in other comprehensive loss $ ( 441 ) $ ( 428 ) $ 176 The Company uses significant judgment to determine the measurement of their non-U.S. defined benefit pension plans’ assets and liabilities. These amounts are calculated by an independent actuary. The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any change in these assumptions will impact the present value of the defined benefit obligation. The actuarial gains and losses recognized in the pension expense are determined using the so-called “10% corridor” method, i.e. actuarial gains and losses which exceed 10% of the higher of the plan assets and the projected benefit obligation are amortized on a straight line basis over the average remaining service period of the active plan participants. Any prior service costs are amortized on a straight line basis over the average remaining service period of the active plan participants. The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related obligation. The other assumptions for pension obligations are based in part on market conditions. 125 Table of Contents 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, 2023 2022 2021 Defined benefit obligations: Discount rate 3.25 % 3.80 % 0.90 % Rate of salary increase 2.70 % 4.67 % 4.27 % Inflation 1.80 % 2.30 % 1.80 % Defined benefit cost: Discount rate 3.25 % 3.80 % 0.90 % Rate of salary increase 2.70 % 4.67 % 4.27 % Rate of return on plan assets 1.80 % 1.20 % 0.90 % Inflation 1.80 % 2.30 % 1.80 % Plan Assets The Company’s non-U.S. defined benefit plans are insured by a third party. The investments are governed by the insurer, who oversees all investment decisions. The insurance contracts are classified as Level 2 because a portion of the underlying funds are valued using significant other observable inputs. The insurance contracts provide for a guaranteed interest credit and a profit-sharing adjustment based on the actual performance of the underlying investment assets of the insurer. The fair value of the contract is determined by the insurer based on the premiums paid by the Company plus interest credits plus the profit-sharing adjustment less benefit payments. The major categories of plan assets are as follows: As of December 31, 2023 2022 (In thousands) Assets held by: Insurance companies (collective and individual) $ 3,607 $ 3,181 Expected Cash Flows The Company expects to contribute $ 0.4 million to its non-U.S. defined benefit pension plans during 2024. 126 Table of Contents Notes to Consolidated Financial Statements (continued) 14. Income Taxes The following table presents domestic and foreign components of (loss) income before income taxes for the tax years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 (In thousands) United States $ 759 $ 30,594 $ ( 27,547 ) International ( 20,062 ) ( 13,288 ) ( 3,648 ) (Loss) income before income taxes $ ( 19,303 ) $ 17,306 $ ( 31,195 ) Benefit for income taxes from operations consists of the following: Year Ended December 31, 2023 2022 2021 (In thousands) Current: Federal $ ( 653 ) $ ( 2,717 ) $ ( 2,713 ) State ( 1,309 ) ( 803 ) ( 145 ) Foreign ( 2,219 ) ( 815 ) ( 1,627 ) Total ( 4,181 ) ( 4,335 ) ( 4,485 ) Deferred: Federal ( 75 ) 1,004 ( 364 ) State — ( 1 ) — Foreign 7,216 5,596 8,682 Total 7,141 6,599 8,318 Income tax benefit $ 2,960 $ 2,264 $ 3,833 127 Table of Contents Notes to Consolidated Financial Statements (continued) The following table presents a reconciliation of the statutory federal tax rate and the Company’s effective tax rate for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 Federal Tax Rate 21.0 % 21.0 % 21.0 % State Tax Rate - statutory blended rate 4.3 4.3 4.2 Other effective state tax adjustments ( 5.2 ) 3.6 ( 1.4 ) Non-deductible expenses ( 4.1 ) 4.0 ( 6.1 ) Research tax benefits 24.4 ( 31.6 ) 7.9 Stock-based compensation ( 18.0 ) 6.3 13.9 Change in valuation allowance ( 11.7 ) ( 16.1 ) 16.3 Deferred tax rate change 0.6 0.5 ( 0.2 ) Voxbone US 338(g) gain — — ( 8.9 ) Intangibles and deferred adjustments — ( 4.7 ) ( 40.2 ) Foreign rate differential 2.8 1.6 1.3 Other 1.2 ( 2.0 ) 4.5 Total 15.3 % ( 13.1 ) % 12.3 % For the year ended December 31, 2023, the Company recognized an income tax benefit of $ 3.0 million on pre-tax book loss of $ 19.3 million, resulting in an effective income tax rate of 15.3 %. 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 )%. 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 %. In 2023, 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. Other U.S. non-deductible expenses that are offset by the valuation allowance consist primarily of non-deductible executive compensation under Internal Revenue Code 162(m). 128 Table of Contents Notes to Consolidated Financial Statements (continued) The following table presents the significant components of the Company’s net deferred tax liability: As of December 31, 2023 2022 (In thousands) Deferred tax assets: Allowance for doubtful accounts $ 80 $ 173 Accrued liabilities 3,459 4,370 Operating lease liabilities 57,152 3,456 Deferred revenue 1,915 1,949 Stock-based compensation 3,363 3,216 Capitalized research and development expenses 40,306 20,997 Accrued lease incentive — 2,645 Tax credits 12,994 10,948 Net operating losses 17,421 25,691 Other deferred tax assets 3,238 4,592 Gross deferred tax assets 139,928 78,037 Less: valuation allowance ( 67,950 ) ( 65,678 ) Total deferred tax assets 71,978 12,359 Deferred tax liabilities: Property, plant and equipment 24,469 4,890 Goodwill 1,416 1,272 Intangibles 39,334 41,591 Operating lease assets 39,780 3,072 Total deferred tax liabilities 104,999 50,825 Net deferred tax liability $ ( 33,021 ) $ ( 38,466 ) 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 primarily considered its historic performance, the nature of its 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 determined that in 2023, a valuation allowance against U.S. deferred tax assets was required. As of December 31, 2023, the Company had approximately $ 44.3 million in U.S. federal net operating loss carryforwards, $ 16.3 million in U.K. loss carryforwards, and $ 12.8 million in U.S. federal tax credits. All U.S. 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 U.S. federal tax credits begin to expire in 2039. As of December 31, 2023, the Company had approximately $ 63.9 million in state net operating loss carryforwards. If not utilized, some state net operating loss carryforwards will expire at various dates beginning in 2026. 129 Table of Contents Notes to Consolidated Financial Statements (continued) At December 31, 2023, 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, 2023. 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: Year Ended December 31, 2023 2022 (In thousands) Unrecognized tax benefits—January 1, $ 4,800 $ 3,062 Gross increases—tax positions in prior period 142 613 Gross increases—tax positions in current period 1,228 1,125 Unrecognized tax benefits—December 31, $ 6,170 $ 4,800 If the $ 6.2 million of unrecognized tax benefit is recognized, it would not impact the effective tax rate due to the valuation allowance on the Company’s net U.S. deferred tax assets. For the years ended December 31, 2023 and 2022, the Company recognized interest and penalties of $ 0.3 million related to income taxes within income tax expense. The Company expects no material changes in the twelve months following December 31, 2023 in its uncertain tax positions. The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. The tax years 2020 through 2022 remain open to examination by the major jurisdictions in which the Company is subject to tax. 130 Table of Contents Notes to Consolidated Financial Statements (continued) 15. Basic and Diluted (Loss) Income per Common Share Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period. The Company is in a net loss position for the years ended December 31, 2023 and 2021, and therefore diluted shares equals basic shares. The components of basic and diluted (loss) income per share are as follows: Year ended December 31, 2023 2022 2021 (In thousands, except share and per share amounts) Earnings per share Net (loss) income attributable to common stockholders $ ( 16,343 ) $ 19,570 $ ( 27,362 ) Net (loss) income per share: Basic $ ( 0.64 ) $ 0.77 $ ( 1.09 ) Diluted $ ( 0.64 ) $ ( 0.48 ) $ ( 1.09 ) Numerator used to compute net (loss) income per share: Basic $ ( 16,343 ) $ 19,570 $ ( 27,362 ) Net gain on extinguishment of debt, net of taxes — ( 39,614 ) — Interest expense on convertible notes, net of taxes — 5,147 — Diluted (1) $ ( 16,343 ) $ ( 14,897 ) $ ( 27,362 ) Weighted average number of common shares outstanding: Basic 25,612,724 25,282,796 25,090,916 Convertible debt conversion — 5,625,073 — Diluted 25,612,724 30,907,869 25,090,916 ________________________ (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 8, “Debt,” to the consolidated financial statements, for additional details on the adoption of ASU 2020-06. 131 Table of Contents Notes to Consolidated Financial Statements (continued) The following common share equivalents were excluded from the weighted average shares used to calculate net (loss) income per common share because their effects would have been anti-dilutive: As of December 31, 2023 2022 2021 Stock options issued and outstanding 97,480 159,741 180,209 Restricted stock units issued and outstanding 5,911,794 2,607,106 344,486 Convertible senior notes (1) (2) 3,442,229 — 987,149 Total 9,451,503 2,766,847 1,511,844 ________________________ (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 8, “Debt” to the consolidated financial statements, for additional details on the adoption of ASU 2020-06 and 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. 132 Table of Contents Notes to Consolidated Financial Statements (continued) Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 133 Table of Contents