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Item 7. Management’s Discussion and Analysis

2026-02-19 compared with 2025-02-20 · 96 added, 208 removed, 341 unchanged (47% of the section changed)

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Our fiscal year ends on December 31.

This Item generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024.

Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 are not included, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 20, 2025.

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

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

Backed by the Bandwidth Communications Cloud, a global owned-and-operated network spanning more than 65 countries reaching over 90 percent of GDP, innovative enterprises use Bandwidth’s APIs to easily embed voice, messaging and emergency services capabilities into software and applications.

Backed by the Bandwidth Communications Cloud, our global owned-and-operated network spanning more than 65 countries reaching over 90 percent of GDP, innovative enterprises use Bandwidth’s APIs to easily embed voice, messaging, emergency services, and AI capabilities into software and applications.

Bandwidth was the first cloud communications provider to offer a robust selection of APIs built on our own cloud platform.

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

Bandwidth’s business benefits from multiple global megatrends, including enterprise migration to the cloud, adoption of CCaaS platforms, the need to be able to work from anywhere, reinvention of customer experience, growth in messaging applications to engage directly with consumers, and application of AI technologies to cloud communications use cases.

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

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

In fact, Bandwidth already powers all the 2024 Gartner Ⓡ Magic Quadrant Leaders in the key cloud communications categories of UCaaS and CCaaS.

Our long-term vision is to continue strengthening this position as the key enabling platform for communications transformation.

Our award-winning support teams help businesses around the world transform their communications every day.

Bandwidth is strategically positioned at the intersection of enterprise communications and AI.

As global enterprises adopt AI-driven tools to modernize customer experiences, we believe AI voice will become a critical new layer of value creation.

Our Maestro™ platform and Communications Cloud are designed to support this evolution, enabling the orchestration of AI voice agents across diverse environments with superior quality, reliability, and scale.

We see our emerging leadership in AI Voice as a natural extension of our long-term strategy to power trusted, mission-critical communications for the world’s largest enterprises.

Bandwidth’s business continues to benefit from the application of AI technologies to cloud communications use cases, the enterprise migration to the cloud, adoption of CCaaS platforms, the need to be able to work from anywhere, the reinvention of customer experience, and the growth in messaging applications to engage directly with consumers.

We believe these market trends are secular, long-lasting, and still early in the adoption curve.

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

In fact, Bandwidth already powers all the 2025 Gartner Ⓡ Magic Quadrant Leaders in the key cloud communications categories of UCaaS and CCaaS, along with leading hyperscalers and SaaS platforms.

We aim to be the key enabling platform for communications transformation in the AI era.

We will seek to do this in three ways:

(1) cross-sell and up-sell our existing customers as they benefit from our global footprint and powerful APIs to automate and scale cloud communications;

(2) focus on direct-to-enterprise growth to serve Global 2000 enterprises that directly leverage Bandwidth services to accelerate their digital transformations, and (3) aim to be the preferred provider for SaaS platforms that use conversational voice and messaging to create digital engagements that enhance the customer experience.

(1) cross-sell and up-sell our existing customers as they benefit from our global footprint, powerful APIs, and AI orchestration capabilities to automate and scale cloud communications;

(2) focus on direct-to-enterprise growth to serve Global 2000 enterprises that directly leverage Bandwidth services to accelerate their digital transformations, and (3) be the preferred provider for enterprises and SaaS platforms that use conversational voice and messaging to create digital engagements that enhance the customer experience.

These three strategies are the foundation of the durable business we seek to build.

For the years ended December 31, 2024, 2023 and 2022, total revenue was $748 million, $601 million and $573 million, respectively, representing an increase of 25% in 2024, and 5% in 2023.

Net loss in 2024 and 2023 was $7 million and $16 million , respectively.

Net income in 2022 was $20 million .

Repurchase of 2026 Convertible Notes

During May 2024, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes (the “2024 Repurchases”) to repurchase approximately $140 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $128 million.

The 2024 Repurchases closed on May 9, 2024.

Following the 2024 Repurchases and previous repurchases of the 2026 Convertible Notes, approximately $35 million principal amount of the 2026 Convertible Notes remain outstanding.

Management ’ s Discussion and Analysis

For the years ended December 31, 2025, 2024 and 2023, total revenue was $754 million, $748 million and $601 million, respectively, representing an increase of 1% in 2025 and an increase of 25% in 2024.

Net loss in 2025, 2024, and 2023 was $13 million, $7 million, and $16 million, respectively.

Repurchase of 2026 Convertible Notes

During February 2025, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes (the “2025 Repurchases”) to repurchase approximately $27 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $26 million .

The 2025 Repurchases closed on February 24, 2025.

Following the 2025 Repurchases and previous repurchases of the 2026 Convertible Notes, approximately $8 million aggregate principal amount of the 2026 Convertible Notes remains outstanding.

The difference between the consideration used for the 2025 Repurchases and the carrying value of the 2026 Convertible Notes resulted in a gain of $1 million recorded within net gain on extinguishment of debt on our consolidated statements of operations for the year ended December 31, 2025 .

Credit Agreement Amendment

On May 1, 2024, we entered into an amendment (the “Amendment”) to the credit agreement (the “Credit Agreement”), dated August 1, 2023, 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 Credit Agreement, which increased the aggregate revolving credit commitments from $50 million to $100 million;

increased the swingline sublimit from $5 million to $10 million;

increased the minimum liquidity from $75 million to $83 million;

and extended the maturity date from August 1, 2028 to the earlier of (a) May 1, 2029 or (b) the date that is 91 days prior to the scheduled maturity date or mandatory conversion date of any of our outstanding convertible notes.

On October 28, 2024, we entered into a second amendment (the “Second Amendment”) to the Credit Agreement, which increased the aggregate revolving credit commitments to $150 million;

modified the applicable margin for loans based on SOFR to between 2.0% and 2.5%, and modified the applicable margin for loans based on the base rate to between 1.0% and 1.50%;

modified the quarterly commitment fee to between 0.2% and 0.25% on the unused portion of the borrowing commitment;

replaced existing financial covenants to certain customary covenants;

and modified the maturity date to the earlier of (a) May 1, 2029 or (b) the date that is 91 days prior to the scheduled maturity date or mandatory conversion date of any of the outstanding convertible senior notes due 2028.

As of December 31, 2024, we did not have any outstanding borrowings under the Credit Facility (as defined below), and we were in compliance with all financial and non-financial covenants for all periods presented.

As of December 31, 2024, the available borrowing capacity under the Credit Facility was $150 million.

Key Performance Indicator

We monitor the following key performance indicator (“KPI”) to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

We monitor the following key performance indicator to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

Net Retention Rate

We believe net retention rate is useful in evaluating our business.

For the years ended December 31, 2024, 2023 and 2022, the net retention rate was 122%, 101% and 112%, respectively.

For the years ended December 31, 2025, 2024 and 2023, our net retention rate was 98%, 122% and 101%, respectively.

Our net retention rate in 2024 benefited from higher volumes of political messaging driven by the U.S.

presidential election in November 2024.

The lower net retention rate in 2023 and 2025 was primarily driven by lower political messaging revenue following the conclusion of the 2022 and 2024 U.S.

election cycles.

Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our existing customers that generated revenue and seek to increase their use of our platform.

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Our net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions.

Management ’ s Discussion and Analysis

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

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

Management ’ s Discussion and Analysis

Key Components of Statements of Operations

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Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods.

Unbilled revenue made up 54%, 56%, and 45% of outstanding accounts receivable, net of allowance for doubtful accounts, as of December 31, 2024, 2023 and 2022, respectively.

Unbilled revenue made up 63%, 54%, and 56% of outstanding accounts receivable, net of allowances, as of December 31, 2025, 2024 and 2023, respectively.

Cost of Revenue and Gross Margin

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

Management ’ s Discussion and Analysis

Operating Expenses

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

Management ’ s Discussion and Analysis

Sales and Marketing

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For the years ended December 31, 2025, 2024 and 2023, our effective tax rate was 22.2%, 27.1%, and 15.3%, respectively.

The increase in the effective tax rate from 2023 to 2024 is primarily due to increased tax deductions from research expenditures which decreased U.S.

cash tax liabilities when compared to an increase of $7 million in income before income taxes within the U.S.

While we continue to recognize a valuation allowance in the U.S.

against our deferred tax assets, changes to our current U.S.

cash tax liabilities will cause effective tax rate fluctuations between financial periods.

For the years ended December 31, 2025, 2024 and 2023, our income tax benefit was $4 million, $2 million, and $3 million, respectively.

The increase in the income tax benefit from 2024 to 2025 is primarily due to favorable U.S.

federal and state tax law changes as a result of the One Big Beautiful Bill Act (“OBBBA”).

Judgment is required in determining whether deferred tax assets will be realized in full or in part.

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Operating loss (14,369) (20,059) (35,457)

Other income:

Other (expense) income, net:

Net gain on extinguishment of debt 1,082 10,267 12,767

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Interest expense, net (2,028) (1,861) (808)

Other income, net 2,700 195 4,473

Total other income 11,106 16,154 41,630

(Loss) income before income taxes (8,953) (19,303) 17,306

Other (expense) income, net (1,276) 2,700 195

Total other (expense) income, net (2,222) 11,106 16,154

Loss before income taxes (16,591) (8,953) (19,303)

Income tax benefit 3,679 2,429 2,960

Net (loss) income $ (6,524) $ (16,343) $ 19,570

Net loss $ (12,912) $ (6,524) $ (16,343)

The following table sets forth selected consolidated statements of operations data as a percentage of our total revenue for the periods presented.

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Operating loss (2) % (3) % (6) %

Other income:

Other (expense) income, net:

Net gain on extinguishment of debt — % 1 % 2 %

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Interest expense, net — % — % — %

Other income, net — % — % 1 %

Total other income 1 % 3 % 7 %

(Loss) income before income taxes (1) % (3) % 3 %

Other (expense) income, net — % — % — %

Total other (expense) income, net — % 1 % 3 %

Loss before income taxes (2) % (1) % (3) %

Income tax benefit — % — % — %

Net (loss) income (1) % (3) % 3 %

Net loss (2) % (1) % (3) %

(*) Columns may not foot due to rounding.

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Within cloud communications revenue, our Global Voice Plans revenue grew by 8% and was driven by higher voice traffic on our network.

Our Programmable Messaging revenue increased by 46% and was primarily fueled by higher political messaging related to the U.S.

Our Programmable Messaging revenue decreased by 13% largely from lower political messaging activity following the U.S.

presidential election in November 2024.

Our Enterprise Voice revenue grew by 29% as the flexibility from our Maestro product and our UCaaS/CCaaS vendor agnostic approach continues to resonate with customers.

In 2024, our messaging surcharges revenue increased by $87 million , or 71%, compared with the same period in 2023 .

This growth was primarily driven by higher messaging volumes from higher political messaging related to the U.S.

presidential election.

In 2024, our average annual customer revenue was $0.2 million, which increased less than $0.1 million compared with the same period in 2023, primarily from higher political messaging related to the U.S.

Our Enterprise Voice revenue grew by 21%, reflecting strong momentum as our Maestro platform’s flexibility and vendor-agnostic UCaaS/CCaaS strategy continues to attract new customers.

In 2025, our messaging surcharges revenue decreased by $16 million , or 8%, compared with the same period in 2024 .

This decline was primarily driven by lower political messaging activity following the U.S.

presidential election in November 2024 .

In 2025, our average annual customer revenue was $0.2 million, which increased by 3% compared with the same period in 2024, as a result of our strategy to attract and retain larger customers who provide revenue scale and enhanced profitability.

Cost of Revenue and Gross Margin

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Total gross margin 39 % 37 %

In 2024, total cost of revenue increased by $104 million , compared with the same period in 2023, driven by higher pass-through messaging surcharges of $84 million largely from higher political messaging from the U.S.

In 2025, total cost of revenue decreased by $10 million , compared with the same period in 2024, driven by lower messaging cost of revenue of $14 million from less political messaging following the 2024 U.S.

presidential election .

The combination of changes in total revenue and total cost of revenue yielded gross profit o f $280 million , which increased $44 million f rom the same period in 2023 , driven by higher sales of election-related political messaging.

Our total gross margin percentage of 37% in 2024 declined by 2% , compared with the same period in 2023, driven by higher pass-through messaging surcharges within the total revenue mix.

The combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of $15 million, or 5% f rom the same period in 2024, driven by ongoing efficiencies and improved unit economics as we successfully scale larger volumes of voice traffic on our network.

Our total gross margin percentage of 39% increas ed by 2%, compared with the same period in 2024, driven by lower pass-through messaging surcharges w ithin the total revenue mix.

Management ’ s Discussion and Analysis

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Total operating expenses $ 309,420 $ 300,017 $ 9,403 3 %

As a percentage of revenue, total operating expenses for the years ended December 31, 2024 and 2023 were 40% and 45% , respecti vely.

As a percentage of revenue, total operating expenses for the years ended December 31, 2025 and December 31, 2024 were 41% and 40%, respectively.

In 2025, research and development expenses increased by $14 million , or 12% , compared with the same period in 2024.

This increase was primarily due to higher facilities expenses in support of our expanding research and development capabilities.

In 2024, sales and marketing expenses increased by $8 million, or 7% , compared with th e same period in 2023, primarily due to higher facilities expenses in support of our sales force.

In 2024, g eneral and administrative expenses increased by $6 million , or 10% , compared with the same period in 2023, driven by higher headcount expenses.

Our continued investment in evolving our network infrastructure was the key driver behind this increase.

In 2025, sales and marketing expenses decreased by $8 million, or 7% , compared with th e same period in 2024, primarily due t o lower headcount expenses from our resource optimization efforts.

In 2025, g eneral and administrative expenses increased by $4 million , or 5% , compared with the same period in 2024, driven largely by expanded headcount for day-to-day business support activities.

Interest Expense, Net

I n 2024, interest expense, net of interest income increased by $1 million , or 130%, compared with the same period in 2023, primarily from higher interest expense from a draw on our Credit Facility to partially fund the 2024 Repurchases in May 2024.

In 2025 , interest expense, net of interest income increased by less than $1 million compared with the same period in 2024, primarily from an increase in interest expense resulting from a draw on our Credit Facility to partially fund the 2025 Repurchases in February 2025 that slightly outpaced interest income from cash.

Income Tax Benefit

In 2024, we recognized an income tax benefit of $2 million , a decrease of $1 million , compared with the same period in 2023 .

In 2025 , we recognized an income tax benefit of $4 million , an increase of $1 million compared with the same period in 2024 .

The resulting effective tax rate for the year ended December 31, 2025 was 22.2%, compared with 27.1% in 2024 .

The increase in income tax benefit was primarily due to favorable U.S.

federal and state tax law changes as a result of the OBBBA.

For the years ended December 31, 2025 and 2024, the effective tax rate of 22.2% and 27.1% differed from the federal statutory rate of 21% in the U.S.

primarily due to the valuation allowance recorded against our U.S.

federal and state net deferred tax assets.

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

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

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

Excluding the impact of the valuation allowance, we realized an estimated state effective tax rate of 4.2% for the year ended December 31, 2024.

In addition, exclusive of the valuation allowance, we continue to generate income tax benefits in the current period related to income tax credits recognized for qualified research activities in the U.S.

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

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

Absent the valuation allowance, equity compensation also impacts the effective tax rate to the extent the income tax deduction exceeds or is below the related book expense, as required under ASC 718-740-35-2.

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

Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance include federal and state tax payable, foreign tax benefits and foreign rate differentials.

As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future.

Management ’ s Discussion and Analysis

federal and state net deferred tax assets, as well as differences in statutory income tax rates across foreign jurisdictions.

We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S.

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federal and state deferred tax assets until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized.

Comparison of the Years Ended December 31, 2023 and 2022

Year ended December 31,

2023 2022 Change

(Dollars in thousands)

Cloud communications $ 478,892 $ 474,576 $ 4,316 1 %

Messaging surcharges 122,225 98,576 23,649 24 %

Revenue $ 601,117 $ 573,152 $ 27,965 5 %

In 2023, our cloud communications revenue increased by $4 million , or 1%, compared with the same period in 2022.

This growth was the result of higher sales in commercial messaging, which more than offset the absence of cyclical campaign messaging revenue in the prior year, and higher revenue from phone number and 911-enabled phone number services, which was partially offset by lower revenue from voice offerings.

In 2023, our revenue from messaging surcharges increased by $24 million, or 24%, compared with the same period in 2022.

This growth was driven by higher pass-through messaging surcharges imposed by certain carriers related to higher sales of commercial messaging.

Cost of Revenue and Gross Margin

Year ended December 31,

2023 2022 Change

(Dollars in thousands)

Cost of revenue $ 364,960 $ 334,799 $ 30,161 9 %

Gross profit $ 236,157 $ 238,353 $ (2,196) (1) %

Total gross margin 39 % 42 %

In 2023, total cost of revenue increased by $30 million , compared with the same period in 2022, driven by higher pass-through messaging surcharges of $25 million .

The combination of changes in total revenue and total cost of revenue yielded gross profit o f $236 million , which decreased $2 million from the same period in 2022, driven by higher network costs.

Our total gross margin percentage of 39% in 2023 declined by 3% , compared with the same period in 2022, driven by higher network costs and higher pass-through messaging surcharges within the total revenue mix.

Management ’ s Discussion and Analysis

Operating Expenses

Year ended December 31,

2023 2022 Change

(Dollars in thousands)

Research and development $ 104,188 $ 97,990 $ 6,198 6 %

Sales and marketing 102,063 96,658 5,405 6 %

General and administrative 65,363 68,029 (2,666) (4) %

Total operating expenses $ 271,614 $ 262,677 $ 8,937 3 %

As a percentage of revenue, total operating expenses for the years ended December 31, 2023 and 2022 were 45% and 46%, respecti vely.

In 2023, research and development expenses increased by $6 million, or 6%, compared with the same period in 2022.

This increase was primarily due to higher information technology and facilities expenses in support of our expanding research and development capabilities.

In 2023, sales and marketing expenses increased by $5 million , or 6% , compared with th e same period in 2022, primarily due to higher labor and certain discretionary expenses along with higher information technology and facilities expenses in support of our expanding capabilities.

In 2023, g eneral and administrative expenses decreased by $3 million, or 4%, compared with the same period in 2022, driven by lower corporate administrative expenses.

Interest Expense, Net

In 2023, interest expense, net of interest income decreased by $2 million , compared with the same period in 2022, due to lower interest expense of $1 million as a result of the 2026 Convertible Notes repurchases of approximately $65 million in March 2023 and $160 million in November 2022, in addition to higher interest income of $1 million from higher interest rates on invested cash.

Income Tax Benefit

In 2023, we recognized an income tax benefit of $3 million , an increase of less than $1 million, compared with the same period in 2022 .

The resulting effective tax rate for the year ended December 31, 2023 was 15.3% compared with (13.1)% in 2022 .

For the year ended December 31, 2023, the change to the effective tax rate was primarily due to increased operating losses outside of the U.S., where tax benefits are recognized and are not offset by a valuation allowance.

Management ’ s Discussion and Analysis

For the years ended December 31, 2023 and 2022, the effective tax rates of 15.3% and (13.1)%, respectively, differed from the federal statutory rate of 21% in the U.S.

primarily due to the valuation allowance recorded against our U.S.

federal and state net deferred tax assets.

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

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

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

Excluding the impact of the valuation allowance, we realized an estimated state effective tax rate of 4.3% for the year ended December 31, 2023.

The applicable federal tax laws 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.

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

Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance include minimum state taxes, foreign tax benefits and foreign rate differentials.

As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future.

We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S.

increase or decrease in subsequent periods.

We will maintain a valuation allowance against all U.S.

federal and state deferred tax assets until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized.

Liquidity and Capital Resources

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As of December 31, 2025, we had cash and cash equivalents of $103 million and marketable securities of $8 million.

On August 1, 2023, we entered into the Credit Agreement, which provides for a $50 million credit facility (the “Credit Facility”), including a $15 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million.

The Credit Facility has an accordion feature that allows for an increase in the total borrowing size up to $25 million, subject to certain conditions.

On May 1, 2024, we amended the Credit Agreement by, among other things, upsizing the Credit Facility to $100 million.

On October 28, 2024, we entered into the Second Amendment to further increase the aggregate revolving credit commitments to $150 million.

In August 2023, we entered into a credit agreement (as amended to date, 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, which provides for a $150 million revolving credit facility (the “Credit Facility”).

As of December 31, 2025, we had no outstanding borrowings under the Credit Facility and the available borrowing capacity was $150 million.

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

Management ’ s Discussion and Analysis

During May 2024, the Company entered into the 2024 Repurchases to repurchase approximately $140.0 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $128.5 million.

Following the 2024 Repurchases and previous repurchases, approximately $35.0 million principal amount of the 2026 Convertible Notes remain outstanding.

See Note 7, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the Credit Agreement, including a summary of the current terms of the Credit Facility.

During February 2025, we repurchased approximately $27 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $26 million .

Following the 2025 Repurchases and previous repurchases, approximately $8 million aggregate principal amount of the 2026 Convertible Notes remains outstanding.

We may, at any time and from time to time, seek to retire or purchase our 2026 Convertible Notes or 2028 Convertible Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise.

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

Our principal future commitments consist of (i) an aggregate of $285 million in Convertible Notes , (ii) $471 million in future minimum rent payments for our current office space, including a $464 million non-cancelable lease for our new corporate headquarters , which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term , and (iii) $15 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers.

Our principal future commitments consist of (i) an aggregate of $258 million in Convertible Notes , (ii) $452 million in future minimum rent payments for our current office space, including a $445 million non-cancelable lease for our corporate headquarters , which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term , and (iii) $24 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers.

For additional information on these future contractual obligations, see Note 7, “Debt,” and Note 11, “Commitments and Contingencies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K .

The table below summarizes our cash flow information:

Management ’ s Discussion and Analysis

The table below summarizes our cash flow information for the periods presented:

Year ended December 31,

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Effect of exchange rate changes on cash, cash equivalents and restricted cash (440) (1,241) 610

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (50,073) $ 17,685 $ (217,667)

Management ’ s Discussion and Analysis

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 20,926 $ (50,073) $ 17,685

Cash Flows from Operating Activities

In 2025 , net cash provided by operating activities was $89 million and was generated by our aggregate results of $95 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, net gain on extinguishment of debt and (2) a $5 million cash outflow, primarily from lower operating liabilities and higher operating assets.

Within operating liabilities, net cash provided of less than $1 million was driven by $13 million of cash generated from increases in accounts payable, partially offset by $11 million of cash from decreases in accrued expenses and other liabilities, largely from the timing of year-end payments and changes in the operating right-of-use liability of $2 million.

Within operating assets, the net cash used of $6 million was primarily driven by higher unbilled receivables balances of $4 million from higher usage amounts in the last month of the quarter ended December 31, 2025 and changes in prepaid expenses and other current assets of $2 million.

In 2024, net cash provided by operating activities was $84 million and was generated by our aggregate results of $81 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, gain on sale of intangible asset, net gain on extinguishment of debt and (2) a $3 million cash inflow from higher operating liabilities and lower operating assets.

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Within operating assets, the net cash used as a result of higher accounts receivable of $9 million during 2024 was driven by higher unbilled receivables balances, primarily from higher messaging sales.

In 2023, n et cash provided by operating activities was $39 million and was generated by our aggregate results of $55 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, and net gain on extinguishment of debt and (2) a $16 million cash outflow from lower operating liabilities and higher operating assets.

The net gain on extinguishment of debt was a result of the repurchase of $65 million aggregate principal amount of the 2026 Convertible Notes in March 2023.

Within operating liabilities, the net cash used as a result of lower accrued expenses and other liabilities of $11 million during 2023 was driven by less advanced billings from customers utilizing their credit balances for invoice payments.

T he cash outflow related to the operating right-of-use liability was $10 million.

This was partially offset by cash provided by accounts payable of $5 million and was primarily related to the timing and amounts of purchases of both services and tangible goods and their related payment arrangements.

W ithin operating assets, the net cash used as a result of higher accounts receivable of $3 million during 2023 was driven by higher unbilled receivables balances arising from higher usage amounts in the last month of 2023.

This was partially offset by cash provided as a result of lower prepaid expenses and other assets of $2 million during 2023 from timing throughout the year.

In 2022, net cash provided by operating activities was $35 million and was generated by our aggregate results of $40 million during the period, net of non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred tax expense and other and net gain on extinguishment of debt and a $14 million cash inflow from increased operating liabilities, partially offset by a net cash outflow from operating assets aggregating $19 million.

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

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

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

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

Within operating assets, cash used as a result of higher accounts receivable of $13 million during 2022 was driven by higher unbilled receivables balances of $2 million arising from higher usage amounts in the last month of 2022 and $11 million from timing of collection of invoiced amounts.

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

Management ’ s Discussion and Analysis

Cash Flows from Investing Activities

In 2025, net cash used in investing activities was $39 million.

Cash used in investing activities was primarily driven by (1) cash used for the purchase of property, plant and equipment of $14 million and cash used for capitalized software development costs of $11 million, driven by investments in the communications platform, (2) cash provided by the maturities of marketable securities, net of purchases, of $19 million to partially fund the 2024 Repurchases and (3) net cash provided by the refund of construction in progress deposits of $3 million related to the completion of construction for our Raleigh, NC headquarters.

In 2023, net cash provided by investing activities was $31 million .

Cash provided by investing activities was driven by proceeds from the sales and maturities of marketable securities of $130 million to partially fund the repurchase of $65 million aggregate principal amount of the 2026 Convertible Notes.

This was partially offset by cash used for the purchase of marketable securities of $81 million.

Cash used for the purchase of property, plant and equipment was $9 million and cash used for capitalized software development costs was $11 million, driven by investments in the communications platform.

Cash used in investing activities was primarily driven by (1) cash used for the purchase of property, plant and equipment of $22 million and cash used for capitalized software development costs of $11 million , driven by investments in the communications platform, and (2) cash used for purchases of marketable securities, net of maturities, of $6 million from diversifying into higher yielding investments.

In 2024 net cash used in investing activities was $1 million.

Cash used in investing activities included the purchase of marketable securities of $180 million partially offset by proceeds from the sales and maturities of marketable securities of $109 million.

Cash used for deposits for construction in progress and the purchase of property, plant and equipment, primarily for our Raleigh, NC headquarters, was $60 million.

Management ’ s Discussion and Analysis

Cash Flows from Financing Activities

In 2025, net cash used in financing activities was $29 million , consisting primarily of $26 million of cash used to complete the 2025 Repurchases.

In 2023, net cash used in financing activities was $53 million, consisting primarily of $51 million net cash paid to repurchase $65 million aggregate principal amount of the 2026 Convertible Notes.

In 2022, net cash used in financing activities was $120 million, consisting primarily of $117 million net cash paid to repurchase $160 million aggregate principal amount of the 2026 Convertible Notes.

In 2024, net cash used in financing activities was $131 million, consisting primarily of $129 million of cash used to complete the 2024 Repurchases.

Management ’ s Discussion and Analysis

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GAAP defines gross profit as revenue less cost of revenue.

Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of Statements of Operations-Cost of Revenue and Gross Margin.” We define Non-GAAP gross profit as gross profit after adding back the following items:

• depreciation and amortization;

• amortization of acquired intangible assets related to acquisitions;

• stock-based compensation.

We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by cloud communications revenue.

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

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

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

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Non-GAAP gross profit and Non-GAAP gross margin may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin or similarly titled measures in the same manner we do.

The following table shows a reconciliation of gross profit to non-GAAP gross profit and gross profit margin to non-GAAP gross margin for the periods presented:

Year ended December 31,

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Management ’ s Discussion and Analysis

The following table shows a reconciliation of net loss to non-GAAP net income and net loss per share to non-GAAP net income per non-GAAP share for the periods presented:

Year ended December 31,

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( In thousands, except share and per share amounts )

Net (loss) income $ (6,524) $ (16,343) $ 19,570

Net loss $ (12,912) $ (6,524) $ (16,343)

Stock-based compensation 52,332 48,362 36,992

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Amortization of debt discount and issuance costs for convertible debt 1,133 1,492 2,004

Gain on sale of business — — (3,777)

Net cost associated with early lease terminations and leases without economic benefit — 2,387 3,954

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Numerator used to compute Non-GAAP diluted net income per share $ 46,882 $ 42,014 $ 24,047

Net (loss) income per share

Basic $ (0.24) $ (0.64) $ 0.77

Diluted $ (0.24) $ (0.64) $ (0.48)

Net loss per share, basic and diluted $ (0.43) $ (0.24) $ (0.64)

Non-GAAP net income per Non-GAAP share

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Diluted $ 1.43 $ 1.34 $ 0.83

Weighted average number of shares outstanding

Basic 27,209,698 25,612,724 25,282,796

Diluted 27,209,698 25,612,724 30,907,869

Weighted average number of shares outstanding, basic and diluted 29,996,861 27,209,698 25,612,724

Non-GAAP basic shares 29,996,861 27,209,698 25,612,724

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________________________

(1) Non-recurring items not indicative of ongoing operations and other include (i) $0.4 million, $0.8 million, and $0.5 million of losses on disposals of property, plant and equipment during the years ended December 31, 2024, 2023 and 2022, respectively, (ii) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024, (iii) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility during the year ended December 31, 2023, and (iv) $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022.

Management ’ s Discussion and Analysis

(1) Non-recurring items not indicative of ongoing operations and other include (i) $1.3 million of foreign exchange charges primarily related to balance sheet revaluations during the year ended December 31, 2025, (ii) $0.9 million, $0.4 million, and $0.8 million of losses on disposals of property, plant and equipment during the years ended December 31, 2025, 2024 and 2023, respectively, (iii) $0.5 million of nonrecurring litigation expense and $0.1 million of losses on sale of business during the year ended December 31, 2025, (iv) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024, and (v) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility during the year ended December 31, 2023.

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

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We analyze the Non-GAAP valuation allowance position on a quarterly basis.

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

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

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

As of December 31, 2024, we have no valuation allowance against our remaining deferred tax assets for Non-GAAP purposes.

As of December 31, 2025, we have no valuation allowance against our deferred tax assets for Non-GAAP purposes.

(3) Non-GAAP net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share.

Management ’ s Discussion and Analysis

Adjusted EBITDA

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

Management ’ s Discussion and Analysis

Adjusted EBITDA is a key measure u sed by management to understand and evaluate our core operating performance and trends, to generate future operating plans and to make strategic decisions regarding the allocation of capital.

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

The following table shows a reconciliation of net loss to Adjusted EBITDA for the periods presented:

Year ended December 31,

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(In thousands)

Net (loss) income $ (6,524) $ (16,343) $ 19,570

Net loss $ (12,912) $ (6,524) $ (16,343)

Income tax benefit (3,679) (2,429) (2,960)

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Stock-based compensation 52,332 48,362 36,992

Gain on sale of business — — (3,777)

Net cost associated with early lease terminations and leases without economic benefit

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________________________

(1) Non-recurring items not indicative of ongoing operations and other include (i) $0.4 million, $0.8 million, and $0.5 million of losses on disposals of property, plant and equipment during the years ended December 31, 2024, 2023 and 2022, respectively, (ii) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024, and (iii) $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022.

Management ’ s Discussion and Analysis

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

The following table presents free cash flow for the periods presented:

Year ended December 31,

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We believe that the following assumptions, judgments and estimates have the greatest potential financial impact on our consolidated financial statements, and therefore, we consider these to be our critical accounting policies.

See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on our accounting policies.

See Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on our accounting policies.

Revenue Recognition and Deferred Revenue

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Usage-based fees are recognized in revenue in the period the traffic traverses our network.

Revenue from service-based fees, such as the provision and management of phone numbers and emergency services access, is recognized on a ratable basis as the service is provided, which is typically one month.

Management ’ s Discussion and Analysis

We enter into arrangements with customers that are typically 2 to 3 years in length with an auto-renewal feature.

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In performing qualitative assessments, consistent with ASC 350-20-35-3C, we consider, among other factors, macroeconomic conditions (both in the United States and internationally), our 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 our Class A common stock.

As of December 31, 2024, we completed a qualitative assessment under ASC 350 to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of our one reporting unit was less than its respective carrying value.

As of December 31, 2025 and 2024, we completed a qualitative assessment under ASC 350 to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of our one reporting unit was less than its respective carrying value.

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

As of December 31, 2023, we completed a quantitative assessment under ASC 350 and determined that there was not an impairment of goodwill.

The estimated fair value of our 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.

A hypothetical 10% decrease in the estimated fair value of our one reporting unit used in the quantitative assessment would not have changed our conclusion.

We completed our annual goodwill impairment analysis in each of the years ended December 31, 2025, 2024 and 2023 and no impairment charges were recorded.

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We evaluate the recoverability of our long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable.

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

Management ’ s Discussion and Analysis

cash flows expected to be generated by the asset or asset group.

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.

No indicators of impairment were identified for the years ended December 31, 2025, 2024 and 2023.

Management ’ s Discussion and Analysis

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

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The tax benefit recognized is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position.

We recognize potential accrued interest and penalties associated with unrecognized tax positions in income tax benefit in the accompanying consolidated statements of operations.

We recorded $7 million in unrecognized tax benefits for the year ended December 31, 2024 and $6 million for the year ended December 31, 2023.

We recognize potential accrued interest and penalties associated with unrecognized tax positions in income tax benefit in the accompanying consolidated statements of operations.We recorded $9 million, $7 million and $6 million in unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023, respectively.

Recently Issued Accounting Guidance

See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a summary of recently adopted accounting standards and recent accounting pronouncements not yet adopted, if applicable.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis