Management’s Discussion and Analysis

Year ended December 31,
Stock-based compensation expense: 2015 2016 2017 2018 2019
(In thousands)
Cost of revenue $ 45 $ 61 $ 80 $ 114 $ 211
Research and development 189 138 155 555 1,461
Sales and marketing 239 182 172 511 1,199
General and administrative 3,020 989 1,396 2,159 3,755
Total $ 3,493 $ 1,370 $ 1,803 $ 3,339 $ 6,626

million, amortization of debt discount and issuance costs of $16 million, deferred tax expense of $14 million, stock-based compensation expenses of $10 million, and right-of-use amortization of $5 million.

As of December 31,
Consolidated Balance Sheets Data: 2015 2016 2017 2018 2019
(In thousands)
Cash, cash equivalents and restricted cash $ 10,778 $ 7,028 $ 37,870 $ 41,501 $ 185,004
Working capital (26,253) (2,187) 40,977 58,931 181,211
Total assets 63,146 69,973 104,494 150,420 341,416
Long-term debt and capital lease obligations, net of current portion — 37,738 — — —
Series A redeemable convertible preferred stock 21,818 21,818 — — —
Total stockholders’ (deficit) equity (19,074) (22,374) 76,711 108,770 270,090
Cash Flows from Investing Activities

In 2022, net cash used in investing activities was $133 million. Cash used in investing activities included the purchase of marketable securities of $180 million partially offset by proceeds from the sales and maturities of marketable securities of $109 million. Cash used for deposits for construction in progress and the purchase of property, plant and equipment, primarily for our Raleigh, NC headquarters, was $60 million.

In 2021, net cash provided by investing activities was $3 million. Cash provided by investing activities included proceeds from sales and maturities of other investments of $40 million, proceeds from the sale of land of $17 million, offset by the purchase of land of $30 million, purchase of property, plant and equipment of $21 million and capitalized internally developed software costs of $4 million.

In 2020, net cash used in investing activities was $455 million, mainly from the costs related to the Voxbone acquisition of $400 million, net of cash. In addition, cash used in investing activities was the purchase of other investments of $231 million, the purchase of property, plant and equipment of $12 million and capitalized internally developed software costs of $2 million, offset by the proceeds from sales and maturities of other investments of $191 million.

Cash Flows from Financing Activities

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

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

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

Off-Balance Sheet Arrangements

With the acquisition of Voxbone, we have off-balance sheet agreements for short-term office leases in the amount of less than $1 million ending prior to December 31, 2023.

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Management’s Discussion and Analysis

Non-GAAP Financial Measures

We use Non-GAAP gross profit, Non-GAAP gross margin, ~~Adjusted EBITDA,~~ Non-GAAP net ~~(loss)~~ income, Adjusted EBITDA and free cash flow for financial and operational decision making and to evaluate period-to-period differences in our performance. Non-GAAP gross profit, Non-GAAP gross margin, ~~Adjusted EBITDA,~~ Non-GAAP net ~~(loss)~~ income, Adjusted EBITDA and free cash flow are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performance. We believe these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key performance indicators used by management in its financial and operational decision making. See below for a reconciliation of each of the non-GAAP financial measures described below.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

GAAP defines gross profit as revenue less cost of revenue. Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of ~~Statement~~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; and

•stock-based ~~compensation.~~compensation

We ~~add back depreciation~~calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges, expressed as a percentage of revenue.

In our calculation of Non-GAAP gross profit and ~~amortization, and stock-based compensation, because they are non-cash items. We~~Non-GAAP gross margin, we eliminate the impact of ~~these~~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. ~~Their~~The exclusion of these items facilitates comparisons of our operating performance on a period-to-period basis. Therefore, we believe showing gross margin, as Non-GAAP to remove the impact of these non-cash expenses, such as depreciation and amortization and stock-based compensation, is helpful to investors in assessing our gross profit and gross margin performance in a way that is similar to how management assesses our performance.

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

Management uses Non-GAAP gross profit and Non-GAAP gross margin to evaluate operating performance and to determine resource allocation among our various service offerings. We believe Non-GAAP gross profit and Non-GAAP gross margin provide useful information to investors and others to understand and evaluate our operating results in the same manner as our management and board of directors and allows for better comparison of financial results among our competitors. Non-GAAP gross profit and Non-GAAP gross margin may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin or similarly titled measures in the same manner as we do.

~~Consolidated~~

Year ended December 31,
2015 2016 2017 2018 2019
(In thousands)
Consolidated Gross Profit $ 58,559 $ 66,917 $ 73,693 $ 95,968 $ 107,635
Depreciation 5,258 4,574 4,315 4,490 6,583
Stock-based compensation 45 61 80 114 211
Non-GAAP Gross Profit $ 63,862 $ 71,552 $ 78,088 $ 100,572 $ 114,429
Non-GAAP Gross Margin % 46 % 47 % 48 % 49 % 49 %

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Management’s Discussion and Analysis

~~By Segment~~


	Year ended December 31,
		2022			2021			2020

		(In thousands)








Gross Profit		$	238,353		$	213,813		$	153,910
Gross Profit Margin %		42		%	44		%	45		%
Depreciation		13,602			12,606			9,997
Amortization of acquired intangible assets		7,657			8,543			1,445
Stock-based compensation		404			364			306
Non-GAAP Gross Profit		$	260,016		$	235,326		$	165,658
Non-GAAP Gross Margin % (1)		55		%	52		%	50		%

~~CPaaS~~

Year ended December 31,
2015 2016 2017 2018 2019
(In thousands)
CPaaS Gross Profit $ 36,742 $ 45,860 $ 55,713 $ 70,119 $ 87,601
Depreciation 5,258 4,574 4,315 4,490 6,583
Stock-based compensation 45 61 80 114 211
Non-GAAP CPaas Gross Profit $ 42,045 $ 50,495 $ 60,108 $ 74,723 $ 94,395
Non-GAAP CPaaS Gross Margin % 41 % 43 % 46 % 45 % 48 %

~~Other~~________________________

~~There are no~~(1) Calculated by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges of$99 million, $41 million, and $11 million in the years ended December 31, 2022, 2021 and 2020, respectively.

Non-GAAP Net Income

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

•stock-based compensation;

•amortization of acquired intangible assets related to acquisitions;

•amortization of debt discount and issuance costs for convertible debt;

•acquisition related expenses;

•impairment charges of intangibles assets, if any;

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

•(gain) loss on sale of business;

•net (gain) loss on extinguishment of debt;

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

•estimated tax impact of above adjustments, net of valuation allowances

We calculate Non-GAAP basic and diluted shares by adding the weighted average of outstanding Series A redeemable convertible preferred stock, if any, to the weighted average number of outstanding basic and diluted shares, respectively. The tax-effect of Non-GAAP adjustments is determined by recalculating the tax provision on a Non-GAAP basis. When we have a valuation allowance recorded and no tax benefits will be recognized, the rate is considered to ~~gross profit~~be zero.

We believe Non-GAAP net income is a meaningful measure because by removing certain non-cash and other expenses, we are able to evaluate our operating results in a manner we believe is more indicative of the current period’s performance. We believe the use of Non-GAAP net income may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which may use similar Non-GAAP financial information to supplement their GAAP results. As a result of the adoption of ASU No. 2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the ~~Other segment~~purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share.

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Management.’s Discussion and Analysis


	Year ended December 31,
		2022		2021		2020

		(In thousands, except share and per share amounts)
Net income (loss)		$	19,570	$	(27,362)	$	(43,977)
Stock-based compensation		20,655		14,537		9,881

Amortization of acquired intangibles		17,180		19,119		3,666
Amortization of debt discount and issuance costs for convertible debt		2,977		26,672		15,565

Acquisition-related expenses		—		—		14,458
Gain on sale of business		(3,777)		—		—
Net gain on extinguishment of debt		(40,205)		—		—
Non-recurring items not indicative of ongoing operations and other (1)		1,992		832		334
Estimated tax effects of adjustments (2)		(3,396)		(8,087)		14,266






Non-GAAP net income		$	14,996	$	25,711	$	14,193
Interest expense on Convertible Notes (3)		1,666		—		—
Numerator used to compute Non-GAAP diluted net income per share		$	16,662	$	25,711	$	14,193

Net income (loss) per share
Basic		$	0.77	$	(1.09)	$	(1.83)
Diluted		$	(0.48)	$	(1.09)	$	(1.83)

Non-GAAP net income per Non-GAAP share
Basic		$	0.59	$	1.02	$	0.59
Diluted		$	0.54	$	0.97	$	0.55

Weighted average number of shares outstanding
Basic		25,282,796		25,090,916		24,092,574
Diluted		30,907,869		25,090,916		24,092,574



Non-GAAP basic shares		25,282,796		25,090,916		24,092,574




Convertible debt conversion		5,625,073		987,149		1,022,941
Stock options issued and outstanding		100,088		180,318		443,738
Nonvested RSUs outstanding		—		197,538		352,854
Non-GAAP diluted shares		31,007,957		26,455,921		25,912,107

________________________

(1) Non-recurring items not indicative of ongoing operations and other include $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the repurchase of a portion of the 2026 Convertible Notes and $0.6 million of nonrecurring litigation expense for the year ended December 31, 2022, and $0.5 million, $0.8 million, and $0.3 million of losses on disposals of property, plant and equipment during the years ended December 31, 2022, 2021 and 2020, respectively.

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Management’s Discussion and Analysis

(2) The estimated tax-effect of adjustments is determined by recalculating the tax provision on a Non-GAAP basis. The Non-GAAP effective income tax rate was 7.0%, 14.2%, and 5.0% for the years ended December 31, 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, the Non-GAAP effective income tax rate differed from the federal statutory tax rate of 21% in the U.S. primarily due to research and development tax credits generated in 2022. For the years ended December 31, 2021 and 2020, these effective income tax rates differ from the federal statutory tax rate of 21% in the U.S. primarily due to the valuation allowance recognized against federal and state deferred tax assets in the U.S. We analyze the Non-GAAP valuation allowance position on a quarterly basis. In the fourth quarter of 2022, we removed the valuation allowance against all U.S. deferred tax assets for Non-GAAP purposes as a result of cumulative Non-GAAP U.S. income over the past three years and a significant depletion of net operating loss and tax credit carryforwards on a Non-GAAP basis. As of December 31, 2022, we have no valuation allowance against our remaining deferred tax assets for Non-GAAP purposes.

(3) Upon the adoption of ASU 2020-06, net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share. See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details on the adoption of ASU 2020-06.

Adjusted EBITDA

We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain income statement items including, but not limited to:

•income tax ~~provision~~ (benefit); provision;

•interest (income) expense, ~~(income),~~ net;

•depreciation and amortization expense;

•acquisition related expenses;

•stock-based compensation expense;

•impairment of intangible assets, if any;

•(gain) loss on sale of business;

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

•net (gain) loss on extinguishment of debt; and

•~~loss (gain) on disposal~~non-recurring items not indicative of ~~property~~ongoing operations and ~~equipment, if any.~~other

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Adjusted EBITDA is a key measure used by management to understand and evaluate our core operating performance and trends, to generate future operating plans and to make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis.

Year ended December 31,
2015 2016 2017 2018 2019
(In thousands)
Income from continuing operations $ 6,965 $ 25,430 $ 5,971 $ 17,923 $ 2,494
Income tax provision (benefit) (1) 408 (11,094) 6,918 (10,870) (17,718)
Interest expense (income), net 589 908 1,728 (301) (2,446)
Depreciation 6,167 5,251 4,873 5,270 9,018
Amortization 908 891 839 554 520
Stock-based compensation 3,493 1,370 1,803 3,339 6,626
Impairment of intangible asset — 695 — — —
Loss on disposal of property and equipment 382 19 91 191 456
Adjusted EBITDA $ 18,912 $ 23,470 $ 22,223 $ 16,106 $ (1,050)


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Net income (loss)		$	19,570	$	(27,362)	$	(43,977)
Income tax (benefit) provision		(2,264)		(3,833)		15,005
Interest expense, net		3,048		28,784		13,672
Depreciation		18,419		17,523		13,137
Amortization		17,180		19,119		3,666
Acquisition-related expenses		—		—		14,458
Stock-based compensation		20,655		14,537		9,881

Gain on sale of business		(3,777)		—		—


Net gain on extinguishment of debt		(40,205)		—		—
Non-recurring items not indicative of ongoing operations and other (1)		1,992		832		334
Adjusted EBITDA		$	34,618	$	49,600	$	26,176

________________________

~~________________________~~

(1) ~~Includes excess tax benefits associated~~Non-recurring items not indicative of ongoing operations and other include $0.9 million of foreign currency losses on the settlement of intercompany borrowings, which were repatriated in conjunction with the ~~exercise~~repurchase of ~~stock options and vesting of restricted stock units of $11,887 and $13,484 for the years ended December 31, 2018 and 2019, respectively.~~

~~Non-GAAP Net (Loss) Income~~

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

•~~stock-based compensation;~~

•~~amortization of acquired intangible assets related to the acquisition of Dash Carrier Services, LLC;~~

•~~impairment charges of intangibles assets, if any~~;

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

•~~estimated tax impact of above adjustments;~~

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

•~~benefit resulting from the release~~a portion of the ~~valuation allowance on our deferred tax assets.~~

~~We calculate Non-GAAP basic~~2026 Convertible Notes and ~~diluted shares by adding the weighted average~~$0.6 million of ~~outstanding Series A redeemable convertible preferred stock, if any, to the weighted average number of outstanding basic and diluted shares, respectively.~~

We believe Non-GAAP net (loss) income is a meaningful measure because by removing certain non-cash and other expenses we are able to evaluate our operating results in a manner we believe is more indicative of the current period’s performance. We believe the use of Non-GAAP net (loss) income may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which may use similar non-GAAP financial information to supplement their GAAP results.

~~Table of Contents~~

Year ended December 31,
2015 2016 2017 2018 2019
(In thousands)
Net (loss) income $ (6,700) $ 22,358 $ 5,971 $ 17,923 $ 2,494
Stock-based compensation 3,493 1,370 1,803 3,339 6,626
Amortization related to acquisitions 520 520 520 520 520
Impairment of intangible asset — 695 — — —
Loss on disposal of property and equipment 382 19 91 191 456
Estimated tax effects of adjustments (1) — (994) (921) (1,038) (1,914)
Release of valuation allowance (2) (14,138) — — —
Income tax benefit of equity compensation — — — (11,887) (13,484)
Remeasurement of deferred tax assets associated with tax rate change (3) — — 2,073 — —
Non-GAAP net (loss) income $ (2,305) $ 9,830 $ 9,537 $ 9,048 $ (5,302)
Non-GAAP net (loss) income per Non-GAAP share
Basic $ (0.17) $ 0.73 $ 0.68 $ 0.49 $ (0.23)
Diluted $ (0.16) $ 0.67 $ 0.59 $ 0.43 $ (0.23)
Non-GAAP weighted average number of shares outstanding
Basic 11,497,727 11,678,568 12,590,221 18,573,067 22,640,461
Series A redeemable convertible preferred stock outstanding 1,775,000 1,775,000 1,522,123 — —
Non-GAAP basic shares 13,272,727 13,453,568 14,112,344 18,573,067 22,640,461
Diluted 12,456,540 12,870,632 14,543,170 21,140,382 22,640,461
Series A redeemable convertible preferred stock outstanding 1,775,000 1,775,000 1,522,123 — —
Non-GAAP diluted shares 14,231,540 14,645,632 16,065,293 21,140,382 22,640,461

~~________________________~~

~~(1) The Company had a full valuation allowance against its deferred tax assets~~nonrecurring litigation expense for the year ended December 31, ~~2015.~~

~~(2) The Company recognized a tax benefit~~2022, and $0.5 million, $0.8 million, and $0.3 million of ~~$14,138 due to~~losses on disposals of property, plant and equipment during the ~~release of the deferred tax asset valuation allowance subsequent to the spin-off of Republic Wireless for the year~~years ended December 31, ~~2016.~~2022, 2021 and 2020, respectively.

(3) On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. As a result of this change in tax law, the Company recorded a remeasurement of its deferred tax asset, which resulted in additional income tax expense of $2,073.

~~Free Cash Flow~~Key Performance Indicators

~~Free cash flow represents~~We monitor the following key performance indicators (“KPIs”) to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. We believe the following KPIs are useful in evaluating our business:


	Year ended December 31,
		2022			2021			2020

Number of active customers (as of period end) (1)			3,405			3,300			2,879

Dollar-based net retention rate (1)			112	%		117	%		131	%

________________________

(1) As a result of the change in revenue segment reporting, our KPIs of number of active customers and dollar-based net ~~cash provided by or used~~retention rates disclosed in ~~operating activities less net cash used~~previous SEC filings, press releases and presentations prior to reporting periods ending March 31, 2022, will not be directly comparable to our KPIs reported going forward. To facilitate comparison between the periods presented in the ~~acquisition~~table above, number of ~~property~~active customers and ~~equipment and capitalized development costs~~dollar-based net retention rate have been conformed to the current period methodology.

Number of ~~software~~Active Customer Accounts

We define an active customer account at the end of any period as an individual account, as identified by a unique account identifier, for ~~internal use.~~which we have recognized at least $100 of revenue in the last month of the period. We believe ~~free cash flow~~usage of our platform by an active customer at or above the $100 per month threshold is a ~~useful~~stronger indicator of ~~liquidity~~potential future engagement than trial usage at levels below $100 per month. A single organization may constitute multiple unique active customer accounts if it has multiple unique account identifiers, each of which is treated as a separate active customer account. Customers who pay after using our platform and ~~provides information~~customers that have credit balances are included in the number of active customer accounts. For comparative purposes, the number of active customers presented in the table above has been updated to ~~management and investors about~~reflect the ~~amount of cash generated from our core operations that can be used for investing~~change in our business. Free cash flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, it does not take into consideration investment in long-term securities, nor does it represent the residual cash flows available for discretionary expenditures. Therefore, it is important to evaluate free cash flow along with our consolidated statements of cash flows.

~~Table of Contents~~

Year ended December 31,
2015 2016 2017 2018 2019
(In thousands)
Net cash provided by (used in) operating activities $ 18,651 $ 16,942 $ 14,623 $ 24,633 $ (1,253)
Net cash used in investing in capital assets (1) (5,102) (6,061) (7,963) (14,447) (25,759)
Free cash flow $ 13,549 $ 10,881 $ 6,660 $ 10,186 $ (27,012)

~~________________________~~

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

reporting segments.

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Management’s Discussion and Analysis

~~Item 7. Management’s Discussion~~Dollar-Based Net Retention Rate

Our ability to drive growth and ~~Analysis of Financial Condition~~generate incremental revenue depends, in part, on our ability to maintain and ~~Results of Operations~~

~~The following discussion~~grow our relationships with our existing customers that generate revenue and ~~analysis~~seek to increase their use of our ~~financial condition~~platform. We track our performance in this area by measuring the dollar-based net retention rate for our customers who generate revenue. To calculate the dollar-based net retention rate, we first identify the cohort of customers that generate revenue and that were customers in the same quarter of the prior year. The dollar-based net retention rate is obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. The dollar-based net retention rate reported in a quarter is then obtained by averaging the result from that quarter, by the corresponding results from each of ~~operations should be read in conjunction with our consolidated financial statements and related notes that~~the prior three quarters. Customers of acquired businesses are included ~~elsewhere~~ in ~~this Annual Report~~the subsequent year’s calendar quarter of acquisition. Our dollar-based net retention rate increases when such customers increase usage of a product, extend usage of a product to new applications or adopt a new product. Our dollar-based net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on ~~Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations~~our solutions.

As our customers grow their businesses and ~~beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements~~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 ~~result~~single customer organization generating more than 1% of ~~various factors, including those set forth under “Risk Factors”~~revenue in a quarterly reporting period) that has created a new customer, this ~~Annual Report on Form 10-K. Our fiscal year ends on December 31.~~new customer is tied to, and revenue from this new customer is included with, the original customer for the purposes of calculating this metric. For comparative purposes, the dollar-based net retention rate presented in the table above has been updated to reflect the change in our reporting segments.

~~Overview~~Key Components of Statements of Operations

~~We are a leading cloud-based communications platform for enterprises in the United States. Our solutions include a broad range of software APIs for~~Revenue

Revenue is derived from (i) reoccurring sources such as per minute voice usage and text functionality and our owned and managed, purpose-built IP voice network, one of the largest in the nation. Our sophisticated and easy-to-use software APIs allow enterprises to enhance their products and services by incorporating advanced voice and text capabilities. Companies use our platform to more frequently and seamlessly connect with their end users, add voice calling, ~~capabilities to residential IoT devices, offer end users new mobile application experiences~~per text message usage and ~~improve employee productivity, among~~ other ~~use cases. By owning~~usage services and ~~operating a capital-efficient, purpose-built IP voice network, we are able to offer advanced monitoring, reporting~~fees, (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and ~~analytics, superior customer service, dedicated operating teams, personalized support,~~other services, and ~~flexible cost structures. Over the last ten years, we have pioneered the CPaaS space through our innovation-rich culture~~(iii) other various communications services and ~~focus on empowering enterprises with end-to-end communications solutions.~~

~~Our voice software APIs allow enterprises to make~~products, indirect revenue and ~~receive phone calls and create advanced voice experiences. Integration with our purpose-built IP voice network ensures enterprise-grade functionality and secure, high-quality connections. Our~~ messaging software APIs provide enterprises with advanced tools to connect with end users via messaging. Our customers also use our solutions to enable 911 response capabilities, real-time provisioning and activation of phone numbers and toll-free number messaging.

We are the only CPaaS provider in the industry with our own nationwide IP voice network, which we have purpose-built for our platform. Our network is capital-efficient and custom-built to support the applications and experiences that make a difference in the way enterprises communicate. Since a communications platform is only as strong as the network that backs it, we believe our network provides a significant competitive advantage in the control, quality, pricing power and scalability of our offering. We are able to control the quality and provide the support our customers expect, as well as efficiently meet scalability and cost requirements.surcharge revenue.

For the years ended December 31, ~~2017, 2018~~2022, 2021 and ~~2019, total~~2020, we generated 78%, 75%, and 74%, respectively, of our revenue ~~was $163.0 million, $204.1 million~~from reoccurring sources. The large bulk of our remaining revenue is generated from recurring monthly charges.

We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable for unbilled revenue if services have been delivered and ~~$232.6 million, respectively. CPaaS~~are billable in subsequent periods. Unbilled revenue made up 45%, 52%, and 50% of outstanding accounts receivable, net of allowance for ~~the years ended~~doubtful accounts, as of December 31, ~~2017, 2018~~2022, 2021 and ~~2019 was $131.6 million, $164.4 million~~2020, respectively.

Cost of Revenue and ~~$197.9 million, respectively, representing an increase~~Gross Margin

Cost of ~~25% in 2018~~revenue consists of fees paid to other network service providers, network operations costs, personnel costs, allocated costs of facilities and ~~20% in 2019. Net income~~information technology, amortization of acquired technology intangibles and depreciation.

Fees paid to other network service providers arise when we purchase services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits.

Network operations costs are incurred for ~~the years ended December 31, 2017, 2018~~web services and ~~2019 was $6.0 million, $17.9 million~~cloud infrastructure, capacity planning and ~~$2.5 million, respectively. For the years ended December 31, 2017, 2018~~management, software licenses, hardware and ~~2019, the number of active CPaaS~~software maintenance fees, customer ~~accounts was 965, 1,230~~support and ~~1,728, respectively, representing a year over year increase of 27% in 2018 and 40% in 2019.~~

network-related facility rents.

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Management’s Discussion and Analysis

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

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

Operating Expenses

The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation expenses. We also incur other non-personnel costs related to our general overhead expenses, including facility expenses, software licenses, web services, depreciation and amortization of assets unrelated to delivery of our services. We expect that our operating expenses will increase in absolute dollars driven by the growth in our business.

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 of 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.

Income Taxes

For the years ended December 31, 2022, 2021 and 2020 our effective tax rate was (13.1)%, 12.3% and (51.8)%, respectively. The decrease in our effective tax rate is primarily due to the split of earnings and losses between jurisdictions. In 2022 we were in a pre-tax loss position in jurisdictions without valuation allowances and as such, recognized income tax benefit. However, as a result of income recognized in connection with our debt buy-back, we recognized pre-tax income in the U.S. The income resulted in nominal tax expense in the U.S. due to the utilization of tax attributes and the valuation allowance position.

Judgment is required in determining whether deferred tax assets will be realized in full or in part. Management assesses the available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized and when it is more likely than not that all or some deferred tax assets will not be realized, and a valuation allowance must be established. As of December 31, 2022, we continue to maintain a valuation allowance for our U.S. federal and state net deferred tax assets.

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Management’s Discussion and Analysis

Results of Operations

Consolidated Results of Operations

The following table sets forth the consolidated statements of operations for the periods indicated.


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Revenue		$	573,152	$	490,907	$	343,113
Cost of revenue		334,799		277,094		189,203
Gross profit		238,353		213,813		153,910
Operating expenses:
Research and development		97,990		69,505		54,555
Sales and marketing		96,658		82,333		61,216
General and administrative		68,029		64,212		51,644
Total operating expenses		262,677		216,050		167,415
Operating loss		(24,324)		(2,237)		(13,505)
Other income (expense), net:
Net gain on extinguishment of debt		40,205		—		—
Interest expense, net		(3,048)		(28,784)		(13,672)
Other income (expense), net		4,473		(174)		(1,795)


Total other income (expense), net		41,630		(28,958)		(15,467)
Income (loss) before income taxes		17,306		(31,195)		(28,972)
Income tax benefit (provision)		2,264		3,833		(15,005)


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

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


	Year ended December 31,
		2022		2021		2020
Revenue		100	%	100	%	100	%
Cost of revenue		58	%	56	%	55	%
Gross profit		42	%	44	%	45	%
Operating expenses:
Research and development		17	%	14	%	16	%
Sales and marketing		17	%	17	%	18	%
General and administrative		12	%	13	%	15	%
Total operating expenses		46	%	44	%	49	%
Operating loss		(4)	%	—	%	(4)	%
Other income (expense), net:
Net gain on extinguishment of debt		7	%	—	%	—	%
Interest expense, net		(1)	%	(6)	%	(4)	%
Other income (expense), net		1	%	—	%	(1)	%


Total other income (expense), net		7	%	(6)	%	(5)	%
Income (loss) before income taxes		3	%	(6)	%	(8)	%
Income tax benefit (provision)		—	%	1	%	(4)	%


Net income (loss)		3	%	(5)	%	(13)	%

(*) Columns may not foot due to rounding.

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Management’s Discussion and Analysis

Comparison of the Years Ended December 31, 2022 and 2021

Revenue


	Year ended December 31,

	2022		2021		Change

	(Dollars in thousands)
Revenue	$	573,152	$	490,907	$	82,245	17	%

In 2022, our total revenue increased by $82 million, or 17%, compared with the same period in 2021. This growth was the result of higher usage of our core messaging offering and additional A2P pass-through messaging surcharges imposed by certain carriers. Growth in our revenue other than from pass-through messaging surcharges, compared with the same period in 2021, was led by our core messaging offerings, which grew 46%, and phone number and 911-enabled phone number services, mostly offset by lower revenue from voice offerings. The growth in our core messaging offering was aided by higher messaging volumes from certain customers leading up to the U.S. midterm elections in November 2022. Compared with the same period last year, our voice offerings revenue in 2022 remained affected by lower usage arising from the 2021 DDoS incident as well as the absence of revenue from businesses divested earlier in 2022.

Active customer accounts increased 3% to 3,405 as of December 31, 2022, as compared with 3,300 active accounts as of December 31, 2021. Our dollar-based net retention rate as of December 31, 2022 was 112%.

Cost of Revenue and Gross Margin


	Year ended December 31,

	2022			2021			Change

	(Dollars in thousands)
Cost of revenue	$	334,799		$	277,094		$	57,705	21	%
Gross profit	$	238,353		$	213,813		$	24,540	11	%
Total gross margin	42		%	44		%

In 2022, total cost of revenue increased $58 million, compared with the same period in 2021, driven by higher pass-through messaging surcharges of $56 million. In 2022, the combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of$25 million, or 11%, compared with the same period in 2021, driven by profit improvements from the combination of our revenue and cost of revenue derived other than from pass-through messaging surcharges.

Our total gross margin percentage of 42% in 2022 declined two percentage points, compared with the same period in 2021, as operating and product mix improvements were more than offset by the inclusion of higher pass-through messaging surcharges within total revenue.

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Management’s Discussion and Analysis

Operating Expenses


	Year ended December 31,

	2022		2021		Change

	(Dollars in thousands)
Research and development	$	97,990	$	69,505	$	28,485	41	%
Sales and marketing	96,658		82,333		14,325		17	%
General and administrative	68,029		64,212		3,817		6	%
Total operating expenses	$	262,677	$	216,050	$	46,627	22	%

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

In 2022, research and development expenses increased by approximately $28 million, or 41%, compared with the same period in 2021. This increase was primarily due to increased personnel costs from greater numbers of employed staff of $22 million. The increase in headcount also contributed to higher allocated facilities and IT expenses of $7 million.

In 2022, sales and marketing expenses increased by $14 million, or 17%, compared with the same period in 2021, primarily due to an increase in sales personnel costs from a greater number of employed staff of $13 million.

In 2022, general and administrative expenses increased $4 million, or 6%, compared with the same period in 2021, primarily due to an increase in personnel costs of $5 million.

Interest Expense, Net

In 2022, interest expense, net of interest income, decreased by $26 million compared with the same period in 2021, due to a $24 million decrease in interest expense primarily related to the impact of the adoption of ASU 2020-06 on the Convertible Notes. See Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details.

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Management’s Discussion and Analysis

Income Tax Benefit

For the year ended December 31, 2022, we recognized an income tax benefit of $2 million, a decrease of $2 million compared with the same period in 2021. The resulting effective tax rate for the year ended December 31, 2022 was (13.1)% compared with 12.3% in 2021. For the year ended December 31, 2022, the favorable change to the effective tax rate was primarily due to the split of earnings and losses between jurisdictions. In 2022, we were in a pre-tax loss position in jurisdictions without valuation allowances and as such, recognized income tax benefit. However, as a result of income recognized in connection with our debt buy-back, we recognized pre-tax income in the U.S. This income resulted in nominal income tax expense in the U.S. due to the utilization of tax attributes and the valuation allowance position. For the years ended December 31, 2022 and 2021, the effective tax rates of (13.1)% and 12.3%, respectively, differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recognized against federal and state deferred tax assets in the U.S.

Most of the permanent tax adjustments within our effective tax rate are offset by a valuation allowance. These adjustments include state taxes, federal research tax credits under Internal Revenue Code Section 41, equity compensation in the U.S. and other non-deductible expenditures in the U.S. Excluding the impact of the valuation allowance, we realize an estimated state effective tax rate of 4.3%. In addition, exclusive of the valuation allowance, we continue to generate income tax benefits in the current period related to income tax credits recognized for qualified research activities in the U.S. The applicable federal tax law and regulations define qualified research activities as research and development activities conducted in the U.S. that involve a process of experimentation designed to discover new information intended to develop a new or improved business component. Absent the valuation allowance, equity compensation also impacts the effective tax rate to the extent the income tax deduction exceeds or is below the related book expense, as required under ASC 718-740-35-2. 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).

Permanent tax adjustments within our effective tax rate that are not offset by the valuation allowance included minimum state taxes, foreign tax benefits and foreign rate differentials. As we continue to scale our international business, any changes to foreign business activity may impact our effective tax rate in the future.

We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S. increase or decrease in subsequent periods. We will maintain a valuation allowance against all U.S. federal and state deferred tax assets until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized.

Comparison of the Years Ended December 31, 2021 and 2020

Revenue


	Year ended December 31,

	2021		2020		Change

	(Dollars in thousands)
Revenue	$	490,907	$	343,113	$	147,794	43	%

In 2021, our total revenue increased by $148 million, or 43%, compared with the same period in 2020. This growth was led by increases in our core voice, messaging and related surcharges, and phone number services of $71 million, $41 million, and $26 million, respectively. This growth was aided by a full year of revenue contribution from the acquisition of Voxbone in November 2020. We believe our revenue results were lowered by approximately $10.0 million in 2021 from lost transaction volume and customer credits due to the previously disclosed 2021 DDoS Attack.

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Management’s Discussion and Analysis

Cost of Revenue and Gross Margin


	Year ended December 31,

	2021			2020			Change

	(Dollars in thousands)
Cost of revenue	$	277,094		$	189,203		$	87,891	46	%
Gross profit	$	213,813		$	153,910		$	59,903	39	%
Total gross margin	44		%	45		%

In 2021, total cost of revenue increased $88 million, compared with the same period in 2020. This growth was driven by higher cost of revenue in our messaging business and related surcharges, network related costs, and core voice of $33 million, $24 million, and $23 million, respectively. This growth was aided by a full year of cost of revenue contribution from the acquisition of Voxbone in November 2020.

In 2021, the combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of $60 million, or 39%, compared with the same period in 2020, driven by higher revenue and improved operating leverage. For the year ended December 31, 2021, total gross margin was 44.0% compared with 45.0% for the year ended December 31, 2020 and was impacted by higher pass-through messaging surcharges within total revenue.

Operating Expenses


	Year ended December 31,

	2021		2020		Change

	(Dollars in thousands)
Research and development	$	69,505	$	54,555	$	14,950	27	%
Sales and marketing	82,333		61,216		21,117		34	%
General and administrative	64,212		51,644		12,568		24	%
Total operating expenses	$	216,050	$	167,415	$	48,635	29	%

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

In 2021, research and development expenses increased by approximately $15 million, or 27%, compared with the same period in 2020. This increase was primarily due to increased personnel costs from greater numbers of employed staff of $10 million, which was driven by the acquisition of Voxbone in November 2020.

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

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

Interest Expense, Net

In 2021, interest expense, net of interest income increased by $15 million compared with the same period in 2020, due to a $12 million increase in interest expense related to the Convertible Notes and a $2 million decrease in interest income from the investment of follow-on equity offering proceeds. See Note 8, “Debt,” to the consolidated financial statements, for additional details.

Income Tax Benefit (Provision)

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Management’s Discussion and Analysis

In 2021, income tax expense decreased by $19 million compared with the same period in 2020. The effective tax rate for the year ended December 31, 2021, was 12.3% compared with (51.8)% in the same period in 2020. The increase in our effective tax rate is primarily due to a change in the valuation allowance related to certain deferred tax assets.

Liquidity and Capital Resources

Our liquidity is provided by our cash flow from operations less expenditures for capital equipment, and supplemented by financing activities from time to time. Our cash flow from operations is driven by monthly payments from customers for communication services consumed during the period. Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property plant and equipment to support growth on our communications platform and the purchase of land for our new corporate headquarters.

On June 6, 2022, we entered into a credit agreement (the “Credit Agreement”) among us, as borrower, the lenders from time to time party thereto, and Silicon Valley Bank as administrative agent, issuing lender and swingline lender. The Credit Agreement provides for a $50 million revolving credit facility (the “Credit Facility”), including a $20 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million. The Credit Facility matures on June 6, 2025. As of December 31, 2022, there were no borrowings under the Credit Facility.

Additionally, in the last three years we have supplemented our liquidity with proceeds from our issuance of the 2026 Convertible Notes and the 2028 Convertible Notes in February 2020 and March 2021, respectively. We used a majority of the proceeds from the issuance of our 2026 Convertible Notes to consummate the acquisition of Voxbone. On November 2, 2022, we repurchased $160 million of our 2026 Convertible Notes as further described in Note 8, “Debt,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We may, at any time and from time to time, seek to retire or purchase our 2026 Notes or 2028 Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

We believe that our cash and cash equivalents balances and the cash flows generated by our operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled “Risk Factors.” We may be required to seek additional equity or debt financing in order to meet these future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. 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 $490 million in Convertible Notes (see Note 8, “Debt” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for a discussion of the 2026 Convertible Notes and the 2028 Convertible Notes), (ii) a $496 million non-cancelable lease for our future office headquarters, which is anticipated to commence in mid-2023 and continue for an initial twenty (20) year term (the “Headquarters Lease”) (see Note 5, “Right-of-Use Asset and Lease Liabilities” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our Headquarters Lease), (iii) $12 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers, and (iv) $17 million in future minimum rent payments for our current office space. See Note 12, “Commitments and Contingencies,” to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for future lease commitments.

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Management’s Discussion and Analysis

Statement of Cash Flows

The following table summarizes our cash flows for the periods indicated:


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Net cash provided by operating activities		$	34,906	$	40,803	$	4,518
Net cash (used in) provided by investing activities		(133,449)		2,833		(455,085)
Net cash (used in) provided by financing activities		(120,005)		207,027		346,891
Effect of exchange rate changes on cash, cash equivalents and restricted cash		881		189		109
Net (decrease) increase in cash, cash equivalents, and restricted cash		$	(217,667)	$	250,852	$	(103,567)

Cash Flows from Operating Activities

In 2022, net cash provided by operating activities was $35 million and was generated by our aggregate results of $40 million during the period, net of non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred tax expense and other and net gain on extinguishment of debt and a $14 million cash inflow from increased operating liabilities, partially offset by a net cash outflow from operating assets aggregating $19 million. The net gain on extinguishment of debt was a result of the repurchase of $160 million aggregate principal amount of the 2026 Convertible Notes. Within operating liabilities, the net cash provided as a result of higher accounts payable of $17 million during 2022 was primarily related to the timing and amounts of purchases of both services and tangible goods and their related payment arrangements. The cash provided as a result of higher accrued expenses and other liabilities of $3 million during 2022 primarily related to higher accruals for lease incentives and higher advanced billings.This was partially offset by a cash outflow related to the operating right-of-use liability of $8 million. 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 byhigher VAT receivables and the timing of advance payments for software and other services.

In 2021, net cash provided by operating activities was $41 million consisting of net loss of $27 million adjusted for non-cash items of $76 million and offset by cash used by changes in operating assets and liabilities of $8 million. Cash used in operating assets and liabilities included an increase in accounts receivable of $7 million, a decrease in operating right-of-use liability of $6 million, and an increase in prepaid expenses and other assets of $7 million. Offsetting these cash use items in assets and liabilities was an increase in accrued expenses and other liabilities of $10 million, and an increase in accounts payable of $2 million. The non-cash items included depreciation and amortization expense of $37 million, amortization of debt discount and issuance costs of $27 million, stock-based compensation expense of $15 million, right-of-use asset amortization of $6 million, and loss on disposal of property, plant and equipment of $1 million, offset by a deferred tax benefit of $8 million.

In 2020, net cash provided by operating activities was $5 million consisting of net loss of $44 million adjusted for non-cash items of $62 million and offset by cash used changes in operating assets and liabilities of $13 million. Cash generated in operating assets and liabilities included an increase in accrued expenses and other liabilities of $14 million. Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of $19 million, a decrease in operating right-of-use liability of $5 million, and an increase in prepaid expenses and other assets of $4 million. The non-cash items included depreciation and amortization expense of $17

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Management’s Discussion and Analysis

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Off-Balance Sheet Arrangements

With the acquisition of Voxbone, we have off-balance sheet agreements for short-term office leases in the amount of less than $1 million ending prior to December 31, 2023.

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Management’s Discussion and Analysis

Non-GAAP Financial Measures

We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income, Adjusted EBITDA and free cash flow for financial and operational decision making and to evaluate period-to-period differences in our performance. Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income, Adjusted EBITDA and free cash flow are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performance. We believe these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key performance indicators used by management in its financial and operational decision making. See below for a reconciliation of each of the non-GAAP financial measures described below.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

GAAP defines gross profit as revenue less cost of revenue. Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of 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; and

•stock-based compensation

We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges, expressed as a percentage of revenue.

In our calculation of Non-GAAP gross profit and Non-GAAP gross margin, we eliminate the impact of depreciation and amortization, amortization of acquired intangible assets related to acquisitions, stock-based compensation, pass-through messaging surcharges, and all non-cash items, because we do not consider them indicative of our core operating performance. The exclusion of these items facilitates comparisons of our operating performance on a period-to-period basis. Management uses Non-GAAP gross profit and Non-GAAP gross margin to evaluate operating performance and to determine resource allocation among our various service offerings. We believe Non-GAAP gross profit and Non-GAAP gross margin provide useful information to investors and others to understand and evaluate our operating results in the same manner as our management and board of directors and allows for better comparison of financial results among our competitors. Non-GAAP gross profit and Non-GAAP gross margin may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin or similarly titled measures in the same manner we do.

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Management’s Discussion and Analysis


	Year ended December 31,
		2022			2021			2020

		(In thousands)








Gross Profit		$	238,353		$	213,813		$	153,910
Gross Profit Margin %		42		%	44		%	45		%
Depreciation		13,602			12,606			9,997
Amortization of acquired intangible assets		7,657			8,543			1,445
Stock-based compensation		404			364			306
Non-GAAP Gross Profit		$	260,016		$	235,326		$	165,658
Non-GAAP Gross Margin % (1)		55		%	52		%	50		%

________________________

(1) Calculated by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges of$99 million, $41 million, and $11 million in the years ended December 31, 2022, 2021 and 2020, respectively.

Non-GAAP Net Income

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

•stock-based compensation;

•amortization of acquired intangible assets related to acquisitions;

•amortization of debt discount and issuance costs for convertible debt;

•acquisition related expenses;

•impairment charges of intangibles assets, if any;

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

•(gain) loss on sale of business;

•net (gain) loss on extinguishment of debt;

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

•estimated tax impact of above adjustments, net of valuation allowances

We believe Non-GAAP net income is a meaningful measure because by removing certain non-cash and other expenses, we are able to evaluate our operating results in a manner we believe is more indicative of the current period’s performance. We believe the use of Non-GAAP net income may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which may use similar Non-GAAP financial information to supplement their GAAP results. As a result of the adoption of ASU No. 2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share.

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Management’s Discussion and Analysis


	Year ended December 31,
		2022		2021		2020

		(In thousands, except share and per share amounts)
Net income (loss)		$	19,570	$	(27,362)	$	(43,977)
Stock-based compensation		20,655		14,537		9,881

Amortization of acquired intangibles		17,180		19,119		3,666
Amortization of debt discount and issuance costs for convertible debt		2,977		26,672		15,565

Acquisition-related expenses		—		—		14,458
Gain on sale of business		(3,777)		—		—
Net gain on extinguishment of debt		(40,205)		—		—
Non-recurring items not indicative of ongoing operations and other (1)		1,992		832		334
Estimated tax effects of adjustments (2)		(3,396)		(8,087)		14,266






Non-GAAP net income		$	14,996	$	25,711	$	14,193
Interest expense on Convertible Notes (3)		1,666		—		—
Numerator used to compute Non-GAAP diluted net income per share		$	16,662	$	25,711	$	14,193

Net income (loss) per share
Basic		$	0.77	$	(1.09)	$	(1.83)
Diluted		$	(0.48)	$	(1.09)	$	(1.83)

Non-GAAP net income per Non-GAAP share
Basic		$	0.59	$	1.02	$	0.59
Diluted		$	0.54	$	0.97	$	0.55

Weighted average number of shares outstanding
Basic		25,282,796		25,090,916		24,092,574
Diluted		30,907,869		25,090,916		24,092,574



Non-GAAP basic shares		25,282,796		25,090,916		24,092,574




Convertible debt conversion		5,625,073		987,149		1,022,941
Stock options issued and outstanding		100,088		180,318		443,738
Nonvested RSUs outstanding		—		197,538		352,854
Non-GAAP diluted shares		31,007,957		26,455,921		25,912,107

________________________

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Management’s Discussion and Analysis

Adjusted EBITDA

We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain income statement items including, but not limited to:

•income tax (benefit) provision;

•interest (income) expense, net;

•depreciation and amortization expense;

•acquisition related expenses;

•stock-based compensation expense;

•impairment of intangible assets, if any;

•(gain) loss on sale of business;

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

•net (gain) loss on extinguishment of debt; and

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

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Management’s Discussion and Analysis


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Net income (loss)		$	19,570	$	(27,362)	$	(43,977)
Income tax (benefit) provision		(2,264)		(3,833)		15,005
Interest expense, net		3,048		28,784		13,672
Depreciation		18,419		17,523		13,137
Amortization		17,180		19,119		3,666
Acquisition-related expenses		—		—		14,458
Stock-based compensation		20,655		14,537		9,881

Gain on sale of business		(3,777)		—		—


Net gain on extinguishment of debt		(40,205)		—		—
Non-recurring items not indicative of ongoing operations and other (1)		1,992		832		334
Adjusted EBITDA		$	34,618	$	49,600	$	26,176

________________________

Key Performance Indicators

We monitor the following key performance indicators (“KPIs”) to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. We believe the following KPIs are useful in evaluating our business:

Year ended December 31,
2017 2018 2019
(Dollars in thousands)
Number of active CPaaS customers (as of period end) 965 1,230 1,728
Dollar-based net retention rate 107 % 118 % 113 %
Adjusted EBITDA $ 22,223 $ 16,106 $ (1,050)
Free cash flow $ 6,660 $ 10,186 $ (27,012)


	Year ended December 31,
		2022			2021			2020

Number of active customers (as of period end) (1)			3,405			3,300			2,879

Dollar-based net retention rate (1)			112	%		117	%		131	%

________________________

(1) As a result of the change in revenue segment reporting, our KPIs of number of active customers and dollar-based net retention rates disclosed in previous SEC filings, press releases and presentations prior to reporting periods ending March 31, 2022, will not be directly comparable to our KPIs reported going forward. To facilitate comparison between the periods presented in the table above, number of active customers and dollar-based net retention rate have been conformed to the current period methodology.

Number of Active ~~CPaaS~~ Customer Accounts

We ~~believe the number of active CPaaS customer accounts is an important indicator of the growth of our business, the market acceptance of our platform and our future revenue trends. We~~ define an active ~~CPaaS~~ customer account at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least $100 of revenue in the last month of the period. We believe ~~that the use~~usage of our platform by an active ~~CPaaS~~ customer ~~accounts~~ at or above the $100 per month threshold is a stronger indicator of potential future engagement than trial usage ~~of our platform~~ at levels below $100 per month. A single organization may constitute multiple unique active ~~CPaaS~~ customer accounts if it has multiple unique account identifiers, each of which is treated as a separate active ~~CPaaS~~ customer account. Customers who pay after using our platform and customers that have credit balances are included in the number of active ~~CPaaS~~ customer accounts. ~~Customers from our Other segment are excluded in~~For comparative purposes, the number of active ~~CPaaS customer accounts, unless they are also CPaaS customers.~~customers presented in the table above has been updated to reflect the change in our reporting segments.

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~~In the years ended December 31, 2017, 2018~~Management’s Discussion and ~~2019,~~ Analysis~~revenue from active CPaaS customer accounts represented approximately 99% of total CPaaS revenue.~~

Dollar-Based Net Retention Rate

Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our existing customers that generate ~~CPaaS~~ revenue and seek to increase their use of our platform. We track our performance in this area by measuring the dollar-based net retention rate for our customers who generate ~~CPaaS~~ revenue. ~~Our dollar-based net retention rate compares the CPaaS revenue from customers in a quarter to the same quarter in the prior year.~~ To calculate the dollar-based net retention rate, we first identify the cohort of customers that generate ~~CPaaS~~ revenue and that were customers in the same quarter of the prior year. The dollar-based net retention rate is obtained by dividing the ~~CPaaS~~ revenue generated from that cohort in a quarter, by the ~~CPaaS~~ revenue generated from that same cohort in the corresponding quarter in the prior year. ~~When we calculate~~The dollar-based net retention rate ~~for periods longer than one~~reported in a quarter ~~we use~~is then obtained by averaging the ~~average~~result from that quarter, by the corresponding results from each of the ~~quarterly dollar-based net retention rates for~~prior three quarters. Customers of acquired businesses are included in the ~~quarters in such period.~~subsequent year’s calendar quarter of acquisition. Our dollar-based net retention rate increases when such customers increase usage of a product, extend usage of a product to new applications or adopt a new product. Our dollar-based net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions.

As our customers grow their ~~business~~businesses and ~~extend the use~~increase usage of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of ~~CPaaS~~ revenue in a quarterly reporting period) that has created a new ~~CPaaS~~ customer, this new customer is tied to, and ~~CPaaS~~ revenue from this new customer is included with, the original ~~CPaaS~~ customer for the purposes of calculating this metric. For comparative purposes, the dollar-based net retention rate presented in the table above has been updated to reflect the change in our reporting segments.

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~~Management~~’~~s Discussion and Analysis~~

Key Components of Statements of Operations

Revenue

~~We generate a majority of our revenue from our CPaaS segment. CPaaS revenue~~Revenue is derived from (i) reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees, (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other ~~services. We generate a portion of our CPaaS~~services, and (iii) other various communications services and products, indirect revenue ~~from usage-based fees which include voice calling~~ and messaging ~~services.~~surcharge revenue.

For the years ended December 31, ~~2017, 2018~~2022, 2021 and ~~2019,~~2020, we generated ~~58%~~78%, ~~64%~~75%, and ~~66%~~74%, respectively, of our ~~CPaaS~~ revenue ~~respectively,~~ from ~~usage-based fees. We also earn monthly fees from services such as phone number services and 911 access service. For the years ended December 31, 2017, 2018 and 2019, we generated 40%, 34% and 31%~~reoccurring sources. The large bulk of our ~~CPaaS revenue, respectively, in each period from monthly per unit fees. The~~ remaining ~~2% to 3% of our CPaaS~~ revenue is generated from ~~other miscellaneous services.~~

The remainder of our revenue is generated by our Other segment. Other revenue is composed of revenue earned from our legacy services and indirect revenue. Other revenue as a percentage of total revenue is expected to continue to decline over time.recurring monthly charges.

We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable ~~and revenue~~ for unbilled revenue if ~~the~~ services have been delivered and are billable in subsequent periods. Unbilled revenue made up ~~41%~~45%, ~~47%~~52%, and ~~54%~~50% of outstanding accounts receivable, net of allowance for doubtful accounts, as of December 31, ~~2017, 2018~~2022, 2021 and ~~2019,~~2020, respectively.

Cost of Revenue and Gross Margin

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

Fees paid to other network service providers arise when we ~~buy~~purchase services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits. ~~Cost of revenue also contains~~

Network operations costs ~~related to support of our IP voice network,~~are incurred for web services and cloud infrastructure, capacity planning and management, ~~rent for network facilities,~~ software licenses, hardware and software maintenance fees, customer support and ~~network engineering services.~~ network-related facility rents.

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Management’s Discussion and Analysis

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

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

Gross margin is calculated by subtracting cost of revenue from revenue, divided by ~~total~~ revenue, expressed as a percentage. Our cost of revenue and gross margin have been, and will continue to be, affected by several factors, including the timing and extent of our investments in our network, our ability to manage off-network minutes of use and messaging costs, changes to the mix or amount of personnel-related costs included in our cost of revenue, the product mix of revenue, the timing of amortization of capitalized software development costs and fluctuations in the ~~extent to which~~price we ~~periodically choose to pass on any cost savings to~~charge our customers ~~in the form of lower usage prices.~~for services.

Operating Expenses

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~~Management~~’~~s Discussion and Analysis~~

dollars driven by the growth in our business.

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 (“~~R&D~~”~~) consists primarily~~expenses include depreciation and allocated costs of ~~personnel costs (including non-cash stock-based compensation expenses), outsourced software development~~facilities and ~~engineering service and cloud infrastructure fees for staging~~information technology utilized by our research and development of outsourced engineering services. We capitalize the portion of our software development costs in instances where we invest resources to develop software for internal use. We plan to continue to invest in R&D to enhance current product offerings and develop new services.staff.

Sales and Marketing

~~Sales~~Sales and marketing expenses consist ~~primarily~~ of salaries and related personnel costs, ~~including~~ commissions, ~~for our sales employees~~ and ~~non-cash stock-based compensation expenses. Sales and marketing expenses also include expenditures~~costs related to advertising, marketing, ~~our~~ brand awareness activities, sales support and professional services ~~fees.~~

~~We focus~~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 efforts on creating sales leads and establishing and promoting our brand. We plan to continue to invest in sales and marketing in order to expand our CPaaS customer base by growing headcount, driving our go-to-market strategies, building brand awareness, advertising and sponsoring additional marketing events.staff.

General and Administrative

General and administrative expenses consist ~~primarily~~ of salaries and related personnel costs ~~including stock-based compensation,~~ for ~~our~~ accounting, ~~finance,~~ legal, human resources, corporate, and other administrative ~~support personnel~~ and ~~executives.~~compliance functions. General and administrative expenses ~~also~~ include ~~costs related to product management and reporting, customer billing and collection functions, information services,~~depreciation, expenditures for third party professional services, ~~fees, credit card processing fees, rent associated with~~and allocated costs of facilities and information technology utilized by our ~~headquarters in Raleigh, North Carolina~~corporate and our other offices, and depreciation and amortization. We expect that we will incur increased costs associated with supporting the growth of our business and to meet the increased compliance requirements associated with our transition to, and operation as, a public company.administrative staff.

Income Taxes

For the years ended December 31, ~~2017, 2018~~2022, 2021 and ~~2019,~~2020 our effective tax rate was ~~53.7%~~(13.1)%, ~~(154.1)%~~12.3% and ~~116.4%~~(51.8)%, respectively. The ~~increase~~decrease in our effective tax rate is primarily due to the ~~change~~split of earnings and losses between jurisdictions. In 2022 we were in ~~book~~a pre-tax loss position in jurisdictions without valuation allowances and as such, recognized income ~~before taxes. We recorded $11.9 million~~tax benefit. However, as a result of income recognized in connection with our debt buy-back, we recognized pre-tax income in the U.S. The income resulted in nominal tax expense in the U.S. due to the utilization of tax attributes and ~~$13.5 million~~the valuation allowance position.

Judgment is required in ~~net excess~~determining whether deferred tax ~~benefit from equity compensation for~~assets will be realized in full or in part. Management assesses the ~~years ended~~available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized and when it is more likely than not that all or some deferred tax assets will not be realized, and a valuation allowance must be established. As of December 31, ~~2018~~2022, we continue to maintain a valuation allowance for our U.S. federal and ~~2019, respectively.~~

state net deferred tax assets.

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Management’s Discussion and Analysis

Results of Operations

Consolidated Results of Operations

The following table sets forth the consolidated statements of operations for the periods indicated.

Year ended December 31,
2017 2018 2019
(In thousands)
Revenue:
CPaaS revenue $ 131,572 $ 164,415 $ 197,944
Other revenue 31,383 39,698 34,650
Total revenue 162,955 204,113 232,594
Cost of revenue:
CPaaS cost of revenue 75,859 94,296 110,343
Other cost of revenue 13,403 13,849 14,616
Total cost of revenue 89,262 108,145 124,959
Gross profit:
CPaaS 55,713 70,119 87,601
Other 17,980 25,849 20,034
Total gross profit 73,693 95,968 107,635
Operating expenses:
Research and development 10,789 20,897 31,461
Sales and marketing 11,218 20,731 35,020
General and administrative 37,069 47,588 58,847
Total operating expenses 59,076 89,216 125,328
Operating income (loss) 14,617 6,752 (17,693)
Other (expense) income, net
Interest (expense) income, net (1,728) 301 2,446
Other income, net — — 23
Total other (expense) income, net (1,728) 301 2,469
Income (loss) before income taxes 12,889 7,053 (15,224)
Income tax (provision) benefit (6,918) 10,870 17,718
Net income $ 5,971 $ 17,923 $ 2,494

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~~Management~~’~~s Discussion and Analysis~~


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Revenue		$	573,152	$	490,907	$	343,113
Cost of revenue		334,799		277,094		189,203
Gross profit		238,353		213,813		153,910
Operating expenses:
Research and development		97,990		69,505		54,555
Sales and marketing		96,658		82,333		61,216
General and administrative		68,029		64,212		51,644
Total operating expenses		262,677		216,050		167,415
Operating loss		(24,324)		(2,237)		(13,505)
Other income (expense), net:
Net gain on extinguishment of debt		40,205		—		—
Interest expense, net		(3,048)		(28,784)		(13,672)
Other income (expense), net		4,473		(174)		(1,795)


Total other income (expense), net		41,630		(28,958)		(15,467)
Income (loss) before income taxes		17,306		(31,195)		(28,972)
Income tax benefit (provision)		2,264		3,833		(15,005)


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

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

Year ended December 31,
2017 2018 2019
Revenue:
CPaaS revenue 81 % 81 % 85 %
Other revenue 19 % 19 % 15 %
Total revenue 100 % 100 % 100 %
Cost of revenue:
CPaaS cost of revenue 47 % 46 % 47 %
Other cost of revenue 8 % 7 % 6 %
Total cost of revenue 55 % 53 % 53 %
Gross profit:
CPaaS 34 % 34 % 37 %
Other 11 % 13 % 9 %
Total gross profit 45 % 47 % 46 %
Operating expenses:
Research and development 7 % 10 % 14 %
Sales and marketing 7 % 10 % 15 %
General and administrative 23 % 23 % 25 %
Total operating expenses 37 % 43 % 54 %
Operating income (loss) 9 % 3 % (8) %
Other (expense) income, net
Interest (expense) income, net (1) % — % 1 %
Other income, net — % — % — %
Total other (expense) income, net (1) % — % 1 %
Income (loss) before income taxes 8 % 3 % (7) %
Income tax (provision) benefit (4) % 5 % 8 %
Net income 4 % 9 % 1 %


	Year ended December 31,
		2022		2021		2020
Revenue		100	%	100	%	100	%
Cost of revenue		58	%	56	%	55	%
Gross profit		42	%	44	%	45	%
Operating expenses:
Research and development		17	%	14	%	16	%
Sales and marketing		17	%	17	%	18	%
General and administrative		12	%	13	%	15	%
Total operating expenses		46	%	44	%	49	%
Operating loss		(4)	%	—	%	(4)	%
Other income (expense), net:
Net gain on extinguishment of debt		7	%	—	%	—	%
Interest expense, net		(1)	%	(6)	%	(4)	%
Other income (expense), net		1	%	—	%	(1)	%


Total other income (expense), net		7	%	(6)	%	(5)	%
Income (loss) before income taxes		3	%	(6)	%	(8)	%
Income tax benefit (provision)		—	%	1	%	(4)	%


Net income (loss)		3	%	(5)	%	(13)	%

(*) Columns may not foot due to rounding.

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Management’s Discussion and Analysis

Comparison of the Years Ended December 31, ~~2018~~2022 and ~~2019~~2021

Revenue


	Year ended December 31,

	2022		2021		Change

	(Dollars in thousands)
Revenue	$	573,152	$	490,907	$	82,245	17	%

Year ended December 31,
2018 2019 Change
(Dollars in thousands)
CPaaS revenue $ 164,415 $ 197,944 $ 33,529 20 %
Other revenue 39,698 34,650 (5,048) (13) %
Total revenue $ 204,113 $ 232,594 $ 28,481 14 %

In ~~2019,~~2022, our total revenue increased by ~~$28.5~~$82 million, or ~~14%~~17%, compared towith the same period in ~~2018,~~2021. This growth was the result of higher usage of our core messaging offering and ~~CPaaS~~additional A2P pass-through messaging surcharges imposed by certain carriers. Growth in our revenue ~~increased by $33.5 million, or 20%,~~other than from pass-through messaging surcharges, compared towith the same period in ~~2018.~~ ~~The increase in CPaaS revenue~~2021, was ~~primarily attributable to an increase in the usage of all~~led by our ~~service~~core messaging offerings, ~~particularly our voice~~which grew 46%, and ~~messaging usage, which accounted for~~ ~~$34.3 million~~ ~~of the increase in CPaaS revenue, and our~~ phone number ~~services~~ and 911-enabled phone number services, ~~which accounted for~~ ~~$8.8 million~~ ~~of the increase in CPaaS revenue. This increase in CPaaS revenue was partially~~mostly offset by ~~$9.6 million~~ ~~related~~lower revenue from voice offerings. The growth in our core messaging offering was aided by higher messaging volumes from certain customers leading up to ~~pricing decreases that we have implemented over time~~the U.S. midterm elections in November 2022. Compared with ~~our customers in the form of lower usage prices to increase the reach and scale of our platform. The changes in usage and price in 2019 compared to~~ the same period last year, our voice offerings revenue in ~~2018 were reflected~~2022 remained affected by lower usage arising from the 2021 DDoS incident as well as the absence of revenue from businesses divested earlier in ~~our~~2022.

Active customer accounts increased 3% to 3,405 as of December 31, 2022, as compared with 3,300 active accounts as of December 31, 2021. Our dollar-based net retention rate ~~of 113%. The increase in usage was also attributable to a 40% increase in the number of active CPaaS customer accounts, from 1,230~~ as of December 31, 2018 to 1,728 as of December 31, 2019. In addition, revenue from new CPaaS customers contributed $11.7 million, or 7%, to CPaaS revenue for 2019 compared to $8.7 million, or 7%, to CPaaS revenue in the same period in 2018. ~~As a percentage of total revenue, CPaaS revenue increased from 81% in 2018 to 85% in the same period in~~ ~~2019~~2022 was 112%.

Other revenue decreased by $5.0 million, or 13%, in 2019 due to lower indirect revenue, which decreased by $2.7 million, primarily due to the settlement of a dispute in 2018. Other revenue also decreased due to the expected decline of legacy revenue, which decreased by $2.3 million, compared to the same period in ~~2018~~.

Cost of Revenue and Gross Margin

Year ended December 31,
2018 2019 Change
(Dollars in thousands)
Cost of revenue:
CPaaS cost of revenue $ 94,296 $ 110,343 $ 16,047 17 %
Other cost of revenue 13,849 14,616 767 6 %
Total cost of revenue $ 108,145 $ 124,959 $ 16,814 16 %
Gross profit $ 95,968 $ 107,635 $ 11,667 12 %
Gross margin:
CPaaS 43 % 44 %
Other 65 % 58 %
Total gross margin 47 % 46 %


	Year ended December 31,

	2022			2021			Change

	(Dollars in thousands)
Cost of revenue	$	334,799		$	277,094		$	57,705	21	%
Gross profit	$	238,353		$	213,813		$	24,540	11	%
Total gross margin	42		%	44		%

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Management’s Discussion and Analysis

Operating Expenses


	Year ended December 31,

	2022		2021		Change

	(Dollars in thousands)
Research and development	$	97,990	$	69,505	$	28,485	41	%
Sales and marketing	96,658		82,333		14,325		17	%
General and administrative	68,029		64,212		3,817		6	%
Total operating expenses	$	262,677	$	216,050	$	46,627	22	%

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

In 2022, general and administrative expenses increased $4 million, or 6%, compared with the same period in 2021, primarily due to an increase in personnel costs of $5 million.

Interest Expense, Net

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Management’s Discussion and Analysis

Income Tax Benefit

Comparison of the Years Ended December 31, 2021 and 2020

Revenue


	Year ended December 31,

	2021		2020		Change

	(Dollars in thousands)
Revenue	$	490,907	$	343,113	$	147,794	43	%

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Management’s Discussion and Analysis

Cost of Revenue and Gross Margin


	Year ended December 31,

	2021			2020			Change

	(Dollars in thousands)
Cost of revenue	$	277,094		$	189,203		$	87,891	46	%
Gross profit	$	213,813		$	153,910		$	59,903	39	%
Total gross margin	44		%	45		%

Operating Expenses


	Year ended December 31,

	2021		2020		Change

	(Dollars in thousands)
Research and development	$	69,505	$	54,555	$	14,950	27	%
Sales and marketing	82,333		61,216		21,117		34	%
General and administrative	64,212		51,644		12,568		24	%
Total operating expenses	$	216,050	$	167,415	$	48,635	29	%

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

Interest Expense, Net

Income Tax Benefit (Provision)

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Management’s Discussion and Analysis

In ~~2019,~~ ~~total gross profit increased~~2021, income tax expense decreased by ~~$11.7~~$19 million ~~or 12%,~~ compared towith the same period in ~~2018~~. Total gross margin decreased from 47% to 46% during the same period, primarily from a decrease in other gross margin in 2019 as a result of higher indirect revenue in 2018 due to settlement of a dispute. In 2019, CPaaS cost of revenue increased by $16.0 million, or 17%, compared to the same period in 2018. CPaaS cost of revenue increased primarily due to an increase in voice usage costs of net $4.5 million due to growth in minutes used by customers, partially offset by a decrease in the cost per minute from vendors. Network costs also increased $8.0 million due to network expansions and personnel costs. Cost of messaging increased by $2.3 million due to growth in messages used by customers. Cost of phone numbers increased by $1.2 million. CPaaS gross margin increased from 43% in 2018 to 44% in 2019. Excluding depreciation and stock-based compensation of $4.6 million ~~in 2018 and~~ ~~$6.8 million~~ ~~in 2019, CPaaS Non-GAAP gross margin was 45% and 48% for 2018 and 2019, respectively, and total Non-GAAP gross margin was 49% for both periods.~~

~~In 2019, o~~ther cost of revenue increased by $0.8 million compared to the same period in 2018, primarily due to a $1.9 million increase in cost of indirect revenue related to messaging surcharges and cost of carrier access revenue offset by a $1.1 million decrease as a result of churn in legacy services.

~~Operating Expenses~~

Year ended December 31,
2018 2019 Change
(Dollars in thousands)
Research and development $ 20,897 $ 31,461 $ 10,564 51 %
Sales and marketing 20,731 35,020 14,289 69 %
General and administrative 47,588 58,847 11,259 24 %
Total operating expenses $ 89,216 $ 125,328 $ 36,112 40 %

~~In 2019,~~ R&D expenses related to the expansion of our product offerings increased by $10.6 million, or 51%, compared to the same period in 2018. This increase was primarily due to increased personnel costs of $9.8 million and non-headcount costs of $0.8 million.

~~In 2019,~~ sales and marketing expenses increased by $14.3 million, or 69%, compared to the same period in 2018 primarily due to an overall increase in sales personnel costs of $11.6 million and non-headcount costs of $2.7 million.

~~In 2019, general and administrative expenses increased by $11.3 million~~, ~~or 24%,~~ ~~compared to the same period in 2018.~~ This increase was due to higher personnel cost of $4.1 million, facilities expense of $1.6 million, hosted software costs of $1.4 million, higher bad debt expense of $1.1 million primarily related to a write-off with a customer, professional expenses of $1.0 million, depreciation and amortization costs of $1.0 million, other non-headcount costs of $0.8 million and bank charges and license costs of $0.3 million, which contributed to the overall increase in general and administrative expenses.

~~Interest Income, Net~~

~~In 2019, interest income increased by $2.1 million compared to the same period in 2018,~~ ~~due to a $2.2 million increase in interest income from the investment of follow-on equity offering proceeds offset by $0.1 million increase in interest expense.~~

~~Income Tax Benefit~~

~~In 2019,~~ ~~income tax benefit increased by $6.8 million compared to the same period in 2018.~~2020. The effective tax rate for the ~~twelve months~~year ended December 31, ~~2019~~2021, was ~~116.4%~~12.3% compared ~~to (154.1)~~with (51.8)% in the same period in ~~2018.~~ 2020. The increase in our effective tax rate is primarily due to ~~the~~a change in ~~book income before taxes.~~

~~Table of Contents~~

~~Management~~’~~s Discussion and Analysis~~

~~Comparison of~~ the ~~Years Ended December 31, 2017 and 2018~~

~~Revenue~~

Year ended December 31,
2017 2018 Change
(Dollars in thousands)
CPaaS revenue $ 131,572 $ 164,415 $ 32,843 25 %
Other revenue 31,383 39,698 8,315 26 %
Total revenue $ 162,955 $ 204,113 $ 41,158 25 %

In 2018, total revenue increased by $41.2 million, or 25%, compared to the same period in 2017, and CPaaS revenue increased by $32.8 million, or 25%, compared to the same period in 2017. The increase in CPaaS revenue was primarily attributable to an increase in the usage of all our service offerings, particularly our voice and messaging usage, which accounted for $38.2 million of the increase in CPaaS revenue, and our phone number services and 911-enabled phone number services, which accounted for $6.2 million of the increase in CPaaS revenue. This increase in CPaaS revenue was partially offset by $11.6 millionvaluation allowance related to ~~pricing decreases that we have implemented over~~certain deferred tax assets.

Liquidity and Capital Resources

Our liquidity is provided by our cash flow from operations less expenditures for capital equipment, and supplemented by financing activities from time ~~with our~~to time. Our cash flow from operations is driven by monthly payments from customers in the form of lower usage prices to increase the reach and scale of our platform. The changes in usage and price in 2018 compared to the same period in 2017 were reflected in our , dollar-based net retention rate of 118%. The increase in usage was also attributable to a 27% increase in the number of active CPaaS customer accounts, from 965 as of December 31, 2017 to 1,230 as of December 31, 2018. In addition, revenue from new CPaaS customers contributed $8.7 million, or 7%, to CPaaS revenue for 2018 compared to $5.5 million, or 5% to CPaaS revenue in the same period in 2017. As a percentage of total revenue, CPaaS revenue remained flat at 81% from 2018 to the same period in 2017. Other revenue increased by $8.3 million, or 26%, primarily due to the settlement of a dispute and a higher than usual amount of indirect revenue, which increased by $11.1 million. This increase was partially offset by the expected declines in our legacycommunication services ~~of $2.8 million.~~

~~Cost of Revenue and Gross Margin~~

Year ended December 31,
2017 2018 Change
(Dollars in thousands)
Cost of revenue:
CPaaS cost of revenue $ 75,859 $ 94,296 $ 18,437 24 %
Other cost of revenue 13,403 13,849 446 3 %
Total cost of revenue $ 89,262 $ 108,145 $ 18,883 21 %
Gross profit $ 73,693 $ 95,968 $ 22,275 30 %
Gross margin:
CPaaS 42 % 43 %
Other 57 % 65 %
Total gross margin 45 % 47 %

~~In 2018, total gross profit increased by $22.3 million, or 30%, compared to the same period in 2017. Total gross margin increased from 45% to 47%~~consumed during the ~~same~~ period. ~~In 2018, CPaaS cost~~Our primary uses of ~~revenue increased by, $18.4 million, or 24% compared~~cash include operating costs, such as fees paid to ~~the same period in 2017. CPaaS cost of revenue increased primarily due to an increase in voice usage~~other network service providers, network operations costs, of $11.7 million due to growth in minutes used by customers, partially offset by a decrease in the cost per minute from vendors. Network costs also increased $5.6 million due to network expansions. Cost of messaging increased by $1.3 million due to growth in messages used by customers and increased cost per

~~Table of Contents~~

~~Management~~’~~s Discussion and Analysis~~

message from vendors. Cost of phone numbers increased by $0.1 million, offset by a $0.3 million decrease in 911 enabled numbers costs. CPaaS gross margin was 42% and 43% for 2017 and 2018, respectively. Excluding depreciation and stock-based compensation of $4.4 million in 2017 and $4.6 million 2018, CPaaS Non-GAAP gross margin was 46% and 45% for 2017 and 2018, respectively, and total Non-GAAP gross margin was 48% and 49% for the same periods.

Other cost of revenue increased by $0.4 million, which was due to a $1.6 million increase in cost of indirect revenue related to cost of carrier access revenue, partially offset by a $1.2 million decrease as a result of churn in legacy services.

~~Operating Expenses~~

Year ended December 31,
2017 2018 Change
(Dollars in thousands)
Research and development $ 10,789 $ 20,897 $ 10,108 94 %
Sales and marketing 11,218 20,731 9,513 85 %
General and administrative 37,069 47,588 10,519 28 %
Total operating expenses $ 59,076 $ 89,216 $ 30,140 51 %

~~In 2018, R&D expenses increased by $10.1 million, or 94%, compared to the same period in 2017. This increase was primarily due to increased~~ personnel costs ~~of $8.8 million~~ and ~~other non-headcount costs of $1.3 million.~~

~~In 2018, sales and marketing~~facility expenses, ~~increased by $9.5 million, or 85%, compared to the same period in 2017 primarily due to an overall increase in sales personnel costs of $8.1 million and other non-headcount costs of $1.4 million.~~

In 2018, general and administrative expenses increased by $10.5 million, or 28%, compared to the same period in 2017. This increase was due to higher personnel cost of $4.5 million, professional expenses of $2.3 million, hosted software costs of $1.4 million, facilities expense of $1.3 million, and other non-headcount costs of $1.0 million, which contributed to the overall increase in general and administrative expenses.

~~Interest Income, Net~~

In 2018, interest income increased by $2.0 million compared to the same period in 2017, due to the repayment of all outstanding debt in 2017 with the proceeds from our initial public offering and increased interest income from investments in marketable securities.

~~Income Tax Benefit~~

In 2018, income tax expense decreased by $17.8 million compared to the same period in 2017. The effective tax rate for 2018 was (154.1)% compared to 53.7% in the same period in 2017. The decrease in our effective tax rate is primarily due to the impact of tax deductions from stock option exercises, as well as the ~~decrease~~purchase of property plant and equipment to support growth on our communications platform and the purchase of land for our new corporate headquarters.

Additionally, in the ~~federal statutory tax rate under~~last three years we have supplemented our liquidity with proceeds from our issuance of the ~~Act.~~

~~In 2017 we incurred additional income tax expense~~2026 Convertible Notes and the 2028 Convertible Notes in February 2020 and March 2021, respectively. We used a majority of ~~$2,073 due to~~ the ~~re-measurement~~proceeds from the issuance of our ~~deferred tax assets at~~2026 Convertible Notes to consummate the ~~lower corporate tax rate. In accordance with SAB118, all accounting related to the Act was completed in Q4~~acquisition of ~~2018. There was no change to the provisional re-measurement~~Voxbone. On November 2, 2022, we repurchased $160 million of our ~~deferreds that was recorded~~2026 Convertible Notes as further described in ~~Q4 of 2017.~~

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~~Management~~’~~s Discussion and Analysis~~

~~Quarterly Results of Operations~~

~~The following tables set forth our unaudited quarterly statements of operations data for each of~~Note 8, “Debt,” to the ~~eight quarters ended December 31, 2019. The information for each quarter has been prepared on a basis consistent with our audited~~ consolidated financial statements included elsewhere in this Annual Report on Form ~~10-K,~~10-K. We may, at any time and ~~reflect,~~from time to time, seek to retire or purchase our 2026 Notes or 2028 Notes through cash purchases and/or exchanges for equity or debt, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results thatopen-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be ~~expected in the future. The following quarterly financial data should be read in conjunction with our audited consolidated financial statements included in this Annual Report on Form 10-K.~~

Three Months Ended
March 31,
2018 June 30,
2018 September 30,
2018 December 31,
2018 March 31,
2019 June 30,
2019 September 30,
2019 December 31,
2019
(Unaudited, in thousands, except per share amounts)
Revenue:
CPaaS revenue $ 38,897 $ 39,833 $ 41,537 $ 44,148 $ 45,013 $ 47,989 $ 51,499 $ 53,443
Other revenue 14,115 8,471 8,917 8,195 8,308 8,790 8,992 8,560
Total revenue 53,012 48,304 50,454 52,343 53,321 56,779 60,491 62,003
Cost of revenue:
CPaaS cost of revenue 21,905 23,137 23,996 25,258 25,300 26,473 29,297 29,273
Other cost of revenue 3,459 3,429 3,478 3,483 3,466 3,637 3,807 3,706
Total cost of revenue 25,364 26,566 27,474 28,741 28,766 30,110 33,104 32,979
Gross profit: 27,648 21,738 22,980 23,602 24,555 26,669 27,387 29,024
Operating expenses:
Research and development 3,781 4,435 5,895 6,786 7,717 7,656 7,939 8,149
Sales and marketing 4,522 4,654 5,422 6,133 8,349 8,514 8,784 9,373
General and administrative 10,569 11,490 11,576 13,953 14,333 14,282 15,269 14,963
Total operating expenses 18,872 20,579 22,893 26,872 30,399 30,452 31,992 32,485
Operating income (loss) 8,776 1,159 87 (3,270) (5,844) (3,783) (4,605) (3,461)
Other income:
Interest income, net 49 90 103 59 201 719 778 748
Other income (expense), net — — — — — 10 (1) 14
Realized gain (loss) on investments — — — — — — 4 (4)
Total other income 49 90 103 59 201 729 781 758
Income (loss) before income taxes 8,825 1,249 190 (3,211) (5,643) (3,054) (3,824) (2,703)
Income tax (provision) benefit (2,634) 9,263 2,320 1,921 7,635 6,526 2,810 747
Net income (loss) $ 6,191 $ 10,512 $ 2,510 $ (1,290) $ 1,992 $ 3,472 $ (1,014) $ (1,956)
Unrealized (loss) gain on marketable securities, net of income tax benefit (6) 4 (1) 2 8 13 (21) 1
Foreign currency translation — — — — — 12 (46) 75
Total comprehensive income (loss), net of income tax $ 6,185 $ 10,516 $ 2,509 $ (1,288) $ 2,000 $ 3,497 $ (1,081) $ (1,880)
Net income (loss) per share:
Basic $ 0.35 $ 0.58 $ 0.13 $ (0.07) $ 0.10 $ 0.15 $ (0.04) $ (0.08)
Diluted $ 0.30 $ 0.50 $ 0.12 $ (0.07) $ 0.09 $ 0.14 $ (0.04) $ (0.08)
material.

~~Table of Contents~~

~~Management~~’~~s Discussion and Analysis~~

~~Liquidity and Capital Resources~~

To date, our principal sources of liquidity have been the proceeds of $74.4 million from our initial public offering in November 2017 and $147.4 million from our follow-on public offering in March 2019, each net of underwriting discounts and commissions, in addition to free cash flow driven by payments received from customers using our services. We believe that our cash and cash equivalents balances ~~our marketable securities portfolio, our credit facility~~ and the cash flows generated by our operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled “Risk Factors.” We may be required to seek additional equity or debt financing in order to meet these future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely ~~affected.~~affected.

Table of Contents

Management’s Discussion and Analysis

Statement of Cash Flows

The following table summarizes our cash flows for the periods indicated:

Year ended December 31,
2017 2018 2019
(In thousands)
Net cash provided by (used in) operating activities $ 14,623 $ 24,633 $ (1,253)
Net cash used in investing activities (7,963) (31,683) (7,653)
Net cash provided by financing activities 24,182 10,681 152,418
Effect of exchange rate changes on cash, cash equivalents and restricted cash — — (9)
Net increase in cash, cash equivalents, and restricted cash $ 30,842 $ 3,631 $ 143,503


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Net cash provided by operating activities		$	34,906	$	40,803	$	4,518
Net cash (used in) provided by investing activities		(133,449)		2,833		(455,085)
Net cash (used in) provided by financing activities		(120,005)		207,027		346,891
Effect of exchange rate changes on cash, cash equivalents and restricted cash		881		189		109
Net (decrease) increase in cash, cash equivalents, and restricted cash		$	(217,667)	$	250,852	$	(103,567)

Cash Flows from Operating Activities

In ~~2019,~~2022, net cash ~~used in~~provided by operating activities was ~~$1.3~~$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 byhigher VAT receivables and the timing of advance payments for software and other services.

In 2021, net cash provided by operating activities was $41 million consisting of net ~~income~~loss of ~~$2.5~~$27 million adjusted for non-cash ~~items. These non-cash~~ items ~~included depreciation~~of $76 million and ~~amortization expense of $9.6 million, stock-based compensation expenses of $6.6 million, right-of-use asset amortization of $4.3 million, loss on disposal of property and equipment of $0.5 million,~~ offset by ~~deferred tax benefit of $17.5 million,~~ cash used by changes in operating assets and liabilities of ~~$6.6~~$8 million. Cash used in operating assets and liabilities included an increase in accounts receivable of $7 million, a decrease in operating right-of-use liability of $6 million, and an increase in prepaid expenses and other assets of $7 million. Offsetting these cash use items in assets and liabilities was an increase in accrued expenses and other liabilities of $10 million, and ~~accretion~~an increase in accounts payable of ~~bond~~$2 million. The non-cash items included depreciation and amortization expense of $37 million, amortization of debt discount and issuance costs of ~~$0.7 million.~~$27 million, stock-based compensation expense of $15 million, right-of-use asset amortization of $6 million, and loss on disposal of property, plant and equipment of $1 million, offset by a deferred tax benefit of $8 million.

In 2020, net cash provided by operating activities was $5 million consisting of net loss of $44 million adjusted for non-cash items of $62 million and offset by cash used changes in operating assets and liabilities of $13 million. Cash generated ~~from~~in operating assets and liabilities included an increase in accrued expenses and other liabilities of ~~$5.5~~$14 million ~~an increase in accounts payable of $1.1 million, and an increase in deferred revenue and advanced billings of $0.6 million.~~. Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of ~~$6.2~~$19 million, a decrease in operating right-of-use liability of $5 million, and an increase in prepaid expenses and other assets of ~~$4.2~~$4 million ~~and a decrease in operating right-of-use liability of $3.4 million.~~

~~In 2018,~~ ~~cash provided by operating activities was $24.6 million, consisting of net income of $17.9 million adjusted for non-cash items. These~~. The non-cash items included depreciation and amortization expense of $5.8 million, stock-based compensation expenses of $3.3 million, deferred tax benefit of $10.8 million and cash provided by changes in operating assets and liabilities of $8.3 million. Cash generated from operating assets and liabilities included an increase in deferred revenue and advanced billings of $6.0 million, an increase in accrued expenses and other liabilities of $4.8 million, increase in deferred rent of $2.1 million and a decrease in deferred costs of $0.2 million. Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of $2.8 million, an increase in prepaid expenses and other assets of $1.9 million and a decrease in accounts payable of $0.2 million, respectively.$17

~~Table of Contents~~

~~Management~~’~~s Discussion and Analysis~~

In 2017, cash provided by operating activities was $14.6 million, consisting of net income of $6.0 million adjusted for non-cash items. These non-cash items included depreciation and amortization expense of $5.7 million, deferred tax expense of $6.2 million, stock-based compensation expenses of $1.8 million and cash used for changes in operating assets and liabilities of $5.7 million. Cash outflows from operating assets and liabilities included increases in accounts receivable of $4.4 million, prepaid expenses and other assets of $1.6 million, deferred costs of $0.9 million along with a decrease in accounts payable of $2.4 million. Offsetting these cash outflows was an increase in deferred rent of $0.2 million, increase in deferred revenue and advanced billings of $2.6 million and an increase in accrued expenses and other liabilities of $1.0 million.

~~Cash Flows from Investing Activities~~

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

In 2018, cash used in investing activities from continuing operations was $31.7 million from the investment in marketable securities of $35.2 million, the purchase of property and equipment of $12.4 million and capitalized internally developed software costs of $2.0 million, partially offset by maturities of marketable securities of $18.0 million.

In 2017, cash used in investing activities from continuing operations was $8.0 million from the purchase of property and equipment of $5.0 million and capitalized internally developed software costs of $2.9 million.

~~Cash Flows from Financing Activities~~

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

In 2018, cash provided by financing activities from continuing operations was $10.7 million consisting primarily of $11.1 million in proceeds from the exercises of stock options, partially offset by $0.3 million in payments related to the cost of our initial public offering and $0.1 million in payments on capital leases.

In 2017, cash provided by financing activities from continuing operations was $24.2 million consisting primarily of $74.4 million in net proceeds from our initial public offering, $0.2 million in proceeds from the issuances of common stock as a result of options exercised, and $0.1 million in proceeds from exercise of warrants, partially offset by net repayments of $9.0 million on our line of credit, $0.1 million in payments on capital leases, and $40.0 million in repayments on our term loan.

~~Debt~~

~~On March 1, 2019, we amended and restated our Credit and Security Agreement with KeyBank National Association. The agreement is for a~~ ~~$25.0 million~~ ~~revolving loan, which includes a swing line of up to~~ ~~$1.0 million~~ ~~and limits letters of credit commitments to a maximum of~~ ~~$2.5 million~~. The term of the amended and restated Credit and Security Agreement is three years and matures on March 1, 2022. This agreement requires that a specified minimum liquidity amount must be maintained in cash and cash equivalents at all times and that we meet a minimum revenue level on a quarterly basis.

On June 4, 2019, KeyBank National Association and Pacific Western Bank entered into an Assignment and Acceptance Agreement, whereby KeyBank National Association, as the Assignor, sold and assigned $10.0 million of our Revolving Credit Commitment to Pacific Western Bank, the Assignee. KeyBank National Association retains $15.0 million of our Revolving Credit Commitment.

7369

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Management’s Discussion and Analysis

Asmillion, amortization of debt discount and issuance costs of $16 million, deferred tax expense of $14 million, stock-based compensation expenses of $10 million, and right-of-use amortization of $5 million.

Cash Flows from Investing Activities

In 2022, net cash used in investing activities was $133 million. Cash used in investing activities included the purchase of marketable securities of ~~December 31, 2019, we had $0 outstanding on~~$180 million partially offset by proceeds from the ~~revolving loan~~sales and ~~were~~maturities of marketable securities of $109 million. Cash used for deposits for construction in ~~compliance with all financial~~progress and ~~non-financial covenants~~the purchase of property, plant and equipment, primarily for ~~all periods presented. The available borrowing capacity under~~ our ~~revolving credit facility loan~~Raleigh, NC headquarters, was ~~$25.0 million as of December 31, 2019.~~$60 million.

AsIn 2021, net cash provided by investing activities was $3 million. Cash provided by investing activities included proceeds from sales and maturities of ~~December 31, 2019,~~other investments of $40 million, proceeds from the ~~outstanding unamortized loan fees for~~sale of land of $17 million, offset by the ~~revolving loan were $0.1~~purchase of land of $30 million, purchase of property, plant and ~~were included~~equipment of $21 million and capitalized internally developed software costs of $4 million.

In 2020, net cash used in ~~prepaid expenses~~investing activities was $455 million, mainly from the costs related to the Voxbone acquisition of $400 million, net of cash. In addition, cash used in investing activities was the purchase of other investments of $231 million, the purchase of property, plant and equipment of $12 million and capitalized internally developed software costs of $2 million, offset by the proceeds from sales and maturities of other ~~current assets,~~investments of $191 million.

Cash Flows from Financing Activities

In 2021, net cash provided by financing activities was $207 million consisting primarily of $250 million in proceeds from the issuance of the 2028 Convertible Notes and ~~other long-term assets~~$1 million in proceeds from the exercise of stock options, partially offset by $26 million in the ~~Company’s consolidated balance sheets.~~

~~Contractual Obligations~~purchase of the 2028 Capped Calls, $8 million in payments of debt issuance cost, $7 million in payment of holdback proceeds to former Voxbone shareholders, and ~~Other Commitments~~

~~The following table summarizes our non-cancellable contractual obligations as~~$4 million in value of ~~December 31, 2019:~~

Total Less
than 1
year 1 to 3
Years 3 to 5
Years More
than 5
years
(In thousands)
Operating leases (1) $ 27,658 $ 5,907 $ 12,889 $ 7,913 $ 949
Purchase obligations (2) 9,765 6,115 1,949 1,701 —
Total $ 37,423 $ 12,022 $ 14,838 $ 9,614 $ 949

~~________________________~~

~~(1)~~ ~~Operating leases represent total future minimum rent payments under non-cancellable operating lease agreements.~~equity awards withheld for tax liabilities.

~~(2)~~In 2020, net cash provided by financing activities was $347 million consisting primarily of $400 million in proceeds from the issuance of the 2026 Convertible Notes and $4 million in proceeds from the exercise of stock options, partially offset by ~~Purchase obligations represent total non-cancelable~~$43 million in the purchase ~~commitments~~of the 2026 Capped Calls, $12 million in payments of debt issuances cost, and ~~future minimum payments under contracts to various service providers, excluding agreements that are cancellable without penalty.~~$2 million in value of equity awards withheld for tax liabilities.

Off-Balance Sheet Arrangements

WeWith the acquisition of Voxbone, we have ~~not entered into any~~ off-balance sheet ~~arrangements and do not have any holdings~~agreements for short-term office leases in ~~variable interest entities.~~the amount of less than $1 million ending prior to December 31, 2023.

Table of Contents

Management’s Discussion and Analysis

Non-GAAP Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin

GAAP defines gross profit as revenue less cost of revenue. Cost of revenue includes all expenses associated with our various service offerings as more fully described under the caption “Key Components of 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; and

•stock-based compensation

We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges, expressed as a percentage of revenue.

Table of Contents

Management’s Discussion and Analysis


	Year ended December 31,
		2022			2021			2020

		(In thousands)








Gross Profit		$	238,353		$	213,813		$	153,910
Gross Profit Margin %		42		%	44		%	45		%
Depreciation		13,602			12,606			9,997
Amortization of acquired intangible assets		7,657			8,543			1,445
Stock-based compensation		404			364			306
Non-GAAP Gross Profit		$	260,016		$	235,326		$	165,658
Non-GAAP Gross Margin % (1)		55		%	52		%	50		%

________________________

Non-GAAP Net Income

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

•stock-based compensation;

•amortization of acquired intangible assets related to acquisitions;

•amortization of debt discount and issuance costs for convertible debt;

•acquisition related expenses;

•impairment charges of intangibles assets, if any;

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

•(gain) loss on sale of business;

•net (gain) loss on extinguishment of debt;

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

•estimated tax impact of above adjustments, net of valuation allowances

We believe Non-GAAP net income is a meaningful measure because by removing certain non-cash and other expenses, we are able to evaluate our operating results in a manner we believe is more indicative of the current period’s performance. We believe the use of Non-GAAP net income may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which may use similar Non-GAAP financial information to supplement their GAAP results. As a result of the adoption of ASU No. 2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share.

Table of Contents

Management’s Discussion and Analysis


	Year ended December 31,
		2022		2021		2020

		(In thousands, except share and per share amounts)
Net income (loss)		$	19,570	$	(27,362)	$	(43,977)
Stock-based compensation		20,655		14,537		9,881

Amortization of acquired intangibles		17,180		19,119		3,666
Amortization of debt discount and issuance costs for convertible debt		2,977		26,672		15,565

Acquisition-related expenses		—		—		14,458
Gain on sale of business		(3,777)		—		—
Net gain on extinguishment of debt		(40,205)		—		—
Non-recurring items not indicative of ongoing operations and other (1)		1,992		832		334
Estimated tax effects of adjustments (2)		(3,396)		(8,087)		14,266






Non-GAAP net income		$	14,996	$	25,711	$	14,193
Interest expense on Convertible Notes (3)		1,666		—		—
Numerator used to compute Non-GAAP diluted net income per share		$	16,662	$	25,711	$	14,193

Net income (loss) per share
Basic		$	0.77	$	(1.09)	$	(1.83)
Diluted		$	(0.48)	$	(1.09)	$	(1.83)

Non-GAAP net income per Non-GAAP share
Basic		$	0.59	$	1.02	$	0.59
Diluted		$	0.54	$	0.97	$	0.55

Weighted average number of shares outstanding
Basic		25,282,796		25,090,916		24,092,574
Diluted		30,907,869		25,090,916		24,092,574



Non-GAAP basic shares		25,282,796		25,090,916		24,092,574




Convertible debt conversion		5,625,073		987,149		1,022,941
Stock options issued and outstanding		100,088		180,318		443,738
Nonvested RSUs outstanding		—		197,538		352,854
Non-GAAP diluted shares		31,007,957		26,455,921		25,912,107

________________________

Table of Contents

Management’s Discussion and Analysis

Adjusted EBITDA

We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain income statement items including, but not limited to:

•income tax (benefit) provision;

•interest (income) expense, net;

•depreciation and amortization expense;

•acquisition related expenses;

•stock-based compensation expense;

•impairment of intangible assets, if any;

•(gain) loss on sale of business;

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

•net (gain) loss on extinguishment of debt; and

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

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Management’s Discussion and Analysis


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Net income (loss)		$	19,570	$	(27,362)	$	(43,977)
Income tax (benefit) provision		(2,264)		(3,833)		15,005
Interest expense, net		3,048		28,784		13,672
Depreciation		18,419		17,523		13,137
Amortization		17,180		19,119		3,666
Acquisition-related expenses		—		—		14,458
Stock-based compensation		20,655		14,537		9,881

Gain on sale of business		(3,777)		—		—


Net gain on extinguishment of debt		(40,205)		—		—
Non-recurring items not indicative of ongoing operations and other (1)		1,992		832		334
Adjusted EBITDA		$	34,618	$	49,600	$	26,176

________________________

Free Cash Flow

Free cash flow represents net cash provided by or used in operating activities less net cash used in the acquisition of property, plant and equipment and capitalized development costs of software for internal use. We believe free cash flow is a useful indicator of liquidity and provides information to management and investors about the amount of cash generated from our core operations that can be used to invest in our business. Free cash flow has certain limitations because it is subject to working capital timing, it does not represent the total increase or decrease in the cash balance for the period, it does not take into consideration investment in long-term securities, nor does it represent residual cash flows available for discretionary expenditures. Therefore, it is important to evaluate free cash flow along with our consolidated statements of cash flows.


	Year ended December 31,
		2022		2021		2020

		(In thousands)
Net cash provided by operating activities		$	34,906	$	40,803	$	4,518
Net cash used in investing in capital assets (1) (2)		(45,416)		(37,167)		(14,592)
Free cash flow		$	(10,510)	$	3,636	$	(10,074)

________________________

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

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

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Management’s Discussion and Analysis

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions, and any such differences may be material.

We believe the accounting policies discussed below are critical to the process of making significant judgments and estimates in the preparation of our financial statements, and to understanding our historical and future performance.

Revenue Recognition and Deferred Revenue

We generate revenue primarily from the sale of ~~communication~~communications services to enterprise customers. Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that we expect to receive in exchange for those goods or services.

The majority of our revenue is generated from usage-based fees earned from customers accessing our communications platform. Access to the communications platform is considered a series of distinct services, with continuous transfer of control to the customer, comprising one performance obligation. Usage-based fees are recognized in revenue in the period the traffic traverses our network.

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~~Management~~’~~s Discussion and Analysis~~

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.

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

Our arrangements do not contain general rights of return or 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.

We maintain a reserve for sales credits. Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience, contractual obligations and current trends of credit issuances. Adjustments to the reserve are recorded against revenue.

Business Combinations

We use 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 management's valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date. We use a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained, but no later than one year from the acquisition date.

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Management’s Discussion and Analysis

Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the aggregate fair value of consideration transferred in a business combination, over the fair value of assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. We test goodwill for impairment annually on December 31 of each calendar year or more frequently if events or changes in business circumstances indicate the asset might be impaired. Goodwill is tested for impairment at the reporting unit level. In evaluating the recoverability of goodwill, we perform a qualitative analysis to determine whether events and circumstances exist that indicate that it is more likely than not that goodwill is impaired. The qualitative factors we consider include but are not limited to, macroeconomic conditions, industry and market conditions, company-specific events and changes in circumstances. We completed our annual goodwill impairment analysis in each of the years ended December 31, ~~2017, 2018~~2022, 2021 and ~~2019~~2020 and no impairment charges were recorded. As of December 31, ~~2019~~2022 goodwill was ~~$6.9~~$326 million.

Long-Lived Assets

Long-lived assets, including intangible assets with definite lives, are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise.

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 long-lived assets are measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. As of December 31, ~~2019,~~2022, intangible assets, net of accumulated amortization, were ~~$6.6~~$177 million, which consists primarily of client relationships, client contracts and ~~client contracts.~~developed technology. No indicators of impairment were identified for the years ended December 31, ~~2017, 2018~~2022, 2021 and ~~2019.~~2020.

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. We capitalize qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are 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. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expense costs incurred

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~~Management~~’~~s Discussion and Analysis~~

for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred. As of December 31, 2022, software development costs, net of accumulated amortization, were $8 million.

Capitalized costs of platform and other software applications are included in property, plant and equipment. These costs are amortized over the estimated useful life of the software on a straight-line basis over three years, which is recorded in cost of revenue in the statement of operations. We evaluate the useful life of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that are included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which

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Management’s Discussion and Analysis

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

We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all the deferred tax asset. Quarterly, we review 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, the implementation of prudent and feasible tax planning strategies, and results of recent operations. 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, our income tax provision would increase or decrease in the period in which the assessment is changed.

We account 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 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 expense.

Other Contingencies

We are subject to legal proceedings and litigation arising in the ordinary course of business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is ~~required to determine~~involved in the determination of the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of any accruals recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations.

We conduct operations in many tax jurisdictions throughout the United ~~States.~~States and globally. In many of these jurisdictions, non-income-based taxes and fees, such as sales and use taxes, Value Added Taxes (“VAT”), telecommunications taxes, and regulatory fees including those associated with (or potentially associated with) VoIP telephony services or 911 services, are assessed or may be assessed on our operations. We are subject to indirect taxes, and may be subject to certain other taxes and surcharges in some of these jurisdictions. We generally bill and collect from our customers these taxes and surcharges. We record a liability for tax collected from customers but not yet paid to the appropriate jurisdiction. In addition, we record a provision for non-income based taxes and fees in jurisdictions where it is both probable that liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, we have recorded a liability of ~~$3.0 million, $4.7~~$8 million and ~~$5.4~~$11 million as of December 31, ~~2017, 2018~~2022 and ~~2019, respectively.~~2021, respectively, included in accrued expenses and other current liabilities. These estimates are based on several key assumptions, including the taxability of our services, the

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~~Management~~’~~s Discussion and Analysis~~

jurisdictions in which we believe we have nexus and the sourcing of revenue to those jurisdictions. In the event these jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates.

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.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and ~~to a lesser extent, inflation.~~foreign currency exchange rates.

Interest Rate Risk

Our primary exposure to market risk relates to interest rate changes. We had cash and cash equivalents of ~~$184.4~~$114 million and no marketable securities of $71 million as of December 31, ~~2019,~~2022, which were held for working capital purposes. Our cash and cash equivalents are comprised primarily of interest bearing checking and direct deposit accounts, and money market ~~accounts and time deposits.~~accounts. Marketable securities consist of corporate debt securities, U.S. treasury securities, and commercial paper not otherwise classified as cash equivalents.

Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the ~~short-term~~short‑term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates.

Our debt is comprised of a revolving line of credit account, which had no amount outstanding as of December 31, 2019. Loans under the Credit Agreement will bear interest at the highest of (i) the bank’s prime rate, (ii) the federal funds effective rate plus 0.5 percent, and (iii) the London Interbank Offered Rate plus 1.00 percent. A hypothetical 10% change in interest rates ~~during any of the periods presented~~ would not have had a material impact on our financial results included elsewhere in this Annual Report on Form 10-K.

On June 6, 2022, we entered into the Credit Agreement, which provides for a $50 million Credit Facility. Interest on borrowings accrues at an annual rate tied to a base rate or the Secured Overnight Financing Rate (“SOFR”), at our election. Loans based on SOFR bear interest at a rate equal to SOFR plus an applicable margin between 1.50% and 2.00% depending upon our consolidated adjusted quick ratio for the immediately preceding quarter and loans based on the base rate bear interest at a rate equal to the base rate plus an applicable margin between 0.50% and 1.00% depending upon our consolidated adjusted quick ratio for the immediately preceding quarter. As a result, we are exposed to interest rate risk as we make draws on the Credit Facility. As of December 31, 2022, there were no outstanding borrowings.

In February 2020 and March 2021, we issued $400 million and $250 million aggregate principal amount of the 2026 Convertible Notes and the 2028 Convertible Notes, respectively. On November 2, 2022, we repurchased $160 million of our 2026 Convertible Notes as further described in Note 8, “Debt,” to the consolidated financial ~~statements.~~statements included elsewhere in this Annual Report on Form 10-K. As the Convertible Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates. We carry the Convertible Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only.

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Foreign Currency Risk

Our customers consume our services primarily in the United States. Our revenue and expenses are primarily denominated in U.S. dollars and as a result we have minimal foreign currency risk as of December 31, 2019.

The ~~local~~functional currencies of our foreign subsidiaries are the respective local currencies of the jurisdictions in which they operate, which are primarily the Euro and the British Pound. Approximately 10% of our total revenue was generated outside the United States for the year ended December 31, 2022. The majority of our revenues and operating expenses are denominated in U.S. dollars, and therefore are not currently subject to significant foreign currency risk. Our subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. ~~If there is~~Foreign currency translation adjustments are accounted for as a ~~change~~component of accumulated other comprehensive loss within stockholders’ equity. Gains or losses due to transactions in foreign ~~currency exchange rates, the conversion of our foreign subsidiaries’ financial statements into U.S. dollars would result in a realized gain or loss which is recorded~~currencies are included in other income (expense), net in our consolidated statements of operations. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currencies result in increased revenue and operating expenses for our non-U.S. operations. Similarly, our revenue and operating expenses for our non-U.S. operations decrease if the U.S. dollar strengthens against foreign currencies. A hypothetical 10% adverse change in foreign currency exchange rates ~~during any of~~would have adversely impacted our net income for the ~~periods presented would not have had a material impact on our consolidated financial statements.~~

~~Inflation~~

We do not believe inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

year ended December 31, 2022 by approximately $2.4 million.

7880

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Item 8. Financial Statements and Supplementary Data

BANDWIDTH INC.

Index to Consolidated Financial Statements


			Page
~~Report~~s Reports of Independent Registered Public Accounting Firm			8082
Consolidated Balance Sheets			8385
Consolidated Statements of Operations			8486
Consolidated Statements of Comprehensive ~~Income~~Loss			8587
Consolidated Statements of Changes in ~~Redeemable Convertible Preferred Stock and~~ Stockholders’ ~~(Deficit)~~ Equity			8688
Consolidated Statements of Cash Flows			8990
Notes to Consolidated Financial Statements			9192

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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, ~~2019~~2022 and ~~2018,~~2021, the related consolidated statements of operations, comprehensive ~~income,~~loss, changes in ~~redeemable convertible preferred stock and stockholders' (deficit)~~stockholders’ equity and cash flows for each of the three years in the period ended December 31, ~~2019,~~2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2019~~2022 and ~~2018,~~2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2019,~~2022, 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~~Company’s internal control over financial reporting as of December 31, ~~2019,~~2022, 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 ~~21, 2020~~23, 2023 expressed an unqualified opinion thereon.

~~Adoption of ASU No. 2016-02~~

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

These financial statements are the responsibility of the ~~Company's~~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.

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			Revenue Recognition

Description of the Matter			As discussed in Note 2, the Company recognizes revenue from the sale of communications services offered through software solutions, which are generally derived from usage and monthly service ~~fees from both the CPaaS and Other segments.~~fees. Usage revenue includes voice communication (primarily driven by inbound minutes, outbound minutes and toll-free minutes) and messaging communication (driven by the number of messages) that traverse the platform and network. Revenue for these services is recognized in the period the usage occurs. Monthly service fees include the provisioning and management of phone numbers and ~~911-enabled phone number~~emergency services access, which ~~are~~is recognized ~~based~~ on a ratable basis as the ~~quantity of phone numbers in~~ service ~~and the quantity of phone numbers with 911-enabled services during the month, respectively.~~is provided, which is typically one month. The processing and recording of revenue from voice and messaging data usage is highly automated and involves capturing and pricing significant volumes of data across multiple systems. Similarly, the provisioning and management of phone numbers and emergency services access is also highly automated and involves capturing and pricing the quantity of phone numbers in service and the quantity of phone numbers with ~~911-enabled~~emergency services access during the month. 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 identified the significant systems used to capture and process voice usage, phone number services, ~~911-enabled phone number~~emergency services access, and messaging ~~services,~~volume, and tested the IT general controls over those systems, including testing of user access and change management controls. In addition, our audit procedures included testing of other manual reconciliation and analytical review controls designed to determine the accuracy and completeness of data processed and transferred across multiple platforms in connection with the recognition of revenue for voice and messaging usage, the quantity of phone numbers in service, and the quantity of phone numbers with ~~911-enabled~~emergency services access during the period. To test the Company’s revenue, our audit procedures included, among other procedures, performing data analytics by extracting data from the Company’s systems to evaluate the completeness and accuracy of recorded revenues, testing a sample of revenue transactions, which included evaluating the transaction price based on inspection of customer contracts and approved rate tables, as well as testing the mathematical accuracy of the recorded revenue based on the voice and messaging usage, as well as the quantity of phone numbers in service and quantity of phone numbers with ~~911-enabled~~emergency services access during the period.

~~/s/ Ernst & Young LLP~~

We have served as the Company’s auditor since 2012.

/s/ Ernst & Young LLP

Raleigh, North Carolina

February ~~21, 2020~~

23, 2023

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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, ~~2019,~~2022, 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, ~~2019,~~2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, ~~2019~~2022 and ~~2018,~~ 2021, the related consolidated statements of operations, comprehensive ~~income,~~loss, changes in ~~redeemable convertible preferred stock and stockholders~~’ ~~(deficit)~~stockholders’ equity and cash flows for each of the three years in the period ended December 31, ~~2019,~~2022, and the related notesand our report dated February ~~21, 2020~~23, 2023 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 ~~21, 2020~~

23, 2023

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BANDWIDTH INC.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)


Delaware						56-2242657
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)


		Page


	PART I
Item 1.	Business	46
Item 1A.	Risk Factors	1518
Item 1B.	Unresolved Staff Comments	4854
Item 2.	Properties	4855
Item 3.	Legal Proceedings	4955
Item 4.	Mine Safety Disclosures	5055
	PART II
Item 5.	Market for ~~Registrant’s~~Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	5156
Item 6.	~~Selected Financial Data~~[Reserved]	5357
Item 7.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	6158
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7879
Item 8.	Financial Statements and Supplementary Data	7981
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~121~~132
Item 9A.	Controls and Procedures	~~121~~133
Item 9B.	Other Information	~~122~~134
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	134
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~122~~134
Item 11.	Executive Compensation	~~122~~134
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~122~~134
Item 13.	Certain Relationships and Related Transactions and Director Independence	~~122~~134
Item 14.	Principal Accountant Fees and Services	~~122~~134
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~123~~135
Item 16.	Form 10-K Summary	~~126~~139


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Year ended December 31, 2021			Year ended December 31, 2020
		As reported		As previously reported		As reported		As previously reported

		(In thousands)
Statement of Operations
Cost of revenue		$	277,094	$	272,384	$	189,203	$	185,252
Research and development		69,505		55,173		54,555		42,059
Sales and marketing		82,333		51,817		61,216		40,552
General and administrative		64,212		113,770		51,644		88,755


	Year ended December 31,
Consolidated Statements of Operations Data:	2015		2016		2017		2018		2019

	(In thousands, except share and per share amounts)
Revenue:
CPaaS revenue	$	101,502	$	117,078	$	131,572	$	164,415	$	197,944
Other revenue	36,299		35,057		31,383		39,698		34,650
Total revenue	137,801		152,135		162,955		204,113		232,594

Cost of revenue:
CPaaS cost of revenue	64,760		71,218		75,859		94,296		110,343
Other cost of revenue	14,482		14,000		13,403		13,849		14,616
Total cost of revenue (1)	79,242		85,218		89,262		108,145		124,959


Gross profit	58,559		66,917		73,693		95,968		107,635
Operating expenses:
Research and development (1)	7,375		8,520		10,789		20,897		31,461
Sales and marketing (1)	8,620		9,294		11,218		20,731		35,020
General and administrative (1)	34,602		33,859		37,069		47,588		58,847
Total operating expenses	50,597		51,673		59,076		89,216		125,328

Operating income (loss)	7,962		15,244		14,617		6,752		(17,693)
Other (expense) income:
Interest (expense) income, net	(589)		(908)		(1,728)		301		2,446
Other income, net	—		—		—		—		23

Total other (expense) income	(589)		(908)		(1,728)		301		2,469




Income (loss) from continuing operations before income taxes	7,373		14,336		12,889		7,053		(15,224)
Income tax (provision) benefit (2) (3) (4)	(408)		11,094		(6,918)		10,870		17,718
Income from continuing operations	6,965		25,430		5,971		17,923		2,494

Loss from discontinued operations, net of income taxes	(13,665)		(3,072)		—		—		—
Net (loss) income	$	(6,700)	$	22,358	$	5,971	$	17,923	$	2,494
Other comprehensive (loss) income
Unrealized (loss) gain on marketable securities, net of income tax benefit	—		—		—		(1)		1
Foreign currency translation	—		—		—		—		41
Total other comprehensive (loss) income	—		—		—		(1)		42
Total comprehensive (loss) income	$	(6,700)	$	22,358	$	5,971	$	17,922	$	2,536

Earnings per share:
Income from continuing operations	$	6,965	$	25,430	$	5,971	$	17,923	$	2,494
Less: net income allocated to participating securities	931		3,355		644		—		—
Income from continuing operations attributable to common stockholders	$	6,034	$	22,075	$	5,327	$	17,923	$	2,494

Income from continuing operations per share
Basic	$	0.52	$	1.89	$	0.42	$	0.96	$	0.11
Diluted	$	0.48	$	1.72	$	0.37	$	0.85	$	0.10

Net (loss) income	$	(6,700)	$	22,358	$	5,971	$	17,923	$	2,494
Less: (loss) income allocated to participating securities	(896)		2,950		644		—		—
Net (loss) income attributable to common stockholders	$	(5,804)	$	19,408	$	5,327	$	17,923	$	2,494

Net (loss) income per share:
Basic	$	(0.50)	$	1.66	$	0.42	$	0.96	$	0.11
Diluted	$	(0.47)	$	1.51	$	0.37	$	0.85	$	0.10

Weighted average number of common shares outstanding:
Basic	11,497,727		11,678,568		12,590,221		18,573,067		22,640,461
Diluted	12,456,540		12,870,632		14,543,170		21,140,382		23,923,777


	Year ended December 31,
Stock-based compensation expense:	2015		2016		2017		2018		2019

	(In thousands)
Cost of revenue	$	45	$	61	$	80	$	114	$	211
Research and development	189		138		155		555		1,461
Sales and marketing	239		182		172		511		1,199
General and administrative	3,020		989		1,396		2,159		3,755
Total	$	3,493	$	1,370	$	1,803	$	3,339	$	6,626


	As of December 31,
Consolidated Balance Sheets Data:	2015		2016		2017		2018		2019

	(In thousands)
Cash, cash equivalents and restricted cash	$	10,778	$	7,028	$	37,870	$	41,501	$	185,004
Working capital	(26,253)		(2,187)		40,977		58,931		181,211
Total assets	63,146		69,973		104,494		150,420		341,416
Long-term debt and capital lease obligations, net of current portion	—		37,738		—		—		—
Series A redeemable convertible preferred stock	21,818		21,818		—		—		—
Total stockholders’ (deficit) equity	(19,074)		(22,374)		76,711		108,770		270,090


	Three Months Ended
	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018		March 31, 2019		June 30, 2019		September 30, 2019		December 31, 2019

	(Unaudited, in thousands, except per share amounts)
Revenue:
CPaaS revenue	$	38,897	$	39,833	$	41,537	$	44,148	$	45,013	$	47,989	$	51,499	$	53,443
Other revenue	14,115		8,471		8,917		8,195		8,308		8,790		8,992		8,560
Total revenue	53,012		48,304		50,454		52,343		53,321		56,779		60,491		62,003

Cost of revenue:
CPaaS cost of revenue	21,905		23,137		23,996		25,258		25,300		26,473		29,297		29,273
Other cost of revenue	3,459		3,429		3,478		3,483		3,466		3,637		3,807		3,706
Total cost of revenue	25,364		26,566		27,474		28,741		28,766		30,110		33,104		32,979

Gross profit:	27,648		21,738		22,980		23,602		24,555		26,669		27,387		29,024
Operating expenses:
Research and development	3,781		4,435		5,895		6,786		7,717		7,656		7,939		8,149
Sales and marketing	4,522		4,654		5,422		6,133		8,349		8,514		8,784		9,373
General and administrative	10,569		11,490		11,576		13,953		14,333		14,282		15,269		14,963
Total operating expenses	18,872		20,579		22,893		26,872		30,399		30,452		31,992		32,485

Operating income (loss)	8,776		1,159		87		(3,270)		(5,844)		(3,783)		(4,605)		(3,461)

Other income:
Interest income, net	49		90		103		59		201		719		778		748
Other income (expense), net	—		—		—		—		—		10		(1)		14
Realized gain (loss) on investments	—		—		—		—		—		—		4		(4)

Total other income	49		90		103		59		201		729		781		758

Income (loss) before income taxes	8,825		1,249		190		(3,211)		(5,643)		(3,054)		(3,824)		(2,703)
Income tax (provision) benefit	(2,634)		9,263		2,320		1,921		7,635		6,526		2,810		747



Net income (loss)	$	6,191	$	10,512	$	2,510	$	(1,290)	$	1,992	$	3,472	$	(1,014)	$	(1,956)
Unrealized (loss) gain on marketable securities, net of income tax benefit	(6)		4		(1)		2		8		13		(21)		1
Foreign currency translation	—		—		—		—		—		12		(46)		75
Total comprehensive income (loss), net of income tax	$	6,185	$	10,516	$	2,509	$	(1,288)	$	2,000	$	3,497	$	(1,081)	$	(1,880)

Net income (loss) per share:
Basic	$	0.35	$	0.58	$	0.13	$	(0.07)	$	0.10	$	0.15	$	(0.04)	$	(0.08)
Diluted	$	0.30	$	0.50	$	0.12	$	(0.07)	$	0.09	$	0.14	$	(0.04)	$	(0.08)


	Total		Less than 1 year		1 to 3 Years		3 to 5 Years		More than 5 years

	(In thousands)


Operating leases (1)	$	27,658	$	5,907	$	12,889	$	7,913	$	949

Purchase obligations (2)	9,765		6,115		1,949		1,701		—
Total	$	37,423	$	12,022	$	14,838	$	9,614	$	949


	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, 2019		18,584,478	$	19		4,927,401	$	5			$	275,553		$	41		$	(5,528)	$	270,090
Issuance of debt conversion option		—	—			—	—				104,553			—			—		104,553
Debt conversion option issuance costs, net of tax		—	—			—	—				(3,742)			—			—		(3,742)
Capped call option purchase price		—	—			—	—				(43,320)			—			—		(43,320)
Exercises of vested stock options		593,084	1			—	—				4,075			—			—		4,076
Vesting of restricted stock units		161,067	—			—	—				—			—			—		—
Equity awards withheld for tax liability		(20,295)	—			—	—				(1,916)			—			—		(1,916)
Conversion of Class B voting common stock to Class A voting common stock		2,431,276	1			(2,431,276)	(3)				—			—			—		(2)
Equity consideration for Voxbone acquisition		663,394	1			—	—				106,379			—			—		106,380

Foreign currency translation		—	—			—	—				—			27,900			—		27,900
Stock based compensation		—	—			—	—				9,881			—			—		9,881
Net loss		—	—			—	—				—			—			(43,977)		(43,977)



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


Effect of exchange rate changes on cash, cash equivalents and restricted cash	—		—		(9)
Net increase in cash, cash equivalents, and restricted cash	30,842		3,631		143,503
Cash, cash equivalents, and restricted cash, beginning of period	7,028		37,870		41,501
Cash, cash equivalents, and restricted cash, end of period	$	37,870	$	41,501	$	185,004

Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	1,535	$	107	$	341
Cash paid (refunded) for taxes	$	855	$	155	$	(178)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	—	$	4,528

Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment, accrued but not paid	$	886	$	1,204	$	1,375



Equity awards withheld for tax liabilities, accrued but not paid	$	—	$	—	$	177


Computer hardware and software			21 to 57 years
Internal-use software development costs			34 to 7 years
Furniture and fixtures			2 to 75 years
Land			Indefinite
Leasehold improvements			Shorter of the estimated lease term or ~~useful life~~4 to 7 years


																	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
		Amortized cost or carrying value		Unrealized gains		Unrealized losses		Fair value measurements on a recurring basis December 31, 2018
																Level 1			Level 2			Level 3			Total			(In thousands)
Financial assets:	Financial assets:															Financial assets:
Cash and cash equivalents:	Cash and cash equivalents:															Cash and cash equivalents:
Money market account	Money market account	$	8,194	$	—	$	—	$	8,194	$	—	$	—	$	8,194	Money market account	$	36,728		$	—		$	—		$	36,728		$	—	$	—	$	36,728

U.S. Reverse repurchase agreements		26,000		—		—		—		26,000		—		26,000

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

Total included in cash and cash equivalents	Total included in cash and cash equivalents	34,194		—		—		8,194		26,000		—		34,194		Total included in cash and cash equivalents	$	64,982		$	—		$	—		$	64,982		$	—	$	—	$	64,982
Marketable securities:	Marketable securities:															Marketable securities:
Time deposits																Time deposits	$	6,645		$	—		$	(15)		$	6,630		$	—	$	—	$	6,630
U.S. treasury securities	U.S. treasury securities	17,402		—		(2)		17,400		—		—		17,400		U.S. treasury securities	14,718			74			—			14,792			—		—		14,792
Corporate debt securities																Corporate debt securities	23,412			—			(97)			—			23,315		—		23,315
Commercial paper																Commercial paper	26,142			352			—			26,494			—		—		26,494
Total marketable securities																Total marketable securities	$	70,917		$	426		$	(112)		$	47,916		$	23,315	$	—	$	71,231

Total marketable securities		17,402		—		(2)		17,400		—		—		17,400

Total financial assets	Total financial assets	$	51,596	$	—	$	(2)	$	25,594	$	26,000	$	—	$	51,594	Total financial assets	$	135,899		$	426		$	(112)		$	112,898		$	23,315	$	—	$	136,213


	Amortized cost		Aggregate fair value

	(In thousands)
Financial assets:
Less than one year	$	70,917	$	71,231

Total	$	70,917	$	71,231


	~~Year ended December 31, 2019~~
~~Operating lease cost~~	$	~~5,548~~





~~Sublease income (1)~~	~~(643)~~
~~Total net lease cost~~	$	~~4,905~~


~~Leases~~	~~Classification~~	~~As of December 31, 2019~~
~~Assets:~~
~~Operating lease assets~~	~~Operating right-of-use asset, net of accumulated amortization (1)~~	$	~~21,031~~

~~Total leased assets~~				$	~~21,031~~

~~Liabilities:~~
~~Current~~
~~Operating~~	~~Operating lease liability, current~~	$	~~4,876~~

~~Non-current~~
~~Operating~~	~~Operating lease liability, non-current~~	~~19,868~~

~~Total lease liabilities~~				$	~~24,744~~


		As of December 31,
Leases	Classification	2022		2021

		(In thousands)
Assets:
Operating lease assets	Operating right-of-use asset, net (1)	$	9,993	$	14,061
Finance lease assets	Property, plant and equipment, net (2)	307		373
Total leased assets		$	10,300	$	14,434

Liabilities:
Current
Operating	Operating lease liability, current	$	7,450	$	5,807
Finance	Accrued expenses and other current liabilities	143		177
Non-current
Operating	Operating lease liability, net of current portion	4,640		10,958
Finance	Other liabilities	172		202
Total lease liabilities		$	12,405	$	17,144


	~~Year ended December 31, 2019~~
~~Cash paid for amounts included in the measurement of operating lease liabilities:~~	$	~~3,357~~




~~Weighted average remaining operating lease term (in years):~~	~~4.35~~



~~Weighted average operating lease discount rate:~~	~~4.98~~		%


	As of December 31, 2022

	Operating Leases		Finance Leases

	(In thousands)

2023	$	7,809	$	162
2024	2,614		104
2025	1,587		51
2026	655		21


Total lease payments	12,665		338
Less: imputed interest	(575)		(23)

Total lease obligations	12,090		315
Less: current obligations	(7,450)		(143)
Long-term lease obligations	$	4,640	$	172


	As of December 31, 2019

2020	$	5,907
2021	6,587
2022	6,302
2023	5,926
2024	1,987
Thereafter	949
Total lease payments	27,658
Less: imputed interest	(2,894)
Less: accrued lease incentive	(20)
Total lease obligations	24,744
Less: current obligations	(4,876)
Long-term lease obligations	$	19,868


	As of December 31, 2018

2019	$	5,044
2020	5,180
2021	5,254
2022	3,438
2023	1,399
Thereafter	2,343
	$	22,658


	As of December 31, 2018
2019	$	1,042
2020	1,065
2021	1,089
2022	594


	$	3,790


	Total

	(In thousands)
Balance as of December 31, 2020	$	372,239
Measurement period adjustment	999
Impact of foreign currency translation	(28,815)
Balance as of December 31, 2021	344,423

Impact of foreign currency translation	(18,018)
Balance as of December 31, 2022	$	326,405


										Gross Amount		Accumulated Amortization		Net Carrying Value		Amortization Period
		Gross Amount		Accumulated Amortization		Net Carrying Value		Amortization Period
								(Years)		(In thousands)						(In years)
Customer relationships	Customer relationships	$	10,396	$	(4,071)	$	6,325	20	Customer relationships	$	141,146	$	(25,037)	$	116,109	15 - 20

Developed technology									Developed technology	77,409		(16,772)		60,637		10
Other, definite lived	Other, definite lived	3,933		(3,933)		—		2 - 7	Other, definite lived	2,828		(2,828)		—		2 - 7
Licenses, indefinite lived	Licenses, indefinite lived	764		—		764		Indefinite	Licenses, indefinite lived	624		—		624		Indefinite

Total intangible assets, net	Total intangible assets, net	$	15,093	$	(8,004)	$	7,089		Total intangible assets, net	$	222,007	$	(44,637)	$	177,370


	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, 2018	1,937,370	$	7.41	4.00	$	64,596
Granted	—	—
Exercised	(1,075,482)	6.84			57,159
Forfeited or cancelled	(8,489)	12.36
Outstanding as of December 31, 2019	853,399	$	8.07	3.41	$	47,770

Options vested and exercisable at December 31, 2019	752,402	$	7.27	2.88	$	42,722
Options vested and expected to vest as of December 31, 2019	851,389	$	8.06	3.40	$	47,672


		Number of awards outstanding	Weighted-average grant date fair value (per share)			Number of awards outstanding	Weighted-average grant date fair value (Per share)
Nonvested RSUs as of December 31, 2018		324,252	$	26.95
Nonvested RSUs as of December 31, 2021					Nonvested RSUs as of December 31, 2021	344,486	$	82.38
Granted	Granted	241,376	44.76		Granted	2,631,931	30.43
Vested	Vested	(163,944)	32.79		Vested	(231,234)	65.03
Forfeited or cancelled	Forfeited or cancelled	(9,333)	37.60		Forfeited or cancelled	(138,077)	67.35
Nonvested RSUs as of December 31, 2019		392,351	$	35.22
Nonvested RSUs as of December 31, 2022					Nonvested RSUs as of December 31, 2022	2,607,106	$	32.33


Exhibit number	Description of Exhibit	Form	File No.	Exhibit	Filing Date
2.1	Reorganization Agreement, dated as of November 30, 2016, by and between Bandwidth.com, Inc. and Republic Wireless, Inc.	S-1	333-220945	2.1	10/13/2017
2.2	Share Purchase Agreement, by and between Bandwidth Inc. and Voicebox S.à r.l, Mr Itay Rosenfeld, Mr Stefaan Konings, Mr Dirk Hermans, Mr Gaetan Brichet and Stichting Administratiekantoor Voice, dated October 12, 2020.	8-K	001-38285	2.1	10/13/2020
3.1	Second Amended and Restated Certificate of Incorporation.	10-Q	001-38285	3.1	12/14/2017
3.2	Second Amended and Restated Bylaws.	10-Q	001-38285	3.2	12/14/2017
4.1	Investors’ Rights Agreement.	S-1	333-220945	4.2	10/13/2017
4.2	Form of Buy-Sell Agreement.	S-1	333-220945	4.3	10/13/2017
4.3	Description of Registrant’s Securities.				Filed herewith
4.4	Indenture, dated February 28, 2020, between Bandwidth Inc. and Wilmington Trust, National Association	8-K	001-38285	4.1	3/2/2020
4.5	Form of 0.250% Convertible Senior Notes due March 1, 2026 (included as Exhibit A to Exhibit 4.1)	8-K	001-38285	4.2	3/2/2020
4.6	Indenture, dated March 16, 2021, between Bandwidth Inc. and Wilmington Trust, National Association.	8-K	001-38285	4.1	3/16/2021
4.7	Form of 0.50% Convertible Senior Notes due April 1, 2028 (included as Exhibit A to Exhibit 4.1).	8-K	001-38285	4.2	3/16/2021

10.1	Form of Indemnification and Advancement Agreement between Bandwidth Inc. and its directors and certain officers.	10-K	001-38285	10.1	2/25/2022

10.2	2010 Equity Compensation Plan and forms of awards thereunder.	S-1	333-220945	10.4	10/13/2017



10.3	Employment Agreement, dated as of January 1, 2015, as amended on March 9, 2017, by and between Bandwidth.com, Inc. and David A. Morken.	S-1	333-220945	10.8	10/13/2017


10.4	Office Lease, by and between Venture Center LLC and Bandwidth.com, Inc., dated January 22, 2013, as amended to date.	S-1	333-220945	10.11	10/13/2017


10.27	Confirmation of Base Capped Call Transaction, dated February 25, 2020, between Bandwidth Inc. and Goldman Sachs & Co. LLC.	8-K	001-38285	10.5	3/2/2020
10.28	Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Barclays Bank PLC.	8-K	001-38285	10.6	3/2/2020
10.29	Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and JPMorgan Chase Bank, National Association, New York Branch.	8-K	001-38285	10.7	3/2/2020
10.30	Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Bank of Montreal.	8-K	001-38285	10.8	3/2/2020
10.31	Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Morgan Stanley & Co. LLC.	8-K	001-38285	10.9	3/2/2020
10.32	Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Goldman Sachs & Co. LLC.	8-K	001-38285	10.10	3/2/2020

10.33	Purchase and Sale Agreement with the State of North Carolina, dated June 15, 2020.	8-K	001-38285	10.1	6/17/2020
10.34	Management Warranty Deed, by and between Bandwidth Inc. and Mr Itay Rosenfeld, Mr Stefaan Konings, Mr Dirk Hermans and Mr Gaetan Brichet, dated October 12, 2020.	8-K	001-38285	10.1	10/13/2020
10.35	Registration Rights Agreement, by and between Bandwidth Inc. and Voicebox S.á r.l, dated Octonber 12, 2020.	8-K	001-38285	10.2	10/13/2020

10.36	Confirmation of Base Capped Call Transaction, dated March 11, 2021, between Bandwidth Inc. and Bank of Montreal.	8-K	001-38285	10.1	3/16/2021
10.37	Confirmation of Base Capped Call Transaction, dated March 11, 2021, between Bandwidth Inc. and Citibank, N.A.	8-K	001-38285	10.2	3/16/2021
10.38	Confirmation of Base Capped Call Transaction, dated March 11, 2021, between Bandwidth Inc. and Goldman Sachs & Co. LLC.	8-K	001-38285	10.3	3/16/2021
10.39	Confirmation of Base Capped Call Transaction, dated March 11, 2021, between Bandwidth Inc. and Morgan Stanley & Co. LLC.	8-K	001-38285	10.4	3/16/2021

10.40^	Purchase and Sale Agreement dated May 27, 2021, between Bandwidth Inc. and USEF Edwards Mill Owner, LLC.	8-K	001-38285	10.1	5/28/2021
10.41^	Lease Agreement dated May 27, 2021, between Bandwidth Inc. and USEF Edwards Mill Owner, LLC.	8-K	001-38285	10.2	5/28/2021
10.42	Escrow Agreement dated May 27, 2021, between Bandwidth Inc., USEF Edwards Mill Owner, LLC and Chicago Title Insurance Company.	8-K	001-38285	10.3	5/28/2021
10.43	Employment Agreement, dated July 6, 2021, between the Company and Daryl Raiford.	8-K	001-38285	10.1	7/8/2021

10.44	Employment Agreement, dated February 22, 2022, between the Company and Anthony F. Bartolo.	8-K	001-38285	10.1	2/22/2022

10.45	Employment Agreement, dated February 24, 2022, between the Company and R. Brandon Asbill.	10-K	001-38285	10.52	2/25/2022
10.46	Amended and Restated 2017 Incentive Award Plan.	10-Q	001-38285	10.2	5/6/2022
10.47	First Amendment to Lease Agreement, dated April 21, 2022, between Bandwidth Inc. and USEF Edwards Mill Owner, LLC.	10-Q	001-38285	10.3	5/6/2022
10.48	First Amendment to Escrow Agreement, dated April 21, 2022, between Bandwidth Inc., USEF Edwards Mill Owner, LLC and Chicago Title Insurance Company.	10-Q	001-38285	10.4	5/6/2022