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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

__________________________________


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

For the quarterly period ended March 31, 2022


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

For the transition period from to

Commission File Number: 001-38285

BANDWIDTH INC.

(Exact name of registrant as specified in its charter)

__________________________________


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

900 Main Campus Drive

Raleigh, NC 27606

(Address of principal executive offices) (Zip Code)

(800) 808-5150

(Registrant’s telephone number, including area code)

__________________________________

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

BAND

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 29, 2022, 23,312,016 shares of the registrant’s Class A common stock and 1,965,170 shares of registrant’s Class B common stock were outstanding, respectively

BANDWIDTH INC.

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		Page
Special Note Regarding Forward-Looking Statements		3

	PART I - FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 202 1	5
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 3 1 , 202 2 and 2021	6
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	10
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	50
Item 4.	Controls and Procedures	51

	PART II - OTHER INFORMATION	52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 6.	Exhibits	93
	Signatures	94

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Forward-looking statements generally can be identified by the words “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “estimate,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our expectations about the impact of public health epidemics, such as COVID-19 (as defined herein), or natural disasters on the global economy and our business, results of operations and financial condition;

•our ability to attract and retain customers, including large enterprises;

•our approach to identifying, attracting and keeping new and existing customers, as well as our expectations regarding customer turnover;

•our beliefs regarding network traffic growth and other trends related to the usage of our products and services;

•our ability to successfully defend our network, systems and data against ever-evolving cybersecurity threats, including denial-of-service and ransomware attacks;

•our expectations regarding revenue, costs, expenses, gross margin, dollar based net retention rate, adjusted EBITDA, non-generally accepted accounting principles in the United States of America (“GAAP”) net income and capital expenditures;

•our beliefs regarding the growth of our business and how that impacts our liquidity and capital resources requirements;

•the sufficiency of our cash and cash equivalents to meet our liquidity needs;

•our ability to attract, train, and retain qualified employees and key personnel;

•our beliefs regarding the expense and productivity of and competition for our sales force;

•our expectations regarding headcount;

•our ability to maintain and benefit from our corporate culture;

•our plans to further invest in and grow our business, including international offerings, and our ability to effectively manage our growth and associated investments;

•our ability to introduce new products and services and enhance existing products and services;

•our ability to successfully integrate and benefit from any strategic acquisitions, including our acquisition of Voxbone (as defined herein), or future strategic acquisitions or investments;

•our ability to effectively manage our international operations and expansion;

•our ability to compete successfully against current and future competitors;

•the evolution of technology affecting our products, services and markets;

•the impact of certain new accounting standards and guidance, as well as the time and cost of continued compliance with existing rules and standards;

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•our beliefs regarding the use of Non-GAAP financial measures;

•our ability to comply with modified or new industry standards, laws and regulations applicable to our products, services and business, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act of 2018 and other privacy regulations that may be implemented in the future, and Secure Telephone Identity Revisited and Signature-based Handling of Asserted Information Using toKENs and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;

•our customers’ violation of our policies or other misuse of our platform;

•our ability to manage fees that have been or may be instituted by network providers that increase our costs;

•our ability to maintain, protect and enhance our intellectual property;

•our expectations regarding litigation and other pending or potential disputes;

•our ability to service the interest on our Convertible Notes (as defined herein) and repay such Convertible Notes, to the extent required; and

•other risks related to our indebtedness.

We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANDWIDTH INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)


	As of March 31,		As of December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	316,008	$	331,453
Restricted cash	981		836


Accounts receivable, net of allowance for doubtful accounts	68,827		61,572
Deferred costs	3,315		3,204
Prepaid expenses and other current assets	24,166		15,820


Total current assets	413,297		412,885
Property, plant and equipment, net	68,553		69,604
Operating right-of-use asset, net	15,419		14,061
Intangible assets, net	202,502		211,217
Deferred costs, non-current	4,853		4,676
Other long-term assets	11,502		8,673
Goodwill	338,070		344,423


Total assets	$	1,054,196	$	1,065,539
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,943	$	9,142
Accrued expenses and other current liabilities	65,480		65,921
Current portion of deferred revenue	6,469		6,248
Advanced billings	6,617		6,380
Operating lease liability, current	7,208		5,807




Total current liabilities	94,717		93,498
Other liabilities	7,111		6,018
Operating lease liability, net of current portion	10,711		10,958

Deferred revenue, net of current portion	8,029		7,634

Deferred tax liability	46,414		48,396
Convertible senior notes	635,727		486,440
Total liabilities	802,709		652,944












Stockholders’ equity:





Class A and Class B common stock	25		25
Additional paid-in capital	349,949		502,477
Accumulated deficit	(74,931)		(76,867)
Accumulated other comprehensive loss	(23,556)		(13,040)
Total stockholders’ equity	251,487		412,595
Total liabilities and stockholders’ equity	$	1,054,196	$	1,065,539

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BANDWIDTH INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)


	Three months ended March 31,
	2022		2021




Revenue	$	131,364	$	113,479



Cost of revenue	75,950		62,321

Gross profit	55,414		51,158
Operating expenses:
Research and development	22,427		16,789
Sales and marketing	23,152		19,110
General and administrative	16,705		15,296
Total operating expenses	62,284		51,195

Operating loss	(6,870)		(37)





Other income (expense), net	235		(5,611)

Loss before income taxes	(6,635)		(5,648)
Income tax (provision) benefit	(179)		332


Net loss	$	(6,814)	$	(5,316)

















Net loss per share, basic and diluted	$	(0.27)	$	(0.21)



Weighted average number of common shares outstanding, basic and diluted	25,220,052		25,015,948

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BANDWIDTH INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three months ended March 31,
	2022		2021






























Net loss	$	(6,814)	$	(5,316)
Other comprehensive loss

Foreign currency translation, net of income taxes	(10,516)		(23,185)

Other comprehensive loss	(10,516)		(23,185)
Total comprehensive loss	$	(17,330)	$	(28,501)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BANDWIDTH INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


	Class A voting common stock			Class B voting common stock			Additional paid-in capital	Accumulated other comprehensive income (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount























































































































































Balance at December 31, 2020	22,413,004	$	22	2,496,125	$	2		$	451,463	$	27,941	$	(49,505)	$	429,923
Issuance of debt conversion option	—	—		—	—			66,908		—		—		66,908
Debt conversion option issuance costs, net of tax	—	—		—	—			(2,049)		—		—		(2,049)
Capped call option purchase price	—	—		—	—			(25,500)		—		—		(25,500)
Exercises of vested stock options	57,817	—		—	—			753		—		—		753
Vesting of restricted stock units	141,707	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(19,879)	—		—	—			(3,187)		—		—		(3,187)
Conversion of Class B voting common stock to Class A voting common stock	280,955	1		(280,955)	—			—		—		—		1
Foreign currency translation	—	—		—	—			—		(23,185)		—		(23,185)
Stock-based compensation	—	—		—	—			4,390		—		—		4,390
Net loss	—	—		—	—			—		—		(5,316)		(5,316)
Balance at March 31, 2021	22,873,604	23		2,215,170	2			492,778		4,756		(54,821)		442,738

Debt conversion option issuance costs, net of tax	—	—		—	—			30		—		—		30

Exercises of vested stock options	4,406	—		—	—			46		—		—		46
Vesting of restricted stock units	15,605	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(1,948)	—		—	—			(265)		—		—		(265)

Foreign currency translation	—	—		—	—			—		6,015		—		6,015
Stock-based compensation	—	—		—	—			3,377		—		—		3,377
Net loss	—	—		—	—			—		—		(6,928)		(6,928)
Balance at June 30, 2021	22,891,667	23		2,215,170	2			495,966		10,771		(61,749)		445,013



Exercises of vested stock options	8,700	—		—	—			101		—		—		101
Vesting of restricted stock units	16,383	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(1,631)	—		—	—			(154)		—		—		(154)
Conversion of Class B voting common stock to Class A voting common stock	250,000	—		(250,000)	—			—		—		—		—
Foreign currency translation	—	—		—	—			—		(12,512)		—		(12,512)
Stock-based compensation	—	—		—	—			3,825		—		—		3,825
Net loss	—	—		—	—			—		—		(6,944)		(6,944)
Balance at September 30, 2021	23,165,119	23		1,965,170	2			499,738		(1,741)		(68,693)		429,329



Exercises of vested stock options	3,062	—		—	—			23		—		—		23
Vesting of restricted stock units	12,807	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(3,000)	—		—	—			(229)		—		—		(229)

Foreign currency translation	—	—		—	—			—		(11,468)		—		(11,468)
Unrealized gain/loss on employee benefit pension plan	—	—		—	—			—		169		—		169
Stock-based compensation	—	—		—	—			2,945		—		—		2,945
Net loss	—	—		—	—			—		—		(8,174)		(8,174)

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BANDWIDTH INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


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



Exercises of vested stock options	16,095	—		—	—			125		—		—		125
Vesting of restricted stock units	144,977	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(30,029)	—		—	—			(1,751)		—		—		(1,751)

Adjustment to opening retained earnings due to adoption of ASU 2020-06	—	—		—	—			(156,248)		—		8,750		(147,498)
Foreign currency translation	—	—		—	—			—		(10,516)		—		(10,516)

Stock-based compensation	—	—		—	—			5,346		—		—		5,346
Net loss	—	—		—	—			—		—		(6,814)		(6,814)
Balance at March 31, 2022	23,309,031	$	23	1,965,170	$	2		$	349,949	$	(23,556)	$	(74,931)	$	251,487

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BANDWIDTH INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three months ended March 31,
	2022		2021
Cash flows from operating activities
Net loss	$	(6,814)	$	(5,316)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization	9,170		9,043
Right-of-use asset amortization	1,910		1,347



Amortization of debt discount and issuance costs	760		5,186
Stock-based compensation	5,346		4,390

Deferred taxes and other	94		(894)


Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(7,416)		3,530



Prepaid expenses and other assets	(11,334)		573
Accounts payable	11		1,387
Accrued expenses and other liabilities	3,690		(7,866)

Operating right-of-use liability	(2,112)		(1,371)



Net cash (used in) provided by operating activities	(6,695)		10,009
Cash flows from investing activities
Purchase of property and equipment	(5,272)		(6,781)
Capitalized software development costs	(653)		(1,103)






Proceeds from sales and maturities of other investments	—		30,000




Net cash (used in) provided by investing activities	(5,925)		22,116
Cash flows from financing activities



Payments on finance leases	(48)		(44)






Proceeds from issuance of convertible senior notes	—		250,000
Purchase of Capped Call	—		(25,500)

Payment of debt issuance costs	—		(7,000)
Proceeds from exercises of stock options	125		738

Value of equity awards withheld for tax liabilities	(1,701)		(2,900)

Net cash (used in) provided by financing activities	(1,624)		215,294
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,056)		402
Net (decrease) increase in cash, cash equivalents, and restricted cash	(15,300)		247,821
Cash, cash equivalents, and restricted cash, beginning of period	332,289		81,437
Cash, cash equivalents, and restricted cash, end of period	$	316,989	$	329,258

Supplemental disclosure of cash flow information
Cash paid for interest	$	472	$	525
Cash paid (refunded) for taxes, net	$	36	$	(394)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,453	$	—


Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment, accrued but not paid	$	433	$	1,780

Lease incentive	$	1,152	$	—








Equity awards withheld for tax liabilities, accrued but not paid	$	177	$	531
Payment of debt issuance costs, accrued but unpaid	$	—	$	659

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BANDWIDTH INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

Bandwidth Inc. (together with its subsidiaries, “Bandwidth” or the “Company”) was founded in July 2000 and incorporated in Delaware on March 29, 2001. The Company’s headquarters are located in Raleigh, North Carolina. The Company is an international cloud-based, software-powered communications platform-as-a-service (“CPaaS”) provider that enables enterprises to create, scale and operate voice or messaging communications services across any mobile application or connected device.

As a result of certain changes in our business during the quarter ended March 31, 2022, the company re-evaluated its segment reporting and determined that one segment was appropriate, rather than the previously reported segments comprising “CPaaS” and “Other”. The primary drivers for this change were the company’s strategic alignment of its operating departments and the sale of legacy businesses. All previously reported segment information has been recast to conform with the one segment structure.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2022.

The condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by GAAP on an annual reporting basis.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2022 or any future period.

Cost Alignment

During the quarter ended March 31, 2022, the Company changed its presentation of certain costs to align with benchmarked definitions of cost of revenue, research and development, sales and marketing, and general and administrative expenses. As part of the benchmarked definitions, the Company has included allocations of facilities and shared IT costs based on employee headcount within the cost of revenue, research and development, sales and marketing, and general and administrative expense categories. Additionally, the product management function is now included in research and development rather than general and administrative as previously reported and the customer billing and collections function and the amortization of acquired customer relationship intangible assets are now included in sales and marketing rather than general and administrative as previously reported. Management believes use of the benchmarked definitions will increase comparability to peers and therefore usability of its financial statements.

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Notes to Condensed Consolidated Financial Statements (continued)

All periods presented have been conformed to the current definitions of cost of revenue, research and development, sales and marketing, and general and administrative expenses. There was no impact to revenue or net income for any periods presented. The condensed consolidated balance sheets, condensed consolidated statements of changes in stockholders’ equity and condensed consolidated statements of cash flows are not affected by these changes.

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


	Three months ended March 31, 2021
	As reported		As previously reported

	(In thousands)
Statement of Operations
Cost of revenue	$	62,321	$	61,328
Research and development	16,789		13,333
Sales and marketing	19,110		11,992
General and administrative	15,296		26,863

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Bandwidth Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the amounts reported in these financial statements and accompanying notes. These estimates in the condensed consolidated financial statements include, but are not limited to, allowance for doubtful accounts, reserve for expected credit losses, reserve for sales credits, recoverability of long lived and intangible assets, fair value of acquired intangible assets and goodwill, discount rates used in the valuation of right-of-use assets and lease liabilities, the fair value of the liability of the Company’s Convertible Notes (as defined herein), estimated period of benefit, valuation allowances on deferred tax assets, certain accrued expenses and contingencies, economic and demographic actuarial assumptions related to pension and other postretirement benefit costs and liabilities, estimated cash flows on asset retirement obligation. Although the Company believes that the estimates it uses are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

Cash and Cash Equivalents

The Company classifies all highly liquid investments with original stated maturities of three months or less from the date of purchase as cash equivalents. Cash deposits are primarily in financial institutions in the United States. However, cash for monthly operating costs of international operations are deposited in banks outside the United States. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company utilizes money market funds as an investment option and only invests in AAA rated funds.

Restricted Cash

Restricted cash consists primarily of employee withholding tax liability and employee benefits contributions not yet remitted. The Company has classified this asset as a short-term asset in order to match the expected period of restriction.

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Notes to Condensed Consolidated Financial Statements (continued)

Accounts Receivable and Current Expected Credit Losses

Accounts receivable are stated at realizable value, net of allowances, which includes an allowance for doubtful accounts and a reserve for expected credit losses. The allowance for doubtful accounts is based on management’s assessment of the collectability of its customer accounts. The Company regularly reviews the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, customer creditworthiness, current economic trends, and reasonable and supportable forecasts about the future. Relevant risk characteristics include customer size and historical loss patterns. Management has evaluated the expected credit losses related to trade accounts receivable and determined that an allowance of approximately $1.7 million for uncollectible accounts and customer balances that are disputed was required as of each of March 31, 2022 and December 31, 2021. Refer to Note 4, “Financial Statement Components” to these condensed consolidated financial statements, for a rollforward of the components of the allowances as of March 31, 2022 and December 31, 2021.

The Company includes unbilled receivables in its accounts receivable balance. Generally, these receivables represent earned revenue from services provided to customers, which will be billed in the next billing cycle. All amounts are considered collectible and billable. As of March 31, 2022 and December 31, 2021, unbilled receivables were $35.5 million and $31.8 million, respectively.

Concentration of Credit Risk

Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Cash deposits may be in excess of insured limits. The Company believes that the financial institutions that hold its cash deposits are financially sound and, accordingly, minimal credit risk exists with respect to these balances.

With regard to customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As of March 31, 2022, no individual customer represented more than 10% of the Company’s accounts receivable, net of allowance for doubtful accounts. As of December 31, 2021, one individual customer represented approximately 10%, respectively, of the Company’s accounts receivable, net of allowance for doubtful accounts.

For the three months ended March 31, 2022 and 2021, no individual customer represented more than 10% of the Company’s revenue.

Debt Issuance Costs

The Company incurs debt issuance costs associated with obtaining and entering into credit agreements and issuing convertible notes. These costs customarily include non-refundable structuring fees, commitment fees, up-front fees and syndication expenses. The Company has a policy of deferring and amortizing these costs based on the effective interest method over the term of the credit agreements or the convertible notes, as applicable.

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Notes to Condensed Consolidated Financial Statements (continued)

Recently Adopted Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and EPS guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted the new guidance on January 1, 2022 using the modified retrospective approach resulting in decreases in accumulated deficit of $8.8 million, additional paid in capital of $156.2 million, and deferred tax liability of $1.0 million. The Company also recorded an increase in the convertible notes balance of $148.4 million as a result of the reversal of the separation of the convertible debt between debt and equity. The adoption of this standard decreased the amount of non-cash interest expense to be recognized in current and future periods as a result of eliminating the discount associated with the equity component. For the three months ended March 31, 2022, the combined interest expense of the Convertible Notes was $6.6 million lower upon the adoption of ASU 2020-06. The number of diluted shares increased as a result of transitioning from the treasury stock method to the as-if converted method but did not change the earnings per share for the three months ended March 31, 2022 and 2021 as the Company incurred a net loss in both reporting periods.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt —Modifications and Extinguishments (Subtopic 470-50), Compensation--Stock Compensation (Topic 718), and Derivatives and Hedging--Contracts in Entity’s Own Equity (Subtopic 815-40), which is intended to provide clarity surrounding the treatment for a modification or an exchange of a freestanding equity-classified written call option. The amendments also provide guidance for the recognition and measurement of earnings-per-share (“EPS”) for certain modifications or exchanges of freestanding equity-classified written call options for entities that present EPS. The amendments do not affect a holder’s accounting for freestanding call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted, including adoption in an interim period. The Company adopted the new guidance on January 1, 2022. The Company did not have any modifications or exchanges of freestanding written call options classified in equity during the reporting period and therefore did not have an impact on its financial statements.

Recent Accounting Pronouncements Not Yet Adopted

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

3. Fair Value Measurements

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

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

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Notes to Condensed Consolidated Financial Statements (continued)

The following table summarizes the assets measured at fair value as of March 31, 2022 and December 31, 2021:


				Fair value measurements on a recurring basis March 31, 2022
	Level 1	Level 2	Level 3			Total

				(In thousands)
Financial assets:
Cash and cash equivalents:
Money market account				$	230,003		$	—	$	—	$	230,003












Total financial assets				$	230,003		$	—	$	—	$	230,003


				Fair value measurements on a recurring basis December 31, 2021
	Level 1	Level 2	Level 3	Total

				(In thousands)
Financial assets:
Cash and cash equivalents:
Money market account				$	241,157	$	—	$	—	$	241,157











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

As of March 31, 2022, the fair value of the 2026 Convertible Notes and 2028 Convertible Notes, as further described in Note 8, “Debt”, was approximately $309.5 million and $164.8 million, respectively. As of December 31, 2021, the fair value of the 2026 Convertible Notes and the 2028 Convertible Notes was approximately $427.1 million and $194.2 million, respectively. The fair value was determined based on the closing price for the Convertible Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy.

4. Financial Statement Components

Accounts receivable, net of allowances consist of the following:


	As of March 31,		As of December 31,
	2022		2021

	(In thousands)
Trade accounts receivable	$	32,256	$	31,036
Unbilled accounts receivable	35,515		31,786
Allowance for doubtful accounts and reserve for expected credit losses	(1,680)		(1,661)
Other accounts receivable	2,736