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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 June 30, 2023


☐			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)

2230 Bandmate Way

Raleigh, NC 27607

(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 July 31, 2023, 23,629,682 shares of the registrant’s Class A common stock and 1,965,170 shares of registrant’s Class B common stock were outstanding.

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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 J une 3 0 , 2023 and December 31, 2022	5
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 3 0 , 2023 and 2022	6
	Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 3 0 , 2023 and 2022	7
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2023 and 2022	10
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	48
Item 4.	Controls and Procedures	49

	PART II - OTHER INFORMATION	50
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 5.	Other Information	91
Item 6.	Exhibits	91
	Signatures	93

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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 beliefs regarding the impact of macroeconomic conditions, including inflationary and/or recessionary pressures, on our business 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;

•the impact of our customers’ violation of applicable laws, our policies or other misuse of our platform;

•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;

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

•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;

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•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;

•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 (“STIR/SHAKEN”), and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;

•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 June 30,		As of December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	91,824	$	113,641

Marketable securities	30,750		71,231

Accounts receivable, net of allowance for doubtful accounts	74,864		74,465
Deferred costs	4,385		3,566
Prepaid expenses and other current assets	18,520		16,705


Total current assets	220,343		279,608
Property, plant and equipment, net	173,276		99,753
Operating right-of-use asset, net	7,120		9,993
Intangible assets, net	173,911		177,370
Deferred costs, non-current	4,895		4,938
Other long-term assets	7,591		31,251
Goodwill	330,144		326,405


Total assets	$	917,280	$	929,318
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	20,626	$	26,750
Accrued expenses and other current liabilities	58,690		62,577
Current portion of deferred revenue	7,929		7,181
Advanced billings	5,510		10,049
Operating lease liability, current	5,090		7,450




Total current liabilities	97,845		114,007
Other liabilities	64,252		11,176
Operating lease liability, net of current portion	3,457		4,640

Deferred revenue, net of current portion	8,269		8,306

Deferred tax liability	33,996		38,466
Convertible senior notes	417,559		480,546
Total liabilities	625,378		657,141












Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding	—		—
Class A voting common stock: $0.001 par value; 100,000,000 shares authorized; 23,624,769 and 23,379,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	24		23
Class B voting common stock: $0.001 par value; 20,000,000 shares authorized; 1,965,170 shares issued and outstanding as of June 30, 2023 and December 31, 2022	2		2



Additional paid-in capital	376,909		364,913
Accumulated deficit	(48,826)		(48,547)
Accumulated other comprehensive loss	(36,207)		(44,214)
Total stockholders’ equity	291,902		272,177
Total liabilities and stockholders’ equity	$	917,280	$	929,318

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 June 30,				Six months ended June 30,
	2023		2022		2023		2022




Revenue	$	145,874	$	136,489	$	283,718	$	267,853



Cost of revenue	86,919		81,085		169,110		157,035

Gross profit	58,955		55,404		114,608		110,818
Operating expenses
Research and development	24,852		24,264		50,513		46,691
Sales and marketing	25,754		23,327		50,783		46,479
General and administrative	15,868		16,863		32,587		33,568
Total operating expenses	66,474		64,454		133,883		126,738

Operating loss	(7,519)		(9,050)		(19,275)		(15,920)
Other income, net
Net gain on extinguishment of debt	—		—		12,767		—
Gain on business interruption insurance recoveries	4,000		—		4,000		—




Other (expense) income, net	(218)		2,385		(746)		2,620
Total other income, net	3,782		2,385		16,021		2,620

Loss before income taxes	(3,737)		(6,665)		(3,254)		(13,300)
Income tax (provision) benefit	(153)		417		2,975		238


Net loss	$	(3,890)	$	(6,248)	$	(279)	$	(13,062)





Net loss per share, basic and diluted	$	(0.15)	$	(0.25)	$	(0.01)	$	(0.52)







Weighted average number of common shares outstanding, basic and diluted	25,555,219		25,279,615		25,502,131		25,249,998

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) Income

(In thousands)

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Net loss	$	(3,890)	$	(6,248)	$	(279)	$	(13,062)
Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities, net of income taxes	54		(338)		126		(338)
Foreign currency translation, net of income taxes	234		(29,775)		7,881		(40,291)

Total other comprehensive income (loss)	288		(30,113)		8,007		(40,629)
Total comprehensive (loss) income	$	(3,602)	$	(36,361)	$	7,728	$	(53,691)

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 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



Exercises of vested stock options	4,287	—		—	—			37		—		—		37
Vesting of restricted stock units	28,351	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(7,005)	—		—	—			(145)		—		—		(145)


Unrealized loss on marketable securities	—	—		—	—			—		(338)		—		(338)
Foreign currency translation	—	—		—	—			—		(29,775)		—		(29,775)

Stock-based compensation	—	—		—	—			4,821		—		—		4,821
Net loss	—	—		—	—			—		—		(6,248)		(6,248)
Balance at June 30, 2022	23,334,664	23		1,965,170	2			354,662		(53,669)		(81,179)		219,839

Vesting of restricted stock units	30,395	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(6,856)	—		—	—			(89)		—		—		(89)

Unrealized gain on marketable securities	—	—		—	—			—		458		—		458
Foreign currency translation	—	—		—	—			—		(29,702)		—		(29,702)

Stock-based compensation	—	—		—	—			4,892		—		—		4,892
Net loss	—	—		—	—			—		—		(802)		(802)
Balance at September 30, 2022	23,358,203	23		1,965,170	2			359,465		(82,913)		(81,981)		194,596
Exercises of vested stock options	86	—		—	—			1		—		—		1
Vesting of restricted stock units	27,511	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(6,800)	—		—	—			(149)		—		—		(149)

Unrealized gain on marketable securities	—	—		—	—			—		194		—		194
Foreign currency translation	—	—		—	—			—		38,138		—		38,138
Unrealized gain on employee benefit pension plan	—	—		—	—			—		367		—		367
Stock-based compensation	—	—		—	—			5,596		—		—		5,596
Net income	—	—		—	—			—		—		33,434		33,434
Balance at December 31, 2022	23,379,000	23		1,965,170	2			364,913		(44,214)		(48,547)		272,177
Exercises of vested stock options	22,975	—		—	—			155		—		—		155
Vesting of restricted stock units	171,950	1		—	—			—		—		—		1

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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 loss		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Equity awards withheld for tax liability	(43,325)	—		—	—			(903)		—		—		(903)

Unrealized gain on marketable securities	—	—		—	—			—		72		—		72
Foreign currency translation	—	—		—	—			—		7,647		—		7,647

Stock-based compensation	—	—		—	—			6,649		—		—		6,649
Net income	—	—		—	—			—		—		3,611		3,611
Balance at March 31, 2023	23,530,600	24		1,965,170	2			370,814		(36,495)		(44,936)		289,409
Exercises of vested stock options	38,374	—		—	—			259		—		—		259
Vesting of restricted stock units	58,084	—		—	—			—		—		—		—
Equity awards withheld for tax liability	(2,289)	—		—	—			(30)		—		—		(30)

Unrealized gain on marketable securities	—	—		—	—			—		54		—		54
Foreign currency translation	—	—		—	—			—		234		—		234

Stock-based compensation	—	—		—	—			5,866		—		—		5,866
Net loss	—	—		—	—			—		—		(3,890)		(3,890)
Balance at June 30, 2023	23,624,769	$	24	1,965,170	$	2		$	376,909	$	(36,207)	$	(48,826)	$	291,902

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)


	Six months ended June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(279)	$	(13,062)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization	18,692		18,087
Non-cash reduction to the right-of-use asset	3,242		3,724



Amortization of debt discount and issuance costs	1,485		1,533
Stock-based compensation	15,383		10,167

Deferred taxes and other	(5,225)		(2,187)


Net gain on extinguishment of debt	(12,767)		—
Gain on business interruption insurance recoveries	(4,000)		—
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	3,712		(16,672)



Prepaid expenses and other assets	(957)		(10,497)
Accounts payable	(6,171)		11,742
Accrued expenses and other liabilities	(12,464)		1,433

Operating right-of-use liability	(3,919)		(3,944)



Net cash (used in) provided by operating activities	(3,268)		324
Cash flows from investing activities
Purchase of property, plant and equipment	(3,859)		(9,035)
Deposits for construction in progress	—		(14,545)
Capitalized software development costs	(5,001)		(1,231)



Purchase of marketable securities	(40,625)		(137,786)
Proceeds from sales and maturities of marketable securities	81,233		—



Proceeds from sale of business	835		—




Net cash provided by (used in) investing activities	32,583		(162,597)
Cash flows from financing activities



Payments on finance leases	(90)		(126)







Net cash paid for debt extinguishment	(51,259)		—


Payment of debt issuance costs	—		(487)
Proceeds from exercises of stock options	413		162

Value of equity awards withheld for tax liabilities	(1,000)		(1,937)

Net cash used in financing activities	(51,936)		(2,388)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	27		(1,434)
Net decrease in cash, cash equivalents, and restricted cash	(22,594)		(166,095)
Cash, cash equivalents, and restricted cash, beginning of period	114,622		332,289
Cash, cash equivalents, and restricted cash, end of period	$	92,028	$	166,194

Reconciliation of cash, cash equivalents, and restricted cash, end of period
Cash and cash equivalents	$	91,824	$	165,310
Restricted cash included in prepaid expenses and other current assets	204		884
Total cash, cash equivalents, and restricted cash, end of period	$	92,028	$	166,194

Supplemental disclosure of cash flow information
Cash (received from) paid for interest	$	(417)	$	1,280
Cash paid for taxes, net	$	2,593	$	528
Right-of-use assets obtained in exchange for new operating lease liabilities	$	297	$	3,404


Supplemental disclosure of noncash investing and financing activities
Purchase of property, plant and equipment, accrued but not paid	$	2,924	$	778

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BANDWIDTH INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six months ended June 30,
	2023		2022
Purchase of property and equipment through lease incentive	$	53,125	$	2,206
Purchase of property and equipment through use of escrow deposits	$	20,000	$	—

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.

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 U.S. 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 23, 2023.

The condensed consolidated balance sheet as of December 31, 2022, 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) income and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2023 or any future period.

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. Although the Company believes that the estimates it uses are

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Notes to Condensed Consolidated Financial Statements (continued)

reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from those estimates.

Marketable Securities

The Company classifies marketable securities as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. The Company may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, the Company classifies investments with maturities greater than 90 days as marketable securities in the accompanying condensed consolidated balance sheets. The Company evaluates its investments to assess whether the amortized cost basis is in excess of estimated fair value and determines what amount of that difference, if any, is caused by expected credit losses. Allowances for credit losses are recognized as a charge in other (expense) income, net on the condensed consolidated statements of operations, and any remaining unrealized losses are included in accumulated other comprehensive loss on the condensed consolidated balance sheets. Due to the nature and investment grade of the Company’s marketable securities, there were no credit losses recorded for the three and six months ended June 30, 2023. There have been no impairment charges for any unrealized losses during the period.

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 $1.6 million and $1.2 million for uncollectible accounts and customer balances that are disputed was required as of June 30, 2023 and December 31, 2022, respectively. Refer to Note 4, “Financial Statement Components” to these condensed consolidated financial statements, for a rollforward of the components of the allowances as of June 30, 2023 and December 31, 2022.

The Company includes unbilled receivables in its accounts receivable balance. Generally, these receivables represent earned revenue from services provided to customers, which will be billed in the next billing cycle. All amounts are considered collectible and billable. As of June 30, 2023 and December 31, 2022, unbilled receivables were $39.1 million and $33.9 million, respectively.

Concentration of Credit Risk

Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and trade accounts receivable. The Company maintains its cash, cash equivalents and marketable securities with high credit-quality financial institutions. Certain balances held by such financial institutions exceed insured limits.

With regard to customers, credit evaluation and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As of June 30, 2023 and December 31, 2022, no individual customer represented more than 10% of the Company’s accounts receivable, net of allowance for doubtful accounts.

For the three and six months ended June 30, 2023 and 2022, no individual customer represented more than 10% of the Company’s revenue.

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Notes to Condensed Consolidated Financial Statements (continued)

Business Interruption Insurance Recovery

Beginning in September 2021, the Company’s communications network was subjected to a distributed denial of service attack (the “DDoS Attack”) that caused intermittent communications services disruptions affecting certain of its markets and customers. During the period of the DDoS Attack, the Company maintained certain insurance coverage, including business interruption insurance, intended to cover such circumstances. In June 2023, the Company resolved its claim with an insurer, pursuant to which the Company is entitled to receive $4.0 million in proceeds from business interruption insurance, which was recorded within gain on business interruption insurance recoveries on the Company’s condensed consolidated statements of operations in the three and six months ended June 30, 2023. The proceeds were received in full in July 2023.

Recent Accounting Pronouncements Not Yet Adopted

There were no recent accounting pronouncements not yet adopted during the three and six months ended June 30, 2023 that were significant to the Company.

3. Fair Value Measurements

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires use of observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows:

•Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

•Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3. Unobservable inputs for which there is little or no market data, which requires the Company to develop its own assumptions.

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

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value as of June 30, 2023 and December 31, 2022 because of the relatively short duration of these instruments. Marketable securities consist of time deposits, corporate debt securities, U.S. treasury securities, and commercial paper not otherwise classified as cash equivalents. All marketable securities are considered to be available-for-sale and are recorded at their estimated fair values. Unrealized gains and losses for available-for-sale securities are recorded in accumulated other comprehensive loss.

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Notes to Condensed Consolidated Financial Statements (continued)

The Company evaluated its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The following tables summarize the Company’s financial assets measured at fair value as of June 30, 2023 and December 31, 2022:


	Amortized cost or carrying value		Unrealized gains		Unrealized losses		Fair value measurements on a recurring basis June 30, 2023
							Level 1		Level 2		Level 3		Total

	(In thousands)
Financial assets:
Cash and cash equivalents:
Money market account	$	57,105	$	—	$	—	$	57,105	$	—	$	—	$	57,105




Corporate debt securities	177		—		—		—		177		—		177
Commercial paper	15,220		—		—		15,220		—		—		15,220

Total included in cash and cash equivalents	72,502		—		—		72,325		177		—		72,502
Marketable securities:


Corporate debt securities	3,720		16		—		—		3,736		—		3,736
Commercial paper	26,590		424		—		27,014		—		—		27,014
Total marketable securities	30,310		440		—		27,014		3,736		—		30,750



Total financial assets	$	102,812	$	440	$	—	$	99,339	$	3,913	$	—	$	103,252


	Amortized cost or carrying value		Unrealized gains		Unrealized losses		Fair value measurements on a recurring basis December 31, 2022
							Level 1		Level 2		Level 3		Total

	(In thousands)
Financial assets:
Cash and cash equivalents:
Money market account	$	36,728	$	—	$	—	$	36,728	$	—	$	—	$	36,728





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

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