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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, 2019
OR
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)
 ______________________________________________
 
Delaware56-2242657
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.001 per shareBANDNASDAQ 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 filerAccelerated filer
Non-accelerated filerSmaller 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, 2019, 17,762,688 shares of the registrant’s Class A common stock and 5,627,060 shares of registrant’s Class B common stock were outstanding, respectively.



Table of Contents
Bandwidth Inc.
Quarterly Report on Form 10-Q
For the Three Months Ended June 30, 2019
Table of Contents
Page 

1

Table of Contents
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 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 expectations regarding revenue, costs, expenses, gross margin, dollar based net retention rate, adjusted EBITDA, other 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, 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 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;
our beliefs regarding the use of non-GAAP financial measures;
our ability to maintain, protect and enhance our intellectual property;
our expectations regarding litigation and other pending or potential disputes;
our ability to comply with modified or new laws and regulations; and
the increased expenses associated with being a public company.
We caution you that the foregoing list may not contain all the forward-looking statements made in this Quarterly Report on Form 10-Q.
2

Table of Contents
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.

3

Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


4

Table of Contents

Bandwidth Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

December 31,June 30,
20182019
Assets 
Current assets: 
Cash and cash equivalents $41,261 $140,091 
Marketable securities 17,400 55,839 
Accounts receivable, net of allowance for doubtful accounts 24,009 26,695 
Prepaid expenses and other current assets 6,114 8,541 
Deferred costs 2,630 2,053 
Total current assets 91,414 233,219 
Property and equipment, net 25,136 31,799 
Intangible assets, net 7,089 6,829 
Deferred costs, non-current 1,828 1,038 
Other long-term assets 727 2,128 
Goodwill 6,867 6,867 
Deferred tax asset 17,359 31,615 
Total assets $150,420 $313,495 
Liabilities and stockholders’ equity 
Current liabilities: 
Accounts payable $3,418 $3,089 
Accrued expenses and other current liabilities 21,393 24,120 
Current portion of deferred revenue 5,324 4,887 
Advanced billings 2,588 2,676 
Total current liabilities 32,723 34,772 
Deferred rent, net of current portion 2,503 3,698 
Deferred revenue, net of current portion 6,424 5,900 
Total liabilities 41,650 44,370 
Stockholders’ equity: 
Class A and Class B common stock 19 23 
Additional paid-in capital 116,600 271,628 
Accumulated deficit (7,848)(2,558)
Accumulated other comprehensive (loss) income (1)32 
Total stockholders’ equity 108,770 269,125 
Total liabilities and stockholders’ equity $150,420 $313,495 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5

Table of Contents

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, 
2018201920182019
Revenue $48,304 $56,779 $101,316 $110,100 
Cost of revenue 26,566 30,110 51,930 58,876 
Gross profit 21,738 26,669 49,386 51,224 
Operating expenses: 
Research and development 4,435 7,656 8,216 15,373 
Sales and marketing 4,654 8,514 9,176 16,863 
General and administrative 11,490 14,282 22,059 28,615 
Total operating expenses 20,579 30,452 39,451 60,851 
Operating income (loss) 1,159 (3,783)9,935 (9,627)
Other income, net 90 729 139 930 
Income (loss) before income taxes 1,249 (3,054)10,074 (8,697)
Income tax benefit
9,263 6,526 6,629 14,161 
Net income $10,512 $3,472 $16,703 $5,464 
Net income per share: 
Basic $0.58 $0.15 $0.93 $0.25 
Diluted $0.50 $0.14 $0.80 $0.23 
Weighted average number of common shares outstanding: 
Basic 18,154,964 23,102,553 17,908,159 21,807,523 
Diluted 20,893,653 24,447,417 20,866,777 23,262,496 
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 Income
(In thousands)
(Unaudited)
Three months ended June 30, Six months ended June 30, 
2018201920182019
Net income $10,512 $3,472 $16,703 $5,464 
Other comprehensive income 
Unrealized gain (loss) on marketable securities, net of income taxes 4 13 (2)21 
Foreign currency translation  12  12 
Total comprehensive income $10,516 $3,497 $16,701 $5,497 

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) income Accumulated deficit Total stockholders’ equity 
Shares Amount Shares Amount 
Balance at December 31, 2017 4,197,831 $4 13,440,725 $13 $102,465 $ $(25,771)$76,711 
Exercises of vested stock options 5,000 1 — — 34 — — 35 
Exercise of warrants to purchase common stock — — 48,904 — 36 — — 36 
Costs in connection with initial public offering — — — — (285)— — (285)
Unrealized loss on marketable securities — — — — — (6)— (6)
Stock based compensation — — — — 493 — — 493 
Net income — — — — — — 6,191 6,191 
Balance at March 31, 2018 4,202,831 5 13,489,629 13 102,743 (6)(19,580)83,175 
Exercises of vested stock options 1,112,646 1 — — 6,932 — — 6,933 
Vesting of restricted stock units 6,512 — — — — — — — 
Conversion of Class B voting common stock to Class A voting common stock 6,052,910 6 (6,052,910)(6)— — —  
Issuance of Class A voting common stock 330 — — — — — — — 
Unrealized gain on marketable securities — — — — — 4 — 4 
Stock based compensation — — — — 762 — — 762 
Net income — — — — — — 10,512 10,512 
Balance at June 30, 2018 11,375,229 12 7,436,719 7 110,437 (2)(9,068)101,386 
Exercises of vested stock options 534,474 — — — 3,579 — — 3,579 
Vesting of restricted stock units 2,466 — — — — — — — 
Conversion of Class B voting common stock to Class A voting common stock 435,313 — (435,313)— — — — — 
Unrealized loss on marketable securities — — — — — (1)— (1)
Stock based compensation — — — — 762 — — 762 
Net income — — — — — — 2,510 2,510 
Balance at September 30, 2018 12,347,482 12 7,001,406 7 114,778 (3)(6,558)108,236 
Exercises of vested stock options 72,569 — — — 500 — — 500 
Vesting of restricted stock units 2,022 — — — — — — — 
Conversion of Class B voting common stock to Class A voting common stock 490,674 1 (490,674)(1)— — —  
Unrealized gain on marketable securities — — — — — 2 — 2 
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Bandwidth Inc.
Condensed Consolidated Statements of Changes in Stockholders Equity
(In thousands, except share amounts)
(Unaudited)
Stock based compensation — — — — 1,322 — — 1,322 
Net loss — — — — — — (1,290)(1,290)
Balance at December 31, 2018 12,912,747 13 6,510,732 6 116,600 (1)(7,848)108,770 
Issuance of common stock in connection with follow on public offering, net of underwriting discounts 2,875,000 3 — — 147,388 — — 147,391 
Costs in connection with public offering — — — — (785)— — (785)
Exercises of vested stock options 589,510 1 — — 3,934 — — 3,935 
Vesting of restricted stock units 105,367 — — — — — — — 
Equity awards withheld for tax liability (16,585)— — — (938)— — (938)
Conversion of Class B voting common stock to Class A voting common stock 57,230 — (57,230)— — — — — 
Adjustment to opening retained earnings due to adoption of ASC 606 — — — — — — (174)(174)
Unrealized gain on marketable securities — — — — — 8 — 8 
Stock based compensation — — — — 1,676 — — 1,676 
Net income — — — — — — 1,992 1,992 
Balance at March 31, 2019 16,523,269 17 6,453,502 6 267,875 7 (6,030)261,875 
Costs in connection with public offering — — — — (49)— — (49)
Exercises of vested stock options 366,405 — — — 2,446 — — 2,446 
Vesting of restricted stock units 20,003 — — — — — — — 
Equity awards withheld for tax liability (3,665)— — — (274)— — (274)
Conversion of Class B voting common stock to Class A voting common stock 826,441 1 (826,441)(1)— — — — 
Unrealized gain on marketable securities — — — — — 13 — 13 
Foreign currency translation — — — — — 12 — 12 
Stock based compensation — — — — 1,630 — — 1,630 
Net income — — — — — — 3,472 3,472 
Balance at June 30, 2019 17,732,453 $18 5,627,061 $5 $271,628 $32 $(2,558)$269,125 
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, 
20182019
Operating activities 
Net income $16,703 $5,464 
Adjustments to reconcile net income to net cash provided by (used in) operating activities: 
Depreciation and amortization 2,683 4,321 
Accretion of bond discount (26)(478)
Amortization of debt issuance costs 32 139 
Stock-based compensation 1,255 3,306 
Deferred taxes (6,677)(14,263)
Loss on disposal of property and equipment 10 351 
Changes in operating assets and liabilities: 
Accounts receivable (1,776)(2,683)
Prepaid expenses and other assets (620)(3,586)
Deferred costs 225 1,290 
Accounts payable (2,375)(95)
Accrued expenses and other liabilities 2,517 1,584 
Deferred revenue and advanced billings 4,141 (1,047)
Deferred rent 1,025 285 
Net cash provided by (used in) operating activities 17,117 (5,412)
Investing activities 
Purchase of property and equipment (3,113)(7,844)
Capitalized software development costs (1,547)(1,675)
Proceeds from sale of property and equipment 3  
Purchase of marketable securities (13,995)(55,933)
Maturities of marketable securities 3,000 18,000 
Net cash used in investing activities (15,652)(47,452)
Financing activities 
Proceeds from the follow-on public offering, net of underwriting discounts  147,391 
Payment of costs related to the follow-on public offering  (755)
Payment of costs related to the initial public offering (285) 
Payments on capital leases (50) 
Payment of debt issuance costs  (125)
Proceeds from exercises of stock options 6,967 6,381 
Proceeds from exercises of warrants 37  
Equity awards withheld and paid for tax liabilities  (945)
Net cash provided by financing activities 6,669 151,947 
Effect of exchange rate changes on cash, cash equivalents and restricted cash  (1)
Net increase in cash, cash equivalents, and restricted cash 8,134 99,082 
Cash, cash equivalents, and restricted cash, beginning of period 37,870 41,501 
Cash, cash equivalents, and restricted cash, end of period $46,004 $140,583 
Supplemental disclosure of cash flow information 
Cash paid during the period for interest $45 $96 
Cash paid for taxes $155 $157 
Supplemental disclosure of noncash investing and financing activities 
Purchase of property and equipment, accrued but not paid $2,126 $2,725 
Equity awards withheld for tax liabilities, accrued but not paid $ $267 
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
(In thousands, except share and per share amounts)
(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 a cloud-based, software-powered communications platform-as-a-service (“CPaaS”) provider that enables enterprises to create, scale and operate voice or text communications services across any mobile application or connected device.
The Company has two operating and reportable segments, CPaaS and Other. CPaaS revenue is derived from usage and monthly services fees charged for usage of Voice, Messaging, 911 and Phone Numbers solutions through the Company’s proprietary CPaaS software application programming interfaces. Other revenue consists of fees charged for services provided such as: SIP trunking, data resale, and a hosted Voice-over Internet Protocol (“VoIP”). The Other segment also includes revenue from traffic generated by other carriers, SMS registration fees and other miscellaneous product lines.
Follow-on Public Offering
On March 11, 2019, the Company completed a follow-on public offering in which the Company sold 2,875,000 shares of its Class A common stock, including 375,000 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at a public offering price of $54.25 per share. The Company received aggregate proceeds of $146,557, after deducting underwriting discounts and offering expenses paid and payable by the Company.

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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K filed with the SEC on February 15, 2019.
The condensed consolidated balance sheet as of December 31, 2018, 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 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 2019 or any future period.
Reclassification
The Company reclassified certain prior year amounts to conform to the current year presentation. These reclassifications had no impact on the previously reported total assets, liabilities, stockholder’s deficit or net income.

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Notes to Condensed Consolidated Financial Statements (continued)
(In thousands, except share and per share amounts)






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 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. 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. These estimates in the consolidated financial statements include, but are not limited to, allowance for doubtful accounts, recoverability of long lived and intangible assets, estimated period of benefit, valuation allowances on deferred tax assets, certain accrued expenses, and contingencies.
Cash and Cash Equivalents
The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months from the date of purchase as current marketable securities. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company invests its cash primarily in government securities and obligations, corporate debt securities, money market funds and reverse repurchase agreements (“RRAs”). RRAs are collateralized by deposits in the form of Government Securities and Obligations for an amount not less than 102% of their value. The Company does not record an asset or liability as the Company is not permitted to sell or repledge the associated collateral. The Company has a policy that the collateral has at least an “A” (or equivalent) credit rating. The Company utilizes a third party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the RRAs on a daily basis. RRAs with stated maturities of greater than three months from the date of purchase are classified as marketable securities.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
For the six months ended June 30, 2019:
December 31, June 30, 
2018 2019 
Cash and cash equivalents $41,261 $140,091 
Restricted cash 240 492 
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows $41,501 $140,583 
For the six months ended June 30, 2018:
December 31, June 30, 
2017 2018 
Cash and cash equivalents $37,627 $45,806 
Restricted cash 243 198 
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows $37,870 $46,004 

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Notes to Condensed Consolidated Financial Statements (continued)
(In thousands, except share and per share amounts)






Restricted cash is primarily for Automated Clearing House availability, customer deposits, employee withholding tax liability not yet remitted, and for credit card security. The Company has classified this asset as a long-term asset in order to match the expected period of restriction and is included in Other long-term assets in the condensed consolidated balance sheets.
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. 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 December 31, 2018, one customer represented approximately 18% of the Company’s accounts receivable, net of allowance for doubtful accounts. As of June 30, 2019, 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, 2018 and 2019, no individual customer represented more than 10% of the Company’s total revenue.
Foreign currency translation
The Company has foreign operations with non-USD functional currencies. The Euro and British Pound are the functional currencies for the Company’s international operations. Foreign exchange gains and losses, which result from the process of remeasuring foreign currency transactions into the appropriate functional currency, are included in other income, net in the