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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 September 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)
__________________________________

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 
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
As of October 31, 2019, 18,564,427 shares of the registrant’s Class A common stock and 4,927,400 shares of registrant’s Class B common stock were outstanding, respectively.




BANDWIDTH INC.
Table of Contents
Page

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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, 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 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.
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Table of Contents
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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Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BANDWIDTH INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 31,September 30,
20182019
Assets
Current assets:
Cash and cash equivalents$41,261  $192,410  
Marketable securities17,400    
Accounts receivable, net of allowance for doubtful accounts24,009  30,030  
Prepaid expenses and other current assets6,114  8,350  
Deferred costs2,630  2,522  
Total current assets91,414  233,312  
Restricted cash240  391  
Property and equipment, net25,136  36,085  
Intangible assets, net7,089  6,699  
Deferred costs, non-current1,828  1,901  
Other long-term assets487  1,250  
Goodwill6,867  6,867  
Deferred tax asset17,359  34,449  
Total assets$150,420  $320,954  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$3,418  $3,343  
Accrued expenses and other current liabilities21,393  28,002  
Current portion of deferred revenue5,324  5,020  
Advanced billings2,588  4,720  
Total current liabilities32,723  41,085  
Deferred rent, net of current portion2,503  3,728  
Deferred revenue, net of current portion6,424  5,755  
Total liabilities41,650  50,568  
Stockholders’ equity:
Class A and Class B common stock19  23  
Additional paid-in capital116,600  273,970  
Accumulated deficit(7,848) (3,572) 
Accumulated other comprehensive loss(1) (35) 
Total stockholders’ equity108,770  270,386  
Total liabilities and stockholders’ equity$150,420  $320,954  
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 September 30,Nine months ended September 30,
2018201920182019
Revenue$50,454  $60,491  $151,770  $170,591  
Cost of revenue27,474  33,104  79,404  91,980  
Gross profit22,980  27,387  72,366  78,611  
Operating expenses:
Research and development5,895  7,939  14,111  23,312  
Sales and marketing5,422  8,784  14,598  25,647  
General and administrative11,576  15,269  33,635  43,884  
Total operating expenses22,893  31,992  62,344  92,843  
Operating income (loss)87  (4,605) 10,022  (14,232) 
Other income, net103  781  242  1,711  
Income (loss) before income taxes 190  (3,824) 10,264  (12,521) 
Income tax benefit2,320  2,810  8,949  16,971  
Net income (loss) $2,510  $(1,014) $19,213  $4,450  
Net income (loss) per share
Basic$0.13  $(0.04) $1.05  $0.20  
Diluted$0.12  $(0.04) $0.91  $0.19  
Weighted average number of common shares outstanding:
Basic19,072,196  23,426,455  18,300,435  22,353,097  
Diluted21,146,124  23,426,455  21,065,802  23,692,571  
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 (Loss)
(In thousands)
(Unaudited)
Three months ended September 30,Nine months ended September 30,
2018201920182019
Net income (loss) $2,510  $(1,014) $19,213  $4,450  
Other comprehensive loss  
Unrealized loss on marketable securities, net of income taxes(1) (21) (3)   
Foreign currency translation  (46)   (34) 
Total other comprehensive loss  (1) (67) (3) (34) 
Total comprehensive income (loss) $2,509  $(1,081) $19,210  $4,416  

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 capitalAccumulated other comprehensive (loss) incomeAccumulated deficitTotal stockholders’ equity
SharesAmountSharesAmount
Balance at December 31, 2017  4,197,831  $4  13,440,725  $13  $102,465  $  $(25,771) $76,711  
Exercises of vested stock options5,000  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 options1,112,646  1  —  —  6,932  —  —  6,933  
Vesting of restricted stock units6,512  —  —  —  —  —  —  —  
Conversion of Class B voting common stock to Class A voting common stock6,052,910  6  (6,052,910) (6) —  —  —    
Issuance of Class A voting common stock330  —  —  —  —  —  —  —  
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 options534,474  —  —  —  3,579  —  —  3,579  
Vesting of restricted stock units2,466  —  —  —  —  —  —  —  
Conversion of Class B voting common stock to Class A voting common stock435,313  —  (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 options72,569  —  —  —  500  —  —  500  
Vesting of restricted stock units2,022  —  —  —  —  —  —  —  
Conversion of Class B voting common stock to Class A voting common stock490,674  1  (490,674) (1) —  —  —    
Unrealized gain on marketable securities—  —  —  —  —  2  —  2  
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 discounts2,875,000  3  —  —  147,388  —  —  147,391  
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BANDWIDTH INC.
Condensed Consolidated Statements of Changes in Stockholders Equity
(In thousands, except share amounts)
(Unaudited)
Costs in connection with public offering—  —  —  —  (785) —  —  (785) 
Exercises of vested stock options589,510  1  —  —  3,934  —  —  3,935  
Vesting of restricted stock units105,367  —  —  —  —  —  —  —  
Equity awards withheld for tax liability(16,585) —  —  —  (938) —  —  (938) 
Conversion of Class B voting common stock to Class A voting common stock57,230  —  (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 options366,405  —  —  —  2,446  —  —  2,446  
Vesting of restricted stock units20,003  —  —  —  —  —  —  —  
Equity awards withheld for tax liability(3,665) —  —  —  (274) —  —  (274) 
Conversion of Class B voting common stock to Class A voting common stock826,441  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  
Exercises of vested stock options  108,361  —  —  —  868  —