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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, 2020
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 and posted to its corporate web site, if any, 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 and post 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 24, 2020, 20,669,553 shares of the registrant’s Class A common stock and 3,499,554 shares of registrant’s Class B common stock were outstanding, respectively.




BANDWIDTH INC.
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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 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, 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 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 (“STIR”) and Signature-based Handling of Asserted Information Using toKENs (“SHAKEN”) (together, “STIR/SHAKEN”) and other robocalling prevention and anti-spam standards and increased costs associated with such compliance;
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our customers’ violation of our policies or other misuse of our platform;
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;
our expectations about the impact of public health epidemics, such as COVID-19, or natural disasters on our business, results of operations and financial condition; and
our ability to successfully integrate and benefit from any future strategic acquisitions or investments.
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 December 31,As of June 30,
20192020
Assets
Current assets:
Cash and cash equivalents$184,414  $290,979  
Restricted cash590  930  
Other investments  230,780  
Accounts receivable, net of allowance for doubtful accounts30,187  41,779  
Prepaid expenses and other current assets9,260  10,871  
Deferred costs2,498  1,992  
Total current assets226,949  577,331  
Property and equipment, net41,654  43,770  
Operating right-of-use asset21,031  18,699  
Intangible assets, net6,569  6,309  
Deferred costs, non-current1,952  3,042  
Other long-term assets1,533  1,939  
Goodwill6,867  6,867  
Deferred tax asset, net34,861    
Total assets$341,416  $657,957  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$4,190  $4,474  
Accrued expenses and other current liabilities27,328  29,405  
Current portion of deferred revenue5,177  5,236  
Advanced billings4,167  4,523  
Operating lease liability, current4,876  5,067  
Total current liabilities45,738  48,705  
Operating lease liability, net of current portion19,868  17,065  
Deferred revenue, net of current portion5,720  6,352  
Convertible senior notes  272,901  
Total liabilities71,326  345,023  
Stockholders’ equity:
Class A and Class B common stock24  24  
Additional paid-in capital275,553  340,215  
Accumulated deficit(5,528) (27,227) 
Accumulated other comprehensive income (loss)41  (78) 
Total stockholders’ equity270,090  312,934  
Total liabilities and stockholders’ equity$341,416  $657,957  
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,
2019202020192020
Revenue$56,779  $76,790  $110,100  $145,308  
Cost of revenue30,110  42,009  58,876  78,368  
Gross profit26,669  34,781  51,224  66,940  
Operating expenses:
Research and development7,656  9,554  15,373  19,084  
Sales and marketing8,514  8,655  16,863  18,072  
General and administrative14,282  16,840  28,615  32,936  
Total operating expenses30,452  35,049  60,851  70,092  
Operating loss(3,783) (268) (9,627) (3,152) 
Other income (expense), net729  (3,868) 930  (4,774) 
Loss before income taxes(3,054) (4,136) (8,697) (7,926) 
Income tax benefit (provision)6,526  (16,505) 14,161  (13,773) 
Net income (loss)$3,472  $(20,641) $5,464  $(21,699) 
Net income (loss) per share
Basic$0.15  $(0.86) $0.25  $(0.91) 
Diluted$0.14  $(0.86) $0.23  $(0.91) 
Weighted average number of common shares outstanding:
Basic23,102,553  23,973,663  21,807,523  23,768,616  
Diluted24,447,417  23,973,663  23,262,496  23,768,616  
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 June 30,Six months ended June 30,
2019202020192020
Net income (loss)$3,472  $(20,641) $5,464  $(21,699) 
Other comprehensive income (loss)
Unrealized gain on marketable securities, net of income taxes13    21    
Foreign currency translation, net of income taxes12  (23) 12  (119) 
Other comprehensive income (loss)25  (23) 33  (119) 
Total comprehensive income (loss)$3,497  $(20,664) $5,497  $(21,818) 

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 income (loss)Accumulated deficitTotal stockholders’ equity
SharesAmountSharesAmount
Balance at December 31, 201812,912,747  $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  
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, 201916,523,269  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, 201917,732,453  18  5,627,061  5  271,628  32  (2,558) 269,125  
Exercises of vested stock options108,361  —  —  —  868  —  —  868  
Vesting of restricted stock units19,064  —  —  —  —  —  —  —  
Equity awards withheld for tax liability(2,762) —  —  —  (180) —  —  (180) 
Conversion of Class B voting common stock to Class A voting common stock449,660  —  (449,660) —  —  —  —  —  
Unrealized loss on marketable securities—  —  —  —  —  (21) —  (21) 
Foreign currency translation—  —  —  —  —  (46) —  (46) 
Stock based compensation—  —  —  —  1,654  —  —  1,654  
Net loss—  —  —  —  —  —  (1,014) (1,014) 
Balance at September 30, 201918,306,776  18  5,177,401  5  273,970  (35) (3,572) 270,386  
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BANDWIDTH INC.
Condensed Consolidated Statements of Changes in Stockholders Equity
(In thousands, except share amounts)
(Unaudited)
Exercises of vested stock options11,206  —  —  —  108  —  —  108  
Vesting of restricted stock units19,510  —  —  —  —  —  —  —  
Equity awards withheld for tax liability(3,014) —  —  —  (191) —  —  (191) 
Conversion of Class B voting common stock to Class A voting common stock250,000  1  (250,000) —  —  —  —  1  
Unrealized gain on marketable securities—  —  —  —  —  1  —  1  
Foreign currency translation—  —  —  —  —  75  —  75  
Stock based compensation—  —  —  —  1,666  1,666  
Net loss—  —  —  —  —  —  (1,956) (1,956) 
Balance at December 31, 201918,584,478  19  4,927,401  5  275,553  41  (5,528) 270,090  
Issuance of debt conversion option—  —  —  —  104,553  —  —  104,553  
Debt conversion option issuance costs, net of tax—  —  —  —  (3,731) —  —  (3,731) 
Capped call option purchase price—  —  —  —  (43,320) —  —  (43,320) 
Exercises of vested stock options32,059  —  —  —  244  —  —  244  
Vesting of restricted stock units103,824  —  —  —  —  —  —  —  
Equity awards withheld for tax liability(14,411) —  —  —  (1,021) —  —  (1,021) 
Conversion of Class B voting common stock to Class A voting common stock500,250  —  (500,250) (1) —  —  —  (1) 
Foreign currency translation—  —  —  —  —  (96) —  (96) 
Stock based compensation—  —  —  —  2,499  —  —  2,499  
Net loss—  —  —  —  —  —  (1,058) (1,058) 
Balance at March 31, 202019,206,200  19  4,427,151  4  334,777  (55) (6,586) 328,159  
Debt conversion option issuance costs, net of tax—  —  —  —  (11) —  —  (11) 
Exercises of vested stock options502,182  1  —  —  3,296  —  —  3,297  
Vesting of restricted stock units21,871  —  —  —  —  —  —  —