Bandwidth Inc

Previous wording

For the three months ended June 30, 2024 and 2023, total revenue was$174 million and $146 million, respectively, representing an increase of 19%. For the three months ended June 30, 2024 and 2023, net income was $4 million and net loss was $4 million, respectively. For the six months ended June 30, 2024 and 2023, total revenue was$345 million and $284 million, respectively, representing an increase of 21%. For the six months ended June 30, 2024 and 2023, net loss was $5 million and less than $1 million, respectively.

Current wording

For the three months ended September 30, 2024 and 2023, total revenue was$194 million and $152 million, respectively, representing an increase of 28%. For the three months ended September 30, 2024 and 2023, net income was less than $1 million and net loss was $5 million, respectively. For the nine months ended September 30, 2024 and 2023, total revenue was$539 million and $436 million, respectively, representing an increase of 24%. For the nine months ended September 30, 2024 and 2023, net loss was $5 million.

Previous wording

The difference between the consideration used for the 2024 Repurchases and the carrying value of the 2026 Convertible Notes resulted in a gain of $10 million recorded within net gain on extinguishment of debt on our condensed consolidated statements of operations for the six months ended June 30, 2024.

Current wording

The difference between the consideration used for the 2024 Repurchases and the carrying value of the 2026 Convertible Notes resulted in a gain of $10 million recorded within net gain on extinguishment of debt on our condensed consolidated statements of operations for the nine months ended September 30, 2024.

Previous wording

As of June 30, 2024, we had $40 million in outstanding borrowings under the Credit Facility and we were in compliance with all financial and non-financial covenants for all periods presented. As of June 30, 2024, the applicable weighted average interest rate was 7.94% and the available borrowing capacity under the Credit Facility was $60 million.

Current wording

As of September 30, 2024, we had $25 million in outstanding borrowings under the Credit Facility, and we were in compliance with all financial and non-financial covenants for all periods presented. As of September 30, 2024, the applicable weighted average interest rate was 7.71% and the available borrowing capacity under the Credit Facility was $75 million.

Previous wording

For the three months ended June 30, 2024 and 2023, we generated 73% and 72%, respectively, of our cloud communications revenue from reoccurring sources. For the six months ended June 30, 2024 and 2023, we generated 74% and 72%, respectively, of our cloud communications revenue from reoccurring sources. The large bulk of our remaining cloud communications revenue is generated from recurring monthly charges.

Current wording

For the three months ended September 30, 2024 and 2023, we generated 75% and 73%, respectively, of our cloud communications revenue from reoccurring sources. For the nine months ended September 30, 2024 and 2023, we generated 74% and 72%, respectively, of our cloud communications revenue from reoccurring sources. The large bulk of our remaining cloud communications revenue is generated from recurring monthly charges.

Previous wording

We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods. Unbilled revenue made up 55% and 52% of outstanding accounts receivable, net of allowance for doubtful accounts, as of June 30, 2024 and 2023, respectively.

Current wording

We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods. Unbilled revenue made up 55% and 53% of outstanding accounts receivable, net of allowance for doubtful accounts, as of September 30, 2024 and 2023, respectively.

Previous wording

For the six months ended June 30, 2024 and 2023, our effective tax rate was 9.3% and 91.4% respectively. The decrease in the effective tax rate from 2023 to 2024 is primarily due to the U.S. utilizing all federal net operating loss carryforwards in 2024 and as such, recognizing additional tax payable in the U.S. This increased U.S. tax liability offsets the benefit we are recognizing on losses outside of the U.S., resulting in a lower effective tax rate.

Current wording

For the three months ended September 30, 2024 and 2023, our effective tax rate was 228.7% and 4.1% respectively. The increase in the effective tax rate from 2023 to 2024 is primarily due to the near breakeven year-to-date pre-tax income of less than $1 million in relation to the tax benefits resulting from operating losses outside of the U.S. which are not offset by a valuation allowance, and decreased tax payable in the U.S.

Previous wording

For the three months ended June 30, 2024 and 2023, our effective tax rate was(8.9)% and (4.1)% respectively. The decrease in the effective tax rate from 2023 to 2024 is primarily due to an increased tax benefit from operating losses outside of the U.S., where tax benefits are not offset by a valuation allowance.

Current wording

For the nine months ended September 30, 2024 and 2023, our effective tax rate was 21.0% and 37.1% respectively. The decrease in the effective tax rate from 2023 to 2024 is primarily due to decreased operating losses outside of the U.S., where tax benefits are recognized and are not offset by a valuation allowance.

Previous wording

The following table sets forth thecondensed consolidated statements of operations for the periods indicated.

Current wording

The following table sets forth selected condensed consolidated statements of operations data for the periods indicated.

Previous wording

The following table sets forth our results of operations as a percentage of our total revenue for the periods presented. *

Current wording

The following table sets forth selected condensed consolidated statements of operations data as a percentage of our total revenue for the periods presented. *

Previous wording

For the three months ended June 30, 2024, our revenue from messaging surcharges increased by$18 million, or 65%, compared with the same period in 2023. This growth was driven by higher overall messaging traffic, campaign related product mix dynamics resulting in higher MMS traffic and more expensive per message MMS surcharges, and new fees imposed by certain carriers for unregistered traffic.

Current wording

For the three months ended September 30, 2024, our revenue from messaging surcharges increased by$23 million, or 73%, compared with the same period in 2023. This growth was primarily driven by higher messaging volumes.

Previous wording

For the three months ended June 30, 2024, total cost of revenue increased by$22 million, compared with the same period in 2023, driven byhigher pass-through messaging surcharges of$18 million. Thecombination of changes in total revenue and total cost of revenue yielded gross profit of $65 million, which increased$6 million from the same period in 2023, driven by higher revenue from messaging, voice and phone numbers.

Current wording

For the three months ended September 30, 2024, total cost of revenue increased by $28 million, compared with the same period in 2023, driven by higher pass-through messaging surcharges of$22 million. Thecombination of changes in total revenue and total cost of revenue yielded gross profit of $73 million, which increased $14 million from the same period in 2023, driven by higher revenue from messaging, voice and phone numbers.

Previous wording

Our total gross margin percentage of 37% for the three months ended June 30, 2024, declined by 3%, compared with the same period in 2023, driven by higher pass-through messaging surcharges within the total revenue mix.

Current wording

Our total gross margin percentage of 38% for the three months ended September 30, 2024, declined by 1%, compared with the same period in 2023, driven by higher pass-through messaging surcharges within the total revenue mix.

Previous wording

As a percentage of revenue, total operating expenses for the three months ended June 30, 2024 and 2023 were 41% and 46%, respecti vely.

Current wording

As a percentage of revenue, total operating expenses for the three months ended September 30, 2024 and 2023 were 38% and 43%, respecti vely.

Previous wording

For the three months ended June 30, 2024, research and development expenses increased by$3 million, or 13%, compared with the same period in 2023. This increase was primarily due to higher facilities and depreciation expenses in support of our expanding research and development capabilities.

Current wording

For the three months ended September 30, 2024, research and development expenses increased by$5 million, or 22%, compared with the same period in 2023. This increase was primarily due to higher headcount expenses as we invest in our staff and bolster our expanding research and development capabilities.

Previous wording

For the three months ended June 30, 2024, general and administrative expenses increased by$1 million, or 5%, compared with the same period in 2023, driven by higher headcount expenses which were partially offset by lower corporate administrative expenses.

Current wording

For the three months ended September 30, 2024, general and administrative expenses increased by$2 million, or 11%, compared with the same period in 2023, driven entirely by higher headcount expenses.

Previous wording

For the three months ended June 30, 2024, interest income, net of expense decreased by less than $1 million, compared with the same period in 2023. This was driven by higher interest expense from a draw on our Credit Facility to partially fund the 2024 Repurchases in May 2024 and partially offset byhigher interest income from higher interest rates on invested cash.

Current wording

For the three months ended September 30, 2024, interest income, net of expense decreased by$1 million, compared with the same period in 2023. This was driven by higher interest expense from a draw on our Credit Facility to partially fund the 2024 Repurchases and lower interest income from the utilization of cash for the 2024 Repurchases.

Previous wording

For thethree months ended June 30, 2024, we recognized an income tax benefit ofless than $1 million, an increase ofless than $1 million, compared with the same period in 2023. The resulting effective tax rate for thethree months ended June 30, 2024 was (8.9)%, compared with(4.1)% in 2023.

Current wording

For thethree months ended September 30, 2024, we recognized an income tax benefit of $1 million, an increase ofless than $1 million, compared with the same period in 2023. The resulting effective tax rate for thethree months ended September 30, 2024 was 228.7%, compared with 4.1% in 2023.

Previous wording

For the three months ended June 30, 2024 and 2023, the effective tax rate of (8.9)% and(4.1)%differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.

Current wording

For the three months ended September 30, 2024 and 2023, the effective tax rate of 228.7%and 4.1%differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.

Previous wording

For the six months ended June 30, 2024, our revenue from messaging surcharges increased by$37 million, or 73%, compared with the same period in 2023. This growth was driven by higher overall messaging traffic, campaign related product mix dynamics resulting in higher MMS traffic and more expensive per message MMS surcharges, and new fees imposed by certain carriers for unregistered traffic.

Current wording

For the nine months ended September 30, 2024, our revenue from messaging surcharges increased by$60 million, or 73%, compared with the same period in 2023. This growth was primarily driven by higher messaging volumes.

Previous wording

For the six months ended June 30, 2024, total cost of revenue increased by$45 million, compared with the same period in 2023, driven byhigher pass-through messaging surcharges of$37 million. Thecombination of changes in total revenue and total cost of revenue yielded gross profit of $130 million, which increased$16 million from the same period in 2023, driven by higher revenue across all product categories.

Current wording

For the nine months ended September 30, 2024, total cost of revenue increased by$73 million, compared with the same period in 2023, driven byhigher pass-through messaging surcharges of$59 million. Thecombination of changes in total revenue and total cost of revenue yielded gross profit of $203 million, which increased$29 million from the same period in 2023, driven by higher revenue across all product categories.

Previous wording

Our total gross margin percentage of 38% for the six months ended June 30, 2024, declined by 2%, compared with the same period in 2023, driven by higher pass-through messaging surcharges within the total revenue mix.

Current wording

Our total gross margin percentage of 38% for the nine months ended September 30, 2024, declined by 2%, compared with the same period in 2023, driven by higher pass-through messaging surcharges within the total revenue mix.

Previous wording

As a percentage of revenue, total operating expenses for thefor the six months ended June 30, 2024 and 2023 were 43% and 47%, respecti vely.

Current wording

As a percentage of revenue, total operating expensesfor the nine months ended September 30, 2024 and 2023 were 41% and 46%, respecti vely.

Previous wording

For the six months ended June 30, 2024, research and development expenses increased by$7 million, or 13%, compared with the same period in 2023. This increase was primarily due to higher facilities expenses in support of our expanding research and development capabilities.

Current wording

For the nine months ended September 30, 2024, research and development expenses increased by$12 million, or 16%, compared with the same period in 2023. This increase was primarily due to higher facilities expenses in support of our expanding research and development capabilities.

Previous wording

For the six months ended June 30, 2024, sales and marketing expenses increased by $4 million, or 9%, compared with the same period in 2023, primarily due to higher facilities expenses in support of our sales force.

Current wording

For the nine months ended September 30, 2024, sales and marketing expenses increased by $6 million, or 8%, compared with the same period in 2023, primarily due to higher facilities expenses in support of our sales force.

Previous wording

For the six months ended June 30, 2024, general and administrative expenses increased by$2 million, or 6%, compared with the same period in 2023, driven by higher headcount expenses which were partially offset by lower corporate administrative expenses.

Current wording

For the nine months ended September 30, 2024, general and administrative expenses increased by$4 million, or 8%, compared with the same period in 2023, driven by higher headcount expenses.

Previous wording

For the six months ended June 30, 2024, interest income, net of expense increased by$1 million, compared with the same period in 2023, primarily from higher interest income of $1 million from higher interest rates on invested cash.

Current wording

For the nine months ended September 30, 2024, interest income, net of expense increased by less than $1 million, compared with the same period in 2023, primarily from higher interest income of less than $1 million and partially offset byhigher interest expense from a draw on our Credit Facility to partially fund the 2024 Repurchases in May 2024.

Previous wording

For the six months ended June 30, 2024, we recognized an income tax benefit of$1 million, a decrease of $2 million, compared with the same period in 2023. The resulting effective tax rate for the six months ended June 30, 2024, was 9.3%, compared with 91.4% in 2023.

Current wording

For the nine months ended September 30, 2024, we recognized an income tax benefit of$1 million, a decrease of $2 million, compared with the same period in 2023. The resulting effective tax rate for the nine months ended September 30, 2024, was 21.0%, compared with 37.1% in 2023.

Previous wording

For thethree months ended June 30, 2024, the change to the effective tax rate was primarily due to an increased tax benefit from operating losses outside of the U.S., where tax benefits are not offset by a valuation allowance.

Current wording

For the nine months ended September 30, 2024, the decrease in the effective tax rate is primarily due todecreased operating losses outside of the U.S., where tax benefits are recognized and are not offset by a valuation allowance.

Previous wording

For the six months ended June 30, 2024 and 2023, the effective tax rate of 9.3% and 91.4% differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.

Current wording

For the nine months ended September 30, 2024 and 2023, the effective tax rate of 21.0% and 37.1% differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets.

Previous wording

Most of the permanent tax adjustments within our effective tax rate are offset by a valuation allowance. These adjustments include state taxes, federal research tax credits under Section 41 of the Code, equity compensation in the U.S. and other non-deductible expenditures in the U.S. Excluding the impact of the valuation allowance, we realized an estimated state effective tax rate of 4.3% for the six months ended June 30, 2024. In addition, exclusive of the valuation allowance, we continue to generate income tax benefits in the current period related to income tax credits recognized for qualified research activities in the U.S. The applicable federal tax laws and regulations define qualified research activities as research and development activities conducted in the U.S. that involve a process of experimentation designed to discover new information intended to develop a new or improved business component. Absent the valuation allowance, equity compensation also impacts the effective tax rate to the extent the income tax deduction exceeds or is below the related book expense, as required under ASC 718-740-35-2. Other U.S. non-deductible expenses that are offset by the valuation allowance consist primarily of non-deductible executive compensation under Section 162(m) of the Code.

Current wording

Most of the permanent tax adjustments within our effective tax rate are offset by a valuation allowance. These adjustments include state taxes, federal research tax credits under Section 41 of the Code, equity compensation in the U.S. and other non-deductible expenditures in the U.S. Excluding the impact of the valuation allowance, we realized an estimated state effective tax rateof 4.3% for thenine months ended September 30, 2024. In addition, exclusive of the valuation allowance, we continue to generate income tax benefits in the current period related to income tax credits recognized for qualified research activities in the U.S. The applicable federal tax laws and regulations define qualified research activities as research and development activities conducted in the U.S. that involve a process of experimentation designed to discover new information intended to develop a new or improved business component. Absent the valuation allowance, equity compensation also impacts the effective tax rate to the extent the income tax deduction exceeds or is below the related book expense, as required under ASC 718-740-35-2. Other U.S. non-deductible expenses that are offset by the valuation allowance consist primarily of non-deductible executive compensation under Section 162(m) of the Code.

Previous wording

Our liquidity is provided by our cash flow from operations less expenditures for capital equipment, and supplemented by financing activities from time to time. Our cash flow from operations is driven by monthly payments from customers for communication services consumed during the period. Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property, plant and equipment to support growth on our communications platform. As of June 30, 2024, we had cash and cash equivalents of $62 million and marketable securities of $14 million.

Current wording

Our liquidity is provided by our cash flow from operations less expenditures for capital equipment, and supplemented by financing activities from time to time. Our cash flow from operations is driven by monthly payments from customers for communication services consumed during the period. Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property, plant and equipment to support growth on our communications platform. As of September 30, 2024, we had cash and cash equivalents of $75 million and marketable securities of $5 million.

Previous wording

On August 1, 2023, we entered into the Credit Agreement, which provides for a $50 million Credit Facility, including a $15 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million. On May 1, 2024, we amended the Credit Agreement by upsizing the Credit Facility from $50 million to $100 million and extending the maturity date to May 1, 2029. As of June 30, 2024, we had $40 million in outstanding borrowings under the Credit Facility and the available borrowing capacity was $60 million. See Note 8, “Debt,” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the Credit Agreement.

Current wording

On August 1, 2023, we entered into the Credit Agreement, which provides for a $50 million Credit Facility, including a $15 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5 million. On May 1, 2024, we amended the Credit Agreement by upsizing the Credit Facility from $50 million to $100 million and extending the maturity date to May 1, 2029. As of September 30, 2024, we had $25 million in outstanding borrowings under the Credit Facility and the available borrowing capacity was $75 million. See Note 8, “Debt,” to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the Credit Agreement.

Previous wording

Our principal future commitments consist of (i) an aggregate of $285 million in Convertible Notes, (ii)$40 million under our Credit Facility (iii) $484 million infuture minimum rent payments for ourcurrent office space, including a $477 millionnon-cancelable lease for our new corporate headquarters, which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term, and (iv) $21 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers. For additional information on these future contractual obligations, see Note 8,“Debt,” and Note 12,“Commitments and Contingencies,” to thecondensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

Our principal future commitments consist of (i) an aggregate of $285 million in Convertible Notes, (ii)$25 million under our Credit Facility (iii) $479 million infuture minimum rent payments for ourcurrent office space, including a $471 millionnon-cancelable lease for our new corporate headquarters, which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term, and (iv) $12 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers. For additional information on these future contractual obligations, see Note 8,“Debt,” and Note 12,“Commitments and Contingencies,” to thecondensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

For the six months ended June 30, 2024, net cash provided by operating activities was$27 million and was generated by our aggregate results of $32 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, net gain on extinguishment of debt, and (2) a$5 million cash outflow from lower operating liabilities and higher operating assets.

Current wording

For the nine months ended September 30, 2024, net cash provided by operating activities was$47 million and was generated by our aggregate results of $56 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-based compensation, deferred taxes and other, gain on sale of intangible asset, net gain on extinguishment of debt, and (2) a$9 million cash outflow from lower operating liabilities and higher operating assets.

Previous wording

Within operating liabilities, the net cash provided as a result of higher accrued expenses and other liabilities of$4 million during 2024 was driven by higher general accrued expenses due to timing of incurred expenses. The cash outflow related to the operating right-of-use liability was $2 million.

Current wording

Within operating liabilities, the net cash provided as a result of higher accounts payable and accrued expenses and other liabilities of$13 million during 2024 was driven by timing of incurred expenses.

Previous wording

Within operating assets, the net cash used as a result of higher accounts receivable of$8 million during 2024 was driven by higher unbilled receivables balances arising from higher usage amounts in the last month of the first quarter. This was partially offset by cash provided as a result of lower prepaid expenses and other assets of $2 million during 2024.

Current wording

Within operating assets, the net cash used as a result of higher accounts receivable of$21 million during 2024 was driven by higher unbilled receivables balances primarily from higher political messaging sales leading up to the U.S. presidential election in November 2024.

Previous wording

For the six months ended June 30, 2024, net cash used in investing activities was $5 million. This was primarily driven by (1) cash used for the purchase of property, plant and equipment of $7 million and cash used for capitalized software development costs of $6 million, driven by investments in the communications platform, and (2) net cash provided by the sales of marketable securities of $7 million to partially fund the 2024 Repurchases.

Current wording

For the nine months ended September 30, 2024, net cash provided by investing activities was $2 million. This was primarily driven by (1) cash used for the purchase of property, plant and equipment of $11 million and cash used for capitalized software development costs of $9 million, driven by investments in the communications platform, (2) cash provided by the maturities of marketable securities, net of purchases, of $17 million to partially fund the 2024 Repurchases, and (3) net cash provided by the refund of construction in progress deposits of $3 million.

Previous wording

For the six months ended June 30, 2024, net cash used in financing activities was $91 million, consisting primarily of (1) $128 million of cash used to complete the 2024 Repurchases, offset by (2) cash provided of $40 million from net borrowing on our line of credit to partially fund the 2024 Repurchases.

Current wording

For the nine months ended September 30, 2024, net cash used in financing activities was $106 million, consisting primarily of (1) $129 million of cash used to complete the 2024 Repurchases, offset by (2) cash provided of $25 million from net borrowing on our line of credit to partially fund the 2024 Repurchases.

Previous wording

(1) Calculated by dividing Non-GAAP gross profit by cloud communications revenue of $128 million and $257 million in the three and six months ended June 30, 2024, respectively, and $118 million and $233 million for the three and six months ended June 30, 2023, respectively.

Current wording

(1) Calculated by dividing Non-GAAP gross profit by cloud communications revenue of $139 million and $396 million in the three and nine months ended September 30, 2024, respectively, and $120 million and $353 million for the three and nine months ended September 30, 2023, respectively.

Previous wording

(1)Non-recurring items not indicative of ongoing operations and other include (i) less than $0.1 million and $0.2 million of losses on disposals of property, plant and equipment during the three months ended June 30, 2024 and 2023, respectively, (ii) $0.1 million of losses on disposals of property, plant and equipment during the six months ended June 30, 2024, and (iii) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility and $0.3 million of losses on disposals of property, plant and equipment during the six months ended June 30, 2023.

Current wording

(1)Non-recurring items not indicative of ongoing operations and other include (i) $1.0 million gain on the sale of an intangible asset and less than $0.1 million of losses on disposals of property, plant and equipment during the three months ended September 30, 2024, (ii) $0.1 million of losses on disposals of property, plant and equipment during the three months ended September 30, 2023, (iii) $1.0 million gain on the sale of an intangible asset and $0.2 million of losses on disposals of property, plant and equipment during the nine months ended September 30, 2024, and (iv) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility and $0.4 million of losses on disposals of property, plant and equipment during the nine months ended September 30, 2023.