Hello World! 2 0 2 0 A N N U A L R E P O R T The global pandemic hasn’t changed our business; it has (cid:70)(cid:82)(cid:81)(cid:444)(cid:85)(cid:80)(cid:72)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3) Bandwidth stockholders aand friends: (cid:55)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:76)(cid:85)(cid:90)(cid:72)(cid:79)(cid:79) (cid:71)(cid:82)(cid:82)(cid:85) (cid:87)(cid:82) (cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75) (cid:445)(cid:445)(cid:82)(cid:82)(cid:85)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:78)(cid:86)(cid:3)(cid:68)(cid:3)(cid:79)(cid:76)(cid:87)(cid:87)(cid:79)(cid:72) as you enter—something in our RRaleigh headquarters 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(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:44)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:90)(cid:68)(cid:79)(cid:78)(cid:72)(cid:71)(cid:3)(cid:75)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:84)(cid:88)(cid:76)(cid:72)(cid:87)(cid:15) (cid:76)(cid:87)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:80)(cid:82)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:44)(cid:3)(cid:73)(cid:72)(cid:72)(cid:79)(cid:87)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:88)(cid:71)(cid:3) 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(cid:85)(cid:68)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:81)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:72)(cid:72)(cid:81)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:17) (cid:44)(cid:3)(cid:70)(cid:68)(cid:81)(cid:81)(cid:82)(cid:87)(cid:3)(cid:86)(cid:83)(cid:72)(cid:68)(cid:78)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:79)(cid:92)(cid:3)(cid:72)(cid:81)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:79)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71) (cid:87)(cid:72)(cid:81)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:82)(cid:81)(cid:3)(cid:68)(cid:85)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:72)(cid:17) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:90)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:82)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:79)(cid:79)(cid:72)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:86)(cid:3) (cid:68)(cid:79)(cid:79)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:87)(cid:76)(cid:80)(cid:80)(cid:72)(cid:86)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:68)(cid:79)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3)(cid:69)(cid:72)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:68)(cid:85)(cid:82)(cid:88)(cid:88)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72) (cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:17) A view of our 2020 performance: (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:444)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:73)(cid:82)(cid:88)(cid:81)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3) 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(cid:58)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:71)(cid:72)(cid:72)(cid:83)(cid:72)(cid:85)(cid:3)(cid:85)(cid:82)(cid:82)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:76)(cid:69)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79) (cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:445)(cid:82)(cid:88)(cid:85)(cid:76)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74) (cid:87)(cid:72)(cid:68)(cid:80)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:37)(cid:36)(cid:49)(cid:39)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:88)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:69)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:77)(cid:88)(cid:86)(cid:87)(cid:3)(cid:68)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:90)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:83)(cid:75)(cid:82)(cid:79)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85) (cid:369)(cid:58)(cid:75)(cid:82)(cid:79)(cid:72)(cid:3)(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3)(cid:51)(cid:85)(cid:82)(cid:80)(cid:76)(cid:86)(cid:72)(cid:370)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:72)(cid:78)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3) (cid:87)(cid:72)(cid:68)(cid:80)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:76)(cid:81)(cid:74)(cid:73)(cid:88)(cid:79)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87) (cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:76)(cid:81)(cid:71)(cid:15)(cid:3)(cid:69)(cid:82)(cid:71)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:83)(cid:76)(cid:85)(cid:76)(cid:87)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3) (cid:37)(cid:36)(cid:49)(cid:39)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:86)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:79)(cid:82)(cid:81)(cid:74)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:87)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17) In closing, (cid:55)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82) (cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:73)(cid:88)(cid:79)(cid:444)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:363)(cid:70)(cid:82)(cid:88)(cid:85)(cid:68)(cid:74)(cid:72)(cid:82)(cid:88)(cid:86)(cid:79)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:79)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:42)(cid:82)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:86)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:366)(cid:86)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:92)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82) (cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72) (cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:17) (cid:39)(cid:68)(cid:89)(cid:76)(cid:71)(cid:3)(cid:36)(cid:17)(cid:3)(cid:48)(cid:82)(cid:85)(cid:78)(cid:72)(cid:81) (cid:38)(cid:82)(cid:16)(cid:41)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:15)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3) (cid:9)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:444)(cid:70)(cid:72)(cid:85) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM 10-K __________________________________ (cid:95) (cid:31)(cid:31) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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) __________________________________ Delaware (State or other jurisdiction of incorporation or organization) 56-2242657 (I.R.S. Employer Identification Number) 900 Main Campus Drive Raleigh, NC 27606 (Address of principal executive offices) (Zip Code) (800) 808-5150 (cid:11)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:3)(cid:70)(cid:82)(cid:71)(cid:72)(cid:12) __________________________________ Securities Registered Pursuant to Section 12(b) of the Act: Title of each class ( ) Trading Symbol(s) g y g Name of each exchange on which registered g Class A Common Stock, par value $0.001 per share BAND NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None __________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 40 d 5 of the Securities Act. Yes (cid:95) No (cid:31) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:31) No (cid:95) 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 (cid:95) No (cid:31) 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 (cid:95) No (cid:31) d Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:179)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:15)(cid:180)(cid:3)(cid:179)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:15)(cid:180)(cid:3)(cid:179)(cid:86)(cid:80)(cid:68)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:180)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:53)(cid:88)(cid:79)(cid:72) 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer (cid:95) (cid:31)(cid:31) Accelerated filer Smaller reporting company Emerging growth company (cid:31)(cid:31) (cid:31)(cid:31) (cid:31)(cid:31) 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. (cid:31) aa ff Indicate by check mark whet(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86) internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:1407) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:31) No (cid:95) The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2020, the last ce reported for (cid:71) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:15)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:7)(cid:21)(cid:15)(cid:25)(cid:21)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76) such date on the NASDAQ Global Select Market. As of February (cid:20)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:15)(cid:3)(cid:21)(cid:21)(cid:15)(cid:25)(cid:25)(cid:23)(cid:15)(cid:19)(cid:22)(cid:19)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86) (cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:15)(cid:22)(cid:22)(cid:23)(cid:15)(cid:19)(cid:24)(cid:27)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86) B common stock were outstanding, respectively. DOCUMENTS INCORPORATED BY REFERENCE (cid:51)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92) Statement for the 2021 Annual Meeting of Stockholders are incorporated herein by reference in Part II and Part III of this Annual Report on Form 10-K to the extent stated herein. Such Definitive Proxy Statement will be filed with the Securities and Exchan(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:20)(cid:21)(cid:19)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17) BANDWIDTH INC. Annual Report on Form 10-K For the Year Ended December 31, 2020 Table of Contents PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Item 5. Item 6. Properties Legal Proceedings Mine Safety Disclosures PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. Directors, Executive Officers and Corporate Governance Executive Compensation PART III Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services PART IV Exhibits and Financial Statement Schedules Form 10-K Summary Page 4 16 54 54 54 55 56 58 66 85 87 140 141 142 142 142 142 142 142 143 146 1 Special Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A (cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:22)(cid:22)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:21)(cid:20)(cid:40)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3) -K, other than (cid:20)(cid:28)(cid:22)(cid:23)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71) (cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19) statements of historical fact, are forward-looking statements. Forward-looking statements generally can be (cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:90)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3) (cid:179)(cid:80)(cid:68)(cid:92)(cid:15)(cid:180)(cid:3) (cid:179)(cid:90)(cid:76)(cid:79)(cid:79)(cid:15)(cid:180)(cid:3) (cid:179)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:15)(cid:180)(cid:3) (cid:179)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:15)(cid:180)(cid:3) (cid:179)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:15)(cid:180)(cid:3) (cid:179)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:15)(cid:180)(cid:3) (cid:179)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:15)(cid:180)(cid:3) (cid:179)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:15)(cid:180)(cid:3) (cid:179)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:15)(cid:180)(cid:3) (cid:179)(cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:180)(cid:3)(cid:179)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:15)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:15)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:3) our expectations strategy, plans or intentions. Forward looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about: (cid:71) (cid:135) (cid:135) 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; (cid:135) our beliefs regarding network traffic growth and other trends related to the usage of our products and services; (cid:135) 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 (cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:11)(cid:179)(cid:42)(cid:36)(cid:36)(cid:51)(cid:180)(cid:12)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:30) (cid:135) our beliefs regarding the growth of our business and how that impacts our liquidity and capital resources requirements; (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) 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; n 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; (cid:135) services; our ability to introduce new products and services and enhance existing products and (cid:135) 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; (cid:135) (cid:135) (cid:135) (cid:135) our ability to effectively manage our international operations and expansion; 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; (cid:135) 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 (cid:135) 2 (cid:11)(cid:179)(cid:42)(cid:39)(cid:51)(cid:53)(cid:180)(cid:12)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3) (cid:51)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:21)(cid:19)(cid:20)(cid:27)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:69)(cid:72)(cid:3) (cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:3) (cid:55)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3) (cid:44)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3) (cid:53)(cid:72)(cid:89)(cid:76)(cid:86)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:11)(cid:179)(cid:54)(cid:55)(cid:44)(cid:53)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)-based (cid:43)(cid:68)(cid:81)(cid:71)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:3) (cid:36)(cid:86)(cid:86)(cid:72)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:56)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:82)(cid:46)(cid:40)(cid:49)(cid:86)(cid:3) (cid:11)(cid:179)(cid:54)(cid:43)(cid:36)(cid:46)(cid:40)(cid:49)(cid:180)(cid:12)(cid:3) (cid:11)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:15)(cid:3) (cid:179)(cid:54)(cid:55)(cid:44)(cid:53)(cid:18)(cid:54)(cid:43)(cid:36)(cid:46)(cid:40)(cid:49)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) robocalling prevention and anti-spam standards and increased costs associated with such compliance; (cid:135) (cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:89)(cid:76)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88) r platform; (cid:135) increase our costs; our ability to manage fees that have been or may be instituted by network providers that (cid:135) (cid:135) (cid:135) 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 (cid:135) our expectations about the impact of public health epidemics, such as COVID-19 (as defined herein), or natural disasters on the global economy and our business, results of operations and financial condition. We caution you that the foregoing list may not contain all the forward-looking statements made in this Annual Report on Form 10-K. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K 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 (cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:15)(cid:3) (cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3) (cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3) (cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:79)(cid:86)(cid:72)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3) Report on Form 10-K. 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K 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 PART I - FINANCIAL INFORMATION Item 1. Business Overview We are a leading global enterprise cloud communications company. Our solutions include a broad range of (cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3) (cid:36)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:73)(cid:68)(cid:70)(cid:72)(cid:86)(cid:3) (cid:11)(cid:179)(cid:36)(cid:51)(cid:44)(cid:86)(cid:180)(cid:12)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:89)(cid:82)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3) (cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3) (cid:50)(cid:88)(cid:85)(cid:3) sophisticated and easy-to-use software APIs allow enterprises to enhance their products and services by incorporating advanced, global connectivity for voice, messaging and emergency services communications capabilities. Companies use our platform to more frequently and seamlessly connect with their end users, add voice calling capabilities to applications and devices, transition from on-premise to cloud-based communication tools and applications, integrate messaging capabilities into applications or software, build interactive voice response systems for contact centers, offer end users new mobile application experiences including emergency services and improve employee productivity, among other use cases. We have established a reputation as a leader in the Communications Platform-as-a-(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3) (cid:11)(cid:179)(cid:38)(cid:51)(cid:68)(cid:68)(cid:54)(cid:180)(cid:12)(cid:3) (cid:86)(cid:83)(cid:68)(cid:70)(cid:72)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)-rich culture and focus on empowering enterprises with end-to-end communications solutions. a We are the only CPaaS provider in the industry that owns and operates a nationwide IP voice network in the U.S. In 2020 we acquired Voxbone, a leading European-based communications platform with its own IP voice network assembled by building relationships with local carriers around the globe. Our deep U.S. presence and global platform extending across more than 60 countries serves enterprises in countries representing more than 90% (cid:82)(cid:73)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:11)(cid:179)(cid:42)(cid:39)(cid:51)(cid:180)(cid:12)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) a unified software platform, network and team to serve people around the world. a As technologies evolve and new mobile applications and connected devices proliferate, enterprises must (cid:68)(cid:71)(cid:68)(cid:83)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:3)(cid:179)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:180)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3) device. Enterprises looking to capitalize on trends such as work-from-anywhere, Application-to-(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:36)(cid:21)(cid:51)(cid:180)(cid:12)(cid:3) messaging, omni-channel customer service, and voice-as-an-interface need solutions that are reliable, secure, scalable and cost-efficient. Most software-powered communications providers rely heavily on leased networks and mm cannot provide enterprise-grade service and support. We believe traditional large-scale network providers lack the capabilities to build robust software platforms for agile development of communications solutions. Enterprises focus on their core businesses and lack the technical know-how or strategic flexibility to build the customized solutions they require in-house. As a result, enterprises need a third-party, end-to-end, cloud-based software solution that eliminates the complexity and expense of building and maintaining their own communications platform. Our soluti(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:82)(cid:90)(cid:3) enterprises connect through embedded voice and messaging for applications and devices. At the core of our solutions are our communications software APIs, which allow companies to build and automate products and services on top of our cloud-based, out-of-the-box software. Our software APIs include pre-defined functions that are easily customizable for specific use cases without the challenge and expense of building and deploying complex code. Moreover, our platform collects and analyzes terabytes of call and messaging data records in real-time and (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:72)(cid:68)(cid:80)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:11)(cid:179)(cid:38)(cid:53)(cid:48)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:79)(cid:79)(cid:76)(cid:74)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:87)(cid:76)(cid:70)(cid:86)(cid:3) tools to provide meaningful data driven actionable insights for critical business decisions. Customers can then y launch and scale applications and solutions with reliability using our IP voice network with global reach. Our voice software APIs allow enterprises to make and receive phone calls and create advanced voice experiences. Integration with our IP voice network ensures enterprise-grade functionality and secure, high-quality connections. Our messaging software APIs provide enterprises with advanced tools to connect with end users via messaging. Our customers also use our solutions to enable emergency (911, 112, 999, etc.) response capabilities, real-time provisioning and activation of phone numbers, and toll-free number messaging across the globe. The unique combination of software APIs and our IP voice network provides our customers high quality calls, automated workflows, enterprise-grade support and global coverage. 4 We believe that our network is capital-efficient and supports the applications and experiences that make a difference in the way enterprises communicate. Since a communications platform is only as strong as the network mm that backs it, we believe our network provides a significant competitive advantage in the control, quality, pricing power and scalability of our offering. We are able to control the quality and provide the support our customers expect, while meeting regulatory, scalability and cost requirements more efficiently. Our customers currently include large enterprises, communications service providers, conferencing providers, contact centers, small and medium-sized businesses, emerging technology companies and many other businesses. Our customers operate in a diverse set of industries, including technology, communications, financial, healthcare, hospitality, transportation and services, that need to launch and scale robust communications experiences. Our customers choose Bandwidth because we empower them to embed seamless communications within their products and services in a reliable, flexible, scalable and cost-efficient manner. Our customers include Cisco, Dialpad, Genesys, Google, Microsoft, RingCentral, Uber and Zoom, among many others. We do not currently have any consumer or residential customers, although our enterprise customers may utilize our solutions to serve their own consumer or residential customers or end users. Our usage-based revenue model allows us to grow with our customers and increase our revenue base as our customers expand their usage of our solutions. Our dollar-based (cid:81)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) increased utilization of our platform, was 118%, 113% and 131% for the years ended December 31, 2018, 2019 and 2020, respectively. We have continued growing our business in recent periods. For the years ended December 31, 2018, 2019 and 2020, our revenue was $204.1 million, $232.6 million and $343.1 million, respectively, and our net income (loss) was $17.9 million, $2.5 million and ($44.0) million, respectively. Segments We have two reportable segments, CPaaS and Other. Segments are evaluated based on revenue and gross profit. We do not allocate operating expenses, interest expense or income tax expense to our segments. Accordingly, we do not report such information. We generate a majority of our revenue from our CPaaS segment. CPaaS revenue is derived from voice usage, phone number services, emergency calling-enabled phone number services, messaging services and other services. We generate a portion of our CPaaS revenue from usage-based fees, which include voice calling and messaging services. We also earn monthly fees from services such as phone number services and emergency access service. The remainder of our revenue is generated by our Other segment. Other revenue is composed of revenue earned from our l(cid:72)(cid:74)(cid:68)(cid:70)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:19)(cid:15)(cid:3)(cid:179)(cid:54)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:42)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:70)(cid:3) (cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:72)(cid:79)(cid:86)(cid:72)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K, for additional information about our segments. Our Platform Our communications platform empowers enterprises to create and scale voice, messaging and emergency communications services across any application and device. Our software platform and IP voice network enable our enterprise customers to rapidly develop and deploy real-time and mission-critical, software-powered communications solutions. Our sophisticated and easy-to-use software APIs allow enterprises to enhance their products and services by incorporating advanced voice, messaging and emergency calling capabilities. By operating our own capital-efficient, IP voice network, we are able to offer advanced monitoring, reporting and analytics, superior customer service, dedicated operating teams, personalized support and flexible cost structures. y Our cloud-based platform is a proprietary CPaaS offering consisting of voice, messaging and emergency services solutions: Voice Software API. We provide flexible software APIs that are used to build voice calling within applications, innovative call flows between users or machines, call recording, text-to-speech for interactive voice response, call detail records, conference calling, bridging and more. We provide the ability to have customized high- 5 quality call routing for business voice use cases and global reach. Our voice quality monitoring service provides tools and processes for network quality tests and proactive tuning. While we provide a wide range of functionalities, some of the common use cases are: (cid:135) Enabling local and toll-free numbers via software API:II Our platform empowers enterprises with a capability to activate, automate and manage phone numbers instantly and at scale. With our bulk porting option customers can port an unlimited amount of phone numbers at once, coordinating port dates and times from multiple carriers. Using our easy to use software APIs, our enterprise customers can easily add additional lines to their business as well as for their end users. (cid:135) Automating voice communication while preserving privacy: Our software APIs enable voice communication capabilities from a mobile application to an individual or a group with or without disclosing personal identity. (cid:135) Embedding ‘click-to- call’ communication feature: (cid:58)(cid:72)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:80)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:69) marketing capabilities by embedding click-to-call functionality in their customer outreach, including ff advertising campaigns, that enables them to connect with consumers instantly. kk (cid:135) Real-time call analytics: We provide our enterprise customers with real-time call analytics through our dashboard that correlates the raw data from calls with CRM records, including the call duration, customer sentiment and other attributes, in order to provide meaningful contextual sales and other business insights. (cid:135) Transitioning from traditional premise focused communications to cloud based services: We provide unified communications providers modern, scalable and cost efficient voice and messaging solutions, which enable their digital transformation efforts. Our network and API solutions work in a hybrid environment as rr well as a full cloud deployment. Messaging Software API. Our software APIs for messaging deliver a complete wireless experience for both P2P and A2P messaging including: delivery receipts, MMS, long text support, short code support, emoji support and bi-directional un(cid:76)(cid:70)(cid:82)(cid:71)(cid:72)(cid:3) (cid:11)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:75)(cid:68)(cid:85)(cid:68)(cid:70)(cid:87)(cid:72)(cid:85)(cid:86)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:75)(cid:82)(cid:85)(cid:87)(cid:3) (cid:70)(cid:82)(cid:71)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3) (cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:182)(cid:86)(cid:3) (cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86) are enabled for local and toll-free phone numbers as well as short codes. While we provide a wide range of functionalities, some of the common use cases are: (cid:135) Automated real-time notification and alerts: Our software APIs empower our enterprise customers with predefined functionalities to send and receive messages to and from an application to an individual or a group. Our customers often build more customized use cases on top of our predefined use cases. (cid:135) Two-factor authentication: We enable enterprises to verify the identity and maintain security of end users through our software-based SMS verification service that sends unique codes to end users in order to log in to mobile and web applications. (cid:135) Group messaging: Enterprises utilize our platform to collaborate with their end users on a real-time basis by enabling group messaging within their user community to share messages, videos, carry out polls and surveys amongst other uses without leaving the application. Emergency Services Software API. We are the only software platform that provides complete communications solutions with integrated local emergency services in more than 60 countries around the globe. We can instantly connect numbers, devices or applications to emergency services with reliable and accurate emergency routing. Our Dynamic Geospatial Routing uses geocoding to enable real-time routing based on X,Y coordinates of the caller and defined Public Safety Access Point boundaries. Additionally, our notification API enables an email notification sent to on-site security personnel when an emergency call takes place within a large enterprise. Our (cid:36)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:179)(cid:49)(cid:72)(cid:91)(cid:87)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:28)(cid:20)(cid:20)(cid:180)(cid:3)(cid:179)(cid:76)(cid:22)(cid:180)-(cid:85)(cid:72)(cid:68)(cid:71)(cid:92)(cid:3)(cid:49)(cid:40)(cid:49)(cid:36)(cid:3)(cid:76)(cid:21)(cid:3)(cid:179)(cid:40)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:180) service network covers approximately 99% of the population of the United States. Outside the United States in the jurisdictions we serve, in-country routing guarantees that emergency calls will connect directly to the appropriate Public Safety Answering Point. 6 Key Benefits of Our Software Platform Our communications platform provides the following benefits to the enterprises we serve: (cid:135) (cid:135) (cid:135) Easy to Build and Deploy. Our easy-to-use, intuitive software APIs are ready to launch and scale from day one. We enable enterprises to rapidly and easily scale communications functionalities to a vast range of applications and devices. Our technology requires minimal lines of code to build customized applications, which allows for rapid composition of customized solutions and seamless embedding within other d applications. Easy to Scale. We enable enterprises to easily scale globally at launch, without sacrificing quality, while meeting the most stringent requirements. We can deliver full end-to-end automation for even the largest of enterprises using our IP voice network. We are able to support high user volumes without impacting deliverability. Our enterprise-grade tooling makes it easy to order, provision, and port phone numbers as our customers grow their businesses. Our software removes complexity, eliminates performance degradation and increases cost efficiencies at scale. Flexibility. Our software APIs are easy to deploy and use and allow for the creation of solutions to address a broad array of use cases. Our software can be implemented directly into product workflow for a variety of custom solutions such as creation of virtual call centers, group messaging and dynamic call location routing. We enable developers to easily and rapidly innovate with our platform. Key Benefits of Our Network Our IP voice network provides the following benefits to the enterprises we serve: (cid:135) (cid:135) Enhanced Quality and Reliability. We offer greater levels of quality and delivery assurance than providers offering services across the public Internet or through partnerships. As a result, the enterprises we serve have enjoyed 99.9% network uptime in 2020. Total Accountability. The ability to vertically integrate our software platform with our IP voice network provides us with a differentiated ability to continuously monitor, report and resolve any software- or network-related issues on a real-time basis. For our enterprise customers, having a single platform solution for their entire communications requirements, including software and network, offers tremendous value with respect to time and financial resources. Our service-level agreements with our enterprise customers assure that we provide high quality service and give them peace of mind and confidence in our service. (cid:135) Owner Economics Drives Value for Our Customers. The differentiated pairing of our software combined with owning the delivery capability in the United States through our IP voice network creates lower marginal costs at scale, which we are able to pass on to our customers. Our Competitive Strengths In our 20 years of business, we have prided ourselves on maintaining a start-up culture and our focus on continuous innovation. We have innovated on our CPaaS offerings to empower our enterprise customers with a comprehensive software-powered communications platform that integrates seamlessly with one of the largest IP voice networks in the world. Our innovation-rich culture, customer-centric solutions and track record of successful execution provide us with the following competitive strengths: (cid:135) Highly Scalable Platform Built for the Enterprise. We built our communications platform from the ground up as an enterprise-grade cloud application. As a result, our deployment is fast, our software APIs are flexible and easy-to-use, and we enable enterprises to launch and scale on day one. Our software APIs allow the enterprise customers we serve to grow with flexibility and seamlessly embed communications in their applications or devices. Our scalable platform allows us to serve large-scale Internet companies and cloud service providers. 7 (cid:135) One of the Broadest, Most Complete Solutions in the Industry. We provide enterprises one of the broadest, most complete communications services solutions in the industry through our integrated software and IP voice network. Our large library of voice, messaging and emergency services APIs enables our customers to incorporate into their products and services a broad range of capabilities not otherwise attainable. (cid:135) CPaaS-Based Emergency Calling Capabilities. We believe we are the only CPaaS software provider with emergency service capabilities. We believe our emergency calling capabilities provide a significant advantage as compared to software platform providers that are enabling residential voice services through new connected device e(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:81)-premise access to local emergency services. Our customers can meet compliance commitments using a single provider in multiple markets where they do business (cid:177) across North America, Europe and Asia-Pacific. Moreover, our dynamic geospatial routing capability routes emergency calls based on a real-time location of the caller to produce industry-leading results. (cid:177) (cid:135) Our IP Voice Network. (cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:182)(cid:86)(cid:3)(cid:44)(cid:51)(cid:3)(cid:89)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:72)(cid:3)(cid:82)(cid:83)erate in more than 60 countries globally, supports our ability to scale at a reliable and consistent quality for the enterprises we serve. The control and scale we have over our IP voice network integrated with our communications platform provides us distinct competitive advantages that include consistent high quality, in-depth enterprise support, real-time network visibility and economies of scale. (cid:135) Deep Experience and Expertise in Voice and Messaging. The combination of our versatile software API platform and our IP voice network control allows us to offer not just best efforts, but best-in-class voice and messaging solutions for enterprises. Our senior leadership team has a combined 100+ years of industry experience and an average tenure with Bandwidth of more than a decade. (cid:135) Growing, Long-Term Relationships with Low Customer Churn. We deliver comprehensive solutions that address the unique and complex needs of the enterprises we serve. As a result, these enterprises have continued to innovate and grow with our platform over extended time frames. Our relationship with each of r the enterprises we serve often expands across different product suites, divisions and use cases over time. Our customers include large enterprises and small and medium-sized businesses across various industries, and we rarely lose customers that have been on our platform for more than three months. For example, a number of our largest enterprise customers have been on our platform for more than ten years. Based on surveys conducted after customer interactions in 2020, our customers have expressed a 97% satisfaction rate. (cid:135) Culture. While we will always be mission-first, our people ensure that we deliver on our mission for the customers we proudly serve. We seek to identify, attract, and retain team members who will contribute to our inclusive culture that promotes diversity of thought and experience. Our Whole Person Promise is at the core of our culture. We believe that each of our team members can do meaningful work while enjoying a full personal life. We have developed a variety of programs to help our team members develop and maintain their bodies, minds and spirits in connection with our Whole Person Promise. Additionally, we have a (cid:86)(cid:68)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:87)(cid:3)(cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:29)(cid:3)(cid:179)(cid:60)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:88)(cid:86)(cid:76)(cid:70)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:36)(cid:49)(cid:39)(cid:17)(cid:180)(cid:3)(cid:58)e believe people are essential to accomplishing (cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:86)(cid:82)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:72)(cid:79)(cid:72)(cid:69)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:70)(cid:82)(cid:88)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:179)(cid:37)(cid:68)(cid:81)(cid:71)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:72)(cid:81)(cid:87)(cid:76)(cid:70)(cid:3)(cid:86)(cid:72)(cid:79)(cid:89)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3) culture supports our hiring and serves as a competitive advantage in attracting and retaining top talent. (cid:58)(cid:58) Our Growth Strategy (cid:135) Expand Existing Enterprise Relationships. We seek to continue to expand our relationships with our existing enterprise customers. For example, enterprises often initially purchase only our voice solution and later expand to purchase additional services like messaging and emergency calling capability. Enterprises often launch voice, messaging or emergency calling in one country or region and expand to additional geographies over time. Additionally, we are able to help enterprises scale efficiently and offer their solutions to more of their customers as they grow. 8 (cid:135) Grow Our Enterprise Customer Base. We believe there is a substantial opportunity to increase our enterprise customer base across a broad range of industries, companies and geographies. We plan to continue to grow and invest in our direct sales force and marketing to increase our enterprise customer base. (cid:135) Continue to Innovate Our Platform. We are committed to building on our track record of leveraging our innovative product capa(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:15)(cid:3)(cid:77)(cid:88)(cid:86)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:71)(cid:82)(cid:81)(cid:72)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:92)(cid:15)(cid:3) through dramatic waves of change in communications technology. We were early to deploy software-based networks and to offer hosted cloud-based voice services, while building out one of the fastest growing IP d voice networks over the last ten years in the United States. We have expanded our coverage to over 60 countries. Our team has continued to adapt to a dynamic environment to grow our business, and we intend to invest in continued development of our platform and product features to support new use cases and help our enterprise customers succeed as communications technologies evolve. (cid:135) Cultivate Long Term Relationships Through Customer Satisfaction. We intend to continue focusing on delivering world-class services and support to the enterprises we serve to ensure a high level of satisfaction. We believe that satisfied customers provide vital product feedback, purchase additional services, renew contracts at a high rate and provide broad advocacy and new customer referrals for our business. (cid:135) (cid:135) Expand Breadth and Depth of International Coverage. We offer various communications services in over 60 countries, representing over 90% of global GDP. We plan to pursue new coverage areas and expanded (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72) (cid:68)(cid:85)(cid:72)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:79)(cid:85)(cid:72)(cid:68)(cid:71)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:17) Pursue Acquisitions and Strategic Investments Selectively. We may selectively pursue acquisitions and strategic investments in businesses and technologies that strengthen our platform. Our Customers We have a broad and diversified customer base. We benefit from longstanding relationships with well- recognized enterprise customers, as well as small and medium-sized businesses. Many of our customers have multi- year contracts, with no single customer representing 10% of total revenue for the year ended December 31, 2020. Our management is highly focused on creating and maintaining strategic partnerships beyond standard transactional customer relationships. We empower enterprises to create, scale and operate voice or messaging communications services across any mobile application or connected device, and this ability reinforces our customer relationships. The majority of our customers sign master service agreement(cid:86)(cid:3)(cid:11)(cid:179)(cid:48)(cid:54)(cid:36)(cid:86)(cid:180)(cid:12)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) conditions, including billing and payment, default, termination, limitations of liability, confidentiality, assignment and notification, and other key terms and conditions. Customers order specific services in separate service order forms that incorporate the applicable MSA. Each service order form details the minimum contract duration, any applicable monthly recurring charge and applicable non-recurring charges. The terms and conditions for each order are also specified in the applicable service order form. Sales and Marketing Our sales and marketing teams work together to identify and establish relationships with prospects, acquire new enterprise customers, expand relationships with existing enterprises and integrate them with our communications platform. Our marketing staff generates leads through our website, online marketing campaigns, webinars, sponsored events, white papers, public relations and other outbound lead development efforts. Our marketing staff also targets companies with products that could use our services for the first time or to displace our competitors. Our marketing initiatives enhance awareness and adoption of our services. y We engage potential customers and existing customers through an enterprise sales approach. Our sales executives directly engage C-level executives and other senior business, product and technical decision makers responsible for the end user experience and financial results at their enterprises. Our sales executives work to 9 educate these decision makers and their teams about the benefits of using our communications platform to launch and scale robust communications experiences. Our sales team includes sales development, inside sales, field sales and sales engineering personnel. m As of December 31, 2020, we had 216 employees in our sales and marketing organization. Research and Development Our ability to compete depends in large part on our continuous commitment to research and development (cid:11)(cid:179)(cid:53)(cid:9)(cid:39)(cid:180)(cid:12)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:86)(cid:72)(cid:72)(cid:78)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:82)(cid:88)(cid:86)(cid:79)(cid:92)(cid:3)(cid:72)(cid:81)hance our existing services and develop new products and services. Our product and network teams are responsible for the design, development, testing and release of our platform. These teams closely coordinate with our executive management, which is responsible for creating a vision for our platform, and with our sales and marketing teams, which relay enterprise demands and possible new use cases or enhancements. Our development efforts focus on the availability and resiliency of our communications platform and our network, including infrastructure, ease-of-use and flexibility, end-user experience and ability to integrate with other enterprise systems. As of December 31, 2020, we had 296 employees in our R&D organization. Competition The CPaaS market is rapidly evolving and increasingly competitive. We believe that the principal competitive factors in our market are: (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) platform scalability, reliability, deliverability, security and performance; network control and quality; global reach; completeness of offering; ease of integration and programmability; product features; customer support; ability to deliver measurable value and savings; the cost of deploying and using our service offerings; the strength of sales and marketing efforts; brand awareness and reputation; and credibility with product executives and developers. We believe that we compete favorably based on the factors listed above and believe that none of our competitors currently competes directly with us across all our product offerings. Our competitors fall into two primary categories: (cid:135) CPaaS companies that offer a narrower set of software APIs, less robust customer support and fewer other features while relying on third-party networks and physical infrastructure; and (cid:135) network service providers that offer limited developer functionality on top of their own networks and physical infrastructure, such as AT&T, Colt, Lumen and Verizon. 10 Some of our competitors have greater financial, technical and other resources, greater geographic reach, greater name recognition, larger sales and marketing budgets and larger intellectual property portfolios. As a result, certain competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or enterprise requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices, with greater depth than our services or in geographies where we do not operate. With the introduction of new products and services and new market dd entrants, we expect competition to intensify in the future. Moreover, as we expand the scope of our platform, we may face additional competition. Intellectual Property We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements and other contractual protections, to protect our proprietary technology. We also rely on registered and unregistered trademarks to protect our brand. As of December 31, 2020, we had fifteen U.S. patents and two U.S. patent application pending. In addition, as of December 31, 2020, we had twenty-four registered trademarks in the United States and elsewhere. We seek to protect our intellectual property rights by implementing a policy that requires our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law. Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses and other contractual protections, unauthorized parties may still copy or otherwise obtain and use our software and other technology. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Further, companies in the communications and technology industries may own large numbers of patents, copyrights and trademarks and may frequently threaten litigation, or file suit against us based on allegations of infringement or other violations of intellectual property rights. In the future, we may face f allegations that we have infringed the intellectual property rights of third parties, including our competitors and non- practicing entities. Employees As of December 31, 2020, we had a total of 960 employees, who are primarily located in the United States, Europe and Asia Pacific. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good. Regulatory General We and the communications services that we provide through our software APIs are subject to many U.S. federal and state and foreign laws and regulations. These laws and regulations may concern telecommunications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects. Many of the laws and regulations to which we and the communications services that we provide through our software APIs are subject are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because laws and regulations have continued to develop and evolve rapidly, it is possible that we may not be, or may not have been, compliant with each such applicable law or regulation. 11 Federal Telecommunications Regulation (cid:55)(cid:75)(cid:72)(cid:3) (cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:41)(cid:38)(cid:38)(cid:180)(cid:12)(cid:3) (cid:75)(cid:68)(cid:86)(cid:3) (cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) telecommunications services in the U.S. We have obtained FCC authorization to provide services on a facilities and resale basis. y (cid:80)(cid:80) (cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:22)(cid:23)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:72)(cid:79)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:28)(cid:25)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:20)(cid:28)(cid:28)(cid:25) (cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3) (cid:68)(cid:81)(cid:92)(cid:3) (cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:72)(cid:79)(cid:72)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:85)(cid:76)(cid:70)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:74)(cid:68)(cid:86)(cid:3) (cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:3) (cid:68)(cid:81)(cid:92)(cid:3) telecommunications market, subject to reasonable state regulation of safety, quality and consumer protection. The industry continues to evolve toward new services built upon IP technologies. With these technological advances, there have been challenges to the traditional regulatory structure under the 1996 Act. Among the challenges that have arisen is fraud and abuse in the form of illegal robocalling and unwanted text messaging. Recently, Congress passed and the President signed the TRACED Act. Among other things, the TRACED Act directs the FCC to (cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:68)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3)(cid:72)(cid:81)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:15)(cid:3) the FCC is conducting several proceedings to understand and address fraud and abuse in the form of illegal robocalling. Among various FCC proceedings and orders, on December 23, 2020 the FCC granted our application for a STIR/SHAKEN compliance exemption for our IP network and services. Separately, the FCC also thwarts illegal robocalling through the Telephone Consumer (cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:20)(cid:28)(cid:28)(cid:20)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:55)(cid:38)(cid:51)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:86) (cid:87)(cid:72)(cid:79)(cid:72)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:88)(cid:87)(cid:82)(cid:80)(cid:68)(cid:87)(cid:76)(cid:70)(cid:3)(cid:87)(cid:72)(cid:91)(cid:87)(cid:3)(cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:76)(cid:83)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:55)(cid:85)(cid:68)(cid:71)(cid:72) Commission and state attorneys general also have the authority to enforce compliance with the TCPA. Moreover, the TCPA also allows aggrieved private parties to directly seek civil remedies and seek statutory-defined damages (cid:73)(cid:82)(cid:85)(cid:3) (cid:70)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:91)(cid:87)(cid:3) (cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3) (cid:85)(cid:72)(cid:70)(cid:76)(cid:83)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3) (cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:86)(cid:70)(cid:82)(cid:83)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:79)(cid:68)(cid:90)(cid:86) and regulations continue to evolve and develop. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining the (cid:85)(cid:72)(cid:70)(cid:76)(cid:83)(cid:76)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:81)(cid:87), we could face direct liability. VoIP Regulation. Some of our communications services provided through our software APIs may qualify as Voice-(cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:72)(cid:87)(cid:3) (cid:51)(cid:85)(cid:82)(cid:87)(cid:82)(cid:70)(cid:82)(cid:79)(cid:3) (cid:11)(cid:179)(cid:57)(cid:82)(cid:44)(cid:51)(cid:180)(cid:12)(cid:17) (cid:55)(cid:75)(cid:72)(cid:3) (cid:41)(cid:38)(cid:38)(cid:3) (cid:75)(cid:68)(cid:86)(cid:3) (cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3) (cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:81)(cid:3) (cid:57)(cid:82)(cid:44)(cid:51)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) that previously applied only to traditional telecommunications providers, such as obligations to provide 911 functionality, to contribute to the federal universal service fund, to comply with regulations relating to local number (cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:69)(cid:76)(cid:71)(cid:72)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3) (cid:86)(cid:72)rvice discontinuance rules, to contribute to the Telecommunications Relay Services fund and to abide by the regulations concerning Customer Proprietary Network Information, outage reporting, access for persons with disabilities, the Communications Assistance for Law Enforcement Act and expanded obligations with respect to the transmission of emergency calls. In some instances, these regulations f indirectly affect us because they directly apply to our customers. Additionally, several state public utility r commissions are conducting regulatory proceedings that could affect our rights and obligations, or the rights and obligations of our customers, with respect to IP-based voice applications. Specifically, some states have taken the (cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:180)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)onent of VoIP service is subject to traditional regulations applicable to local telecommunications services, such as the obligation to pay intrastate universal service fees and other state-related telecommunications taxes, fees and surcharges. We cannot predict whether the FCC or state public utility commissions will impose additional requirements, regulations or charges upon our provision of services related to IP communications. Universal Service. Some of our services are subject to federal and state regulations that implement universal service support for access to communications services in rural and high-cost areas and to low-income consumers at reasonable rates; and access to advanced communications services by schools, libraries and rural health care providers. In some instances, these regulations indirectly affect us because they directly apply to our customers. The ff FCC assesses us a percentage of interstate and international revenue we receive from certain customers as our contribution to the Federal Universal Service Fund, which assessments we generally pass on to our customers. Additionally, the FCC has ruled that states may assess contributions to their state Universal Service Funds on VoIP (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:68)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:17)(cid:3)(cid:36)(cid:81)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)t methodology may affect our revenue and expenses, but at this time it is not possible to predict the extent we would be affected, if at all. 12 Intercarrier Compensation. Telecommunications carriers compensate one another for traffic carried on each (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)networks. Interexchange carriers pay access charges to local telephone companies for long distance calls that originate and terminate on local networks. Local telephone companies historically have charged one another for local and Internet-bound traffic te(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:81)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3) (cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3) (cid:69)(cid:92)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) compensated one another for exchanged traffic, whether it be for local, intrastate or interstate traffic, has been under review by the FCC for over a decade and continues to be subject to on-going reform efforts. (cid:68)(cid:68) In its November 2011 Universal Service Fund/Intercarrier Compensation Transformation Order (the (cid:179)(cid:56)(cid:54)(cid:41)(cid:18)(cid:44)(cid:38)(cid:38)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:50)(cid:85)(cid:71)(cid:72)(cid:85)(cid:180)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:38)(cid:38)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:90)(cid:76)(cid:87)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:3) and all reciprocal compensation charges were capped at then-current levels, and were reduced to zero over, as relevant to us, generally a six-year transition period that began July 1, 2012. Pursuant to the USF/ICC Transformation Order, VoIP, while remaining unclassified as either an information or a telecommunications service, was prospectively categorized as either local or non-local traffic. On December 17, 2019, t(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3)(cid:11)(cid:179)(cid:47)(cid:40)(cid:38)(cid:86)(cid:180)(cid:12)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:3)(cid:86)(cid:90)(cid:76)(cid:87)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3) access charges only if the LEC or its VoIP partner provides a physical connection to the last-mile facilities used to serve an end user. If neither the LEC nor its VoIP partner provides such a physical connection, the LEC may not assess end office switched access charges because it is not providing the functional equivalent of end office switched access. The FCC also decided to give its order retroactive effect. We cannot predict the impact on our business, including whether other carriers will agree with our legal interpretations and treatments, at this time. In a Report and Order released on October 9, 2020 the FCC adopted new rules governing various aspects of the intercarrier compensation structure applicable to toll free (8YY) calls (cid:11)(cid:179)(cid:27)(cid:60)(cid:60)(cid:3) (cid:50)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:36)(cid:70)(cid:70)(cid:72)ss Reform (cid:50)(cid:85)(cid:71)(cid:72)(cid:85)(cid:180)(cid:12). The new 8YY originating access rules took effect on December 28, 2020. The new rules will shift most switched access charges for 8YY calls to a bill-and-keep framework over a three-year period. (cid:92) Emergency Services. Pursuant to Federa(cid:79)(cid:3)(cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:53)(cid:68)(cid:92)(cid:3)(cid:37)(cid:68)(cid:88)(cid:80)(cid:182)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:46)(cid:68)(cid:85)(cid:76)(cid:182)(cid:86)(cid:3)(cid:47)(cid:68)(cid:90)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:3)(cid:75)(cid:68)(cid:86) adopted new emergency calling regulations that began to take effect in early 2020 and will continue to take effect (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:21)(cid:19)(cid:21)(cid:21)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:81)(cid:72)(cid:90)(cid:3) (cid:41)(cid:38)(cid:38)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3) (cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:83)(cid:88)(cid:85)(cid:86)(cid:88)(cid:68)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:53)(cid:68)(cid:92)(cid:3) (cid:37)(cid:68)(cid:88)(cid:80)(cid:182)(cid:86)(cid:3) (cid:36)(cid:70)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:46)(cid:68)(cid:85)(cid:76)(cid:182)(cid:86)(cid:3) (cid:47)(cid:68)(cid:90)(cid:3) (cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) configuration of customer equipment and transmission of emergency calls in variety of different settings have and will take effect. The rules address the obligations of communication service providers and software providers, like us, as well as equipment installers, managers and operators of a variety of different types of communications systems. Generally, the rules require uniformity in dialing patterns for contacting emergency operators, implementing central notification functionalities, and rules governing the transmission of more precise location information in enterprise or campus environments. The granularity of the location information depends on the type of service. For example, fixed and nomadic VoIP services that can only be used within a certain location have different requirements than nomadic services that can be used both within and outside of certain locations. There is some ambiguity in the rules as to the specific obligations of each party involved in the service delivery chain and the rules have not been interpreted by the FCC or a court due to their recent promulgation and, in some cases, some of the rules are not yet effective. To the extent that we do not comply with these rules for any reason, we may be subject to enforcement actions by the FCC, other federal agencies as well as state agencies. We could also be subject to personal liability claims in certain instances. State Telecommunications Regulation The 1996 Act intended to increase competition in the telecommunications industry, especially in the local (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:17)(cid:3)(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:80)(cid:69)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:76)(cid:72)(cid:85)(cid:86)(cid:3)(cid:11)(cid:179)(cid:44)(cid:47)(cid:40)(cid:38)(cid:86)(cid:180)(cid:12)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:36)(cid:55)(cid:9)(cid:55)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82) allow interconnection to their incumbent networks and to provide access to network facilities, as well as several other pro-competitive measures. State regulatory agencies have jurisdiction when our facilities and services are used to provide intrastate telecommunications services. A portion of our traffic may be classified as intrastate telecommunications and therefore subject to state regulation. We are authorized to provide competitive local exchange telecommunications 13 services in 49 states and the District of Columbia, and thus are subject to these additional regulatory regimes. Changes in applicable state regulations could affect our business. In addition, we need to maintain interconnection agreements with ILECs where we wish to provide service, which are subject to approval by individual states and subject to state arbitration in the event of disputes. We expect that we should be able to negotiate or otherwise obtain renewals or successor agreements through adoption of (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:68)(cid:85)(cid:69)(cid:76)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3) (cid:68)(cid:79)(cid:87)(cid:75)(cid:82)(cid:88)(cid:74)(cid:75) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3) (cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:82) interconnection and the exchange of traffic with certain ILECs could change significantly in certain cases. International As we have expanded internationally, we have become subject to telecommunications laws and regulations in the non-US jurisdictions where we offer our services. Prior to our November 2020 acquisition of Voxbone, we concentrated our efforts in Europe, including the United Kingdom. Following our November 2020 acquisition of Voxbone, we became subject to telecommunications laws and regulations in other non-US jurisdictions where we offer our services. The European Electronic Communications Code. In 2002, the European Council adopted a set of six (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:19)(cid:21)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86) are (cid:69)(cid:76)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3) (cid:56)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:40)(cid:56)(cid:180)(cid:12)(cid:3) (cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:80)(cid:88)(cid:86)(cid:87)(cid:3) (cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:3) (cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:79)(cid:68)(cid:90)(cid:86)(cid:3) consistent with the directives. The 2002 Directives included the Framework Directive, the Authorization Directive, the Access Directive, the Universal Service Directive and the E-Privacy Directive, each of which applies or will apply to us. In 2009 the European Council adopted two directives that amended the Framework Directive, the Authorization Directive, the Access Directive, the Universal Service Directive and the E-Privacy Directive (the (cid:179)(cid:21)(cid:19)(cid:19)(cid:28)(cid:3) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3) (cid:38)(cid:82)(cid:88)(cid:81)(cid:70)(cid:76)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:72)(cid:68)(cid:79)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3) (cid:40)(cid:79)(cid:72)(cid:70)(cid:87)(cid:85)(cid:82)(cid:81)(cid:76)(cid:70)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:38)(cid:82)(cid:71)(cid:72)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:40)(cid:40)(cid:38)(cid:38)(cid:180)(cid:12)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:40)(cid:40)(cid:38)(cid:38)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:80)(cid:83)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:71)(cid:72)(cid:68)(cid:71)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:56)(cid:3) member states to implement national laws consistent with the EECC, although most member states have not adopted implementing legislation. (cid:80) Part I of the EECC – The Framework . Part I of the EECC describes the European regulatory framework and defines terms. Part I of the EECC also mandates the independence of the national regulatory authorities (the (cid:179)(cid:49)(cid:53)(cid:36)(cid:86)(cid:180)(cid:12)(cid:3) (cid:87)(cid:82)(cid:3) (cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:3) (cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:17)(cid:3) (cid:51)(cid:68)(cid:85)(cid:87)(cid:3) (cid:44)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:40)(cid:38)(cid:38)(cid:3) (cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:73)(cid:82)(cid:85)(cid:72)(cid:86)(cid:72)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3) governing the provision of electronic communications networks and services. – – Part II of the EECC – Networks . Part II of the EECC establishes a uniform framework for the regulation of access to and the interconnection of electronic communications networks, including spectrum licensing. Part II of the EECC also outlines the relationships among suppliers of network and services, including principles to govern contractual relationships and regulatory involvement by the NRAs as necessary. Part II of the EECC effectively governs the relationships among service providers at a wholesale level and defines the principle of market analysis and significant market power, and related termination rates. Part III of the EECC - Services. Part III of the EECC governs universal service obligations and the provision of electronic communication networks and services to end users. Part III of the EECC seeks to ensure that end users have access to a minimum set of services, including access to emergency services. However, the minimum set of services is not required to be provided by all providers. Instead, the applicable NRAs may designate one or more companies to achieve the universal service in each country. It also establishes the principles governing the management of telephone numbers and the licensure requirements for the allocation of telephone numbers. nn Part III of the EECC - Services. Part III of the EECC governs universal service obligations and the provision of electronic communication networks and services to end users. Part III of the EECC seeks to ensure that end users have access to a minimum set of services, including access to emergency services. However, the minimum set of services is not required to be provided by all providers. Instead, the applicable NRAs may designate one or more companies to achieve the universal service in each country. It also establishes the principles governing the management of telephone numbers and the licensure requirements for the allocation of telephone numbers. 14 The E-Privacy Directive. The E-Privacy Directive seeks to ensure privacy and confidentiality in the processing of personal data in electronic communications. The E-Privacy Directive requires providers of publicly available electronic communications services to take appropriate technical and organizational measures to safeguard the security of services. These measures must: ensure that personal data can be accessed only by authorized personnel for legally authorized purposes; protect personal data stored or transmitted against accidental or unlawful destruction, accidental loss or alteration, and unauthorized or unlawful storage, processing, access or disclosure; and ensure the implementation of a security policy with respect to the processing of personal data. The E-Privacy Directive also requires notification of any breach or loss of personal data to the applicable NRA. Implementing National Legislation. The directives of the European Council ensure substantial similarities among nations, but not absolute uniformity. Each of the EU member states must adopt national legislation to implement the directives of the European Council. United Kingdom(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:46)(cid:76)(cid:81)(cid:74)(cid:71)(cid:82)(cid:80)(cid:3)(cid:11)(cid:179)(cid:56)(cid:17)(cid:46)(cid:17)(cid:180)(cid:12)(cid:3)(cid:71)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:56)(cid:3)(cid:76)(cid:81)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:80)(cid:83)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:71)(cid:85)(cid:68)(cid:90)(cid:68)(cid:79)(cid:3) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:56)(cid:17)(cid:46)(cid:17)(cid:182)(cid:86)(cid:3) (cid:71)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:73)rom the EU provided that EU law applied in and in relation to the UK only through December 2020. Thereafter, the EECC will no longer directly apply in the U.K. We do not anticipate considerable changes, however, since the EECC has been transposed into U.K. law as of December 2020. (cid:73)(cid:73) Other Non-US Jurisdictions. Following our November 2020 acquisition of Voxbone, we became subject to telecommunications laws and regulations in other non-US jurisdictions where we offer our services. These laws and regulations may concern telecommunications, as well as privacy, data protection, intellectual property, competition, consumer protection, taxation or other subjects. Corporate Information Bandwidth Inc. was founded in July 2000 and incorporated in Delaware on March 29, 2001. Our principal executive offices are located at 900 Main Campus Drive, Raleigh, NC 27606, and our telephone number is (800) 808-5150. Our website address is www.bandwidth.com. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K. Available Information The following information can be found, free of charge, on our corporate website at https://www.bandwidth.com/: (cid:135) (cid:135) (cid:135) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:85)(cid:81)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:30) our policies related to corporate governance, including our Code of Business Conduct and Ethics applicable to our directors, officers and employees (including our principal executive officer and principal financial and accounting officer), that we have adopted to meet applicable rules and regulations; and the charters of the Audit and Compensation Committees of our Board of Directors. In addition, copies of our annual report will be made available, free of charge, upon written request. We intend to satisfy the applicable disclosure requirements regarding amendments to, or waivers from, provisions of our Code of Business Conduct and Ethics by posting such information on our website. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report. 15 Item 1A. Risk Factors AA description of the risks and uncertainties associated with our business is set forth below. You should carefully Annual Report on l Report on consider the risks and uncertainties described below, together with all of the other information in this A Condition and Results of f Form 10-K KKK Form 10-K,, including the section titled “Management’s Discussion l Report on Annual Report on Operations” and our consolidated financial statem Form 10-K Form 10-KK. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline. ents and related notes appearing elsewhere in this A and Analysis of Financial Risk Factors Summary The following is a summary of the principal risks that could adversely affect our business, results of operations and financial condition. Risks Related to Our Business (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) rs could adversely affect our revenue and profits. on a number of factors that are beyond our control. The success of our growth and expansion plans depends The recent COVID-19 pandemic and the global attempt to contain it may harm our business. The market in which we participate is highly competitive, and we may not compete effectively. We may not be able to attract new customers in a cost-effective manner. The market for some of our services is new and unproven. We must increase the network traffic and revenue to meet our growth targets. Our business depends on customers increasing their use of our services. We may not be able to increase the revenue that we derive from enterprises. We may not be able to develop service enhancements or new services that achieve market acceptance. We have grown rapidly, expect our growth to continue, and may not be able to manage the growth effectively. Our pricing and billing systems are complex, and erro We must continue to develop effective systems to implement customer orders and to provide and bill for services. We may not be able to maintain and enhance our brand and increase market awareness. Failure to deliver high-quality support may adversely affect our customer relationships. internationally, which exposes us to significant risks. We are expanding our operations Our revenue is concentrated in a limited number of enterprise customers. Breaches of our networks or systems, or those of third parties upon which we rely, could harm our business. We are currently subject to litigation related to taxes and charges associated with our provision of 911 services. Customer misuse of our services and software The communications industry faces significant regulatory uncertainties. The effects of increased regulation of IP-based service providers are unknown. We must obtain and maintain permits and licenses to operate our network. If we violate regulatory requirements that apply to our operations, we may not be able to conduct our business. (cid:55)(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:72)(cid:68)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:49)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:49)(cid:72)(cid:88)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:53)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:85)(cid:80)(cid:3)(cid:82)(cid:88)(cid:85) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17) Any failure to comply with privacy and data security obligations may harm our business. Our business is subject to complex and evolving Our business may be harmed if we cannot obtain, retain and distribute local or toll-free numbers. Foreign currency exchange rate fluctuations may harm our business. We may be exposed to liabilities unde Third party intellectual property rights could prevent us from using technolog Our use of open source software could negatively affect ou uu r ability to sell our services and subject us to litigation. Indemnity provisions in various agreements potentially expose us to substantial liability. Our use of personal information subjects us to evolving We may fail to protect our internally developed systems, technology and software and our intellectual property. We are subject to litigation in the ordinary course of business, which may harm our business. We may be liable for the information that content owners or distributors distribute over our network. Third parties may use our services to commit fraud or steal our services. We may lose customers if our platform or network fails or is disrupted. Defects or errors in our services could harm our business. If our emergency services do not function properly, we may be exposed to significant liability. Termination of relationships with key suppliers could cause delay and additional costs. Our customer churn rate may increase. r anti-corruption, export control and economic sanction regulations. foreign laws regarding privacy and data protection. governmental laws and other legal obligations. could result in litigation and harm our business. ies needed to provide our services. u (cid:85) 16 (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) is taxable. (cid:135) (cid:135) reporting. (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) The prices for some of our services have decreased in the past and may do so again in the future. The need to obtain additional IP circuits or interconnect with other networks could increases our costs. The loss of any member of our senior management team or key employees could harm our business. If we are unable to hire, retain and motivate qualified personnel, our business will suffer. Our management team has limited experience managing a public company. We could be subject to liability for histor We may be subject to significant tax-related liabilities and indemnity obligations if the Spin-Off (as defined below) ic and future sales, use and similar taxes. Our estimates or judgments relating to our critic We may be unable to maintain an effective system of disclosure controls and internal control over financial al accounting policies may prove to be incorrect. r If our goodwill or intangible assets become impaired, we may be required to record a significant charge. NNatural disasters, pandemics, power outages, terrorist (cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:17) Our credit facility contains restrictive and financial covenants that may limit our operating flexibility. An inability to comply with the covenants in our credit facility could result in an accelerated repayment obligation. attacks and similar events could harm our business. Risks Related to the Acquisition of Voxbone (cid:135) (cid:135) The Voxbone acquisition may not yield the synergies and other benefits that we anticipated. Purchase price accounting for the Voxbone acquisition requires estimates that could change. Risks Related to Ownership of Our Class A Common Stock (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) Common Stock. The trading price of our Class A common stock may be volat Substantial future sales of shares of our Class A common Our dual class capital structure concentrates voting control. We cannot predict the impact our capital structure may have on our stock price. Our stock price and trading volume could decline if secur ile and you could lose all or part of your investment. stock could cause the price of our Class A to decline. ities or industry analysts stop covering our Class A A (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) Anti-takeover provisions in our organizational documents and Delaware law, could impair a takeover attempt. Our certificate of incorporation and bylaws include super-majority voting provisions. Our bylaws provide that Delaware will generally be the sole and exclusive forum for certain stockholder litigation. We may need additional capital in the future and such capital may be limited or unavailable. We do not intend to pay dividends for the foreseeable future. Risks Related to the Convertible Notes and Our Indebtedness (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) Servicing our future indebtedness may require a significant amount of cash, which we may not have. Our credit facility may limit our ability to pay off the Convertible Notes (as defined below). We may not have the ability to raise the funds nece The conditional conversion feature of the Convertible Notes may adversely affect us financially. The accounting method for our Convertible Notes could have a material effect on our reported financial results. The capped call transactions may affect the value of the Convertible Notes and our Class A common stock. ssary for cash settlement of the Convertible Notes. The following is a more complete discussion of the material risks facing our business. Risks Related to Our Business The success of our growth and expansion plans depends on a number of factors that are beyond our control. We have grown our business considerably over the last several years. We cannot guarantee that we will be able to maintain our growth or that we will choose to target the same pace of growth in the future. Our success in achieving continued growth depends upon several factors including: (cid:135) the availability and retention of qualified and effective personnel with the expertise required to sell and operate effectively or successfully; (cid:135) (cid:135) the overall economic health of new and existing markets; the number and effectiveness of competitors; 17 (cid:135) customers; the pricing structure under which we will be able to purchase services required to serve our (cid:135) the availability to us of technologies needed to remain competitive; (cid:135) federal, state and international re gulatory conditions, including the maintenance of regulation that t pprotects us from unfair business practices by traditional network service providers or others with greater market power who have relationships with us as both competitors and suppliers; and power who have relationships with us as both competitors and suppliers; and (cid:135) and internationally. changes in industry standards, laws, regulations, or regulatory enforcement in the United States The recent COVID-19 pandemic and the global attempt to contain it may harm our business and results of operations. The global spread of novel coronavirus disease ((cid:179)COVID-19(cid:180)) and the various measures to contain its effects have created significant volatility, uncertainty, and economic disruption worldwide. The pandemic has severely curtailed all travel and most of our employees now work from home, which disrupts how we typically operate. We may experience We may experience slowdowns in customer payments, increased customer churn, and reduced usage of our communications platform by some customers. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. These include: the duration and scope of the ppandemic; governmental, business and individual actions that have been and continue to be taken in response to the ppandemic; the effect on our customer(cid:86)(cid:15)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3) (cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:83)(cid:68)(cid:92)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:30)(cid:3)(cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:89)(cid:72)(cid:79)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85) customers, suppliers and vendors. If we need to access the capital markets and other sources of liquidity, there can be no assurance that financing may be available on attractive terms, if at all. (cid:92) a The market in which we participate is highly competitive, an operations and financial condition could be harmed. d if we do not compete effectively, our business, results of f The market for cloud communications is rapidly evolving, significantly fragmented and highly competitive, with relatively low barriers to entry in some segments. The principal competitive factor s in our market include completeness of f offering, credibility with enterprises and developers, global reach, ease of integration and programmability, product features, platform scalability, reliability, deliverability, security and performance, brand awareness and reputation, the strength of sales and marketing efforts and customer support, as well as the cost of deploying and using our services. Our competitors fall into two primary categories: (cid:135) CPaaS companies that offer a narrower set of so ftware APIs, less robust customer support and d rty networks and physical infrastructure; and d fewer other features, while relying on third-pa (cid:135) network service providers that offer limited developer functionality on top of their own networks and physical infrastructure. aa Some of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, a larger global reach, larger budgets and significantly greater resources than we do. In addition, they have the operating flexibility to bundle competing products and services at little or no incremental cost, including offering them at a lower price as part of a larger sales transaction. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer services that address one or a limited number of functions at lower prices, with greater depth than our services or in different geographies. Our current and ppotential competitors may develop and market new services with comparable functionality to our services, and this could etitive. In addition, some of our competitors have lower list t lead to us having to decrease prices in order to remain comp pprices than us, which may be attractive to certain customers even n if those services have different or lesser functionality. If f we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our business, results of operations and financial condition would be adversely affected. Customers utilize our services in many ways and use varying levels of functionality that our services offer or are capable of supporting or enabling within their applications. Customers that use many of the features of our services or use our services to support or enable core h uu 18 functionality for their applications may have difficulty or find it impractical to replace our services with a competito(cid:85)(cid:182)(cid:86) services, while customers that use only limited functionality may be able to more easily replace our services with competitive offerings. With the introduction of new services and new market entrants, we expect competition to intensify in the future. I(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:70)(cid:75)(cid:82)(cid:82)(cid:86)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:80)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:17)(cid:3)(cid:48)(cid:82)(cid:85)(cid:72)(cid:82)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3) as we expand the scope of our services, we may face additional competition. Further, customers and consumers may choose to adopt other forms of electronic communications or alternative communication platforms, including developing necessary networks and platforms in-house. Furthermore, if our competitors were to merge such that the combined entity would be able to compete fully with our service offering, then our business, results of operations and financial condition may be adversely effected. If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could also adversely affect our ability to compete effectively. In addition, pricing pressures and increased competition generally could result in reduced revenue, reduced margins, increased losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business, results of operations and financial condition. Our current and potential competitors have developed and may develop in the future product solutions that are available internationally as well as domestically. To the extent that customers seek product solutions that include support and scaling internationally, they may choose to use other service providers to fill their communication service needs ff bbefore we can fully develop and integrate our international offerings. Each of these factors could lead to reduced revenue, slower growth and lower brand name recognition amongst our industry competitors, any or all of which could harm our business, results of operations and financial condition. business, results of operations and financial condition. IIf we are unable to attract new customers in a cost-effecti ffinancial condition would be adversely affected. ve manner, then our business, results of operations and d In order to grow our business, we must continue to attract new customers in a cost-effective manner. We use a a variety of marketing channels to promote our services and our communications platform, and we periodically adjust the mix of our marketing programs. If the costs of the marketing channels we use increase dramatically, then we may choose to use alternative and less expensive channels, which may not be as effective as the channels we currently use. As we add to or change the mix of our marketing strategies, we may need to expand into more expensive channels than those we are d currently in, which could adversely affect our business, results of operations and financial condition. We also cannot We also cannot ppredict the extent to which COVID-19 may cause us to adjust how we promote our services, including adjustments to our use of marketing channels. We will incur marketing expenses before we are able to recognize any revenue that the marketing initiatives may generate, and these expenses may not result in increased revenue or brand awareness. We have made in the past, and may make in the future, significant expenditures and investments in new marketing campaigns. We cannot assure you that any new investments in sales and marketing, including any increased focus on enterprise sales efforts, will lead to the cost-effective acquisition of additional customers or increased sales or that our sales and marketing ble to maintain effective marketing programs, then our ability efficiency will be consistent with prior periods. If we are una a rtising and marketing expenses could d to attract new customers could be materially and adversely affected, our adve increase substantially and our re sults of operations may suffer. The market for some of our services and platform is new is dependent in part on enterprises and developers continuing to adopt our platform and use our services. and unproven, may decline or experience limited growth and d We have been developing and providing a cloud-based platform that enables developers and organizations to integrate voice and messaging communications capabilities into their software applications. This market is relatively new w and unproven and is subject to a number of risks and uncertainties. We believe that our future success will depend in large ppart on the growth, if any, of this market. For example, the utilization of software APIs by developers and organizations to bbuild communications functionality into their applications is still relatively new, and developers and organizations may not recognize the need for, or benefits of, our services and platform. Moreover, if they do not recognize the need for and bbenefits of our services and platform, they may decide to adopt alternative services and/or develop the necessary services in-house to satisfy their business needs. In order to grow our business and expand our market position, we intend to focus 19 on educating enterprise customers about the benefits of our services and platform, expanding the functionality of our services and bringing new technologies to market to increase market acceptance and use of our platform. Our ability to expand the market that our services and platform address depends upon a number of factors, including the cost, pperformance and perceived value associated with such services and platform. The market for our services and platform could fail to grow significantly or there could be a reduction in demand for our services and platform as a result of a lack of customer acceptance, technological changes or challenges, competing services, platforms and services, decreases in spending by current and prospective customers, weakening economic conditions, geopolitical developments, global ppandemics or other causes. If our market does not experience significant growth or demand for our services and platform decreases, then our business, results of operations and financial condition could be adversely affected. We must increase the network traffic and resulting revenue from the services that we offer to realize our targets for anticipated revenue growth, cash flow and operating performance. We must increase the network traffic and resulting revenue from our inbound and outbound voice calling, messaging, emergency voice functions, telephone numbers and related services at acceptable margins to realize our targets for anticipated revenue growth, cash flow and operating performance. If: (cid:135) we do not maintain or improve our current relationships with existing key customers; (cid:135) in a timely manner; (cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78) (cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:86) (cid:78) (cid:135) we do not develop new large enterprise customers; or r (cid:135) our competitors, our customers determine to obtain these services from either their own network or from one of f then we may be unable to increase or maintain our revenue at acceptable margins. Our business depends on customers increasing their use of o use of our services could materially and adversely affect our business, results of operations and financial condition. ur services and any loss of customers or decline in their r Our ability to grow and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with existing customers and to have them increase their usage of our Bandwidth Communications Platform. If our customers do not increase their use of our services, then our revenue may decline and our results of operations may be harmed. Customers generally are charged based on the usage of our services. Most of our customers do not have long- be harmed. Customers generally are charged based on the usage of our services. Most of our customers do not have long- term contractual financial commitments to us and, therefore, most of our customers may reduce or cease their use of our services at any time without penalty (cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:88)(cid:85)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:83)(cid:85)(cid:72)(cid:71)(cid:76)(cid:70)(cid:87)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:88)(cid:86)(cid:68)(cid:74)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72) loss of customers or reductions in their usage levels of our services may each have a negative impact on our business, results of operations and financial condition and may cause our dollar-based net retention rate to decline in the future if f our customers are not satisfied with our services. If a significant number of customers cease using, or reduce their usage of, our services, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from customers. Such additional sales and marketing expenditures could adversely affect our business, results of operations and financial condition. ff IIf we are unable to increase the revenue that we derive ffinancial condition may be adversely affected. from enterprises, our business, results of operations and d We currently generate all of our revenue from enterprise customers. Our ability to expand our sales to enterprise customers will depend, in part, on our ability to effectively organize, focus and train our sales and marketing personnel lling to enterprises. We believe that there is significant t and to attract and retain sales personnel with experience se competition for experienced sales professionals with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth in the future will depend, in n part, on our ability to recruit, train and retain a sufficient t number of experienced sales professionals, particularly those with experience selling to enterprises. In addition, even if we quire significant training and experience before they achieve are successful in hiring qualified sales personnel, new hires re full productivity, particularly for sales efforts targeted at enterprises and new territories. Our recent hires and planned hires 20 may not become as productive as quickly as we expect and qualified individuals in the future in the markets where we do business. we may be unable to hire or retain sufficient numbers of f With respect to enterprise customers, the decision to adopt our services may require the approval of multiple technical and business decision makers, including security, compliance, procurement, operations and IT. In addition, while enterprise customers may quickly deploy our services on a limited basis, before they will commit to deploying our services at scale, they often require extensive education about our services and significant customer support time, engage in protracted pricing negotiations and seek to secure readily available development resources. In addition, sales cycles for enterprises are inherently complex, and some enterprise customers may not generate revenue that justifies the cost to obtain such customers. In addition, these complex and resource-intensive sales efforts could place additional strain on our limited product and engineering resources. Further, enterprises, including some of our customers, may choose to develop their own solutions that do not include our services. They also may demand reductions in pricing as their usage of our services increases, which could have an adverse impact on our gross margin. Our efforts to sell to these potential customers may not be successful. If we are unable to increase the revenue that we derive from enterprises, then our ial condition may be adversely affected. bbusiness, results of operations and financ If we do not develop enhancements to our services and introduce new services that achieve market acceptance, our If we do not develop enhancements to our services and introduce new services that achieve market acceptance, our business, results of operations and financial condition could be adversely affected. Our ability to attract new customers and increase revenue from existing customers depends in part on our ability to enhance and improve our existing services, increase adoption and usage of our services and introduce new services. The success of any enhancements or new services depends on several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance. Enhancements and new services that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may have interoperability difficulties with our communications platform or other services or may not achieve the broad market acceptance necessary to generate significant revenue. We also must integrate with a variety of network, hardware, mobile and software platforms and technologies, which requires us to enhance and modify our products and our communications pplatform to adapt to changes and innovation in these technologies. Wireline and wireless telephone providers or cell- pphone operating system providers such as Apple and Goog le have developed and may in the future develop new applications, functions or technologies intended to filter illegal robocalls or other unwanted phone calls or messages. Such applications, functions or technologies may inadvertently filter legal and desired calls or messages to or from our customers. In certain instances, we may need to update our services and technology to wo rk with these applications, u functions or technologies. Any failure to operate effectively with evolving or new technologies could reduce the demand for our services. If we cannot respond to these changes cost-effectively, our services may become less marketable and less competitive or obsolete, and our business, results of operations and financial condition could be adversely affected. To the extent that upgrades of existing products, services and technology are required for the introduction of new services, the success of these upgrades also may be dependent on reaching mutually acceptable terms with vendors and on vendors meeting their obligations in a timely manner. ff Furthermore, our ability to increase the usage of our services depends, in part, on the development of new use cases for our services, which may be outside of our control. Our ability to generate usage of additional services by our customers may also require increasingly sophisticated and more costly sales efforts and result in a longer sales cycle. If we are unable to successfully enhance our existing services to meet evolving customer requirements, increase adoption and usage of our services or develop new services, or if our efforts to increase the usage of our services are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected. We have experienced rapid growth and expect our growth to continue, and if we fail to effectively manage our growth, then our business, results of operations and financial condition could be adversely affected. We have experienced substantial growth in our business since inception, which has placed and may continue to pplace significant demands on our corporate culture, operational infrastructure and management. We believe that our corporate culture has been a critical component of our success. We have invested substantial time and resources in bbuilding our team and nurturing our culture. As we expand our business, grow internationally and mature as a public ate culture while managing this growth, particularly if f company, we may find it difficult to maintain our corpor governmental responses to COVID-19 require that many of our employees work remotely for a prolonged period of time. 21 Any failure to manage our anticipated growth and organizational changes in a manner that preserves the key aspects of f our culture could hurt our chance for future success, including our ability to recruit and retain personnel, and effectively y focus on and pursue our corporate objectives. This, in turn, could adversely affect our business, results of operations and financial condition. In addition, as we have rapidly grown, our organizational structure has become more complex. In order to manage these increasing complexities, we will need to continue to scale and adapt our operational, financial and management controls, as well as our reporting systems and procedures. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase. t tt Finally, if this growth continues, it could strain our abilit y to maintain reliable service levels for our customers. If f we fail to achieve the necessary level of efficiency in our organization as we grow, then our business, results of operations and financial condition could be adversely affected. Our pricing and billing systems are complex and errors could adversely affect our revenue and profits. Our pricing and billing efforts are complex to develop and challenging to implement. To be profitable, we must have accurate and complete information about the costs associated with voice and messaging, and properly incorporate such information into our pricing model. Our pricing model must also reflect accurate and current information about the market for our services, including the pricing of competitive alte rnatives for our services, as well as reliable forecasts of f traffic volume. We may determine pricing for our services based on data that is outdated or otherwise flawed. Even if we have complete and accurate market information, we may not set prices to optimize both revenue and profitability. If we pprice our services too high, the amount of traffic that our customers may route to our network may decrease and accordingly our revenue may decline. If we price our services too low, our margins may be adversely affected, which will reduce our ability to achieve and maintain profitability. Additionally, we rely on third parties to provide us with key software and services for our billing. If these third pparties cease to provide those services to us for any reason, or fail to perform billing services accurately and completely, we may not be able to deliver accurate invoices promptly. Delays in invoicing can lead to delays in revenue recognition, and inaccuracies in our billing could result in lost revenue. If we fail to adapt quickly and effectively to changes affecting our costs, pricing and billing, our profitability and cash flow will be adversely affected. r tt We must continue to develop effective business support systems to implement customer orders and to provide and bill ffor services. We depend on our ability to continue to develop effective business support systems. This complicated undertaking requires significant resources and expertise and support from third-party vendors. Following the development of the bbusiness support systems, the data migration must be completed for the full benefit of the systems to be realized. Business support systems are needed for: (cid:135) (cid:135) quoting, accepting and inputting customer orders for services; provisioning, installing and delivering services; provisioning, installing and delivering services; (cid:135) pproviding customers with direct access in our communications platform so that they can manage the services they purchase from us, generally through web- based customer portals; and based customer portals; and information systems included the to (cid:135) billing for services. billing for services. Because our business provides for continued rapid growth in the number of customers that we serve, the volume (cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:88)(cid:86)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82) (cid:71) develop our business support systems on a schedule sufficient to meet proposed milestone dates. If we fail to develop effective business support systems or complete the data migration into these systems, it could materially adversely affect our ability to implement our business plans, realize antici pated benefits from our acquisitions, if any, and meet our r financial goals and objectives. 22 IIf we are not able to maintain and enhance our brand and increase market awareness of our company and services, then our business, results of operations and financial condition may be adversely affected. We believe that maintaining and enhancing our brand identity and increasing market awareness of our company and services are critical to achieving widespread acceptance of our company and our communications platform, as well as to strengthen our relationships with our existing customers and to our ability to attract new customers. The successful ppromotion of our brand will depend largely on our continued marketing efforts, our ability to continue to offer high quality services and our ability to successfully differentiate our services from competing products and services. Our brand ppromotion activities may not be successful or yield increased revenue. In addition, independent industry analysts often rvices, which may significantly influence the perception of f pprovide reviews of our services and competing products and se (cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:17)(cid:3)(cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:74)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81) our brand may be harmed. From time to time, our customers have complained about our services, such as complaints about our pricing and customer support. If we do not handle customer complaints effectively, then our brand and reputation may suffer, our customers may lose confidence in us and they may reduce or cease their use of our services. In addition, many of our customers post and discuss on social media about products and services, including our services and our Bandwidth Communications Platform. Our success depends, in part, on our ability to generate positive customer feedback and minimize negative feedback on social media channels where existing and potential customers seek and share information. If actions we take or changes we make to our services or our communications platform upset these customers, then their r online commentary could negatively affect our brand and reputation. Complaints or negative publicity about us, our services or our communications platform could materially and adversely affect our ability to attract and retain customers, our business, results of operations and financial condition. r r The promotion of our brand also requires us to make substantial expenditures, and we anticipate that these expenditures will increase as our market becomes more competitive and as we expand into new markets. To the extent that t these activities increase revenue, this revenue still may not be enough to offset the increased expenses we incur. In addition, due to restrictions on travel and in-person me etings resulting from COVID-19, we have attended planned d customer and industry events as virtual-only experiences and cancelled others. We may alter, postpone or cancel other events in the future. Virtual meetings, events and interactions may not be as successful and may constrain our marketing, promotional and sales activity. promotional and sales activity. If we do not successfully maintain and enhance our brand, then our business may not grow, we may see our pricing power reduced relative to competitors and we may lose customers, all of which would adversely affect our business, results of operations and financial condition. AAny failure to deliver and maintain high-quality customer support may adversely affect our relationships with our customers and prospective customers and could adversely affect our reputation, business, results of operations and d ffinancial condition. Many of our customers depend on our customer support team to assist them in deploying or using our services effectively, to help them resolve post-deployment issues quickly and to provide ongoing support. If we do not devote sufficient resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to retain existing customers and could prevent prospective customers from adopting our services. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to modify the nature, scope and delivery of our customer support to compete with changes in the support services pprovided by our competitors. Increased demand for customer support, without corresponding revenue, could increase costs and adversely affect our business, results of operations and financial condition. Our sales are highly dependent on our business reputation and on positive recommendations from existing customers. Any failure to deliver and maintain high-quality customer support, or a market perception that t we do not maintain high-quality customer support, could d adversely affect our reputation, business, results of operations and financial condition. We operate internationally, which exposes us to significant risks. We have expanded our international operations, including the deployment of two data centers in Frankfurt and and ankfurt and Madrid primarily for regulatory purposes, London, the establishment of a limited presence in each of Fr f 23 (cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:179)-(cid:53)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:17)(cid:180)(cid:3)(cid:36)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3) our growth strategy, we will continue to evaluate potential opportunities for further international expansion. Operating in international markets requires significant resources and management attention and will subject us to face in the United States. We have limited experience with h regulatory, economic and political risks in addition to those we international operations, and our further international expansion efforts may not be successful. In addition, we face risks in doing business internationally that could adversely affect our business, including: (cid:135) exposure to political developments i(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:46)(cid:76)(cid:81)(cid:74)(cid:71)(cid:82)(cid:80)(cid:3)(cid:11)(cid:179)(cid:56)(cid:17)(cid:46)(cid:17)(cid:180)(cid:12)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:71)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:17)(cid:46)(cid:17)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3)(cid:56)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:40)(cid:56)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3) environment, instability for businesses and volatility in global financial markets and the value of foreign currencies, all of which could disrupt trade, the sale of our services and the mobility of our employees and contractors between the U.K., EU and other jurisdictions; ; (cid:135) difficulties in managing and staffing international operations, including difficulties related to the increased operations, travel, infrastructure and legal compliance costs associated with numerous international locations; (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) our ability to effectively price our products in competitive international markets; new and different sources of competition; costs associated with network service providers outside of the United States; the need to adapt and localize our products for specific countries; difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions, particularly in the areas of data privacy and security; jurisdictions, particularly in the areas of data privacy and security; (cid:135) difficulties related to differing technical standards, data privacy and telecommunications regulations and certification requirements outside the United States, which could prevent customers from m deploying our products or limit their usage; (cid:135) d export controls and economic sanctions administered by the Bureau of Industry and Security of f the U.S. Department of Commerce and the Office of Foreign Assets Control of the U.S. Department of the Treasury; (cid:135) compliance with various anti-bribery and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act 2010; (cid:135) (cid:135) (cid:135) international trade policies, tariffs and other non-tariff barriers, such as quotas; more limited protection for intellectual property rights in some countries; adverse tax consequences; (cid:135) f fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency y exchange rate risk; (cid:135) into U.S. dollars; t currency control regulations, which might restrict or prohibit our conversion of other currencies (cid:135) (cid:135) (cid:135) restrictions on the transfer of funds; deterioration of political relations between the United States and other countries; public health epidemics, such as COVID-19, or natural disasters, which could have an adverse impact on our employees, contractors, customers, partners, travel and the global economy; and 24 (cid:135) ppolitical or social unrest or economic instability in a specific country or region in which we operate, which could have an adverse impact on our operations in that location. In addition, due to potential costs from our international expansion efforts and network service provider fees outside of the United States, our gross margin for international customers may be lower than our gross margin for domestic customers. As a result, our gross margin may fluctuate as we further expand our operations and customer base internationally. Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, results of operations and financial condition. Our revenue is concentrated in a limited number of enterprise customers. A significant portion of our revenue is concentrated among a limited number of enterprise customers. If we lost one or more of our top ten customers, or, if one or more of these major customers significantly decreased orders for our services, our business would be materially and adversely affected. f BBreaches of our networks or systems, or those of third parti es upon which we rely, could degrade our ability to conduct t our business, compromise the integrity of our services and our communications platform, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and d require us to incur significant additional costs to maintain the security of our networks and data. We depend upon our IT systems to conduct virtually all of our business operations, ranging from our internal operations and R&D activities to our marketing and sales efforts and communications with our customers and business ppartners. Cyber-attacks, including through the use of malware, computer viruses, dedicated denial of services attacks, credential harvesting and other means for obtaining unauthorized access to or disrupting the operation of our networks and systems and those of our suppliers, vendors and other service providers, could cause harm to our business, including by misappropriating our proprietary information or that of our customers, employees and business partners or to cause r interruptions of our services and our Bandwidth Communications Platform. Cyber-attacks may cause equipment failures, loss of information, including sensitive personal information of customers or employees or valuable technical and -attacks against companies have (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:38)(cid:92)(cid:69)(cid:72)(cid:85) increased in frequency, scope and potential harm in recent years. Further, the perpetrators of cyber-attacks are not t restricted to particular groups or persons. These attacks may be committed by company employees or external actors operating in any geography, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective, and may even be launched by or at the behest of nation states. While, to date, we have not been subject to cyber-attacks which, individually or in the aggregate, have been material to our operations or financial condition, the preventive actions we take to reduce the risks associated with cyber-attacks, including protection of our r systems and networks, may be insufficient to repel or mitigate the effects of a major cyber-attack in the future. Because the techniques used by such individuals or entities to access, disrupt or sabotage devices, systems and networks change frequently and may not be recognized until launched against a ta rget, we may be unable to anticipate these techniques, and d we may not become aware in a timely manner of such a security breach, which could exacerbate any damage we experience. Additionally, we depend upon our employees and contractors to appropriately handle confidential and d sensitive data, including customer data and customer proprietary network information pursuant to applicable federal law, and to deploy our IT resources in a safe and secure manner that does not expose our network systems to security breaches or the loss of data. Any data security incidents, including inadvertent disclosure or internal malfeasance by our employees, n of us or our services providers, could result in a loss of f unauthorized access or usage, virus or similar breach or disruptio confidential information, theft of our intellectual property, damage to our reputation, loss of customers, litigation, regulatory investigations, fines, penalties and other liabilities. Our existing general liability and cyber liability insurance policies may not cover, or may cover only a portion of, any potential claims related to security breaches to which we are exposed or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed. We also cannot be certain that our existing insurance coverage will continue to be available on acceptable terms or in amounts sufficient to cover the potentially significant losses that may will not deny coverage of any future claim. Accordingly, if our r result from a security incident or breach or that the insurer cybersecurity measures and those of our service providers, fail to protect against unauthorized access, attacks (which may 25 include sophisticated cyber-attacks) and the mishandling of da bbusiness, results of operations and financ ial condition could be adversely affected. ta by our employees and contractors, then our reputation, We are currently subject to litigation related to taxes and charges associated with our provision of 911 services, which could divert management’s attention and adversely affect our results of operations. ll We, along with many other telecommunications companies and similar service providers, currently are subject to litigation regarding our billing, collection and remittance of f non-income-based taxes and other similar charges regarding g 911 services alleged to apply in certain states, counties, and municipalities located in Illinois, New York, Pennsylvania, (cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:75)(cid:82)(cid:71)(cid:72)(cid:3)(cid:44)(cid:86)(cid:79)(cid:68)(cid:81)(cid:71)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3)(cid:179)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:22)(cid:17)(cid:3)(cid:47)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:51)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:17)(cid:180)(cid:3)(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:73)(cid:68)(cid:70)(cid:72)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)ons in the future. While we are vigorously defending these lawsuits, litigation is inherently uncertain. Tax assessments, ppenalties and interest or future requirements arising from these lawsuits, or any other lawsuits that may arise in other jjurisdictions, may adversely affect our business, results of operations and financial condition. y We face a risk of litigation resulting from customer misuse of our services and software to make or send unauthorized calls and/or messages, including those in violation of the Telephone Consumer Protection Act. Customer misuse of our Customer misuse of our sservices and software also could damage our reputation. f Calls and/or text messages originated by our customers may subject us to potential risks, including litigation, regulatory enforcement, fines, and reputational damage. For example, the Telephone Consumer Protection Act of 1991 (cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:55)(cid:38)(cid:51)(cid:36)(cid:180)(cid:12)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:88)(cid:87)(cid:82)(cid:80)(cid:68)(cid:87)(cid:76)(cid:70)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:18)(cid:82)(cid:85)(cid:3)(cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3) pproper customer consent. This may result in ci(cid:89)(cid:76)(cid:79)(cid:3)(cid:70)(cid:79)(cid:68)(cid:76)(cid:80)(cid:86)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:88)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82) (cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3) (cid:73) our platform, and requests for information through third-party subpoenas or regulatory investigations. For example, we, tt along with other telecommunications companies, have been med as a defendant in a TCPA action relating to our alleged na failure to block unsolicited phone calls to the plaintiff and putative class members. (cid:54)(cid:72)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3)(cid:179)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:22)(cid:17)(cid:3)(cid:47)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3) (cid:51)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:17)(cid:180)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3) (cid:90)(cid:72)(cid:3) (cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:69)(cid:72)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3) (cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3) (cid:79)(cid:68)(cid:90)s imposing limitations on marketing calls to wireline and wireless numbers. The scope and interpretation of the laws that are or may be applicable to the making and/or delivery of calls and/or messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper customer consent, we could become subject to lawsuits, fines, civil penalties, potentially y significant statutory damages, consent decrees, injunctions, adverse publicity, loss of user confidence in our services, loss of users and other adverse consequences, which could materially harm our business. Some of our customers may use our platform to transmit illegal, offensive or unauthorized calls and messages, including spam, phishing scams, and links to harmful applications. Some of our customers also may reproduce and distribute copyrighted material or the trademarks of others without permission. Such actions violate our practices and (cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:36)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:56)(cid:86)(cid:72)(cid:3)(cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:179)(cid:78)(cid:81)(cid:82)(cid:90)- your-(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:180)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:86)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:15)(cid:3)(cid:68)(cid:79)(cid:87)(cid:75)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:79)(cid:90)(cid:68)(cid:92)s conduct proactive audits of our customers thereafter to confirm compliance with our practices and policies, including our Acceptable Use Policy. We (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:85)(cid:72)(cid:79)(cid:92)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:88)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3) (cid:88)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:70)(cid:82)(cid:80)ply with applicable law and our practices and policies. We also generally evaluate complaints that we receive regarding our (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:76)(cid:79)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3)(cid:85)(cid:82)(cid:69)(cid:82)(cid:70)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:88)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:17) The unlawful or fraudulent use of our platform could subject us to claims for damages, copyright or trademark infringement, regulatory enforcement, fraud, or negligence or damage our reputation. Even if claims asserted against us do not result in liability, we may incur substantial costs to investigate and defend such claims. If we are liable for our (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:73)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:72)(cid:81)(cid:68)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3) resources to remedy any damages caused by such actions and avoid future liability. The communications industry faces significant regulatory uncertainties and the resolution of these uncertainties could d harm our business, results of operations and financial condition. If current or future regulations change, the FCC, state or international regulators may not grant us required regulatory authorizations or may take action against us if we are found to have provided services without obtaining the necessary authorizations, or to have violated other requirements of their rules and orders. Delays in receiving required 26 regulatory approvals or the enactment of new adverse regulation or regulatory requirements may slow our growth and aa have a material adverse effect on our business, results of operations and financial condition. For example, on De Proceedings before the FCC or international regulators could limit our access to various network services or further increase the rates we must pay for such services. For example, the availability and price of special access facilities could be affected by proceedings before the FCC, changes to applicable FCC rules and FCC forbearance from the enforcement of obligations on incumbent LECs. Other proceedings before the FCC could result in an increase in the amount we pay to other carriers or a reduction in the revenue we derive from other carriers in, or retroactive liability for, access charges and reciprocal compensation. cember 17, 2019, the FCC issued an order that revised its interpretation of the VoIP symmetry rule. The FCC now concludes that LECs may assess end office switched access charges only if the LEC or its VoIP partner provides a physical connection to the last-mile facilities used to serve an end user. If neither the LEC nor its VoIP partner provides such a physical connection, the LEC may not assess end office h switched access charges. The FCC also decided to give its orde We cannot predict the impact this FCC order may have on our business, including whether other carriers will agree with our legal interpretations and treatments, at this time. Other proceedings before the FCC could also result in increases in the cost of regulatory compliance. For example, the FCC has opened a proceeding to examine how to improve the delivery of emergency 911 services and d whether to expand requirements to include communications services not currently subject to emergency calling obligations. A number of states also have proceedings pending that could impact our access to and the rates we pay for network services. Other state proceedings could limit our pricing and billing flexibility. Our business would be substantially impaired if the FCC, the courts or state commissions eliminated our access to the facilities and services we use to serve our customers, substantially increased the rates we pay for facilities and services, increased the costs or complexity associated with providing emergency 911 services or adversely affected the revenue we receive from other carriers or our customers. In addition, congressional legislative efforts to rewrite the Telecommunications Act of 1996 or enact other telecommunications legislation, as well as various state legislative initiatives, may cause major industry and regulatory changes. We cannot predict the outcome of these proceedings or legislative initiatives or the effects, if any, that these proceedings or legislative initiatives may have on our business and operations. r retroactive effect. While we believe we are currently in compliance with all federal, state, local and international rules and d regulations, these regulations are subject to interpretation and the relevant regulators may determine that our application of these rules and regulations is not consistent with their interpretation. Additionally, in certain instances, third parties orr government agencies may bring action with federal, state, local or international regulators if they believe a provider has breached applicable rules and regulations. breached applicable rules and regulations. The effects of increased regulation of IP-based service providers are unknown. While the FCC has to date generally subjected IP-based service providers in the United States to less stringent regulatory oversight than traditional common carriers, the FCC has imposed certain regulatory y obligations on providers of f interconnected and non-interconnected VoIP services, including the obligations to contribute to the Universal Service Fund, to provide 911 services, and to comply with the Communications Assistance for Law Enforcement Act. The The recently enacted TRACED Act aims to mitigate illegal robocalls by directing the FCC to conduct certain rulemaking pproceedings that include adopting rules that require participation in the technical standard known as STIR/SHAKEN, among other requirements. The TRACED Act applies to both IP-based and non-IP-based service providers. Further, some states have imposed taxes, fees and/or surcharges on interconnected VoIP telephony services. The imposition of additional regulations could have a material adverse effect on our business. We must obtain and maintain permits and licenses to operate our network. If we are unable, on acceptable terms and on a timely basis, to obtain and maintain the permits and licenses needed to expand and operate our network, our business could be materially adversely affected. In addition, the cancellation or non-renewal of the permits or licenses that are obtained could materially adversely affect our business. In the event we are the target of an acquisition, the regulatory agencies responsible for granting, renewing or transferring ppermits and licenses may delay or reject applications to transfer such permits or licenses and as a result these uncertainties, we may not be as attractive an acquisition target. 27 Our operations are subject to regulation and require us to obtain and maintain several governmental licenses and d ppermits. If we violate those regulatory requirements or fail to obtain and maintain those licenses and permits, including payment of related fees, if any, we may not be able to conduct our business. Moreover, those regulatory requirements could change in a manner that significantly increases our costs or otherwise adversely affects our y operations. r In the ordinary course of operating our network and providing our services, we must obtain and maintain a variety of telecommunications and other licenses and authorizations. We also must comply with a variety of regulatory obligations. There can be no assurance we can maintain our licenses or that they will be renewed upon their expiration. Our failure to obtain or maintain necessary licenses, authorizations or to comply with the obligations imposed upon license holders, including the payment of fees, may cause sanctions or additional costs, including the revocation of f authority to provide services. Our operations are subject to regulation at the national level and, often, at the state and local levels. Our operations are also subject to additional regulation by other countries in international markets. Changes to existing regulations or rules, or the failure to regulate going forward in areas historically regulated on matters such as network k neutrality, licensing fees, environmental, health and safety, privacy, intercarrier compensation, emergency services, interconnection, illegal robocalling, extra-territorial use of telephone numbers, and other areas, in general or particular to our industry, may increase costs, restrict operations or decrease revenue. For example, the TRACED Act aims to mitigate illegal robocalls by directing the FCC to develop rules requiring participation in the technical standard known as STIR/SHAKEN among other things. We are also subject to telecommunications laws and regulations in the non-US countries where we offer our products. Our international operations are subject to country-specific laws and governmental regulation that may increase our costs or impact our products and communications platform or prevent us from offering or providing our products in certain countries. Many existing non-US laws and regulations may not fully contemplate CPaaS providing our products in certain countries. M solutions and the interpretation and enforcement of non-US laws and regulations may involve significant uncertainties. (cid:41)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:68)(cid:80)(cid:83)(cid:79)(cid:72)(cid:15)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:179)(cid:78)(cid:81)(cid:82)(cid:90)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:180)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72) mandated the real-time provisioning of the data to national law enforcement authorities. Future legislative, regulatory or judicial actions impacting CPaaS solutions also could increase the cost and complexity of compliance and expose us to Our inability or failure to comply with telecommunications and other laws and regulations could cause the liability. Our inability or failure to comply with telecommunications and other laws and regulations could cause the temporary or permanent suspension of our operations, and if we cannot provide emergency calling functionality through our communications platform to meet any new federal or state requirements, or any applicable requirements from other countries, the competitive advantages that we currently have may not persist, adversely affecting our ability to obtain and to retain enterprise customers, which could have an adverse impact on our business. (cid:85) IIn January 2018, the FCC repealed its Network Neutrality Rules. Our business could suffer with respect to the quality of the services we offer, our ability to maintain our internet-based services and our services offered through our communications platform, decrease our profitability or increase the price of our services making our offerings less competitive in the marketplace. (cid:178) In January 2018, the FCC adopted an order largely repealing its network neutrality rules. Among other things, the like cable and d ppre-existing network neutrality rules prevented providers of broadband internet access services (cid:178) (cid:178) telephone companies (cid:178) from blocking, impairing and degrading service of ff ferings from non-affiliated third parties like us. (cid:55)(cid:75)(cid:72)(cid:3) (cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3) (cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:83)(cid:72)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:85)(cid:72)-existing network neutrality rules was appealed by a number of parties. In October 2019, a three judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued a decision that largely affirmed the FCC's order, including the reclassification of broadband Internet access as an information service. The court, (cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:89)(cid:68)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:69)(cid:68)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) that was inconsistent with the FCC's order. The appellate court's decision is subject to rehearing by the full court or parties may seek to appeal the decision to the U.S. Supreme Court. Various companies appealed the federal court of appeals decision in December 2019. We cannot predict whether the FCC will reverse its January 2018 order, whether the appeal will be successful, or whether any states will adopt legislation y that results in restoring the pre-existing network neutrality rules that prevent broadband internet access service providers from blocking, impairing and degrading offerings from third d pparties like us. If broadband providers were to block, impair or degrade our internet-based services or services we offer r through our communications platform, or if broadband internet access providers were to charge us or our customers to access and use our internet-based services or services offered through our communications platform, we could lose 28 customers, our profitability could decrease, or we may have to raise prices, making our service less competitive in the marketplace. Most of the major broadband internet access providers have publicly stated that they will not block, impair or degrade third party offerings. We cannot predict the potential impact of the January 2018 FCC network neutrality order on our offerings at this time. We are subject to privacy and data security obligations in the United States. Any failure to comply with applicable laws, regulations or contractual obligations may harm our business, results of operations and financial condition. The FCC, ee other federal agencies and state attorneys’ general could fine or subject us to other adverse actions that may negatively impact our business reputation. If we are subject to an investigation or suffer a breach, we may incur costs or be ssubject to forfeitures and penalties that could reduce our profitability. We are subject to privacy and data security laws and regulations that impose obligations in connection with the collection, processing and use of personal data. Federal and state laws or proposed laws impose limits on, or requirements (cid:68)(cid:74)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:51)(cid:44)(cid:44)(cid:180)(cid:12)(cid:3) (cid:82)(cid:73)(cid:3) (cid:73) (cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:88)(cid:86)(cid:72)(cid:15)(cid:3) (cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:87)(cid:82)(cid:85) individuals. We see increased regulation of data privacy and security, including the adoption of more stringent subject matter specific state laws in the United States. For example, in 2018, California enacted the California Consumer Privacy (cid:36)(cid:70)(cid:87)(cid:3) (cid:11)(cid:179)(cid:38)(cid:38)(cid:51)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:69)(cid:72)(cid:70)(cid:68)(cid:80)(cid:72)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:82)(cid:81)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:38)(cid:51)(cid:36)(cid:3) (cid:74)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3) (cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3) (cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the U.S., which could increase our potential liability and adversely affect our business. Further, in November 2020, California voters passed the (cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)(cid:51)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:179)(cid:38)(cid:51)(cid:53)(cid:36)(cid:180)(cid:12)(cid:17) The CPRA, which is expected to take effect on January 1, 2023 and to create obligations with respect to certain data relating to consumers as of January 1, 2022, significantly expands the CCPA, including by introducing additional obligations such as data minimization and storage limitations, granting additional rights to consumers, such as correction of personal information and additional opt-out rights, and creates a new entity, the California Privacy Protection Agency, to implement and enforce the law. The CCPA and CPRA may increase our compliance costs and potential liability. We also may be bound by contractual obligations relating to our collection, use and disclosure of personal data or may find it necessary or desirable to join industry or other self-regulatory bodies or other privacy or security related organizations that require compliance with their rules pertaining to privacy and data protection. (cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:55)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:87)(cid:87)(cid:82)(cid:85)(cid:81)(cid:72)(cid:92)(cid:86)(cid:182)(cid:3) general with respect to privacy and data security obligations. If we were to suffer or if one of our customers were to suffer a brea(cid:70)(cid:75)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:72)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:74)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:87)(cid:87)(cid:82)(cid:85)(cid:81)(cid:72)(cid:92)(cid:86)(cid:182) general. We may have to comply with a variety of data breach laws at the federal and state levels, comply with any resulting investigations, as well as offer mitigation to customers and potential end users of certain customers to which we pprovide services. We could also be subject to fines, forfeitures and other penalties that may adversely impact our business. Any failure or perceived failure by us, our products or the communications platform to comply with new or r ies, industry standards or contractual or legal obligations, or r existing U.S. privacy or data security laws, regulations, polic any security incident that results in the unauthorized access to, or acquisition, release or transfer of, PII or other customer data may result in governmental investigations, inquiries, enforcement actions and prosecutions, private litigation, fines and penalties, adverse publicity or potential loss of business. Our business is subject to complex and evolving foreign laws and regulations regarding privacy, data protection and d other matters relating to information collection. There are numerous foreign laws, regulations and directives regarding privacy and the collection, retention, storage, transmission, use, processing, disclosure and protecti on of PII and other personal or customer data, the scope of f which is continually evolving and subject to differing interpretations. We must comply with applicable laws, regulations and directives and we may be subject to significant consequenc es, including penalties and fines, for our failure to comply. Uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of compliance, delay or re(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3) 29 utilize our services in certain jurisdictions, or subject us to could harm our business, financial condition and results of operations. sanctions by national data protection regulators, all of which h For example, as of May 25, 2018, the GDPR replaced the Data Protection Directive with respect to the processing of PII in the EU. The GDPR imposes several stringent requirements for controllers and processors of PII (including non- EU processors who process personal data on behalf of EU controllers), including, for example, more robust internal accountability controls, a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention and secondary use of information and additional obligations when we contract with third parties in connection with the processing of the PII. Failure to comply with the requirements of GDPR and the applicable national (cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:56)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:188)(cid:21)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:23)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3) annual revenue for the preceding financial year, whichever is higher, and other administrative penalties. Complying with the GDPR has required us to implement additional mechanisms. As we continue to operate under the GDPR, compliance may become onerous and adversely affect our business, financial condition, results of operations and prospects. In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from the EU to the United States. On July 16, 2020, the Court of Justice of the European k. The CJEU also imposed substantial requirements upon (cid:56)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:45)(cid:40)(cid:56)(cid:180)(cid:12)(cid:3)(cid:76)(cid:81)(cid:89)(cid:68)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3)(cid:54)(cid:75)(cid:76)(cid:72)(cid:79)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85) the continued use of standard contractual clauses for data transfers from the EU to the United States, which may make the use of standard contractual clauses difficult or impossible to use under some circumstances. We and our customers are at risk of enforcement actions taken by European regulators until such point in time that we are able to ensure that all data transfers to the United States from the EU are legitimized. We also may encounter additional complexity with respect to (cid:71)(cid:68)(cid:87)(cid:68)(cid:3) (cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:71)(cid:68)(cid:87)(cid:68)(cid:3) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:86)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:56)(cid:17)(cid:46)(cid:17)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:56)(cid:17)(cid:46)(cid:17)(cid:182)(cid:86)(cid:3) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:40)(cid:56)(cid:17)(cid:3) (cid:44)(cid:73)(cid:3) (cid:90)(cid:72)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:88)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:82) transfer PII between and among countries and regions in which we operate or may operate in the future, it could affect the manner in which we provide our services or could adversely affect our financial results. Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our ppolicies, or to comply with any federal, state or interna tional privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation or a loss of customers, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with customers. For example, some countries have adopted laws mandating that PII regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly. Our business could suffer if we cannot obtain or retain lo or toll-free numbers, or are limited to distributing local or toll-free numbers to only certain customers. cal or toll-free numbers, are prohibited from obtaining local l Our future success depends on our ability to procure large quantities of local and toll-free numbers to meet customer demands at reasonable cost and without undue restrictions. Our ability to procure and distribute numbers depends on factors outside of our control, such as applicable regulations, the practices of the communications carriers that pprovide numbers to us in certain jurisdictions, the cost of obtaining and managing numbers and the level of demand for new (cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:39)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:82)(cid:83)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:3)(cid:70)(cid:82)(cid:71)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:76)(cid:91)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:179)(cid:89)(cid:68)(cid:81)(cid:76)(cid:87)(cid:92)(cid:180)(cid:3)(cid:87)(cid:82)(cid:79)(cid:79)- free numbers that we may not be able to obtain in desired quantities or at all. Our inability to acquire or retain numbers for r our operations would make our services, including our communications platform, less attractive to potential customers mm that desire assignments of particular numbering resources. In addition, future growth of our customer base, together with growth of customer bases of other providers of communications services, has increased, which increases our dependence on needing large quantities of local and toll-free numbers associated with desirable area codes or specific toll-free numbering resources at a reasonable cost and without undue restriction. If we are not able to obtain or retain adequate local and toll-free numbers, or attractive subsets of such resources, our business, results of operations and financial condition could be materially adversely affected. 30 In addition, in order to procure, distribute and retain telephone numbers in , we will be certain foreign jurisdictions, we will be required to register with the local telecommunications regulatory authorities, some of which have been increasingly monitoring and regulating the categories of phone numbers that are eligible for provisioning to our customers, including geographical, regional, local and toll-free phone numbers. We have registered or obtained licenses, or are in the process of f registering or obtaining licenses, in various countries in which we do business, but in some countries, the regulatory regime around provisioning of phone numbers is unclear, subject to change over time, and sometimes may conflict from jjurisdiction to jurisdiction. Furthermore, these regulations an(cid:71)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:182)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:72)(cid:81)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3) pproducts and services, are still evolving and we may be unable to maintain compliance with applicable regulations, or enforce compliance by our customers, on a timely basis or without significant cost. Also, compliance with these types of f regulations may require changes in products or business practices that result in reduced revenue. If we or our customers use or assign phone numbers in these countries in a manner that violates applicable rules and regulations, we may also be subject to significant penalties or governmental action, including government-initiated audits and, in extreme cases, may bbe precluded from doing business in that particular country. In the event of such non-compliance, we may be forced to loss of customers, breach of contract claims, loss of f reclaim phone numbers from our customers, which could result in revenue and reputational harm, all of which could have a material adverse effect on our business, results of operations and financial condition. t We face exposure to foreign currency exchange rate fluctuations, and such fluctuations could adversely affect our business, results of operations and financial condition. We face exposure to the effects of fluctuations in currency exchange rates. While historically we have primarily transacted in U.S. dollars, we generally have transacted with customers and partners in Europe in British Pounds and Euros. We expect to expand the number of transactions with customers and partners that are denominated in foreign currencies in the future as we continue to expand our business internationally. We also incur expenses for some of our network service provider costs outside of the United States in local currencies and for employee compensation and other r operating expenses in local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in an increase to the U.S. dollar equivalent of such expenses. h In addition, our international subsidiaries maintain net assets denominated in currencies other than the functional operating currencies of these entities. As we expand our international operations, we will become more exposed to the effects of fluctuations in currency exchange rates. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar may affect our results of operations due to transactional and translational remeasurements. Such foreign currency exchange rate fluctuations could make it more difficult to detect underlying trends in our business and results of f operations. The trading price of our Class A common stock also could be adversely affected if fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expe ctations of our investors and d m securities analysts who follow our stock. We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreig n currency forward and option contracts, to hedge certain n exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or orable movements in foreign exchange rates over the limited d more than a portion of the adverse financial effects of unfav time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments. xport control and economic sanction regulations, and similar r We may be exposed to liabilities under anti-corruption, e ee d laws and regulations, and any determination that we violated any of these laws or regulations could have a material l adverse effect on our business. (cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:38)(cid:82)(cid:85)(cid:85)(cid:88)(cid:83)(cid:87)(cid:3)(cid:51)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:179)(cid:41)(cid:38)(cid:51)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)the U.K. Bribery Act and other laws that prohibit improper payments or offers of payments to foreign governments and their officials, political parties, and/or private pparties by persons and entities for the purpose of obtaining or retaining business. Our international activities create the riskk of unauthorized payments or offers of payments by one of our employees or consultants, ev en though these parties are not r always subject to our control. Our policies prohibit these practices by our employees and consultants, although our r existing safeguards and any future improvements may prove to be less than effective, and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the FCPA, the U.K. Bribery Act or other 31 laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results, and financial condition. Our products and services may be subject to export control and economic sanctions regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations aa (cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:56)(cid:17)(cid:54)(cid:17)(cid:3) (cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3) (cid:39)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:41)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:17)(cid:3) (cid:50)(cid:88)(cid:85)(cid:3) (cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) services must be offered and sold in compliance with these laws and regulations . If we do not comply with these laws or regulations or if f we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face liability. In addition, changes in our products or services, changes in applicable regulations, or change in the target of such regulations, could also result in decreased use of our products and services, or in our decreased ability to sell our products or provide our services to existing or prospective customers with international operations. Any decreased use of our products and services or limitation on our ability to export our products and provide our services could adversely affect our business, results of operations and financial condition. IIntellectual property and proprietary rights of others could prevent us from using necessary technology to provide our sservices or subject us to expensive intellectual property litigation. If technology that we require to provide our services, including our communications platform, was determined by a court to infringe a patent held by another entity that will not grant us a license on terms acceptable to us, we could be pprecluded by a court order from using that technology and we would likely be required to pay significant monetary damages to the patent holder. The successful enforcement of these patents, or our inability to negotiate a license for these ppatents on acceptable terms, could force us to cease (i) using the relevant technology and (ii) offering services incorporating the technology. If a claim of infringement was brought against us based on the use of our technology or against our customers based on their use of our services for which we are obligated to indemnify, we could be subject to litigation to determine whether such use or sale is, in fact, infringing. This litigation could be expensive and distracting, regardless of the outcome. While our own limited patent portfolio may deter other operating companies from bringing such actions, patent infringement claims may also be asserted by patent holding companies, which do not use technology and whose sole bbusiness is to enforce patents against operators, such as us, for monetary gain. Because such patent holding companies, (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:179)(cid:87)(cid:85)(cid:82)(cid:79)(cid:79)(cid:86)(cid:15)(cid:180)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:90)(cid:81)(cid:3)(cid:83)(cid:68)(cid:87)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3) way of counter-claim would be largely ineffective. Our use of open source software could negatively affect our ability to sell our services and subject us to possible litigation. Our services, including our communications platform, incorporate open source software, and we expect to continue to incorporate open source software in our services in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could ability to commercialize our services, including our r impose unanticipated conditions or restrictions on our ented policies to regulate the use and incorporation of f communications platform. Moreover, although we have implem at we have not incorporated open source software in our r open source software into our services, we cannot be certain th services in a manner that is inconsistent with such policies. If we fail to comply with open source licenses, we may be subject to certain requirements, including requirements that we offer our services that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third-party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating revenue from customers using services that contained the open source software and required to comply with onerous conditions or restrictions on these services. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our services and to re-engineer our services or discontinue offering our services to customers in the event re-engineering cannot be accomplished on a timely basis. Any of the foregoing could require us to devote additional R&D resources to re-engineer our services, could result in customer dissatisfaction and may adversely affect our business, results of operations and financial condition. 32 IIndemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses. Our agreements with customers and other third parties typi cally include indemnification or other provisions under r for losses suffered or incurred as a result of claims of f which we agree to indemnify or otherwise be liable to them m erty or persons or other liabilities relating to or arising g intellectual property infringement, damages caused by us to prop from our services or platform or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. Large indemnity payments or damage claims from contractual bbreach could harm our business, results of operations and financial condition. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, reduce demand for our services and adversely affect our business, results of operations and financial condition. a The storage, processing and use of personal information and related data subjects us to evolving governmental laws and regulation, commercial standards, contractual obligatio ns and other legal obligations related to consumer and d data privacy, which may have a material impact on our costs, use of our services, or expose us to increased liability. Federal, state, local and foreign laws and regulations, commercial obligations and industry standards, each pprovide for obligations and restrictions with respect to data privacy and security, as well as the collection, storage, retention, protection, use, processing, transmission, sharing, disclosure and protection of personal information and other etary network information under applicable federal law. The evolving nature of f customer data, including customer propri these obligations and restrictions subjects us to the risk of differing interpretations, inconsistency or conflicts among countries or rules, and create s uncertainty regarding their application to our business. These obligations and restrictions may limit our ability to collect, store, process, use, transmit and share data with our customers, employees and third-party providers and to allow our customers to collect, store, retain, protect, use, pprocess, transmit, share and disclose data with others through our services. Compliance with, and other burdens imposed bby, such obligations and restrictions could increase the cost of our operations and impact our ability to market our services f through effective segmentation. Failure to comply with obligations and restrictions related to applicable data protection laws, regulations, standards, and codes of conduct, as well as our own posted privacy policies, privacy notices, and contractual commitments could subject us to lawsuits, fines, criminal penalties, statutory damages, consent decrees, injunctions, adverse publicity, loss of user confidence in our services, and loss of users, which could materially harm our business. Because these obligations and restrictions have continued to develop and evolve rapidly, it is possible that we may not be, or may not have been, compliant with each such obligation and restriction. Additionally, third-party contractors may have access to customer or employee data. If these or other third-party vendors violate obligations and restrictions related to applicable (cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:89)(cid:76)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82) (cid:83)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:182)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:87)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) could in turn have a material and adverse effect on our business. tt IIf we fail to protect our internally developed systems, technology and software and our patents and trademarks, we may become involved in costly litigation or our business or brand may be harmed. Our ability to compete effectively is dependent in large part upon the maintenance and protection of systems and d software that we have developed internally, including some systems and software based on open standards. We cannot ppatent much of the technology that is important to our business. In addition, any pending patent applications may not be granted, and any issued patent that we own may be challenged, narrowed, invalidated or circumvented. To date, we have relied on patent, copyright and trade secret laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our rights to our technology. While we typically enter into confidentiality agreements with our employees, consultants, customers, and vendors in an effort to control access to and distribution of technology, software, documentation and other information, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization. In addition, others may independently discover trade secrets and proprietary information, and in such cases 33 we could not assert any rights against such party. Policing unauthorized use of our technology is difficult. The steps we take may not prevent misappropriation of the technology we rely on. In addition, effective protection may be unavailable or limited in some jurisdictions outside the United States. Litigation may be necessary in the future to enforce or protect our rights or to determine the validity and scope of the rights of others. That litigation could cause us to incur substantial costs and divert resources away from our daily business, whic h in turn could adversely affect our business, results of f operations and financial condition. rr The unlicensed use of our brands by third parties could harm our reputation, cause confusion among our customers or impair our ability to market our services. Accordingly, we have registered trademarks and service marks and have applied for registration of our trademarks and service marks in the United States and certain jurisdictions outside the United States to establish and protect our brand names as part of our intellectual property strategy. The laws of some countries do not protect intellectual property and other proprietary rights to the same extent as the laws of the United States. Our exposure to unauthorized copying, transfer and use of our proprietary technology or information may increase as we expand our international operations. We cannot assure you that our pending or future trademark applications will be approved. Although we anticipate that we would be given an opportunity to respond to any such rejections, we may be n unable to overcome any such rejections. In addition, in proceedings before the U.S. Patent and Trademark Office third pparties are given an opportunity to oppose pending trademark applications and seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such pproceedings. In the event that our trademarks are successfully challenged, we could be forced to rebrand our services, which could result in loss of brand name recognition. Moreover, successful opposition to our applications might encourage third parties to make additional oppositions or commence trademark infringement proceedings against us, which could be costly and time consuming to defend against. If we decide to take limited or no action to protect our trademarks, our trademark rights may be diluted and subject to challenge or invalidation, which could materially and adversely affect our brand in the marketplace. Certain of the trademarks we may use may become so well known by the ppublic that their use becomes generic and they lose trademark protection. Over the long term, if we are unable to establish name recognition based on our trademark and tradenames, then we may not be able to compete effectively and our r bbusiness may be adversely affected. Further, we cannot assure you that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. We are subject to litigation in the ordinary course of business, and uninsured judgments or a rise in insurance ppremiums may adversely affect our results of operations. In the ordinary course of business, we are subject to various claims and litigation. Any such claims, regardless of f merit, could be time-consuming and ex(cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:71)(cid:72)(cid:73)(cid:72)(cid:81)(cid:71)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3) (cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:87)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3) (cid:44)(cid:81)(cid:3) accordance with customary practice, we maintain insurance against some, but not all, of these potential claims. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. The levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. Further, we may not be able to maintain insurance at commercially acceptable premium levels or at all. If any significant judgment, claim (or a series of claims) or other event is not fully insured or in demnified against, it could have a material adverse impact on n our business, financial condition and results of operations. There can be no assurance as to the actual amount of these liabilities or the timing thereof. We cannot be certain that the outcome of current or future litigation will not have a material adverse impact on our business and results of operations. We may be liable for the information that content owners or distributors distribute over our network. The law relating to the liability of private network operators for information carried on or disseminated through their networks remains unsettled. While we disclaim any liability for third-party content in our services agreements, we may become subject to legal claims relating to the content disseminated on our network, even though such content is owned or distributed by our customers or a customer of our customers. For example, lawsuits may be brought against us claiming that material distributed using our network was inaccurate, offensive or violated the law or the rights of others. Claims could also involve matters such as defamation, invasion of privacy and copyright infringement. In addition, the law remains unclear over whether content may be distributed from one jurisdiction, where the content is legal, into another jurisdiction, where it is not. Companies operating private networks have been sued in the past, sometimes successfully, based on the nature of material distributed, even if the content is not owned by the network operator and the network operator has no knowledge of the content or its legality. It is not practical for us to monitor all of the content d 34 distributed using our network. We may need to take costly measures to reduce our exposure to these risks or to defend ourselves against such claims, which could adversely affect our results of operations and financial condition. Third parties may fraudulently use our name to obtain access to customer accounts and other personal information, use our services to commit fraud or steal our services, which could damage our reputation, limit our growth or cause us to incur additional expenses. b Our customers may have been sub(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:83)(cid:75)(cid:76)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74)(cid:15)(cid:180)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:68)(cid:3)(cid:87)(cid:75)(cid:76)(cid:85)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:92)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72) (cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:80)(cid:68)(cid:76)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3) ppop-up message to a customer that claims to be from a business or organization that provides services to the customer. The ppurpose of the inquiry is typically to encourage the customer to visit a bogus website designed to look like a website operated by the legitimate business or organization or provide information to the operator. At the bogus website, the operator attempts to trick the customer into divulging customer account or other personal information such as credit card (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3) (cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:179)(cid:55)(cid:85)(cid:82)(cid:77)(cid:68)(cid:81)(cid:3) (cid:75)(cid:82)(cid:85)(cid:86)(cid:72)(cid:180)(cid:3) (cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) identity theft from our customers and the unauthorized use of our services. Third parties also have used our r (cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:17)(cid:3)(cid:44)(cid:73)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3)(cid:179)(cid:83)(cid:75)(cid:76)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:86)(cid:15)(cid:3) use of our services for fraud and similar activities, our brand reputation and growth may suffer and we may incur additional costs, including costs to increase security, or be required to credit significant amounts to customers. Third parties also have used our communications services without paying, including by submitting fraudulent credit information and fraudulent credit card information. This has resulted in our incurring the cost of providing the services, including incurring call termination fees, without any corresponding revenue. We have implemented anti-fraud d pprocedures in order to limit the expenses resulting from theft of service. If our procedures are not effective, theft of service could significantly increase our expenses and adversely affect our business, results of operations and financial condition. IIf our customers or their end users do not accept the differences between our service and traditional telephone service, they may choose to remain with their current telephone service provider or may choose to return to service provided by traditional network service providers. Aspects of our services based on VoIP, including our communications platform, are not the same as traditional network service providers. Our continued growth is dependent on the adoption of our services by mainstream customers and their end users, so these differences are important. For example: (cid:135) Our 911 calling and other emergency calling services are different, in significant respects, from the 911 and other emergency calling services associated with traditional wireline and wireless telephone providers and, in certain cases, with other VoIP providers. (cid:135) may be interrupted. In the event of a power loss or Internet access interruption experienced by a customer, our service (cid:135) (cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79) wireline or wireless telephone companies, including static, echoes and delays in transmissions. (cid:135) (cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:3)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:88)(cid:80) -rate telephone numbers such as 1-900 numbers and 976 numbers. We may lose customers if we experience failures of our syst tt em or communications platform that significantly disrupt t dd the availability and quality of the services that we provide. Such failures may also cause interruptions to service delivery and the completion of other corporate functions. Our operations depend on our ability to limit and mitigate interruptions or degradation in service for customers. (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:79)(cid:72)(cid:80)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:75)(cid:68)(cid:87)(cid:72)(cid:89)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:15)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:81)(cid:73)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3) services and cause us to lose customers or make it more difficult to attract new ones. Because many of our services are ff (cid:70)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:68)(cid:76)(cid:79)(cid:92)(cid:3)(cid:79)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) or degradation in service also could result in lost profits or other losses to customers. Although our service agreements r (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:179)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:180)(cid:3)(cid:71)(cid:68)(cid:80)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86) lost profits, a court might not enforce these limitations on liability, which could expose us to financial loss. We also sometimes provide our customers with committed service levels. If we fail to meet these committed service levels, we 35 could be required to provide service credits or other compensation to our customers, which could adversely affect our r results of operations. The failure of any equipment or facility on our network, including our network operations control centers and network data storage locations, could interrupt customer service and other corporate functions until we complete necessary repairs or install replacement equipment. Our business continuity plans also may be inadequate to address a pparticular failure that we experience. Delays, errors or network equipment or facility failures could result from natural disasters, pandemics such as COVID-19, disease, accidents, terrorist acts, power losses, security breaches, vandalism or other illegal acts, computer viruses or other causes. These delays, errors or failures could significantly impair our business due to: (cid:135) (cid:135) service interruptions; malfunction of our communications platform on which our enterprise users rely for voice, messaging or emergency service functionality; (cid:135) (cid:135) (cid:135) (cid:135) exposure to customer liability; the inability to install new service; the unavailability of employees necessary to provide services; the delay in the completion of other corporate functions such as issuing bills and the preparation of financial statements; or r (cid:135) the need for expensive modifications to our systems and infrastructure. DDefects or errors in our services could diminish demand for our services, harm our business and results of operations and subject us to liability. Our customers use our services for important aspects of their businesses, and any errors, defects or disruptions to our services and (cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:79)(cid:72)(cid:80)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:71)(cid:68)(cid:80)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:88)(cid:85)(cid:81)(cid:15) hurt our brand and reputation. We provide regular updates to our services, which have in the past contained, and may in the future contain, undetected errors, failures, vulnerabilities and bugs when first introduced or released. Real or perceived errors, failures or bugs in our services could result in negative publicity, loss of or delay in market acceptance of our pplatform, loss of competitive position, lower customer retention or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. In addition, we may not carry insurance sufficient to compensate us for any losses that may result from claims arising from defects or disruptions in our services. As a result, our brand and reputation could be harmed, and our business, results of operations and financial condition may be adversely affected. be harmed, and our business, results of operations and financial condition may be adversely affected. r r IIf our emergency services do not function properly, we may be exposed to significant liability from our users. Certain of our IP telephony offerings, as well as the 911 and other emergency services solutions that we offer are subject to FCC and other rules governing the delivery of emergency calling services. Similar to other providers of IP telephony services, our 911 and other emergency services are different from those associated with traditional local telecommunications services. These differences may lead to an inability to make and complete calls that would not occur (cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:83)(cid:75)(cid:82)(cid:81)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:68)(cid:80)(cid:83)(cid:79)(cid:72)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:70)(cid:68)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:38)(cid:38)(cid:182)(cid:86) rules to our IP telephony consumers, we may use components of both the wireline and wireless infrastructure in unique ways that can result in failed connections and calls routed to incorrect emergency call centers. Routing emergency calls over the Internet may be adversely affected by power outages and network cong estion that may not occur for users of f traditional telephony services. Emergency call centers may not be equipped with appropriate hardware or software to accurately process and respond to emergency calls initiated by consumers of our IP telephony services, and calls routed to the incorrect emergency call center can significantly delay response times for first responders. Users of our interconnected VoIP telephony services from a fixed address in the United States are required to manually update their location n information for use when calling 911, and failure to do so may result in dispatching of assistance to the wrong location. Even manual updates made appropriately require a certain amount of time before the updated address appears in the f 36 relevant databases which could result in misrouting emergency calls to the wrong emergency calling center, dispatching first responders to the wrong address, or both. Similar requirements and delays applicable to relevant databases also apply Similar requirements and delays applicable to relevant databases also apply to local emergency services provided outside the United States. Moreover, the relevant rules with respect to what address information should be provided to emergency call centers when the call originates from a mobile application are unsettled. As a result, we could be subject to enforcement action by the FCC or other entities (cid:178) possibly exposing us to significant of user confidence in our services, loss of users, and other r monetary penalties, cease and desist orders, civil liability, loss adverse cons(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:75)(cid:68)(cid:85)(cid:80)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3) (cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:86)(cid:82)(cid:80)(cid:72)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:88)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:73)(cid:73)(cid:76)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:70)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) from customers that they are aware of the differences between emergency calling services associated with IP telephony as compared with traditional telecommunications services, and distribution of appropriate warning labels to place on or near hardware used to place IP telephony calls. Similar obligations apply to local emergency services provided outside the United States. Failure to comply with these requirements, or failure of our communications platform such that 911 and r other emergency calls did not complete or were misrouted, may result in FCC, foreign regulatory or other enforcement (cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:87)(cid:87)(cid:82)(cid:85)(cid:81)(cid:72)(cid:92)(cid:86)(cid:182)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:83)(cid:72)(cid:81)(cid:68)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:70)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:86)(cid:87)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)s, civil liability to our users and their customers, loss of user confidence in our services, loss of users, and other adverse consequences, which could materially harm our business. (cid:178) (cid:85)(cid:85) (cid:49)(cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:41)(cid:38)(cid:38)(cid:182)(cid:86)(cid:3) (cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:79)(cid:86)(cid:82)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:90)(cid:72)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:79)(cid:92)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:28)(cid:20)(cid:20)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) emergency service outages. The FCC or other applicable regulatory authorities may make inquiries regarding matters related to any reported 911 or other emergency service outage. Any inquiry could result in regulatory enforcement action, potential monetary penalties and other adverse consequences. potential monetary penalties and other adverse consequences. Termination of relationships with key suppliers could cause delay and additional costs. Our business is dependent on third-party suppliers for fiber, computers, software, transmission electronics and related network components, as well as providers of network colocation facilities that are integrated into our network, relationships is terminated, a supplier some of which are critical to the operation of our business. If any of these critical either exits or curtails its business as a result of economic conditions, a supplier fails to provide critical services or r equipment, or the supplier is forced to stop providing services due to legal constraints, such as patent infringement, and we are unable to reach suitable alternative arrangements quickly, we may experience significant additional costs or we may not be able to provide certain services to customers. If that happens, our business, results of operations and financial condition could be materially adversely affected. Many of our third-party suppliers do not have long-term committed contracts with us and may interrupt services or terminate their agreements with us without notice or by providing 30 days prior written notice. Although we expect that we could receive similar services from other third-party suppliers, if any of our arrang ements with our third-party y suppliers are terminated or interrupted, we could experience interruptions in our ability to make our services available to customers, as well as delays and additional expenses in arranging alternative providers. If a significant portion of our third-party suppliers fail to provide these services to us on a cost-effective basis or otherwise terminate or interrupt these services, the delay caused by qualifying and switching to ot her providers could be time consuming and costly and could d adversely affect our business, results of operations and financial condition. One of our third-party suppliers, Level 3, provides us with certain 911 call routing and termination services. Level 3 is our preferred provider for these services pursuant to an agreement that auto matically renews for consecutive one-year r (cid:83)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:15)(cid:3)(cid:88)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:22)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:86)(cid:17)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:22)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:68)(cid:81)(cid:70)(cid:72)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:182)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3) (cid:70)(cid:68)(cid:81)(cid:70)(cid:72)(cid:79)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:82)(cid:81)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:182)(cid:86)(cid:3) (cid:81)(cid:82)(cid:87)(cid:76)(cid:70)e. If our agreement with Level 3 terminates for any reason other than our default, Level 3 must continue to provide these services to us for at least two years to allow us to transition to another pprovider. We are obligated to pay Level 3 a minimum of $100,000 per month for as long as the agreement continues. Additionally, Level 3 has a right of first refusal to provide these 911 call routing and termination services to us in additional geographic areas. (cid:92) Our growth and financial health are subject to a number of economic risks. The financial markets in the United States have experienced substantial uncertainty during recent years, y particularly following the COVID-19 outbreak. This uncertainty has included, among other things, extreme volatility in particularly following the COVID-19 outbreak. 37 aa securities prices, drastically reduced liquidity and credit availability, rating downgrades of certain investments and declining values with respect to others. If capital and credit markets continue to experience uncertainty and available funds remain limited, we may not be able to obtain debt or equity financing or to refinance our existing indebtedness on q favorable terms or at all, which could affect our strategic operations and our financial performance and force modifications to our operations. These conditions currently have not precluded us from accessing credit markets or financing our operations, but there can be no assurance that financial markets and confidence in major economies will not deteriorate. An extended period of economic deterioration could materially adversely affect our results of operations and financial condition and exacerbate some of the other risk Report on Form 10-K. For Annual Report on Form 10-K. For example, our customers might defer or entirely decline purchases of our services due to tighter credit or negative financial news or reduce demand for our services. Our customers also may not be able to obtain adequate credit, which could adversely affect the timeliness of their payments to us or ultimately result in a filing by the customer for protection from m creditors under applicable insolvency or bankruptcy laws. If our customers cannot make timely payments to us, our accounts receivable could increase. The demand for, and the pric es of, our services also may decline due to the actions of f our competitors or otherwise. factors contained in this A Key vendors upon which we rely also could be unwilling or unable to provide us with the materials or services rwise on a timely basis or on terms that we find acceptable. that we need to operate our communications platform or othe Our financial counterparties, insurance providers or others also may default on their contractual obligations to us. If any of f our key vendors fail, we may not be able to replace them without disruptions to, or deterioration of, our services and we also may incur higher costs associated with new vendors. Transitioning to new vendors also may result in the loss of the value of assets associated with our integration of third-party services into our network or service offerings. Our customer churn rate may increase. Customer churn occurs when a customer discontinues service with us, whether voluntarily or involuntarily, such as a customer switching to a competitor or going out of business. Changes in the economy, increased competition from other providers, or issues with the quality of service we deliver can impact our customer churn rate. We cannot predict future pricing by our competitors, but we anticipate that price competition will continue. Lower prices offered by our competitors could contribute to an increase in customer churn. We cannot predict the timing, duration or magnitude of any deteriorated economic conditions or its impact on our target of customers. Higher customer churn rates could adversely affect our revenue growth. Higher customer churn rates could cause our dollar-based net retention rate to decline. A A sustained and significant growth in the churn rate could have a material adverse effect on our business. The market prices for certain of our services have decreased in the past and may decrease in the future, resulting in lower revenue than we anticipate. Market prices for certain of our services have decreased over recent years. These decreases resulted from downward market pressure and other factors including: (cid:135) technological changes and network expansions, which have resulted in increased transmission capacity available for sale by us and by our competitors; and d (cid:135) some of our competitors have been willing to accept smaller operating margins in the short term in an attempt to increase long-term revenue. To retain customers and revenue, we must sometimes reduce prices in response to market conditions and trends. We cannot predict to what extent we may need to reduce our prices to remain competitive or whether we will be able to sustain future pricing levels as our competitors introduce competing services or similar services at lower prices. Our ability to meet price competition may depend on our ability to operate at costs equal to or lower than our competitors or ppotential competitors. As our prices for some of our services decrease, our operating results may suffer unless we are able to either reduce our operating expenses or increase traffic volume from which we can derive additional revenue. 38 The need to obtain additional IP circuits from other providers increases our costs. In addition, the need to interconnect t our network to networks that are controlled by others could increase our costs. We lease all of our IP circuits from third parties. We could incur material expenses if we were required to locate alternative IP circuits. We may not be able to obtain reasonable alternative IP circuits if needed. Failure to obtain usage of f alternative IP circuits, if necessary, could have a material adverse effect on our ability to carry on business operations. In addition, some of our agreements with other providers require the payment of amounts for services whether or not those services are used. Our reliance on third-party providers may reduce our operating flexibility, ability to make timely service changes and ability to control quality of service. In the normal course of business, we need to enter into interconnection agreements with many local telephone companies, as well as the owners of networks that our cust omers desire to access to deliver their services. We are not t always able to secure these interconnection agreements on favorable terms. In some jurisdictions, we rely on third party aa access and networks for local connectivity. We are not alwa ys able to secure this access and local connectivity on n favorable terms. Costs of obtaining service from other communications carriers comprise a significant proportion of the operating expenses of long distance carriers. Changes in regulation, particularly the regulation of telecommunication carriers and local access network owners, could indirectly, but significantly, affect our competitive position. These yy r changes could increase or decrease the costs of providing our services. Further, if problems occur with our third-party y pproviders or local telephone companies, it may cause errors or poor quality communications, and we could encounter difficulties identifying the source of the problem. The occurrence of errors or poor quality communications on our services, whether caused by our platform or a third-party provider, may result in the loss of our existing customers or the delay of adoption of our services by potential customers and may adversely affect our business, results of operations and financial condition. y Network providers also may institute additional fees due to regulatory, competitive or other industry-related changes that increase our costs. For example, in February 2020, a major U.S. cellular carrier introduced a new service or A2P messages delivered to its subscribers. (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:36)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:36)(cid:21)(cid:51)(cid:180)(cid:12)(cid:3)(cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:71)(cid:71)(cid:86)(cid:3)(cid:68) (cid:81)(cid:72)(cid:90)(cid:3)(cid:73)(cid:72)(cid:72)(cid:3)(cid:73) (cid:73)(cid:73) Other cellular carriers may introduce similar fees. While we may be able to negotiate with network providers, absorb the increased costs, or charge these costs to our customers, we cannot assure you that we will be able to do so. In the case of new A2P fees, we currently pass, and expect to continue to pass, these fees on to our customers who send A2P messages to the carrier's subscribers. This is expected to increase our revenue and cost of goods sold, but is not expected to impact the gross profit received for sending these messages. However, these changes may still have a negative impact on our gross margins mathematically. We also may not be able to effectively respond to any new fees if all network providers in a particular market impose equivalent fee structures, if the magnitude of the fees is disproportionately large when compared to the underlying prices paid by our customers, or if the market conditions limit our ability to increase the prices we charge our customers. (cid:68) We depend largely on the continued services of our senior management and other key employees, the loss of any of f whom could adversely affect our business, results of operations and financial condition. Our future performance depends on the continued services and contributions of our senior management and other key employees to execute on our business plan, to develop our platform, to deliver our services to customers, to attract and retain customers and to identify and pursue opportunities. The loss of services of senior management or other key employees could significantly delay or prevent the achievement of our development and strategic objectives. In particular, we depend to a considerable degree on the vision, skills, expe rience and effort of our Co-Founder, Chief Executive Officer r and Chairman, David A. Morken. The replacement of any of our senior management personnel would likely involve significant time and costs, and such loss could significantly delay or prevent the achievement of our business objectives. The loss of the services of our senior management or other key employees for any reason could adversely affect our business, results of operations and financial condition. business, results of operations and financial condition. IIf we are unable to hire, retain and motivate qualified personnel, our business will suffer. Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. We ition for highly skilled management, technical, sales and other r bbelieve that there is, and will continue to be, intense compet ppersonnel with experience in our industry in the Raleigh, North Carolina area, where our headquarters are located, and in 39 other locations where we maintain offices. We must provid e competitive compensation packages and a high-quality work k environment to hire, retain and motivate employees. If we are unable to retain and motivate our existing employees and attract qualified personnel to fill key positions, we may be unable to manage our business effectively, including the development, marketing and sale of our services, which could adversely affect our business, results of operations and financial condition. To the extent we hire personnel from competitors, we also may be subject to allegations that they have bbeen improperly solicited or hired, or that they divulged proprietary or other confidential information. Volatility in, or lack of performance of, our stock price may also affect our ability to attract and retain key ppersonnel. Employees may be more likely to terminate their employment with us if the shares they own or the shares underlying any vested options or restricted stock units have significantly appreciated in value, or, conversely, if the exercise prices of any options that they hold are significantly above the trading price of our Class A common stock or the value of any restricted stock units they hold has depreciated significantly. If we are unable to retain our employees, our ial condition could be adversely affected. bbusiness, results of operations and financ Our management team has limited experience managing a public company. Other than experience gained at our company, most members of our management team have limited, if any, experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company. As a result of being a public company, we are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of f operations and financial condition. We could be subject to liability for historic and future sales, use and similar taxes, which could adversely affect our results of operations. t We conduct operations in many tax jurisdictions throughout the United States and internationally. In many of f these jurisdictions, non-income-based taxes such as sales, use and telecommunications taxes, including those associated with (or potentially associated with) VoIP telephony services or 911 services, are or may be assessed on our operations. We also face exposure to other non-income-based international taxes such as value added taxes that are or may be assessed on our operations. The systems and procedures necessary to comply in these jurisdictions are complex to develop and challenging to implement. Additionally, we rely heavily on third parties to provide us with key software and services for compliance. If these third parties cease to provide those services to us for any reason, or fail to perform services accurately and completely, we may not be able to accurately bill, collect or remit applicable non-income-based taxes. y Historically, we have not billed or collected certain of these taxes and, in accordance with GAAP, we have recorded a pprovision for our tax exposure in these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. These estimates include several key assumptions including, but not t limited to, the taxability of our services, the jurisdictions in which we believe we have nexus, and the sourcing of revenue n to those jurisdictions. In the event these jurisdictions chal lenge our assumptions and analysis, our actual exposure could d differ materially from our current estimates. Taxing authorities also may periodically perform audits to verify compliance and include all periods that remain open under applicable law, which customarily range from three to four years. At any point in time, we may undergo audits that could result in significant assessments of past taxes, fines and interest if we were found to be non-compliant. During the course of an audit, a taxing authority may, as a matter of policy, question our interpretation and/or application of their r rules in a manner that, if we were not successful in substantiating our position, could potentially result in a significant financial impact to us. Furthermore, certain jurisdictions in which we do not collect sales, use and similar taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our business, results of operations and financial condition. 40 We conduct our international operations through subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. Also, our tax expense could be affected depending on the applicability of withholding and other taxes under the tax laws of certain jurisdictions in which we have business operations. The relevant revenue and taxing authorities may disagree with positions we have taken generally, or our determinations as to income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower r overall profitability of our operations. We may be subject to significant U.S. federal income tax-related liabilities and indemnity obligations if there is a determination that the Spin-Off is taxable for U.S. federal income tax purposes. (cid:73) We may be subject to significant U.S. federal income tax-re lated liabilities with respect to our prior distribution of f (cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:73) (cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:58)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:11)(cid:179)(cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:58)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3) subsidiary, to (cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:83)(cid:76)(cid:81)-(cid:50)(cid:73)(cid:73)(cid:180)(cid:12)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:83)(cid:76)(cid:81)- Off is taxable for U.S. federal income tax purposes. In that regard, even if the Spin-Off otherwise qualified as a tax-free transaction to us and our stockholders under Section 355, Section 368(a)(1)(D) and related provisions of the U.S. Internal -Off, we would be subject to corporate-level (cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:38)(cid:82)(cid:71)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:20)(cid:28)(cid:27)(cid:25)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:38)(cid:82)(cid:71)(cid:72)(cid:180)(cid:12)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:87)(cid:76)(cid:80)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:83)(cid:76)(cid:81) taxable gain under Section 355(e) of the Co(cid:71)(cid:72)(cid:3)(cid:11)(cid:179)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:22)(cid:24)(cid:24)(cid:11)(cid:72)(cid:12)(cid:180)(cid:12)(cid:3)(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:24)(cid:19)(cid:8)(cid:3)(cid:82)(cid:85)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3) (cid:89)(cid:82)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:85)(cid:3)(cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:58)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:83)(cid:76)(cid:81)-Off as part of a plan or series of related transactions that included the Spin-Off. For purposes of Section 355(e), any acquisitions or issuances of our stock, including pursuant to our initial public offering and pursuant to the reorganizations undertaken and arrangements entered into in connection with our initial public offering, or Re(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:58)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3) two years after the Spin-Off are generally presumed to be part of a plan or series of related transactions with respect to the Spin-Off. f In connection with the Spin-Off, we received an opinion from Skadden, Arps, Slate, Meagher & Flom LLP P substantially to the effect that, among other things, the Spin-Off should qualify as a tax-free transaction for U.S. federal income tax purposes under Section 355 and Section 368(a)(1)(D) of the Code. In addition, in light of the implications that would arise for us if Section 355(e) applied to the Spin-Off, we received an opinion from Kilpatrick Townsend & Stockton LLP in connection with our initial public offering substantially to the effect that (i) as of the date of the initial ppublic offering, we would not be required to recognize gain with respect to the Spin-Off pursuant to Section 355(e), and d (ii) any increases in voting power attributable to conversions of our Class B common stock to Class A common stock by those who held our Class B common stock as of the date of the initial public offering would not cause us to recognize gain with respect to the Spin-Off pursuant to Section 355(e) (together with the opinion from Skadden, Arps, Slate, Meagher & Flom LLP with respect to the Spin-(cid:50)(cid:73)(cid:73)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:55)(cid:68)(cid:91)(cid:3) (cid:50)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3) (cid:49)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:55)(cid:68)(cid:91)(cid:3) (cid:50)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:76)(cid:86)(cid:3) (cid:69)(cid:76)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79) (cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:44)(cid:53)(cid:54)(cid:180)(cid:12)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:85)(cid:87)(cid:86)(cid:15)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:53)(cid:54)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:85)(cid:87)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3) in the Tax Opinions. Moreover, the Tax Opinions were based upon, among other things, the laws in effect at the time of f each of the Tax Opinions and certain assumptions and representations as to factual matters made by us. Any change in f applicable law, which may be retroactive, or the failure of any such assumptions or representations to be true, could adversely affect the validity of the conclusions reached in the Tax Opinions. t f If the conclusions of the Tax Opinions are not correct, or if the Spin-Off is otherwise ultimately determined to be a a taxable transaction, we would be liable for significant U.S. federal income tax related liabilities. In addition, pursuant to (cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:68)(cid:91)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:88)(cid:86) (cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:58)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:55)(cid:68)(cid:91)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3) we must generally indemnify Republic Wireless for any taxes or losses incurred by it (or its respective subsidiaries) resulting from the Spin-Off failing to qualify as a tax-free transaction for U.S. federal income tax purposes (including due to the application of Section 355(e)) as a result of subsequent actions we take or fail to take. The amount of any indemnity obligations we may have under the Tax Sharing Agreement in such case may be material. Even if Section 355(e) does not apply to the Spin-Off as of f the date of our initial public offering or as a result of our Class B common stock by those who held such stock as of f an increase in voting power attributable to conversions of our initial public offering, subsequent acquisitions or issuances of f our stock could be treated as part of a plan or series of f related transactions with respect to the Spin-Off. Accordingly, in light of the requirements of Section 355(e), we might 41 forego share repurchases, stock issuances and other strategic transactions. Notwithstanding the foregoing, it is possible that we, Republic Wireless or the holders of our respective stock might inadvertently cause, permit or otherwise not (cid:83)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:85)(cid:3)(cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:58)(cid:76)(cid:85)(cid:72)(cid:79)(cid:72)(cid:86)(cid:86)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:70)(cid:70)(cid:88)(cid:85)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)n 355(e) to apply to the Spin-Off, thereby triggering significant U.S. federal income tax-related liabilities and indemnity y obligations under the Tax Sharing Agreement of approximately $50 million. This approximation is based on our current expectations and the tax laws in effect as of our initial public offering. However, we cannot provide any assurance that this estimate will prove to be accurate in the event that Section 355(e) were to apply. y IIf our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the (cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:180)(cid:3) The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not re adily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, capitalized internal-use software costs, other non-income taxes, business combination and valuation of goodwill and ppurchased intangible assets and share-based compensation. Our results of operations may be adversely affected if our those in our assumptions, which could cause our results of f assumptions change or if actual circumstances differ from m and investors, resulting in a decline in the trading price of f operations to fall below the expectations of securities analysts our Class A common stock. IIf we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the (cid:179)(cid:54)(cid:68)(cid:85)(cid:69)(cid:68)(cid:81)(cid:72)(cid:86)-(cid:50)(cid:91)(cid:79)(cid:72)(cid:92)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)tions of the applicable listing standards of the NASDAQ Global Select Market. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and pprocedures and internal control over financial reporting. Our disclosure controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be n disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial executive and financial officers, and we continue to evaluate how to improve controls. We are also continuing to improve our internal control over r financial reporting. In order to develop, maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant t resources, including accounting-related costs and significant management oversight. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our consolidated financial statements for prior periods. Any failure to implement and maintain effective internal control over financ ial reporting could also adversely affect the results of f pperiodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal contro l over financial reporting. Ineffective disclosure controls and procedures and d internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock. In addition, if f we are unable to continue to meet these requirements, we may not be able to remain listed on the NASDAQ Global Select Market. 42 Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our Class A common stock. price of our Class A common stock. IIf our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings. We review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge to our goodwill or t intangible assets. Any such charges may adversely affect our results of operations. EEarthquakes, hurricanes, fires, floods, pandemics, power out tt ages, terrorist attacks and other significant events could d disrupt our business and ability to serve our clients. A significant event, such as an earthquake, hurricane, a fire, a flood, a pandemic or a power outage, could have a material adverse effect on our business, results of operations or financial condition. For example, the rapid and global spread of COVID-19 has disrupted businesses and increased travel restrictions. Health concerns or governmental, legal, r ppolitical or regulatory developments in the United States or other countries in which we or our customers, partners and service providers operate could cause economic, labor or social instability and could materially adversely affect our business and our results of operations and financial condition. business and our results of operations and financial condition. Future developments, which are very uncertain, include changing information about the extent and severity of COVID-19 and evolving responses by governments and businesses. These future developments could materially adversely affect our business and our results of operations and financial condition. Our IP network is designed to be redundant and to offer seamless backup support in an emergency. While our network is designed to withstand the loss of any one data ce nter at any point in time, the simultaneous failure of multiple data centers could disrupt our ability to serve our clients. Additionally, certain of our capabilities cannot be made redundant feasibly or cost-effectively. Acts of physical or cyber terrorism or other geopolitical unrest also could cause disruptions in our business. The adverse impacts of these risks may increase if our disaster recovery plans prove to be inadequate. We may acquire or invest in companies, which may divert our management’s attention and result in debt or dilution to our stockholders. We may not be able to efficiently and effectively integrate acquired operations, and thus may not We may not be able to efficiently and effectively integrate acquired operations, and thus may not ffully realize the anticipated benefits from such acquisitions. We may evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We may also enter into relationships with other businesses to expand our products and platform, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies. Achieving the anticipated benefits of any acquisitions depends in part upon whether we can integrate new bbusinesses in an efficient and effective manner. The integration of any acquired businesses involves a number of risks, including, but not limited to: (cid:135) (cid:135) demands on management related to any significant increase in size after the acquisition; (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) management of daily operations to management of integration activities; (cid:135) failure to fully achieve expected synergies and costs savings; (cid:135) unanticipated impediments in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards, controls, including internal control over financial reporting required by the Sarbanes-Oxley Act, procedures and policies; 43 (cid:135) difficulty establishing and maintaining appropriate governance, reporting relationships, policies, controls, and procedures for the acquired business, particularly if it is based in a country or region where we did not previously operate; (cid:135) new or more stringent regulatory compliance obliga tions and costs by virtue of the acquisition, including risks related to international acquisitions that may operate in new jurisdictions or geographic areas where we may have no or limited experience; (cid:135) order; f loss of customers or the failure of customers to order incremental services that we expect them to (cid:135) difficulty and delays in integrating the products, technology platforms, operations, systems, and ppersonnel of the acquired business with our own, particularly if the acquired business is outside of our core competencies and current geographic markets; (cid:135) (cid:135) (cid:135) failure to provision services that are ordered by customers during the integration period; higher integration costs than anticipated; difficulties in the assimilation and retention of highly qualified, experienced employees, many of f whom may be geographically dispersed; (cid:135) litigation, investigations, proceedings, fines, or penalties arising from or relating to the transaction or the acquired business, and any resulting liabilities may exceed our forecasts; (cid:135) acquisition of businesses with different revenue models, different contractual relationships, and d increased customer concentration risks; (cid:135) assumption of long-term contractual obligations, commitments, or liabilities (for example, the costs associated with leased facilities), which could adversely impact our efforts to achieve and maintain profitability and impair our cash flow; profitability and impair our cash flow; (cid:135) (cid:73)(cid:68)(cid:76)(cid:79)(cid:88)(cid:85)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:85)(cid:3) (cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:182)(cid:3) (cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:70)(cid:70)(cid:88)(cid:85)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) forecast the financial impact of an ac quisition, including accounting charges; and d (cid:135) drag on our overall revenue growth rate or an increase of our net loss, which could cause analysts and investors to reduce their valuation of our company. Successful integration of any acquired businesses or ope rations will depend on our ability to manage these operations, realize opportunities for revenue growth presented by strengthened service offerings and expanded geographic market coverage, obtain better terms from our vendors due to increased buying power, and eliminate redundant and excess costs to fully realize the expected synergies. Because of difficulties in combining geographically distant operations and systems which may not be fully compatible, we may not be able to achieve the financial strength and growth we anticipate from the acquisitions. We may not realize our anticipated benefits from our acquisitions, if any, or may be unable to efficiently and effectively integrate acquired operations as planned. If we fail to integrate acquired businesses and operations efficiently and effectively or fail to realize the benefits we anticipate, we would be likely to experience material adverse effects on our business, financial condition, results of operations and future prospects. Any acquisitions may also require us to issue debt or equity securities, use our cash resources, incur debt or contingent liabilities, amortize intangibles, or write-off acquisition-related expenses. In addition, we cannot predict market reactions to any acquisitions we may make or to any failure to announce any future acquisitions. While we would conduct due diligence in connection with any acquisition opportunities, there may be risks or liabilities that such due diligence efforts fail to discover, that are not disclosed to us or that we inadequately assess. The failure to timely identify any material liabilities associated with any acquisitions could adversely affect our business, d results of operations, and financial condition. 44 Our credit facility contains restrictive and financial covenants that may limit our operating flexibility. Our credit facility with KeyBank National Association and Pacific Western Bank contains certain restrictive covenants that either limit our ability to, or require a mandatory prepayment in the event we, among other things, incur additional indebtedness, issue guarantees, create liens on assets, make certain investments, merge with or acquire other companies, change business locations, pay dividends or make certain other restricted payments, transfer or dispose of f assets, enter into transactions with affiliates and enter into various specified transactions. We, therefore, may not be able to engage in any of the foregoing transactions unless we obtain the consent of our lenders or prepay the outstanding amount under our credit facility. Our credit facility also contains certain financial covenants and financial reporting requirements. Our obligations under our credit facility are secured by all of our property, with certain exceptions. We may not be able to generate sufficient liquidity or CPaaS Revenue to meet the financial covenants or pay the principal and interest under our credit facility. Furthermore, future working capital, borrowings or equity financing could be unavailable to repay or refinance the amounts outstanding under our credit facility. In the event of a liquidation, all outstanding principal and principal and sets to unsecured creditors, and the holders of our Class A and of our Class A and interest would have to be repaid prior to distribution of as Class B common stock would receive a portion of any liquidation proceeds only if all of our creditors, including our lenders, were first repaid in full. uu IIf we are unable to comply with the restrictive and financial covenants in our credit facility, there would be a default under the terms of that agreement, and this could result in an acceleration of payment of funds that have been borrowed. a If we were unable to comply with the restrictive and financial covenants in our credit facility, there would be a default under the terms of that agreement. As a result, any borrowings under other instruments that contain cross- acceleration or cross default provisions may also be accelerated and become due and payable. If any of these events occur, there can be no assurance that we would be able to make necessary payments to the lenders or that we would be able to find alternative financing. Even if we were able to obtain alternative financing, there can be no assurance that it would be on terms that are acceptable. d Risks Related to the Acquisition of Voxbone Although we expect that the acquisition of Voxbone will result in synergies and other benefits to us, we may not realize those benefits because of difficulties related to integration, the achievement of synergies and other challenges. t On November 1, 2020, we acquired Voice Topco Limited, a private limited liability company incorporated under (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:68)(cid:90)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:40)(cid:81)(cid:74)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:58)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3) (cid:11)(cid:179)(cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3) (cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:180)(cid:3) (cid:68)(cid:81)(cid:71)(cid:15)(cid:3) (cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3) (cid:179)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:79)(cid:92)(cid:3) (cid:82)(cid:85)(cid:3) indirectly holds all of the issued and outstanding shares of Voxbone, S.A. a private limited liability company registered (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:68)(cid:90)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:37)(cid:72)(cid:79)(cid:74)(cid:76)(cid:88)(cid:80)(cid:15)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:12)(cid:17)(cid:3) (cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:90)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) independently, and there can be no assurances that our businesses can be combined in a manner that allows for the achievement of substantial benefits. The integration process will require significant time and resources, and we may not be able to manage the process successfully as our ability to acquire and integrate larger or more complex companies, produ(cid:70)(cid:87)(cid:86)(cid:15)(cid:3) (cid:82)(cid:85)(cid:3) (cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:3) (cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:3) (cid:80)(cid:68)(cid:81)(cid:81)(cid:72)(cid:85)(cid:3) (cid:76)(cid:86)(cid:3) (cid:88)(cid:81)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:81)(cid:17)(cid:3) (cid:44)(cid:73)(cid:3) (cid:90)(cid:72)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3) business with ours or pursue our customer and product strategy successfully, the anticipated benefits of the Acquisition may not be realized fully or may take longer than expected to be realized. Further, it is possible that there could be a loss (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:68)(cid:81)(cid:71)(cid:18)(cid:82)(cid:85)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3) (cid:78)(cid:72)(cid:92)(cid:3) (cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3) (cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:69)(cid:82)(cid:87)(cid:75)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3) (cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3) businesses or unexpected issues, higher than (cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:87)(cid:4137)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:68)(cid:78)(cid:72)(cid:86)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3) (cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:17)(cid:3) (cid:54)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:15)(cid:3) (cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3) (cid:80)(cid:88)(cid:86)(cid:87)(cid:3) (cid:69)(cid:72)(cid:3) (cid:68)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3) operations with ours in order to realize the anticipated benefits of the Acquisition so the combined company performs as the parties hope: (cid:135) (cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30) 45 (cid:135) (cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:3) (cid:80)(cid:68)(cid:81)(cid:81)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87) (cid:83)(cid:72)(cid:85)(cid:80)(cid:76)(cid:87)(cid:86)(cid:3) (cid:88)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) synergies anticipated to result from the Acquisition, the failure of which would result in the anticipated benefits of the Acquisition not being realized in the time frame currently anticipated or at all; (cid:87) (cid:135) maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors; (cid:135) determining whether and how to address possible differences in corporate cultures and management philosophies; (cid:135) (cid:135) (cid:135) integrating the compani(cid:72)(cid:86)(cid:182)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:68)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:30) developing products and technology that allow value to be unlocked in the future; evaluating and forecasting the financial impact of the Acquisition transaction, including accounting charges; and; (cid:135) approvals. effecting potential actions that may be required in connection with obtaining regulatory At times the attention of certain members of our management and resources may be focused on integration of the businesses of the two companies and diver(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:71)(cid:68)(cid:92)(cid:4137)(cid:87)(cid:82)(cid:4137)(cid:71)(cid:68)(cid:92)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3) business and the business of the combined company. (cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:15)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:15)(cid:3)(cid:81)(cid:82)(cid:81)(cid:4137)(cid:85)(cid:72)(cid:70)(cid:88)(cid:85)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) and integrating our operations with those of Voxbone, including costs to maintain employee morale and to retain key employees. Management cannot ensure that the elimination of duplicative costs or the realization of other efficiencies will offset the transaction and integration costs in the near term or at all. Purchase price accounting in connection with the Acquisition requires estimates that may be subject to change and could impact our consolidated financial statements and future results of operations and financial position. Pursuant to the acquisition method of accounting, the purchase price we paid for Voxbone will be allocated to the underlying Voxbone tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill. The acquisition method of accounting is dependent upon certain valuations and other studies that are preliminary. Accordingly, the purchase price allocation as of the Acquisition date is preliminary. We currently anticipate that all the information needed to identify and measure values assigned to the (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:81)(cid:72)(cid:4137)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74) the date of completion of the Acquisition. Differences between these preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and the (cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17) Risks Related to Ownership of Our Class A Common Stock The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment. Prior to our initial public offering, there was no public market for shares of our Class A common stock. On NNovember 10, 2017, we sold shares of our Class A common stock to the public at $20.00 per share. From November 10, 2017, the date that our Class A common stock began trading on the NASDAQ Global Select Market, through February 19, n 2021, the trading price of our Class A common stock has ranged from $18.05 per share to per share. The trading pprice of our Class A common stock may continue to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including: $198.61 (cid:135) (cid:135) general market volatility caused by COVID-19; price and volume fluctuations in the overall stock market from time to time; price and volume fluctuations in the overall stock market from time to time; 46 (cid:135) (cid:135) (cid:135) volatility in the trading prices and trading volumes of technology stocks; volatility in the trading volumes of our Class A common stock; changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; (cid:135) sales of shares of our Class A common stock by us or our stockholders; failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; (cid:135) (cid:135) the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; (cid:135) (cid:135) (cid:135) (cid:135) operations; announcements by us or our competitors of new products or services; (cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:30) rumors and market speculation involving us or other companies in our industry; actual or anticipated changes in our results of operations or fluctuations in our results of f (cid:135) (cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72) landscape generally; (cid:135) (cid:135) litigation involving us, our industry or both; regulatory actions or developments affecting our operations, those of our competitors or our industry more broadly; (cid:135) developments or disputes concerning our intellectual property or other proprietary rights; (cid:135) our competitors; announced or completed acquisitions of businesses, products, services or technologies by us or (cid:135) bbusiness; (cid:135) (cid:135) new laws or regulations or new interpretations of existing laws or regulations applicable to our changes in accounting standards, policies, guidelines, interpretations or principles; new rules adopted by certain index providers, such as S&P Dow Jones, that limit or preclude inclusion of companies with multi-class capital structures in certain of their indices; (cid:135) (cid:135) any significant change in our management; and d general economic conditions and slow or negative growth of our markets. In addition, in the past, securities class action litigation has often been instituted following periods of volatility in (cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86). This litigation, if instituted against us, could (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:17) SSubstantial future sales of shares of our Class A common stock could cause the market price of our Class A common sstock to decline. The market price of our Class A common stock could decl ine as a result of substantial sales of our Class A A common stock, particularly sales by our directors, executive officers and significant stockholders, or the perception in the market that holders of a large number of shares intend to sell their shares. ff 47 Additionally, the shares of Class A common stock subject to outstanding options and restricted stock unit awards under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market upon issuance. Certain holders of our Class A common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for our stockholders or ourselves. The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial public offering, including our directors, executive officers and significant stockholders and their respective af ff of the voting power filiates who held in the aggregate 51.5% of the voting power 2020. This limits or precludes your ability to influence corporate matters, including of our capital as of December 31, the election of directors, amendments to our organizational documents and any merger, consolidation, sale of all or ssubstantially all of our assets, or other major corporate transaction requiring stockholder approval. D t r Our Class A common stock has one vote per share, and our Class B common stock has ten votes per share. As of f December 31, 2020, our directors, executive officers and holders of more than 5% of our common stock, and their respective affiliates, hold in the aggregate the voting power of our capital stock. Because of the ten-to-one 51.5% of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will r continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments to our organizational documents, and any merger, consolidation, sale of all or substant ially all of our assets, or other major corporate transaction n requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. nn Future transfers by holders of Class B common stock will generally result in those shares converting to Class A A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. We cannot predict the impact our capital structure may have on our stock price. In July 2017, S&P Dow Jones, a provider of widely followed stock indices, announced that companies with multiple share classes, such as ours, will not be eligible for in clusion in certain of their indices. As a result, our Class A A common stock will likely not be eligible for these stock indices. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common stock if we were not included in such indices. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected. As In addition, several stockholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our co mmon stock may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock. kk We may become effectively controlled by David A. Morken, our Co-Founder and Chief Executive Officer, whose interests may differ from other stockholders. If all or substantially all of the holders of our Class B common stock convert their shares into Class A common stock voluntarily or otherwise, Mr. Morken may control approximately 36.0% of the combined voting power of our outstanding capital stock. As a result, Mr. Morken may have the ability to effectively control the appointment of our management, the entering into of mergers, sales of substantially all or all of our assets and other extraordinary transactions and influence amendments to our certificate of incorporation and bylaws. If Mr. Morken obtains control of a majority of the voting power of our outstanding capital stock, he would have the ability to control the vote in any election of directors and would have the ability to prevent any transaction that requires stockholder approval regardless of whether other stockholders believe the transaction is in our best interests. In any of these matters, the interests of Mr. Morken may differ 48 from or conflict with your interests. Moreover, this concentration of ownership may also adversely affect the trading price for our Class A common stock to the extent investors perceive disadvantages in owning stock of a company with a controlling stockholder. IIf securities or industry analysts cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our Class A common stock adversely, the trading price of our Class A common stock and trading volume could decline. The trading market for our Class A common stock is influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our Class A common stock in an adverse manner, or provide more favorable recommendations about our competitors relative to us, the trading price of our Class A common stock would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price of our Class A common stock or r trading volume to decline. Anti-takeover provisions contained in our second amended and restated certificate of incorporation and second Anti-takeover provisions contained in our second amended and restated certificate of incorporation and second amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt. Our second amended and restated certificate of incorporation, second amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition r things, our second amended and restated certificate of f deemed undesirable by our board of directors. Among othe incorporation and second amended and restated bylaws include provisions: (cid:135) (cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3) (cid:179)(cid:69)(cid:79)(cid:68)(cid:81)(cid:78)(cid:3) (cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:180)(cid:3) (cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3) (cid:69)(cid:72)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:69)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3) (cid:82)(cid:73)(cid:3) (cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)ors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Class A and Class B common stock; (cid:135) (cid:135) limiting the liability of, and providing indemnification to, our directors and officers; limiting the ability of our stockholders to call and bring business before special meetings; (cid:135) pproviding for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly y less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of f directors and significant corporate transactions, such as a merger or other sale of our company or its assets; (cid:135) three-year terms; pproviding that our board of directors is classified into three classes of directors with staggered (cid:135) pprohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; (cid:135) requiring super-majority voting to amend some provisions in our second amended and restated certificate of incorporation and second amended and restated bylaws; (cid:135) requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and (cid:135) meetings. controlling the procedures for the conduct and scheduling of board of directors and stockholder These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding 49 common stock from engaging in certain business combinations without approval of the holders of at least two-thirds of f our outstanding common stock not held by such 15% or greater stockholder. Any provision of our second amended and restated certificate of incorporation, second amended and restated bbylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock. ff Our second amended and restated certificate of incorporation and our second amended and restated bylaws include ssuper-majority voting provisions that will limit your ability to influence corporate matters. rr Our second amended and restated certificate of incorporation and our second amended and restated bylaws include provisions that require the affirmative vote of two-thirds of all of the outstanding shares of our capital stock entitled to vote to effect certain changes. These changes include amending or repealing our second amended and restated bbylaws or second amended and restated certificate of incorporation or removing a director from office for cause. If all or substantially all of the holders of our Class B common stock convert their shares into Class A common stock voluntarily or otherwise, Mr. Morken may control the majority of the voting power of our outstanding capital stock, and therefore he may have the ability to prevent any such changes, which will limit your ability to influence corporate matters. Our second amended and restated bylaws provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our sstockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or sstockholders. Our second amended and restated bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholder to us or our stockholders; (iii) any action asserting a claim against us that is governed by y the internal affairs doctrine; or (iv) any action arising pursuant to any provision of the Delaware General Corporation Law, our second amended and restated certificate of incorporation or our second amended and restated bylaws. If a stockholder files an action within the scope of the preceding sentence in any other court than a court located in Delaware, the stockholder shall be deemed to have consented to the provisions of our second amended and restated bylaws described (cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:70)(cid:75)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:82)(cid:85)(cid:88)(cid:80)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)ity to bring a claim in a judicial forum that it finds kholders which may discourage favorable for disputes with us or any of our directors, officers, other employees or stoc lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our rr second amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations. ff We may need additional capital in the future and such capita when needed could prevent us from growing in accordance with our plans. l may be limited or unavailable. Failure to raise capital l y We may require more capital in the future from equity or debt financings to fund our operations, finance investments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to competitive pressures and potential strategic opportunities. If we are required to raise additional funds through further ty, our existing stockholders could suffer significant dilution, issuances of equity or other securities convertible into equi and any new shares we issue could have rights, preferences or r privileges senior to those of the holders of our Class A A common stock. The additional capital we may seek may not be available on favorable terms or at all. In addition, our credit facility limits our ability to incur additional indebtedness under certain circumstances. If we are unable to obtain capital on favorable terms or at all, we may have to reduce our operations or forego opportunities, and this may have a material adverse effect on our business, financial condition and results of operations. We do not intend to pay dividends for the foreseeable future. We have never declared or paid any cash dividends on our Class A common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the 50 development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. In addition, the terms of our credit facility contain restrictions on our ability to declare and pay cash dividends on our capital stock. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. IIf a large number of shares of our Class A common stock is sold in the public market, the sales could reduce the trading price of our Class A common stock and impede our ability to raise future capital. We cannot predict what effect, if any, future issuances by us of our Class A common stock will have on the market pprice of our Class A common stock. In addition, shares of our Class A common stock that we issue in connection with an acquisition may not be subject to resale restrictions. The market price of our Class A common stock could drop significantly if certain large holders of our Class A common stock, or recipients of our Class A common stock in connection with an acquisition, sell all or a significant portion of their shares of Class A common stock or are perceived d bby the market as intending to sell these shares other than in an orderly manner. In addition, these sales could impair our ability to raise capital through the sale of additional Class A common stock in the capital markets. Risks Related to the Convertible Notes and Our Indebtedness Servicing our future indebtedness may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future of these alternatives. Our aa debt agreements may contain restrictive covenants that may prohibit us from adopting any failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our indebtedness. t Our credit facility may limit our ability to pay any cash amount upon the conversion or repurchase of the Convertible Notes. t Our credit facility with KeyBank National Association and Pacific Western Bank prohibits us from making any cash payments on the conversion or repurchase of the Convertible Notes if, after giving effect to such conversion or repurchase (and any additional indebtedness incurred in connection with such conversion or a repurchase), we would not be in pro forma compliance with our financial covenants under the Credit Facility. Any new credit facility that we may enter into may have similar restrictions. Our failure to make cash payments upon the conversion or repurchase of the Convertible Notes as required under the terms of the Convertible Notes would permit holders of the Convertible Notes to accelerate our obligations under the Convertible Notes. In addition, our credit facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that indebtedness becoming immediately payable in full. We may incur substantially more debt or take other actions which would intensify the risks discussed above. We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We will not be restricted under the terms of the indenture governing the Convertible Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing the Convertible Notes that could have the effect of diminishing our ability to make payments on the Convertible Notes when due. Our 51 Credit Facility restricts our ability to incur additional indebtedness, including secured indebtedness, but if the facility matures or is repaid, we may not be subject to such restrictions under the terms of any subsequent indebtedness. We may not have the ability to raise the funds necessary for cash settlement upon conversion of the Convertible Notes or to repurchase the Convertible Notes for cash following a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion of the Convertible Notes or to repurchase the Convertible Notes. n Subject to limited exceptions, holders of the Convertible Notes have the right to require us to repurchase their Convertible Notes upon the occurrence of a fundamental change at a cash repurchase price generally equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes surrendered therefor or pay the cash amounts due upon conversion. In addition, our ability to repurchase the Convertible Notes or to pay cash upon conversions of the Convertible Notes may be limited by applicable law, by regulatory authorities or by agreements governing our future indebtedness. Our failure to repurchase the Convertible Notes at a time when such repurchase is required by the indenture governing the Convertible Notes or to pay the cash amounts due upon future conversions of the Convertible Notes as required by such indenture would constitute a default under such indenture. A default under the indenture or the fundamental change itself may also lead to a default under agreements governing our existing or future indebtedness, which may result in such existing or future indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under such existing or future indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof. The triggering of the conditional conversion feature of the Convertible Notes may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the Convertible Notes is triggered, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes during a period in which the Convertible Notes are convertible, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, under certain circumstances, such as a fundamental change or event of default, as described in the indenture, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes, could have a material effect on our reported financial results. a (cid:80)(cid:80) (cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:38)(cid:82)(cid:71)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:23)(cid:26)(cid:19)(cid:4137)(cid:21)(cid:19)(cid:15)(cid:3)(cid:39)(cid:72)(cid:69)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) and equity (cid:68)(cid:81)(cid:71)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:90)(cid:72)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:68)(cid:86)(cid:3) (cid:36)(cid:54)(cid:38)(cid:3) (cid:23)(cid:26)(cid:19)(cid:4137)(cid:21)(cid:19)(cid:15)(cid:3) (cid:68)(cid:81)(cid:3) (cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3) (cid:80)(cid:88)(cid:86)(cid:87)(cid:3) (cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3) components of convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in (cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:81)(cid:81)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:17)(cid:3)(cid:36)(cid:54)(cid:38)(cid:3)(cid:23)(cid:26)(cid:19)-20 requires the value of the conversion option of the Convertible Notes, representing the equity component, to be recorded as additional paid-in (cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) (cid:76)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) Convertible Notes, which reduces their initial debt carrying value reflected as a liability on our balance sheets. The carrying value of the debt component of the Convertible Notes, net of the discount recorded, will be accreted up to the principal amount of the Convertible Notes from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement of operations. Accordingly, we will report lower net income or higher net (cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:36)(cid:54)(cid:38)(cid:3)(cid:23)(cid:26)(cid:19)(cid:4137)(cid:21)(cid:19)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3) 52 (cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3) (cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:85)(cid:3) (cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) trading price of our Class A common stock and the trading price of the Convertible Notes. In addition, under certain circumstances, convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Convertible Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Convertible Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of Class A common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Convertible Notes, then our diluted earnings per share would be adversely affected in periods when we report net income. The capped call transactions may affect the value of the Convertible Notes and our Class A common stock. In connection with the pricing of the Convertible Notes, we entered into privately negotiated capped call (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:68)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3)(cid:38)(cid:68)(cid:79)(cid:79)(cid:86)(cid:180)(cid:12)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:50)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:68)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3)(cid:38)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72) (cid:87)(cid:87) expected generally to reduce the potential dilution to our Class A common stock upon any conversion of the Convertible Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. r We have been advised that in connection with establishing their initial hedges of the Capped Calls, the Option Counterparties or their respective affiliates entered into various derivative transactions with respect to our Class A common stock and/or purchased shares of our Class A common stock concurrently with or shortly after the pricing of the Convertible Notes. In addition, we have been advised that the Option Counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions at any time prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of Convertible Notes). This activity could cause or avoid an increase or a decrease in the market price of our Class A common stock. We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of the Convertible Notes or our Class A common stock. In addition, we do not make any representation that the Option Counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. We are subject to counterparty risk with respect to the Capped Calls. The Option Counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the Capped Calls. Our exposure to the credit risk of the Option Counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls with such Option Counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our Class A common stock. In addition, upon a default by an Option Counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our Class A common stock. We can provide no assurances as to the financial stability or viability of the Option Counterparties. 53 Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate headquarters is located in Raleigh, North Carolina, where we lease approximately 120,041 square feet of office space at 900 Main Campus Drive and 80,692 square feet of additional office space, of which 17,073 square feet of space is subject to a facilities sharing agreement with Republic Wireless, on the Centennial Campus of North Carolina State University in Raleigh, North Carolina. 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On June 15, 2020, we signed a Purchase and Sale Agreement with the state of North Carolina regarding the sale of approximately 40 acres of vacant land to construct a new headquarters in Raleigh, NC. We believe this new facility will provide the additional space needed to accommodate our growing work force. Item 3. Legal Proceedings Phone Recov(cid:72)(cid:85)(cid:92)(cid:3) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:47)(cid:47)(cid:38)(cid:3) (cid:11)(cid:179)(cid:51)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3) (cid:53)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:51)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3) (cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:44)(cid:81)(cid:70)(cid:17)(cid:3) (cid:11)(cid:179)(cid:51)(cid:75)(cid:82)(cid:81)(cid:72)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:180)(cid:12)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:69)(cid:72)(cid:75)(cid:68)(cid:79)(cid:73)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) county or city itself, have filed multiple lawsuits against us and/or one of our subsidiaries alleging that we failed to bill, collect and remit certain taxes and surcharges associated with the provision of 911 services. bill, collect and remit certain taxes and surcharges associated with the provision of 911 services. The California Case was originally file The following county or municipal governments have named us in lawsuits associated with the collection and remittance of 911 taxes and surcharges that remain unresolved: the City and County of San Francisco, (cid:92) (cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)(cid:38)(cid:68)(cid:86)(cid:72)(cid:180)(cid:12)(cid:30)(cid:3)(cid:38)(cid:82)(cid:82)(cid:78)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:46)(cid:68)(cid:81)(cid:72)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:87)(cid:92) (cid:44)(cid:79)(cid:79)(cid:76)(cid:81)(cid:82)(cid:76)(cid:86)(cid:30)(cid:3)(cid:38)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:76)(cid:70)(cid:68)(cid:74)(cid:82)(cid:15)(cid:3)(cid:44)(cid:79)(cid:79)(cid:76)(cid:81)(cid:82)(cid:76)(cid:86)(cid:30)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3) (cid:73) Illinois (collective(cid:79)(cid:92)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:44)(cid:79)(cid:79)(cid:76)(cid:81)(cid:82)(cid:76)(cid:86)(cid:3) (cid:38)(cid:68)(cid:86)(cid:72)(cid:180)(cid:12)(cid:30)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:49)(cid:72)(cid:90)(cid:3) (cid:60)(cid:82)(cid:85)(cid:78)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:49)(cid:72)(cid:90)(cid:3) (cid:60)(cid:82)(cid:85)(cid:78)(cid:3) (cid:38)(cid:68)(cid:86)(cid:72)(cid:180)(cid:12)(cid:30)(cid:3) (cid:36)(cid:79)(cid:79)(cid:72)(cid:74)(cid:75)(cid:72)(cid:81)(cid:92)(cid:3) (cid:38)(cid:82)(cid:88)(cid:81)(cid:87)(cid:92)(cid:15)(cid:3) (cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:51)(cid:72)(cid:81)(cid:81)(cid:86)(cid:92)(cid:79)(cid:89)(cid:68)(cid:81)(cid:76)(cid:68)(cid:3)(cid:38)(cid:68)(cid:86)(cid:72)(cid:180)(cid:12)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:75)(cid:82)(cid:71)(cid:72)(cid:3)(cid:44)(cid:86)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:53)(cid:75)(cid:82)(cid:71)(cid:72)(cid:3)(cid:44)(cid:86)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:68)(cid:86)(cid:72)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3) allege that we failed to bill, collect and remit certain taxes and surcharges associated with 911 service pursuant to d under seal in January 2020 and was served on Bandwidth applicable laws. in February 2021. The Illinois Case was dismissed by the trial court in December 2016, but returned to the trial The Illinois Case was dismissed by the trial court in December 2016, but returned to the trial We We (cid:70)(cid:82)(cid:88)(cid:85)(cid:87)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:79)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:73)(cid:73)(cid:86)(cid:182)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:79)(cid:79)(cid:76)(cid:81)(cid:82)(cid:76)(cid:86)(cid:3)(cid:38)(cid:68)(cid:86)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:36)(cid:88)(cid:74)(cid:88)(cid:86)(cid:87)(cid:3)(cid:20)(cid:21)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:17) filed a motion to dismiss the Illinois Case on September 26, 2019. The New York Case originally was filed under The New York Case originally was filed under seal in 2014, amended and filed under seal in 2018, and made available publicly on October 25, 2019. We filed a motion to dismiss the New York Case on February 14, 2020. The Rhode Island Case originally was filed under seal in 2014 and was made available publicly in 2015. Our response to the complaint in the Rhode Island Case has been on hold since 2015, pending the filing of an amended complaint. The Pennsylvania Case is stayed pending the The Pennsylvania Case is stayed pending the outcome of a related proceeding before the Federal Communicatio(cid:81)(cid:86)(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:11)(cid:179)(cid:41)(cid:38)(cid:38)(cid:180)(cid:12)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:76)(cid:86)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72) subject of an appeal. (cid:81) On November 30, 2020, we were named as a defendant in a Second Amended Class Action Complaint in a pputative class action captioned Diana Mey v. All Access Telecom, Inc., et al. pending in the United States District 54 Court, Northern District of West Virginia relating to the alleged failure to block unsolicited phone calls to the plaintiff and putative class members. plaintiff and putative class members. We filed a motion to dismiss the action on February 3, 2021. We intend to vigorously defend these lawsuits and believe we have meritorious defenses to each. However, uu litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition. In addition to the litigation discussed above, from time to time, we may be subject to legal actions and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from m third parties relating to number management, and claims asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers bby determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us be cause of defense and settlement costs, diversion of f management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. 55 PART II - OTHER INFORMATION Item 5. Market for Registrant(cid:182)s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Class A Common Stock Our Class A common stock has been listed on the NASDAQ Global Select Market under the symbol (cid:179)(cid:37)(cid:36)(cid:49)(cid:39)(cid:180)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:17)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:81)(cid:82)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)ng market for our Class A common stock. Stockholders As of February 19, 2021, we had 24 holders of record of our Class A and Class B common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. Dividend Policy We have never declared or paid any cash dividend on our common stock. We currently intend to retain all of our future earnings, if any, generated by our operations for the development and growth of our business for the foreseeable future. The decision to pay dividends is at the discretion of our board of directors and depends upon our financial condition, results of operations, capital requirements, and other factors that our board of directors deems relevant. Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Bandwidth Inc. under the Securities Act or the Exchange Act. The graph below compares the cumulative total return to our stockholders between November 10, 2017 (the date our Class A common stock commenced trading on the NASDAQ Global Select Market) through December 31, 2020 in comparison to the NASDAQ Composite Index and the S&P 500 Information Technology Index. The graph assumes $100 was invested in the Class A common stock of Bandwidth Inc., the NASDAQ Composite Index and the S&P 500 Information Technology Index, and assumes reinvestment of any dividends. The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock. 56 Securities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to our Proxy Statement relating to our 2021 Annual Meeting of Shareholders. The Proxy Statement will be filed with the SEC within 120 days of the fiscal year ended December 31, 2020. m Recent Sales of Unregistered Securities From January 1, 2020 through December 31, 2020, we did not sell any securities on an unregistered basis. Use of Proceeds from Public Offering of Common Stock (cid:50)(cid:81)(cid:3)(cid:50)(cid:70)(cid:87)(cid:82)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:21)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:3)(cid:69)(cid:92)(cid:3) and among us, Voicebox S.à r.l., a private limited liability company (société à responsibilité limitée) incorporated (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:47)(cid:88)(cid:91)(cid:72)(cid:80)(cid:69)(cid:82)(cid:88)(cid:85)(cid:74)(cid:3)(cid:11)(cid:179)(cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:69)(cid:82)(cid:91)(cid:180)(cid:12)(cid:15)(cid:3)(cid:44)(cid:87)(cid:68)(cid:92)(cid:3)(cid:53)(cid:82)(cid:86)(cid:72)(cid:81)(cid:73)(cid:72)(cid:79)(cid:71)(cid:15)(cid:3)(cid:54)(cid:87)(cid:72)(cid:73)(cid:68)(cid:68)(cid:81)(cid:3)(cid:46)(cid:82)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:39)(cid:76)(cid:85)(cid:78)(cid:3)(cid:43)(cid:72)(cid:85)(cid:80)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:42)(cid:68)(cid:72)(cid:87)(cid:68)(cid:81)(cid:3)(cid:37)(cid:85)(cid:76)(cid:70)(cid:75)(cid:72)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) Stichting Administratiekantoor Voice, a foundation (stichting) incorporated under the laws of the Netherlands (cid:11)(cid:179)(cid:54)(cid:87)(cid:76)(cid:70)(cid:75)(cid:87)(cid:76)(cid:81)(cid:74)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:69)(cid:82)(cid:91)(cid:15)(cid:3)(cid:44)(cid:87)(cid:68)(cid:92)(cid:3)(cid:53)(cid:82)(cid:86)(cid:72)(cid:81)(cid:73)(cid:72)(cid:79)(cid:71)(cid:15)(cid:3)(cid:54)(cid:87)(cid:72)(cid:73)(cid:68)(cid:68)(cid:81)(cid:3)(cid:46)(cid:82)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:39)(cid:76)(cid:85)(cid:78)(cid:3)(cid:43)(cid:72)(cid:85)(cid:80)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:42)(cid:68)(cid:72)(cid:87)(cid:68)(cid:81)(cid:3)(cid:37)(cid:85)(cid:76)(cid:70)(cid:75)(cid:72)(cid:87)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:54)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:180)(cid:12)(cid:3) (cid:83)(cid:88)(cid:85)(cid:86)(cid:88)(cid:68)(cid:81)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:15)(cid:3) (cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15) (cid:90)(cid:72)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:68)(cid:79)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:36)(cid:3) (cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3) (cid:37) Ordinary Shares and C Ordinary Shares of Voice Topco. Voice Topco directly or indirectly holds all of the issued and outstanding shares of Voxbone S.A., which (with its subsidiaries) is the operating subsidiary of Voice Topco. Our board of directors unanimously approved the Share Purchase Agreement on October 5, 2020. (cid:73)(cid:73) (cid:87) Pursuant to the Share Purchase Agreement, we acquired from the Selling Stockholders, all of the A (cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:37)(cid:3)(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:3)(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:180)(cid:12) in a transaction (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:188)(cid:23)(cid:23)(cid:25) million. As consideration for the Share Purchase, we (i) paid the Selling Stockholders approximately $413 (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:82)(cid:85)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:188)(cid:22)(cid:24)(cid:24) million based on prevailing exchange rates at the close of business on October 30, 202(cid:19)(cid:12)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:38)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:11)(cid:76)(cid:76)(cid:12)(cid:3) (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:72)(cid:79)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3) (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) (cid:68)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72) (cid:38)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3) (cid:36)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:15)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:68)(cid:81)(cid:3) (cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) (cid:188)(cid:28)(cid:20) million (or approximately $106 million) based on prevailing exchange rates at the close of business on October 30, 2020. 57 Item 6. Selected Financial Data The consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020 and the consolidated balance sheets as of December 31, 2019 and 2020, are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future. The following selected consolidated financial data should be read in conjunction with Item 7, (cid:179)Management(cid:182)s Discussion and Analysis of Financial Condition and Results of Operations(cid:180) and the consolidated financial statements and related notes included in Item 8, (cid:179)Financial Statements and Supplementary Data,(cid:180) within this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below. 58 Consolidated Statements of Operations Data: Revenue: CPaaS revenue Other revenue Total revenue Cost of revenue: CPaaS cost of revenue Other cost of revenue Total cost of revenue (1) Gross profit Operating expenses: Research and development (1) Sales and marketing (1) General and administrative (1) Total operating expenses Operating income (loss) Other income (expense): Interest income (expense), net Other income (expense), net Total other income (expense) Income (loss) before income taxes Income tax benefit (provision) (2) NNet income (loss) Other comprehensive (loss) income Unrealized (loss) gain on marketable securities, net of income tax benefit Foreign currency translation Total other comprehensive (loss) income Total comprehensive income (loss) Earnings per share: NNet income (loss) per share: Basic Diluted Basic Diluted ________________________ (1) Includes stock-based compensation expense as shown below. 59 Year ended December 31, 2019 2018 2020 (In thousands, except share and per share amounts) $ 164,415 $ 197,944 $ 298,090 39,698 204,113 34,650 232,594 45,023 343,113 94,296 13,849 108,145 110,343 14,616 124,959 160,706 24,546 185,252 95,968 107,635 157,861 20,897 20,731 47,588 89,216 31,461 35,020 58,847 42,059 40,552 88,755 125,328 171,366 6,752 (17,693) (13,505) 301 (cid:178) 301 2,446 23 2,469 (13,672) (1,795) (15,467) 7,053 10,870 (15,224) 17,718 (28,972) (15,005) $ 17,923 $ 2,494 $ (43,977) (1) (cid:178) (1) 1 41 42 (cid:178) 27,900 27,900 $ 17,922 $ 2,536 $ (16,077) $ $ 0.96 0.85 $ $ 0.11 0.10 $ $ (1.83) (1.83) 18,573,067 22,640,461 24,092,574 21,140,382 23,923,777 24,092,574 (2) Includes 13,484 of excess tax benefits associated with the exercise of stock options and vesting of restricted stock units in the year ended December 31, 2019. Year ended December 31, 2019 2018 2020 (In thousands) 211 $ 114 555 511 2,159 3,339 $ $ $ 208 2,118 1,525 6,030 9,881 1,461 1,199 3,755 6,626 As of December 31, 2019 2020 (In thousands) $ 185,004 $ 181,211 341,416 (cid:178) 270,090 81,437 101,410 890,608 282,196 429,923 $ $ Stock-based compensation expense: Cost of revenue Research and development Sales and marketing General and administrative Total Consolidated Balance Sheets Data: Cash, cash equivalents and restricted cash Working capital Total assets Convertible senior notes (cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) 60 Non-GAAP Financial Measures We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income (loss), Adjusted EBITDA and free cash flow for financial and operational decision making and to evaluate period-to-period differences in our performance. Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income (loss), Adjusted EBITDA and free cash flow are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performance. We believe these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key performance indicators used by management in its financial and operational decision making. See below for a reconciliation of each of the non-GAAP financial measures described below. Non-GAAP Gross Profit and Non-GAAP Gross Margin GAAP defines gross profit as revenue less cost of revenue. Cost of revenue includes all expenses associated (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3) (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3) (cid:68)(cid:86)(cid:3) (cid:80)(cid:82)(cid:85)(cid:72)(cid:3) (cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3) (cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:179)(cid:46)(cid:72)(cid:92)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73) Operations-(cid:38)(cid:82)(cid:86)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:42)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3) (cid:48)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:17)(cid:180)(cid:3) (cid:58)(cid:72)(cid:3) (cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:3) (cid:49)(cid:82)(cid:81)-GAAP gross profit as gross profit after adding back the following items: (cid:135) (cid:135) (cid:135) depreciation and amortization; amortization of acquired intangible assets related to acquisitions; and stock-based compensation. We add back depreciation and amortization, amortization of acquired intangible assets related to acquisitions, and stock-based compensation, because they are non-cash items. We eliminate the impact of these non- cash items because we do not consider them indicative of our core operating performance. Their exclusion facilitates comparisons of our operating performance on a period-to-period basis. We believe showing gross margin, as Non-GAAP to remove the impact of these non-cash expenses, such as depreciation and amortization and stock- based compensation, is helpful to investors in assessing our gross profit and gross margin performance in a way that r is similar to how management assesses our performance. We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by revenue, expressed as a percentage of revenue. Management uses Non-GAAP gross profit and Non-GAAP gross margin to evaluate operating performance and to determine resource allocation among our various service offerings. We believe Non-GAAP gross profit and Non-GAAP gross margin provide useful information to investors and others to understand and evaluate our operating results in the same manner as our management and board of directors and allows for better comparison of financial results among our competitors. Non-GAAP gross profit and Non-GAAP gross margin may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin or similarly titled measures in the same manner as we do. 61 Consolidated Consolidated Gross Profit Consolidated Gross Profit Margin % Depreciation Amortization of acquired intangible assets Stock-based compensation Non-GAAP Gross Profit Non-GAAP Gross Margin % By Segment CPaaS CPaaS Gross Profit CPaaS Gross Profit Margin % Depreciation Amortization of acquired intangible assets Stock-based compensation Non-GAAP CPaas Gross Profit Non-GAAP CPaaS Gross Margin % Other Year ended December 31, 2019 2018 2020 $ 95,968 (In thousands) 107,635 $ $ 157,861 47 % 46 % 46 % 4,490 (cid:178) 114 6,583 (cid:178) 211 9,536 1,445 208 $ 100,572 $ 114,429 $ 169,050 49 % 49 % 49 % Year ended December 31, 2018 2019 2020 $ 70,119 (In thousands) $ 87,601 $ 137,384 43 % 44 % 46 % 4,490 (cid:178) 114 6,583 (cid:178) 211 9,536 1,445 208 $ 74,723 $ 94,395 $ 148,573 45 % 48 % 50 % There are no Non-GAAP adjustments to gross profit for the Other segment. Non-GAAP Net Income (Loss) We define Non-GAAP net income (loss) as net income or loss adjusted for certain items affecting period-to- period comparability. Non-GAAP net income (loss) excludes: (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) stock-based compensation; amortization of acquired intangible assets related to acquisitions; amortization of debt discount and issuance costs for convertible debt; acquisition related expenses; impairment charges of intangibles assets, if any; loss (gain) on disposal of property and equipment; estimated tax impact of above adjustments; income tax benefit resulting from excess tax benefits associated with the exercise of stock options, vesting of restricted stock units and equity compensation; and 62 (cid:135) expense resulting from recording the valuation allowance on our deferred tax assets. We calculate Non-GAAP basic and diluted shares by adding the weighted average of outstanding Series A redeemable convertible preferred stock, if any, to the weighted average number of outstanding basic and diluted shares, respectively. The tax-effect of Non-GAAP adjustments is determined using a blended rate of statutory tax rates in the jurisdictions where the Company has tax filings. When the Company has a valuation allowance recorded and no tax benefits will be recognized, the rate is considered to be zero. We believe Non-GAAP net income (loss) is a meaningful measure because by removing certain non-cash and other expenses we are able to evaluate our operating results in a manner we believe is more indicative of the (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:182)(cid:86)(cid:3) (cid:83)(cid:72)(cid:85)(cid:73)ormance. We believe the use of Non-GAAP net income (loss) may be helpful to investors because it provides consistency and comparability with past financial performance, facilitates period-to-period comparisons of results of operations and assists in comparisons with other companies, many of which may use similar Non-GAAP financial information to supplement their GAAP results. (cid:73)(cid:73) Year ended December 31, 2019 2018 2020 Net income (loss) Stock-based compensation Amortization of acquired intangibles Amortization of debt discount and issuance costs for convertible debt Acquisition-related expenses Loss on disposal of property and equipment Estimated tax effects of adjustments (1) Valuation allowance (2) Income tax benefit of equity compensation Non-GAAP net income (loss) Net income (loss) per share Basic Diluted Non-GAAP net income (loss) per Non-GAAP share Basic Diluted NNon-GAAP weighted average number of shares outstanding Non-GAAP basic shares Warrants to purchase common stock Convertible debt conversion Stock options issued and outstanding NNonvested RSUs outstanding Non-GAAP diluted shares ________________________ 63 $ (43,977) (In thousands) $ 17,923 $ 3,339 520 (cid:178) (cid:178) 191 (1,038) (cid:178) (11,887) 2,494 6,626 520 (cid:178) (cid:178) 456 (1,914) (cid:178) (13,484) $ $ $ $ $ 9,048 $ (5,302) $ 0.96 0.85 0.49 0.43 $ $ $ $ 0.11 0.10 (0.23) (0.23) $ $ $ $ 9,881 3,666 15,565 14,458 334 (758) 15,024 (cid:178) 14,193 (1.83) (1.83) 0.59 0.55 18,573,067 22,640,461 24,092,574 7,726 (cid:178) 2,375,424 184,165 21,140,382 (cid:178) (cid:178) (cid:178) (cid:178) 22,640,461 (cid:178) 1,022,941 443,738 352,854 25,912,107 s (1) The Non-GAAP tax-effect is determined using a blended rate of statutory tax rates in the jurisdictions where the Company ha tax filings. When the Company has a valuation allowance recorded and no tax benefits will be recognized, the rate in that jurisdiction is considered to be zero. The rate was 28.6%, 25.2%, 1.8% for the years ended December 31, 2018, 2019 and 2020, respectively. f (2) The Company recognized a tax expense of $0 and $15,024 to record a valuation allowance on U.S. deferred tax assets in the years ended December 31, 2019 and 2020, respectively. Adjusted EBITDA We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain income statement items including, but not limited to: (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) income tax provision (benefit); interest (income) expense, net; depreciation and amortization expense; acquisition related expenses; stock-based compensation expense; impairment of intangible assets, if any; and loss (gain) on disposal of property and equipment, if any. Adjusted EBITDA is a key measure used by management to understand and evaluate our core operating performance and trends, to generate future operating plans and to make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Net income (loss) Income tax (benefit) provision (1) (2) Interest (income) expense, net Depreciation Amortization Acquisition-related expenses Stock-based compensation Loss on disposal of property and equipment Adjusted EBITDA ________________________ Year ended December 31, 2019 2018 2020 $ 17,923 (10,870) (301) 5,270 554 (cid:178) 3,339 191 (In thousands) 2,494 $ $ (43,977) (17,718) (2,446) 9,018 520 (cid:178) 6,626 456 15,005 13,672 13,137 3,666 14,458 9,881 334 $ 16,106 $ (1,050) $ 26,176 (1) Includes excess tax benefits associated with the exercise of stock options and vesting of restricted stock units of $11,887, $13,484, and $0 in the years ended December 31, 2018, 2019 and 2020, respectively. (2) Includes $0, $0, and $15,024 of tax expense to record a valuation allowance on U.S. deferred tax assets in the years December 31, 2018, 2019 and 2020, respectively. 64 Free Cash Flow Free cash flow represents net cash provided by or used in operating activities less net cash used in the acquisition of property and equipment and capitalized development costs of software for internal use. We believe free cash flow is a useful indicator of liquidity and provides information to management and investors about the amount of cash generated from our core operations that can be used for investing in our business. Free cash flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, it does not take into consideration investment in long-term securities, nor does it represent the residual cash flows available for discretionary expenditures. Therefore, it is important to evaluate free cash flow along with our consolidated statements of cash flows. Year ended December 31, 2019 2018 2020 NNet cash provided by (used in) operating activities Net cash used in investing in capital assets (1) Free cash flow ________________________ $ $ (In thousands) (1,253) $ 24,633 (14,447) 10,186 $ (25,759) (27,012) $ $ 4,518 (14,592) (10,074) (1) Represents the acquisition cost of property, equipment and capitalized development costs for software for internal use. 65 Management(cid:182)s Discussion and Analysis (cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:26)(cid:17)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in this Annual Report on Form 10-K. Our fiscal year ends on December 31. ee Overview We are a leading global enterprise cloud communications company. Our solutions include a broad range of (cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3) (cid:36)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:73)(cid:68)(cid:70)(cid:72)(cid:86)(cid:3) (cid:11)(cid:179)(cid:36)(cid:51)(cid:44)(cid:86)(cid:180)(cid:12)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:89)(cid:82)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3) (cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)mergency services. Our sophisticated and easy-to-use software APIs allow enterprises to enhance their products and services by incorporating advanced, global connectivity for voice, messaging and emergency services communications capabilities. Companies use our platform to more frequently and seamlessly connect with their end users, add voice calling capabilities to applications and devices, transition from on-premise to cloud-based communication tools and applications, integrate messaging capabilities into applications or software, build interactive voice response systems for contact centers, offer end users new mobile application experiences including emergency services and improve employee productivity, among other use cases. We have established a reputation as a leader in the Communications Platform-as-a-(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3) (cid:11)(cid:179)(cid:38)(cid:51)(cid:68)(cid:68)(cid:54)(cid:180)(cid:12)(cid:3) (cid:86)(cid:83)(cid:68)(cid:70)(cid:72)(cid:3) (cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)-rich culture and focus on empowering enterprises with end-to-end communications solutions. a We are the only CPaaS provider in the industry that owns and operates a nationwide IP voice network in the U.S. In 2020 we acquired Voxbone, a leading European-based communications platform with its own IP voice network assembled by building relationships with local carriers around the globe. Our deep U.S. presence and global platform extending across more than 60 countries serves enterprises in countries representing more than 90% of global gross domestic product. We believe that our current and future customers will benefit from using a unified software platform, network and team to serve people around the world. Our voice software APIs allow enterprises to make and receive phone calls and create advanced voice experiences. Integration with our purpose-built IP voice network ensures enterprise-grade functionality and secure, high-quality connections. Our messaging software APIs provide enterprises with advanced tools to connect with end users via messaging. Our customers also use our solutions to enable 911 response capabilities, real-time provisioning and activation of phone numbers and toll-free number messaging. We believe our network is capital-efficient and supports the applications and experiences that make a difference in the way enterprises communicate. Since a communications platform is only as strong as the network mm that backs it, we believe our network provides a significant competitive advantage in the control, quality, pricing power and scalability of our offering. We are able to control the quality and provide the support our customers expect, while meeting regulatory, scalability and cost requirements more efficiently. For the years ended December 31, 2018, 2019 and 2020, total revenue was $204.1 million, $232.6 million and $343.1 million, respectively. For the years ended December 31, 2018, 2019 and 2020, CPaaS revenue was $164.4 million, $197.9 million and $298.1 million, respectively, representing an increase of 20% in 2019 and 51% in 2020. Net income in 2018 and 2019 was $17.9 million and $2.5 million, respectively, and net loss in 2020 was $44.0 million. As of December 31, 2018, 2019 and 2020, the number of active CPaaS customer accounts was 1,230, 1,728 and 2,848, respectively, representing a year over year increase of 40% in 2019, and 65% in 2020. Acquisition of Voxbone Share Purchase Agreement pursuant to which we acquired all of On October 12, 2020, we entered into the Share Purchase Agreement pursuant to which we acquired all of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares of Voice Topco. Voice Topco directly or indirectly 66 Management(cid:182)s Discussion and Analysis holds all of the issued and outstanding shares of Voxbone S.A., which (with its subsidiaries) is the operating g subsidiary of Voice Topco. (cid:50)(cid:81)(cid:3) (cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:21)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:3) (cid:90)(cid:72)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:3) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:71)(cid:3) (cid:68)(cid:87)(cid:3) (cid:188)(cid:23)(cid:23)(cid:25)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) (cid:36)(cid:86)(cid:3) consideration for the Share Purchase, we (i) paid the Selling Stockholders approximately $400 million (or (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:188)(cid:22)(cid:22)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:68)(cid:76)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)e rates at the close of business on October 9, 2020) at the Closing and (ii) issued to the Selling Stockholders at the Closing shares of our Class A common stock, with an prevailing exchange rates (cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:188)(cid:20)(cid:19)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:82)(cid:85)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:7)(cid:20)(cid:21)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81) at the close of business on October 9, 2020). (cid:92) COVID-19 Update (cid:44)(cid:81)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3) (cid:68)(cid:3) (cid:81)(cid:82)(cid:89)(cid:72)(cid:79)(cid:3) (cid:70)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3) (cid:71)(cid:76)(cid:86)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:11)(cid:179)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-(cid:20)(cid:28)(cid:180)(cid:12)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:58)(cid:82)(cid:85)(cid:79)(cid:71)(cid:3)(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:50)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:58)(cid:43)(cid:50)(cid:180)(cid:12)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:87)(cid:3)(cid:68)(cid:3)(cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:40)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)ncy of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. The circumstances caused by COVID-19 resulted in increased use of our services during the twelve months ended December 31, 2020 because of more reliance on our offerings to connect people during a time of physical distancing and work from home environments. Increased usage was mostly driven by large enterprise customers that (cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3) (cid:88)(cid:81)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3) (cid:11)(cid:179)(cid:56)(cid:38)(cid:68)(cid:68)(cid:54)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3) (cid:3) (cid:58)(cid:72)(cid:3) (cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3) (cid:88)(cid:86)(cid:68)(cid:74)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) these services and solutions to continue until the effects of COVID-19 abate. We believe that usage of many of these services and solutions will continue after the effects of COVID-19 abate as employees and enterprises utilize work from home arrangements more prevalently. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain. As a result of the COVID-19 pandemic, nearly all of our employees in the United States and Europe worked from home during the calendar year ending on December 31, 2020 and we implemented certain travel restrictions, neither of which disrupted our operations. The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where we, our customers, suppliers and third-party business partners conduct business and, as a result, we may experience disruptions in our operations. As COVID-19 effects abate, we may experience curtailed customer demand that could materially adversely impact our business, results of operations and overall financial performance in future periods. Specifically, we may experience impact from enterprises reducing usage of our services or delaying decisions to implement our services. The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:179)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:36)(cid:17)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:86)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72) COVID-19 pandemic on our business. (cid:73)(cid:73) Key Performance Indicators We monitor the following key performance indica(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:11)(cid:179)(cid:46)(cid:51)(cid:44)(cid:86)(cid:180)(cid:12)(cid:3) (cid:87)(cid:82)(cid:3) (cid:75)(cid:72)(cid:79)(cid:83)(cid:3) (cid:88)(cid:86)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:3) trends affecting our business, formulate business plans, and make strategic decisions. We believe the following KPIs are useful in evaluating our business: Year ended December 31, 2019 2018 2020 (Dollars in thousands) NNumber of active CPaaS customers (as of period end) Dollar-based net retention rate Adjusted EBITDA Free cash flow 1,230 118 % 1,728 113 % 2,848 131 % $ $ 16,106 10,186 $ $ (1,050) (27,012) $ $ 26,176 (10,074) 67 Management(cid:182)s Discussion and Analysis Number of Active CPaaS Customer Accounts We believe the number of active CPaaS customer accounts is an important indicator of the growth of our business, the market acceptance of our platform and our future revenue trends. We define an active CPaaS customer account at the end of any period as an individual account, as identified by a unique account identifier, for which we have recognized at least $100 of revenue in the last month of the period. We believe that the use of our platform by active CPaaS customer accounts at or above the $100 per month threshold is a stronger indicator of potential future engagement than trial usage of our platform at levels below $100 per month. A single organization may constitute multiple unique active CPaaS customer accounts if it has multiple unique account identifiers, each of which is treated as a separate active CPaaS customer account. Customers who pay after using our platform and customers that have credit balances are included in the number of active CPaaS customer accounts. Customers from our Other segment are excluded in the number of active CPaaS customer accounts, unless they are also CPaaS customers. In the years ended December 31, 2018, 2019 and 2020, revenue from active CPaaS customer accounts represented approximately 99% of total CPaaS revenue. Dollar-Based Net Retention Rate Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with our existing customers that generate CPaaS revenue and seek to increase their use of our platform. We track our performance in this area by measuring the dollar-based net retention rate for our customers who generate CPaaS revenue. Our dollar-based net retention rate compares the CPaaS revenue from customers in a quarter to the same quarter in the prior year. To calculate the dollar-based net retention rate, we first identify the cohort of customers that generate CPaaS revenue and that were customers in the same quarter of the prior year. The dollar-based net retention rate is obtained by dividing the CPaaS revenue generated from that cohort in a quarter, by the CPaaS revenue generated from that same cohort in the corresponding quarter in the prior year. When we calculate dollar-based net retention rate for periods longer than one quarter, we use the average of the quarterly dollar-based net retention rates for the quarters in such period. Our dollar-based net retention rate increases when such customers increase usage of a product, extend usage of a product to new applications or adopt a new product. Our dollar-based net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions. d d As our customers grow their business and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a significant customer organization (defined as a single customer organization generating more than 1% of CPaaS revenue in a quarterly reporting period) that has created a new CPaaS customer, this new customer is tied to, and CPaaS revenue from this new customer is included with, the original CPaaS customer for the purposes of calculating this metric. Key Components of Statements of Operations Revenue We generate a majority of our revenue from our CPaaS segment. CPaaS revenue is derived from voice usage, phone number services, 911-enabled phone number services, messaging services and other services. We generate a portion of our CPaaS revenue from usage-based fees, which include voice calling and messaging services. For the years ended December 31, 2018, 2019 and 2020, we generated 64%, 66% and 74% of our CPaaS revenue, respectively, from usage-based fees. We also earn monthly fees from services such as phone number services and 911 access service. For the years ended December 31, 2018, 2019 and 2020, we generated 34%, 31% and 24% of our CPaaS revenue, respectively, in each period from monthly per unit fees. The remaining 2%, 3% and 2% of our CPaaS revenue is generated from other miscellaneous services. 68 Management(cid:182)s Discussion and Analysis The remainder of our revenue is generated by our Other segment. Other revenue is composed of revenue earned from our legacy services and indirect revenue. Other revenue as a percentage of total revenue is expected to continue to decline over time. We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable and revenue for unbilled revenue if the services have been delivered and are billable in subsequent periods. Unbilled revenue made up 47%, 54% and 51% of outstanding accounts receivable, net of allowance for doubtful accounts as of December 31, 2018, 2019 and 2020, respectively. r Cost of Revenue and Gross Margin CPaaS cost of revenue consists primarily of fees paid to other network service providers from whom we buy services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits. Cost of revenue also contains costs related to support of our IP voice network, web services, cloud infrastructure, capacity planning and management, rent for network facilities, software licenses, hardware and software maintenance fees and network engineering services. Personnel costs (including non-cash stock-based compensation expenses) associated with personnel who are responsible for the delivery of services, operation and maintenance of our communications network, and customer support, as well as, third-party support agreements and depreciation of network equipment, amortization of internally developed software and gain (loss) on disposal of property and equipment are also included in cost of revenue. Other cost of revenue consists of costs supporting non-CPaaS services including leased circuit costs paid to third party providers, internet connectivity expenses, minutes of use, direct operations, contractors, regulatory fees, surcharges and other pass-through costs and software and hardware maintenance fees. Gross margin is calculated by subtracting cost of revenue from revenue, divided by total revenue, expressed as a percentage. Our cost of revenue and gross margin have been, and will continue to be, affected by several factors, including the timing and extent of our investments in our network, our ability to manage off-network minutes of use and messaging costs, the product mix of revenue, the timing of amortization of capitalized software development costs and the extent to which we periodically choose to pass on any cost savings to our customers in the form of lower usage prices. Operating Expenses The most significant components of operating expenses are personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation expenses. We also incur other non-personnel costs related to our general overhead expenses, including facility expenses, software licenses, web services, depreciation and amortization of assets unrelated to delivery of our services. We expect that our operating expenses will increase in absolute dollars. Research and Development Research and development ((cid:179)R&D(cid:180)) consists primarily of personnel costs (including non-cash stock-based compensation expenses), outsourced software development and engineering service and cloud infrastructure fees for staging and development of outsourced engineering services. We capitalize the portion of our software development costs in instances where we invest resources to develop software for internal use. We plan to continue to invest in R&D to enhance current product offerings and develop new services. Sales and Marketing Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees and non-cash stock-based compensation expenses. Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities, sales support and professional services fees. 69 Management(cid:182)s Discussion and Analysis We focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand. We plan to continue to invest in sales and marketing in order to expand our CPaaS customer base by growing headcount, driving our go-to-market strategies, building brand awareness, advertising and sponsoring additional marketing events. General and Administrative General and administrative expenses consist primarily of personnel costs, including stock-based compensation, for our accounting, finance, legal, human resources and administrative support personnel and executives. General and administrative expenses also include costs related to product management and reporting, customer billing and collection functions, information services, professional services fees, credit card processing fees, rent associated with our headquarters in Raleigh, North Carolina and our other offices, and depreciation and amortization. Income Taxes For the years ended December 31, 2018, 2019 and 2020, our effective tax rate was (154.1)%, 116.4% and (51.8)%, respectively. The decrease in our effective tax rate is primarily due to the change in judgment related to the realizability of certain deferred tax assets and the resulting valuation allowance. Judgment is required in determining whether deferred tax assets will be realized in full or in part. Management assesses the available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized and when it is more likely than not that all or some deferred tax assets will not be realized, and a valuation allowance must be established. As of December 31, 2020, the Company continues to maintain a valuation allowance for its U.S. federal and state and U.K. net deferred tax assets. aa (cid:50)(cid:81)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:26)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3)(cid:36)(cid:76)(cid:71)(cid:15)(cid:3)(cid:53)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:38)(cid:36)(cid:53)(cid:40)(cid:54)(cid:12)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12) was enacted. The Cares Act includes multiple income tax provisions that impact our tax expense, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. We have accounted for the estimated impact of the Cares Act. 70 Management(cid:182)s Discussion and Analysis Results of Operations Consolidated Results of Operations The following table sets forth the consolidated statements of operations for the periods indicated. Revenue: CPaaS revenue Other revenue Total revenue Cost of revenue: CPaaS cost of revenue Other cost of revenue Total cost of revenue Gross profit: CPaaS Other Total gross profit Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Operating income (loss) Other income (expense), net Interest income (expense), net Other income (expense), net Total other income (expense), net Income (loss) before income taxes Income tax benefit (provision) NNet income (loss) Year ended December 31, 2019 2020 2018 (In thousands) $ 164,415 $ 197,944 $ 39,698 204,113 94,296 13,849 108,145 70,119 25,849 95,968 20,897 20,731 47,588 89,216 6,752 301 (cid:178) 301 7,053 10,870 34,650 232,594 110,343 14,616 124,959 87,601 20,034 107,635 31,461 35,020 58,847 125,328 (17,693) 2,446 23 2,469 (15,224) 17,718 $ 17,923 $ 2,494 $ 298,090 45,023 343,113 160,706 24,546 185,252 137,384 20,477 157,861 42,059 40,552 88,755 171,366 (13,505) (13,672) (1,795) (15,467) (28,972) (15,005) (43,977) 71 Management(cid:182)s Discussion and Analysis The following table sets forth our results of operations as a percentage of our total revenue for the periods presented. * Revenue: CPaaS revenue Other revenue Total revenue Cost of revenue: CPaaS cost of revenue Other cost of revenue Total cost of revenue Gross profit: CPaaS Other Total gross profit Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Operating income (loss) Other income (expense), net Interest income (expense), net Other income (expense), net Total other income (expense), net Income (loss) before income taxes Income tax benefit (provision) NNet income (loss) (*) Columns may not foot due to rounding. Year ended December 31, 2019 2020 2018 81 % 19 % 100 % 46 % 7 % 53 % 34 % 13 % 47 % 10 % 10 % 23 % 43 % 3 % (cid:178) % (cid:178) % (cid:178) % 3 % 5 % 9 % 85 % 15 % 100 % 47 % 6 % 53 % 37 % 9 % 46 % 14 % 15 % 24 % 53 % (8)% 1 % (cid:178) % 1 % (7)% 8 % 1 % 87 % 13 % 100 % 47 % 7 % 54 % 40 % 6 % 46 % 12 % 12 % 26 % 50 % (4)% (4)% (1)% (5)% (8)% (4)% (13)% 72 Management(cid:182)s Discussion and Analysis Comparison of the Years Ended December 31, 2019 and 2020 Revenue Revenue: Other revenue Total revenue Year ended December 31, 2019 2020 Change (Dollars in thousands) $ $ 197,944 34,650 232,594 $ $ 298,090 45,023 343,113 $ $ 100,146 10,373 110,519 51 % 30 % 48 % n In 2020, total revenue increased by $110.5 million, or 48%, compared to the same period in 2019, and CPaaS revenue increased by $100.1 million, or 51%, compared to the same period in 2019. The increase in CPaaS revenue was primarily attributable to an increase in the usage of all our service offerings, particularly our voice and messaging usage, which accounted for $58.6 million of the increase in CPaaS revenue. Messaging usage increased in the year due to higher volumes of messages related to political campaigns for the U.S. elections in November. The situation caused by COVID-19 also caused increased usage in the year because of more reliance on our offerings to connect people during a time of physical distancing and work from home environment. Increased usage was mostly driven by large enterprise customers that offer UCaaS services and meeting solutions and our phone number services. Our phone number services and 911-enabled phone number services accounted for $13.2 million of the increase in CPaaS revenue. In 2020, CPaaS revenue also increased by $11.8 million from higher usage pricing due to a shift in product mix to products with a higher rate compared to the same period in 2019. In addition, $16.6 million of growth was attributable to the acquisition of Voxbone for the period from November 1, 2020 through December 31, 2020. The changes in usage and price in 2020 compared to the same period in 2019 were reflected in our dollar-based net retention rate of 131%. In addition, revenue from new CPaaS customers contributed $22.9 million, or 11%, to CPaaS revenue for 2020 compared to $11.7 million, or 7%, in the same period in 2019. The increase in usage was also attributable to a 65% increase in the number of active CPaaS customer accounts, from 1,728 as of December 31, 2019 to 2,848 as of December 31, 2020. As a percentage of total revenue, CPaaS revenue increased from 85% in 2019 to 87% in the same period in 2020. n Other revenue increased by $10.4 million, or 30%, in 2020 due to higher indirect revenue, which increased by $12.7 million primarily due to an increase in messaging surcharges and indirect voice revenue, offset by the expected decline of legacy revenue, which decreased by $2.3 million, compared to the same period in 2019. Cost of Revenue and Gross Margin Cost of revenue: Other cost of revenue Total cost of revenue Gross profit Gross margin: CPaaS Other Total gross margin Year ended December 31, 2020 2019 Change (Dollars in thousands) $ $ $ 110,343 14,616 124,959 107,635 $ $ $ 160,706 24,546 185,252 157,861 $ $ $ 50,363 9,930 60,293 50,226 46 % 68 % 48 % 47 % 46 % 45 % 46 % 44 % 58 % 46 % 73 Management(cid:182)s Discussion and Analysis In 2020, total gross profit increased by $50.2 million, or 47%, compared to the same period in 2019. Total gross margin was 46% for both years. In 2020, CPaaS cost of revenue increased by $50.4 million, or 46%, compared to the same period in 2019. CPaaS cost of revenue increased due to an increase in voice usage costs of $25.0 million due to growth in minutes used by customers. Cost of messaging increased by $10.3 million due to growth in messages used by customers, including an increase related to political campaigns and increased cost per message. Network costs also increased $13.0 million due to network expansions and depreciation expense. Cost of phone numbers and 911 increased by $2.1 million. COVID-19 and the increased usage resulting from the work at home environment generated increased voice usage costs and network expansions. CPaaS gross margin increased from 44% in 2019 to 46% in 2020. Excluding depreciation and stock-based compensation of $6.8 million in 2019 and $9.7 million in 2020, CPaaS Non-GAAP gross margin was 48% and 50%, respectively, and total Non-GAAP gross margin was 49% for both years. In 2020, other cost of revenue increased by $9.9 million compared to the same period in 2019, primarily due to a $10.8 million increase in cost of indirect revenue related to messaging surcharges offset by a $0.9 million decrease in costs as a result of the expected churn in legacy services. Operating Expenses Research and development Sales and marketing General and administrative Total operating expenses Year ended December 31, 2020 2019 Change (Dollars in thousands) $ $ 31,461 35,020 58,847 125,328 $ $ 42,059 40,552 88,755 171,366 $ $ 10,598 5,532 29,908 46,038 34 % 16 % 51 % 37 % In 2020, R&D expenses related to the expansion of our product offerings increased by $10.6 million, or 34%, compared to the same period in 2019. This increase was primarily due to increased personnel costs of $10.1 million including the impact of growth in headcount as a result of the Acquisition and an increase in non-headcount costs of $0.5 million. In 2020, sales and marketing expenses increased by $5.5 million, or 16%, compared to the same period in 2019, primarily due to an overall increase in sales personnel costs of $6.6 million including the impact of growth in headcount as a result of the Acquisition offset by a decrease in non-headcount costs of $1.1 million. In 2020, general and administrative expenses increased by $29.9 million, or 51%, compared to the same period in 2019. This increase was due to $12.7 million in costs which consist of mainly fees for financial and legal services, due diligence services and success fees related to the acquisition of Voxbone, higher personnel cost of $11.9 million due to the impact of growth in headcount as a result of the Acquisition, depreciation and amortization costs of $3.1 million, facilities costs of $1.4 million, bank charges and license costs of $1.1 million, professional costs of $0.6 million, and expensed IT charges of $0.6 million, offset by lower other non-headcount costs of $0.9 million and travel and entertainment expenses of $0.6 million, which contributed to the overall increase in general and administrative expenses. As a percentage of revenue, total operating expenses for the years ended December 31, 2018, 2019 and 2020 increased from 43% to 53% and 50%, respectively, as operating expenditures growth exceeded corresponding growth in revenue in 2019 and 2020. Interest Income (Expense), Net In 2020, interest expense, net increased by $16.1 million compared to the same period in 2019, due to a $0.1 million decrease in interest income from the investment of follow-on equity offering proceeds and a $16.2 million (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3) (cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3) (cid:3) (cid:54)(cid:72)(cid:72)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:3) (cid:28)(cid:15)(cid:3) (cid:179)(cid:39)(cid:72)(cid:69)(cid:87)(cid:180)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) financial statements, for additional details. 74 Management(cid:182)s Discussion and Analysis Income Tax Benefit (Provision) In 2020, income tax benefit decreased by $32.7 million compared to the same period in 2019. The effective tax rate for the twelve months ended December 31, 2020 was (51.8)% compared to 116.4% in the same period in 2019. The decrease in our effective tax rate is primarily due to the change in judgment related to the realizability of certain deferred tax assets and the resulting valuation allowance. Comparison of the Years Ended December 31, 2018 and 2019 Revenue Revenue: Other revenue Total revenue Year ended December 31, 2018 2019 Change (Dollars in thousands) $ $ 164,415 39,698 204,113 $ $ 197,944 34,650 232,594 $ $ 33,529 (5,048) 28,481 20 % (13)% 14 % n In 2019, total revenue increased by $28.5 million, or 14%, compared to the same period in 2018, and CPaaS revenue increased by $33.5 million, or 20%, compared to the same period in 2018. The increase in CPaaS revenue was primarily attributable to an increase in the usage of all our service offerings, particularly our voice and messaging usage, which accounted for $34.3 million of the increase in CPaaS revenue, and our phone number services and 911-enabled phone number services, which accounted for $8.8 million of the increase in CPaaS revenue. This increase in CPaaS revenue was partially offset by $9.6 million related to pricing decreases that we have implemented over time with our customers in the form of lower usage prices to increase the reach and scale of our platform. The changes in usage and price in 2019 compared to the same period in 2018 were reflected in our dollar-based net retention rate of 113%. The increase in usage was also attributable to a 40% increase in the number of active CPaaS customer accounts, from 1,230 as of December 31, 2018 to 1,728 as of December 31, 2019. In addition, revenue from new CPaaS customers contributed $11.7 million, or 7%, to CPaaS revenue for 2019 compared to $8.7 million, or 7%, to CPaaS revenue in the same period in 2018. As a percentage of total revenue, CPaaS revenue increased from 81% in 2018 to 85% in the same period in 2019. Other revenue decreased by $5.0 million, or 13%, in 2019 due to lower indirect revenue, which decreased by $2.7 million, primarily due to the settlement of a dispute in 2018. Other revenue also decreased due to the expected decline of legacy revenue, which decreased by $2.3 million, compared to the same period in 2018. Cost of Revenue and Gross Margin Cost of revenue: Other cost of revenue Total cost of revenue Gross profit Gross margin: CPaaS Other Total gross margin Year ended December 31, 2019 2018 Change (Dollars in thousands) $ $ $ 94,296 13,849 108,145 95,968 $ $ $ 110,343 14,616 124,959 107,635 $ $ $ 16,047 767 16,814 11,667 17 % 6 % 16 % 12 % 44 % 58 % 46 % 43 % 65 % 47 % 75 Management(cid:182)s Discussion and Analysis In 2019, total gross profit increased by $11.7 million, or 12%, compared to the same period in 2018. Total gross margin decreased from 47% to 46% during the same period, primarily from a decrease in other gross margin in 2019 as a result of higher indirect revenue in 2018 due to settlement of a dispute. In 2019, CPaaS cost of revenue increased by $16.0 million, or 17%, compared to the same period in 2018. CPaaS cost of revenue increased primarily due to an increase in voice usage costs of net $4.5 million due to growth in minutes used by customers, partially offset by a decrease in the cost per minute from vendors. Network costs also increased $8.0 million due to network expansions and personnel costs. Cost of messaging increased by $2.3 million due to growth in messages used by customers. Cost of phone numbers increased by $1.2 million. CPaaS gross margin increased from 43% in 2018 to 44% in 2019. Excluding depreciation and stock-based compensation of $4.6 million in 2018 and $6.8 million in 2019, CPaaS Non-GAAP gross margin was 45% and 48% for 2018 and 2019, respectively, and total Non- GAAP gross margin was 49% for both periods. y In 2019, other cost of revenue increased by $0.8 million compared to the same period in 2018, primarily due to a $1.9 million increase in cost of indirect revenue related to messaging surcharges and cost of carrier access revenue offset by a $1.1 million decrease as a result of churn in legacy services. Operating Expenses Research and development Sales and marketing General and administrative Total operating expenses Year ended December 31, 2019 2018 Change (Dollars in thousands) $ $ 20,897 20,731 47,588 89,216 $ $ 31,461 35,020 58,847 125,328 $ $ 10,564 14,289 11,259 36,112 51 % 69 % 24 % 40 % In 2019, R&D expenses related to the expansion of our product offerings increased by $10.6 million, or 51%, compared to the same period in 2018. This increase was primarily due to increased personnel costs of $9.8 million and non-headcount costs of $0.8 million. In 2019, sales and marketing expenses increased by $14.3 million, or 69%, compared to the same period in 2018 primarily due to an overall increase in sales personnel costs of $11.6 million and non-headcount costs of $2.7 million. In 2019, general and administrative expenses increased by $11.3 million, or 24%, compared to the same period in 2018. This increase was due to higher personnel cost of $4.1 million, facilities expense of $1.6 million, hosted software costs of $1.4 million, higher bad debt expense of $1.1 million primarily related to a write-off with a customer, professional expenses of $1.0 million, depreciation and amortization costs of $1.0 million, other non- headcount costs of $0.8 million and bank charges and license costs of $0.3 million, which contributed to the overall increase in general and administrative expenses. Interest Income, Net In 2019, interest income increased by $2.1 million compared to the same period in 2018, due to a $2.2 million increase in interest income from the investment of follow-on equity offering proceeds offset by $0.1 million increase in interest expense. Income Tax Benefit In 2019, income tax benefit increased by $6.8 million compared to the same period in 2018. The effective tax rate for the twelve months ended December 31, 2019 was 116.4% compared to (154.1)% in the same period in 2018. The increase in our effective tax rate is primarily due to the change in book income before taxes. 76 Management(cid:182)s Discussion and Analysis Quarterly Results of Operations The following tables set forth our unaudited quarterly statements of operations results for each of the eight quarters ended December 31, 2020. The information for each quarter has been prepared on a basis consistent with n our audited consolidated financial statements included in this Annual Report on Form 10-K, and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited consolidated financial statements included in this Annual Report on Form 10-K. March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Three Months Ended (Unaudited, in thousands, except per share amounts) $ 45,013 $ 47,989 $ 51,499 $ 53,443 $ 59,121 $ 67,076 $ 73,762 $ 98,131 8,308 53,321 8,790 56,779 8,992 60,491 8,560 62,003 9,397 68,518 9,714 76,790 10,996 84,758 14,916 113,047 25,300 3,466 28,766 26,473 3,637 30,110 29,297 3,807 33,104 29,273 3,706 32,979 31,892 4,467 36,359 37,229 4,780 42,009 39,346 6,181 45,527 52,239 9,118 61,357 24,555 26,669 27,387 29,024 32,159 34,781 39,231 51,690 7,717 8,349 14,333 30,399 7,656 8,514 14,282 30,452 7,939 8,784 15,269 31,992 8,149 9,373 14,963 32,485 9,530 9,417 16,096 35,043 9,554 8,655 16,840 35,049 10,232 9,001 18,134 37,367 12,743 13,479 37,685 63,907 Revenue: CPaaS revenue Other revenue Total revenue Cost of revenue: CPaaS cost of revenue Other cost of revenue Total cost of revenue Gross profit: Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Operating (loss) income (5,844) (3,783) (4,605) (3,461) (2,884) (268) 1,864 (12,217) Interest income (expense), net Other income (expense), Realized gain (loss) on investments Total other income (loss) 201 (cid:178) (cid:178) 201 719 10 (cid:178) 729 778 (1) 4 781 748 14 (4) 758 (859) (47) (cid:178) (906) (3,864) (4,200) (4) (cid:178) (6) (cid:178) (3,868) (4,206) (4,749) (1,738) (cid:178) (6,487) Loss before income taxes (5,643) (3,054) (3,824) (2,703) (3,790) (4,136) (2,342) (18,704) Income tax benefit (provision) NNet income (loss) Unrealized gain (loss) on marketable securities, net of income tax benefit Foreign currency translation Total comprehensive income (loss), net of income tax NNet income (loss) per share: Basic Diluted $ $ $ $ 7,635 1,992 8 (cid:178) 2,000 0.10 0.09 $ $ $ $ 6,526 3,472 13 12 3,497 0.15 0.14 2,810 747 2,732 (16,505) (10) (1,222) $ (1,014) $ (1,956) $ (1,058) $ (20,641) $ (2,352) $ (19,926) 1 75 (1,880) (0.08) (0.08) $ $ $ (cid:178) (96) (cid:178) (23) (1,154) $ (20,664) (0.04) (0.04) $ $ (0.86) (0.86) (cid:178) 139 (2,213) (0.10) (0.10) (cid:178) 27,880 7,954 (0.81) (0.81) $ $ $ $ $ $ (21) (46) (1,081) (0.04) (0.04) $ $ $ $ $ $ 77 Management(cid:182)s Discussion and Analysis Liquidity and Capital Resources To date, our principal sources of liquidity have been the proceeds of $74.4 million from our initial public offering in November 2017, $147.4 million from our follow-on public offering in March 2019 and $344.7 million from our issuance of the Convertible Notes in February 2020, each net of underwriting discounts and commissions, in addition to free cash flow driven by payments received from customers using our services. We believe that our cash and cash equivalents balances, our short-term investments portfolio, our credit facility and the cash flows generated by our operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, our belief may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements and the adequacy (cid:82)(cid:73)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3)(cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:180)(cid:3)(cid:58)(cid:72)(cid:3) may be required to seek additional equity or debt financing in order to meet these future capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected. Statement of Cash Flows The following table summarizes our cash flows for the periods indicated: Year ended December 31, 2019 2018 2020 NNet cash provided by (used in) operating activities NNet cash used in investing activities NNet cash provided by financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash NNet increase (decrease) in cash, cash equivalents, and restricted cash $ $ Cash Flows from Operating Activities (In thousands) 24,633 $ (1,253) $ (7,653) 152,418 4,518 (455,085) 346,891 (9) 109 $ 143,503 $ (103,567) (31,683) 10,681 (cid:178) 3,631 In 2020, cash provided by operating activities was $4.5 million, consisting of net loss of $44.0 million adjusted for non-cash items. These non-cash items included depreciation and amortization expense of $16.8 million, amortization of debt discount and issuance costs of $15.6 million, deferred tax benefit of $14.3 million, stock-based compensation expenses of $9.9 million, right-of-use asset amortization of $4.8 million and loss on disposal of property and equipment of $0.3 million, offset by cash used by changes in operating assets and liabilities of $13.3 million. Cash generated in operating assets and liabilities included an increase in accrued expenses and other liabilities of $11.5 million and an increase in deferred revenue and advanced billings of $2.8 million. Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of $18.8 million, a decrease in operating right-of-use liability of $5.3 million, a increase in accounts payable of $0.3 million, an increase in prepaid expenses and other assets of $2.3 million and an increase of deferred costs of $1.6 million. In 2019, cash used in operating activities was $1.3 million, consisting of net income of $2.5 million adjusted for non-cash items. These non-cash items included depreciation and amortization expense of $9.6 million, stock-based compensation expenses of $6.6 million, right-of-use asset amortization of $4.3 million, loss on disposal of property and equipment of $0.5 million, offset by deferred tax benefit of $17.5 million, cash used by changes in operating assets and liabilities of $6.6 million, and accretion of bond discount of $0.7 million. Cash generated from operating assets and liabilities included an increase in accrued expenses and other liabilities of $5.5 million, an increase in accounts payable of $1.1 million, and an increase in deferred revenue and advanced billings of $0.6 million. Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of 78 Management(cid:182)s Discussion and Analysis $6.2 million, an increase in prepaid expenses and other assets of $4.2 million, and a decrease in operating right-of- use liability of $3.4 million. In 2018, cash provided by operating activities was $24.6 million, consisting of net income of $17.9 million adjusted for non-cash items. These non-cash items included depreciation and amortization expense of $5.8 million, stock-based compensation expenses of $3.3 million, deferred tax benefit of $10.8 million and cash provided by changes in operating assets and liabilities of $8.3 million. Cash generated from operating assets and liabilities included an increase in deferred revenue and advanced billings of $6.0 million, an increase in accrued expenses and other liabilities of $4.8 million, increase in deferred rent of $2.1 million and a decrease in deferred costs of $0.2 million. Offsetting these cash generating items in assets and liabilities were an increase in accounts receivable of $2.8 million, an increase in prepaid expenses and other assets of $1.9 million and a decrease in accounts payable of $0.2 million, respectively. Cash Flows from Investing Activities In 2020, cash used in investing activities was $455.1 million mainly from the costs related to the Acquisition of $400.5 million, net of cash. In addition, cash used in investing activities was the purchase of other investments of $230.8 million, the purchase of property and equipment of $12.3 million and capitalized internally developed software costs of $2.3 million, offset by the proceeds from sales and maturities of other investments of $190.8 million. In 2019, cash used in investing activities was $7.7 million from the proceeds from the sales and maturities of marketable securities of $86.4 million, offset by the investment in marketable securities of $68.4 million, the purchase of property and equipment of $22.2 million and capitalized internally developed software costs of $3.5 million. In 2018, cash used in investing activities from continuing operations was $31.7 million from the investment in marketable securities of $35.2 million, the purchase of property and equipment of $12.4 million and capitalized internally developed software costs of $2.0 million, partially offset by maturities of marketable securities of $18.0 million. Cash Flows from Financing Activities In 2020, cash provided by financing activities was $346.9 million consisting primarily of $400.0 million in proceeds from the issuance of the Convertible Notes and $4.1 million in proceeds from the issuance of stock options, partially offset by $43.3 million in capped call purchases, $12.0 million in payments of debt issuance cost, and $1.9 million in value of equity awards withheld for tax liabilities. In 2019, cash provided by financing activities was $152.4 million consisting primarily of $147.4 million in proceeds from the follow-on public offering, $7.4 million in proceeds from the issuance of stock options, partially offset by $1.4 million in value of equity awards withheld for tax liabilities, $0.8 million in payments related to the d cost of the follow-on public offering and $0.2 million in payments of debt issuance cost. In 2018, cash provided by financing activities was $10.7 million consisting primarily of $11.1 million in proceeds from the exercises of stock options, partially offset by $0.3 million in payments related to the cost of our initial public offering and $0.1 million in payments on capital leases. 79 Management(cid:182)s Discussion and Analysis Debt (cid:50)(cid:81)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:24)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:90)(cid:68)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3) (cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:46)(cid:72)(cid:92)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:51)(cid:68)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3) (cid:58)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)(cid:3) (cid:37)(cid:68)(cid:81)(cid:78)(cid:3) (cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:47)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) provided for consent to accommodate the issuance of the Convertible Notes and the Capped Calls. The waiver agreement required us to covenant with the Lenders to deposit an amount of funds into a controlled account, which restricted the ability to use such funds until the Credit Facility was paid in full or terminated. If we had failed to comply with these covenants or to make payments under our indebtedness when due, we would have been in default under that indebtedness, which could, in turn, have resulted in that indebtedness becoming immediately payable in full. On April 27, 2020, a First Amendment Agreement to the Credit Security Agreement was executed in which the Lenders consented to remove the previously existing cash collateral requirement and to terminate the previously h required controlled account. d (cid:85)(cid:85) As of December 31, 2020, we had $0 outstanding under the Credit Facility and were in compliance with all financial and non-financial covenants for all periods presented. The available borrowing capacity under our Credit Facility was $25.0 million as of December 31, 2020. As of December 31, 2020, the outstanding unamortized loan fees for the Credit Facility were $0.1 million and were included in prepaid expenses and other current assets, and other long-term assets in our consolidated balance sheets. On February 28, 2020, we issued $400.0 million aggregate principal amount of the Convertible Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, including $50.0 million aggregate principal amount of such Convertible Notes pursuant to the exercise in full of the initial (cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)-allotment option. The interest on the Convertible Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The Convertible Notes may bear special interest under specified circumstances relating to our failure to comply with its reporting obligations under the indenture governing t(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:180)(cid:12)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:73)(cid:3) the Convertible Notes are not freely tradeable as required by the Indenture. The Convertible Notes will mature on March 1, 2026, unless earlier repurchased, redeemed by us, or converted pursuant to their terms. The total net proceeds from the Convertible Notes, after deducting initial purchaser discounts, costs related to the Capped Calls, and debt issuance costs, paid or payable by us, were approximately $344.7 million. 80 Management(cid:182)s Discussion and Analysis Contractual Obligations and Other Commitments The following table summarizes our non-cancellable contractual obligations as of December 31, 2020: Total Less than 1 year $ 22,536 $ 492 400,000 14,278 6,408 195 (cid:178) 9,028 1 to 3 Years 3 to 5 Years (In thousands) $ 13,193 $ 2,935 $ 238 (cid:178) 4,486 59 (cid:178) 762 More than 5 years (cid:178) (cid:178) 400,000 2 $ 437,306 $ 15,631 $ 17,917 $ 3,756 $ 400,002 Operating leases (1) Finance leases (1) Convertible Notes (2) Purchase obligations (3) Total ________________________ (1) Operating and finance leases represent total future minimum rent payments under non-cancellable lease agreements. (2) See Note 9, (cid:179)(cid:39)(cid:72)(cid:69)(cid:87)(cid:180) to the consolidated financial statements included elsewhere in this Annual Report on Form 10- K, for a discussion of our Convertible Notes. (3) Purchase obligations represent total non-cancelable purchase commitments and future minimum payments under contracts to various service providers, excluding agreements that are cancellable without penalty. Off-Balance Sheet Arrangements We do not have any holdings in variable interest entities. With the acquisition of Voxbone, we have off- balance sheet agreements for short term office and automobile leases in the amount of $1,249 and $24, respectively, ending prior to the year ended December 31, 2021. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe the accounting policies discussed below are critical to the process of making significant judgments and estimates in the preparation of our financial statements, and to understanding our historical and future performance. Revenue Recognition and Deferred Revenue We generate revenue primarily from the sale of communication services to enterprise customers. Revenue mm omers in an amount that we d recognition commences upon transfer of control of promised goods or services to cust expect to receive in exchange for those goods or services. The majority of our revenue is generated from usage-based fees earned from customers accessing our communications platform. Access to the communications platform is considered a series of distinct services, with continuous transfer of control to the customer, comprising one performance obligation. Usage-based fees are recognized in revenue in the period the traffic traverses our network. Revenue from service-based fees, such as the provision and management of phone numbers and emergency services access, is recognized on a ratable basis as the service is provided, which is typically one month. 81 Management(cid:182)s Discussion and Analysis We generally enter into arrangements with customers that are typically 2 to 3 years in length with an auto- renewal feature. When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the longer of the associated service contract period or estimated period of benefit. Our arrangements do not contain general rights of return or provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met. n We maintain a reserve for sales credits. Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience and current trends of credit issuances. Adjustments to the reserve are recorded against revenue. Business Combinations We use the acquisition method of accounting for business combinations which requires the tangible and intangible assets acquired and liabilities assumed to be recorded at their respective fair market value as of the acquisition date. Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired. The fair values of the assets acquired and liabilities assumed are determined based upon management's valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date. We use a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained, but no later than one year from the acquisition date. Goodwill and Intangible Assets Goodwill r Goodwill represents the excess of the aggregate fair value of consideration transferred in a business combination, over the fair value of assets acquired, net of liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. We test goodwill for impairment annually on December 31 of each calendar year or more frequently if events or changes in business circumstances indicate the asset might be impaired. Goodwill is tested for impairment at the reporting unit level. In evaluating the recoverability of goodwill, we perform a qualitative analysis to determine whether events and circumstances exist that indicate that it is more likely than not that goodwill is impaired. The qualitative factors we consider include but are not limited to, macroeconomic conditions, industry and market conditions, company-specific events and changes in circumstances. We completed our annual goodwill impairment analysis in each of the years ended December 31, 2018, 2019 and 2020 and no impairment charges were recorded. As of December 31, 2020 goodwill was $372.2 million which has been assigned to the CPaaS segment. Long-Lived Assets Long-lived assets, including intangible assets with definite lives, are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. We evaluate the recoverability of our long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of long-lived assets are measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. As of December 31, 2020, intangible assets, net of accumulated amortization, were $248.1 million, which consists primarily of client relationships, client contracts and developed technology. No indicators of impairment were identified for the years ended December 31, 2018, 2019 and 2020. 82 Management(cid:182)s Discussion and Analysis Internal-Use Software Development Costs Internal-use software includes software that has been acquired, internally developed, or modified exclusively to meet the Company's needs. We capitalize qualifying internal-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its a intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post- implementation operating activities are expensed as incurred. As of December 31, 2020, software development costs, net of accumulated amortization, were $6.0 million. Capitalized costs of platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software on a straight-line basis over three years, which is recorded in cost of revenue in the statement of operations. We evaluate the useful life of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that are included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. a We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all the deferred tax asset. Quarterly, we review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, the implementation of prudent and feasible tax planning strategies, and results of recent operations. The evaluation of the recoverability of deferred tax assets requires judgment in assessing future profitability. Should there be a change in the ability to recover deferred tax assets, our income tax n provision would increase or decrease in the period in which the assessment is changed. f We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. The tax benefit recognized is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position. We recognize potential accrued interest and penalties associated with unrecognized tax positions in income tax expense. Other Contingencies We are subject to legal proceedings and litigation arising in the ordinary course of business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of any accruals recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations. a f 83 Management(cid:182)s Discussion and Analysis We conduct operations in many tax jurisdictions throughout the United States and the rest of the world. In many of these jurisdictions, non-income-based taxes and fees, such as sales and use taxes, Value Added Taxes (cid:11)(cid:179)(cid:57)(cid:36)(cid:55)(cid:180)(cid:12)(cid:15)(cid:3)(cid:87)(cid:72)(cid:79)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:11)(cid:82)(cid:85)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) with) VoIP telephony services or 911 services, are assessed or may be assessed on our operations. We are subject to indirect taxes, and may be subject to certain other taxes and surcharges in some of these jurisdictions. We generally bill and collect from our customers these taxes and surcharges. We record a liability for tax collected from customers, but not yet paid to the appropriate jurisdiction. In addition, we record a provision for non-income based taxes and fees in jurisdictions where it is both probable that liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, we have recorded a liability of $4.7 million, $5.4 million and $9.1 million as of December 31, 2018, 2019 and 2020, respectively, included in accrued expenses and other current liabilities. These estimates are based on several key assumptions, including the taxability of our services, the jurisdictions in which we believe we have nexus and the sourcing of revenue to those jurisdictions. In the event these jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates. Recently Issued Accounting Guidance (cid:54)(cid:72)(cid:72)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:3) (cid:21)(cid:15)(cid:3) (cid:179)(cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3) (cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:180)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)ents included elsewhere in this Annual Report on Form 10-K, for a summary of recently adopted accounting standards and recent accounting pronouncements not yet adopted. 84 Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to certain market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and, to a lesser extent, foreign currency rates and inflation. Interest Rate Risk Our primary exposure to market risk relates to interest rate changes. We had cash and cash equivalents of $72.2 million and other investments of $40.0 million as of December 31, 2020, which were held for working capital purposes. Our cash and cash equivalents are comprised primarily of interest bearing checking accounts, money market accounts and time deposits. Other investments consist of time deposits with original stated maturities of greater than 90 days. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Our debt is comprised in part of the Credit Facility, which had no amount outstanding as of December 31, 2020. Loans under the credit agreement governing the Credit Facility will bear interest at the highest of (i) the (cid:69)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:19)(cid:17)(cid:24)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:11)(cid:76)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:47)(cid:82)(cid:81)(cid:71)(cid:82)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:69)(cid:68)(cid:81)(cid:78)(cid:3)(cid:50)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72) plus 1.00 percent. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. aa In February 2020, we issued $400.0 million aggregate principal amount of the Convertible Notes. As the Convertible Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates. We carry the Convertible Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. Foreign Currency Risk The functional currencies of our foreign subsidiaries are the respective local currencies of the jurisdictions in which they operate, which are primarily the Euro and the British Pound. Approximately 5% of our total revenue for the year ended December 31, 2020 was generated outside the United States. The majority of our revenues and operating expenses are denominated in U.S. dollars, and therefore are not currently subject to significant foreign currency risk. Our subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non- monetary items are remeasured at historical rates. Revenue and expense accounts are remeasured at the average exchange rate in effect during the year. If there is a change in foreign currency exchange rates, the conversion of our (cid:73)(cid:82)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:182)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:86)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:74)(cid:68)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3) in other income (expense), net in our consolidated statements of operations. We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currencies result in increased revenue and operating expenses for our non-U.S. operations. Similarly, our revenue and operating expenses for our non-U.S. operations decrease if the U.S. dollar strengthens against foreign currencies. 85 Inflation We do not believe inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. n 86 Item 8. Financial Statements and Supplementary Data BANDWIDTH INC. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 88 93 94 95 96 98 100 87 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Bandwidth Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bandwidth Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an (cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3) the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 88 Description of the Matter How We Addressed the Matter in Our Audit Revenue Recognition As discussed in Note 2, the Company recognizes revenue from the sale of communications services offered through software solutions, which are generally derived from usage and monthly service fees from both the CPaaS and Other segments. Usage revenue includes voice communication (primarily driven by inbound minutes, outbound minutes and toll-free minutes) and messaging communication (driven by the number of messages) that traverse the platform and network. Revenue for these services is recognized in the period the usage occurs. Monthly service fees include the provisioning and management of phone numbers and emergency services access, which are recognized based on the quantity of phone numbers in service and the quantity of phone numbers with emergency services access during the month, respectively. The processing and recording of revenue from voice and messaging data usage is highly automated and involves capturing and pricing significant volumes of data across multiple systems. Similarly, the provisioning and management of phone numbers and emergency services access is also highly automated and involves capturing and pricing the quantity of phone numbers in service and the quantity of phone numbers with emergency services access during the month. Given the complex automated systems utilized to capture, process, and ultimately record revenue, performing procedures to audit revenue required a high degree of auditor judgment and extensive audit effort. We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the measurement and occurrence of revenue. This included involvement of audit professionals with significant experience in the use of information technology (IT) to support business operations and related controls. With the involvement of our IT professionals, we identified the significant systems used to capture and process voice usage, phone number services, emergency services access, and messaging services, and tested the IT general controls over those systems, including testing of user access and change management controls. In addition, our audit procedures included testing of other manual reconciliation controls designed to determine the accuracy and completeness of data processed and transferred across multiple platforms in connection with the recognition of revenue for voice and messaging usage, the quantity of phone numbers in service, and the quantity of phone numbers with emergency services access during the period. (cid:55)(cid:82)(cid:3) (cid:87)(cid:72)(cid:86)(cid:87)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:15)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3) (cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:87)(cid:76)(cid:70)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:72)(cid:91)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86) to evaluate the completeness and accuracy of recorded revenues, testing a sample of revenue transactions, which included evaluating the transaction price based on inspection of customer contracts and approved rate tables, as well as testing the mathematical accuracy of the recorded revenue based on the voice and messaging usage, as well as the quantity of phone numbers in service and quantity of phone numbers with emergency services access during the period. 89 Description of the Matter How We Addressed the Matter in Our Audit Business Combination As explained in Note 3 to the consolidated financial statements, on November 2, 2020 (cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:11)(cid:179)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:180)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79) estimated purchase consideration of $519.4 million. The acquisition was accounted for as a business combination. The Company recorded intangible assets from this acquisition, including customer relationships and developed technology of $148.5 million and $84.1 million, respectively. The Company used the multi-period excess earning method to estimate the preliminary fair value of the customer relationships and the relief from royalty method to estimate the preliminary fair value of the developed (cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:15)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) (cid:68)(cid:68) Auditing the Company's accounting for its acquisition of Voxbone was complex and subjective due to the significant estimation uncertainty in determining the fair value of the above identified intangible assets, which was primarily due to the sensitivity of the respective fair values to the underlying assumptions. The fair value estimate of the customer relationships intangible asset included significant assumptions in the prospective financial information (including revenue growth) and the discount rate. The fair value estimate of the developed technology intangible asset included significant assumptions in the prospective financial information (including revenue growth and royalty rate) and the discount rate. These significant assumptions for each of the identified intangible assets are forward-looking and could be affected by future economic and market conditions. We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the accounting for the acquisition. Our tests included controls over the estimation process and models to estimate the fair values of the above (cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3) (cid:68)(cid:86)(cid:3) (cid:90)(cid:72)(cid:79)(cid:79)(cid:3) (cid:68)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) valuation methodologies and significant assumptions discussed above. To test the estimated fair values of the customer relationship and developed technology intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodologies, testing the significant assumptions, and testing the completeness and accuracy of the underlying data. For example, we compared the significant assumptions in the prospective financial information, including the forecasted revenue growth rates, to current industry trends, as well as to the historical performance of the acquired business. With the assistance of our valuation specialists, we evaluated the valuation methodologies, and significant assumptions, including royalty rate and discount rates. This included understanding and validating the source information underlying the determination of the royalty rate and discount rates and testing the mathematical accuracy of the calculations. In addition, we developed a range of independent estimates for the discount rates using publicly available market data for comparable entities and comparing those to the discount rates selected by management. /s/ Ernst & Young LLP (cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:17) Raleigh, North Carolina March 1, 2021 90 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Bandwidth Inc. Opinion on Internal Control Over Financial Reporting (cid:58)(cid:72)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:3) (cid:44)(cid:81)(cid:70)(cid:17)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) criteria established in Internal Control(cid:178)Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Bandwidth Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. (cid:36)(cid:86)(cid:3) (cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:50)(cid:89)(cid:72)(cid:85)(cid:3) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86) (cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)l control over financial reporting did not (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:11)(cid:179)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:180)(cid:12)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) is included in the 2020 consolidated financial statements of the Company and constituted 3% of total assets as of December 31, 2020, and 5% of total revenue for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Voxbone. f We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, compr(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:15)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3) for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion T(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) for its assessment of the effectiveness of internal control over financial reporting included in the accompanying (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3) (cid:82)(cid:81)(cid:3) (cid:44)nternal Control Over Financial Reporting. Our responsibility is to express an (cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74) firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting (cid:36)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:76)(cid:86)(cid:3) (cid:68)(cid:3) (cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3) (cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3) (cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)able assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:17)(cid:3)(cid:36)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74) includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable (cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:81)(cid:68)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:88)(cid:86)(cid:72)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86) assets that could have a material effect on the financial statements. (cid:80)(cid:80) 91 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. r /s/ Ernst & Young LLP Raleigh, North Carolina March 1, 2021 92 BANDWIDTH INC. Consolidated Balance Sheets (In thousands, except share and per share amounts) Assets Current assets: Cash and cash equivalents Restricted cash Other investments Accounts receivable, net of allowance for doubtful accounts Prepaid expenses and other current assets Deferred costs Total current assets Property and equipment, net Operating right-of-use asset, net Intangible assets, net Deferred costs, non-current Other long-term assets Goodwill Deferred tax asset, net Total assets (cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) Current liabilities: Accounts payable Accrued expenses and other current liabilities Current portion of deferred revenue Advanced billings Operating lease liability, current Total current liabilities Other liabilities Operating lease liability, net of current portion Deferred revenue, net of current portion Deferred tax liability Convertible senior notes Total liabilities Commitments and contingencies (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:29) Preferred stock; $0.001 par value; 10,000,000 shares authorized; 0 shares issued Class A voting common stock; $0.001 par value; 100,000,000 shares authorized as of December 31, 2019 and 2020; 18,584,478 and 22,413,004 shares issued and outstanding as of December 31, 2019 and 2020, respectively Class B voting common stock, $0.001 par value; 20,000,000 shares authorized as of December 31, 2019 and 2020; 4,927,401 and 2,496,125 shares issued and outstanding as of December 31, 2019 and 2020, respectively Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) (cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) See accompany notes. 93 As of December 31, 2019 2020 $ $ $ 184,414 590 (cid:178) 30,187 9,260 2,498 226,949 41,654 21,031 6,569 1,952 1,533 6,867 34,861 341,416 4,190 27,328 5,177 4,167 4,876 45,738 (cid:178) 19,868 5,720 (cid:178) (cid:178) 71,326 (cid:178) 19 5 72,163 9,274 40,000 55,243 14,508 2,411 193,599 51,645 19,491 248,055 3,604 1,975 372,239 (cid:178) 890,608 11,665 63,065 6,515 5,429 5,515 92,189 1,707 17,202 6,386 61,005 282,196 460,685 (cid:178) 22 2 275,553 (5,528) 41 270,090 341,416 $ 451,463 (49,505) 27,941 429,923 890,608 $ $ $ $ Revenue: CPaaS revenue Other revenue Total revenue Cost of revenue: CPaaS cost of revenue Other cost of revenue Total cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Operating income (loss) Other income (expense), net Interest income (expense), net Other income (expense), net Total other income (expense) Income (loss) before income taxes Income tax benefit (provision) NNet income (loss) Earnings per share: NNet income (loss) per share: Basic Diluted Basic Diluted See accompanying notes. BANDWIDTH INC. Consolidated Statements of Operations (In thousands, except share and per share amounts) Year ended December 31, 2019 2018 2020 $ 164,415 $ 197,944 $ 39,698 204,113 94,296 13,849 108,145 34,650 232,594 110,343 14,616 124,959 298,090 45,023 343,113 160,706 24,546 185,252 95,968 107,635 157,861 20,897 20,731 47,588 89,216 31,461 35,020 58,847 125,328 42,059 40,552 88,755 171,366 6,752 (17,693) (13,505) 301 (cid:178) 301 7,053 10,870 2,446 23 2,469 (15,224) 17,718 17,923 $ 2,494 $ (13,672) (1,795) (15,467) (28,972) (15,005) (43,977) 0.96 0.85 $ $ 0.11 0.10 $ $ (1.83) (1.83) 18,573,067 21,140,382 22,640,461 23,923,777 24,092,574 24,092,574 $ $ $ 94 BANDWIDTH INC. Consolidated Statements of Comprehensive Income (Loss) (In thousands) NNet income (loss) Other comprehensive (loss) income Unrealized (loss) gain on marketable securities, net Foreign currency translation, net of income taxes Total other comprehensive (loss) income Total comprehensive income (loss) See accompanying notes. Year ended December 31, 2019 2018 2020 17,923 $ 2,494 $ (43,977) (1) (cid:178) (1) 1 41 42 (cid:178) 27,900 27,900 17,922 $ 2,536 $ (16,077) $ $ 95 l a t o T (cid:3) (cid:182) (cid:86) (cid:85) (cid:72) (cid:71) (cid:79) (cid:82) (cid:75) (cid:78) (cid:70) (cid:82) (cid:87) (cid:86) y t i u q e d e t a l u m u c c A t i c i f e d (cid:178) 7 3 (cid:178) 1 1 1 1 7 , 6 7 6 4 0 , 1 1 ) 1 ( ) 5 8 2 ( 8 2 3 , 3 3 2 9 , 7 1 0 7 7 , 8 0 1 1 9 3 , 7 4 1 ) 4 3 8 ( 7 5 3 , 7 (cid:178) ) 3 8 5 , 1 ( 1 ) 4 7 1 ( 1 1 4 6 2 6 , 6 4 9 4 , 2 0 9 0 , 0 7 2 3 5 5 , 4 0 1 ) 2 4 7 , 3 ( ) 0 2 3 , 3 4 ( ) 2 ( (cid:178) 6 7 0 , 4 ) 6 1 9 , 1 ( 0 8 3 , 6 0 1 0 0 9 , 7 2 $ ) 1 7 7 , 5 2 ( $ (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 3 2 9 , 7 1 ) 8 4 8 , 7 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) ) 4 7 1 ( 4 9 4 , 2 ) 8 2 5 , 5 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) d e t a l u m u c c A r e h t o e v i s n e h e r p m o c e m o c n i ) s s o l ( l a n o i t i d d A n i - d i a p l a t i p a c g n i t o v B s s a l C k c o t s n o m m o c g n i t o v A s s a l C k c o t s n o m m o c t n u o m A s e r a h S t n u o m A s e r a h S (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) ) 1 ( (cid:178) (cid:178) ) 1 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 1 1 4 (cid:178) (cid:178) 1 4 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 0 0 9 , 7 2 $ 5 6 4 , 2 0 1 $ 4 4 0 , 1 1 (cid:178) 7 3 (cid:178) 1 1 ) 5 8 2 ( (cid:178) 8 2 3 , 3 (cid:178) 0 0 6 , 6 1 1 8 8 3 , 7 4 1 ) 4 3 8 ( 6 5 3 , 7 (cid:178) ) 3 8 5 , 1 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 6 2 6 , 6 3 5 5 , 5 7 2 3 5 5 , 4 0 1 ) 2 4 7 , 3 ( ) 0 2 3 , 3 4 ( (cid:178) 5 7 0 , 4 ) 6 1 9 , 1 ( (cid:178) (cid:178) 9 7 3 , 6 0 1 3 1 (cid:178) (cid:178) (cid:178) ) 7 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 6 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) ) 1 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 5 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) ) 3 ( (cid:178) (cid:178) $ 5 2 7 , 0 4 4 , 3 1 (cid:178) (cid:178) (cid:178) ) 3 9 9 , 9 2 9 , 6 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 2 3 7 , 0 1 5 , 6 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) ) 1 3 3 , 3 8 5 , 1 ( (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 1 0 4 , 7 2 9 , 4 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) ) 6 7 2 , 1 3 4 , 2 ( 4 2 (cid:178) (cid:178) 7 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 3 1 3 (cid:178) 1 (cid:178) (cid:178) 2 (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 9 1 (cid:178) (cid:178) (cid:178) 1 (cid:178) (cid:178) 1 1 (cid:178) 6 9 $ 1 3 8 , 7 9 1 , 4 9 8 6 , 4 2 7 , 1 0 0 0 , 1 1 4 0 9 , 8 4 k c o t s n o m m o c e s a h c r u p o t s t n a r r a w f o e s i c r e x E 7 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B s n o i t p o k c o t s d e t s e v f o s e s i c r e x E s t i n u k c o t s d e t c i r t s e r f o g n i t s e V 3 9 9 , 9 2 9 , 6 k c o t s n o m m o c g n i t o v A s s a l C o t k c o t s n o m m o c g n i t o v B s s a l C f o n o i s r e v n o C 0 3 3 (cid:178) (cid:178) (cid:178) (cid:178) 7 4 7 , 2 1 9 , 2 1 0 0 0 , 5 7 8 , 2 (cid:178) 4 4 9 , 3 6 1 ) 6 2 0 , 6 2 ( 2 8 4 , 5 7 0 , 1 f o t e n , g n i r e f f o c i l b u p n o w o l l o f h t i w n o i t c e n n o c n i k c o t s n o m m o c f o e c n a u s s I s t n u o c s i d g n i t i r w r e d n u g n i r e f f o c i l b u p h t i w n o i t c e n n o c n i s t s o C y t i l i b a i l x a t r o f d l e h h t i w s d r a w a y t i u q E s n o i t p o k c o t s d e t s e v f o s e s i c r e x E s t i n u k c o t s d e t c i r t s e r f o g n i t s e V g n i r e f f o c i l b u p l a i t i n i h t i w n o i t c e n n o c n i s t s o C k c o t s n o m m o c g n i t o v A s s a l C f o e c n a u s s I s e i t i r u c e s e l b a t e k r a m n o s s o l d e z i l a e r n U 8 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B n o i t a s n e p m o c d e s a b k c o t S e m o c n i t e NN 1 3 3 , 3 8 5 , 1 k c o t s n o m m o c g n i t o v A s s a l C o t k c o t s n o m m o c g n i t o v B s s a l C f o n o i s r e v n o C (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) (cid:178) 4 8 0 , 3 9 5 7 6 0 , 1 6 1 ) 5 9 2 , 0 2 ( (cid:178) 4 9 3 , 3 6 6 6 7 2 , 1 3 4 , 2 8 7 4 , 4 8 5 , 8 1 6 0 6 C S A f o n o i t p o d a o t e u d s g n i n r a e d e n i a t e r g n i n e p o o t t n e m t s u j d A x a t f o t e n , s t s o c e c n a u s s i n o i t p o n o i s r e v n o c t b e D y t i l i b a i l x a t r o f d l e h h t i w s d r a w a y t i u q E e c i r p e s a h c r u p n o i t p o l l a c d e p p a C s n o i t p o k c o t s d e t s e v f o s e s i c r e x E s t i n u k c o t s d e t c i r t s e r f o g n i t s e V s e i t i r u c e s e l b a t e k r a m n o n i a g d e z i l a e r n U n o i t p o n o i s r e v n o c t b e d f o e c n a u s s I 9 1 0 2 , 1 3 r e b m e c e D t a e c n a l a B n o i t a l s n a r t y c n e r r u c n g i e r o F n o i t a s n e p m o c d e s a b k c o t S e m o c n i t e NN k c o t s n o m m o c g n i t o v A s s a l C o t k c o t s n o m m o c g n i t o v B s s a l C f o n o i s r e v n o C n o i t i s i u q c a e n o b x o V r o f n o i t a r e d i s n o c y t i u q E n o i t a l s n a r t y c n e r r u c n g i e r o F . C N I H T D I W D N A B y t i u q E (cid:182) s r e d l o h k c o t S n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C ) s t n u o m a e r a h s t p e c x e , s d n a s u o h t n I ( l a t o T (cid:3) (cid:182) (cid:86) (cid:85) (cid:72) (cid:71) (cid:79) (cid:82) (cid:75) (cid:78) (cid:70) (cid:82) (cid:87) (cid:86) y t i u q e d e t a l u m u c c A t i c i f e d d e t a l u m u c c A r e h t o e v i s n e h e r p m o c e m o c n i ) s s o l ( l a n o i t i d d A n i - d i a p l a t i p a c g n i t o v B s s a l C k c o t s n o m m o c g n i t o v A s s a l C k c o t s n o m m o c t n u o m A s e r a h S t n u o m A s e r a h S 1 8 8 , 9 ) 7 7 9 , 3 4 ( (cid:178) ) 7 7 9 , 3 4 ( (cid:178) (cid:178) (cid:178) 1 8 8 , 9 3 2 9 , 9 2 4 $ ) 5 0 5 , 9 4 ( $ 1 4 9 , 7 2 $ 3 6 4 , 1 5 4 $ (cid:178) (cid:178) 2 (cid:178) (cid:178) $ 5 2 1 , 6 9 4 , 2 (cid:178) (cid:178) 2 2 (cid:178) (cid:178) $ 4 0 0 , 3 1 4 , 2 2 0 2 0 2 , 1 3 r e b m e c e D t a e c n a l a B n o i t a s n e p m o c d e s a b k c o t S s s o l t e NN . s e t o n g n i y n a p m o c c a e e S 7 9 . C N I H T D I W D N A B y t i u q E (cid:182) s r e d l o h k c o t S n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C ) s t n u o m a e r a h s t p e c x e , s d n a s u o h t n I ( BANDWIDTH INC. Consolidated Statements of Cash Flows (In thousands) Cash flows from operating activities NNet income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Year ended December 31, 2019 2018 2020 $ 17,923 $ 2,494 $ (43,977) Depreciation and amortization Right-of-use asset amortization Accretion of bond discount Gain on sale of marketable securities Amortization of debt discount and issuance costs Stock-based compensation Deferred taxes Loss on disposal of property and equipment Changes in operating assets and liabilities: Accounts receivable, net of allowances Prepaid expenses and other assets Deferred costs Accounts payable Accrued expenses and other liabilities Deferred revenue and advanced billings Operating right-of-use liability Deferred rent NNet cash provided by (used in) operating activities Cash flows from investing activities Purchase of property and equipment Capitalized software development costs Purchase of marketable securities Proceeds from sales and maturities of marketable securities Purchase of other investments Proceeds from sales and maturities of other investments Acquisition, net of cash acquired NNet cash used in investing activities Cash flows from financing activities Payments on finance leases Payment of costs related to the initial public offering Proceeds from the follow-on public offering, net of underwriting discounts Payment of costs related to the follow-on public offering Proceeds from issuance of convertible senior notes Payment of debt issuance costs Purchase of capped call Proceeds from exercises of stock options Proceeds from exercises of warrants Value of equity awards withheld for tax liabilities NNet cash provided by financing activities 98 5,824 (cid:178) (164) (cid:178) 64 3,339 (10,833) 191 (2,784) (1,926) 243 (169) 4,826 6,019 (cid:178) 2,080 24,633 (12,419) (2,028) (35,236) 18,000 (cid:178) (cid:178) (cid:178) 9,538 4,269 (700) (4) 177 6,626 (17,502) 456 (6,178) (4,176) (69) 1,145 5,474 554 (3,357) (cid:178) (1,253) (22,215) (3,544) (68,361) 86,467 (cid:178) (cid:178) (cid:178) (31,683) (7,653) (92) (285) (cid:178) (cid:178) (cid:178) (25) (cid:178) 11,046 37 (cid:178) 10,681 (cid:178) (cid:178) 147,391 (757) (cid:178) (167) (cid:178) 7,357 (cid:178) (1,406) 152,418 16,803 4,812 (cid:178) (cid:178) 15,647 9,881 14,266 334 (18,832) (2,258) (1,565) 315 11,548 2,845 (5,301) (cid:178) 4,518 (12,273) (2,319) (cid:178) (cid:178) (230,780) 190,780 (400,493) (455,085) (28) (cid:178) (cid:178) (cid:178) 400,000 (11,990) (43,320) 4,073 (cid:178) (1,844) 346,891 BANDWIDTH INC. Consolidated Statements of Cash Flows (In thousands) Effect of exchange rate changes on cash, cash equivalents and restricted cash NNet increase (decrease) in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash, beginning of period Cash, cash equivalents, and restricted cash, end of period Supplemental disclosure of cash flow information Cash paid for interest Cash paid (refunded) for taxes $ $ $ Right-of-use assets obtained in exchange for new operating lease liabilities Property and equipment obtained in exchange for new finance lease liabilities $ $ (cid:178) 3,631 37,870 (9) 143,503 41,501 41,501 $ 185,004 $ 107 155 $ $ (cid:178) $ (cid:178) 341 (178) $ $ 4,528 $ (cid:886) $ Supplemental disclosure of noncash investing and financing activities Purchase of property and equipment, accrued but not paid Value of common stock issued in acquisition Acquisition holdback Equity awards withheld for tax liabilities, accrued but not paid Acquisition of equipment through finance leases $ $ $ $ $ 1,204 $ 1,375 $ (cid:178) $ (cid:178) $ (cid:178) $ (cid:178) $ (cid:178) $ (cid:178) $ $ 177 (cid:178) $ 109 (103,567) 185,004 81,437 579 454 3,105 462 6,043 106,379 8,595 247 113 See accompanying notes. 99 BANDWIDTH INC. Notes to Consolidated Financial Statements (In thousands, except share and per share amounts) 1. Organization and Description of Business (cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:11)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:179)(cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:12)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:21)(cid:19)(cid:19)(cid:19) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:39)(cid:72)(cid:79)(cid:68)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3) (cid:82)(cid:81)(cid:3) (cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3) (cid:21)(cid:28)(cid:15)(cid:3) (cid:21)(cid:19)(cid:19)(cid:20)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:75)(cid:72)(cid:68)(cid:71)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:53)(cid:68)(cid:79)(cid:72)(cid:76)(cid:74)(cid:75)(cid:15)(cid:3) (cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3) Carolina. The Company is an international cloud-based, software-powered communications platform-as-a-service (cid:11)(cid:179)(cid:38)(cid:51)(cid:68)(cid:68)(cid:54)(cid:180)(cid:12)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3) (cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3) (cid:86)(cid:70)(cid:68)(cid:79)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:89)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3) (cid:82)(cid:85)(cid:3) (cid:80)(cid:72)(cid:86)(cid:86)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86) 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 (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3) (cid:38)(cid:51)(cid:68)(cid:68)(cid:54)(cid:3) (cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)re application programming interfaces. Other revenue consists of fees charged for services provided such as: SIP trunking, data resale, and a hosted Voice-(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:72)(cid:87)(cid:3)(cid:51)(cid:85)(cid:82)(cid:87)(cid:82)(cid:70)(cid:82)(cid:79)(cid:3)(cid:11)(cid:179)(cid:57)(cid:82)(cid:44)(cid:51)(cid:180)(cid:12)(cid:17)(cid:3) The Other segment also includes revenue from traffic generated by other carriers, SMS registration fees and other miscellaneous product lines. 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(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:17)(cid:3) (cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3) (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:180)(cid:3) (cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:17)(cid:3) (cid:56)(cid:83)(cid:82)(cid:81)(cid:3) closing of the Transaction, Bandwidth paid cash consideration in Euros equivalent to $413,005 in US dollars, which (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:69)(cid:68)(cid:70)(cid:78)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:27)(cid:15)(cid:20)(cid:24)(cid:22)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:43)(cid:82)(cid:79)(cid:71)(cid:69)(cid:68)(cid:70)(cid:78)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:25)(cid:25)(cid:22)(cid:15)(cid:22)(cid:28)(cid:23)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:7)(cid:20)(cid:25)(cid:19)(cid:17)(cid:22)(cid:24)(cid:24) (cid:83)(cid:72)(cid:85)(cid:3) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:17)(cid:3) (cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:182)(cid:86)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:75)(cid:68)(cid:86)(cid:3) (cid:70)(cid:82)ncluded that the acquired assets and assumed liabilities of Voxbone, together with acquired processes and employees, represent a business as defined in 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Accordingly, the Transaction has been accounted for as a Business Combination, with Voxbone as a wholly owned subsidiary of Bandwidth. (cid:54)(cid:72)(cid:72)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:3) (cid:22)(cid:15)(cid:3) (cid:179)Business Combination(cid:180)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) statements, for additional details. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements and accompanying notes were prepared in accordance with (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:11)(cid:179)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:180)(cid:12)(cid:17) Reclassification The Company reclassified certain prior year amounts to conform to the current year presentation. These (cid:85)(cid:72)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:75)(cid:68)(cid:71)(cid:3)(cid:81)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:89)(cid:76)(cid:82)(cid:88)(cid:86)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17) Principles of Consolidation The consolidated financial statements include the accounts of Bandwidth Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 100 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Use of Estimates (cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86) 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 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-(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) 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, estimated cash flows on asset retirement obligation. 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. d a f Effective January 1, 2020, due to the continued growth in customers and low churn rates, the Company updated its calculation of the estimated period of benefit for nonrefundable upfront fees from 3 to 4 years. For the year ended December 31, 2020 the Company reduced total revenue by approximately $1,632 and reduced cost of revenue by approximately $859, related to the change in the estimated period of benefit. h Effective July 1, 2020, due to significant investment in software during the first half of 2020 and management's expectation that such investment would yield benefit for a longer period of time, the Company updated its estimated useful life for internal-use software development from 3 to 4 years. For the year ended December 31, 2020, the Company reduced cost of revenue by $314 and general and administrative expense by $104. Revenue Recognition Adoption of Accounting Standards Codification ((cid:179)(( ASC(cid:179) (cid:180) (cid:180)CC ) 606, (cid:179)Revenue from Contracts with Customers(cid:180) On January 1, 2019, the Company adopted the guidance of ASC 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2019. The Company(cid:182)s results for reporting periods beginning after January 1, 2019 are presented in accordance with the provisions under ASC 606 and prior period amounts have not been adjusted and continue to be reported in accordance with the Company(cid:182)s revenue recognition policy as further described in Note 2, Summary of Significant Accounting Policies, to its Annual Report on Form 10-K for the year ended December 31, 2018. In connection with the adoption of ASC 606, the Company recognized a net increase to its opening accumulated deficit of $174 as of January 1, 2019, related to a discount present in one of its contracts. Prior to the adoption of ASC 606, the Company recognized the majority of its revenue based on the usage of its customers in the period the traffic traversed the Company(cid:182)s network. The Company determined that ASC 606 continues to support the recognition of revenue over time for the majority of the Company(cid:182)s contracts due to the continuous transfer of control to the customer. The adoption of ASC 606 did not result in a change in the Company(cid:182)s accounting for its commission costs, which will continue to be expensed as incurred. The Company pays commissions over time and a corresponding requisite substantive service condition exists for the employee to receive the commission. The Company determined the timing of the commission payments and the underlying service performed by the employee were commensurate. mm The impact on the Company(cid:182)s balance sheet presentation includes separately presenting customer refundable prepayments as advanced billings, whereas under ASC 605 these were included in the current portion of deferred revenue and advanced billings. 101 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Revenue Recognition Policy Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that the Company expects to receive in exchange for those products or services. The Company determines revenue recognition through the following steps: (cid:135) (cid:135) (cid:135) (cid:135) (cid:135) identification of the contract, or contracts, with a customer; identification of the performance obligations in the contract; determination of the transaction price; allocation of the transaction price to the performance obligations in the contract; and recognition of revenue, when, or as, the Company satisfies a performance obligation. Nature of Products and Services mm Revenue consists primarily of the sale of communications services offered through Application (cid:51)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:73)(cid:68)(cid:70)(cid:72)(cid:3)(cid:11)(cid:179)(cid:36)(cid:51)(cid:44)(cid:180)(cid:12)(cid:3)(cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)ns to large enterprise, as well as small and medium-sized business, customers and is generally derived from usage and service fees in both the CPaaS and Other segments. Usage revenue includes voice communication (primarily driven by inbound minutes, outbound minutes and toll-free minutes) and messaging communication (driven by the number of messages) that traverse the platform and network. Service fees include the provision and management of phone numbers and emergency services access. The majority of the Company(cid:182)s revenue is generated from usage-based fees earned from customers accessing the Company(cid:182)s communications platform. Access to the Company(cid:182)s communication platform is considered a series of distinct services, with continuous transfer of control to the customer, comprising one performance obligation and usage-based fees are recognized in revenue in the period the traffic traverses the Company(cid:182)s network. For the years ended December 31, 2018, 2019 and 2020 the revenue from usage-based fees represented $105,481, $131,626 and $219,817 of CPaaS revenue, respectively, and $32,524, $29,012 and $40,842 of Other revenue, respectively. nn Revenue from service fees is recognized on a ratable basis as the service is provided, which is typically one month. For the years ended December 31, 2018, 2019 and 2020 the revenue from service fees represented $55,719, $61,193 and $72,256 of CPaaS revenue, respectively, and $7,174, $5,638 and $4,181 of Other revenue, respectively. The remaining $3,215, $5,125 and $6,017 of CPaaS revenue for the years ended December 31, 2018, 2019 and 2020 respectively, are generated from other miscellaneous services. (cid:44)(cid:81)(cid:73)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:15)(cid:3)(cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:41)(cid:82)(cid:85)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3) arrangements, revenues are allocated to each performance obligation based on its relative standalone selling price. Generally, standalone selling prices are determined based on the prices charged to similar customers for similar services. When required as part of providing service, revenues and associated expenses related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the longer of the associated service contract period or estimated customer life. (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3) (cid:71)(cid:82)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81) general rights of return. However, occasionally credits may be (cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3) (cid:71)(cid:82)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:68)(cid:78)(cid:72)(cid:3) (cid:83)(cid:82)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72) supporting the applications. Amounts that have been invoiced are recorded in accounts receivable and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met. (cid:87) 102 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The Company maintains a reserve for sales credits. Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience and current trends of credit issuances. Adjustments to the reserve are recorded against revenue. The Company has various sales commission plans for which eligible employees can earn commissions from the sale of products and services to customers. Eligible employees must be employed at the time of payment in order to receive a commission. The Company pays commissions over time and a corresponding requisite substantive service condition exists for the employee to receive the commission. The Company determined that the timing of the commission payments and the underlying service performed by the employee were commensurate. Accordingly, sales commissions are generally expensed as incurred. These costs are recorded within sales and marketing expenses. Contract Assets and Liabilities The following table provides information about receivables and contract liabilities from contracts with customers: Receivables (1) Contract liabilities (2) ________________________ As of December 31, 2019 2020 $ 30,187 $ 10,897 55,243 12,901 (1) Included in accounts receivable, net of allowance for doubtful accounts on the consolidated balance sheet. (2) Included in current portion of deferred revenue and deferred revenue, net of current portion on the consolidated u balance sheet. Deferred revenue is recorded when cash payments are received in advance of future usage on contracts. Revenue is typically recognized in the following month when service is rendered or, in the case of nonrefundable upfront fees, over the estimated period of benefit. Customer refundable payments are recorded as advanced billings. During the year ended December 31, 2020, the Company recognized revenue of $3,599 related to contract liabilities recorded at the beginning of the year. The Company expects to recognize $6,515 in revenue over the next twelve months related to its contract liabilities as of December 31, 2020. Cost of Revenue CPaaS cost of revenue consists primarily of fees paid to other network service providers from whom the Company buys services such as minutes of use, phone numbers, messages, porting of customer numbers, and network circuits. Cost of revenue also contains costs related to the support of the network, web services and cloud aa infrastructure, capacity planning and management, rent for network facilities, software licenses, hardware and software maintenance fees, and network engineering services. Personnel costs (including non-cash stock-based compensation expenses) associated with personnel who are responsible for the delivery of services, operation and maintenance of the communications network, customer support, as well as, third party support agreements, and depreciation and amortization of acquired technology intangibles are also recorded as cost of revenue. aa Other cost of revenue consists of amortization of capital software development costs related to platform applications supporting non-CPaaS services including circuit costs paid to third party providers, internet connectivity expenses, minutes of use, contractors, regulatory fees and surcharges, depreciation, and software and hardware maintenance fees. 103 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Operating Expenses Research and Development Research and development expenses consist primarily of personnel costs (including non-cash stock-based compensation expenses), outsourced software development and engineering services and cloud infrastructure fees for staging and development outsourced engineering services. Sales and Marketing f Sales and marketing expenses consist primarily of personnel costs, including commissions for sales employees and non-cash stock-based compensation expenses. Sales and marketing expenses also include expenditures related to advertising, marketing, brand awareness activities, sales support and professional services fees. General and Administrative General and administrative expenses consist primarily of personnel costs for support personnel and executives in accounting, finance, legal, information services, human resources and administrative functions. General and administrative expenses also include costs related to product management and reporting, data services, customer billing and collection functions, and other professional services fees, credit card processing fees, rent (cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:84)uarters in Raleigh, North Carolina and its offices worldwide, depreciation and amortization. Cash and Cash Equivalents The Company classifies all highly liquid investments with original stated maturities of three months or less from the date of purchase as cash equivalents and all highly liquid investments with original stated maturities of greater than three months from the date of purchase as current marketable securities, with the exception of time deposits which are classified as other investments. Cash deposits are primarily in financial institutions in the United States. However, cash for monthly operating costs of international operations are deposited in banks outside the nn United States. 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 (cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:80)(cid:82)(cid:81)(cid:72)(cid:92)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:53)(cid:53)(cid:36)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:53)(cid:53)(cid:36)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3) 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 (cid:179)(cid:36)(cid:180)(cid:3)(cid:11)(cid:82)(cid:85)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:12) 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 Restricted cash consists primarily of the Holdback remaining to be paid to the Selling Stockholders of Voxbone, employee withholding tax liability and employee benefits contributions not yet remitted. The Company has classified this asset as a short-term asset in order to match the expected period of restriction. 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 (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)e 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 104 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) losses related to trade accounts receivable and determined that allowances of approximately $769 and $1,203 for uncollectible accounts and customer balances that are disputed were required as of December 31, 2019 and (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:17)(cid:3) (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:3) (cid:24)(cid:15)(cid:3) (cid:179)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) financial statements, for a rollforward of the components of the allowances as of December 31, 2019 and December 31, 2020. Refer to the Recently Adopted Accounting Standard section for the adoption of ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses for discussion of financial assets measured at amortized cost, including trade receivables. The Company includes unbilled receivables in its accounts receivable balance. Generally, these receivables represent services provided to customers, which will be billed in the next billing cycle. All amounts are considered collectible and billable. As of December 31, 2019 and December 31, 2020, unbilled receivables were $16,200 and $27,692, respectively. Concentration of Credit Risk Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents, marketable securities, other investments 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, 2019, no individual customer represented (cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:19)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)ble, net of allowance for doubtful accounts. As of December 31, (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:82)(cid:81)(cid:72)(cid:3) (cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3) (cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3) (cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3) (cid:20)(cid:20)(cid:8)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3) (cid:81)(cid:72)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) allowance for doubtful accounts. For the years ended December 31, 2018, 2019 and 2020, no individual customer represented more than 10% (cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:17) Property and Equipment, net Property and equipment, net is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives of those assets as follows: Computer hardware and software Internal-use software development costs Furniture and fixtures Leasehold improvements 1 to 7 years 4 to 7 years 2 to 5 years Shorter of the estimated lease term or 4 to 7 years Maintenance and repairs are charged to expense as incurred. Deferred Costs The Company defers certain direct and incremental upfront costs related to the generation of a revenue stream or obtaining a new customer agreement. These costs include installment fees, activation and other telecommunication fees. The Company capitalizes these costs and amortizes them over the longer of the term of the customer contract or the estimated period of benefit, which is approximately four years. a Internal-Use Software Development Costs Internal-use software includes software that has been acquired, internally developed, or modified (cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:86)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)-use software development costs that are incurred during the application development stage. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and 105 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. The Company also capitalizes costs related to specific upgrades and enhancements when the expenditures will result in additional functionality, and expenses costs incurred for maintenance and minor upgrades and enhancements. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred. Capitalized costs of platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software on a straight-line basis over four to seven years. Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Debt Issuance Costs The Company incurred debt issuance costs associated with obtaining and entering into credit agreements. These costs customarily include non-refundable structuring fees, commitment fees, up-front fees and syndication expenses. The Company has a policy to defer and amortize these costs based on the effective interest method over the term of the credit agreements. Goodwill The Company reviews goodwill and indefinite-lived intangible assets at least annually, as of December 31, for possible impairment. Goodwill and indefinite-lived intangible assets are reviewed for possible impairment at an interim date if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or indefinite-lived intangible asset below its carrying value. The Company tests goodwill at the reporting unit level and has determined that it has 2-reporting units, CPaaS and Other. All Goodwill is allocated to the CPaaS reporting unit. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if a two-step impairment test is necessary. Management may choose to proceed directly to the two-step evaluation, bypassing the initial qualitative assessment. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill. If the carrying value exceeds its fair value, then the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss. The t impairment loss would be calculated by comparing the implied fair value of the goodwill to its carrying value. In calculating the implied fair value of goodwill, the fair value of the entity would be allocated to all of the other assets and liabilities based on their fair values. The excess of the fair value of the entity over the amount assigned to other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. a The Company makes assumptions regarding estimated future cash flows, discount rates, long-term growth (cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:88)(cid:81)(cid:76)(cid:87)(cid:182)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:72)-(cid:79)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:87)(cid:68)(cid:81)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:182)(cid:86)(cid:3) (cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) value. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge. As of December 31, 2019 and 2020, the Company has recorded goodwill of $6,867 and $372,239, respectively. No goodwill impairment charges were recorded for the years ended December 31, 2018, 2019 and 2020. uu Impairment of Long-Lived Assets The Company evaluates long-lived assets, including property and equipment and definite lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value. aa 106 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Business Combinations The Company uses the acquisition method of accounting for business combinations which requires the tangible and intangible assets acquired and liabilities assumed to be recorded at their respective fair market value as of the acquisition date. Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired. The fair values of the assets acquired and liabilities assumed are determined based upon the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:86)(cid:3)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)ignificant estimates and assumptions based on facts and circumstances that existed as of the acquisition date. The Company uses a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed. The measurement period ends once all information is obtained, but no later than one year from the acquisition date. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs totaled $953, $1,528 and $1,617 for the years ended December 31, 2018, 2019 and 2020, respectively, which are included in sales and marketing expenses in the accompanying consolidated statements of operations. Commissions Commissions consist of variable compensation earned by sales personnel and third-party resellers. Sales commissions associated with the acquisition of a new customer contract are paid over time, based on monthly revenues, and are recognized as sales and marketing expense in the period incurred. Stock-Based Compensation The Company accounts for stock-based compensation expense related to all stock-based awards based on the fair value of the award on the grant date. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, which is generally four years. The fair value of the restricted stock units is (cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:88)(cid:86)(cid:72)(cid:86) the Black-Scholes option pricing model, net of estimated forfeitures, to measure the fair value of its stock options. (cid:81) ff The Company has elected to estimate expected forfeitures, and, as such, the Company must also determine a forfeiture rate to calculate the stock-based compensation for awards. Through December 31, 2020, the Company recognized compensation for only the portion of options expected to vest using an estimated forfeiture rate that was derived from historical employee termination behavior. If any of the assumptions used in the Black-Scholes option f pricing model change, stock-based compensation for future options may differ materially compared to that associated with previous grants. d Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates. The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the enactment date. mm The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that it will not realize some or all the deferred tax asset. Quarterly, the Company reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the y expected timing of the reversals of existing temporary differences and the implementation of prudent and feasible tax planning strategies. The evaluation of the recoverability of deferred tax assets requires judgment in assessing future profitability. Should there be a change in the ability to recover deferred tax assets, the Co(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86) income tax provision would increase or decrease in the period in which the assessment is changed. 107 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. The tax benefit recognized is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions in income tax expense. Operating Segments Operating segments are defined as components of an enterprise for which separate financial information is (cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:80)(cid:68)(cid:78)(cid:72)(cid:85)(cid:3) (cid:11)(cid:179)(cid:38)(cid:50)(cid:39)(cid:48)(cid:180)(cid:12)(cid:3) (cid:76)(cid:81)(cid:3) (cid:71)(cid:72)(cid:70)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:75)(cid:82)(cid:90)(cid:3) (cid:87)(cid:82)(cid:3) (cid:80)(cid:68)(cid:78)(cid:72) operating decisions, allocate resources and in assessing performance. The Company has two operating segments, (cid:38)(cid:51)(cid:68)(cid:68)(cid:54)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:15)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:3) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:38)(cid:50)(cid:39)(cid:48)(cid:3) (cid:76)(cid:86)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3) (cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72) (cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:50)(cid:39)(cid:48)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72) and gross profit. The Company does not analyze discrete segment balance sheet information related to long-term assets. All other financial information is evaluated on a consolidated basis. Earnings per Share Basic earnings per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is calculated by giving effect to all potentially dilutive common stock when determining the weighted-average number of common shares outstanding. For purposes of the diluted net income (loss) per share calculation, options and warrants to purchase common stock and redeemable convertible preferred stock are considered to be potential common stock. Historically, the Company issued securities other than common stock that participated in dividends (cid:11)(cid:179)(cid:51)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:36)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:72)(cid:80)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3) stock. On November 9, 2017, the Participating Securities were converted to Class B common stock immediately prior to the IPO. 108 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Foreign currency translation The Company has foreign operations with non-USD functional currencies. The Euro and British Pound are the functional currencies for the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17) All of the assets and liabilities of these subsidiaries are converted to U.S. dollars at the exchange rate in effect at the balance sheet date, and equity accounts are carried at historical exchange rates. Revenue and expenses are translated at average exchange rates in effect duri Income and expense items are f translated at average rates for the period. The net effect of foreign currency translation adjustments is included in shareholder's equity as a component of "Accumulated other comprehensive loss" line item in the accompanying consolidated balance sheets. ng each reporting period. Foreign currency transaction gains and losses are the result of exchange rate changes during the period of f time between the consummation and cash settlement of transactions denominated in currencies other than the functional currency. Foreign currency transaction gains and losses are recognized in current period earnings as incurred. Foreign exchange gains and losses, which result from the process of remeasuring foreign currency (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:76)(cid:81)(cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3) (cid:73)(cid:88)(cid:81)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:15)(cid:3) (cid:81)(cid:72)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) consolidated statements of operations. The Company recorded $0, $9, $32 in related gains during the years ended December 31, 2018, 2019 and 2020. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2019 and December 31, 2020 because of the relatively short duration of these instruments. Marketable securities consist of U.S. treasury securities 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 a other comprehensive (loss) income. The Company minimizes its credit risk associated with investments by investing primarily in investment grade, liquid securities. The Company policy is designed to preserve capital, maintain liquidity and minimize credit risk, and the policy limits exposure to any one issuer and also establishes minimum credit ratings of approved investments. Periodic evaluations of relative credit standing of those issuers are considered in the Company's investment strategy. 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: r (cid:135) Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities; (cid:135) Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and (cid:135) Level 3. Unobservable inputs for which there is little or no market data, which requires the Company to develop its own assumptions. (cid:36)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:75)(cid:76)(cid:72)(cid:85)(cid:68)(cid:85)(cid:70)(cid:75)(cid:92)(cid:3) (cid:76)(cid:86)(cid:3) (cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72) lowest level of input that is significant to the fair value measurement. 109 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Comprehensive Income (Loss) The Company has elected to present Comprehensive Income (Loss) and its components as a separate financial statement. Comprehensive income refers to net income and other revenue, expenses, gains and losses that, (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) from the calculation of net income. Recently Adopted Accounting Standards In August 2018, the (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:11)(cid:179)(cid:41)(cid:36)(cid:54)(cid:37)(cid:180)(cid:12) issued Accounting Standards Update ((cid:179)ASU(cid:180)) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal- use software. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019. As a result of the Company(cid:182)s prospective adoption of this standard, the Company capitalized implementation costs related to cloud computing arrangements of $572 as of December 31, 2020. (cid:54)(cid:72)(cid:72)(cid:3) (cid:49)(cid:82)(cid:87)(cid:72)(cid:3) (cid:26)(cid:15)(cid:3) (cid:179)(cid:51)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:40)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:86)(cid:17) – In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company(cid:182)s financial statements. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment. The ASU removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which (cid:68)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:182)(cid:86)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:15)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79)(cid:17)(cid:3)(cid:36)(cid:54)(cid:56)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)-04 is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this (cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17) (cid:177) In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , which clarifies that receivables arising from operating leases are not within the scope – of Topic 326, Financial Instruments (cid:177) Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies how to apply certain aspects of the new credit losses standard. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amends certain effective dates for the new standard. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies how to apply certain aspects of the new credit losses standard. The accounting standard is effective for annual and interim periods beginning after December 15, 2019. The Company adopted this standard for financial assets measured at amortized cost, including trade receivables. Results for the reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of this standard did not have a material impac(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17) 110 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Recent Accounting Pronouncements Not Yet Adopted In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which is intended to address suggestions received from stakeholders on the Accounting Standards Codification and to make other incremental improvements to GAAP. The FASB's intentions for this update is to clarify the codification or correct unintended application of guidance and is not expected to result in a significant change in practice. Amendments include n removal of certain references in concept statements, simplification to wording, and the addition of all disclosure- related guidance in the disclosure sections of the codification. The amendments in this update do not change GAAP and transition guidance is primarily for entities that may have applied guidance being amended in an inconsistent manner. This update is effective for annual periods beginning after December 15, 2020, for public business entities. The Company is evaluating the effect of this update on its financial statements. In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the effect of adopting this new accounting guidance on its financial statements but does not intend to early adopt. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019- 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on its financial statements. 3. Business Combination Voxbone Acquisition On November 2, 2020, the Company completed the acquisition of Voxbone for total estimated purchase (cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:7)(cid:24)(cid:20)(cid:28)(cid:15)(cid:22)(cid:27)(cid:23)(cid:15)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71) (cid:25)(cid:25)(cid:22)(cid:15)(cid:22)(cid:28)(cid:23)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3) stock. The total estimated purchase consideration is subject to adjustment upon finalization of the net working capital adjustment. Voxbone is an international enterprise cloud communications leader with European-based communications platform and IP voice network. With a global network and extensive regulatory expertise, Voxbone is a national operator in markets around the world, with coverage across 93% of the world by GDP. The Company acquired Voxbone to accelerate its international strategy by several years, giving the company a footprint in 60+ countries. (cid:71) The purchase consideration exchanged to consummate the acquisition reflects the fair value of the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:10)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) on the final closing price of shares of Bandwidth Class A common stock prior to the effective time of the acquisition, which was $160.355 per share, determined as of October 30, 2020. 111 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Preliminary Purchase Price Allocation For purposes of accounting for the acquisition, the Company was determined to be the accounting acquirer. The Company applied the acquisition method of accounting with respect to the identifiable assets and liabilities of Voxbone, which have been measured at their estimated fair value as of the date of the business combination. (cid:40)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:69)est estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions, royalty rate, customer attrition rates, market comparables, and others, as applicable. Inputs used were generally obtained from historical data, supplemented by current and anticipated market conditions and growth rates. r The following table summarizes the preliminary allocation of purchase price to the identifiable assets (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3) net assets recorded as goodwill. Due to the timing and the magnitude of the transaction and the multi-jurisdictional nature of the net assets acquired, initial accounting for the acquisition is not complete, and further measurement period adjustments may occur in fiscal year 2021. The Company has estimated the preliminary fair value of net a assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, including the refinement of market participant assumptions and finalization of tax f returns in the pre-acquisition period. The Company will reflect measurement period adjustments in the period in which the adjustments are determined. The aggregate purchase consideration has been preliminarily allocated as follows: Purchase Price: Fair value of cash paid (1) Fair value of Bandwidth common stock issued Total purchase consideration ________________________ (1) Amount subject to adjustment upon finalization of the net working capital adjustment. Purchase Price Allocation: Cash Accounts receivable Other current assets Property and equipment Intangible assets Other non-current assets Total current liabilities Deferred tax liability Other non-current liabilities NNet identifiable assets acquired Goodwill Net assets acquired 112 Estimated fair value $ $ 413,005 106,379 519,384 Estimated fair value $ $ 4,360 5,873 3,315 3,865 232,600 3,418 (17,581) (58,149) (4,881) 172,820 346,564 519,384 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Identifiable intangible assets The estimated preliminary fair value and weighted average useful life of the Voxbone identifiable intangible assets are as follows. Developed technology Customer relationships Preliminary fair value of identifiable intangible assets Fair value $ $ 84,100 148,500 232,600 Weighted average useful life (In years) 10 15 Developed technology represents certain proprietary technology that Voxbone uses to deliver its services. Preliminary fair values were determined using a relief from royalty methodology, which estimates the cost savings generated by a company based upon the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period. r Customer relationships represent the preliminary fair value of existing relationships with the Voxbone customers. The preliminary fair value of customer relationships was determined using the Multi-Period Excess Earning Method, which involves isolating the net earnings attributable to the asset being measured based on the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. The valuation includes the valuation of the assembled workforce, using the Cost Approach, for purposes of calculating contributory asset charges to be used in the Multi-Period Excess Earning Method valuations. The economic useful life was determined based on historical customer attrition rates. The Company believes that the amounts of purchased intangible assets recorded represent the preliminary fair values of and approximates the amounts a market participant would pay for these intangible assets as of the acquisition date. The fair value of accounts receivables acquired is $5,873, with the gross contractual amount being $6,453. The Company expects $580 to be uncollectible. Goodwill r The excess of the consideration for the acquisition over the preliminary fair value of net assets acquired was recorded as goodwill. The estimated goodwill recognized is attributable primarily to expected synergies and (cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3) (cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3) (cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:74)(cid:82)(cid:82)(cid:71)(cid:90)(cid:76)(cid:79)(cid:79) created in the acquisition is not expected to be deductible for tax purposes and is subject to revision as the purchase price allocation is completed. Goodwill arising from the acquisition has been allocated to the CPaaS reporting segment. Transaction Costs The Company recognized $14,458 of acquisition related costs that were expensed in the current period. These costs consist of mainly fees for financial and legal services, due diligence services, success fees, and net loss on foreign currency exchange directly associated with cash payments in foreign currencies as instructed by SPA of h which $12,675 is included in general and administrative expenses and $1,783 is included in other income (expense), net in the consolidated statements of operations. 113 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Results of Voxbone Subsequent to the Acquisition (cid:55)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3) the year ended December 31, 2020 included revenues of $17,541 and a net loss of ($3,112), which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets. (cid:80)(cid:80) Unaudited Pro Forma Information The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Voxbone as if the acquisition had been completed on January 1, 2019. The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on January 1, 2019. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved. The unaudited pro forma information includes adjustments for the preliminary purchase price accounting impact (including, but not limited to, amortization for intangible assets, the purchase accounting effect on deferred revenue, transaction costs and related tax impacts) and the alignment of accounting policies. The pro forma results for the period ending December 31, 2020 also include the non-recurring transaction costs totaling $14,458. Revenue NNet loss attributable to common stockholders 4. Fair Value Measurements Year ended December 31, 2019 2020 (Unaudited) $ $ 297,377 (7,737) $ $ 411,830 (42,675) The carrying amounts of cash and cash equivalents, other investments, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 2019 and 2020 because of the relatively short duration of these instruments. 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 table summarizes the assets measured at fair value as of December 31, 2019 and December 31, 2020: Fair value measurements on a recurring basis December 31, 2019 Level 3 Level 2 Level 1 Total Financial assets: Cash and cash equivalents: Time deposits Total financial assets $ 25,000 75,250 $ 100,250 $ $ (cid:178) $ (cid:178) (cid:178) $ 25,000 (cid:178) $ 75,250 (cid:178) (cid:178) $ 100,250 114 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Fair value measurements on a recurring basis December 31, 2020 Level 3 Level 2 Level 1 Total Financial assets: Cash and cash equivalents: Money market account Other investments: Time deposits Total financial assets $ 57,517 $ (cid:178) $ (cid:178) $ 57,517 40,000 $ 97,517 $ (cid:178) (cid:178) $ (cid:178) (cid:178) $ 40,000 97,517 (cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:28)(cid:15)(cid:3)(cid:179)(cid:39)(cid:72)(cid:69)(cid:87)(cid:180)(cid:15) was approximately $716,250. The fair value was determined based on the closing price for the Convertible Notes on the last trading day of the reporting period and is considered as Level 2 in the fair value hierarchy. As of December 31, 2020, the fair value of the Pension Plan's assets, as further described in Note 14, (cid:179)(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72) (cid:37)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:15)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:7)(cid:21)(cid:15)(cid:27)(cid:27)(cid:21)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) is considered as Level 2 in the fair value hierarchy. The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2019 and 2020. The money market account is included in cash and cash equivalents in the consolidated balance sheets as of December 31, 2019 and December 31, 2020. During the December 31, 2018, 2019 and 2020 there were $18,000, $69,000 and $0 in maturities of marketable securities, respectively. There were no sales of marketable securities for the years ended December 31, 2018 and 2020. Proceeds and gross realized gains from sales of marketable securities were $17,467 and $4, respectively for the year ended December 31, 2019. The cost of the securities sold was based on the specific identification method and the gross realized gain is recorded as other income, net, in the consolidated statements of operations. Interest earned on marketable securities was $77, $6, and $0 for the years ended December 31, 2018, 2019 and 2020 respectively, and is recorded within other income (expense), net in the accompanying consolidated statements of operations. 5. Financial Statement Components Accounts receivable, net of allowances consist of the following: Trade accounts receivable Unbilled accounts receivable Allowance for doubtful accounts and reserve for expected credit losses Other accounts receivable Total accounts receivable, net 115 As of December 31, 2019 2020 $ 14,692 16,200 (769) 64 30,187 $ 26,504 27,692 (1,203) 2,250 55,243 $ $ Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Components of allowance for doubtful accounts and reserve for expected credit losses are as follows: AAllowance for doubtful accounts: Balance, beginning of period Charged to bad debt expense Deductions (1) Balance, end of period ________________________ Year ended December 31, 2019 2020 $ $ (906) $ (1,543) 1,680 (769) $ (769) (1,322) 888 (1,203) (1) Write off of uncollectible accounts after all collection efforts have been exhausted. Accrued expenses and other current liabilities consisted of the following: Accrued expense Accrued compensation and benefits Accrued sales, use, VAT and telecommunications related taxes Other accrued expenses Current portion of finance lease Total accrued expenses and other current liabilities 6. Right-of-Use Asset and Lease Liabilities As of December 31, 2019 2020 12,701 8,284 5,439 904 (cid:178) 27,328 $ 31,549 19,534 9,142 2,657 183 $ 63,065 $ $ In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new standard, lessees are required to recognize in the balance sheet the right-of-(cid:88)(cid:86)(cid:72)(cid:3) (cid:11)(cid:179)(cid:53)(cid:50)(cid:56)(cid:180)(cid:12)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3) (cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:81)(cid:82)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:72)(cid:85)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:179)(cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3) public float as of the end of the three months ended June 30, 2019, the ASU was adopted as of December 31, 2019 (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:71)(cid:3) to the operating leases that existed on that date using the optional alternative method on a prospective basis. Prior year comparative financial information was recast under the new standard to be presented under ASC 842. (cid:53)(cid:50)(cid:56)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)se term, and lease liabilities (cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:76)(cid:73)(cid:3)(cid:68)(cid:81)(cid:3) arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease expense attributable to lease payments is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general, and administrative expense on our consolidated statement of operations. Finance leases result in the recognition of depreciation expense, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method. Depreciation expense attributable to finance leases is included in cost of sales on our consolidated statement of operations. The Company presents the operating leases in long-term assets and current and long-term liabilities in the accompanying consolidated balance sheet as of December 31, 2020. Finance leases are reported in property and equipment, net, accrued expenses and other current liabilities, and other liabilities on the Company's consolidated balance sheet. 116 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The Company sub-leases approximately 17,073 square feet of office space to a related party, Republic Wireless, Inc. ((cid:179)Republic(cid:180) Future minimum sub-lease receipts required under the non-cancellable lease are as follows: ). t 2021 2022 As of December 31, 2020 $ $ 457 249 706 As of December 31, 2020, the Company had various leased properties in the United States and the rest of the world, with remaining lease terms of eleven months to 6 years, some of which include options to extend the leases for up to 5 years. None of the options to extend the leases are recognized in operating lease ROU assets or lease liabilities. The Company has one lease with an early-termination option, which it does not expect to exercise. The components of lease expense recorded in the consolidated statement of operations were as follows: Operating lease cost Finance lease cost: Amortization of assets Interest on lease liabilities Sublease income (1) Total net lease cost Year ended December 31, 2019 2020 5,548 $ 5,949 (cid:178) (cid:178) (643) 4,905 $ 20 2 (384) 5,587 $ $ ________________________ (cid:11)(cid:20)(cid:12)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:20)(cid:25)(cid:15)(cid:3)(cid:179)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:88)(cid:69)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17) During the years ended December 31, 2019 and 2020, short-term operating lease expense were $22 and $199, respectively. 117 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Supplemental balance sheet information related to leases was as follows: Leases Assets: Classification Operating lease assets Operating right-of-use asset, net (1) Finance lease assets Property and equipment, net (2) Total leased assets Liabilities: Current Operating Finance NNon-current Operating Finance Total lease liabilities ________________________ Operating lease liability, current Accrued expenses and other current liabilities Operating lease liability, net of current portion Other liabilities $ $ $ $ As of December 31, 2019 2020 21,031 (cid:178) 21,031 $ $ 19,491 464 19,955 4,876 $ (cid:178) 19,868 (cid:178) 24,744 5,515 183 17,202 282 $ 23,182 (1) Operating lease assets are recorded net of accumulated amortization of $4,269 and $9,083 as of December 31, 2019 and December 31, 2020, respectively. (2) Finance lease assets are recorded net of accumulated depreciation of $0 and $28 as of December 31, 2019 and December 31, 2020, respectively. Supplemental cash flow and other information related to leases was as follows: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Financing cash flows from finance leases Weighted average remaining lease term (in years) Operating leases Finance leases Weighted average discount rate Operating leases Finance leases Year ended December 31, 2019 2020 $ $ 3,357 (cid:178) 3,357 $ $ 5,301 28 5,329 4.35 (cid:178) 4.98 % (cid:178) % 3.79 2.99 4.81 % 4.00 % 118 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Maturities of operating lease liabilities were as follows: 2021 2022 2023 2024 2025 Thereafter Total lease payments Less: imputed interest Less: accrued lease incentive Total lease obligations Less: current obligations Long-term lease obligations Maturities of financing lease liabilities were as follows: 2021 2022 2023 2024 2025 Total lease payments Less: imputed interest Total lease obligations Less: current obligations Long-term lease obligations Asset Retirement Obligation As of December 31, 2020 $ $ 6,408 6,755 6,623 2,701 1,681 751 24,919 (2,202) (cid:178) 22,717 (5,515) 17,202 As of December 31, 2020 $ $ 195 146 92 55 4 492 (27) 465 (183) 282 The Company has an obligation to return one of its leased properties to its original leased condition. These cost are accrued at the present value of expected cost to settle the obligation using estimated cash flows. The cash flows are discounted at a current pre-tax rate that reflects the risk specific to the retirement liability. The estimated future cost of restoration is reviewed annually and adjusted as appropriate. As of December 31, 2020, asset retirement obligation was $240 included in other liabilities. 119 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) 7. Property and Equipment Property and equipment, net consisted of the following: Furniture and fixtures Computer and office equipment Telecommunications equipment Leasehold improvements Software Internal-use software development Automobile Total cost Less(cid:178)accumulated depreciation Total property and equipment, net As of December 31, 2019 2020 $ $ 2,373 4,627 44,324 5,263 2,018 17,952 10 76,567 (34,913) $ 41,654 $ 2,341 4,077 60,651 6,285 3,901 19,968 502 97,725 (46,080) 51,645 The Company capitalizes the costs to design software for internal use related to the development of its platform during the application development stage of the projects. The costs are primarily comprised of salaries and (cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:182)(cid:3)(cid:72)(cid:81)(cid:74)(cid:76)(cid:81)(cid:72)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:71)(cid:3)(cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3) less accumulated amortization. Amortization begins once the project is substantially complete and ready for its intended use. The Company amortizes the asset on a straight-line basis over the useful life, which is estimated to be 4 years. Costs incurred prior to the application development stage, maintenance activities or minor upgrades are expensed in the period incurred. Unamortized software development costs were approximately $5,746 and $5,957 as of December 31, 2019 and 2020, respectively. The Company capitalized $2,028, $3,612 and $2,319 of software development costs for the years ended December 31, 2018, 2019 and 2020, respectively. Amortization expense related to capitalized software development costs were $1,482, $2,024, and $1,963 for the years ended December 31, 2018, 2019 and 2020, respectively. As of December 31, 2020, unamortized implementation costs related to cloud computing arrangements are $572, of which $144 are included in prepaid expenses and other current assets and $429 are included in other long- term assets. The Company leases automobiles under leases accounted for as finance leases with expiration dates ranging from December 31, 2021 to April 30, 2025. As of December 31, 2020, cost and accumulated depreciation of the assets under finance leases recorded by the Company were $492 and $28, respectively. There were no finance leases as of December 31, 2019. The Company recognized an impairment of $158, $275, and $227 during the years ended December 31, 2018, 2019 and 2020, respectively, related to capitalized software development costs that provided no future benefit and therefore were impaired. This expense is reflected within cost of revenue in the accompanying consolidated statements of operations. 120 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The Company recognized depreciation expense, which includes amortization of capitalized software development costs, as follows: Cost of revenue Research and development Sales and marketing General and administrative Total depreciation expense 8. Goodwill and Intangible Assets Goodwill Year ended December 31, 2019 2018 2020 4,490 $ 6,583 $ 161 51 568 5,270 $ 268 112 2,055 9,018 $ 9,536 670 120 2,811 13,137 $ $ The changes in carrying amount of goodwill were as follows: Balance as of December 31, 2019 Goodwill additions related to 2020 acquisition Impact of foreign currency translation Balance as of December 31, 2020 Intangible Assets Total 6,867 346,564 18,808 372,239 $ $ Intangible assets, net consisted of the following as of December 31, 2019: Dash acquisition and other intangibles: Customer relationships Other, definite lived Licenses, indefinite lived Total intangible assets, net Gross Amount Accumulated Amortization Net Carrying Value 10,396 $ (4,591) $ 5,805 Amortization Period (Years) 20 3,933 764 15,093 $ (3,933) (cid:178) (8,524) (cid:178) 764 2 - 7 Indefinite $ 6,569 $ $ 121 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Intangible assets, net consisted of the following as of December 31, 2020: Dash acquisition and other intangibles: Customer relationships Other, definite lived Licenses, indefinite lived Total Dash acquistion and other intangible assets Voxbone acquistion: Developed technology Total Voxbone acquisition Total intangibles, net Gross Amount Accumulated Amortization Net Carrying Value $ 10,396 $ (5,111) $ 5,285 3,933 764 15,093 156,559 88,664 245,223 (3,933) (cid:178) (9,044) (1,739) (1,478) (3,217) (cid:178) 764 6,049 154,820 87,186 242,006 $ 260,316 $ (12,261) $ 248,055 Amortization Period (Years) 20 2 - 7 Indefinite 15 10 Amortization expense for definite lived intangible assets was $554, $520, $3,666 for the years ended December 31, 2018, 2019 and 2020 respectively. The remaining weighted average amortization period for definite lived intangible assets is 13 years. Future estimated amortization expense for definite lived intangible assets is as follows: 2021 2022 2023 2024 2025 Thereafter 9. Debt Revolving Loan As of December 31, 2020 $ $ 19,824 19,824 19,824 19,824 19,824 148,171 247,291 On March 1, 2019, the Company amended and restated its Credit and Security Agreement with KeyBank (cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:46)(cid:72)(cid:92)(cid:37)(cid:68)(cid:81)(cid:78)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:7)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:85)(cid:72)(cid:89)(cid:82)(cid:79)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3) up to $1,000 and limits letters of credit commitments to a maximum of $2,500. The term of the amended and restated Credit and Security Agreement is 3 years and matures on March 1, 2022. Loans under the Credit Agreement will bear interest at the highest of (i) the (cid:69)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:11)(cid:76)(cid:76)(cid:12)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:19)(cid:17)(cid:24)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (iii) the London Interbank Offered Rate plus 1.00 percent. This agreement requires that a specified minimum liquidity amount must be maintained in cash and cash equivalents at all times and that the Company meet a minimum revenue clause on a quarterly basis. On June 4, 2019, KeyBank and Pacific Western Bank entered into an Assignment and Acceptance Agreement, whereby KeyBank, as the Assignor, sold and assigned $10,000 of the Company's Revolving Credit Commitment to Pacific Western Bank, the Assignee. KeyBank retains $15,000 of the Revolving Credit Commitment. 122 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) On February 25, 2020, the Company entered into a waiver agreement with respect to its revolving loan (the (cid:179)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:41)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:180)(cid:12)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:46)(cid:72)(cid:92)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:58)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:47)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3) for consent to accommodate the issuance of the Convertible Notes and entry into the Capped Calls (as defined (cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:12)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3) (cid:90)(cid:68)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:11)(cid:179)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3) (cid:38)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3) (cid:53)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:3) (cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) Lenders to deposit an amount of funds into a controlled account, which restricted the ability to use such funds until the Credit Facility was paid in full or terminated. If the Company had failed to comply with these covenants or to make payments under its indebtedness when due, the Company would have been in default under that indebtedness, which could, in turn, have resulted in that indebtedness becoming immediately payable in full. On April 27, 2020, the First Amendment Agreement to the Credit Security Agreement was executed in which the Lenders consented to remove the cash collateral requirement and to terminate the controlled account. a As of December 31, 2019, unamortized debt issuance costs were $125, of which $70 were in included in prepaid expenses and other current assets and $55 were included in other long-term assets. As of December 31, 2020, the outstanding debt issuance costs are $83, of which $74 are included in prepaid expenses and other current assets and $9 are included in other long-term assets. As of December 31, 2019 and December 31, 2020, the Company had $0 outstanding on the Credit Facility and was in compliance with all financial and non-financial covenants for all periods presented. The available borrowing capacity under the Credit Facility was $25,000 as of December 31, 2020. Convertible Senior Notes and Capped Call Transactions On February 28, 2020, the Company issued $400,000 aggregate principal amount of 0.25% Convertible Notes due March 1, 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the ff (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:86)(cid:72)(cid:80)(cid:76)-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The Convertible Notes may bear special interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the indenture governing the Convertible Notes (the (cid:179)(cid:44)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:72)(cid:180)) or if the Convertible Notes are not freely tradeable as required by the Indenture. The Convertible Notes will mature on March 1, 2026, unless earlier repurchased, redeemed by the Company, or converted pursuant to their terms. The total net proceeds from the Convertible Notes, after deducting initial purchaser discounts, costs related to the Capped Calls, and debt issuance costs, paid by the Company, were approximately $344,722. ff Each $1 principal amount of the Convertible Notes is initially convertible into 10.9857 shares of the Company's Class A common stock, par value $0.001 per share, which is equivalent to an initial conversion price of approximately $91.03 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a make-whole fundamental change, as defined in the indenture, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or during the relevant redemption period. The Convertible Notes will be redeemable in whole or in part at the Company's option on or after March 6, 2023, but before the 40th scheduled trading day before the maturity date, at a cash redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, if the last reported sale price of the Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately before the date the redemption notices were sent; and the trading day immediately before such notices were sent. 123 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Prior to the close of business on the business day immediately preceding September 1, 2025, the Convertible Notes may be convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company's Class A common stock exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10 consecutive trading day (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:11)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:20)(cid:19)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:180)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3) $1 principal amount of Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company's Class A common stock on such trading day and the conversion rate on such trading day; (3) stock; and upon the occurrence of certain corporate events or distributions on its Class A common (4) if the Company calls such Convertible Notes for redemption. On or after September 1, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may, at their option, convert all or a portion of their Convertible Notes regardless of the foregoing conditions. During the year ended December 31, 2020, the conditional conversion feature of the Notes was triggered as the last reported sale price of the Company's Class A common stock was more than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on or after June 30, 2020 (the last trading day of the calendar quarter), and therefore the Notes were convertible, in whole or in part, at the option of the holders between July 1, 2020 through December 31, 2020. Whether the Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future. The Company continues to classify the Notes as a long-term liability in its consolidated balance sheet as of December 31, 2020, based on contractual settlement provisions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at the Company's election. It is the Company's current intent to settle the principal amount of the Convertible Notes with cash. No sinking fund is provided for the Convertible Notes. Upon the occurrence of a fundamental change (as defined in the indenture) prior to the maturity date, holders may require the Company to repurchase all or a portion of the Convertible Notes for cash at a price equal to the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Convertible Notes are the senior, unsecured obligations of the Company and are equal in right of (cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72) ated to the Convertible Notes and effectively (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:79)(cid:92)(cid:3)(cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81) (cid:86)(cid:88)(cid:69)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:69)(cid:87)(cid:72)(cid:71)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:7)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:19) Credit Facility), to the extent of the value of the collateral securing that indebtedness. The Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:17) (cid:88) (cid:71) In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $125,152 and was determined by deducting the fair 124 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) value of the liability component from the par value of the Convertible Notes. The difference represents the debt discount that is amortized to interest expense at an effective interest rate of 6.763% over the term of the Convertible Notes. The carrying amount of the equity component was $57,485 and is recorded in additional paid-in-capital. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The nn excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an annual effective interest rate of 6.907% over the contractual terms of the Convertible Notes. In accounting for the transaction costs related to the Convertible Notes, the Company allocated the total amount incurred to the liability and equity components of the Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $8,217, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the Convertible Notes. Issuance costs attributable to the (cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:22)(cid:15)(cid:26)(cid:23)(cid:21)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:17) f The net carrying amount of the liability component of the Convertible Notes was as follows: Principal Unamortized discount Unamortized debt issuance costs NNet carrying amount As of December 31, 2020 $ $ 400,000 (110,546) (7,258) 282,196 The net carrying amount of the equity component of the Convertible Notes was as follows: Proceeds allocated to the conversion options (debt discount) Issuance costs NNet carrying amount As of December 31, 2020 $ $ 125,152 (3,742) 121,410 The following table sets forth the interest expense recognized related to the Convertible Notes: Contractual interest expense Amortization of debt discount Amortization of debt issuance costs Total interest expense related to the Convertible Notes Year ended December 31, 2020 $ $ 841 14,606 959 16,406 In connection with the offering of the Convertible Notes, the Company entered into privately negotiated (cid:70)(cid:68)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3) (cid:70)(cid:68)(cid:79)(cid:79)(cid:3) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:38)(cid:68)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3) (cid:38)(cid:68)(cid:79)(cid:79)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:68)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3) (cid:38)(cid:68)(cid:79)(cid:79)(cid:86)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:81)(cid:3) (cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3) strike price of approximately $91.03 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Notes. The Capped Calls have initial cap prices of $137.40 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 4,394,276 shares of Class A common stock. The Capped Calls are generally intended to reduce or offset the potential dilution to the Class A common stock upon any conversion of the Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The Capped Calls expire on the earlier of (i) the last day on which any 125 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) convertible securities remain outstanding and (ii) March 1, 2026, subject to earlier exercise. The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including changes in law, insolvency filings, and hedging disruptions. The (cid:38)(cid:68)(cid:83)(cid:83)(cid:72)(cid:71)(cid:3)(cid:38)(cid:68)(cid:79)(cid:79)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)ity and are not accounted for as derivatives. The net cost of $43,320 incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheets. u 10. Segment and Geographic Information The Company has two reportable segments, CPaaS and Other. Segments are primarily evaluated based on revenue and gross profit. The Company does not allocate operating expenses, interest expense or income tax expense to its segments. Accordingly, the Company does not report such information. Additionally, the Chief (cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:39)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:48)(cid:68)(cid:78)(cid:72)(cid:85)(cid:3)(cid:71)(cid:82)(cid:72)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:85)(cid:72)(cid:87)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) (cid:55)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:81)(cid:82)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:76)nformation is reported. CPaaS Revenue Cost of revenue Gross profit Other Revenue Cost of revenue Gross profit Consolidated Revenue Cost of revenue Gross profit Year ended December 31, 2019 2018 2020 $ $ $ $ $ $ 164,415 94,296 70,119 39,698 13,849 25,849 204,113 108,145 95,968 $ $ $ $ $ $ 197,944 110,343 87,601 34,650 14,616 20,034 232,594 124,959 107,635 $ $ $ $ $ $ 298,090 160,706 137,384 45,023 24,546 20,477 343,113 185,252 157,861 d The Company's long-lived assets were primarily held in the United States as of December 31, 2019 and December 31, 2020. As of December 31, 2019 and December 31, 2020, long-lived assets held outside of the United States were $2,924 and $11,249, respectively. 126 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The Company generates its revenue primarily in the United States. Revenue by geographic area is detailed in the table below (which is determined based on the customer billing address): CPaaS United States International Total Other United States International Total (cid:20)(cid:20)(cid:17)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92) Preferred Stock Year ended December 31, 2019 2018 2020 $ $ $ $ 164,135 280 164,415 39,432 266 39,698 $ $ $ $ 192,506 5,438 197,944 33,664 986 34,650 $ $ $ $ 281,757 16,333 298,090 42,692 2,331 45,023 As of December 31, 2019 and December 31, 2020, the Company had authorized 10,000,000 shares of undesignated preferred stock, par value $0.001, of which no shares were issued and outstanding. Common Stock As of December 31, 2019 and December 31, 2020, the Company had authorized 100,000,000 shares of Class A common stock, par value $0.001 per share, with one vote per share and 20,000,000 shares of Class B common stock, par value $0.001 per share, with ten votes per share. As of December 31, 2019, 18,584,478 and 4,927,401 shares of Class A common stock and Class B common stock, respectively, were issued and outstanding. As of December 31, 2020, 22,413,004 and 2,496,125 shares of Class A common stock and Class B common stock, respectively, were issued and outstanding. Shares of Class B common stock are convertible into shares of Class A common stock upon the (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:81)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:90)(cid:85)(cid:76)(cid:87)(cid:87)(cid:72)(cid:81)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)er agent or a transfer by the stockholder, subject to (cid:73)(cid:73) limited exceptions for transfers for estate planning purposes. Voting Rights The holders of Class A common stock and Class B common stock have identical rights, except that holders of Class A voting common stock are entitled to one vote per share of Class A common stock and holder of Class B common stock are entitled to ten votes per share of Class B common stock. Dividends Any dividends or distributions paid or payable to the holders of shares of Class A common stock and Class B common stock shall be paid pro-rata, on an equal priority. During the years ended December 31, 2018, 2019 and 2020, no dividends were declared. (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:36)greement prohibiting the Company to pay any dividends or any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock through the term of the agreement. 127 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Reserved Shares The Company had reserved shares of Class A common stock for issuance under stock-based award agreements as follows: Stock options issued and outstanding NNonvested restricted stock units issued and outstanding Stock-based awards available for grant under the 2017 Plan 12. Stock Based Compensation 2010 Stock Option Plan As of December 31, 2019 853,399 392,351 1,310,354 2,556,104 2020 255,000 450,614 2,020,342 2,725,956 (cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:21)(cid:25)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:20)(cid:19)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:17) Eligible plan participants include employees, directors and consultants. The 2010 Plan permits the granting of incentive stock options and non-qualified stock options. public (cid:50)(cid:81)(cid:3) (cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:28)(cid:15)(cid:3) (cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:21)(cid:19)(cid:20)(cid:19)(cid:3) (cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79) offering. Accordingly, no shares are available for future issuance under the 2010 Plan. However, the 2010 Plan continues to govern the terms and conditions of the outstanding awards granted thereunder. (cid:81) 2017 Incentive Award Plan (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:80)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72) 2017 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units, and other stock or cash based (cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:79)(cid:87)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3)(cid:36)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:15)(cid:19)(cid:24)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3) A common stock were originally reserved for issuance under the 2017 Plan. These available shares automatically (cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:20)(cid:15)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:69)(cid:92)(cid:3)(cid:24)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:36)(cid:3) common stock outstanding on the final day of the immediately preceding calendar year. On January 1, 2020, the shares available for grant under the 2017 Plan were automatically increased by 929,224 shares for a total of 2,239,578. (cid:73) (cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) stock options vest based on terms of the stock option agreements, which is generally over four years. The stock options have a contractual life of ten years. (cid:53)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3)(cid:11)(cid:179)(cid:53)(cid:54)(cid:56)(cid:86)(cid:180)(cid:12)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)-based vesting condition. The compensation expense related to these awards is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period. The Company granted RSUs to its non-employee Board of Directors, some of which vested immediately while others vest 25% as of each calendar quarter immediately following the grant date. Certain RSUs awarded to executives vest over four years with 50% vesting in the first year in 12.5% increments on each calendar quarter immediately following the grant date and the remaining 50% earned over years two, three and four. Other RSUs awarded to executives and employees generally are earned over a service period of four years. 128 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Stock Options The following summarizes the stock option activity for the periods presented: Number of options outstanding Weighted- average exercise price (per share) Outstanding as of December 31, 2019 853,399 $ Granted Exercised Forfeited or cancelled Outstanding as of December 31, 2020 Options vested and exercisable at December 31, 2020 Options vested and expected to vest as of December 31, 2020 (cid:178) (593,084) (5,315) 255,000 223,883 254,826 $ $ $ 8.07 (cid:178) 6.87 10.30 10.82 9.99 10.82 Weighted- average remaining contract life (in years) Aggregate intrinsic value (in thousands) 3.41 $ 47,770 54,088 4.42 $ 36,426 4.11 4.41 $ $ 32,168 36,403 Aggregate intrinsic value is computed based on the difference between the option exercise price and the fair (cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3)(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3) price as reported on the NASDAQ Global Select Market. No options were granted for the year ended December 31, 2020. The total estimated grant date fair value of options vested was $979, $729, and $416 for the years ended December 31, 2018, 2019 and 2020, respectively. As of December 31, 2020, total unrecognized compensation cost related to all non-vested stock options was $152, which will be amortized over a weighted-average period of 0.66 years. Restricted Stock Units The following summarizes the RSU activity for the periods presented: NNonvested RSUs as of December 31, 2019 Granted Vested Forfeited or cancelled NNonvested RSUs as of December 31, 2020 Number of awards outstanding Weighted- average grant date fair value (per share) $ 392,351 234,653 (161,067) (15,323) 450,614 $ 35.22 73.86 44.42 49.21 51.58 As of December 31, 2020, total unrecognized compensation cost related to non-vested RSUs was $18,319, which will be amortized over a weighted-average period of 2.72 years. 129 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Stock-Based Compensation Expense The Company recognized total stock-based compensation expense as follows: Cost of revenue Research and development Sales and marketing General and administrative (1) Total ________________________ Year ended December 31, 2019 2018 2020 $ $ 114 555 511 2,159 3,339 $ $ 211 1,461 1,199 3,755 6,626 $ $ 208 2,118 1,525 6,030 9,881 (1) On December 21, 2018, the Company reached a separation agreement with an executive. The agreement resulted in a modification of the former employee(cid:182)s 17,725 non-vested restricted stock units, which accelerated the vesting period, resulting in the recognition of $535 of additional stock compensation expense for the year ended December 31, 2018. 13. Commitments and Contingencies Operating Leases The Company leases office space under operating lease agreements that expire over the next 6.00 years. See (cid:49)(cid:82)(cid:87)(cid:72)(cid:3)(cid:25)(cid:15)(cid:3)(cid:179)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)-of-Use Asset (cid:68)(cid:81)(cid:71)(cid:3)(cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:47)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:180)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3) the Company's operating lease commitments. Contractual Obligations On October 25, 2015, the Company entered into an agreement with a telecommunications service provider. The service agreement requires the Company to pay a monthly recurring charge beginning on January 1, 2016 associated with the services received. The service agreement is non-cancellable and contains annual minimum commitments of $1,200, to be fulfilled over five years or for as long as the Company continues to receive services from this vendor. On August 1, 2020, the Company amended the agreement to require annual minimum commitments of $600 and $300 in 2021 and 2022, respectively. In addition, as of December 31, 2020, the Company has $13,378 in other non-cancellable purchase obligations, consisting of primarily network equipment maintenance and software license contracts, of which $8,428 will be fulfilled within one year. On May 16, 2020, the Company entered into an indemnity agreement with a development company (the (cid:179)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:85)(cid:180)(cid:12)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:72)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:23)(cid:19)(cid:3)(cid:68)(cid:70)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:89)(cid:68)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:53)(cid:68)(cid:79)(cid:72)(cid:76)(cid:74)(cid:75)(cid:15)(cid:3)(cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:38)(cid:68)(cid:85)(cid:82)(cid:79)(cid:76)(cid:81)(cid:68)(cid:15) the Company intends to construct its (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3) (cid:82)(cid:90)(cid:81)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3) (cid:38)(cid:68)(cid:85)(cid:82)(cid:79)(cid:76)(cid:81)(cid:68)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:180)(cid:12)(cid:15)(cid:3) (cid:88)(cid:83)(cid:82)(cid:81)(cid:3) (cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3) office headquarters. The indemnity agreement requires the Company to reimburse the developer one-half of the predevelopment work expenses plus two-thirds of a near future amount to be incurred, to a maximum of $597, if r certain conditions are not satisfied. As of December 31, 2020, the Company expects all of the required conditions to be satisfied. (cid:88)(cid:88) (cid:50)(cid:81)(cid:3) (cid:45)(cid:88)(cid:81)(cid:72)(cid:3) (cid:20)(cid:24)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3) (cid:68)(cid:3) (cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:68)(cid:79)(cid:72)(cid:3) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:54)(cid:68)(cid:79)(cid:72)(cid:3) (cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)ng the proposed sale to Bandwidth of the approximately 40 acres of vacant land located at the southwest quadrant of Reedy Creek Road and Edwards Mill Road in Raleigh, North Carolina (the (cid:179)(cid:47)(cid:68)(cid:81)(cid:71)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:47)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:37)(cid:68)(cid:81)(cid:71)(cid:90)idth is $30,000. As part of the purchase and Sale Agreement, the Company is obligated to provide and improve parking facilities for the use by the State of NC which were previously located on the Land. The Purchase and Sale Agreement is subject to due diligence, approvals and other customary closing conditions. mm 130 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Legal Matters The Company is involved as a defendant in various lawsuits alleging that the Company failed to bill, collect and remit certain taxes and surcharges associated with the provision of 911 services pursuant to applicable laws in various jurisdictions. While the results of these legal proceedings cannot be predicted with certainty, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect o(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) financial position or results of operations. 131 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) 14. Employee Benefit Plan The Company sponsors a U.S. defined contribution 401(k), which allows eligible U.S.-based employees to defer a portion of their compensation. The Company, at its discretion, may make matching contributions. With the acquisition of Voxbone S.A. on November 1, 2020, the Company assumed sponsorship for their U.S. defined contribution 401(k). The Company also assumed sponsorship for a non-U.S. defined contribution plan for which they pay fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current or prior periods. The contributions are recognized as employee benefit expense when they are due. The Company made matching contributions for the defined contribution plans of $1,117, $1,731, uu and $2,202 for the years ended December 31, 2018, 2019 and 2020, respectively. t In addition, as a result of the acquisition of Voxbone S.A., the Company assumed sponsorship for their non- U.S. defined benefit pension plans. The liability recognized in the balance sheet in respect to these plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets. The defined benefit obligation is calculated annually by an independent actuary using the Projected Unit Credit Method. The following table summarizes information for the pension plans: Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial loss Taxes, insurance premiums and administrative expenses Acquisitions/plan mergers Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Return on plan assets Actuarial loss Employer contribution Acquisitions/plan mergers Taxes, insurance premiums and administrative expenses Fair value of plan assets at end of year Funded status, net liability As of December 31, 2020 $ $ $ $ (cid:178) 75 3 15 (9) 3,980 4,064 (cid:178) 8 2 57 2,824 (9) 2,882 1,182 (cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86) pension liability: Other liabilities 132 As of December 31, 2020 $ 1,182 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The accumulated benefit obligation for the Company's non-U.S. defined benefit pension plans was $3,450 as of December 31, 2020. The following table summarizes information for the Company's pension plans with an accumulated benefit obligation in excess of plan assets: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets As of December 31, 2020 $ 4,064 3,450 2,882 The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs arising from the services rendered by the employee and records the other components of net y periodic benefit cost in other expense, net. Pretax amounts for net periodic benefit cost and other amounts included in other comprehensive income (loss) for the defined benefit pension plans consisted of the following components: Service cost Interest cost Return on plan assets NNet periodic pension cost Changes in plan assets and benefit obligations included in other comprehensive income (loss): Change in net actuarial loss Total (before tax effect) Total recognized in net periodic benefit cost and included in other comprehensive income (loss) Year ended December 31, 2020 $ $ 75 3 (8) 70 17 17 87 The Company uses significant judgement to determine the measurement of their non-U.S. defined benefit (cid:83)(cid:72)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:182)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:68)(cid:79)(cid:70)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:85)y. The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any change in these assumptions will impact the present value of the defined benefit obligation. The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the uu pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high- quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related obligation. The other assumptions for pension obligations are based in part on market conditions. 133 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) Significant assumptions used in determining benefit obligations and net periodic benefit cost are as follows: Defined benefit obligations: Discount rate Rate of salary increase Inflation Defined benefit cost: Discount rate Rate of salary increase Rate of return on plan assets Inflation Plan Assets Year ended December 31, 2020 0.50 % 4.07 % 1.60 % 1.50 % 4.37 % 0.50 % 1.90 % The Compan(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)-U.S. defined benefit plans are insured by a third party. The investments are governed by the insurer, who oversees all investment decisions. The insurance contracts are classified as Level 2 because a portion of the underlying funds are valued using significant other observable inputs. The insurance contracts provide for a guaranteed interest credit and a profit-sharing adjustment based on the actual performance of the underlying investment assets of the insurer. The fair value of the contract is determined by the insurer based on the premiums paid by the Company plus interest credits plus the profit-sharing adjustment less benefit payments. The major categories of plan assets are as follows: Assets held by: Insurance companies (collective) Insurance companies (individual) Total Expected Cash Flows As of December 31, 2020 $ $ 2,853 29 2,882 The Company expects to contribute $341 to its non-U.S. defined benefit pension plans during 2021. 134 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The following table summarizes projected benefit payments from the Company's pension plans through 2030, including benefits attributable to estimated future service: 2021 2022 2023 2024 2025 2026-2030 15. Income Taxes As of December 31, 2020 $ $ 5 5 5 35 5 37 92 The following table presents domestic and foreign components of income (loss) before income taxes for the tax years ended December 31, 2018, 2019 and 2020: United States International Income (loss) before income taxes Year Ended December 31, 2018 2019 2020 $ $ 7,053 (cid:178) 7,053 $ $ (15,229) 5 (15,224) $ $ (25,745) (3,227) (28,972) Benefit (provision) for income taxes from operations consists of the following: Year Ended December 31, 2018 2019 2020 Current: Federal State Foreign Total Deferred: Federal State Foreign Total $ 162 $ 81 $ (125) (cid:178) 37 8,945 1,888 (cid:178) 10,833 Income tax benefit (provision) $ 10,870 $ 132 3 216 15,205 2,297 (cid:178) 17,502 17,718 $ 431 (87) (1,083) (739) (9,847) (5,176) 757 (14,266) (15,005) 135 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The following table presents a reconciliation of the statutory federal tax rate and the Company's effective tax rate for the years ended December 31, 2018, 2019 and 2020: Federal Tax Rate State Tax Rate NNon-deductible expenses Research credit Stock-based compensation Change in valuation allowance Deferred tax rate change Other Total Year Ended December 31, 2018 2019 2020 21.0 % 6.3 1.7 (13.6) (168.0) (cid:178) (0.7) (0.8) 21.0 % 3.1 (1.6) 7.2 88.6 (cid:178) (0.3) (1.6) 21.0 % 2.0 (9.2) 10.5 46.8 (123.4) 0.2 0.3 (154.1)% 116.4 % (51.8)% (cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:29) Deferred tax assets: Allowance for doubtful accounts Accrued liabilities Operating lease liabilities Deferred revenue Stock-based compensation - deferred tax asset OID Tax credits Net operating losses Other deferred tax assets Total deferred tax assets Less: valuation allowance NNet deferred tax assets Deferred tax liabilities: Property and equipment Goodwill Intangibles Operating lease assets Debt Other liability Total deferred tax liabilities NNet deferred tax asset (liability) 136 As of December 31, 2019 2020 $ 97 $ 134 2,083 6,335 1,682 2,109 (cid:178) 3,710 30,835 90 46,941 (cid:178) 46,941 5,793 855 41 5,295 (cid:178) 96 12,080 $ 34,861 $ 3,478 4,878 1,702 1,968 9,433 7,270 47,385 2,207 78,455 (37,771) 40,684 8,038 989 60,667 4,092 27,766 137 101,689 (61,005) Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) realizability of its net deferred tax assets. The Company primarily considered the historic performance of (cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:76)(cid:75)(cid:82)(cid:82)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) taxable income during the periods in which those temporary differences and carryforwards become deductible. Based on an analysis of these factors, the Company determined that in 2020 a valuation allowance against US and UK deferred tax assets was required. (cid:68)(cid:68) As of December 31, 2020, the Company had approximately $187,385 in US federal net operating loss carryforwards, $5,263 in UK loss carryforwards, and $9,653 in federal tax credits. All US federal net operating loss (cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:90)(cid:72)(cid:85)(cid:72)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:81)(cid:68)(cid:70)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:55)(cid:68)(cid:91)(cid:3) (cid:38)(cid:88)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:45)(cid:82)(cid:69)(cid:86)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3) (cid:179)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:86)(cid:88)(cid:70)(cid:75)(cid:3) (cid:71)(cid:82)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) expire, but can only be utilized to offset up to 80% of taxable income in any given year. The federal tax credits start to expire at various dates beginning in 2032. As of December 31, 2020, the Company had approximately $125,334 in state net operating loss carryforwards. If not utilized, some state net operating loss carryforwards will expire at various dates beginning in 2023. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Unrecognized tax benefits(cid:178)January 1, Gross increases(cid:178)tax positions in prior period Gross decreases(cid:178)tax positions in prior period Gross increases(cid:178)tax positions in current period Unrecognized tax benefits(cid:178)December 31, Year Ended December 31, 2019 2020 $ $ 1,046 $ (cid:178) (15) 367 1,398 $ 1,398 402 (cid:178) 614 2,414 If the $2,414 of unrecognized tax benefit is recognized, it would not impact the effective tax rate. The Company has not incurred any material tax interest or penalties with respect to income taxes in the years ended December 31, 2019 and 2020. The Company expects no material changes in the twelve months following December 31, 2020 in its uncertain tax positions. The Company files U.S. federal income tax returns as well as income tax returns in many U.S. states and foreign jurisdictions. The tax years 2017 - 2019 remain open to examination by the major jurisdictions in which the Company is subject to tax. 16. Related Parties On April 20, 2015, the Company created a wholly owned subsidiary, Republic, which was incorporated in Delaware. On November 30, 2016, the Company completed a pro-rata distribution of the common stock of Republic (cid:87)(cid:82)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72) (cid:179)(cid:54)(cid:83)(cid:76)(cid:81)-(cid:50)(cid:73)(cid:73)(cid:180)(cid:12)(cid:17)(cid:3) (cid:44)(cid:81)(cid:3) (cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:54)(cid:83)(cid:76)(cid:81)-Off on November 30, 2016, the Company and Republic entered into certain agreements in order to govern the ongoing relationships between the two companies after the Spin-Off and to provide for an orderly transition. The agreements include a Transition Services Agreement, Facilities Sharing Agreement, Tax Sharing Agreement, and Master Services Agreement. The equity holders of Bandwidth pre-initial public offering are comprised of substantially the same individuals and entities that are the equity owners of Republic. The Company has determined the equity owners of Republic are related parties of Bandwidth. The Company has certain involvement with Republic via ongoing services arrangements, with these ongoing services arrangements creating a variable interest in Republic. The Company assessed the re(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:74)(cid:88)(cid:76)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:179)(cid:57)(cid:44)(cid:40)(cid:180)(cid:12)(cid:17)(cid:3)(cid:37)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72) 137 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) investors in Republic have disproportionate voting rights, the Company concluded that Republic is a VIE, but (cid:37)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:68)(cid:85)(cid:92)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)um exposure to loss relating to this VIE is limited to amounts due under the service agreements between the Company and Republic. The Company recorded a reduction of rent expense under the Facilities Sharing Agreement of $1,005, $643, and $384 for the years ended December 31, 2018, 2019 and 2020 respectively, which is included in general and administrative expenses in the consolidated statements of operations. No amounts were due to the Company under the Facilities Sharing Agreement as of December 31, 2019 and December 31, 2020. The Tax Sharing Agreement governs rights and obligations after the Spin-Off regarding income taxes and other taxes, including tax liabilities and benefits, attributes, returns and contests. There were no amounts outstanding or payable under this agreement as of December 31, 2019 and December 31, 2020. The Master Services Agreement specifies certain wholesale telecommunications services to be provided by the Company. The agreement is cancellable at any time by either party. The Company provided telecommunication y services to Republic of $3,884, $2,602, and $2,180 for the years ended December 31, 2018, 2019 and 2020 respectively. The Company recognized such amounts as revenue in the accompanying consolidated statements of operations. As of December 31, 2019 and December 31, 2020, the Company had a receivable of $161 and $170, respectively, under the Master Services Agreement. On March 1, 2019, an amendment to the current Master Services Agreement was executed. Pursuant to the terms of the new agreement, Republic receives reduced pricing on its messaging services, effective April 1, 2019. All other terms and conditions of the existing agreement remain. On June 20, 2019, Republic executed a further amendment to the current Master Services Agreement. Pursuant to the terms of the June 20, 2019 amendment, Republic receives reduced pricing on its outbound voice services effective on June 20, 2019. Republic also executed a revenue commitment schedule on June 20, 2019. Pursuant to the revenue commitment schedule, Republic agreed to spend a minimum of $100 per month during the 11-month period commencing July 1, 2019 through May 31, 2020. There are no minimum commitments beyond May 31, 2020. Subsequent to the expiration of the 180-day IPO blackout window on May 9, 2018, Republic employees that held Bandwidth stock options began exercising their options. Upon exercise, Bandwidth withholds the employee tax amounts due from the proceeds. Bandwidth had collected on behalf of, and remitted withholding tax to, Republic of $9,213, $1,781, and $1,401 for the years ended December 31, 2018, 2019 and 2020 respectively. As of December 31, 2019 and December 31, 2020, the Company had no amounts were due to Republic. On September 30, 2019, the Company entered into a services agreement with Republic. Pursuant to the (cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:81)(cid:72)(cid:90)(cid:3) (cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:53)(cid:72)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3) (cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3) (cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3) (cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:71)(cid:3) (cid:69)(cid:92)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:3) (cid:71)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3) (cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3) September 30, 2019. The Company is compensated by Republic for these services based on costs incurred by the Company. The Company received net compensation under this agreement of $31 and $69 for the years ended December 31, 2019 and 2020, respectively, which is included in general and administrative expenses in the consolidated statements of operations. As of December 31, 2019 and December 31, 2020, the Company had a receivable of $10 and $2 under this agreement, respectively. 17. Basic and Diluted Income (Loss) per Common Share Basic net income (loss) per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by giving effect to all potential shares of common stock, including stock options and stock related to unvested restricted stock awards. 138 Notes to Condensed Consolidated Financial Statements (continued) (In thousands, except share and per share amounts) The components of basic and diluted (loss) income per share are as follows: EEarnings per share NNet income (loss) attributable to common stockholders NNet income (loss) per share: Basic Diluted Weighted Average Number of Common Shares Outstanding Year ended December 31, 2018 2019 2020 $ $ $ 17,923 0.96 0.85 $ $ $ 2,494 0.11 0.10 $ $ $ (43,977) (1.83) (1.83) Basic 18,573,067 22,640,461 Dilutive effect of stock options, restricted stock units, and warrants 2,567,315 1,283,316 Diluted 21,140,382 23,923,777 24,092,574 (cid:178) 24,092,574 There were no common share equivalents with anti-dilutive effects for the years ended December 31, 2018 and 2019. The common share equivalents with anti-dilutive effects excluded from the weighted average shares used to calculate net loss per common share were 1,728,555, which consists of 255,000 stock options, 450,614 nonvested RSUs outstanding and 1,022,941 from convertible debt conversion for the year ended December 31, 2020. 139 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 140 Item 9A. Controls and Procedures Evaluation of disclosure controls and procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the guidelines established in the Internal Control(cid:178)Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP. Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020. (cid:55)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3) (cid:57)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3)(cid:55)(cid:82)(cid:83)(cid:70)(cid:82)(cid:3) (cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:11)(cid:179)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:180)(cid:12)(cid:3) (cid:82)(cid:81)(cid:3) (cid:49)(cid:82)(cid:89)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:21)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) reporting as of (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:7)(cid:21)(cid:28)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:22)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3) (cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:22)(cid:20)(cid:15)(cid:3) (cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:57)(cid:82)(cid:91)(cid:69)(cid:82)(cid:81)(cid:72)(cid:182)(cid:86)(cid:3) (cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3) (cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:7)(cid:20)(cid:27)(cid:3) (cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3) represented 5% of the C(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3) a The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 of this Annual Report on Form 10-K. Changes in internal control over financial reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent limitation on the effectiveness of internal control The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our 141 internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting. Item 9B. Other Information. Not applicable. Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this item is incorporated by reference to our Proxy Statement relating to our 2021 Annual Meeting of Shareholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2020. m Codes of Business Conduct and Ethics Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees, which is available on our website at (https://investors.bandwidth.com/corporate- governance/governance-(cid:82)(cid:89)(cid:72)(cid:85)(cid:89)(cid:76)(cid:72)(cid:90)(cid:12)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:179)(cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:39)(cid:82)(cid:70)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:68)(cid:87)(cid:76)(cid:86)(cid:73)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of our Code of Business Conduct and Ethics and by posting such information on the website address and location specified above. Item 11. Executive Compensation The information required by this item is incorporated by reference to our Proxy Statement relating to our 2021 Annual Meeting of Shareholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters The information required by this item is incorporated by reference to our Proxy Statement relating to our 2021 Annual Meeting of Shareholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2020. m Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated by reference to our Proxy Statement relating to our 2021 Annual Meeting of Shareholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2020. m Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to our Proxy Statement relating to our 2021 Annual Meeting of Shareholders. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2020. m 142 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: 1. Financial Statements See Index to Financial Statements at Item 8 herein. 2. Financial Statement Schedules Schedules not listed above have been omitted because they are not required, required information is otherwise included. aa not applicable, or the 3. Exhibits 143 Exhibit number 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 4.5 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 Exhibit Index Description of Exhibit p Reorganization Agreement, dated as of November 30, 2016, by and between Bandwidth.com, Inc. and Republic Wireless, Inc. Share Purchase Agreement, by and between Bandwidth Inc. and Voicebox S.à r.l, Mr Itay Rosenfeld, Mr Stefaan Konings, Mr Dirk Hermans, Mr Gaetan Brichet and Stichting Administratiekantoor Voice, dated October 12, 2020. Second Amended and Restated Certificate of Incorporation. Second Amended and Restated Bylaws. (cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17) Form of Buy-Sell Agreement. (cid:39)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17) Indenture, dated February 28, 2020, between Bandwidth Inc. and Wilmington Trust, National Association Form of 0.250% Convertible Senior Notes due March 1, 2026 (included as Exhibit A to Exhibit 4.1) Form of Indemnification Agreement between Bandwidth Inc. and each of its Executive Officers and Directors. 2010 Equity Compensation Plan and forms of awards thereunder. Employment Agreement, dated as of January 1, 2015, as amended on March 9, 2017, by and between Bandwidth.com, Inc. and David A. Morken. Office Lease, by and between Venture Center LLC and Bandwidth.com, Inc., dated January 22, 2013, as amended to date. Sublease, by and between Allied Telesis Capital Corporation and Bandwidth.com, Inc., dated December 1, 2015. Facilities Sharing Agreement, by and between Bandwidth.com, Inc. and Republic Wireless, Inc., dated November 30, 2016. Transition Services Agreement, by and between Bandwidth.com, Inc. and Republic Wireless, Inc., dated November 30, 2016. Transition Services Agreement, by and between Republic Wireless, Inc. and Bandwidth.com, Inc., dated November 30, 2016. Tax Sharing Agreement, by and between Bandwidth.com, Inc. and Republic Wireless, Inc., dated November 30, 2016. Employee Matters Agreement, by and between Bandwidth.com, Inc. and Republic Wireless, Inc., dated November 30, 2016. Master Services Agreement, by and between Bandwidth.com, Inc. and Republic Wireless, Inc., dated November 30, 2016. Master Service Agreement, by and between Level 3 Communications, LLC and Bandwidth.com, Inc, dated March 14, 2008, as amended to date. Form of Conversion Lock-up Agreement between Bandwidth Inc. and the Key Holders. 2017 Incentive Award Plan, and forms of award agreements thereunder. Office Lease, by and between Keystone-Centennial II, LLC and Bandwidth.com, Inc., dated January 12, 2018. 144 Form S-1 File No. Exhibit Filing Date g 333-220945 2.1 10/13/2017 8-K 001-38285 2.1 10/13/2020 Q3 10-Q 001-38285 Q3 10-Q 001-38285 3.1 3.2 12/14/2017 12/14/2017 S-1 S-1 8-K 8-K 333-220945 4.2 10/13/2017 333-220945 4.3 10/13/2017 Filed herewith 001-38285 4.1 3/2/2020 001-38285 4.2 3/2/2020 S-1A 333-220945 10.2 10/13/2017 S-1 S-1 333-220945 10.4 10/13/2017 333-220945 10.8 10/13/2017 S-1 333-220945 10.11 10/13/2017 S-1 S-1 333-220945 10.12 10/13/2017 333-220945 10.13 10/13/2017 S-1 333-220945 10.14 10/13/2017 S-1 333-220945 10.15 10/13/2017 S-1 S-1 S-1 S-1 333-220945 10.16 10/13/2017 333-220945 10.17 10/13/2017 333-220945 10.18 10/13/2017 333-220945 10.19 10/13/2017 S-1A 333-220945 10.2 10/30/2017 S-1A 333-220945 10.21 10/30/2017 10-K 001-38285 10.22 2/26/2018 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 Office Lease, by and between WP Propco III, LLC and Bandwidth Inc., dated January 1, 2019, Venture III amendment. Office Lease, by and between WP Propco III, LLC and Bandwidth Inc., dated January 1, 2019, Venture I amendment. Credit and Security Agreement, dated as of November 4, 2016 as amended and restated as of March 1, 2019, among Bandwidth Inc., KeyBank National Association, and KeyBanc Capital Markets Inc. 10-K 001-38285 10.23 2/15/2019 10-K 001-38285 10.24 2/15/2019 8-K 001-38285 10.1 3/04/2019 Employment Agreement, dated April 10, 2019, between the Company and Jeffrey A. Hoffman. Amended Facilities Sharing Agreement, by and between Bandwidth.com, Inc. and Republic Wireless, Inc., dated May 29, 2019. 8-K 8-K 001-38285 10.1 4/12/2019 001-38285 10.1 6/3/2019 Bill of Sale, dated May 29, 2019. Assignment and Acceptance Agreement, between KeyBank National Association and Pacific Western Bank, dated June 4, 2019. Revenue Commitment Schedule, by and between Bandwidth Inc. and Republic Wireless, Inc., dated July 1, 2019. Services Agreement, by and between Bandwidth Inc. and Republic Wireless, Inc. dated September 30, 2019. Employment Agreement, dated as of December 6, 2019, by and between Bandwidth.com, Inc. and W. Christopher Matton. Employment Agreement, dated as of December 6, 2019, by and between Bandwidth.com, Inc. and Rebecca Bottorff. Employment Agreement, dated as of December 6, 2019, by and between Bandwidth.com, Inc. and Noreen Allen. Confirmation of Base Capped Call Transaction, dated February 25, 2020, between Bandwidth Inc. and Barclays Bank PLC. Confirmation of Base Capped Call Transaction, dated February 25, 2020, between Bandwidth Inc. and JPMorgan Chase Bank, National Association, New York Branch. Confirmation of Base Capped Call Transaction, dated February 25, 2020, between Bandwidth Inc. and Bank of Montreal. Confirmation of Base Capped Call Transaction, dated February 25, 2020, between Bandwidth Inc. and Morgan Stanley & Co. LLC. Confirmation of Base Capped Call Transaction, dated February 25, 2020, between Bandwidth Inc. and Goldman Sachs & Co. LLC. Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Barclays Bank PLC. Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and JPMorgan Chase Bank, National Association, New York Branch. Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Bank of Montreal. Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Morgan Stanley & Co. LLC. 145 8-K 10-Q 001-38285 001-38285 10.2 10.4 6/3/2019 8/2/2019 10-Q 001-38285 10.5 8/2/2019 10-Q 001-38285 10.1 11/7/2019 10-K 001-38285 10.29 2/21/2020 10-K 001-38285 10.30 2/21/2020 10-K 001-38285 10.31 2/21/2020 8-K 001-38285 10.1 3/2/2020 8-K 001-38285 10.2 3/2/2020 8-K 001-38285 10.3 3/2/2020 8-K 001-38285 10.4 3/2/2020 8-K 001-38285 10.5 3/2/2020 8-K 001-38285 10.6 3/2/2020 8-K 001-38285 10.7 3/2/2020 8-K 001-38285 10.8 3/2/2020 8-K 001-38285 10.9 3/2/2020 10.37 10.38 10.39 10.40 10.41 21.1 23.1 31.1 31.2 32.1* Confirmation of Additional Capped Call Transaction, dated February 26, 2020, between Bandwidth Inc. and Goldman Sachs & Co. LLC. First Amendment Agreement to the Credit and Security Agreement, dated as of November 4, 2016, as amended and restated as of March 1, 2019, with KeyBank National Association and Pacific Western Bank, dated April 27, 2020. Purchase and Sale Agreement with the State of North Carolina, dated June 15, 2020. Management Warranty Deed, by and between Bandwidth Inc. and Mr Itay Rosenfeld, Mr Stefaan Konings, Mr Dirk Hermans and Mr Gaetan Brichet, dated October 12, 2020. Registration Rights Agreement, by and between Bandwidth Inc. and Voicebox S.á r.l, dated Octonber 12, 2020. List of subsidiaries of Bandwidth Inc. Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Certificate of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 2002. 101.INS XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL Document. 101.SCH XBRL Taxonomy Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. 8-K 001-38285 10.10 3/2/2020 8-K 001-38285 10.1 4/30/2020 8-K 8-K 001-38285 10.1 6/17/2020 001-38285 10.1 10/13/2020 8-K 001-38285 10.2 10/13/2020 Filed herewith Filed herewith Filed herewith Filed herewith Furnished herewith Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith (cid:1499) The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will (cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:71)(cid:72)(cid:72)(cid:80)(cid:72)(cid:71)(cid:3)(cid:179)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:180)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:20)(cid:27)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:22)(cid:23)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87) that the registrant specifically incorporates it by reference. K Item 16. Form 10-K Summary None. 146 Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: March 1, 2021 By: /s/ David A. Morken BANDWIDTH INC. David A. Morken Chief Executive Officer (Principal Executive Officer) Date: March 1, 2021 By: /s/ Jeffrey A. Hoffman Jeffrey A. Hoffman Chief Financial Officer (Principal Accounting and Financial Officer) Date: March 1, 2021 By: /s/ John C. Murdock John C. Murdock Director Date: March 1, 2021 By: /s/ Brian D. Bailey Brian D. Bailey Director Date: March 1, 2021 By: /s/ Lukas M. Roush Lukas M. Roush Director Date: March 1, 2021 By: /s/ Douglas A. Suriano Douglas A. Suriano Director 147 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] LEADERSHIP (cid:39)(cid:68)(cid:89)(cid:76)(cid:71)(cid:3)(cid:36)(cid:17)(cid:3)(cid:48)(cid:82)(cid:85)(cid:78)(cid:72)(cid:81) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:444)(cid:70)(cid:72)(cid:85) (cid:48)(cid:68)(cid:85)(cid:76)(cid:81)(cid:68)(cid:3)(cid:38)(cid:17)(cid:3)(cid:38)(cid:68)(cid:85)(cid:85)(cid:72)(cid:78)(cid:72)(cid:85) President (cid:45)(cid:72)(cid:73)(cid:73)(cid:85)(cid:72)(cid:92)(cid:3)(cid:36)(cid:17)(cid:3)(cid:43)(cid:82)(cid:73)(cid:73)(cid:80)(cid:68)(cid:81) (cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:444)(cid:70)(cid:72)(cid:85) 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(cid:39)(cid:68)(cid:89)(cid:76)(cid:71)(cid:3)(cid:36)(cid:17)(cid:3)(cid:48)(cid:82)(cid:85)(cid:78)(cid:72)(cid:81) (cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:444)(cid:70)(cid:72)(cid:85)(cid:3) (cid:37)(cid:85)(cid:76)(cid:68)(cid:81)(cid:3)(cid:39)(cid:17)(cid:3)(cid:37)(cid:68)(cid:76)(cid:79)(cid:72)(cid:92) 1*, 2* Managing Partner, Carmichael Partners (cid:45)(cid:82)(cid:75)(cid:81)(cid:3)(cid:38)(cid:17)(cid:3)(cid:48)(cid:88)(cid:85)(cid:71)(cid:82)(cid:70)(cid:78) Former President, Bandwidth (cid:47)(cid:88)(cid:78)(cid:68)(cid:86)(cid:3)(cid:48)(cid:17)(cid:3)(cid:53)(cid:82)(cid:88)(cid:86)(cid:75) 1, 2 Managing Partner, Sovereign’s Capital (cid:39)(cid:82)(cid:88)(cid:74)(cid:79)(cid:68)(cid:86)(cid:3)(cid:36)(cid:17)(cid:3)(cid:54)(cid:88)(cid:85)(cid:76)(cid:68)(cid:81)(cid:82) 1, 2 Former Senior Vice President and General Manager, Oracle Communications 1.Audit Committee 2.Compensation Committee *Committee Chairman (cid:38)(cid:50)(cid:53)(cid:51)(cid:50)(cid:53)(cid:36)(cid:55)(cid:40)(cid:3)(cid:44)(cid:49)(cid:41)(cid:50)(cid:53)(cid:48)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49) (cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:43)(cid:72)(cid:68)(cid:71)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:86) 900 Main Campus Drive, Suite 100 Raleigh, NC 27606 (cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:3)(cid:36)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:85) American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 (cid:90)(cid:90)(cid:90)(cid:17)(cid:68)(cid:86)(cid:87)(cid:444)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:17)(cid:70)(cid:82)(cid:80) +1 718-921-8300 +1 800-937-5449 (cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80) Ernst & Young LLP 4130 Parklake Avenue, Suite 500 Raleigh, NC 27612 (cid:54)(cid:40)(cid:38)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:16)(cid:46) 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(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:444)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:444)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:71)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) the exhibits contained therein, are available without charge upon written request, directed to: (cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:3)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:39)(cid:72)(cid:83)(cid:68)(cid:85)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87) Bandwidth Inc. 900 Main Campus Drive, Suite 100 Raleigh, NC 27606 (cid:58)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:73)(cid:88)(cid:85)(cid:81)(cid:76)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:444)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3) Report on Form 10-K upon receipt of payment for our reasonable expenses in furnishing such exhibit.