Bandwidth Inc.
02/19/2026 | Press release | Distributed by Public on 02/19/2026 06:40
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
This Item generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 are not included, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 20, 2025.
Overview
A global communications transformation is underway, and we believe Bandwidth is at the center. Our mission is to develop and deliver the power to communicate. We enable innovative organizations-from startup app developers to the world's largest enterprises-to engage their end-users and deliver exceptional experiences everywhere people live, learn, work, and play. Backed by the Bandwidth Communications Cloud, our global owned-and-operated network spanning more than 65 countries reaching over 90 percent of GDP, innovative enterprises use Bandwidth's APIs to easily embed voice, messaging, emergency services, and AI capabilities into software and applications. Bandwidth was the first cloud communications provider to offer a robust selection of APIs built on our own cloud platform. Our award-winning support teams help businesses around the world transform their communications every day.
Bandwidth is strategically positioned at the intersection of enterprise communications and AI. As global enterprises adopt AI-driven tools to modernize customer experiences, we believe AI voice will become a critical new layer of value creation. Our Maestro™ platform and Communications Cloud are designed to support this evolution, enabling the orchestration of AI voice agents across diverse environments with superior quality, reliability, and scale. We see our emerging leadership in AI Voice as a natural extension of our long-term strategy to power trusted, mission-critical communications for the world's largest enterprises.
Bandwidth's business continues to benefit from the application of AI technologies to cloud communications use cases, the enterprise migration to the cloud, adoption of CCaaS platforms, the need to be able to work from anywhere, the reinvention of customer experience, and the growth in messaging applications to engage directly with consumers. We believe these market trends are secular, long-lasting, and still early in the adoption curve.
With the combination of our software APIs, our global Communications Cloud, our AI orchestration capabilities, and our broad range of experience with global regulatory frameworks, we believe Bandwidth is one of the best-positioned providers in our space to deliver mission-critical communications for global enterprises. In fact, Bandwidth already powers all the 2025 GartnerⓇMagic Quadrant Leaders in the key cloud communications categories of UCaaS and CCaaS, along with leading hyperscalers and SaaS platforms.
We aim to be the key enabling platform for communications transformation in the AI era. We will seek to do this in three ways: (1) cross-sell and up-sell our existing customers as they benefit from our global footprint, powerful APIs, and AI orchestration capabilities to automate and scale cloud communications; (2) focus on direct-to-enterprise growth to serve Global 2000 enterprises that directly leverage Bandwidth services to accelerate their digital transformations, and (3) be the preferred provider for enterprises and SaaS platforms that use conversational voice and messaging to create digital engagements that enhance the customer experience. These three strategies are the foundation of the durable business we seek to build.
Management's Discussion and Analysis
For the years ended December 31, 2025, 2024 and 2023, total revenue was $754 million, $748 million and $601 million, respectively, representing an increase of 1% in 2025 and an increase of 25% in 2024. Net loss in 2025, 2024, and 2023was $13 million, $7 million, and $16 million, respectively.
Repurchase of 2026 Convertible Notes
During February 2025, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2026 Convertible Notes (the "2025 Repurchases") to repurchase approximately $27 million aggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $26 million.The 2025 Repurchases closed on February 24, 2025. Following the 2025 Repurchases and previous repurchases of the 2026 Convertible Notes, approximately $8 million aggregate principal amount of the 2026 Convertible Notes remains outstanding.
The difference between the consideration used for the 2025 Repurchases and the carrying value of the 2026 Convertible Notes resulted in a gain of $1 million recorded within net gain on extinguishment of debt on our consolidated statements of operations for the year ended December 31, 2025.
Key Performance Indicator
We monitor the following key performance indicator to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Net Retention Rate
We believe net retention rate is useful in evaluating our business. For the years ended December 31, 2025, 2024 and 2023, our net retention rate was 98%, 122% and 101%, respectively. Our net retention rate in 2024 benefited from higher volumes of political messaging driven by the U.S. presidential election in November 2024. The lower net retention rate in 2023 and 2025 was primarily driven by lower political messaging revenue following the conclusion of the 2022 and 2024 U.S. election cycles.
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 generated revenue and seek to increase their use of our platform. We track our performance in this area by measuring the net retention rate for our customers who generate revenue. To calculate the net retention rate, we first identify the cohort of customers that generated revenue in the same quarter of the prior year. The net retention rate is obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. The net retention rate reported in a quarter is then obtained by averaging the result from that quarter, by the corresponding results from each of the prior three quarters. Customers of acquired businesses are included in the subsequent year's calendar quarter of acquisition. Our 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 net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions.
As our customers grow their businesses and increase usage 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 revenue in a quarterly reporting period) that has created a new customer, this new customer is tied to, and revenue from this new customer is included with, the original customer for the purposes of calculating this metric.
Management's Discussion and Analysis
Key Components of Statements of Operations
Revenue
Cloud communications revenue is derived from (i) reoccurring sources such as per minute voice usage and voice calling, per text message usage and other usage services and fees, and (ii) monthly recurring charges arising from phone number services, 911-enabled phone number services, messaging services and other services. Messaging surcharge revenue is derived from fees imposed by certain carriers within the messaging ecosystem, which are subsequently invoiced and passed through to customers.
For the years ended December 31, 2025, 2024 and 2023, we generated 74%, 74%, and 72%, respectively, of our cloud communications revenue from reoccurring sources. The large bulk of our remaining cloud communications revenue is generated from recurring monthly charges.
We recognize accounts receivable at the time the customer is invoiced. Additionally, we record a receivable for unbilled revenue if services have been delivered and are billable in subsequent periods. Unbilled revenue made up 63%, 54%, and 56% of outstanding accounts receivable, net of allowances, as of December 31, 2025, 2024 and 2023, respectively.
Cost of Revenue and Gross Margin
Cost of revenue consists of fees paid to other network service providers, network operations costs, personnel costs, allocated costs of facilities and information technology, amortization of acquired technology intangibles and depreciation.
Fees paid to other network service providers arise when we purchase services such as minutes of use, phone numbers, messages, porting of customer numbers and network circuits.
Network operations costs are incurred for web services and cloud infrastructure, capacity planning and management, software licenses, hardware and software maintenance fees, customer support and network-related facility rents.
Personnel costs (including non-cash stock-based compensation expenses) arise for employees who are responsible for the delivery of services and the operations and maintenance of the communications network.
Gross margin is calculated by subtracting cost of revenue from revenue, divided by 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, changes to the mix or amount of personnel-related costs included in our cost of revenue, the product mix of revenue, the timing of amortization of capitalized software development costs and fluctuations in the price we charge our customers for services.
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 driven by the growth in our business.
Research and Development
Research and development expenses consist of salaries and related personnel costs for the design, development, testing and enhancement of our cloud network and software products. Research and development expenses include depreciation and allocated costs of facilities and information technology utilized by our research and development staff.
Management's Discussion and Analysis
Sales and Marketing
Sales and marketing expenses consist of salaries and related personnel costs, commissions, and costs related to advertising, marketing, brand awareness activities, sales support and professional services fees, and customer billing and collections functions. Sales and marketing expenses include depreciation, amortization of acquired customer relationship intangible assets, and allocated costs of facilities and information technology utilized by our sales and marketing staff.
General and Administrative
General and administrative expenses consist of salaries and related personnel costs for accounting, legal, human resources, corporate, and other administrative and compliance functions. General and administrative expenses include depreciation, expenditures for third party professional services, and allocated costs of facilities and information technology utilized by our corporate and administrative staff.
Income Taxes
For the years ended December 31, 2025, 2024 and 2023, our effective tax rate was 22.2%, 27.1%, and 15.3%, respectively. For the years ended December 31, 2025, 2024 and 2023, our income tax benefit was $4 million, $2 million, and $3 million, respectively. The increase in the income tax benefit from 2024 to 2025 is primarily due to favorable U.S. federal and state tax law changes as a result of the One Big Beautiful Bill Act ("OBBBA").
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, 2025, we continue to maintain a valuation allowance against our U.S. federal and state net deferred tax assets.
Management's Discussion and Analysis
Results of Operations
The following table sets forth selected consolidatedstatements of operations data for the periods indicated.
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Revenue | $ | 753,817 | $ | 748,487 | $ | 601,117 | |||||||||||
| Cost of revenue | 458,766 | 468,529 | 364,960 | ||||||||||||||
| Gross profit | 295,051 | 279,958 | 236,157 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 132,517 | 118,627 | 104,188 | ||||||||||||||
| Sales and marketing | 101,683 | 109,698 | 102,063 | ||||||||||||||
| General and administrative | 75,220 | 71,692 | 65,363 | ||||||||||||||
| Total operating expenses | 309,420 | 300,017 | 271,614 | ||||||||||||||
| Operating loss | (14,369) | (20,059) | (35,457) | ||||||||||||||
| Other (expense) income, net: | |||||||||||||||||
| Net gain on extinguishment of debt | 1,082 | 10,267 | 12,767 | ||||||||||||||
| Gain on business interruption insurance recoveries | - | - | 4,000 | ||||||||||||||
| Interest expense, net | (2,028) | (1,861) | (808) | ||||||||||||||
| Other (expense) income, net | (1,276) | 2,700 | 195 | ||||||||||||||
| Total other (expense) income, net | (2,222) | 11,106 | 16,154 | ||||||||||||||
| Loss before income taxes | (16,591) | (8,953) | (19,303) | ||||||||||||||
| Income tax benefit | 3,679 | 2,429 | 2,960 | ||||||||||||||
| Net loss | $ | (12,912) | $ | (6,524) | $ | (16,343) | |||||||||||
The following table sets forth selected consolidatedstatements of operations dataas a percentage of our total revenue for the periods presented. *
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | |||||||||||
| Cost of revenue | 61 | % | 63 | % | 61 | % | |||||||||||
| Gross profit | 39 | % | 37 | % | 39 | % | |||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 18 | % | 16 | % | 17 | % | |||||||||||
| Sales and marketing | 13 | % | 15 | % | 17 | % | |||||||||||
| General and administrative | 10 | % | 10 | % | 11 | % | |||||||||||
| Total operating expenses | 41 | % | 40 | % | 45 | % | |||||||||||
| Operating loss | (2) | % | (3) | % | (6) | % | |||||||||||
| Other (expense) income, net: | |||||||||||||||||
| Net gain on extinguishment of debt | - | % | 1 | % | 2 | % | |||||||||||
| Gain on business interruption insurance recoveries | - | % | - | % | 1 | % | |||||||||||
| Interest expense, net | - | % | - | % | - | % | |||||||||||
| Other (expense) income, net | - | % | - | % | - | % | |||||||||||
| Total other (expense) income, net | - | % | 1 | % | 3 | % | |||||||||||
| Loss before income taxes | (2) | % | (1) | % | (3) | % | |||||||||||
| Income tax benefit | - | % | - | % | - | % | |||||||||||
| Net loss | (2) | % | (1) | % | (3) | % | |||||||||||
(*) Columns may not foot due to rounding.
Management's Discussion and Analysis
Comparison of the Years Ended December 31, 2025 and 2024
Revenue
| Year ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cloud communications | $ | 561,379 | $ | 539,753 | $ | 21,626 | 4 | % | |||||||||||||||
| Messaging surcharges | 192,438 | 208,734 | (16,296) | (8) | % | ||||||||||||||||||
| Revenue | $ | 753,817 | $ | 748,487 | $ | 5,330 | 1 | % | |||||||||||||||
In 2025, our cloud communications revenue increased by $22 million, or 4%, compared with the same period in 2024. Within cloud communications revenue, our Global Voice Plans revenue grew by 8% and was driven by higher voice traffic on our network. Our Programmable Messaging revenue decreased by 13% largely from lower political messaging activity following the U.S. presidential election in November 2024. Our Enterprise Voice revenue grew by 21%, reflecting strong momentum as our Maestro platform's flexibility and vendor-agnostic UCaaS/CCaaS strategy continues to attract new customers.
In 2025, our messaging surcharges revenue decreased by $16 million, or8%, compared with the same period in 2024. This decline was primarily driven by lower political messaging activity following the U.S. presidential election in November 2024.
In 2025, our average annual customer revenue was $0.2 million, which increased by 3% compared with the same period in 2024, as a result of our strategy to attract and retain larger customers who provide revenue scale and enhanced profitability.
Cost of Revenue and Gross Margin
| Year ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 458,766 | $ | 468,529 | $ | (9,763) | (2) | % | |||||||||||||||
| Gross profit | $ | 295,051 | $ | 279,958 | $ | 15,093 | 5 | % | |||||||||||||||
| Total gross margin | 39 | % | 37 | % | |||||||||||||||||||
In 2025, total cost of revenue decreased by $10 million, compared with the same period in 2024, driven by lower messaging cost of revenue of $14 million from less political messaging following the 2024 U.S. presidential election. The combination of changes in total revenue and total cost of revenue yielded an increase in total gross profit of $15 million, or 5%from the same period in 2024, driven by ongoing efficiencies and improved unit economics as we successfully scale larger volumes of voice traffic on our network.
Our total gross margin percentage of 39% increased by 2%, compared with the same period in 2024, driven by lower pass-through messaging surcharges within the total revenue mix.
Management's Discussion and Analysis
Operating Expenses
| Year ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 132,517 | $ | 118,627 | $ | 13,890 | 12 | % | |||||||||||||||
| Sales and marketing | 101,683 | 109,698 | (8,015) | (7) | % | ||||||||||||||||||
| General and administrative | 75,220 | 71,692 | 3,528 | 5 | % | ||||||||||||||||||
| Total operating expenses | $ | 309,420 | $ | 300,017 | $ | 9,403 | 3 | % | |||||||||||||||
As a percentage of revenue, total operating expenses for the years ended December 31, 2025 and December 31, 2024were 41% and 40%, respectively.
In 2025,research and development expenses increasedby $14 million, or 12%, compared with the same period in 2024. Our continued investment in evolving our network infrastructure was the key driver behind this increase.
In 2025,sales and marketing expenses decreasedby $8 million, or 7%, compared with the same period in 2024, primarily due to lower headcount expenses from our resource optimization efforts.
In 2025,general and administrative expenses increasedby $4 million, or 5%, compared with the same period in 2024, driven largely by expanded headcount forday-to-day business support activities.
Interest Expense, Net
In 2025, interest expense, net of interest income increased by less than $1 millioncompared with the same period in 2024, primarily from an increase in interest expense resulting from a draw on our Credit Facility to partially fund the 2025 Repurchases in February 2025 that slightly outpaced interest income from cash.
Income Tax Benefit
In 2025,we recognized an income tax benefit of $4 million, an increase of $1 million compared with the same period in 2024. The resulting effective tax rate for the year ended December 31, 2025 was 22.2%, compared with 27.1% in 2024. The increase in income tax benefit was primarily due to favorable U.S. federal and state tax law changes as a result of the OBBBA.
For the years ended December 31, 2025 and 2024, the effective tax rate of 22.2% and 27.1% differed from the federal statutory rate of 21% in the U.S. primarily due to the valuation allowance recorded against our U.S. federal and state net deferred tax assets, as well as differences in statutory income tax rates across foreign jurisdictions.
We continue to expect recurring changes to the valuation allowance as deferred tax assets within the U.S. increase or decrease in subsequent periods. We will maintain a valuation allowance against all U.S. federal and state deferred tax assets until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized.
Management's Discussion and Analysis
Liquidity and Capital Resources
Our liquidity is provided by our cash flow from operations less expenditures for capital equipment, and supplemented by financing activities from time to time. Our cash flow from operations is driven by monthly payments from customers for communication services consumed during the period. Our primary uses of cash include operating costs, such as fees paid to other network service providers, network operations costs, personnel costs and facility expenses, as well as the purchase of property, plant and equipment to support growth on our communications platform. As of December 31, 2025, we had cash and cash equivalents of $103 million and marketable securities of $8 million.
In August 2023, we entered into a credit agreement (as amended to date, the "Credit Agreement"), among the Company, as borrower, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer, which provides for a $150 million revolving credit facility (the "Credit Facility"). As of December 31, 2025, we had no outstanding borrowings under the Credit Facility and the available borrowing capacity was $150 million. See Note 7, "Debt," to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding the Credit Agreement, including a summary of the current terms of the Credit Facility.
During February 2025, we repurchased approximately $27 millionaggregate principal amount of the 2026 Convertible Notes for an aggregate cash price of approximately $26 million. Following the 2025 Repurchases and previous repurchases, approximately $8 millionaggregate principal amount of the 2026 Convertible Notes remains outstanding. We may, at any time and from time to time, seek to retire or purchase our 2026 Convertible Notes or 2028 Convertible Notes through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
We believe that our cash, cash equivalents and marketable securities balances, 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 of available funds will depend on many factors, including those set forth in the section titled "Risk Factors." We 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.
Our principal future commitments consist of (i) an aggregate of$258 millionin Convertible Notes, (ii) $452 million in future minimum rent payments for our current office space, including a $445 million non-cancelable lease for ourcorporate headquarters, which commenced in the third quarter of 2023 and which will continue for an initial twenty (20) year term, and (iii) $24 million in non-cancelable purchase obligations and future minimum payments under contracts to various service providers. For additional information on these future contractual obligations, see Note 7, "Debt," andNote 11, "Commitments and Contingencies,"to the consolidatedfinancial statements included elsewhere in this Annual Report on Form 10-K.
Management's Discussion and Analysis
Cash Flows
The table below summarizes our cash flow information for the periods presented:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net cash provided by operating activities | $ | 89,491 | $ | 83,883 | $ | 39,001 | |||||||||||
| Net cash (used in) provided by investing activities | (39,057) | (1,442) | 30,849 | ||||||||||||||
| Net cash used in financing activities | (29,068) | (131,273) | (52,775) | ||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (440) | (1,241) | 610 | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 20,926 | $ | (50,073) | $ | 17,685 | |||||||||||
Cash Flows from Operating Activities
In 2025, net cash provided by operating activities was $89 million and was generated by our aggregate results of $95 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-basedcompensation, deferred taxes and other, net gain on extinguishment of debt and (2) a $5 million cash outflow, primarily from lower operating liabilities and higher operating assets. Within operating liabilities, net cash provided of less than $1 million was driven by $13 million of cash generated from increases in accounts payable, partially offset by $11 million of cash from decreases in accrued expenses and other liabilities, largely from the timing of year-end payments and changes in the operating right-of-use liability of $2 million. Within operating assets, the net cash used of $6 million was primarily driven by higher unbilled receivables balances of $4 millionfrom higher usage amounts in the last month of the quarter ended December 31, 2025 and changes in prepaid expenses and other current assets of $2 million.
In 2024, net cash provided by operating activities was $84 million and was generated by our aggregate results of $81 million during the period, net of (1) non-cash items comprising depreciation and amortization, non-cash reduction to the right-of-use asset, amortization of debt discount and issuance costs, stock-basedcompensation, deferred taxes and other, gain on sale of intangible asset, net gain on extinguishment of debt and (2) a $3 millioncash inflow from higher operating liabilities and lower operating assets. Within operating liabilities, the net cash provided as a result of higher accrued expenses and other liabilities of $18 millionduring 2024 was primarily driven by timing of incurred expenses, which was partially offset with our operating right-of use-liability of $6 million. Within operating assets, the net cash used as a result of higher accounts receivable of $9 millionduring 2024 was driven by higher unbilled receivables balances, primarily from higher messaging sales.
Cash Flows from Investing Activities
In 2025, net cash used in investing activities was $39 million. Cash used in investing activities was primarily driven by (1) cash used for the purchase of property, plant and equipment of $22 millionand cash used for capitalized software development costs of $11 million, driven by investments in the communications platform, and (2) cash used for purchases of marketable securities, net of maturities, of $6 millionfrom diversifying into higher yielding investments.
In 2024 net cash used in investing activities was $1 million. Cash used in investing activities was primarily driven by (1) cash used for the purchase of property, plant and equipment of $14 million and cash used for capitalized software development costs of $11 million, driven by investments in the communications platform, (2) cash provided by the maturities of marketable securities, net of purchases, of $19 million to partially fund the 2024 Repurchases and (3) net cash provided by the refund of construction in progress deposits of $3 million related to the completion of construction for our Raleigh, NC headquarters.
Management's Discussion and Analysis
Cash Flows from Financing Activities
In 2025,net cash used in financing activities was $29 million, consisting primarily of $26 millionof cash used tocomplete the 2025 Repurchases.
In 2024,net cash used in financing activities was $131 million, consisting primarily of $129 million of cash used tocomplete the 2024 Repurchases.
Management's Discussion and Analysis
Non-GAAP Financial Measures
We use Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP net income, 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, 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 with our various service offerings as more fully described under the caption "Key Components of Statements of Operations-Cost of Revenue and Gross Margin."
We calculate Non-GAAP gross margin by dividing Non-GAAP gross profit by cloud communications revenue.
In our calculation of Non-GAAP gross profit and Non-GAAP gross margin, we eliminate the impact of depreciation and amortization, amortization of acquired intangible assets related to acquisitions, stock-based compensation, pass-through messaging surcharges, and all significant non-cash items, because we do not consider them indicative of our core operating performance. The exclusion of these items facilitates comparisons of our operating performance on a period-to-period basis. 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 we do.
The following table shows a reconciliation of gross profit to non-GAAP gross profit and gross profit margin to non-GAAP gross margin for the periods presented:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Gross Profit | $ | 295,051 | $ | 279,958 | $ | 236,157 | |||||||||||
| Gross Profit Margin % | 39 | % | 37 | % | 39 | % | |||||||||||
| Depreciation | 20,673 | 18,532 | 16,273 | ||||||||||||||
| Amortization of acquired intangible assets | 8,142 | 7,811 | 7,810 | ||||||||||||||
| Stock-based compensation | 2,159 | 1,638 | 1,136 | ||||||||||||||
| Non-GAAP Gross Profit | $ | 326,025 | $ | 307,939 | $ | 261,376 | |||||||||||
|
Non-GAAP Gross Margin % (1)
|
58 | % | 57 | % | 55 | % | |||||||||||
________________________
(1)Calculated by dividing Non-GAAP gross profit by cloud communications revenue of $561 million, $540 million, and $479 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Management's Discussion and Analysis
Non-GAAP Net Income
We define Non-GAAP net income as net income or loss adjusted for certain items affecting period-to-period comparability. Non-GAAP net income excludes:
•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;
•net cost associated with early lease terminations and leases without economic benefit;
•(gain) loss on sale of business;
•net (gain) loss on extinguishment of debt;
•gain on business interruption insurance recoveries;
•non-recurring items not indicative of ongoing operations and other; and
•estimated tax impact of above adjustments, net of valuation allowances.
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 by recalculating the tax provision on a Non-GAAP basis. When we have a valuation allowance recorded and no tax benefits will be recognized, the rate is considered to be zero.
We believe Non-GAAP net income 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 current period's performance. We believe the use of Non-GAAP net income 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. As a result of the adoption of ASU No. 2020-06 on January 1, 2022, we add back cash interest expense on the Convertible Notes, as if converted at the beginning of the period, if the impact is dilutive for the purposes of calculating diluted Non-GAAP net income or loss per Non-GAAP share.
Management's Discussion and Analysis
The following table shows a reconciliation of net loss to non-GAAP net income and net loss per share to non-GAAP net income per non-GAAP share for the periods presented:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
|
(In thousands, except share and per share amounts)
|
|||||||||||||||||
| Net loss | $ | (12,912) | $ | (6,524) | $ | (16,343) | |||||||||||
| Stock-based compensation | 52,332 | 48,362 | 36,992 | ||||||||||||||
| Amortization of acquired intangibles | 18,094 | 17,503 | 17,274 | ||||||||||||||
| Amortization of debt discount and issuance costs for convertible debt | 1,133 | 1,492 | 2,004 | ||||||||||||||
| Net cost associated with early lease terminations and leases without economic benefit | - | 2,387 | 3,954 | ||||||||||||||
| Net gain on extinguishment of debt | (1,082) | (10,267) | (12,767) | ||||||||||||||
| Gain on business interruption insurance recoveries | - | - | (4,000) | ||||||||||||||
|
Non-recurring items not indicative of ongoing operations and other (1)
|
2,813 | (571) | 1,171 | ||||||||||||||
|
Estimated tax effects of adjustments (2)
|
(14,460) | (11,486) | (5,525) | ||||||||||||||
| Non-GAAP net income | $ | 45,918 | $ | 40,896 | $ | 22,760 | |||||||||||
|
Interest expense on Convertible Notes (3)
|
964 | 1,118 | 1,287 | ||||||||||||||
| Numerator used to compute Non-GAAP diluted net income per share | $ | 46,882 | $ | 42,014 | $ | 24,047 | |||||||||||
| Net loss per share, basic and diluted | $ | (0.43) | $ | (0.24) | $ | (0.64) | |||||||||||
| Non-GAAP net income per Non-GAAP share | |||||||||||||||||
| Basic | $ | 1.53 | $ | 1.50 | $ | 0.89 | |||||||||||
| Diluted | $ | 1.43 | $ | 1.34 | $ | 0.83 | |||||||||||
| Weighted average number of shares outstanding, basic and diluted | 29,996,861 | 27,209,698 | 25,612,724 | ||||||||||||||
| Non-GAAP basic shares | 29,996,861 | 27,209,698 | 25,612,724 | ||||||||||||||
| Convertible debt conversion | 1,522,858 | 2,321,106 | 3,442,229 | ||||||||||||||
| Stock options issued and outstanding | 20,526 | 29,731 | 39,152 | ||||||||||||||
| Nonvested RSUs outstanding | 1,313,572 | 1,822,530 | - | ||||||||||||||
| Non-GAAP diluted shares | 32,853,817 | 31,383,065 | 29,094,105 | ||||||||||||||
(1) Non-recurring items not indicative of ongoing operations and other include (i) $1.3 million of foreign exchange charges primarily related to balance sheet revaluations during the year ended December 31, 2025, (ii) $0.9 million, $0.4 million, and $0.8 million of losses on disposals of property, plant and equipment during the years ended December 31, 2025, 2024 and 2023, respectively, (iii) $0.5 million of nonrecurring litigation expense and $0.1 million of losses on sale of business during the year ended December 31, 2025, (iv) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024, and (v) $0.4 million of expense resulting from the early termination of our undrawn SVB credit facility during the year ended December 31, 2023.
(2)The estimated tax-effect of adjustments is determined by recalculating the tax provision on a Non-GAAP basis. The Non-GAAP effective income tax rate was 19.0%, 18.1%, and 10.1% for the years ended December 31, 2025, 2024 and 2023, respectively. For the year ended December 31, 2025, the Non-GAAP effective income tax rate differed from the federal statutory tax rate of 21% in the U.S. primarily due to the research and development tax credits generated in 2025. We analyze the Non-GAAP valuation allowance position on a quarterly basis. As of December 31, 2025, we have no valuation allowance against our deferred tax assets for Non-GAAP purposes.
(3) Non-GAAP net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share.
Management's Discussion and Analysis
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:
•income tax (benefit) provision;
•interest (income) expense, net;
•depreciation and amortization expense;
•acquisition related expenses;
•stock-based compensation expense;
•impairment of intangible assets, if any;
•(gain) loss on sale of business;
•net cost associated with early lease terminations and leases without economic benefit;
•net (gain) loss on extinguishment of debt;
•gain on business interruption insurance recoveries; and
•non-recurring items not indicative of ongoing operations and other.
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.
The following table shows a reconciliation of net loss to Adjusted EBITDA for the periods presented:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net loss | $ | (12,912) | $ | (6,524) | $ | (16,343) | |||||||||||
| Income tax benefit | (3,679) | (2,429) | (2,960) | ||||||||||||||
| Interest expense, net | 2,028 | 1,861 | 808 | ||||||||||||||
| Depreciation | 35,670 | 31,739 | 24,443 | ||||||||||||||
| Amortization | 18,094 | 17,503 | 17,274 | ||||||||||||||
| Stock-based compensation | 52,332 | 48,362 | 36,992 | ||||||||||||||
|
Net cost associated with early lease terminations and leases without economic benefit
|
- | 2,387 | 3,954 | ||||||||||||||
| Net gain on extinguishment of debt | (1,082) | (10,267) | (12,767) | ||||||||||||||
| Gain on business interruption insurance recoveries | - | - | (4,000) | ||||||||||||||
|
Non-recurring items not indicative of ongoing operations and other (1)
|
2,813 | (571) | 769 | ||||||||||||||
| Adjusted EBITDA | $ | 93,264 | $ | 82,061 | $ | 48,170 | |||||||||||
(1) Non-recurring items not indicative of ongoing operations and other include (i) $1.3 million of foreign exchange charges primarily related to balance sheet revaluations during the year ended December 31, 2025, (ii) $0.9 million, $0.4 million, and $0.8 million of losses on disposals of property, plant and equipment during the years ended December 31, 2025, 2024 and 2023, respectively, (iii) $0.5 million of nonrecurring litigation expense and $0.1 million of losses on sale of business during the year ended December 31, 2025, (iv) $1.0 million gain on the sale of an intangible asset during the year ended December 31, 2024.
Management's Discussion and Analysis
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, plant 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 to invest in our business. Free cash flow has certain limitations because it is subject to working capital timing, 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 residual cash flows available for discretionary expenditures. Therefore, it is important to evaluate free cash flow along with our consolidated statements of cash flows.
The following table presents free cash flow for the periods presented:
| Year ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net cash provided by operating activities | $ | 89,491 | $ | 83,883 | $ | 39,001 | |||||||||||
|
Net cash used in investing in capital assets (1)
|
(32,941) | (25,380) | (19,899) | ||||||||||||||
| Free cash flow | $ | 56,550 | $ | 58,503 | $ | 19,102 | |||||||||||
(1)Represents the acquisition cost of property, plant and equipment and capitalized development costs for software for internal use.
Critical Accounting Policies 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 that the following assumptions, judgments and estimates have the greatest potential financial impact on our consolidated financial statements, and therefore, we consider these to be our critical accounting policies.
See Note 1, "Description of Business and Summary of Significant Accounting Policies," to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on our accounting policies.
Revenue Recognition and Deferred Revenue
We generate revenue primarily from the sale of communications services to enterprise customers. Revenue recognition commences upon transfer of control of promised goods or services to customers in an amount that we 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.
Management's Discussion and Analysis
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.
We 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.
We maintain a reserve for sales credits, which reserve historically has not been significant and continues to be consistent relative to total revenue. Credits are accounted for as variable consideration and are estimated based on several inputs including historical experience, contractual obligations and current trends of credit issuances. Adjustments to the reserve are recorded against revenue.
Goodwill and Intangible Assets
Goodwill
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. Under ASC 350, we have the option to first assess qualitatively whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. In performing qualitative assessments, consistent with ASC 350-20-35-3C, we consider, among other factors, macroeconomic conditions (both in the United States and internationally), our overall financial performance (including, but not limited to, comparisons to prior periods, current period internal expectations, and comparable peer companies), broader industry and market considerations, and the trading price performance of our Class A common stock.
As of December 31, 2025 and 2024, we completed a qualitative assessment under ASC 350 to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of our one reporting unit was less than its respective carrying value. We concluded that based on the relevant events and circumstances, it was more likely than not that the reporting unit's fair value exceeded its related carrying value and therefore no quantitative assessment was required.
We completed our annual goodwill impairment analysis in each of the years ended December 31, 2025, 2024 and 2023 and no impairment charges were recorded. As of December 31, 2025, goodwill was $357 million.
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 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. No indicators of impairment were identified for the years ended December 31, 2025, 2024 and 2023.
Management's Discussion and Analysis
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.
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 for each jurisdiction in which we operate.
If we demonstrate cumulative pre-tax income in a particular jurisdiction over a three-year period, including the current and prior two years, management generally concludes that the deferred income tax assets will more likely than not be realized and no valuation allowance is recognized, unless there are known unusual or non-recurring items contributing to this income or known future operating developments or changes in tax law that would lead management to conclude otherwise. We have considered cancellation of debt income an unusual item for the purpose of the valuation allowance analysis.
If we demonstrate cumulative pre-tax losses in a particular jurisdiction in a three-year period, including the current and prior two years, management then considers the expected timing of the reversals of existing temporary differences, the implementation of prudent and feasible tax planning strategies, and projected future taxable income when determining if the deferred tax assets will be realized. 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 provision would increase or decrease in the period in which the assessment is changed.
Using the aforementioned approach, we recorded $71 million and $70 million in valuation allowance on our deferred tax assets in 2025 and 2024, respectively.
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 benefit in the accompanying consolidated statements of operations.We recorded $9 million, $7 million and $6 million in unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023, respectively.
Recently Issued Accounting Guidance
See Note 1, "Description of Business and Summary of Significant Accounting Policies," to the consolidated financial statements 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, if applicable.
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