Bandwidth Inc. (BAND)

Item 2. 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 condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. Our fiscal year ends on December 31.

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 global gross domestic product (“GDP”), innovative enterprises use Bandwidth’s Application Programming Interfaces (“APIs”) to easily embed voice, messaging, emergency services, and artificial intelligence (“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 Contact Center as a Service 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 Unified Communications as a Service (“UCaaS”) and Contact Center as a Service (“CCaaS”), along with leading hyperscalers and Software as a Service (“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.

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Management’s Discussion and Analysis

For the three months ended June 30, 2026 and 2025, total revenue was $220 million and $180 million, respectively, representing an increase of 22% between periods. For the three months ended June 30, 2026 and 2025, net income was $2 million and net loss was $5 million, respectively. For the six months ended June 30, 2026 and 2025, total revenue was $429 million and $354 million, respectively, representing an increase of 21% between periods. For the six months ended June 30, 2026 and 2025, net income was $7 million and net loss was $9 million, respectively.

Share Repurchase Program

During February 2026, our board of directors authorized a share repurchase program to repurchase up to $80 million in aggregate value of our Class A common stock, subject to market conditions, contractual restrictions and other factors. The repurchases may be made from time to time at the discretion of management through open market purchases, block trades, privately negotiated transactions, Rule 10b5-1 plans or other means.

During the three months ended June 30, 2026, we repurchased 262,858 shares of our Class A common stock at an average price of $57.06 per share, excluding commissions, for an aggregate purchase price of $15 million. During the six months ended June 30, 2026, we repurchased 576,794 shares of our Class A common stock at an average price of $34.67 per share, excluding commissions, for an aggregate purchase price of $20 million. As of June 30, 2026, approximately $60 million remained available for repurchases under the share repurchase program.

Repurchase of 2028 Convertible Notes

On March 1, 2026, the 2026 Convertible Notes matured and the related 2026 Capped Calls expired. The aggregate remaining outstanding principal amount of $8 million of 2026 Convertible Notes, along with all accrued and unpaid interest, was settled in full in cash. As of June 30, 2026, no 2026 Convertible Notes remain outstanding.

During March 2026, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2028 Convertible Notes (the “March 2026 Repurchases”) to repurchase approximately $100 million aggregate principal amount of the 2028 Convertible Notes for an aggregate cash price of approximately $92 million. The March 2026 Repurchases closed on March 4, 2026.

During June 2026, we entered into separate, privately negotiated repurchase agreements with a limited number of holders of the 2028 Convertible Notes (the “June 2026 Repurchases”) to repurchase approximately $122 million aggregate principal amount of the 2028 Convertible Notes for an aggregate cash price of approximately $116 million. The June 2026 Repurchases closed on June 18, 2026.

In the aggregate, the difference between the consideration used for the March 2026 Repurchases and June 2026 Repurchases, and the carrying value of the 2028 Convertible Notes resulted in a gain of $12 million recorded within net gain on extinguishment of debt on our condensed consolidated statements of operations for the six months ended June 30, 2026. Following the March 2026 Repurchases and June 2026 Repurchases, approximately $28 million aggregate principal amount of the 2028 Convertible Notes remains outstanding.

Issuance of 2032 Convertible Notes

On June 18, 2026, we issued $316 million aggregate principal amount of 0% Convertible Notes due July 1, 2032 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act (the “2032 Convertible Notes”). The total net proceeds from the 2032 Convertible Notes, after deducting initial purchaser discounts, costs related to the 2032 Capped Calls (as defined herein), and debt issuance costs paid by us, were approximately $282 million.

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Management’s Discussion and Analysis

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 three months ended June 30, 2026 and 2025, our net retention rate was 107% and 112%, respectively. The decrease in our net retention rate was driven by less political messaging over the previous four quarters relative to the prior year.

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.

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, software 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 three months ended June 30, 2026 and 2025, we generated 74% and 73%, respectively, of our cloud communications revenue from reoccurring sources. For the six months ended June 30, 2026 and 2025, we generated 74% and 73%, 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 59% and 55%, of outstanding accounts receivable, net of allowance, as of June 30, 2026 and 2025, 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.

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Item 7. 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.

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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 2023 was $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.

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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.

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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, m

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