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Bandwidth Announces Second Quarter 2019 Financial Results

Total second quarter revenue of $56.8 million, up 18% year-over-year

CPaaS second quarter revenue of $48.0 million, up 20% year-over-year

Active CPaaS customers of 1,467, up 34% year-over-year

Dollar-based net retention rate of 113%

RALEIGH, N.C., July 31, 2019 /PRNewswire/ -- Bandwidth Inc. (BAND), a software company focused on communications for the enterprise, today announced financial results for the second quarter ended June 30, 2019.

(PRNewsfoto/BANDWIDTH.COM)

"Our relentless focus on customer success along with our investments in our platform and people continue to drive our growth. The business performed well in the second quarter, as we saw further growth with both new and existing customers," stated David Morken, chief executive officer of Bandwidth. "Our go-to-market investments continue to attract innovative companies to our platform and our proven ability to foster deep multi-faceted relationships with existing enterprise customers will increasingly contribute to our success. We remain focused on executing our plan and helping our customers succeed."

Second Quarter 2019 Financial Highlights

  • Revenue: Total revenue for the second quarter of 2019 was $56.8 million, up 18% compared to $48.3 million in the second quarter of 2018. Within total revenue, CPaaS revenue was $48.0 million, up 20% compared to $39.8 million for the second quarter of 2018. Other revenue contributed the remaining $8.8 million for the second quarter of 2019. Other revenue was $8.5 million in the same period last year.
  • Gross Profit: Gross profit for the second quarter of 2019 was $26.7 million, compared to $21.7 million for the second quarter of 2018. Gross margin for the second quarter of 2019 was 47%, compared to 45% for the second quarter of 2018. Non-GAAP gross profit for the second quarter of 2019 was $28.2 million, compared to $22.8 million for the second quarter of 2018. Non-GAAP gross margin was 50% for the second quarter of 2019, compared to 47% for the second quarter of 2018.
  • Net Income: Net income for the second quarter of 2019 was $3.5 million, or $0.14 per share, based on 24.4 million weighted average diluted shares outstanding. During the second quarter of 2018, net income was $10.5 million, or $0.50 per share, based on 20.9 million weighted average diluted shares outstanding for the second quarter of 2018.
  • Non-GAAP Net Income (Loss): Non-GAAP net loss for the second quarter of 2019 was $(0.9) million, or $(0.04) per share, based on 23.1 million weighted average shares outstanding. This compares to a Non-GAAP net income of $4.1 million, or $0.20 per share, based on 20.9 million weighted average diluted shares outstanding for the second quarter of 2018.
  • Adjusted EBITDA: Adjusted EBITDA was $0.02 million for the second quarter of 2019, compared to $3.2 million for the second quarter of 2018.    

Additional information regarding the non-GAAP financial measures discussed in this release, including an explanation of these measures and how each is calculated, is included below under the heading "Non-GAAP Financial Measures." A reconciliation of GAAP to non-GAAP financial measures has also been provided in the financial tables included below.

Second Quarter 2019 Key Metrics

  • The number of active CPaaS customers was 1,467 as of June 30, 2019, an increase of 34% from 1,092 as of June 30, 2018.
  • The dollar-based net retention rate was 113% during the second quarter of 2019, compared to 119% during the second quarter of 2018.

Additional information regarding our active CPaaS customers and dollar-based net retention rate and how each are calculated are included below.

Financial Outlook

As of July 31, 2019, Bandwidth is providing guidance for its third quarter and full year 2019 as follows:

  • Third Quarter 2019 Guidance: CPaaS revenue is expected to be in the range of $50.4 million to $50.9 million. Total revenue is expected to be in the range of $58.4 million to $58.9 million. Non-GAAP loss per share is expected to be in the range of ($0.14) to ($0.16) per share, using 23.4 million weighted average shares outstanding.
  • Full Year 2019 Guidance: CPaaS revenue is expected to be in the range of $201.8 million to $202.8 million. Total revenue is expected to be in the range of $234.8 million to $235.8 million. Non-GAAP loss per share is expected to be in the range of approximately of ($0.43) to ($0.48) per share, using 22.6 million weighted average shares outstanding.

Bandwidth has not reconciled its third quarter and full-year guidance related to non-GAAP net loss to GAAP net loss and non-GAAP loss per share to GAAP loss, because stock-based compensation cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.

Quarterly Conference Call

Bandwidth will host a conference call today at 5:00 p.m. Eastern Time to review the Company's financial results for the second quarter ended June 30, 2019. To access this call, dial (877) 407-0792 for the U.S. or Canada, or (201) 689-8263 for international callers. A live webcast of the conference call will be accessible from the Investors section of Bandwidth's website at https://investors.bandwidth.com, and a recording will be archived and accessible at https://investors.bandwidth.com. An audio replay of this conference call will also be available through August 7, 2019, by dialing (844) 512-2921 for the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 13692217.

About Bandwidth Inc.

Bandwidth (BAND) is a software company focused on communications for the enterprise. Companies like Google, Microsoft, and RingCentral use Bandwidth's APIs to easily embed voice, messaging and 9-1-1 access into software and applications. Bandwidth is the first and only CPaaS provider offering a robust selection of communications APIs built around their own nationwide IP voice network - one of the largest in the nation. More information available at www.bandwidth.com.

Forward-Looking Statements

This press release includes forward-looking statements. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding our future financial and business performance for the third quarter 2019 and full-year 2019, attractiveness of our product offerings and platform and the value proposition of our products, are forward-looking statements. The words "anticipate," "believe," "continue," "estimate," "expect," "intend," "guide," "may," "will" and similar expressions and their negatives are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our rapid growth and ability to sustain our revenue growth rate, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our ability to expand effectively into new markets, our ability to operate in compliance with applicable laws as well as other risks and uncertainties set forth in the "Risk Factors" section of our Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission and any subsequent reports that we file with the Securities and Exchange Commission after December 31, 2018. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no obligation to update any of these forward-looking statements after the date of this press release to conform these statements to actual results or revised expectations, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this press release.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States, or GAAP, we provide investors with certain non-GAAP financial measures and other business metrics, which we believe are helpful to our investors. We use these Non-GAAP financial measures and other business metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these Non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

The presentation of Non-GAAP financial information and other business metrics is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. While our Non-GAAP financial measures and other business metrics are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, we urge investors to review the reconciliation of these financial measures to the comparable GAAP financial measures included above, and not to rely on any single financial measure to evaluate our business.

We define Non-GAAP gross profit as gross profit after adding back depreciation and amortization and stock-based compensation. We add back depreciation and amortization 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. Therefore, we believe that showing gross margin, as adjusted to remove the impact of these non-cash expenses, such as depreciation, amortization and stock-based compensation, is helpful to investors in assessing our gross profit and gross margin performance in a way that is similar to how management assesses our performance. We calculate Non-GAAP gross margin by dividing adjusted gross profit by revenue, expressed as a percentage of revenue.

We define Non-GAAP net income (loss) as net income (loss) adjusted for certain items affecting period to period comparability. Non-GAAP net income (loss) excludes stock-based compensation, amortization of acquired intangible assets related to the Dash acquisition, impairment charges of intangibles assets, 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 and vested restricted stock, and benefit resulting from the release of the valuation allowance on our deferred tax assets ("DTA").

We define adjusted EBITDA as net income adjusted to reflect the addition or elimination of certain statement of operations items including, but not limited to: income tax expense (benefit), interest income, net, depreciation and amortization expense, stock-based compensation expense, impairment of intangible assets, and loss (gain) from disposal of property and equipment. We have presented Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

We define free cash flow as net cash provided by or used in operating activities less net cash used in investments of property, plant and equipment activities and capitalized development costs for 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.

We believe that these Non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

While a reconciliation of Non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis as a result of the uncertainty regarding, and the potential variability of, many of these costs and expenses that we may incur in the future, we have provided a reconciliation of Non-GAAP financial measures and other business metrics to the nearest comparable GAAP measures in the accompanying financial statement tables included in this press release.

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.

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.

 

Bandwidth Inc.


Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)



Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

Revenue

$

48,304


$

56,779


$

101,316


$

110,100

Cost of revenue

26,566


30,110


51,930


58,876

Gross profit

21,738


26,669


49,386


51,224

Operating expenses:








Research and development

4,435


7,656


8,216


15,373

Sales and marketing

4,654


8,514


9,176


16,863

General and administrative

11,490


14,282


22,059


28,615

Total operating expenses

20,579


30,452


39,451


60,851

Operating income (loss)

1,159


(3,783)


9,935


(9,627)

Other income, net

90


729


139


930

Income (loss) before taxes

1,249


(3,054)


10,074


(8,697)

Income tax benefit

9,263


6,526


6,629


14,161

Net income

$

10,512


$

3,472


$

16,703


$

5,464









Earnings per share:








Net income per share:








Basic

$

0.58


$

0.15


$

0.93


$

0.25

Diluted

$

0.50


$

0.14


$

0.80


$

0.23

Weighted average number of common shares outstanding:








Basic

18,154,964


23,102,553


17,908,159


21,807,523

Diluted

20,893,653


24,447,417


20,866,777


23,262,496

 

The Company recognized total stock-based compensation expense as follows:


Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

Cost of revenue

$

32


$

50


$

49


$

106

Research and development

129


358


203


730

Sales and marketing

140


292


218


612

General and administrative

461


930


785


1,858

Total

$

762


$

1,630


$

1,255


$

3,306

 

 

Bandwidth Inc.


Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)



December 31,


June 30,


2018


2019

Assets




Current assets:




Cash and cash equivalents

$

41,261


$

140,091

Marketable securities

17,400


55,839

Accounts receivable, net of allowance for doubtful accounts

24,009


26,695

Prepaid expenses and other current assets

6,114


8,541

Deferred costs

2,630


2,053

Total current assets

91,414


233,219

Property and equipment, net

25,136


31,799

Intangible assets, net

7,089


6,829

Deferred costs, non-current

1,828


1,038

Other long-term assets

727


2,128

Goodwill

6,867


6,867

Deferred tax asset

17,359


31,615

Total assets

$

150,420


$

313,495

Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

3,418


$

3,089

Accrued expenses and other current liabilities

21,393


24,120

Current portion of deferred revenue

5,324


4,887

Advanced billings

2,588


2,676

Total current liabilities

32,723


34,772

Deferred rent, net of current portion

2,503


3,698

Deferred revenue, net of current portion

6,424


5,900

Total liabilities

41,650


44,370

Stockholders' equity:




Class A and Class B common stock

19


23

Additional paid-in capital

116,600


271,628

Accumulated deficit

(7,848)


(2,558)

Accumulated other comprehensive (loss) income

(1)


32

Total stockholders' equity

108,770


269,125

Total liabilities and stockholders' equity

$

150,420


$

313,495

 

 

Bandwidth Inc.


Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Six months ended June 30,


2018


2019

Operating activities




Net income

$

16,703


$

5,464

Adjustments to reconcile net income to net cash provided by (used in) operating activities:




Depreciation and amortization

2,683


4,321

Accretion of bond discount

(26)


(478)

Amortization of debt issuance costs

32


139

Stock-based compensation

1,255


3,306

Deferred taxes

(6,677)


(14,263)

Loss on disposal of property and equipment

10


351

Changes in operating assets and liabilities:




Accounts receivable

(1,776)


(2,683)

Prepaid expenses and other assets

(620)


(3,586)

Deferred costs

225


1,290

Accounts payable

(2,375)


(95)

Accrued expenses and other liabilities

2,517


1,584

Deferred revenue and advanced billings

4,141


(1,047)

Deferred rent

1,025


285

Net cash provided by (used in) operating activities

17,117


(5,412)

Investing activities




Purchase of property and equipment

(3,113)


(7,844)

Capitalized software development costs

(1,547)


(1,675)

Proceeds from sale of property and equipment

3


Purchase of marketable securities

(13,995)


(55,933)

Maturities of marketable securities

3,000


18,000

Net cash used in investing activities

(15,652)


(47,452)

Financing activities




Proceeds from the follow-on public offering, net of underwriting discounts


147,391

Payment of costs related to the follow-on public offering


(755)

Payment of costs related to the initial public offering

(285)


Payments on capital leases

(50)


Payment of debt issuance costs


(125)

Proceeds from exercises of stock options

6,967


6,381

Proceeds from exercises of warrants

37


Equity awards withheld and paid for tax liabilities


(945)

Net cash provided by financing activities

6,669


151,947

Effect of exchange rate changes on cash, cash equivalents and restricted cash


(1)

Net increase in cash, cash equivalents, and restricted cash

8,134


99,082

Cash, cash equivalents, and restricted cash, beginning of period

37,870


41,501

Cash, cash equivalents, and restricted cash, end of period

$

46,004


$

140,583





 


 

Bandwidth Inc.


Reconciliation of Non-GAAP Financial Measures

(In thousands, except share and per share amounts)

(Unaudited)


Non-GAAP Gross Profit and Non-GAAP Gross Margin





     Consolidated





Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

Consolidated Gross Profit

$

21,738


$

26,669


$

49,386


$

51,224

Depreciation

1,015


1,530


2,078


2,823

Stock-based compensation

32


50


49


106

Non-GAAP Gross Profit

$

22,785


$

28,249


$

51,513


$

54,153

Non-GAAP Gross Margin %

47 %


50 %


51 %


49 %

















 

     By Segment








     CPaaS





Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

CPaaS Gross Profit

$

16,696


$

21,516


$

33,688


$

41,229

Depreciation

1,015


1,530


2,078


2,823

Stock-based compensation

32


50


49


106

Non-GAAP Gross Profit

$

17,743


$

23,096


$

35,815


$

44,158

Non-GAAP CPaaS Gross Margin %

45 %


48 %


45 %


47 %

















          

     Other


     There are no non-GAAP adjustments to gross profit for the Other segment.


Adjusted EBITDA





Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

Net income

$

10,512


$

3,472


$

16,703


$

5,464

Income tax benefit (1)

(9,263)


(6,526)


(6,629)


(14,161)

Interest income, net

(90)


(719)


(139)


(920)

Depreciation

1,166


1,982


2,388


4,061

Amortization

130


130


295


260

Stock-based compensation

762


1,630


1,255


3,306

Loss on disposal of property and equipment

1


55


10


351

Adjusted EBITDA

$

3,218


$

24


$

13,883


$

(1,639)



          (1) Includes excess tax benefits associated with the exercise of stock options and vesting of restricted stock units of $7,052 in the three and six months ended June 30, 2018, and $5,717 and $11,739 in the three and six months ended June 30, 2019, respectively.

 

Non-GAAP Net Income (Loss)





Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

Net income

$

10,512


$

3,472


$

16,703


$

5,464

Stock-based compensation

762


1,630


1,255


3,306

Amortization related to acquisitions

130


130


260


260

Loss on disposal of property and equipment

1


55


10


351

Estimated tax effects of adjustments

(229)


(465)


(391)


(1,004)

Income tax benefit of option exercises

(7,052)


(5,544)


(7,052)


(10,806)

Income tax benefit of vesting restricted stocks units


(173)



(933)

Non-GAAP net income (loss)

$

4,124


$

(895)


$

10,785


$

(3,362)









Non-GAAP net income (loss) per Non-GAAP share








Basic

$

0.23


$

(0.04)


$

0.60


$

(0.15)

Diluted

$

0.20


$

(0.04)


$

0.52


$

(0.15)









Non-GAAP weighted average number of shares
outstanding








Non-GAAP basic shares

18,154,964


23,102,553


17,908,159


21,807,523

Non-GAAP diluted shares

20,893,653


23,102,553


20,866,777


21,807,523

 

Free Cash Flow





Three months ended June 30,


Six months ended June 30,


2018


2019


2018


2019

Net cash provided by (used in) operating activities

$

5,874


$

2,420


$

17,117


$

(5,412)

Net cash used in investing in capital assets (1)

(3,258)


(6,482)


(4,660)


(9,519)

Free cash flow

$

2,616


$

(4,062)


$

12,457


$

(14,931)



          (1) Represents the acquisition cost of property, equipment and capitalized development costs for software for internal use.

 

 

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