Bandwidth(BAND)2024-10-31 20:04Financial Performance - For the three months ended September 30, 2024, total revenue was $194 million, an increase of 28% compared to $152 million in the same period of 2023[118]. - Net income for the three months ended September 30, 2024, was less than $1 million, improving from a net loss of $5 million in the same period of 2023[118]. - For the nine months ended September 30, 2024, total revenue reached $539 million, representing a 24% increase from $436 million in the same period of 2023[118]. - For the three months ended September 30, 2024, total revenue was $193.883 million, an increase of $41.870 million or 28% compared to $152.013 million in the same period in 2023[141]. - Cloud communications revenue increased by $18.608 million or 15% to $138.826 million, while messaging surcharges rose by $23 million or 73% to $55.057 million[141][142]. - Revenue from messaging surcharges rose by $60 million, or 73%, for the nine months ended September 30, 2024, primarily due to increased messaging volumes[155]. - Total revenue for the nine months ended September 30, 2024, was $538 million, an increase of $102 million, or 24%, compared to $436 million in the same period in 2023[154]. - Total cost of revenue increased by $73 million, or 28%, to $335 million for the nine months ended September 30, 2024, influenced by higher pass-through messaging surcharges[156]. - Gross profit for the nine months ended September 30, 2024, was $203 million, up $29 million, or 17%, from $174 million in the same period in 2023[156]. Operating Expenses - Total operating expenses for the three months ended September 30, 2024, were $74.032 million, an increase of $8.386 million or 13% compared to $65.646 million in 2023[143]. - Research and development expenses rose by $5 million or 22% to $30.171 million, driven by higher headcount expenses[145]. - Sales and marketing expenses increased by $1 million or 5% to $26.285 million, also due to higher headcount expenses[146]. - General and administrative expenses increased by $1.733 million or 11% to $17.576 million, driven entirely by higher headcount expenses[146]. - Total operating expenses increased by $21 million, or 11%, to $221 million for the nine months ended September 30, 2024, with operating expenses as a percentage of revenue decreasing from 46% to 41%[158]. - Research and development expenses rose by $12 million, or 16%, to $87 million for the nine months ended September 30, 2024, primarily due to higher facilities expenses[157]. Profitability Metrics - Gross profit increased by $13.635 million or 23% to $73.134 million, resulting in a gross margin of 38%, down from 39% in the prior year[143]. - Non-GAAP gross profit for Q3 2024 was $80,142 thousand, up from $65,696 thousand in Q3 2023, representing a 22% increase[182]. - Non-GAAP gross margin for Q3 2024 was 58%, compared to 55% in Q3 2023, indicating a 3 percentage point improvement[182]. - Non-GAAP net income for Q3 2024 was $12,791 thousand, significantly higher than $6,347 thousand in Q3 2023, reflecting a 102% increase[187]. - Adjusted EBITDA for the three months ended September 30, 2024, was $23,971,000, up from $13,758,000 in the prior year, representing a 74% increase[193]. - Non-GAAP gross profit for the nine months ended September 30, 2024, was $224,582 thousand, compared to $192,338 thousand for the same period in 2023, a 17% increase[182]. Cash Flow and Liquidity - As of September 30, 2024, the company had cash and cash equivalents of $75 million and marketable securities of $5 million[166]. - Net cash provided by operating activities was $47 million for the nine months ended September 30, 2024, compared to $19 million in the same period in 2023[172]. - Net cash provided by operating activities for the three months ended September 30, 2024, was $20,464,000, down from $23,001,000 in the same period last year[196]. - Free cash flow for the three months ended September 30, 2024, was $14,245,000, compared to $18,190,000 for the same period in 2023, reflecting a decrease of 16%[196]. - The company expects its cash, cash equivalents, and marketable securities, along with cash flows from operations, to be sufficient for anticipated cash needs for at least the next 12 months[169]. Debt and Financing - The company repurchased approximately $140 million of 2026 Convertible Notes for about $128 million in cash, resulting in a gain of $10 million recorded in net gain on extinguishment of debt[119][120]. - The company increased its revolving credit commitments from $50 million to $100 million as of May 1, 2024[121]. - As of September 30, 2024, the applicable weighted average interest rate on the Credit Facility was 7.71%, with $25 million in outstanding borrowings[122]. - The company increased its Credit Facility from $50 million to $100 million on May 1, 2024, with a weighted average interest rate of 7.71% as of September 30, 2024[203]. - The company carries the Convertible Notes at face value less unamortized discount on its balance sheet[204]. Taxation - The effective tax rate for the three months ended September 30, 2024, was 228.7%, significantly higher than 4.1% in the same period of 2023[135]. - The effective tax rate for the three months ended September 30, 2024, was 228.7%, significantly higher than 4.1% in 2023, primarily due to operating losses outside the U.S.[148][150]. - The company reported a Non-GAAP effective income tax rate of 15.5% for the nine months ended September 30, 2024, compared to 11.0% for the same period in 2023[189]. Foreign Operations and Currency Risk - Approximately 12% of total revenue for the nine months ended September 30, 2024, was generated outside North America, compared to 15% in the same period of 2023[207]. - A hypothetical 10% adverse change in foreign currency exchange rates would have negatively impacted the net loss for the nine months ended September 30, 2024, by approximately $2.3 million[207]. - The company does not currently engage in any hedging activity to reduce potential exposure to currency fluctuations, although it may consider this in the future[207]. Legal Matters - The company is involved in multiple lawsuits regarding the failure to bill, collect, and remit certain taxes and surcharges associated with 911 services[213]. - The lawsuits include claims from jurisdictions such as San Francisco, Cook and Kane Counties in Illinois, and the State of New York[214]. - The company intends to vigorously defend against the lawsuits and believes it has meritorious defenses[215]. - Future litigation may be necessary to defend proprietary rights or recover amounts owed, which could adversely impact the company[216]. Stock-Based Compensation - Stock-based compensation increased to $11,449 thousand in Q3 2024 from $6,942 thousand in Q3 2023, a 65% rise[187]. - The company reported stock-based compensation of $11,449,000 for the three months ended September 30, 2024, compared to $6,942,000 in the same period last year, marking a 65% increase[193]. Internal Controls and Accounting Policies - There were no material changes to critical accounting policies compared to the previous annual report filed on February 28, 2024[198]. - There were no changes in internal control over financial reporting that materially affected the company during the quarter ended September 30, 2024[210].