Financial Data and Key Metrics Changes - Total revenue reached $194 million, marking a 28% increase year-over-year, with adjusted EBITDA growing to $24 million, representing a 74% increase [19][24] - Cloud communications revenue was $139 million, up 15% from last year, with a net retention rate of 117%, an increase of 6 percentage points from the previous quarter [19][22] - Non-GAAP gross margin was a record 58%, up approximately 3 percentage points from the prior year's quarter [23] Business Line Data and Key Metrics Changes - Direct enterprise customer revenue grew 30% year-over-year, driven by the flexibility of the Maestro platform [20] - Programmable services category revenue grew 55% year-over-year, with messaging representing 24% of cloud communications revenue [21] - Global communications plans revenue grew 5% year-over-year, reflecting stable momentum [21] Market Data and Key Metrics Changes - Commercial messaging revenue grew 32% year-over-year, demonstrating the ability to acquire new customers and take market share [21] - Political campaign messaging contributed approximately 2 percentage points to the net retention rate [22] Company Strategy and Development Direction - The company announced plans to develop a nomadic emergency services solution for markets outside the U.S. and a new number reputation management solution [3][12] - The focus on multichannel messaging and RCS (Rich Communications Services) positions the company as a leader in the messaging market [13][14] - The universal platform enhances customer experience and operational efficiency, supporting various enterprise strategies [8][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue building a durable franchise as a trusted provider in enterprise cloud communications [17] - The company raised its full-year guidance, expecting revenue of $742 million and adjusted EBITDA of $79 million, reflecting a 65% profitability growth over last year [25][26] Other Important Information - The company hosted its first user conference, Reverb24, which engaged over 100 customers in person and 1,400 streaming globally, showcasing its capabilities and culture [2] - The company is focused on long-term profitable growth and innovation, with a strong R&D roadmap [26] Q&A Session Questions and Answers Question: What do you see playing out with RCS versus SMS volumes on the messaging side? - Management indicated that it is still early days for RCS and RBM, and there is uncertainty about how different channels will balance out over time [31] Question: What was the cause of higher voice usage than expected? - Management noted broad usage in voice across different enterprise verticals, with contact centers being a focus [32] Question: What feedback are you getting from customers regarding the universal platform? - Management highlighted the importance of integrations with major UCaaS, CCaaS, and AI platforms, which resonate well with customers [35] Question: What are the key drivers of messaging growth excluding political contributions? - Management reported that commercial messaging grew 18% in the third quarter, driven by deliverability and customer service [37] Question: Which product announcement is most likely to move the needle soonest? - Management speculated that removing friction from processes like porting and providing a universal user experience would be immediately relevant to decision-makers [43] Question: How is the company addressing skepticism regarding one-time political messaging benefits? - Management emphasized the ongoing growth in commercial revenue and the strong performance relative to competitors [45][46] Question: Is AI driving more volume in voice already? - Management confirmed that AI has already begun to be adopted and is growing as part of the Maestro platform [55]

Financial Performance - Total revenue for Q3 2024 reached $194 million, a 28% increase year-over-year[6] - Adjusted EBITDA for Q3 2024 grew to $24 million, representing a 74% increase year-over-year[6] - Revenue for the three months ended September 30, 2024, was $193,883,000, representing a 27.6% increase from $152,013,000 in the same period last year[25] - Gross profit for the nine months ended September 30, 2024, was $203,447,000, up from $174,107,000, indicating a year-over-year increase of 16.9%[25] - The company reported a net income of $413,000 for the three months ended September 30, 2024, compared to a net loss of $5,130,000 in the same period last year[25] - Non-GAAP net income for Q3 2024 was $12,791,000, compared to $6,347,000 in Q3 2023, reflecting a 101.4% increase[34] - The company reported a net income (loss) of $413,000 for Q3 2024, a significant improvement from a loss of $5,130,000 in Q3 2023[34] Margins and Profitability - Gross margin for Q3 2024 was 38%, compared to 39% in Q3 2023[5] - Non-GAAP gross margin for Q3 2024 was 58%, up from 55% in Q3 2023[5] - Non-GAAP gross profit for Q3 2024 was $73,134,000, up from $59,499,000 in Q3 2023, representing a 22.9% increase[32] - Non-GAAP gross margin for Q3 2024 was 58%, compared to 55% in Q3 2023, indicating an improvement in profitability[32] - The company had a gross profit margin of 38% for the nine months ended September 30, 2024, down from 40% in the same period of 2023[32] Cash Flow and Expenses - Free cash flow for Q3 2024 was $14 million, compared to $18 million in Q3 2023[5] - Free cash flow for Q3 2024 was $14,245,000, down from $18,190,000 in Q3 2023, showing a decrease of 10.5%[38] - Research and development expenses for the three months ended September 30, 2024, were $30,171,000, a 21.5% increase compared to $24,792,000 in the prior year[25] - The company recognized total stock-based compensation expense of $35,148,000 for the nine months ended September 30, 2024, compared to $22,325,000 in the prior year[26] - Total stock-based compensation for Q3 2024 was $11,449,000, up from $6,942,000 in Q3 2023, indicating a 64.5% increase[37] Guidance and Future Outlook - Bandwidth raised its full-year 2024 revenue guidance to a range of $737 million to $747 million[11] - Fourth quarter 2024 revenue guidance is set between $198 million and $208 million[11] Assets and Liabilities - Total current assets decreased to $198,662,000 as of September 30, 2024, down from $252,775,000 as of December 31, 2023[28] - Total liabilities decreased to $693,173,000 as of September 30, 2024, compared to $803,658,000 as of December 31, 2023[28] - Cash and cash equivalents were $74,940,000 as of September 30, 2024, down from $131,987,000 at the end of 2023[28] Taxation - Non-GAAP effective income tax rate was 15.5% for the nine months ended September 30, 2024, compared to 11.0% for the same period in 2023[36] - The estimated tax effects of adjustments for the nine months ended September 30, 2024, were $(6,654,000), compared to $(4,661,000) for the same period in 2023[36] Strategic Initiatives - The company introduced a next-generation Universal Platform to enhance global communication capabilities[7] - Bandwidth registered as an RBM partner with Google to enable RCS across key markets[8] - A high-volume patient engagement platform switched to Bandwidth for improved text messaging services[9]

Financial Performance - For the three months ended June 30, 2024, total revenue was $174 million, representing a 19% increase from $146 million in the same period of 2023[128]. - Net income for the three months ended June 30, 2024, was $4 million, compared to a net loss of $4 million in the same period of 2023[128]. - For the six months ended June 30, 2024, total revenue was $345 million, reflecting a 21% increase from $284 million in the same period of 2023[128]. - For the three months ended June 30, 2024, total revenue increased by $27.7 million, or 19%, to $173.6 million compared to the same period in 2023[150]. - Cloud communications revenue rose by $10 million, or 8%, driven by higher sales of messaging and political messaging related to the upcoming U.S. presidential election[150]. - Revenue from messaging surcharges increased by $18 million, or 65%, due to higher messaging traffic and new carrier fees[151]. - For the six months ended June 30, 2024, total revenue increased by $60.9 million, or 21%, to $344.6 million compared to the same period in 2023[161]. Profitability and Margins - Gross profit for the three months ended June 30, 2024, was $64.8 million, reflecting a $5.9 million increase from the same period in 2023[152]. - Total gross margin percentage for the six months ended June 30, 2024, was 38%, a decline of 2% compared to the same period in 2023[165]. - Non-GAAP net income for the three months ended June 30, 2024, was $8,719, compared to $4,399 for the same period in 2023, representing a 98.5% increase[196]. - Adjusted EBITDA for the three months ended June 30, 2024, was $18,741, up from $10,568 in the same period of 2023, indicating a 77.5% growth[202]. - Free cash flow for the three months ended June 30, 2024, was $18,320, compared to a negative $1,228 for the same period in 2023, showing a significant turnaround[205]. Expenses and Costs - Total cost of revenue for the three months ended June 30, 2024, increased by $21.9 million, or 25%, to $108.8 million[152]. - Total operating expenses for the three months ended June 30, 2024, were $70.9 million, up $4.4 million, or 7%, compared to the same period in 2023[154]. - Research and development expenses increased by $3.3 million, or 13%, primarily due to higher facilities and depreciation expenses[155]. - Total operating expenses for the six months ended June 30, 2024, were $146.8 million, representing 43% of revenue, down from 47% in the same period in 2023[166]. - Research and development expenses increased by $7 million, or 13%, for the six months ended June 30, 2024, compared to the same period in 2023[167]. - Sales and marketing expenses rose by $4 million, or 9%, for the six months ended June 30, 2024, compared to the same period in 2023[167]. - General and administrative expenses increased by $2 million, or 6%, for the six months ended June 30, 2024, compared to the same period in 2023[167]. Cash Flow and Liquidity - As of June 30, 2024, the company had cash and cash equivalents of $62 million and marketable securities of $14 million[173]. - Net cash provided by operating activities was $27 million for the six months ended June 30, 2024, compared to a cash outflow of $3.3 million in the same period in 2023[179]. - Net cash used in investing activities was $5 million for the six months ended June 30, 2024, primarily for the purchase of property, plant, and equipment[184]. - Net cash used in financing activities was $91 million for the six months ended June 30, 2024, mainly due to $128 million used for the 2024 Repurchases[185]. Debt and Financing - The company repurchased approximately $140 million of 2026 Convertible Notes for an aggregate cash price of approximately $128 million in May 2024[129]. - The credit agreement was amended to increase revolving credit commitments from $50 million to $100 million, with a maturity date extended to May 1, 2029[131]. - The company increased its Credit Facility from $50 million to $100 million on May 1, 2024, with an applicable weighted average interest rate of 7.94% and $40 million in outstanding borrowings[212]. - The company has $35 million and $250 million outstanding from its 2026 and 2028 Convertible Notes, respectively, with no exposure to interest rate changes due to fixed annual interest rates[213]. Taxation - The effective tax rate for the three months ended June 30, 2024, was (8.9)%, compared to (4.1)% in the same period of 2023[144]. - The effective tax rate for the six months ended June 30, 2024, was 9.3%, a significant decrease from 91.4% in 2023[169]. - The Non-GAAP effective income tax rate for the six months ended June 30, 2024, was 15.0%, significantly lower than the federal statutory tax rate of 21% due to research and development tax credits[198]. 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[222]. - The company intends to vigorously defend against the lawsuits and believes it has meritorious defenses[222]. - The company may face ongoing legal actions and claims related to number management and billing, employment-related issues, and customer misuse of offerings[223]. - Future litigation may be necessary to defend proprietary rights and recover amounts owed[223]. - The outcomes of current or future litigation cannot be predicted with certainty, potentially leading to adverse impacts[223]. - Litigation can incur defense and settlement costs, divert management resources, and affect overall operations[223]. Internal Controls - There were no changes in internal control over financial reporting that materially affected the company during the quarter ended June 30, 2024[218]. - The effectiveness of the company's internal control over financial reporting is subject to inherent limitations, and improvements may be necessary[219].

Financial Data and Key Metrics Changes - Bandwidth reported total revenue of $174 million, up 19% year-over-year, exceeding the midpoint of guidance [17] - Adjusted EBITDA reached $19 million, a 77% increase from the prior year, surpassing the high end of guidance [17] - Free cash flow was $18 million, significantly higher than the first quarter and nearly $20 million over last year's quarter [17][21] Business Line Data and Key Metrics Changes - Cloud communications revenue was $128 million, up 8% year-over-year, with messaging surcharges contributing $45 million [18] - Messaging revenue grew 33% year-over-year, driven by strong demand from new and existing customers across various verticals [18] - Revenue from global communications plans grew 2% year-over-year, while programmable services revenue increased by 31% [19] Market Data and Key Metrics Changes - The net retention rate improved to 111%, up 5 percentage points from the previous year [20] - The net retention rate for customers with over $100,000 ARR grew to 113%, indicating strong value and durability of offerings [20] - Average revenue per user (ARPU) climbed to a record $198,000, reflecting success in attracting large enterprises [21] Company Strategy and Development Direction - The company focuses on expanding profitability and creating software innovations like Maestro and AIBridge [6] - Bandwidth aims to capitalize on the growing demand for cloud contact centers and unified communications [8][12] - The company is enhancing its global communications cloud to provide a competitive advantage in the market [6][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sustainable, profitable growth and optimizing capital structure [16][23] - The outlook for full-year revenue is approximately $715 million, with adjusted EBITDA projected at $74 million, a 54% improvement over 2023 [23] - Management highlighted the importance of voice as a durable interface for customer service, even with the rise of AI [12][30] Other Important Information - Devesh Agarwal was appointed Interim Chief Operating Officer, expected to enhance operational efficiency and innovation [15] - The company has successfully reduced its outstanding balance of 2026 convertible notes, contributing to a healthier capital structure [22] Q&A Session Summary Question: What are the drivers behind the increase in net retention rate? - The increase is broad-based, driven by commercial messaging customers and enterprise customers, with successful onboarding of new enterprise clients [26][27] Question: How does AI impact the channel mix in contact centers? - Management believes voice will remain a primary channel, supported by the integration of AI technologies [29][30] Question: Was the decision to reiterate EBITDA and revenue guidance conservative? - The strong first half performance has reinforced confidence in the raised full-year outlook, though some conservatism is acknowledged [32][35] Question: How did usage volumes trend throughout the quarter? - Volumes were strong leading into the third quarter, with commercial messaging and enterprise customers showing expected usage patterns [36][37] Question: What is the growth outlook for messaging? - Messaging growth is expected to remain strong, with seasonal factors influencing some fluctuations [68] Question: How does Bandwidth compare to AWS? - The analogy highlights Bandwidth's pioneering role in cloud-based communication services, though it acknowledges that Bandwidth is not yet at AWS's scale [48][50] Question: What is the current competitive landscape? - The competitive landscape remains stable, with no new entrants, and Bandwidth maintains a cost advantage due to its vertically integrated platform [60][62]

| --- | --- | --- | |-------|-------|-------| | | | | | | | | Legal Disclaimer 1 This presentation includes forward-looking statements. All statements contained in this presentation other than statements of historical facts, including, without limitation, future financial and business performance for the quarter ending September 30, 2024 and year ending December 31, 2024, the success of our product offerings and our platform, and the value proposition of our products, are forward-looking statements. The wor ...

Financial Performance - Bandwidth reported revenue of $174 million for Q2 2024, representing a 19% increase year-over-year from $146 million in Q2 2023[1][6] - The company's Adjusted EBITDA reached $19 million, up 77% from $11 million in the prior year[6] - Free Cash Flow for Q2 2024 was $18 million, a significant improvement from a negative $1 million in Q2 2023[5][6] - Revenue for the three months ended June 30, 2024, was $173.6 million, a 19% increase from $145.9 million in the same period of 2023[24] - Gross profit for the six months ended June 30, 2024, was $130.3 million, compared to $114.6 million for the same period in 2023, reflecting a 13.6% increase[24] - Net income for the three months ended June 30, 2024, was $4.1 million, compared to a net loss of $(3.9) million in the same period of 2023[24] - Non-GAAP net income for Q2 2024 was $8,719,000, up from $4,399,000 in Q2 2023, reflecting a 97.5% increase[35] - Net income for Q2 2024 was $4,055,000, a turnaround from a net loss of $3,890,000 in Q2 2023[35] Guidance and Expectations - Bandwidth provided guidance for Q3 2024 revenue between $180 million and $184 million, and full-year 2024 revenue guidance of $710 million to $720 million[9] - The company expects Adjusted EBITDA for Q3 2024 to be between $18 million and $20 million, and for the full year 2024 between $72 million and $76 million[9] Operational Efficiency and Strategic Initiatives - Bandwidth's strategic investments and disciplined financial management have driven impressive operational efficiency and cash flow generation[6] - New product innovations like Maestro and AI Bridge are contributing to strong performance in a competitive market[3][6] - Bandwidth secured several key customers in the healthcare and insurance sectors, enhancing its market position and service offerings[7][8] - The company is focused on sustainable, profitable growth and is well-positioned to continue its momentum into the second half of the year[6] Cost and Expenses - Gross Margin for Q2 2024 was 37%, down from 40% in Q2 2023, while Non-GAAP Gross Margin improved to 56% from 55%[5][6] - Research and development expenses for the six months ended June 30, 2024, increased to $57.0 million from $50.5 million in the same period of 2023, a 12.9% rise[24] - Stock-based compensation expense of $23.7 million for the six months ended June 30, 2024, compared to $15.4 million in the same period of 2023[25] - Stock-based compensation for Q2 2024 was $11,360,000, up from $8,005,000 in Q2 2023[35] Cash Flow and Assets - The company recognized a net cash provided by operating activities of $26.9 million for the six months ended June 30, 2024, compared to $(3.3) million in the same period of 2023[29] - Total current assets decreased to $181.4 million as of June 30, 2024, from $252.8 million in 2023[26] - Cash and cash equivalents at the end of the period were $62.3 million, down from $92.0 million in the same period of 2023[29] Liabilities and Debt - Total liabilities decreased to $694.7 million as of June 30, 2024, from $803.7 million in 2023[26] - The company reported a net gain on extinguishment of debt of $(10,267,000) in Q2 2024, compared to no gain in Q2 2023[35] Shareholder Information - The weighted average number of diluted shares outstanding increased to 30,813,973 in Q2 2024 from 28,899,655 in Q2 2023[35]

Financial Performance - Total revenue for the three months ended March 31, 2024, was $171 million, representing a 24% increase from $138 million in the same period of 2023[131]. - Net loss for the three months ended March 31, 2024, was $9 million, compared to a net income of $4 million in the same period of 2023[131]. - For the three months ended March 31, 2024, cloud communications revenue increased by $14 million, or 12%, compared to the same period in 2023, driven by higher sales across all product categories[150]. - Revenue from messaging surcharges rose by $19 million, or 82%, compared to the same period in 2023, attributed to increased messaging traffic and new carrier fees[151]. - Gross profit for the three months ended March 31, 2024, was $65 million, an increase of $10 million, or 18%, from the same period in 2023[152]. - Non-GAAP gross profit for Q1 2024 was $72,617,000, up from $61,319,000 in Q1 2023, representing a 18.5% increase[179]. - Non-GAAP gross margin for Q1 2024 was 57%, compared to 54% in Q1 2023[179]. - The company reported a net loss of $9,233,000 for Q1 2024, compared to a net income of $3,611,000 in Q1 2023[185]. - Non-GAAP net income for Q1 2024 was $7,820,000, significantly higher than $1,190,000 in Q1 2023[185]. - Adjusted EBITDA for Q1 2024 was $15,923,000, compared to $5,059,000 in Q1 2023, indicating a substantial improvement[188]. - Free cash flow for Q1 2024 was $(4,407,000), an improvement from $(10,900,000) in Q1 2023[191]. Revenue Composition - 74% of cloud communications revenue for the three months ended March 31, 2024, was derived from recurring sources, up from 72% in the same period of 2023[136]. - Approximately 13% of total revenue was generated outside North America for the three months ended March 31, 2024, compared to 16% for the same period in 2023[202]. Expenses and Costs - Cost of revenue for the three months ended March 31, 2024, was $105.5 million, resulting in a gross profit of $65.5 million, compared to a cost of revenue of $82.2 million and gross profit of $55.7 million in the same period of 2023[147]. - Operating expenses totaled $75.9 million for the three months ended March 31, 2024, compared to $67.4 million in the same period of 2023[147]. - Research and development expenses increased to $28.9 million for the three months ended March 31, 2024, from $25.7 million in the same period of 2023[147]. - Total cost of revenue increased by $23 million, or 28%, compared to the same period in 2023, primarily due to higher pass-through messaging surcharges[152]. - Total operating expenses increased by $8 million, or 13%, compared to the same period in 2023, with research and development expenses rising by $3 million, or 13%[153][154]. Cash Flow and Liquidity - Net cash provided by operating activities was $2 million for the three months ended March 31, 2024, compared to a cash outflow of $6 million in the same period of 2023[170]. - Net cash used in investing activities was $27 million, driven by the purchase of marketable securities totaling $22 million[172]. - As of March 31, 2024, the company had cash and cash equivalents of $105 million and marketable securities of $42 million[162]. - The company expects its cash, cash equivalents, and marketable securities to be sufficient to meet anticipated cash needs for at least the next 12 months[165]. Taxation - The effective tax rate for the three months ended March 31, 2024, was 2.1%, compared to (647.6)% in the same period of 2023[145]. - The effective tax rate for the quarterly period ended March 31, 2024, was 2.1%, compared to (647.6)% in 2023, primarily due to near breakeven pre-tax income in the first quarter of 2023[156][157]. - The Non-GAAP effective income tax rate for Q1 2024 was 13.0%, differing from the federal statutory tax rate of 21% due to research and development tax credits[185]. Legal and Regulatory Matters - The company is currently involved in multiple lawsuits related to the collection and remittance of 911 taxes and surcharges[208]. - The company may face ongoing legal actions and claims related to number management, billing, and employment issues[211]. - Future litigation may be necessary to defend proprietary rights and recover amounts owed[211]. - The outcomes of current or future litigation cannot be predicted with certainty[211]. - Litigation can adversely impact the company due to defense costs and diversion of management resources[211]. Strategic Initiatives - The company aims to strengthen its position as a key enabling platform for communications transformation through cross-selling, direct-to-enterprise growth, and becoming the preferred provider for SaaS platforms[130]. - Bandwidth powers all the 2023 Gartner Magic Quadrant Leaders in the key cloud communications categories of UCaaS and CCaaS[130]. Interest Rate and Currency Exposure - The company entered into a $50 million Credit Facility on August 1, 2023, with interest rates tied to either a base rate or SOFR, exposing it to interest rate risk[199]. - The company has $175 million and $250 million outstanding from its 2026 and 2028 Convertible Notes, respectively, which have fixed annual interest rates[200]. - A hypothetical 10% adverse change in foreign currency exchange rates would have negatively impacted the company's net loss by approximately $0.8 million for the quarterly period ended March 31, 2024[202]. - The company has not engaged in any hedging activity to reduce potential exposure to currency fluctuations but may consider it in the future[202]. - The company has not experienced significant fluctuations in interest income to date, and a hypothetical 10% change in interest rates would not have materially impacted financial results[198]. Internal Controls - The company intends to continue monitoring and upgrading its internal controls as necessary[206].

Financial Data and Key Metrics Changes - First quarter revenue reached $171 million, a 24% year-over-year increase, exceeding guidance by $6 million [8] - Adjusted EBITDA for the first quarter was $16 million, up 215% year-over-year, surpassing guidance by $4 million [8][14] - Full year 2024 revenue guidance raised to $715 million, reflecting a $15 million increase from previous guidance [15] - Adjusted EBITDA guidance for 2024 raised to $74 million at the midpoint, also reflecting the first quarter performance [15] Business Line Data and Key Metrics Changes - Cloud communications revenue grew 12% year-over-year to $128 million [11] - Messaging revenue increased by 50% year-over-year, with commercial messaging growing 34% [11][12] - Direct-to-enterprise revenue grew 20% year-over-year, indicating strong execution of the enterprise go-to-market strategy [13] Market Data and Key Metrics Changes - Global communications plans revenue grew 4% year-over-year, reflecting improved usage trends [12] - Programmable services category saw a 49% year-over-year growth, driven by demand from commercial customers [12] Company Strategy and Development Direction - The company is focusing on its direct-to-enterprise strategy, leveraging the Maestro platform to address complex communication challenges for global enterprises [17][18] - Investments in customer support and predictive AI analytics are seen as competitive advantages [24] - The company aims to maintain profitable growth and improve its capital structure while seizing market opportunities [16][29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the macroeconomic environment, noting improved sentiment among customers [33] - The company anticipates continued growth in net retention rates and average annual revenue per customer, which reached a record $190,000 [13][50] - The leadership change with the departure of COO Anthony Bartolo was acknowledged, highlighting his contributions to the company's strategic planning and operational improvements [27][28] Other Important Information - The company repurchased $140 million of its 2026 convertible notes, reducing the outstanding balance significantly [9][10] - The first quarter free cash flow reflected a $4 million use of cash due to seasonal working capital timing [14] Q&A Session Summary Question: How are customers feeling from a macro standpoint and how are upsells like Maestro helping support metrics? - Management noted that customer sentiment is generally positive, contributing to the raised guidance for the year [33] Question: Can you provide details on the full year guidance after a stronger top line raise? - The revenue guidance increase is primarily driven by surcharges and commercial cloud communications revenue [35] Question: How can progress with Maestro be tracked? - While specific customer numbers for Maestro adoption were not disclosed, growth has been substantial since its launch [37] Question: What are the drivers of the enterprise business in Q1? - The drivers include increased adoption of the Maestro product and a growing awareness of the company's AI solutions [59] Question: What are the expectations for messaging growth for the rest of the year? - Messaging is expected to continue strong growth, particularly in the second half of the year driven by commercial and political campaign messaging [61]

Financial Performance - Bandwidth reported Q1 2024 revenue of $171 million, a 24% increase from $138 million in Q1 2023[4] - Adjusted EBITDA for Q1 2024 was $16 million, significantly up from $5 million in Q1 2023, indicating strong operational performance[4] - Revenue for the three months ended March 31, 2024, was $171,033,000, an increase of 24% compared to $137,844,000 for the same period in 2023[29] - Operating loss for the three months ended March 31, 2024, was $(10,416,000), an improvement from $(11,756,000) in the same period of 2023[29] - Net loss for the three months ended March 31, 2024, was $(9,233,000), compared to a net income of $3,611,000 for the same period in 2023[29] - Non-GAAP net income for the three months ended March 31, 2024, was $7.820 million, significantly up from $1.190 million in the prior year[40] - Adjusted EBITDA for the three months ended March 31, 2024, reached $15.923 million, compared to $5.059 million in the same period of 2023[43] - Free cash flow for the three months ended March 31, 2024, was $(4.407) million, an improvement from $(10.900) million in the prior year[44] Guidance and Projections - The company raised its full-year 2024 revenue guidance to a range of $710 million to $720 million, reflecting an expected growth of approximately 19%[5] - Adjusted EBITDA for the full year 2024 is projected to increase by 54%, with guidance set at $72 million to $76 million[10] Margins and Expenses - Gross margin for Q1 2024 was 38%, down from 40% in Q1 2023, while Non-GAAP gross margin improved to 57% from 54%[4] - Gross profit for the same period was $65,484,000, resulting in a gross margin of 38%, down from 40% in the prior year[29][37] - Research and development expenses increased to $28,912,000, up from $25,661,000 in the prior year, reflecting a focus on innovation[29] - Stock-based compensation increased to $12.339 million for the three months ended March 31, 2024, up from $7.378 million in the same period of 2023[40] Financial Position - Cash and cash equivalents at the end of the period were $105,390,000, down from $131,987,000 at the end of March 2023[31] - Total assets decreased to $1,085,531,000 from $1,101,048,000 year-over-year[31] - Total liabilities decreased to $787,332,000 from $803,658,000 in the previous year[31] Business Growth and Contracts - Bandwidth's direct-to-enterprise business grew by 20% in Q1 2024, showcasing robust demand for its services[2] - The company secured significant contracts, including a healthcare engagement provider and a major U.S. airline, highlighting its market expansion efforts[7] Awards and Recognition - Bandwidth won two Stevie Awards for Customer Service Innovation, underscoring its commitment to customer satisfaction[8] Shareholder Information - The weighted average number of common shares outstanding was 26,493,802 for the three months ended March 31, 2024, compared to 25,448,452 in the prior year[29] - The company reported a basic net loss per share of $(0.35) for the three months ended March 31, 2024, compared to a profit of $0.14 in the same period of 2023[40] Other Financial Metrics - The estimated Non-GAAP effective income tax rate for the three months ended March 31, 2024, was 13.0%, compared to (143.4)% for the same period in 2023[40] - The company incurred a net cost of $1.156 million associated with early lease terminations and leases without economic benefit during the three months ended March 31, 2024[40] - The company had no valuation allowance against remaining deferred tax assets for Non-GAAP purposes as of March 31, 2024[40]

Growth and Market Conditions - The company has experienced significant growth since inception but cannot guarantee maintaining the same growth pace in the future [87]. - The financial markets have faced substantial volatility, which may impair the company's ability to obtain favorable debt or equity financing [88]. - Inflationary pressures have led to potential compression in gross margins, affecting wages, component costs, and customer demand [89]. - The company anticipates increased expenditures for brand promotion as the market becomes more competitive and as it expands into new markets [125]. - The company may need to reduce prices to remain competitive, which could negatively impact operating results unless operating expenses are reduced or traffic volume increases [205]. Competition and Customer Dynamics - The market for cloud communications is highly competitive, with low barriers to entry and significant competition from larger, more established companies [94]. - The company must attract new customers cost-effectively, as most customers do not have long-term commitments and can reduce usage at any time [104]. - The lengthy sales cycle for enterprise customers requires significant education and support, which may strain resources [107]. - The company anticipates an increase in customer churn rate due to economic changes, increased competition, and service quality issues, which could adversely affect revenue growth [202]. - The company’s services differ from traditional telephone services, which may lead to customer retention issues if users do not accept these differences [191]. Operational Risks and Challenges - Approximately half of the company's operating cash is maintained in deposit accounts that are not insured by the FDIC, posing liquidity risks [92]. - The company relies on third-party vendors for key software and services, and any failure in these services could lead to delays in revenue recognition and inaccuracies in billing [119]. - The complexity of the company's pricing and billing systems poses a risk, as errors could adversely affect profitability and cash flow [118]. - The company is dependent on third-party suppliers for critical components, and disruptions in these relationships could materially affect its operations and financial condition [200]. - Many third-party supplier agreements are not long-term, which could lead to service interruptions and additional costs if agreements are terminated [201]. Regulatory and Compliance Issues - Regulatory uncertainties may harm the company's business, with potential delays in receiving necessary regulatory approvals impacting growth [149]. - Noncompliance with applicable regulations could result in investigations, sanctions, or fines, adversely affecting business operations [152]. - The company must obtain and maintain various telecommunications licenses and permits, with failure to do so potentially impacting operations [155]. - The company faces risks related to compliance with complex and evolving communications laws and regulations in non-U.S. countries, which may increase costs and impact service offerings [159]. - The company is subject to various federal, state, local, and foreign laws regarding data protection, which could lead to significant penalties if not complied with [162]. Cybersecurity and Data Protection - Cyber-attacks have increased in frequency and potential harm, posing significant risks to the company's operations and proprietary information [134]. - The company experienced a DDoS attack in late 2021, which may have ongoing cascading effects and result in additional costs [135]. - Existing general liability and cyber liability insurance may not fully cover potential claims related to cyber incidents, impacting financial condition [138]. - The company may face challenges in maintaining customer confidence and brand reputation due to potential data breaches or security incidents [165]. Financial and Tax Considerations - The company may incur substantial additional debt in the future, potentially diminishing its ability to make payments on existing Convertible Notes [252]. - The company may face significant U.S. federal income tax-related liabilities of approximately $50 million if the Spin-Off is determined to be a taxable transaction [230]. - The company received tax opinions indicating that the Spin-Off should qualify as a tax-free transaction under U.S. federal income tax laws, but these opinions are not binding on the IRS [228]. - The company may face additional tax liabilities due to complex tax compliance requirements across various jurisdictions, which could adversely affect financial results [217]. Strategic Transactions and Acquisitions - The company may evaluate potential strategic transactions, including acquisitions, which could divert management's attention and result in debt or dilution to stockholders [244]. - Successful integration of acquired businesses will depend on the company's ability to manage operations and realize expected synergies [247]. - The company may not realize anticipated benefits from acquisitions, which could adversely affect its business and financial condition [248]. - Significant non-recurring costs have been incurred in connection with the acquisition and integration of Voxbone, with no assurance that efficiencies will offset these costs [249]. Management and Governance - The company is dependent on the continued services of senior management and key employees, and their loss could significantly delay or prevent the achievement of business objectives [211]. - Attracting and retaining highly skilled personnel is critical for future success, and competition for talent in the technology industry has intensified [212]. - The dual class structure of the company's common stock concentrates voting control, limiting other stockholders' influence over corporate matters [267]. - Anti-takeover provisions in the company's bylaws could delay or prevent hostile takeovers and changes in management [275].