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Communications platform-as-a-service company Bandwidth (NASDAQ: BAND) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 19% year on year to $173.6 million. The company expects next quarter's revenue to be around $182 million, slightly above analysts' estimates. It made a non-GAAP profit of $0.29 per share, improving from its profit of $0.15 per share in the same quarter last year.
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Bandwidth (BAND) Q2 CY2024 Highlights:
- Revenue: $173.6 million vs analyst estimates of $173.4 million (small beat)
- EPS (non-GAAP): $0.29 vs analyst estimates of $0.26 (12.8% beat)
- Revenue Guidance for Q3 CY2024 is $182 million at the midpoint, above analyst estimates of $178.6 million
- The company reconfirmed its revenue guidance for the full year of $715 million at the midpoint
- Gross Margin (GAAP): 37.3%, down from 40.4% in the same quarter last year
- Free Cash Flow of $18.32 million is up from -$4.41 million in the previous quarter
- Market Capitalization: $616.3 million
Started in 1999 by David Morken who was later joined by Henry Kaestner as co-founder in 2001, Bandwidth (NASDAQ:BAND) provides thousands of customers with a software platform that uses its own global network to provide phone numbers, voice, and text connectivity.
Communications PlatformThe first shift towards voice communication over the internet (VOIP), rather than traditional phone networks, happened when the enterprises started replacing business phones with the cheaper VOIP technology. Today, the rise of the consumer internet has increased the need for two way audio and video functionality in applications, driving demand for software tools and platforms that enable this utility.
Sales GrowthAs you can see below, Bandwidth's revenue growth has been sluggish over the last three years, growing from $120.7 million in Q2 2021 to $173.6 million this quarter.
This quarter, Bandwidth's quarterly revenue was once again up 19% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $2.57 million in Q2 compared to $5.65 million in Q1 CY2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Bandwidth is expecting revenue to grow 19.7% year on year to $182 million, improving on the 2.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 11.3% over the next 12 months before the earnings results announcement.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Bandwidth has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.8%, subpar for a software business.
Bandwidth's free cash flow clocked in at $18.32 million in Q2, equivalent to a 10.6% margin. This quarter's result was good as its margin was 11.4 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.
Over the next year, analysts predict Bandwidth's cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 6.8% for the last 12 months will increase to 8.7%, giving it more optionality.
Key Takeaways from Bandwidth's Q2 Results It was good to see Bandwidth's strong revenue guidance for next quarter, which topped analysts' expectations. On the other hand, its gross margin fell and It was good to see Bandwidth's strong revenue guidance for next quarter, which topped analysts' expectations. We were also glad this quarter's revenue and EPS beat analysts' estimates. On the other hand, its gross margin fell. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on track. The stock traded up 1% to $23 immediately following the results.
