Bandwidth Q1 Results

-Strong Quarter from Bandwidth on a beat and raise, shares up ~3% after hours. Guidance indicates Revenue growth next quarter in the 51-52% range.

First Quarter 2021 Financial Highlights

-Q1 Non-GAAP EPS of $0.30 beats by $0.29; GAAP EPS of -$0.21 misses by $0.11.

-Revenue of $113.5M (+65.7% Y/Y) beats by $5.13M.

-CPaaS revenue of $100.1M, up 69% Y/Y

-First quarter dollar-based net retention rate of 125%

First Quarter 2021 Key Metrics

The number of active CPaaS customers was 2,959 as of March 31, 2021, an increase of 64% from 1,808 on March 31, 2020.

Adjusted EBITDA: Adjusted EBITDA was $13.4 million for the first quarter of 2021, compared to $3.1 million for the first quarter of 2020.

Guidance

Second Quarter 2021 Guidance: CPaaS revenue is expected to be in the range of $101.2 million to $102.2 million. Total revenue is expected to be in the range of $116.0 million to $117.0 million. Non-GAAP earnings per share is expected to be in the range of $0.08 to $0.10 per share, using 26.8 million weighted average diluted shares outstanding.

Full Year 2021 Guidance: CPaaS revenue is expected to be in the range of $417.6 million to $420.6 million. Total revenue is expected to be in the range of $473.1 million to $476.1 million. Non-GAAP earnings per share is expected to be in the range of $0.47 to $0.55 per share, using 27.0 million weighted average diluted shares outstanding.

Press Release:

https://investors.bandwidth.com/news-releases/news-release-d…

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During the conference call,

Jeff Hoffman Chief Financial Officer announced his planned departure saying that he and his wife were celebrating their 25th wedding anniversary in September and planned to take some time off to plan their next move.
He will work onboarding the new CFO.

Read about him with this link under management at Bandwidth:
https://www.bandwidth.com/leadership/

Bandwidth has made some management moves recently, perhaps taking on a more Global backbone, so this CFO move does Not seem unusual.

Bandwidth Welcomes Brandon Asbill as General Counsel
January 13, 2021
Red Hat veteran brings experience in scaling legal operations for global growth
https://investors.bandwidth.com/news-releases/news-release-d…

Bandwidth Expands Executive Leadership Team to Fuel Global Growth
November 02, 2020
Marina Carreker, President
John Bell, Chief Product Officer
Ryan Henley, Chief Customer Officer
Michelle Flynn, Senior Vice President, Operations
Amaya Lantero, GM, International
https://investors.bandwidth.com/news-releases/news-release-d…

Best, kevin c

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I don’t like the revenue growth and its trajectory:

Total revenue, including Voxbone is going 82% Q4 2020 to 66% Q1 2021 to 52% Q2 2021.

Total Q1 2021 revenue excluding Voxbone was only 34%.

Shouldn’t BAND be growing faster? Covid rages on globally and Voxbone is supposedly global but we are not seeing any positives in the results. Isn’t 2020-1 the time for BAND to shine?

I have to agree. In my previous write-up on BAND’s Q4 I pencilled in $120m in revenue as quite possible, using not outlandish assumptions.

The investment thesis was that the Voxbone acquisition and customers such as Zoom would accelerate growth and be an inflection point for growth.

Also management was bullish on the potential for gross margin improvement and had a seemingly plausible path to getting to a target GM% of around 60%. So I was looking for some evidence of that coming through.

Instead:

Revenue growth did not accelerate and came in at $113.4m - so flat qoq. vs the acceleration to $120m or beyond which I had hoped for and which I thought would have led to a rerating of the stock.

Gross margins contracted going from 49% in Q4 to 46% in Q1. This is equal to the level in Q1 2019 which was the lowest it was in the last 4 years. GM% looked like this in Q1:

2018 52%
2019 46%
2020 49%
2021 46%

Customer growth for Q1 decelerated vs prior years. Q1 qoq customer growth is not impacted by acquisitions and looks like this for Q1 vs Q4:

2019: 10%
2020: 5%
2021: 4%

ARPU continued on a slow decelerating path. Here is Q1 ARPU for the last 4 years in $:

2018 54,922
2019 39,452
2020 37,887
2021 38,324

So, all in all, this looks like very much more of the same, and not an inflection point and acceleration - which I was hoping for - to me.

I am still long BAND but will be selling the full position next week.

Best,

WSM

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