Bandwidth Announces Fourth Quarter and Full Year 2022 Financial Results
Bandwidth Inc. (NASDAQ: BAND) reported its fourth quarter and full year 2022 earnings, exceeding revenue guidance by $10 million with total revenue of $157 million in Q4 and $573 million for the year. The company anticipates a 30% increase in Adjusted EBITDA for 2023. Despite macroeconomic challenges, Bandwidth saw strong demand, notably a $23 million boost from campaign messaging. Active customers grew to 3,405 with a dollar-based net retention rate of 112%. Looking ahead, Q1 2023 revenue guidance is set at $132-$134 million. Bandwidth will host its inaugural Investor Day, emphasizing its efforts in enterprise cloud migration.
- Q4 2022 revenue of $157 million exceeded guidance by $10 million.
- Projected 30% increase in Adjusted EBITDA for 2023.
- Active customer count increased to 3,405.
- Revenue growth expected to be constrained due to macroeconomic conditions.
- Dollar-based net retention rate declined from 117% to 112%.
Quarterly and full year revenue exceeded mid-point of guidance ranges by
Guiding to
Hosting inaugural Investor Day
"We are pleased with our solid fourth quarter performance despite the broader macro-market uncertainties," said
"Our fourth quarter results surpassed both our top and bottom line guidance, driven by customer demand for our communications cloud. Revenue further benefited by
Fourth Quarter and Full Year 2022 Financial Highlights
The following table summarizes the consolidated financial highlights for the three and twelve months ended
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Total Revenue | $ 157 | $ 126 | $ 573 | $ 491 | |||
Gross Margin (1) | 41 % | 41 % | 42 % | 44 % | |||
Non-GAAP Gross Margin (1) | 56 % | 53 % | 55 % | 52 % | |||
Net Income (Loss) | $ 33 | $ (8) | $ 20 | $ (27) | |||
Non-GAAP Net Income | $ 5 | $ 2 | $ 15 | $ 26 | |||
Net income (loss) per share: | |||||||
Basic | $ 1.32 | $ (0.33) | $ 0.77 | $ (1.09) | |||
Diluted | $ (0.16) | $ (0.33) | $ (0.48) | $ (1.09) | |||
Non-GAAP net income per Non-GAAP share | $ 0.19 | $ 0.09 | $ 0.54 | $ 0.97 | |||
Adjusted EBITDA | $ 8 | $ 8 | $ 35 | $ 50 | |||
(1) Prior period has been conformed to the current period presentation. 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. |
Year ended | |||
2022 | 2021 | ||
Number of active customers (1) | 3,405 | 3,300 | |
Dollar-based net retention rate (1) | 112 % | 117 % | |
(1) | As a result of the change in revenue segment reporting effective |
Fourth Quarter Customer Highlights
- A healthcare leader in diabetes care chose Bandwidth as the cloud provider for their Genesys contact center. Our new Call AssureTM product delivering toll-free calling redundancy was a key differentiator.
- An IT managed services provider with a complex organization spanning 23,000 customers in 50,000 locations chose Bandwidth because we addressed their unique needs for emergency 911 calling compliance.
- A leader in B2B text messaging chose Bandwidth for high-volume text messaging. They chose Bandwidth for the scalability, reliability and deliverability they need to support rapid growth.
- Bandwidth's outstanding customer support solved difficult international routing issues in
Japan and other countries for a large unified communications platform that led to incremental toll-free business.
Financial Outlook
Bandwidth's outlook is based on current indications for its business, which are subject to change. Bandwidth is providing guidance for its first quarter and full year 2023 as follows:
Q1 2023 | Full Year 2023 | ||
Total Revenue (millions) | |||
Adjusted EBITDA (millions) |
Bandwidth has not reconciled its first quarter and full year 2023 guidance related to Adjusted EBITDA to GAAP net income or loss, because stock-based compensation cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.
Upcoming Investor Conference Schedule
JMP Securities Technology Conference inSan Francisco, CA. Fireside chat onTuesday, March 7th at10:00AM Pacific Time .- Morgan Stanley
Technology, Media & Telecom Conference inSan Francisco, CA. Fireside chat onWednesday, March 8th at10:25AM Pacific Time . William Blair Tech Innovators Conference virtual investor meetings hosted onTuesday, March 14th .
Live webcasts and replays of the presentation will be available on the Investor Relations section of the Bandwidth's website at https://investors.bandwidth.com.
About
Bandwidth (NASDAQ: BAND) is a global cloud communications software company that helps enterprises deliver exceptional experiences through voice calling, text messaging and emergency services applications. Our solutions and our Communications Cloud, covering 60+ countries and over 90 percent of global GDP, are trusted for business-critical communications by all the leaders in unified communications and cloud contact centers–including Cisco,
Investor Day Details
Bandwidth is hosting a virtual Investor Day webcast today,
The Investor Day will begin at
Replay information
Following the event, a replay of the webcast along with the presentation materials will be available on Bandwidth's investor relations website at investors.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, future financial and business performance for the quarter ending
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in
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, amortization of acquired intangible assets related to acquisitions and stock-based compensation. We add back depreciation, amortization of acquired intangible assets related to acquisitions 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 of acquired intangible assets related to acquisitions 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 Non-GAAP gross profit by revenue less pass-through messaging surcharges, expressed as a percentage of revenue.
We define Non-GAAP net income as net income or loss adjusted for certain items affecting period to period comparability. Non-GAAP net income excludes stock-based compensation, amortization of acquired intangible assets related to acquisitions, amortization of debt discount and issuance costs for convertible debt, acquisition related expenses, impairment charges of intangibles assets, net cost associated with early lease terminations and leases without economic benefit, (gain) loss on sale of business, net (gain) loss on extinguishment of debt, non-recurring items not indicative of ongoing operations and other, and estimated tax impact of above adjustments, net of valuation allowances.
We define Adjusted EBITDA as net income or losses from continuing operations, adjusted to reflect the addition or elimination of certain statement of operations items including, but not limited to: income tax (benefit) provision, interest (income) expense, net, depreciation and amortization expense, acquisition related expenses, stock-based compensation expense, impairment of intangible assets, (gain) loss on sale of business, net cost associated with early lease terminations and leases without economic benefit, net (gain) loss on extinguishment of debt, and non-recurring items not indicative of ongoing operations and other. 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 and trends, 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 the acquisition of property, plant and equipment 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 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
To calculate the dollar-based net retention rate, we first identify the cohort of customers that generate revenue and that were customers in the same quarter of the prior year. The dollar-based net retention rate is obtained by dividing the revenue generated from that cohort in a quarter, by the revenue generated from that same cohort in the corresponding quarter in the prior year. The dollar-based net retention rate reported in a quarter is then obtained by averaging the result from that quarter by the corresponding results from each of the prior three quarters. Customers of acquired businesses are included in the subsequent year's calendar quarter of acquisition. Our dollar-based net retention rate increases when such customers increase usage of a product, extend usage of a product to new applications or adopt a new product. Our dollar-based net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions. For comparative purposes, the dollar-based net retention rate presented herein has been updated to reflect the change in our reporting segments effective
Cost Alignment
During the quarter ended
Additionally, expense related to our product management function is now included in research and development rather than general and administrative, as previously reported, and the customer billing and collections function and amortization of acquired customer relationship intangible assets is now included in sales and marketing rather than general and administrative as previously reported. Management believes use of the benchmarked definitions will enhance the comparability of our performance to that of our peers. Financial data from prior periods have been conformed to the current definitions of cost of revenue, research and development, sales and marketing, and general and administrative expenses. There was no impact to revenue or net income for any periods presented due to the change in presentation. The consolidated balance sheets, consolidated statements of changes in stockholders' equity, and consolidated statements of cash flows are not affected by these changes.
Condensed Consolidated Statements of Operations | |||||||
(In thousands, except share and per share amounts) | |||||||
(Unaudited) | |||||||
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Revenue | $ 156,974 | $ 126,132 | $ 573,152 | $ 490,907 | |||
Cost of revenue | 92,903 | 74,023 | 334,799 | 277,094 | |||
Gross profit | 64,071 | 52,109 | 238,353 | 213,813 | |||
Operating expenses: | |||||||
Research and development | 26,255 | 19,469 | 97,990 | 69,505 | |||
Sales and marketing | 26,995 | 21,875 | 96,658 | 82,333 | |||
General and administrative | 17,838 | 14,837 | 68,029 | 64,212 | |||
Total operating expenses | 71,088 | 56,181 | 262,677 | 216,050 | |||
Operating loss | (7,017) | (4,072) | (24,324) | (2,237) | |||
Other income (expense), net | 39,348 | (8,190) | 41,630 | (28,958) | |||
Income (loss) before income taxes | 32,331 | (12,262) | 17,306 | (31,195) | |||
Income tax benefit | 1,103 | 4,088 | 2,264 | 3,833 | |||
Net income (loss) | $ 33,434 | $ (8,174) | $ 19,570 | $ (27,362) | |||
Net income (loss) per share: | |||||||
Basic | $ 1.32 | $ (0.33) | $ 0.77 | $ (1.09) | |||
Diluted | $ (0.16) | $ (0.33) | $ (0.48) | $ (1.09) | |||
Numerator used to compute net income (loss) per share: | |||||||
Basic | $ 33,434 | $ (8,174) | $ 19,570 | $ (27,362) | |||
Diluted | $ (4,946) | $ (8,174) | $ (14,897) | $ (27,362) | |||
Weighted average number of common shares outstanding: | |||||||
Basic | 25,326,063 | 25,135,355 | 25,282,796 | 25,090,916 | |||
Diluted | 30,465,279 | 25,135,355 | 30,907,869 | 25,090,916 | |||
The Company recognized total stock-based compensation expense as follows: | |||||||
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Cost of revenue | $ 121 | $ 89 | $ 404 | $ 364 | |||
Research and development | 2,225 | 789 | 7,523 | 3,681 | |||
Sales and marketing | 589 | 378 | 2,808 | 2,225 | |||
General and administrative | 2,661 | 1,689 | 9,920 | 8,267 | |||
Total | $ 5,596 | $ 2,945 | $ 20,655 | $ 14,537 | |||
Condensed Consolidated Balance Sheets | |||
(In thousands) | |||
(Unaudited) | |||
As of | |||
2022 | 2021 | ||
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ 113,641 | $ 331,453 | |
Restricted cash | 981 | 836 | |
Marketable securities | 71,231 | — | |
Accounts receivable, net of allowance for doubtful accounts | 74,465 | 61,572 | |
Deferred costs | 3,566 | 3,204 | |
Prepaid expenses and other current assets | 15,724 | 15,820 | |
Total current assets | 279,608 | 412,885 | |
Property, plant and equipment, net | 99,753 | 69,604 | |
Operating right-of-use asset, net | 9,993 | 14,061 | |
Intangible assets, net | 177,370 | 211,217 | |
Deferred costs, non-current | 4,938 | 4,676 | |
Other long-term assets | 31,251 | 8,673 | |
326,405 | 344,423 | ||
Total assets | $ 929,318 | $ 1,065,539 | |
Liabilities and stockholders' equity | |||
Current liabilities: | |||
Accounts payable | $ 26,750 | $ 9,142 | |
Accrued expenses and other current liabilities | 62,577 | 65,921 | |
Current portion of deferred revenue | 7,181 | 6,248 | |
Advanced billings | 10,049 | 6,380 | |
Operating lease liability, current | 7,450 | 5,807 | |
Total current liabilities | 114,007 | 93,498 | |
Other liabilities | 11,176 | 6,018 | |
Operating lease liability, net of current portion | 4,640 | 10,958 | |
Deferred revenue, net of current portion | 8,306 | 7,634 | |
Deferred tax liability | 38,466 | 48,396 | |
Convertible senior notes | 480,546 | 486,440 | |
Total liabilities | 657,141 | 652,944 | |
Stockholders' equity: | |||
Class A and Class B common stock | 25 | 25 | |
Additional paid-in capital | 364,913 | 502,477 | |
Accumulated deficit | (48,547) | (76,867) | |
Accumulated other comprehensive loss | (44,214) | (13,040) | |
Total stockholders' equity | 272,177 | 412,595 | |
Total liabilities and stockholders' equity | $ 929,318 | $ 1,065,539 | |
Condensed Consolidated Statements of Cash Flows | |||
(In thousands) | |||
(Unaudited) | |||
Year ended | |||
2022 | 2021 | ||
Cash flows from operating activities | |||
Net income (loss) | $ 19,570 | $ (27,362) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | |||
Depreciation and amortization | 35,599 | 36,642 | |
Non-cash reduction to the right-of-use asset | 6,977 | 5,722 | |
Amortization of debt discount and issuance costs | 3,082 | 26,754 | |
Stock-based compensation | 20,655 | 14,537 | |
Deferred taxes and other | (5,557) | (7,486) | |
Net gain on extinguishment of debt | (40,205) | — | |
Changes in operating assets and liabilities: | |||
Accounts receivable, net of allowances | (13,341) | (6,711) | |
Prepaid expenses and other assets | (5,795) | (6,751) | |
Accounts payable | 17,210 | 1,992 | |
Accrued expenses and other liabilities | 4,291 | 9,693 | |
Operating right-of-use liability | (7,580) | (6,227) | |
Net cash provided by operating activities from continuing operations | 34,906 | 40,803 | |
Cash flows from investing activities | |||
Purchase of property, plant and equipment | (41,661) | (17,686) | |
Deposits for construction in progress | (18,674) | (3,000) | |
Capitalized software development costs | (3,755) | (3,926) | |
Purchase of land | — | (30,017) | |
Proceeds from sale of land | — | 17,462 | |
Purchase of marketable securities | (179,598) | — | |
Proceeds from sales and maturities of marketable securities | 108,681 | — | |
Proceeds from sales and maturities of other investments | — | 40,000 | |
Proceeds from sale of business | 1,558 | — | |
Net cash (used in) provided by investing activities | (133,449) | 2,833 | |
Cash flows from financing activities | |||
Payments on finance leases | (190) | (212) | |
Proceeds from issuance of convertible senior notes | — | 250,000 | |
Net cash paid for debt extinguishment | (117,286) | — | |
Purchase of Capped Call | — | (25,500) | |
Payment of Acquisition holdback | — | (6,689) | |
Payment of debt issuance costs | (553) | (7,544) | |
Proceeds from exercises of stock options | 163 | 926 | |
Value of equity awards withheld for tax liabilities | (2,139) | (3,954) | |
Net cash (used in) provided by financing activities | (120,005) | 207,027 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 881 | 189 | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | (217,667) | 250,852 | |
Cash, cash equivalents, and restricted cash, beginning of period | 332,289 | 81,437 | |
Cash, cash equivalents, and restricted cash, end of period | $ 114,622 | $ 332,289 | |
Reconciliation of Non-GAAP Financial Measures | |||||||
(In thousands, except share and per share amounts) | |||||||
(Unaudited) | |||||||
Non-GAAP Gross Profit and Non-GAAP Gross Margin | |||||||
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Gross Profit | $ 64,071 | $ 52,109 | $ 238,353 | $ 213,813 | |||
Gross Profit Margin % | 41 % | 41 % | 42 % | 44 % | |||
Depreciation | 3,461 | 3,261 | 13,602 | 12,606 | |||
Amortization of acquired intangible assets | 1,860 | 2,064 | 7,657 | 8,543 | |||
Stock-based compensation | 121 | 89 | 404 | 364 | |||
Non-GAAP Gross Profit | $ 69,513 | $ 57,523 | $ 260,016 | $ 235,326 | |||
Non-GAAP Gross Margin % (1) | 56 % | 53 % | 55 % | 52 % | |||
________________________ |
(1) Calculated by dividing Non-GAAP gross profit by revenue less pass-through messaging surcharges of |
Reconciliation of Non-GAAP Financial Measures | |||||||
(In thousands, except share and per share amounts) | |||||||
(Unaudited) | |||||||
Non-GAAP Net Income | |||||||
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Net income (loss) | $ 33,434 | $ (8,174) | $ 19,570 | $ (27,362) | |||
Stock-based compensation | 5,596 | 2,945 | 20,655 | 14,537 | |||
Amortization of acquired intangibles | 4,162 | 4,624 | 17,180 | 19,119 | |||
Amortization of debt discount and issuance costs for convertible debt | 693 | 7,279 | 2,977 | 26,672 | |||
Gain on sale of business | — | — | (3,777) | — | |||
Net gain on extinguishment of debt | (40,205) | — | (40,205) | — | |||
Non-recurring items not indicative of ongoing operations and other (1) | 1,702 | 475 | 1,992 | 832 | |||
Estimated tax effects of adjustments (2) | (36) | (4,800) | (3,396) | (8,087) | |||
Non-GAAP net income | $ 5,346 | $ 2,349 | $ 14,996 | $ 25,711 | |||
Interest expense on Convertible Notes (3) | 414 | — | 1,666 | — | |||
Numerator used to compute Non-GAAP diluted net income per share | $ 5,760 | $ 2,349 | $ 16,662 | $ 25,711 | |||
Net income (loss) per share | |||||||
Basic | $ 1.32 | $ (0.33) | $ 0.77 | $ (1.09) | |||
Diluted | $ (0.16) | $ (0.33) | $ (0.48) | $ (1.09) | |||
Non-GAAP net income per Non-GAAP share | |||||||
Basic | $ 0.21 | $ 0.09 | $ 0.59 | $ 1.02 | |||
Diluted | $ 0.19 | $ 0.09 | $ 0.54 | $ 0.97 | |||
Weighted average number of shares outstanding | |||||||
Basic | 25,326,063 | 25,135,355 | 25,282,796 | 25,090,916 | |||
Diluted | 30,465,279 | 25,135,355 | 30,907,869 | 25,090,916 | |||
Non-GAAP basic shares | 25,326,063 | 25,135,355 | 25,282,796 | 25,090,916 | |||
Convertible debt conversion | 5,139,216 | — | 5,625,073 | 987,149 | |||
Stock options issued and outstanding | 71,202 | 157,658 | 100,088 | 180,318 | |||
Nonvested RSUs outstanding | — | 70,650 | — | 197,538 | |||
Non-GAAP diluted shares | 30,536,481 | 25,363,663 | 31,007,957 | 26,455,921 | |||
________________________ |
(1) Non-recurring items not indicative of ongoing operations and other include |
(2) The estimated tax-effect of adjustments is determined by recalculating the tax provision on a Non-GAAP basis. The Non-GAAP effective income tax rate was |
(3) Upon the adoption of Accounting Standards Update 2020-06 ("ASU 2020-06"), net income is increased for interest expense as part of the calculation for diluted Non-GAAP earnings per share. See Note 2, "Summary of Significant Accounting Policies" to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended |
Adjusted EBITDA | |||||||
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Net income (loss) | $ 33,434 | $ (8,174) | $ 19,570 | $ (27,362) | |||
Income tax benefit | (1,103) | (4,088) | (2,264) | (3,833) | |||
Interest expense, net | 187 | 7,960 | 3,048 | 28,784 | |||
Depreciation | 4,571 | 4,540 | 18,419 | 17,523 | |||
Amortization | 4,162 | 4,624 | 17,180 | 19,119 | |||
Stock-based compensation | 5,596 | 2,945 | 20,655 | 14,537 | |||
Gain on sale of business | — | — | (3,777) | — | |||
Net gain on extinguishment of debt | (40,205) | — | (40,205) | — | |||
Non-recurring items not indicative of ongoing operations and other (1) | 1,702 | 475 | 1,992 | 832 | |||
Adjusted EBITDA | $ 8,344 | $ 8,282 | $ 34,618 | $ 49,600 | |||
________________________ |
(1) Non-recurring items not indicative of ongoing operations and other include |
Free Cash Flow | |||||||
Three months ended | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Net cash provided by operating activities | $ 10,566 | $ 17,115 | $ 34,906 | $ 40,803 | |||
Net cash used in investing in capital assets (1) (2) | (24,626) | (8,848) | (45,416) | (37,167) | |||
Free cash flow | $ (14,060) | $ 8,267 | $ (10,510) | $ 3,636 | |||
________________________ |
(1) Represents the acquisition cost of property, plant and equipment and capitalized development costs for software for internal use. |
(2) Includes the net cash used from the purchase of land of |
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FAQ
What were Bandwidth's Q4 2022 earnings results?
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