Bandwidth(BAND) - 2023 Q3 - Quarterly Report

Financial Performance - Total revenue for the three months ended September 30, 2023, was $152 million, a 2$148 million in the same period of 2022[142]. - Net loss for the three months ended September 30, 2023, was $5 million, compared to a net loss of$1 million in the same period of 2022[142]. - Total revenue for the three months ended September 30, 2023, increased by $4 million, or 2$20 million, or 5%, compared to the same period in 2022[180]. - Gross profit for Q3 2023 was $59,499,000, down from$63,464,000 in Q3 2022, representing a decrease of 4.9%[212]. - Non-GAAP gross profit for Q3 2023 was $65,696,000, compared to$68,791,000 in Q3 2022, a decline of 3.1%[212]. - Non-GAAP gross margin for Q3 2023 was 55%, down from 57% in Q3 2022[212]. - Net loss for Q3 2023 was $(5,130,000), compared to a net loss of$(802,000) in Q3 2022[215]. - Non-GAAP net income for Q3 2023 was $6,347,000, compared to$7,998,000 in Q3 2022, a decrease of 20.7%[215]. - Adjusted EBITDA for Q3 2023 was $13,758,000, up from$12,784,000 in Q3 2022, an increase of 7.6%[218]. Revenue Sources and Retention - 78% of revenue for the three months ended September 30, 2023, was derived from recurring sources, compared to 79% in the same period of 2022[151]. - The dollar-based net retention rate for the three months ended September 30, 2023, was 104%, down from 109% in the same period of 2022[148]. Expenses and Margins - Cost of revenue for the same period increased by $7.7 million, or 9$59 million, a decrease of $4 million from the prior year[168]. - The total gross margin percentage declined to 39$65.6 million, an increase of $0.8 million, or 1$0.3 million, or 1%, while sales and marketing expenses increased by $2 million, or 8$19.7 million, or 8%, to $261.6 million compared to$241.9 million in the same period of 2022[181]. - Gross profit for the same period was $174.1 million, a slight decrease of less than$1 million from $174.3 million in 2022, resulting in a total gross margin of 40$3.6 million, or 5%, to $75.3 million, primarily due to higher facilities and IT expenses[183]. - Sales and marketing expenses increased by$6.1 million, or 9%, to $75.8 million, mainly driven by higher sales personnel costs[185]. - Total operating expenses for the nine months ended September 30, 2023, were$199.5 million, an increase of $7.9 million, or 4$191.6 million in 2022[183]. Cash Flow and Financing - Net cash provided by operating activities was $19.7 million for the nine months ended September 30, 2023, down from$24.3 million in the same period of 2022[199]. - Net cash provided by investing activities was $26.9 million, primarily from the sales and maturities of marketable securities[202]. - Net cash used in financing activities was$52.7 million, mainly due to the repurchase of $65 million aggregate principal amount of the 2026 Convertible Notes[205]. - As of September 30, 2023, the company had cash and cash equivalents of$107.4 million and marketable securities of $31.7 million[191]. - Net cash provided by operating activities for the three months ended September 30, 2023, was$23,001 thousand, a decrease of 4.22% from $24,016 thousand for the same period in 2022[220]. - Free cash flow for the three months ended September 30, 2023, was$18,190 thousand, an increase of 35.67% compared to $13,492 thousand for the same period in 2022[220]. - As of September 30, 2023, the company had cash and cash equivalents of$107 million and marketable securities of $32 million[226]. - The company entered into a$50 million Credit Facility on August 1, 2023, with interest rates tied to a base rate or SOFR[228]. - As of September 30, 2023, the company had $175 million and$250 million outstanding from its 2026 and 2028 Convertible Notes, respectively[229]. - There were no outstanding borrowings under the Credit Facility as of September 30, 2023[228]. - The company has not experienced significant fluctuations in interest income due to the short-term nature of its investments[227]. Taxation - The effective tax rate for the three months ended September 30, 2023, was 4.1%, a significant decrease from 53.5% in the same period of 2022[160]. - The effective tax rate for the three months ended September 30, 2023, was 4.1%, significantly lower than 53.5% in 2022, primarily due to increased operating losses in the U.S.[175]. - The effective tax rate for the nine months ended September 30, 2023, was 37.1%, significantly higher than 7.7% in 2022, primarily due to increased operating losses outside the U.S.[187]. - The company recognized an income tax benefit of less than $1 million for the three months ended September 30, 2023, a decrease from the prior year[174]. - The Non-GAAP effective income tax rate for the nine months ended September 30, 2023, was 11.0%, down from 18.6% in the same period of 2022[215]. 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[238]. - Lawsuits have been filed by jurisdictions including San Francisco, Cook and Kane Counties, and the State of New York, alleging tax-related failures[238]. - The company intends to vigorously defend against these lawsuits, believing it has meritorious defenses[239]. - Future litigation may arise related to number management and intellectual property rights, which could impact the company's resources and operations[239]. Internal Controls - No changes in internal control over financial reporting were identified during the quarter ended September 30, 2023, that materially affected internal controls[234]. - The company is subject to inherent limitations in the effectiveness of internal control over financial reporting, which may not provide absolute assurances[235].