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Why Is Bandwidth (BAND) Up 3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Bandwidth (BAND - Free Report) . Shares have added about 3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Bandwidth due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Bandwidth's Q2 Earnings & Revenues Surpass Estimates

Bandwidth reported impressive second-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Higher CPaaS revenues and accretive subscriber base backed by strong business model bolstered Bandwidth’s financial performance.

Bottom Line

On an adjusted basis, quarterly net income was $3.1 million or 13 cents per share against net loss of $0.9 million or a loss of 4 cents per share in the year-ago quarter. The year-over-year improvement can be primarily attributed to adjustments due to income tax expenses in the reported quarter. The bottom line beat the consensus estimate by 13 cents.

On a GAAP basis, net loss in the June quarter came in at $20.6 million or a loss of 86 cents per share against net income of $3.5 million or 14 cents per share in the prior-year quarter. The drastic year-over-year decline was caused by higher operating expenses.

Revenues

Quarterly revenues came in at $76.8 million compared with $56.8 million in the year-ago quarter. The 35.2% year-over-year increase was primarily due to higher CPaaS revenues. The top line surpassed the consensus estimate of $70 million.

Segment Results

CPaaS revenues rose 39.8% to $67.1 million from $48 million in the year-ago quarter. Accounting 87.4% of total revenues, the improvement was primarily bolstered by higher demand for work-from-home connectivity solutions amid coronavirus-induced lockdown. Backed by a robust business model, the segment witnessed 29.5% surge in CPaaS customers during the reported quarter. Markedly, the dollar-based net retention rate was 133% compared with 113% in the prior-year quarter.

Adjusted CPaaS gross profit came in at $32.1 million from $ 23.1 million in the year-ago quarter with respective margins of 48%. Notably, Bandwidth ended the quarter with 1,900 active CPaaS customers.

Contributing 12.6% to total revenues, Other revenues increased 10.2% to $9.7 million from $8.8 million in the year-ago quarter.

Other Details

Total operating expenses were $35 million compared with $30.5 million in the prior-year quarter, primarily due to higher R&D and general & administrative expenses. Operating loss improved to $0.3 million from a loss of $3.8 million. Adjusted gross profit in the quarter improved 31.2% to $37.1 million from $28.2 million in the prior-year quarter with respective margins of 48% and 50%. Adjusted EBITDA totaled $5.5 million compared with $0.02 million in the year-ago quarter.

Cash Flow & Liquidity

In the first six months of 2020, Bandwidth utilized $0.3 million of net cash in operating activities compared with utilization of $5.4 million in the year-ago period. The company witnessed a negative free cash flow of $9.4 million in the first half of the year compared with a negative $14.9 million in the prior-year period. As of Jun 30, the company had $291 million in cash and equivalents with total current liabilities of $48.7 million.

Q3 & 2020 Guidance

Bandwidth provided the outlook for third-quarter and full-year 2020. For the third quarter, revenues are expected in the range of $76-$76.5 million. Adjusted EPS is anticipated to be a loss of 3 cents per share to a loss of 1 cent per share. CPaaS revenues are projected to be in the band of $67.1-$67.6 million.

For 2020, revenues are anticipated to be in the range of $296.8-$298.3 million. Adjusted EPS is anticipated to be in the range of 5 cents per share to 11 cents per share. CPaaS revenues are projected to be in the band of $260.3-$261.8 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.91% due to these changes.

VGM Scores

At this time, Bandwidth has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Bandwidth has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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