Shares of Bandwidth (BAND), a Communications Platform-as-a-Service (CPaaS) provider, are jumping higher this morning on the heels of its beat-and-raise 4Q17 report. This was only the company's second quarterly report since going public on November 10, 2017. And so far, so good for BAND as this report followed a strong Q3 report in which it also exceeded analysts' expectations and provided an upside outlook for Q4.
First, before taking a closer look at its quarterly results, here is some more background on what the company does. As noted above, BAND is a developer of a cloud-based communications platform for enterprises in the United States. Its platform includes a broad range of software application programming interfaces (APIs) for voice and text functionality and its owned and managed, purpose-built Internet protocol (IP) voice network -- one of the largest in the nation.
Companies use BAND's platform to more frequently and seamlessly connect with their end users, add voice calling capabilities to residential Internet of Things (IoT) devices, offer end users new mobile application experiences and improve employee productivity. Its sophisticated and easy-to-use software APIs allow enterprises to enhance their products and services by incorporating advanced voice and text capabilities.
At the core of its platform is its communications software APIs, which allow companies to build products and services on top of BAND's cloud-based, out-of-the-box software. BAND's software APIs include pre-defined functions that are easily customizable for specific use cases without the challenge and expense of building and deploying complex code.
Additionally, its platform collects and analyzes terabytes of call and messaging data records in real-time and provide a seamless integration to CRM and Business Intelligence analytics tools to provide meaningful data driven actionable insights for critical business decisions. Customers can then launch and scale applications and solutions with reliability using BAND's own nationwide IP voice network. Its voice software APIs allow enterprises to make and receive phone calls and create advanced voice experiences.
BAND's customers include Google Voice, Microsoft Office 365 Skype for Business, Dialpad, GoDaddy, Kipsu, Rover and ZipRecruiter, among many others.
Rewinding back to its Q4 results, EPS came in at $0.09, tripling year/year. In addition to the topline growth, discussed below, management did well managing costs. Specifically, total operating expenses were up a reasonable 15% year/year.
Meanwhile, revenue grew 10% to $42.5 million, edging out the $41.7 million Capital IQ consensus. The Q4 growth was a slight improvement from Q3's +7% performance. Driving the upside topline result was a 21% increase in total customers to 965, as well as an impressive dollar-based net retention rate of 111%. Both of those metrics moved in the right direction as compared to Q3 when total customer growth was 18% and the net retention rate was 105%.
Taking a look at a few other key metrics. gross margin was steady at 46% and BAND generated $4.8 million in cash flow from operations, up from $4.2 million in 4Q16.
In the earnings press release, management credited the strong results to ongoing enterprise demand as companies look to embed voice, messaging, and 911 into their existing software applications.
Lastly, turning to its outlook, BAND is forecasting Q1 EPS of $0.07-$0.10, well ahead of the ($0.06) consensus, and revenue of $47-$47.5 million, also comfortably exceeding the $42.3 million expectation. For FY18, BAND sees EPS of $0.00-($0.11) vs. the ($0.34) consensus on revenue of $188-$190 million.
To conclude, BAND's first two quarterly reports as a public company illustrate that demand is healthy and that the company is operating efficiently -- much more so than anticipated. This is driving the company closer to profitability at a much faster rate than expected. In turn, as analysts' forward estimates are ratcheted higher, so to is the stock price.