Bandwidth (BAND) Q3 2026 earnings review
Bandwidth turns an operating profit, while carrier fees pad sales
Bandwidth, which runs a cloud network for business phone calls and texts, turned an operating profit while its core sales growth stayed in the low double digits. Total revenue rose 22% to $234 million, but half of that gain came from zero-margin mobile carrier fees, leaving core cloud revenue up 11% by our math. Finance chief Daryl Raiford raised the full-year profit outlook after Adjusted EBITDA climbed 43%.
| Core cloud communications revenue | $158M +11.3% from a year ago |
|---|---|
| Total revenue (including carrier fees) | $234M +22.0% from a year ago |
| Adjusted EBITDA | $34.8M +43% from a year ago |
| Full-year revenue outlook | Raised $2.5M middle of the range: 20.4% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the company proved it can make an operating profit and committed early to double-digit core growth in 2027. Signing four more million-dollar customer deals and expanding its Salesforce partnership to 25 countries backed up that 2027 target. The bad news: convertible debt pushed the diluted share count up 24%, and core growth ticked down despite election-season text traffic.
The question now is whether newly signed enterprise voice contracts can replace election messaging and keep core growth above 10% next year. Either the 17 million-dollar deals signed since 2025 ramp on schedule, or core growth drops into the single digits once campaign texts stop. The formal 2027 dollar outlook in the fourth-quarter report will settle it.
🐂 Bull Case
Cost Discipline Turns Operating Losses Into Profit
Bandwidth had lost money on an operating basis in every recent quarter, forcing net profit to rely on debt refinancing gains and tax benefits. In the third quarter, the cloud communications provider earned $1.8 million of operating profit, reversing a $2.0 million loss a year ago. Even after stripping out a $0.8 million debt gain and a $1.9 million tax benefit, net income stayed positive at $2.5 million by our math.
Higher software margins and slower hiring drove the turnaround. Gross margin excluding one-offs—measured on core cloud revenue—rose 3 percentage points to 61%. Meanwhile, research and development plus sales and marketing fell by 3.6 percentage points of total revenue. That operating discipline lifted Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization, excluding one-offs) by 43% to $34.8 million, and the company raised its full-year profit outlook again.
What to watch: fourth-quarter operating income in the full-year report. A second consecutive quarter of operating profit without one-off gains would confirm that the business now covers its stock compensation and overhead from normal operations.
Large Deals Back Up the 2027 Growth Target
Chief executive David Morken said enterprises are hiring the firm "to power SI-driven communication workflows", where SI means super intelligence, Bandwidth's term for automated voice and text agents. To back that claim, finance chief Daryl Raiford pointed to "four new $1 million-plus customer wins and expansions that will layer into our results over the next twelve months". Those wins bring the year-to-date total to 11 large deals, up from six in all of 2025.
New customers include a digital bank using Maestro, Bandwidth's software for connecting call-center tools, and a privacy firm buying millions of phone numbers for call screening. Because these contracts take a year or more to go live, management issued an early "2027 outlook of double-digit Cloud Communications revenue from voice usage demand growth". That target addresses the fear that growth will stall after 2026 election messaging ends.
What to watch: the formal 2027 revenue outlook in the fourth-quarter release. A specific dollar range showing at least 10% core growth would prove that the 17 large contracts signed since 2025 can more than replace this year's political text traffic.
🐻 Bear Case
Zero-Margin Carrier Fees Drive Half the Growth
Bandwidth splits its top line between core cloud communications and pass-through messaging surcharges, which are fees mobile carriers charge for business text messages. The company bills these fees to customers at cost, so they add no profit. While headline sales rose 22% to $234 million, core cloud revenue grew 11.3% to $158 million by our math.
- Pass-through carrier surcharges: $76 million, up 52% from a year ago by our math
- Core cloud communications revenue: $158 million, up 11.3% from a year ago
- Reported gross margin: 36%, down from 38% a year ago because of the fee mix
This gap matters because core growth has slowed slightly in each quarter this year—from 12.5% in the first quarter to 11.8% in the second and 11.3% in the third—even as US election campaigning added text volume in the second half. Half of the $42 million top-line increase came from carrier fee hikes that will not repeat once Bandwidth laps them next year.
What to watch: third-quarter commercial net retention (spending by existing customers excluding political campaigns) in the quarterly filing. A drop below last quarter's 113% rate would show that underlying business usage is slowing underneath the election boost.
Convertible Notes Push Share Count Up 24%
Earlier this year, Bandwidth refinanced its debt by issuing $316 million of convertible notes due in 2032 and buying back older notes and stock. The company spent another $10 million on share buybacks in the third quarter, bringing nine-month repurchases to $30 million. However, accounting rules require the company to include 4.4 million shares from the new convertible debt and 3.4 million unvested employee stock units in its per-share profit math.
As a result, the diluted share count excluding one-offs rose 24.3% from a year ago to 40.1 million shares. That dilution absorbed nearly half of the company's profit gains: net income excluding one-offs rose 73% to $19.9 million, but profit per share grew 39% to $0.50. Stock-based compensation and related payroll taxes also consumed $14.6 million during the quarter.
What to watch: the diluted share count assumption for 2027 when full-year results arrive. If the count stays near 40 million, per-share profit growth will begin to match net income growth again next year.
Risks this quarter didn't answer
The earnings release left four standing concerns without updated numbers, though several will appear in the quarterly filing or call remarks.
- Salesforce partnership revenue: Salesforce named Bandwidth its "first certified international carrier to support the global rollout of its native Contact Center" across 25 countries, but management still gives no dollar contribution after six quarters.
- Software recurring revenue: omitted from the release after management stopped giving a dollar run rate last quarter; any disclosed dollar figure on the call would test the software margin story.
- Enterprise Voice growth: the product breakdown was not in the release; the quarterly filing will show whether growth recovered from last quarter's 8% pace.
- Surcharge and 911 tax lawsuits: no update in the release on the San Francisco and Illinois cases; the filing's legal note will show any new assessments.
💲 Other KPIs
Free cash flow—operating cash left after buying equipment and capitalizing software—more than doubled from $13.1 million a year ago. Operating cash flow rose 70% to $37.7 million, while capital spending fell by nearly half to $4.7 million, lifting the cash margin to 20.9% of core cloud revenue by our math.
Uncollected customer bills rose 26.5% from a year ago and 7.1% from last quarter, outpacing the 22.0% rise in total revenue by our math. The $27.1 million jump in receivables over the first nine months has been the largest working-capital drag on operating cash flow this year.
🔮 Guidance
Raised. Bandwidth lifted the bottom of the full-year range by $5 million, moving the middle up $2.5 million to 20.4% growth. By our math, that leaves $244.8 million for the fourth quarter, or 17.9% growth from a year ago—down from 22.0% in the third quarter. It is the third raise this year, and the smallest: +$16M, +$15M, +$2.5M.
Raised. The telecommunications group nudged the low end up by $1 million, putting the middle of the range up 33.5% for the year. By our math, the plan leaves $36.0 million for the fourth quarter, up 44.8% from a year ago. This is the third raise of 2026: +$2M, +$2M, +$0.5M.
Raised. Management lifted the bottom of the range by $0.02 as it trimmed its full-year diluted share count estimate from 39.0 million to 38.7 million. By our math, the middle of the range leaves $0.54 per share for the fourth quarter, up 54% from $0.35 a year ago.
❓ Key Questions
Why Did the Release Omit Fourth-Quarter Targets?
Bandwidth gave next-quarter ranges in the first and second quarters, so leaving out a standalone fourth-quarter table forces readers to calculate the remainder from the full-year plan. Management should clarify whether fourth-quarter core cloud revenue will accelerate from 11.3%.
How Much Election Revenue Landed in the Third Quarter?
Management previously planned for $13 million of political campaign text revenue across the second half of 2026. Without knowing how much of that landed in the third quarter, outsiders cannot tell whether commercial cloud growth sped up or slowed down.
What Is the Dollar Run Rate for Attached Software?
Gross margin excluding one-offs jumped 3 percentage points to 61%, which management usually credits to higher-margin software tools like Maestro. After disclosing a $25 million annual run rate in the first quarter, why has the company stopped giving the dollar figure?
When Will the Salesforce Partnership Add Measurable Revenue?
Salesforce expanded Bandwidth's role to cover contact centers in more than 25 countries across Europe and Asia-Pacific. After six quarters of announcements without a revenue figure, how much does the early 2027 double-digit growth target rely on Salesforce?