Bandwidth Raises 2026 Outlook After Record Quarter

Bandwidth ((BAND)) has held its Q1 earnings call. Read on for the main highlights of the call.

Bandwidth’s latest earnings call painted a broadly upbeat picture, with management highlighting record revenue, expanding margins, and rising demand for higher‑margin software services. Executives sounded confident enough to raise full‑year guidance, pointing to key wins and new partnerships as growth drivers, while acknowledging that some benefits are back‑half weighted and cash generation is still catching up.

Record Revenue and EBITDA Momentum

Bandwidth reported Q1 2026 revenue of $209 million, up 20% year over year, marking a new first‑quarter high for the company. Adjusted EBITDA also hit a record for Q1 at $26 million, a 17% increase, underscoring stronger operating leverage even as the company continues to invest in growth.

Guidance Raised Across the Board

Management lifted full‑year 2026 revenue guidance to a range of $880 million to $900 million, implying roughly 18% growth at the midpoint. Adjusted EBITDA is now projected between $119 million and $125 million, with non‑GAAP EPS guided to $1.77 to $1.83, all marking notable step‑ups versus prior forecasts.

Cloud Communications Fuels Top-Line Growth

Cloud communications remained a key growth engine, generating $150 million in Q1 revenue, up 13% from a year earlier. Within that, voice revenue reached $121 million, growing 12%, and programmable messaging brought in about $30 million, rising 15%, as adoption spreads across more enterprise use cases.

Profitability and Margins Continue to Improve

Non‑GAAP gross profit climbed 14% year over year to $89 million, with gross margin improving by 50 basis points to 59.5%. Non‑GAAP EPS increased to $0.38, up 6%, while adjusted EBITDA margin expanded as scale efficiencies began to show, though earnings growth trailed the pace of revenue.

Software Services Emerging as a Profit Engine

Software services were a highlight, with revenue nearly doubling versus last year’s Q1 as customers lean into more sophisticated offerings. The annual recurring revenue exit rate for software rose 67% sequentially to $25 million, positioning this higher‑margin segment as a meaningful tailwind for future profitability.

Strategic Wins and Partnerships in High-Value Verticals

The company expanded its partnership with Salesforce, becoming the engine behind Agentforce and the embedded Communications Cloud, a notable validation in the CRM ecosystem. Bandwidth also closed two deals over $1 million in financial services, including a major U.S. consumer lender and a large mutual life insurer, signaling momentum in regulated industries.

Retention and Customer Quality Metrics Strengthen

Bandwidth emphasized the quality of its growth, with reported net retention at 102% and an adjusted commercial net retention rate of 110%. Customer name retention stayed above 99%, and average annual revenue per customer reached a record $244,000, indicating deeper wallet share among existing clients.

Balance Sheet De-Risking and Capital Returns

On capital allocation, the company spent about $11 million to offset equity dilution by covering roughly 700,000 shares. It also repurchased $100 million in 2028 convertible notes at a discount and bought back shares at an average price of $15.93, helping bring long‑term leverage below 1.25 times.

Large Deals Still Early in Deployment

Management flagged that several sizable enterprise contracts underpinning the second‑half acceleration are still less than half deployed. This delays their full revenue contribution but creates a visible pipeline, making execution on onboarding and ramp‑up crucial for hitting the upgraded 2026 targets.

Cash Flow Trails Earnings Progress

Despite solid top‑line growth and improved profitability, free cash flow in Q1 was described as essentially breakeven. Operating cash flow improved, but investors will be watching for stronger cash conversion as the year progresses, especially given ongoing investments and share repurchases.

Adjusting Net Retention for Cyclical Revenue

Reported net retention of 102% was dampened by cyclical political campaign activity that spikes in certain periods and then normalizes. Management highlighted a 110% commercial net retention metric that strips out these swings, arguing it better reflects underlying customer behavior and recurring spend.

EPS Lagging Revenue Growth in Q1

Non‑GAAP EPS rose 6% year over year, well below the 20% revenue growth, as investments and mix limited near‑term earnings leverage. However, the stronger full‑year EPS outlook suggests management expects margins to improve as larger deals ramp and software and AI‑driven services scale.

AI Adoption Brings Upside and Execution Risk

Bandwidth leaned heavily on an AI narrative, particularly around voice agents moving from pilots into production environments. While this offers a sizable structural tailwind, the timing depends on customers’ pace of adoption and the company’s ability to fully deploy several large AI‑related contracts without delays.

Guidance Points to Back-Half Acceleration

For Q2, management is guiding revenue to $214 million to $220 million, with adjusted EBITDA of $24 million to $27 million and non‑GAAP EPS of $0.35 to $0.37. For 2026 as a whole, they project $880 million to $900 million in revenue and $119 million to $125 million in adjusted EBITDA, assuming stronger performance in the second half as large deals and political messaging ramp.

Bandwidth’s earnings call sketched a company in the midst of a profitable growth phase, with record results, robust customer metrics, and a growing software mix supporting higher margins. While free cash flow and deployment timing remain watch‑points, the raised guidance, balance‑sheet progress, and expanding strategic partnerships suggest the growth story is intact and still gathering steam.