BAND Q3 Deep Dive: Voice Momentum and AI Initiatives Counteract Mixed Profit Results

Cloud communications provider Bandwidth (NASDAQ:BAND) reported Q3 CY2025 results topping the market’s revenue expectations, but sales fell by 1% year on year to $191.9 million. The company expects the full year’s revenue to be around $753.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.36 per share was 3.2% below analysts’ consensus estimates.

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StockStory’s Take

Bandwidth’s third quarter results drew a negative market reaction, despite delivering revenue above Wall Street’s expectations. Management pointed to accelerating growth in its core voice offerings and highlighted robust customer adoption, especially among Global 2000 enterprises. CEO David Morken cited the “record pace” of million-dollar-plus deals and underscored the growing demand for AI-powered voice solutions as a key driver this quarter. However, the company’s non-GAAP profit fell slightly short of analyst consensus, and management acknowledged cross currents in gross margin due to the absence of political campaign messaging revenue compared to last year.

Looking forward, Bandwidth’s updated guidance rests on continued growth in voice and software-driven services, as well as expanding adoption of its AI and automation capabilities. Management emphasized their strategy to evolve toward a higher mix of recurring software revenue, which they believe will support margin expansion. CFO Daryl Raiford noted, “We expect to end 2025 with an annualized MRR exit rate on software greater than $10 million,” reflecting confidence that new offerings like Maestro and number reputation management will play a greater role in future results. Ongoing investments in product innovation and customer experience are expected to underpin full-year guidance.

Key Insights from Management’s Remarks

Management attributed Q3’s revenue outperformance to momentum in enterprise and global voice plans, with AI integration and software innovation supporting both customer wins and gross margin stability.

• Enterprise voice acceleration: The company saw significant adoption of its Maestro software and AI voice integrations, leading to a 22% year-over-year increase in enterprise voice revenue on a normalized basis. This was driven by existing customers expanding usage and new enterprise deals.
• Global voice plan growth: Global voice plans, Bandwidth’s largest customer segment, grew revenue 7% year-over-year, more than doubling the growth rate from last year. Management linked this to increased traction among large-scale customers and broader adoption of AI-powered voice solutions.
• Software and automation impact: New AI-driven products, such as the Bandwidth Activation agent and the AI receptionist prototype, are starting to layer into deals, particularly with enterprise customers. These offerings are designed to automate workflows, enhance customer experience, and drive higher-margin recurring software revenue.
• Trust services portfolio expansion: The company expanded its number reputation management (NRM) solution to more customers, addressing the challenge of call answer rates due to spoofing and fraud. This move has already contributed to customer wins in logistics and financial services.
• Messaging and margin cross currents: While messaging revenue faced headwinds due to the absence of political campaign messaging, the impact was offset by growing software contributions to gross margin. Management expects this trend to continue as software revenue expands.

Drivers of Future Performance

Bandwidth’s outlook is shaped by sustained voice growth, higher-margin software adoption, and continued rollout of AI-powered solutions, though messaging headwinds and macro uncertainty remain.

• Software-driven revenue mix: Management aims to increase the percentage of recurring software revenue through continued innovation in AI voice, workflow automation, and trust services. They believe this will support margin expansion and create more predictable results.
• Growth in large enterprise deals: The company expects the record pace of million-dollar-plus customer wins, particularly among Global 2000 enterprises, to continue driving top-line growth. The migration of legacy contact centers to the cloud and multi-vendor orchestration remain key trends.
• Messaging headwinds and seasonality: Messaging revenue is expected to be pressured by lower surcharges and a less favorable carrier pricing environment. However, management believes the impact on profitability will be limited, as surcharges do not contribute to gross margin or EBITDA.

Catalysts in Upcoming Quarters

Looking ahead, our analyst team is monitoring (1) the pace of software-driven revenue adoption, especially from new AI-powered products; (2) continued expansion in large enterprise voice deals and associated onboarding speed; and (3) improvements in gross margin as the mix shifts toward higher-value software and automation. The progress of the trust services portfolio and developments in the messaging revenue stream will also be important to watch.

Bandwidth currently trades at $16.07, down from $16.79 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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