Q1 2021 Bandwidth Inc Earnings Call

Thank you for standing by this is the conference operator, welcome to the bandwidth first quarter 2021 earnings conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be and opportunity to ask questions to join the question queue and you May Press Star then one on your telephone keypad share do you need assistance during the conference call you may signal and the operator by pressing star and zero I would now like to turn the conference over to Sarah Walas, Vice President of.

Investor Relations for opening remarks. Please go ahead.

Thank you good afternoon, and welcome to the bandwidth first quarter 2021 earnings call today, we'll be discussing the results announced in our press release issued after the market closed.

With me on the call. This afternoon is David Morken bandwidth, Chief Executive Officer, and Jeff Hoffman, Chief Financial Officer of bandwidth. They will begin with prepared remarks, and then we will open up the call for Q&A.

During the call we will make statements related to our business that may be considered forward looking including statements concerning our financial guidance for the second fiscal quarter and full year of 2021 and to the extent provided future periods.

Forward looking statements may often be identified with words, such as we expect we anticipate or upcoming day.

These statements reflect our views only as of today and should not be considered our views as of any subsequent date, we undertake no obligation to update or revise these forward looking statements.

Forward looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations.

And for a discussion of material risks and other important factors that could affect our actual results.

Please refer to those contained in our latest 10-K filing and.

The updated by other SEC filings all of which are available on the Investor Relations section of our website at bandwidth dot com and on the SEC's website at S. E C Dot Gov.

During the course of today's call, we will refer to certain non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in our press release issued after the close of market today, which is located on our website at investors dot bandwidth dot com.

With that let me turn the call over to David.

Thank you Sarah.

Good afternoon, everyone and thank you for joining our call bandwidth delivered a strong Q1, the beat our February guidance on both the top and bottom lines and set a new record for our highest ever she paas revenue for our first quarter.

And we're excited to talk about these results and how we develop and deliver the power to communicate for customers around the globe, but let me begin by first thanking our great team and the good Lord to our bandwidth here in Raleigh, and London, and Singapore, Brussels, Denver, Romania, Rochester and Dublin.

For our first full quarter together virtually as a global company you have persevered through trying times and we are so grateful for your patience and perseverance as we bring together two talented teams and finally, thank you God blessing, the work of our hands and for bringing us opportunities to lead and serve others.

Loving our Bandmates now, let's talk about the first quarter.

This quarter, we achieved a 69% year over year increase in the past revenue the.

The strong growth was fueled by broad based demand across all of our services and expanded global footprint.

We saw continued momentum from messaging, which grew more than 90 per cent year over year and is now 12% of C pass revenue.

These results are a testament to the ever increasing power and reach of the bandwidth platform and to the accelerating global demand for our communications platform as the service.

And a few moments I'll turn it over to Jeff to walk you through the financials, including our increased guidance for the year, but first I'd like to give you an update on some of our most exciting developments and wins over the past quarter.

Our most exciting opportunity is bringing the power of our global reach to bear for our current and future customers six months into our efforts to integrate the vocs Mone platform and team we are more excited than ever about this combination of our existing customers and countless others have long been waiting for a single.

Provider of compliant local business communications solutions around the World. We are thrilled to answer of this call.

We believe that local business voice and identity are critical components of global customer engagement, what does the local business voice really mean, our global platform deliver scalable and reliable voice calls that are easily recognizable as local in nature. We are able to deliver this based on more than a decade of work and.

Navigating and incredibly complex regulatory and technical landscape. This means that we can provide enterprises around the world with mission critical communications capabilities that they can trust, including local numbers and more than 60 countries.

Consumers are four times more likely to answer a call from.

A local number.

So when our customer.

The global ride sharing and delivery provider.

And he needs its drivers to reach restaurants or riders without using their own phone number.

And he can provide that company with a local number that's more likely to get answered.

When a major producer of electric cars seeks to establish a market presence in new countries as part of building out a physical presence and we can meet that need in the far corners of the world.

When and online marketplace for homestay and vacation rentals needs of local numbers in 47 different countries around the world in order to provide the local support number of sports contact centers. It turns the bandwidth for years, our customers have been clamoring for disability to engage locally.

On a global scale, we are delighted to be bringing that to them.

We are already seeing the power of our global reach supercharge, our ability to better serve our customers well.

One example of this cross sell and he is with a fast growing magic quadrant leader and the C cash space in 2019, this company and needed to address pent up demand and competitive pressure for messaging and net that need with bandwidth messaging a P is less than six months later, they realized that our inbound voice and number of.

<unk> provided better economics, and more flexibility than the incumbent carrier they've been using so they interested these voice services.

And two bandwidth.

Well.

Shortly after bandwidth announced the acquisition of box bone the sea cash provider one of contract with a major multinational insurance company headquartered in the U K in order to serve this insurer the sea cash provider needed and messaging reach to more than 30 million customers.

And we were able to meet this need combining virtual mobile numbers from the legacy Knoxville and platform with bandwidth messaging Apis and this is just one of the ways our existing customers are seizing the opportunity to do more with bandwidth on a global scale.

The greatest validation of our value is when existing customers demonstrate their trust in us by choosing to build new products of the bandwidth platform.

And again, we see our customers reward our work with more work and we grow from offering them, one use case or product to many this has been a key driver to our growth. One example is with our steadily growing relationship with one of the world's leading defy and digital payments companies in 2018. This company turned to us for.

Rise grade toll free messaging to enable digital receipts of promotional notifications of appointment reminders and payroll notifications for their customers.

<unk> on bandwidth proven success delivering these mission critical communications a year later, they asked us to enable a new use case and the separate business unit messaging related to peer to peer payments fractional stock purchases and other notifications.

We're pleased to share the this company rolls out yet another new channel of communication. It has once again in terms of bandwidth as its trusted provider.

This new channel allows for multiple new forms of two way messaging engagement between merchants and customers spanning sales marketing and support communications.

Our growth with this customer powering new use cases across business units shows how the bandwidth platform and drive communications innovation for the world's most creative companies.

And Q1, we also landed and exciting new deal with the provider of integrated emergency response solutions, including crash detection and emergency call responses for connected cars.

This I O T solution. The will soon be relying on bandwidth E 911 dynamic location routing service for 911 call delivery using X Y coordinate based call routing for their roadside assistance service.

In this new use case bandwidth DLR service determines the correct routing path for the 911 call from the distressed vehicle using the precise longitude and latitude of the vehicle at the time of the accident. The service will also and the a callback number to the Pes App and case the call has dropped.

Our E 911 dynamic location routing service offers a feature rich flexible and real time toolkit for building highly advanced emergency calling capabilities.

We are inspired that it will soon be making emergency response more effective for connected cars around the country.

We are in the midst of accelerating digital transformation.

Businesses around the world seek the flexibility economic advantages and innovation found and the cloud.

They are looking to ditch and their antiquated premise based legacy communications tools in favor of software based solutions.

As a provider to many of the leaders and Gartner and you can see cash and meeting solutions segments bandwidth is enjoying broad based growth in each of these markets.

The major players across the industry turned the bandwidth as a trusted platform to power their growth.

One recent example is our expanding relationship with the fast growing contact center provider and the Gartner Magic quadrant.

For years this customer has relied on bandwidth for voice messaging and numbers.

This quarter this customer reiterated its confidence and the bandwidth platform by signing a new two year commitment that will result in a steady increase of traffic across products. This is just one example of the broad based growth. We are seeing as a result of the communication worlds accelerating migration to the cloud.

We are so proud to be powering the explosive growth across the ucas D cash and meetings segments.

As a global trusted platforms of leaders challengers and visionaries of like bandwidth will continue to capitalize on this generational change.

We are motivated and humbled by this moment of unparalleled opportunity, we are energized by our unique role, enabling the innovation creativity and incredible scale unfolding and global Enterprise Communications.

Our broad and deep relationships across the industry and around the world affirmed the unique strength and momentum of our platform and network strategy.

We look forward to the fulfilling work of bringing two teams together to develop and deliver the power to communicate to enterprise customers everywhere with that I'll turn it over to Jeff.

Thank you David and good afternoon, everyone our.

Our business is off to a very strong start in 2021 for.

First quarter total revenue was $113 million up 66% year over year.

Within total revenue C pass revenue was 100 million up 69% year over year, and 3 million higher than the midpoint of our guidance.

Our over performance was driven by solid growth across all of our products as enterprise customers are increasingly using our global platform to meet their communication needs.

Other revenue contributed the remaining $13 million of total revenue, which is up 42% from the same period a year ago and includes eight of P messaging surcharges of approximately $4 million and in the quarter.

Box from contributed approximately $21 million to see pass revenue and 1 million to other revenue in the period.

Excluding box bone bandwidth Standalone C pass revenue growth.

It was 34% year over year and bandwidth Standalone total revenue grew 33% year over year.

Our dollar based net retention rate was 125 per cent in the period and is strong evidence of our continued ability to land and expand with our customers.

Again, please remember that this metric will not be impacted by the box bone acquisition until we lap the close of the deal and the fourth quarter of 2021.

We ended the first quarter with 2959 active C pass customers, which represents the net addition of 111 customer accounts in the period.

Moving onto profitability non-GAAP gross margins came in at 51% for the quarter bandwidth see past margins continue to be strong and enhanced by the inclusion of the higher margin box bone business. However, these positive factors continue to be partially offset by existing and new carrier eight of P.

Messaging surcharges, which we pass through to our customers.

Our non-GAAP net income and the first quarter was $8 million stronger than anticipated due to the higher revenue higher gross profit and favorable operating expenses as of March 31st bandwidth had cash and equivalents plus restricted cash of $329 million, which was bolstered by.

The convertible note offering we successfully executed in March.

Turning to the financial outlook for the remainder of 2021, we are raising our full year C pass revenue guidance to reflect the strength and momentum we saw and the first quarter. We now expect our full year 2021 C pass revenue to be and the range of 418 to 421 million up 41.

1% of at the midpoint of the range and we expect 2021 total revenue to be and the range of $473 million to $476 million up 38% at the midpoint of the range.

Within total revenue we are forecasting higher other revenues driven by eight of P. Messaging surcharges that were recently initiated by two additional carriers.

And I also want to mention that we expect carriers to implement additional surcharges in the coming months, but are not factored into our forecast at this time due to uncertainty around impact and timing.

Given our strong start to the year. We are also raising our profitability outlook for estimating our full year non-GAAP earnings per share to be in the range of 47% to 55 per share assuming approximately 27 million weighted average shares outstanding.

Turning to our guidance for the second quarter of 2021, we expect to see pass revenue to be and the range of $101 million to $102 million are up 52% year over year at the midpoint of the range.

This contributes to our total revenue guidance of $116 million to $117 million.

Second quarter non-GAAP earnings per share is expected to be in the range of eight to 10 cents per share using $26 8 million average shares outstanding.

Lastly, as reported in our press release earlier today I have decided to step down from my role as bandwidth CFO effective September one.

The last decade with this team has been and incredible adventure and I will always be proud of the work we did together.

And I want to thank David the board of directors and all of my Bandmates for the honor of serving alongside them during a period of extraordinary growth and accomplishment.

The change is never easy this feels like the right time to make my exit we are emerging from the pandemic stronger than ever our balance sheet is solid and the company is increasing our annual outlook based on our robust first quarter.

I'll be working closely with David to identify the right candidate and serve as bandwidth CFO and the next chapter and we'll look forward to cheering on bandwidth success for years to come now I'll turn it back to David for some final comments.

Thank you, Jeff when Jeff joined US a decade ago, we were a scrappy team with big ambitions, a far cry from the global public company we are today.

But Jeff your steady hand has guided us on the path to our IPO and your unflappable leadership and enduring sense of humor has allowed us to thrive once we've made it through.

Each and every bandmate OS Jeff and enormous debt of gratitude.

And for helping us become the company and team that we are today I am so grateful for jeffs commitment to a smooth transition and for all of the he has given to me to the finance team and to our entire organization over the last decade. His mark here his indelible Jeff on behalf of all of US. Thank you.

Share wins, and following seas, and God bless the Hoffman.

With that we'll open up the call for questions operator.

We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.

You will hear auto and acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any keys.

To withdraw your question. Please press Star then two.

We'll pause for a moment of callers join the queue.

The first question comes from Bhavan, Suri with William Blair. Please go ahead.

Hey, James Thanks for taking my question and Jeff It's been a it's been a real pleasure my friend and I know you are not leaving you haven't got a couple of mornings calls, but it has been of real pleasure.

And I just wanted to touch a little bit.

Initially on the on the C cash.

Opportunity.

And you've now had some wins in the space I guess, how do you think about sort of approaching that almost of its own specialized area and maybe verticalizing and there I guess, what I'm thinking of is there a broader opportunity for the platform to be used to create custom see cast and communication solutions at some point and the future.

There's no question and see cash large providers do favor, having the flexibility to do third party integrations and to do things differently than just doing you cash. So we do believe our platform has great utility for companies that want to do third party integrations rapidly and mass.

And of scale the customized call flows to really optimize performance for representatives and a call center environment.

We've seen that to be compelling and the wins that we have secured that flexibility and the agility and to integrate with others and to uniquely route calls at high quality and high scale. So I think youre absolutely onto an important aspect of our platform as it relates to see cash.

Gotcha Gotcha, Gotcha, and then I guess and.

And the broader level, we've seen a note of amount of consolidation and the network connectivity layer.

Last couple of quarters, both voice and messaging right. So essentially all of the telephones.

We've seen engagement acquired info bip et cetera, I guess I'd love to get your thoughts or insights on sort of kind of the bulk of consolidation and then more importantly of the implications for bandwidth.

Okay.

The most important consolidation in the platform and network layer was the acquisition of <unk> by bandwidth.

Precisely because the way.

They were unique.

One of them.

And it's by far the most important for enterprise customers every conversation, we have with and enterprise move on is about global coverage global voice.

Voice and that acquisition consolidated the singular crown jewel asset worldwide. When it comes to full stack PSTN replacement and over 30 countries and we're expanding that footprint. So I think that's first and foremost of the voice focused company. The most important acquisition to highlight and appreciate your robust sense of humor that said, we do see the import.

And that competitor moves and we're <unk>.

Much more confident than ever before about our differentiated approach to global voice than we have and in the past.

Gotcha Gotcha very helpful. Thanks, Jim and.

We appreciate that and my sense of humor of it just got a better sense of humor.

[laughter], thank you for that.

The next question comes from well power with Baird. Please go ahead.

Hey, guys. Thanks for taking the question. This is Charlie Ehrlich on for Baird.

Yeah, Jeff you know congrats on all of the success over the last 10 years, it's a instead of a pleasure working with you.

So is there any way that you can maybe quantify the you know what you like all of the onetime COVID-19 impacts or is that a little bit less relevant this quarter.

Hey, Charlie Thanks for your kind words. This is Jeff it is less relevant so we saw in 2020 of the COVID-19 impact.

And second quarter of 2020 and has declined each quarter. Since we had foreshadowed on our last call that we weren't going to be quantifying that anymore, but what I can tell you is we're not back to pre pandemic levels. We know there is long term goodness due to we think the persistence of a hybrid work environment.

And we will benefit from that as the company since we power. So many of the Ucas and meeting solution providers.

Great.

And then just on the the messaging business. It was great to see the growth there and <unk>.

And you can maybe parse out.

The growth and messaging between maybe the core messaging growth and then cross selling messaging into the box bone base.

How much of that messaging growth. This quarter was from that cross sell and then also of a little bit more broadly what about your platform and product is kind of enabling you to win some of that messaging business versus the leading competitors.

Thank you Charlie this is David.

The messaging is 12% of our overall revenue and as you mentioned is a very robust growth for US. You also know we're very focused on voice to specifically answer your question and I Wouldnt overweight the cross selling of messaging to the OXXO and customers. We're going to continue to lead with voice worldwide. We will have messaging on occasion is an important.

You add in conjunction with what we do on the platform for voice and so it wouldn't be a significant amount of the the revenue from messaging that I would call out as of crossover nor really important going forward as a significant trend we want to really emphasize that we are focused on the differentiation of our voice platform globally, we will call out of messaging wins when import.

But I wouldn't overemphasize that.

Got it thanks guys.

The next question comes from pad Wahler ovens with JMP Securities. Please go ahead.

Oh, great. Thank you and congratulations you guys.

So Jeff Chu for you so first of all and as I look back.

In February of the consensus was at 35 cents for earnings this year.

You took us way down and you guided to the 12 and now we're back up to 47 to 55. So the you know the.

The consensus was actually sort of.

Right or the right ballpark at least what what changed.

Yeah. So you guys are obviously, a really good path and I need to continue to improve no.

Seriously first quarter was.

Really just a strong performance across the board you saw.

We obviously the top line, which carries through to gross profit. We were also favorable on Opex. Some of that was we just spent less and just like so many other companies. Our TNT was not as an example of what we thought it would nor was our hiring of strong is that maybe could have been and I think a lot of that pandemic related.

And with it.

We also had some shifts and timing so a lot of the project based work that we're doing in particular around the backbone of integration think ERP.

Sox some it projects some of those of shifted out and time and I don't want anyone to leave at the fact that we're running behind on where we were its just those particular expenses are hitting later in the year and so we.

We did raise guidance, both top and bottom line and it.

It was a very strong performance and the first quarter, but we picked up the rest of the year as well.

Alright, great. Thank you and then and <unk>.

First of all of 10 years of your life is.

The very significant contribution.

Thank you.

But on the other hand.

And we hate to see of good CFO go so.

We would love to have you for 'twenty I'm sure and working with too so.

So you know why why now and what do you do yeah right exactly so why now Jeff and what do you want to do next.

And I appreciate the question Pat So it's been a phenomenal time here I've enjoyed it and I love bandwidth I always well I'll be cheering on after August.

From from the sidelines.

<unk> always been taught and I always believed you should leave someplace better than how you found it I hope I have accomplished that but when you look at the timing where emerging for.

From the pandemic, the U S and particular doing pretty well.

The balance sheet is very strong.

For the business is in good shape, there and we just had a great quarter and raised guidance I think that's about as good as you can do.

And on timing and for me.

The life is lining up pretty nicely and September it will be by 25th mind My wife's 25th wedding anniversary. So I hope to do something special for that take a little break and then figure out what adventures next for me.

Okay, great. Thank you.

And congrats.

Thank you Pat.

The next question comes from meta Marshall with Morgan Stanley. Please go ahead.

Hi, this is sort of on a per meter Marshall. Thank you for the question I.

I guess I've two quick questions first one would be is there any additional context, you can give for any growth or traction you're seeing with the with your direct routing solution with Microsoft.

No nothing specific that we didn't talk about.

Generally and the script, we're seeing traction for direct routing.

We have a number of ways that we're proud of serving and providing service to Microsoft including call plans for teams.

The communication services direct routing and operator connect where we will soon be in that cohort. So we've got for different wonderful ways that we are powering something like 150 million global teams seats and Microsoft users. So the future is real.

The bright.

For us regarding our Microsoft relationship and we're really happy to be working with them.

Yeah.

Got it. Thank you that's helpful and then.

Just a quick question on the box bone is there any foreign exchange impact that we should know about our of be mindful of.

There is some foreign exchange impact obviously since November <unk>, we expanded the 60 countries and so there is more to it it was not a big driver within the in the quarter, though and we will call that out in the future.

If it is.

Okay got it thank you very much.

Thank you.

Yes.

The next question comes from Steve Enders with Keybanc. Please go ahead.

Hi, great and thanks for taking my question I just wanted to.

Get a better sense of what you have built into the to the revenue guidance for for the rest of the air and into the end of the back half I know you said earlier that there is a little impact, they're still saying from from from COVID-19 impact, but I guess and what's kind of built into the expectations and and the second half of the of the year there.

Yes. So I think it's continued strong broad based growth that we've been experiencing for some time and I think of lot of that is driven by.

By digital transformation.

<unk>.

Also you know.

The pandemic is playing a role here and that hybrid work environment that we mentioned on the earlier.

Response are driving all of those things too and so we expect continued growth at the same time, we recognized and acknowledged we've got some hard comps and the second half of the year not only from COVID-19, but also it was an election year, where we had more than usual political messaging volumes and so that will challenge us a bit but.

Feel really good about raising guidance.

Okay, Great and then and then maybe for a for David and just kind of wondering and what you're going to hear about the Voc span, a crossover where and with the bandwidth customer and the UK insurance company, but just kind of what youre seeing with the the cross sell opportunity today and has anything surprised you are there yet and do you have a for.

And one quarter and here are your belt with box spent.

I am proud of the sales teams are collaborating and working together on global opportunities that coordination has been challenging given the both teams of remote unable to travel and very proud of the work that we've done to really build pipeline for the bandwidth international product that comes from the <unk> acquisition in the quarter.

Early.

Making strides and I think theres a lot more upside that we will see and the future.

But no significant surprises just lots of pride and the work that's being done.

Okay, great. Thank you and thanks for taking my questions.

You bet.

The next question comes from Mike Walkley with Canaccord Genuity. Please go ahead.

Hey, guys. Good evening and this was down there one for Mark and thanks for taking my question.

Just wondering if you could provide some color for us on all of what's driving the.

And a really strong 125%.

Net retention rate, obviously overtime the should.

Trend down as customers adopt more solutions for the.

Just wondering if you guys could frame Burroughs, how we should think about this and moving forward.

I'll begin and then invite Jeff to add on and what the Daniel.

Yes.

Terrific.

The first thing I'd call out is that it isn't attributable to a single or concentrated set of customers that are outperforming it's abroad.

Round swell.

Of adoption and usage across our platform. So it's not just the single customer concentration of customers nor is it just the single product I think it's illustrative of customers continuing to believe and what we do and also a testament to providing world class Enterprise service when we keep our promises it really encourages customers to <unk>.

Use us as primary or almost all of their business globally and so we're excited about keeping those promises and growing with our customers and and we hope that although your question suggests that it would go down over time, we'd like to see US continue to stable and time will tell but really proud of how the team has continued to win business from our existing customers who noticed the.

But with that let me pause and ask Jeff to add.

Yes, I think there was a pretty comprehensive the only thing that I would add as you know is a usage based business. This is this is what we try to do you serve your customers well and they reward you with more business as their businesses succeed we succeed and so you know I'd say things are going according to plan, which is great.

Okay.

Okay, great. Thanks again for the color.

You bet. Thank you Danielle.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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