Q2 2021 Bandwidth Inc Earnings Call
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Welcome to the bandwidth second quarter 2021 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the 1 followed by the <unk>.
And your telephone if at any time during the conference you need to reach and operator. Please press Star Zero as a reminder, today's conference call is being recorded I would now like to turn the conference over to Sarah Walas, Vice President of Investor Relations for opening remarks. Please go ahead.
Differ materially from our expectation.
For a discussion of material risks and other important factors that could affect our actual results. Please refer to those contained and our latest 10-K filings and updated by other SEC filings all of which are available on the Investor Relations section of our website at bandwidth Dot com and.
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 and thank you to everyone joining our call. This afternoon.
I am delighted to share some of the successes of our last quarter.
Please let me start by thanking God and for him, giving this team a huge opportunity and healthy ambition.
Our mission is to develop and deliver the power to communicate and we are motivated to serve customers together day in and day out and these days are unprecedented.
The world is undergoing a profound technological change and how we communicate and bandwidth is at the center of it.
No company has our unique combination of assets to meet emerging and dynamic communications needs a powerful software platform integrated with a global communications network deep industry expertise longstanding embedded customer relationships and a culture of exceptional service and innovation.
We reflect on the quarter with gratitude for solid growth and deepening customer relationships.
Contact center markets is an enormous nascent opportunity for us to move to the cloud is best served by bandwidth Global software platform and network built to solve communications complexities at scale, we're already seeing how it is a powerful differentiator for our existing customers and new customers alike.
I'd like to share some of the examples of the growth we're seeing across the business, starting with expanding relationships and the strong demand for our services among ucas and see cash customers.
A ucas customer of both bandwidth and legacy Vocs bone recently signed a renewal, making us their primary global voice and messaging provider for the first time.
Under this new deal we expand our relationship both domestically and internationally. This customer was driven to consolidate their global traffic with bandwidth because of the powerful combination of our global reach and the automation capabilities of our software platform.
In the second quarter, we dramatically expanded our long term relationship with yet another leading ucas and see cash provider signing a 4 year multimillion dollar contract renewal. This customer has been with bandwidth for more than a decade and was a customer of vocs bone for almost as long after doing a comprehensive review.
It's multiple providers around the world with particular focus on API functionality. This customer decided to double down on bandwidth and has made us their primary provider for local numbers and inbound calling in the U S. We will also become their exclusive emergency services provider. According to this customer bandwidth differs.
<unk> dynamic location routing for emergency services and superior suite of Apis were the deciding factors in leading them to expand and further solidify our partnership.
We also continue to see strong momentum and the C cap segment, including meaningful cross sell opportunities within both the legacy box bone and bandwidth offerings. For example in the second quarter, we signed an agreement with a customer that had relied on box bone to rapidly scale their <unk> solution to more than 60 markets.
Over the past 4 years this fast growing see cash player recently valued at over $1 billion seamlessly integrates with many popular productivity and helped us tools.
Using the <unk> platform for inbound, calling it was able to expand internationally far faster than expected in the U S. The customer had previously relied on other <unk> providers I'm happy to report that this customer has now signed a new 2 year commitment that will unlock the full power of the bandwidth platform, including.
Domestic and global numbers outbound voice toll free calling web RTC messaging and emergency services in more than 40 countries. This see cash player chose bandwidth to become their primary provider because of our flexible Apis broad domestic and international reach and expansive regulatory expertise.
Or just what it needed to scale globally, and we're excited to fuel their rapid growth.
We also formed a new relationship and the second quarter with a rapidly growing identity authentication service that helps companies like Wells Fargo, Starbucks Blue Cross Blue Shield and Paypal secure their onboarding digital servicing call center and payment experiences. This company relies on a number of innovative authentication.
Use cases, including voice verification through unique logins their prior provider was using analog technology that hindered the customers' ability to meet growing demand.
They turned to bandwidth software platform and all IP network to provide global reach at cloud scale. There is no question that we won this exciting opportunity because of our unparalleled global footprint with ambitions to reach hundreds of countries and territories around the globe bandwidth was the clear choice to support this innovators wrap.
Growth and global expansion.
Last we recently announced the extension of our market, leading <unk> solution to include bandwidth duet for ring central.
Bandwidth and ring central have been partners for over a decade and this is another big step and the relationship our duet for ring Central is a key example of how we will make it possible for large enterprises to move to the cloud and run ring Central's MVP platform on bandwidth software driven global network.
As a result global enterprises looking for a new ucas platform and a better way to manage communications will be able to reduce complexity maintained greater control and better prepare for future scale, our duet for ring central will make it simpler than ever for our shared customers and prospects in the large.
Ms space to modernize their communications and we believe we have an early mover advantage in this trend.
As large enterprises employ multiple communications platforms. The power of choice becomes even more critical bandwidth platform agnostic solution that empowers it leaders to control their communications, providing seamless connectivity across multiple platforms and geographies. We continue to see the benefits of our moment.
Hmm on integration as well our teams are marching forward together on critical back office functions like it systems Sox compliance and ERP implementation laying the foundation for compliance and reporting as a fully integrated entity, but more importantly, our technology and product teams are hard at work Char.
Sales to <unk> to our interns, Jeff has built a highly capable world class finance organization and I'm very much enjoying working with the team.
I chose to join the band because of our unique position and the industry to power the generational communication shift to the cloud.
Bandwidth strong history of execution and market leadership.
<unk> to innovate and serve customers around the world, We're all compelling and my decision to join.
And the whole person culture, and the opportunity to work alongside such a strong collaborative team was just too good to pass up.
I look forward to meeting.
Each of you at upcoming Investor events, and with that I'll turn it over to Jeff to walk through our financial performance.
Thanks, Darryl and good afternoon, everyone. Our team delivered another strong performance in the quarter with both top and bottom line results exceeding expectations.
Second quarter total revenue was $121 million up 57% year over year.
Within total revenue <unk> revenue was 105 million also up 57% year over year and more than $3 million higher than the midpoint of our guidance.
Our over performance was driven by continued broad based growth as enterprise customers are increasingly using our global platform to meet their communication needs.
Other revenue contributed the remaining $16 million of total revenue, which is up 61% from the same period, a year ago and includes ATP messaging surcharges of approximately $6 million in the quarter.
<unk> contributed approximately $26 million to see past revenue and 1 million of other revenue in the quarter.
Excluding box bone bandwidth Standalone C pass revenue growth was 18% year over year and bandwidth Standalone total revenue grew 22% year over year.
As a reminder, and the second quarter of last year, we benefited from existing customers increased usage driven by Covid related remote work requirements, which peaked in April of 2020.
At that time, we estimated the revenue impact and the second quarter of 2020 to be and a range of $4.5 million to $5 million.
Normalizing for this COVID-19 impact bandwidth second quarter 2021, Standalone C pass revenue growth would have been 27% year over year and bandwidth Standalone total revenue would have been 30% year over year.
Our dollar based net retention rate was 114% in the period and this metric was also confronted by the Covid challenging comparison from a year ago if.
If we normalize for the onetime COVID-19 impact from last year, our second quarter dollar based net retention rate would have been 123%.
As a reminder, Fox go and won't impact the dollar based net retention rate until we lap the anniversary of the acquisition and the fourth quarter of 2021.
We ended the second quarter with 3051 active C pass customers, which represents the net addition of 92 customer accounts in the quarter.
Moving onto profitability non-GAAP gross margins came in at 50% for the quarter. Despite a higher amount of pass through messaging surcharges are see past non-GAAP gross margins continue to be strong at 52% and enhanced by the inclusion of the higher margin box phone business.
Our non-GAAP net income and the second quarter was approximately $9 million stronger than anticipated due to higher revenue and gross profit as well as favorable operating expenses.
Turning to our guidance for the third quarter of 2021, we expect <unk> revenue to be and the range of $106 million to $107 million or up 44% year over year at the midpoint of the range.
And this contributes to our total revenue guidance of $124 million to $125 million.
And third quarter non-GAAP earnings per share is expected to be and the range of 7 to 9 cents per share using $26.9 million average diluted shares outstanding.
Moving onto the financial outlook for the remainder of 2021, we anticipate full year C pass revenue and the range of $418 million to $420 million up 41% at the midpoint and the range.
And we expect 2021 total revenue would be and a range of $485 million to $487 million up 42% at the midpoint of the range.
Our raised outlook for total revenue is driven by higher messaging surcharges and includes the latest surcharges on toll free messaging scheduled to begin in the third quarter.
Given our performance year to date, we are also raising our profitability outlook, we're estimating our full year non-GAAP earnings per share to be and the range of 71 to 75 per share assuming approximately 27 million weighted average diluted shares outstanding.
Finally, I'd like to once again, thank David and all my other fellow Bandmates for an amazing experienced these last 10 years across some of the most transformative milestones for the company.
I would also like to thank our customers investors and all of the equity analysts who have covered us during my tenure for your support and trust.
Bandwidth is a very special company I'm very proud of all we have accomplished together and I wish. This team continued success and the future as I cheer you on from the sidelines.
With that I will turn it back to the operator for questions.
Thank you and if you would like to register for a question press. The 1 followed by the 4 on your telephone keypad right now you'll hear with retail and prompt to acknowledge your request. If you would like to withdraw your registration and press. The 1 followed by the 3.1 moment. Please.
For the first question.
Sure.
Okay.
The van.
Hi, sorry, I didn't hear and from an end can you hear me okay.
Sure, Ken Hey, Levine, and you've got David and Jeff.
And Daryl Daryl welcome and Jeff My friend and I'm sure, we'll have an interest and again that's been a pleasure.
And the numbers guys.
Nice job as usual I'll dive right and you know.
Partnerships to drive that what do you think theres still much more tied to specific applications and the customer interest that what I'm trying to get to.
It's a good question move on 85% of new cash seats remain on Prem and the largest enterprises are lagging and adopting a cloud approach. So a partner like ring central who have a terrific suite of bundled solutions with messaging video and phone from 19% to $49 a month are ideal.
Downmarket as you get into large enterprise unbundling becomes vital because of the myriad differ.
Different.
Complexities from call centers too.
<unk> solutions, there is a need at the enterprise level for more flexibility and so this go to market brings the best of breed.
Cash user interface and user experience and it brings what we do globally and so that combination I think will yield over time to your question lots more adoption among the very largest enterprises and so we're delighted about our direct partnership with ring central.
Great helpful. Thank you guys. Thanks, taking my questions and thanks John.
Thanks, everyone.
And the next question comes from the line of will power with Baird. Please proceed with your question.
Hey, guys. This is charlie or other country will thanks for taking the question.
And just wanted to start with the full year surpassed revenue guide seems.
It seems to imply from doing the numbers correctly.
For Q4 surpassed revenue.
Maybe implied to be a little bit in terms of the growth over Q3, the sequential growth a little bit lower than seasonally normal is that just conservatism or is there something to call out there.
Hey, Charlie this is Jeff yes. So in terms of Q4, you're right that is we do have some seasonality and that quarter is theres less effective business days, but I think as driving what youre looking at and the fourth quarter is remember we have the U S presidential election last year and there is a tremendous amount of political messaging traffic and that volte.
And making it a very tough year over year compare.
That number and fourth quarter last year that we called out was $8 million of political messaging revenue and the quarter if that helps you normalize.
Yeah. That's helpful. Thanks, Jeff.
And then also it sounds like a lot of deal momentum.
And I just wanted to ask about what youre hearing from customers as you're talking to them and and going through renewal cycles or they more interested and lengthening their contract cycles, and the normal or and maybe on the flip side, our customers still sometimes asking for pricing concessions and I just love to get more detail on how those conversations are going as renewals are coming up.
Okay.
2 out of the 5.
Individual cases that we announced in the quarter were indeed with existing customers that are expanding their relationship with us globally, either cross selling into many new countries, where they had other partners in the past or cross selling from legacy <unk> base into the United States and so those 2 large and 1.
So over a decade old customer R&D going all in with bandwidth globally and.
And has this hesitant large enterprises, which might be hesitant hesitant before and.
Because of your global footprint are now coming to you.
And and that.
That is acting as a big differentiation for you and the market.
That would be highly accurate pendulum.
Okay.
And the other question I had David was.
There has been some moving pieces in there.
And the industry of course around toll free messaging and.
And some acquisitions I know messaging is not a big part of your business, but how are you reading the tea leaves with respect ZIP flips acquisition of a trivial.
Trillium is the conversion was just was it professor Sir.
We are focused on providing messaging for enterprise customers, who are asking for domestically. We've also done it internationally, but and enterprise focus for messaging is vital to providing really some of the last puzzle pieces needed for the entire picture.
The cloud to become clear for that enterprise, so, it's a vital and essential component to what we do.
In addition to our robust global voice platform and will continue to serve well with messaging and that includes as you asked toll free messaging and we have a longstanding very healthy robust relationship and a bilateral way with the ZIP whip that we believe is both durable and advantageous.
Our competitive position and the market and so I think that.
T leaves have steeped long enough to say that it's a good cup for bandwidth.
Okay understood and <unk>.
Lastly, I guess the.
As your communication services.
And what have you seen so far any update on the traction and.
Do you see that channel and becoming pretty meaningful for you over time.
We remain thrilled with the partnership that we enjoy with Microsoft their approach to the enterprise is both massive and scale and unique and <unk>.
Creative and we are excited about how they've taken teams to market and believe Azure communication services will follow that great lead.
Understood. Thank you.
And the next question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.
Right.
Great. Thanks for taking my questions.
I guess just first question for you is yes.
Great to see some of the traction with box and you highlighted some of the existing customers now going more global.
Update on this.
Global platform now the pipeline from new customers and maybe that's wrong that you could onboard with this opportunity.
Hey, Mike and Jeff, Yes, I think we're really pleased and the quarter, we had 92 net new logos.
We see that number can fluctuate from from quarter to quarter, but theres no doubt that the global footprint has really been a differentiator and it has initiated a lot of conversations on our sales desk and we're just thrilled to to serve these multinational.
And companies across the globe.
Great. Thanks, and best wishes on your next steps maybe 1 more question for you.
Can you just walk us through a little bit of the puts and takes on your implied second half guidance that <unk>, given Q3 and full year and maybe just help us remember what the Covid benefit was in Q3 and Q4 of last year, along with the political benefit.
Yeah.
Sure glad to so.
Let me start with full year, and then we'll talk about the back half so.
What you were talking about Mike here some of the tailwind that we had that amplified our results last year. So COVID-19 for the year was worth about $11 million of revenue of which 4 and a half of that was in the back half of the year and then political messaging that was more back weighted so that was $12 million.
A benefit and it was 8 of which I said earlier on this call and the fourth quarter and the balance of that and.
And third quarter.
In terms of the puts and takes our guidance is rooted and a deep understanding of our customers' growth every period, we scrubbed that hard we do.
Quarterly business reviews, with our key customers to know what's coming up next and we incorporate that all into.
Our guidance.
And so those are the things that really sort of move it for us sometimes it's up sometimes it's a little bit back, but that's how I'd describe it.
Great Thanks and last.
Last question from me, David just thanks for some of the color on <unk> and the opportunity just wondering what your thoughts are the pending acquisition of zoom to 5.900 net changes in any of the competitive dynamics and the industry.
For us it doesn't they are both terrific customers of bandwidth, we love seeing our customers work well together and in some cases joined forces. We believe that that combination will serve many global.
And users really well and so for US we just we celebrate great innovative teams that we serve and support and in this case, they got together and have a view of the world and it's exciting and we're going to do our best to keep up with them.
Great. Thank you.
And the next question comes from the line of meta Marshall with Morgan Stanley. Please proceed with your question.
Hi, This is Dave will come and go on for meta Marshall with Morgan Stanley.
Congrats on the quarter and thank you for the question.
I was wondering on box bone integration, how's it going versus expectations and.
And then also what have you been able to do remotely versus waiting to do it in person.
Hey, Dave This is David Morken. Thanks for your question all 5 of the examples that we included for the quarter were grounded upon global footprint and global reach.
That fundamental thesis was the foundation for acquiring Vocs bone and the integration is going well.
All but 1 operating area of the Vocs bone company have been integrated we're making great progress on.
On Sox and in ERP and in all of the essential.
And the ways that we need to but the leadership are integrated the teams are working well together and it's a huge testament to the teams on both sides of the pond, because we haven't been able to travel with the exception of our Intrepid General Counsel, who did make a full range of Belgium recently, and we're proud of and for doing that.
But it's been extraordinary the teams are hammering and the results are already beginning to show up.
Great. Thank you.
And then maybe just 1 more from me.
When would you expect to be able to meet customer demand for multi country voice.
We have been already post acquisition and to be clear already provide and maybe I'm misunderstanding. Your question over 60 countries, we have direct PSTN and interconnectivity with more than 2 points of presence in each region serving <unk>.
Large enterprise, including all 5 of the examples we gave for the quarter. So maybe I'm misunderstanding your question.
Okay.
That's fine thank you.
And the next question comes from the line of Andrew King with Colliers Securities. Please proceed with your cash.
Hey, guys. Thanks for taking my question and welcome Christine Darryl.
Thank you.
The solution.
Can you detail are all going to clear the selling process.
Further.
And the acuity within range.
Correct.
And this is more targeted at new customers.
We are already sharing prospects between the teams and the go to market motion sales activity is.
As an arm and arm activity, where we work with a large enterprise prospect that has a very complex need and ring Central's solution is proposed side by side deeply integrated through our duet product with bandwidth, but the enterprise customer the decision maker will sign a contract with bandwidth and a separate.
Contract with ring Central and so you are selling together into a large complex enterprise environment with the flexibility of the bandwidth platform really breaking through RFP barriers and bundled barriers that may exist in smaller market product offerings. So we've got a great partnership with ring Central we've already begun.
Shelley sharing opportunities between the 2 companies and are excited about going to market together.
Great and then.
Looking at the <unk> you mentioned that.
Without the Covid impact.
1.3 built out about 200 basis points quarter over quarter could you just detail a little bit.
Youre thinking about that the DB any trending and crop year people start to return.
Hey, Andrew This is Jeff Yeah. So we don't specifically guide dollar based net retention.
We like I think when you normalize.
As we said and our prepared remarks, the quarterly results of 114, you'll get to a 123% so not too far off the 125% from last quarter and in line with a normalized <unk>.
Covid number from a year ago and second quarter of 'twenty.
We are reminded again this past quarter that was the peak of the Covid benefit last year. So that was our toughest comp. Although there were COVID-19 benefits as we outlined in the last half of the year. So it will challenge that dollar based net retention, but want to emphasize that we continue to see strong broad based demand and a number.
The use cases that David outlined will be accretive to dollar based net retention as their existing customers.
Great. Thanks for taking my questions and congrats on the quarter.
Thank you Andrew.
And as a reminder to register for a question press. The 1 followed by the 4 on your telephone keypad.
And the next question is from the line of Jim Fish with Piper Sandler. Please proceed with your question.
Hey, guys. This is quintin on for Jim Thanks for taking our questions.
Maybe first of all I wanted to touch base and the competitive landscape, obviously, the big U S win against CPAP competitors really exciting but are the majority of net new customers still coming from legacy replacements or are these key pass replacements coming out more regularly.
Hey, Jim Great to talk with you and great question, the preponderance of our new customer additions remain conquests from the incumbents lumen and AT&T and Verizon.
The examples that we did provide and that are grounded on our global footprint.
Income as when a ways from other C pass companies, but to the premise of your question. The majority remain and will for quite some time wins from incumbents.
Yes that makes a lot of expense and.
And then.
Maybe thinking about.
The accounts that year and that are using multiple solutions.
How do you think youre maintaining share within those accounts those accounts and how sustainable is that wallet share and then has there been any changes and the amount of efforts to those major customers internalizing. The voice you mentioned messaging services or is that just too costly or too technical for them.
Take right now thank you.
Thank you and Jim.
Multi sourcing is a dynamic that we faced when we were domestic only and the reason is because there were apples to apples comparisons that where possible to a certain degree.
Those days are now gone no 1 has the asset combination the global reach the flexible platform the innovative culture and focus on service globally.
As a result, the dialogues that we're having illustrated by the 5 customer examples this quarter, our conversations there outside of historical procurement areas of and enterprise or have a partner and are in the executive product senior suite and that's exciting for US we've had.
Rich partnerships with certain large giant customers for years and years and we're seeing that same relationship dynamic really blossom now because of the global footprint and the expense and expansive platform.
Great. Thanks for the color.
Thanks, Jim.
And the next question comes from the line of Pat Walraven with JMP Securities. Please proceed with your question.
Hi, This is Joe Goodwin on for Pat. Thank you so much for taking my question.
And a little while back you guys used to talk about strategic customers.
That were actually coming over can you just talk about kind of.
Yes, and maybe the pipeline that's there kind of what youre seeing from that kind of caliber customer I guess, we'll say.
And kind of maybe how the how the motion has changed.
For those folks.
Thanks, Joe by motion our activity as an enterprise our strategic sales team remains the same identifying executives and the C suite gm's product owners and having conversations with them about their needs globally. The pipeline is robust and I would describe it as I did last quarter as consistent.
And of more large opportunities and we've seen historically and it is a direct function of the uniqueness of our offer and its availability. So we're excited about that we factored it into how we think about the future and the conversations.
Do remain not in person for the most part, but more and more our outbound activity that I described is including face to face and we hope that continues certainly that would be indicative of a return to normalcy as a society, but at the enterprise level in person sales is something historically, that's been a key driver for us very proud of.
Team for overcoming the.
And the impediments to doing that with customers that are around the world, but excited about how the pipeline looks.
Great. Thank you.
Thank you Joe.
And the next question comes from the line of Steve Enders with keep law capital markets.
Please proceed with your question.
Hi, This is George on for Steve. Thanks for taking my question I wanted to follow up on the question about the zoom and $5.9 and it seems to be part of a larger trend and that kind of coming together.
Free cash and wanted to get your All's perspective on.
And how you think that impacts your <unk>.
And your customer base. Thank you.
You bet I think youre watching bundling happen in the sea casting ucas spaces, and what that I think will drive is renewed vigor and focus on partnership among those customers. So that they can focus on the vital core competencies that theyre trying to offer their customers and a bundle.
And future so our uniqueness and the flexibility of our platform its global reach becomes more important than ever and while these customers of ours joined forces to serve their end users and a new way and we're excited about that and the reason for that is ultimately all of US are chipping away at the 100 year old incumbents, who have failed to innovate and so.
That transformation that migration away from uninspiring.
Uninspiring analogue past 2 exciting cloud based future is secular shifts that were enjoying and we are going to support those and the vanguard of that transition now for some period to come.
Great. Thank you and a quick follow up on the.
Net dollar expansion and.
Any commentary or color on gross retention churn and a quarter. Thank you.
Hey, George this is Jeff.
Don't report on on that particular metric, obviously churn is implicit in the dollar base net retention and there hasnt been a lot of lot of change there. So we continue to deliver strong results.
Got it thank you very much.
And there are no further questions at this time I will now turn the presentation back to the house.
Thanks, all for joining us and I just wanted to close by thanking Jeff Hoffman, who has been and incredible professional colleague and a great friend without whom we would not be here today, Jeff on behalf of all of us at bandwidth Godspeed fair winds and following seas. Thank you. Thank you David and thanks, everyone on the call.
And that does conclude today's conference. We thank you for your participation and ask that you. Please disconnect your lines.
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Yes.
Okay.
And.
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