Q1 2022 Bandwidth Inc Earnings Call
Okay.
Greetings and welcome to the bandwidth Inc. First quarter 2022 earnings conference call. At this time, all participants already listen only mode. A brief question and answer session will follow the formal presence.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Sarah Wallace. Please go ahead.
Thank you good afternoon, and welcome to bandwidth first quarter 2022 earnings call today, we'll be discussing the results announced in our press release issued after the market close.
The press release and an earnings presentation with historical financial highlights can be found on the Investor Relations page at investors Dot bandwidth dot com.
With me on the call. This afternoon is David Morken, our CEO and Daryl Raiford, our CFO . 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 quarter and full year of 2022.
We caution you not to put undue reliance on these forward looking statements as they may involve risks and uncertainties that may cause actual results to vary materially from any future results or outcomes expressed or implied by the forward looking statements.
Any forward looking statements made on this call and the presentation slides reflect our analysis as of today and we have no plans or obligation to update them.
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 as updated by other SEC filings all of which are available on the Investor Relations section of our website at bandwidth dotcom and <unk>.
On the S. E C 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 as well as in the earnings presentation, which are located on our website at investors that bandwidth dot com with that let me.
Turn the call over to David.
Thank you Sarah and thanks to each of you for joining US our team is off to a great start in 2022 in the first quarter. We grew revenue to $131 million and reported 3 million non-GAAP net income. Both ahead of our expectations. We are pleased to be able to raise guidance for the year and are proud of the team's straw.
<unk> execution in a challenging operating environment.
Thank you to our band mates for your continued commitment to our customers and to each other and I. Thank God for blessing our work together today.
Today, we will share how the bandwidth platform enabled innovative organizations around the world to deliver exceptional experiences enterprises increasingly rely on the bandwidth platform to do all their communications in the cloud we are winning these new customers with our portfolio of voice messaging and emergency services Apis and with our insights.
Analytics tools regulatory leadership and unmatched customer support our customers tell us they successfully move and scaled communications in the cloud with our platform and our people.
Earlier this year I outlined three main priorities for driving our growth and performance in 2020 to grow with existing customers win new large enterprises and become the best Global Sea pass platform for scaling digital engagement, we made excellent progress on each during the quarter.
Existing customers grew voice and messaging with us across geographies and use cases and in many different verticals, including health care financial services retail manufacturing and even construction. We are amazed by the creativity of developers and product teams building their next indispensable app and experience on the bandwidth platform.
Our momentum is accelerating with enterprise customers, we are well aware that enterprises are migrating their technology stack to the cloud enterprises. It began migrating storage and compute and security are now asking how to migrate their communications to grapple with different service providers legacy infrastructure.
A critical integrations and proprietary technologies, all of which are mission critical and must work together seamlessly enter the bandwidth platform, which enables a seamless cloud migration for ucas and <unk> platforms and other enterprise Communications applications. Let me give you for recent examples.
In Q1 and iconic top five global investment bank chose bandwidth to be the center piece of its new best in class Cloud contact center build out this customer initially considered legacy carriers that could not or would not integrate the banks required third party authentication.
Solution for years this customer relied on two different legacy incumbents. They are now consolidated into a single relationship with bandwidth.
Our network is cloud native we route calls and deliver cold data in ways, a number of competitors simply can't integrating third party applications before the call gets delivered to the contact center platform.
Our number management API simplify onboarding and allow for increased control over a complex portfolio of telephone numbers for this customer. It is a powerful validation of our cloud platforms ability to provide call control and flexibility and even the most complex contact center cloud migrations and it's another example.
Of how our close relationship with Genesis is continuing to grow our total contact center business.
We went live this quarter with a global hospitality company that describes itself as the largest hotel franchisor in the world. This customer recognized that its legacy carrier could not support it's critical application integrations necessary to make the move to the cloud our success as a result, this new customer is using.
Our cloud platform as the foundation for its next generation approach to customer service and importantly, this also represents yet another bring your own carrier implementation with five nine which is a cloud contact center platform. We are increasingly partnering with for new opportunities. We look forward to sharing more success together in the future.
Third internationally, we're steaming ahead, winning enterprise customers across our expanded global footprint. The latest example is our premium cruise line based in Europe . This customer's phones are ringing off the hook with pent up demand from cruisers, who want to get back out and set sail in an innovative effort to.
Modernize their contact center and also connect and protect their employees. This customer chose bandwidth to power both their ucas and see cash needs. We are proud to serve as the foundation for their global Cloud Communications technology stack.
Once again, our duet for Microsoft teams offering open the door to a much broader conversation about a full enterprise portfolio and the power of our platform was compelling to this customer.
And last this final customer win all highlight as a health care technology leader for HIPAA compliant medical text messaging.
More than 600000 caregivers across 4000 personal care agencies in the U S and Canada rely on this customer to care for over 500000 seniors every year the largest network of in home care providers in North America. This customer chose our cloud platform to deliver SMS.
And MMS messaging containing protected health information to engage with patients provide appointment reminders and notifications to deliver care management as well this customer seeks to use messaging to close communications gaps with their customers and told us bandwidth stood out as the clear platform of choice for them.
Our liability delivery insights and future scalability, they need to deliver that vision. This customer had outgrown their prior C pass provider and needed enterprise grade. She passed a scale, we continue to position bandwidth cloud platform to power the front lines of digital health care transformation with our suite of communication solutions band.
Width can provide the tools to deliver a better more engaging patient experience.
Our financial results and these four customer highlights demonstrate that we are executing on all three growth priorities. We outlined for 2022 finally I want to recognize that we recently divested another heritage business at bandwidth that supported infrastructure for legacy Sip trunking I'd like to thank.
Our customers and Bandmates that made this business success through the years, we wish this business well as it charts, it's new independent course.
And before I wrap up I want to welcome Sandy Pressler as our new Chief revenue Officer, Sandi joined US April 18th and has already hit the ground running he is a true hands on leader who teams has consistently exceeded sales goals for billion dollar cloud and software portfolios Sandy.
He joins our new Chief operating officer, Anthony Bartolo, and bringing fresh perspectives and deep experience to shape bandwidth next exciting chapter.
I'll now turn it over to Daryl to walk through our financial results.
Thank you David and good afternoon, everyone.
As a reminder, details related to our quarter performance provided in an earnings presentation that may be accessed on our Investor Relations website.
Before getting into the first quarter financial performance I'd like to highlight a couple of reporting changes, namely segment reporting and cost reporting.
In terms of segment reporting as I noted last quarter, we've updated our segment reporting to reflect our business. Following the divestment of three smaller business units.
Two last quarter and as David just mentioned as of April 1st our legacy infrastructure for Sip line connectivity.
And in terms of cost reporting beginning now with the first quarter, we've aligned certain cost and operating expenses on our income statement to better describe our cost structure in a more common way.
Note that adopting updated segment reporting and benchmarking our expense categories did not change our previously reported company revenue or net income nor have any meaningful change to gross profit.
To assist in preparing your models, we've provided an explanation of our cost categories and reconcile did confirm the last three years of historical reporting in our first quarter earnings presentation.
Now turning to our quarterly results, we've launched into 2022, posting a strong start for the first quarter with first quarter revenue and non-GAAP EPS, both coming in above their correspondent guidance ranges.
First quarter revenue was $131 million up 16% year over year.
Revenue growth in the quarter was driven by demand for digital engagement with continued momentum in messaging, which grew 35% year over year.
And strong contributions from monthly recurring charges for phone numbers and emergency services.
Revenue, we recorded from pass through messaging surcharges was $17 million in line with our expectations.
The headwinds we described last quarter all landed in line with our expectations and we're pleased that underlying broad customer demand and new customer acquisition led to our over performance.
non-GAAP gross margins of 53% for the first quarter were up one percentage point from the prior year's quarter, driven by improved pricing and product mix as well as continued excellent execution within our cloud operations and services groups.
Note that our non-GAAP gross margins continue to exclude pass through messaging surcharges.
Our first quarter results demonstrate our progress towards our long term goals of greater than 60% gross margins and reinforces our confidence that we will achieve them.
EBITDA for the first quarter was $8 million.
non-GAAP net income came in at $3 million with non-GAAP EPS of nonsense.
Both measures exceeding our expectations and delivering on our commitment to grow profitably.
In terms of our operating metrics, our net retention rate has been aligned to one reporting segment and presents as a four quarter moving average.
Accordingly in the first quarter, our net retention rate was 114%.
And active customer count reached 3372.
Now turning to our financial outlook, we're raising our full year 2022 revenue and profitability guidance to reflect our business over performance in the first quarter.
Partially offset by the necessary removal of the expected results from the recently divested Sip line business.
Taking both of these into account, we expect higher full year revenue to be in the range of 551 million to $557 million.
Likewise, we're raising our estimated full year non-GAAP earnings per share to be in the range of 10 to 14 cents.
Assuming approximately $31 2 million weighted average diluted shares outstanding.
For the second quarter, we expect revenue to be in the range of $133 million to $135 million.
Second quarter non-GAAP earnings per share is expected to be a loss in the range of nonsense devices using $25 3 million weighted average shares outstanding.
In summary.
Our financial and operating performance in the first quarter represents a strong start to the year and drives our confidence and our higher full year outlook, demonstrating good progress towards achieving our long term financial goals.
Now I'd like to turn the call back over to the operator for questions.
Okay.
Thank you we will now be conducting a question and answer session.
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Yes.
Your first question comes from Matt Stotler with William Blair. Please go ahead.
Oh, Hey, there hey, thanks for taking the questions.
Maybe I'll start with one maybe more strategic question.
David really appreciated the examples of the enterprise wins that you're having there it sounds like there's some good traction in that kind of segmented and developing part of the customer base. We will look to just maybe dive into that a little bit more in terms of what specific types of companies or businesses Youre seeing in terms of particularly strong adoption.
Outside of the traditional customer cohorts that you guys have have served for the last decade or so.
And in terms of the customer profile there I mean, obviously the large complex deployments makes sense, but how how small can you go I mean, there are there any customers that you think are maybe aren't.
Don't make sense within that category and then how meaningful can this be as a contributor to revenue over time as a whole.
Thanks, Matt This is David so in the announcement Tonight, We did talk about a top five global investment bank and that illustrates the continuing success that we've seen in the financial category and we think that not only can we serve top five but as we've said in the past, we're really focused on our global III.
As an enterprise target and in financial there are quite a few so we expect to continue to reinforce the success in this category, particularly given the complex nature of the third party applications that are cloud native solution can support so well well before the call is actually delivered into the contact Center. In addition, we talked about hospitality Tonight.
And have in the past Similarly excited success cases, where we've served well in an area in a category that's really focused on delighting customers, while they travel.
They have stay or extended stay and in both these cases, whether it's financial or hospitality. We've got both an incredible ability to serve the very largest but also can go down market and serve the mid market as well, but again large enterprise has been our focus and what we did mentioned the cruise line and I would describe that as travel and hospitality as well and then health care last but not.
At least Tonight illustrates yet again that in addition to retail and in addition to financing elsewhere health care represents a huge opportunity for us and we continue to attract and close some of the largest in this case largest in home care provider in North America. Some of the most storied brands in this space and serve them well and that's really attributed to not just the <unk>.
Capabilities on the network, but the extraordinary focus that we have here at the company on customer success in serving large customers.
Got it very helpful.
And then maybe one for Daryl just in terms of obviously, some nice upside in Q1 and Q2.
But a little bit less in terms of what would flow through the full year I'm, assuming maybe the divestiture or something to do that but if you could just update some of the dynamics that are embedded in 2022 guidance that'd be helpful.
Sure. Thanks, we did raise our top and bottom bottom line to pass through the beat from the first quarter as you said and we did partially offset that by our guidance in the guidance for the to remove the remaining legacy business that has about less than just less than 5 million dollar effect in terms of the offset.
For our overall net race.
In terms of revenue.
Got you that's helpful. Thanks again guys.
Thank you Matt.
Next question, Ryan Macwilliams with Barclays.
Hey, guys. Thanks for taking the question just to follow up on some of the commentary we heard from last quarter, just around you know customers potentially.
Like renegotiating on pricing.
Just with the overall sentiment on Wall Street more focus on the bottom line at this point have you seen any more customers.
Come to you and kind of ask for concessions, there or just given like the longer term nature of that nature of your contracts and maybe differentiate with Fox phone have you not seen that yet at this point.
Yes.
Thanks, Ryan This is Gerald let me take that the.
The short answer would be no. We were very encouraged by what we saw in the first quarter pricing had an overall favorable impact in the first quarter, along with our volume improvements.
We had mentioned the headwind the one customer who you're speaking to in the strategic the strategic decisions. We took in the first quarter to strengthen that relationship over the long term, that's gone very well for us as well.
Across the base pricing has improved and we said that that would be an isolated occurrence was our belief and that continues to be our belief.
Okay.
No that's really that's really great to hear.
Especially in line with today's results and then you know just to double click on there was a recent filing from bandwidth that indicated that telmex took a 6% stake in bandwidth.
If <unk> like a competitor or a partner it seems like they're also in this API space and have you communicated with the company on any reasoning behind them taken this position. Thanks.
We're we're here Tonight to talk about the over achievement during the quarter and historically have never commented about our investors.
No I appreciate that and congrats on the results.
Thanks Ryan.
Next question meta Marshall with Morgan Stanley .
Hi team. This is Erik on for meta. Thanks for taking our question you talked about a number of wins in the contact center market.
Pretty interesting I guess, maybe the first part of the question as being as you're seeing the traction there or is that a result of more internal focus you put on opportunities and it becoming more of a core market you're focusing on in partnerships and then if so or is it more the market kind of has seen very strong growth and then if.
So are there areas that you could be looking to invest more in to enhance our offering for contact center.
Tonight, We announced Sandi Pressler is joining us as our chief revenue officer, and obviously with these examples he's inheriting a terrific strong team that's had solid traction focusing on complex context, our environment is going to make it tougher sandy to perform well with that kind of pressure, but it's really a hat tip to excellent execution targeting.
Key brands in vibrant verticals that are growing strong and addressing really the shortcomings of the incumbents in these areas, where you have contact centers with complex call flows in the example Tonight. There were multiple legacy incumbents that are slow moving do not have a software platform don't have a global footprint and those are key differentiators for us and so the result.
<unk> that we announced Tonight with these brands and these contact centers is a direct result of good hard work in sales and we're excited about what sandy is going to do to improve that even more.
Got it thank you and if I could sneak one more in you also talked a bit about the international side and I'd be curious if you could just give us an update on where you are in getting some synergies out of box bone, whether it be on the revenue or cost side.
It is still early days with our international opportunity Cross selling has really just begun and the fundamentals supporting the thesis for box bone joining bandwidth there not just intact.
They are growing strong and so we expect that will continue to add significant customers that value our global footprint the.
The global 3000 include many of those that we target and so while it's early what's important is that we've got many many years ahead, serving global enterprises and the team is as excited as motivated.
And we think.
Youll see more in the future.
Got it well, thank you and congrats on the quarter.
Thank you.
Next question Tyler Radke with Citi.
Hey, Thanks for taking the question.
So obviously theres you announced sandi joined the company.
Leading the leading the sales initiatives you.
You know maybe talk about some of the changes and augmentation that are going to be put in place and just how youre thinking about growing.
The direct sales force today, especially given what seems to be pretty good enterprise momentum that you saw in the quarter. Thanks.
You bet Tyler Sandy brings a lifetime of perfecting his sales craft at complex global scale and technology companies.
Responsible for billion plus P&L delivery his mastery of relationship selling is what we value most scaling across our growing enterprise sales team.
He is a complete professional he has proven in the past and I fully believe he'll prove in the future to be a phenomenal team builder and coach and I think that it's a great credit to Anthony Bartolo our COO.
Sandy has come to join him on the mission here at bandwidth and we are excited as we grow the sales team about what he is going to do.
Okay.
Great and.
I can't help but ask that kind of a macro question I know, obviously you're not.
Have have huge exposure outside the U S, but just as you're talking to the customers and you know getting there their appetite for spending over the.
You know the next year are you are you are you taking into account any.
Conservatism in your outlook or just any increase.
Increase.
The deal cycle.
Timing, just just given everything out there.
We factor input from prospects and customers into our pipeline review in our bottoms up approach to guidance and all of that input and Intel is factored into how we feel about next quarter and the year.
Great. Thanks for the color.
Yeah.
Next question that will power power with Baird.
Okay.
Yeah, Hey, guys. This is Charlie on for will thanks for taking my question.
And congrats on the strong results too I just wanted to ask.
How would you characterize any potential lingering impacts from the Ddos attack I know last quarter, you talked about 40 customers that were still ramping up. So how are those 40 customers now could you talk a little bit about how they've been ramping up their traffic in the last three months.
We described the.
The impact last quarter on the last earnings call nothing new it is.
A team that's executing exactly like we thought it would addressing that cohort and very proud of the results as we expected and were in line.
Great that's great to hear.
If I can ask one more to messaging growth has been really strong. So I'm I guess I'm wondering is there any change in kind of your thought or philosophy or strategy around messaging, maybe to focus more on that or how are you thinking about that internally.
The messaging is growing well, 35% year over year in Q1, and it's driven by broad use cases and that includes customer engagement that you would see in retail and healthcare.
It's also not just broad, but as you say, it's something that's growing that we feel is important to offer customers that want to that want to have our service and our support.
It is scaling well and we expect it to continue to grow I think importantly.
Political was not a material driver in Q1 messaging revenue.
We've got broad customer use cases, enjoying our platform's ability to scale messaging accurately and massively for high deliverability and quality and so we're attracting a larger and larger customers to messaging and so while we've been late to the messaging game I think we play catch up quite well.
Alright, thanks, very much and congrats again.
Thank you.
Next question, Pat Walraven to with JMP.
Oh, great. Thank you so Dave I'd love to hear just what are the.
Two or three most important things you feel like you need to get done and the balance of this year and.
There's there's any other changes in.
Leadership positions or governance.
That you would include in that.
Okay.
Hey, Pat the three most important that I've consistently outlined to answer your question number one we have got to grow with existing customers. That's not just dubner, but also use cases and utility of the platform number two we do need to win new large enterprises and we're demonstrating.
Our ability to do that in this quarter, yet again and would prefer to have large customers that grow longer and higher with US and then third we've got to have a platform that results in us being the best Global Sea pass.
Provider for digital engagement globally, and that means getting to a user experience and the user journey that is uniform and those are the three strategic priorities that the whole team is focused on and I'm really excited by the examples that we sided tonight that illustrate all three of those in terms of other folks joining the team.
Nothing material to announce nor do I feel like we have any deficiency at all on the team that's glaring that we need to fill we've got.
Very strong.
Team here. So neither anything that is obvious to me thats missing nor anything to announce pattern if that answers your question.
And then Daryl if I can just ask you one so.
I Love that you bought the stock last quarter.
Yes.
Well, you're still below where it is that a question is that a question.
[laughter].
Below where you bought it you know so.
Just remind us why you bought it and how you feel about it today.
I feel that Ah.
The company is in a the company is very well positioned in a growing market is growing profitably gross margins have consistently been growing.
Everyone knows what we set up to be our our gross margin targets of greater than 60%. Our bottomline is profitable. The company produces free cash flow I feel very good about how we operate with our customers and how we serve them with passion.
And I have a great belief in the in the in the execution of the company and its valuation going forward.
Okay, great. Thank you.
Thank you Pat.
Thank you gentlemen. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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