Q2 2024 Bandwidth Inc Earnings Call
Good day and welcome to the bandwidth, Inc. Second quarter 2024 earnings Conference call.
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I would now like to turn the conference over to Sarah Walas, Vice President of Investor Relations. Please go ahead.
Thank you and welcome to bandwidth second quarter 'twenty 'twenty four earnings call today, we'll discuss the results announced in our press release issued earlier today. The press release and earnings presentation with historical financial highlights can be found on the Investor Relations page at investors Dot bandwidth dotcom.
With me on the call today is David <unk>, our CEO and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q&A.
The call, we will make statements related to our business that may be considered forward looking including statements concerning our financial guidance for the third quarter and full year of 2024 weeks.
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 statement.
Any forward looking statements made on this call and in 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 dot com and on the S. E C web.
Syed 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 earlier today as well as in the earnings presentation, which are located on our website at investors that bandwidth dotcom.
With that let me turn the call over to David.
David: Thank you Sarah welcome to bandwidth second quarter 2024 earnings call. We're pleased to report a very strong first half toward our plan for 2024 in the second quarter, we delivered solid revenue growth across all categories, while accelerating profitability and cash flow we are a <unk>.
Disciplined operating team with a steady focus on expanding profitability, creating unique software innovations like maestro and AI bridge and broadening the reach of our global bandwidth communications cloud to deliver a sustainable competitive advantage.
Speaker Change: The team is grateful for the trust our customers place in US every day and for our Bandmates, who go the extra mile to support them and I. Thank God for our opportunity to help connect people around the world.
Voice communication is a large growing market and a pillar of our business delivered through our global communications plans and enterprise market offers bandwidth powers all of the leaders in the Gartner Magic quadrant for both unified Communications and contact center as a service.
Now larger enterprises are increasingly recognizing the potential of cloud contact centers to transform customer experience and leading <unk> platforms are capitalizing.
Microsoft recently announced its new dynamics platform, where we are a foundational partner through operator connect and direct routing. We've also seen other top see Cas players announced historic contracts with large numbers of seats.
This is a trend that we expect will contribute to future growth in our G. C P and enterprise categories for example.
Speaker Change: A nationwide provider of medical claims management selected bandwidth as their exclusive provider for voice valuing our exceptional customer support and the flexibility of our maestro product to orchestrate and enhanced call routing to their see Cas platform.
When she has platforms add customers, we benefit as the underlying provider and when the largest global organizations need to simplify and unify their communications bandwidth gives them choice and control via our direct to enterprise market offer.
Moving communications to the cloud and unifying voice messaging and emergency services into a single cloud software experience is the fastest way for enterprises to simplify digital transformation company wide, all while leveraging new AI solutions.
We have a proven track record of successfully orchestrating complex global cloud migrations for some of the largest enterprises are partnerships with hyperscale or cloud platforms and global 2000 customers continued to grow stronger and stronger through close collaboration and co creation in this rapidly evolving.
<unk>.
We foresee a long term expansion of voice because it's the durable customer preference for two key use cases in the contact center high value transactions with human agents and convenient self service through conversational AI.
Human to human interactions like understanding of health insurance issue or Rebooking, a cancelled flight our soap business critical even a rare outage can cause significant loss of revenue or reputational damage to a brand. That's why more enterprises are turning to bandwidth redundant resilient voice solutions for exam.
Yeah.
A leading provider of patient transportation meal delivery remote patient monitoring and personal and home care chose bandwidth to power. Its cloud contact center are powerful Api's network reliability and comprehensive fail over protection offered by our call assure product resonated with the customer.
To safeguard their business critical voice calls.
Reliability also motivated a trusted provider of business insurance to switch to bandwidth as their sole provider for voice they valued our advanced call routing solution, which efficiently directs their contact center traffic along with our superior backend reporting tools.
Speaker Change: As consumers grow more comfortable resolving lower level issues like a lost credit card by speaking to an AI powered virtual agent bandwidth is exceptionally well positioned to enable these interactions as well through our maestro platform and global communications cloud.
AI powered voice automation Leverages bandwidth voice network, similarly to an interaction with a human agent resolving many customer issues before they ever reached the contact center for these technologies to work properly, especially with capabilities like fraud detection, the clarity and fidelity of the voice call are crucial bandwidth.
Uniquely provides this quality because we own and operate our networks, our AI bridge product available with Maestro enables contact center operators to utilize pre integrated conversational AI providers like Google dialogue flow and cognizant and we intend to announce more partners soon.
In summary voice is a durable interface for customer service, whether through a human agent or via conversational AI, even as getting support becomes faster easier and more satisfying than ever before.
Speaker Change: World, where enterprise customers must balance the need for reliability with the complexities of building trust and customer experience through service channels bandwidth is exceptionally well positioned we are capitalizing on the tail winds of innovation with invoice by becoming the platform of choice for industry leaders in this space and it will all run on the.
Bandwidth Global Communications cloud.
Speaker Change: With more innovative enterprises, incorporating business texting alongside voice in their customer journeys are programmable services offer is also well positioned to be a trusted single source provider the bandwidth.
Communications cloud provides deliverability scalability and insightful analytics that enterprises need to manage these complex customer interactions for example, our long standing customer that provides communication solutions for hospitality health care and municipal clients significantly increase their.
Speaker Change: <unk> business with us in the second quarter alongside the voice services, they already consume our unique ability to provide local telephone numbers for SMS messaging in the many markets where their customers operate played a pivotal role in securing this additional business along with our deep industry knowledge messaging compliance expertise.
Speaker Change: And outstanding customer service.
Speaker Change: We believe our strength in commercial messaging gives us a unique advantage in providing infrastructure and technology that drives future growth in some of the biggest market opportunities where messaging is a key driver of end user engagement, including the trillion dollar e-commerce vertical healthcare and financial services.
Speaker Change: As.
Diverse Agrawal: Before I wrap up I am delighted to announce that diverse Agra wall has been appointed interim Chief operating officer in just two years as our Chief software strategy Officer divestitures had a significant impact, including realigning, our global engineering resources and accelerating time to delivery for.
Divestiture Agrawal: Key innovations like our maestro platform in his new role diverse will draw on his significant prior global sales go to market product development and P&L leadership experience at large organizations, including Oracle.
Speaker Change: He is respected by all of US who work with him and I look forward to partnering with diverse and has expanded mission in closing I am pleased to Mark the halfway point of 2024 with solid performance. We are building a durable franchise based on disciplined operation expanded profitability differ.
Speaker Change: <unk> product innovations global reach and unmatched dedication to serving our customers around the world.
Speaker Change: Our space is dynamic and growing our market offers have attracted large innovative and loyal customers who have relied upon our platform in some cases for over a decade and we are still in the early stages of the cloud communications and AI Revolution, our leadership continues to be reinforced by.
Daryl: Tree recognition such as the UC Award for Best <unk> platform, which was just announced in the past week for all these reasons I am excited about what we'll achieve in the remainder of 2024 and beyond I'll now turn it over to Daryl to walk through the details of our financial results and our outlook.
Daryl: Thank you David and thanks, everyone for joining us today.
Daryl: Bandwidth had a strong second quarter.
Daryl: We reported total revenue of $174 million.
Daryl: Up 19% from last year.
Daryl: The midpoint of our guidance range and.
Daryl: And adjusted EBITDA of $19 million.
Speaker Change: Up 77% from the prior year and surpassing the high end of our guidance.
Daryl: Free cash flow was $18 billion significantly higher than the first quarter and nearly $20 million over last year's quarter.
Daryl: This robust performance underscores how we are delivering on the commitment we made at our Investor day, 18 months ago to achieve sustainable profitable growth operating leverage and cash flow generation and an optimized capital structure.
Daryl: Rounding out our second quarter results again total revenue grew to $174 million and consisted of cloud communications revenue of $128 million.
Daryl: Up 8% from last year, and messaging surcharges of $45 million.
Daryl: Our cloud communications revenue benefited from strong growth across all of our products and was led by messaging, which continued to be a strong driver growing 33% year over year.
Daryl: The large bulk of our second quarter messaging revenue is derived from expanding commercial demand from new and existing customers across a variety of verticals and use cases.
Daryl: And also benefited from about $3 million in political campaign demand.
Daryl: A reminder, that we go to market serving three customer categories.
Daryl: Mobile communications plans customers programmable services customers and direct enterprise customers.
Daryl: For Global Communications plans, our second quarter revenue grew 2% year over year fully in line with our expectations, reflecting stable momentum across our <unk> and <unk> power platform customers.
Daryl: Our programmable services category grew 31% year over year, driven by continued healthy messaging demand from commercial customers in E Commerce financial services and healthcare as well as the previously mentioned $3 million tailwind from political campaign messaging.
Daryl: In our enterprise direct customer category, we grew revenue 25% year over year.
Daryl: Our maestro platform and global Communications cloud offerings are resonating with enterprise customers across many segments.
Daryl: Including the financial services health care and travel verticals.
Daryl: In terms of operating metrics, our second quarter net retention rate was 111% and.
Daryl: An improvement of five percentage points from a year ago quarter.
Daryl: Our net retention rate for our customers with greater than $100000 <unk> grew to 113% two percentage points higher than the total company metrics.
Daryl: Free cash flow margin.
Daryl: Touching on our capital structure, we're proud to deliver revenue growth profit growth and the rapid deleveraging of our capital structure.
Daryl: In May we finalized our plans to reduce the outstanding balance of our 2026 convertible notes by repurchasing $140 million outstanding notes for approximately $127 million in cash.
Daryl: This action combined with the previous repurchasing exercises first begun in November 2022.
Daryl: Has cumulatively resulted in $365 million of our 2026 convertible notes acquired at a significant discount recognizing a cumulative $63 million net gain.
Daryl: We've kept our eyes on delivering value to shareholders by growing profitably and optimizing our capital structure Opportunistically.
Daryl: Now turning to our outlook.
Daryl: Like to remind you that in May we raised both our full year revenue and profitability guidance following our first quarter strong performance.
Daryl: We moved our capital structure.
Now I'll turn the call over to the operator to begin the question and answer portion.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone. Please pick up your handset before pressing the keys, yes that anytime. Your question has been addressed and you would like to withdraw it.
Speaker Change: Please press Star then two at this time, we will pause momentarily to assemble our roster.
And today's first question comes from Arjun Bhatia with William Blair. Please proceed.
Alright.
You and I appreciate you taking the question here.
Speaker Change: Daryl maybe maybe can you start with I noticed the net retention.
Arjun Bhatia: <unk> rate increased quite nicely from from Q1, I was hoping you just be able to flush out some of the drivers there.
Where are you seeing the most expansion from customers and.
Speaker Change: Is this kind of gross expansion increase or are you seeing.
What form the integrations that we offer the underlying global cloud platform all resonate deeply to provide voice as what we believe will very quickly become a primary channel and access interface for AI and both in the contact center origin and in many other use cases.
Speaker Change: Alright, Okay. Thank you appreciate it.
Okay.
Okay.
And our next question comes from Ryan Macwilliams with Barclays. Please proceed.
Hey, guys, Jamie Kaufman on for Ryan Macwilliams, Thanks for taking question.
Jamie Kaufman: Great to see the beat on EBITDA guide and <unk>.
Coming in line.
Was the decision to really both of these metrics, particularly EBITDA assign a conservatism.
Or was there a shift to expectations and now the second half would perform compared to <unk>.
And do you mind. If so your question was related to would you repeat that you broke up on us.
This customer.
Speaker Change: Provide solutions for industries like workers comp auto health disability management.
Speaker Change: And they manage claims and do virtual care and these are complex interactions with customers and we are providing Microsoft teams voice as a solution with inbound outbound voice from bandwidth and maestro helps them with this voice interface, the SMS inbound outbound solution and.
Speaker Change: The ability to integrate third party.
Solutions that some are pre integrated some that they bring to the table. That's one example, and I think what's really important to understand about this kind of a maestro win is it represents a contract value that is orders of magnitude larger than our $198000 average <unk>. This is an enterprise customer.
Customer using an enterprise product and maestro at an enterprise contract value that is orders of magnitude larger than <unk>. The second one is a provider of patient transportation meal delivery remote patient monitoring and personal and home care.
Creation Revolution is something that was pioneered by AWS, where you got rid of servers that you were racking and stacking on your <unk> and you were able on a global or regional basis to abstract processing storage compute security and many other things to AWS in a wonderful way and you were liberated from hardware.
Speaker Change: Concerns on site from incumbent legacy interconnections that were challenging and difficult.
And it really provided the base layer for much of the amazing experiences available today digitally in the enterprise, we as an analogy to that have really pioneered for ucas for sekos for conferencing and now for AI across all those different use cases that same.
Cloud based approach to technology for the future.
Don't have to have on your Prem any hardware you don't have to maintain software youre able to leave AT&T, Verizon lumen and other incumbents behind and really take your voice and messaging services to the cloud with bandwidth and do so globally and Thats really important with a single universal platform.
And identity.
Speaker Change: There are an enormous number of opportunities that really require the maestro product to integrate easily or to take advantage of pre integrations to do so on a global footprint basis to connect to one API to be able to do so contact center to answer. Your question is definitely the area in which we see the Moe.
Immediate demand.
Speaker Change: As to the second question regarding the Maestro sales funnel. Some of it is clearly coming from existing customers that we already work with that have a familiarity with us and what we do and have bought into the early beta release last year August 31, we continue to grow the new opportunity funnel in finance.
In health care and transportation. These are all large verticals that have complex customer engagement models in the contact center, where we're seeing great success growing enterprise at a 25% growth rate.
Think that that is healthy and in line with our expectation.
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