Bandwidth Inc (BAND) 2021 Q1 法說會逐字稿

Welcome to the Bandwidth First Quarter 2021 Earnings Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

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 Bandwidth's First Quarter 2021 Earnings Call. Today, we'll be discussing the results announced in our press release issued after the market close. With me on the call this afternoon is David Morken, Bandwidth's 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. 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. 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.com and on the SEC's website at sec.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 the market today, which is located on our website at investors.bandwidth.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 that beat our February guidance on both the top and bottom lines, and set a new record for our highest ever CPaaS revenue for a first quarter. We're excited to talk about these results and how we develop and deliver the power to communicate with customers around the globe.

But let me begin by first thanking a great team and the good Lord. To our Band mates here in Raleigh, in London, Singapore, Brussels, Denver, Romania, Rochester and Dublin, thank you 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 2 talented teams. And finally, thank you, God, for blessing the work of our hands and for bringing us opportunities to lead and serve others while loving our Bandmates.

Now let's talk about the first quarter. This quarter, we achieved a 69% year-over-year increase in CPaaS revenue. 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% year-over-year and is now 12% of CPaaS 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 a service.

In 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. 6 months into our efforts to integrate the Voxbone platform and team, we are more excited than ever about this combination. 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 this call.

We believe that local business voice and identity are critical components of global customer engagement. What does local business voice really mean? Our global platform delivers scalable, 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 navigating an 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 in more than 60 countries. Consumers are 4x more likely to answer a call from a local number.

So when our customer, a global ridesharing and delivery provider, needs its drivers to reach restaurants or riders without using their own phone number, we 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 market presence in new countries as part of building out a physical presence, we can meet that need in the far corners of the world. When an online marketplace for home stays and vacation rentals needs local numbers in 47 different countries around the world in order to provide local support numbers for its contact centers, it turns to Bandwidth.

For years, our customers have been clamoring for this ability 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.

One example of this cross-selling is with a fast-growing Magic Quadrant leader in the CCaaS space. In 2019, this company needed to address pent-up demand and competitive pressure for messaging, and met that need with Bandwidth's messaging APIs. Less than 6 months later, they realized that our inbound voice and number offerings provided better economics and more flexibility than the incumbent carrier they'd been using. So they entrusted these voice services to Bandwidth as well.

Shortly after Bandwidth announced the acquisition of Voxbone, the CCaaS provider won a contract with a major multinational insurance company headquartered in the U.K. In order to serve this insurer, the CCaaS provider needed messaging reach to more than 30 million customers. We were able to meet this need, combining virtual mobile numbers from the legacy Voxbone platform with Bandwidth's messaging APIs.

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 on the Bandwidth platform. Time 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 [define] digital payments companies. In 2018, this company turned to us for enterprise-grade, toll-free messaging to enable digital receipts, promotional notifications, appointment reminders and payroll notifications for their customers. Based on Bandwidth's proven success delivering these mission-critical communications, a year later they asked us to enable a new use case in a separate business unit: messaging related to peer-to-peer payments, fractional stock purchases and other notifications.

We're pleased to share that this company rolls out yet another new channel of communication, it has once again turned to Bandwidth as its trusted provider. This new channel allows for multiple new forms of 2-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 can drive communications innovation for the world's most creative companies.

In Q1, we also landed an exciting new deal with a provider of integrated emergency response solutions, including crash detection and emergency call responses for connected cars. This IoT solution will soon be relying on Bandwidth's E911 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's 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 convey a call-back number to the PSAP in case the call is dropped. Our E911 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 in the cloud. They are looking to ditch their antiquated premise-based legacy communications tools in favor of software-based solutions. As a provider to many of the leaders in Gartner's UCaaS, CCaaS and Meeting Solutions segments, Bandwidth is enjoying broad-based growth in each of these markets.

The major players across the industry turn to Bandwidth as a trusted platform to power their growth. One recent example is our expanding relationship with a fast-growing contact center provider in the Gartner Magic Quadrant. For years, this customer has relied on Bandwidth for voice, messaging and numbers. This quarter, this customer reiterated its confidence in the Bandwidth platform by signing a new 2-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 world's accelerating migration to the cloud. We are so proud to be powering the explosive growth across the UCaaS, CCaaS and Meetings segments.

As a global trusted platform to leaders, challengers and visionaries alike, 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 in global enterprise communications. Our broad and deep relationships across the industry and around the world affirm the unique strength and momentum of our platform and network strategy.

We look forward to the fulfilling work of bringing 2 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 business is off to a very strong start in 2021. First quarter total revenue was $113 million, up 66% year-over-year. Within total revenue, CPaaS revenue was $100 million, up 69% year-over-year and $3 million higher than the midpoint of our guidance. Our overperformance 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 A2P messaging surcharges of approximately $4 million in the quarter. Voxbone contributed approximately $21 million to CPaaS revenue, and $1 million to Other Revenue in the period. Excluding Voxbone, Bandwidth's stand-alone CPaaS revenue growth was 34% year-over-year and Bandwidth's stand-alone total revenue grew 33% year-over-year.

Our dollar-based net retention rate was 125% 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 Voxbone acquisition until we lap the close of the deal in the fourth quarter of 2021. We ended the first quarter with 2,959 active CPaaS customers, which represents the net addition of 111 customer accounts in the period.

Moving on to profitability. Non-GAAP gross margins came in at 51% for the quarter. Bandwidth CPaaS margins continue to be strong and enhanced by the inclusion of the higher-margin Voxbone business. However, these positive factors continue to be partially offset by existing and new carrier A2P messaging surcharges, which we pass through to our customers. Our non-GAAP net income in the first quarter was $8 million, stronger-than-anticipated due to higher revenue, higher gross profit and favorable operating expenses. As of March 31, 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 CPaaS revenue guidance to reflect the strength and momentum we saw in the first quarter. We now expect our full year 2021 CPaaS revenue to be in the range of $418 million to $421 million, up 41% at the midpoint of the range. And we expect 2021 total revenue to be in 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 A2P messaging surcharges that were recently initiated by 2 additional carriers. 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. We're estimating our full year non-GAAP earnings per share to be in the range of $0.47 to $0.55 per share, assuming approximately 27 million weighted average shares outstanding.

Turning to our guidance for the second quarter of 2021. We expect CPaaS revenue to be in the range of $101 million to $102 million, or 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 $0.08 to $0.10 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's CFO effective September 1. The last decade with this team has been an incredible adventure, and I will always be proud of the work we did together. I want to thank David, the Board of Directors and all my Bandmates for the honor of serving alongside them during a period of extraordinary growth and accomplishment.

Though 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 a robust first quarter. I'll be working closely with David to identify the right candidate to serve as Bandwidth's CFO in the next chapter, and will look forward to cheering on Bandwidth's 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 made it through. Each and every Bandmate owes Jeff an enormous debt of gratitude for helping us become the company and team that we are today. I am so grateful for Jeff's commitment to a smooth transition and for all that he has given to me, to the finance team and to our entire organization over the last decade. His mark here is indelible.

Jeff, on behalf of all of us, thank you, fair winds and following seas, and God bless the Hoffmans. With that, we'll open up the call for questions. Operator?

(Operator Instructions) The first question comes from Bhavan Suri with William Blair.

Jeff, it's been a real pleasure, my friend. I know you're not leaving yet. We've got a couple of earnings calls, but it has been a real pleasure.

I want to touch a little bit initially on the CCaaS opportunity. You've now had some wins in the space. I guess, Dave, how do you think about sort of approaching that almost as its own specialized area, maybe verticalization in there? I guess what I'm thinking is, is there a broader opportunity for the platform to be used to create custom CCaaS or communication solutions at some point in the future?

Bhavan, there's no question in CCaaS, large providers do favor having the flexibility to do third-party integrations and to do things differently than just doing UCaaS. So we do believe our platform has great utility for companies that want to do third-party integrations rapidly at massive scale to customize call flows, to really optimize performance for representatives in a call center environment. We've seen that to be compelling in the wins that we have secured, that flexibility and the agility to integrate with others and to uniquely route calls at high quality and high scale. So I think you're absolutely onto an important aspect of our platform as it relates to CCaaS.

Got you. Got you. Got you. And then, I guess, at a broader level, we've seen a notable amount of consolidation in the network connectivity layer over the last couple of quarters, both voice and messaging, right? So Sinch bought Inteliquent, we've seen mGage being acquired, Infobip, et cetera. I guess I'd love to get your thoughts, your insights on to the broad consolidation and then more importantly, the implications for Bandwidth.

The most important consolidation in the platform and network layer was the acquisition of Voxbone by Bandwidth precisely because they were unique. They were the one and only. And it's by far the most important for enterprise customers. Every conversation we have with an enterprise, Bhavan, is about global coverage, global voice. And that acquisition consolidated the singular crown jewel asset worldwide when it comes to full stack PSTN replacement in over 30 countries, and we're expanding that footprint.

So I think that's first and foremost, as a voice-focused company, the most important acquisition to highlight. And appreciate your robust sense of humor. That said, we do see the important competitor moves, and we're much more confident than ever before about our differentiated approach to global voice than we have been in the past.

The next question comes from Will Power with Baird.

This is Charlie Erlikh on for Baird. Yes, Jeff, congrats on all the success over the last 10 years. It's been a pleasure working with you. So is there any way that you can maybe quantify the -- what you might call the onetime-COVID impacts? Or is that a little bit less relevant this quarter?

Charlie, thanks for your kind words. This is Jeff. It is less relevant. So we saw in 2020, the COVID impact peaked in second quarter of 2020, and it's 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 prepandemic 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 a company since we power so many of the UCaaS and meeting solution providers.

Great. And then just on the messaging business, it was great to see the growth there. I'm hoping you can maybe parse out the growth in messaging between maybe the core messaging growth and then cross-selling messaging into the Voxbone base. How much of that messaging growth this quarter was from that cross sell? And then also 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. Messaging is 12% of our overall revenue. And as you mentioned, is a very robust grower for us. You also know we're very focused on voice. To specifically answer your question, I wouldn't overweight the cross-selling of messaging to Voxbone customers. We're going to continue to lead with voice worldwide. We will have messaging on occasion as an important value-add in conjunction with what we do on the platform for voice.

So it wouldn't be a significant amount of the revenue from messaging that I would call out as a 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 messaging wins when important, but I wouldn't overemphasize that.

The next question comes from Pat Walravens with JMP Securities.

Great. And congratulations, you guys. So Jeff, 2 for you. So first of all, as I look back, in February the consensus was at $0.35 for earnings this year. You took us way down, you guided $0.02 to $0.12, and now we're back up to $0.47 to $0.55. So consensus was actually sort of right, or in the right ballpark at least. What changed?

Yes. So you guys are obviously really good, Pat. And I need to continue to improve. No, seriously, first quarter was really just a strong performance across the board. You saw, we obviously beat 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 T&E was not as an example of what we thought it would, nor was our hiring as strong as it maybe could have been. And I think a lot of that's pandemic-related with it.

We also had some shifts in timing. So a lot of the project-based work that we're doing, in particular around the Voxbone integration, think ERP, SOX, some IT projects, some of those have shifted out in time. And I don't want anyone to leave with the fact that we're running behind on where we were. It's just those particular expenses are hitting later in the year. And so we did raise guidance, both top and bottom line, and it was a very strong performance in the first quarter, but we've ticked up the rest of the year as well.

All right. Great. And then -- so first of all, 10 years of your life is a very significant contribution. But on the other hand, man, we hate to see a good CFO go. So we would love to have you for 20. I'm sure Morken would, too. So why now? And what do you do -- yes, right, exactly. So why now, Jeff? And what do you want to do next?

Appreciate the question, Pat. So it's been a phenomenal time here. I've enjoyed it. I love Bandwidth. I always will. I'll be cheering on after August from the sidelines. I've always been taught and I always believed you should leave some place better than how you found it. I hope I've accomplished that. But when you look at the timing, we're emerging from the pandemic, the U.S. in particular doing pretty well. The balance sheet is very strong, so 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 on timing and for me, life is lining up pretty nicely. In September, it will be my 25th -- mine and my wife's 25th wedding anniversary. So hope to do something special for that, take a little break and then figure out what adventure is next for me.

The next question comes from Meta Marshall with Morgan Stanley.

This is [Ron] on for Meta Marshall. I guess I have 2 quick questions. First one would be, is there any additional context you can give for any growth or traction you're seeing with your direct routing solution with Microsoft?

Nothing specific that we didn't talk about generally in 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, Azure Communication Services, Direct Routing and Operator Connect, where we will soon be in that cohort. So we've got 4 different wonderful ways that we are powering something like 150 million global Teams seats and Microsoft users. So the future is really bright for us regarding our Microsoft relationship, and we're really happy to be working with them.

Got it. That's helpful. And then just a quick question on Voxbone. Is there any foreign exchange impact that we should know about or be mindful of?

There is some foreign exchange impact. Obviously, since November 1, we expanded to 60 countries, and so there is more to it. It was not a big driver within -- in the quarter, though, and we'll call that out in the future if it is.

The next question comes from Steve Enders with KeyBanc.

Great. I just want to get a better sense of what you had built into the revenue guidance for the rest of the year and into the back half. I know you said earlier that there was a little impact that you're still seeing from COVID impact. But I guess, what's kind of built into the expectations in the second half 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 a lot of that is driven by digital transformation. I think also the pandemic is playing a role here, and that hybrid-work environment that we mentioned on an earlier response are driving all those things too. And so we expect continued growth. At the same time, we recognize and acknowledge we've got some hard comps in the second half of the year, not only from COVID, 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 maybe for David. Just kind of wondering what your -- good to hear about the Voxbone crossover win with a Bandwidth customer in the U.K. insurance company. But just kind of what you're seeing with the cross-sell opportunity today, has anything surprised you there yet since you have a full quarter under your belt with Voxbone?

I'm proud of the sales teams who are collaborating and working together on global opportunities. That coordination has been challenging, given that those teams are remote, unable to travel. Very proud of the work that we've done to really build pipeline for the Bandwidth international product that comes from the Voxbone acquisition. In the quarter, it's still early. We're making strides. I think there's a lot more upside that we will see in the future. But no significant surprises, just lots of pride in the work that's being done.

The next question comes from Mike Walkley with Canaccord Genuity.

This is Daniel on for Mike. Just wondering if you could provide some color for us on what's driving the really strong 125% dollar-based net retention rate. Obviously, over time, this should trend down as customers adopt more solutions. But just wondering if you guys could frame for us how we should think about this moving forward.

I'll begin and then invite Jeff to add on, and was it Daniel?

Yes.

Terrific. I think 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 a broad groundswell of adoption and usage across our platform. So it's not just a single customer or a concentration of customers, nor is it just a single product. I think it's illustrative of customers continuing to believe in what we do and also testament to providing world-class enterprise service. When we keep our promises, it really encourages customers to use us as a primary or almost all their business globally.

And so we're excited about keeping those promises and growing with our customers. And we hope that, although your question suggested it would go down over time, we'd like to see it continue to stay buoyant. Time will tell, but really proud of how the team has continued to win business from our existing customers who know us the best, but with that, let me pause and ask Jeff to add.

Yes. I think that was pretty comprehensive. The only thing that I would add is, as a usage-based business, 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 I'd say things are going according to plan, which is great.

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