BAND - Earnings call transcript Q3 2018

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Operator

Greetings, and welcome to the Bandwidth Third Quarter 2018 Earnings Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Marc Griffin. ahead. go Please

Marc Griffin

With Bandwidth's, afternoon, earnings David good announced to for third market They Hoffman, then Bandwidth. Executive Bandwidth's Officer; our begin call Thank Today, and open we we'll Q&A. will with prepared the this Chief Morken, XXXX close. the and Officer after up Financial call. release results on afternoon be quarter Chief the is press you, then call issued of welcome me will discussing in Jeff remarks the and

execute During statements our quarter the to ability financial considered regarding statements related the plan other call, we and on existing fiscal customers will prospects. maintain to and of our XXXX of make our forward-looking, growth new business statements to year strategy, guidance concerning and fourth our full be our that the plans acquire and for may XXXX, including is

identified we only These such views may words, as, obligation subsequent often statements as of of today expect, revise as reflect be statements be and or undertake forward-looking should these any we considered Forward-looking to no We not statements. upcoming. our with our or date. anticipate update views

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

the section XX-K at website contained by of our the factors bandwidth.com, affect updated Relations SEC.gov. of our could filings in all other on actual XXXX, that website on For refer at available discussion which important risks please to material our on SEC and a those and of February Investor SEC's other results, are as filing XX,

that, release A website to we and course financial issued on SEC's of is after to at of of the call today, With our close press included me which today's at located over non-GAAP turn to GAAP Finally, let the reconciliation refer market website in non-GAAP will sec.gov. our David. at bandwidth.com is during the the call, certain measures measures.

David Morken

joining us you, Thank Marc, and today. call the to on for everyone thanks

exceeded metrics. all guiding third the quarter, we again During expectations on

total Our CPaaS revenue increased $XX.X million. year-over-year XX% revenue of driving

to retention continue successfully our and our net rate. XXX% by existing customers dollar-based We as serve grow demonstrated

platform with and active CPaaS growing to XX% customer CPaaS continue attract software new voice CPaaS IP network our Our year-over-year. customers base

quarter unique are our of We which service very through the offerings, serve. platform all diverse has We needs broad inventive solutions comprehensive provided integrated a pleased customers. across and to with based complex which third strength our yielded execution, of vertically addresses enterprises that are we enterprise deliver that set our

As a to result, for these case, to by for enterprises just years. for And our it common powered platform, Bandwidth. customers Microsoft innovate such tenured a long Google as our many; and customer customer with many have over or use but not is have experiences a will single continued customer grow use platform our numerous

During enable Google voice voice our meetings. for APIs voice this using their services IP last calling G within quarter, example, nationwide and G Suite software network added capabilities flexible Suite to for

reliability enterprise superior creative and build, for teams with platform scale easy software Our to enterprise and it communication quality, makes deploy accountability.

provider Fortune to XXX entered applications, continued We relationship into new quarter. a also during well center We the a with demand services various services customers which for our as see leading new cloud-based from companies. of call

Bandwidth instantly contact free to via numbers the the market, center to partner capability activate seek and providers APIs. cloud As continue in at software and toll manage local provide they scale a to penetrate

for voice is quality enterprises such serving high contact paramount centers. reliable Additionally,

consistent visibility high enterprise quality IP distinct scale. support, network, that which of Our we us network economies depth and real-time own competitive advantages operate voice nationwide, and provides in include

relationship with increased quarter. pace this free with Last Messaging a messaging Bandwidth scalable, accurate to an on which that emergency to with offerings, customer experience messaging instantly a services growing utilizing services a new comprehensive e-commerce and In promotions. grade that direct offers per large connect reliable in messaging applications call Bandwidth’s software for We emergency demand two saw we integrated only continued to Enterprise voice Bandwidth features or AXP voice with XXX voice enterprise and SMS, third our messaging product company numbers capacity demand. to can for solution, our routing. keep support. reliable the toll we thousands is Built the and text way with deliver addition customer discussed flexible services. services is to second messages messaging quarter, combines intuitive and platform services of

called by emergency future native location of services home. detects entered For that devices, automatically location their Internet Bandwidth and security from when the enterprises of services to customers use than phone controlled both their location with residential personnel to or a with this smart from smart would coordinates, emergency route dialers Whether dialing and the camera residence based rings, XXX to to on whether XXX access voice the consistent example, our seamlessly location from the current at appropriate customer's Companies a access Y homes to or route add motion X, relationships emergency into to appliances. the their doorbell to based Without of able leading providers find physical platform a voice activated is users rather things end home to security have connect in quickly. anywhere. is on we more frequently of offer technology, choose

Our enterprises extend to complete support our services platform the serve. and network trusted from world class we for

continuous sales customer hired At building across help cost, additional interactions. have our over and achieved increased rapid our additional include personnel plans period during development and join for customer us for make technology those enterprise and headquarters room remain with satisfaction to of has of to within in the It for succeed support Bandwidth. our We track satisfying the maintain of in recently on expanded tens have gather growth customer a vital continue improvement. marketing customers feedback especially level here dedicated of additional teams that our no XX% all capabilities. will of satisfaction have high thousands been Carolina team our third We an and customer significantly the quarter that North future. our provide We expanded to in we for to Raleigh, hiring Bandmates to

are learning We our discovering path expanding best markets. making services in excellent progress international and our to

serve with ongoing from mention that markets. in them to having did our on I better to to hurricanes new cause engaging We execution and conducting forward understand are regulators abroad look any onto to and any Michael learning how and business Florence ahead. We our best moving the with for whatsoever customers also are of requirements not existing to in conversations impact services. months wanted aspect partners

and the software strategically Our voice network nation. platform redundant multiple are designed purposely across to IP be centers located data with

customer network operating diagnose XX/X. the To Additionally, center staffed network which and the network, maintain said we extent of health locations network and fortunate. any and communities as and our often a teams local so prior during platform any our to our of at to emergencies, headquarters Raleigh part were not operations identify, own are them the our monitor That issues solve impact. control two arise, other can

been We're and many and Bandmates, a praying grateful who impacted all have hand been our volunteering. hurricanes, lending have for to were to who We Michael. by Florence

before wanted XXX a companies. directors. Managing comment our than will of development Roush that and has more decade to our commercialization scaling board as changes and a at an we extensive hand Sovereign's His Director. focus on Capital We experience business over Co-Founder and an in and Independent global today venture-backed board Jeff, Lastly, to has be business. I Fortune asset experience Partner our Bandwidth announced to on at Luke I joined to it is as of Luke

that to and to Sovereign's my of shaped his build it him Co-Founder the down more colleague, also have how has of let importantly, helped partner want Hoffman, have Henry financials. details is Additionally, of me the over my friend, aspect on as that, every Bandwidth great provide and we board. business. my Capital I stepping thank Henry today. it bottom for be Luke's everlasting to into With Partner heart of our contributions the Jeff Bandwidth company and from turn amazing colleague Co-Founder will at been co-founding who Managing Kaestner, from a conduct and

Jeff Hoffman

David, everyone. Thanks, good and afternoon

will a detailed outlook for today, provide our financial overview performance and more I XXXX. the quarter provide call then of full quarter year third the On our and fourth

remarks, will open to the questions. call my Following your we

results highlighted by Bandwidth for than expected all performance better strong guided another metrics. across was quarter Third

enterprises demonstrate financial XXX robust and Our business to their voice continue a model services. products and results as into messaging embed

verticals all customers and XXXX continues across our to relationships expanding from be in offerings. to primarily customers growth driven see continue in strength we existing Our many by with

our of results new by were bolstered CPaaS addition customers. Additionally, the

was our guidance $X above million $XX.X and range. revenue quarter, of We with remaining of million, revenue year-over-year XX% XX% the range. third total the higher ended quarter XX% revenue, to up above contributed third revenue. the quarter year-over-year. third X,XXX our from CPaaS revenue was $XX.X During $X.X than million, total of end Within $X.X and up indirect the high year-over-year up our guidance million the million million end Other of CPaaS the accounts, and than revenue customer anticipated active was total high $X.X more to XXXX the due

compared to XXX% rate the In quarter addition, our XXXX. retention dollar-based XXX%, during net of was third

I metrics, be like would out profitability will discussing to onto point I results moving non-GAAP Before forward. going that

can the financial and between GAAP full results earnings along in be GAAP Our non-GAAP results reconciliation release. our with found

profit, third XX% $XX.X third XXXX. with XXXX, the gross $XX.X million the of and compensation gross quarter margin quarter achieved up we gross non-GAAP for using in XX% which line was in depreciation, and of Our the a from the excludes margin stock-based million, of

Our to our current purposely our we invest as continue proceeds results tracking business. are scale margin to to IPO gross plan

million period million year, operating Third strong GAAP net shares gross XXXX. income the same from tax our third expenses, profit in on outstanding million of was by benefit offset growth. primarily option quarter or in our to $X.XX increase personnel support during revenue an $X.X for quarter $X.X average On adjusted $X.X reflects basis, the million includes our diluted investment reported performance, which by and compared income EBITDA a based driven a to million, last This share we per $X.X XX.X exercises. weighted stock

variance, loss Non-GAAP primarily gross well non-GAAP net tax net to to adjustments. profit favorable the excludes expenses. million income The was benefit $X.XX compared higher to of of in third as is This million of share. well loss of weighted or $X.XX our per non-GAAP net was average million shares for share quarter third loss net loss a outstanding. loss guidance per these due exercises, as G&A basic XX.X tax and from Our our stock above option a as the $X.X impact $X.XX on guidance, based $X the lower quarter

$X.X $X.X During the generated million from free as cash of capitalized property cash in equipment, well development flow, third quarter, for operations we purchases and in million costs software internal as use. and includes net which

to with our with like year XXXX. some the Now thoughts I'd finish beginning financial regarding full outlook,

to $XXX.X million In of the terms the our increasing in to of XX% of growth $XXX.X CPaaS we range of midpoint full-year be at revenue, range. are or the guidance million,

XXXX assumes million. be $XXX.X XX.X to We per weighted revenue are share. outstanding for million. expected diluted per million is range approximately increasing in of to $X.XX $X.XX shares This our the range to be outlook of share, Non-GAAP in total approximately the earnings average to of $XXX.X

million, of CPaaS $XX.X quarter range our the year-over-year to in at midpoint the up for million guidance or expect be of XXXX, of range. we the revenue Turning $XX.X the fourth to to XX%

the by total expected be is share, $XX.X to range $X.XX million million to we outstanding quarter. with share. be and the XX.X pleased of of $XX.X to in average growth our expansion in $X.XX earnings customer basic range million. Non-GAAP This performance to a the be our revenue assumes of outlook per as relationships. weighted business fourth evidenced We the loss per continue expect of Overall, for to shares revenue of approximately

I will we Q&A the We call develop mission have making on a the tremendous progress With to communicate. the are portion our now power for of by operator deliver hand to excited and the call. us are to the that, back opportunity and the ahead of

Operator

of this a proceed conducting At KeyBanc question-and-answer line Capital Markets. Our Bracelin Please first Brent the time, your from be question. [Operator session. with Instructions] question we'll from comes

Clarke Jeffries

outside then relationship is software they first is space? partner? question cloud-based relationship of previously? they're dual from a CPaaS And mentioned, CPaaS a time on communications for the you on just center it’s a that in vendor David, call a sourcing moving Is for first already terms you Jeffries unified Clarke had the Hi, partnership this sourcing to that that this and a of with Brent.

David Morken

displace to first your enterprise the And contact in have space, providers. question. Clarke that various answer across one the in as it the multisource the incumbent space we serves They center is did commonly is not customer part that experience bandwidth. of had selecting the an enterprise

Clarke Jeffries

then a And great. question Alright, Jeff. for

we continue for in other mentioned Are investments to second of that maybe bit the G&A rec see think maybe G&A as expenses quarter? you the upside QX of we see You frame this little of I rev into year. terms more ongoing the profitability. expenses higher? half in going Could to and a fourth

Jeff Hoffman

I'm Clark, respond Yes glad that. to to

serve development. look team operating go roadmap how research with to current sort you’ll able start particularly just be of driving to only developers, I'll and we from add we to with customers, customers like. our that our there, continuing future bottom, grow. and better the to continue So not what's this we're expenses, to at our when and And software top our going can engineers is and We're see to

see will the on going hire also continue as year all headcount we there. to to You plan us what we've we're deliver and on sales that outlined

and fourth a see And a in bit other year, in quarter, to this We will as expenses we expect growth that growth customers. with sales marketing some some serves half last should were you ringing we as then ASCXXX, about the in lumpiness. finally, doing security should little on was doing we that too. what are it in be up. enterprise second more how And things projects There continued That other business some acutely that quarter of call, we're on there's routine quarter. of that shaping like you so G&A. the And have quarter's well the as do see fourth talked also and that’s fourth

Clarke Jeffries

much. Thanks Alright, great. very

Operator

Pat from next proceed Securities. comes JMP your question Our of line from Please with question. Walravens the

Pat Walravens

first signs results of Oh, concerns? macro think out But I specifically and great. any of of I question anyways. Thanks in strong sort you very much. to want I spending Did just it. guess answer your it my ask see hesitation because probably there

David Morken

David. this Pat, is

or I've reflecting timeframe a that of extended the for moment, decision a withdrew engagement particular that the top wasn't enterprise Just mind. got from there market

with So have an variables well more don't that see volatile. that certainly engagement. macro environmental testimony I corroborate could individually

Pat Walravens

on the guess love I international. to thanks. then And I Okay, David, would hear more perspective

is it you, fit? priorities, call. all, of about Is of on First you every I it mean, talk how sort important set in to – it your of it where does

David Morken

valuable extraordinary U.S. than fits so customers, as upside enterprise to outside large many communication existing It who because in and partners on them the various United they with States our services important of in countries the more strategically it's spend do

and partners do years deploy around we then the that to tenant with whom so long are world. U.S. with relationships and and anchor And innovate if the them the have so enterprise demand many existing doing we we following leveraging have in we right, hopefully, well source, it with

to it's because have will our jurisdictions. importantly of us instead it come, they build other us serve please important told and customers us in So

Pat Walravens

hardest And that up Okay. follow my is then the on part? what's

David Morken

for being to the can part we're promise which different that we light and make sure of we've customers and that environments quality promise network in in Jeff these on that and consistent enterprise regulatory hardest sure to customers that with integrated United an do our is value. platform that the fashion and The making navigating I and building having strategy keep both in and terms a this value is a built that CapEx States me means

the right We want I to comments, and the help it to to of learned tempted name think faster and do don't network with something my amount execute. close of and the to and we aspects And platform couple an the getting some we've to and in an together of you doing that be just enormous approach. as IP sometimes right mentioned that's additions settle great can in starting team

Pat Walravens

great. quarters mean bit. three it's the future? what chart XXX%, about but last one net How we it should Right, great, went for a if the retention down little so quick everything, it dollar the or XXX% is I does on you, XXX%, think then XXX% and based right a XXX%, Jeff, is my up now so rate, And back in

Jeff Hoffman

Pat. Great,

that's And common your is So this numbers in something are business really right. usage based revenue a as ours. such

in lot You'll go see well this things and fluctuations into metric of usage as as that can a kind that. there's of

We What too team look to do. at a that we one read into don't on is get the much quarter. up management do quarter. down annual wouldn't or we I based comparisons So

than posted of that sort in a we that better year And ago. at look do XXX% any that there. out will so quarter be this that posted XX% waviness would And XXX% because we we the is the smooth that

Pat Walravens

great. you. Okay, Thank

Operator

from Our proceed from next Please Marshall of question Meta question. line comes Morgan Stanley. with your

Meta Marshall

thanks. Great,

be, I it investing gross areas metric? contributed in to improve about into that if that have usage any gross would I'm of diving were smaller a maybe large a products of right. they little would or kind And of is increased using kind step of another customers Just if of kind same just kind trends down influencing of you guys margins, gross maybe some usage product talk then or just as kind the but second, purely know net that imply about been it one could your of margins or the far that bit, retention you continue customers deeper anything or in guide to margins, way thinking as kind

Thanks. R&D of that So the understand thinking you of gross be guys about we how trying should to doing? are some pacing just and margins

David Morken

and margin. your about to In Thanks, utilization rate sources it what I'll services net our the of are, turn then terms retention of part broad set Jeff diverse the regard Meta. question it is of first across the is gross and enterprise take to over question offer. customer David. it your This in and we for

So and services but growth In across and that And rate the a at - question. net the we are level service. for causing for voice to on investment enterprise up Hoffman, it's A the first consuming cases, new isn't and board some seeing for at. on single messaging emergency are Jeff there pick be a in the time, margin that platform retention particular the larger driver then gross I'll them customer the is

interpretation on the margin quarter right. I So, quarter, even annual fourth XX%, reoccur down third segment. margin your quarter. overall bit. fourth the which see that in better more a made that little guidance won't is our the had We primarily based of in other We you're of third indirect revenue It in think quarter in It's XXXX.

are And the CPaaS continuing blocks each the of margins we to at investments. total to point same continue driver. and the so buoyant, would I that say beneath word quarter. we that's out make once possession do IPO our did right in that we proceeds We the primary but that of remain the had

And generally year yielding our and margins pressure margin that point that the have we’ve same expansion we're net as and a capital downward sort so fruit the of offsetting the at flat we some guided. to for bared there's of as with those have of work putting still

Meta Marshall

maybe that leads had pre-IPO. maybe XX the the Got or customer customers customers examples, this maybe beginning so started XX gave saw year been to the I of you quarter, those harvest of of of And couple at kind the you just it. new already XX would how the composition jumping then have versus is you know but customers of maybe a changing of kind on,

David Morken

because which constant third composition quarter prior lead remain customers with the periods derive that relatively is on sources largely the period. boarded from we throughout customers The consistent the these of in

haven't fishing ponds. new We gone in

which We database from really business hunters, now medium-sized have desk, but strategic customers curated increased for about will the the into sales are a of focusing future, capacity the we XXXX. the be Fortune XX,XXX which our on the and then yield on out right

the those how no years or for in difference Meta will expectation come. on the so of be composition customers And productive significant to us terms in

Meta Marshall

Nice Got it. quarter. Thanks guys.

Operator

from question question. next from Our Canaccord. proceed of comes the Richard Please Davis your with line

Richard Davis

could kind a It a have so of foundation Thanks. good voice in be and of kind strong guys SMS. presence in CPaaS brief. But

do know there there? of to big, but that CPaaS, your you areas thoughts seen, and what's One What your of plans be don't what think that is area? the extent Thanks. will we've I that video what

David Morken

Thanks, Richard.

of platform We knowledge opportunity have the to worker emergency do video and historically our experiences that's messaging greatest not and and are include of service Skype be video BlueJeans, a with We familiar strategy. I some for in productivity that usage Teams to Suites, many for considered the voice for video provide Microsoft based rich you're and attractive whether network experiences to XXX, it's Webex, Google or conferencing workplace. think those Office Cisco Business are the Zoom, who those

So been think best voice And our has to video. years sure to services and messaging. should be expect ahead the both that's the our to in to to that what complement choice make continue you relative strategy strategy are I we experience with

Richard Davis

I Lego That’s a questions quickly, guys. those XX% like like, U.S. you was internationally, scenario about increase cost think Pat from number have kind or kind then of numbers either think one kind got U.S. into the guys even way do some of phone of numbers. effective investors but a you and look, how Is that? I to that of asked a round of this there And block is

David Morken

Verizon, phone of there's American other, between remains finding almost of think strategy. number of numbers the question, network, an up over on as and a large porting That answer and porting that powerful and for customers that XX% net third-party Does remain AT&T that serve, and We existing on call these and say numbers our of the as completing to into we they more enterprises quality as to garden in out that call provider. on which net to for the more climb from numbers. more the be that's legacy our benefit and when production valuable numbers network those of complement phone cost function continues And incremental a effects, no is large CenturyLink financial are customers numbers about network to calls providing number in support the each plan of right from IP to all Richard? platform dialing fundamental than having North extraordinarily services we walled our in your

Richard Davis

Yes, perfect. Thanks so much.

Operator

Ladies and we have the session this the end gentlemen, concludes conference. and of reached question-and-answer today's

your You for this may disconnect participation. time. lines you your at Thank

Bandwidth (BAND) 30 Oct 182018 Q3 Earnings call transcript